<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
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
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock (2).................................. 2,300,000 $10.00 $23,000,000 $6,969.70
Representatives Warrants.......................... 145,000 $.001 $145 --(3)
Common Stock Underlying the Representative's 145,000 $12.00 $1,740,000 $527.27
Warrants(4).....................................
Total............................................. -- -- $24,740,145 $7,496.97
</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 300,000 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 anti-dilution
provisions of the Representative's Warrants.
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 August 12, 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
2,000,000 SHARES
TOYMAX INTERNATIONAL, INC.
COMMON STOCK
------------------
Toymax International, Inc. (the "Company") is hereby offering 2,000,000
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 $10.00 per share of Common Stock. The initial public offering price of the
Common Stock will be determined by negotiations between the Company and
Fahnestock & Co. Inc. (the "Representative"). For information regarding the
factors considered in determining the initial public offering price of the
Common Stock, see "Underwriting." The Company intends to apply 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
Representative's non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 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.
<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".
<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 ON , 1997. 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 $3.5 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 manufacturing levels on new products
3
<PAGE>
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, (iii) expanding its product concept preview process with selected
retailers and distributors and (iv) halting the purchase of raw materials for
manufacturing and delaying its commitments to inventory production. 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 $22.9 million as compared to net sales of
approximately $9.8 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.......... 2,000,000 shares
Common Stock to be Outstanding After the
Offering................................... 9,500,000 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 (340,000 have been granted, 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) 145,000 shares of Common Stock reserved for
issuance upon exercise of the Representative's Warrants. See "Management --
1997 Stock Option Plan" and "Underwriting."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993(1) 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 33,393 $ 72,431 $ 70,623 $ 43,622 $ 54,683
Cost of goods sold............................... 18,730 37,518 42,640 30,601 33,837
---------- ---------- ---------- ---------- ----------
Gross profit..................................... 14,663 34,913 27,983 13,021 20,846
Selling and administrative expenses.............. 9,112 21,525 27,121 24,641 17,878
---------- ---------- ---------- ---------- ----------
Operating income (loss).......................... 5,551 13,388 862 (11,620) 2,968
---------- ---------- ---------- ---------- ----------
Other income (expense), net...................... (273) (225) (332) 300 228
Interest expense, net............................ (418) (483) (460) (738) (394)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and minority
interest....................................... 4,860 12,680 70 (12,058) 2,802
Provision (benefit) for income taxes............. 1,398 4,818 (198) (2,254) (681)
Net income (loss)................................ $ 3,462 $ 7,862 $ 268 $ (9,804) $ 3,495
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per common share (2)........... $ .46 $ 1.05 $ .04 $ (1.31) $ .47
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average common shares outstanding (2)............ 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
--------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................................... $ (1,987) $ 14,013
Total assets............................................................................ 26,367 30,367
Total debt (including short term and current maturities)................................ 8,493 2,493
Total stockholders' equity.............................................................. 403 16,403
</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
$9.00 per share and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds."
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. For fiscal 1997, the Company's
five largest customers accounted for approximately 69% of the Company's net
sales. Only sales to Toys "R" Us exceeded 10% of the Company's net sales during
the same period. 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 in sales, would have a material adverse
effect on the Company's financial condition and results of operations. See
"Business--Customers."
8
<PAGE>
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% of the Company's
revenue in fiscal 1997. In particular, the Company relies heavily on its Laser
Challenge product line. Sales for this product line accounted for 48.6% of the
Company's sales in fiscal 1997 and are expected to account for a significantly
greater percentage of fiscal 1998 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, one manufacturer, Jauntiway Investments Limited
("Jauntiway") accounted for approximately 85% 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 handles all purchase orders for the Company, and assists the
Company in product testing. 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 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
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Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Business--Purchasing and Manufacturing," "Principal Stockholders"
and "Certain Relationships and Related Transactions."
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; 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 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.
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. 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
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<PAGE>
a negative impact on the Company's margins and a material adverse effect on the
Company's financial condition and results of operations. 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 62.5% (75.6% 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 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
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<PAGE>
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 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
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<PAGE>
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 37.5% 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."
CONTINUED LISTING ON NASDAQ NATIONAL MARKET. The Company intends to apply
to have the Common Stock quoted on the NASDAQ National Market (the "NMS"). The
Company believes it will satisfy the initial listing requirements for the NMS.
However, the NMS has proposed a series of more stringent requirements which, if
adopted, are expected to be applied on a retro-active basis and would be
applicable to the Company if it is quoted on the NMS. Currently, the Company, on
a post-Offering basis, does not meet the net tangible assets requirement (total
assets less goodwill and total liabilities) set forth in the proposed listing
requirements. Although the Company believes it will satisfy this proposed
standard by such time, if any, as the NMS requires compliance by the Company,
there can be no assurance that the Company will be in compliance. As such,
implementation of the new requirements could cause the Company to be de-listed
from the NMS. Such de-listing could have a material adverse effect on the price
and liquidity of the Company's Common Stock.
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."
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 $7.27 or 80.8% per share. See "Dilution."
CONTROL BY EXISTING STOCKHOLDERS. Following the closing of this Offering,
the Company's current stockholders will beneficially own approximately 62.8% of
the Company's outstanding Common Stock (60.9% 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."
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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 9,500,000 shares of Common Stock outstanding
(9,800,000 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 2,000,000 shares of Common Stock offered in the Offering (2,300,000 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 Representative. 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 Representative. 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."
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
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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. See "Description of
Securities--Delaware Law and Certain Charter and By-law Provisions."
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.
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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 Toymax NY and Toymax UK to
the Company and (ii) the stockholders of Toymax HK will exchange all of their
shares of Toymax HK stock for substantially all of the shares 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, 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 2,000,000
shares of Common Stock offered hereby, at an assumed Offering price of $9.00 per
share, are estimated to be approximately $16.0 million ($18.5 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......................................... $ 6.0 37.5%
Payment of Trade Payables to Affiliates.............................. 6.0 37.5
Working Capital and General Corporate Purposes....................... 4.0 25.0
----- -----
Total............................................................ $ 16.0 100.0%
----- -----
----- -----
</TABLE>
PAYMENT OF BANK INDEBTEDNESS. Approximately $6.0 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 $6.6 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 March 31,
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 $9.5 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 $4.0 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 $2.5 million, which will be added to the
Company's working capital. 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 March 31, 1997, the Company had a net tangible book value of $0.4
million, or $0.05 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 March 31, 1997, other
than to give effect to the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed initial offering price of $9.00 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 March 31, 1997 would have been $16.4
million, or $1.73 per share. This represents an immediate increase in net
tangible book value of $1.68 per share to existing stockholders and an immediate
dilution of $7.27 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...................... $ 9.00
Net tangible book value per share before the Offering......... $ 0.05
Increase per share attributable to sale of shares to new
investors................................................... 1.68
---------
Net tangible book value per share after the Offering.......... 1.73
---------
Dilution per share to new investors........................... $ 7.27
---------
---------
</TABLE>
The following table sets forth as of March 31, 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 $9.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
Existing stockholders(1)............................ 7,500,000 78.9% $ 57,692 0.3% $ .01
New investors....................................... 2,000,000 21.1 18,000,000 99.7 9.00
---------- ----- ------------- -----
Total........................................... 9,500,000 100.0% $ 18,057,692 100.0% $ 1.90
---------- ----- ------------- -----
---------- ----- ------------- -----
</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 March 31, 1997, and as adjusted to give effect to the Offering (at an assumed
initial public offering price of $9.00 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 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 MARCH 31, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................................................... $ 565 $ 4,590
--------- -----------
--------- -----------
Total debt, including short-term debt and current maturities............................... 8,493 2,493
--------- -----------
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 9,500,000 issued and outstanding, as adjusted(1)................................. 58 78
Additional paid-in-capital............................................................... 0 15,980
Retained earnings........................................................................ 360 360
Foreign currency translation adjustment.................................................. (15) (15)
--------- -----------
Total stockholders' equity................................................................. 403 16,403
--------- -----------
Total capitalization................................................................... $ 8,896 $ 18,896
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Does not include (i) 750,000 shares of Common Stock reserved for issuance
upon exercise of options granted (340,000 have been granted, 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) 145,000 shares of Common Stock reserved for
issuance upon exercise of the Representative's 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 is derived from the unaudited consolidated
financial statements of the Company. In the opinion of management, the unaudited
consolidated statement of operations for the fiscal year ended March 31, 1993
has 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 the
fiscal year ended March 31, 1993. 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>
FISCAL YEARS ENDED MARCH 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 33,393 $ 72,431 $ 70,623 $ 43,622 $ 54,683
Cost of goods sold............................... 18,730 37,518 42,640 30,601 33,837
---------- ---------- ---------- ---------- ----------
Gross profit..................................... 14,663 34,913 27,983 13,021 20,846
Selling and administrative expenses.............. 9,112 21,525 27,121 24,641 17,878
---------- ---------- ---------- ---------- ----------
Operating income (loss).......................... 5,551 13,388 862 (11,620) 2,968
Other income, (expense).......................... (273) (225) (332) 300 228
Interest expense, net............................ (418) (483) (460) (738) (394)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and minority
interest....................................... 4,860 12,680 70 (12,058) 2,802
Provision (benefit) for income taxes............. 1,398 4,818 (198) (2,254) (681)
---------- ---------- ---------- ---------- ----------
Income (loss) before minority interest in net
loss of subsidiary............................. 3,462 7,862 268 (9,804) 3,483
Minority interest in net loss of subsidiary...... 0 0 0 0 12
---------- ---------- ---------- ---------- ----------
Net income (loss)................................ $ 3,462 $ 7,862 $ 268 $ (9,804) $ 3,495
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per common share............... $ .46 $ 1.05 $ .04 $ (1.31) $ .47
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
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
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital (deficit)..................................... $ (1,288) $ 3,532 $ 1,479 $ (6,123) $ (1,987)
Total assets.................................................. 13,062 27,659 25,542 22,127 26,367
Short-term debt............................................... 644 3,448 2,487 4,013 8,447
Long-term obligations (including current portion)............. 35 182 206 119 46
Total stockholders' equity (deficit).......................... 631 7,144 6,712 (3,092) 403
</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.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Net sales......................................................................... 100.0% 100.0% 100.0%
Cost of goods sold................................................................ 60.4 70.2 61.9
--------- --------- ---------
Gross profit...................................................................... 39.6 29.8 38.1
Selling and administrative expenses............................................... 38.4 56.5 32.7
--------- --------- ---------
Operating income (loss)........................................................... 1.2 (26.7) 5.4
Other income (expense), net....................................................... (0.4) 0.7 0.4
Interest expense, net............................................................. (0.7) (1.7) (0.7)
Income tax benefit................................................................ 0.3 5.2 1.3
--------- --------- ---------
Net income (loss)................................................................. 0.4% (22.5)% 6.4%
--------- --------- ---------
--------- --------- ---------
</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."
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 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.
22
<PAGE>
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 $6.8 million, or 27.4%, to
approximately $17.9 million, or 32.7% 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 $14.6 million to approximately $3.0 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 $14.9 million to income of approximately $2.8 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 $13.3 million, or 135.7%, to net income of
approximately $3.5 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.
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
23
<PAGE>
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. In addition,
these costs included certain expenses related to the scale-down of these
operations which was ultimately closed in early fiscal 1997.
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.
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.
24
<PAGE>
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, 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 for payment of dividends in fiscal 1996 which were declared in fiscal
1995.
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 $9.9 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 $3.5
million adjusted for a total of $0.3 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.
25
<PAGE>
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
August 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."
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 March
31, 1997, the outstanding balance under the State Street Credit Facility was
$8.4 million as compared to $4.0 million and $2.5 million at March 31, 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. At June 30,
1997, the aggregate outstanding balance under the State Street Credit Facility
was $6.6 million and 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 $6.0 million) of the proceeds of the Offering. The State Street
Credit Facility is terminable by State Street 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").
26
<PAGE>
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 $5.1
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 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.
Tai Nam's duties include handling purchase orders for, 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, 1998, subject
to automatic renewal unless either party terminates the agreement on three
months prior written notice.
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
27
<PAGE>
(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.
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. 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) (2,373) 2,198 784 2,359
Income (loss) before
income taxes....... (6,213) 522 (4,047) (2,320) (2,192) 2,317 611 2,078
</TABLE>
28
<PAGE>
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.
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.
29
<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 $3.5 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 manufacturing levels 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, (iii) expanding its product concept
preview process with selected retailers and distributors and (iv) halting the
purchase of raw materials for manufacturing and delaying its commitments to
inventory production. 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
30
<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
31
<PAGE>
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
32
<PAGE>
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 $22.9 million as compared to net sales of approximately
$9.8 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
33
<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
-------------------------------
<S> <C> <C> <C>
PRODUCT CATEGORY 1995 1996 1997
- --------------------------------------------------------------------- --------- --------- ---------
Action Toys.......................................................... 0.0% 0.0% 48.6%
Children's Activity Toys............................................. 87.3 83.0 34.4
Girls' Toys.......................................................... 3.4 12.9 7.8
Other................................................................ 9.3 4.1 9.2
--------- --------- ---------
TOTAL................................................................ 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 Mutant
3-D Creature Kit Mold Packs; 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
</TABLE>
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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 $7.00 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
36
<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.
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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.
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. 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 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 Chevrolet Motor
Division, General Motors, for the use of the
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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.
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>
(IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
SALES 1995 1996 1997
- ------------------------------------------------------------- --------- --------- ---------
U.S. Domestic Sales.......................................... $ 55,264 $ 26,951 $ 38,793
Toymax HK Sales.............................................. 15,359 16,671 15,890
--------- --------- ---------
Net Sales.................................................... $ 70,623 $ 43,622 $ 54,683
</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% of sales in fiscal 1997. Mass merchandisers including
Wal-Mart, Kmart and Target accounted for 26.3% of sales for the same period.
Department stores and catalog companies including JC Penney and Service
Merchandise accounted for another 1.9% of sales in Fiscal 1997. 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.
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
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opportunities. In fiscal 1995, 1996 and 1997, Toymax HK Sales accounted for
21.7%, 38.2% and 29.1% of net sales, 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% of the
Company's net sales in fiscal 1997. Only Toys "R" Us accounted for more than 10%
of net sales during the same period.
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.
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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 (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 handles all of the
Company's purchase orders for its products and handles all shipping documents,
the handling and clearance of letters of credit and bills and payments, serves
as liaison with manufacturers and 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.
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
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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. 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, 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.
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 Quingxi, 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 Quingxi. 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 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 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
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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."
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.
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 calendar third and fourth 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 calendar first and second 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
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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 June 30, 1997, was
approximately $37.2 million, compared to $21.5 million at June 30, 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. Moreover, 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.
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
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<PAGE>
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.
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 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
May 1, 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.
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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. Although the Company believes
there is no merit to this claim and intends to defend the action vigorously,
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. 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........................................ 37 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
</TABLE>
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 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
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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 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
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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.
The Board of Directors currently consists of three members. Prior to the
closing of the Offering, the Board of Directors will increase to five members.
The two additional directors will not be officers or employees of the Company or
any of its affiliates.
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."
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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 ______ 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 Mr. Chu and
the two independent directors who will be elected prior to the closing of the
Offering.
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 Mr.
Chu and the two independent directors.
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 $100,000 during any such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
<S> <C> <C> <C> <C> <C>
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ------------------------------------------------- --------- ---------- ----------- ------------- ---------------
David Ki Kwan Chu, Chairman (1).................. 1997 $ 0 0 $ 240,000 $ 0
Steven A. Lebensfeld, President.................. 1997 $ 105,500(2) -- 6,000(4) 867
Harvey Goldberg, Executive Vice President 1997 $ 240,300(3) -- 6,000(4) 544
Kenneth Price, Senior Vice President............. 1997 $ 265,000 -- 6,500(4) 399
Carmine Russo, Chief Operating Officer 1997 $ 160,000 -- 6,000(4) 4,228
</TABLE>
- ------------------------
(1) Mr. Chu received no salary from the Company but did receive directors fees
of $240,000.
(2) Excludes $148,000 of salary that was waived in fiscal 1997.
(3) Mr. Goldberg's salary includes fees earned as a director of Toymax HK of
$157,000.
(4) Constitutes car allowances.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Steven Lebensfeld,
pursuant to which Mr. Lebensfeld serves as President of the Company. The
agreement has an initial term which expires on December 31, 1997 and is subject
to renewal. The agreement provides for an annual salary of $330,000 for the
calendar year ended December 31, 1996 and $363,000 for the calendar year ended
December 31, 1997,
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in addition to certain benefits. If the Company is sold and Mr. Lebensfeld is
not offered continued employment, he will be entitled to receive severance pay
of twenty-four months salary.
The Company has entered into an employment agreement with Harvey Goldberg,
pursuant to which Mr. Goldberg serves as Executive Vice President of the
Company. The agreement has an initial term which expires on December 31, 1997
and is subject to renewal. The agreement provides for an annual salary of
$330,000 for the calendar year ended December 31, 1996 and $363,000 for the
calendar year ended December 31, 1997, in addition to certain benefits. If the
Company is sold and Mr. Goldberg is not offered continued employment, he will be
entitled to receive severance pay of twenty four months salary.
The Company has entered into an employment agreement with Kenneth Price,
pursuant to which Mr. Price serves as Senior Vice President-Sales and Marketing
of the Company. The agreement has an initial term which expires on January 14,
1999 and is subject to renewal. The agreement provides for an annual salary of
$275,000 for the calendar year ended December 31, 1996, $283,000 for the
calendar year ending December 31, 1997, $292,000 for the calendar year ending
December 31, 1998 and $300,000 for the calendar year ending December 31, 1999,
in addition to certain benefits. If the Company is sold and is not offered
continued employment, he will be entitled to receive severance pay of twelve
months salary.
The Company has entered into an employment agreement with Carmine Russo,
pursuant to which Mr. Russo serves as Chief Operating Officer of the Company.
The agreement has an initial term which expires on December 31, 1997 and is
subject to renewal. The agreement provides for an annual salary of $170,000 for
the calendar year ended December 31, 1996 and $180,000 for the calendar year
ending December 31, 1997, in addition to certain benefits. If the Company is
sold and Mr. Russo is not offered continued employment, Mr. Russo will be
entitled to receive severance pay of up to twenty-four months salary.
The Company has entered into an employment agreement with Andrew Stein,
pursuant to which Mr. Stein serves as Vice President-International Sales. Mr.
Stein receives an annual salary of $150,000 in addition to certain benefits. The
Company may assign this agreement to any commonly controlled company or upon the
sale of the entire business of the Company.
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 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
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<PAGE>
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 340,000 shares of Common Stock under the Stock
Option Plan to certain executive officers and directors of the Company. See
"Management -- Principal Stockholders."
KEY EMPLOYEE BONUS PLAN
The Company intends to adopt a bonus plan for the benefit of certain key
employees of the Company.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of 2,000,000 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% 45.6%
Steven Lebensfeld(4)................................................... 1,312,500 17.5 13.8
Harvey Goldberg(4)(5).................................................. 70,667 17.5 13.8
Frances Shuk Kuen Leung (3)(6)......................................... 4,330,083 57.7 45.6
Kenneth Price.......................................................... 225,000 3.0 2.4
Carmine Russo.......................................................... 18,750 0.3 0.2
All directors and executive officers as a group (12 persons)........... 5,967,000 79.6% 62.8%
</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 which effected 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) 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.
53
<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 (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 handles all of the Company's purchase orders for its products and
handles all shipping documents, the handling and clearance of letters of credit
and bills and payments, serves as liaison with manufacturers and vendors and
performs quality control functions.
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 Inc. (based on the factory purchase price of the
merchandise). Until April 1997, the Company utilized Concentric as its
purchasing agent on similar terms. 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, 1998, subject to automatic renewal unless either
party terminates the agreement on three months prior written notice. 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.
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.
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 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 million to $26.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
54
<PAGE>
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 $3.2 million
credit facility in Hong Kong.
As of March 31, 1997, Mr. Lebensfeld, the Company's President, was indebted
to the Company in the amount of $258,390. The maximum balance of the
indebtedness of Mr. Lebensfeld to the Company since the beginning of fiscal 1997
was $258,390. These amounts represented expense and salary advances. Mr.
Lebensfeld intends to repay all such outstanding loans.
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<PAGE>
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
56
<PAGE>
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 9,500,000 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
Common Shares for at least one year may, under certain circumstances, sell,
within any three-month period, a number of Common Shares 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 Common Shares 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
Ordinary Common 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 to be sold through Rule 144 or otherwise by the
holders of all shares of Common Stock issued and outstanding at the Effective
Date shall be executed through the Representative 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 held by them without the Representative's prior written consent for a
period of nine (9) months from the Effective Date.
The holders of the Representative's Warrants have been granted certain
registration rights with respect to the Representative's Warrants and the
145,000 Shares issuable upon exercise of the warrants included in the
Representative's Warrants. The sale, or availability for sale, of the
outstanding Shares
57
<PAGE>
underlying the Representative's Warrants in the public market subsequent to the
Offering could adversely affect the prevailing market price of the Shares.
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
58
<PAGE>
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.
59
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Fahnestock & Co.
Inc. is acting as representative (the "Representative"), 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..................................................................
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 Representative has 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 Representative.
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
300,000 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 270 days from the date of this
Prospectus, without the prior written consent of the Representative.
The Company and the Representative will enter into an investment banking
agreement which, amongst other things, will grant the Representative a right of
first refusal for a period of fifteen (15) months after the Effective Date for
any investment banking services. In addition, the Representative shall have
Board of Directors information and obligation rights. The Company has also
agreed to pay the Representative 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
Representative warrants to purchase up to 145,000 shares of Common Stock (the
"Representative's Warrants"). The Representative's Warrants shall be exercisable
at any time during a period of four (4) years commencing at the beginning of the
second year after their issuance and provide for an exercise price equaling one
hundred twenty percent (120%) of the initial public offering price set forth
herein. The Representative's Warrants are non-transferable during the term,
except to affiliates of the Representative, and grant to the holder thereof
certain registration rights for the securities issuable upon the exercise
thereof.
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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 Representative 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 300,000 shares of Common Stock, by
exercising the over-allotment option referred to above. In addition, the
Representative 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.
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 herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Security 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
61
<PAGE>
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 Common Stock offered hereby, reference is made to such Registration
Statement and the Exhibits and schedules thereto, amy 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 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.
62
<PAGE>
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 F-4
Consolidated statements of operations for the three years
in the period ended March 31, 1997 F-5
Consolidated statements of stockholders' equity (deficit)
for the three years in the period ended March 31, 1997 F-6
Consolidated statements of cash flows for the three years
in the period ended March 31, 1997 F-7
Notes to consolidated financial statements F-8--F-20
</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 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 the two year period ended March
31, 1997, in conformity with generally accepted accounting principles.
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
August 11, 1997
F-3
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash............................................................................. $ 1,269,434 $ 564,659
Due from Factor (Notes 2 and 5).................................................. 5,514,779 14,311,369
Accounts receivable, less allowance for doubtful accounts of $811,969 and
$739,219 (Notes 2 and 5)....................................................... 1,895,785 3,022,714
Inventories (Notes 3 and 5)...................................................... 5,835,805 4,797,452
Income tax refunds receivable (Note 7)........................................... 4,199,999 --
Due from affiliates (Note 6)..................................................... 3,564 4,367
Due from officers................................................................ 164,831 260,689
Deferred income taxes (Note 7)................................................... -- 1,007,350
------------- -------------
TOTAL CURRENT ASSETS......................................................... 18,884,197 23,968,600
PROPERTY AND EQUIPMENT, NET (NOTE 4)............................................... 3,023,213 2,190,861
DEFERRED INCOME TAXES (NOTE 7)..................................................... -- 57,228
OTHER ASSETS....................................................................... 219,278 150,153
------------- -------------
$ 22,126,688 $ 26,366,842
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
Bank credit facility (Note 5).................................................... $ 4,012,795 $ 8,447,087
Accounts payable................................................................. 4,736,921 1,648,405
Accrued expenses................................................................. 3,071,712 2,860,735
Accrued rebate and allowances.................................................... 1,608,760 1,425,759
Income taxes payable............................................................. 733,421 275,145
Due to affiliates (Note 6)....................................................... 10,728,495 10,756,471
Due to officer (Note 6).......................................................... 48,466 504,032
Current portion of long-term obligations (Note 8)................................ 66,846 37,714
------------- -------------
TOTAL CURRENT LIABILITIES.................................................... 25,007,416 25,955,348
LONG-TERM OBLIGATIONS (NOTE 8)..................................................... 51,836 8,300
DEFERRED INCOME TAXES (NOTE 7)..................................................... 159,772 --
------------- -------------
TOTAL LIABILITIES............................................................ 25,219,024 25,963,648
------------- -------------
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
Retained earnings (accumulated deficit)............................................ (3,134,876) 360,654
Cumulative foreign currency translation adjustment................................. (15,152) (15,152)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)......................................... (3,092,336) 403,194
------------- -------------
$ 22,126,688 $ 26,366,842
------------- -------------
------------- -------------
</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,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES (NOTES 6 AND 9)........................................... $ 70,622,912 $ 43,621,599 $ 54,682,635
------------- ------------- -------------
COST AND EXPENSES:
Cost of goods sold (Notes 6 and 8)................................ 42,639,900 30,600,599 33,836,513
Selling and administrative (Notes 4 and 8)........................ 27,121,111 24,640,633 17,878,004
------------- ------------- -------------
69,761,011 55,241,232 51,714,517
------------- ------------- -------------
Operating income (loss)......................................... 861,901 (11,619,633) 2,968,118
------------- ------------- -------------
OTHER INCOME (EXPENSES):
Other income, net................................................. 247,138 685,427 726,037
Interest income................................................... 101,439 31,577 89,556
Interest expense.................................................. (561,148) (769,465) (483,380)
Finance charges (Note 2).......................................... (579,345) (385,721) (498,137)
------------- ------------- -------------
(791,916) (438,182) (165,924)
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY................................................ 69,985 (12,057,815) 2,802,194
INCOME TAX BENEFIT (NOTE 7)......................................... 198,175 2,253,732 681,200
------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST IN NET LOSS OF SUBSIDIARY.... 268,160 (9,804,083) 3,483,394
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY......................... -- -- 12,136
------------- ------------- -------------
NET INCOME (LOSS)................................................... $ 268,160 $ (9,804,083) $ 3,495,530
------------- ------------- -------------
------------- ------------- -------------
EARNINGS (LOSS) PER SHARE (NOTE 1).................................. $ .04 $ (1.31) $ .47
------------- ------------- -------------
------------- ------------- -------------
</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 EARNINGS CUMULATIVE STOCKHOLDERS'
--------------------- (ACCUMULATED TRANSLATION EQUITY
THREE YEARS ENDED MARCH 31, 1997 SHARES AMOUNT DEFICIT) ADJUSTMENT (DEFICIT)
- ------------------------------------------------ ---------- --------- ------------ ----------- ------------
<S> <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.................................... -- -- 3,495,530 -- 3,495,530
---------- --------- ------------ ----------- ------------
BALANCE, March 31, 1997......................... 7,500,000 $ 57,692 $ 360,654 $ (15,152) $ 403,194
---------- --------- ------------ ----------- ------------
---------- --------- ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 268,160 $ (9,804,083) $ 3,495,530
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
Bad debts......................................................... -- 880,409 16,312
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)
Changes in operating assets and liabilities:
Due from Factor and accounts receivable......................... 1,978,901 1,015,434 (9,939,831)
Due from affiliates............................................. (904,029) 1,056,117 (803)
Inventories..................................................... (581,963) 2,182,705 1,038,353
Income tax refunds receivable................................... (392,649) (3,807,350) 4,199,999
Other assets.................................................... (184,846) 112,206 81,261
Accounts payable and accruals................................... 1,060,325 1,473,396 (3,482,494)
Due to affiliates............................................... 69,572 4,021,808 27,976
Income taxes payable............................................ (1,278,661) 99,049 (458,276)
------------- ------------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........... 1,488,038 708,181 (4,732,728)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............................... (2,348,291) (1,055,182) (703,697)
Proceeds from disposals of property and equipment................... 12,226 367,838 10,318
Due from officers................................................... -- (21,871) (95,858)
------------- ------------- ------------
NET CASH USED IN INVESTING ACTIVITIES......................... (2,336,065) (709,215) (789,237)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in bank credit facility.................................. (2,161,527) (1,286,511) --
Increase in bank credit facility.................................... 1,200,512 2,812,283 4,434,292
Increase (decrease) in long--term obligations....................... (83,425) (87,614) (72,668)
Payment of dividends payable........................................ -- (700,000) --
Due to officer...................................................... (200,889) (37,544) 455,566
------------- ------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........... (1,245,329) 700,614 4,817,190
------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (2,093,356) 699,580 (704,775)
CASH AND CASH EQUIVALENTS, beginning of year.......................... 2,663,210 569,854 1,269,434
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of year................................ $ 569,854 $ 1,269,434 $ 564,659
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid....................................................... $ 510,638 $ 723,869 $ 440,267
------------- ------------- ------------
Income taxes paid................................................... $ 1,341,752 $ 853,389 $ 552,057
------------- ------------- ------------
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES
Capital lease obligation incurred................................... $ 106,891 $ -- $ --
------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 and $490,000 at
March 31, 1996 and 1997, respectively.
F-8
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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.
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 and 1997 because of the
F-9
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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.
F-10
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 net of reserves for doubtful accounts which Toymax NY is
attempting to collect. Reserves for doubtful accounts were $811,969 and $739,219
as of March 31, 1996 and 1997, respectively. Write-offs were $549,457, $146,835
and $89,062 for the years ended March 31, 1995, 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.
F-11
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
MARCH 31,
LIFE IN --------------------------
YEARS 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Machinery, equipment and molds.......................................... 2-5 $ 5,604,332 $ 6,215,874
Furniture and fixtures.................................................. 5-10 369,513 310,480
Leasehold improvements.................................................. 2-8 435,330 493,211
------------ ------------
6,409,175 7,019,565
Less accumulated depreciation and amortization.......................... 3,385,962 4,828,704
------------ ------------
$ 3,023,213 $ 2,190,861
------------ ------------
------------ ------------
</TABLE>
Depreciation and amortization charged to operations were $1,316,352
$1,825,502 and $1,510,661 in 1995, 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
$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.
F-12
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BANK CREDIT FACILITY (CONTINUED)
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 and 1997, the
Company had borrowings of $4,012,795 and $8,447,087, respectively. At March 31,
1997, additional borrowing availability was approximately $1,400,000.
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 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).
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.
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.
F-13
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DUE TO/FROM AFFILIATES (CONTINUED)
The following is a summary of balances and transactions with affiliated
companies.
<TABLE>
<CAPTION>
BALANCES
MARCH 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Due from affiliates:
Sportmax Limited................................................................. $ 3,564 $ 4,367
------------- -------------
------------- -------------
Due to affiliates:
Concentric....................................................................... $ 6,112,159 $ 7,297,183
DHS Holdings..................................................................... 339,150 766,736
Tai Nam.......................................................................... 4,277,186 2,676,262
Officer of Craft................................................................. -- 16,290
------------- -------------
$ 10,728,495 $ 10,756,471
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
TRANSACTIONS
-------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Purchases from:
Tai Nam........................................................... $ 12,879,209 $ 15,383,684 $ 13,573,369
Concentric........................................................ 7,574,595 9,055,339 20,632,367
Hot Items......................................................... 3,459,012 1,483,844 --
------------- ------------- -------------
$ 23,912,816 $ 25,922,867 $ 34,205,736
------------- ------------- -------------
------------- ------------- -------------
Sales to:
Tai Nam........................................................... $ 1,154,973 $ 915,032 $ 679,645
------------- ------------- -------------
------------- ------------- -------------
Mold Purchases:
Tai Nam........................................................... $ 182,678 $ 616,250 $ 438,435
------------- ------------- -------------
------------- ------------- -------------
Mold Sales:
DHS Holdings...................................................... $ -- $ 349,296 $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-14
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The income tax benefit consists of the following
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ------------- -------------
Current:
Hong Kong............................................................ $ 208,327 $ 356,533 $ 437,257
US Federal........................................................... (378,744) (4,156,228) 53,000
US State and City.................................................... (159,141) (104,340) 52,893
----------- ------------- -------------
$ (329,558) $ (3,904,035) $ 543,150
----------- ------------- -------------
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)
----------- ------------- -------------
----------- ------------- -------------
</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>
YEAR ENDED MARCH 31,
---------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ------------- -----------
Federal income tax expense (benefit), at statutory rate of 34%.......... $ 23,795 $ (4,100,000) $ 953,000
State income tax expense (benefit), net of federal tax benefits......... (47,803) (587,000) 47,000
Changes in deferred tax valuation allowance............................. -- 2,868,500 (1,363,500)
Non-deductible expenses................................................. 31,586 28,980 4,657
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)
----------- ------------- -----------
Income tax benefits..................................................... $ (198,175) $ (2,253,732) $ (681,200)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The income (loss) before income tax benefit and minority interest in net
loss of subsidiary is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- -------------- ------------
U.S.................................................................. $ (1,203,316) $ (13,845,268) $ 155,796
Hong Kong............................................................ 1,273,301 1,787,453 2,646,398
------------- -------------- ------------
$ 69,985 $ (12,057,815) $ 2,802,194
------------- -------------- ------------
------------- -------------- ------------
</TABLE>
F-15
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
Sales allowances................................................................... $ 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.
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.
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.
F-16
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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 million, of which $260,000 is
jointly available to the Company. As of March 31, 1997, Tai Nam had borrowed
approximately $2.4 million. Toymax HK had no borrowings under this line of
credit as of March 31, 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
F-17
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. Net sales
to Toys "R" Us accounted for more than 10% of net sales during each of the above
periods.
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-18
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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>
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>
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................................ 2,646,398 155,796 2,802,194
IDENTIFIABLE ASSETS................................................. 1,901,514 24,465,328 26,366,842
</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 2,300,000 shares of the Company's common
stock, and the Company will issue warrants to the underwriter to purchase
145,000 shares of Common Stock.
(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
F-19
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
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 and 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 340,000 shares of Common Stock Option Plan to
certain executive officers and directors of the Company.
(D) SALE OF STOCK
In June 1997, the principal shareholder sold 169,923 shares to certain
officers, employees and business associates and 150,030 shares to other persons
for an aggregate amount of approximately $900,000.
F-20
<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..............................
The Offering....................................
Summary Financial Data..........................
Risk Factors....................................
The Reorganization..............................
Use of Proceeds.................................
Dividend Policy.................................
Dilution........................................
Capitalization..................................
Selected Consolidated 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.......................
Shares Eligible for Future Sale.................
Certain Federal Tax Consequences................
Underwriting....................................
Legal Matters...................................
Experts.........................................
Additional Information..........................
Index to Financial Statements...................
</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.
TOYMAX
INTERNATIONAL, INC.
2,000,000 SHARES
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FAHNESTOCK & CO. INC.
, 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>
<S> <C>
SEC filing fee...................................................... $ 7,496
NASD filing fee..................................................... 2,974
NASDAQ listing fee.................................................. *
Transfer agent's fee................................................ *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Blue sky filing fees and expenses (including counsel fees).......... *
Accounting fees and expenses........................................ *
Miscellaneous expenses.............................................. *
---------
Total........................................................... $ *
---------
---------
</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 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>
<S> <C>
*1.1 Form of Underwriting Agreement.
*3.1(a) Certificate of Incorporation of the Registrant.
*3.1(b) 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 1997 Stock Option Plan.
*10.2 Key Employee 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 5, 1991.
10.9 Factoring Agreement dated June 4, 1991 between the Company and Congress
Talcott Corporation, as amended.
*10.10 Demand Loan Agreement between Tai Nam and the Hong Kong Bank.
*10.11 Employment Agreement with Steven Lebensfeld.
*10.12 Employment Agreement with Harvey Goldberg.
*10.13 Employment Agreement with Kenneth Price.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
*10.14 Employment Agreement with Carmine Russo.
*10.15 Employment Agreement with Andrew Stein.
*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 (included on the signature page hereof).
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by Amendment.
(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.
II-3
<PAGE>
(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 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 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 12th day of August, 1997.
TOYMAX INTERNATIONAL, INC.
BY: /S/ STEVEN A. LEBENSFELD
-----------------------------------------
Steven A. Lebensfeld
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven A. Lebensfeld and William A. Johnson, Jr.
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, to sign any registration statement
pursuant to Rule 462(b) under the Securities Act of 1933 for the purpose of
registering additional shares of Common Stock for the same offering covered by
this Registration Statement, and to file any of the same, with all exhibits and
supplements thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DAVID KI KWAN CHU Chairman
- ------------------------------ August 12, 1997
David Ki Kwan Chu
/s/ STEVEN A. LEBENSFELD President (Principal
- ------------------------------ Executive Officer) and August 12, 1997
Steven A. Lebensfeld Director
/s/ HARVEY GOLDBERG Executive Vice President
- ------------------------------ and Director August 12, 1997
Harvey Goldberg
Chief Financial Officer and
/s/ WILLIAM A. JOHNSON, JR. Treasurer (Principal
- ------------------------------ Financial and Accounting August 12, 1997
William A. Johnson, Jr. Officer)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------------- ---------
<S> <C> <C>
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, Hong Kong
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 5, 1991.
10.9 Factoring Agreement dated June 4, 1991 between the Company and Congress Talcott
Corporation, as amended.
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 (included on the signature page hereof.
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10.3
AGREEMENT OF LEASE
Property Address: 125 East Bethpage Road
Plainview, New York
Landlord: 125 Bethpage Associates
6800 Jericho Turnpike
Syosset, New York 11791
Tenant: Toymax Inc.
200 Hicks Street
Westbury, New York 11590
Date: April 7, 1997
<PAGE>
INDEX
Article Article Heading Page
- ------- --------------- ----
1 Premises and Term of Lease ...................................... 1
2 Definitions ..................................................... 7
3 Rent ............................................................ 12
4 Rent Adjustment ................................................. 13
5 Common Areas .................................................... 18
6 Electricity ..................................................... 20
7 Assignment, Mortgaging, Subletting, Etc. ........................ 22
8 Mortgages ....................................................... 28
9 Use ............................................................. 30
10 Quiet Enjoyment ................................................. 32
11 Brokerage ....................................................... 33
12 Compliance with Laws ............................................ 33
13 Insurance ....................................................... 35
14 Rules and Regulations ........................................... 38
15 Tenant Changes .................................................. 39
16 Discharge of Liens .............................................. 41
17 Tenant's Property ............................................... 42
18 Repairs and Maintenance ......................................... 43
19 Services and Functions .......................................... 45
20 Access, Changes in Building Facilities, Name .................... 48
21 Notice of Accidents ............................................. 50
22 Non-Liability and Indemnification ............................... 50
23 Destruction or Damage ........................................... 52
24 Eminent Domain .................................................. 54
25 Surrender ....................................................... 56
26 Bankruptcy, Conditions of Limitation ............................ 57
27 Re-Entry by Landlord ............................................ 59
28 Damages ......................................................... 60
29 Waivers ......................................................... 62
30 No Other Waivers or Modifications ............................... 62
31 Curing Tenant's Defaults, Additional Rent ....................... 63
32 Parties Bound ................................................... 65
33 Notices ......................................................... 66
34 Estoppel Certificate, Memorandum ................................ 68
35 Arbitration ..................................................... 68
36 No Other Representations, Construction,
Governing Law ................................................... 70
37 Antenna ......................................................... 71
38 Miscellaneous ................................................... 74
Exhibits
A - Landlord's Work Letter (first appearing on page 1)
B - Intentionally Omitted
C - Metes and Bounds Description
of the Land (first appearing on page 8)
D - Plan of Premises (first appearing on page 9)
E - Rules and Regulations (first appearing on page 38)
F - Cleaning and Rubbish Removal
Specifications (first appearing on page 47)
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<PAGE>
AGREEMENT OF LEASE made as of the 7th day of April, 1997, between
125 Bethpage Associates, a New York limited partnership (hereinafter referred to
as "Landlord") and Toymax Inc., a New York corporation (hereinafter referred to
as "Tenant").
It is hereby mutually covenanted and agreed by and between the
parties hereto that this Lease is made for space within the Building known as
125 East Bethpage Road, Plainview, New York, upon the agreements, terms,
covenants and conditions hereinafter set forth.
ARTICLE 1
Premises and Term of Lease
SECTION 1.01. Landlord does hereby demise and lease to Tenant, and
Tenant does hereby hire and take the Premises from Landlord;
TO HAVE AND TO HOLD for a term which shall commence on a date (the
"Commencement Date") which shall be the later to occur of May 1, 1997 and the
date on which the Premises shall be deemed to be ready for occupancy, and shall
expire on the last day of the seventh Lease Year unless the Term shall be sooner
terminated as provided pursuant to any of the provisions of this Lease or
pursuant to a Requirement. Notwithstanding the foregoing, this Lease shall be
null and void if the Commencement Date shall not have occurred by the last day
of the fifth year from the date hereof.
1.02. The work required of Landlord under Exhibit A annexed hereto
and made a part hereof ("Landlord's Work Letter"), a copy of which Tenant
acknowledges it has reviewed, is referred to in this Lease as the "Landlord's
Work". Except for Landlord's Work, Tenant shall accept the Premises "as is" on
the date hereof and Landlord shall not be required to perform any work, render
any services or furnish or install any materials, fixtures or equipment to the
Project or the Premises in order that the Premises be ready for occupancy.
If Landlord's Work shall not have been completed (subject to the
occurrence of a Tenant's Delay, as defined in Section 1.05 hereof, but without
regard to an event or condition within the purview of Sections 22.04 or 22.05
hereof) on or before April 21, 1997, Tenant as its sole remedy, on not less
than three Business Days' prior notice to Landlord, given subsequent to April
25, 1997, may complete Landlord's Work (other than with respect to HVAC Systems
servicing the Premises) if it
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<PAGE>
shall not have been completed by Landlord prior thereto. If Tenant makes such
election, (a) the Commencement Date shall conclusively be deemed to have
occurred on May 1, 1997, notwithstanding anything to the contrary in this Lease,
including but not limited to the non-completion of Landlord's Work unless the
Premises are occupied by others (and provision for such occupancy does not
appear in this Lease), and (b) the remainder of Landlord's Work shall be
effected by Tenant in accordance with Article 15 hereof, provided, however, that
Section 15.03(k) shall not apply. Any amount reasonably paid by Tenant and
necessary to complete Landlord's Work shall be reimbursed by Landlord to Tenant
within thirty (30) days after demand made by Tenant subsequent to the
Commencement Date, together with Interest from and after the date such
reimbursement is due and payable. The foregoing demand shall be accompanied by a
statement from Tenant in reasonable detail specifying the amount required to be
paid by Landlord. If reimbursement is not received by Tenant in accordance with
the foregoing statement, Tenant's sole remedy shall be a right to offset the
amount to which Tenant is entitled, as aforesaid, against payments of Net Annual
Rent thereafter becoming due and payable. The term "Interest", as used in this
Lease, means two (2) percentage points plus the annual interest rate then
charged by The Chase Manhattan Bank to its most creditworthy customers for loans
in excess of one million dollars having a three (3) month term.
1.03. All installations, facilities, materials and work other than
Landlord's Work which may be undertaken by or for Tenant to equip, finish and
decorate the Premises for its initial occupancy by Tenant are hereinafter called
"Tenant's Work".
1.04. The Premises shall conclusively be deemed ready for occupancy
when Landlord's Work shall have been completed and exclusive (unless provision
for occupancy of the Premises by others appears in this Lease) possession of the
Premises shall have been tendered to Tenant. Such possession shall be deemed to
have been given when Landlord shall have truthfully notified Tenant that it is
making such tender. Landlord's Work shall conclusively be deemed to be completed
despite the fact that (y) minor or insubstantial details of construction,
decoration or mechanical adjustment remain to be performed or (z) portions
thereof, under good construction scheduling practices, should not be completed
until other uncompleted Tenant's Work is to be completed. Landlord will give
Tenant notice at least fifteen (15) days in advance of the date when Landlord
expects the Premises to be ready for occupancy by Tenant, but Landlord shall not
incur any liability whatsoever to Tenant in the event the Premises is not ready
for occupancy as set forth in such notice and no further notice shall be
required to be given by Landlord. Notwithstanding the occurrence of the
Commencement Date by reason of the application of the foregoing criteria,
Landlord shall
2
<PAGE>
complete any incomplete Landlord's Work with diligence thereafter. The
provisions of this Section 1.04 shall not be applicable if Tenant shall have
made the "self-help election" in the second paragraph of Section 1.02 hereof.
1.05. The date, for all purposes of this Lease, as of which
Landlord's Work shall conclusively be deemed to be completed shall be the date
on which Landlord's Work reasonably would have been completed except for delays
resulting from Tenant's failure (a) to comply with the provisions of this Lease,
or (b) an act or omission of Tenant (or its architects, engineers, contractors
or agents) which has the effect of delaying the completion of Landlord's Work
(any of the foregoing being a "Tenant's Delay").
1.06. If and when business operations within the Premises or any
part or parts thereof shall commence, it shall be conclusively presumed that the
Premises were ready for occupancy. The Premises will conclusively be deemed in
satisfactory condition as of the Commencement Date, unless within thirty (30)
days after such date, Tenant shall give Landlord notice specifying the respects
in which the Premises are not in satisfactory condition.
1.07. Landlord shall fix the Commencement Date and shall notify
Tenant of the date so fixed. When the Commencement Date has so been determined,
the parties thereafter, at Landlord's request, shall execute a written
instrument confirming such date as the Commencement Date. Within thirty (30)
days after Landlord shall have fixed the Commencement Date, as aforesaid, but
not thereafter, Tenant shall have the right to deliver a certificate to Landlord
specifying in reasonable detail the reasons why Tenant asserts that the
Commencement Date has not occurred. In the event that Tenant delivers said
certificate to Landlord within the specified thirty (30) day period, either
party shall have a period of thirty (30) days after such delivery to submit the
matter to Arbitration. Pending the determination of such dispute, Tenant shall
pay Rental based upon Landlord's determination that the Commencement Date has
occurred without prejudice to Tenant's position. If, after Arbitration, it is
determined that the Commencement Date was not the date so fixed by Landlord, any
payments made by Tenant to Landlord for periods prior to the proper Commencement
Date shall be credited by Landlord against Net Annual Rent first due thereafter
under this Lease.
1.08. Landlord, itself or through others engaged by Landlord, shall
prosecute the Landlord's Work to completion, in a good and workmanlike manner
and with reasonable diligence, in accordance with the Landlord's Work Letter.
Tenant will take all action and will not omit the taking of any action necessary
or
3
<PAGE>
advisable in order for Landlord to fulfill its obligations pursuant to the
preceding sentence. Landlord's Work shall be accomplished subject to and in
accordance with the following:
(a) Tenant acknowledges that Landlord has furnished Tenant
with a certificate of occupancy for the Premises (Certificate of Occupancy No. A
13735).
Landlord indemnifies and holds Tenant harmless, subject to the
provisions of Section 32.06 hereof, against all loss and damage, including
reasonable (i) attorney fees, (ii) roving expenses, and (iii) the monthly
marginal increase, if any, in Rental for similar alternate premises in the area,
resulting from a Governmental Authority or a party entitled to do so pursuant to
the Covenants and Restrictions contained in Liber 6921 cp. 325, preventing
Tenant from occupying any part of the premises as a general and executive office
solely by reason of the failure of Landlord to obtain any Approval requisite to
such occupancy.
(b) Whether a Tenant's Delay has occurred and the extent of
any claimed Tenant's Delay shall be determined in the following manner:
Landlord shall notify Tenant of its claim that a Tenant's
Delay has occurred and the estimated length of any claimed Tenant's Delay within
a reasonable time after the information necessary to ascertain the existence of
or to estimate the length of such delay is available (which notice shall include
the reasons for Landlord's estimate) and the existence of and the length of such
Tenant's Delay shall be deemed to be as so stated and/or estimated unless,
within ten Business Days after the giving of such notice, Tenant shall notify
the Landlord of any disagreement therewith (including Tenant's reasons
therefor). If a dispute shall be unresolved with respect to whether and/or to
what extent there was a Tenant's Delay such dispute shall be resolved by
Arbitration. Pending resolution of said dispute, the parties shall proceed in
accordance with Landlord's estimate and the provisions of this Lease. Either
party may initiate such Arbitration by a notice to the other demanding
Arbitration and setting forth the nature of the dispute.
(c) Tenant agrees that if substantial completion of Landlord's
Work or the occurrence of the Commencement Date is delayed by any Tenant's
Delay, Tenant shall, in addition to other rights and remedies of Landlord, pay
the costs and damages Landlord may sustain by reason of such Tenant's Delay,
which amount shall not exceed the amount of Net Annual Rent and Additional Rent
that Landlord may lose by reason of such delay as
4
<PAGE>
well as any other actual loss that Landlord may suffer by reason thereof.
(d) Landlord shall be deemed to have adhered to Landlord's
Work Letter, notwithstanding that Landlord shall make changes in Landlord's Work
required by a Requirement or field conditions or which do not, to a noticeable
extent, adversely affect the Premises or Tenant's use or occupancy thereof; and
all such changes shall be accepted by Tenant.
(e) Notwithstanding anything in this Lease to the contrary,
Tenant shall have no right to make changes in Landlord's Work without Landlord's
prior written consent, which consent may be arbitrarily withheld.
(f) Landlord recognizes the confidence placed in it by Tenant
pursuant to this Section 1.08 and agrees to furnish its skill and judgment in
furthering the provisions of this Section 1.08 and to perform or cause the
performance of Landlord's Work in what Landlord considers to be the best and
soundest way and in an expeditious and economical manner consistent with the
respective interests of Landlord and Tenant, as reflected in this Lease.
(g) Landlord will have no obligation to commit more personnel,
facilities or material to complete Landlord's Work then is commonly committed to
like work performed in the ordinary course or to perform Landlord's Work during
other than Regular Hours. The provisions of the preceding sentence will apply,
amongst others, to situations relating to Tenant's Delay.
(h) Tenant shall have the right of reasonable access to the
Premises to inspect Landlord's Work, subject to the limitations and obligations
imposed on Tenant and its employees, contractors, agents and representatives in
respect thereof elsewhere in this Lease. Landlord or its representatives will
meet with Tenant and its representatives at reasonable times, intervals and
places to discuss all aspects of Landlord's Work which Tenant reasonably
requires.
1.09. Landlord's Work shall be performed by Landlord at Landlord's
expense and without contribution by Tenant except that Tenant has paid Landlord
Fifty Two Thousand Five Hundred ($52,500.00) Dollars, i.e., $2.63 multiplied by
the Area of the Premises, ("Tenant's Contribution") as Tenant's contribution
toward the cost of Landlord's Work and the commission payable to the Broker.
[see Article 11 herein.]
1.10. Tenant (which term as used in this Section 1.10 shall
include agents, contractors, employees and invitees of
5
<PAGE>
Tenant) shall be entitled to access to the Premises prior to the Commencement
Date for the purpose of performing Tenant's Work.
Tenant's Work shall be performed by Tenant in accordance with the
provisions of Article 15 hereof (including Section 15.03 (d)) as though Tenant's
Work was Tenant Changes, provided however, that in addition to the provisions of
Article 15 hereof, Tenant's Work shall be performed in accordance with the
following:
(a) Performance of Landlord's Work shall have reached a point
where performance of Tenant's Work, in Landlord's reasonable judgment, will not
delay or hamper Landlord in the completion of Landlord's Work.
(b) Neither Tenant's Work nor performance thereof shall
conflict with the prosecution of Landlord's Work or violate Requirements.
(c) Landlord reserves the right to deny Tenant access to the
Premises and/or to request Tenant to withdraw therefrom and cease all work being
performed by it or on its behalf by any person, firm or corporation other than
Landlord, if Landlord shall, in its reasonable judgment, determine that such
entry or the commencement and/or the continuance of Tenant's Work shall
interfere with, hamper or prevent Landlord from proceeding with the completion
of the Premises and/or Landlord's Work at the earliest possible date. Any
dispute with respect to the provisions of this Section 1.10(c) shall be resolved
by Arbitration. Pending resolution of said dispute, Tenant shall comply with
Landlord's denial and request to withdraw. Either party may initiate Arbitration
by a notice to the other demanding Arbitration and setting forth the nature of
the dispute.
(d) Tenant agrees that should the Tenant enter upon the
Premises for the purpose of performing Tenant's Work (as well as anytime during
the Term, Tenant Changes), the labor employed by Tenant or anyone performing
such work for or on behalf of Tenant shall always be harmonious and compatible
with the labor employed by Landlord or any contractors or subcontractors of
Landlord. Should such labor cause a "labor problem" with Landlord's labor,
Landlord may require Tenant to withdraw from such Premises until such condition
no longer exists.
(e) In the event Tenant shall enter upon the Project,
inclusive of the Building and the Premises, prior to the Commencement Date,
unless and to the extent Landlord is entitled to and receives compensation from
its insurance carrier and such insurance carrier shall have granted Tenant, by
name or generally, a waiver of subrogation with regard thereto, Tenant
6
<PAGE>
agrees to indemnify and save Landlord harmless, from and against any and all
claims, losses, liabilities and damages arising from such entry or attributable
to Tenant's acts, omissions or negligence while within the Project or any part
or parts thereof.
(f) Any entry by Tenant, its agents, contractors, employees
and invitees, in or on the Project prior to the Commencement Date shall be at
Tenant's sole risk, except for the wilful acts or negligence of Landlord or its
employees, agents and contractors.
1.11. Landlord and Tenant further agree that, except for breach of
the following warranty, any failure to have the Premises ready or available for
occupancy by Tenant on the Commencement Date, as aforesaid, shall not affect the
obligations of the Tenant under this Lease, and the Commencement Date shall be
established pursuant to the other provisions of this Lease at such time as the
Premises are ready and available for occupancy by Tenant. Landlord warrants that
the Premises are vacant and no third party has or will have any occupancy rights
in respect thereof, unless provision for occupancy of the Premises by third
parties appears in this Lease.
1.12. The pertinent provisions of this Article 1 shall be deemed to
be an express provision to the contrary under Section 223-a of the Real Property
Law of the State of New York and any other law of like import now or hereafter
in force.
ARTICLE 2
Definitions
SECTION 2.01. The terms defined in this Article shall, for all
purposes of this Lease and all agreements supplemental hereto, have the meaning
herein specified.
(a) "Approvals" shall mean all licenses, permits, permissions
and approvals from a Governmental Authority, if any, necessary (i) to commence
and to prosecute Landlord's Work, Tenant's Work, or Tenant Changes, as the case
may be, to completion and (ii) to enable Tenant to legally use or occupy the
Premises as contemplated by this Lease.
(b) "Arbitration" shall have the meaning referred to in
Article 35 of this Lease.
(c) "Area of the Building" shall mean the rentable square foot
area of the Building (which the parties have agreed shall be deemed to be 40,000
rentable square feet) and "Area of
7
<PAGE>
the Premises" shall mean the rentable square foot area of the premises (which
the parties have agreed shall be deemed to be 20,000 rentable square feet).
Should it become necessary to recalculate the Area of the Building or the Area
of the Premises by reason of a change therein hereafter occurring, such
calculation shall be made by adding any increase and subtracting any decrease in
rentable square feet of space specified in the first sentence hereof. The number
of square feet of rentable square feet to be added to or subtracted from the
area specified in the first sentence hereof shall be determined pursuant to the
"Standard Method of Floor Measurement for Office Buildings", then current, of
the Real Estate Board of New York, Inc. (except that space excluded thereunder
shall be included in determining the Area of the Premises, if such space is
available for the benefit of Tenant, but not for the benefit of occupants of
other rentable area within the Buildings), and dividing the resultant
calculation of square foot area by 0.82. In no event, except for events and
conditions arising by reason of a Taking (defined in Artic1e 19 hereof), shall
the Proportionate Share (as hereafter defined) be increased by reason of the
provisions hereof.
(d) "Building" shall mean the building of which the Premises
are a part, and "Buildings" shall mean all buildings (including the Building) at
the time located on the Land.
(e) "Governmental Authority" shall mean the United States, the
State in which the Premises are located, and any political subdivision thereof,
and any agency, department, commission, board, bureau or instrumentality of any
of them, and, except in the calculation of Taxes, any regulatory body such as a
Board of Fire Underwriters.
(f) "Improvements" shall mean the Building and other
improvements (including buildings) now or hereafter on the Land.
(g) "Land" shall mean the parcel of land described in Exhibit
C annexed hereto and made a part hereof. Landlord reserves the right to increase
or decrease the area of the Land, provided that in so doing the rights of Tenant
under this Lease, including those pertaining to parking spaces, are not
materially adversely affected to a significant extent.
(h) "Landlord" shall mean only the owner, for the time being,
or the mortgagee in possession, for the time being of the Project (or the owner
of a lease of the Project), so that in the event of any conveyances, transfers
or assignments of said Project or of said lease, or in the event of a further
lease of the Project, the said Landlord shall be and hereby is entirely freed
and relieved of all covenants and obligations of Landlord hereunder (the
"Relieved Clause"), and it shall be deemed and
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construed without further agreement between the parties or their successors in
interest, or between one or both of the parties and the grantee, transferee or
assignee, or the lessee of the Project, that the grantee, transferee or
assignee, or the lessee of the Project has assumed and agreed to carry out any
and all covenants and obligations of Landlord, hereunder. The Relieved Clause
shall not be construed to relieve an insurer from any responsibility which such
insurer otherwise might have under any insurance policy which Landlord maintains
with respect to the Project and any such construction is expressly negated.
(i) "Lease" shall mean this instrument as it hereafter may be
amended.
(j) "Lease Year" shall mean a period of twelve consecutive
full calendar months. The first Lease Year shall begin on the Commencement Date
if the Commencement Date shall occur on the first day of the calendar month,
and, if not, then the first Lease Year shall commence on the first day of the
calendar month next following the Commencement Date. Each succeeding Lease Year
shall commence on the anniversary date of the first Lease Year. Any portion of
the Term which is less than a full Lease Year, such as a period from the
Commencement Date to and including the last day of the month in which it occurs
or a period at the end of the Term arising by reason of an early termination for
whatever reason of the Term, shall be deemed a partial Lease Year, and all of
the provisions of this Lease, relating to a Lease Year, including the payment of
Net Annual Rent, shall be applicable to a partial Lease Year on a pro rata
basis, so to speak, determined by a fraction, the numerator of which is the
number of days within the partial Lease Year and the denominator of which is
360.
(k) Intentionally Omitted
(l) Intentionally Omitted
(m) "Net Annual Rent" shall have the meaning ascribed to it in
Article 3 hereof.
(n) "Premises" shall mean the space hatched on the plan
annexed hereto as Exhibit D and made a part hereof, together with all fixtures
and appurtenances now or during the Term attached or otherwise affixed thereto
except Tenant's Property which may be removed pursuant to the provisions of
Article 17 of this Lease. Common Areas within the Premises (such as staircases)
do not constitute a part thereof.
(o) "Project" shall mean the Land and the Improvements.
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(p) "Proportionate Share" shall mean a fraction, stated as a
percentage, the numerator of which is the Area of the Premises and the
denominator of which is the Area of the Building. The percentage so attained is
limited by the last sentence of Section 2.01(c) hereon. At present, the
Proportionate Share is 50%.
(q) "Rental" shall have the meaning ascribed to it in Article
3 hereof.
(r) Intentionally Omitted
(s) "Requirement" shall mean any law, ordinance, order, rule
or regulation, now existing or hereafter enacted, of a Governmental Authority,
which imposes a duty or obligation on Landlord or Tenant or both of them.
(t) "Taxes" shall mean (i) all or any (A) taxes, (B)
betterment assessments for future offsite improvements only, (C) subject to (B)
preceding, but only when specifically applicable, water and sewer rents, taxes
or charges and (D) levies, general or special, ordinary or extraordinary,
unforeseen or foreseen, of any kind or nature whatsoever, which are or may be
assessed, levied or imposed by a Governmental Authority in respect of all or any
part of the Project, its equipment and other personal property, additions and
improvements thereto, wherever located, now existing or hereafter occurring, and
whensoever made or whomsoever benefitting, and the sidewalks, streets or other
public areas in front of or adjacent thereto, including any tax, excise or fee
measured by or payable with respect to Rental and/or the Project or any part
thereof not payable pursuant to Section 4.16 of this Lease, and (ii) any
reasonable expenses incurred by or on behalf of Landlord in contesting any item
set forth in clause (i) of this sentence or the assessed valuations of all of
any part of the Project. If, due to a future change, a new or additional
franchise, income, profit or other tax, assessment, excise or imposition,
however designated, shall be levied against Landlord, and/or the Project or any
part thereof, in addition to, or in substitution, in whole or in part, for any
tax, assessment, excise or imposition which would constitute "Taxes", such tax,
assessment, excise or imposition shall be deemed for the purposes hereof to be
included within the term "Taxes", and further provided that such substituted
item of taxation shall be determined as if the Project were the only asset of
Landlord. If it can be readily determined, the burden of proof thereon being on
Tenant, that an income tax imposed by the State of New York or any political
subdivision thereof, including but not limited to the Village of Plainview,
hereafter shall be reduced or eliminated in whole or in part and (i) replaced by
a tax imposed on commercial real estate, or (ii) a tax imposed on rents, such
tax shall not be a
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Tax within the definition of Taxes. For the purposes of the definition of Taxes,
(i) tax equivalent payments (or payments in lieu of Taxes), so-called, pursuant
to a ground lease or otherwise, attributable to the non-applicability in whole
or in part of Taxes to the Project or any part thereof shall, for all purpose
under this Lease, nonetheless be deemed "Taxes" and (ii) if any specific
assessment may be paid in installments pursuant to a Requirement, then, for the
purposes hereof, such specific assessment shall be deemed to be payable in the
maximum number of installments permitted by such Requirement. The term "Taxes"
does not include penalties, and/or interest except as otherwise provided in
Section 4.07 hereof, federal, state or local income, inheritance, gift, deed or
transfer taxes, or, taxes imposed by a Governmental Authority on the Project
(and not generally) to effect repayment to it of advances, in cash or in kind,
and interest on such advances, made by such Governmental Authority to remediate
an environmental condition or fund infrastructure improvements on, under or
within the Project.
(u) "Tax Year" shall mean a period of twelve (12) months now
or hereafter adopted as the fiscal year for the payment of any Taxes by a
political subdivision in which any part of the Land is located, it being
recognized that there may be multiple Tax Years by reason of the nature of any
such Taxes or the multiple identities of respective political subdivisions, or
otherwise.
(v) "Tenant" shall mean the party above named as Tenant and
all of the persons, firms, corporations and other parties comprising Tenant, and
any successor to Tenant; and whenever this Lease and the leasehold estate hereby
created shall be assigned or otherwise transferred in the manner specifically
permitted herein, then from and after such assignment or transfer, the term
"Tenant" shall also include the permitted assignee or transferee named therein,
as if such assignee or transferee had been named herein as Tenant.
(w) "Term" shall mean the term of years from and after the
Commencement Date as specified in Section 1.01 hereof.
(x) "Regular Hours" shall mean 8:00 A.M. to 6:00 P.M. on
Business Days.
(y) "Business Days" shall mean all days other than Saturday,
Sunday and days observed as a holiday by a bank which is a member of the New
York Clearing-house Association.
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ARTICLE 3
Rent
SECTION 3.0l. Tenant shall pay to Landlord at 6800 Jericho Turnpike,
Syosset, New York 11791, or such other place as shall be designated from time to
time by notice from Landlord to Tenant, a Net Annual Rent at an annual rate as
follows:
Lease Year Net Annual Rent
---------- ---------------
1 $315,000.00
2 $324,450.00
3 $334,183.50
4 $344,209.00
5 $354,535.28
6 $365,171.33
7 $313,620.00
Net Annual Rent shall be payable in equal monthly installments, in advance, on
the first day of each month during the Term.
3.02. Tenant shall pay the Rental by its good and sufficient check
(subject to collection) drawn on a bank located within the State of New York.
3.03. In addition to the Net Annual Rent, Tenant shall also pay all
sums, costs, expenses, payments and deposits required of Tenant pursuant to the
terms of this Lease, and, in the event of any nonpayment of any of the foregoing
(hereinafter sometimes singularly or collectively referred to as "Additional
Rent") Landlord shall have (in addition to all other rights and remedies) all
the rights and remedies provided for in this Lease or by any Requirement in the
case of nonpayment of the Net Annual Rent.
3.04. Intentionally omitted.
3.05. All of the amounts payable by Tenant pursuant to this Lease
are sometimes herein referred to collectively as "Rental". All Rental, except as
specifically provided to the contrary in this Lease, shall be paid by Tenant as
provided in this Lease, without notice or demand, and without abatement,
deduction, counterclaim or set-off.
3.06. If Tenant shall fail to pay Landlord any item of Rental within
ten (10) days after such item is due, then Tenant shall also pay to Landlord,
promptly on demand, the greater of (a) interest upon the aforesaid sum at an
annual rate which shall be the lesser of (i) 2% plus the prime commercial
lending rate of
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Citibank N.A. for 90 day unsecured loans then in effect, or (ii) the maximum
rate allowed by law, (b) $.05 for each dollar of the sum so due (applicable only
if the failure occurs more than once in any twelve month period), and (c)
$100.00. The interest provided for in subdivision (a) shall be payable for the
period commencing when the said unpaid sum was due and ending when the said sum
is paid.
3.07. If the Commencement Date occurs on other than the first day of
a calendar month, the Net Annual Rent for the calendar month in which the
Commencement Date occurs shall be prorated by a fraction, the numerator of which
is the number of days in such month within the Term, and the denominator is the
number of days within such month.
3.08. Tenant shall pay the first monthly installment of Net Annual
Rent on the execution of this Lease. If the Commencement Date is other than the
first day of a calendar month, the portion of such payment attributable to the
portion of such calendar month prior to the Commencement Date shall be credited
against the payments of Rental first occurring thereafter.
ARTICLE 4
Rent Adjustment
SECTION 4.01. If the Taxes payable for any Tax Year exceeds the Tax
Base, Tenant shall pay to Landlord, as Additional Rent for such Tax Year, an
amount ("Tenant's Tax Payment") equal to the Tenant's Proportionate Share of
such excess. The term "Tax Base" means the Taxes due and payable to one or more
Governmental Authorities without penalty or interest within the Tax Year
commencing January 1, 1997 with respect to General Taxes and July 1, 1997 with
respect to School Taxes imposed by the village of Plainview (the "Tax Base
Year"). Tenant has been made aware that hereafter the Tax Base may be reduced
and such reduction will result in an increase in Tenant's Tax Payment for Tax
Years subsequent to the Tax Base Year for which Tenant will be responsible and
will pay as provided in Section 4.14 hereof. Any increase in the assessed value
of the Project first effective with respect to any of the General Tax or the
School Tax immediately subsequent to the Tax Base Year of such tax and prior to
the third Tax Year after the Tax Base Year of such tax, shall not be recognized
in computing Taxes, to the extent that in each such Tax Year, the increase in
assessed value of the Project is in excess of the average increase in assessed
value for commercial office rental properties within the village of Plainview,
the burden of proof with respect to such increase
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being on Tenant. Tenant's Tax Payment with respect to a Tax Year (or if Taxes
are payable in installments, the portion of Tenant's Tax Payment necessary to
pay such installment) shall be due and payable one month prior to the last day
on which Taxes or any installment thereof within such Tax Year is due and
payable to a Governmental Authority without penalty or interest. With reasonable
promptness after the Taxes for a Tax Year become known, Landlord shall furnish
Tenant with a statement (an "Escalation Statement") which shall specify the Tax
Base, the Taxes for the Tax Year to which the Escalation Statement pertains,
Tenant's Tax Payment for such Tax Year, the payment in respect thereof required
of Tenant, and if not previously furnished to Tenant, reasonable evidence of the
payment of Taxes (inclusive of interest and penalties thereon) for the preceding
Tax Year. Promptly after request made of Landlord by Tenant, Landlord will
furnish Tenant, if and when available, with a copy of the Tax Bill for the Tax
Year for which payment is required of Tenant. In no event shall a Tenant's Tax
Payment be due and payable by Tenant prior to twenty (20) days after Landlord
shall have furnished Tenant with the foregoing Escalation Statement with regard
to such Tenant's Tax Payment or the applicable portion thereof, establishing
that Taxes for the preceding Tax Year shall have been paid. If Tenant's Tax
Payment or any installment with respect to it is due and payable within sixty
(60) days after Landlord's receipt of a Tax bill for the applicable Tax Year, it
shall be sufficient if Landlord, in determining Tenant's Tax Payment, shall
utilize the latest available assessment valuation, multiplied by the latest
available tax rate. Promptly after the Tax rate and/or assessed valuation is
established for the period encompassed by Tenant's Tax Payment, Taxes shall be
recomputed by Landlord and any increase in Tenant's Tax Payment shall be due and
payable within thirty days after received by Tenant of a bill for such
deficiency, and any overpayment shall be refunded to Tenant within the same
thirty (30) day period, and if not so refunded, Tenant may deduct such refund
amount with Interest from the next installments of Net Annual Rent until all of
the foregoing shall have been paid in full.
4.02. Intentionally Omitted.
4.03. Tenant's Tax Payment for a Tax Year, only a part of which is
included within the Term, shall be apportioned so that Tenant shall pay the
portion thereof which the portion of the Tax Year within the Term bears to the
entire Tax Year, except that, at Landlord's option, if the Commencement Date
does not occur on the first day of a Tax Year, the first Tax Year shall also
include the period from the Commencement Date to the day preceding the first day
of the first Tax Year.
4.04. Intentionally Omitted.
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4.05. The benefit of any discount for the early payment or
prepayment of Taxes shall not be subtracted in determining Taxes and Tenant's
Tax Payment.
4.06. Except as specified in the following paragraph of this Section
4.06, Tenant shall not institute or maintain any action, proceeding or
application in any court or with any Governmental Authority or otherwise for the
purpose of changing the Taxes.
If Tenant requests, in writing, that Landlord seek a reduction in
the assessed valuation of the Project for a Tax Year specified in such notice at
least sixty days prior to the last date by which Landlord can do so, and
Landlord is not prevented, barred or estopped by agreement or arrangement with a
Governmental Authority or a Requirement from complying with such request and
provided further that Tenant indemnifies and holds Landlord harmless from any
costs and expenses, including reasonable attorneys fees in connection therewith,
Landlord shall comply with such request. Alternatively, if Landlord, within
thirty (30) days prior to the last date on which such action may be taken
notifies Tenant that it elects not to seek such reduction, Tenant may undertake
the appropriate action to do so at Tenant's sole cost and expense, in which case
Landlord shall cooperate with Tenant promptly and timely and provide Tenant with
any necessary information and execute any and all documents required in
connection thereto. Tenant may deduct its reasonable attorneys' fees and
expenses from any award derived from such action less its proportionate Share
thereof, prior to remitting the balance of the award to Landlord. Tenant shall
have no right to settle any such proceeding without first obtaining Landlord's
consent which will not be unreasonably withheld or delayed. Landlord shall not
be deemed unreasonable if it withholds its consent to a settlement which
provides for a covenant on the part of Landlord not to seek a reduction in the
Project's assessed valuation in subsequent years, but if it does so consent,
reasonable attorney's fees and expenses will be amortized on a straight line
basis over the number of Tax Years for which the increase in assessed value is
barred, and paid by Landlord to Tenant on the first day of each Tax Year, and if
not so paid, be deducted by Tenant from the next ensuing payment of Net Annual
Rent and Interest therefrom, until paid in full.
4.07. If, by reason of the failure of Tenant to pay Tenant's Tax
Payment to Landlord when due, a Governmental Authority or a Mortgagee imposes a
penalty or requires a penalty to be paid in respect of Taxes, then Tenant shall
be responsible in full, and without regard to the application of Tenant's
Proportionate Share for the payment of such penalty or interest, or both, to
Landlord, on demand, as Additional Rent. If one or more tenants within the
Building, including Tenant, shall be past
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due on the payment of Taxes, the obligation hereunder shall be appropriately
adjusted and determined.
4.08 If Landlord shall receive a refund of Taxes for any Tax Year,
Tenant shall be entitled to a prompt refund of Tenant's Proportionate Share of
the portion of the refund attributable to Tenant's Tax Payment for such Tax
Year. Similarly, should Taxes for the Tax Base Year be reduced, no increase in
Tenant's Tax Payment attributable thereto shall be sought or obtained by
Landlord for any Tax Year which is more than three Tax Years prior to the Tax
Year in which such reduction was vested by action at law, settlement or like
proceeding. The provision hereof shall survive the expiration or sooner
termination of the Lease.
4.09. If it readily can be determined that in any Tax Year, an
increase in Taxes is attributable to improvements made by or for the benefit of
Tenant (other than Landlord's Work or other work required of Landlord
hereunder), Landlord, on notice to Tenant detailing the calculation, may in its
sole and absolute discretion, but need not, charge such increase or any part
thereof to Tenant, but if so charged, the amount of such charge shall be
deducted from Taxes and added to Tenant's Tax Payment. Should it subsequently be
determined by litigation, compromise or otherwise, including the withdrawal in
whole or in part of such election, that such charge or any part thereof was
erroneously made or attributable, the amount of such error shall be added back
to Taxes for such Tax Year and Tenant's Tax Payment shall be appropriately
reduced. Each such election made by Landlord shall be applicable only for the
Tax Year with regard to which it is made, and the making of such election by
Landlord, whether with respect to Tenant or another tenant, shall not require
the making of such election for any other Tax Year.
4.10. If it readily can be determined that in any Tax Year, an
increase in Taxes is attributable to improvements made by or for the tenant of
any premises within the Building other than the Premises (the "Improvement
Portion"), Tenant shall be entitled to a deduction in Tenant's Tax Payment for
such Tax Year and for any applicable subsequent Tax Year equal to the increase
in Taxes attributable to the Improvement Portion, multiplied by Tenant's
Proportionate Share, provided it shall make a demand therefor within one year of
such Tax Year and each applicable subsequent Tax Year. The burden of proof with
respect to all of the foregoing shall be on Tenant, and any dispute with respect
to the subject matter of this Section 4.10 shall be resolved by Arbitration.
Pending determination of such dispute, Tenant's Tax Payment shall be paid by
Tenant without any deduction attributable to the Improvement Portion. If, after
Arbitration, it is determined that Tenant is entitled to a reduction in Tenant's
Tax Payment which is attributable to the Improvement
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Portion, any payments with respect thereto shall be payable to Tenant by
Landlord within thirty (30) days after Tenant shall furnish Landlord with a
certified copy of the Arbitrators' award.
4.11. Intentionally Omitted
4.12. Intentionally Omitted
4.13. Intentionally Omitted
4.14. Landlord's failure to render an Escalation Statement with
respect to any Tax Year shall not prejudice Landlord's right to thereafter
render an Escalation Statement with respect to such Tax Year or with respect to
any subsequent Tax Year, and Landlord may render one or more revised Escalation
Statements with respect to any Tax Year. Notwithstanding the foregoing, an
Escalation Statement first tendered more than two years after the date specified
in this Lease for its expiration shall be of no force or effect.
4.15. Each Escalation Statement shall be conclusive and binding upon
Tenant unless within ninety (90) days after receipt of such Escalation
Statement, Tenant shall notify Landlord that it disputes the correctness of such
Escalation Statement, specifying the particular respects in which such
Escalation Statement is claimed to be incorrect. Any dispute relating to an
Escalation Statement must be submitted to Arbitration within one hundred twenty
(120) days after the giving of such Escalation Statement. Pending such
determination, Tenant shall pay the disputed charge. If, after Arbitration, it
is determined that Tenant is entitled to a refund, such refund and any interest
thereon shall be credited by landlord against Net Annual Rent thereafter
becoming due and payable under this Lease until such refund and Interest thereon
shall have been paid in full.
4.16. Tenant shall pay to Landlord, as Additional Rent, any
occupancy tax or rent tax or any separate tax attributable to this Lease or the
leasehold estate created hereby or any investment or installation made by Tenant
in respect of the Premises or any personal property owned or used by Tenant in
or in connection with the Premises (including but not limited to Tenant's
Property) whether the same is now or hereafter in effect, required to be
primarily or secondarily paid by Landlord, either directly or as a lien or
charge against the Project or any part or parts thereof. Such tax shall be paid
by Tenant on the later to occur of (a) twenty (20) days after Tenant shall have
received a notice in reasonable detail requiring such payment and (b) thirty
days prior to the date such tax is payable to the Governmental Authority
imposing or entitled to such payment. The provisions of this Section 4.16 shall
not apply to a tax within the purview of the third sentence of Section 2.01(t).
Any tax
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which is payable by Tenant under this Section 4.16 shall ipso facto be excluded
from the definition of Taxes in Section 2.01(t), and any tax which would be
payable by any other tenant in the Project if such tenant's lease contained the
equivalent of this Section 4.16, shall likewise be excluded from the definition
of Taxes in Section 2.01(t) of this Lease. No Tax otherwise payable under this
Section 4.16 shall be payable by Tenant if it is readily determinable (the
burden of proof being on Tenant) that the tax in question is (y) in lieu of an
income tax on the Landlord or (z) is in lieu of a Tax which would otherwise be
within the definition of Taxes in Section 2.01(t), in which latter event, the
Tax in question shall remain in the definition of Taxes in Section 2.01(t).
4.17. Landlord and Tenant's obligations under this Article 4 shall
survive the expiration or earlier termination of the Term.
4.18. In no event shall the Net Annual Rent ever be reduced by
operation of this Article 4.
ARTICLE 5
Common Areas
SECTION 5.01. The Project now contains areas (referred to in this
Lease as "Common Areas") such as, by way of illustration, parking areas and
driveways, an exercise facility, common corridors, landscaped areas, lobbies and
public rest rooms, for utilization as provided in Section 5.03 hereof. Tenant
agrees that Landlord, in its discretion, may, at any time and from time to time,
without diminution in the Rental, increase, reduce, change or eliminate the
number, type, size, location, elevation, nature and use of any of the Common
Areas or the facilities therein or the amenities constituting a part thereof,
provided, however, that in so doing, Landlord does not materially and adversely
affect (a) access to and from the Premises and the Common Areas, (b) access to
and from East Bethpage Road and the parking spaces reserved for Tenant as
provided in the third sentence of Section 5.05 hereof, (c) Tenant's use of the
Premises pursuant to the first paragraph of Section 9.01 hereof, (d) Tenant's
use of the parking spaces referenced in (b) preceding within the Common Areas,
(e) the location of Tenant's access to the men's and women's lavatory now in
closest proximity to an interior entrance door to the Premises, or (f) the
location of Tenant's access to the exercise facility referenced in the paragraph
following.
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Throughout the term, Landlord shall keep the existing exercise
facility within the Building open for the use of Tenant and other Building
tenants and their employees and shall maintain it at its existing level in
accordance with non-discriminatory, as applied to Tenant, rules and regulations
imposed by Landlord with respect to such exercise facility, provided, however,
that no such rule or regulation shall impose a charge and limit the days or
hours of such use. Nothing herein contained shall be deemed to create third
party beneficiary rights in others including other Building tenants. While
Landlord shall not offer the use of the exercise facility to others, it shall be
under no obligation to effect or attain such exclusive use and shall have no
accountability if such result is not attained.
5.02. Landlord shall light, clean, maintain, repair and, if and to
the extent necessary, make replacements to portions of the Common Areas so that
the respective elements therein may be used for their intended purposes in a
manner consistent with operating procedures generally followed in similar
non-governmental and non-institutional projects in the area of the Project.
5.03. Tenant and its employees and invitees shall have the
non-exclusive right, in common with other tenants and occupants within the
Project and their respective employees and invitees and Landlord and its
employees, agents and contractors, to use the Common Areas for their intended
purposes, subject to such reasonable and non-discriminatory, to Tenant, rules
and regulations as Landlord may from time to time adopt with regard to the
Common Areas. Landlord will not grant the right to use any of the Common Areas
to anyone other than parties referenced in the preceding sentence. Tenant
further agrees, after receiving notice thereof, to abide by such rules and
regulations and to use reasonable efforts to cause its employees and invitees to
conform thereto. Landlord may at any time temporarily close any part of the
Common Areas (including the exercise facility referenced in Section 5.01
preceding), to make repairs or changes or to prevent (a) the use thereof by
persons who are not Permitted Users or (b) the acquisition of public rights in
any such area, and may act in and with respect to the Common Areas as it in its
judgment determines may be necessary or desirable.
5.04. Notwithstanding anything in this Lease contained to the
contrary, Tenant agrees that it will not use, or permit, or suffer the use by
its employees or invitees of (i) areas, within the Common Areas not designated
as parking spaces for parking or (ii) parking spaces for other than passenger
automobiles.
5.05. Landlord agrees that, subject to the provisions of Article 24
hereof, it will provide and maintain, as part of
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the Common Areas (and without specific charge therefor), a parking area within
the Project containing parking spaces at least equal to the product obtained by
multiplying the Area of the Building by five (5) and dividing that product by
1,000. Tenant shall be entitled to utilize such parking spaces in common with
Landlord and other tenants of the Building, inclusive of their contractors and
agents and their respective employees, and future invitees. Tenant shall have
the right to place its name within up to twenty (20) parking spaces identified
on Exhibit D hereto in the manner designated by Landlord to be the standard for
such designation. Landlord shall have no responsibility to take any action to
effect or attain such exclusive use for Tenant and shall have no accountability
if such result is not attained.
5.06. Tenant shall have the right for a period of six (6)
consecutive months from the Commencement Date to keep a trailer within such
portion of the parking area of the Project as may be designated by Landlord in
its sole and arbitrary discretion. The foregoing trailer shall be used solely
for the purpose of storing Tenant's merchandise and at all times shall be under
the sole and exclusive control of Tenant which hereby indemnifies and exonerates
Landlord from all loss, liability, claim, damage and costs, including reasonable
attorneys' fees relating to the trailer and its contents except if caused by
Landlord's gross negligence or wilful misconduct.
ARTICLE 6
Electricity
SECTION 6.01. Landlord has and reserves the exclusive right to and
shall (a) select one or more entity companies each an ("Electric Company") to
provide electrical service to the Project and (b) furnish electric current to
the Premises, inclusive of the HVAC Systems furnishing HVAC Services to the
Premises on a submetering basis and Tenant agrees to purchase such electric
current from Landlord or Landlord's designated agent at terms and rates set,
from time to time, during the Term by Landlord. Tenant shall not be required to
pay Landlord more than the amount calculated by applying to the measured demand
and/or usage of electric current in or furnished to the Building, the average
rate per unit of measurement, inclusive of applicable taxes, surcharges, demand
charges, energy charges, fuel adjustment charges, time of day charges and other
charges, payable by Landlord for electric current furnished to the Premises by
the utility (public or private) servicing the Building. No meter measuring
electric current furnished to the Premises shall measure electric current
furnished to any other area within the Project, and if it does, Tenant shall
have no
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obligation to pay for any electric current it may utilize which is measured by
such meter. Such meter shall not include electric current to provide HVAC
Services within the Premises unless the HVAC System services the Premises
exclusively. If more than one meter shall be used to measure electric current
furnished to the Premises, such electric service shall be computed cumulatively
for all such meters unless Tenant, if it were purchasing electric current
directly from the utility, would have been required to use and be billed
separately for more than one meter therefore pursuant to Requirements. Should
any tax or charge in the nature thereof (not constituting an income tax) be
imposed upon Landlord's receipt from the sale or resale of electric current to
the Premises, then the pro rata share thereof allocable to the electric current
furnished to the Premises shall be passed on to and paid by Tenant. Bills for
such metered utilization of electric current and all other accessory charges as
heretofore indicated shall identify all meters measuring electric current
furnished to the Premises to which such bill relates and shall be paid by Tenant
not more than thirty (30) days after being billed therefor by Landlord. Such
bills shall (a) shall specify the meter readings of each meter recording the
electrical current consumed in or with respect to the Premises, (b) shall be
accompanied by the utility company's bill or bills with respect to charges for
the same period (or periods, or the applicable portions of each) as the
foregoing bill being furnished by Landlord to the Tenant, and (c) shall be
rendered monthly or at such less frequent intervals as Landlord may determine.
Landlord reserves the right to discontinue furnishing electric
current to the Premises on not less than 30 days notice to Tenant or upon such
shorter notice as may be required by order or other action of a Governmental
Authority or by Requirement. In such event, this Lease shall continue in full
force and effect and shall be unaffected thereby except only that from and after
the effective date of such discontinuance, Landlord shall not be obligated to
furnish electric current to the Premises. No such discontinuance shall effect a
reduction in Rental. If pursuant to the foregoing, Landlord shall discontinue
furnishing electric current to the Premises, Tenant shall arrange to obtain
electric current directly from the utility serving the Building. Such electric
current may be furnished to the Premises by such utility by means of the then
existing Building feeders, risers and wiring (including any meters measuring
such consumption utilized for such purpose at the time) to the extent that the
same are available, suitable and safe for such purpose. All other additional
panel boards, meters, feeders, risers, wiring and other conductors and equipment
required to obtain electric current to the Premises of substantially the same
quantity, quality and character from such utility shall be installed by
Landlord. Landlord shall pay the cost thereof. Unless required to do so by
Governmental Authority or by applicable law, Landlord
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shall not discontinue furnishing electric current to the Premises until,
provided Tenant acts diligently in doing so, Tenant has obtained an alternative
electric energy source from the utility serving the Building, and unless it
shall make a similar election with regard to substantially all other of its
tenants within the Building.
6.02. At Landlord's option, it shall furnish and install all
lighting tubes, lamps, bulbs and ballasts used in the Premises and Tenant shall
pay Landlord's reasonable charges therefor, as Additional Rent, within thirty
(30) days after Landlord shall have billed Tenant for such charges.
6.03. Tenant's use of electric current in the Premises shall not at
any time exceed the capacity of any of the electrical conductors and equipment
in or otherwise serving the Premises.
6.04. Intentionally Omitted
6.05. Landlord shall have no liability to Tenant for any loss,
damage or expense sustained or incurred by reason of any change, failure,
inadequacy, unsuitability or defect in the supply or character of the electric
energy furnished to the Premises or if the quantity or character of the electric
energy is no longer available or suitable for Tenant's requirements, except for
any actual damage suffered by Tenant by reason of any such failure, inadequacy
or defect caused solely by the negligence, willful misconduct or default beyond
any applicable cure period of Landlord.
6.06. Tenant to the extent reasonably necessary shall allow the
Electric Company, if requested to do so by Landlord, access to the Premises and
to the lines, feeders, risers, wiring and equipment serving the Premises.
ARTICLE 7
Assignment, Mortgaging, Subletting, Etc.
SECTION 7.01. Tenant shall not voluntarily or involuntarily (a)
assign or otherwise transfer this Lease or the estate hereby granted, (b) sublet
the Premises or any part thereof (c) allow the Premises to be used or occupied
by others (an "Occupancy Right"), or (d) mortgage, pledge or encumber this Lease
or the Premises or any part thereof, without, in each instance, obtaining the
prior consent of Landlord, except as otherwise expressly provided in this
Article 7. For purposes of this Article 7, (i) the transfer of a majority of the
issued and
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outstanding capital stock of any corporate tenant, or of a corporate subtenant,
or the transfer of a majority of the total interest in any partnership tenant or
subtenant, however accomplished, whether in a single transaction or in a series
of related or unrelated transactions, shall be deemed an assignment of this
Lease, or of such sublease, as the case may be, (ii) any person or legal
representative of Tenant, to whom Tenant's interest under this Lease passes by
operation of law, or otherwise, shall be bound by the provisions of this Article
7, and (iii) a material modification or amendment of a sublease shall be deemed
a sublease.
7.02. The provisions of Section 7.01(a) and (b) hereof shall not
apply to a transfer (a) to an entity resulting from the merger or consolidation
of Tenant provided that the resultant entity has a net worth at least equal to
or in excess of the net worth of Tenant immediately prior to such merger, or
consolidation or transfer), or (b) a transfer referred to in clause (i) of the
second sentence of Section 7.01 or to an entity into which substantially all of
Tenant's assets are transferred, provided that with respect to this subdivision
(b), (i) such transfer is not principally for the purpose of transferring this
Lease or the leasehold estate created hereby, and (ii) the resultant entity has
a net worth at least equal to or in excess of the net worth of Tenant
immediately prior to such merger, or consolidation or transfer). The provisions
of subdivisions (a), (b) and/or (c) of Section 7.01 shall not apply to
assignments, sublettings or Occupancy Rights granted to an Affiliated Entity,
provided the same is not principally for the purpose of avoiding the application
of Section 7.01 of this Lease. As used in this Section 7.02, an "Affiliated
Entity" means an entity controlled by, controlling or under common control with
the Tenant.
7.03. Any assignment, subletting or Occupancy Right, whether or not
Landlord's consent is required, shall be made only if, and shall not be
effective unless, all of the following shall have been furnished to Landlord at
least ten (10) Business Days prior to the effective date of the contemplated
assignment, subletting or grant of Occupancy Right:
(a) The name and business address of the proposed subtenant,
assignee, or grantee of any Occupancy Right ("Occupancy Grantee"), information
with respect to the nature and character of the proposed subtenant's, assignee's
or Occupancy Grantee's business and business activities generally and within the
Premises, and current financial information with respect to the net worth,
credit and financial responsibility of the proposed subtenant, assignee or
Occupancy Grantee;
(b) In the case of an assignment, an executed counterpart
thereof, and all ancillary agreements with the
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proposed assignee (including all documents from which the considerations to be
received by Tenant referred to in Section 7.07 hereof can be ascertained);
(c) In the case of a subletting, an executed counterpart of
the sublease and all ancillary agreements with the sublessee (including all
documents from which the considerations to be received by Tenant referred to in
Section 7.07 hereof can be ascertained);
(d) In the case of an Occupancy Right, a fully executed copy
of the agreement creating the same and all ancillary agreements pertaining
thereto;
(e) In the case of an assignment, a notarially acknowledged
agreement executed by the assignee, in form and substance reasonably
satisfactory to Landlord, whereby the assignee shall assume and agree to fulfill
the obligations and performance of this Lease and the assignment and agree to be
personally bound by and upon the covenants, agreements, terms, provisions and
conditions hereof on the part of Tenant to be performed or observed and whereby
the assignee shall agree that the provisions of Section 7.01 hereof shall,
notwithstanding such an assignment or transfer, continue to be binding upon it
in the future;
(f) Tenant together with requesting Landlord's consent
hereunder shall obligate itself to pay Landlord as Additional Rent the
reasonable out of pocket, direct costs incurred by Landlord to review the
request and to prepare the requested consent or approval, including any
reasonable attorneys' fees incurred by Landlord;
Each sublease and assignment referred to in clause (c) of this
Section 7.03 shall specifically state that (i) it is subject to all of the
terms, covenants, agreements, provisions, and conditions of this Lease, as the
same may be amended (ii) a consent by Landlord thereto shall not be deemed or
construed to modify, amend or affect the terms and provisions of this Lease, or
Tenant's obligations hereunder, which shall continue to apply to the Premises,
and the occupants thereof, as if the sublease, assignment or Occupancy Right had
not been made, (iii) if Tenant defaults in the payment of any Rental, Landlord
is authorized to collect any Rental due or accruing from any assignee, subtenant
or other occupant of the Premises and to apply the net amounts collected to the
Rental, (iv) the receipt by Landlord of any amounts from an assignee or
subtenant, or other occupant of any part of the Premises shall not be deemed or
construed as releasing Tenant from Tenant's obligations hereunder or the
acceptance of that party as a direct tenant, and (v) at the option of Landlord,
in the case of a sublease, if this Lease
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shall terminate or expire, the sublease shall nonetheless continue in full force
and effect and the subtenant thereunder shall attorn to the Landlord as a direct
lease between Landlord and such Sublessee, provided, however, that in case such
option is exercised by Landlord and notwithstanding such attornment, the
Landlord shall not be (A) liable for any previous act or omission of Tenant,
unless it is also a continuing obligation of Landlord under this Lease, (B)
subject to any counterclaim, defense or offset to which such subtenant may be
entitled against Tenant, (C) bound by any modification or amendment of such
sublease made without Landlord's consent, or by any previous payment of more
than one month's Rental, and (D) liable to the subtenant beyond Landlord's
interest in and to the subleased space.
7.04. Tenant covenants that, notwithstanding any assignment of this
Lease or of the leasehold estate created thereby by the Tenant or any
subletting, in whole or in part, of any portion of the Premises, whether or not
in violation of the provisions of this Lease, and notwithstanding the acceptance
of Rental by Landlord from an assignee or transferee or any other party, Tenant
shall remain fully and primarily liable throughout the Term (inclusive of any
renewals or extensions thereof) for the payment of the Rental due and to become
due under this Lease and for the performance of all of the covenants,
agreements, terms, provisions and conditions of this Lease on the part of Tenant
to be performed or observed.
7.05. The liability of Tenant, and the due performance by Tenant of
the obligations on its part to be performed under this Lease, shall not be
discharged, released or impaired in any respect by an agreement or stipulation
made with a mesne assignee of Tenant by Landlord or any grantee or assignee of
Landlord, by way of mortgage or otherwise, extending the time of or modifying
any of the obligations contained in this Lease, or by any waiver or failure of
Landlord to enforce any of the obligations on Tenant's part to be performed
under this Lease. If any such agreement or modification operates to increase the
obligations of the assigning Tenant, the liability under this Section 7.05 of
the assigning Tenant or any of its successors in interest, (unless such party
shall have expressly consented in writing to such agreement or modification)
shall continue to be no greater than if such agreement or modification had not
been made. To charge an assigning Tenant, Landlord must give such assigning
Tenant the same notice of default that it is required to give the defaulting
Tenant. An assigning Tenant shall have the same right to cure a default
hereunder on the part of the Tenant at the time as such Tenant, provided, only,
that such cure be effected within the same period of time as is available to
such Tenant. Each Tenant acknowledges and consents to the foregoing right given
to an assigning Tenant. Except as heretofore provided, no demand or notice of
any default from Landlord shall be required, Tenant and
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each assigning Tenant hereby expressly waiving any such other demand or notice.
7.06. Landlord shall not unreasonably withhold or delay its consent
where such consent is required (i) to an assignment of this Lease and the
leasehold estate hereby created, (ii) a subletting of the whole or any part of
the Premise, or (iii) an Occupancy Right, provided:
(a) The proposed subtenant, assignee or Occupancy Grantee is a
party whose reputation, financial net worth (as to assignments only), credit and
financial responsibility is, considering the responsibilities involved,
reasonably satisfactory to Landlord;
(b) The nature and character of the proposed subtenant,
assignee or Occupancy Grantee, its business or activities and intended use of
the Premises is, in Landlord's reasonable judgment, in keeping with the
standards of the Building and the area in which the Premises are located and
does not conflict with the provisions of Article 9 of this Lease;
(c) Intentionally Omitted.
(d) Tenant shall have complied with all of the provisions of
Section 7.03;
(e) In the case of a subletting of a portion of the Premises,
(i) the portion so sublet shall be regular in shape and suitable for normal
renting purposes; (ii) there shall be no more than two (2) other subleases of
the Premises in effect, (iii) the portion of the Premises so sublet (or occupied
by parties other than the Tenant) in the aggregate shall not exceed fifty (50%)
percent of the Area of the Premises and no subletting shall be for or leave a
balance of the Area of the Premises of less than 2,500 rentable square feet of
space and (iv) Tenant shall provide reasonably appropriate means of ingress and
egress to and from the sublet space, separate the sublet space from the
remainder of the Premises, and pay, when due, all of the costs of doing so; and
(f) In any subletting (i) the proposed subtenant shall not
then be an occupant of any part of the Project or an entity which controls, is
controlled by or under common control with any such occupant or party; (ii) the
proposed subletting shall be advertised or otherwise published at a rental rate
not less than that then being charged under leases being entered into by
Landlord for comparable space within the Building for a comparable term of
years.
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7.07. In the event of an assignment or subletting other than one
specified in Section 7.02 hereof, but inclusive of one pursuant to a Requirement
(such as the Bankruptcy Code, unless the transaction is otherwise within the
purview of Section 7.02 hereof), Tenant shall pay to Landlord, as Additional
Rent, one-half of,
(a) in the case of an assignment, an amount equal to all sums
and other consideration paid to Tenant by the assignee for or by reason of such
assignment (including, but not limited to, sums payable for the sale or rental
of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings
or other personal property (collectively "Property"), less the sum of (i) in the
case of a sale of Property ("Net Value"), the then net unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns), (ii) reasonable brokerage commissions and legal fees paid by
Tenant with respect to such assignment, and (iii) reasonable costs paid by
Tenant in making changes in the layout and finish of the Premises at the request
of the assignee, but only to the extent that the payments referenced in (ii) and
(iii) are not reimbursed by the assignee to Tenant; and
(b) in the case of a sublease, any Rental, additional charge
or other consideration payable under or with respect to the sublease to Tenant
by the subtenant (including, but not limited to, sums payable for the sale or
rental of Property, less the sum of (i) in the case of a sale of Property, the
Net Value thereof which is in excess of the sum of the rents payable during the
term of the sublease in respect of the subleased space (at the rate per square
foot payable by Tenant hereunder), (ii) reasonable brokerage commissions and
legal fees paid by Tenant in connection with entering into any such sublease,
and (iii) reasonable costs paid by the Tenant in making changes in the layout
and finish of the subleased space at the request of the subtenant but only to
the extent that the payments referenced in (ii) and (iii) are not reimbursed by
such subtenant to Tenant.
The provisions of clause (iii) in this subdivision (b) and in
subdivision (a) preceding, shall be deemed satisfied (and such costs shall be
subtracted from the gross) if such reimbursement constitutes part of the
consideration paid by the assignee, in the case of (a), and the subtenant, in
the case of (b).
(c) At Tenant's option, it may use fair market value as the
deductible with respect to personal property in lieu of Net Value in clauses (a)
and (b) preceding, provided, however, that any dispute as to the fair market
value shall be resolved by Arbitration.
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(d) The sums payable under subdivisions (a) and (b) preceding
shall be paid by Tenant to Landlord as and when paid by the subtenant or
assignee, as the case may be, net of reasonable third party collection fees paid
by Tenant; and
(e) Tenant shall furnish Landlord with a written statement,
semi-annually, certified by Tenant or a responsible employee of Tenant, from
which the Additional Rent to which Landlord may be entitled by reason of the
application of clauses (a) and (b) hereunder can be determined. Tenant shall
keep books of account in accordance with generally accepted accounting
principles consistently applied and supporting material relating to the matters
reflected in clauses (a) and (b) hereof, and shall make the same available to
Landlord at all reasonable times for inspection at the Premises or at Tenant's
main office, as determined by Landlord, for the purpose of verifying any
statement furnished or to be furnished by Tenant. Landlord shall have the right
to delegate this inspection to a duly authorized representative and, in
addition, may make such copies thereof as it reasonably requires, but only for
the purposes enumerated in this clause.
7.08. The consent or waiver of consent by Landlord in any instance
to an assignment or subletting shall not in any way be construed or deemed to
relieve Tenant, (which term as used in this Section 7.08 shall have the meaning
reflected in Section 2.01(v) hereof without regard to the word "permitted"
contained therein), from obtaining the prior consent of Landlord to an
assignment or subletting in each and every subsequent instance.
ARTICLE 8
Mortgages
SECTION 8.01. The Tenant's interest in this Lease and the leasehold
estate created hereby is and shall be subject and subordinate to any ground or
underlying lease or leasehold mortgage and to any mortgage or other lien or
charge in the nature thereof now or hereafter affecting all or any part of the
Project. Each and all of the foregoing leases, mortgages, liens and charges are
referred to in this Lease as a "Mortgage" and the holder thereof or the landlord
thereunder as a "Mortgagee". This clause shall be self-operative and no further
instrument or subordination shall be required by any mortgagee or lessee. In
confirmation of such subordination, Tenant shall execute promptly any
certificate that Landlord may request.
The preceding paragraph of this Section 8.01 shall be of no force or
effect with respect to a Mortgage hereafter first
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affecting all or any part of the Premises unless and until Landlord shall, with
respect to such Mortgage, furnish Tenant with an agreement from the Mortgagee,
in recordable form (the "SNDA"), to the effect that so long as no Event of
Default exists on the part of Tenant under this Lease, or any event has
occurred, which has continued to exist for such period of time (after notice, if
any, required by this Lease) as would entitle Landlord to terminate this Lease
or would cause, without any action of Landlord, the termination of this Lease or
would entitle Landlord to dispossess Tenant (each hereinafter in this paragraph,
but not elsewhere in this Lease, called a "Default Condition"), Tenant shall not
be joined as a party defendant in any action or proceeding which may be
instituted or taken by the then Mortgagee under any such Mortgage for the
purpose of terminating such ground or underlying lease or for the purpose of
foreclosing any such Mortgage, by reason of any default under any such Mortgage,
(unless applicable law requires Tenant to be made a party thereto as a condition
to proceeding against the Mortgagor or otherwise protecting the Mortgagee's
rights and remedies, in which case the Mortgagee may join the Tenant as a
defendant in any such action or proceeding for such purposes and not to
terminate the Lease) and, so long as no Event of Default or Default Condition
shall exist (x) Tenant shall not be evicted from the Premises, (y) Tenant's
leasehold estate hereunder shall not be terminated or disturbed and (z) the
Mortgagee shall recognize this Lease and Tenant's rights under this Lease shall
not be affected in any way, other than as heretofore specified in this
paragraph.
Landlord represents that on the date hereof, no Mortgage exists.
8.02. Provided that it shall have been tendered with the SNDA,
Tenant agrees that if requested by the Mortgagee, it will agree in writing that
if the Mortgagee, or any person claiming under such Mortgagee becomes the
Landlord hereunder, it will recognize such Mortgagee or other person as its
Landlord under this Lease. Alternatively, if so requested by such Mortgagee, or
other person, Tenant, as tenant, will enter into a new lease with said Mortgagee
or other person, as landlord, for the remaining Term and otherwise on the same
terms and conditions as this Lease. Notwithstanding anything herein contained to
the contrary, under no circumstances shall any such Mortgagee or other person
(including a purchaser, assignee or lessee, as the case may be, whether or not
it shall have succeeded to the interest of Landlord) be (a) liable for any act,
omission or default of any prior Landlord, unless it pertains to a condition
which is of a continuing nature, in which event the successor Landlord shall
have the same cure period which shall commence as of the later to occur of (i)
such successor Landlord succeeds to the interest of Landlord under this Lease,
and (ii) the date on
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which Tenant shall have given the successor Landlord as successor landlord,
notice of such condition, (b) subject to any offset, claim or defense which the
Tenant may have against any prior Landlord other than any of such specified in
this Lease, other than one of which the Mortgagee, at the time it becomes such,
has actual knowledge as to which it consents in writing, (c) bound by any Rental
that Tenant might have paid to any Landlord other than itself for other than the
current payment or installment thereof, or (d) bound by any modification,
amendment, termination, cancellation or surrender of the Lease made without its
prior written approval unless it had actual written notice of any of such which
it shall have received from Tenant prior to such Mortgagee, or other person
having acquired its interest, howsoever designated in the Premises.
8.03. If a Mortgagee or proposed mortgagee shall request reasonable
modifications of this Lease which do not adversely affect Tenant other than to
an immaterial extent, Tenant will not unreasonably delay or defer or withhold
making such modifications.
8.04. In the event of any act or omission of Landlord which would
give Tenant the right, immediately or after lapse of a period of time, to cancel
or terminate this Lease, or to claim a partial or total eviction, Tenant shall
not exercise such right (i) until it has given written notice of such act or
omission to the Mortgagee whose name and address shall previously have been
furnished to Tenant in writing and (ii) unless such act or omission shall be one
which is not capable of being remedied by Landlord or such Mortgagee within a
reasonable period of time, until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when such Mortgagee shall have become entitled under such Mortgage, to
remedy the same (which reasonable period shall in no event be less than the
period to which Landlord would be entitled under this Lease or otherwise, after
similar notice, to effect such remedy), provided such Mortgagee shall with due
diligence give Tenant written notice of its intention to, and commence and
continue to remedy such act or omission.
ARTICLE 9
Use
SECTION 9.01. The Premises shall be used by Tenant for general and
executive offices (including occupancy uses reasonably and normally required in
connection with the use of office space for general and executive offices),
activities accessory to such use, including design and art work and for no
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other purpose; provided, however, that Tenant may examine but not repair its
merchandise returned to it by customers so long as in doing so, it does not
violate Requirements.
Those portions, if any, of the Premises, which are designated as
toilets and utility areas, shall be used by Tenant only for the purposes for
which they are designated.
9.02. Tenant shall not use or permit the use of the Premises or any
part thereof in any way which would violate any of the covenants, agreements,
terms, provisions and conditions of this Lease or for any unlawful purposes or
in any unlawful manner or in violation of a Requirement such as but not limited
to the Certificate of Occupancy for the Premises or the Building, and Tenant
shall not suffer or permit the Premises or any part thereof to be used in any
manner or anything to be done therein or anything to be brought into or kept
therein which, in the judgment of Landlord, reasonably exercised, shall (i)
impair the character, reputation or appearance of the Project, or (ii) impair or
interfere with any of the Project services or the proper and economic servicing
of the Project, or (iii) be a nuisance.
9.03. If any license or permit of a Governmental Authority other
than an Approval, specifically required pursuant to another provision of this
Lease to be obtained by Landlord, shall be required for the proper and lawful
conduct of Tenant's business or other activity carried on in the Premises, and
if the failure to secure such license or permit might or would, in any way,
affect Landlord, then Tenant, at Tenant's expense, shall duly procure and
thereafter maintain such license or permit and submit the same for inspection by
Landlord. Tenant, at Tenant's expense, shall, at all times, comply with the
requirements of each such license or permit.
9.04. The use of the Premises for the purposes specified in the
first paragraph of Section 9.01 hereof shall not in any event be deemed to
include, and Tenant shall not use, suffer or permit the use of the Premises or
any part thereof for the sale, preparation or consumption of food or beverages
(alcoholic or non-alcoholic), provided, however, that Tenant may maintain an
eating area for its employees at which their food, purchased off-premises, may
be refrigerated and/or warmed, and coffee and tea may be prepared, and (ii) from
time to time, but no more than four times in any twelve month period, sponsor a
function within the Premises for its business invitees so long as no sale or
charge is involved, at which beverages (alcoholic and non-alcoholic) and food
may be prepared and consumed.
9.05. No signs, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by
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tenant on any part of the outside or (if it can be seen outside the Premises)
inside of the Premises or the Building without the prior written consent of the
Landlord other than a lawn sign at the place indicated on Exhibit D hereto. In
the event of the violation of the foregoing by Tenant, Landlord may remove the
sign without any liability, and may charge the expense incurred by such removal
to the Tenant. Landlord shall have the right to prohibit any advertising by
Tenant which, in the reasonable opinion of Landlord, impairs the reputation of
the Building or its desirability as a building or space therein available for
rent, and upon written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
9.06. Intentionally omitted.
9.07. During the Term, no part of the Premises shall be used or
permitted to be used by Tenant and no part of the Building, (no reference being
made to the Premises), shall be used or permitted to be used by Landlord,
notwithstanding that such use or occupancy may otherwise be permitted under the
terms of the first paragraph of Section 9.01 hereof, as a banking or safe
deposit business or a money exchange, as a stock brokerage office, for the
conduct of a school of any kind, other than a child care center or a preschool,
an employment agency, for the furnishing of health care services, for the
conduct of any business or activity, which by the nature of its use or manner of
use creates or fosters an unusual risk to the security of the Building or any of
its tenants or occupants, for the manufacturing, repairing or servicing of
products or goods, or for the retail sale or rental of goods or merchandise.
9.08. Intentionally Omitted
9.09. During the Term, subject to contrary provisions of this Lease,
Tenant shall have the right of access to the Premises, twenty-four (24) hours a
day, seven (7) days a week.
ARTICLE 10
Quiet Enjoyment
SECTION 10.01. So long as Tenant pays all of the Rental when due
hereunder and performs all of Tenant's other obligations hereunder, Tenant shall
peaceably and quietly have, hold and enjoy the Premises subject, nevertheless,
to the terms and provisions of this Lease.
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ARTICLE 11
Brokerage
SECTION 11.01. Tenant covenants, represents and warrants that Tenant
has had no dealings or negotiations with any broker, finder or agent other than
Andy Finkelstein, Associates (the "Broker") with respect to this Lease or the
negotiation thereof. Based thereon, Landlord agrees to hold harmless and
indemnify Tenant from and against any and all cost, expense (including
reasonable attorneys' fees) or liability for any compensation, commissions or
charges claimed by any broker, finder or agent with respect to this Lease or the
negotiation thereof except to the extent that the same arises out of Tenant's
acts or omissions. Tenant agrees to hold harmless and indemnify Landlord from
and against any and all cost, expense (including reasonable attorneys' fees) or
liability for any compensation, commissions or charges claimed by any broker,
finder or agent with respect to this Lease or the negotiation thereof, based in
any part upon Tenant's breach of the provisions contained in the first sentence
of this Section.
ARTICLE 12
Compliance With Laws
SECTION 12.01. Tenant shall comply, at its cost and expense, with
all Requirements applicable to Tenant's manner or use, occupancy or operation of
the Premises.
12.02. Tenant, subject to the provisions of Section 12.03 hereof,
covenants and agrees not to suffer, permit, introduce or maintain in, on or
about any portion of the Premises, any hazardous or toxic materials, wastes and
substances which are defined, determined or identified as such in any laws,
rules or regulations (whether now existing or hereafter enacted or promulgated)
of any Governmental Authority having jurisdiction or any judicial or
administrative interpretation of any thereof, and/or any asbestos,
polychlorinated biphenyls or petroleum products including any judicial or
administrative orders or judgments. Any such asbestos, polychlorinated
biphenyls, petroleum products and any such other materials, wastes and
substances are herein collectively called 'Hazardous Materials'. Tenant further
covenants and agrees to indemnify, protect and save Landlord harmless against
and from any and all damages, losses, liabilities, demands, defenses, judgments,
suits, proceedings, costs, disbursements or expenses of any kind or of any
nature whatsoever (including, without limitation, attorneys'
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and experts' fees and disbursements) which may at any time be imposed upon,
incurred by or asserted or awarded against Landlord and arising from or out
of any Hazardous Materials on, in, under or affecting all or any portion of the
Project, Building, or Premises, introduced by, or on behalf of Tenant,
including without limitation (i) the costs of removal of any and all Hazardous
Materials from all or any portion of the Building, Project or Premises, (ii)
additional costs required to take necessary precautions to protect against the
release of Hazardous Materials on, in, under or affecting the Building, Project
or Premises, into the air, any body of water, any other public domain or any
surrounding areas, (iii) any costs incurred to comply, in connection with all or
any portion of the Building, Project or Premises, with all applicable laws,
orders, judgments and regulations with respect to Hazardous Materials and (iv)
costs reasonably incurred by Landlord in determining whether the provisions
hereof have been violated. Nothing herein shall prohibit Tenant from using
minimal quantities of cleaning fluid and office supplies which may constitute
Hazardous Materials but which are customarily present in premises devoted to
office use provided that such use in the Premises is in compliance with
Requirements and all such Hazardous Materials are removed from the Premises
prior to the expiration or sooner termination of the Lease. The preceding
portions of this provision do not apply to Hazardous Materials which may be
located in the Project or Building, inclusive of the Premises at or prior to the
first to occur of (i) the Commencement Date and (ii) the initial commencement
(heretofore or hereafter) of any work, construction, repairs, installations, or
alterations therein by Tenant.
12.03. Landlord covenants and agrees to remediate, with diligence
and in compliance with Requirements, all Hazardous Materials now within the
Premises or hereafter introduced into the Premises by it or by any of its agents
or contractors and to indemnify, protect and save Tenant harmless from and
against any and all damages, losses, liability, demands, defenses, judgments,
suits, proceedings, costs, disbursements or expenses of any kind or of any
nature whatsoever (including, without limitation, attorneys' and experts' fees
and disbursements) which may at any time be imposed by, incurred by or asserted
or awarded against Tenant arising out of the failure of Landlord to do so.
12.04. The provisions of Sections 12.01, 12.02 and 12.03 shall
survive the expiration or sooner termination of this Lease.
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ARTICLE 13
Insurance
SECTION 13.01. Tenant shall not, by virtue of its manner of use,
occupancy or operation of the Premises, violate, or permit the violation of, any
condition imposed by any insurance policy required to be maintained by either
Landlord or Tenant under this Lease, and shall not do, or permit anything to be
done, or keep or permit anything to be kept in the Premises, which would
increase the premium rate for the property damage insurance specified in the
first paragraph of Section 13.05 hereof over the rate which would otherwise then
be in effect (unless Tenant pays the resulting premium as provided in Section
3.03 hereof) or which would result in insurance companies of good standing
refusing to insure the Building or any of such property in amount reasonably
satisfactory to Landlord. The provisions of this Section shall have no
application to the use of the Premises for general and administrative offices.
13.02. Landlord and Tenant shall each secure, if obtainable, an
appropriate clause in, or an endorsement upon, each insurance policy obtained by
it and covering the Building, the Premises, the Common Areas and its personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive their rights of subrogation with
respect to claims, liabilities, losses, damages, costs and/or expenses
(collectively "losses") payable under any such policy or policies and agree that
such policy or policies shall not be invalidated should the insured waive, in
writing, prior to a loss, any or all right of recovery against any party for
losses covered by such policy or policies. The waiver of the right of
subrogation or permission for waiver of any claim hereinbefore referred to shall
extend to the agents of each party and its employees and, in the case of Tenant,
shall also extend to all other persons and entities occupying or using the
Premises in accordance with the terms of this Lease. If and to the extent that
such waiver or permission can be obtained only upon payment of an additional
reasonable charge then the party benefiting from the waiver or permission shall
pay such charge upon demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission as
to the party benefitting therefrom who shall have not paid such charge.
If the waiver of subrogation in the foregoing paragraph of this
Section 13.02 shall be available, and insofar as may be permitted by the terms
of the insurance policies carried by it, each party, provided its right of full
recovery under its policy
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or policies aforesaid is not adversely affected or prejudiced thereby, hereby
releases the other with respect to any claim including a claim for negligence)
which it might otherwise have against the other party for loss, damages or
destruction with respect to its property by fire or other casualty including
rental value or business interest, as the case may be) occurring during the Term
covered under its policy or policies.
Landlord and Tenant shall be entitled to the benefits of the first
and second paragraph of this Section 13.02 only to the extent that its losses
are covered by insurance at the time of the occurrence.
Landlord and Tenant hereby agree to advise the other promptly if the
clauses to be included in their respective policies as provided in the preceding
two paragraphs cannot be obtained. Each hereby also agree to notify the other
promptly of any cancellation or changes of the terms of any such policy which
would affect such clauses.
13.03. Intentionally omitted.
13.04. If any dispute shall arise between Landlord and Tenant with
respect to the incurrence or amount of any additional insurance premium referred
to in Section 13.02 or 13.03, the dispute shall be determined by Arbitration.
13.05. Landlord, from and after the date of this Lease, agrees to
maintain during the Term, Property Damage Insurance covering the Building in an
amount equal to the replacement value thereof, exclusive of foundations,
excavations and footings. Such insurance shall be provided on a special cause of
loss (e.g., "all-risk") basis of coverage. Such policy may contain a
commercially prudent deductible, provided, however, that in case of a loss
covered thereunder, Landlord shall advance the amount of such deductible as and
to the extent needed to effect the requisite coverage.
Tenant shall not carry separate or additional insurance concurrent
in form or contributing in the event of loss with that required of Landlord
pursuant to the preceding paragraph.
13.06. Tenant covenants and agrees to maintain from and after the
first to occur of the commencement of Tenant's Work, the installation of
Tenant's Property, and the Commencement Date, and to keep in force during the
Term for the benefit of Tenant as the insured and naming Landlord (and its
designees) as additional insureds, a commercial general liability insurance
policy protecting Landlord (and its designees) and Tenant against any liability,
customarily covered by such a policy, occasioned by any occurrence within the
Premises. Such policy is to be written
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by good and solvent insurance companies licensed in the State of New York
satisfactory to Landlord in the reasonable exercise of its discretion, and shall
be in limits of liability thereunder of not less than the amount of Five Million
($5,000,000) Dollars per occurrence for bodily or personal injury (including
death) and for property damage. Such insurance may be carried under a blanket
policy covering the Premises and other locations of Tenant, if any, provided,
however, that such policy specifically references the Premises and sets the
foregoing limits of liability for the Premises. Such policy may contain a
commercially prudent deductible, provided, however, that in case of a liability
covered thereunder, Tenant shall advance the amount of such deductible as and to
the extent needed to effect the requisite coverage. Such policy shall also
include a provision that no act or omission of Tenant which may result in loss
or damage, including death, to persons or property, shall affect or limit the
obligations of the insurance company in respect of Landlord or its designee.
Prior to the time such insurance is first required to be carried by Tenant and
thereafter, not less than fifteen (15) days prior to the effective date of any
such policy, Tenant agrees to deliver to Landlord a certificate from the insurer
evidencing such insurance. Said certificate shall contain an endorsement that
such insurance may not be cancelled or modified except upon thirty (30) days'
prior notice to Landlord.
13.07. Landlord covenants and agrees to maintain from and after the
date hereof and to keep in force during the Term for the benefit of Landlord,
naming Landlord as the insured (and its designees, at the option of Landlord as
a named or additional insured), and Tenant as an additional insured, a
commercial general liability insurance policy protecting Landlord (and its
designees) and Tenant against any liability, customarily covered by such a
policy, occasioned by any occurrence within the Common Areas. Such policy is to
be written by good and solvent insurance companies licensed in the State of New
York, and shall be in limits of liability thereunder of not less than the amount
of Five Million ($5,000,000) Dollars per occurrence for bodily or personal
injury (including death) and for property damage. Such insurance may be carried
under a blanket policy covering the Project and other locations of Landlord, if
any, provided, however, that such policy specifically references the Project and
sets the foregoing limits of liability for the Project. If the aggregate limit
of such insurance applying to the Project is reduced by the payment of a claim
or establishment of a reserve, Landlord shall take immediate commercially
reasonable steps to have the required aggregate limit restored by endorsement to
the existing policy or the purchase of an additional insurance policy. Such
policy may contain a commercially prudent deductible, provided, however, that in
case of a liability covered thereunder, Landlord shall advance the amount of
such
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deductible as and to the extent needed to effect the requisite coverage. Such
policy shall also include a provision that no act or omission of Tenant sha1l
affect or limit the obligations of the insurance company in respect of Landlord
or its designee. Prior to the time such insurance is first required to be
carried by Tenant and thereafter, not less than fifteen (15) days prior to the
effective date of any such policy, Tenant agrees to deliver to Landlord a
certificate from the insurer evidencing such insurance. Said certificate shall
contain an endorsement that such insurance may not be cancelled or modified
except upon thirty (30) days' prior notice to Landlord.
ARTICLE 14
Rules and Regulations
SECTION 14.01. Tenant shall faithfully observe and comply with the
Rules and Regulations annexed hereto as Exhibit E, and such reasonable changes
therein (whether by modification, elimination or addition) as Landlord at any
time or times hereafter may make and communicate in writing to Tenant on not
less than ten (10) days prior notice, provided, however, that in case of a
conflict or inconsistency between the provisions of this Lease and any of the
Rules and Regulations as originally promulgated or as changed, the provisions of
this Lease shall control, and Tenant shall use reasonable efforts to have its
employees, agents and invitees do so, as well. No such Rules and Regulations
will be enforced against Tenant or "tenant" in a manner which discriminates
Tenant from other like tenants in the Project. At Landlord's option, wherever
the term "Tenant" appears in the Rules and Regulations, such term shall be
construed to include the employees, agents, contractors, licensees undertenants,
Occupancy Grantees, and invitees of such "Tenant" or "tenant".
14.02. Nothing contained in this Lease shall be construed to impose
upon Landlord any duty or obligation to Tenant to enforce the Rules and
Regulations or the terms, covenants or conditions in any other lease, as against
any other tenant, and Landlord shall not be liable to Tenant for violation of
the same by any other tenant or its employees, agents or visitors.
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ARTICLE 15
Tenant Changes
SECTION 15.01. Subject to Section 15.02, Tenant will take no
alterations, installations, repairs, additions, improvements or replacements
(hereinafter singularly and collectively called "Tenant Changes") in, to or
about the Premises without Landlord's prior consent. [For the purpose of this
Article 15 only, Landlord shall be deemed to have consented to a Tenant Change
if prior to the expiration of ten days from the request for such consent made by
Tenant in the manner provided in Article 33 hereof, Landlord shall not have
advised tenant, in writing, in the manner provided in Article 33 hereof, that it
does not consent to such Tenant Change.]
15.02. Landlord's consent shall not be unreasonably withheld or
delayed for non-structural Tenant Changes within the Premises, and shall not be
required for painting, carpeting (other than by glue or other adhesive),
installation (inclusive of wiring) of telephones and computers, and similar
activities performed in the ordinary course within the Premises, using standard
materials, colors and installations.
15.03. Tenant Changes including but not limited to those consented
to or approved by Landlord or within the purview of Section 15.02 hereof shall
be performed in accordance with the following provisions:
(a) No part of the Building or the Project shall be adversely
affected;
(b) The functioning of any of the mechanical, HVAC,
electrical, sanitary, fire alarm and other systems of the Building, including
those within or serving the Premises, shall not be adversely affected, and the
usage of such systems by Tenant shall not be increased in any way that might
have a material adverse affect on any such system;
(c) At least ten Business Days prior to commencement of any
Tenant Changes, Tenant will furnish Landlord with a statement in reasonable
detail of the nature and scope of the proposed Tenant Changes, and an estimate
of the cost thereof, and if the cost of the proposed Tenant Changes can
reasonably be estimated by Landlord to exceed $50,000, or if required by a
Requirement, Tenant shall furnish coordinated plans and specifications for the
proposed Tenant Changes, prepared and signed by an architect licensed by the
State of New York selected by Tenant and to whom Landlord has no reasonable
objection, who shall also prepare the foregoing estimate; and if the nature of
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the proposed Tenant Changes, regardless of cost, in the reasonable discretion of
Landlord requires it, the foregoing plans and specifications must also be
approved by a professional engineer, licensed by the State of New York and
selected by Landlord, whose reasonable charge shall be paid by Tenant.
(d) Intentionally omitted;
(e) Tenant Changes shall be done only by contractors and
subcontractors satisfactory to and first approved by Landlord. Such approval
will not be unreasonably withheld. However, elements of such Tenant Changes,
regardless of cost, of a nature described in subdivisions (a) and (b) hereof
shall be performed by contractors or subcontractors, as the case may be,
satisfactory to and first approved by Landlord;
(f) Tenant Changes shall be effected, at such times and in
such manner so as not to interfere, except to an insignificant extent, with the
use and occupancy of their premises by other tenants or others or with the
Common Areas, and shall be at least equal in quality to the materials and
workmanship in the Premises on the Commencement Date;
(g) Tenant Changes shall be commenced promptly and prosecuted
to completion by Tenant diligently and in a good and workmanlike manner;
(h) Tenant Changes shall be effected in compliance with
Landlord's Work Letter, Requirements and this Lease (including applicable
provisions other than this Article 15);
(i) Tenant Changes are to be effected in a manner which will
not (i) unreasonably interfere with or disturb other tenants or occupants of the
Building, or (ii) cause or create a dangerous or hazardous condition;
(j) Tenant Changes are to be effected so as not directly or
indirectly, create any difficulty with other contractors and/or labor engaged by
Landlord or others engaged in the construction, use or operation of the Project
or any part thereof (including the Premises);
(k) All costs and expenses of or incidental to Tenant Changes,
including those reflected in clause (d) of this Section 15.03, shall be borne
solely by Tenant who with respect to a Tenant Change which can reasonably be
estimated to have a total cost in excess of $10,000.00, shall establish to the
reasonable satisfaction of Landlord prior to the commencement thereof and during
its progress that these costs can and will be paid when due and that completion
of the Tenant Changes will be effected as herein and in the other provisions of
this Lease
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provided. [The ability to pay such costs will be deemed established if Tenant
can show that it has sufficient cash on hand, cash flow and bank lines of credit
that will enable it to meet these costs when due and payable (the "Financial
Condition")];
(l) Tenant shall keep financial or cost accounting records of
all Tenant Changes and Tenant's Work for a period of three years after the
expiration or sooner termination of the Term and shall, within ten (10) Business
Days after request by Landlord, furnish copies thereof to Landlord; and
(m) Throughout the performance of Tenant Changes, Tenant, in
addition to and not in limitation of the provisions of Article 13 hereof, shall
maintain or cause to be maintained (i) Worker's Compensation insurance, in
statutory limits, for all eligible workmen engaged in performing Tenant Changes
and (ii) Builder's All-Risk insurance in an amount equal to the value of Tenant
Changes on the completion thereof naming Landlord and Tenant as insureds, as
their interests may appear, and shall furnish Landlord with certificates
evidencing the existence of such insurance prior to the commencement of any
Tenant's Work, each of which by its terms shall state that such insurance is not
to be terminated without giving Landlord not less than thirty days prior notice
of such termination.
15.04. Landlord's approval of Tenant Changes or of plans,
specifications or working drawings therefor or of the architect or professional
engineer shall create no responsibility or liability on the part of Landlord, as
to the contents of such plans, specifications and drawings, for their
completeness, design sufficiency, or for the performance of the architect or
professional engineer or for compliance with Requirements, or otherwise in
respect of or attributable to any of the foregoing.
ARTICLE 16
Discharge of Liens
SECTION 16.01. Tenant shall not create or cause to be created any
lien, encumbrance or charge upon the Project or any part thereof or the income
therefrom, including but not limited to a mechanic's lien, for work claimed to
have been performed for or on behalf of Tenant or materials claimed to have been
furnished to or for Tenant, and Tenant shall not cause, create or suffer any
other matter or thing whereby the estate, rights and interest of Landlord in the
Premises or any part thereof might be impaired.
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16.02. If any lien, encumbrance or charge within the purview of
Section 16.01 shall at any time be filed against the Premises or any part
thereof, Tenant, within forty-five (45) days after receiving notice of such
filing, shall cause such lien to be discharged, and if it is not, then in
addition to any other right or remedy, Landlord, on not less than ten (10) days
prior notice to Tenant, may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit or by bonding proceedings, and in any such event Landlord
shall be entitled, if Landlord so elects, to compel the prosecution of an action
for the foreclosure of such lien by the lienor and to pay the amount of the
judgment in favor of the lienor with interest, costs and allowances. Any amount
so paid by Landlord and all reasonable costs and expenses incurred by Landlord
in connection therewith, shall constitute Additional Rent payable to Landlord on
demand.
16.03. Nothing in this Lease contained shall be deemed or construed
in any way as constituting the consent or request of Landlord, express or
implied by inference or otherwise, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of labor or
materials for any specific improvement, alteration to or repair of the Premises
or any part thereof, nor as giving Tenant any right, power or authority to
contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any lien against the Premises or
any part thereof. Notice is hereby given that Landlord shall not be liable for
any work performed or to be performed at the Premises for Tenant or any
subtenant, or any materials furnished or to be furnished at the Premises for
Tenant or any subtenant, upon credit, and that no mechanic's or other lien for
such work or materials shall attach to or affect the estate or interest of
Landlord in and to the Premises. Landlord shall have the right to post and keep
posted on the Premises any notices which Landlord may be required to post for
the protection of Landlord and the Premises from any lien.
16.04. This Article does not apply to any work to be performed or
materials to be furnished by Landlord which is required of it under this Lease.
ARTICLE 17
Tenant's Property
SECTION 17.01. All fixtures, equipment, improvements, installations
and appurtenances attached to, built into or a part of the Premises at or prior
to the commencement or during the
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Term, including but not limited to Tenant's Work and Tenant Changes, whether by
Landlord at its own expense or at the expense of Tenant, shall be and remain a
part of the Premises, shall be deemed the property of Landlord and shall not be
removed by Tenant, except as hereinafter in this Article 17 express1y provided.
17.02. Tenant's Work, Tenant Changes and all furniture, furnishings
and other articles of movable personal property owned by Tenant and located
within the Premises (collectively, "Tenant's Property") may be removed from the
Premises by Tenant at any time during the Term. Tenant, before so removing
Tenant's Property shall establish to Landlord's satisfaction that Tenant can and
promptly will repair and restore any damage caused by such removal without cost
or charge to Landlord, and the Financial Condition shall apply thereto. Any such
repair and removal shall itself be deemed a Tenant Change within the purview of
this Lease. Any Tenant's Property for which Landlord hereafter shall grant an
allowance, contribution or credit to Tenant, at Landlord's option, shall not be
so removed except as hereinafter in this Article 17 expressly provided.
17.03. Tenant's Property and other property of the Tenant (except
money, securities and other like valuables) which shall remain in the Premises
after the termination or expiration of this Lease may, at the option of the
Landlord, be deemed to have been abandoned, and, provided that Landlord shall
give Tenant at least ten (10) days prior notice of its intention to do so, in
such case either may be retained by Landlord as its property or may be disposed
of, without accountability, in such manner as Landlord may see fit, at Tenant's
expense, inclusive of the reasonable cost of repairing any damage caused by such
removal to the extent not attributable to Landlord's negligence or wilful
misconduct should Landlord have effected such removal.
ARTICLE 18
Repairs and Maintenance
SECTION 18.01. Tenant shall, at its sole cost and expense, take good
care of the Premises, and shall make all repairs thereto, attributable to (a)
the moving, installation, removal, use or operation of Tenant's Work, Tenant
Changes, or Tenant's Property or property of Tenant (not constituting Tenant's
Property) or of parties acting for or at the instance of Tenant or those
deriving their interest in the Premises through or under Tenant or (b) the
wrongful acts, omissions, negligence or improper conduct of Tenant or any other
parties referenced in clause (a) preceding or (c) to the extent not within the
purview
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of (a) preceding, with respect to Tenant's Work, Tenant Changes or Tenant's
Property. All such repairs shall be quality and class equal to the original work
or installations. As used in this Section 18.01, and in Section 18.02 following,
the term "repairs" or derivatives thereof shall include "replacements" where
applicable. Tenant shall promptly notify Landlord of the need for any such
repairs.
18.02. Landlord shall make all repairs, including load-bearing
repairs to the Building and the Premises (including the HVAC Systems), as and to
the extent needed for the Premises to be used and occupied as provided in the
first paragraph of Section 9.01 hereof, except for those repairs for which
Tenant is responsible pursuant to Section 18.01 hereof or any other provisions
of this Lease.
The provisions of Sections 18.01 and 18.02 hereof shall not apply to
repairs required by reason of a Taking or fire or other casualty.
18.03. Except for matters attributable to Landlord's negligence
(with regard to which Tenant is not contributorily negligent) or willful
misconduct, Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease, or Requirements, to make in or to any portion of the Project.
18.04. Tenant shall not place a load upon the floor of the Premises
exceeding the floor load per square foot areas which such floor was designed to
carry and which is allowed by law.
18.05. Machines and mechanical equipment used by Tenant which cause
vibration, noise, cold or heat that may be transmitted to the Building structure
or to any leased space to such a degree as to be objectionable to Landlord or to
any other tenant in the Building shall be placed and maintained by Tenant at its
expense so as to absorb such vibration, noise, cold or heat, and to prevent its
transmission.
18.06. Except as otherwise specifically provided in this Lease,
there shall be no allowance to Tenant for a diminution of rental value and no
liability on the part of the Landlord by reason of inconvenience, annoyance or
injury to business arising from the making by Landlord of any repairs,
alterations, additions or improvements in or to any portion of the Premises or
in or to fixtures, appurtenances, systems or equipment thereof. Landlord shall
exercise reasonable diligence so as to minimize any interference with Tenant's
business
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operations by reason of any of the foregoing, but shall not be required to
perform the same on an overtime or premium pay basis.
ARTICLE 19
Services and Functions
SECTION 19.01. Landlord will not be required to furnish any
services, except as otherwise specifically provided in this Lease.
19.02. Landlord reserves the right, without any liability to
Landlord, except as otherwise expressly provided in this Lease, to stop service
of any one or more of the systems serving the Project, inclusive of the Premises
and cease to perform any service required to be performed by it under this
Lease, whenever and for so long as may be necessary, using reasonable efforts to
minimize the stoppage by reason of accidents, emergencies, strikes or the making
of repairs or changes which Landlord is required by this Lease or by Requirement
to make or in good faith deems necessary, by reason of any other cause beyond
Landlord's reasonable control.
19.03. Tenant shall utilize only the heating, ventilating and air
conditioning equipment servicing the Premises (the "HVAC Systems") to furnish
heating, ventilation and air conditioning (the "HVAC Services") to the Premises
and, subject to the capacity of the heating system to do so if properly operated
by Tenant, shall furnish heat to the Premises at such times and in such
quantities, so that its failure to do so shall not be a material cause of (a)
pipes and equipment within the Building, inclusive of the Premises, bursting or
being damaged by weather conditions or (b) discomfort to occupants of other
space within the Building. Landlord shall not be obligated to install any other
or additional HVAC Systems or any part or parts thereof in the Premises or to
furnish any HVAC Services to the Premises.
The air conditioning system servicing the Premises shall be capable
of maintaining in the Premises a maximum of 78 degrees FDB, 55% relative
humidity when the outdoor temperature is between 95 degrees FDB and 75 degrees
FDB with the prevailing wind velocity not exceeding 13 miles per hour.
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The performance specified in the preceding paragraph shall be
conditioned upon the following criteria:
(i) Population One person per 150
Density square feet of useable
area within the
Premises
(ii) Lighting and 5 watts per square foot
Electrical Load of usable area within
the Premises
(iii) Exhaust and 1/10 CFM per
Ventilation square foot of useable
Load area within the
Premises.
The heating system servicing the Premises shall be capable of
maintaining in the Premises a minimum of 70 degrees FDB when the outdoor
temperature is not less than 0 degrees FDB and the prevailing wind velocity does
not exceed 15 miles per hour.
Use of the Premises or any part thereof, in a manner, such as by way
of illustration and not in limitation, excessive occupancy or connected
electrical load or rearrangement of partitioning, which interferes with normal
operation of the HVAC Systems may require changes in the HVAC Systems serving
the Premises. Such changes, so occasioned, shall be made by Tenant, at its sole
cost and expense, as a Tenant's Change pursuant to Article 15 of this Lease.
Landlord represents that the electric service dedicated exclusively
to the Premises is capable of a capacity of 5 watts per square foot of usable
area within the Premises.
The HVAC Systems servicing the Premises are operated by Tenant from
controls located within the Premises. Landlord has informed Tenant that the
windows of the Premises and the Building are sealed, and that the Premises may
become uninhabitable and the air therein may become unbreathable if Tenant fails
to operate the HVAC Systems. Any use or occupancy of the Premises when Tenant
does not operate the HVAC Systems shall be at the sole risk, responsibility and
hazard of Tenant, and Landlord shall have no responsibility or liability
therefor. Such condition of the Premises shall not constitute nor be deemed to
be a breach or a violation by Landlord of this Lease or of any provision
thereof, nor shall it be deemed an actual or constructive eviction nor shall
Tenant claim or be entitled to claim any abatement of Rental nor make any claim
for any damages or compensation by reason of such condition of the Premises.
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Tenant shall cause and keep entirely unobstructed all the vents, intakes,
outlets and grilles, at all times and shall comply with and observe all
regulations and requirements prescribed by Landlord for the proper functioning
of the HVAC Systems.
19.04. Intentionally omitted.
19.05. The cleaning and rubbish removal services which will be
furnished by Landlord, at its expense, are set out in the Cleaning, Rubbish
Removal and Security Specifications annexed hereto as Exhibit F and made a part
hereof. Tenant shall pay to Landlord, within thirty (30) days after demand, the
costs incurred by Landlord for (a) extra cleaning work in the Premises required
because of (i) misuse or neglect on the part of Tenant or its employees,
contractors, agents or invitees, (ii) use of portions of the Premises for
preparation, serving or consumption of food or beverages for functions as
provided in Section 9.04(a) of this Lease, (iii) data processing or reproducing
operations in excess of normal office usage, and (iv) non-building standard
materials or finishes installed by Tenant or at its request, Landlord and Tenant
acknowledging that Landlord's Work is not non-building standard, and (b) removal
from the Premises and the Building of so much of any refuse and rubbish of
Tenant as shall exceed that ordinarily accumulated daily in the routine of
business office occupancy. Landlord, its cleaning contractor and their employees
shall have After Hours access to the Premises for cleaning purposes and the use
(at Tenant's expense) of light and power in the Premises as reasonably required
for the purpose of cleaning the Premises in accordance with Landlord's
obligations hereunder.
19.06. Landlord shall provide exterminating services within the
Premises during the Term, as shall be necessary to maintain the Premises free of
insects or vermin. Tenant agrees not to use the Premises in such manner which
can reasonably be anticipated to propagate the existence of such insects or
vermin.
19.07. Landlord shall furnish adequate cold water in the kitchen
located within the Premises. Landlord represents that there is an operating hot
water heater within the Premises. Such water shall be used only for drinking and
the preparation of food or beverages permitted in Section 9.04 hereof and for
dishwashing purposes.
19.08. No discontinuance or cutoff of utilities or services shall be
construed as an eviction or disturbance of possession giving Tenant an election
to terminate this Lease, unless caused solely by the wilful misconduct or
default of Landlord beyond any applicable cure period. Landlord shall use
reasonable efforts to give Tenant reasonable advance notice of
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any discontinuance and cutoff of utilities or services and of the anticipated
period thereof.
19.09. Intentionally omitted.
ARTICLE 20
Access, Changes in Building Facilities, Name
SECTION 20.01. Except for the inside surfaces of all walls, windows
and doors bounding the Premises, all of the Project, including exterior Building
walls, core corridor walls and doors and any core corridor entrance, any
terraces or roofs adjacent to the Premises, and any space in or adjacent to the
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities, and the use thereof, as
well as access thereto through the Premises for the purposes of operation,
maintenance, decoration and repair, are reserved to Landlord.
20.02. Landlord, notwithstanding anything herein to the contrary,
shall have access to the Premises upon reasonable prior notice to Tenant (except
in an emergency, in which case Landlord shall use reasonable efforts to provide
such notice as is possible under the circumstances) for the purpose of making
any changes, alterations, additions, improvements, repairs or replacements in or
to the Project (including the Premises) and the fixtures and equipment thereof,
and in so doing may bring into the Premises and store the material therein
necessary to accomplish the foregoing. Landlord shall use reasonable efforts to
minimize the adverse effect on Tenant of any such entry onto the Premises.
In addition, Landlord may install, maintain and use pipes, ducts and
conduits in and through the Premises, if it is unable reasonably to accomplish
any such installation outside the Premises, provided, however, in accomplishing
any of the foregoing within the Premises, there shall be no more than an
insignificant obstruction of the means of access to the Premises or interference
with the use of the Premises.
20.03. So long as Tenant occupies at least ten thousand (10,000)
rentable square feet of the Premises, Landlord will not name the Building for a
tenant at the Project, and, if required to do so by a Requirement, reserves the
right to change the name or address of the Building at any time and from time to
time. If at any time any windows of Premises are temporarily darkened or
obstructed incident to or by reason of repairs, replacements, maintenance and/or
cleaning in, on, to or about the Building or
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any part or parts thereof, or are temporarily closed or rendered inoperable,
Landlord shall not be liable for any damage Tenant may sustain thereby, and
Tenant shall not be entitled to any compensation therefor nor abatement of rent
nor shall the same release Tenant from its obligations hereunder nor constitute
an eviction.
20.04. Except for matters attributable to Landlord's negligence
(with regard to which Tenant is not contributorily negligent) or wilful
misconduct, there shall be no allowance to Tenant for a diminution of rental
value and no liability on the part of Landlord by reason of inconvenience,
annoyance, interruption or injury to business arising from Landlord, Tenant or
others making any changes, alterations, additions, improvements, repairs or
replacements in or to any portion of the Project, inclusive of the Building and
the Premises, or in or to fixtures, appurtenances or equipment thereof, and no
liability upon Landlord for failure of Landlord or others to make any changes,
alterations, additions, improvements, repairs or replacements in or to any
portion of the Project, inclusive of the Building and the Premises, or in or to
the fixtures, appurtenances or equipment thereof.
20.05. Landlord or Landlord's agents and designees, during Regular
Hours, on reasonable advance notice to Tenant, shall have the right to enter
and/or pass through the Premises or any part thereof to examine the Premises and
to show them to actual and prospective Mortgagees and to prospective purchasers,
of the Project or any part thereof, or Landlord's interest therein.
20.06. During the period of twelve (12) months prior to the
expiration or termination of this Lease, Landlord, in a non-intrusive manner,
may exhibit the Premises to prospective tenants during Regular Hours on
reasonable advance notice to Tenant.
20.07. Wherever in a provision of this Lease, reference is made to
the right of Landlord to enter the Premises for an activity therein referenced,
the term "Landlord" shall mean and include its representatives and designees.
20.08. Landlord shall correct all damage it shall have caused to the
Premises in effecting the provisions of Section 20.02 preceding, promptly after
completion.
20.09. No sign shall be placed on the exterior of the Building
(including the roof) identifying one of its tenants or the nature of any
tenant's business.
20.10. Landlord shall have the right to allow Project tenants and
occupants to install an identification lawn sign near
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the entrance to its premises, provided that such lawn sign does not block the
front of Tenant's laws sign at its location specified in Section 9.05 hereof.
Tenant's identification lawn sign shall be fabricated and installed
by Tenant in accordance with the standard specified in Exhibit D hereto at
Tenant's cost, but thereafter shall be maintained by Landlord at its expense.
ARTICLE 21
Notice of Accidents
SECTION 21.01. Tenant shall give notice to Landlord, promptly after
Tenant learns thereof, of (i) any accident in or about the Premises for which
Landlord might be liable, (ii) all fires and other casualties within the
Premises, (iii) all damages to or defects in the Premises, including the
fixtures, equipment and appurtenances thereof for the repair of which Landlord
might be responsible, and (iv) all damage to or defects in any parts of
appurtenances of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator and other systems located in or passing through the
Premises or any part thereof.
ARTICLE 22
Non-Liability and Indemnification
SECTION 22.01. Landlord shall not be liable to Tenant for any
personal injury (including death) to Tenant or to any other person or for any
damage to, or loss (by theft or otherwise) of, any Tenant Property or the
property of any other person, irrespective of the cause of such injury, damage
or loss, unless caused by or due to the negligence or, wilful misconduct of
Landlord, it being understood that no property, other than such as might
normally be brought upon or kept in the Premises as an incident to the
reasonable use of the Premises for the purposes herein permitted, will be
brought upon or be kept in the Premises.
22.02. Tenant shall indemnify and save harmless Landlord and its
agents against and from (a) any and all claims, liabilities, losses and damages
(i) arising from or attributable to (x) the use, occupancy or operation of the
Premises or of any business therein, or (y) any work or thing whatsoever done,
or any condition created (other than by Landlord) in or about the Premises
during the Term or during the period of time, if any,
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prior to the Commencement Date that Tenant may have access to the Premises, or
(ii) arising from or attributable to any negligent or otherwise wrongful act or
omission of Tenant or any of its subtenants or its or their employees, agents,
contractors or invitees, and (b) all costs, expenses and liabilities incurred in
or in connection with each such claim or action or proceeding brought thereon.
In case any action or proceeding be brought against Landlord by reason of any
such claim, Tenant, upon notice from Landlord, shall resist and defend such
action or proceeding. The provisions of the indemnities herein given shall not
inure to the benefit of Landlord's insurer if and to the extent such insurer
shall, under the terms of this Lease, be required to give Tenant a waiver of
subrogation in respect thereof or to Landlord or its insurer if and to the
extent Landlord shall have released Tenant as provided in the second paragraph
of Section 13.02 hereof.
22.03. Any employee or agent of Landlord to whom any property shall
be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and Landlord shall not be liable for any
loss of or damage to any such property by theft or otherwise.
22.04. This Lease and the obligations of Tenant hereunder shall be
in no way affected, impaired or excused because Landlord is unable to fulfill,
or is delayed in fulfilling, any of its obligations to Tenant under this Lease
(other than an obligation requiring a payment of money by Landlord) by reason of
strike, other labor trouble, governmental pre-emption or priorities or other
controls in connection with a national or other public emergency or shortages of
fuel, supplies or labor resulting therefrom, or other like cause beyond
Landlord's reasonable control.
22.05. Notwithstanding anything to the contrary elsewhere contained
in this Lease, Landlord shall be excused from fulfilling an obligation to Tenant
under this Lease or doing so within a date by which such obligation is required
to be performed, and vice versa, to the extent it is unable to fulfill or is
delayed in fulfilling such obligation under this Lease by reason of strike,
other labor trouble, governmental pre-emption or priorities or controls in
connection with a national or other public emergency, shortages of fuel,
supplies or labor resulting therefrom, acts of God, fire, casualty, acts or
omissions of Tenant or its agents, servants, employees or invitees or a cause
beyond Landlord's reasonable control. The foregoing provisions shall not apply
to an obligation requiring a payment of money by or applicable to, either
Landlord or Tenant. The time within which Landlord or Tenant, as the case may
be, is required to attain such fulfillment shall be extended not less than one
day for each day or any fraction thereof of any such delay.
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22.06. Except for willful misconduct, negligence or default beyond
any applicable cure period of Landlord, no (i) act or omission of Landlord or
its agents or employees or any other party, including Tenant, (ii) failure of
any Project or Building systems, or machinery or equipment serving the Project
(including the Building or the Premises), (iii) personal injury or property
damage caused by third parties, or (iv) inconvenience or annoyance to Tenant or
injury to or interruption of Tenant's business by reason of anything referred to
in the foregoing shall impose any liability on Landlord. No representation,
guaranty or warranty is made that the communications or security systems,
devices or procedures of the Building or Project, if any, will be effective to
prevent injury to Tenant or any other person or damage to, or loss (by theft or
otherwise) of, any of the property of Tenant or the property of any other
person, and Landlord reserves the right to discontinue or modify at any time
such communications or security systems or procedures without liability to
Landlord.
ARTICLE 23
Destruction or Damage
SECTION 23.01. If any part or parts of the Project (inclusive of the
Building) shall be partially or totally damaged or destroyed by fire or other
casualty, then whether or not the damage or destruction shall have resulted from
the fault or neglect of Tenant, or its employees, agents or visitors (and if
this Lease shall not have been terminated as in this Article 23 hereinafter
provided), Landlord shall repair the damage and restore the affected part of the
Project, at its expense, with reasonable dispatch after notice to it of the
damage or destruction; provided, however, that Landlord shall not be required to
repair or replace (a) Tenant's Property, Tenant's Work or Tenant Changes, or (b)
portions of the Building, outside of the Premises not necessary to make the
Premises tenantable.
23.02. If the Building or the Premises shall be damaged or destroyed
in whole or in part by fire or other casualty, the Rental shall abate to the
extent that as a result thereof the Premises shall have been rendered
untenantable for the period from the date of such damage or destruction to the
date the damage shall be repaired or restored, provided, however, that should
Tenant reoccupy a portion of the Premises for the conduct of its business during
the period the restoration work is taking place and prior to the date that the
same are made completely tenantable, Rental allocable to such portion shall be
payable by Tenant from the date of such occupancy. If the Lease shall terminate
by reason of damage or destruction referenced in this
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Article 33, Rental shall be adjusted as of the effective date of such
termination.
23.03. If (a) the Premises shall be totally damaged or destroyed by
fire or other cause1 or (b) if the Building shall be so damaged or destroyed by
fire or other cause as to require a reasonably estimated (i) expenditure of more
than forty (40%) percent of the full replacement value of the Building
immediately prior to the casualty, or (ii) period of more than one (1) year to
repair or restore the Building and/or the Premises, then in any such case,
Landlord may terminate this Lease by giving Tenant notice to such effect within
ninety (90) days after the date of the casualty. In case of any damage or
destruction mentioned in this Article 23, Tenant, may terminate this Lease by
not less than sixty (60) days prior notice to Landlord, if, subject to the
application of Sections 22.03 and 22.04 hereof, Landlord has not completed the
making of the required repairs and/or restored the Building and the Premises
within twelve (12) months from the date of such damage or destruction. If the
Premises shall be damaged or destroyed by fire or other casualty within the last
twelve months of the Term, either Landlord or Tenant may terminate this Lease by
notice given to the other not more than thirty days after such fire or other
casualty if it can be estimated that such damage or destruction cannot be
repaired and restored within three months after the date on which such notice of
termination shall be given. Such termination shall be effective thirty days
after the giving by either Landlord or Tenant of such notice.
23.04. Intentionally omitted.
23.05. Landlord shall not be obligated to repair any damage to or to
replace or clean Tenant's Property other than Tenant's Property which is a
leasehold improvement.
23.06. Tenant shall not carry separate or additional insurance
concurrent in form or contributing in the event of any loss or damage with any
casualty insurance carried by Landlord.
23.07. The provisions of this Article 23 shall be considered an
express agreement governing any cause of damage or destruction of the Premises
by fire or other casualty, and Section 227 of the Real Property Law of the State
of New York, providing for such a contingency in the absence of an express
agreement, and any other law of like import, now or hereafter in force, shall
have no application in such case.
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ARTICLE 24
Eminent Domain
SECTION 24.01. In the event of a permanent taking by any
Governmental Authority under the power of condemnation, eminent domain or
expropriation, or in the event of conveyance in lieu thereof (all and any of
which being hereafter referred to as a "Taking") of (a) the whole of the
Project, or (b) any part of the Premises deemed material by Tenant, the Term
shall cease as of the date (the "Law Date") title thereto shall be vested in or
possession thereof shall be taken by such Governmental Authority, whichever
first occurs.
Within thirty (30) days after Landlord's receipt of a written notice
from a Governmental Authority of a Taking it shall furnish Tenant with a copy of
such notice, together with a copy of all materials which accompanied such
notice.
24.02. If there shall be a Taking of less than the whole of the
Project, then, provided there is no Taking of any part of the Premises deemed
material by Tenant (in which event, Section 24.01 hereof would be applicable),
the Term shall cease as of the Law Date with respect to the part of the Project
which is the subject of the Taking (and not otherwise), and there shall be an
abatement or reduction of Rental as provided in Section 24.03 hereof. If,
however, the Taking shall be of more than twenty (25%) percent of the parking
spaces within the Project, or, of more than ten (10%) percent of the Common
Areas within the Building, either Landlord or Tenant shall have the right to
terminate this Lease by notice given to the other no later than thirty (30) days
subsequent to the Law Date and effective sixty (60) days thereafter.
In the event of any termination pursuant to the preceding paragraph
of this Section 24.02 or a termination pursuant to Section 24.01, Landlord shall
make an appropriate refund of Rental paid for a period subsequent to the Law
Date. Landlord may negate Tenant's termination of the Lease which is based on
the Taking of more than twenty (20%) percent of the parking spaces within the
Project by notice given within fifteen (15) days subsequent to the date of
Tenant's notice of termination advising Tenant that land on which replacement
parking spaces may be constructed and used by occupants of the Project is
available on or in close proximity of the Land and that such parking spaces will
be constructed thereon by or on behalf of Landlord diligently, in a good and
workmanlike manner and in compliance with Requirements.
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A determination of the materiality of the Taking of any part of the
Premises, as provided in this Section 24.02 and 24.01 preceding, shall be made
by Tenant no later than thirty (30) days subsequent to the Law Date and notice
with respect thereto given to Landlord, within the same thirty (30) day period.
If Tenant shall not have made such election within the preceding time period
available to Tenant to do so, it shall conclusively be deemed that such Taking
of a part of the Premises is not material. If, on the other hand, Tenant, within
the prescribed period, shall have made a determination that the Taking of a part
of the Premises is material and notified Landlord of such election within such
time period, Landlord may dispute that determination by so notifying Tenant no
more than thirty (30) days after Landlord's receipt of Tenant's determination
that the Taking was material. Either Landlord or Tenant shall have a thirty (30)
day period to submit such dispute to Arbitration, failing which, Tenant's
determination of materiality shall prevail and the burden of proof in such
dispute shall be on Tenant.
24.03. In the event of a Taking, Tenant shall pay Rental without
abatement or reduction up to and including the Law Date. If notwithstanding a
Taking, this Lease shall continue, then, as of the day subsequent to the Law
Date, Tenant's Proportionate Share thereafter shall be computed in the
proportion that the remaining Area of the Premises bears to the remaining Area
of the Building, and there shall be a just and equitable reduction in Net Annual
Rent attributable to such a loss of parking spaces, or reduction in the Area of
the Premises.
24.04. If this Lease shall continue notwithstanding a Taking,
Landlord shall diligently make all necessary repairs or alterations so as to
constitute the remaining Project (inclusive of the remaining Premises) to the
extent reasonably attainable, a complete architectural and tenantable unit.
24.05. All compensation awarded for a Taking, whether for the whole
or a part of the Premises, the Buildings or the Land or otherwise, shall be the
property of Landlord, whether such damages shall be awarded as compensation for
diminution in the value of the leasehold or to the fee of the Premises, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such compensation. Nonetheless, Tenant shall be entitled to
claim, prove and receive in the condemnation proceeding such awards as may be
allowed, but only if such awards shall be made in addition to and shall not
result in a reduction of the award for the Project.
24.06. Any dispute between Tenant or Landlord as to the extent of
the abatement or reduction of Net Annual Rent, as
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provided in Section 24.03 hereof, shall be resolved by Arbitration.
ARTICLE 25
Surrender
SECTION 25.01. On the expiration or sooner termination of this
Lease, or upon any re-entry by Landlord upon the Premises as provided in Article
27 hereof, Tenant shall quit and surrender the Premises to Landlord in the
condition in which it is required to be kept and maintained by Tenant pursuant
to the terms of this Lease, and Tenant shall remove all of Tenant's Property
therefrom except as otherwise expressly provided in this Lease. The provisions
hereof shall survive the expiration or other termination of the Term.
25.02. In the event of any holding over by Tenant after the
expiration or termination of this Lease without the consent or Landlord, Tenant
shall pay as holdover Net Annual Rent for each month (or part of a month) of the
holdover tenancy Forty Three Thousand ($43,000) Dollars (the "Holdover
Payment"), and otherwise shall observe, fulfill and perform all of its
obligations under this Lease, including but not limited to, those pertaining to
Additional Rent, in accordance with its terms, and, commencing with the fourth
month of the holdover, in addition, Tenant shall be liable to Landlord for (a)
any payment or rent concession which Landlord may be required to make to any
tenant in order to induce such tenant not to terminate an executed lease
covering all or any portion of the Premises by reason of the holding over by
Tenant, and (b) any special (but not speculative) damages suffered by Landlord
as the result of Tenant's failure to surrender the Premises. Amounts received by
Landlord in satisfaction of (a) and (b) preceding (collectively, the "Holdover
Damages") , shall reduce each Holdover Payment received by the Landlord
commencing with the third month of the holdover by Fourteen Thousand Three
Hundred ($14,300) Dollars until the aggregate reduction of the Holdover Payments
equals the Holdover Damages.
No holding over by Tenant after the Term shall operate to extend the
Term.
The holdover, with respect to all or any part of the Premises, of a
person deriving an interest in the Premises from or through Tenant, including,
but not limited to an assignee or subtenant, shall be deemed a holdover by
Tenant.
Tenant expressly waives, for itself and for any person claiming
through or under Tenant, any rights which Tenant or such
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person may have to a stay of any holdover or eviction action or proceeding, or
other action or proceeding which Landlord may institute to enforce the
provisions of this Article.
Notwithstanding anything in this Article contained to the contrary,
the acceptance of any Rental paid by Tenant pursuant to this Section 25.02,
shall not preclude Landlord from commencing and prosecuting a holdover or
eviction action or proceeding or any action or proceeding in the nature thereof.
The preceding sentence shall be deemed to be an "agreement expressly providing
otherwise" within the meaning of Section 232-c of the Real Property Law of the
State of New York and any successor law of like import.
ARTICLE 26
Bankruptcy, Conditions of Limitation
SECTION 26.01. Intentionally Omitted.
26.02. This Lease and the Term and estate hereby granted are subject
to further limitation as follows:
(a) whenever Tenant shall default in the payment of any
installment of Net Annual Rent, or in the payment of any Additional Rent or any
other Rental on any day upon which the same ought to be paid, and such default
shall continue for ten (10) days after Landlord shall have given Tenant a notice
specifying such default, or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, other than a matter specified in any of the other Subsections of this
Section 26.02, and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to Tenant a
notice specifying the same, or in the case of a situation heretofore referenced
in this subsection (b) which cannot with due diligence be cured within a period
of thirty (30) days and the continuance of which for the period required for
cure will not subject Landlord to the risk of criminal liability or termination
or foreclosure of any Mortgage, if Tenant shall not, (i) within said thirty (30)
day period advise Landlord of Tenant's intention to duly institute all steps
necessary to remedy such situation, (ii) duly institute within said thirty (30)
day period, and thereafter diligently prosecute the completion of all steps
necessary to remedy the same and (iii) complete such remedy within such time
after the date of the
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giving of said notice by Landlord as shall reasonable be necessary, or
(c) whenever any event shall occur or any contingency shall
arise whereby this Lease or the estate hereby granted or the unexpired balance
of the Term would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted in
Article 7, or
(d) Intentionally omitted.
(e) Intentionally omitted.
(f) whenever Tenant shall default in the due keeping,
observing or performance of any covenant, agreement, provision or condition in
(i) Article 9 (other than Section 9.03), and such default shall continue and
shall not be remedied by Tenant within thirty days after Landlord shall have
given Tenant a notice specifying such default, or (ii) Section 9.03 in which
event the provisions of subdivision (b) of this Section 26.02 shall be
applicable, or (iii) Section 16.02 hereof, and if such default shall continue
and shall not be remedied by Tenant within three (3) Business Days after Tenant
shall have received a notice specifying such default,
then in any of said cases set forth in the foregoing Subsections (a), (b), (c)
and (f) preceding, each such event or condition being herein referred to as an
"Event of Default", Landlord may give to Tenant a notice of intention to end the
Term at the expiration of five (5) days from the date of the service of such
notice of intention, and upon the expiration of said five (5) days this Lease
and the Term and estate hereby granted, whether or not the Term shall
theretofore have commenced, shall terminate, but Tenant shall remain liable for
damages as provided in Article 28.
26.03. If Tenant shall default under this Lease prior to the
Commencement Date, Landlord shall have all of the rights and remedies in this
Lease provided, should such default have occurred subsequent to the Commencement
Date, and it will be conclusively assumed for such purposes that the Term
commenced on and as of the date of such default. Nothing herein contained shall
be construed to negate Tenant's rights, to utilize any applicable cure periods
available to it pursuant to specific provisions of this Lease.
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ARTICLE 27
Re-Entry by Landlord
SECTION 27.01. If this Lease shall terminate as in Article 26
provided, Landlord or Landlord's agents and employees may immediately or at any
time thereafter re-enter the Premises, or any part thereof, either by summary
dispossess proceedings or by any suitable action or proceeding at law, or by
other lawful means, without being liable to indictment, prosecution or damages
therefrom, to the end that Landlord may have, hold and enjoy the Premises again
free of the leasehold estate and interest established herein. The word re-enter,
as herein used, is not restricted to its technical legal meaning. In the event
of any termination of this Lease under the provisions of Article 26 or if
Landlord shall re-enter the Premises under the provisions of this Article 27 or
in the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceedings or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to
Landlord the Net Annual Rent and Additional Rent payable by Tenant to Landlord
up to the time of such termination of this Lease, or of such recovery of
possession of the Premises by Landlord, as the case may be, and shall also pay
to Landlord damages as provided in Article 28.
27.02. In the event of a breach or threatened breach by Landlord or
Tenant of any of its obligations under this Lease, the other of them shall also
have the right of injunction. The several remedies to which Landlord or Tenant
may resort hereunder are cumulative and are not intended to be exclusive of any
other remedies or means of redress to which it may lawfully be entitled at any
time and each may invoke any remedy allowed at law or in equity as if specific
remedies were not provided for herein.
27.03. If this Lease shall terminate under the provisions of Article
26, or if Landlord shall re-enter the Premises under the provisions of this
Article 27, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all moneys, if any, paid by Tenant to Landlord, whether as
advance Rental, security or otherwise, but such moneys shall be credited by
Landlord against any Rental due from Tenant at the time of such termination or
re-entry or, at Landlord's option against any damages payable by Tenant under
Article 28 or pursuant to a Requirement.
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ARTICLE 28
Damages
SECTION 28.01. If this Lease is terminated under the provisions of
Article 26, or if Landlord shall re-enter the Premises under the provisions of
Article 27, Tenant shall pay to Landlord as damages, sums equal to the Rental,
payable upon the due date therefor specified herein following such termination
and until the last day of the Term had this Lease not been sooner terminated,
provided, however, that if Landlord shall re-let the Premises during said
period, Landlord shall credit Tenant with the net Rental received by Landlord
from such re-letting, such net Rental to be determined by first deducting from
the gross Rental as and when received by Landlord from such re-letting, the
expenses incurred or paid by Landlord in terminating this Lease or in
re-entering the Premises and in securing possession thereof, as well as the
expenses of re-letting, including altering and preparing the Premises for new
tenants, brokers' commissions, and all other expenses properly chargeable
against the Premises and the rental thereof; it being understood that any such
re-letting may be for all or any part of the Premises or for a period shorter or
longer than the remaining term of this Lease; but in no event shall Tenant be
entitled to receive any excess of such net Rental over the sums payable by
Tenant to Landlord hereunder, or shall Tenant be entitled in any suit for the
collection of damages pursuant to this Section 28.01 to a credit in respect of
any net Rental from a re-letting, except to the extent that such net Rentals are
actually received by Landlord. Landlord shall be under no obligation to relet
all or any part of the Premises or otherwise to mitigate damages. If the
Premises or any part thereof should be re-let in combination with other space,
then proper apportionment on a square foot basis shall be made of the Rental
received from such re-letting and of the expenses of re-letting. If the Premises
or any part thereof be re-let by Landlord for the unexpired portion of the Term,
or any part thereof, before presentation of proof of such damages to any court,
commission or tribunal, the amount of rent reserved upon such re-letting shall,
prima facie, be the fair and reasonable Rental value for the Premises, or part
thereof, so re-let during the term of the re-letting. Each such payment shall be
due and payable by Tenant on receipt of a statement from Landlord setting forth
the Rental for such period, less the Rental value for the Premises as determined
in accordance with the provisions of the preceding sentence, subject, however,
to the cure period available to Tenant as provided in the next succeeding
paragraph.
Should Tenant default in making a payment required of it pursuant to
the preceding paragraph upon the due date therefor, a three day cure period
(without notice) and none other being
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available for such purpose, Tenant, if Landlord, at any time thereafter, so
elects, shall pay Landlord a sum which at the time of such default represents
the present value of the excess (the "Excess"), if any, using a discount rate
equal to the sum of (a) two hundred (200) basis points plus (b) the annual
percentage yield of a U.S. Treasury instrument requiring periodic payments of
interest, as published in a public source of information nationally recognized
for accuracy in the reporting of trading in U.S. Treasury securities, such as
the New York Times and the Wall Street Journal, selected by Landlord, which has
a maturity date on (or if there not be any) a maturity date closest prior to the
expiration date of this Lease had it not sooner terminated of
(i) the aggregate of the Rental which would have been payable
by Tenant hereunder (as presumed in the first paragraph of this Section 28.01)
for the period commencing with the date of the default specified in the
preceding paragraph, and ending with the last day of the Term, had this Lease
not so terminated, over
(ii) if re-let, the aggregate Rental payable for the Premises
for the same period, and to the extent it is not fully rented, the Rental value
for the part not re-let, it being understood that the Rental value, as
determined by Landlord shall prima facie be the Rental value of the part of the
Premises not so relet.
This paragraph shall not be applicable if the Excess is a negative number.
28.02. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 26, or under any provision of law,
or had Landlord not re-entered the Premises.
28.03. Nothing herein contained shall be construed to limit or
preclude recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant. Nothing
herein contained shall be construed to limit or prejudice the right of Landlord
to prove for and obtain as damages by reason of the termination of this Lease or
re-entry of the Premises for the default of Tenant under this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages are to be proved
whether or not such amount be greater, equal to, or less than any of the sums
referred to in Section 28.01.
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ARTICLE 29
Waivers
SECTION 29.01. Tenant, for Tenant, and on behalf of any and all
persons claiming through or under Tenant, including creditors of all kinds, does
hereby waive and surrender all right and privilege which they or any of them
might have under or by reason of any present or future law, to redeem the
Premises or to have a continuance of this Lease for the Term after being
dispossessed or rejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as herein provided.
29.02. In the event that Tenant is in arrears in payment of Rental,
Tenant waives Tenant's right, if any, to designate the items against which any
payments made by Tenant are to be credited, and Tenant agrees that Landlord may
apply any payments made by Tenant to any items it sees fit, irrespective of and
notwithstanding any designation or request by Tenant as to the items against
which any such payments shall be credited.
29.03. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of landlord and tenant, Tenant's use or occupancy of the Premises,
including any claim of injury or damage, or any emergency or other statutory
remedy with respect thereto. Tenant also waives the provisions of any law
relating to notice and/or delay in levy of execution in case of an eviction or
dispossess, and of any other law of like import now or hereafter in effect. If
Landlord commences any summary proceeding, Tenant agrees that Tenant will not
interpose any counterclaim of whatever nature or description, other than a
mandatory counterclaim, in any such proceeding.
ARTICLE 30
No Other Waivers or Modifications
SECTION 30.01. The failure of either party to insist in any one or
more instances upon the strict performance of any one or more of the obligations
of this Lease, or to exercise any election herein contained, shall not be
construed as a waiver or relinquishment for the future of the performance of
such one or more obligations of this Lease or of the right to exercise such
election, but the same shall continue and remain in full force
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and effect with respect to any subsequent breach, act or omission. No executory
agreement hereafter made between Landlord and Tenant shall be effective to
change, modify, waive, release, discharge, terminate or effect an abandonment of
this Lease, in whole or in part, unless such executory agreement is in writing,
refers expressly to this Lease and is signed by the party against whom
enforcement of the change, modification, waiver, release, discharge or
termination or effectuation of the abandonment is sought.
30.02. The following specific provisions of this Section 30.02 shall
not be deemed to limit the generality of Section 30.01:
(a) No agreement to accept a surrender of all or any part of
the Premises shall be valid unless in writing and signed by Landlord. The
delivery of keys to an employee of Landlord or of its agents shall not operate
as a termination of this Lease or a surrender of the Premises. If Tenant shall
at any time request Landlord to sublet the Premises for Tenant's account,
Landlord or its agent is authorized to receive said keys for such purpose
without releasing Tenant from any of its obligations under this Lease, and
Tenant hereby releases Landlord from any liability for loss or damage to any of
Tenant's property in connection with such subletting.
(b) The receipt by Landlord of Rental with knowledge of breach
of any obligation of this Lease shall not be deemed a waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser
amount than the correct Rental due hereunder shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance or pursue any other remedy in this Lease or at law
provided.
ARTICLE 31
Curing Defaults
SECTION 31.01. If Tenant shall default in the performance of any of
Tenant's obligations under this Lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform the same for the account
and at the expense of Tenant, without notice, in a case of emergency, and in
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any other case, beyond the period provided for the cure thereof in this Lease.
All reasonable sums so paid by Landlord and all costs and expenses
reasonably incurred by Landlord in connection with the provisions of the
preceding paragraph, inclusive of attorneys' fees, shall be paid by Tenant to
Landlord within thirty (30) days of demand.
31.02. A. If Landlord shall fail to make any repairs required of
Landlord under this Lease, beyond the period provided for the cure thereof,
Tenant, without thereby waiving such default, may (but shall not be obligated
to) perform the same and to be reimbursed by Landlord for the reasonable costs
thereof inclusive of attorneys' fees if the failure of Landlord to make such
repairs materially and adversely impairs Tenant's ability to use the Premises
for the operation of its business pursuant to the first paragraph of Section
9.01 hereof.
B. Anything in this Section 31.02 to the contrary notwithstanding,
Landlord agrees that in the event of an emergency which poses the threat of
imminent, severe damage to Tenant, or its employees, or invitees, or to Tenant's
Property, and necessitates immediate repair, Tenant may proceed forthwith to
make such repair ("Emergency Repairs") if (i) it is unable to notify Landlord of
such emergency condition after using diligent efforts to contact and advise
Landlord of the need for such Emergency Repairs, or (ii) Landlord fails to make
Emergency repairs after being notified of the need to do so.
C. If Landlord fails to reimburse Tenant for repairs referenced in
B. preceding, within thirty days after Tenant shall furnish Landlord with a
statement in reasonable detail of the repairs effected and the costs thereof,
supported by invoices from third parties for the furnishing of materials or the
performance of work in connection with the making of such repairs, Tenant may
deduct the cost thereof from the installments of Net Annual Rent first becoming
due and payable after the date on which such reimbursement is first required to
be made.
D. If provisions of this Section 31.02 shall not apply to the
provisions of the second paragraph 1.02 hereof, and vice versa.
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ARTICLE 32
Parties Bound
SECTION 32.01. The obligations of this Lease shall bind and benefit
the successors and assigns of the Landlord and Tenant with the same effect as if
mentioned in each instance where a party is named or referred to, except that
(a) the provisions of Section 2.01(h) shall be applicable and prevail, (b) no
violation of the provisions of Article 7 shall operate to vest any rights in any
successor or assignee of Tenant and (c) the provisions of this Article 32 shall
not be construed as modifying the conditions of limitation contained in Article
26.
32.02. Notwithstanding anything in this Lease to the contrary (it
being intended that in case of a conflict, the provisions of this Section 32.02
always shall prevail and control), Tenant shall look only to the Landlord's
estate in the Project at the time recourse is sought for the satisfaction of
Tenant's remedies against Landlord or the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord hereunder and, no
other property or assets of Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to this Lease, the relationship of landlord and tenant hereunder or
Tenant's use or occupancy of the Premises, or otherwise.
32.03. Without limiting the provisions of Section 32.02 hereof, any
agreement, obligation or liability of Landlord arising under this Lease is made,
entered into and incurred by Landlord upon the express condition that no
trustee, partner, shareholder, director, officer, employee, principal, parent,
agent or advisor of Landlord, assumes nor shall be held to any personal
liability hereunder for whatsoever reason including fault on the part, for
example, of any one or more of the foregoing, and resort shall not be had to the
private property of any such trustee, partner, shareholder, director, officer,
employee, principal, parent, agent or advisor.
32.04. Landlord shall be deemed in default under the terms of this
Lease only if Landlord shall fail to observe, fulfill or perform an obligation
specifically imposed on Landlord under the terms of this Lease and such failure
is not cured by Landlord within thirty (30) days after Tenant shall have given
Landlord notice of such failure, in reasonable detail, provided, however, that
so long as Landlord commences and prosecutes such cure with reasonable
diligence, Landlord will be allowed such additional time to effect such cure as
may be reasonably necessary without being deemed in default with respect to such
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failure. No action taken by Landlord in connection with an such notice given to
it by Tenant shall be construed admission that any such default exists.
32.05. Intentionally omitted.
32.06. Under no circumstances shall the Landlord, and after the
Commencement Date, the Tenant, be liable for consequential, special, exemplary
or punitive damages or any damages in the nature of any of the foregoing or
damages for loss of business or business opportunities.
32.07. Landlord notwithstanding any contrary provisions of this
Lease, shall not be liable for damages to Tenant or its subtenants or an
Affiliated Entity, except for its negligence or willful misconduct or defaults
under this Lease after the expiration of applicable grace periods. Landlord
shall use reasonable diligence to make such repairs as may be required to
machinery or equipment within the Project to provide restoration of services
required hereunder to be provided by Landlord to Tenant and, where the cessation
or interruption of such service has occurred due to circumstances or conditions
beyond the Project boundaries, or the acts or omissions of others, to seek
restoration of such services by diligent application or request to the provider.
ARTICLE 33
Notices
SECTION 33.01. All notices, requests, and other communications
required or permitted under this Lease (each, a "notice") shall be in writing
and shall be deemed duly given only if delivered personally or by express
delivery service for next Business Day delivery (such as UPS Next Day Air and
Federal Express), or if sent by registered or certified U.S. Postal Service
mail, return receipt requested, first class, postage prepaid, to the following
addresses (or to another address of a party that such party elects to designate
in writing to all other addressees listed below):
(a) If to Tenant at:
200 Hicks Street
Westbury, NY 11590, until the Commencement
Date and thereafter at the Premises
Attention: Sanford B. Frank, Esq.
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with one copy for informational purposes to:
Joel Handel, Esq.
Baer Marks and Upham, LLP
805 Third Avenue
New York, NY 10022
(b) If to Landlord at:
6800 Jericho Turnpike
Syosset, NY 11791
with one copy for informational purposes to:
Stanley N. Queler, Esq.
6800 Jericho Turnpike
Syosset, New York 11791
Such notice, including notice of a change of the party constituting
the Tenant or the Landlord or a change in a mailing address, shall be deemed to
have received (a) on the date it is delivered, if such day is a Business Day and
if it is not, the next Business Day, if it is delivered in person, (b) two
Business Days after the date on which it is delivered to the express delivery
service such as Federal Express, for next Business Day service, or (c) two
Business Days after it is delivered to a U.S. Postal Service post office or
depository, if it is sent by registered or certified mail. Notwithstanding the
foregoing, a notice given to meet a deadline shall be deemed received on the day
when given by any of the methods referenced in the preceding sentence in such
day is a Business Day, and if it is not, such notice shall be deemed to have
been given on the next Business Day following the day on which such notice shall
have been given.
Where reference is made to a copy being sent "for informational
purposes" it shall be construed that the party sending such copy will in good
faith endeavor to send it, but the failure to do so shall not affect the
viability of a notice to a Tenant or to a Landlord in the manner provided in
this Section 33.01.
A notice on behalf of a party hereto may be that of the attorney for
such party, provided that in such notice or accompanying it, such attorney shall
certify that it is the attorney for such party and has been authorized by such
party to furnish such notice.
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ARTICLE 34
Estoppel Certificate, Memorandum
SECTION 34.01. Each party agrees, at any time and from time to time,
as requested by the other party, upon not less than fifteen (15) days prior
notice, to execute and deliver to the other a statement certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications that the same is in full force as modified and stating the
modifications), certifying the dates to which the respective items of Rental
have been paid, and stating whether or not, to the best knowledge of the signer,
the other party is in default in performance of any of its obligations under
this Lease, and, if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant
hereto may be relied upon by others with whom the party requesting such
certificate may be dealing. Such statement, in the case of any statement
required of Tenant, shall also contain such additional provisions as reasonably
may be requested by a Mortgagee.
34.02. At the request of either party, Landlord and Tenant shall
promptly execute, acknowledge and deliver a memorandum with respect to this
Lease sufficient for recording. Such memorandum shall not in any circumstances
be deemed to change or otherwise affect any of the obligations or provisions of
this Lease.
ARTICLE 35
Arbitration
SECTION 35.01. When so specified in this Lease, any dispute,
controversy or claim arising out of this Lease shall be settled by expedited
mandatory arbitration as set forth in this Article 35.
35.02. Either party may demand arbitration by notifying the other
party in writing in accordance with the notice provisions of Article 33. The
notice shall describe the reasons for such demand, the amount involved, if any,
and the particular remedy sought. The notice shall also list the name of one
arbitrator qualified in accordance with Section 35.04.
35.03. The party that has not demanded arbitration shall respond to
the notice of demand within ten (10) calendar days of receipt of such notice by
delivering a written response
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in accordance with the notice provisions of Article 33. The response shall list
the name of a second arbitrator qualified in accordance with Section 35.04. The
response shall also describe counterclaims, if any, if such claims are
specifically arbitrable hereunder and permitted by the rules of the arbiter, the
amount involved, and the particular remedy sought. If a party fails to respond
timely to the notice of demand, the arbitrator selected by the party making such
demand under Section 35.02 shall resolve the dispute, controversy or claim
within thirty (30) calendar days of the deadline for response.
35.04. Any arbitrator selected in accordance with Sections 35.02 and
35.03 shall be a natural person not employed by either of the parties or any
parent or affiliated partnership, corporation or other enterprise thereof, shall
be a member of the American Arbitration Association (whose rules shall apply to
such arbitration) and shall have at least five (5) years experience arbitrating
real estate matters.
35.05. If a party responds timely to a notice of demand for
expedited arbitration under Section 35.03, the two arbitrators shall appoint a
third arbitrator who shall be qualified in accordance with Section 35.04. Such
third arbitrator shall be appointed within ten (10) calendar days of receipt by
the party demanding arbitration of notice of response provided for under Section
35.03. If the two arbitrators fail to timely appoint a third arbitrator, the
third arbitrator shall be appointed by the parties if they can agree within a
period of ten (10) calendar days. If the parties cannot timely agree, then
either party may request the appointment of such third arbitrator pursuant to an
action brought for such purpose before the Supreme Court, Nassau County;
provided that the other party shall not raise any question as to the Court's
full power and jurisdiction to entertain such application and to make such
appointment.
35.06. The arbitration hearing shall commence within thirty (30)
calendar days of appointment of the third arbitrator as described in Section
35.05. The hearing shall in no event last longer than two (2) calendar days.
There shall be no discovery or dispositive motion practice (such as motions for
summary judgment or to dismiss or the like) except as may be permitted by the
arbitrators; and any such discovery or dispositive motion practice permitted by
the arbitrators shall not in any way materially conflict with the time limits
contained herein. The arbitrators shall not be bound by any rules of civil
procedure or evidence, but rather shall consider such writings and oral
presentations as reasonable business persons would use in the conduct of their
day to day affairs, and may require the parties to submit some or all of their
case by written declaration or such other manner of presentation as the
arbitrators may determine to be appropriate. It is the intention
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of the parties to limit live testimony and cross examination to the extent
absolutely necessary to insure a fair hearing to the parties on significant and
material issues. Venue of any arbitration hearing pursuant to this Article 35
shall be in Nassau County.
35.07. The arbitrators' decision shall be made in no event later
than ten (10) calendar days after the commencement of the arbitration hearing
described in Section 35.06. The award shall be final and judgment may be entered
in any court having jurisdiction thereof.
ARTICLE 36
No Other Representations, Construction, Governing Law
SECTION 36.01. Tenant expressly acknowledges and agrees that
Landlord has not made and is not making, and Tenant, in executing and delivering
this Lease, is not relying upon, any warranties, representations, promises or
statements, except to the extent that the same are expressly set forth in this
Lease or in any other written agreement which may be made between the parties
concurrently with the execution and delivery of this Lease and shall expressly
refer to this Lease. This Lease and said other written agreement(s) made
concurrently herewith, if any, are hereinafter referred to as the "Lease
Documents". It is understood and agreed that all understandings and agreements
heretofore had between the parties are merged in the Lease Documents, which
alone fully and completely express their agreement and that the same are entered
into after full investigation, neither party relying upon any statement or
representation not embodied in the Lease Documents, made by the other.
36.02. If any of the provisions of this Lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of said provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
36.03. This Lease shall be governed in all respects by the laws of
the State of New York.
36.04. No change, waiver or estoppel to this Lease or any of the
terms hereof shall be valid unless in writing and signed by the party against
whom enforcement of the change,
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waiver or estoppel is sought. Except as otherwise in this Lease provided, no
termination of this Lease shall be valid unless in writing any signed by the
party against whom enforcement of the termination is sought.
36.05. Except as otherwise provided herein, the terms hereof shall
be binding upon and shall inure to the benefit of the heirs, executors,
administrators, successors and assigns, respectively of Landlord and Tenant.
36.06. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original for all purposes and all
of which shall be one and the same document.
ARTICLE 37
Antenna
SECTION 37.01. Tenant shall have the right to install, operate and
maintain not more than one microwave, whip, or satellite dish antenna (the
"Antenna") on the upper surface of the Building (the "Roof"). The installation
of the Antenna shall be deemed a Tenant Change and within the purview of Section
15.03 hereof by reason of its cost and nature, provided, however, that the
provisions of Section 15.03(d) shall not apply to such installation.
37.02. Tenant, when it wishes to install the Antenna, shall give
notice thereof to Landlord together with Tenant proposed plans and
specifications therefor (the "Supplement") Landlord and Tenant, in good faith,
shall negotiate and resolve any changes Landlord requires in the Supplement,
inclusive of Antenna size. No work is to commence with respect to the Antenna
until the Supplement is signed or initialed and delivered by the parties hereto.
37.03. The foregoing right is non-exclusive and Landlord reserves
the right to grant rights to others for the installation, maintenance and
operation of other equipment, including an earth station antenna, similar or
dissimilar to the Antenna, provided that no equipment installed subsequent to an
Antenna shall materially interfere with the operation of such Antenna.
37.04. This right is given on the condition, and Tenant agrees, that
the Antenna will be used solely and exclusively and incident to its own personal
operations, and that of an Affiliated Entity, it being agreed by Tenant that the
use of the Antenna will not benefit others and that Tenant will not impose a
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charge, directly or indirectly, to others for the utilization of the Antenna or
for services which entail its use.
37.05. All sales taxes, use and occupancy taxes and taxes and
charges in the nature thereof with respect to the Antenna and the foregoing fee
are the responsibility of and shall be paid by the Tenant.
37.06. The installation, operation and maintenance of the Antenna
shall be in accordance with the following:
(a) The installation of the Antenna as well as all matters
relating to its operation and maintenance shall be at the sole cost and expense
of the Tenant;
(b) The Antenna will be installed, operated and maintained by
or for Tenant in a good and workmanlike manner and in compliance with
Requirements. Tenant shall be responsible, at its sole cost, to obtain all
Approvals for the installation, operation and maintenance of the Antenna;
(c) The Tenant will pay all charges for electric current
utilized in connection with the installation, operation and maintenance of the
Antenna. Landlord shall have no responsibility or liability by reason of the
interruption or suspension of electric service to the Antenna unless the same is
the direct result of negligence, wilful misconduct or default after the
expiration of any applicable grace period on the part of Landlord;
(d) Tenant agrees that the installation, operation and
maintenance of the Antenna will be conducted so as not to interfere with the
operation of the Building or the use and occupancy by tenants of their space in
the Building, and the utilization by Landlord or others of any equipment then
existing (including other antenna) in the Building or on the Roof; and
(e) Tenant agrees promptly to repair and replace all damage to
the Building, including the Roof arising by reason of or in connection with the
installation, operation and maintenance of the Antenna. In the event of the
failure of the Tenant to make any necessary repair or replacement with respect
to the Antenna, as aforesaid, Landlord may do so for its own account or in the
name of and for the account of Tenant but, in either event, Tenant shall be
responsible for all costs and expenses reasonably incurred in this connection by
Landlord.
37.07. Tenant shall provide whatever filters, isolation traps and
other devices, similar or dissimilar which are reasonable and feasible for the
elimination of any interference to other equipment (including other antenna) on
the Roof or in
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the Building if such interference is caused by or attributable to the Antenna.
Landlord agrees that it will impose a similar requirement in any other agreement
for the placing of equipment (including other antenna) on the Roof and agrees to
be bound thereby with respect to any of its equipment (including other antenna)
placed on the Roof. Tenant shall also be responsible for the protection of the
Antenna to the exclusion of Landlord, whose responsibility in this regard is
expressly negated, from any and all induced wave energies, including, but not
limited to, lightning and induced energies from other radiated energies.
37.08. Should it be required by any Governmental Authority that the
location of the Antenna be changed, such change shall be effected promptly and
with diligence by Tenant and at its sole cost and expense. Landlord, in addition
to the foregoing, reserves the right, on prior notice, emergencies excepted, to
Tenant to make any and all repairs and replacements in and to the Roof or the
Building notwithstanding that any such repairs and replacements may cause
temporary interference with the Tenant's ability to operate and maintain the
Antenna; the Landlord agreeing, however, to make any such repairs and
replacements promptly and diligently in such reasonable manner as will keep any
such interference to a minimum. Tenant agrees to cooperate with Landlord to
every reasonable and feasible extent so as to enable Landlord to effect the
repairs and replacements reflected in the preceding sentence, including, if
necessary, temporarily relocating the Antenna at Tenant's expense.
37.09. Landlord shall not be liable or responsible for any
malfunction or non-functioning, actual or alleged, of the Antenna or for its
repair or maintenance or for any loss of or damage to the Antenna unless such
malfunction or non-functioning is the direct result of negligence, willful
misconduct or default after the expiration of any applicable cure period on the
part of Landlord. Conversely, Tenant shall not be responsible or liable for any
interference with other equipment now or hereafter installed on the Roof by
reason of its operation and maintenance of the Antenna unless the same is caused
by the Tenant's negligence or intentional misconduct or failure to observe,
fulfill or perform its obligations under this Agreement.
37.10. Tenant shall have access to the Antenna twenty-four (24)
hours a day, each and every day during the Term subject, nonetheless, to the
terms and provisions herein contained. Tenant covenants that, if it is given
keys or any other method of gaining access to the Antenna, it will not duplicate
or give the same to third parties. In this regard, and notwithstanding anything
otherwise contained in this Lease, neither Tenant nor any of its contractors or
designees shall be permitted, emergencies excepted, to do any work on the Roof,
except as otherwise expressly permitted by this Lease, without
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receiving the prior consent, in writing, of Landlord, which consent Landlord
agrees it will not unreasonably withhold.
37.11. Upon the termination of this Lease for whatever reason,
Tenant, within thirty (30) days thereafter, as its sole cost and expense, shall
remove the Antenna from the Roof and restore and repair any damage resulting
from such removal. All of the terms and provisions of this Lease applicable to
the installation, maintenance and operation of the Antenna during the Term shall
be fully applicable to the aforesaid period within which Tenant is required to
effect the removal of the Antenna, except that Tenant shall have no right to
utilize the Antenna for any purpose. If Tenant does not effect removal of the
Antenna, as aforesaid, Landlord may do so and charge Tenant with the reasonable
cost thereof, inclusive of the cost of repairing and replacing any damage caused
thereby and Tenant agrees promptly to pay the same to Landlord. Alternatively,
at the expiration of the aforesaid removal period, Landlord may elect to
conclusively deem the Antenna abandoned by Tenant for all purposes and to treat
the same as Landlord's property without any responsibility, obligation or
liability to Tenant by reason thereof. If Landlord elects to remove the Antenna,
as aforesaid, at its option, it may dispose of or discard it without liability
to Tenant, store it and charge reasonable storage fees to Tenant.
ARTICLE 38
Miscellaneous
SECTION 38.01. Intentionally omitted.
38.02. Intentionally omitted.
38.03. Intentionally omitted.
38.04. Intentionally omitted.
38.05. Tenant shall not occupy (as opposed to use as permitted under
this Lease) any Common Areas or space in the Building (by assignment, sublease
or otherwise) other than the Premises, except with the prior written consent of
Landlord in each instance.
38.06. Tenant will not clean, nor require, permit, suffer or allow
any window in the Premises to be cleaned, from the outside in violation of
Section 202 of the Labor Law or of any Requirement.
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38.07. Tenant agrees that its sole remedy in cases where Landlord's
reasonableness in exercising its judgment or withholding its consent or approval
is applicable pursuant to a specific provision of this Lease, or any rider or
separate agreement relating to this Lease, if any, shall be those in the nature
of an injunction, declaratory judgment, or specific performance, the rights to
money damages or other remedies being hereby specifically waived. Such disputes
shall be resolved in accordance with CPLR Section 30.31 et. seq., designated as
the "New York Simplified Procedure for Court Determination of Disputes".
Landlord and Tenant shall take or cause to be taken all action necessary and
proper to effect resolution of such disputes in accordance therewith.
38.08. The Article headings of this Lease are for convenience only
and are not to be given any effect whatsoever in construing this Lease.
38.09. The table of contents preceding this Lease but under the same
cover is for the purpose of convenience of references only and is not to be
deemed or construed in any way as part of this Lease, nor as supplemental
thereto or amendatory thereof.
38.10. This Lease shall not be binding upon Landlord unless and
until it is signed by Landlord and a signed copy thereof is delivered by
Landlord to Tenant.
38.11. The various items which are defined in other Articles of this
Lease or are defined in Exhibits annexed hereto, shall have the meanings
specified in such other Articles and Exhibits for all purposes of this Lease and
all agreements supplemental thereto, unless the context shall otherwise require.
38.12. If Landlord or Tenant consists of more than one party, the
obligations, representations, warranties and covenants of Landlord or Tenant, as
the case may be, hereunder are joint and several as to each such party.
38.13. Except as otherwise expressly provided in this Lease, each
covenant, agreement, obligation or other provision of this Lease on Tenant's
part to be performed shall be deemed and construed as a separate and independent
covenant of Tenant, not dependent on the observance, fulfillment or performance
of any other provision of this Lease.
38.14. All payments, other than the payment of Net Annual Rent and
Tenant's Tax Payment required under this Lease of Landlord or Tenant shall bear
Interest (as defined in Section 1.02 hereof, unless such provision is
specifically negated in this Lease, from and after the date which is thirty (30)
days
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after the date on which request for payment is made in the manner provided in
Article 33 hereof.
38.15. The Exhibits annexed to this Lease shall be deemed part of
this Lease with the same force and effect as if such Exhibits were numbered
Articles of this Lease.
38.16. All references in this Lease to numbered Articles, numbered
Sections and lettered Exhibits are references to Articles and Sections of this
Lease, and Exhibits annexed to (and thereby made part of) this Lease, as the
case may be, unless expressly otherwise designated in the context in which used.
38.17. All words and terms used in this Lease, regardless of the
number and gender in which used, shall be deemed to include any other number and
any other gender as the context in which used may require; and the use herein of
the words "successors and assigns" or "successors or assigns" of Landlord or
Tenant shall be deemed to include the heirs, legal representatives and assigns
of any individual Landlord or Tenant.
38.18. Intentionally omitted.
38.19. The terms "mortgage" and "deed of trust" are used
interchangeably in this Lease, are hereby given identical meanings, and where
applicable shall also refer to the notes and/or bonds or other evidence of
indebtedness and any chattel mortgages, conditional bills of sale, assignments
of rents, security agreements and financing statements executed and delivered in
connection with or as part of any such mortgage; as are the term "holder of the
mortgage", "mortgagee", "trustee" and "beneficiary"; and all of the foregoing
are applicable to any of the defined terms used in this Lease relating to a
mortgage or a holder thereof.
38.20. Unless the context in which used requires a different
construction, the words "herein", "hereof" and "hereunder" and words of similar
import refer to this Lease as a whole and not to any particular Section or
subdivision thereof.
38.21. The cover sheet hereto which immediately precedes the Index
is a part of this Lease, but in the event of a conflict between any of the
provisions of such cover sheet and those otherwise contained in the portion of
the Lease beginning on Page 1 hereof, the latter shall prevail and be
controlling.
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38.22. The rule of the ejusdem generis shall not be applicable to
limit a general statement following or referable to an enumeration of specific
matters to matters similar to the matters specifically mentioned.
LANDLORD:
125 Bethpage Associates
By:/s/ Edward Blumenfeld
-----------------------
Edward Blumenfeld,
Its General Partner
TENANT:
Toymax Inc.
By:/s/ Steven Lebensfeld
-----------------------
Name:
Title: President
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STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On the 7th day of April, 1997, before me personally came Edward
Blumenfeld, to me known, who, being by me duly sworn, did depose and say that he
is the sole General Partner of 125 Bethpage Associates, a New York limited
partnership, described in and which executed the foregoing instrument; which
executed the foregoing instrument; that he had authority to sign the same as
the act and deed of 125 Bethpage Associates.
-----------------------
BARBARA A. LIOTTA
Notary Public, State of New York
No. 4850695
Qualified in Nassau County
Commission Expires January 20, 19__
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 7th day of April, 1997, before me personally came
Steven Lebensfeld, to me known, who, being by me duly sworn, did depose and say
that he resides at Laurel Hollow, NY; that he is the President of Toymax Inc.,
the corporation described in and which executed the foregoing document; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
-------------------------------
Sanford Frank
Notary Public State of New York
No. 4598530 Qual. Suffolk Co.
Commission Expires June 29, 1998
78
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EXHIBIT "A"
Landlord's Work [ILLEGIBLE]
Map of Premises
<PAGE>
EXHIBIT B
Intentionally Omitted
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EXHIBIT C
Metes and Bounds Description
of the Land
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being at Plainview, Town of
Oyster Bay, County of Nassau and State of New York, bounded and described as
follows:
BEGINNING at a point on the easterly side of Bethpage State Parkway Extension
(Marginal Road), distant 1666.55 feet north as measured along the same from the
northwesterly end of arc connecting the easterly side of Bethpage State Parkway
Extension with the northerly side of Old Country Road;
THENCE Northerly along the easterly side of Bethpage State Parkway Extension on
a curve to the left with a radius of 10582.91 feet, a distance of 341.19 feet;
THENCE south 83 degrees 16 minutes 02 seconds east, 544.31 feet to the westerly
end of Map of Technical Industrial Park Section No. 1;
THENCE south 24 degrees 44 minutes 00 seconds west along said map, 321.62 feet;
THENCE south 14 degrees 40 minutes 000 seconds west along said map, 26.87 feet;
THENCE north 84 degrees 22 minutes 35 seconds west, 446.79 feet to the easterly
side of Bethpage State Parkway Extension at the point or place of BEGINNING.
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EXHIBIT "D"
Signage
TOY MAX
PROPOSED SIGN
SATIN ANODIZED ALUMINUM SIGN
CABINET & SKIRT W/CUSTOM COLOR LETTERING
(COLOR TO BE APPROVED BY LANDLORD)
Blumenfeld Development Group,Ltd
6800 Jericho Turnpike
Syosset, New York 11791
<PAGE>
EXHIBIT E
Rules and Regulations
1. The rights of tenants (which term as used herein includes their
employees and invitees) in the Common Area, are limited to ingress to and egress
from the tenants' premises for such tenants, and no tenant shall use or permit
the use thereof for any other purpose. No tenant shall invite to the tenant's
premises or permit the visit of persons in such numbers or under such conditions
as to interfere with the use and enjoyment of any of the Common Areas and
facilities of the Building by other tenants. Fire exits and similar facilities
are for emergency use only, and they shall not be used for any other purposes by
the tenants. No tenant shall encumber or obstruct or permit the obstruction of
any of the Common Areas.
2. The cost of repairing any damage to the Common Areas caused by a
tenant or its invitees or employees shall be paid by such tenant.
3. The Landlord may refuse admission to the Common Areas during a
Non-Business Period to any person (including a tenant) not properly identified
and during a Non-Business Period may require all persons admitted to the Common
Areas to register with Landlord. A person (including a tenant) leaving the
Common Areas during a Non-Business Period may be required by the Landlord to
properly identify himself or herself and to register with the Landlord. A
Non-Business Period is a period of time which is not within Regular Hours. Each
tenant shall be responsible for its agents, employees and invitees and shall be
liable for all of their acts. Any person whose presence in the Common Areas or
in a tenant's premises at any time shall, in the judgment of the Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants, may be denied access to the Building or Common Areas or may be
ejected therefrom. In case of invasion, riot, public excitement or other
commotion, the Landlord may prevent all access to the Common Areas during the
continuance of the same for the safety of the tenants and protection of
property. The Landlord may require any person leaving the Common Areas with any
package or other object to exhibit a pass from the tenant from whose premises
the package or object is being removed, but the establishment and enforcement of
such requirements shall not impose any responsibility on the Landlord for the
protection of any tenant. The Landlord shall in no way be liable to any tenant
for damages or loss arising from the admission, exclusion or ejection of any
person to or from the tenant's premises or the Common Areas under the provisions
of this rule.
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4. Passenger elevators are to be used only for the movement of
persons, except as otherwise permitted on a specified occasion, at its sole
discretion.
5. Each tenant shall cooperate to prevent canvassing, soliciting and
distribution of handbills within the Project, and shall use reasonable efforts
to have its invitees and employees comply with these Rules and Regulations.
6. No awnings or other projections over or beyond the windows shall
be installed by any tenant.
7. No hand trucks, except those equipped with rubber tires and side
guards shall be used in any tenant's premises or in the Common Areas within the
Building.
8. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors to a tenant's premises
shall be kept closed at all times.
9. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building services or the proper and economic
heating, cleaning or other servicing of the Building (inclusive of the tenant's
premises), or the use or enjoyment by any other tenant of any other premises, no
tenant shall install any ventilating, air conditioning, electrical or other
equipment of any kind which, in the judgment of the Landlord, might cause any
such impairment or interference. No dangerous, inflammable, combustible or
explosive object or material shall be brought into the building by any tenant or
with the permission of any tenant.
10. No materials shall be discharged or permitted to be discharged
into waste lines, vents or flues which may damage them. The water and wash
closets and other plumbing fixtures in or serving any tenant's premises shall
not be used for any purpose other than the purpose for which they were designed
or constructed and no sweeping, rubbish, rags, acids or other foreign substances
shall be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the tenant who, or whose employees, agents, or
invitees, shall have caused the same.
11. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows in any tenant's premises and no lock on any door
therein shall be changed or altered in any respect without Landlord's prior
consent which consent will not be unreasonably withheld or delayed. Upon the
termination of
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a tenant's lease, all keys (or equivalents) of the tenant's premises and toilet
rooms shall be delivered to the Landlord.
12. Each tenant shall, at its expanse, provide artificial light in
the premises demised to such tenant for Landlord's agents, contractors and
employees while performing services or making repairs or alterations in said
premises.
13. The tenant's employees and invitees shall not loiter around the
Common Areas.
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EXHIBIT F
Cleaning and Rubbish Removal
CLEANING - Tenant Premises
1. NIGHTLY - After Hours on Business Days:
(a) Empty and damp wipe all ashtrays.
(b) Empty and dust wipe all waste receptacles.
(c) Empty, clean and refill smoking urns as needed.
(d) Dust all areas within hand high reach, including window
sills, wall ledges, chairs, desks, tables, baseboards,
file cabinets, radiators, pictures, and all manner of
office furniture.
(e) Sweep with treated cloths all composition tile
flooring.
(f) Vacuum all carpeted areas.
(g) Wash clean all water fountains and coolers, emptying
waste water as necessary.
(h) If applicable, terrace balconies Will be cleaned as
required (ordinary), and not to include trash and other
conditions introduced by Tenant, its employees and their
invitees.
2. QUARTERLY
(a) High dust all walls, ledges, pictures, anemostats and
registers of office areas not reached in normal nightly
cleaning.
(b) Dust all Venetian Blinds.
II. CLEANING - INTERIOR COMMON AREAS
1. NIGHTLY - After Hours on Business Days:
(a) Empty waste receptacles, as needed.
(b) Empty, clean and refill smoking urns as needed.
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(c) Remove gum from all Atrium flooring, as necessary.
(d) Auto scrub all Atrium stone flooring, as necessary.
(e) Spray buff stone flooring in entrance lobby and elevator
lobbies, as necessary.
(f) Vacuum or wash rubber mats as necessary.
(g) Remove finger marks where possible from painted walls,
partitions and doors.
(h) Remove finger marks from public door and wall surfaces.
(i) Clean interior surfaces of elevator cabs and wash and
wax composition tile flooring, or vacuum carpet, as
necessary.
(j) Wash clean all water fountains and coolers, emptying
waste water as necessary.
(k) Lavatories:
Wash, disinfect and dry all bowls, seats, urinals,
washbasins and mirrors, as necessary.
Wash and dry all metal work, as necessary.
Empty paper towel and sanitary napkin disposal
receptacles and remove to designated area.
Damp wipe exterior of waste cans and dispensing units,
as necessary.
Sweep and wash floors.
Dust all sills, partitions and ledges, as necessary.
Insert toilet tissue, toweling and soap
dispensers, as necessary.
2. FOUR TIMES WEEKLY
(a) Sweep and dust stairways, as necessary.
2
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3. WEEKLY
(a) Wash booth partitions in lavatories.
(b) Wash all stairways.
4. MONTHLY
(a) Wash tile walls, in lavatories.
(b) Wash interior of waste cans, and sanitary disposal
containers in lavatories.
5. QUARTERLY
(a) Scrub and wax all composition tile flooring in public
corridors.
(b) Scrub and seal stone floor of entrance lobby.
(c) High dust all walls, ledges, pictures, anemostats and
registers of public areas not reached in normal nightly
cleaning.
6. ANNUALLY
(a) Lighting fixtures will be washed.
III. WINDOW CLEANING
(a) Clean entrance door glass and transoms - once weekly.
(b) Clean Atrium glass - once weekly.
(c) Clean Atrium skylight outside - once yearly.
(d) Clean exterior of perimeter windows - two times yearly.
IV. EXTERIOR COMMON AREAS
(a) Parking fields will be regularly swept, cleared of snow in
excess of two inches and generally maintained so as to be well
drained, properly surfaced and striped.
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Exhibit 10.4
Lease made as of the 4th day of December, 1992, between 200 FIFTH AVENUE
ASSOCIATES, having office c/o Helmsley-Spear, Inc., THE TOY CENTER, 200 Fifth
Avenue, New York, New York 10010, hereinafter referred to as "Lessor" or
"Landlord", and TOYMAX, INC. a New York corporation hereinafter referred to as
"Lessee" or "Tenant".
Witnesseth: Lessor hereby leases to Lessee and Lessee hereby hires from Lessor
Rms. 409 & 411 & 413 & 415 & 417 & 419 (said space is hereinafter called the
"premises") in the building known as THE TOY CENTER South located at Bldg. 825,
Lot 31, with a mailing address of THE TOY CENTER, 200 Fifth Avenue, ("the
building") in the County of New York, City of New York, 10010, for a term of ten
(10) yrs. & three (3) mos., to commence on the 1st day of February 1993, and to
expire on the 30th day of April 2003, or until such term shall sooner end as in
Article 12 and elsewhere herein provided, both dates inclusive, at a fixed
annual rental (subject to Articles 23 and 41) at the annual rate of as more
particularly described in Article 42 hereof payable in equal monthly
installments in advance on the first day of each month, except that the first
installment of rent due under this lease shall be paid by Lessee upon its
execution of this lease, unless this lease be a renewal.
Lessor and Lessee covenant and agree:
PURPOSE
1. Lessee shall use and occupy the premises only for offices and wholesale
showrooms in the transaction of its business of toys, and for no other purpose.
RENT AND ADDITIONAL RENT.
2. Lessee agrees to pay rent as herein provided at the office of Lessor or
such other place as Lessor may designate, payable in United States legal tender,
by cash, or by good and sufficient check drawn on a New York City Clearing House
Bank, and without any set off or deduction whatsoever. Any sum other than fixed
rent payable hereunder shall be deemed additional rent and due on demand.
ASSIGNMENT.
3. Neither Lessee nor Lessee's legal representatives or successors in
interest by operation of law or otherwise, shall assign, mortgage or otherwise
encumber this lease, or sublet or permit all or part of the premises to be
[ILLEGIBLE] by others, without the prior written consent of Lessor in each
instance. The transfer of a majority of the issued and outstanding
capital stock of any corporate lessee or sublessee of this lease or a majority
of the total interest in any partnership lessee or sublessee, however
accomplished, and whether in a single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this lease or of such
sublease. The merger or consolidation of a corporate lessee or sublessee where
the net worth of the resulting or surviving corporation is less than the net
worth of the lessee or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If without Lessor's written consent this lease is assigned, or the premises are
sublet or occupied by anyone other than Lessee, Lessor may accept the rent from
such assignee, subtenant or occupant, and apply the net amount thereof to the
rent herein reserved, but no such assignment, subletting, occupancy or
acceptance of rent shall be deemed a waiver of this covenant. Consent by Lessor
to an assignment or subletting shall not relieve Lessee from the obligation to
obtain Lessor's written consent to any further assignment or subletting. In no
event shall any permitted sublessee assign or encumber its sublease or further
sublet all or any portion of its sublet space, or otherwise suffer or permit the
sublet space or any part thereof to be used or occupied by others, without
Lessor's prior written consent in each instance. A modification, amendment or
extension of a sublease shall be deemed a sublease.
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DEFAULT.
4. Lessor may terminate this lease on five (5) days' notice; (a) if rent or
additional rent is not paid within ten (10) days after written notice from
Lessor; or (b) if Lessee shall have failed to cure a default in the performance
of any covenant of this lease (except the payment of rent), or any rule or
regulation hereinafter set forth, within ten (10) days after written notice
thereof from Lessor, or if default cannot be completely cured in such time, if
Lessee shall not promptly proceed to cure such default within said ten (10)
days, or shall not complete the curing of such default with due diligence; or
(c) when and to the extent permitted by law, if a petition in bankruptcy shall
be filed by or against Lessee or if Lessee shall make a general assignment
for the benefit of creditors, or receive the benefit of any insolvency or
reorganization act; or (d) if a receiver or trustee is appointed for any portion
of Lessee's property and such appointment is not vacated within twenty (20)
days; or (e) if an execution or attachment shall be issued under which the
premises shall be taken or occupied or attempted to be taken or occupied by
anyone other than Lessee; or (f) if the premises become and remain vacant or
deserted for a period of ten (10) days; or (g) if Lessee shall default beyond
any grace period under any other lease between Lessee and Lessor; or (h) if
Lessee shall fail to move into or take possession of the premises within fifteen
(15) days after commencement of the term of this lease.
At the expiration of the five (5) day notice period, this lease and any
rights of renewal or extension thereof shall terminate as completely as if that
were the date originally fixed for the expiration of the term of this lease, but
Lessee shall remain liable as hereinafter provided.
RELETTING, ETC.
5. If Lessor shall re-enter the premises on the default of Lessee, by
summary proceedings or otherwise: (a) Lessor may re-let the premises or any part
thereof, as Lessee's agent, in the name of Lessor, or otherwise, for a term
shorter or longer than the balance of the term of this lease, and may grant
concessions or free rent. (b) Lessee shall pay Lessor any deficiency between the
rent hereby reserved and the net amount of any rents collected by Lessor for the
remaining term of this lease, through such re-letting. Such deficiency shall
become due and payable monthly, as it is determined. Lessor shall have no
obligation to re-let the premises, and its failure or refusal to do so, or
failure to collect rent on re-letting, shall not affect Lessee's ability
hereunder. In computing the net amount of rents collected through such
re-letting, Lessor may deduct all expenses incurred in obtaining possession or
re-letting the premises, including legal expenses, attorneys' fees, brokerage
fees, the cost of restoring the premises to good order, and the cost of all
alterations and decorations deemed necessary by Lessor to effect re-letting. In
no event shall Lessee be entitled to a credit or repayment for rerental income
which exceeds the sums payable by Lessee hereunder or which covers a period
after the original turn of this lease. (c) Lessee hereby expressly waives any
right or redemption granted by any present or future law. "Re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. In the event of a breach or threatened breach of any of the covenants
or provisions hereof, Lessor shall have the right of injunction. Mention herein
of any particular remedy shall not preclude Lessor from any other available
remedy. (d) Lessor shall recover as liquidated damages, in addition to accrued
rent and other charges, if Lessor's re-entry is the result of Lessee's
bankruptcy, insolvency, or reorganization, the full rental for the maximum
period allowed by any act relating to bankruptcy, insolvency or reorganization.
If Lessor re-enters the premises for any cause, or if Lessee abandons or
vacates the premises, and after the expiration of this lease, any property left
in the premises by Lessee shall be deemed to have been abandoned by Lessee, and
Lessor shall have the right to retain or dispose of such property in any manner
without any obligation to account therefor to Lessee. If Lessee shall at any
time default hereunder, and if Lessor shall institute an action or summary
proceedings against Lessee based upon such default, then Lessee will reimburse
Lessor for the expense of reasonable attorneys' fees and disbursements thereby
incurred by Lessor.
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LESSOR MAY CURE DEFAULTS
6. If Lessee shall default in performing any covenant or condition of this
lease, Lessor may perform the same for the account of Lessee, and Lessee shall
reimburse Lessor for any expense incurred therefor, which obligation shall
survive the expiration or sooner termination of the term of this lease.
ALTERATIONS.
7. Lessee shall make no decoration, alteration, addition or improvement in
the premises, without the prior written consent of Lessor, and then only by
contractors or mechanics and in such manner and with such materials as shall be
approved by Lessor. All alterations, additions or improvements to the premises,
including window and central air-conditioning equipment and duct work, except
movable office furniture and equipment installed at the expense of the Lessee,
shall, unless Lessor elects otherwise in writing, become the property of Lessor
upon the installation thereof, and shall be surrendered with the premises at the
expiration of this lease. Any such alterations, additions and improvements which
Lessor shall designate, shall be removed by Lessee and any damage repaired, at
Lessee's expense, prior to the expiration of this lease.
LIENS
8. Prior to commencement of its work in the demised premises, Lessee shall
obtain and deliver to Lessor a written letter of authorization, in form
satisfactory to Lessor's counsel, signed by architects, engineers and designers
to become involved in such work, which shall confirm that any of [ILLEGIBLE]
removed from any thing with governmental authorities, on request of Lessor, in
the event that said architect, engineer, surveyor or designer thereafter no
longer is providing services with respect to the demised premises. With
respect to contractors, subcontractors, materialmen and laborers, and
architects, engineers and designers, for all work to be furnished to Lessee
at the premises, Lessee agrees to obtain and deliver to Lessor written and
unconditional waiver of mechanics liens upon the premises or the building,
after payments to the contractors, etc., subject to any then applicable
provisions of the Lien Law. Notwithstanding the foregoing, Lessee at its
expense shall cause any lien filed against the premises or the building, for
work or materials claimed to have been furnished to Lessee, to be discharged
of record within ten (10) days after notice thereof.
REPAIRS
9. Lessee shall take good care of the premises and the fixtures and
appurtenances therein, and shall make all repairs necessary to keep them in good
working order and condition, including structural repairs when those are
necessitated by the act, omission or negligence of Lessee or its agents,
employees or invitees. During the term of this Lease, Lessee may have the use of
any air-conditioning equipment located in the premises, and Lessee, at its own
cost and expense, shall maintain and repair such equipment and shall reimburse
Lessor, in accordance with Article 41 of this lease for electricity consumed by
the equipment. The exterior walls of the building, the windows and the portions
of all window sills outside same are not part of the premises demised by this
lease, and Lessor hereby reserves all rights to such parts of the building or
shall maintain the structural portions of the premises in repair at its expense
except in cases of damage caused by Lessee negligence.
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DESTRUCTION.
10. If the premises shall be partially damaged by fire or other casualty,
the damage shall be repaired at the expense of Lessor, but without prejudice to
the rights of subrogation, if any, of Lessor's insurer. Lessor shall not be
required to repair or restore any of Lessee's property or any alteration or
leasehold improvement made by or for Lessee at Lessee's expense. The rent shall
abate in proportion to the portion of the premises not usable by Lessee. Lessor
shall not be liable to Lessee for any delay in restoring the premises. Lessee's
sole remedy being the right to an abatement of rent, as above provided. If the
premises are rendered wholly untenantable by fire or other casualty and if
Lessor shall decide not to restore the premises, or if the building shall be so
damaged that Lessor shall decide to demolish it or to rebuild it (whether or not
the premises have been damaged), Lessor may within ninety (90) days after such
fire or other cause give notice to Lessee of its election that the term of this
lease shall automatically expire no less than ten (10) days after such notice is
given. Notwithstanding the foregoing, each party shall look first to any
insurance in its favor before making any claim against the other party for
recovery for loss or damage resulting from fire or other casualty, and to the
extent that such insurance is in force and collectible and to the extent
permitted by law, Lessor and Lessee each hereby releases and waives all right of
recovery against the other or any one claiming through or under each of them by
way of subrogation or otherwise. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing that
such a release or waiver shall not invalidate the insurance and also, provided
that such a policy can be obtained without additional premiums. Lessee hereby
expressly waives the provisions of Section 227 of the Real Property Law and
agrees that the foregoing provisions of this Article shall govern and control in
lieu thereof.
END OF TERM.
11. Lessee shall surrender the premises to Lessor at the expiration or
sooner termination of this lease in good order and condition, except for
reasonable wear and tear and damage by fire or other casualty, and Lessee shall
remove all of its property. Lessee agrees it shall indemnify and save Lessor
harmless against all costs, claims, loss or liability resulting from delay by
Lessee in so surrendering the premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay. Accordingly, the
parties recognize and agree that other damage to Lessor resulting from any
failure by Lessee timely to surrender the premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Lessee therefore agrees that if possession
of the premises is not surrendered to Lessor within one (1) day after the date
of the expiration or sooner termination of the term of this lease, then Lessee
will pay Lessor as liquidated damages for each month and for each portion of any
month during which Lessee holds over in the premises after expiration or
termination of the term of this lease, a sum equal to three times the average
rent and additional rent which was payable per month under this lease during the
last six months of the term thereof. The aforesaid obligations shall survive the
expiration or sooner termination of the term of this lease. [ILLEGIBLE] during
the term of this lease, Lessor may exhibit the premises to prospective
purchasers or mortgagees of Lessor's interest therein, and may place upon the
premises the usual "For Sale" notices. During the last year of the term
of this lease, Lessor may exhibit the premises to prospective tenants upon
reasonable advance notice and without interfering in Lessee normal business
activities, and may place and keep upon the premises the usual "To Let" notice.
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SUBORDINATION AND ESTOPPEL.
12. Lessee has been informed and understands that Lessor is the Lessee
under a lease of the land and entire building of which the premises form a
part (hereinafter called the "Master Lease"). This lease is and shall be
[ILLEGIBLE] and subordinate to the Master Lease and all other ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which the premises form a part, and renewals,
modifications, consolidations, replacements and extensions thereof. This Article
shall be self-operative and no further instrument of subordination shall be
necessary. In confirmation of such subordination, Lessee shall execute promptly
any certificate that Lessor may require. Lessee hereby appoints Lessor as
Lessee's irrevocable attorney-in-fact to execute any document of
subordination on behalf of Lessee. In the event that the Master Lease or any
other ground or underlying lease is terminated or any mortgage foreclosed, this
lease shall not terminate or be terminated by Lessee unless Lessee was
specifically named in any termination, foreclosure judgment or final order. In
the event that the Master Lease or any other ground or underlying lease
is terminated as aforesaid, or if the interests of Lessor under this
lease are transferred by reason of or assigned in lieu of foreclosure or other
proceedings for enforcement of any mortgage or if the holder of any mortgage
acquires a lease in substitution therefor then the Lessee will, at the option to
be exercised in writing by the lessor under the Master Lease or such purchaser,
assignee or lessee, as the case may be, (i) attorn to it and will perform for
its benefit all the terms, covenants and conditions of this lease on the
Lessee's part to be performed with the same force and effect as if said lessor
or such purchaser, assignee or lessee, were the landlord originally named in
this lease, or (ii) enter into a new lease with said lessor or such purchaser,
assignee or lessee, as landlord for the remaining term of this lease and
otherwise on the same terms, conditions and rentals as herein provided. If the
current term of the Master Lease shall expire prior to the date set forth herein
for the expiration of this lease, then, unless Lessor, at its sole option, shall
have elected to extend or renew the term of the Master Lease, the term of this
lease shall expire on the date or expiration of the Master Lease,
notwithstanding the later expiration date hereinabove set forth. If the Master
Lease is renewed, then the term of this lease shall expire as hereinabove set
forth. From time to time, Lessee, on at least ten (10) days' prior written
request by Lessor will deliver to Lessor a statement in writing certifying that
this lease is unmodified and in full force and effect (or if there shall have
been modifications, that the same is in full force and effect as modified and
stating the modifications) and the dates to which the rent and other charges
have been paid and stating whether or not the Lessor is in default in
performance of any covenant, agreement, or condition contained in this lease
and, if so, specifying each such default of which Lessee may have knowledge.
CONDEMNATION.
13. If the whole or any substantial part of the premises shall be
condemned by eminent domain or acquired by private purchase in lieu thereof, for
any public or quasi-public purpose, this lease shall terminate on the date of
the vesting of title through such proceeding or purchase, and Lessee shall have
no claim against Lessor for the value of any unexpired portion of the term of
this lease, nor shall Lessee be entitled to any part of the condemnation award
or private purchase price. If less than a substantial part of the premises is
condemned, this lease shall not terminate, but rent shall abate in proportion to
the portion of the premises condemned.
REQUIREMENTS OF LAW.
14. (a) Lessee at its expense shall comply with all laws, orders and
regulations of any governmental authority having or asserting jurisdiction over
the premises, which shall impose any violation, order or duty upon Lessor or
Lessee with respect to the premises or the use or occupancy thereof, including,
without limitation, compliance in the premises with New York City Local Law No.
5 or any similar or successor law. The foregoing shall not require Lessee to do
structural work.
(b) Lessee shall require every person engaged by him to clean any window
in the premises from the outside, to use the equipment and safety devices
required by Section 202 of the Labor Law and the rules of any governmental
authority having or asserting jurisdiction.
(c) Lessee at its expense shall comply with all requirements of the New
York Board of Fire Underwriters, or any other similar body affecting the
premises and shall not use the premises in a manner which shall increase the
rate of fire insurance of Lessor or of any other tenant, over that in effect
prior to this lease. If Lessee's use of the premises increases the fire
insurance rate, Lessee shall reimburse Lessor for all such increased costs. That
the premises are being used for the purpose set forth in Article 1 hereof shall
not relieve Lessee from the foregoing duties, obligations and expenses.
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CERTIFICATE OF OCCUPANCY.
15. Lessee will at no time use or occupy the premises in violation of the
certificate of occupancy issued for the building. The statement in this lease of
the nature of the business to be conducted by Lessee shall not be deemed to
constitute a representation or guaranty by Lessor that such use is lawful or
permissible in the premises under the certificate of occupancy for the building.
POSSESSION.
16. If Lessor shall be unable to give possession of the premises on the
commencement date of the term because of the retention of possession of any
occupant thereof, alteration or construction work, or for any other reason
except as hereinafter provided, Lessor shall not be subject to any liability for
such failure. In such event, this lease shall stay in full force and effect,
without extension of its term. However, the rent hereunder shall not commence
until the premises are available for occupancy by Lessee. If delay in possession
is due to work, changes or decorations being made by or for Lessee, or is
otherwise caused by Lessee, there shall be no rent abatement and the rent shall
commence on the date specified in this lease. If permission is given to Lessee
to occupy the demised premises or other premises prior to the date specified as
the commencement of the term, such occupancy shall be deemed to be pursuant
to the terms of this lease, except that the parties shall separately agree as
to the obligation of Lessee to pay rent for such occupancy. The provisions of
this Article are intended to constitute an "express provision to the
contrary" within the meaning of Section 223(a), New York Real Property Law.
QUIET ENJOYMENT.
17. Lessor covenants that if Lessee pays the rent and performs all of
Lessee's other obligations under this lease, Lessee may peaceably and quietly
enjoy the demised premises, subject to the terms, covenants and conditions of
this lease and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
RIGHT OF ENTRY.
18. Lessee shall permit Lessor to erect and maintain pipes and conduits in
and through the premises. Lessor or its agents shall have the right to enter or
pass through the premises at all times, by master key, by reasonable force or
otherwise, to examine the same, and to make such repairs, alterations or
additions as it may deem necessary or desirable to the premises or the building,
and to take all material into and upon the premises that may be required
therefor. Such entry and work shall not constitute an eviction of Lessee in
whole or in part, shall not be ground for any abatement of rent, and shall
impose no liability on Lessor by reason of inconvenience or injury to Lessee's
business. Lessor shall have the right at any time, without the same constituting
an actual or constructive eviction, and without incurring any liability to
Lessee, to change the arrangement and/or location of entrances or passageways,
windows, corridors, elevators, stain, toilets, or other public parts of the
building, and to change the name or number by which the building is known.
VAULT SPACE.
19. Anything contained in any plan or blueprint to the contrary
notwithstanding, no vault or other space not within the building property line
is demised hereunder. Any use of such space by Lessee shall be deemed to be
pursuant to a license, revocable at will by Lessor, without diminution of the
rent payable hereunder. If Lessee shall use such vault space, any fees, taxes or
charges made by any governmental authority for such space shall be paid by
Lessee.
INDEMNITY.
20. Lessee shall indemnify, defend and save Lessor harmless from and
against any liability or expense arising from the use or occupation of the
premises by Lessee, or anyone on the premises with Lessee's permission, or from
any branch of this lease.
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LESSOR'S LIABILITY.
21. This lease and the obligations of Lessee hereunder shall in no way be
affected because Lessor is unable to fulfill any of its obligations or to supply
any service, by reason of strike or other cause not within Lessor's control.
Lessor shall have the right, without incurring any liability to Lessee, to stop
any service because of accident or emergency, or for repairs, alterations or
improvements, necessary or desirable in the judgment of Lessor until such
repairs, alterations or improvements shall have been completed. Lessor shall not
be liable to Lessee or anyone else, for any loss or damage to person, property
or business, unless due to the negligence of Lessor; nor shall Lessor be liable
for any latent defect in the premises or the building. Lessee agrees to look s
olely to Lessor's estate and interest in the land and building, or the lease of
the building or of the land and building, and the demised premises, for the
satisfaction of any right or remedy of Lessee for the collection of a judgment
(or other judicial process) requiring the payment of money by Lessor, in the
event of any liability by Lessor, and no other property or assets of Lessor
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Lessee's remedies under or with respect to this lease, the
relationship of landlord and tenant hereunder, or Lessee's use and occupancy of
the demised premises or any other liability of Lessor to Lessee (except for
negligence).
CONDITION OF PREMISES.
22. Lessee acknowledges that Lessor has made no representation or promise,
except as herein expressly set forth. Lessee agrees to accept the premises "as
is", except for any work which Lessor has expressly agreed in writing to
perform.
COST OF LIVING ADJUSTMENTS.
23. The fixed annual rent reserved in this lease and payable hereunder
shall be adjusted, as of the times and in the manner set forth in this Article:
(a) Definitions: For the purposes of this Article, the following
definitions shall apply:
(i) The term "Base Year" shall mean the full calendar year during which
the term of this lease commences.
(ii) The term "Price Index" shall mean the "Consumer Price Index"
published by the Bureau of Labor Statistics of the U.S. Department of Labor. All
Items, New York, N.Y. -- Northeastern, N.J., all urban consumers (presently
denominated "CPI-U"), or a successor or substitute index appropriately adjusted.
(iii) The term "Price Index for the Base Year" shall mean the average
of the monthly All Items Price Indexes for each of the 12 months of the
Fiscal Year.
(b) Effective as of each January and July subsequent to the Base Year
there shall be made a cost of living adjustment of the fixed annual rental
payable hereunder. The July adjustment shall be based on the percentage
difference between the Price Index for the preceding month of June and
the Price Index for the Base Year. The January adjustment shall be based
on such percentage difference between the Price Index for the preceding
month of December and the Price Index for the Base Year.
(i) In the event the Price Index for June in any calendar year during the
term of this lease reflects an increase over the Price Index for the Base Year
then the fixed annual rent herein provided to be paid as of the July following
such month of June (unchanged by any adjustments under this Article)
shall be multiplied by the percentage difference between the Price Index for
June and the Price Index for the Base Year, and the resulting [ILLEGIBLE] shall
be added to such fixed annual rent, effective as of such July 1st. [ILLEGIBLE]
adjusted fixed annual rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant to the terms of this
lease.
(ii) In the event the Price Index for December in any calendar year during
the term of this lease reflects an increase over the Price Index for the Base
Year, then the fixed annual rent herein provided to be paid as of the January
1st following such month of December (unchanged by any adjustments under this
Article) shall be multiplied by the percentage difference between the Price
Index for December and the Price Index for the Base Year, and the resulting sum
shall be added to such fixed annual rent effective as of such January 1st. Said
adjusted fixed annual rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant to the terms of this
lease.
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The following illustrates the intentions of the parties hereto as to the
computation of the aforementioned cost of living adjustment in the annual rent
payable hereunder:
Assuming that said fixed annual rent is $10,000, that the Price
Index for the Base Year was 102.0 and that the Price Index for the month
of June in a calendar year following the Base Year was 105.0, then the
percentage increase thus reflected, i.e., 2.941% (3.0/102.0) would be
multiplied by $10,000, and said fixed annual rent would be increased by
$294.10 effective as of July 1st of said calendar year.
In the event that the Price Index ceases to use 1982-84 = 100 as the basis
of calculation, or if a substantial change is made in the terms or number of
items contained in the Price Index, then the Price Index shall be adjusted to
the figure that would have been arrived at had the manner of computing the Price
Index in effect at the date of this lease not been altered. In the event such
Price Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Price Index shall be used.
No adjustments or recomputations, retroactive or otherwise, shall be made
due to any revision which may later be made in the first published figure of the
Price Index for any month.
(c) Lessor will cause statements of the cost of living adjustments
provided for in subdivision (b) to be prepared in reasonable detail and
delivered to Lessee.
(d) In no event shall the fixed annual rent originally provided to be paid
under this lease (exclusive of the adjustments under this Article) be reduced by
virtue of this Article.
(e) Any delay or failure of Lessor, beyond July or January of any year, in
computing or billing for the rent adjustments hereinabove provided, shall not
constitute a waiver of or in any way impair the continuing obligation of Lessee
to pay such rent adjustments hereunder.
(f) Notwithstanding any expiration or termination of this lease prior to
the lease expiration date (except in the case of a cancellation by mutual
agreement) Lessee's obligation to pay rent as adjusted under this Article shall
continue and shall cover all periods up to the lease expiration date, and shall
survive any expiration or termination of this lease.
TAX ESCALATION.
24. Lessee shall pay to Lessor, as additional rent tax escalation in
accordance with this Article:
(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 3,270 square feet.
(b) Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "base tax year" as hereinafter set forth for the
determination of real estate tax escalation, shall mean the New York City
real estate tax year commencing July 1, 1993 and ending June 30, 1994.
(ii) The term "The Percentage", for purposes of computing tax
escalation, shall mean decimal five four five percent (.545%). The
Percentage has been computed on the basis of a fraction, the numerator of
which is the rentable square foot area of the presently demised premises
and the denominator of which is the total rentable square foot area of the
office and commercial space in the building project. The parties
acknowledge and agree that the total rentable square foot area of the
office and commercial space in the building project shall be deemed to be
600,019 sq. ft.
(iii) the term "the building project", shall mean the aggregate
combined parcel of land on a portion of which are the improvements of
which the demised premises form a part, with all the improvements thereon,
said improvements being a part of the block and lot for tax purposes which
are applicable to the aforesaid land.
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(iv) The term "comparative year" shall mean the twelve (12) months
following the base tax year, and each subsequent period of twelve (12)
months (or such other period of twelve (12) months occurring during the
term of this lease as hereafter may be duly adopted as the fiscal year for
real estate tax purposes by the City of New York).
(v) The term "real estate taxes" shall mean the total of all taxes
and special or other assessments levied, assessed or imposed at any time
by any governmental authority upon or against the building project, and
also any tax or assessment levied, assessed or imposed at any time by any
governmental authority in connection with the receipt of income or rents
from said building project to the extent that same shall be in lieu of all
or a portion of any of the aforesaid taxes or assessments, or additions or
increases thereof, upon or against said building project. If, due to a
future change in the method of taxation or in the taxing authority, or for
any other reason, a franchise, income, transit, profit or other tax or
governmental imposition, however designated, shall be levied against
Lessor in substitution in whole or in part for the real estate taxes, or
in lieu of additions to or increases of said real estate taxes, then such
franchise, income, transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of "real estate
taxes" for the purposes hereof. As to special assessments which are
payable over a period of time extending beyond the term of this lease,
only a pro rata portion thereof, covering the portion of the term of this
lease unexpired at the time of the imposition of such assessment, shall be
included in "real estate taxes". If, by law, any assessment may be paid in
installments, then, for the purposes hereof (a) such assessment shall be
deemed to have been payable in the maximum number of installments
permitted by law and (b) there shall be included in real estate taxes, for
each comparative year in which such installments may be paid, the
installments of such assessment so becoming payable during such
comparative year, together with interest payable during such comparative
year.
(vi) Where a "transition assessment" is imposed by the City of New
York for any tax (fiscal) year, then the phrases "assessed value" and
"assessments" shall mean the transition assessment for that tax (fiscal)
year.
(vii) The phrase "real estate taxes payable during the base tax
year" shall mean that amount obtained by multiplying the assessed value of
the land and buildings of the building project for the base tax year by
the tax rate for the base tax year for each $100 of such assessed value.
1. In the event that the real estate taxes payable for any comparative
year shall exceed the amount of the real estate taxes payable during the base
tax year, Lessee shall pay to Lessor, as additional rent for such comparative
year, an amount equal to The percentage of the excess. Before or after the start
of each comparative year, Lessor shall furnish to Lessee a statement of the real
estate taxes payable for such comparative year, and a statement of the real
estate taxes payable during the base tax year. If the real estate taxes payable
for such comparative year exceed the real estate taxes payable during the base
tax year, additional rent for such comparative year, in an amount equal to The
Percentage of the excess, shall be due from Lessee to Lessor, and such
additional rent shall be payable by Lessee to Lessor within ten (10) days after
receipt of the aforesaid statement. The benefit of any discount for any earlier
payment or prepayment of real estate taxes shall accrue solely to the benefit of
Lessor, and such discount shall not be subtracted from the real estate taxes
payable for any comparative year.
2. Should the real estate taxes payable during the base tax year be
reduced by final determination of legal proceedings, settlement or otherwise,
then, the real estate taxes payable during the base tax year shall be
correspondingly revised, the additional rent theretofore paid or payable
hereunder for all comparative years shall be recomputed on the basis of such
reduction, and Lessee shall pay to Lessor as additional rent, within ten (10)
days after being billed therefor, any deficiency between the amount of such
additional rent as theretofore computed and the amount thereof due as the result
of such recomputations. Should the real estate taxes payable during the base tax
year be increased by such final determination of legal proceedings, settlement
or otherwise, then appropriate recomputation and adjustment also shall be made.
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3. If, after Lessee shall have made a payment of additional rent under
this subdivision (c), Lessor shall receive a refund of any portion of the real
estate taxes payable for any comparative year after the base tax year on which
such payment of additional rent shall have been based, as a result of a
reduction of such real estate taxes by final determination of legal proceedings,
settlement or otherwise, Lessor shall within ten (10) days after receiving the
refund pay to Lessee The Percentage of the refund less The Percentage of
expenses (including attorneys' and appraisers' fees) incurred by Lessor in
connection with any such application or proceeding. If, prior to the payment of
taxes for any comparative year, Lessor shall have obtained a reduction of that
comparative year's assessed valuation of the building project, and therefore of
said taxes, then the term "real estate taxes" for that comparative year shall be
deemed to include the amount of Lessor's expenses in obtaining such reduction in
assessed valuation, including attorneys' and appraisers' fees.
4. The statements of the real estate taxes to be furnished by Lessor as
provided above shall be certified by Lessor and shall constitute a final
determination as between Lessor and Lessee of the real estate taxes for the
periods represented thereby, unless Lessee within thirty (30) days after they
are furnished shall give a written notice to Lessor that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. If Lessee
shall so dispute said statement then, pending the resolution of such dispute
Lessee shall pay the additional rent to Lessor in accordance with statement
furnished by Lessor.
5. In no event shall the fixed annual rent under this lease (exclusive of
the additional rents under this Article) be reduced by virtue of this Article.
6. If the commencement date of the term of this lease is not the first
[ILLEGIBLE] of the first comparative year, then the additional rent due
hereunder [ILLEGIBLE] such first comparative year shall be a proportionate share
of said additional rent for the entire comparative year, said proportionate
share to be based upon the length of time that the lease term will be in
existence during said first comparative year. Upon the date of any expiration or
termination of this lease (except termination because of Lessee's default)
whether the same be the date hereinabove set forth for the expiration of the
term or any prior or subsequent date, a proportionate share of said additional
rent for the comparative year during which such expiration or termination occurs
shall immediately become due and payable by Lessee to Lessor, if it was not
theretofore already billed and paid. The said proportionate share shall be based
upon the length of time that this lease shall have been in existence during such
comparative year. Lessor shall promptly cause statements of said additional rent
for that comparative year to be prepared and furnished to Lessee. Lessor and
Lessee shall thereupon make appropriate adjustments of amounts then owing.
7. Lessor's and Lessee's obligations to make the adjustments referred to
in subdivision (6) above shall survive any expiration or termination of this
lease.
8. Any delay or failure of Lessor in billing any tax escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of Lessee to pay such tax escalation hereunder.
SERVICES.
25. Lessee acknowledges that it has been advised that the cleaning
contractor for the building may be the Lessor or a division or affiliate of
Lessor. Lessee agrees to employ Lessor or its division or affiliate, or such
other contractor as Lessor may from time to time designate, for any waxing,
polishing and other maintenance work of the demised premises and of the Lessee's
furniture, fixtures and equipment, provided that the prices charged by said
contractor are comparable to the prices charged by other contractors for the
same work. Lessee agrees that it shall not employ any other cleaning and
maintenance contractor, nor any individual, firm or organization for such
purpose without Lessor's prior written consent. If Lessor and Lessee cannot
agree on whether the prices being charged by Lessor or the contractor designated
by the Lessor are comparable to those charged by other contractors, Lessor and
Lessee shall each obtain two bona fide bids for such work from reputable
contractors, and the average of the four bids thus obtained shall be the
standard of comparison.
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JURY WAIVER.
26. Lessor and Lessee hereby waive trial by jury in any action, proceeding
or counterclaim involving any matter whatsoever arising out of or in any way
connected with this lease, the relationship of landlord and tenant, Lessee's use
or occupancy of the premises (except for personal injury or property damage) or
involving the right to any statutory relief or remedy. Lessee will not interpose
any counterclaim of any nature in any summary proceeding.
NO WAIVER, ETC.
27. No act or omission of Lessor or its agents shall constitute an actual
or constructive eviction, unless Lessor shall have first received written notice
of Lessee's claim and shall have had a reasonable opportunity to meet such
claim. IN the event that any payment herein provided for by Lessee to Lessor
shall become overdue for a period in excess of ten (10) days, then at Lessor's
option a "late charge" for such period and for each additional period of twenty
(20) days or any part thereof shall become immediately due and owing to Lessor,
as additional rent by reason of the failure of Lessee to make prompt payment, at
the following rates: for individual and partnership Lessees, said late charge
shall be computed at the maximum legal rate of interest; for corporate or
governmental entity Lessees the late charge shall be computed at two percent per
month unless there is an applicable maximum legal rate of interest which then
shall be used. No act or omission of Lessor or its agents shall constitute an
acceptance of a surrender of the premises, except a writing signed by Lessor.
The delivery of keys to Lessor or its agents shall not constitute a termination
of this lease or a surrender of the premises. Acceptance by Lessor of less than
the rent herein provided shall at Lessor's option be deemed on account of
earliest rent remaining unpaid. No endorsement on any check, or letter
accompanying rent, shall be deemed an accord and satisfaction, and such check
may be cashed without prejudice to Lessor. No waiver of any provision of this
lease shall be effective, unless such waiver be in writing signed by Lessor.
This lease contains the entire agreement between the parties, and no
modification thereof shall be binding unless in writing and signed by the party
concerned. Lessee shall comply with the rules and regulations printed in this
lease, and any reasonable modifications thereof or additions thereto. Lessor
shall not be liable to Lessee for the violation of such rules and regulations by
any other tenant. Failure of Lessor to enforce any provision of this lease, or
any rule or regulation, shall not be construed as the waiver of any subsequent
violation of a provision of this lease, or any rule or regulation. This lease
shall not be affected by nor shall Lessor in any way be liable for the closing,
darkening or bricking up of windows in the premises, for any reason, including
as the result of construction on any property of which the premises are not a
part or by Lessor's own acts.
OCCUPANCY AND USE BY LESSEE.
28(A). Lessee acknowledges that its continued occupancy of the demised
premises, and the regular conduct of its business therein, are of utmost
importance to the Lessor in the renewal of other leases in the building, in the
renting of vacant space in the building, in the providing of electricity, air
conditioning, steam and other services to the tenants in the building, and in
the maintenance of the character and quality of the tenants in the building.
Lessee therefore covenants and agrees that it will occupy the entire demised
premises, and will conduct its business therein in the regular and usual manner,
throughout the term of this lease. Lessee acknowledges that Lessor is executing
this lease in reliance upon these covenants, and that these covenants are a
material element of consideration inducing the Lessor to execute this lease.
Lessee further agrees that if it vacates the demised premises or fails to so
conduct its business therein, at any time during the term of this lease, without
the prior written consent of the Lessor, than all rent and additional rent
reserved in this lease from the date of such breach to the expiration date of
this lease shall become immediately due and payable to Lessor.
(B) The parties recognize and agree that the damage to Lessor resulting
from any breach of the covenants in subdivision (A) hereof will be extremely
substantial, will be far greater than the rent payable for the balance of the
term of this lease, and will be impossible of accurate measurement. The parties
therefore agree that in the event of a breach or threatened breach of the said
covenants, in addition to all of Lessor's other rights and remedies, at law or
in equity or otherwise, Lessor shall have the right of injunction to preserve
Lessee's occupancy and use. The words "become vacant or deserted" as used
elsewhere in this lease shall include Lessee's failure to occupy or use as by
this Article required.
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(C) If Lessee breaches either of the covenants in subdivision (A) above,
and this lease be terminated because of such default, then, in addition to
Lessor's rights of re-entry, restoration, preparation for and rerental, and
anything elsewhere in this lease to the contrary notwithstanding, Lessor shall
retain its right to judgment on and collection of Lessee's aforesaid obligation
to make a single payment to Lessor of a sum equal to the total of all rent and
an additional rent reserved for the remainder of the original term of this
lease, subject to future credit or repayment to Lessee in the event of any
rerenting of the premises by Lessor, after first deducting from the
rental income all expenses incurred by Lessor in reducing to judgment or
otherwise collecting Lessee's aforesaid obligation, and in obtaining possession
of, restoring, preparing for and re-letting the premises. In no event shall
Lessee be entitled to a credit or repayment for rerental income which exceeds
the sums payable by Lessee hereunder or which covers a period after the original
term of this lease.
NOTICES.
29. Any bill, notice or demand from Lessor to Lessee, may be delivered
personally at the premises or sent by registered or certified mail. Such bill,
notice or demand shall be deemed to have been given at the time of delivery or
mailing. Any notice from Lessee to lessor must be sent by registered or
certified mail to the last address designated in writing by Lessor.
WATER.
30. Lessee shall pay the amount of Lessor's cost for all water used by
Lessee for any purpose other than ordinary lavatory uses, and any sewer rent or
tax based thereon. Lessor may install a water meter to measure Lessee's water
consumption for all purposes and Lessee agrees to pay for the installation and
maintenance thereof and for water consumed as shown on said meter. If water is
made available to Lessee in the building or the demised premises through a meter
which also supplies other premises or without a meter, then Lessee shall pay to
Lessor a reasonable amount per month for water.
SPRINKLER SYSTEM.
31. If there shall be a "sprinkler system" [ILLEGIBLE] demised premises
for any period during this lease, Lessee shall pay a reasonable amount per
month, for sprinkler supervisory service. If such sprinkler system is damaged by
any act or omission of Lessee or its agents, employees, licensees or visitors,
Lessee shall restore the system to good working condition at its own expense. If
the New York Board of Fire Underwriters, the New York Fire Insurance Exchange,
the Insurance Services Office or any governmental authority requires the
installation or any alteration to a sprinkler system by reason of Lessee's
occupancy or use of the premises, including any alteration necessary to obtain
the full allowance for a sprinkler system in the fire insurance rate of Lessor,
or for any other reason, Lessee shall make such installation or alteration
promptly, and at its own expense.
HEAT, ELEVATOR, ETC.
32. Lessor shall provide elevator service during all usual business hours
including Saturdays until 1 P.M., except on Sundays, State holidays, Federal
holidays, or Building Service Employees Union Contract holidays. Lessor shall
furnish heat to the premises during the same hours on the same days in the cold
season in each year. Lessor shall cause the premises to be kept clean in
accordance with Lessor's customary standards for the building provided they are
kept in order by Lessee. Lessor, its cleaning contractor and their employees
shall have after-hours access to the demised premises and the use of Lessee'
light, power and water in the demised premises may be reasonably required for
the purpose of cleaning the demised premises. Lessor may remove Lessee's
extraordinary refuse from the building and Lessee shall pay the cost thereof. If
the elevators in the building are manually operated, Lessor may convert to
automatic elevators at any time, without in any way affecting Lessee's
obligations hereunder.
12
<PAGE>
SECURITY DEPOSIT.
33. Lessee has deposited with Lessor the sum of $ none as security for
the performance by Lessee of the terms of this lease. Lessor may use any part of
the security to satisfy any default of Lessee and any expenses arising from such
default, including but not limited to any damages [ILLEGIBLE] deficiency before
or after re-entry by Lessor. Lessee shall, upon demand deposit with Lessor the
full amount so used, in order that Lessor shall have the full security deposit
on hand at all times during the term of this lease. If Lessee shall comply fully
with the terms of this lease, the security shall be returned to Lessee after the
date fixed as the end of the lease. In the event of a sale or lease of the
building containing the premises, Lessor may transfer the security to the
purchaser or lessee, and Lessor shall thereupon be released from all liability
for the return of the security. This provision shall apply to every transfer or
assignment of the security to a new Lessor. Lessee shall have no legal power to
assign or encumber the security herein described.
ELECTRICITY.
34. Terms and conditions with respect to electricity rent inclusion, or
with respect to sub-metering, as the case may be, and general conditions with
respect to either, are set forth in Article 41 in the Rider annexed to and made
part of this lease.
RENT CONTROL.
35. In the event the fixed annual rent or additional rent or any part
thereof provided to be paid by Lessee under the provisions of this lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, code or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Lessor, at its option, may at any time thereafter terminate this
lease, by not less than thirty (30) days' written notice to Lessee, on a date
set forth in said notice, in which event this lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date were the date originally fixed herein for the termination of the demised
term. Lessor shall not have the right so to terminate this lease if Lessee
within such period of thirty (30) days shall in writing lawfully agree that the
rentals herein reserved are a reasonable rental and agree to continue to pay
said rentals, and if such agreement by Lessee shall then be legally enforceable
by Lessor.
SHORING.
36. Lessee shall permit any person authorized to make an excavation on
land adjacent to the building containing the premises to do any work within the
premises necessary to preserve the wall of the building from injury or damage,
and Lessee shall have no claim against Lessor for damages or abatement of rent
by reason thereof.
EFFECT OF CONVEYANCE, ETC.
37. If the building containing the premises shall be sold, transferred or
leased, or the lease thereof transferred or sold, Lessor shall be relieved of
all future obligations and liabilities hereunder and the purchaser, transferee
or lessee of the building shall be deemed to have assumed and agreed to perform
all such obligations and liabilities of Lessor hereunder. In the event of such
sale, transfer or lease, Lessor shall also be relieved of all existing
obligations and liabilities hereunder, provided that the purchaser, transferee
or lessee of the building assumes in writing such obligations and liabilities.
13
<PAGE>
RIGHTS OF SUCCESSORS AND ASSIGNS.
38. This lease shall bind and inure to the benefit of the heirs,
executors, administrators, successors, and, except as otherwise provided herein,
the assigns of the parties hereto. If any provision of any Article of this lease
or the application thereof to any person or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of that Article, or the application
of such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each provision
of said Article and of this lease be valid and be enforced to the fullest extent
permitted by law.
CAPTIONS.
39. The captions herein are inserted only for convenience, and are in no
way to be construed as a part of this lease or as a limitation of the scope of
any provision of this lease.
14
<PAGE>
LEASE SUBMISSION.
40. Lessor and Lessee agree that this lease is submitted to Lessee on the
understanding that it shall not be considered an offer and shall not bind Lessor
in any way unless and until (i) Lessee has duly executed and delivered duplicate
originals thereof to Lessor and (ii) Lessor has executed and delivered one of
said originals to Lessee.
SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF
In Witness Whereof, Lessor and Lessee have executed this lease as of the
day and year first above written.
200 FIFTH AVENUE ASSOCIATES
By: Helmsley-Spear, Inc., Agent
By: /s/ Thomas S. Arbuckle
- ----------------------------- -----------------------------------
Witness for Lessor Thomas S. Arbuckle, Vice President
Tenant Sign Here-
TOYMAX, INC.
- ----------------------------- ----------------------------------- (L.S.)
Witness for Lessee
By: /s/ Steven Lebensfeld
-----------------------------------
ACKNOWLEDGMENTS.
State of New York )
ss.:
County of New York )
On the day of , 19 , before me
personally came ,
to me known and known to me to be the individual described in, and
who executed, the foregoing instrument, and acknowledged to me that he
executed the same.
---------------------------
Notary Public
State of New York )
ss.:
County of New York )
On the day of , 19 , before me
personally came
to me known, who, being by me duly sworn, did depose and say that
resides at No.
that he is the of
the corporation mentioned in, and which executed, the foregoing
instrument; and that he signed h name thereto by order of the Board of
Directors of said corporation.
---------------------------
Notary Public
15
<PAGE>
GUARANTY.
For Value Received and in consideration of the letting of the premises
within mentioned to the within named lessee, the undersigned do hereby covenant
and agree, to and with the Lessor and the Lessor's legal representatives, that
if default shall at any time be made by the said Lessee in the payment of the
rent and the performance of the covenants contained in the within lease, on the
Lessee's part to be paid and performed, that the undersigned will well and truly
pay the said rent, or any arrears thereof, that may remain due unto said Lessor,
and also pay all damages that may arise in consequence of the non-performance of
said covenants, or either of them, without requiring notice of any such default
from the Lessor. The undersigned hereby waives all right to trial by jury in any
action or proceeding hereinafter instituted by the Lessor, to which the
undersigned may be a party.
IN WITNESS WHEREOF, the undersigned ha set hand and seal this day of 19
- ----------------------------- ----------------------------------- (L.S.)
- ----------------------------- ----------------------------------- (L.S.)
State of New York )
ss.:
County of New York )
On this day of , 19 , before me
personally came
to me known and known to me to be the individual described in, and who executed,
the foregoing instrument, and acknowledged to me that he executed the same.
---------------------------
Notary Public
16
<PAGE>
68 REV. 2-91 [LOGO]
- --------------------------------------------------------------------------------
200 FIFTH AVENUE ASSOCIATES
To
TOYMAX, INC.
================================================================================
Lease
================================================================================
Date December 4, 1992
Space Rms. 409 & 411 & 413 & 415 & 417 & 419
From February 1, 1993
To April 30, 2003
Annual Rent $
Monthly Rent $
================================================================================
HELMSLEY-SPEAR, INC.
Real Estate and Insurance
THE TOY CENTER
200 FIFTH AVENUE
NEW YORK, N.Y. 10010
Phone (Area Code 212) 675-3535
TC-12
17
<PAGE>
-----------------------------------------------------
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND TOYMAX, INC., LESSEE
-----------------------------------------------------
RULES AND REGULATIONS REFERRED
TO IN THIS LEASE
1. No animals, birds, bicycles or vehicles shall be brought into or kept
in the premises. The premises shall not be used for manufacturing or commercial
repairing or for retail sale or display of merchandise or as a lodging place, or
for any immoral or illegal purpose, nor shall the premises be used for a public
stenographer or typist; barber or beauty shop; telephone, secretarial or
messenger service; employment, travel or tourist agency; school or classroom;
commercial document reproduction; or for any business other than specifically
provided for in the tenant's lease. Lessee shall not cause or permit in the
premises any disturbing noises which may interfere with occupants of this or
neighboring buildings, any cooking or objectionable odors, or any nuisance of
any kind, or any inflammable or explosive fluid, chemical or substance.
Canvassing, soliciting and peddling in the building are prohibited, and each
Lessee shall cooperate so as to prevent the same.
2. The toilet rooms and other water apparatus shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rags, ink, chemicals or any [ILLEGIBLE] substances shall be thrown therein.
Lessee shall not throw anything out of doors, windows or skylights, or into
hallways, stairways or elevators, nor place food or objects on outside window
sills. Lessee shall not obstruct or cover the halls, stairways and elevators, or
use them for any purpose other than ingress and egress to or from Lessee's
premises, nor shall skylights, windows, doors and transoms that reflect or admit
light into the building be covered or obstructed in any way.
3. Lessee shall not place a load upon any floor of the premises in excess
of the load per square foot which such floor was designed to carry and which is
allowed by law. Lessor reserves the right to prescribe the weight and position
of all safes in the premises. Business machines and mechanical equipment shall
be placed and maintained by Lessee, at Lessee's expense, only with Lessor's
consent and in settings approved by Lessee to control weight, vibration, noise
and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the
elevators of the building is prohibited. If the premises are on the ground floor
of the building the tenant thereof at its expense shall keep the sidewalks and
curb in front of the premises clean and free from ice, snow, dirt and rubbish.
4. Lessee shall not move any heavy or bulky materials into or out of the
building without Lessor's prior written consent, and then only during such hours
and in such manner as Lessor shall approve. If any material or equipment
requires special handling, Lessee shall employ only persons holding a Master
Rigger's License to do such work, and all such work shall comply with all legal
requirements. Lessor reserves the right to inspect all freight to be brought
into the building, and to exclude any freight which violates any rule,
regulation or other provision of this lease.
5. No sign, advertisement, notice or thing shall be inscribed, painted or
affixed on any part of the building, without the prior written consent of
Lessor. Lessor may remove anything installed in violation of this provision, and
Lessee shall pay the cost of such removal. Interior signs on doors and
directories shall be inscribed or affixed by Lessor at Lessee's expense. Lessor
shall control the color, size, style and location of all signs, advertisements
and notices. No advertising of any kind by Lessee shall refer to the building,
unless first approved in writing by Lessor.
6. No article shall be fastened to, or holes drilled or nails or screws
driven into, the ceilings, walls, doors or other portions of the premises, nor
shall any part of the premises be painted, papered or otherwise covered, or in
any way marked or broken, without the prior written consent of Lessor.
18
<PAGE>
7. No existing locks shall be changed, nor shall any additional locks or
bolts of any kind be placed upon any door or window by Lessee, without the prior
written consent of Lessor. At the termination of this lease, Lessee shall
deliver to Lessor all keys for any portion of the premises or building. Before
leaving the premises at any time, Lessee shall close all windows and close and
lock all doors.
8. No Lessee shall purchase or obtain for use in the premises any spring
water, ice, towels, food, bootblacking, barbering or other such service
furnished by any company or person not approved by Lessor. Any necessary
exterminating work in the premises shall be done at Lessee's expense, at such
times, in such manner and by such company as Lessor shall require. Lessor
reserves the right to exclude from the building, from 6:00 p.m. to 8:00 a.m.,
and at all hours on Sunday and legal holidays, all persons who do not present a
pass to the building signed by Lessor. Lessor will furnish passes to all persons
reasonably designated by Lessee. Lessee shall be responsible for the acts of all
persons to whom passes are issued at Lessee's request.
9. Whenever Lessee shall submit to Lessor any plan, agreement or other
document for Lessor's consent or approval, Lessee agrees to pay Lessor as
additional rent, on demand, an administrative fee equal to the sum of the
reasonable fees of any architect, engineer or attorney employed by Lessor to
review said plan, agreement or document and Lessor's administrative costs for
same.
10.The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to produce space heating, is prohibited.
In case of any conflict or inconsistency between provisions of this lease
and any of the rules and regulations as originally or as hereafter adopted, the
provisions of this lease shall control.
2-91 PLEASE INITIAL
----------------
/s/ KP
TENANT
----------------
/s/ T
LANDLORD
----------------
19
<PAGE>
-----------------------------------------------------
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND TOYMAX, INC., LESSEE
-----------------------------------------------------
ELECTRICITY
41. Lessee agrees that Lessor may furnish electricity to Lessee on a
"submetering" basis or on a "rent inclusion" basis.
(A). Submetering: If and so long as Lessor provides electricity to the
demised premises on a submetering basis, Lessee covenants and agrees to purchase
the same from Lessor or Lessor's designated agent at charges, terms and rates
set, from time to time, during the term of this lease by Lessor but not more
than those specified in the service classification in effect on January 1, 1970
pursuant to which Lessor then purchased electric current from the public utility
corporation serving the part of the city where the building is located;
provided, however, said charges shall be increased in the same percentage as any
percentage increase in the billing to Lessor for electricity for the entire
building, by reason of increase in Lessor's electric rates or service
classifications, subsequent to January 1, 1970, and so as to reflect any
increase in Lessor's electric charges, fuel adjustment, or by taxes or charges
of any kind imposed on Lessor's electricity purchases, or for any other such
reason, subsequent to said date. Any such percentage increase in Lessor's
billing for electricity due to changes in rates or service classifications shall
be computed by the application of the average consumption (energy and demand) of
electricity for the entire building for the twelve (12) full months immediately
prior to the rate and/or service classification change, or any changed
methods of or rules on billing for same, on a consistent basis to the new rate
and/or service classification and to the service classification in effect on
January 1, 1970. If the average consumption of electricity for the entire
building for said prior twelve (12) months cannot reasonably be applied and used
with respect to changed methods of or rules on billing, then the percentage
increase shall be computed by the use of the average consumption (energy and
demand) for the entire building for the first three (3) months after such
change, projected to a full twelve (12) months; and that same consumption, so
projected, shall be applied to the service classification in effect on January
1, 1970. Where more than one meter measures the service of Lessee in the
building, the service rendered through each meter may be computed and billed
separately in accordance with the rates herein. Bills therefore shall be
rendered at such times as Lessor may elect and the amount, as computed from a
meter, shall be deemed to be, and be paid as, additional rent. In the event that
such bills are not paid within five (5) days after the same are rendered, Lessor
may, without further notice, discontinue the service of electric current to the
demised premises without releasing Lessee from any liability under this lease
and without Lessor or Lessor's agent incurring any liability for any damage or
loss sustained by Lessee by such discontinuance of service. If any tax is
imposed upon Lessor's receipt from the sale or resale of electrical energy or
gas or telephone service to Lessee by any Federal, State or Municipal Authority,
Lessee covenants and agrees that where permitted by law, Lessee's pro rata share
of such taxes shall be passed on to, and included in the bill of and paid by,
Lessee to Lessor.
20
<PAGE>
(B). Rent Inclusion: If and so long as Lessor provides electricity to the
demised premises on a rent inclusion basis, Lessee agrees that the fixed annual
rent shall be increased by the amount of the Electricity Rent Inclusion Factor
("ERIF"), as hereinafter defined. Lessee acknowledges and agrees (i) that the
fixed annual rent hereinabove set forth in this lease does not yet, but is to
include an ERIF of $2.75 per rentable square foot to compensate Lessor for
electrical wiring and other installations necessary for, and for its obtaining
and making available to Lessee the redistribution of, electric current as an
additional service; and (ii) that said ERIF, which shall be subject to periodic
adjustments as hereinafter provided, has been partially based upon an estimate
of the Lessee's connected electrical load, which shall be deemed to be the
demand (KW), and hours of use thereof, which shall be deemed to be the energy
(KWH), for ordinary lighting and light office equipment and the operation of the
usual small business machines, including Xerox or other copying machines (such
lighting and equipment are hereinafter called "Ordinary Equipment") during
ordinary business hours ("ordinary business hours" shall be deemed to
be 50 hours per week), with Lessor providing an average connected load
of 4 1/2 watts of electricity for all purposes per
2-91 PLEASE INITIAL
----------------
/s/ KP
TENANT
----------------
/s/ T
LANDLORD
----------------
21
<PAGE>
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND TOYMAX, INC., LESSEE
rentable square foot. Any installation and use of equipment other than Ordinary
Equipment and/or any connected load [ILLEGIBLE] any energy usage by Lessee in
excess of the foregoing shall result in adjustment of the ERIF as hereinafter
provided. For the purposes of this lease the rentable square foot area of
the presently demised premises shall be deemed to be 3,270 square feet.
If the cost to Lessor of electricity shall have been, or shall be,
increased or decreased subsequent to November 1, 1990 (whether such change
occurs prior to or during the term of this lease), by change in Lessor's
electric rates or service classifications, or by any increase, subsequent to the
last such electric rate or service classification change, in fuel adjustments or
charges of any kind, or by taxes, imposed on Lessor's electricity purchases, or
for any other such reason, then the ERIF, which is a portion of the fixed annual
rent, shall be changed in the same percentage as any such change in cost due to
changes in electric rates or service classifications, and, also, Lessee's
payment of obligation, for electricity redistribution, shall change from time to
time so as to reflect any such increase in fuel adjustments or charges, and
taxes. Any such percentage change in Lessor's cost due to changes in electric
rates or service classifications shall be computed by the application of the
average consumption (energy and demand) of electricity for the entire building
for the twelve (12) full months immediately prior to the rate and/or service
classification change, or any changed methods of or rules on billing for same,
on a consistent basis to the new rate and/or service classification and to the
immediately prior existing rate and/or service classification. If the average
consumption of electricity for the entire building for said prior twelve (12)
months cannot reasonably be applied and used with respect to changed methods of
or rules on billing, then the percentage increase shall be computed by the use
of the average consumption (energy and demand) for the entire building for the
first three (3) months after such change, projected to a full twelve (12)
months, so as to reflect the different seasons; and that same consumption, so
projected, shall be applied to the rate and/or service classification which
existed immediately prior to the change. The parties agree that a reputable,
independent electrical consultant selected by Lessor ("Lessor's electrical
consultant"), shall determine the percentage change for the changes in the ERIF
due to Lessor's changed costs, and that Lessor's electrical consultant may from
time to time make surveys in the demised premises of the electrical equipment
and fixtures and the use of current. (i) If any such survey shall reflect a
connected load in the demised premises in excess of 4 1/2 watts of electricity
for all purposes per rentable square foot and/or energy usage in excess of
ordinary business hours (each such excess is hereinafter called "excess
electricity") then the connected load and/or the hours of use portion(s) of the
then existing ERIF shall each be increased by an amount which is equal to a
fraction of the then existing ERIF, the numerator of which is the excess
electricity (i.e., excess connected load [ILLEGIBLE] excess usage) and the
denominator of which is the connected load and/or the energy usage which was the
basis for the computation of the then existing ERIF. Such fractions shall be
determined by Lessor's electrical consultant. The fixed annual rent shall be
appropriately adjusted, effective as of the date of any such change in connected
load and/or usage, as disclosed by said survey. (ii) If such survey shall
disclose installation and use of other than Ordinary Equipment, then effective
as of the date of said survey, there shall be added to the ERIF portion of the
fixed annual rent (computed and fixed as herein before described) an additional
amount equal to what would be paid under the SC-4 Rate I Service Classification
in effect on November 1, 1990 (and not the time-of-day rate schedule) for such
load and usage of electricity, with the connected electrical load deemed to be
the demand (KW) and the hours of use thereof deemed to be the energy (KWH), as
hereinbefore provided (which addition to the ERIF shall be increased or
decreased by all electricity cost changes of Lessor, as hereinabove provided,
from November 1, 1990 through the date of billing).
In no event, whether because of surveys of for any other reason, is the
originally specified $2.75 per rentable square foot ERIF portion of the fixed
annual rent (plus any net increase thereof, but not decrease, by virtue of all
electric rate or service classification changes subsequent to November 1, 1990)
to be reduced.
22
<PAGE>
(C). General Conditions: The determinations by Lessor's electrical
consultant shall be binding and conclusive on Lessor and on Lessee from and
after the delivery of copies of such determinations to Lessor and Lessee,
unless, within fifteen (15) days after delivery thereof, Lessee disputes such
determination. If Lessee so disputes the determination, it shall, at its own
expense, obtain from a reputable, independent electrical consultant its own
determinations in accordance with the provisions of this Article. Lessee's
consultant and Lessor's consultant then shall seek to agree. If they cannot
agree within thirty (30) days they shall choose a third reputable electrical
consultant, whose cost shall be shared equally by the parties, to make similar
determinations which shall be controlling. (If they cannot agree on such third
consultant within ten (10) days, then either party may apply to the Supreme
Court of New York for such appointment.) However, pending such controlling
determinations, Lessee shall pay to Lessor the amount of additional rent or ERIF
in accordance with the determinations of Lessor's electrical consultant. If the
controlling determinations differ from Lessor's electrical consultant, then the
parties shall promptly make adjustment for any deficiency owed by Lessee or
overage paid by Lessee.
PLEASE INITIAL
----------------
/s/ KP
TENANT
----------------
/s/ T
LANDLORD
----------------
23
<PAGE>
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND TOYMAX, INC., LESSEE
At the option of Lessor, Lessee agrees to purchase from Lessor or its
agents all lamps and bulbs used in the demised premises and to pay for the cost
of installation thereof. Lessor shall not be liable to Lessee for any loss or
damage or expense which Lessee may sustain or incur if either the quantity or
character of electric service is changed or is no longer available or suitable
for Lessee's requirements. Lessee covenants and agrees that at all times its use
of electric current shall never exceed the capacity of existing feeders to the
building or the risers or wiring installation. Lessee agrees not to connect any
additional electrical equipment to the building electric distribution system,
other than lamps, typewriters and other small office machines which consume
comparable amounts of electricity, without Lessor's prior written consent, which
consent shall not be unreasonably withheld. Any riser or risers to supply
Lessee's electrical requirements, upon written request of Lessee, will be
installed by Lessor, at the sole cost and expense of Lessee, if, in Lessor's
sole judgment, the same are necessary and will not cause permanent damage or
injury to the building or demised premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations, repairs or
expense or interfere with or disturb other tenants or occupants. In addition to
the installation of such riser or risers, Lessor will also at the sole cost and
expense of Lessee, install all other equipment proper and necessary in
connection therewith subject to the aforesaid terms and conditions. The parties
acknowledge that they understand that it is anticipated that electric rates,
charges, etc. may be changed by virtue of time-of-day rates or other methods of
billing, and that the references in the foregoing two paragraphs to changes in
methods of or rules on billing are intended to include any such changes.
Supplementing Article 35 hereof, if all or part of the submetering additional
rent or the ERIF payable in accordance with Subdivision (A) or (B) of this
Article becomes uncollectible or reduced or refunded by virtue of any law, order
or regulation, the parties agree that, at Lessor's option, in lieu of
submetering additional rent or ERIF, and in consideration of Lessee's use of the
building's electrical distribution system and receipt of redistributed
electricity and payment by Lessor of consultants' fees and other redistribution
costs, the fixed annual rental rate(s) to be paid under this Lease shall be
increased by an "alternative charge" which shall be a sum equal to $2.75 per
year per rentable sq. ft. of the demised premises, changed in the same
percentage as any changes in the cost to Lessor for electricity for the entire
building subsequent to November 1, 1990, because of electric rate or service
classification changes, such percentage change to be computed as in Subdivision
(B) provided. Anything hereinabove to the contrary notwithstanding, in no event
is the ERIF or any "alternative charge" to be less than an amount equal to the
total of Lessor's payment to the public utility for the electricity consumed by
Lessee (and any taxes thereon or on redistribution of same) plus 5% thereof for
transmission line loss, plus 15% thereof for other redistribution costs. The
Lessor reserves the right, at any time upon thirty (30) days' written notice, to
change its furnishing of electricity to Lessee from a rent inclusion basis to a
submetering basis, or vice versa. The Lessor reserves the right to terminate the
furnishing of electricity on a rent-inclusion, submetering, or any other basis
at any time, upon thirty (30) days' written notice to the Lessee, in which event
the Lessee may make application directly to the public utility for the Lessee's
entire separate supply of electric current and Lessor shall permit its wires and
conduits, to the extent available and safely capable, to be used for such
purpose, but only to the extent of Lessee's then authorized load. Any meters,
risers or other equipment or connections necessary to furnish electricity on a
submetering basis or to enable Lessee to obtain electric current directly from
such utility shall be installed at Lessee's sole cost and expense. Only rigid
conduit or electricity metal tubing (EMT) will be allowed. The Lessor, upon the
expiration of the aforesaid thirty (30) days' written notice to the Lessee may
discontinue furnishing the electric current but this lease shall otherwise
remain in full force and effect. If Lessee was provided electricity on a rent
inclusion basis when it was so discontinued, then commencing when Lessee
receives such direct service and as long as Lessee shall continue to receive
such service, the fixed annual rental rate payable under this lease shall be
reduced by the amount of the ERIF which was payable immediately prior to such
discontinuance of electricity on a rent inclusion basis.
24
<PAGE>
42. The fixed annual rental rate (without electricity) payable hereunder shall
be:
(a) From February 1, 1993, through April 30, 1997, the annual rent shall
be $79,308 payable in equal monthly installations of $6,609, except
Feb, Mar., Apr., May., June, July, and Aug., 1993, from which Lessee
shall be excused from the monthly rent payments of $6,609
(b) From May 01, 1997, through April 1, 2003, the annual rent shall be
$94,836 payable in equal monthly installments of $7,903; and
PLEASE INITIAL
----------------
/s/ KP
TENANT
----------------
/s/ T
LANDLORD
----------------
25
<PAGE>
(c) Lessee acknowledges that the fixed annual rental rates, hereinabove
set forth, are intended to create an average rental rate over the
term of the lease of $86,882.63 Lessee therefore agrees that if, for
any reason whatever, including termination because of default,
condemnation or casualty, or cancellation by mutual agreement, the
term of this lease is ended prior to April 30, 2003, then and in
such event, in addition to any other liability to Lessor from
Lessee, and remedies of Lessor under this lease and under the law,
Lessee shall be obligated forthwith to pay to Lessor, as additional
rent, a sum equal to the difference between the average rental rate
of $86,882.63 a year (as adjusted under Article 23) and the fixed
annual rents (as adjusted under Article 23) theretofore paid by
Lessee to Lessor.
43. If Lessor shall consummate a lease with Lessee in the building known as
200 Fifth Avenue or the building known as 1107 Broadway for vacant space
larger than the premises demised hereunder, Lessee shall have the right to
cancel this lease but such cancellation right shall be effective only upon
strict compliance with the following terms and conditions:
(a) Lessee shall notify Lessor within five (5) days after consummating
such lease of the intention to cancel this lease which shall be sent
to Lessor by Registered or Certified Mail addressed c/o
Helmsley-Spear, Inc., 200 Fifth Avenue, or at such other place
hereafter designed in writing by Lessor. Time shall be of the
essence in connection with the exercise of any election to cancel
hereunder and the cancellation date shall be the lesser of either:
(i) Within ninety (90) days of the effective date of the new lease
for larger space; or
(ii) Any April 30 or October 31 during the remaining period of the
term of this lease;
ADDITIONAL CLAUSES attached to and forming a part of lease dated December 4,
1992
between 200 Fifth Avenue Associates and
TOYMAX, INC.
for Rooms 409 & 411 & 413 & 415 & 417 & 419 at 200 Fifth Avenue
TO BE INITIALED BY THE LESSOR AND LESSEE
- --------------------------------------------------------------------------------
(LESSOR) (LESSEE)
(LANDLORD) (TENANT)
PLEASE INITIAL
----------------
/s/ KP
TENANT
----------------
/s/ T
LANDLORD
----------------
FORM 316A
26
<PAGE>
(b) It is understood and agreed that the aforesaid cancellation right is
conditioned upon Lessee's not being in default of any of the terms,
covenants and conditions of this lease, beyond any grace period, at
the date of delivery of any such cancellation notice and on the
cancellation date. Notwithstanding any such cancellation by Lessee.
Lessee shall remain liable to cure any default under any of the
terms, covenants and conditions of this lease existing on the
cancellation date. Such liability of Lessee shall survive any such
cancellation.
(c) Lessee shall vacate the premises demised hereunder and surrender
possession thereof to Lessor on or prior to the cancellation date.
4. Lessee has been advised that Lessor is the lessee of 200 Fifth Avenue by
virtue of a certain lease dated December 1, l950 between Lawrence A. Wien,
as lessor and 200 Fifth Avenue Associates as lessee. The term granted to
Lessor under said master lease expires November 30, 2000, but Lessor has
an option to renew for a term of twenty-five additional years. In the
event that Lessor exercises its option under the master lease for a
renewal term beyond November 30, 2000, then the term of this lease shall
end April 30, 2003. If Lessor does not exercise its renewal option under
the master lease then the term of this lease shall end November 29, 2000.
ADDITIONAL CLAUSES attached to and forming a part of lease dated December 4,
1992
between 200 Fifth Avenue Associates
TOYMAX, INC. and
for Rooms 409 & 411 & 413 & 415 & 417 & 419 at 200 Fifth Avenue
TO BE INITIALED BY THE LESSOR AND LESSEE
- --------------------------------------------------------------------------------
(LESSOR) (LESSEE)
(LANDLORD) (TENANT)
PLEASE INITIAL
----------------
/s/ KP
TENANT
----------------
/s/ T
LANDLORD
----------------
FORM 316A
27
<PAGE>
[Letterhead of Helmsley-Spear, Inc.]
January 25, 1995
Toymax, Inc.
200 Fifth Avenue
Rooms 409 - 419
New York, NY 10010
Re: Lease dated December 4, 1994 between, 200 Fifth Avenue Associates,
as Lessor and Toymax, Inc., as Lessee, for Rooms 409 - 419, New
York, New York 10010
Gentlemen:
It is understood and agreed that the above-captioned lease is hereby amended to
include Room 407 as part of the demised premises effective December 1, 1994.
Commencing February 1, 1995 for the period February 1, 1995 through April 30,
1997 the base rent called for under the terms of said lease will be increased by
the sum of Twenty Thousand One Hundred Eighty Four ($20,184.00) dollars per
annum from Seventy Nine Thousand Three Hundred Fight ($79,308.00) dollars per
annum to Ninety Nine Thousand Four Hundred Ninety Two ($99,492.00) dollars per
annum. Commencing May 1, 1997 for the period May 1, 1997 through April 30, 2003
the base rent called for the under the terms of said lease will be increased by
the sum of Twenty Thousand One Hundred Eighty Four ($20,184.00) Dollars from
Ninety Four Thousand Eight Hundred Thirty Six ($94,836.00) Dollars to One
Hundred Fifteen Thousand Twenty ($115,020.00) Dollars per annum. The Percentage
for purposes of computing tax escalation as contained in Article 24 shall be
increased by 0.103% to 0.648% from 0.545%.
Except as herein modified, the lease dated December 4, 1992 remains in full
force and effect and is hereby ratified and confirmed. Please indicate your
agreement to the above by signing and returning both copies of this letter. Upon
Landlord's approval, we will return a fully executed copy for your file.
Very truly yours,
200 Fifth Avenue Associates
By: Helmsley-Spear, Inc., Agent
By: /s/ Thomas S. Arbuckle
-------------------------
Thomas S. Arbuckle, Vice President
TSA/htp
ACCEPTED:
By: /s/ Steven Lebensfeld
--------------------------
Over 100 Years of Service
28
<PAGE>
Exhibit 10.5
DATED the 1st day of July l996
CHU KI KWAN & LEUNG SHUK KUEN
AND
TOYMAX (H.K.) LIMITED
***********************************
TENANCY AGREEMENT
***********************************
<PAGE>
PARTICULARS
- --------------------------------------------------------------------------------
COLUMN 1 COLUMN 2
- --------------------------------------------------------------------------------
Date of Agreement 1st day of July, 1996
- --------------------------------------------------------------------------------
Landlord Mr. Chu Ki Kwan and Madam Leung Shuk Kuen of Flat B,
14th Floor, Block 3, Sunny Villa, 218-240 Castle Peak
Road, Tsuen Wan, NT
- --------------------------------------------------------------------------------
Tenant Toymax (H.K) Limited whose registered office is at Units A
& B, 3rd Floor CDW Building, 382-392 Castle Peak Road,
Tsuen Wan, N.T., Hong Kong
- --------------------------------------------------------------------------------
Property Units 1107 & 1108 (partial) 11th Floor, Concordia Plaza,
No. 1 Science Museum Road, Tsimshatsui East, Kowloon
(details of the property are shown on the First Schedule to
this agreement)
- --------------------------------------------------------------------------------
Term (Fixed) Two years
- --------------------------------------------------------------------------------
Commencement Date 1st day of August, 1996 or such actual delivery date of
the property
- --------------------------------------------------------------------------------
Rent (Fixed Term) Rent of HONG KONG DOLLARS Forty-Five Thousand Five Hundred
Eighty-Four ONLY (HK$45,584) per calendar mouth
- --------------------------------------------------------------------------------
Rent Days 1st day of every calendar month
- --------------------------------------------------------------------------------
Deposit (Rental) Sum of HONG KONG DOLLARS Ninety One Thousand One Hundred
Sixty-Eight ONLY. (HK$91,168)
- --------------------------------------------------------------------------------
Permitted Use As office and showroom
- --------------------------------------------------------------------------------
<PAGE>
THIS AGREEMENT is made on the date stated as the Date of Agreement in the
Particulars BETWEEN (1) the Landlord and (2) the Tenant
WHEREBY IT IS AGREED as follows:-
DEFINITIONS
1. (1) In this Agreement the following expressions have the following
meanings
(a) expressions in Column 1 of the preceding table hereof have the
meanings assigned to them by Column 2 thereof.
(b) the Landlord includes its successors in title.
(2) Where the Tenant is more than one person their obligations shall be
joint and several.
(3) Unless the context otherwise requires, words herein importing the
masculine feminine or neuter gender shall include the others of them
and words herein in the singular shall include the plural and vice
versa.
(4) The marginal notes are intended for guidance only and do not form
part of this Agreement nor shall any of the provisions in this
Agreement be construed or interpreted by reference thereto or be in
any way affected or limited thereby.
(5) Any reference to any Ordinance includes a reference to that
Ordinance as amended or replaced from time to time and to
subordinate legislation or bye-law made thereunder.
LETTING TERM AND RENT
2. The landlord shall let and the Tenant shall take ALL THAT the property for
the Term from the Commencement Date paying therefor during the Term the
Rent (exclusive of rates) payable in advance on the Rent Days free of all
deductions whatsoever the first payment to be made on the signing hereof.
TENANT'S OBLIGATIONS TO PAY RENT
3. The Tenant agrees with the Landlord as follows:-
(1) To pay the Rent as aforesaid without any set off or deduction
whatsoever.
TO PAY RATES AND OUTGOINGS
(2) To pay and discharge all rates, taxes, assessments, duties, charges,
impositions and outgoings whatsoever of an annual or recurring
nature to be charged or imposed in respect of the Property or upon
the Landlord or occupier in respect thereof (Crown rent and Property
Tax only excepted). Details concerning Tenant's obligation under
this clause are further explained in the Second Schedule to this
agreement.
(3) To pay and discharge all charges for water, electricity, gas,
telephone and other services, whatsoever to be charged or imposed in
respect of the Property and to pay all necessary deposits (if any)
for the meters therefor. Details concerning
---------------------
DUPLICATE COUNTERPART
[TAX STAMPS] Original Stamped with
$ 2735.50
---------------------
1
<PAGE>
Tenant's obligation under this clause are further explained in the
Second Schedule to this agreement.
TO PAY MANAGEMENT FEES
(4) To pay and discharge all service management and maintenance charges
payable by the owner or occupier of the Property as required by the
Incorporated Owners of the Building of which the Property forms part
("the Building") or the management agent or any other competent body
by virtue of the Deed of Mutual Covenant or any other Management
Agreement relating to the Building. Details concerning Tenant's
obligation under this clause are further explained in the Second
Schedule to this agreement.
TO MAINTAIN PROPERTY IN REPAIR
(5) At the Tenant's expense to keep all the interior of the Property
including the flooring and interior plaster or other finishes or
rendering to walls, floors and ceilings and the Landlord's fixtures
therein including all doors, windows, plumbing and sanitary
apparatus, electrical installations and wiring in good, clean
tenantable repair and condition and properly preserved and painted
(reasonable wear and tear excepted) and so to maintain the same at
the expenses of the Tenant and to deliver up the same to the
Landlord at the expiration or sooner determination of the Term in
like condition except as aforesaid.
TO BE RESPONSIBLE FOR INTERIOR DEFECTS
(6) To be wholly responsible for any loss, damage or injury caused to
any person whomsoever directly or indirectly through the defective
or damaged condition of any part of or any installation in the
Property caused by any act or default of the Tenant and to make good
the same by payment or otherwise and to indemnify the Landlord
against all actions, proceedings, claims and demands made upon the
Landlord in respect of any such loss, damage or injury and all costs
and expenses incidental thereto.
TO REPLACE GLASS
(7) To replace at the Tenant's own expense any glass in any doors or
windows of the Property that may become broken, from whatever cause,
during the tenancy.
TO ALLOW ACCESS TO
LANDLORD
(8) To permit the Landlord and all persons authorised by the Landlord
upon notice and at all reasonable times except in cases of emergency
to enter (or in cases of emergency or where the Landlord does not
receive any response from the Tenant within seven days of the
service of such notice to break and enter) the Property to:-
(a) ascertain whether the Tenant's obligations under and the
conditions of this Agreement have been observed and performed,
(b) view (and to open up floors and ceiling where the same is
required in order to view) the state of repair and condition
of the Property,
(c) take schedules or inventories of fixtures and fittings and
other items in the Property,
(d) carry out work or do anything whatsoever comprised within the
2
<PAGE>
Landlord's obligations in this Agreement.
Provided that any such opening-up shall be made good by and at the
cost of the Landlord where the same reveals no breaches of the terms
or conditions hereof.
TO EXECUTE REPAIRS ON NOTICE
(9) Forthwith to comply with any notice given by the Landlord specifying
any works or repairs which the Tenant has failed to execute in
breach of the terms hereof Provided that if within fourteen days of
the service of such a notice the Tenant shall not have commenced and
be proceeding diligently with the execution of the works or repairs
specified or shall fail to complete within one month (or any other
reasonable period stipulated by the Landlord), then to permit the
Landlord to enter the Property to execute such works or repairs, and
to pay to the Landlord upon demand the cost of so doing and all
expenses (including any professional fees) incurred by the Landlord.
NOT TO INJURE PROPERTY
(10) Not to cut maim or injure or permit or suffer to be cut maimed or
injured any doors, windows, walls, beams, structural members or any
part of the fabric of the Property nor any of the plumbing or
sanitary apparatus or installations included therein, nor to
overload the floors ceilings or walls of the Property.
NOT TO ASSIGN
(11) Not to assign underlet or otherwise part with the possession of the
Property or any part thereof in any way whether by way of subletting
lending sharing or other means whereby any person or persons not a
party to this Agreement obtains the use or possession of the
Property or any part thereof irrespective of whether any rental or
other consideration is given for such use or possession and in the
event of any such transfer sub-letting sharing assignment or parting
with the possession of the Property (whether for monetary
consideration or not) this Agreement shall absolutely determine and
the Tenant shall forthwith vacate the Property on notice to that
effect from the Landlord. This tenancy shall be personal to the
Tenant itself and without in any way limiting the generality of the
foregoing the following acts and events shall unless approved in
writing by the Landlord be deemed to be breaches of this
sub-clause:-
(a) In the case of a tenant which is a partnership the taking in
of one or more new partners whether on the death or retirement
of an existing partner or otherwise.
(b) In the case of a tenant who is an individual (including a sole
surviving partner of a partnership) the taking up of the
tenancy upon the death, insanity or other disability of that
individual by the executors administrators personal
representatives next-of-kin trustees or committee of any such
individual, or the admission of a new partner or partners.
(c) In the case of a tenant which is a corporation any take-over
by other company or persons, amalgamation, merger,
reconstruction or
3
<PAGE>
liquidation of the Tenant itself
(d) The giving by the Tenant of a Power of Attorney or similar
authority whereby the donee of the Power obtains the right to
use possess occupy or enjoy the same.
(e) The change of the Tenant's business name or nature of business
without the previous written consent of the Landlord which
consent shall not be unreasonably withheld.
NOT TO PRODUCE NOISE
(12) Not to produce or permit or suffer to be produced any music, noise
(including sound produced by broadcasting or any apparatus or
equipment capable of producing reproducing receiving or recording
sound) so as to be a nuisance or annoyance to the Landlord or to
occupiers of other premises or in the neighbourhood or in anywise
against the laws or regulations of Hong Kong.
NOT TO CAUSE NUISANCE
(13) Not to do or permit or suffer to be done any act or thing which may
be or become a nuisance or annoyance to the Landlord or to the
tenants or occupiers of other premises in the neighbourhood.
INDEMNITY
(14) To indemnify the Landlord against all actions costs claims and
demands made upon or against the Landlord in respect of damage to
the person or property of any person caused by or through or arising
out of any breach, non-observance, non-performance and
non-compliance by the tenant of any of the terms, conditions and
covenants subject to and under which the Property is held.
NOT TO STORE DANGEROUS GOODS
(15) Not to keep or store or permit or suffer to be kept or stored on or
in the Property any arms ammunition gunpowder saltpetre kerosene or
other explosive or combustible or hazardous goods or substance.
USER
(16) Not to use or permit or suffer to be used the Property for any
purpose other than the Permitted Use.
PROHIBITED USES
(17) Not to use or permit or suffer the Property to be used for any
illegal or immoral purpose.
VITIATING INSURANCE
(18) Not to do or permit or suffer to be done in the Property anything
which may avoid any policy or policies of insurance in respect of
the Property or increase any premium payable for the same and to
indemnify the Landlord against all loss and damage suffered in
consequence of any breach of this sub-clause and to pay to the
landlord any increase in the insurance premium attributable to the
Property by a breach of this sub-clause such payment of increased
premium to be made by the Tenant on demand and recoverable as rent
in arrear.
INSURANCE
(19) (a) To effect and maintain during the currency of this tenancy
insurance cover in respect of the following and on terms set
out hereunder:-
(i) Third Party
4
<PAGE>
In respect of third party liability of the landlord and
liability loss injury or damage to any person or
property whatsoever caused through or by any default or
neglect of the Tenant which might give rise to a claim
for indemnity pursuant to Clause 3(14) hereof;
(ii) Glass
Any glass in the windows doors and partition now or
hereafter on or in the Property for its full replacement
value;
(iii) Water Damage
Against damage to stock fixtures and fittings for the
full insurable value occurring in respect of the use or
misuse of the fire sprinkler system installed within the
Property or the incursion or water therein; and
(iv) Tenant's Fittings
The Tenant's fittings and equipment within the Property
against fire and extraneous perils for their full
replacement value.
(b) The policy or policies of such insurance shall be effected
with an insurance company duly registered with the Insurance
Authority under the Insurance Companies Ordinance, Chapter 41
of the Laws of Hong Kong subject to the prior approval of the
Landlord which approval shall not be unreasonable withheld and
further endorsed to show the Landlord as joint insured and the
said policy or policies of insurance shall contain a clause to
the effect that the insurance cover thereby effected and the
terms and conditions thereof shall not be cancelled modified
or restricted without the prior consent of the Landlord. The
Tenant hereby further undertakes to produce to the Landlord as
and when required by the Landlord such policy or policies of
insurance together with a receipt for the last payment of
premium and a certificate from the insurance company that the
policy is fully paid up and in all respects valid and
subsisting and to cause all monies received by virtue of any
such insurance to be forthwith paid to the Landlord and that
if the Tenant shall at any time fail to keep the Property
insured as aforesaid the Landlord may do all things necessary
to effect and maintain such insurance and any monies spent by
the Landlord for that purpose shall be repayable by the Tenant
on demand and be recoverable forthwith by the Landlord by
action.
NOT TO OBSTRUCT
(20) Not to encumber or obstruct or permit to be encumbered or obstructed
with any boxes, dust bins, merchandise, goods, machines, articles,
packaging or
5
<PAGE>
COMMON AREAS
obstruction of any kind or nature any of the entrances, lifts,
staircases, landings and passages, lobbies or other parts of the
Building, or in any place which is not hereby exclusively let to the
Tenant.
TO OBSERVE OTHER DEEDS
(21) Nor to do or suffer any act which shall amount to a breach or
non-performance or non-observance of any negative or restrictive
convenant contained in the Crown Lease or Conditions under which the
ground upon which the Building is erected is held from the Crown or
of any covenant term or condition contained in the Deed of Mutual
Covenant and the Management Agreement (if any) and the House Rules
(if any) in respect of the Building.
TO PAY COST OF CLEARING DRAINS
(22) To pay to the Landlord on demand all costs incurred by the Landlord
in cleansing or clearing any of the drains, pipes or sanitary or
plumbing apparatus choked or stopped up owing to the careless or
improper use or neglect by the Tenant or any employee, agent or
licensee of the Tenant.
TO PROTECT PROPERTY
(23) To take all reasonable precautions to protect the Property against
damage by storm or typhoon or the like.
TO PERMIT VIEWING
(24) To permit upon reasonable notice at any time during the last three
months of the Term (howsoever determined) the Landlord and all
persons authorised by the Landlord including prospective purchasers
and tenants to view the Property without interruption.
TO PAY LANDLORD'S COSTS
(25) To pay all costs charges and expenses (including any professional
fees) incurred by the Landlord in relation or incidental to:-
(a) any application by the Tenant for any licence or consent under
this Agreement (whether or not the same be granted or refused
or proffered subject to any condition), and
(b) the recovery or attempted recovery of arrears of rent or other
sums due from the Tenant.
NOT TO ALTER
(26) Not to make or cause to make or connive at any alterations
structural to the Property and not to put up any partition or other
erection or installation or electrical circuit on any part of the
Property without the consent in writing of the Landlord. If the
Landlord shall give consent to such alteration, partition or
erection it shall in any event be subject to:-
(i) the condition that the Tenant shall not cause any damage to
the Property or any part thereof in addition to such other
conditions as the Landlord shall think fit to impose, and
(ii) also the condition that the prior approval or consent is
obtained from the Building Authority, Fire Services
Department, Labour Department or any other relevant authority
for such alteration or partition.
6
<PAGE>
NOT TO USE AS DOMESTIC PREMISES
(27) Not to use or allow to be used the Property or any part thereof to
prepare any food or as sleeping quarters or as domestic premises and
not to allow any person to remain in the Property overnight except
the Tenant's night watchman.
NOT TO EXHIBIT OR DISPLAY SIGNBOARD
(28) (a) Not to exhibit or display on or in the Property any
signboard, nameplate, advertisement, or other device whether
illuminated or not which shall cause nuisance to other person
or trespass upon other people's property.
(b) Subject to sub-clause (c) hereinafter following not to put up
any signboard other than that of a suitable sign showing the
Tenant's trading name and business.
(c) not to affix to put up or display any signboard, sing,
decorations or other thing whatsoever outside the Property or
any door wall pier or window except with the approval of the
Landlord. The Landlord shall have absolute discretion in
granting or refusing such approval and any approval to be
granted shall be subject to such conditions as the Landlord
may think fit. The Tenant shall pay the Landlord immediately
upon demand the reasonable costs incurred by the Landlord in
affixing repairing or replacing as necessary the Tenant's name
in lettering or characters upon the appropriate directory
boards in or on the Building. The Landlord shall have the
right to remove at the cost and expense of the Tenant any
signboard, sign, decoration or thing which shall be affixed
put up or displayed without the prior approval of the
Landlord.
TO YIELD UP
(29) At the expiration or sooner determination of this Agreement to
deliver up to the Landlord vacant possession of the Property in its
original state and in good and tenantable state of repair and
condition (fair wear and tear excepted) and all the keys of the
Property together with any additional fixtures, fitting, erections
alterations or improvements which the Tenant may with the consent of
the Landlord as aforesaid have made upon or in the Property without
payment of any compensation for such additional erections
alterations or improvements Provided Always that the Landlord may at
the expiration or sooner determination of this Agreement on giving
reasonable notice require the Tenant to remove such additional
fixtures, fittings, erections, alterations or improvements at the
cost and expense of the Tenant.
TO COMPLY WITH LAWS
(30) At the Tenant's expense to comply in all respects with the
provisions and requirements of the Buildings Ordinance, Chapter 123
and the Town Planning Ordinance, Chapter 31 or any statutory
modification or re-enactment thereof for the time being in force
and any regulations or orders made thereunder relating to the use or
occupation by the Tenant hereunder and to indemnify (as well after
7
<PAGE>
the expiration of the Term by effluxion of time or otherwise as during its
continuance) and to keep the Landlord indemnified against all liability
whatsoever including costs and expenses in respect of any contravention
thereof.
NOT TO OBSTRUCT LIGHT
(31) Not to block up darken or obstruct or obscure any windows or lights
belonging to the Property without having obtained the express
written consent of the Landlord which consent may be given subject
to such conditions as the Landlord may in its absolute discretion
impose.
LANDLORD'S OBLIGATIONS TO PAY CROWN RENT
4. The Landlord hereby agrees with the Tenants as follows:-
(1) To pay the Crown rent and property Tax attributable to or payable in
respect of the Property.
QUIET ENJOYMENT
(2) That the Tenant paying the Rent as aforesaid and observing and
performing the agreements stipulations terms and conditions herein
contained and on the Tenant's part to be observed and performed
shall peaceably hold and enjoy the Property during the Term without
any interruption by the Landlord or any person lawfully claiming
under or in trust for the Landlord.
TO REPAIR EXTERIOR
(3) To maintain and keep the main structure of the Property and every
part of such main structure in proper and tenantable repair and
condition (except the doors and window) PROVIDED that:-
(a) The Landlord's liability hereunder shall not be deemed to have
arisen unless and until written notice of any want of repair
of the same shall have been previously given by the Tenant to
the Landlord and the Landlord shall have failed to take steps
to repair the same after the lapse of a reasonable time.
(b) Notwithstanding anything to the contrary as contained in this
clause it shall be the responsibility and liability of the
Tenant to repair and make good at its own expense all defects,
want of repair and damages caused by ;the act default neglect
or omission of the Tenant and all persons authorized or
permitted by the Tenant to use the Property.
(c) The Landlord shall not he required to repaint or whitewash any
external part of the Property unless required to do so by any
Government Authorities or under the Deed of Mutual Covenant
relating to Property.
OTHER STIPULATIONS RE-ENTRY ON DEFAULT
5. IT IS HEREBY EXPRESSLY AGREED as follows:-
(1) If at any time during the Term:
8
<PAGE>
(a) the rent hereby agreed to be paid or any part thereof shall be
unpaid for five days after the same shall become payable
(whether legally or formally demanded or not), or
(b) the Tenant shall fail or neglect to observe or perform any of
the agreements, stipulations terms and conditions herein
contained and on the Tenant's part to be observed and
performed, or
(c) the Tenant (being an individual) shall become bankrupt or
(being a corporation) shall go into liquidation whether
compulsory or voluntary (save the voluntary liquidation of a
solvent company) for the purposes of amalgamation or
reconstruction) or otherwise become insolvent or make any
composition or arrangement with creditors or shall suffer any
execution to be levied on the Property or otherwise on the
Tenant's goods,
then and in any such case it shall be lawful for the Landlord at any
time thereafter to re-enter the Property or any part thereof in the
name of the whole whereupon this tenancy shall absolutely cease and
determine but without prejudice to any right of action of the
Landlord in respect of any outstanding breach or non-observance or
non-performance of any of the agreement, stipulations terms and
conditions herein contained and on the Tenant's part to be observed
and performed to the Landlord's right to deduct all loss damage and
proper expenses thereby incurred from the Deposit paid by the Tenant
in accordance with clause 7 thereof.
INTEREST ON ARREARS
(2) If the Rent or any other sum payable by the Tenant to the Landlord
under this Agreement shall not be paid after becoming due the same
shall be payable with interest thereon at the rate per annum of 2%
above the prime rate for the time being from the date when it was
due to the date on which it is actually paid.
NOTICE OF RE-ENTRY
(3) A written notice served by the Landlord on the Tenant in manner
hereinafter mentioned to the effect that the Landlord thereby
exercises the power of re-entry herein contained shall be a full and
sufficient exercise of such power without actual physical entry on
the part of the Landlord.
NON-WAIVER
(4) Acceptance of rent by the Landlord or any act omission or
acquiescence on the part of the Landlord shall not be deemed to
operate as a waiver by the Landlord of any right to proceed against
the Tenant in respect of any breach non-observance or
non-performance of the agreements stipulations terms and conditions
herein contained and on the Tenant's part to be observed and
performed.
LANDLORD NOT LIABLE
(5) (a) The Landlord shall not be under any liability whatsoever
to the Tenant or any member of the Tenant's family or any
servant, licensee, agent,
9
<PAGE>
FOR DAMAGE
visitor, guest, customer, or invitee of the Tenant's, or any
person claiming any right title or interest under the Tenant:-
(i) for the payment of any claim for compensation arising
out of the operation of this Agreement or any provision
hereof, or
(ii) for any damage or injury which may be sustained by the
Tenant or by any such person or persons as aforesaid on
account of the defective or damaged condition of the
Property or the Landlord's fixtures therein or any lift
or any part thereof and in particular the Landlord shall
not be responsible to the Tenant or any person or
persons as aforesaid for any damage caused by or through
or in anywise owing to any typhoon leakage of water or
electric current from the water pipes or electric wiring
or cable situated upon or in anyway connected with the
Property unless such damage shall result from the breach
by the Landlord of one or more obligations hereby
imposed after notice requiring compliance shall have
been given and there shall not have been compliance
within a reasonable time.
(b) For the security or safekeeping of the Property or any
contents therein and in particular but without prejudice to
the generality of the foregoing the provision by the Landlord
of watchmen and caretakers or any mechanical or electrical
systems of alarm of whatsoever nature if any shall not create
any obligation on the part of the Landlord as to the security
of the Property or any contents therein and the responsibility
for the safety of the Property or any contents therein shall
at all times rest with the Tenant.
ACTS OF TENANT'S AGENTS
(6) For the purposes of this Agreement any act, default, neglect or
omission of any guest, visitor, servant, agent, licensee or invitee
of the Tenant shall be deemed to be the act, default, neglect or
omission of the Tenant.
ARREARS OF RENT
(7) The rent payable in respect of the property shall be and be deemed
to be in arrear if not paid in advance at the times and in manner
herein provided for payment thereof.
NOTICES FOR RE-LETTING
(8) During the three months immediately preceding the expiration of the
Term (or sooner if the rent or any part thereof shall be in arrear
and unpaid for upwards of one calendar month) the Landlord shall be
at liberty to enter the Property and affix and maintain without
interference upon any external part of the Property a notice stating
that the Property is to be let or sold and such other information in
connection therewith as the Landlord shall reasonable require.
SERVICE OF
(9) Any notice required to be served hereunder shall, if to be served on
the Tenant,
10
<PAGE>
NOTICES
be sufficiently served if addressed to the Tenant and sent by
prepaid post to or delivered at the Property or the Tenant's last
known place of business or residence in Hong Kong and, if to be
served on the Landlord shall be sufficiently served if addressed to
the Landlord and sent by prepaid post to or delivered at the
Landlord's last known place of business or residence in Hong Kong. A
notice sent by post shall be deemed to be given at the time and date
of posting.
COSTS AND STAMP DUTY
(10) (a) All costs of the preparation of and incidental to this
Agreement shall be borne by the Landlord and the Tenant in
equal shares.
(b) The stamp duty on this Agreement and its counterpart and
registration fees (if any) shall be borne by the Landlord and
the Tenant in equal shares.
NO WARRANTY OF USER
(11) Nothing in this Agreement or in any consent granted by the Landlord
under this Agreement shall imply or warrant that the Property may be
used for the purpose herein authorised (or any purpose subsequently
authorised) under any legislation's or statutory regulations.
SALE OF UNCLAIMED ARTICLES
(12) In after the Tenant has vacated the Property at the expiration or
sooner determination of the Term any effect or article of the Tenant
remains in or on the Property, and the Tenant fails to remove it
within seven days after being requested by the Landlord so to do, or
if after using its best endeavours the Landlord is unable to make
such a request to the Tenant within fourteen days from the first
attempt so made by the Landlord.
(a) the Landlord may as the agent of the Tenant sell or otherwise
dispose of such effect or article, provided that the Tenant
will indemnify the Landlord against any liability incurred by
the Landlord arising out of any such sale or disposition or to
any third party whose effect or article shall have been sold
by the Landlord in the bona fide mistaken belief (which shall
be presumed unless the contrary be proved) that such effect or
article belonged to the Tenant and that all costs and expenses
of and incidental to any such sale or disposition shall be
borne by the Tenant and be first deducted from the proceeds of
sale or disposition,
(b) if the Landlord having made reasonable efforts is unable to
locate the Tenant the Landlord shall be entitled to retain the
said proceeds of sale or disposition absolutely unless the
Tenant shall claim the same within three months of the date
upon which the Tenant vacated the Property, and
(c) the Tenant shall indemnify the Landlord against any damage
occasioned to the Property or the Building or any adjacent or
neighbouring premises of the Landlord and any actions, claims,
proceedings, cost, expenses and
11
<PAGE>
demands made against the Landlord caused by or related to the
presence of the effect or article in or on the Property.
STATE OF PROPERTY
(13) The Tenant shall take the Property in its present decorative repair
and condition.
KEY MONEY
(14) The Tenant hereby expressly declares that it has paid no premium,
construction fee, key money or other sum of money of a similar
nature to the Landlord or other person or persons authorised by the
Landlord for the possession of the Property or for the granting of
this tenancy.
NEW TENANCY
(15) Any acceptance of rent by the Landlord on or after expiration of the
Term shall not create any new tenancy or renewal or extension of the
existing tenancy unless written agreement has been signed between
the parties hereto to show otherwise.
ABATEMENT OF RENT
6. Should the Property or part thereof be rendered unfit for use and
occupation by any cause not attributable to the negligence or default of
the Tenant, the Rent or part thereof proportionate to the part unfit for
use and occupation shall abate and cease to be payable until the Property
shall have been again rendered fit for occupation and if already paid
shall be refunded by the Landlord to the Tenant without interest until the
Property shall again be rendered fit for habitation and use. Provided that
nothing herein shall impose on the Landlord any obligation to repair or
reinstate the Property or any part thereof and if the Property shall not
be repaired or reinstated within a period of three month from the time
when the Property shall be rendered unfit for habitation the Tenant or the
Landlord may terminate the Agreement in which event the Tenant shall
deliver up vacant possession of the Property to the Landlord and
notwithstanding any statutory provision to the contrary neither party
shall have any claim against the other of them for damages compensation or
otherwise apart from rights of action already accrued before such
termination of this Agreement.
PAYMENT OF DEPOSIT
7. The Tenant shall on the signing hereof pay to and maintain at all times
during the Term with the Landlord the Deposit to secure the due observance
and performance by the Tenant of the agreements stipulations terms and
conditions herein contained and on the Tenant's part to be observed and
performed. The Deposit shall be retained by the Landlord throughout the
Term free of any interest to the Tenant with power for the Landlord,
without prejudice to any other right of remedy hereunder to deduct
therefrom the amount of any cost expense loss or damage sustained by the
Landlord as a result of any non-observance or non-performance by the
Tenant of any such agreements stipulations terms or conditions. Subject as
aforesaid and to clause 8 hereof, the Deposit
12
<PAGE>
REPAYMENT OF DEPOSIT
shall be refunded to the Tenant by the Landlord within fourteen days after
the expiration or sooner determination of the Term and the delivery of
vacant possession of the Property to the Landlord or within fourteen days
of the settlement of the last outstanding claim by the Landlord against
the Tenant in respect of any breach, non-observance or non-performance of
any of the agreements, stipulations terms or conditions and on the part of
the Tenant to be observed and performed whichever is the later.
WAIVER OF CLAIM FOR DEPOSIT
8. (a) It is agreed and declared that if at any time during the Term
the Landlord shall assign the Landlord's interest in the reversion
immediately expectant upon the Term and if the Landlord shall also
transfer to the assignee of the reversion the Deposit or such part
thereof as is then held by the Landlord under this Agreement,
forthwith upon such transfer of the Deposit or such part thereof as
aforesaid and provided that a notice containing particulars of the
same shall have been served on the Tenant the Landlord shall be
absolutely discharged and exonerated from the Landlord's obligation
to refund the Deposit to the Tenant Contained in clause 7 hereof and
the Tenant shall waive all its rights and claims hereunder against
the Landlord in respect of the Deposit.
(b) The Tenant hereby irrevocably consents and authorises such transfer
of the Deposit or such part thereof as aforesaid and undertakes and
agrees to enter into an agreement in such form, with such party or
parties and at such time as the Landlord may reasonably require to
give better effect to the provisions of sub-clause (a) above.
13
<PAGE>
AS WITNESS the hands of the parties hereto on the date specified as
the Date of Agreement in the Particulars.
SIGNED by the Landlord )
)
CHU KI KWAN ) /s/ Chu Ki Kwan
) ------------------------
)
LEUNG SHUK KUEN
)
) /s/ Leung Shuk Kuen
in the presence of: ) ------------------------
/s/ Farra Chan
- ----------------------
WITNESS
SIGNED by the Tenant )
)
For and on behalf of ) For and on behalf of
TOYMAX (H.K.) LIMITED ) TOYMAX (H.K.) LIMITED
VESIAH LEE )
) /s/ Vesiah Lee
) ------------------------
Authorized Signature
)
)
in the presence of:- )
/s/ Farra Chan
- ----------------------
WITNESS
14
<PAGE>
RECEIVED on the date stated as the Date of ) /s/ Chu Ki Kwan
Agreement in the Particulars written of and from ) -----------------------
the Tenant the sum of HONG KONG DOLLARS )
NINETY ONE THOUSAND ONE HUNDRED ) HK$91,168.00
SIXTY EIGHT ONLY being the security deposit )
above expressed to be paid by the Tenant to the ) /s/ Leung Shuk Kuen
Landlord ) -----------------------
WITNESS to the signature:-
/s/ Farra Chan
15
<PAGE>
FIRST SCHEDULE
Units 1107 and 1108 (partial), 11th Floor, Concordia Plaza, 1 Science Museum
Road, Tsimshatsui East, Kowloon.
<PAGE>
[FLOOR PLAN OF SHOWROOM]
<PAGE>
The property leased under this tenancy agreement shall consist of the entire
area shaded in PINK on the floor plan drawing plus common use of the area shaded
in YELLOW on the floor plan drawing
(1) Area shaded in WHITE (in Sq. ft.) 1,582.00
(2) Area shaded in YELLOW-pantry & copy machine @1/3 46.00
---------
Total area for lease 1,628.00
Monthly rental per Sq. ft. in Hong Kong Dollars HK$ 28.00
Monthly rental HK$ 45,584.00
=========
Usage of the common area (shaded yellow) shall be shared on the basis between
the landlord and the tenant and the area commendable to rental charges re this
common area has been restricted to the above-mentioned ratios on the actual area
only.
<PAGE>
SECOND SCHEDULE
Tenant is obliged to pay expenses as stipulated under Clause No.3(2), 3(3), and
3(4) in this agreement, in respect of the entire unit no.1108 on 11th Floor,
Concordia Plaza, 1 Science Museum Road, Tsimshatsui East, Kowloon including but
not limiting to the following expenses:
Premises management fee
Premises air-conditioning charges
Government rates
Utilities, including water, electricity, gas, etc.
All such additional costs incurred as a result of the requirement of the tenant
solely shall be borne solely by the tenant, for example, additional
air-conditioning charges as a result of special request, etc.
<PAGE>
Exhibit 10.6
AGENCY AGREEMENT
TOYMAX INC
&
TAI NAM INDUSTRIAL COMPANY LIMITED
<PAGE>
This agency agreement dated 1st April, 1997 entered into between Tai Nam
industrial Company Limited (hereinafter referred to as the agent) of Units A &
B, 3rd Floor, CDW Building, 388 Castle Peak Road, Tsuen Wan, N.T., Hong Kong and
Toymax Inc (hereinafier referred to as the principal) whose address is situated
at 200 Hicks Street, Westbury, NY 11590, U.S.A.:
Both parties agree to the following terms and conditions of the agreement:-
(1) Tai Nam Industrial Company Limited agreed to act as the purchasing agent
of Toymax Inc with effect from the date hereof in consideration of an
agency fee calculated at 7% on the gross invoiced value of products
purchased by Toymax Inc. The agency fee shall be computed on the basis of
the following formula :
Factory purchase price of the merchandise x 1/0.93 = Agency fee
(2) In consideration of the above agency fee, Tai Nam Industrial Company
Limited agreed to provide the following facilities and resources to assist
Toymax Inc in the conduct of his business:-
a. To provide manpower for the co-ordination work of the business
including the handling of purchase orders planned for merchandise by
Toymax Inc., etc.
b. To provide manpower for the handling of all shipping documents.
c. To provide manpower on the handling and clearance of L/C, bills and
payments, where applicable.
d. To provide the manpower on the liaison work with manufacturers and
vendors.
e. To control the quality of the goods by engaging Q.C. staff to carry out
quality control inspections in the production line and on the finished
goods to ensure quality is in accordance with the agreed specifications
and that the product is complying with the required specifications.
Tai Nam Industrial Company Limited shall designate staffs to take care of
transactions covered by this agreement and, in additional, shall employ
staff and designate the staff for the handling of the works in association
with the above.
<PAGE>
(3) Toymax Inc shall purchase at FOB Yien Tian prices and the following
shipment processing charges shall be responsible by Tai Nam Industrial
Company Limited, where applicable:
a. CFS charges (container freight station charges in respect of inland
transportation);
b. Terminal handling charges;
c. Document charges from shipping companies, etc.
In general, all other expenses on the development, testing, purchasing,
selling and all other expenses in the maintenance of matters in
association with this arrangement shall be responsible and paid for by
Toymax Inc.
(4) Toymax Inc shall be responsible for the charges in the making of moulds on
new products and all related charges to complete the mould for
manufacturing. The moulds shall be the assets of Toymax Inc.
(5) Agency fee to the agent shall be due and payable when the invoice is due
under the shipment. Agency fee shall be calculated on individual invoice
basis and be included as part of the cost of goods purchased by Toymax
Inc.
In the event that consolidation of merchandise is required, it should be
carried out in Hong Kong, except full containers, all inland an local
transportation charges before consolidation and shipment shall be
responsible by cash individual factory and Tai Nam Industrial Company
Limited agrees to be responsible to cover this part of the cost incurred,
if any.
(6) Toymax Inc shall be responsible to ensure compliance with all legal and
statutory requirements imposed on the business being conducted.
(7) This agreement shall be valid for a period to 31st March, 1998 from the
date herein above referred. This agreement shall automatically extended
until termination. Each party shall have the right to terminate this
agreement by giving the other party three months' written notice in
advance.
(8) All disputes and matters require resolution shall be settled in good faith
between both parties. Any amendment to this agreement shall be agreed
upon and in writing.
<PAGE>
TAI NAM INDUSTRIAL CO. LTD.
Signed: /s/ David Chu Ki Kwan
----------------------------------
David Chu Ki Kwan
President
Tai Nam Industrial Company Limited
Signed: /s/ Steven Lebensfeld
----------------------------------
Toymax Inc.
<PAGE>
Exhibit 10.7
[State Street Logo] State Street Bank and Trust Company
Hong Kong Branch
32nd Floor, Two Exchange Square
8 Connaught Place, Central
Hong Kong
Tel : 2840 5388
Telex: 62594 STATE HX
Fax : 2840 5453
June 11, 1997
Toymax Inc./Tai Nam Industrial Co. Ltd.
Units A & B, 3rd Floor, CDW Building
382-392 Castle Peak Road, Tsuen Wan
New Territories
Attention: Mr. David Chu, President
Dear David,
Re: Factoring-Cum-Financing Facility and Trade Facility
This offer letter supersedes our previous one to you dated June 10, 1997.
We are pleased to advise that State Street Bank & Trust Company, Hong Kong
Branch (the "Bank"), subject to the terms and conditions set out below, has
increased the line of credit ("Credit Facilities") to US$26,000,000 (United
States Dollar Twenty-Six Million Only) for the use of Toymax Inc., Tai Nam
Industrial Co. Ltd., and/or Toymax (HK) Ltd. The Credit Facilities are available
in the amounts and for the purposes detailed below with the understanding that
the total usage of the Credit Facilities at any one time is not to exceed US$26
Million or its foreign currency equivalent.
For Toymax Inc.
Sublimit (I): Factoring-Cum-Financing Facility:
A short-term Advance Facility of up to US$25 Million against 70% of Toymax
Inc.'s eligible accounts receivable factored by Congress Talcott Corporation
("CTC").
Pricing: Advance - Prime + 1/2% per annum
Factoring Collection - 1/16% flat
<PAGE>
[State Street Logo]
Sublimit (II): Inventory Financing Facility:
A short-term Advance Facility of up to US$5 Million against 50% of Toymax Inc.'s
current season inventory. All loan outstanding hereunder has to be fully repaid
by September 15, 1997.
Pricing: Advance - Prime + 1/2% per annum
Total loans made to Toymax Inc. shall not exceed US$25 Million.
Security:
1. Assignment of factoring proceeds in favour of the Bank under a Three-Party
Agreement executed by Toymax Inc., CTC and the Bank.
2. First lien and UCC filing on Toymax Inc.' accounts receivable and
inventory.
3. A dilution reserve account is to be established. Each month, an amount
equivalent to 12% of the collection proceeds net of chargebacks for the
month, is to be deposited into the account. For the months of December
1997 and January 1998, an additional US$1 Million per month should be
credited to said account. Total reserve amount shall not exceed US$6
Million. Release of the reserve will be discussed later.
Guarantee:
1. Joint and several personal guarantee of David Chu, Steven Lebensfeld and
Harvey Goldberg.
2. Corporate guarantee of Tai Nam Industrial Co. Ltd., Tai Nam Industrial
Co., Jauntiway Investments Ltd., Concentric Toys Ltd., and Toymax (HK)
Ltd.
3. Subordination Agreements signed by David Chu, Steven Lebensfeld and Harvey
Goldberg.
4. Subordination of David Chu's shareholder loan to Tai Nam Industrial Co.
Ltd.
<PAGE>
5. Cross corporate guarantee executed by Toymax Inc., Toymax (HK) Ltd., Tai
Nam Industrial Co. Ltd., Tai Nam Industrial Co., Jauntiway Investments
Ltd. and Concentric Toys Ltd.
Other Conditions:
1. Periodic audit on the books and records of Toymax Inc.
2. Toymax Inc. and all corporate guarantors should provide the Bank with
audited annual financial statements within 180 days after the respective
fiscal year-end and unaudited quarterly statements within 90 days after
the quarter-end.
3. All inventory advance has to be backed by at least the same amount of
confirmed, CTC-approved purchase orders.
4. All out-of-pocket expenses, including all legal and audit fees, shall be
borne by Toymax Inc.
For Tai Nam Industrial Co. Ltd. and/or Toymax (HK) Ltd.
Sublimit (III): Trade Facilities
A US$1 Million line of credit for opening back-to-back letters of credit and
negotiating export bills with discrepancies under a letter of guarantee.
Pricing: Bills Collection - 1/8% flat
Bills Interest - Prime + 3/4% per annum
Others - As per the Bank's standard fee schedule.
Security/Guarantee:
Personal guarantee of David Chu.
Cancellation:
The Credit Facilities, which are subject to review at least once annually, are
cancellable at any time by the Bank at its sole discretion without prior notice
to your companies. Upon cancellation, all of your companies obligations to the
Bank, whether actual, future or contingent, will be due and payable.
<PAGE>
Acceptance:
Please review and indicate your acceptance of the Credit Facilities by signing
and returning the duplicate copy of this letter together with resolutions of the
Board of Directors of Toymax Inc., Toymax (HK) Ltd., Tai Nam Industrial Co.
Ltd., Tai Nam Industrial Co., Jauntiway Investments Ltd. and Concentric Toys
Ltd.
I would like to take this opportunity to thank you for the past business and we
look forward to a continuous excellent business relationship in the years ahead.
Yours truly,
/s/ Karen Chen
- ---------------------------
Karen Chen
Assistant Vice President
On behalf of
Agreed & Accepted By: Toymax (HK) Limited
/s/ Chu K. Kwan
---------------------------
Authorized Signature
/s/ Chu K. Kwan
- --------------------------- ---------------------------
Toymax Inc. Toymax (HK) Ltd.
Tai Nam Industrial Co. Ltd.
/s/ Chu K. Kwan
- ---------------------------
Authorized Signature
Tai Nam Industrial Co. Ltd.
<PAGE>
Exhibit 10.8
[LOGO] State Street
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of June 5, 1991 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, 28th Floor, Alexandra House,
16-20 Chater Road, Hong Kong (the "Lender").
RECITALS
WHEREAS, the Lender has by a facility letter dated May 27, 1991 (as
amended from time to time, the "Facility Letter") agreed to make certain
facilities available to Concentric Toys Ltd, a company incorporated under the
laws of Hong Kong (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 New York 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
1
<PAGE>
[LOGO] State Street
(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 intangibles 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");
(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").
2
<PAGE>
[LOGO] State Street
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: 77-81 Spruce Street Cedarhurst, NY 11516. 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.
3
<PAGE>
[LOGO] State Street
(c) The places where the Company keeps and will keep the Inventory are
located at: 80 North 5th Street, Brooklyn, NY.
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
remedier shereunder.
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:
4
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[LOGO] State Street
(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:
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 representatives 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.
5
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[LOGO] State Street
SECTION 5.04: Notices. The Company will notify the Lender promptly, in
reasonable detail, (i) of 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 exercises 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.
6
<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;
7
<PAGE>
[LOGO] State Street
(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.
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.
8
<PAGE>
[LOGO] State Street
(b) All cash proceeds received by the Lender in respect of 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 702. 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 Lender's
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.
9
<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 77-81 Spruce Street, Cedarhurst, NY, 11516 or
if to the Lender, at its address at 28th Floor, Alexandra House, 16-20
Chater Road, Hong Kong, Attention: The Manager, or as to either party at
such 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 an 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.
10
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[LOGO] State Street
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 New York, 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
judgment, attachment in aid of execution of judgement, execution of
judgment, 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.
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/ Steven Lebensfeld
---------------------
Name : Steven Lebensfeld
Title : President
11
<PAGE>
Exhibit 10.9
Congress Talcott Corporation
1133 Avenue of the Americas
New York NY 10036
212-840-2000
[LOGO]
Congress Talcott
CONFIDENTIAL
April 4, 1994
Effective 4/1/94
Toymax, Inc.
200 Hicks Street
Westbury, NY 11590
Gentlemen:
This letter will modify Paragraph 7 of the Collection Factoring Agreement
between us dated June 5,1991 (as amended) to reduce the commission rate charged
on factored sales volume in excess of $50,000,000.00 in any 12 month period,
commencing April 1st and ending March 31st, to .50 of 1%.
Paragraph 13 to be amended as follows:
Contract will run for 1 year, and shall continue until sixty (60) days
written notice to terminate this agreement by either party with registered
mail, in which extent this agreement shall so terminate to commence April
1, 1994.
Nothing herein contained shall vary, alter or amend any provisions of the paid
Collection Factoring Agreement between us, except as specifically provided
herein.
Very truly yours,
CONGRESS TALCOTT CORPORATION
/s/ Ross G. Witthoeft
Ross G. Witthoeft
Vice President
Agreed and Accepted:
TOYMAX, INC.
By: Steven Lebensfeld
--------------------------
Title: President
-----------------------
CONGRESS TALCOTT CORPORATION NEW YORK o LOS ANGELES
A CoreStates Company
<PAGE>
Congress Talcott Corporation
1133 Avenue of the Americas
New York NY 10036
212 840 2000
[LOGO]
Congress Talcott
July 28, 1993
Mr. Fred Kolinsky
Toymax, Inc.
200 Hicks Street
Westbury, NY 11590
Dear Fred:
Please note I already sent you an amendment to waive the $3.50 charge.
As soon as you send this to me signed, your account will be credited.
Regarding the work sheet you sent me, the difference in commission
charge from 1% to .75% is the $3.50 items. When your account is credited,
you will be credited for 12907.31 ($3.50 charge) plus 1571.49.
As far as the invoices you asked about, I am enclosing documents
showing that these sales are in fact Toymax, Inc. sales.
A also spoke with our Frank DeRosa who will be in touch with you
regarding transmittal of sales.
Yours truly,
CONGRESS TALCOTT CORPORATION
/s/ Debra Weintraub
Debra Weintraub
Vice President
DW/dw
encl.
<PAGE>
Congress Talcott Corporation
1133 Avenue of the Americas
New York NY 10036
212 840 2000
[LOGO]
Congress Talcott
July 23, 1993
Toymax, Inc.
200 Hicks Street
Westbury, NY 11590
Gentlemen:
This letter will modify and amend Paragraph #7 of the COLLECTION
Factoring Agreement between us dated JUNE 5, 1991, (as amended,) to waive the
minimum charge effective JANUARY 1, 1993.
Nothing herein contained shall vary, alter or amend any
provisions of the said COLLECTION Factoring Agreement between us, except as
specifically provided herein.
Very truly yours,
CONGRESS TALCOTT CORPORATION
/s/ Debra Weintraub
Debra Weintraub
Vice President
AGREED AND ACCEPTED:
Steven Lebensfeld
- ----------------------------------
By:
-------------------------------
Title: Pres.
----------------------------
<PAGE>
Congress Talcott Corporation
1133 Avenue of the Americas
New York NY 10036
212 840 2000
[LOGO]
Congress Talcott
May 18, 1993
Effective January 1, 1993
TOYMAX, INC.
200 Hicks Street
Westbury, NY 11590
Gentlemen:
This letter will modify and amend Paragraph #7 of the Collection
Factoring Agreement between us dated June 5, 1991, (as amended) to reduce the
commission rate from 1% to .75 of 1%, whether or not such announced rate is
the best rate available at such bank, in effect on the first day of each
month, effective January 1, 1993.
Nothing herein contained shall vary, alter or amend any
provisions of the said Collection Factoring Agreement between us, except as
specifically provided herein.
Very truly yours,
CONGRESS TALCOTT CORPORATION
By: /s/ Debra Weintraub
--------------------------
Debra Weintraub
Vice President
AGREED AND ACCEPTED:
TOYMAX, INC
By: Harvey Goldberg
-------------------------------
Title: VP
----------------------------
<PAGE>
COLLECTION FACTORING AGREEMENT
BETWEEN
CONGRESS TALCOTT CORPORATION
1133 AVENUE OF THE AMERICAS
NEW YORK, N.Y. 10036
AND
TOYMAX INC.
---------------------------------------------
(NAME OF CLIENT)
77-81 SPRUCE STREET
---------------------------------------------
(STREET ADDRESS)
CEDARHURST, NEW YORK 11516
---------------------------------------------
(CITY) (STATE)
[LOGO] A CoreStates Company
<PAGE>
Date June 5, 1991
Gentlemen:
We hereby present to you this letter agreement under which we shall act as
your sole factor for all your sales of merchandise and/or rendition of services.
1. No sales or deliveries of goods or rendition of services shall be made
without first requesting the prior written approval of our Credit Office in each
instance as to terms, amounts and credit of prospective purchasers
("customers"), and we shall have the right to withdraw such approval at any time
before actual delivery of merchandise or rendition of services, as the case may
be. The purchase price of all sales made by you shall be payable only to us as
factors, and all contracts of sale, bills and invoices sent to customers shall
so stipulate in form satisfactory to us. We shall be entitled to collect and
receive all proceeds of your sales and shall enjoy all the rights and remedies
of the seller of goods, including the rights of stoppage in transit, reclamation
and replevin, subject only to our obligation as factor to account to you in
accordance with the terms hereof. We shall not be liable to any person or in
any manner for refusing to give, or for withdrawing credit approval for any
customer or for exercising our rights and remedies as set forth herein.
2. You hereby sell and assign to us all of your accounts receivable,
contract rights, and other customer obligations for the payment of money arising
out of your sale of goods or rendition of services, now existing and hereafter
arising ("accounts"), together with all proceeds thereof, all security and
guarantees therefor, all of your rights to the goods and property represented
thereby, and all of your rights and remedies against the customers thereunder.
With respect to sales approved and accepted by us, upon delivery or performance,
and acceptance of the goods or services by the customer, without claim or
dispute, we shall purchase the accounts created thereby and shall assume the
credit risk, being responsible only for the financial inability of the customer
to pay at maturity. We shall not be responsible for any nonpayment of an account
because of the assertion of a claim or dispute of any kind by a customer
(whether or not such claim or dispute relates to the specific account) or the
assertion or exercise of any counterclaim or offset, or if any warranty made by
you to us in respect of any such account has been breached. Any sale of goods or
renditions of service made by you which is not approved in writing by us as to
credit, as well as accounts for which we are not responsible for nonpayment and
as to which credit approval is withdrawn as aforesaid, shall be known as a C.R.
(client's risk) account. All such C.R. accounts assigned to and purchased by us
with full recourse to you and at your credit risk, but are otherwise subject to
the covenants, terms and conditions provided herein in respect of accounts on
which we have assumed the credit risk.
3. It is understood that you will promptly adjust all disputes with
customers, provided that we have not withdrawn such right to adjust from you in
the event of default hereunder or in any event on notice by us, and promptly
advise us in writing of the same upon your receiving notice thereof, and we
shall have the right to charge back to you any account involved in a claim,
dispute or return asserted or made by a customer, and other C.R. accounts before
or after the maturity thereof, together with interest at the then effective
governing rate (as defined in paragraph 6 hereof) from the date of original
credit to the date of full payment. The charge-back of any such accounts shall
not be deemed a reassignment thereof, and title thereto and to the merchandise
represented thereby shall remain in us until we shall have been fully
reimbursed. We agree to reassign to you any such charged-back account upon your
payment to us, in cash, of the amount or amounts credited by us to you thereon,
together with applicable interest. As absolute owner of each account, we may in
our sole discretion enforce, effect any compromise, settle and adjust any
account, in our name or yours, without affecting or limiting your obligations to
us under this agreement and whether or not any such account shall have been
charged back. Unless we shall otherwise direct, all credit memoranda to be
issued to any customer shall be furnished by you only to us for transmission to
the customer, who shall be solely entitled to the benefit thereof and to the
benefit of any discounts and allowances. You shall indemnify us for, and hold as
harmless against, any loss, liability, claim or expense of any kind arising from
any claims of, or disputes with, your customers (or any other persons) as to
terms, price, quality, or otherwise, directly or indirectly relating to
accounts, including any claim for a return of any payments thereunder, or
pertaining to any other matter.
4. All goods shall be billed and invoiced upon forms of bill or invoice
satisfactory to us and, unless otherwise directed by us, the said bills and
invoices shall bear the words "Pay only to CONGRESS TALCOTT CORPORATION. This
account and the merchandise covered hereby is assigned and is payable only to
CONGRESS TALCOTT CORPORATION, to whom notice must be given of any merchandise
returns or of any claims for shortage, non-delivery or otherwise," and shall be
payable at such address as we shall direct. At our request, invoices to
customers shall be mailed by us at your expense.
5. At your own cost and expense you will keep proper books of account,
showing all sales and all claims, allowances, disputes and similar information
with respect to the accounts and the goods and services relating thereto. Such
books, records, correspondence and papers pertaining to sales and accounts shall
be open to our inspection and we shall have the right to examine and make copies
of such books, records, correspondence and papers and to perform general audits
at all reasonable times. All remittances, checks, notes receivable, instruments
and other proceeds of accounts shall be our property and, if received by you,
shall be held in trust and immediately transmitted and delivered to us in the
identical form received together with any endorsement or assignment deemed
necessary by us. We shall have the right, but not the obligation, to deposit any
checks or other remittances received on accounts regardless of notations or
conditions placed thereon by your customers or deductions reflected thereby and
to charge the amount of any such deduction to your account. You further
authorize us to endorse your name on any and all checks or other forms of
remittances and proceeds received in payment of accounts whenever we deem such
endorsement to be necessary to effect collection thereof. We may request
shipping receipts covering all sales to be promptly delivered to us and you
shall not be entitled to any credit with respect to any account until the
relevant shipping receipts have been delivered to us. You will supply us with as
many duplicate bills as we may from time to time require.
6. The purchase price of accounts shall be their respective invoice
amount, less our commission as provided for herein and less all selling
discounts (at our option, calculated on any terms offered) and all credits or
deductions allowed or granted to the customer at any time. Collections made from
Monday to Friday will be remitted to you on the following Tuesday, provided
there is a net credit balance due you. You will be charged with interest on the
average daily balance of all sums charged to you under this agreement, and other
sums owed by you to us at the governing rate then in effect. We shall have the
right to withhold and retain at all times, as a reserve, that amount of your
accounts assigned to us and still outstanding which in our sole discretion is or
may be necessary to allow for possible returns, allowances, claims, expenses and
other similar or dissimilar items, or to provide for the payment to us of your
liabilities under this agreement. For the purpose of this agreement, "governing
rate" shall mean a rate per annum which is 2% in excess of the prime commercial
interest rate from time to time as announced by Philadelphia National Bank,
whether or not such announced rate is the best rate available at such bank, in
effect on the first day of each month. In no event shall the rate of interest
agreed to or charged to you hereunder exceed the maximum rate of interest
permitted to be agreed to or charged to you under the law of the jurisdiction
whose laws are applicable to such rate of interest.
<PAGE>
7. For our services hereunder, we shall receive a commission equal to
1-1/4% on the first $7,500,000 of annual factored sales; should factored sales
exceed $7,500,000 in any contract year, the commission rate for such contract
year will be reduced retroactively to 1% percent (.....%) of the invoice amount
of each account, less selling discounts (at our option, calculated on any terms
offered), which commission shall be due and payable by you, and chargeable to
your account with us, as at the end of the month in which such account arises,
but in no event less than $2,000.00 each and every month. Such charge is based
upon maximum selling terms of 60 days, and no more extended terms or additional
dating shall be granted by you to any customer without our prior written
approval in each instance. When such approval is given by us, our charge with
respect to the accounts covered thereby shall be increased at the rate of
twenty-five (25%) for each additional 30 days or portion thereof of extended
terms or additional dating. The minimum factoring commission on each invoice in
respect of any account shall be $3.50. Our assumption of credit risk shall not
include any invoice which represents the sale of samples.
8. About fifteen (15) days after the end of each month, we will render to
you a statement with respect to the accounts purchased by us in the previous
month, and charges made to your account under this agreement. In addition to any
other amounts chargeable to your account, your account shall be charged with all
discounts to customers on assigned sales and all returns, allowances or credits.
You will also be charged with interest, at the governing rate then in effect
hereunder, on the amount of any customer credit issued on any account after the
date the purchase price thereof has been credited to you, for the period from
the date of crediting of such purchase price to the date of the issuance of such
customer credit. All statements, reports or accountings rendered or issued by us
to you shall be deemed accepted by you and shall be finally conclusive and
binding upon you unless you notify us to the contrary, specifying the precise
respects in which you differ with such statement, report or accounting, by
registered or certified mail within thirty days after the date such statement,
report or account is sent to you.
9. As collateral security for any and all of your (and your subsidiaries'
and affiliates') indebtedness and obligations to us and to each of our
subsidiaries and affiliates, whether matured or unmatured, absolute or
contingent, now existing, or that may hereafter arise (including under indemnity
or reimbursement agreements or by subrogation) and howsoever acquired by us,
whether arising directly between us or acquired by us by assignment, whether
relating to this agreement or independent hereof, including all obligations
incurred by you to any other concern factored or financed by us or by any
subsidiary or affiliate of ours (collectively, the "Obligations"), you do hereby
grant to us, for our own account and on behalf of our subsidiaries and
affiliates, a security interest in all of your accounts, contract rights,
chattel paper and general intangibles (whether or not specifically assigned to
us), now existing and hereafter created or acquired, and in the proceeds
thereof, any security and guarantees therefore, in the goods and property
represented thereby, in all of your books and records relating to the foregoing,
all of your rights in connection with any of the foregoing, and in all sums of
money at any time to your credit with us or with any of our subsidiaries and
affiliates, and any of your property at any time in our possession or in the
possession of any of our subsidiaries and affiliates. You hereby agree to pay
all debit balances in your account on demand and irrevocably authorize and
direct us to charge at any time to your account any Obligations, and to pay any
Obligation owing to any of our subsidiaries and affiliates by so charging your
account. You agree to execute financing statements and any and all other
instruments and documents that we may request to perfect, protect, establish or
enforce the security interests granted hereunder or other provisions hereof. You
do hereby authorize us to file such financing statements without your signature,
signed only by us as a secured party, or a reproduction of this Agreement to
reflect the security interests granted hereunder. All costs and expenses,
including searches, filing fees and reasonable attorneys' fees incurred by us in
negotiating, preparing, consummating, administering and enforcing this Agreement
shall be paid for by you on demand. You hereby warrant that you are solvent,
that you have full right and authority to sell and assign to us and to grant to
us a security interest in your property as provided in this agreement, that you
have not granted a security interest therein or in any of your inventory to any
other party, and that you will not hereafter grant any security interest therein
or in any of your inventory, other than to us, at any time during the term of
this agreement and until the security interest granted hereunder has been
terminated.
10. You shall not be entitled to pledge our credit in connection with any
purchase of goods or for any other purpose whatsoever.
11. If any goods are rejected or returned by, or recovered from, a
customer on any account, you shall forthwith pay us the amount of such account,
either in cash or by the assignment of new accounts acceptable to us hereunder.
Until such repayment, such goods shall be held by you in trust for our benefit,
shall be segregated and identified by you as our property, and upon our request,
at your expense, shall be delivered to or for our account or upon our order to
such place or places as we may designate. We may sell or cause the public or
private sale of any such goods, upon 5 days written notice to you, at such
places and upon such terms as we may deem proper, and we may be the purchaser at
any public sale. The proceeds of any such sale or sales shall first be applied
to the costs and expenses of and incident to such sale, and the balance, if any,
shall be credited to your account and your account shall be charged with any
deficiencies, costs and expenses.
12. We shall have no responsibility for, or liability in respect of, the
care, shipment, transportation of, or insurance upon, any of your inventory or
other goods, our liability being solely that of a factor purchasing the accounts
arising from sales made by you which have been approved by us and paying you
therefor as hereinabove set forth.
13. This agreement shall commence as of the date hereof and shall continue
until sixty (60) days written notice of an election to terminate this agreement
shall be given by either party to the other, by registered mail, in which event
this agreement shall so terminate.
14. This agreement shall be terminable by us at anytime without notice
upon the occurence or existence of any one or more of the following events of
default: (a) you fail to pay or perform when due any of the Obligations or you
breach any of the terms, covenants, conditions or provisions contained in this
agreement or any other agreement between us; (b) any present or future
representation, warranty or statement of fact made by you or on your behalf to
us in this agreement or any other agreement, schedule or instrument referred to
herein or therein or related hereto or thereto is false or misleading at any
time; (c) we in good faith believe that, because of a change in the conditions
or affairs (financial or otherwise) of you or any guarantor of any of the
Obligations, either (i) the prospect of payment or performance of the
Obligations is impaired or (ii) the collateral is not sufficient to fully secure
the Obligations; and (d) the occurence of any of the following with respect to
you or any guarantor of any of the Obligations: dissolution; termination of
existence; insolvency; business cessation; calling of a meeting of creditors;
appointment of a receiver for any property; assignment for the benefit of
creditors; commencement of any voluntary or involuntary proceeding under any
bankruptcy or insolvency law; entry of any court order which enjoins or
restrains the conduct of business in the ordinary course. Upon the occurence of
any default by you hereunder, we shall have all the rights and remedies of a
secured party under the Uniform Commercial Code and other applicable laws with
respect to all collateral in which we have a security interest. We may sell or
cause to be sold any or all such collateral, in one or more sales or parcels, at
such prices and upon such terms as we may deem best, and for cash or on credit
or for future delivery and at a public or private sale as we may deem
appropriate. Unless the collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, we
shall give you reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made. The requirements of reasonable notice shall
be met if any such notice is mailed, postage prepaid, to your address shown
herein, a least five (5) days before the time of the sale or disposition
thereof. We may be the purchaser at any such public sale. The proceeds of sale
shall be applied first to all costs and expenses of and incident to such sale
including attorneys fees and then to the payment, in such order as we may elect,
of all sums owing to us hereunder. We shall return any excess to you and you
shall remain liable for any deficiency. Termination of this agreement shall not
become effective in respect of the rights, liens and security interests granted
to us hereunder until you have fully paid and discharged any and all of your
Obligations and you shall continue to furnish confirmatory assignments and
schedules of accounts assigned to us and all proceeds in respect thereof.
15. You agree that you will upon our request furnish to us, as and when
the same becomes available to you (but not more than 120 days after the end of
each of your fiscal years) a copy of each statement of your financial position
for each fiscal year prepared and certified by a Certified Public Accountant
selected by you and acceptable to us. Upon request, you will furnish to us at
least one uncertified statement during each such fiscal year and from time to
time, such other information regarding your operations and financial condition
as we may reasonably request.
<PAGE>
16. This agreement is deemed made in the State of New York and shall be
governed, interpreted and construed in accordance with the laws of said State.
You hereby irrevocably consent to the jurisdiction of the Courts of said State
and of any Federal Court located in such State in any action or proceeding
involving this agreement or the relationship created hereby. No modification,
waiver or discharge of this agreement shall be binding upon us unless in writing
and signed by us. If at any time we should fail to exercise any right or remedy
hereunder, it shall not constitute a waiver on our part of exercising the same
or any other right or remedy at any subsequent time. If any taxes are imposed
upon, or if we shall be required to withhold or pay any tax or penalty because
of or in connection with any transactions between us under this agreement, you
agree to indemnify us and hold us harmless in respect thereof. This agreement
shall be binding upon and inure to the benefit of each of us and our respective
heirs, executors, administrators, successors and assigns.
17. Trial by jury is hereby waived by each of us in any action, proceeding
or counterclaim brought by either of us against the other on any matters
whatsoever arising out of or in any way connected with this agreement or the
relationship created hereby.
The foregoing is acknowledged,
accepted and agreed to: CONGRESS TALCOTT CORPORATION
TOYMAX, INC. By: /s/ Debra Weintraub
- ------------------------------------------- ----------------------------
(Client's Name) Vice President Title
By: /s/ Steve Lebensfeld
----------------------------------------
Steve Lebensfeld Pres
(Seal) (Seal)
Location of Client's Books and Records: Executive Office of Client
77-81 Spruce Street 77-81 Spruce Street
- ------------------------------------------- ----------------------------
Cedarhurst, New York 11516 Cedarhurst, New York 11516
- ------------------------------------------- ----------------------------
OFFICERS' CERTIFICATE
The undersigned, President and Secretary of Toymax Inc. a corporation duly
organized and validly existing under the laws of the State of New York DO HEREBY
CERTIFY that the following is a true copy of certain resolutions duly and
unanimously adopted at a meeting of the Board of Directors of said corporation,
duly called and held on the .......... day of ............. 1991, at which a
quorum was present and voting throughout, and which are not in conflict with the
Certificate of Incorporation, By-Laws, rules and regulations of said
corporation, and which resolutions have not been modified or rescinded and are
still in full force and effect:
"WHEREAS, this corporation proposes to enter into a factoring agreement
with CONGRESS TALCOTT CORPORATION ("Congress"), having an office at 1133
Ave. of the Americas, NY, NY 10036 pursuant to which this corporation will
sell and assign to Congress all of its accounts (as defined therein), and
will grant to Congress a security interest in all of its accounts,
contract rights and general intangibles and certain other personal
property of this corporation (hereinafter collectively, the "collateral"),
and the form of such factoring agreement having been submitted to and duly
considered at this meeting, and the execution and delivery thereof having
been deemed to be in the best interest of this corporation; now,
therefore, be it:
"RESOLVED, that any one or more of the officers of this corporation be,
and they each hereby are, authorized, directed and empowered, in the name
and on behalf of this corporation; to enter into, execute and deliver to
Congress a factoring agreement substantially in the form submitted to this
meeting, with such changes as said officer or officers may consider
appropriate, the execution and delivery thereof being deemed conclusive
evidence of this corporation's approval of the terms thereof; from time to
time, to sell and assign to Congress its accounts, and to borrow money and
obtain advances and other financial accommodations from Congress, and to
grant a security interest in the collateral, now existing or hereafter
arising, pursuant to the terms of said factoring agreement, or otherwise,
in such amounts and upon such terms and conditions as said officer or
officers may consider appropriate; to execute and deliver one or more
promissory notes or other evidence of indebtedness, financing statements,
supplementary agreements, assignments, schedules, transfers, notices,
contracts, subordination agreements, guarantees, designations,
consignments and other instruments and documents in connection with the
factoring agreement, as amended or supplemented from time to time
(including the grant of additional liens and security interests in such
personal property and/or real property of this corporation as may be
requested by Congress pursuant to any such supplement), containing and
upon such terms as said officer or officers may consider appropriate, the
execution and delivery thereof being deemed conclusive evidence of this
corporation's approval of the terms thereof; to adopt a facsimile printed
or rubber stamp signature for the purpose of expediting the terms of the
factoring agreement; and to execute and deliver such further documents and
to perform such other acts as may be necessary or desirable to effectuate
the foregoing resolution; and all such action of said officer or officers
heretofore or hereafter taken shall be deemed as the action of, and is
hereby authorized, ratified, approved and confirmed by, this corporation
and the Board of Directors thereof; and it is further
"RESOLVED, that until Congress receives notice in writing by registered
mail of any changes or limitations of authority of any officers of this
corporation, it is authorized to rely upon the authority and power set
forth in these resolutions."
The undersigned DO FURTHER CERTIFY that the Certificate of Incorporation
and By-Laws of this corporation contain no requirement for shareholder approval
or consent to the execution of the factoring agreement or the consummation of
any of the transactions referred to in the foregoing resolutions. The
undersigned DO FURTHER CERTIFY that the Chief Executive Office and all of the
Locations of Books and Records of this corporation as of the date of the
execution and delivery of the factoring agreement are as set forth therein and
shall not be changed without Congress' written consent.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of
the corporation this .......... day of ..........., 1991.
TOYMAX INC.
/s/ Steve Lebensfeld
--------------------------------------------
Steve Lebensfield President
--------------------------------------------
Secretary
<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
August 11, 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
August 11, 1997
