FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File No. 0-7843
4Kids Entertainment, Inc. (f/k/a Leisure Concepts, Inc.)
(Exact name of registrant as specified in its charter)
New York 13-2691380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 758-7666
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $5,612,078 (based upon the average of the high and low prices
of Registrant's Common Stock, $.01 par value, as of March 22, 1996).
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 2,944,831
(Title of Class) (No. of Shares Outstanding
at March 22, 1996)
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART I
Item 1. Business
(a) General Development of Business. 4Kids Entertainment, Inc.,(the
"Company" ) operating through four wholly owned subsidiaries described below,
functions as a vertically integrated entertainment based company. The Company
provides a comprehensive range of services including toy design and development,
domestic and international merchandise licensing, media buying and planning,
international and domestic television distribution and television production. On
November 16, 1995, the shareholders approved a proposal to amend the Certificate
of Incorporation to change its name from Leisure Concepts, Inc. to 4Kids
Entertainment, Inc. to better reflect the nature of the business.
The Company principally operates through four wholly owned subsidiaries, Leisure
Concepts, Inc., Leisure Concepts International, Inc., The Summit Media Group,
Inc.and 4Kids Productions, Inc.
Leisure Concepts is engaged primarily in the business of domestic and
international licensing of the commercial rights to properties, personalities,
and product concepts. Leisure Concepts typically acts as exclusive agent in
connection with the grant to third parties of licenses to manufacture and sell
all types of merchandise based on such properties, personalities and concepts.
The licensing of these rights has been primarily in the areas of toys, games and
other juvenile merchandise, although grants have also been made in other fields,
including the food, toiletries, apparel and footwear industries. These rights
are also licensed in connection with the production of television shows, motion
pictures and publications such as magazines, juvenile books and comic strips.
Leisure Concepts International, based in the Company's London office, provides
hands-on management of properties in the important United Kingdom and European
marketplace.
The Summit Media Group provides media planning, buying and
marketing services primarily for toy and video game companies. Summit Media also
provides television distribution services.
4Kids Productions is a television and home video production company specializing
in youth-oriented entertainment programming.
(b) Financial Information About Industry Segments. For the past three
fiscal years, the Company has been engaged in only one industry segment.
Substantially all its revenue, operating profit or loss and identifiable assets
during such fiscal years were attributable to that segment.
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(c) Narrative Description of the Business.
(1) Licensing (Other Than Product Concepts). The Company's
licensing activities are conducted through its subsidiary, Leisure Concepts,
Inc. ("LCI"). The licenses in this category of activity are typically based upon
well-known personalities, fictional and fanciful characters, and established
properties often from the entertainment field. These rights in some cases may be
licensed from the owners of such properties and sublicensed to others, or LCI
may acquire the right to represent such owners, usually exclusively, in the
granting of such rights to third parties, negotiating licensing arrangements
directly with manufacturers or users and supervising the implementation of the
agreements.
A license agreement offered to manufacturers in the industry or
industries LCI considers appropriate, may provide the right to manufacture and
sell a broad range of toy products of various categories (a "master toy
license") or it may be limited to the right to manufacture and sell a specific
product or product lines. The typical licensing arrangement provides for the
payment of royalties based upon a percentage of the manufacturer's aggregate net
sales, at wholesale, of the products in question. LCI usually retains between
15% and 50% of the owner's licensing royalties, which generally range from 4% to
12% of net wholesale sales.
As part of the standard licensing arrangements, the manufacturer
usually pays LCI a nonrefundable advance which is applied in most cases against
a guaranteed minimum royalty. The percentage of sales or royalty rate, and any
nonrefundable advance on guaranteed minimum payment, are negotiated for each
transaction and vary from industry to industry and from property to property.
Generally the term of the license runs for one to two years, and may be renewed
if certain minimum annual payments are received under the license agreement. In
addition, the agreements usually provide that the rights under license will
revert to the owner unless the manufacturer commences its marketing activities
by a specified date and continues to market the products thereafter on a regular
basis. The average start-up or lead time necessary for product manufacture and
marketing is between approximately six and eighteen months. LCI does not assist
in financing any of these endeavors.
In the case of licenses for motion picture and television productions,
the licensees pay fees for each production, sometimes preceded by option
payments, and, usually in connection with television series, rerun payments for
multiple
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exhibitions in the United States. In some cases LCI participates in the "net
profits" (that is, income less deduction of fees and chargeable expenses and
production costs) that may be realized from the exploitation of the property in
question.
Licensing revenues accounted for approximately 52%, 60% and 75% of
consolidated net revenues for the years ended December 31, 1995, 1994 and 1993,
respectively.
(2) Certain Licensed Properties Represented Exclusively by Leisure
Concepts, Inc. Among the licensed properties represented exclusively by LCI are
the following:
o Nintendo of America Inc. ("Nintendo"), for the various
characters, trademarks, and copyrights arising out of the
software for the video cartridge games developed and owned by
Nintendo. LCI represents Nintendo on a worldwide basis, other
than Japan. These video games ranked among the top toy sellers in
the United States in 1993, 1994 and 1995.
o James Bond 007. In the fourth quarter of 1995 MGM/UA released the
17th motion picture in the series entitled "Goldeneye," starring
Pierce Brosnan as Bond.
o The syndicated weekly TV show, "WMAC Masters", which features the
nation's first live action martial arts competition series.
o The CBS weekly animated show "Santo Bugito," about a small border
town's colorful insect population.
o Carlo Collodi's Pinocchio, a live action theatrical release
scheduled for the summer of 1996 by New Line Cinema and Kusher-
Locke/Savoy.
o Pillow People, a new weekly animated children's show debuting in
the fall of 1996.
o The "Polly Pocket" and "Mighty Max", miniature playsets for girls
and boys distributed by Mattel.
o The Puttermans, prime time's battery-powered family featured on
Duracell's highly rated television commercials.
(3) Company-Owned Properties. World Martial Arts Council ("WMAC") is
an entertainment-based property utilizing skilled martial arts professionals
that was developed and is owned by the Company. The WMAC Masters television
series was
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launched in September of 1995. The Company has entered into a master toy license
agreement under which Bandai will market and distribute toys and video games for
the WMAC.
(4) Product Concepts. The product concepts developed by LCI usually
consist of a novel theme for a line of merchandise. LCI may conceive of an idea
and then develop it at its expense by preparing drawings or models of the
products or examples of various uses of the concepts, including descriptions or
illustrations of plans for the marketing and merchandising of the product lines
in question. LCI will then seek to license the product concept to manufacturers
for which LCI will typically receive a royalty based upon the manufacturer's
wholesale sales. Other times, although LCI has not created the original concept,
it will assist in developing a concept, initially conceived by others, into a
commercially viable product line, in which case LCI may act as the licensor, as
the agent for the rights holder of the concept in question or may simply receive
a royalty for services rendered. LCI does not typically finance the activities
of the manufacturers to which it licenses product concepts. However, LCI
sometimes enters into arrangements under which it defers its royalties until
after the manufacturer has recouped cost of production. Furthermore, because the
overhead associated with the development of product concepts is relatively low,
this activity has generally been profitable for LCI. There can be no assurance,
however, that the development of product concepts will be successful in the
future.
Examples of product concepts are "Quiz Wiz", "2-XL" and "Toby
Terrier", which the Company represents on a worldwide basis. "Quiz Wiz" is an
electronic hand-held computer answer game. "2-XL" is an interactive toy robot
that questions and teaches children about a variety of educational subjects.
"Toby Terrier" is a toy dog which interacts with specially programmed
videotapes. LCI licenses these properties to Tiger Electronics Inc. ("Tiger"),
which is a major shareholder of the Company.
The Company's agreements with Tiger are on substantially similar terms
and conditions as other agreements for similar properties represented by the
Company. For a description of certain agreements among Tiger, Mr. Randy Rissman,
the President and controlling shareholder of Tiger and Alfred R. Kahn, the
Company's Chairman, see "Business Experience", "Executive Compensation",
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions" below.
(5) Media Buying, Planning and Television Syndication. The Company's
subsidiary The Summit Media Group, Inc. ("Summit Media"), provides clients,
including among others, Tiger, with media planning, buying and marketing
services, and television syndication services. Media buying accounted for 33%,
26% and 7% of consolidated net revenues for the years ended December 31, 1995,
1994 and 1993, respectively. Summit Media's current syndications include " WMAC
Masters", the weekly live action
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martial arts competition and "Mega Man," an animated series based on the popular
video game character. Summit also syndicates the holiday specials "Mr. Magoo's
Christmas Carol" and "Cinderella on Ice".
(6) Television and Home Video Production. The Company's subsidiary
4Kids Productions, Inc. ("4Kids Productions") is a television and home video
production company specializing in youth-oriented entertainment programming.
4Kids Productions is currently producing a series of nine one-half hour programs
for the Atlanta Committee for the 1996 Olympic Games which run on the NBC
television network. In addition, 4Kids Productions is co-producing
"WMAC Masters" with Renaissance Atlantic Films.
(7) Dependence on a Few Sources of Licensing Revenues. The Company
typically derives a substantial portion of its licensing revenues from a small
number of properties, which properties usually generate revenues only for a
limited period of time. Because the Company's licensing revenues are highly
subject to changing fashion in the toy and entertainment business, its licensing
revenues from year to year from particular sources are subject to dramatic
increases and decreases. It is not possible to precisely anticipate the length
of time a project will be commercially successful, if at all. Popularity of
properties can vary from months to years. In addition, the Company has little
control over the timing of guarantee and minimum payments, some of which are
made upon the execution and delivery of license agreements. Because of this, the
Company must continually seek new properties from which it can derive revenues.
No individual property contributed licensing revenues in excess of 10%
of consolidated net revenues for fiscal 1995. The only client/licensee which
contributed revenues individually in excess of 10% of consolidated net revenues
for fiscal 1995 was Tiger.
(8) Trademarks and Copyrights. The Company generally does not own any
trademarks or copyrights in properties which it licenses. These rights are
typically owned by the creator or by the entity, such as a master toy licensee
or television producer, which may expend substantial amounts in developing or
promoting the concept. The Company does own the copyrights and trademarks to
"Charlie Chan" and the Company's project "WMAC Masters".
(9) Seasonal Aspects. A substantial portion of the Company's revenues
and net income are subject to the seasonal variations of the toy and game
industry. Typically, a majority of toy orders are shipped in the third and
fourth calendar quarters. As a result, in the Company's usual experience, its
net income during the second half of the year will generally be greater than
during the first half of the year. In addition, Summit Media's business is also
seasonal as the majority of toy and video game advertising occurs in the second
half of the year.
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(10) Competition. The principal competitors of the Company's licensing
activities (including product concepts) are the product development,
merchandising, marketing and advertising departments of toy and other juvenile
merchandise manufacturers and motion picture studios as well as independent
advertising agencies, licensing companies and numerous individuals acting as
licensing representatives. There are also many independent product development
firms with which the Company competes. Many of these companies have
substantially greater resources than the Company and represent properties which
have been commercially successful for longer periods than properties represented
by the Company. The Company believes it would be relatively easy for a potential
competitor to enter its market in light of the relatively small investment
required to commence operations. However, the ultimate success of a new entrant
in the field would depend on its access to toy and other manufacturers, sources
of properties to be licensed, its know-how in the negotiation and subsequent
administration of licenses, and the retail market acceptance of the property in
question.
The Company's media buying, planning and television syndication
activities as well as its television and home video production activities
operate in highly competitive industries and face as competitors many companies
with substantially greater resources and distribution networks than the Company.
(11) Employees. As of March 22, 1996, the Company had a total of 48
full-time employees.
Item 2. Properties
The following table sets forth, with respect to properties leased
(none are owned) by the Company at March 22, 1996, the location of the property,
the date on which the lease expires and the use which the Company makes of such
facilities:
Approximate
Square
Address Expiration of Lease Use Feet
- ------- ------------------- --- ----
1414 Avenue of the Americas May 31, 2004 Executive and 13,900
New York, New York Sales Office,
Media Buying
and Television
Production
11400 West Olympic Boulevard March 18, 1999 Subleased 2,460
Los Angeles, California
403-404 The Plaza November 22, International 1,200
535 Kings Road 1997 Sales Office
London, England
The Company considers that, in general, its physical properties are
well maintained, in good operating condition and adequate for its purposes.
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Item 3. Legal Proceedings
In December 1993, Pop, Inc. and its President commenced an action in
the Supreme Court of the State of New York, County of New York against the
Company, 4Kids Productions and Mr. Kahn alleging breach of contract and
defamation in connection with the production of the "Monster Wars" television
program. In April, 1994, the Court granted the Company's motions to dismiss
several of the causes of action brought by the plaintiffs including the claims
for defamation and unjust enrichment and all claims against Mr. Kahn personally.
The Company believes it has meritorious defenses against the remaining breach of
contract claim and is vigorously defending against such claim which seeks
damages of approximately $942,600. In addition, the Company has filed
counterclaims, including a claim for breach of contract, against the plaintiffs.
In December, 1994 an action was commenced against the Company in Los
Angeles Superior Court by Mark and Richard Striley seeking royalties and other
unspecified damages in connection with the Company's representation of the
"Gumby" property. The owner of the property, Lorimar Merchandising, is also
named in the complaint. The Company has served an answer denying all the
allegations of the Complaint. The Company believes it has meritorious defenses
to such lawsuit which is, however, in a very early stage.
Except for these lawsuits, as of March 22, 1996, there were no legal
proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
During the Company's fiscal quarterly period ended December 31, 1995,
there were four matters submitted to a vote of security holders through the
solicitation of proxies in connection with the Company's 1995 Annual Meeting of
Shareholders held on November 16, 1995 (the "Annual Meeting"). The following is
a description of the matters voted upon at the Annual Meeting, including the
number of affirmative votes and the number of negative votes cast along with the
number of abstentions or votes withheld with respect to such matters:
(a) The election of Alfred R. Kahn, Randy O. Rissman and Gerald
Rissman to serve as directors, subject to the provisions of the By-Laws, until
the next Annual Meeting of Shareholders and until their respective successors
have been duly elected and qualified. There were 2,666,808 votes cast in favor
of the election of each director and 20,995 votes withheld.
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(b) The approval of the Company's 1995 Stock Option Plan. There were
2,416,398 votes for, 249,438 votes against and 21,267 abstentions.
(c) The approval of the proposal to amend the Certificate of
Incorporation to change the Company's name from Leisure Concepts, Inc. to 4Kids
Entertainment, Inc. There were 2,646,103 votes for, 22,850 votes against and
18,850 abstentions.
(d) The approval of the selection of Deloitte & Touche as the
Company's independent auditors for the fiscal year ended December 31, 1995.
There were 2,663,078 votes for, 8,000 votes against and 16,725 abstentions.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
(a) The Company's Common Stock is traded on the NASDAQ National Market
System. The following table indicates high and low sales quotations for the
periods indicated based upon information supplied by NASDAQ, Inc. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
1995 Low High
---- --- ----
First Quarter 2 1/2 4
Second Quarter 2 1/2 4 1/4
Third Quarter 3 4
Fourth Quarter 2 1/8 4 1/4
1994 Low High
---- --- ----
First Quarter 6 1/4 11 1/2
Second Quarter 4 1/4 7
Third Quarter 3 3/8 5 3/4
Fourth Quarter 2 1/2 4 1/2
(b) Number of Holders of Common Stock. The number of holders of record
of the Company's Common Stock on March 22, 1996 was 163, which does not include
individual participants in security position listings.
(c) Dividends. There were no dividends or other distributions made by
the Company during 1995 or 1994. Future dividend policy will be determined by
the Board of Directors
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based on the Company's earnings, financial condition, capital requirements and
other existing conditions. It is anticipated that cash dividends will not be
paid to the holders of the Company's Common Stock in the foreseeable future.
(d) Stock Purchases. The Board of Directors has authorized the Company
to acquire up to 165,000 shares of its Common Stock on NASDAQ or elsewhere. Such
purchases are to be made out of the Company's surplus. No such purchases were
made by the Company during 1995.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Net $ 6,617,279 $ 9,191,582 $10,909,024 $ 8,620,860 $ 7,044,228
Revenues
Income (Loss) (947,850) 135,250 2,524,688 2,254,410 947,673
from Continuing
Operations
Net Income (.32) .04 .77 .73 .33
(Loss) Per
Common Share
from Continuing
Operations
Net Income (.32) .04 .76 .72 .33
(Loss) Per
Common Share
from Continuing
Operations
Assuming Full
Dilution
Weighted 2,990,514 3,070,815 3,273,176 3,099,463 2,903,601
Average Number
of Common
Shares
Outstanding
</TABLE>
The Company did not declare or pay any cash dividends during the five-year
period ended December 31, 1995.
<TABLE>
<CAPTION>
At Year End 1995 1994 1993 1992 1991
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Assets $25,968,575 $29,376,396 $20,933,958 $13,556,781 $13,380,859
Working Capital 6,894,818 8,159,128 8,713,842 8,780,095 7,214,065
Stockholders Equity 11,628,908 12,576,758 12,367,458 9,334,335 7,438,839
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company receives revenues from a number of sources, principally
licensing and media buying. The Company typically derives a substantial portion
of its licensing revenues from a small number of properties, which properties
usually generate revenues only for a limited period of time. Because the
Company's licensing revenues are highly subject to changing fashion in the toy
and entertainment business, its licensing revenues from year to year from
particular sources are subject to dramatic increases and decreases. It is not
possible to precisely anticipate the length of time a project will be
commercially successful, if at all. Popularity of properties can vary from
months to years. As a result, the Company's revenues and net income may
fluctuate significantly between comparable periods. The Company's revenues have
historically been primarily derived from the license of toy and game concepts.
Thus, a substantial portion of the Company's revenues and net income are subject
to the seasonal variations of the toy and game industry. Typically, a majority
of toy orders are shipped in the third and fourth calendar quarters. In
addition, the Company's media buying subsidiary concentrates its activities on
the youth oriented market. As a result, most of its revenue is earned in the
third and fourth quarters when the majority of toy and video game advertising
occurs. In the Company's usual experience, its net income during the second half
of the year will generally be greater than during the first half of the year.
However, the Company has little control over the timing of guarantee and minimum
payments, some of which are made upon the execution and delivery of license
agreements.
Results of Operation
Twelve Months Ended December 31, 1995 compared to Twelve Months Ended December
31, 1994.
Consolidated net revenue for the year ended December 31, 1995
decreased 28% ($2,574,303) as compared to the year ended December 31, 1994.
Decrease in revenue was recognized from the James Bond 007 and "WMAC Masters"
properties. In 1994, the Company recognized approximately $1.6 million from the
master toy and video game license agreement for the WMAC to be marketed and
distributed by Bandai. Bandai is expected to begin shipping WMAC toys and
related products in the 2nd quarter of 1996. Additionally, in 1994 the Company
recognized $600,000 from a licensing agreement with Nintendo which acquired the
video game
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rights in connection with James Bond 007. In addition, there were substantial
decreases in the Swan Princess and Shadow properties. Both the Swan Princess and
the Shadow were tied to the success of theatrical motion pictures in 1994 which
were not sufficiently successful to provide sustained interest in associated
merchandise. This decline in licensing revenue was partially offset by licensing
revenue from new licensing agreements related to the properties Polly Pocket,
Santo Bugito and Carlo Collodi's Pinocchio.
Revenue from the Company's media and television syndication services
decreased over 1994 performance. These activities comprised 33% of total net
revenue for 1995 as compared to 26% in 1994. Commissions earned on the media
placed for the theatrical releases, the Swan Princess and Street Fighter in 1994
were non recurring in 1995. These reduced commissions were partially offset by
increased commissions earned from Happiness Express and Tiger Electronics. The
Company's television and home video production activities comprised 15% of total
net revenue for 1995 as compared to 7% in 1994. This revenue related primarily
to the 1996 Olympic specials produced for the Atlanta Committee for the Olympic
games to run on the NBC television network and the "WMAC Masters" syndicated
television program which began airing in September 1995.
Selling, general and administrative expenses remained relatively
stable during the two fiscal years, although a higher percentage of such
expenses were attributable to the Company's media and syndication operations
which accounted for a increasing percentage of revenue. Overall selling, general
and administrative expenses increased as a percentage of net revenue from 82.7%
in 1994 to 114.5% in 1995 due to the decline in net revenues. The Company will
continue to seek to effect cost reductions without adversely impacting the
Company's business.
At December 31, 1995 there were approximately $3,742,641 of
capitalized film production costs, which relate to "WMAC Masters," a weekly
syndicated television program which began airing in September, 1995, and is
produced by the Company's 4Kids Productions subsidiary in cooperation with
Renaissance Atlantic Films and "Monster Wars" a syndicated television show which
began airing in October 1993.
Amortization of capitalized film costs decreased by approximately 34% ($559,000)
for the year ended December 31, 1995 as compared to the prior year. The decrease
is primarily due to amortization charges in 1994 related to "Monster Wars".
Included in amortization expense for 1995 is an additional expense in the fourth
quarter of $280,000 relating to the "Monster Wars" weekly television show. The
charge occurred as a result of the Company's periodic evaluation of net
realizable value of its capitalized costs. Amortization rates may change as a
result of changes in estimated future revenue. At December 31, 1995 the
percentage of unamortized film cost expected to be amortized within the next
three years exceeds 70%.
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As a result of the above, the Company reported a net loss for 1995 of
$947,850, as opposed to the reported net income in 1994 of $135,250.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993.
Net revenue for the year ended December 31, 1994 decreased 16%
($1,717,442) as compared to the year ended December 31, 1993. The decrease in
revenue was primarily due to a decline in licensing revenue from the "World
Wrestling Federation", the "Incredible Crash Dummies" and pre-existing Nintendo
properties. In addition, revenue in fiscal 1993 included approximately
$1,500,000 from a licensing agreement for video games on the "World Wrestling
Federation" property. This decline in licensing revenue was partially offset by
licensing revenue recognized in the fourth quarter of approximately $1.6 million
relating to the toy and video game rights for the WMAC to be marketed and
distributed by Bandai. In addition, licensing revenue benefitted from new
properties such as "The Swan Princess", an animated feature film released in
November 1994 and available on home video in summer 1995 and the new James Bond
007 film "Goldeneye," which will be released in the fourth quarter of 1995 as
the 17th in the series of James Bond motion pictures. Licensing revenue of
approximately $600,000 was recognized in the third quarter of 1994 from a
licensing agreement with Nintendo which acquired the video game rights in
connection with James Bond 007.
The Company's media and television syndication services, contributed
incremental revenue over 1993 performance. These activities comprised 26% of
total net revenue for 1994 as compared to 7% in 1993. The Company's television
and home video production activities comprised 7% of total net revenue for 1994
as compared to 5.4% in 1993. This revenue related primarily to the "Monster
Wars" syndicated television program which began airing in October 1993.
Selling, general and administrative expenses increased by 15%
($900,667) for the year ended December 31, 1994 as compared to the year ended
December 31, 1993. The higher level of expenditures for the year are principally
due to increased costs associated with expanding the Company's media and
television syndication services and the marketing of the Company's licensed
properties. The balance of the increase is primarily attributable to costs
associated with the Company's international operations. The increase in selling,
general and administrative expenses was partially offset by a decline in
officers' salaries and bonuses of 34% for the year ended December 31, 1994 as
compared to the prior year. The decrease is attributable to lower bonus amounts
which are based on pretax income levels.
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At December 31, 1994 there were approximately $2,212,500 of capitalized
film production costs, which relate to "Monster Wars" a syndicated television
show which began airing in October, 1993, "Toby Terrier" a series of children's
home video cassettes co- produced with Tiger Electronics, Inc. and "WMAC
Masters" planned syndicated television show currently in production.
Amortization of capitalized film costs increased by approximately 60% ($615,000)
for the year ended December 31, 1994 as compared to the prior years. Included in
amortization expense for 1994 is an additional expense in the fourth quarter of
$271,000 relating to "Monster Wars" weekly television show, for which the
Company previously reported an expense of $500,000 in the first half of 1994. In
addition, the Company had $223,000 additional expense in the fourth quarter in
connection with "Toby Terrier." Both charges occurred as a result of the
Company's periodic evaluation of net realizable value of its capitalized costs.
Amortization rates may change as a result of changes in estimated future
revenue. At December 31, 1994 the percentage of unamortized film cost expected
to be amortized within the next three years exceeds 70%.
As a result of the above, the Company reported net income for 1994 of
$135,250, as opposed to the reported net income in 1993 of $2,254,688.
Liquidity and Capital Resources
At December 31, 1995, the Company had working capital of $6,894,818, as
compared to working capital of $8,159,128 at December 31, 1994. The decrease in
working capital of $1,264,310 is primarily due to the cost of funding the
operating loss of the Company for the year ended December 31, 1995 offset to
some extent by lower media payables.
Cash and cash equivalents decreased by $3,865,534 from December 31,
1994. The decrease in cash and cash equivalents is due to cash expenditures
associated with funding the production of "WMAC Masters" which had completed
production of the first thirteen episodes by December 31, 1995. This reduction
in cash produced an increase in film inventory-net. Additionally, cash
expenditures were required to fund the operating losses for the year ended
December 31, 1995.
Accounts receivable, net (current and non-current) decreased from
$17,963,280 at December 31, 1994 to $16,986,468 at December 31, 1995. This
decrease is primarily due to the lower revenue in the licensing business. Media
payable primarily represents obligations to television stations for advertising
time purchased on behalf of clients. Media payable decrease from $13,107,185 at
December 31, 1994 to $11,428,185 at December 31, 1995. This decrease is due to
the timing of receipts and subsequent payments to television stations. Amounts
due to licensor, which represent the owners share of royalties collected,
decreased by $186,430 to $1,613,606 from December 31, 1994. The decrease is
primarily due to lower royalties collected
- 14 -
<PAGE>
during the fourth quarter as compared to the prior year which are paid to
licensors after the close of the quarter.
Accounts payable and accrued expenses were comparable to the prior
year.
In the opinion of management, the Company will be able to finance its
business as currently conducted from its current working capital and the
$5,000,000 credit facility with Chemical Bank discussed in Note 8 to the
financial statements. As of March 22, 1996 there have been no borrowings under
this credit facility. As the Company explores new and expanded opportunities in
the youth oriented entertainment market, including television production, it
will seek additional financing alternatives.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data are attached hereto.
PART III
Item 10. Directors and Executive Officers of the Company
As of March 22, 1996, the Company's directors and executive
officers were as follows:
Position With the Company Held Office
Name and Age and Principal Occupation Since
------------ ------------------------- -----------
Alfred R. Kahn, 49 Chairman (Chief Executive 1987
Officer) and
Director
Randy Rissman, 48 Director, President 1991
of Tiger
Gerald Rissman, 75 Director, Employee of Tiger 1991
Joseph P. Garrity, 40 Executive Vice President 1991
(Chief Operating Officer)
and Treasurer (Chief
Financial Officer)
William J. Baron, 59 Vice President and Secretary 1991
Norman Grossfeld, 32 President, 4Kids Productions 1994
Sheldon Hirsch, 48 Chief Executive Officer, 1992
Summit Media
Thomas Kenney, 37 President, Summit Media 1993
- 15 -
<PAGE>
Business Experience
Mr. Alfred R. Kahn has been Chairman (Chief Executive Officer) of the
Company since March 1991. Mr. Kahn was Vice Chairman of the Company from July
1987 until he became Chairman. With a brief interruption in 1991, Mr. Kahn has
served as a director of the Company since 1987.
Mr. Randy Rissman has been the president of Tiger, a
manufacturer and distributor of toys and related items, for the
past 15 years.
Mr. Gerald Rissman is employed by Tiger to perform various
executive functions. Prior to January 1987 he was also an
executive officer and director of Tiger. Mr. Rissman also serves
as a consultant in the electronics industry.
Mr. Joseph P. Garrity became Executive Vice President (Chief
Operating Officer) in October 1994. Prior to then, he served as
Senior Vice President. Mr. Garrity has also served as Treasurer
(Chief Financial Officer) since June 1991. For more than five
years prior to such time, Mr. Garrity was a Senior Audit Manager
for Deloitte & Touche.
Mr. William J. Baron has been Vice President and Secretary of the
Company since March 1991. He is in charge of the Company's research and
development activities.
Mr. Norman J. Grossfeld has been President of 4Kids Productions since
February 1994. Prior to such time, Mr. Grossfeld was President of Gold Coast
Television Entertainment from 1992 through February 1994 and Coordinating
Director for NBC Sports from 1991 through 1992.
Mr. Sheldon Hirsch has been Chief Executive Officer of Summit Media
since November 1992. Prior to such time he served as President of Sachs Family
Entertainment, a television program distribution company, from 1989 through
November 1992.
Mr. Thomas J. Kenney has been President of Summit Media
since February 1993. Prior to such time he was Senior Vice
President-Advertising of Tiger from 1991 through February 1993.
Mr. Randy Rissman is Mr. Gerald Rissman's son.
Tiger, Mr. Kahn and Mr. Randy Rissman have agreed to use their best
efforts to cause the Board of Directors to consist of three persons, two
recommended by Tiger and one recommended by Mr. Kahn. If Tiger sells any of its
shares of the Company's Common Stock, Tiger, Mr. Kahn and Mr. Randy Rissman will
use their best efforts to cause a majority of the Board of Directors to consist
of persons recommended by Mr. Kahn.
- 16 -
<PAGE>
Item 11. Executive Compensation
The following table sets forth compensation paid to the Company's Chief
Executive Officer and the three most highly compensated executive officers for
the three fiscal years ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Award
Name and Stock Options
Principal Position Year Salary ($) Bonus ($) (Shares)
- ------------------ ---- ---------- --------- -------------
<S> <C> <C> <C> <C>
1995 $395,000 $ -0- 100,000
Alfred R. Kahn 1994 395,000 40,408 100,000
Chairman of the Board 1993 395,000 432,305 100,000
1995 235,000 $ 6,750 25,000
Sheldon Hirsch, Chief 1994 165,000 42,916 -0-
Executive Officer, 1993 165,000 43,230 10,000
Summit Media Group, Inc.
Thomas Kenney, President 1995 200,000 $ 6,750 25,000
Summit Media Group, Inc. 1994 135,000 42,916 -0-
1993 135,000 43,230 10,000
Norman Grossfeld, President 1995 150,000 $ 50,000 20,000
4Kids Productions 1994 150,000 50,000 -0-
1993 -0- -0- -0-
</TABLE>
- 17 -
<PAGE>
The following table sets forth information concerning the grants of
stock options made during fiscal 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Individual Grants Price Appreciation
- ----------------------------------------------------------------------------------------- for Option Term (1)
% of Total Exercise ----------------------
Number of Options Granted or Base
Options to Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) (2) Date 5% 10%
- ---- --------- --------------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Alfred R. Kahn 100,000 (3) 29% $3.625 1/01/05 $228,000 $578,000
Sheldon Hirsch 15,000 4 2.625 1/25/05 25,000 63,000
10,000 3 3.183 9/26/05 20,000 51,000
Thomas Kenney 15,000 4 2.625 1/25/05 25,000 63,000
10,000 3 3.183 9/26/05 20,000 51,000
Norman Grossfeld 10,000 3 2.625 1/25/05 17,000 42,000
10,000 3 3.183 9/26/05 20,000 51,000
</TABLE>
(1) The Company used such method as it is one of the alternative methods of
option valuation suggested by the Commission's rules on executive
compensation disclosure. The Company does not advocate or necessarily agree
that such method can properly determine the value of an option.
(2) Based upon the fair market value of the Company's Common Stock on the date
of grant.
(3) All such options are currently exercisable.
- 18 -
<PAGE>
None of the named executive officers exercised their options to
acquire shares during fiscal 1995. The following table sets forth information
concerning the fiscal year end value of unexercised options:
Value of Unexercised In-
Number of Unexercised Options at the-Money Options at
Name December 31, 1995 (1) December 31, 1995 (2)
Alfred R. Kahn 600,000 $ -0-
Sheldon Hirsch 35,000 -0-
Norman Grossfeld 20,000 -0-
Thomas Kenney 35,000 -0-
Joseph P. Garrity 80,000 -0-
William J. Baron 20,000 -0-
(1) All Mr. Kahn's options are currently exercisable. Of the remaining
unexercised options, 192,500 are currently exercisable and 20,000 will be
exercisable after September 7, 1996.
(2) Calculation based upon the average of the high and low prices of the
Company's Common Stock on NASDAQ on December 29, 1995 of $2.3125 per share.
Compensation of Directors
No director of the Company receives any cash compensation for his
services as such. Currently, the Company has two directors who are not
employees, Messrs. Randy Rissman and Gerald Rissman (the "Non-Employee
Directors"). Pursuant to the Company's 1994 Stock Option Plan (the "1994 Plan"),
on January 1, 1995, the Non-Employee Directors were each granted options to
purchase 50,000 common shares at a purchase price of $3.625. In addition,
pursuant to the 1994 Plan, on January 1, 1996 the Non-Employee Directors were
each granted options to purchase 50,000 common shares at a purchase price of
$2.3125. All such options were granted at the fair market value on the date of
grant, are currently exercisable in full and terminate ten years from the date
of grant. See "Security Ownership of Certain Beneficial Owners and Management"
below as to the number of common shares beneficially owned by each of the
Non-Employee Directors.
Employment Contracts and Termination of
Employment and Change-in-Control Arrangements
Mr. Kahn has an employment agreement with the Company pursuant to
which he receives a fixed salary of $395,000 per year. The agreement expires on
March 12, 1998. The agreement
- 19 -
<PAGE>
also provides that for a period of six months after termination of employment,
Mr. Kahn will not "compete" with the Company. Under the employment agreement, if
Mr. Kahn is terminated without cause, he will be entitled to receive a payment
equal to 2.99 times his average annual compensation paid by the Company
(including bonuses, if any) during the five years preceding the date of
termination ("Severance Payment"). If a majority of the directors of the Company
consists of individuals who have not been recommended by either Tiger or Mr.
Kahn (a "Change of Control"), Mr. Kahn can terminate the agreement within six
months of such Change of Control, in which event he would be entitled to receive
the Severance Payment.
Mr. Garrity has an employment agreement with the Company which
currently provides for an annual salary of $200,000 (the "Fixed Salary") plus an
annual bonus equal to 2% of the Company's Income Before Income Tax Provision as
stated on the Company's financial statements in it's Annual Report on Form 10-K.
The agreement automatically renews on a year-to-year basis unless terminated by
either party at least 90 days prior to the June 3 anniversary date thereof.
There was no such termination and the agreement was automatically renewed until
June 2, 1997. The agreement may be terminated by the Company in the event of Mr.
Garrity's disability or for cause. If during the term of Mr. Garrity's agreement
there shall occur a Change of Control, Mr. Garrity can terminate the agreement
within six months of such Change of Control, in which event he would be entitled
to receive a payment equal to the Fixed Salary remaining to be paid for the year
during which such termination occurs.
Mr. Grossfeld has an agreement with the Company which currently
provides for an annual salary of $200,000 (the "Fixed Salary") plus an annual
bonus equal to 10% of 4Kids Productions Income Before Income Tax Provision as
stated on 4Kids Productions books and records, with an annual advance against
bonus of $50,000.
Each of Mr. Hirsch and Mr. Kenney has an employment agreement with
Summit Media for the period January 1, 1995 through August 31, 1998. Mr.
Hirsch's agreement currently provides for an annual salary of $250,000 while Mr.
Kenney's currently provides for an annual salary of $225,000 (the "Fixed
Salary"). Each agreement currently provides for an annual bonus equal to 6% of
Summit Media's Income Before Income Tax Provision as stated on Summit Media's
books and records. The agreements automatically renew on a year-to-year basis
unless terminated by either party at least 90 days prior to the August 31, 1998
anniversary date thereof. The respective agreements may be terminated by the
Company in the event of either of Mr. Hirsch's or Mr. Kenney's respective
disability or for cause. If during the term of the agreements there shall occur
a Change of Control, each of Mr. Hirsch and Mr. Kenney can terminate his
respective agreement within six months of such Change of Control, in which event
he would be entitled to receive a payment equal to the
- 20 -
<PAGE>
Fixed Salary remaining to be paid for the year during which such termination
occurs.
Compensation Committee Interlocks and Insider Participation
The Company has a Compensation Committee, the current members of which
are Messrs. Randy and Gerald Rissman. Neither of such individuals has ever been
an officer or employee of the Company or any of its subsidiaries. During fiscal
1995, no executive officers of the Company served as a member of the
compensation committee or board of directors of another entity, one of whose
executive officers served on the Board of Directors of the Company.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
(a) - (c) The following table sets forth, as of March 22, 1996,
certain information concerning stock ownership of the Company by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
common shares of the Company, (ii) each of the Company's directors and (iii) all
directors and officers of the Company as a group. Except as otherwise indicated,
all such persons have both sole voting and investment power over the shares
shown as being beneficially owned by them.
Percent
Number of Shares of
Name and Address (1) Beneficially Owned Class
- -------------------- ------------------ -------
Randy Rissman 1,700,000 (2) 43.1%
Alfred R. Kahn 1,050,000 (3) 28.8%
Tiger Electronics Inc. 350,000 11.9%
Gerald Rissman 300,000 (4) 7.9%
Various Reporting 186,000 6.3%
Persons (5)
All directors and 2,250,919 (6) 43.3%
officers as a group
(8 persons)
(1) The address for Messrs. Randy Rissman and Gerald Rissman, and
Tiger, is 980 Woodlands Parkway, Vernon Hills, Illinois 60061; and the address
for Mr. Kahn is 1414 Avenue of the Americas, New York, New York 10019.
(2) Mr. Randy Rissman's beneficial ownership of the Company's Common
Stock is comprised of (i) Mr. Kahn's currently exercisable options to acquire
700,000 shares, over which Mr. Randy Rissman would have the sole power to vote
if exercised by Mr. Kahn pursuant to an irrevocable Proxy dated as of March 11,
1991 (the "Irrevocable Proxy"), (ii) 350,000 shares owned by
- 21 -
<PAGE>
Tiger, which Mr. Randy Rissman, as President and controlling shareholder of
Tiger, has the right to direct the voting and disposition of, (iii) 350,000
shares owned by Mr. Kahn which Mr. Randy Rissman has the sole power to vote
pursuant to the Irrevocable Proxy and (iv) currently exercisable options to
acquire 300,000 shares.
(3) Includes currently exercisable options to acquire 700,000 shares.
(4) Mr. Gerald Rissman has the right to acquire the number of shares
shown pursuant to currently exercisable stock options.
(5) According to a Schedule 13D filed in April, 1994 (the "Schedule
13D"), EGS Associates, L.P., EGS Partners, L.P., BEV 21 Partners, L.P., Jonas
Partners, L.P., William Ehrman, Frederic Greenberg, Frederick Ketcher, Salvatore
P. DiFranco, Jr. and Jonas Gerstl (collectively, the "Reporting Persons") have
various interests in the shares shown. The address of the principal business and
principal office of the Reporting Persons is 300 Park Avenue, New York, New York
10022. According to the Schedule 13D, the purpose of the acquisition of the
shares shown by the Reporting Persons is for investment. In addition, the
Schedule 13D states that there are no contracts, arrangements, understandings or
relationships (legal or otherwise) among the Reporting Persons or between the
Reporting Persons and any other person with respect to any securities of the
Company.
(6) Includes an additional 212,500 shares which five executive
officers have the right to acquire pursuant to stock options. 192,500 of such
options are currently exercisable.
Mr. Kahn borrowed a total of $711,582 from Tiger in connection with
three purchases of a total of 191,426 shares. As of March 1, 1996, the
outstanding principal balance of such loans was approximately $340,000. The
loans are partially due in 1996 and 1997 with the balance due in April 1999 and
bear interest on part at the rate of 8% per annum and on the balance at 1% over
prime rate, payable annually. Mr. Kahn has agreed that he will use 40% of his
annual performance bonuses, if any, toward the repayment of his indebtedness to
Tiger.
Tiger, Mr. Randy Rissman and Mr. Kahn are parties to an agreement
which provides that neither Tiger nor Mr. Kahn nor any of their respective
affiliates, shall directly or indirectly acquire any other shares of the Company
without the consent of Mr. Kahn or Tiger, as the case may be. In the event Tiger
desires to sell any of its shares, it shall first provide Mr. Kahn an
opportunity to purchase the shares subject to such offer on the same terms and
conditions. In the event Mr. Kahn desires to sell any of his shares, he must
provide Tiger the right to sell a proportional number of shares on the same
terms and conditions. In the event Mr. Kahn shall terminate his employment with
the Company, Tiger shall have the right to buy all of Mr. Kahn's shares at the
lower of a specified price or the market
- 22 -
<PAGE>
value prior to such termination, unless Mr. Kahn shall concurrently sell his
shares as set forth above.
Item 13. Certain Relationships and Related Transactions
In 1995, the Company provided to Tiger representation for licensing of
properties, product development and design services and media buying, planning
and syndication services. In connection with these activities, the Company
realized approximately $2,111,820 of net revenue from Tiger in fiscal 1995.
In connection with its media buying activities, the Company incurs
obligations to television stations for advertising time purchased on behalf of
Tiger. Consequently, the Company had an account receivable from Tiger of
approximately $10,343,000 at December 31, 1995.
The agreements under which the Company provides certain services
to Tiger are on substantially similar terms and conditions as other agreements
the Company has with clients for which it provides similar services.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) 1. Financial Statements:
The following Consolidated Financial Statements of 4Kids
Entertainment, Inc. and Subsidiaries are included in Item 8:
Page
Number
------
Independent Auditors' Report F-1
Consolidated Balance Sheets - F-2
December 31, 1995 and 1994
Consolidated Statements of F-3
Operations - Years Ended
December 31, 1995, 1994
and 1993
Consolidated Statements of F-4
Stockholders' Equity - Years
Ended December 31, 1995, 1994
and 1993
Consolidated Statements of F-5
Cash Flows - Years Ended
- 23 -
<PAGE>
December 31, 1995, 1994
and 1993
Notes to Consolidated F-6 to F-14
Financial Statements
(a) 2. and (d) Financial Statement Schedules:
All schedules have been omitted because they are inapplicable, not
required, or the information is included in the financial statements or notes
thereto.
(a) 3. and (c) Exhibits. See Index of Exhibits annexed hereto.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarterly period ended December 31, 1995.
- 24 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 1, 1996 4Kids Entertainment, INC.
By /s/ Alfred R. Khan
--------------------------------
Alfred R. Kahn,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 1, 1996 /s/ Alfred R. Kahn
--------------------------------
Alfred R. Kahn
Chairman of the Board,
Chief Executive Officer and
Director
Date: April 1, 1996 /s/ Randy O. Rissman
--------------------------------
Randy O. Rissman,
Director
Date: April 1, 1996 /s/ Gerald Rissman
--------------------------------
Gerald Rissman,
Director
Date: April 1, 1996 /s/ Joseph P. Garrity
--------------------------------
Joseph P. Garrity,
Executive Vice President,
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
- 25 -
<PAGE>
4KIDS ENTERTAINMENT, INC.
AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1995, 1994 and 1993, and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
4Kids Entertainment, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of 4Kids
Entertainment, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, such consolidated financial statements present fairly, in all
material respects, the financial position of 4Kids Entertainment, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
New York, New York
March 25, 1996
F - 1
<PAGE>
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- ---------------------------------------------------------------------------------------------
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,505,777 $ 7,371,311
Accounts receivable - net (Notes 2 and 6) 14,668,829 14,908,245
Film inventory - net (Note 3) 1,210,918 764,259
Prepaid refundable income taxes (Note 5) 448,442 565,493
Prepaid expenses and other current assets 704,215 416,142
Current deferred tax asset (Note 5) 34,445 --
----------- -----------
Total current assets 20,572,626 24,025,450
FURNITURE , FIXTURES AND COMPUTER EQUIPMENT -
Net of accumulated depreciation of $1,060,065 and $905,089 347,772 392,481
ACCOUNTS RECEIVABLE - Noncurrent, net
(Notes 2 and 6) 2,317,639 3,055,035
FILM INVENTORY - Noncurrent (Note 3) 2,531,703 1,448,307
SECURITY DEPOSITS AND OTHER ASSETS 198,835 455,123
----------- -----------
TOTAL ASSETS $25,968,575 $29,376,396
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to licensors (Note 2) $ 1,613,606 $ 1,800,036
Media payable (Note 2) 11,428,185 13,107,185
Accounts payable and accrued expenses 636,017 632,751
Current deferred tax liability (Note 5) -- 326,350
----------- -----------
Total current liabilities 13,677,808 15,866,322
NONCURRENT DEFERRED TAX LIABILITY (Note 5) 661,859 933,316
----------- -----------
Total liabilities 14,339,667 16,799,638
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 7, 8 and 9):
Preferred stock, $.01 par value - authorized, 3,000,000 shares;
none issued
Common stock, $.01 par value - authorized, 10,000,000 shares;
issued 2,944,831 shares 29,448 29,448
Additional paid-in capital 4,429,906 4,429,906
Retained earnings 7,169,554 8,117,404
----------- -----------
Total stockholders' equity 11,628,908 12,576,758
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,968,575 $29,376,396
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 2
<PAGE>
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Net revenues (Notes 4 and 6) $ 6,617,279 $ 9,191,582 $10,909,024
----------- ----------- -----------
COSTS AND EXPENSES:
Selling, general and administrative (Note 8) 7,573,643 7,602,063 6,611,396
Amortization of capitalized film cost (Note 3) 1,080,889 1,640,234 1,025,146
----------- ----------- -----------
Total costs and expenses 8,654,532 9,242,297 7,636,542
----------- ----------- -----------
(2,037,253) (50,715) 3,272,482
INTEREST INCOME 334,403 334,965 325,206
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (BENEFIT) (1,702,850) 284,250 3,597,688
INCOME TAX PROVISION (BENEFIT) (Note 5) (755,000) 149,000 1,073,000
----------- ----------- -----------
NET INCOME (LOSS) $ (947,850) $ 135,250 $ 2,524,688
=========== =========== ===========
PER SHARE AMOUNTS:
Earnings (loss) per common and dilutive common
equivalent share $ (0.32) $ 0.04 $ 0.77
=========== =========== ===========
=========== =========== ===========
Earnings (loss) per common share assuming full
dilution $ (0.32) $ 0.04 $ 0.76
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 2,990,514 3,070,815 3,273,176
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 2,842,831 $28,428 $3,848,441 $5,457,466 $ 9,334,335
Proceeds from exercise of stock options 82,000 820 306,367 -- 307,187
Tax benefit from exercise of stock options -- -- 201,248 -- 201,248
Net income -- -- -- 2,524,688 2,524,688
--------- ------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1993 2,924,831 29,248 4,356,056 7,982,154 12,367,458
Proceeds from exercise of stock options 20,000 200 62,300 -- 62,500
Tax benefit from exercise of stock options -- -- 11,550 -- 11,550
Net income -- -- -- 135,250 135,250
--------- ------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1994 2,944,831 29,448 4,429,906 8,117,404 12,576,758
Net loss -- -- -- (947,850) (947,850)
--------- ------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1995 2,944,831 $29,448 $4,429,906 $7,169,554 $11,628,908
========= ======= ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 , 1994 AND 1993
- ----------------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (947,850) $ 135,250 $ 2,524,688
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 216,514 207,803 146,684
Amortization of capitalized film cost 1,080,889 1,640,234 1,025,146
Provision for losses on accounts receivable 183,420 (106,398) (284,167)
Deferred income taxes (632,252) 596,949 136,846
Changes in operating assets and liabilities (using)
providing cash:
Cash - restricted -- -- 250,000
Accounts receivable 793,392 (8,128,754) (6,223,504)
Film inventory (2,610,944) (1,487,859) (3,059,204)
Prepaid refundable income taxes 117,051 1,223,899 (1,705,040)
Prepaid expenses and other current assets (288,073) (281,628) 8,679
Security deposits and other assets 194,750 (221,102) 90,610
Due to licensors (186,429) (1,515,298) 34,395
Media payable (1,679,000) 8,930,715 4,176,470
Accounts payable and accrued expenses 3,266 220,773 (3,657)
----------- ----------- -----------
Net cash (used in) provided by operating activities (3,755,266) 1,214,584 (2,882,054)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and computer equipment (110,268) (192,469) (202,517)
----------- ----------- -----------
Net cash used in investing activities (110,268) (192,469) (202,517)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
related tax benefit -- 74,050 508,435
----------- ----------- -----------
Net cash provided by financing activities -- 74,050 508,435
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,865,534) 1,096,165 (2,576,136)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,371,311 6,275,146 8,851,282
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,505,777 $ 7,371,311 $ 6,275,146
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for income taxes $ -- $ -- $ 2,065,500
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of all wholly-owned subsidiaries. All related
significant intercompany balances and transactions have been eliminated in
consolidation.
Description and Accounting Basis for Revenues
4Kids Entertainment, Inc. and subsidiaries (the "Company") is an
integrated entertainment and media company specializing in the youth
oriented market.
Licensing Business - The Company's licensing business is engaged primarily
in the business of licensing the commercial rights to properties,
personalities, and product concepts. The Company typically acts as
exclusive agent in connection with the grant to third parties of licenses
to manufacture and sell all types of merchandise based on properties,
personalities and concepts. The licensing of these rights has been
primarily in the area of toys, games and other juvenile merchandise.
Grants have also been made in other fields, including the food,
toiletries, apparel and footwear industries. Additionally, these rights
are licensed in connection with the production of television shows, motion
pictures and publications such as magazines, juvenile books and comic
strips.
These license agreements often include nonrefundable minimum guaranteed
royalties which are payable by the licensee. The Company records as
revenue its proportionate share of the minimum guarantee when all material
terms of the contracts have been agreed to by the parties and a cash
payment or reasonable assurance of collectability is received. It is at
this point that the Company has substantially performed all of its
obligations under the contract.
For contracts not providing minimum guaranteed royalties and for royalty
amounts in excess of the minimum guarantee, the Company records revenue
based upon its share of earned royalties from the sales of the related
property.
Television and Video Productions - The Company accounts for its activities
associated with the production of entertainment programming in accordance
with Statement of Financial Accounting Standards No. 53 ("SFAS No. 53"),
Financial Reporting by Producers and Distributors of Motion Picture Films.
Under SFAS No. 53, the Company capitalizes costs associated with each
individual production. The capitalized costs are classified into current
and noncurrent assets depending on an estimate of when revenues associated
with those costs are anticipated to be recognized. Such costs are
amortized against the related revenue as such revenue is recognized.
Amortization rates may change as a result of changes in estimated future
revenue. Periodically, the Company evaluates the anticipated future
revenue against the net realizable value of the capitalized costs and,
where appropriate, reduces the carrying value of such costs to their
estimated net realizable amount which would result in a corresponding
charge to earnings.
Media Buying, Planning and Syndication Services - Through the Company's
wholly-owned subsidiary, The Summit Media Group, Inc. ("Summit Media"),
the Company provides media planning
F - 8
<PAGE>
and buying services for both print and broadcast. Summit Media is
compensated based on a percentage of the media it places. Such revenue is
recognized at the time the related media runs. Summit Media also provides
television syndication services for which it receives a fee based on a
percentage of the advertising sales generated by the related program. Such
revenue is recognized at the time the syndication services are completed
and the advertising sales of the related program are reasonably known.
Summit Media will reflect a liability for media payable and a
corresponding receivable from its clients in circumstances where Summit
Media assumes the payment obligation for media commitments.
Furniture, Fixtures and Computer Equipment - Furniture, fixtures and
computer equipment are recorded at cost. Depreciation is computed using
various methods over the estimated lives of the assets.
Imputed Interest - The Company imputes interest on the noncurrent portion
of accounts receivable at an average rate of 7%.
Per Share Amounts - Earnings per common and dilutive common equivalent
share are based on the weighted average number of shares and common
equivalent shares outstanding during the period. Common shares issuable
upon the exercise of options are included as common equivalent shares when
their inclusion is dilutive using the treasury stock method.
Cash and Cash Equivalents - At December 31, 1995 and 1994, the Company had
cash equivalents consisting primarily of funds invested in Treasury bills
of approximately $2,386,998 and $6,023,103, respectively, with original
maturities of 90 days or less.
Long-term assets - In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Assets to be Disposed of
("SFAS 121"). SFAS 121 requires impairment losses to be recorded on long
lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying value. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. The impact of the adoption of
SFAS 121 is not anticipated to be material.
Stock-based compensation - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
established a fair value based method of accounting for compensation
plans; however, Companies can continue to measure compensation costs for
those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees, if certain pro forma disclosures are provided. SFAS 123 is
effective for fiscal years beginning after December 15, 1995. The impact
of the adoption of SFAS 123 is not known at this time.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F - 9
<PAGE>
2. ACCOUNTS RECEIVABLE - MEDIA PAYABLE/DUE TO LICENSORS
Generally, licensing contracts provide for the Company to collect, on
behalf of the licensor, royalties including minimum guarantees from the
licensees. The Company records as accounts receivable its proportionate
share of such minimum guarantees and its share of earned royalties in
excess of guarantees.
Due to licensors represents amounts collected by the Company on behalf of
licensors, which are generally payable to such licensors after the close
of the quarter.
Additionally, accounts receivable include amounts due from clients for
earned commissions and the cost of related media placed on their behalf in
circumstances where the Company has assumed the payment obligation for
such media. In such circumstances, the Company will record a corresponding
liability for media payable. Accounts receivable consist of the following:
December 31,
1995 1994
Gross accounts receivable $17,423,625 $18,217,017
Allowance for doubtful accounts (437,157) (253,737)
----------- -----------
16,986,468 17,963,280
Less long-term portion 2,317,639 3,055,035
----------- -----------
$14,668,829 $14,908,245
=========== ===========
3. FILM INVENTORY
At December 31, 1995, there were $3,742,621 of capitalized film costs,
which relate to two completed works in release and one in progress.
Amortization of capitalized film cost was $1,080,889, $1,640,234 and
$1,025,146 in 1995, 1994 and 1993, respectively. During 1995, 1994 and
1993, the Company recorded charges of approximately $280,000 (in the
fourth quarter), $910,000, ($271,000 in the fourth quarter), and $600,000,
(all in the fourth quarter) to reduce the carrying value of film inventory
primarily related to producing the "Monster Wars" television program. This
reduction of the carrying value was based on the Company's periodic
evaluation of anticipated future revenue against the net realizable value
of capitalized cost. Film inventory consists of the following components:
F - 10
<PAGE>
December 31,
1995 1994
Opening balance $ 2,212,566 $ 2,364,941
Additions 2,610,944 1,487,859
----------- -----------
4,823,510 3,852,800
Amortization (1,080,889) (1,640,234)
----------- -----------
3,742,621 2,212,566
Less noncurrent portion (2,531,703) (1,448,307)
----------- -----------
$ 1,210,918 $ 764,259
=========== ===========
4. REVENUES/MAJOR CUSTOMERS
Licensing revenue included on the Statements of Operations are net of
licensor participations of approximately $6,068,880 in 1995, $11,114,000
in 1994 and $18,960,000 in 1993.
The percentages of revenue from major properties and customers/licensees
are as follows:
Year Ended December 31,
1995 1994 1993
Percentage of revenue derived from major
properties (revenue in excess of 10
percent of total revenue) -- 18% 55%
Number of major properties -- 1 3
Percentage of revenue derived from major
customers/licensees (revenue in excess
of 10 percent of total revenue) 32% 35% 39%
Number of major customers/licensees 1 2 3
Additionally, through the Company's London office and network of
international subagents, which allow it to license its properties through
the world, the Company recognized approximately $972,000, $982,000 and
$1,489,000 in net revenue from international sources, primarily in Europe,
for 1995, 1994 and 1993, respectively.
5. INCOME TAXES
The Company has provided for deferred income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," whereby deferred income taxes are determined based upon
the enacted income tax rates for the years in which these taxes are
estimated to be payable or recoverable. Deferred income taxes arise from
temporary differences
F - 11
<PAGE>
resulting from a difference between the tax basis of an asset or liability
and its reported amount in the financial statements.
The income tax (benefit) provision includes the following:
Year Ended December 31,
1995 1994 1993
Current:
Federal $(295,000) $(324,000) $ 685,000
State and local 31,000 (124,000) 251,000
--------- --------- ----------
(264,000) (448,000) 936,000
--------- --------- ----------
Deferred:
Federal (195,000) 546,000 112,000
State and local (296,000) 51,000 25,000
--------- --------- ----------
(491,000) 597,000 137,000
--------- --------- ----------
$(755,000) $ 149,000 $1,073,000
========= ========= ==========
The provision for taxes as reported is different than the tax provision
computed by applying the statutory Federal rate of 34 percent. The
differences are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income (loss) before income tax provision $(1,702,850) $284,250 $3,597,688
=========== ======== ==========
Provision (benefit) at the statutory Federal rate $ (579,000) $ 97,000 $1,223,000
Provision for state and local income taxes net of
Federal income tax benefit (175,000) 29,000 182,000
Decrease in Federal taxes resulting from the
recognition of failed merger and settlement
costs -- -- (330,000)
Other (1,000) 23,000 (2,000)
----------- -------- ----------
$ (755,000) $149,000 $1,073,000
=========== ======== ==========
</TABLE>
During 1993, the Company's provision for income taxes was materially
affected by certain expenditures which were recognized in different
periods for financial reporting and tax reporting. Certain expenditures
related to a 1990 failed merger and settlement did not provide a tax
benefit for financial reporting purposes until realized for tax purposes.
F - 12
<PAGE>
The Company's deferred tax liabilities are net of deferred tax assets of
approximately $1,109,000 and $654,000 at December 31, 1995 and 1994,
respectively. The components of the deferred tax balances at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Commissions on guarantees not currently recognized for
tax reporting purposes $(1,475,000) $(1,666,000)
Tax benefit of state and local tax loss carryforwards 445,000 179,000
Provision for doubtful accounts not currently deductible
for tax reporting purposes 188,000 109,000
Film inventory valuation adjustment not currently
deductible for tax reporting purposes 476,000 366,000
Depreciation, amortization and other charges deducted
for tax reporting purposes (261,000) (248,000)
----------- -----------
$ (627,000) $(1,260,000)
=========== ===========
</TABLE>
The Company has a capital loss carryforward for both financial and tax
reporting purposes of approximately $933,000 which expires in 1996. The
Company's Federal tax returns through 1991 have been examined by the
Internal Revenue Service with no significant adjustments.
6. RELATED PARTY TRANSACTIONS
The Company provided certain services to Tiger Electronics, Inc.,
("Tiger") a corporation controlled by an individual who is a director and
major beneficial shareholder of the Company. These transactions totaled
approximately $2,111,820, $1,659,000 and $1,955,000 of net revenue in
1995, 1994 and 1993, respectively.
The Company had receivables from Tiger of approximately $11,712,304 and
$6,595,000 at December 31, 1995 and 1994, respectively.
7. STOCK OPTIONS
The Company has various stock option plans (the "Plans"). Options may be
exercised for a period of not more than ten years after the date of grant.
Unless otherwise determined by the Company's Stock Option Committee, each
option will be immediately exercisable with respect to 50 percent of the
shares subject to the option and will become exercisable with respect to
the other 50 percent on the first anniversary of the date of grant.
Certain of the Plans permit the Committee to grant nonqualified options,
with an exercise price of not less than 85 percent of the fair market
value of the common stock; all other options must be at 100 percent of the
fair market value.
The 1994 and 1992 Plans specified that in the each of the two years
following the adoption of the plan, the Company's chairman would be
granted options to purchase 100,000 shares and each outside director would
be granted options to purchase 50,000 shares. See Note 9 for options
granted subsequent to December 31, 1995.
F - 13
<PAGE>
The Company has outstanding employee stock options as follows:
Exercise Price
Options Per Share
Outstanding at December 31, 1992 432,000 $2.6250 - $ 5.75
Options exercised (77,000) 3.1250 - 4.25
Options expired (10,000) 3.1250
Options granted 349,000 5.6875 - 9.75
--------- ------- ------
Outstanding at December 31, 1993 694,000 $2.6250 - $ 9.75
Options exercised (20,000) 3.1250
Options granted 207,500 9.7500 - 10.25
Options expired (65,000) 6.1250 - 9.75
--------- ------- ------
Outstanding at December 31, 1994 816,500 $2.6250 - $10.25
========= ======= ======
Options granted 349,500 2.6250 3.81
Options expired (10,000) 3.1250 - 9.75
--------- ------- ------
Outstanding at December 31, 1995 1,156,000 $2.6250 - $10.25
========= ======= ======
Exercisable at December 31, 1995 1,081,250 $2.6250 $10.25
========= ======= ======
Under the Company's various stock option plans, 325,500 shares of the
Company's common stock were available at December 31, 1995 for future
issuance.
In addition, in November 1991 and June 1992, the Board of Directors
granted to its outside directors, who receive no cash compensation,
options to purchase a cumulative total of 200,000 shares of the Company's
common stock at $4.25 and $5.75, respectively, the market price of the
Company's common stock on the date of grant. Such options, which were
immediately exercisable, expire five years from the date of grant.
At December 31, 1995, there were 1,681,500 shares of the Company's common
stock reserved for stock options.
8. COMMITMENTS AND CONTINGENCIES
a. Bonus Plan (the "Plan") - Bonuses are based upon an amount up to 14
percent of pretax profits. Key officers and employees, as designated
by the Board of Directors, can be included in the Plan. For 1994 and
1993, the Board of Directors, under the Bonus Plan, awarded the
Chairman and Chief Executive Officer of the Company approximately
$40,000 and $432,000, respectively. An additional $9,000 and
$173,000, respectively under the Bonus Plan was granted to several
employees, including one officer in 1994 and two officers in 1993.
Due to the loss in 1995, no bonuses were granted under the Plan.
F - 14
<PAGE>
b. Leases - The Company is obligated for future leases for office
space. Certain leases provide for escalation clauses and renewal
options.
At December 31, 1995, future minimum lease payments were as follows:
Year Ending Amount
1996 $ 402,244
1997 400,100
1998 376,518
1999 367,172
2000 364,056
Thereafter 897,127
----------
$2,807,217
==========
Rent expense approximated $487,544, $497,000 and $381,000 in 1995,
1994 and 1993, respectively.
c. Litigation - In connection with the Company's television producing
activities, the Company and its Chairman, Alfred R. Kahn, were named
as defendants in a lawsuit alleging breach of contract and
defamation. On April 1, 1994, the Court granted each of the
Company's motions to dismiss several of the causes of action brought
by the plaintiffs against the Company and Mr. Kahn individually. In
particular, the Court rejected the plaintiff's defamation claim and
unjust enrichment claim and all claims against Mr. Kahn personally.
The Company believes it has meritorious defenses against the
remaining breach of contract claim and is vigorously defending
against such claim. The Company has filed counterclaims, including a
claim for breach of contract against the plaintiffs. Additionally,
the Company believes the outcome of such litigation will not have a
material effect on the financial statements of the Company.
d. Credit Facility - In April 1994, the Company obtained an unsecured
$5,000,000 line of credit (the "Credit Facility") from Chemical
Bank. It is intended that the proceeds of any borrowing under the
Credit Facility will be used for general working capital purposes.
The outside maturity date for any such borrowing is June 30, 1996.
The Credit Facility provides for an interest rate of 1/2% over the
bank's prime rate. As of December 31, 1995, the Company had no
borrowings under the Credit Facility.
9. SUBSEQUENT EVENTS
In accordance with the provisions of the 1994 stock option plan, on
January 1, 1996 options to purchase 100,000 shares of the Company's common
stock were granted to the Chairman and Chief Executive Officer of the
Company and options to purchase 50,000 shares were granted to each outside
director. All such options were at an exercise price of $2.3125, the
market price of the Company's common stock at that time.
******
F - 15
<PAGE>
INDEX OF EXHIBITS
Exhibit Page
Number Description Number
(3) (a) Certificate of Incorporation of the Registrant,
as amended
(b) By-Laws of the Registrant adopted by the Board
of Directors on March 28, 1991 (2)
(c) Resolution of the Board of Directors of the
Registrant adopted March 12, 1991 reducing the
size of the Board from six directors to three
directors (2)
(4) (a) Form of Common Stock Certificate (3)
(10) (a) Bonus Plan of the Registrant (*)(4)
(b) 1985 Non-Qualified Stock Option Plan, as
amended (*)(4)
(c) 1986 Stock Option Plan, as amended (*)(4)
(d) 1992 Stock Option Plan (*)(5)
(e) 1993 Stock Option Plan (*)(6)
(f) 1994 Stock Option Plan (*)(10)
(g) 1995 Stock Option Plan (*)(11)
(h) Stock Option Agreement, dated June 10, 1992,
between the Registrant and Randy O. Rissman (*)(7)
(i) Stock Option Agreement, dated June 10, 1992,
between the Registrant and Gerald Rissman (*)(7)
(j) Stock Option Agreement, dated November 12, 1991,
between the Registrant and Randy O. Rissman (*)(7)
(k) Stock Option Agreement, dated November 12, 1991,
between the Registrant and Gerald Rissman (*)(7)
(l) Agreement between Nintendo of America, Inc. and
the Registrant dated December 17, 1987 (4)
(m) Agreement of Lease, dated March 28, 1988, between
the Registrant and 1414 Americas Company (2)
(n) Amendment, dated July 8, 1994, to Agreement of
Lease between the Registrant and 1414 Americas
Company. (12)
(o) Agreement of Lease, dated June 30, 1991, between
the Registrant and Olympic Purdue Associates (the
"Olympic Lease") (7)
(p) First Amendment, dated January 3, 1994, to the
Olympic Lease (7)
(q) Agreement of Lease, dated March 23, 1993, between
Leisure Concepts International, Inc. and Svenska
Handelsbanken (7)
(r) Employment Agreement, dated March 12, 1991
between the Registrant and Alfred R. Kahn(*)(8)
(s) Employment Agreement, dated June 3, 1991, between
the Registrant and Joseph Garrity (*)(9)
<PAGE>
Exhibit Page
Number Description Number
(t) Amendment, dated as of October 17, 1994, to the
Employment Agreement between the Registrant and
Joseph Garrity (*)(12)
(u) Employment Agreement, dated January 1, 1995 between
The Summit Media Group, Inc. and Sheldon Hirsch.(*)
(v) Employment Agreement, dated January 1, 1995 between
The Summit Media Group, Inc. and Thomas J. Kenney. (*)
(w) Employment Agreement, dated January 9, 1996 between 4
Kids Productions, Inc. and Norman Grossfeld. (*)
(x) Note, dated April 5, 1994, between the Registrant and
Chemical Bank. (12)
(y) Agreement of Sublease, dated August 2, 1995 between the Registrant
and Third Wave Corporation.
(21) List of Subsidiaries of the Registrant
(24) Consent of Deloitte & Touche, Certified Public
Accountants
- -------------------------------------------------------------------------------
(*) Denotes a management contract or compensatory plan, contract or
arrangement.
(1) Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1989.
(2) Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1990.
(3) Incorporated by reference to Registration Statement on Form S-1
(File No. 33-3056) declared effective March 7, 1986.
(4) Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1987.
(5) Incorporated by reference to 1992 Proxy Statement.
(6) Incorporated by reference to 1993 Proxy Statement.
(7) Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1992.
(8) Incorporated by reference to Amendment No. 1 to Schedule 13D of
Alfred Kahn, Tiger Electronics Inc. and Owen Randall Rissman dated February
22, 1991.
(9) Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1991.
(10) Incorporated by reference to 1994 Proxy Statement.
(11) Incorporated by reference to 1995 Proxy Statement.
<PAGE>
(12) Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1994.
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
LEISURE CONCEPTS, INC.
Under Section 805 of the Business Corporation Law
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned Executive Vice President and Secretary, respectively, of Leisure
Concepts, Inc., hereby certify:
FIRST: The name of the Corporation is LEISURE CONCEPTS, INC.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State, Albany, New York on April 28, 1970 under the original
name of American Leisure Industries, Inc.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is to change the name of the
Corporation.
FOURTH: To accomplish the foregoing amendment, Article FIRST of the
Certificate of Incorporation of the Corporation, relating to the name of the
Corporation, is hereby amended to read as follows:
"FIRST: The name of the Corporation is 4Kids Entertainment, INC.
1
<PAGE>
FIFTH: The foregoing amendment of the Certificate of Incorporation of the
Corporation was authorized by a vote of the Board of Directors of the
Corporation, followed by a vote of the holders of a majority of all outstanding
shares of the Corporation entitled to vote on the said amendment of the
Certificate of Incorporation.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained herein have been examined by us and are true and correct.
Date: November 16, 1995 By /s/ Joseph P. Garrity
---------------------------
Joseph P. Garrity,
Executive Vice President
By /s/ William J. Baron
---------------------------
William J. Baron, Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
LEISURE CONCEPTS, INC.
(Under Section 805 of the Business Corporation Law)
We, the undersigned, being the Chairman and Secretary of Leisure Concepts,
Inc. in accordance with Section 805 of the Business Corporation Law, do hereby
certify:
FIRST: The name of the Corporation is Leisure Concepts, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on the 28th day of April, 1970 under the name American
Leisure Industries, Inc.
THIRD: The Certificate of Incorporation of the Corporation, as amended, is
hereby amended pursuant to Section 805 of the Business Corporation Law.
FOURTH: A new Article Ninth shall be added to the Certificate of
Incorporation to read in its entirety as follows:
"NINTH: No director shall be personally liable to the Corporation or any
stockholder for damages for breach of fiduciary duty as a director, except for
any
1
<PAGE>
matter in respect of which such director shall be liable under Section 719 of
the New York Business Corporation Law or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or (iv) shall have personally gained a financial profit or
other advantage to which he was not legally entitled. Neither the amendment nor
repeal of this Article, nor the adoption of any provision of the Certificate of
Incorporation inconsistent with the Article, shall eliminate or reduce the
effect of this Article in respect of any matter occurring, or any cause of
action, suit or claim that but for this Article would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision."
FIFTH: The manner in which this Amendment to the Certificate of
Incorporation of the Corporation was authorized by the vote at a meeting of all
the Directors, followed by the affirmative vote of the holders of at least a
majority of the outstanding shares of the Corporation entitled to vote thereon
at a meeting of the shareholders of the Corporation duly called and held on the
19th day of July, 1989.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
19th day of July 1989.
/s/ Stanley A. Weston,
---------------------------
Stanley A. Weston,
Chairman
/s/ Michael Germakian,
---------------------------
Michael Germakian,
Secretary
2
<PAGE>
STATE OF NEW YORK )
: ss:
COUNTY OF NEW YORK)
Stanley A. Weston, being duly sworn, deposes and says that he is the
Chairman of Leisure Concepts, Inc. and is one of the persons who signed the
foregoing Certificate of Amendment; that he has read the Certificate of
Amendment and knows the contents thereof and that the same is true to his own
knowledge.
/s/ Stanley A. Weston
---------------------------
Stanley A. Weston
Sworn to before me
this 19th day of July, 1989.
/s/ Richard Zaroff
- -------------------------
Notary Public
(stamp)
RICHARD M. ZAROFF
NOTARY PUBLIC, State of New York
No. 4748005
Qualified in Nassau County
Commission Expires August 31, 1989
3
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
LEISURE CONCEPTS, INC.
(Under Section 805 of the Business Corporation Law)
We, the undersigned, being the President and Secretary of Leisure Concepts,
Inc. in accordance with Section 805 of the Business Corporation Law, do hereby
certify:
FIRST: The name of the corporation is Leisure Concepts, Inc. (hereinafter
the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on the 28th day of April, 1970 under the name American
Leisure Industries, Inc.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is as follows: To increase the
aggregate number of shares which the Corporation shall have authority to issue
by authorizing 5,000,000 additional shares of Common Stock, par value $.01 per
share and 1,000,000 additional shares of Preferred Stock, par value $.01 per
share.
FOURTH: To accomplish the foregoing amendment, article "Fourth" of the
Certificate of Incorporation of the Corporation, relating to the authorized
number of shares of Common and Preferred Stock is hereby amended in its entirety
to read as follows:
"FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is Thirteen Million (13,000,000) shares divided into two
classes of which Ten Million (10,000,000) shares shall be designated as Common
Stock, $.01 par value per share and Three Million (3,000,000) shares shall be
designated as Preferred Stock, $.01 par value per share. The Preferred Stock
shall be issuable in one or more series in such designations, relative rights
and limitations as may be fixed from time to time by the Board of Directors of
the Corporation. The designations, preferences and relative, participating,
optional and other special rights of the Preferred Stock (unless otherwise
fixed by the Board of Directors) and the Common Stock, and the qualifications,
limitations and restrictions thereof, are as follows:
1
<PAGE>
1. The shares of Preferred Stock may be divided into and issued in one or
more series, and each series shall be so designated so as to distinguish the
shares thereof from the shares of all other series. All shares of Preferred
Stock shall be identical except in respect of particulars which may be fixed by
the Board of Directors as hereinafter provided pursuant to authority which is
hereby expressly vested in the Board of Directors. Each share of a series shall
be identical in all respects with all other shares of such series, except as to
the date from which dividends thereon shall be cumulative on any series as to
which dividends are cumulative. Shares of Preferred Stock of any series which
have been retired in any manner, including shares redeemed or reacquired by the
Corporation and shares which have been converted into or exchanged for shares of
any other class, or any series of the same or any other class, shall have the
status of authorized but unissued shares of Preferred Stock and may be reissued
as shares of the series of which they were originally a part, or any other
series.
2. Before any shares of Preferred Stock of any series shall be issued, the
Board of Directors, pursuant to authority hereby expressly vested in it, shall
fix by resolution or resolutions the following provisions in respect of the
shares of each such series so far as the same are not inconsistent with the
provisions of this paragraph FOURTH applicable to all series of Preferred Stock:
(a) the distinctive designations of such series and the number of shares
which shall constitute such series, which number may be increased (or decreased
except where otherwise provided by the Board of Directors in creating such
series) from time to time by like action of the Board of Directors;
(b) the annual rate or amount of dividends payable on shares of such
series, whether such dividends shall be cumulative or non-cumulative, the
conditions upon which and/or the dates when such dividends shall be payable and
the date from which dividends on cumulative series shall accrue and be
cumulative on all shares of such series issued prior to the payment date for the
first dividend of such series;
(c) whether such series shall be redeemable and, if so, the terms and
conditions of such redemption, including the time or times when and the price or
prices at which shares of such series shall be redeemed;
2
<PAGE>
(d) the amount and priority payable on shares of such series in the event
of liquidation, dissolution or winding up of the affairs of the Corporation;
(e) whether such series shall be convertible into or exchangeable for
shares of any other class, and, if so, the terms and conditions thereof,
including the date or dates when such shares shall be so convertible or
exchangeable, and any adjustments which shall be made, and the circumstances in
which any such adjustments shall be made, in such conversion or exchange prices
or rates;
(f) whether such series shall have any voting rights in addition to
those prescribed by law and, if so, the terms and conditions of exercise of such
voting rights; and
(g) any other designations, preferences and relative, participating,
optional or other special rights, and any qualifications, limitations and
restrictions thereof.
3. (a) So long as any shares of Preferred Stock of any series shall be
outstanding, the Corporation will not declare or pay any dividends on the Common
Stock (other than dividends payable solely in shares of Common Stock) or make
any distributions of any kind, either directly or indirectly, in respect of
shares of Common Stock, or make any payment on account of the purchase,
redemption or other acquisition of Common Stock, unless on the payment,
distribution or redemption date, as the case may be, all dividends on the then
outstanding shares of Preferred Stock of all series for all past dividend
periods shall have been paid to the full extent of the preference, if any, to
which each series of Preferred Stock is then entitled.
(b) When dividends shall have been paid (or declared and set aside for
payment) on the Preferred Stock to the full extent of the preference, if any,
to which the Preferred Stock is entitled, dividends on the remaining class or
classes of stock may then be paid out of the funds of the Corporation which are
legally available therefor.
(c) Subject to the limitations prescribed in this paragraph FOURTH and
any further limitations which may from time to time be prescribed by the Board
of Directors in accordance herewith, the holders of Common Stock shall be
entitled to receive dividends on the Common Stock, when, as and if declared by
the Board of Directors, out of the funds of the Corporation which are legally
available therefor.
3
<PAGE>
4. The authorized but unissued shares of Common Stock and the authorized
but unissued shares of Preferred Stock may be issued for such consideration, not
less than the par value thereof, as may be fixed from time to time by the Board
of Directors."
FIFTH: The manner in which this Amendment to the Certificate of
Incorporation of the Corporation was authorized was by the affirmative vote of
the Board of Directors and followed by the affirmative vote of the holders of at
least a majority of the outstanding shares of the Corporation entitled to vote
thereon at a meeting of the shareholders of the Corporation duly called and held
on the 30th day of July, 1986.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
30th day of July, 1986. We have subscribed this document and do hereby affirm,
under the penalties of perjury, that the statements contained therein are true
and correct.
/s/ Stanley A. Weston
-----------------------------
Stanley A. Weston, President
/s/ Michael Germakian
-----------------------------
Michael Germakian, Secretary
4
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
LEISURE CONCEPTS, INC.
(Under Section 805 of the Business Corporation Law)
We, the undersigned, being the President and Secretary of Leisure Concepts,
Inc. in accordance with Section 805 of the Business Corporation Law, do hereby
certify:
FIRST: The name of the corporation is Leisure Concepts, Inc. (hereinafter
the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on the 28th day of April, 1970 under the name American
Leisure Industries, Inc.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is as follows: To increase the
aggregate number of shares which the Corporation shall have authority to issue
by authorizing 2,000,000 additional shares of Common Stock, par value $.01 per
share and 1,000,000 additional shares of Preferred Stock, par value $.01 per
share.
FOURTH: To accomplish the foregoing amendment, Article "Fourth" of the
Certificate of Incorporation of the Corporation, relating to the authorized
number of shares of Common and Preferred Stock is hereby amended in its entirety
to read as follows:
"FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is Seven Million (7,000,000) shares divided into two classes
of which Five Million (5,000,000) shares shall be designated as Common Stock,
$.01 par value per share and Two Million (2,000,000) shares shall be designated
as Preferred Stock, $.01 par value per share. The Preferred Stock shall be
issuable in one or more series in such designations, relative rights and
limitations as may be fixed from time to time by the Board of Directors of the
Corporation. The designations, preferences and relative, participating, optional
and other special rights of the Preferred Stock (unless otherwise fixed by the
Board of Directors) and the Common Stock, and the qualifications, limitations
and restrictions thereof, are as follows:
1
<PAGE>
1. The shares of Preferred Stock may be divided into and issued in one or
more series, and each series shall be so designated so as to distinguish the
shares thereof from the shares of all other series. All shares of Preferred
Stock shall be identical except in respect of particulars which may be fixed by
the Board of Directors as hereinafter provided pursuant to authority which is
hereby expressly vested in the Board of Directors. Each share of a series shall
be identical in all respects with all other shares of such series, except as to
the date from which dividends thereon shall be cumulative on any series as to
which dividends are cumulative. Shares of Preferred Stock of any series which
have been retired in any manner, including shares redeemed or reacquired by the
Corporation and shares which have been converted into or exchanged for shares of
any other class, or any series of the same or any other class, shall have the
status of authorized but unissued shares of Preferred Stock and may be reissued
as shares of the series of which they were originally a part, or any other
series.
2. Before any shares of Preferred Stock of any series shall be issued, the
Board of Directors, pursuant to authority hereby expressly vested in it, shall
fix by resolution or resolutions the following provisions in respect of the
shares of each such series so far as the same are not inconsistent with the
provisions of this paragraph FOURTH applicable to all series of Preferred Stock:
(a) the distinctive designations of such series and the number of shares
which shall constitute such series, which number may be increased (or decreased
except where otherwise provided by the Board of Directors in creating such
series) from time to time by like action of the Board of Directors;
(b) the annual rate or amount of dividends payable on shares of such
series, whether such dividends shall be cumulative or non-cumulative, the
conditions upon which and/or the dates when such dividends shall be payable and
the date from which dividends on cumulative series shall accrue and be
cumulative on all shares of such series issued prior to the payment date for the
first dividend of such series;
(c) whether such series shall be redeemable and, if so, the terms and
conditions of such redemption, including the time or times when and the price or
prices at which shares of such series shall be redeemed;
2
<PAGE>
(d) the amount and priority payable on shares of such series in the event
of liquidation, dissolution or winding up of the affairs of the Corporation;
(e) whether such series shall be convertible into or exchangeable for
shares of any other class, and, if so, the terms and conditions thereof,
including the date or dates when such shares shall be so convertible or
exchangeable, and any adjustments which shall be made, and the circumstances in
which any such adjustments shall be made, in such conversion or exchange prices
or rates;
(f) whether such series shall have any voting rights in addition to those
prescribed by law and, if so, the terms and conditions of exercise of such
voting rights; and
(g) any other designations, preferences and relative, participating,
optional or other special rights, and any qualifications, limitations and
restrictions thereof.
3. (a) So long as any shares of Preferred Stock of any series shall be
outstanding, the Corporation will not declare or pay any dividends on the Common
Stock (other than dividends payable solely in shares of Common Stock) or make
any distributions of any kind, either directly or indirectly, in respect of
shares of Common Stock, or make any payment on account of the purchase,
redemption or other acquisition of Common Stock, unless on the payment,
distribution or redemption date, as the case may be, all dividends on the then
outstanding shares of Preferred Stock of all series for all past dividend
periods shall have been paid to the full extent of the preference, if any, to
which each series of Preferred Stock is then entitled.
(b) When dividends shall have been paid (or declared and set aside for
payment) on the Preferred Stock to the full extent of the preference, if any, to
which the Preferred Stock is entitled, dividends on the remaining class or
classes of stock may then be paid out of the funds of the Corporation which are
legally available therefor.
(c) Subject to the limitations prescribed in this paragraph FOURTH and any
further limitations which may from time to time be prescribed by the Board of
Directors in accordance herewith, the holders of Common Stock shall be entitled
to receive dividends on the Common Stock, when, as and if declared by the Board
of Directors, out of the funds of the Corporation which are legally available
therefor.
3
<PAGE>
4. The authorized but unissued shares of Common Stock and the authorized
but unissued shares of Preferred Stock may be issued for such consideration, not
less than the par value thereof, as may be fixed from time to time by the Board
of Directors."
FIFTH: The foregoing amendment of the Certificate of Incorporation of the
Corporation was authorized by the vote at a meeting of the Board of Directors of
the Corporation, followed by the affirmative vote of the holders of at least a
majority of the outstanding shares of the Corporation entitled to vote thereon
at a meeting of the shareholders of the Corporation duly called and held on the
22nd day of May, 1985.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
22nd day of May, 1985.
/s/ Stanley A. Weston
- ----------------------------
Stanley A. Weston, President
/s/ Michael Germakian
- ----------------------------
Michael Germakian, Secretary
4
<PAGE>
STATE OF NEW YORK )
:SS.:
COUNTY OF NEW YORK)
Stanley A. Weston, being duly sworn deposes and says that he is one of the
persons who signed the foregoing Certificate of Amendment; that he signed said
Certificate in the capacity set opposite or beneath his signature thereon; that
he has read the said Certificate and knows the contents thereof; and that the
statements contained therein are true to his own knowledge.
/s/ Stanley A. Weston
-----------------------------
Stanley A. Weston, President
Subscribed and sworn to
before me on May 21, 1985.
/s/ (signature of Notary)
- --------------------------
Notary Public
5
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
LEISURE CONCEPTS, INC.
(Under Section 805 of the Business Corporation Law)
We, the undersigned, being the President and Secretary of Leisure Concepts,
Inc. in accordance with Section 805 of the Business Corporation Law, do hereby
certify:
FIRST: The name of the Corporation is Leisure Concepts, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on the 28th day of April, 1970 under the name American
Leisure Industries, Inc.
THIRD: The Certificate of Incorporation of the Corporation, as amended, is
hereby amended pursuant to Section 805 of the Business Corporation Law.
FOURTH: Paragraph number "FOURTH" of the Certificate of Incorporation is
hereby amended in its entirety to read as follows:
"FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is Four Million (4,000,000) shares divided into two classes
of which Three Million (3,000,000) shares shall be
1
<PAGE>
designated as Common Stock, $.01 par value per share and One Million (1,000,000)
shares shall be designated as Preferred Stock, $.01 par value per share. The
Preferred Stock shall be issuable in one or more series in such designations,
relative rights and limitations as may be fixed from time to time by the Board
of Directors of the Corporation. The designations, preferences and relative,
participating, optional and other special rights of the Preferred Stock (unless
otherwise fixed by the Board of Directors) and the Common Stock, and the
qualifications, limitations and restrictions thereof, are as follows:
1. The shares of Preferred Stock may be divided into and issued in one or
more series, and each series shall be so designated so as to distinguish the
shares thereof from the shares of all other series. All shares of Preferred
Stock shall be identical except in respect of particulars which may be fixed by
the Board of Directors as hereinafter provided pursuant to authority which is
hereby expressly vested in the Board of Directors. Each share of a series shall
be identical in all respects with all other shares of such series, except as to
the date from which dividends thereon shall be cumulative on any
2
<PAGE>
series as to which dividends are cumulative. Shares of Preferred Stock of any
series which have been retired in any manner, including shares redeemed or
reacquired by the Corporation and shares which have been converted into or
exchanged for shares of any other class, or any series of the same or any other
class, shall have the status of authorized but unissued shares of Preferred
Stock and may be reissued as shares of the series of which they were originally
a part, or any other series.
2. Before any shares of Preferred Stock of any series shall be issued, the
Board of Directors, pursuant to authority hereby expressly vested in it, shall
fix by resolution or resolutions the following provisions in respect of the
shares of each such series so far as the same are not inconsistent with the
provisions of this paragraph FOURTH applicable to all series of Preferred Stock:
(a) the distinctive designations of such series and the number of shares
which shall constitute such series, which number may be increased (or decreased
except where otherwise provided by the Board of Directors in creating such
series) from time to time by like action of the Board of
3
<PAGE>
Directors:
(b) the annual rate or amount of dividends payable on shares of such
series, whether such dividends shall be cumulative or non-cumulative, the
conditions upon which and/or the dates when such dividends shall be payable and
the date from which dividends on cumulative series shall accrue and be
cumulative on all shares of such series issued prior to the payment date for the
first dividend of such series;
(c) whether such series shall be redeemable and, if so, the terms and
conditions of such redemption, including the time or times when and the price or
prices at which shares of such series shall be redeemed;
(d) the amount and priority payable on shares of such series in the event
of liquidation, dissolution or winding up of the affairs of the Corporation;
(e) whether such series shall be convertible into or exchangeable for
shares of any other class, and, if so, the terms and conditions thereof,
including the date or dates when such shares shall be so convertible or
exchangeable, and any adjustments which shall be made, and the circumstances in
which any
4
<PAGE>
such adjustments shall be made, in such conversion or exchange prices or rates;
(f) whether such series shall have any voting rights in addition to those
prescribed by law and, if so, the terms and conditions of exercise of such
voting rights; and
(g) any other designations, preferences and relative, participating,
optional or other special rights, and any qualifications, limitations and
restrictions thereof.
3.(a) So long as any shares of Preferred Stock of any series shall be
outstanding, the Corporation will not declare or pay any dividends on the Common
Stock (other than dividends payable solely in shares of Common Stock) or make
any distributions of any kind, either directly or indirectly, in respect of
shares of Common Stock, or make any payment on account of the purchase,
redemption or other acquisition of Common Stock, unless on the payment,
distribution or redemption date, as the case may be, all dividends on the then
outstanding shares of Preferred Stock of all series for all past dividend
periods shall have been paid to the full extent of the preference, if any, to
which each series of Preferred Stock is then entitled.
5
<PAGE>
(b) When dividends shall have been paid (or declared and set aside for
payment) on the Preferred Stock to the full extent of the preference, if any, to
which the Preferred Stock is entitled, dividends on the remaining class or
classes of stock may then be paid out of the funds of the Corporation which are
legally available therefor.
(c) Subject to the limitations prescribed in this paragraph FOURTH and any
further limitations which may from time to time be prescribed by the Board of
Directors in accordance herewith, the holders of Common Stock shall be entitled
to receive dividends on the Common Stock, when, as and if declared by the Board
of Directors, out of the funds of the Corporation which are legally available
therefor.
4. The authorized but unissued shares of Common Stock and the authorized
but unissued shares of Preferred Stock may be issued for such consideration, not
less than the par value thereof, as may be fixed from time to time by the Board
of Directors.
FIFTH: The manner in which this Amendment to the Certificate of
Incorporation of the Corporation was authorized was by the affirmative vote of
the holders of at least a majority of the outstanding shares of the Corporation
6
<PAGE>
entitled to vote thereon at a meeting of the shareholders of the Corporation
duly called and held on the 11th day of July, 1979.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
17th day of July, 1979.
/s/ Stanley A. Weston
--------------------------------------
Stanley A. Weston
President
/s/ Milton Kayle
--------------------------------------
Milton Kayle
Secretary
7
<PAGE>
STATE OF NEW YORK )
:SS.:
COUNTY OF NEW YORK)
Stanley A. Weston, being duly sworn, deposes and says that he is the
President of Leisure Concepts, Inc. and is one of the persons who signed the
foregoing Certificate of Amendment: that he has read the Certificate of
Amendment and knows the contents thereof and that the same is true to his own
knowledge.
/s/ Stanley A. Weston
--------------------------------------
Stanley A. Weston
Sworn to before me
this 19th day of July, 1979.
/s/ Sheri Binder
- ----------------------------
Notary Public
8
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN LEISURE INDUSTRIES, INC.
Under Section 805 of the Business Corporation Law
WE, the undersigned, being the President and Assistant Secretary of
AMERICAN LEISURE INDUSTRIES, INC., do hereby certify and set forth:
FIRST: The name of the corporation is AMERICAN LEISURE INDUSTRIES, INC.
SECOND: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES,
INC. was filed by the Department of State on the 28th day of April, 1970.
THIRD: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES,
INC. is hereby amended pursuant to Section 801(b)(1) of the Business Corporation
Law.
FOURTH: Paragraph number "FIRST" of the Certificate of Incorporation, the
subject matter of which is the name of the Corporation, is hereby eliminated and
the following provision is substituted in its place and stead:
"FIRST: The name of the Corporation is LEISURE CONCEPTS, INC."
FIFTH: The manner in which this amendment to the Certificate of
Incorporation of AMERICAN LEISURE INDUSTRIES, INC. was authorized was by the
unanimous written consent of the holders of all of the issued
1
<PAGE>
and outstanding shares entitled to vote.
IN WITNESS WHEREOF, the undersigned have executed this certificate this
21st day of April, 1972.
/s/ Stanley A. Weston
-----------------------------------------
Stanley A. Weston, President
/s/ Gerald Deutsch
-----------------------------------------
Gerald Deutsch, Assistant Secretary
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK)
STANLEY A. WESTON, being duly sworn, deposes and says:
That he is President of AMERICAN LEISURE INDUSTRIES, INC., and is one of
the persons who signed the foregoing Certificate of Amendment; that he has read
the Certificate of Amendment and knows the contents thereof and that the same is
true to his own knowledge.
/s/ Stanley A. Weston
-----------------------------------------
STANLEY A. WESTON
Sworn to before me this 21st
day of April, 1972.
/s/ Gerald S. Deuce
- -----------------------------
Notary Public
GERALD S. Deuce
Notary Public State of New York
No.
Qualified in Queens County
Term Expires March 30, 1974
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN LEISURE INDUSTRIES, INC.
Under Section 805 of the Business Corporation Law:
WE, the undersigned, being the President and Secretary of AMERICAN LEISURE
INDUSTRIES, INC., do hereby certify and set forth:
FIRST: The name of the corporation as AMERICAN LEISURE INDUSTRIES, INC.
SECOND: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES,
INC. was filed by the Department of State on the 28th day of April, 1970.
THIRD: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES,
INC. is hereby amended pursuant to Section 801 of the Business Corporation Law.
FOURTH: Paragraph number "FOURTH" of the Certificate of Incorporation,
dealing with the capitalization of the Corporation, is hereby amended to be and
read as follows:
"FOURTH: The aggregate number of shares which the Corporation shall have
the authority to issue is One Million (1,000,000) Common Shares having a par
value of One ($.01) Cent per share, aggregating Ten Thousand ($10,000) Dollars."
Pursuant to the filing of this Certificate of Amendment and effective on
such filing date, the Corporation shall exchange and issue Three Hundred
Seventy-Five (375) of the Corporation's Common Shares, One ($.01) Cent par value
per share, for each One (1) of the Corporation's One Thousand (1,000) Common
Shares, with no par value, outstanding (being all of the authorized shares and
the Corporation having no unissued shares) and held by each shareholder, so that
there shall be Three Hundred Seventy-Five Thousand (375,000) Common Shares, One
($.01) Cent par value per share, issued and outstanding subsequent to such
exchange.
<PAGE>
FIFTH: Paragraph numbered "FIFTH" of the Certificate of Incorporation
dealing with the designation of the Secretary of State as the Agent for service
of process is hereby re-numbered and amended and added as a new paragraph
numbered "EIGHTH". Paragraph numbered "FIFTH" is now changed to be and read as
follows:
"FIFTH: Except as may otherwise be specifically provided, no provision of
this Certificate of Incorporation is intended by the Corporation to be construed
as limiting, prohibiting, denying or abrogating any of the general or specific
powers or rights conferred under the Business Corporation Law upon the
Corporation, upon its shareholders, bondholders, and security holders, and upon
its directors, officers, and other corporate personnel, including, in
particular, the power of the Corporation to furnish indemnification to directors
and officers in the capacities defined and prescribed by the Business
Corporation Law and the defined and prescribed rights of said persons to
indemnification as same are conferred by the Business Corporation Law."
SIXTH: A new paragraph numbered "SIXTH" is hereby added to the Certificate
of Incorporation to be and read as follows:
"SIXTH: No holder of any of the shares of the Corporation of any class now
or hereafter authorized shall be entitled (other than as the Board of Directors
may in its discretion determine), by reason of his holding of such shares, to
any pre-emptive right to purchase or subscribe for any share or shares of the
Corporation of any class now or hereafter authorized, or any notes, debentures,
bonds, certificates of indebtedness or other securities convertible into or
carrying any options, warrants or rights to purchase shares of the Corporation,
or any warrants or other instruments evidencing rights or options to purchase or
subscribe for any such shares. Any unissued shares of the Corporation or any
additional shares of any class now or hereafter authorized, or any securities
convertible into or carrying any right to purchase shares may be issued and
disposed of by the Corporation to such persons, firms, corporations or
associations for such consideration and upon such terms as the Board of
Directors may, in its discretion, determine without offering the same to holders
then of record, of any class thereof, any such shares or securities."
SEVENTH: A new paragraph numbered "SEVENTH" is hereby added to the
Certificate of Incorporation to be and read as follows:
"SEVENTH: At any annual or special meeting of the Board of Directors, it
shall have the power and authority, by a majority vote, to add to, repeal or
amend, the Corporate By-Laws without prejudice to or limitation of the like
statutory power and authority of the stockholders. Any By-Laws adopted by the
Board of Directors shall be subject to amendment or repeal by the stockholders."
2
<PAGE>
EIGHTH: A new paragraph number "EIGHTH" of the Certificate of Incorporation
replacing paragraph numbered "FIFTH", dealing with the designation of the
Secretary of State as agent for service of process, is hereby added and amended
to be and read as follows:
"EIGHTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the Corporation
served upon him is in care of Blackman & Lefrak, 424 Madison Avenue, New York,
New York 10017."
NINTH: The manner in which this amendment to the Certificate of
Incorporation of AMERICAN LEISURE INDUSTRIES, INC. was authorized was by the
unanimous vote of the holders of all the issued and outstanding shares entitled
to vote thereon at a special meeting of the shareholders, duly called and held
on the 12th day of October, 1971.
IN WITNESS WHEREOF, the undersigned have executed this certificate this
12th day of October, 1971.
/s/ Stanley A. Weston
-----------------------------------------
Stanley A. Weston, President
/s/ Arthur Zeiger
-----------------------------------------
Arthur Zeiger, Secretary
3
<PAGE>
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK)
STANLEY A. WESTON, being duly sworn, deposes and says that he is President
of AMERICAN LEISURE INDUSTRIES, INC. and is one of the persons who signed the
foregoing Certificate of Amendment; that he has read the Certificate of
Amendment and knows the contents thereof and that the same is true to his own
knowledge.
DAVID J. MYERSON
Notary Public, State of New York /s/ Stanley A. Weston
No. 60-2841790 ------------------------------------
Qualified in Westchester County Stanley A. Weston
Certificate filed in New York County
Commission Expires March 30, 1973
Sworn to before me this
12th day of October, 1971.
/s/ David J. Myerson
- --------------------------
Notary Public
<PAGE>
CERTIFICATE OF INCORPORATION
of
AMERICAN LEISURE INDUSTRIES INC.
(Pursuant to Section 402 of the Business Corporation Law)
The Undersigned, being a natural person of at least twenty-one years of age
and acting as the incorporator of the Corporation hereby being formed under the
Business Corporation Law certifies that:
FIRST: The name of the Corporation shall be AMERICAN LEISURE INDUSTRIES,
INC.
SECOND: The purposes for which it is to be formed are as follows:
(a) To engage in any business or enterprise of any description whatsoever
including, but not limited to, business or enterprises involving licensing and
merchandising, new product development, geriatrics franchising, toys and games,
hobbies and crafts, publishing, communications and entertainment, sports and
sporting goods, camping and picnicking, travel and transportation, mobil homes,
vacation homes, land development projects, hotels, motels and resorts,
photography and photo supplies, health aids, amusement parks, pets and pet
centers, gardening and lawn care, swimming pools, home-centered leisure
activities, leisure arts, mail order business, toiletries and cosmetics, public
relations, advertising, rapid graphic services and other businesses and
enterprises.
(b) To originate, acquire by purchase, lease, assignment or otherwise own,
hold, edit, copyright, present, license the use of sell, assign, transfer and
otherwise dispose of stories, scenarios, pictures, dramas, literary
compositions, books, musical compositions, musical comedies, musical and
pictorial compositions, productions, works, publications and properties of all
kinds.
(c) To employ actors, singers, designers, directors, conductors, writers,
composers, photographers, artists, musicians, arrangers, dancers and any and all
other performers for the purpose of creating, devising, producing and presenting
television programs, motion pictures, radio programs and all other kinds of
products.
<PAGE>
(d) Directly, or through ownership of stock in any corporation, to purchase
or otherwise acquire, hold, manufacture, sell, exchange, mortgage, pledge,
hypothecate, underwrite, deal in and dispose of stocks, bonds, notes,
debentures, or other evidences of indebtedness and obligations and securities of
any corporation, company, association, partnership, syndicate, entity, or
person, domestic or foreign, or of any domestic or foreign state, government, or
governmental authority or of any political or administrative subdivision or
department thereof, and certificates or receipts of any kind representing or
evidencing any interest in any such stocks, bonds, notes, debentures, evidences
of indebtedness, obligations, or securities; to issue its own shares of stock,
bonds, notes, debentures, or other evidences of indebtedness and obligations and
securities for the acquisition of any such stocks, bonds, notes, debentures,
evidences of indebtedness, obligations, securities, certificates, or receipts
purchased or acquired by it; and, while the owner or holder of any such stocks,
bonds, notes, debentures, evidences of indebtedness, obligations, securities,
certificates or receipts, to exercise all the rights of ownership in respect
thereof; and, to the extent now or hereafter permitted by law, to aid by loan,
subsidy, guaranty, or otherwise, those issuing, creating, or responsible for any
such stocks, bonds, notes, debentures, evidences of indebtedness, obligations,
securities, certificates or receipts.
(e) To purchase or otherwise acquire, hold, exchange, pledge, hypothecate,
sell, deal in, and dispose of mortgages covering any kind of property, tax
liens, and transfers of tax liens on real estate.
(f) To transact a general real estate agency and brokerage business,
buying, selling and dealing in real estate and real property and any interest
therein, on commission, or otherwise, and renting and managing real estate; and
to act as agent, or attorney-in-fact for any persons or corporations in buying,
selling, holding and dealing in real estate and any interest therein and choses
in action secured thereby and other personal property collateral thereto and in
supervising, managing, and protecting such property and any interest therein and
claims affecting same.
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<PAGE>
(g) To enter into, make and perform contracts of every kind and description
pertaining to the business of the corporation with any person, firm,
corporation, association, municipality, county, state, body politic or
government or colony or dependency thereof.
(h) To acquire and pay for in cash, stocks or bonds of this corporation, or
otherwise, the good will, rights, assets and property and to undertake to assume
the whole or any part of the obligations or liabilities of any person, firm,
association or corporation, provided such acquisition is related to the purposes
stated herein.
(i) To carry on, assist, and to participate with others, in the
organization, financing (including lending and advancing money), liquidation or
reorganization of firms, associations, or corporations engaged in any similar
lawful business enterprise, and to lend and advance money and to give credit to
individuals, partnerships, corporations, joint stock associations, and trustees,
either with or without security; provided, however, nothing herein contained
shall be taken to authorize such corporation to engage in the business of
banking or to deal in commercial paper in the exercise of the functions of bank
discount.
(j) To borrow or raise moneys for any of the purposes of the corporation,
and from time to time, without limitation as to amount, to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness, in such form and with such provisions as to
preference of payment and otherwise as the Board of Directors may prescribe, and
to secure the payment of any thereof and of the interest thereon by mortgage
upon or pledge, conveyance or assignment in trust of the whole or any part of
the property of the corporation, whether at the time owned or thereafter
acquired, and to sell, pledge, or otherwise dispose of such bonds or other
obligations of the corporation for its corporate purposes.
3
<PAGE>
(k) To buy, sell, or otherwise deal in as principal, factor, agent or
broker, and upon commission or otherwise, all forms and kinds of securities,
shares of stocks, bonds, debentures, warehouse receipts, promissory notes, open
accounts, certificates of indebtedness, evidence of indebtedness of every kind,
nature or character, commercial paper, mortgages, chattel mortgages and other
similar instruments, and rights, whether secured or unsecured, including bills
and accounts receivable, choses in action, leases, contracts of conditional
sale, and any and all kinds of negotiable or non-negotiable paper (secured as
well as unsecured), evidencing or connected with the purchase, sale or exchange
of any and all kinds of personal property.
(l) To purchase, hold, sell and transfer the shares of its own capital
stock, provided it shall not use its funds or property for the purchase of its
own shares of capital stock when such use would cause any impairment of its
capital except as otherwise permitted by law, and provided further that the
shares of its own capital stock belonging to it shall not be voted upon directly
or indirectly.
(m) To apply for, purchase, or in any manner acquire; to hold, use, own and
operate; to sell or in any manner dispose of; to grant or license letters
patent, copyrights, chemical formulas, rights of representation, licenses and
privileges of any sort, and in any manner deal with, any and all such rights,
interests, inventions, improvements and processes used in connection with or
secured under such copyrights or under letters patent of the United States or
other countries or otherwise, and to work, operate and develop the same.
(n) To have one or more offices, to carry on all or any of its operations
and business, and to exercise all or any of its corporate powers and rights, in
any of the States, Districts, Territories or Colonies of the United States, and
in any and all foreign countries, subject to the laws of such State, District,
Territory, Colony or Country.
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<PAGE>
(o) In general, to carry on any other business connected with the
foregoing, or incidental, appurtenant to or growing out of any of the foregoing,
or in any way necessary, suitable or proper for the accomplishment of the
aforesaid objects, purposes and powers, and to have and exercise all the powers
conferred by the laws of New York upon corporations, formed under the Business
Corporation Law of the State of New York.
(p) The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in no wise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the objects and purposes specified in each of
the foregoing clauses of this Article shall be regarded as independent objects
and purposes.
THIRD: The City, incorporated village or town and the county within the
State of New York in which the office of the Corporation is to be located are as
follows:
City County
New York New York
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is One Thousand (1000) all of which are without par value,
and all of which are of the same class.
FIFTH: The Secretary of State is designated as the agent of the Corporation
upon whom process against the
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<PAGE>
Corporation may be served. The post office address within or without the State
of New York to which the Secretary of State shall mail a copy of any process
against the Corporation served upon him is:
FRANKLIN & WEINRIB
600 Madison Avenue
New York, New York 10022
IN WITNESS WHEREOF, I, being over the age of twenty-one (21) years, have
made, signed and acknowledged this Certificate this 22nd day of April, 1970.
---------------------------------
Leonard Franklin
600 Madison Avenue
New York, New York 10022
STATE OF NEW YORK )
)SS.:
COUNTY OF NEW YORK)
On the date hereinafter set forth, before me came LEONARD FRANKLIN, to me
known to be the individual who is described in, and who signed the foregoing
Certificate of Incorporation, and he acknowledged to me that he signed the same.
Dated: New York, New York
/s/ Leola R. Glenn
----------------------------------
Notary Public
6
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1995 between THE SUMMIT
MEDIA GROUP, INC. ("Company"), a New York corporation having an office at 1414
Avenue of the Americas, New York New York 10019 and SHELDON HIRSCH
("Executive"), residing at 28 Doral Court, New City, New York 10956.
W I T N E S S E T H:
1. Employment.
1.01 Term. Company hereby employs Executive, and Executive hereby
accepts employment with Company with the duties hereinafter set forth, for a
period commencing on January 1, 1995 and ending August 31, 1998 subject,
however, to earlier termination in accordance with the provisions of this
Agreement. This Agreement shall automatically renew on a year-to-year basis
unless terminated by either party hereto giving written notice to the other at
least 90 days prior to August 31, 1998 or any August 31 thereafter.
2. Duties. Executive shall be Chief Executive Officer of Company and
shall perform such duties as may from time to time be assigned to him by
Company's Chairman or the Board of Directors. Executive agrees that, during the
term of this Agreement, he will devote his full time, skills and efforts to the
performance of his duties hereunder and to the furtherance of the interests of
the business of Company.
3. Compensation and Related Matters.
3.01 Fixed Salary. As compensation for Executive's services Company
shall pay Executive a salary of $235,000 per annum for the period January 1,
1995 through December 31, 1995, and $250,000 per annum for the period January 1,
1996 through December 31, 1996 (the "Fixed Salary") in equal monthly (or more
frequent) installments less appropriate payroll deductions as required by law.
In addition to his Fixed Salary, Executive shall receive, with respect to each
full fiscal year during the term hereof, commencing with the year ending
December 31, 1995, an annual bonus (the "Profit Bonus") equal to six percent
(6%) of the Company's annual "Income Before Income Tax Provision" as stated on
the Company's books and records. The Profit Bonus shall be payable within 120
days after the end of the Company's fiscal year. The parties agree to discuss an
increase of the Fixed Salary in good faith at the end of August, 1997.
<PAGE>
3.02 Expenses. Company shall pay or reimburse Executive for all
reasonable travel (including automobile), hotel, entertainment and other
business expenses incurred in the performance of Executive's duties upon
submission of appropriate vouchers and other supporting data, provided, however,
that Executive shall receive a monthly car allowance of $400 without the
submission of such vouchers.
3.03 Benefits. Executive shall be entitled to (i) participate in all
general pension, profit-sharing, life, medical, disability and other insurance
and executive benefit plans at any time in effect for executives of Company,
provided, however, that nothing herein shall obligate Company to establish or
maintain any executive benefit plan, whether of the type referred to in this
clause (i) or otherwise, and (ii) three (3) weeks vacation during each
twelve-month period of employment at mutually agreeable times. In the event the
Company's parent corporation, Leisure Concepts, Inc., shall enter into an
indemnification agreement with Alfred R. Kahn and Joseph P. Garrity, it will
offer to enter into an indemnification agreement on substantially the same terms
and conditions with Executive.
4. Termination for Cause; Disability; Death;
Change of Control.
4.01 For Cause. Company shall have the right to terminate the
employment of Executive hereunder at any time for cause without prior notice
(except as otherwise hereinafter provided). For purposes of the preceding
sentence "for cause" shall mean and include, without limitation, the occurrence
of any of the following acts or events by or relating to Executive: (i) any
material breach of any obligations of Executive under this Agreement which
remains uncured for more than twenty (20) days after written notice thereof by
Company to Executive; (ii) habitual insobriety of Executive while performing his
duties hereunder; (iii) theft or embezzlement from Company or any other material
acts of dishonesty; (iv) repeated insubordination respecting reasonable orders
or directions of Company's Chairman or the Board of Directors, which remains
uncured for more than twenty (20) days after written notice thereof by Company
to Executive; or (v) conviction of a crime (other than traffic violations and
minor misdemeanors). In the event of termination for cause, Executive's Fixed
Salary and Profit Bonus shall terminate as of the effective date of termination
of employment after written notice thereof.
4.02 Disability. If Executive, by reason of illness, mental or
physical incapacity (as determined by a physician) or other disability, is
unable to perform his regular duties hereunder for any consecutive period of 90
days or more from its commencement or for non-consecutive periods aggregating
120 days in any consecutive twelve-month period, then, in either such
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<PAGE>
event, Company may terminate this Agreement at any time thereafter upon ten
days' written notice to Executive. Any payments to Executive under any
disability insurance or plan maintained by Company shall be applied against and
shall reduce the amount of the salary payable by Company under this Agreement.
4.03 Death. In the event of Executive's death, this Agreement
shall terminate effective as of the date of death.
4.04 Payment. In the event of termination of this Agreement
under Section 4.01 hereof, Executive's Fixed Salary and Profit Bonus shall cease
as of the date of termination. In the event of termination of this Agreement
under Section 4.02 or 4.03 hereof, Executive's Fixed Salary shall cease as of
the date of termination and his Profit Bonus shall be prorated by multiplying by
a fraction the numerator of which is equal to the number of days in the year
prior to termination and the denominator of which is 365.
4.05 Change of Control. If during the term of this Agreement
there shall occur a Change of Control (as hereinafter defined), Executive may,
during the six month period following such Change of Control, voluntarily
terminate his employment in which case he shall be entitled to receive a payment
equal to the Fixed Salary remaining to be paid for the year during which such
termination occurs and the Profit Bonus accrued to the date of termination.
Payment of Fixed Salary shall be payable to Executive in one payment on the date
of termination. Payment of Profit Bonus shall be payable to Executive in one
payment within 120 days of the end of the fiscal year in which termination
occurs. As used in this Agreement, a Change of Control shall be deemed to have
occurred on the first day on which (i) Leisure Concepts, Inc. does not own a
majority of the outstanding shares of common stock of the Company or (ii) a
majority of the Directors of Leisure Concepts, Inc. do not consist of
individuals recommended by Alfred R. Kahn or Tiger Electronics Inc.
5. Confidential Information; Non-Competition.
5.01 Confidential Information. Executive shall not, at any time
during or following termination or expiration of the term of this Agreement,
directly or indirectly, disclose, publish or divulge to any person (except in
the regular course of Company's business), or appropriate, use or cause, permit
or induce any person to appropriate or use, any proprietary, secret or
confidential information of Company including, without limitation, knowledge or
information relating to its trade secrets, business methods, the names or
requirements of its customers or clients or the terms of any license or other
agreement between the Company or Leisure Concepts, Inc. and third parties, all
of which Executive agrees are and will be of great value to Company and shall at
all times be kept confidential.
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<PAGE>
Upon termination or expiration of this Agreement, Executive shall promptly
deliver or return to Company all materials of a proprietary, secret or
confidential nature relating to Company together with any other property of
Company which may have theretofore been delivered to or may then be in
possession of Executive.
5.02 Non-Competition. During the term of this Agreement and for
a period of one year after the sooner of the expiration date of this Agreement
or the date when Executive ceases to be employed by Company, Executive shall not
either directly or indirectly, engage, hire, employ, or induce or encourage to
leave employment any employee of the Company. Anything contained herein to the
contrary notwithstanding, in the event Executive's employment is terminated for
cause by Company pursuant to Section 4.01, or in the event Executive shall
terminate his employment in breach of this Agreement, Executive shall not,
within the boundary of the United States, without the prior written consent of
Company in each instance, directly or indirectly, in any manner or capacity,
whether for himself or any other person and whether as proprietor, principal,
owner, shareholder, partner, investor, director, officer, executive,
representative, distributor, consultant, independent contractor or otherwise,
engage or have any interest in any entity which at any time during such term or
such one year period is engaged in the business of providing media buying,
planning and marketing services and television syndication services or the
licensing of products or concepts or in any other manner performs services
similar to those provided by Company.
5.03 Reasonableness. Executive agrees that each of the
provisions of this Section 5 is reasonable and necessary for the protection of
Company; that each such provision is and is intended to be divisible; that if
any such provision (including any sentence, clause or part) shall be held
contrary to law or invalid or unenforceable in any respect in any jurisdiction,
or as to any one or more periods of time, areas or business activities, or any
part thereof, the remaining provisions shall not be affected but shall remain in
full force and effect as to the other and remaining parts; and that any invalid
or unenforceable provision shall be deemed, without further action on the part
of the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable in such jurisdiction. Executive further
recognizes and agrees that any violation of any of his agreements in this
Section 5 would cause such damage or injury to Company as would be irreparable
and the exact amount of which would be impossible to ascertain and that, for
such reason, among others, Company shall be entitled, as a matter of course, to
injunctive relief from any court of competent jurisdiction restraining any
further violation. Such right to injunctive relief shall be cumulative
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<PAGE>
and in addition to, and not in limitation of, all other rights
and remedies which Company may possess.
5.04 Survival. The provisions of this Section 5 shall survive
the expiration or termination of this Agreement for any reason.
6. Miscellaneous.
6.01 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given if personally delivered
against receipt or if mailed by first class registered or certified mail, return
receipt requested, addressed to Company and to Executive at their respective
addresses set forth on the first page of this Agreement, or to such other person
or address as may be designated by like notice hereunder. Any such notice shall
be deemed to have been given on the day delivered, if personally delivered, or
on the third day after the date of mailing if mailed.
6.02 Parties in Interest. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and, in the case of Company,
assigns, but no other person shall acquire or have any rights under or by virtue
of this Agreement, and the obligations of Executive under this Agreement may not
be assigned or delegated.
6.03 Governing Law; Severability. This Agreement shall be
governed by and construed and enforced in accordance with the laws and decisions
of the State of New York applicable to contracts made and to be performed
therein without giving effect to the principles of conflict of laws. In addition
to the provisions of 5.03 above, the invalidity or unenforceability of any other
provision of this Agreement, or the application thereof to any person or
circumstance, in any jurisdiction shall in no way impair, affect or prejudice
the balance of this Agreement, which shall remain in full force and effect, or
the application thereof to other persons and circumstances.
6.04 Entire Agreement; Modification; Waiver; Interpretation.
This Agreement contains the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations and oral understandings, if any. Neither this Agreement nor any of
its provisions may be modified, amended, waived, discharged or terminated, in
whole or in part, except in writing signed by the party to be charged. No waiver
of any such provision or any breach of or default under this Agreement shall be
deemed or shall constitute a waiver of any other provision, breach or default.
All pronouns and words used in this Agreement shall be read in the appropriate
number and gender, the masculine,
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<PAGE>
feminine and neuter shall be interpreted interchangeably and the singular shall
include the plural and vice versa, as the circumstances may require.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement this 3rd day of August, 1995 as of the date first above written.
THE SUMMIT MEDIA GROUP, INC.
By /s/ Alfred R. Kahn
------------------------
Alfred R. Kahn, Chairman
By /s/ Sheldon Hirsch
------------------------
Sheldon Hirsch
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EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1995 between THE
SUMMIT MEDIA GROUP, INC. ("Company"), a New York corporation having an office at
1414 Avenue of the Americas, New York New York 10019 and THOMAS J. KENNEY
("Executive"), residing at 26 Woodfield Road, Pomona, New York 10970.
W I T N E S S E T H:
1. Employment.
1.01 Term. Company hereby employs Executive, and Executive
hereby accepts employment with Company with the duties hereinafter set forth,
for a period commencing on January 1, 1995 and ending August 31, 1998 subject,
however, to earlier termination in accordance with the provisions of this
Agreement. This Agreement shall automatically renew on a year-to-year basis
unless terminated by either party hereto giving written notice to the other at
least 90 days prior to August 31, 1998 or any August 31 thereafter.
2. Duties. Executive shall be President of Company and shall
perform such duties as may from time to time be assigned to him by Company's
Chairman or the Board of Directors. Executive agrees that, during the term of
this Agreement, he will devote his full time, skills and efforts to the
performance of his duties hereunder and to the furtherance of the interests of
the business of Company.
3. Compensation and Related Matters.
3.01 Fixed Salary. As compensation for Executive's services
Company shall pay Executive a salary of $200,000 per annum for the period
January 1, 1995 through December 31, 1995, and $225,000 per annum for the period
January 1, 1996 through December 31, 1996 (the "Fixed Salary") in equal monthly
(or more frequent) installments less appropriate payroll deductions as required
by law. In addition to his Fixed Salary, Executive shall receive, with respect
to each full fiscal year during the term hereof, commencing with the year ending
December 31, 1995, an annual bonus (the "Profit Bonus") equal to six percent
(6%) of the Company's annual "Income Before Income Tax Provision" as stated on
the Company's books and records. The Profit Bonus shall be payable within 120
days after the end of the Company's fiscal year. The parties agree to discuss an
increase of the Fixed Salary in good faith at the end of August, 1997.
<PAGE>
3.02 Expenses. Company shall pay or reimburse Executive for all
reasonable travel (including automobile), hotel, entertainment and other
business expenses incurred in the performance of Executive's duties upon
submission of appropriate vouchers and other supporting data, provided, however,
that Executive shall receive a monthly car allowance of $400 without the
submission of such vouchers.
3.03 Benefits. Executive shall be entitled to (i) participate
in all general pension, profit-sharing, life, medical, disability and other
insurance and executive benefit plans at any time in effect for executives of
Company, provided, however, that nothing herein shall obligate Company to
establish or maintain any executive benefit plan, whether of the type referred
to in this clause (i) or otherwise, and (ii) three (3) weeks vacation during
each twelve-month period of employment at mutually agreeable times. In the event
the Company's parent corporation, Leisure Concepts, Inc., shall enter into an
indemnification agreement with Alfred R. Kahn and Joseph P. Garrity, it will
offer to enter into an indemnification agreement on substantially the same terms
and conditions with Executive.
4. Termination for Cause; Disability; Death;
Change of Control.
4.01 For Cause. Company shall have the right to terminate the
employment of Executive hereunder at any time for cause without prior notice
(except as otherwise hereinafter provided). For purposes of the preceding
sentence "for cause" shall mean and include, without limitation, the occurrence
of any of the following acts or events by or relating to Executive: (i) any
material breach of any obligations of Executive under this Agreement which
remains uncured for more than twenty (20) days after written notice thereof by
Company to Executive; (ii) habitual insobriety of Executive while performing his
duties hereunder; (iii) theft or embezzlement from Company or any other material
acts of dishonesty; (iv) repeated insubordination respecting reasonable orders
or directions of Company's Chairman or the Board of Directors, which remains
uncured for more than twenty (20) days after written notice thereof by Company
to Executive; or (v) conviction of a crime (other than traffic violations and
minor misdemeanors). In the event of termination for cause, Executive's Fixed
Salary and Profit Bonus shall terminate as of the effective date of termination
of employment after written notice thereof.
4.02 Disability. If Executive, by reason of illness, mental or
physical incapacity (as determined by a physician) or other disability, is
unable to perform his regular duties hereunder for any consecutive period of 45
days or more from its commencement or for non-consecutive periods aggregating 90
days in any consecutive twelve-month period, then, in either such
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<PAGE>
event, Company may terminate this Agreement at any time thereafter upon ten
days' written notice to Executive. Any payments to Executive under any
disability insurance or plan maintained by Company shall be applied against and
shall reduce the amount of the salary payable by Company under this Agreement.
4.03 Death. In the event of Executive's death, this Agreement
shall terminate effective as of the date of death.
4.04 Payment. In the event of termination of this Agreement
under Section 4.01 hereof, Executive's Fixed Salary and Profit Bonus shall cease
as of the date of termination. In the event of termination of this Agreement
under Section 4.02 or 4.03 hereof, Executive's Fixed Salary shall cease as of
the date of termination and his Profit Bonus shall be prorated by multiplying by
a fraction the numerator of which is equal to the number of days in the year
prior to termination and the denominator of which is 365.
4.05 Change of Control. If during the term of this Agreement
there shall occur a Change of Control (as hereinafter defined), Executive may,
during the six month period following such Change of Control, voluntarily
terminate his employment in which case he shall be entitled to receive a payment
equal to the Fixed Salary remaining to be paid for the year during which such
termination occurs and the Profit Bonus accrued to the date of termination.
Payment of Fixed Salary shall be payable to Executive in one payment on the date
of termination. Payment of Profit Bonus shall be payable to Executive in one
payment within 120 days of the end of the fiscal year in which termination
occurs. As used in this Agreement, a Change of Control shall be deemed to have
occurred on the first day on which (i) Leisure Concepts, Inc. does not own a
majority of the outstanding shares of common stock of the Company or (ii) a
majority of the Directors of Leisure Concepts, Inc. do not consist of
individuals recommended by Alfred R. Kahn or Tiger Electronics Inc.
5. Confidential Information; Non-Competition.
5.01 Confidential Information. Executive shall not, at any time
during or following termination or expiration of the term of this Agreement,
directly or indirectly, disclose, publish or divulge to any person (except in
the regular course of Company's business), or appropriate, use or cause, permit
or induce any person to appropriate or use, any proprietary, secret or
confidential information of Company including, without limitation, knowledge or
information relating to its trade secrets, business methods, the names or
requirements of its customers or clients or the terms of any license or other
agreement between the Company and third parties, all of which Executive agrees
are and will be of great value to Company and shall at all times be kept
confidential. Upon termination or
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<PAGE>
expiration of this Agreement, Executive shall promptly deliver or return to
Company all materials of a proprietary, secret or confidential nature relating
to Company together with any other property of Company which may have
theretofore been delivered to or may then be in possession of Executive.
5.02 Non-Competition. During the term of this Agreement and for
a period of one year after the sooner of the expiration date of this Agreement
or the date when Executive ceases to be employed by Company, Executive shall not
(i) solicit or attempt to solicit or accept business from or in any way
interfere or attempt to interfere with the Company's relationship with any
person, firm or corporation for which the Company has provided services within
the prior two years and (ii) either directly or indirectly, engage, hire,
employ, or induce or encourage to leave employment any employee of the Company.
Anything contained herein to the contrary notwithstanding, in the event
Executive's employment is terminated for cause by Company pursuant to Section
4.01, or in the event Executive shall terminate his employment in breach of this
Agreement, Executive shall not, within the boundary of the United States,
without the prior written consent of Company in each instance, directly or
indirectly, in any manner or capacity, whether for himself or any other person
and whether as proprietor, principal, owner, shareholder, partner, investor,
director, officer, executive, representative, distributor, consultant,
independent contractor or otherwise, engage or have any interest in any entity
which at any time during such term or such one year period is engaged in the
business of providing media buying, planning and marketing services and
television syndication services or the licensing of products or concepts or in
any other manner performs services similar to those provided by Company.
5.03 Reasonableness. Executive agrees that each of the
provisions of this Section 5 is reasonable and necessary for the protection of
Company; that each such provision is and is intended to be divisible; that if
any such provision (including any sentence, clause or part) shall be held
contrary to law or invalid or unenforceable in any respect in any jurisdiction,
or as to any one or more periods of time, areas or business activities, or any
part thereof, the remaining provisions shall not be affected but shall remain in
full force and effect as to the other and remaining parts; and that any invalid
or unenforceable provision shall be deemed, without further action on the part
of the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable in such jurisdiction. Executive further
recognizes and agrees that any violation of any of his agreements in this
Section 5 would cause such damage or injury to Company as would be irreparable
and the exact amount of which would be impossible to ascertain and that, for
such reason, among others, Company shall be entitled, as a matter of course, to
injunctive relief from any
- 4 -
<PAGE>
court of competent jurisdiction restraining any further violation. Such right to
injunctive relief shall be cumulative and in addition to, and not in limitation
of, all other rights and remedies which Company may possess.
5.04 Survival. The provisions of this Section 5 shall survive
the expiration or termination of this Agreement for any reason.
6. Miscellaneous.
6.01 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given if personally delivered
against receipt or if mailed by first class registered or certified mail, return
receipt requested, addressed to Company and to Executive at their respective
addresses set forth on the first page of this Agreement, or to such other person
or address as may be designated by like notice hereunder. Any such notice shall
be deemed to have been given on the day delivered, if personally delivered, or
on the third day after the date of mailing if mailed.
6.02 Parties in Interest. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and, in the case of Company,
assigns, but no other person shall acquire or have any rights under or by virtue
of this Agreement, and the obligations of Executive under this Agreement may not
be assigned or delegated.
6.03 Governing Law; Severability. This Agreement shall be
governed by and construed and enforced in accordance with the laws and decisions
of the State of New York applicable to contracts made and to be performed
therein without giving effect to the principles of conflict of laws. In addition
to the provisions of 5.03 above, the invalidity or unenforceability of any other
provision of this Agreement, or the application thereof to any person or
circumstance, in any jurisdiction shall in no way impair, affect or prejudice
the balance of this Agreement, which shall remain in full force and effect, or
the application thereof to other persons and circumstances.
6.04 Entire Agreement; Modification; Waiver; Interpretation.
This Agreement contains the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations and oral understandings, if any. Neither this Agreement nor any of
its provisions may be modified, amended, waived, discharged or terminated, in
whole or in part, except in writing signed by the party to be charged. No waiver
of any such provision or any breach of or default under this Agreement shall be
deemed or shall constitute a waiver of any other provision, breach or
- 5 -
<PAGE>
default. All pronouns and words used in this Agreement shall be read in the
appropriate number and gender, the masculine, feminine and neuter shall be
interpreted interchangeably and the singular shall include the plural and vice
versa, as the circumstances may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
this 3rd day of August, 1995 as of the date first above written.
THE SUMMIT MEDIA GROUP, INC.
By /s/ Alfred R. Kahn
------------------------
Alfred R. Kahn, Chairman
/s/ Thomas Kenney
------------------------
Thomas Kenney
- 6 -
4KIDS PRODUCTIONS, INC.
January 10, 1996
Mr. Norman Grossfeld
7 Westwood Circle
Irvington, New York 10533
Re: Employment With 4Kids Productions
Dear Norman:
Following up on our recent conversations, I would like to set out your new
compensation structure effective January 1, 1996 through December 31, 1997 as
follows:
1. Annual salary of $200,000 to be paid in 24 equal semi-monthly payments. It is
our mutual understanding that you have indicated this salary will be fully
allocated and included in show budgets produced by 4Kids Productions.
2. Annual advance against bonus of $50,000 to be paid along with the annual
salary payments.
3. Bonus paid at 10% of 4Kids Productions pre-tax profits. It is our mutual
understanding that all television and home video produced by 4Kids
Entertainment or affiliates will run through 4Kids Productions.
4. You and your eligible dependents will be entitled to receive all medical and
health care benefits offered to full time employees.
5. You shall be entitled to reimbursement of all of your ordinary and reasonable
business expenses incurred by you.
6. You will also be eligible to participate in the Company's stock option plan.
Any such options granted thereunder are at the discretion of the option
committee of the board of directors.
7. On the termination of your employment, you agree that any projects you have
been working on during the term of this agreement remain the property
exclusively of 4Kids Productions and after termination you will not take any
actions which would adversely affect 4Kids Productions.
Finally, you shall be entitled to three weeks vacation that should be used
during the calendar year since vacation time is not rolled over to the next
succeeding year.
We look forward to a long mutually beneficial business relationship. If ever I
could be of any assistance to you, please do not hesitate to call.
Sincerely,
4Kids Productions, Inc. Accepted /s/ Norman Grossfeld
------------------------
By: /s/ Alfred R. Kahn CEO Norman Grossfeld
---------------------
Alfred R. Kahn CEO
<PAGE>
SUBLEASE
1. PARTIES. This Sublease, dated, for reference purposes only, August 2,
1995, is entered into by and between LEISURE CONCEPTS, INC., a California
corporation, (herein called "Sublessor") and THIRD WAVE CORPORATION, a
California corporation, (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Los Angeles, State of California, commonly known as 11400 Olympic Boulevard,
Suite 650, Los Angeles, California 90064, (herein called the "Premises").
3. TERM. The term of this Sublease shall be for a period of Three (3)
years, Seven (7) months and Twenty-Two (22) days commencing on August 10, 1995,
and ending on March 31, 1999 unless sooner terminated pursuant to any provision
hereof.
4. MONTHLY BASE RENT.
4.1 Payment by Sublessor. Sublessor agrees that the Base Rent due under the
Lease is $5,021.53, a portion of which Sublessor shall remain liable to pay.
Sublessor agrees to pay to Master Lessor the sum of $1,038.53, plus any
operating expense escalations required under the Lease on or before the first
day of each and every calendar month during the term hereof. Sublessee agrees to
pay $3,983.00 to Master Lessor as last month's rent, to be held on behalf of
Sublessee.
4.2 Payment by Sublessee. Effective September 1, 1995, Sublessee agrees to
pay to Master Lessor as Monthly Fixed Rent for the Premises the sum of
$3,983.00, on or before the first day of each and every calendar month during
the term hereof. Sublessee shall pay the sum of $2,698.16, representing prorata
Monthly Fixed Rent due from Sublessee for the period August 10 through August
31, 1995 to Sublessor, which amount has already been prepaid by Sublessor to
Master Lessor.
4.3 No Setoff or Deduction. Sublessor and Sublessee agree that the Base
Rent and all other sums payable by Sublessee to Master Lessor under this
Sublease shall be paid to Master Lessor, without deduction or offset, prior
notice or demand, in lawful money of the United States of America at 11400
Olympic Boulevard, Suite 150, Los Angeles, California 90064, or to such other
person or at such other place as Master Lessor may from time to time designate
in writing. Rent for any period during the term hereof which is for less than
one (1) month shall be a pro rata portion of the monthly installment. Rent will
not be considered "received" when mailed or on any other date other than the
date of actual receipt.
5. SECURITY DEPOSIT. Concurrent with execution hereof, Sublessee will
deposit with Sublessor the sum of $ 3,983.00 to be held in a non-interest
bearing account as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. Within five (5) days of the execution hereof, Sublessor
will deposit with Master Lessor the sum of $ 3,983.00 to be held by Master
Lessor as security for Sublessor's and Sublessee's faithful performance of both
parties obligations hereunder. Master Lessor acknowledges prior receipt from
Sublessor of the sum of $2,546.94 paid towards said security, leaving a balance
owing by Sublessor of $ 1,436.06. If or Sublessor Sublessee fail to pay rent or
other charges due hereunder, or otherwise defaults with respect to any provision
of this Sublease, Master Lessor and/or Sublessor may use, apply or retain all or
any portion of said deposits for the payment of any rent or other charge in
default or for the payment of any other sum to which Sublessor may become
obligated by reason of Sublessee's default, or to compensate Master Lessor
and/or Sublessor for any loss or damage which Master Lessor and/or Sublessor may
suffer thereby. If Master Lessor and/or Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall within ten (10) days after
/s/ /s/
EXEC.TWR\3RD WAVE\SUBLEASE.AG3 ------- ------- -------
Initial Initial Initial
<PAGE>
SUBLEASE (continued)
written demand therefor deposit cash with Master Lessor and/or Sublessor in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Sublessee's failure to do so shall be a material breach of this
Sublease. Master Lessor and/or Sublessor shall not be required to keep said
deposit separate from its general accounts. If Sublessee performs all of
Sublessee's obligations hereunder, and after Sublessee has vacated the Premises,
said deposit, or so much thereof as has not theretofore been applied by Master
Lessor and/or Sublessor, shall be returned, without payment of interest or other
increment for its use to Sublessee (or at Master Lessor's and/or Sublessor's
option, to the last assignee, if any, of Sublessee's interest hereunder) at the
expiration of the term hereof,. No trust relationship is created herein between
Master Lessor and/or Sublessor and Sublessee with respect to said Security
Deposit.
6. USE.
6.1 Use. The Premises shall be used and occupied only for general office
use and for no other purpose. Sublessee's business shall be established and
conducted throughout the term hereof in a first class manner. Sublessee shall
not use the Premises for, or carry on, or permit to be carried on, any
offensive, noisy or dangerous trade, business, manufacture or occupation nor
permit any auction sale to be held or conducted on or about the Premises.
Sublessee shall not do or suffer anything to be done upon the Premises which
will cause structural injury to the Premises or the building of which the
Premises form a part. The Premises shall not be overloaded and no machinery,
apparatus or other appliance shall be used or operated in or upon the Premises
which will in any manner injure, vibrate or shake the Premises or the building
of which it is a part. No use shall be made of the Premises which will in any
way impair the efficient operation of the sprinkler system (if any) within the
building containing the Premises. Sublessee shall not leave the Premises
unoccupied or vacant during the term. No musical instrument of any sort, or any
noise making device will be operated or allowed upon the Premises for the
purpose of attracting trade or otherwise. Sublessee shall not use or permit the
use of the Premises or any part thereof for any purpose which will increase the
existing rate of insurance upon the building in which the Premises are located,
or cause a cancellation of any insurance policy covering the building or any
part thereof. If any act on the part of Sublessee or use of the Premises by
Sublessee shall cause, directly or indirectly, any increase of Sublessor's
insurance expense, said additional expense shall be paid by Sublessee to
Sublessor upon demand. No such payment by Sublessee shall limit Sublessor in the
exercise of any other rights or remedies, or constitute a waiver of Sublessor's
right to require Sublessee to discontinue such act or use
6.2 Exclusive Use. Tenant's use of the Premises shall not conflict with
other exclusive use provisions in current leases (or with exclusive use
provisions in future leases, which do not, when made, conflict with Tenant's
actual and specifically permitted use of the Premises). Specifically and without
limiting the generality of the foregoing, Tenant agrees that in no event shall
the Premises be used by Tenant or any assignee, subtenant, or other successor in
interest to Tenant, for any of the following uses:
6.3 Compliance with Law. Sublessee shall, at Sublessee's expense, comply
promptly with all applicable statutes, ordinances, rules, regulations, orders,
restrictions of record, and requirements in effect during the term or any part
of the term hereof regulating the use by Sublessee of the Premises. Sublessee
shall not use or permit the use of the Premises in any manner that will tend to
create waste or a nuisance or, if there shall be more than one tenant of the
building containing the Premises, which shall tend to disturb such other
tenants. Notwithstanding the terms of this Section 6.3, in no event shall
Sublessee be required to make any structural alterations or modifications to the
Premises. Should Sublessee be required to make such structural alternations or
modifications to the Premises to comply with this section 6.3, upon thirty (30)
days prior written notice to Sublessor, Sublessee shall have the option, but not
the obligation, to terminate this sublease
/s/ /s/
EXEC.TWR\3RD WAVE\SUBLEASE.AG3 ------- ------- -------
Initial Initial Initial
2
<PAGE>
SUBLEASE (continued)
6.4 Condition of Premises. Sublessee hereby accepts the Premises in their
condition existing as of the date of the execution hereof, subject to all
applicable zoning, municipal, county and state laws, ordinances, and regulations
governing and regulating the use of the Premises, and accepts this Sublease
subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto. Sublessee acknowledges that neither Sublessor nor Sublessor's
agents have made any representation or warranty as to the suitability of the
Premises for the conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the Tenant of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit A to Sublease, dated June 30, 1991, as amended January 3,
1994, wherein OLYMPIC PURDUE ASSOCIATES, a Califomia limited partnership is the
Landlord, whose interest therein has been taken over through purchase of the
property in which the Premises are located on or about August 1, 1995 by
DOUGLAS, EMMETT REALTY FUND 1995, A California limited partnership as
successor-in-interest (hereinafter referred to as the "Master Lessor").
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Landlord" is
used it shall be deemed to mean the Sublessor herein and wherever in the Master
Lease the word "Tenant" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom unless Sublessee exercises its option to cure as stated under
Article 7.9 hereof: Article 11, Parking, which is not included as a portion of
this sublease; Section 2.03 (Rent); Section 6.01 (Expenses) to the extent that
such expenses are due to Sublessor's default; and Article 8 (Operating Expenses
and Additional Expenses).
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Master Lessor and/or Sublessor free and harmless
of and from all liability, judgments, costs, damages, claims or demands,
including reasonable attorneys fees, arising out of Sublessee's failure to
comply with or perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the Master Lease
without the fault or consent of the Sublessor, and to comply with or perfomm
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages,
/s/ /s/
EXEC.TWR\3RD WAVE\SUBLEASE.AG3 ------- ------- -------
Initial Initial Initial
3
<PAGE>
SUBLEASE (continued)
claims or demands arising out of Sublessor's failure to comply with or
perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
7.9 Sublessee shall not commit or permit to be committed on the Premises
any act or omission which shall violate any term or condition of the Master
Lease. In the event of the termination of Sublessor's interest as Tenant under
the Master Lease for any reason, then no later than the expiration of five (5)
days after Sublessee has received prior written notice from Master Lessor of
Sublessor's default, a) Sublessee shall have the option, but not the obligation,
to assume the full obligations of Sublessor hereunder and cure Sublessor's
default(s) under the Master Lease, in which case Sublessee shall be substituted
in as the Lessee under the Master Lease as if Sublessor has executed a voluntary
assignment hereunder, and the Master Lease shall then continue in full force and
effect, or b) should Sublessee not choose to cure Sublessor's default(s), this
Sublease. at the sole option of Master Lessor, may be terminated at any time
thereafter without any liability of Master Lessor to Sublessee.
7.10. In connection with the within sublease, and to defray Landlord's
costs in processing the documents associated therewith, Sublessor shall pay to
Landlord upon Landlord's execution of this instrument a processing fee of
$450.00.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's
interest in this Sublease and all rentals and income arising therefrom, subject
however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor may receive and collect, directly from Sublessee, all
rent owing and to be owed under this Sublease. Master Lessor shall not, by
reason of this assignment of the Sublease nor by reason of the collection of the
rents from the Sublessee, be deemed liable to Sublessee for any failure of the
Sublessor to perform and comply with Sublessor's Remaining Obligations.
8.3 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter the
primary liability of Sublessor to pay the rent and perform and comply with all
of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one else
liable under the Master Lease shall not be deemed a waiver by Master Lessor of
any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
/s/ /s/
EXEC.TWR\3RD WAVE\SUBLEASE.AG3 ------- ------- -------
Initial Initial Initial
4
<PAGE>
SUBLEASE (continued)
between Sublessor and Sublessee shall be strictly between them, and Master
Lessor need not be concerned therewith
SUBLESSOR: SUBLESSEE:
LEISURE CONCEPTS, INC., THIRD WAVE CORPORATION,
a California Corporation a California corporation
By: /s/ By: /s/
--------------------------- ---------------------------
Its: Its:
Dated: 8/28/95 Dated: 8/24/95
Master Lessor hereby consents to the foregoing Sublease. Master Lessor
specifically disclaims any knowledge of the negotiations and oral
representations made between Sublessor and Sublessee and makes no
representations or warranties express or implied as to their validity.
MASTER LESSOR:
DOUGLAS EMMETT REALTY FUND 1995
a California limited partnership
By: DOUGLAS, EMMETT & COMPANY,
its agent
By:
---------------------------------------
Kenneth Panzer Executive Vice President
Dated:
--------------------------------------
(If Sublessor or Sublessee is a corporation, the corporate seal must be
affixed and the authorized officers must sign on behalf of the corporation. The
Sublease must be executed by the President or a Vice President and the Secretary
or Assistant Secretary unless the Bylaws or a Resolution of the Board of
Directors shall otherwise provide, in which event the Bylaws or a certified copy
of the Resolution, as the case may be, must be furnished.)
This Sublease has been prepared for submission to your attorney who will
review the document and assist you in determining whether your legal rights are
adequately protected.
/s/ /s/
EXEC.TWR\3RD WAVE\SUBLEASE.AG3 ------- ------- -------
Initial Initial Initial
6
EXHIBIT 21
4Kids Entertainment, INC.
List of Subsidiaries
The following is a list of all subsidiaries of 4 Kids
Entertainment, Inc. of which all are incorporated in the State of New York. All
of the listed subsidiaries do business under the
names presented below:
Carousel Pictures, Inc.
4Kids Productions, Inc.
LCI Direct Marketing, Inc.
LCI UK Limited
Leisure Concepts, Inc.
Leisure Concepts International, Inc.
The Summit Media Group, Inc.
World Martial Arts Productions, Inc.
C:\LCI\87005DEC.LOS - 03/29/96
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in Registration
Statement Nos. 33-11718 and 33-60928 of 4Kids Entertainment, Inc. on Form S-8 of
our report dated March 25, 1996 appearing in this Annual Report on Form 10-K of
4Kids Entertainment, Inc. for the year ended December 31, 1995.
Deloitte & Touche
March 29, 1996
I:\CORP\4KIDS\87005DEC.X61 - 03/29/96
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,505,777
<SECURITIES> 0
<RECEIVABLES> 15,105,986
<ALLOWANCES> 437,157
<INVENTORY> 0
<CURRENT-ASSETS> 20,572,626
<PP&E> 1,407,837
<DEPRECIATION> 1,060,065
<TOTAL-ASSETS> 25,968,575
<CURRENT-LIABILITIES> 13,677,808
<BONDS> 0
0
0
<COMMON> 29,448
<OTHER-SE> 11,599,460
<TOTAL-LIABILITY-AND-EQUITY> 25,968,575
<SALES> 0
<TOTAL-REVENUES> 6,617,279
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,702,850)
<INCOME-TAX> (755,000)
<INCOME-CONTINUING> (947,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (947,850)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
