<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-9599
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LEWIS GALOOB TOYS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-1716574
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 Forbes Boulevard 94080
So. San Francisco, CA -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415)952-1678
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, Par Value $.01 Per Share New York Stock Exchange
Depositary Convertible Exchangeable New York Stock Exchange
Preferred Shares (each representing
1/10 share of $17.00 Convertible
Exchangeable Preferred Stock)
Securities registered pursuant to Section 12(g) of the Act: None
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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 such 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 (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of 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. / /
The aggregate market value of the voting stock held by persons who are not
officers or directors (or their affiliates) of the registrant, as of March 1,
1996, was approximately $155,000,000.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 1996, was as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common Stock, Par Value $.01 Per Share 10,101,241
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The following document has been incorporated by reference:
The registrant's Proxy Statement (the "Proxy Statement") to be used in
connection with its 1996 Annual Meeting of Shareholders has been
incorporated into Part III.
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PART I
Item 1. Business
Lewis Galoob Toys, Inc. (the "Company") designs, develops,
markets and sells high quality toys worldwide and has been engaged in the toy
business since 1957. The Company's strategies in selecting and developing
product lines are to focus primarily on low to medium priced extendable product
lines that are brandable, to capitalize on current trends in the toy industry
and popular culture and to expand and diversify its product categories.
Consistent with these strategies, the types of products which have produced the
preponderance of the Company's revenues have changed significantly. This product
change evolved both by developing and procuring new toys which are based on
original ideas and by seeking to obtain and develop new entertainment licenses.
The Company's products are generally sold worldwide, with a
substantial portion of its revenues derived from sales in the United States and
Europe. The Company sells its products principally to retailers in the United
States and to toy distributors outside of the United States. U.S. retail outlets
for the products include specialty toy retailers, discount and chain stores,
catalog and mail order companies, department stores and variety stores. See
"Business-Distribution and Sales." The Company's products are generally
manufactured overseas, primarily in the People's Republic of China ("China").
The Company's results are dependent, in large part, on
management's experience in the toy industry and its ability to identify and
capitalize on current trends and market new products based on such trends in a
timely and efficient manner. As a result of changing consumer tastes, individual
toys usually have relatively short product lives. Consequently, an increase or
decrease in popularity of a particular item during any year could have a
material impact on revenues and profit for that year.
The Company has historically marketed a variety of toy
products designed for children of both sexes and of different age groups. In
recent years, the Company's main emphasis has been to revive, develop, extend
and expand its core brand, Micro Machines(R), and to diversify the balance of
its other product lines by building other multi-year thematic brands. See
"Business-Licensing and Related Rights; Trademarks."
Consistent with the extendable product life strategy, the
Company's Micro Machines product line, first introduced in 1987, has generated
significant sales for a much longer product life than most toy products, and the
Company believes that the product line will continue to generate significant
sales in the immediate future. Micro Machines sales represented 44% of the
Company's total revenues in 1995, 51% in 1994 and 41% in 1993. Continuing demand
for this product line was strong and shipments for certain new 1996 product
lines commenced in the fourth quarter of 1995. While the Micro Machines line has
generated continuing sales for an extended period of time, there can be no
assurance that the demand for Micro Machines products will continue at current
or previous levels.
Products
The Company's 1996 product offering consists of four girls'
lines, including continuations and extensions of the Sky Dancers(R), My Pretty
DollHouse(TM) and Happy Ness(TM) lines, and also the new Pound Puppies(R) line;
and five boys' lines, including continuations and extensions of the Micro
Machines and Biker Mice from Mars(R) lines, and also the new Dragon Flyz(TM),
Real Adventures of Jonny Quest(TM) and UltraForce(TM) lines.
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In the girls' product area, the highly successful Sky Dancers
flying doll and accessory line has been extended to include new segments,
including Pretty Lights(R) with light-up flying dolls and launchers; smaller
size Fairy Flyers(TM) flying dolls, pets and Magical Flying Carousel(TM)
playset; Fairy Tale Couples(TM); and the Flying Princess(TM) doll with graceful
fluttering wings. The My Pretty DollHouse line has been extended with Enchanted
Castles(TM) as well as new basic house and accessory styles. The Happy Ness line
includes play figures and playsets. The Company has also reintroduced a
small-scale version of Pound Puppies and Pound Pur-r-ries(R), the most
successful plush toy lines of the 1980's.
In the boys' product area, the Micro Machines line of
miniature vehicles, playsets and accessories now includes a new, larger Action
Fleet(TM) scale of Star Wars(R) articulated action figures, vehicles and
playsets, as well as the continuations and extensions of other successful Star
Wars vehicles, figures and playsets in the traditional Micro Machines scale.
Other Micro Machines licensed properties include Star Trek(R), Babylon 5(TM),
Aliens(TM), James Bond 007(TM), Indiana Jones(TM) and Predator(TM). A new
segment, Exploration, features the first Micro Machines that float in water.
Finally, three innovative new Double Takes(TM) playsets have been added--two in
the Basic segments and one in the Military segment. These transforming playsets
feature two action play environments in one toy.
The male action figure product area features three new lines,
as well as the continuation of the Biker Mice From Mars line in the
international marketplace. Dragon Flyz is an assortment of fully articulated
flying warriors with dragon-styled launchers. The Real Adventures of Jonny Quest
is based on the updated reintroduction of the classic 1960's animated television
property from Hanna-Barbera Cartoons and Turner Home Entertainment, featuring
both real-world and futuristic, virtual-reality QuestWorld(TM) figures and
vehicles. The UltraForce line of super heroes and villains is based on the
successful comic book series and animated television show.
The Company's 1995 product line consisted of continuations and
extensions of the Micro Machines line and introductions of several new product
lines, including a new extendable girls' brand, Sky Dancers dolls.
The Micro Machines line included the continuing licensed
vehicles based on the popular Star Wars motion picture trilogy. The Company had
also added Star Wars playsets depicting scenes from the movies and including
action features, figures and vehicles. Other licensed products included vehicles
and figures from the Power Rangers(TM) television series, and the James Bond 007
motion picture. There were also new vehicles from the Star Trek and Babylon 5
television series. To extend the Micro Machines segment of military vehicles and
troops, new playsets included Night Attack!(TM), with its battery-powered
searchlight and multi-missile launcher, as well as FalconWing Skybase(TM) and
Orion J-22 (TM) Submarine Base transforming playsets. Also under the Micro
Machines brand was Z-Bots(R), a line of collectible robot figures, vehicles and
playsets.
The new and innovative Sky Dancers line of dolls and playsets
featured the first known girls' doll that flies. These collectible ballerina
dolls fly utilizing a special launcher with pull-cord action created in various
themes. The playsets included Magic Rolling Launchers in the shape of a swan and
pegasus.
The Company's new My Pretty DollHouse line was based on a
classic girls' toys play pattern that incorporated the successful concepts of
miniaturization and collectibility. This product line consisted of modular,
finely-decorated miniature dollhouses that came with dolls and other surprise
accessories. Also available were coordinated designer Furniture Packs, Back and
Front Yard Sets, and snap-on 2nd Story Additions to expand the houses into even
bigger mansions.
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Also introduced was UltraForce, a licensed male action line of
dramatic super heroes and villains, vehicles and accessories, based on the
Malibu(TM) (Marvel) Comics(TM) strips and the new syndicated animated television
series that premiered in October 1995.
Licensing and Related Rights; Trademarks
The Company normally produces substantially all of its
products under licenses from other parties. Some of these licenses confer rights
to exploit original concepts developed by toy inventors and designers. Other
licenses, referred to as entertainment licenses, permit the Company to
manufacture and market toys based on characters or properties which develop
their own popular identity, often through exposure in various media such as
television programs, movies, cartoons and books. Normally most entertainment
licenses extend for one to three years and are typically renewable at the option
of the Company upon payment of certain minimum guaranteed payments or the
attainment of certain sales levels during the initial term of the license.
Licenses for original ideas typically extend for the commercial life of the
product.
In addition, the Company pays royalties to its licensors,
which typically range from 2% to 14% of net sales. In certain instances, the
Company may agree to guarantee payment of a minimum royalty. As of December 31,
1995 and 1994, minimum future guaranteed payments aggregated approximately
$5,822,000 and $2,630,000, respectively. Royalties expense in 1995 and 1994
totaled approximately $16,326,000 and $13,498,000, respectively. As a result of
increased competition among toy companies for licenses, in certain instances
the Company has paid, and may in the future be required to pay, higher
royalties and higher minimum guaranteed payments in order to obtain attractive
properties for the development of product lines.
The Company is an active participant in the market for
entertainment licenses, and has obtained domestic and international license
rights for most of its products. A determination to acquire an entertainment
license must frequently be made before the commercial introduction of the
property in which a licensed character or property appears, and license
arrangements often require the payment of non-refundable advances or guaranteed
minimum royalties. Accordingly, the success of an entertainment licensing
program is dependent upon the ability of management to assess accurately the
future success and popularity of the properties which it is evaluating, to bid
for products on a selective basis in accordance with such evaluation, and to
capitalize on the properties for which it has obtained licenses in an
expeditious manner. In 1995 and 1994, the Company generated significant sales
under existing entertainment license arrangements for Star Wars, Star Trek,
Biker Mice From Mars and Power Rangers.
As part of its strategic licensing program, the Company has
signed an agreement with Twentieth-Century Fox Licensing and Merchandising that
gives the Company the exclusive worldwide first rights to license toys based on
various new Fox theatrical and television properties, until the year 2004
(including renewal rights granted to the Company). The agreement fulfills a key
growth objective of forming an alliance with a powerful content provider and
assures access to a continuous flow of first-rank entertainment properties from
Twentieth-Century Fox Film Corporation, Fox Animation Studios, Twentieth-Century
Fox Television, Fox Broadcasting Company, Fox Family Films, Fox 2000 Pictures,
and Fox Searchlight Pictures. Pursuant to this agreement, the Company has
determined to initially produce toys based on the recently announced full-length
feature film Anastasia(TM), as well as the current hit television science
fiction series Space: Above and Beyond(TM).
In addition to the Twentieth-Century Fox agreement, the
Company has signed a master toy license agreement with Turner Home Entertainment
for The Real Adventures of Jonny Quest.
The Company has also been awarded the master toy license by
Sony Signatures for TriStar
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Pictures' science fiction adventure Starship Troopers(TM), which is being
produced under an arrangement between TriStar Pictures and the Walt Disney
Motion Pictures Group.
Most of the Company's products are sold under trademarks and
certain products incorporate patented devices or designs. The Company
customarily seeks protection of its product patents and major product trademarks
in the United States and certain other countries. These trademarks, such as
Micro Machines, are significant assets of the Company. The Company believes that
the loss of certain of its license rights or trademarks for particular product
lines may have a material adverse effect on its business. However, the Company
believes its rights to these properties are adequately protected.
Research and Development
The Company employs its own designers and engineers and also
utilizes the services of independent designers and engineers on an ongoing
basis. The Company presents its designers with toy concepts licensed or, to a
lesser extent, originated by it, and the designers create renderings of the
proposed product. Designs are then presented to the Company's engineers, who,
using the renderings, perform mechanical drawings and engineering services and
create prototypes for new products. Prototypes for proposed products are then
reviewed by the Company's management, including representatives of marketing,
sales and manufacturing, prior to final acceptance. Character licensors usually
retain the right to approve the products being marketed by the Company.
The Company spent approximately $7,886,000, $7,288,000 and
$7,451,000 on research and development activities in 1995, 1994 and 1993,
respectively, exclusive of amounts paid to certain inventors and designers who
receive royalties as licensors. Those amounts do not include approximately
$12,388,000, $7,149,000 and $4,502,000, incurred in 1995, 1994 and 1993,
respectively for tooling and package design.
Manufacturing
The Company's products are manufactured to its specifications
by nonaffiliated third party vendors, usually located in the Orient. Over 80% of
the Company's products were produced in China in 1995. These vendors are
responsible for all aspects of the production of the Company's products in
accordance with Company specifications.
The Company's manufacturing is currently performed by 21
manufacturers, some of whom derive a substantial percentage of their business
from the Company. In 1995, seven manufacturers each produced in excess of 5% of
the Company's products and combined to produce 91%. It is anticipated in 1996
that manufacturers' production will be similarly concentrated as in 1995.
The Company, through its wholly-owned subsidiary Galco
International Toys, N.V. ("Galco") located in Hong Kong, maintains close contact
with the Company's manufacturers and subcontractors and monitors the quality of
the products produced. Decisions related to the choice of manufacturer are based
on price, quality of merchandise, reliability and the ability of a manufacturer
to meet the Company's timing requirements for delivery. See
"Business-Competition." Generally, tooling is owned by the Company but may be
utilized by different manufacturers if the need arises for alternate sources of
production.
The Company does not carry insurance for political, social or
economic unrest or disruption for several reasons, including, but not limited
to, costs of such insurance and the limited insurance coverage available. The
impact on the Company from such unrest or disruption would depend on several
factors, including, but not
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limited to, the nature, extent and location of such unrest or disruption and the
Company's ability to: (1) procure alternative manufacturing sources outside of
the country involved; (2) retrieve its tooling; (3) relocate its production in
sufficient time to meet demand; and (4) pass cost increases likely to be
incurred resultant from (1)-(3) above through to the Company's customers as
product price increases.
The Company's products are principally produced in China,
which currently is designated with Most Favored Nations ("MFN") status by the
United States. This designation allows products imported into the United States
from China to be accorded the most favorable import duties. In 1994, Congress
approved the GATT (Uruguay round), which allows imports into the United States
of toy merchandise with unconditional duty-free entry from any nation with MFN
status. Generally, the trade negotiations between China and the United States
have been difficult, but both sides have shown their willingness to resolve
trade disputes and avoid punitive sanctions, which could result in the United
States imposing higher duties on selective Chinese-made products imported into
the United States (these sanctions would be put in place through Section 301).
In the past, Section 301 sanctions proposed by the United States did not include
sanctions or punitive damages against toy imports from China. As such, the
Company would be unaffected. The loss of MFN status for China, however, would
result in a substantial increase in duty for the Company's products produced in
China and imported into the United States. This increase in duty would be large
enough that it could materially affect the Company's business. Products shipped
from China to other countries should not be affected. Other toy companies also
source product from China and would be affected to similar degrees. However, the
impact on the Company from any significant change in duties on its
Chinese-produced products would depend on several factors including, but not
limited to, the Company's ability to (1) procure alternative manufacturing
sources outside of China, (2) retrieve its tooling located in China, (3)
relocate its production in sufficient time to meet demand and (4) pass cost
increases likely to be incurred resultant from (1)-(3) above through to the
Company's customers as product price increases.
In 1994, certain quotas on selected Chinese-produced toy
products were introduced in the European Economic Community. The quotas did not
have a material impact on the Company's business in 1995 and are not expected to
have a material impact in the foreseeable future.
Transactions in which the Company purchases goods from
manufacturers are mostly denominated in Hong Kong dollars and, accordingly,
fluctuations in Hong Kong monetary exchange rates may have an impact on cost of
goods. However, in recent years, the value of the Hong Kong dollar has had a
continuing stable relationship to the value of the U.S. dollar and the Company
has not experienced any significant foreign currency fluctuations. Inflationary
pressure in China could have an effect on the cost of product sourced from
China.
Galco's employees arrange with manufacturers for the
production, shipment and delivery of products, monitor the quality of the
products produced, and undertake certain elements of the design and development
of new products.
The principal raw materials used in the production and sale of
the Company's products are plastics and paper products. The Company believes
that an adequate supply of raw materials used in the manufacture of its products
are readily available from existing and alternate sources.
Distribution and Sales
The Company markets and sells its products throughout the
world, with sales to customers in the United States aggregating on a
consolidated basis 63%, 66% and 66% of net sales in 1995, 1994 and 1993,
respectively.
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Outlets for the Company's products in the United States
include specialty toy retailers, discount and chain stores, catalog and mail
order companies, department stores, variety stores and independent distributors
which purchase the products directly from the Company and ship them to retail
outlets. In 1995 and 1994, Toys "R" Us, Inc. accounted for approximately 20% and
21% of the Company's consolidated net sales, respectively. Wal-Mart accounted
for 11% of net revenues in 1995.
The Company has a sales staff of seven people, supplemented by
several manufacturers' representative organizations in the United States, that
act as independent contractors. The Company's sales staff and the manufacturers'
representatives offer the Company's products through the use of samples and
promotional materials at toy shows and by making regular customer sales calls.
The Company also directly introduces and markets to customers new products and
extensions to previously marketed product lines by participating in the major
trade shows in New York, Hong Kong and Europe and through the maintenance of a
showroom in New York City. Manufacturers' representatives utilized by the
Company receive commissions, which were approximately 0.8%, 1.0% and 1.3% of net
sales in 1995, 1994 and 1993, respectively.
The Company utilizes warehouse facilities primarily in Union
City, California for storage of its products. Disruptions in shipments from Asia
or from the Union City facility could have a material adverse effect on the
Company. The Company believes that adequate storage facilities are available.
The Company has an extensive international sales program. The
Company, in conjunction with Galco, actively sells its products into 45
countries and sells directly to 86 separate, independent toy distributors, each
of which is domiciled in the respective country to which sales are made. While
international sales accounted for only approximately one-third of total Company
sales in 1995, these sales amount to a greater proportion of the unit volume of
Company products sold outside of the United States. International sale prices to
distributors are significantly lower than U.S. domestic sale prices to retail
accounts since international distributors are responsible for all importation,
warehousing, marketing, promotional and selling related costs. In 1995 and 1994,
approximately 50% of all Galoob toys sold were shipped to countries outside the
United States.
Sales by the Company to foreign customers are ordinarily
denominated in U.S. dollars and, accordingly, the Company's revenues are not
affected by fluctuations in monetary exchange rates. However, the value of the
U.S. dollar in relation to the value of other currencies may have a positive or
negative impact on the Company's sales volume over time, depending on the change
in relationship of the respective currencies.
The Company does not ordinarily sell its products on
consignment and ordinarily accepts returns only for defective merchandise.
Returns have historically not been significant. In certain instances, where
retailers are unable to resell the quantity of products which they have
purchased from the Company, the Company may, in accordance with industry
practice, assist retailers to sell such excess inventory by offering discounts
and other price concessions.
Advertising
Although a portion of the Company's advertising budget is
expended for newspaper advertising, magazine advertising, catalogs and other
promotional materials, the Company allocates the bulk of its advertising budget
to television. As is common practice in the toy industry, the Company advertises
on national network, syndicated cable and local spot television.
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Seasonality and Backlog
Because of heavy retail demand for toy products during the
Christmas season, the toy industry is highly seasonal in nature. Consistent with
the fact that a disproportionate share of receivables is created late in the
year and consistent with U.S. toy industry practices, receivables from a
significant portion of domestic sales are not collected until the final weeks of
the fourth quarter and the first quarter of the succeeding year, which creates a
substantial demand for working capital on a seasonal basis.
Orders in the U.S. toy industry are generally cancelable until
shipped. Therefore, the Company believes that backlog may not be an accurate
indicator of the Company's future sales.
Competition
The toy industry is highly competitive. The Company competes
with several larger domestic and foreign toy companies, such as Hasbro, Mattel,
Tyco, Bandai and Playmates, and many smaller companies in the design and
development of new toys, the procurement of licenses, the improvement and
expansion of previously introduced products and product lines, and the marketing
and distribution of its products. Some of these companies have longer operating
histories, broader product lines and greater financial resources and advertising
budgets than the Company. In addition, it is common in the toy industry for
companies to market products which are similar to products being successfully
marketed by competitors. The Company believes that the strength of its
management team, the quality of its products, its relationships with inventors,
designers and licensors, its distribution channels and its overhead and
operational controls allow the Company to compete effectively in the
marketplace. See "Business-Research and Development" and "Business-Distribution
and Sales."
Government Regulations
The Company is subject to the provisions of, among other laws,
the Federal Hazardous Substances Act and the Federal Consumer Product Safety
Act. These laws empower the Consumer Product Safety Commission (the "CPSC") to
protect consumers from hazardous toys and other articles. The CPSC has the
authority to exclude from the market articles which are found to be hazardous
and can require a manufacturer to recall such products under certain
circumstances. Similar laws exist in some states and cities in the United States
and in Canada and Europe. Products are also designed and tested to meet or
exceed ASTM F963, the Standard Consumer Safety Specification on Toy Safety. The
Company emphasizes the safety and reliability of its products and has
established a strong quality assurance and control program to meet the Company's
objective of delivering high-quality, safe products.
Employees
As of December 31, 1995, the Company had 224 employees; 125 in
the United States and 99 in the Far East. This compares to 239 total employees
at December 31, 1994; 108 in the United States and 131 in the Far East. Nine of
the Company's employees, some of which are employed only on a seasonal basis,
are subject to a collective bargaining agreement which expires May 31, 1998. The
Company believes that its labor relations are satisfactory.
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Item 2. Properties
The Company's principal executive offices are located at 500
Forbes Boulevard, South San Francisco, California, where the Company owns a
building with approximately 136,000 square feet. The Company occupies
approximately 33,000 square feet of office space and leases the remaining
103,000 square feet of warehouse space to third parties. The Company also has
125,000 square feet of warehouse space at Union City, California, under a lease
which expires in 1997, with rights to renew for an additional five-year term.
The Company has a showroom, consisting of approximately 17,200 square feet,
which is located at 1107 Broadway, New York, New York, under a lease that
expires in 2006, and office and warehouse space in Hong Kong consisting of
approximately 30,000 square feet under leases which expire at varying dates
through 1998.
The Company's properties will be expanded to support as
necessary future growth levels in the Company's business.
Item 3. Legal Proceedings
The Company is involved in various litigation and legal
matters which are being prosecuted or defended in the ordinary course of
business. None of these matters are expected to result in outcomes having a
material adverse effect on the Company's consolidated financial position (see
Note M of Notes to Consolidated Financial Statements).
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4a. Executive Officers of the Registrant
The executive officers and their respective positions are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mark D. Goldman............................ 45 President, Chief Executive Officer and
Director
William G. Catron.......................... 50 Executive Vice President, General
Counsel, Chief Administrative Officer
and Secretary
Loren Hildebrand........................... 56 Executive Vice President, Sales
Ronald Hirschfeld.......................... 45 Executive Vice President, International
Sales and Marketing
Gary J. Niles.............................. 56 Executive Vice President, Marketing
and Product Acquisition
Louis R. Novak............................. 47 Executive Vice President and Chief
Operating Officer
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William B. Towne........................... 51 Executive Vice President, Finance and
Chief Financial Officer
John C. Beuttell........................... 48 Senior Vice President, Marketing-Male
Action
H. Alan Gaudie............................. 55 Senior Vice President, Finance and
Assistant Secretary
Ronnie Soong............................... 49 Managing Director of Galco
International Toys, N.V.
Terrell (Mark) Taylor...................... 54 Senior Vice President, Preliminary
Design
</TABLE>
Mark D. Goldman, a Director of the Company, has served as
President and Chief Executive Officer of the Company since June 1991. From 1987
to 1991, Mr. Goldman served as Executive Vice President and Chief Operating
Officer. Prior to 1987, Mr. Goldman served in various executive capacities at
Ages Entertainment Software, Inc. (formerly Sega Enterprises, Inc.) and Mattel,
Inc.
William G. Catron has served as Executive Vice President,
General Counsel and Chief Administrative Officer since May 1992. From 1985 to
1992, Mr. Catron was Senior Vice President, Assistant General Counsel for
Paramount Pictures Corporation. Prior to 1985, Mr. Catron served in various
executive capacities at Ages Entertainment Software, Inc. (formerly Sega
Enterprises, Inc.) and Mattel, Inc.
Loren Hildebrand has served as Executive Vice President, Sales
since April 1994. From 1992 to 1994 he was President of Creative Consultants.
From 1989 to 1992, Mr. Hildebrand was Executive Vice President and a partner in
Toy Soldiers, Inc., a start-up company. Prior to 1989, Mr. Hildebrand was a
consultant for Worlds of Wonder and Executive Vice President, Sales,
Merchandising and Distribution for Mattel, Inc.
Ronald Hirschfeld has served as Executive Vice President,
International Sales and Marketing since February 1994. From 1989 to 1994, Mr.
Hirschfeld served as Senior Vice President, International Sales and Marketing.
Prior to 1989, Mr. Hirschfeld served as Senior Vice President, International
Operations from 1987 to 1989 and has held various positions with the Company
since 1978.
Gary J. Niles has served as Executive Vice President,
Marketing and Product Acquisition since February 1992. From 1989 to 1992, Mr.
Niles served as Senior Vice President, International Division. Before joining
the Company, Mr. Niles was an executive with U.A.C., Ltd., a division of
Universal Matchbox, Revell Incorporated and Ages Entertainment Software, Inc.
(formerly Sega Enterprises, Inc.)
Louis R. Novak has served as Executive Vice President and
Chief Operating Officer since February 1992. From 1989 to 1992, Mr. Novak served
as Senior Vice President, Operations. From 1986 to 1989 he was Senior Vice
President, Worldwide Product Operations for Coleco Industries, Inc. Prior to
1986, Mr. Novak was an executive with All American Gourmet Company, Inc., a
manufacturer of frozen food products, and for Mattel, Inc.
William B. Towne has served as Executive Vice President,
Finance and Chief Financial Officer since March 1995. From 1990 to 1995, Mr.
Towne served as Executive Vice President, Chief Financial Officer for Forstmann
& Co, Inc. From 1982 to 1990, Mr. Towne worked for Tambrands, Inc. where he rose
from Manager of Forecast and Planning to Chief Financial Officer of their
International Divisions.
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John C. Beuttell has served as Senior Vice President,
Marketing - Male Action since February 1996. Prior to undertaking his current
position, Mr. Beuttell held a senior management position at YES Entertainment.
Before joining YES Entertainment, Mr. Beuttell held several senior management
positions, including the following: Vice President of Sales and Marketing for a
toy company called TSR, President of Matchbox Toys-USA, Vice President of
International for Atari Video Games and Director of Marketing for Mattel, Barbie
Division.
H. Alan Gaudie has served as Senior Vice President, Finance
since April 1992. From 1985 to 1992, Mr. Gaudie served as Corporate Controller,
Vice President, Senior Vice President and acting Chief Financial Officer.
Ronnie Soong has served as Managing Director of Galco
International Toys, N.V., a wholly-owned subsidiary of the Company ("Galco"),
since May 1995. From April 1993 to 1995, Mr. Soong served as General Manager of
Galco. From 1989 to 1993, Mr. Soong was General Manager of Zindart Industrial
Co., Ltd. Prior to 1989, Mr. Soong was the General Manager of Buddy L (HK) Ltd.
and an executive with the Ertl Company in Taiwan.
Terrell (Mark) Taylor has served as Senior Vice President,
Preliminary Design since November 1995. From 1988 to 1995, Mr. Taylor served as
Senior Vice President, Product Design for Mattel, Inc . From 1987 to 1988, Mr.
Taylor served as Vice President with Entertech/LJN Toys. Prior to 1987, Mr.
Taylor served in various executive capacities at Playmates Toys, Tomy Toys, and
Mattel Toys. In addition, Mr. Taylor was a principal partner with Taylor/Salari
Design.
10
<PAGE> 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock, par value $.01 per share, has
traded on the New York Stock Exchange since July 9, 1987. The following table
sets forth for each quarter during the last two fiscal years the high and low
closing sale prices as reported by the New York Stock Exchange:
<TABLE>
<CAPTION>
Fiscal Year High Low
----------- ---- ---
<S> <C> <C> <C>
1995 First Quarter $ 7 3/4 $5 1/4
Second Quarter 8 3/8 6
Third Quarter 9 1/2 6 1/2
Fourth Quarter 13 5/8 9 1/4
1994 First Quarter $10 5/8 $6 1/8
Second Quarter 6 7/8 5 1/2
Third Quarter 8 1/2 6 1/8
Fourth Quarter 7 3/8 4 3/4
</TABLE>
As of March 1, 1996, there were approximately 1,503 holders of
record of the Common Stock.
No cash dividends were declared in 1995 or 1994 on the common
stock. The Board of Directors has no current plans to pay cash dividends on the
common stock. The Company's current credit agreement and the terms of its
$17.00 Convertible Exchangeable Preferred Stock limit the Company's ability to
pay cash dividends on the common stock. (See Notes E and N of Notes to
Consolidated Financial Statements.) Future dividend policy will depend on the
Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors.
On February 12, 1996, the Company announced that it was
commencing an exchange offer for its Depositary Convertible Exchangeable
Preferred Shares (the "Preferred Shares"). Under the terms of the exchange
offer, the Company will offer to exchange 1.85 shares of Common Stock for each
of the 1,839,500 Preferred Shares currently outstanding. The exchange offer has
an expiration date of March 29, 1996, and is conditioned on, among other
things, the receipt of valid tenders from the holders of at least 75 percent of
the outstanding Preferred Shares.
11
<PAGE> 14
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(in thousands, except per share data)
Years ended December 31,
-------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues ........................... $220,044 $178,792 $134,334 $166,280 $150,636
======== ======== ======== ======== ========
Net earnings (loss) .................... 9,399 18,424 (10,924) (2,447) (7,540)
Preferred stock dividends:
Paid .............................. -- -- -- 782 3,127
In arrears ........................ 3,127 3,127 3,127 2,345 --
-------- -------- -------- -------- --------
Net earnings (loss) applicable to
common shares ..................... $ 6,272 $ 15,297 $(14,051) $ (5,574) $(10,667)
======== ======== ======== ======== ========
Net earnings (loss) per common share:
Primary ............................ $ 0.60 $ 1.51 $ (1.47) $ (0.59) $ (1.14)
======== ======== ======== ======== ========
Fully diluted ...................... $ 0.60 $ 1.41 $ (1.47) $ (0.59) $ (1.14)
======== ======== ======== ======== ========
Number of common shares and
common share equivalents
outstanding - average .............. 10,451 10,111 9,548 9,400 9,325
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ........................ $ 54,670 $ 53,219 $ 30,813 $ 27,070 $ 29,127
Total assets ........................... 120,084 100,766 71,005 71,604 64,016
Long-term debt ......................... 14,000 18,414 18,608 4,944 5,244
Shareholders' equity ................... 54,172 44,768 22,162 32,246 35,092
</TABLE>
12
<PAGE> 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth certain operating data (as a
percentage of the Company's net revenues) for the years ended December 31, 1995,
1994 and 1993:
<TABLE>
<CAPTION>
Years Ended
December 31
-----------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net revenues ............................ 100.0% 100.0% 100.0%
Cost of products sold ................... 60.0 58.5 61.7
----- ----- -----
Gross margin ............................ 40.0 41.5 38.3
Advertising and promotion expenses ...... 14.2 17.1 17.5
Other selling and
administrative expenses ............. 16.3 15.1 19.1
Research and development expenses ....... 3.6 4.1 5.6
Variable stock option plan expenses ..... -- -- 3.0
----- ----- -----
Earnings (loss) from operations ......... 5.9 5.2 (6.9 )
Net proceeds from Nintendo award ........ -- 6.8 --
Interest expense ........................ (1.5 ) (1.5 ) (1.3 )
Other income, net ....................... 0.2 0.2 0.1
Provision for income taxes .............. (0.3 ) (0.4 ) --
----- ----- -----
Net earnings (loss) ..................... 4.3% 10.3% (8.1%)
===== ===== =====
</TABLE>
Years Ended December 31, 1995 and 1994
In 1995, for the second consecutive year, the Company had
record sales and earnings in the fourth quarter, and the Company had its best
full year operating performance since 1989. That performance demonstrates that
management's current strategy to make Galoob a high growth company is working,
and management believes the Company is very well positioned to continue to build
on that strategy in 1996 and the foreseeable future.
Net revenues in 1995 were $220.0 million which represented a
23% increase from 1994 net revenues of $178.8 million. The strong sales growth
for 1995 was attributable to two principal factors: (1) the international unit
posted a new annual sales record of $80.7 million, an increase of 35% from 1994
and (2) the Company's worldwide sales of girls' toys increased by more than 500%
to $88.0 million, which represented 40% of net revenues as compared to only 8%
of net revenues in 1994. The girls' toys line increase was led by the
introduction of the hugely popular Sky Dancers flying dolls, and a line of
miniature houses and accessories -- My Pretty DollHouse. The strength in the
girls' line is expected to continue in 1996 with a greatly expanded Sky Dancers
line, extensions to the My Pretty DollHouse line, and with the reintroduction of
the enormously popular Pound Puppies line that was the all-time best selling
line of plush animals during the 1980's and is licensed for the first time by
the Company.
In 1995, the Company's boys' toys business was again led by
its core brand, Micro Machines. Increases in the civilian, miliary and Star Wars
segments led Micro Machines to its twelfth consecutive quarter of U.S. retail
sales growth through the fourth quarter of 1995. A decline in consumer demand
for the Micro
13
<PAGE> 16
Machines Z-Bots and Power Rangers segments substantially reduced the Company's
shipments of these segments. This decline, and the discontinuance of the Biker
Mice from Mars line to domestic retailers, each of which was anticipated, led to
a decrease in boys' toys net worldwide sales of 22% as compared to 1994.
However, the Company's worldwide Micro Machines sales in 1995, excluding Z-Bots
and Power Rangers, grew by 15% over 1994.
The Company's male action category was expanded in 1995 from
just one international Biker Mice From Mars line, to include the introduction of
UltraForce based on the superhero animated television show derived from the
popular Malibu comics, and the Micro Machines Star Wars Action Fleet line which
creates a completely new size scale for the male action category. In 1995, the
Company also test marketed its Mutant League line based on a syndicated
television series and the Electronic Arts video games. However, based
essentially on the test market results, the Company decided not to pursue a
national rollout of the line.
The male action lines will continue to grow in 1996 with an
expanded Star Wars Action Fleet line, the introduction of Dragon Flyz, the line
of flying action figures plus vehicles and accessories, and the introduction of
the toy line for Turner Entertainment's spectacular animated action-adventure
series, The Real Adventures of Jonny Quest.
Gross margins were $88.0 million in 1995, an increase of 18.6%
or $13.8 million from 1994. The increase was due to higher sales volume offset
slightly by a lower gross margin rate. The gross margin rate decreased to 40.0%
in 1995 from 41.5% in 1994 due mainly to three factors. First, tooling and
packaging design costs were a higher percent of revenues in 1995 as compared to
1994 in support of the Company's expanded product line. Second, international
sales as a percentage of worldwide revenues were higher in 1995 compared to
1994. The Company's gross margin on international sales is significantly lower
than domestic sales because international prices are lower as the customer is
responsible for the cost of importing, promoting and reselling the product.
Third, sharp price increases on plastics and packaging materials occurred in the
third and fourth quarters of 1995. Such cost increases occurred too late in the
year for the Company to be able to pass on cost increases through product price
increases. These three factors reducing the gross margin rate were partially
offset by the elimination of duty on toys imported into the United States.
Advertising and promotion expenses were $31.2 million or 14.2%
of net revenues in 1995 as compared to $30.6 million or 17.1% of net revenues in
1994. The decrease in advertising and promotion expenses as a percent of net
revenues was a result of higher marketing efficiencies domestically, coupled
with the effects of the higher sales growth rate internationally where the
Company's distributors absorb their own advertising costs. Other selling and
administrative expenses were $35.9 million in 1995 as compared to $27.0 million
in 1994. The increase in expenses was due mainly to (1) higher planned personnel
costs as a result of the Company's growth and product line expansion, (2) higher
freight costs, and (3) higher legal expenses. Research and development expenses
were $7.9 million in 1995 as compared to $7.3 million in 1994 with the
increase due to the expansion of the number of product lines. Although overall
operating expenses increased by $10.1 million in 1995 as compared to 1994,
operating expenses as a percent of net revenues declined to 34.1% in 1995 from
36.3% in 1994.
Earnings from operations were $13.0 million, an increase of
39% from 1994 earnings from operations of $9.3 million, based on net revenue
increases of 23%. The higher growth rate of earnings as compared to net revenues
indicates the positive leverage the Company is achieving on incremental net
revenue growth.
In 1994, the net proceeds of $12.1 million from the Nintendo
award represents the receipt, net of associated legal and related expenses, of
the Company's share of proceeds from its litigation with Nintendo
14
<PAGE> 17
of associated legal and related expenses, of the Company's share of proceeds
from its litigation with Nintendo of America, Inc. The amount was reflected in
1994 results and had no impact on 1995 results.
Interest expense was $3.4 million in 1995 as compared to $2.6
million in 1994. The increase was due primarily to higher average borrowings
needed to fund working capital to support higher sales, offset by a slightly
lower interest rate in 1995 as compared to 1994 on the Company's revolving
credit facility. Other income was $0.4 million in both 1995 and 1994.
Income tax expense for 1995 and 1994 includes provisions for
federal, state and foreign income taxes, after taking into account the available
net operating loss carryforwards from prior years. At December 31, 1995, the
Company has federal net operating loss carryforwards of approximately $7.3
million and unused federal tax credits of approximately $1.8 million available
to reduce taxes in future periods. (See Notes A and F of Notes to Consolidated
Financial Statements.)
In management's opinion, other than the sharp price increases
on plastics and packaging materials noted above, general inflation did not have
a material impact on the Company's business in 1995. The Company did not
implement any substantial price increases in 1995 or 1994 on continuing product
lines.
The toy industry is affected by changing consumer tastes,
shifting cultural and demographic trends and general economic conditions.
Consequently, the Company's results are dependent, in large part, on
management's experience in the toy industry and its ability to identify and
capitalize on current trends and market new products in a timely and efficient
manner. The Company may not always be able to anticipate changes in consumer
demand or to respond quickly to such changes once they are identified, and such
inabilities could have an adverse impact on the Company.
Historically, a relatively small number of items have
contributed a large portion of the Company's revenues in each year. A decrease
in popularity of a particular item during any year could have a material adverse
impact on revenues and profits for that year. The Company's strategy emphasizing
multi-year extendable brands is intended to mitigate such adverse impacts.
The Company does not carry insurance for political, social or
economic unrest or disruption for several reasons, including, but not limited
to, costs of such insurance and the limited insurance coverage available. The
impact on the Company from such unrest or disruption would depend on general
factors, including, but not limited to, the nature, extent and location of such
unrest or disruption and the Company's ability to: (1) procure alternative
manufacturing sources outside of the country involved; (2) retrieve its tooling;
(3) relocate its production in sufficient time to meet demand; and (4) pass cost
increases likely to be incurred resultant from (1)-(3) above through to the
Company's customers as product price increases.
The Company's products are produced principally in China,
which currently is designated with MFN status by the United States. This allows
products imported into the United States from China to be accorded the most
favorable import duties. In late 1994, Congress approved the GATT (Uruguay
round), which allows imports into the United States of toy merchandise with
unconditional duty-free entry from any nation with MFN status. Generally, the
trade negotiations between China and the United States have been difficult, but
both sides have shown their willingness to resolve trade disputes and avoid
punitive sanctions. Punitive sanctions could result in the United States
imposing higher duties on selective Chinese-made products imported into the
United States (these sanctions would be put in place through Section 301 of the
Trade Act of 1974, as amended). In the past, Section 301 sanctions proposed by
the United States did not include sanctions or punitive damages against toy
imports from China. As such, the Company would be unaffected. The loss of MFN
status for China, however, would result in a substantial
15
<PAGE> 18
imported into the United States. This increase in duty would be large enough
that it could materially affect the Company's business. Products shipped from
China to other countries should not be affected. Other toy companies also source
product from China and would be affected to similar degrees. However, the impact
on the Company from any significant change in duties on its Chinese-produced
product would depend on several factors including, but not limited to, the
Company's ability to (1) procure alternative manufacturing sources outside of
China, (2) retrieve its tooling located in China, (3) relocate its production in
sufficient time to meet demand; and (4) pass cost increases likely to be
incurred resultant from (1)-(3) above through to the Company's customers as
product price increases.
In 1994, certain quotas on Chinese-produced toy products were
introduced in the European Economic Community. These quotas did not have a
material impact on the Company's business in 1995 and are not expected to have a
material impact in the foreseeable future.
Years Ended December 31, 1994 and 1993
In 1994, the Company was profitable and had its best
performance since 1989. This was a result of the successful implementation of
the Company's recovery plan which began in 1991.
The recovery plan objective was to reposition the Company to
enable it to generate sustainable profitability and growth. Essential to
reaching this objective were three key goals: (1) restore and expand the
Company's core business, the Micro Machines brand, (2) focus on growth
opportunities in new product areas, such as the male action category, and (3)
lower breakeven versus the 1990 cost profile. The new management team was put in
place in 1991.
Overall, consolidated net revenues, including both toy sales
and sales of the Game Genie video game enhancer, in 1994 were $178.8 million,
which represented a 33% increase from 1993 net sales of $134.3 million.
Worldwide toy sales in 1994 achieved a 72% increase as compared to 1993.
Domestic toy sales rose by 103% and international toy sales rose by 33% from
1993 to 1994.
In 1994, sales of Micro Machines products grew significantly
for the second consecutive year. Net sales in 1994 climbed to $113.0 million
which was a 59% increase over 1993 levels. This comes on top of a 55% increase
in sales in 1993 over 1992. A significant area of growth in the Micro Machines
line was from licensed products such as Star Wars, Star Trek and Power Rangers.
The Company also successfully entered a new, high-growth potential category-male
action. Biker Mice From Mars, which was introduced in late 1993, generated sales
in 1994 of $41.4 million as compared to $4.3 million in 1993. In late 1994,
shipments of two new products, Sky Dancers, a flying doll, and My Pretty
DollHouse commenced and generated sales of $3.3 million and $3.0 million,
respectively. Game Genie sales were $4.2 million in 1994 as compared to $32.8
million in 1993. This decrease in Game Genie sales reflected the normal maturity
cycle for such products and this trend is expected to continue.
Gross margin totaled $74.2 million in 1994, an increase of
$22.7 million from 1993. This increase was due to higher sales volume and a
higher gross margin rate. The gross margin rate improved to 41.5% in 1994 from
38.3% in 1993 due to three factors. First, the international gross margin rate
was higher due to a change in product mix. Second, the percent of U.S. sales to
worldwide sales was greater. The Company's gross margin rate on domestic sales
is significantly higher than foreign sales because foreign prices are lower as
the customer is responsible for the cost of importing and promoting the
products. Third, while tooling, packaging and other costs in the aggregate were
higher in 1994 compared to 1993, they were lower as a percent of sales in 1994
compared to 1993.
16
<PAGE> 19
Advertising and promotion expenses were $30.6 million in 1994
compared to $23.5 million in 1993. The higher expenses were primarily a result
of an increase in planned domestic television advertising expense in connection
with the Company's expanded product lines. Other selling and administrative
expenses were $27.0 million in 1994 compared to $25.6 million in 1993. This
increase was due mainly to incentive compensation which was reinstated based on
the Company's 1994 performance. Research and development expenses were
approximately equal in 1994 compared to 1993.
The $4.0 million expense in 1993 related to the variable stock
option plan was a one-time charge.
The Company received $12.1 million in 1994 from the litigation
award from Nintendo of America, Inc. This amount was obtained by reducing the
gross award of $16.1 million by amounts due the Company's Game Genie licensors.
(See Note M to the Company's Consolidated Financial Statements.)
Interest expense in 1994 was $2.6 million compared to $1.8
million in 1993. An increase of $1.0 million was due to the Debentures being
outstanding during all of 1994 compared to being outstanding for less than 2
months in 1993. Interest was reduced by lower average borrowings under the
Company's line of credit in 1994, although interest rates were higher.
Other income was $0.4 million in 1994, as compared to $0.1
million in 1993.
The income tax expense for 1994 includes provisions for
federal, state and foreign income taxes, after taking into account the available
net operating loss carryforwards from prior years. In 1993, the tax provision
represented only foreign income taxes as there was no taxable U.S. income. At
December 31, 1994, the Company had federal net operating loss carryforwards of
approximately $11.5 million and unused federal tax credits of approximately $1.7
million available to reduce taxes in future periods. (See Notes A and F to the
Company's Consolidated Financial Statements.)
The Company's breakeven point has been substantially reduced
since 1990. In 1994, the Company's earnings from operations were $9.3 million on
$178.8 million in sales, which was a $39.1 million improvement in earnings from
operations and a $51.9 million improvement in sales in comparison to 1990 sales
of $126.9 million and loss from operations of $29.8 million.
Liquidity, Financial Resources and Capital Expenditures
On March 31, 1995, the Company entered into an amended and
restated loan and security agreement (the "New Agreement") with Congress
Financial Corporation (Central). (See Note E to the Company's Consolidated
Financial Statements.)
Working capital was $54.7 million at December 31, 1995
compared to $53.2 million at December 31, 1994. The ratio of current assets to
current liabilities was 2.1 to 1.0 at December 31, 1995 compared to 2.4 to 1.0
at December 31, 1994.
The Company had no material commitments for capital
expenditures at December 31, 1995.
The Company believes that with its assets, the results of
operations and the New Agreement it has adequate liquidity and capital resources
to meet its current and anticipated operating needs.
17
<PAGE> 20
Recent Developments
On February 12, 1996, the Company announced that it was
calling for redemption of its 8% Convertible Subordinated Debentures
originally due 2000 (the "Debentures"), and was commencing an exchange offer
for its Depositary Convertible Exchangeable Preferred Shares (the "Preferred
Shares").
Under the terms of the redemption, the $14,000,000 Debentures
now outstanding will be redeemed on or about March 22, 1996, unless converted
into the Company's Common Stock by the holders prior to the redemption date.
Until the redemption date, the Debentures are convertible into an aggregate of
1,511,873 shares of Common Stock at the rate of $9.26 principal amount for each
share of Common Stock. The Company became entitled to redeem the Debentures when
the average closing price of its Common Stock for twenty consecutive days
exceeded 150% of the conversion price.
Under the terms of the exchange offer, the Company will offer
to exchange 1.85 shares of Common Stock for each of the 1,839,500 Preferred
Shares currently outstanding. The exchange offer has an expiration date of March
29, 1996, and is conditioned on, among other things, the receipt of valid
tenders from the holders of at least 75 percent of the outstanding Preferred
Shares.
Recent Accounting Pronouncement
The FASB issued a new standard, SFAS No. 123, "Accounting for
Stock-Based Compensation", which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for employee
stock options and similar equity instruments under APB Option 25. "Accounting
for Stock Issued to Employees" Entities that continue to account for stock
options using APB Opinion 25 are required to make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in FSAS No. 123 had been applied. The Company has not determined which
method it will follow in the future. The Company will be required to adopt the
new standard for the year ending December 31, 1996.
Item 8. Financial Statements and Supplementarty Data
The Consolidated Financial Statements and Financial Statement
Exhibits are listed in Item 14(a) and are included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
18
<PAGE> 21
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors
The section entitled "Election of Directors"
contained in the Proxy Statement is hereby
incorporated by reference.
(b) Identification of Executive Officers:
See PART I of this Form 10-K.
Item 11. Executive Compensation
The section entitled "Executive Compensation" contained in the
Proxy Statement is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section entitled "Security Ownership of Management"
contained in the Proxy Statement is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The section entitled "Executive Compensation" contained in the
Proxy Statement is hereby incorporated by reference.
19
<PAGE> 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
Index to Financial Statements
The following consolidated financial statements and schedules
of the Company and its subsidiaries are included as Part II, Item 8 of this
Report:
<TABLE>
<CAPTION>
(a) 1. Financial Statements Page
-------------------- ----
<S> <C>
Report of Independent Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and F-2
December 31, 1994
Consolidated Statements of Operations for the years ended F-3
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity F-4
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended F-5
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements F-6 to
F-19
(a) 2. Financial Statement Schedules
-----------------------------
Schedule VIII - Valuation and Qualifying Accounts and S-1
Reserves for the years ended December 31, 1995, 1994 and
1993
Schedule X - Supplementary Income Statement Information S-2
for the years ended December 31, 1995, 1994 and 1993
</TABLE>
All other schedules have been omitted because they are
inapplicable or not required, or the information is included in the financial
statements or notes thereto.
20
<PAGE> 23
<TABLE>
<CAPTION>
(a) 3. Exhibits
--------
<S> <C>
2.1(1) Agreement of Merger, dated as of July 6, 1987.
3.1(1) Certificate of Incorporation.
3.2(1) Bylaws.
4.1(2) Form of Certificate for Shares of Common Stock of Registrant.
4.4(a)(3) Warrant Agreement, dated as of July 7, 1988, between the
Registrant and Wells Fargo Bank and warrants issued to Wells
Fargo Bank.
4.4(b)(4) Warrant Agreement, dated as of December 11, 1991, by and
between the Registrant and Shereff, Friedman, Hoffman and
Goodman, LLP.
4.4(c)(4) Warrant Agreement, dated as of November 17, 1993, by and
between the Registrant and Gerard Klauer Mattison & Co., Inc.
4.5(a)(5) Form of Certificate of Designations of the Registrant's $17.00
Convertible Exchangeable Preferred Stock.
4.5(b)(6) Form of Certificate of Designations of the Registrant's Series
A Preferred Stock.
4.6(5) Form of Indenture with respect to the Registrant's 8 1/2%
Convertible Subordinated Debentures due October 1, 2014,
between the Registrant and Manufacturers Hanover Trust Company
as Trustee, including form of Convertible Debenture.
4.7(5) Form of Indenture with respect to the Registrant's
Subordinated Debentures due October 1, 2014, between the
Registrant and Manufacturers Hanover Trust Company as Trustee,
including form of Debenture.
4.8(5) Form of Indenture with respect to the Registrant's 8 1/2%
Senior Subordinated Notes, between the Registrant and
Continental Stock Transfer & Trust Company, as Trustee,
including form of Note.
4.9(5) Form of Deposit Agreement between the Registrant and
Manufacturers Hanover Trust Company of California as
Depositary, including form of Depositary Receipt.
4.10(6) Form of Rights Agreement, dated as of January 17, 1990,
between the Registrant and Mellon Securities Trust Company.
4.11(4) Indenture, with respect to the Registrant's 8% Convertible
Subordinated Debentures due year 2000, between the Company and
Continental Stock Transfer & Trust Company, as Trustee,
including form of Debenture Note.
10.1(a)(7)* Amended and Restated 1984 Employee Stock Option Plan.
10.1(b)(8)* 1994 Senior Management Stock Option Plan.
10.1(c)(9)* Form of Agreement between each of Mark Goldman, William
Catron, Lou Novak, Gary Niles, Mark Shepherd, Ronald
Hirschfeld and H. Alan Gaudie and the Registrant.
10.1(d)(10)* Form of Amendment No. 1 between each of Mark Goldman, William
Catron, Lou Novak, Gary Niles, Mark Shepherd, Ronald
Hirschfeld and H. Alan Gaudie and the Registrant.
10.1(e)* 1995 Non-Employee Directors' Stock Option Plan.
10.2* Lewis Galoob Toys, Inc. Savings and Retirement Plan (Formerly
named the Lewis Galoob Toys, Inc. Profit Sharing Plan)
(Amendment and Restatement Effective January 1, 1987).
10.4(10)* Severance Agreement, dated October 27, 1994, between Mark
Goldman and the Registrant.
10.5(12)* Agreement, dated as of December 11, 1991, by and between
Martin Nussbaum and the Registrant.
10.6(a)(14)* Agreement, dated July 15, 1995, between William G. Catron and
the Registrant.
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
(a) 3. Exhibits
--------
<S> <C>
10.6(b)(14)* Agreement, dated July 15, 1995, between Loren Hildebrand and
the Registrant.
10.6(c)(14)* Agreement, dated July 15, 1995, between Ronald Hirschfeld and
the Registrant.
10.6(d)(14)* Agreement, dated July 15, 1995, between Gary J. Niles and the
Registrant.
10.6(e)(14)* Agreement, dated July 15, 1995, between Louis R. Novak and the
Registrant.
10.6(f)(14)* Agreement, dated July 15, 1995, between William B. Towne and
the Registrant.
10.7(a)(4) Securities Purchase Agreement, dated November 17, 1993, by and
among the Registrant and the purchasers thereto (the
"Purchasers").
10.7(b)(4) Registration Rights Agreement, dated as of November 17, 1993,
by and among the Registrant and the Purchasers.
10.7(c)(4) Loan and Security Agreement, dated as of April 1, 1993, by and
among the Registrant and Congress Financial Corporation
(Central), including form of Revolving Loan Note.
10.7(d)(4) First Amendment to Loan and Security Agreement, dated as of
November 17, 1993.
10.7(e)(10) Amended and Restated Loan and Security Agreement, dated as of
March 31, 1995, by and among the Registrant and Congress
Financial Corporation (Central).
10.9(a)(12) License Agreement, dated June 16, 1986, by and between
Funmaker, as Licensor and the Registrant, as Licensee.
10.9(b)(13) License Agreement, dated May 4, 1990, by and among the
Registrant as Licensee, Codemasters Software Company, Ltd. and
Camerica Corporation, Limited.
10.9(c)(13) Amendment No. 1 dated June 1991 to License Agreement dated May
4, 1990.
10.9(d)(13) Amendment No. 2 dated December 23, 1991 to License Agreement,
dated May 4, 1990.
10.9(e)(13) European License Agreement, dated December 23, 1991, by and
between Codemasters Software Company, Ltd. and the Registrant.
10.9(f)(13) Third Amendment to United States License and First Amendment
to European License, dated November 4, 1992.
10.9(g)(10) Fourth Amendment to United States License Agreement, dated
October 14, 1994.
10.10(12) Agreement of Purchase and Sale, dated October 22, 1986, by and
between ATC Building Company, as Seller, and the Registrant,
as Buyer.
10.12(a)(1) Lease Agreement, dated March 12, 1987, by and between Lincoln
Alvarado and Patrician Associates, Inc., as Lessor, and the
Registrant, as Lessee.
10.12(b)(11) Amendment No. 1 to Lease Agreement.
10.12(c) Lease Agreement, dated December 1, 1995, by and between 200
Fifth Avenue Associates as Lessor and the Registrant, as
Lessee.
11 Statement of Computation of Per Share Earnings.
12 Statement of Computation of Rate of Earnings to Fixed Charges
and Preferred Stock Dividends.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedules
</TABLE>
- --------------------
(1) Incorporated by reference to the Registrant's Amendment No. 1 to
Registration Statement on Form 8-B, filed with the Securities and
Exchange Commission (the "Commission") on January 11, 1988.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-3, filed with the Commission on February 26, 1990.
(3) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1987, filed with the Commission on August 2,
1988.
(4) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1993, filed with the Commission on March 31,
1994.
22
<PAGE> 25
(5) Incorporated by reference to the Registrant's Registration Statement on
Form 8-A, filed with the Commission on October 6, 1989.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form 8-A, filed with the Commission on January 23, 1990.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 33-56585, filed with the Commission on
November 23, 1994.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 33-56587, filed with the Commission on
November 23, 1994.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 33-56589, filed with the Commission on
November 23, 1994.
(10) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1994, filed with the Commission on March 31,
1995.
(11) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1991, filed with the Commission on March 30,
1992.
(12) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1986, filed with the Commission on March 31,
1987.
(13) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1992, filed with the Commission on March 31,
1993.
(14) Incorporated by reference to the Registrant's Statement on Form S-1,
Registration No. 333- 00743, filed with the Commission on February 6,
1996.
* Indicates exhibits relating to executive compensation.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on February 12, 1996
with respect to the redemption of its Debentures and its intent to
commence an exchange offer for the outstanding Preferred Shares.
23
<PAGE> 26
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.
LEWIS GALOOB TOYS, INC.
(Registrant)
By: /s/ Mark D. Goldman
-------------------
Mark D. Goldman
President and Chief Executive Officer
Dated: March 11, 1996
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Mark D. Goldman President, Chief March 11, 1996
- ----------------------- Executive Officer and
Mark D. Goldman Director
/s/ Scott R. Heldfond Director March 11, 1996
- -----------------------
Scott R. Heldfond
/s/ Paul A. Gliebe, Jr. Director March 11, 1996
- -----------------------
Paul A. Gliebe, Jr.
/s/ Martin Nussbaum Director March 11, 1996
- -----------------------
Martin Nussbaum
/s/ S. Lee Kling Director March 11, 1996
- -----------------------
S. Lee Kling
/s/ Andrew Cavanaugh Director March 11, 1996
- -----------------------
Andrew Cavanaugh
/s/ Roger Kowalsky Director March 11, 1996
- -----------------------
Roger Kowalsky
/s/ George Riordan Director March 11, 1996
- -----------------------
George Riordan
/s/ Hoffer Kaback Director March 11, 1996
- -----------------------
Hoffer Kaback
/s/ William B. Towne Executive Vice March 11, 1996
- ----------------------- President, Finance
William B. Towne and Chief Financial Officer
</TABLE>
24
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Lewis Galoob Toys, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 20 present fairly, in all material
respects, the financial position of Lewis Galoob Toys, Inc. and its 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. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Francisco, California
February 8, 1996 (except as to Note R, which is as of February 12, 1996)
F-1
<PAGE> 28
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 2,030 $ 2,225
Accounts receivable, net 68,402 57,883
Inventories 17,491 16,824
Tooling and related costs 8,311 8,379
Prepaid expenses and other assets 10,348 5,492
--------- ---------
TOTAL CURRENT ASSETS 106,582 90,803
LAND, BUILDING AND EQUIPMENT, NET 8,913 8,400
OTHER ASSETS 4,589 1,563
--------- ---------
$ 120,084 $ 100,766
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable $ 15,071 $ 6,971
Accounts payable 17,141 14,973
Accrued expenses 14,547 14,939
Income taxes payable 731 499
Current portion of long-term debt 4,422 202
--------- ---------
TOTAL CURRENT LIABILITIES $ 51,912 37,584
LONG-TERM DEBT 14,000 18,414
SHAREHOLDERS' EQUITY:
Preferred stock
Authorized 1,000,000 shares
Issued and outstanding 183,950 shares of $17 Convertible Exchangeable
Preferred Stock at $200 liquidation value per share 36,790 36,790
Common Stock, par value $.01 per share
Authorized 50,000,000 shares
Issued and outstanding 10,089,961 shares in 1995 and
10,055,089 shares in 1994 101 101
Additional paid-in capital 31,579 31,506
Retained earnings (deficit) (13,851) (23,182)
Cumulative translation adjustment (447) (447)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 54,172 44,768
--------- ---------
$ 120,084 $ 100,766
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-2
<PAGE> 29
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 220,044 $ 178,792 $ 134,334
Costs of products sold 132,061 104,592 82,875
--------- --------- ---------
Gross margin 87,983 74,200 51,459
--------- --------- ---------
Operating expenses:
Advertising and promotion 31,240 30,616 23,537
Other selling and administrative 35,868 26,974 25,640
Research and development 7,886 7,288 7,451
Variable stock option plan expense -- -- 4,046
--------- --------- ---------
Total operating expenses 74,994 64,878 60,674
--------- --------- ---------
Earnings (loss) from operations 12,989 9,322 (9,215)
Net proceeds from Nintendo award -- 12,124 --
Interest expense (3,429) (2,609) (1,836)
Other income, net 439 365 136
--------- --------- ---------
Earnings (loss) before income taxes 9,999 19,202 (10,915)
Provision for income taxes 600 778 9
--------- --------- ---------
Net earnings (loss) 9,399 18,424 (10,924)
Preferred stock dividends in arrears 3,127 3,127 3,127
--------- --------- ---------
Net earnings (loss) applicable to
common shares $ 6,272 $ 15,297 $ (14,051)
========= ========= =========
Common shares and common share
equivalents outstanding -average 10,451 10,111 9,548
Net earnings (loss) per common share:
Primary $ 0.60 $ 1.51 $ (1.47)
Fully Diluted 0.60 1.41 (1.47)
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 30
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except shares)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Cumulative
--------------- ------------ Paid-In Earnings Translation
Shares Amts Shares Amts Capital (Deficit) Adjustment Total
------ ---- ------ ---- ------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/92 183,950 $36,790 9,472,057 $ 95 $ 26,425 $(30,652) $(412) $ 32,246
Net loss -- -- -- -- -- (10,924) -- (10,924)
Common stock issued -- -- 89,800 1 343 -- -- 344
Warrants issued -- -- -- -- 525 -- -- 525
Common stock received in exchange
for shares issued and cancelled -- -- (2,500) -- -- (20) -- (20)
Cumulative translation adj. and other -- -- -- -- -- -- (9) (9)
------- ------- ---------- ---- -------- -------- ----- --------
Balance at 12/31/93 183,950 36,790 9,559,357 96 27,293 (41,596) (421) 22,162
Net earnings -- -- -- -- -- 18,424 -- 18,424
Common stock issued, net -- -- 47,000 1 161 -- -- 162
Termination of 1992 Plan -- -- 449,732 4 4,042 -- -- 4,046
Common stock received in exchange
for shares issued and cancelled -- -- (1,000) -- 10 (10) -- --
Cumulative translation adj. and other -- -- -- -- -- -- (26) (26)
------- ------- ---------- ---- -------- -------- ----- --------
Balance at 12/31/94 183,950 36,790 10,055,089 101 31,506 (23,182) (447) 44,768
Net earnings -- -- -- -- -- 9,399 -- 9,399
Common stock issued, net -- -- 58,751 -- 228 -- -- 228
Common stock received in exchange for
shares issued and cancelled -- -- (11,202) -- (155) (68) -- (223)
Reclamation of shares -- -- (12,677) -- -- -- -- --
------- ------- ---------- ---- -------- -------- ----- --------
Balance at 12/31/95 183,950 $36,790 10,089,961 $101 $ 31,579 $(13,851) $(447) $ 54,172
======= ======= ========== ==== ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 31
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except shares)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 9,399 $ 18,424 $(10,924)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation 528 628 682
Variable stock option plan accrual -- -- 4,046
Changes in assets and liabilities:
Accounts receivable (10,519) (24,500) 2,523
Inventories (667) (3,845) 691
Tooling and related costs 68 (3,359) (2,212)
Prepaid expenses and other current assets (4,856) 1,849 285
Accounts payable 2,168 4,140 1,449
Accrued expenses (392) 67 (3,002)
Income taxes payable 232 217 (549)
Other assets (3,026) (168) (437)
-------- -------- --------
Net cash (used in) provided by operating activities (7,065) (6,547) (7,448)
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in land, building and equipment, net (1,041) (466) (82)
-------- -------- --------
Net cash (used in) provided by investing activities (1,041) (466) (82)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under notes payable 8,100 6,971 (5,698)
Borrowings under long-term debt agreement -- -- 14,000
Repayments under long-term debt agreements (194) (194) (191)
Proceeds from issuance of common stock, net 5 162 324
Other, net -- (26) (9)
-------- -------- --------
Net cash provided by (used in) financing activities 7,911 6,913 8,426
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (195) (100) 896
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,225 2,325 1,429
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,030 $ 2,225 $ 2,325
======== ======== ========
Supplemental disclosure of non-cash activity:
In 1994, the Company issued 449,732 shares of common stock in connection with the termination of the 1992 Senior
Management Stock Option Plan. (See Note O).
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,050 $ 2,656 $ 1,604
Cash paid for income taxes $ 390 $ 822 $ 574
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 32
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE A - Summary of Significant Accounting Policies
Organization and Business
The Company has been engaged in business since 1957 and was originally
incorporated in California on November 6, 1968 and reincorporated in Delaware on
August 28, 1987. The Company is engaged in the design, development, marketing
and distribution of high quality toys worldwide. The Company's products are
primarily manufactured in the People's Republic of China ("China").
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, principally Galco International Toys, N.V. ("Galco"). All
significant intercompany accounts have been eliminated in consolidation. Certain
amounts in the financial statements of prior years have been reclassified to
conform with the current year's presentation.
Revenue Recognition
The Company records a transaction as a sale when inventory is shipped to the
customer and title passes. The Company provides for returns using a percentage
of gross sales, based on historical experience.
Foreign Currency Translation
The financial statements of Galco have been translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
Foreign Currency Translation. All asset and liability accounts have been
translated using rates of exchange in effect at the balance sheet date. Revenues
and expenses are translated at the weighted average of exchange rates in effect
during the year. Gains or losses from foreign currency translation adjustments
are charged or credited directly to a separate component of shareholders'
equity.
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.
Cash and Cash Equivalents
Cash equivalents consist primarily of marketable securities with original
maturities of less than ninety days.
Concentration of Credit Risk
Accounts receivable primarily represent balances due from customers. The Company
performs credit evaluations of each of its customers and maintains allowances
for potential credit losses. Such losses have generally been within management's
expectations.
F-6
<PAGE> 33
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
Inventories
Inventories are stated at lower of cost (first-in, first-out) or market.
Tooling and Related Costs
Costs incurred for tooling and package design are deferred and amortized over
the life of the products, which range from one to two years.
Prepaid Expenses
Prepaid expenses include costs such as those incurred in the creation of
television commercials which are deferred and amortized over their lives which
is estimated to be one year or the period the commercial is used, if shorter. On
January 1, 1995, the Company implemented SOP 93-7 "Reporting on Advertising
Costs." Implementation of the new standard had no material impact on the
financial statements. Prepaid expenses also include prepaid insurance, prepaid
samples, prepaid advertising media, and royalty advances.
Land, Building and Equipment
Land, building and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets. Amortization of leasehold improvements is provided using the
straight-line method over the estimated useful lives of the assets, or the term
of the applicable lease, whichever is less. Estimated useful lives are 35 years
for building and building improvements, 1 to 12 years for leasehold
improvements, 5 years for office furniture, fixtures and equipment (including
computer equipment), and 3 to 6 years for vehicles.
For the year ended December 31, 1995, the Company implemented SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets". Implementation of SFAS No.
121 has been determined to have no material impact on the financial statements.
Income Taxes
In 1993, the Company retroactively adopted SFAS 109, "Accounting for Income
Taxes". SFAS 109 prescribes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS 109
generally considers all expected future events other than enactments of changes
in the tax law or rates. Previously, the Company used the SFAS 96 asset and
liability approach that gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying amounts.
Adoption of SFAS 109 did not have a material effect on the financial statements.
Earnings Per Share
Primary earnings per share is based on the net earnings (loss) applicable to
common shares, after providing for the dividends in arrears on the preferred
stock, for the year divided by the weighted average number of common and common
equivalent shares outstanding. Primary earnings per share for the years ended
December 31, 1995 and 1994 have been adjusted by common equivalent shares
resulting from the assumed exercise of common stock options and stock warrants.
Primary earnings per share for the year ended 1993 has not been adjusted by
common equivalent shares since the effect would be anti-dilutive. Fully diluted
earnings per share for the year
F-7
<PAGE> 34
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
ended 1994 includes the effect of the assumed conversion of the $17 Convertible
Exchangeable Preferred Stock and the 8% Convertible Subordinated Debentures into
common stock. Fully diluted earnings per share for the years ended December 31,
1995 and 1993 were the same as primary earnings per share since the effect of
the assumed conversion is anti-dilutive.
Recent Accounting Pronouncement
In 1995, the FASB issued a new standard, SFAS No. 123, "Accounting for
Stock-Based Compensation", which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for employee
stock options and similar equity instruments under APB Opinion 25, "Accounting
for Stock Issued to Employees". Entities that continue to account for stock
options using APB Opinion 25 are required to make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied. The Company has not determined which
method it will follow in the future. The Company will be required to adopt the
new standard for the year ending December 31, 1996.
NOTE B - Accounts Receivable, Net
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Trade receivables $76,834 $65,757
Provisions for:
Advertising allowances (5,800) (2,900)
Return of defective goods (700) (900)
Markdowns and discounts (2,975) (3,400)
Doubtful accounts (507) (897)
------- -------
Net trade receivables 66,852 57,660
Other receivables 1,550 223
------- -------
$68,402 $57,883
======= =======
</TABLE>
NOTE C - Inventories
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Finished goods $17,023 $15,596
Raw materials and parts 468 1,228
------- -------
$17,491 $16,824
======= =======
</TABLE>
F-8
<PAGE> 35
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE D - Land, Building and Equipment, Net
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Land and building $ 9,567 $ 9,564
Office furniture, fixtures and
equipment 4,646 4,360
Leasehold improvements 1,267 787
Vehicles 104 104
------- -------
15,584 14,815
Less accumulated depreciation 6,671 6,415
------ ------
$ 8,913 $ 8,400
======= =======
</TABLE>
NOTE E - Notes Payable
On March 31, 1995, the Company entered into an amended and restated loan and
security agreement (the "New Agreement") with Congress Financial Corporation
(Central) (the "Lender"). The New Agreement extends through March 31, 1997 and
provides a line of credit of $40 million, with provision to increase the line to
$60 million at the option of the Company. Borrowing availability is determined
by a formula based on qualified assets. The interest is at prime rate plus 1%.
In consideration for entering into the New Agreement, the Company paid a
$100,000 fee; additional fees will be paid if the Company exercises its option
to increase the line. The Company has also agreed to pay an unused line fee of
0.25% and certain management fees. The New Agreement provides that the preferred
dividend payment may not be made without the prior consent of the Lender. The
deferred loan fee is included in other assets and is being amortized using a
straight-line method over the term of the loan.
The maximum outstanding borrowings, average outstanding balances and weighted
average rates of interest for notes payable were as follows:
<TABLE>
<CAPTION>
(in thousands)
1995 1994
---- ----
<S> <C> <C>
Maximum outstanding at month end $30,235 $18,209
Average outstanding amount during the year 14,211 4,184
Weighted average interest rate for the year 10.4% 11.2%
</TABLE>
F-9
<PAGE> 36
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE F - Income Taxes
Earnings (loss) before income taxes and the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
(in thousands)
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic $9,288 $18,861 $(10,806)
Foreign 711 341 (109)
------ ------- --------
$9,999 $19,202 $(10,915)
====== ======= ========
Provision for income taxes:
Current:
Federal $ 187 $ 490 $ --
State 278 201 --
Foreign 135 87 9
------ ------- --------
600 778 9
Deferred:
Federal -- -- --
State -- -- --
Foreign -- -- --
------ ------- --------
$ 600 $ 778 $ 9
====== ======= ========
</TABLE>
Deferred tax liabilities (assets) consist of the following:
<TABLE>
<CAPTION>
(in thousands)
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Prepaid expenses $ 2,475 $ 1,586 $ 2,065
Other temporary differences 766 705 647
------- ------- --------
Gross deferred tax liabilities 3,241 2,291 2,712
------- ------- --------
Accrued expenses (613) (939) (1,377)
Defectives provision (245) (315) (560)
Other temporary differences (3,244) (2,970) (1,936)
Net operating loss carryforwards (2,567) (4,037) (11,128)
Research and development tax credit carryforward (765) (765) (765)
Other (1,027) (944) (765)
------- ------- --------
Gross deferred tax assets (8,461) (9,970) (16,531)
------- ------- --------
Deferred tax assets valuation allowance 5,220 7,679 13,819
------- ------- --------
$ -- $ -- $ --
======= ======= ========
</TABLE>
A deferred tax valuation allowance has been recorded for the net operating loss
carryforwards and other credits which may not be utilized. The net change in the
valuation allowance for deferred tax assets was an increase (decrease) of
($2,459,000), ($6,140,000) and $1,648,000 in 1995, 1994 and 1993, respectively.
At December 31, 1995, the Company had federal net operating loss carryforwards
for income tax purposes of approximately
F-10
<PAGE> 37
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
$7,300,000. The carryforwards expire in different years through the year 2008.
The Company also has federal minimum tax credit carryforwards of $1,028,000 that
are allowed to be carried forward indefinitely and federal research and
development credits of $765,000, which will expire in different years through
the year 2003. If certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amount of operating loss
carryforwards which can be utilized.
The provision for income taxes differs from the provisions determined by
applying the applicable U.S. statutory federal income tax rates to pretax income
as a result of the following differences:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1995 1994 1993
<S> <C> <C> <C>
Federal income taxes (benefit)
at the U.S. statutory rate 35.0% 35.0% (34.0%)
Increase (decrease) in income taxes resulting from:
Effects of U.S. and foreign income
taxes on foreign operations (1.1 ) (0.2 ) 0.1
State income taxes, net of loss carryforwards,
less federal tax benefits 2.8 0.9 --
Benefit of reversing temporary differences for
which benefits were not previously recorded (20.9 ) -- --
Loss carryback/carryforward (13.8 ) (31.6 ) 34.0
Other 4.0 -- --
---- ---- ----
6.0% 4.1% 0.1%
==== ==== ====
</TABLE>
During 1993, the Company settled with the Internal Revenue Service ("IRS") and
the California Franchise Tax Board ("CFTB") regarding audits of the years 1982
through 1990 for federal purposes and 1983 through 1989 for California purposes.
The Company adequately provided for the amounts settled with the IRS and the
CFTB.
No domestic deferred taxes have been provided on unremitted earnings of the
foreign subsidiary. All such earnings are expected to be reinvested in the
subsidiary. Undistributed earnings for which the Company has not provided taxes,
which may be payable on distribution, were approximately $5,200,000 as of
December 31, 1995. No foreign taxes will be withheld on the distribution of the
untaxed earnings.
F-11
<PAGE> 38
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE G - Leases
The Company leases its domestic warehouse and showroom facilities, and its
facilities in Hong Kong. The leases have been classified as operating leases and
are for terms expiring at various dates through 2000. Under the terms of the
facility leases, rents are adjusted annually for changes in the consumer price
index and increases in property taxes. The Company has a lease option on the
domestic warehouse to renew for one five-year term.
Future minimum lease payments for all noncancellable operating leases as of
December 31, 1995 (in thousands) are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1996 $ 972
1997 869
1998 772
1999 636
2000 323
------
$3,572
======
</TABLE>
Net rental expense for the years ended December 31, 1995, 1994 and 1993 was
$1,988,164, $1,515,000 and $1,449,000, respectively.
NOTE H - Royalty Contracts
The Company has future minimum royalty guarantee payments as of December 31,
1995 (in thousands) as follows:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1996 $3,067
1997 1,915
1998 340
1999 500
------
$5,822
======
</TABLE>
NOTE I - Accrued Expenses
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Accrued advertising $ -- $ 272
Accrued royalties 6,003 6,039
Accrued compensation and commissions 4,814 3,875
Accrued freight and duty 495 1,483
Accrued interest 1,139 1,108
Accrued inventory purchase commitments 1,450 1,320
Other accrued expenses 646 842
------- -------
$14,547 $14,939
======= =======
</TABLE>
During 1995, the Company settled with the United States Customs Service
("Customs") regarding the audit of duty due on importations of goods into the
United States of the years 1988 through 1991. The Company adequately provided
for the amount settled with Customs.
F-12
<PAGE> 39
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE J - Long-Term Debt
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
8% Convertible Subordinated Debentures due and payable on
November 30, 2000, interest paid semi-annually $14,000 $14,000
Mortgage secured by headquarters land and building, payable
in monthly installments of $55,314 (principal and interest)
through November 30, 1996 when the remaining outstanding
balance is due, interest rate 10.3% 4,422 4,616
------- -------
18,422 18,616
Current portion 4,422 202
------- -------
$14,000 $18,414
======= =======
</TABLE>
On November 17, 1993, the Company issued in a private placement $14 million in
principal amount of 8% Convertible Subordinated Debentures (the "8%
Debentures"), at par. The interest is to be paid semi-annually. The 8%
Debentures mature on November 30, 2000 and are convertible into shares of the
Company's common stock at $9.26 calculated based upon 115% of the average of the
Company's closing common stock price for the ten business days ending November
12, 1993. In connection with the 8% Debentures, the Company paid a commission to
its investment bankers of $560,000 and issued warrants for 150,000 shares, which
were valued at $525,000 and recorded as additional paid-in capital. These
deferred loan costs are included in other assets and are amortized using a
straight-line method over the term of the loan. (See Note R.)
NOTE K - Major Customers
The Company had transactions with one customer, Toys "R" Us, Inc. that accounted
for approximately 20% of net revenues in 1995 and 21% of net revenue in 1994 and
1993, respectively. Wal-Mart accounted for approximately 11% of net revenues in
1995.
NOTE L - Profit Sharing Plan
The Company has a 401(k) profit sharing plan covering all non-union full-time
employees. The plan is qualified under Section 401(a) of the Internal Revenue
Code so that contributions to the plan by the Company are not taxable until
distributed to employees. Contributions under the plan are at the discretion of
the Board of Directors and are subject to the amounts allowable under applicable
provisions of the Internal Revenue Code. No Company contributions have been made
in 1995, 1994 or 1993.
NOTE M - Litigation
On May 17, 1990, the Company filed a complaint against Nintendo of America, Inc.
("Nintendo") seeking a declaratory judgment and injunctive relief in the United
States District Court, Northern District of California (the "District Court").
This complaint sought confirmation of the Company's right to market, distribute
and sell its Game Genie product. On June 1, 1990, Nintendo filed a complaint in
the same District Court alleging copyright and trademark infringement and
seeking a preliminary and permanent injunction and unspecified damages.
On April 11, 1994, Nintendo paid the Company $16.1 million representing the full
damage award plus interest and related costs. The Company retained approximately
$12.1 million of this amount, and the Company's Game Genie licensors were paid
the remaining $4.0 million. Notwithstanding such payment, on June 20, 1994,
Nintendo filed a petition for a Writ of Certiorari with the United States
Supreme Court, which asked the Supreme Court to review the damage award on a
discretionary basis. On October 3, 1994, the Supreme Court rejected Nintendo's
petition and affirmed Galoob's right to the full damage award. There is no
further basis for appeal by Nintendo.
F-13
<PAGE> 40
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
Nintendo's original trademark claim and the Company's original anti-trust
cross-claim against Nintendo were severed from the copyright claims that were
adjudicated on July 3, 1991. On January 18, 1995 these claims were dismissed
with prejudice by Nintendo and Galoob, respectively. The Nintendo Game Genie
infringement lawsuit is now complete.
The Company is involved in various other litigation and legal matters which are
being defended and handled in the ordinary course of business. None of these
matters is expected to result in outcomes having a material adverse effect on
the Company's consolidated financial position or results of operation.
NOTE N - Shareholders' Equity
In 1989, the Company issued 183,950 authorized shares of $17 Convertible
Exchangeable Preferred Stock with a $200 liquidation value (the "Preferred
Stock") and deposited them with a U.S. Bank (the "Depositary") and sold in a
public offering an aggregate of 1,839,500 Depositary Convertible Exchangeable
Preferred Shares (the "Depositary Shares") at a price of $20 per share. Each
Depositary Share represents 1/10th share of Preferred Stock and has a cumulative
dividend rate of $1.70 per annum, payable quarterly, and may be converted into
common stock at the option of the holders at an initial price of $16.875 per
share of common stock.
The Depositary Shares are redeemable in whole or in part at any time, at the
option of the Company, at redemption prices ranging from $21.36 to $20.00 plus
dividends accrued and unpaid to the redemption date, provided certain redemption
requirements are met which are based on the market price of the Company's common
stock.
The entire issue of Depositary Shares (in multiples of ten) and the entire issue
of Preferred Stock is exchangeable, at the option of the Company, on any
dividend payment date for the Company's 8-1/2% Convertible Subordinated
Debentures due October 1, 2014 (the "8-1/2% Debentures") at the rate of $20.00
principal amount of 8-1/2% Debentures for each Depositary Share. At any time
following the occurrence of certain change in control transactions, each holder
of Depositary Shares, the Preferred Stock, or of 8-1/2% Debentures, as the case
may be, has the right to cause the Company to exchange the Depositary Shares (in
multiples of ten), the Preferred Stock or the 8-1/2% Debentures, as the case may
be, for the Company's Subordinated Debentures due October 1, 2014 (the "Reset
Debentures").
As long as the Preferred Stock, the 8-1/2% Debentures, or the Reset Debentures
are outstanding, the Company will be subject to limitations on the payment of
certain common stock dividends and other distributions and on the purchase,
redemption, or other acquisition of capital stock. No common stock dividends may
be paid unless the Preferred Stock dividends are current. The Company has
reserved 2,180,148 shares of common stock for the conversion of the Preferred
Stock.
On June 10, 1992, the Company announced it would not pay the July 1, 1992 $0.425
per share quarterly dividend on its Depositary Shares which represent shares of
the Company's Preferred Stock. The Company has not paid the subsequent quarterly
dividends. As of January 1, 1996, the dividend was cumulatively fifteen quarters
in arrears, representing a total dividend arrearage of $11.7 million. By the
terms of the Certificate of Designations for the Company's Preferred Stock, the
Company is not legally obligated to pay any such arrearage. The Company has
consistently maintained that it is not in its best interest to reinstate the
dividend until the Company has generated consistent net income from operations
and continuation of such profitability can be reasonably expected. Based upon
recent results, the Company has been evaluating its alternatives with regard to
the Preferred Stock. The net earnings (loss) per share calculation includes a
provision for the Preferred Stock dividends in arrears. No common stock
dividends may be paid unless all Preferred Stock dividend payments are current.
As a result of the cumulative dividend being six or more quarters in arrears, on
July 15, 1994 the holders of the Preferred Stock exercised their right to elect
two directors. (See Note R.)
In 1990, the Company adopted a Stockholder Rights Plan and declared a dividend
distribution of one Right for each outstanding share of common stock. Each Right
will entitle holders of the Company's common stock to buy one-thousandth of a
share of Series A Preferred Stock of the Company at an exercise price of $43.00,
subject to adjustment. The Rights will be exercisable only if a person or group
acquires beneficial ownership of 20% or more of the common stock (other than
pursuant to certain transactions involving the Company) (an "Acquiring Person")
or announces a tender or exchange offer that would result in such person or
group beneficially owning 20% or more of the common stock (other than a tender
or
F-14
<PAGE> 41
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
exchange offer for all outstanding shares at a price determined by the
non-affiliated directors to be fair).
If any person becomes the beneficial owner of 20% or more of the common stock
(other than pursuant to certain transactions involving the Company or a tender
or exchange offer for all outstanding shares at a price determined by the
non-affiliated directors to be fair), or an Acquiring Person engages in certain
"self-dealing" transactions including a merger in which the Company is the
surviving corporation, each Right not owned by such Acquiring Person will enable
its holder to purchase, at the Right's then-current exercise price, shares of
the common stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value of twice the Right's exercise price.
In addition, if the Company is acquired in a merger or other business
combination transaction in which the Company is not the surviving corporation,
or if the Company sells or transfers 50% or more of its assets or earning power,
each Right not owned by such Acquiring Person will entitle its holder to
purchase, at the Right's then-current exercise price, common shares of the
acquiring company having a value of twice the Right's exercise price.
The Rights will expire January 17, 2000 or they may be redeemed by the Company
at $.01 per share prior to that date. The Rights do not have voting or dividend
rights and, until they become exercisable, have no dilutive effect on the
earnings of the Company.
NOTE O - Stock Options and Warrants
The Board of Directors and the shareholders adopted an Employee Stock Option
Plan in 1984 (the "1984 Plan"). During 1994, the 1984 Plan was amended to extend
the plan until April 20, 2004 and to increase the aggregate number of shares
available under the 1984 Plan. The 1984 Plan authorizes the Board of Directors
to grant to officers and employees of the Company and certain of its
subsidiaries options to purchase up to an aggregate of 1,589,997 common shares.
Stock options are exercisable in accordance with the determination of the Board
of Directors made at the time of their grant, and expire not more than ten years
after the date of grant. Stock options granted under the 1984 Plan in 1995, 1994
and 1993 were at 100% of market price.
As of December 31, 1995, 241,029 shares remain available for future grants.
F-15
<PAGE> 42
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
Stock option activity pursuant to the 1984 Plan is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Options outstanding:
<S> <C> <C> <C>
At January 1 331,899 275,399 320,608
Granted 320,000 161,000 120,000
Exercised (60,575) (97,000) (14,800)
Cancelled (19,824) (7,500) (150,409)
------- ------- -------
At December 31 571,500 331,899 275,399
======= ======= =======
Options exercisable:
At December 31 201,500 181,899 174,149
======= ======= =======
Option prices per share:
Granted $5.75-11.88 $5.75-8.38 $3.25-7.38
Exercised 3.00-6.25 3.25-5.63 3.00
Cancelled 3.00-6.13 3.00-6.13 3.00-6.38
</TABLE>
In 1992, the Board of Directors and the shareholders adopted the 1992 Senior
Management Stock Option Plan (the "1992 Plan"), a variable stock option plan.
Under the 1992 Plan 800,000 shares were reserved and options for 800,000 shares
were issued and outstanding at December 31, 1993. These options vest over three
years and expire after ten years. The initial exercise prices were $5.625 for
700,000 shares and $3.25 for 100,000 shares, respectively, the market prices on
the dates granted. The exercise prices were adjusted downward on a pro-rata
basis as the trading price of the stock increased above the initial exercise
price so that the exercise price would be $ .01 when the trading price of the
stock was $19.00.
Generally accepted accounting principles ("GAAP") for variable stock option
plans required the Company to record a compensation expense accrual measured by
the difference between the market price of the common stock underlying an option
and the option price as of December 31, 1993. The sharp rise in the price of the
Company's common stock during the fourth quarter of 1993, therefore, required a
charge to earnings.
The Company believed that the application of GAAP could have resulted in large
and repeated future distortion to reported quarterly earnings of the Company,
based on fluctuations in the stock price so long as the 1992 Plan remained in
effect. Therefore, on January 26, 1994, the Board of Directors of the Company
("Board") terminated the 1992 Plan, subject to shareholder approval. In
connection with the termination of the 1992 Plan, the Company recorded an
accrued liability on its balance sheet at December 31, 1993 in the amount of
$4,046,000 and recorded a non-recurring, non-cash charge to earnings. In
addition, in connection with the termination of the 1992 Plan, the Company
granted an aggregate of 449,732 shares of common stock to the holders of the
cancelled options, also subject to shareholder approval. In the second quarter
of 1994, subsequent to the approval by the shareholders, the Company eliminated
the accrued liability of $4,046,000 and increased shareholders' equity by the
same amount for the common stock issued. In 1995, 12,677 of the granted shares
were reacquired by the Company at no cost per the terms of the 1992 Plan.
Also, on January 26, 1994 the Board adopted the 1994 Senior Management Stock
Option Plan (the "1994 Plan"), subject to shareholder approval. Each holder of
options under the 1992 Plan was granted new options with an option exercise
price of $9.00, the trading price of the common stock of the Company at the time
of the Board actions. The shareholders approved the 1994 Plan in June 1994. As
of December 31, 1995, there are outstanding options to purchase 742,592 shares
under the 1994 Plan. During 1995, the shareholders adopted the 1995 Non-Employee
Directors Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for the
automatic granting annually to each non-employee director options immediately
exercisable into 2,000 shares of common stock at the fair market value on the
grant date. Options were granted on July 1, 1995 and will
F-16
<PAGE> 43
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
be granted on each January 1 thereafter. The maximum number of share options
under the 1995 Plan is 160,000. As of December 31, 1995, there were outstanding
options to purchase 16,000 shares at an exercise price of $8.00 per share.
On July 7, 1988, in consideration for entering into a credit agreement, the
Company issued warrants to purchase 785,732 shares of common stock at an
exercise price of $4.50 per share. One half of the warrants issued on July 7,
1988 were repurchased on May 25, 1989 for $400,000. On December 11, 1991, the
Company issued warrants to purchase 25,000 shares of common stock at an exercise
price of $4.375 per share. On November 17, 1993, the Company issued warrants
relating to the 8% Debentures to purchase 150,000 shares of common stock at an
exercise price of $9.50 per share.
NOTE P - Related Party Transactions
The Company has retained the legal services of Shereff, Friedman, Hoffman &
Goodman, LLP in recent years. One of the Company's directors is a partner of
Shereff, Friedman, Hoffman & Goodman, LLP. The total amount of fees paid to
Shereff, Friedman, Hoffman & Goodman, LLP in 1995 and 1994 were approximately
$0.3 million and $0.4 million, respectively, exclusive of the director's fees
paid to Martin Nussbaum, a partner in the firm of Shereff, Friedman, Hoffman &
Goodman, LLP, as compensation for his service as Chairman of the Executive
Committee of the Board of Directors.
The Company has retained the insurance brokerage services of Rollins Hudig Hall
("RHH") in recent years. One of the Company's directors is the President and
Chief Executive Officer of Rollins Real Estate/Investment, a division of RHH.
The total amount of insurance premiums paid to RHH in 1995 and 1994 were
approximately $1.3 million and $1.4 million, respectively.
In 1994, the Company sold its minority interest in Galoob Toys Canada, Inc.,
which continues to act as the Company's distributor in Canada and which
accounted for less than 5% of the Company sales.
NOTE Q - Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
- - Current Assets and Current Liabilities
The carrying value of cash, cash equivalents, accounts receivables,
short-term borrowings, accounts payable and accrued expenses approximate
fair value because of their short maturity.
- - Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the
quoted market price of the underlining common stock which would be
received upon conversion. At December 31, 1995, the carrying amount and
estimated fair value of long-term debt are $14.0 million and $17.8
million, respectively.
F-17
<PAGE> 44
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE R - Subsequent Events
On February 12, 1996, the Company announced that it was calling for redemption
of its 8% Convertible Subordinated Debentures originally due November 30, 2000
(the "Debentures"), and was commencing an exchange offer for its Depositary
Convertible Exchangeable Preferred Shares (the "Preferred Shares").
Under the terms of the redemption, the $14,000,000 Debentures now outstanding
will be redeemed on or about March 22, 1996, unless converted into the Company's
Common Stock by the holders prior to the redemption date. Until the redemption
date, the Debentures are convertible into an aggregate of 1,511,873 shares of
Common Stock at the rate of $9.26 principal amount for each share of Common
Stock. The Company became entitled to redeem the Debentures when the average
closing price of its Common Stock for twenty consecutive days exceeded 150% of
the conversion price.
Under the terms of the exchange offer, the Company will offer to exchange 1.85
shares of Common Stock for each of the 1,839,500 Preferred Shares currently
outstanding. The exchange offer has an expiration date of March 29, 1996, and is
conditioned on, among other things, the receipt of valid tenders from the
holders of at least 75 percent of the outstanding Preferred Shares.
F-18
<PAGE> 45
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE S - Segment Information
The Company's operations are in one industry segment: the sale of toys primarily
to major retail outlets. The Company operates in two primary geographic areas,
the U.S. and Europe, and there are no sales between geographic areas.
Information about the Company's operations in different geographic locations
are as follows:
<TABLE>
<CAPTION>
(in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States
Non-affiliated customer revenue $139,373 $119,702 $ 88,821
Earnings (loss) from operations 9,837 6,383 (1,341)
Identifiable assets 111,639 87,653 61,706
Foreign
Non-affiliated customer revenue 80,671 59,090 45,513
Earnings (loss) from operations 3,152 2,939 (7,874)
Identifiable assets 8,445 13,113 9,299
Consolidated
Net revenues 220,044 178,792 134,334
======== ======= =======
Earnings (loss) from operations 12,989 9,322 (9,215)
Net proceeds from Nintendo award -- 12,124 --
Interest Expense (3,429) (2,609) (1,836)
Other income, net 439 365 136
------- -------- --------
Earnings (loss) before income taxes $ 9,999 $ 19,202 $(10,915)
Identifiable assets $120,000 $100,766 $ 71,005
</TABLE>
F-19
<PAGE> 46
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994 and 1993
NOTE T - Quarterly Financial Data (Unaudited)
Quarterly financial data for 1995 and 1994 are summarized in the following
table:
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net Net Earnings
Net Gross Earnings (Loss) Per
Revenues Margin (Loss) Common Share
-------- ------ ------ ------------
<S> <C> <C> <C> <C>
1995
- ----
1st Quarter $33,341 $10,853 $(4,171) $(0.49)
2nd Quarter 38,219 11,131 (4,087) (0.48)
3rd Quarter 65,518 25,149 6,837 0.58
4th Quarter 82,966 40,850 10,820 0.93
1994
- ----
lst Quarter $30,235 $12,673 $(1,648) $(0.25)
2nd Quarter 33,720 12,601 9,753 0.91
3rd Quarter 50,273 19,937 3,909 0.30
4th Quarter 64,565 28,994 6,410 0.55
</TABLE>
F-20
<PAGE> 47
SCHEDULE VIII
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and At End
Description of Period Expenses Deductions Of Period
- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended 12/31/95
- -------------------
Provisions for returns
and allowance $8,097 $12,707 $10,822 $9,982
Year ended 12/31/94
- -------------------
Provisions for returns
and allowance 5,249 11,979 9,131 8,097
Year ended 12/31/93
- -------------------
Provisions for returns
and allowance 6,031 5,516 6,298 5,249
</TABLE>
See Note B of Notes to Consolidated Financial Statements.
S-1
<PAGE> 48
SCHEDULE X
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
Items 1995 1994 1993
- ----- ---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs * * *
Depreciation and amortization of
intangible assets, pre-operating
costs and similar deferrals * * *
Taxes, other than payroll and
income taxes * * *
Royalties $16,326 $13,498 $11,337
Advertising and promotion 31,240 30,616 23,537
</TABLE>
* Less than 1% of total sales.
S-2
<PAGE> 49
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
10.1(e) 1995 Non-Employee Directors' Stock Option Plan.
10.2 Lewis Galoob Toys, Inc. Savings and Retirement Plan (Formerly
named the Lewis Galoob Toys, Inc. Profit Sharing Plan)
(Amendment and Restatement Effective January 1, 1987).
10.12(c) Lease Agreement, dated December 1, 1995, by and between 200
Fifth Avenue Associates as Lessor and the Registrant, as
Lessee.
11 Statement of Computation of Per Share Earnings.
12 Statement of Computation of Rate of Earnings to Fixed Charges
and Preferred Stock Dividends.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedules
<PAGE> 1
LEWIS GALOOB TOYS, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose. The 1995 Non-Employee Directors' Stock
Option Plan (the "Plan") of Lewis Galoob Toys, Inc., a Delaware corporation
(the "Corporation"), is designed to aid the Corporation and its subsidiaries in
retaining and attracting non-employee directors of exceptional ability by
enabling such non-employee directors to purchase a proprietary interest in the
Corporation, thereby stimulating in such individuals an increased desire to
contribute to the continued growth and success of the Corporation and its
subsidiaries.
2. Amount and Source of Stock. The total number of
shares of the Corporation's Common Stock (the "Shares") which may be the
subject of options granted pursuant to the Plan shall be limited so that the
total number of Shares issued upon the exercise of options granted pursuant to
the Plan shall not exceed 160,000, subject to adjustment as provided in
paragraph 11. None of the options to be granted under the Plan are intended to
be "Incentive Stock Options" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations (whether proposed,
temporary or final) promulgated thereunder. Such Shares may be reserved or
made available from the Corporation's authorized and unissued Shares or from
Shares reacquired and held in the Corporation's treasury. In the event that
any option granted hereunder shall terminate prior to its exercise in full for
any reason, then the Shares subject to such option shall be added to the Shares
otherwise available for issuance pursuant to the exercise of options under the
Plan.
3. Administration of the Plan. The Plan shall be
administered by a committee (the "Committee") of the Board of Directors of the
Corporation (the "Board") comprised of three or more members of the Board,
selected by the Board, all of which members shall be "disinterested persons" as
that term is defined in Rule 16b-3(d)(3) (or any successor provision)
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee is hereinafter sometimes referred to as the
"Administrative Body." The Administrative Body shall have full authority to
interpret the Plan, to establish and amend rules and regulations relating to it
and to make all other determinations necessary or advisable for the
administration of the Plan.
4. Eligibility/ Non-Discretionary Grants. All
non-employee directors of the Corporation then serving on the Board of
Directors of the Corporation shall be eligible for, and shall receive, an
option exercisable to purchase 2,000 Shares on July 1, 1995 and on January 1 of
each year thereafter. The date on which an option is granted hereunder to a
specified individual shall constitute the date of grant of such option (the
"Date of Grant").
<PAGE> 2
5. Option Price. The initial exercise price of the
Shares purchasable under any option granted pursuant to the Plan shall be 100%
of the fair market value of the Shares subject to such option on the Date of
Grant. For purposes of the Plan, the "fair market value per share" of the
Shares on a given date shall be: (i) if the Shares are listed on a registered
securities exchange or quoted on the National Market System, the closing price
per share of the Shares on such date (or, if there was no trading reported on
such date, on the next preceding day on which there was trading reported); (ii)
if the Shares are not listed on a registered securities exchange and not quoted
on the National Market System, but the bid and asked prices per share for the
Shares are provided by Nasdaq, the National Quotation Bureau Incorporated or
any similar organization, the average of the closing bid and asked price per
share of the Shares on such date (or, if there was no trading in the Shares on
such date, on the next preceding day on which there was trading) as provided by
such organization; and (iii) if the Shares are not traded on a registered
securities exchange and not quoted on the National Market System and the bid
and asked price per share of the Shares are not provided by Nasdaq, the
National Quotation Bureau Incorporated or any similar organization, solely as
determined by the Administrative Body in good faith.
6. Vesting and Term of Option.
(a) Subject to subparagraph 12(b) hereof, options
granted to a participant hereunder shall vest immediately upon grant.
(b) Options granted hereunder shall be
exercisable for a period of ten (10) years from the Date of Grant.
(c) The grant of options by the Administrative
Body shall be effective as of the Date of Grant; provided, however, that no
option granted hereunder shall be exercisable unless and until this Plan has
been approved by the Corporation's stockholders and unless and until the holder
has entered into an individual option agreement with the Corporation that shall
set forth the terms and conditions of such option. Each such agreement shall
expressly incorporate by reference the provisions of this Plan (a copy of which
shall be made available for inspection by the optionee during normal business
hours at the principal office of the Corporation), and shall state that in the
event of any inconsistency between the provisions hereof and the provisions of
such agreement, the provisions of this Plan shall govern.
7. Exercise of Options. An option shall be exercised
when written notice of such exercise, signed by the person entitled to exercise
the option, has been delivered or transmitted by registered or certified mail
to the Secretary of the Corporation at its then principal office. Such notice
shall specify the number of Shares for which the option is being exercised and
shall be accompanied by (i) such documentation, if any, as may be required by
the Corporation as provided in subparagraph 12(b), and (ii) payment of the
aggregate option price. Subject to paragraph 8 hereof, such payment shall be
in the form of (i) cash or a
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<PAGE> 3
certified check (unless such certification is waived by the Corporation)
payable to the order of the Corporation in the amount of the aggregate option
price, (ii) certificates duly endorsed for transfer (with all transfer taxes
paid or provided for) evidencing a number of Shares of which the aggregate fair
market value on the date of exercise is equal to the aggregate option exercise
price of the Shares being purchased, or (iii) a combination of these methods of
payment. Delivery of such notice shall constitute an irrevocable election to
purchase the Shares specified in such notice, and the date on which the
Corporation receives the last of such notice, documentation and the aggregate
option exercise price for all of the shares covered by the notice shall,
subject to the provisions of paragraphs 8 and 12 hereof, be the date as of
which the Shares so purchased shall be deemed to have been issued. Subject to
paragraph 8 hereof, the person entitled to exercise the option shall not have
the right or status as a holder of the Shares to which such exercise relates
prior to receipt by the Corporation of the payment, notice and documentation
expressly referred to in this paragraph 7. Notwithstanding the foregoing, a
holder whose transactions in Common Stock are subject to Section 16(b) of the
Exchange Act may tender Shares in payment of all or any portion of the option
price only if the following additional conditions are met: (i) the tender is
made at least six months after the Date of Grant and (ii) either (x) the
election to tender is irrevocably made at least six months in advance of the
tender of Shares or (y) the tender of Shares takes place during the period
beginning on the third business day following the date of release of the
Corporation's quarterly or annual financial results and ending on the twelfth
business day following such date.
8. Loans. Anything in paragraph 7 to the contrary
notwithstanding, the making of a loan by the Corporation to an optionee for the
purpose of fully or partially exercising an option granted hereunder shall be
permissible, and the application of the proceeds of any such loan to such
exercise shall not be construed to contravene the requirement that payment of
the aggregate option price be made upon exercise of an option. Stockholder
approval of this Plan constitutes approval of all such loans which the
Administrative Body may in its sole discretion hereafter determine to make for
the express purpose of permitting the exercise of an option granted hereunder.
9. Exercise and Cancellation of Options After
Termination, Disability or Death. Except as set forth below, if a holder shall
voluntarily or involuntarily cease to serve as a director of the Corporation,
the option of such holder shall terminate upon the first day that the holder is
no longer such a director (the "Termination Date"), regardless of the
expiration date specified in such option. If the termination of such service
is due to disability (as defined by the Administrative Body in its sole
discretion), the holder (or his duly appointed guardian or conservator) shall
have the privilege of exercising any option that he could have exercised on the
Termination Date; provided, however, that such exercise must be accomplished
within the term of such option and within one (1) year of the Termination Date.
If the termination of such service is due to the death of the holder, the duly
appointed executor or administrator of his estate shall have the privilege at
any time of exercising any option that the holder could have exercised on the
Termination Date; provided, however, that such
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<PAGE> 4
exercise must be accomplished within the term of such option and within one (1)
year of the Termination Date.
Nothing contained herein or in any option agreement shall be
construed to confer on any option holder any right to continue as a director of
the Corporation or derogate from any right of the Corporation to remove such
option holder as a director of the Corporation, with or without cause.
10. Non-transferability of Options. No option granted
under the Plan shall be sold, pledged, assigned or transferred in any manner
except to the extent that options may be exercised by an executor or
administrator as provided in paragraph 9 hereof. An option may be exercised,
during the lifetime of the holder thereof, only by such holder or his duly
appointed guardian or conservator in the event of his disability.
11. Adjustments Upon Certain Events.
(a) If the outstanding Shares are subdivided,
consolidated, increased, decreased, changed into, or exchanged for a different
number or kind of shares or other securities of the Corporation through
reorganization, merger, recapitalization, reclassification, capital adjustment
or similar transaction, or if the Corporation shall issue additional Shares as
a dividend or pursuant to a stock split, then the number and kind of Shares
available for issuance pursuant to the exercise of options to be granted under
this Plan and all Shares subject to the unexercised portion of any option
theretofore granted and the exercise price of such options shall be adjusted on
a pro rata basis to prevent the inequitable enlargement or dilution of any
rights hereunder; provided, however, that any such adjustment in outstanding
options under the Plan shall be made without change in the aggregate exercise
price applicable to the unexercised portion of any such outstanding option.
Distributions to the Corporation's stockholders consisting of property other
than Shares of the Corporation or its successor and distributions to
stockholders of rights to subscribe for Shares shall not result in the
adjustment of the Shares purchasable under outstanding options or the exercise
price of outstanding options. Adjustments under this paragraph shall be made
by the Administrative Body, whose determination thereof shall be conclusive and
binding. Any fractional Share resulting from adjustments pursuant to this
paragraph shall be eliminated from any then outstanding option. Nothing
contained herein or in any option agreement shall be construed to affect in any
way the right or power of the Corporation to make or become a party to any
adjustments, reclassifications, reorganizations or changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate or otherwise
transfer all or any part of its business or assets.
(b) In the event of the dissolution or
liquidation of the Corporation or in the event of a change in control of the
Corporation, the holder of any option theretofore granted under this Plan shall
have the right immediately prior to the record date for the determination of
stockholders entitled to participate in such change in control, dissolution or
liquidation, to exercise his option, in whole or in part, without regard to any
installment
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<PAGE> 5
provision that may have been made part of the terms and conditions of such
option. In any such event, the Corporation will mail or cause to be mailed to
each holder of an option hereunder a notice specifying the date that is to be
fixed as of which all holders of record of the Shares shall be entitled to
exchange their Shares for securities, cash or other property issuable or
deliverable pursuant to such merger, consolidation, dissolution or liquidation.
Such notice shall be mailed at least ten (10) days prior to the date therein
specified. For purposes of this paragraph, a "change in control" of the
Corporation shall be deemed to occur as of the date on which a person or entity
or group of persons or entities, acting in concert, shall, in a transaction in
which the Corporation is not a party, become the direct or indirect beneficial
owner (within the meaning of Rule 13d-3 of the Exchange Act, as amended from
time to time) of securities of the Corporation representing fifty-one percent
(51%) or more of the combined voting power of the issued and outstanding voting
securities of the Corporation.
12. General Restrictions.
(a) No option granted hereunder shall be
exercisable if the Corporation shall at any time determine that (i) the listing
upon any securities exchange, registration or qualification under any state or
federal law of any Shares otherwise deliverable upon such exercise, or (ii) the
consent or approval of any regulatory body or the satisfaction of withholding
tax or other withholding liabilities, is necessary or appropriate in connection
with such exercise. In any of the events referred to in clause (i) or clause
(ii) above, the exercisability of such options shall be suspended and shall not
be effective unless and until such withholding, listing, registration,
qualification or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation in its sole discretion,
notwithstanding any termination of any option or any portion of any option
during the period when exercisability has been suspended.
(b) The Administrative Body may require, as a
condition to the right to exercise an option, that the Corporation receive from
the option holder, at the time of any such exercise, representations,
warranties and agreements to the effect that the Shares are being purchased by
the option holder for investment only and without any present intention to sell
or otherwise distribute such Shares and that the option holder will not dispose
of such Shares in transactions which, in the opinion of counsel to the
Corporation, would violate the registration provisions of the Securities Act of
1933, as then amended, and the rules and regulations thereunder. The
certificates issued to evidence such Shares shall bear appropriate legends
summarizing such restrictions on the disposition thereof.
13. Exchange of Options. The Administrative Body shall
have the right to grant options hereunder that are granted subject to the
condition that the grantee shall agree with the Corporation to terminate all or
a portion of another option or options previously granted under the Plan. The
Shares that had been issuable pursuant to the exercise of the option terminated
in the exchange of options shall, upon such termination, again become available
for issuance pursuant to the exercise of options under the Plan.
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<PAGE> 6
14. Provision of Information to Optionees. The
Corporation shall furnish annually to each optionee while his or her option
remains in effect and not fully exercised, copies of all annual and quarterly
reports filed by the Corporation with the Securities and Exchange Commission
during such period, or, if no such reports are required to be so filed, copies
of all annual and other periodic reports provided by the Corporation to its
stockholders generally.
15. Amendment. The Board shall have full authority to
amend the Plan; provided, however, that any amendment that (i) increases the
total number of Shares that may be subject to stock options granted (in the
aggregate or to any director) under the Plan, (ii) expands the class of
individuals eligible to receive options under the Plan, (iii) increases the
period during which options may be granted or the permissible term of options
under the Plan or (iv) decreases the minimum exercise price of such options
shall only be adopted by the Board subject to stockholder approval. No
amendment to the Plan shall, without the consent of the holder of an existing
option, materially and adversely affect his rights under any option.
16. Termination. Unless the Plan shall theretofore have
been terminated as provided hereinafter and in Section 17 hereof, the Plan
shall terminate on January 20, 2005, and no options under the Plan shall
thereafter be granted; provided, however, that the Board may at any time, in
its sole discretion, terminate the Plan prior to the foregoing date. No
termination of the Plan by the Board shall, without the consent of the holder
of an existing option, materially and adversely affect his rights under such
option.
17. Stockholder Approval. The Plan shall be submitted to
the stockholders of the Corporation not later than at the 1995 Annual Meeting
of the Corporation's stockholders. Any options granted hereunder prior to such
stockholder approval shall not be exercisable unless and until such approval is
obtained. If such approval is not obtained by such date, the Plan and any
options granted hereunder shall terminate.
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<PAGE> 1
EXHIBIT 10.2
LEWIS GALOOB TOYS, INC.
SAVINGS AND RETIREMENT PLAN
(AMENDMENT AND RESTATEMENT EFFECTIVE JANUARY 1, 1987)
This Plan was originally adopted as a profit sharing plan effective as
of January 1, 1969 and was known as the Lewis Galoob Toys, Inc. Profit Sharing
Plan and Trust Agreement. This Plan was subsequently amended and restated as of
January 1, 1984. The Plan is hereby renamed the "Lewis Galoob Toys, Inc. Savings
and Retirement Plan," restated, effective as of January 1, 1987, except as
otherwise provided herein, and amended, effective as of May 1, 1990, to add a
cash or deferred arrangement as defined in Section 401(k) of the Internal
Revenue Code.
It is also intended that this Plan constitute an accident and health
plan so that amounts distributed on account of disability are excluded from
income under Section 105(c) of the Internal Revenue Code.
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<PAGE> 2
ARTICLE I
TITLE AND DEFINITIONS
1.1 - TITLE.
This Plan shall be known as the LEWIS GALOOB TOYS, INC. SAVINGS AND
RETIREMENT PLAN.
1.2 - DEFINITIONS.
Whenever the following terms are used in this Plan, with the first
letter capitalized, they shall have the meanings specified below.
"ACCOUNT" or "ACCOUNTS" shall mean Old Company Accounts, New Company
Accounts, Savings Accounts, Matching Accounts, Old Rollover Accounts, New
Rollover Accounts, Voluntary Employee Contributions Accounts and Qualified
Voluntary Employee Contributions Accounts.
"ANNIVERSARY DATE" shall mean the last day of each Plan Year.
"BENEFICIARY" or "BENEFICIARIES" shall mean the person or persons,
including a trustee, personal representative or other fiduciary, last designated
in writing by a Participant in
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accordance with the provisions of Section 2.4 to receive the benefits specified
hereunder in the event of the Participant's death. If there is no valid
Beneficiary designation in effect that complies with the provisions of Section
2.4, or if there is no surviving designated Beneficiary, then the Participant's
surviving spouse shall be the Beneficiary. If there is no surviving spouse to
receive any benefits payable in accordance with the preceding sentence, the duly
appointed and currently acting personal representative of the Participant's
estate (which shall include either the Participant's probate estate or living
trust) shall be the Beneficiary. In any case where there is no such personal
representative of the Participant's estate duly appointed and acting in that
capacity within 90 days after the Participant's death (or such extended period
as the Committee determines is reasonably necessary to allow such personal
representative to be appointed, but not to exceed 180 days after the
Participant's death), then Beneficiary or Beneficiaries shall mean the person or
persons who can verify by affidavit or court order to the satisfaction of the
Committee that they are legally entitled to receive the benefits specified
hereunder.
In the event any amount is payable under the Plan to a minor, payment
shall not be made to the minor, but instead shall be paid (i) to that person's
then living parent(s) to act as custodian, (ii) if that person's parents are
then divorced, and one parent is the sole custodial parent, to such custodial
parent, or
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(iii) if no parent of that person is then living, to a custodian selected by the
Committee to hold the funds for the minor under the Uniform Transfers or Gifts
to Minors Act in effect in the jurisdiction in which the minor resides. If no
parent is living and the Committee decides not to select another custodian to
hold the funds for the minor, then payment shall be made to the duly ap pointed
and currently acting guardian of the estate for the minor or, if no guardian of
the estate for the minor is duly appointed and currently acting within 60 days
after the date the amount becomes payable, payment shall be deposited with the
court having jurisdiction over the estate of the minor.
"BOARD OF DIRECTORS" and "BOARD" shall mean the Board of Directors of
Lewis Galoob Toys, Inc.
"BREAK IN EMPLOYMENT" shall mean an Employee's termination of
Employment as a result of resignation, discharge, retirement, Disability, or
death. In determining whether and when a Break in Employment has occurred, the
following rules shall apply:
(a) A Break in Employment shall not occur during a leave of absence
authorized by the Company or a Related Company in accordance with
established nondiscriminatory policies, or during a vacation period,
temporary layoff for lack of work, or military leave.
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(b) Continuation on temporary layoff for lack of work for a period in
excess of 12 months shall be considered a discharge effective as of the
expiration of such 12-month period.
(c) Failure to return to work after the expiration of any leave of
absence or after recall from any temporary layoff shall be considered a
resignation effective as of the expiration of such leave of absence or
recall from layoff.
(d) Failure of any Employee on military leave to make application for
reemployment within the period of time during which he is entitled to
retention of reemployment rights under applicable laws of the United States
shall be considered a resignation effective as of the expiration date of
such reemployment rights.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITTEE" shall mean the Committee appointed pursuant to the
provisions of this Plan.
"COMPANY" shall mean Lewis Galoob Toys, Inc., a Delaware corporation,
any predecessor corporation, or any successor corpo ration resulting from
merger, consolidation, or transfer of assets substantially as a whole which
shall expressly agree in writing to
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<PAGE> 6
continue this Plan and, where the context so warrants, any Participating
Affiliate.
"COMPANY CONTRIBUTIONS" shall mean an amount contributed to this Plan
by the Company or by a Participating Affiliate in accordance with Section 3.1.
"COMPENSATION" shall mean (i) all compensation paid during the Plan
Year and reportable on Form W-2 and (ii) any amounts contributed to a plan
qualifying under Section 401(k) of the Code as salary reduction contributions or
to a cafeteria plan under Section 125 of the Code.
Notwithstanding the foregoing, for Plan Years beginning on or after
January 1, 1989, the maximum amount of an Employee's Compensation which shall be
taken into account under the Plan for any Plan Year shall be $200,000 adjusted
at the same time and in the same manner as under Section 415(d) of the Code. For
any Plan Year of fewer than twelve months, the $200,000 limit shall be reduced
to the amount obtained by multiplying the $200,000 limit (as adjusted under Code
Section 415(d)) by a fraction having a numerator equal to the number of full
months in the Plan Year and a denominator equal to twelve. For purposes of the
$200,000 limitation referred to above, the Compensation of any Participant who
is either a 5% owner (as defined in Section 416(i)(1) of the
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<PAGE> 7
Code), or one of the ten most highly paid Highly Compensated Employees during
the Plan Year ("First Participant") shall be aggregated with the Compensation of
any Participant who has not attained age 19 and is a lineal descendant of the
First Participant and any Participant who is the spouse of the First
Participant. In any case in which such aggregation would produce Compensation in
excess of the $200,000 limitation, the amount of the First Participant's
Compensation that is considered under the Plan shall be reduced until the
$200,000 limitation is met.
Notwithstanding the foregoing, for Plan Years beginning on or after
January 1, 1994, the $200,000 limit referred to above shall be reduced to
$150,000 adjusted in accordance with Section 401(a)(17)(B) of the Code. For
purposes of applying the $150,000 limit, the rules set forth in the preceding
paragraph shall continue to apply, except that "$150,000" shall replace
"$200,000" each place it appears. The $150,000 limit shall be adjusted in
$10,000 increments.
"COMPENSATION DEFERRALS" shall mean an amount contributed to this Plan
by the Company in lieu of being paid to a Participant as salary or wages.
Compensation Deferrals shall be made under salary reduction arrangements between
each Participant and the Company with respect to salary or wages not yet paid or
otherwise available to the Participant as of the date of the Participant's
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<PAGE> 8
election under the arrangement. Section 3.2 contains the provisions under which
Compensation Deferrals may be made.
"DISABILITY" shall mean a physical or mental condition, as determined
by the Committee based upon competent medical advice, of a Participant resulting
from bodily injury, disease, or mental disorder which renders him incapable of
continuing his usual and customary employment with the Company.
"EFFECTIVE DATE" shall mean January 1, 1969. The effective date of this
restatement is January 1, 1987, except as otherwise provided herein.
"ELIGIBLE EMPLOYEE" shall mean any salaried Employee of the Company,
except that there shall be excluded (i) all leased employees described in
Section 414(n) of the Code, (ii) those Em ployees covered by a collective
bargaining agreement between the Company and any collective bargaining
representative if retirement benefits were the subject of good faith bargaining
between such representative and the Company, unless the Employee is a member of
a group of employees to whom this Plan has been extended by such a collective
bargaining agreement, and (iii) Employees who are nonresident aliens and receive
no United States source income.
8
<PAGE> 9
"ELIGIBILITY COMPUTATION PERIOD" shall mean:
(a) The 12-consecutive month period commencing with the first day that
an Employee completes an Hour of Service for the Company or a Related
Company;
(b) The first 12-consecutive month period coinciding with the Plan Year
which includes the first anniversary of the first day that an Employee
completes an Hour of Service for the Company or a Related Company; and
(c) Succeeding 12-consecutive month periods coinciding with the Plan
Year.
Notwithstanding the above, if an Employee completes more than 500 Hours of
Service during any such Eligibility Computation Period and then fails to
complete more than 500 Hours of Service during a subsequent Eligibility
Computation Period, then future Eligibility Computation Periods shall be
measured from the first day that the Employee completes an Hour of Service
following the Eligibility Computation Period in which the Employee has been
credited with not more than 500 Hours of Service. In addition, any reemployed
individual described in the preceding sentence who terminates employment again
shall measure Eligibility Computation Periods from the date of subsequent
reemployment if no Hours of Service are performed during an Eligibility
Computation Period ending subse quent to the termination.
9
<PAGE> 10
"EMPLOYEE" shall mean every person employed by the Company, or a
Related Company, including any leased employee described in Section 414(n) of
the Code and any other individual required to be treated as employed by the
Company or a Related Company under Section 414(o) of the Code.
"EMPLOYER MATCHING CONTRIBUTION" shall mean an amount contributed to
this Plan by the Company or by a Participating Affiliate in accordance with
Section 3.3.
"EMPLOYMENT" shall mean that period of actual service to the Company or
a Related Company as an Employee following an Employee's date of employment, or
his most recent date of reemployment, whichever is later. It shall also include
the following period or periods of absence from actual service if the Employee
was in the service of the Company or a Related Company on the day prior to such
a period:
(a) Service in the Armed Forces of the United States or the Public
Health Service of the United States as a result of which such Employee is
entitled to reemployment rights from the Company pursuant to the provisions
of Section 2021 et seq. of Title 38 of the United States Code, provided that
the Employee returns to work within the time period specified in such
provisions.
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<PAGE> 11
(b) Leaves of absence granted (either before or after the absence) by
the Company in accordance with nondiscriminatory policies for any purpose,
including, but not limited to, sickness or accident, or for the convenience
of the Company, and vacation periods and temporary layoffs for lack of work.
"ENTRY DATE" shall mean each January 1 and July 1. Effective January 1,
1994, Entry Date shall mean each January 1, April 1, July 1, and October 1.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"FIDUCIARY" shall mean all persons defined in Section 3(21) of ERISA
associated in any manner with the control, management, operation, and
administration of the Plan or the assets of the Plan, and such term shall be
construed as including the term "Named Fiduciary" with respect to those
Fiduciaries named in the Plan or who are identified as Fiduciaries pursuant to
procedures specified in the Plan.
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<PAGE> 12
"HIGHLY COMPENSATED EMPLOYEE" shall mean
(a) Any Employee who performs services for the Company or any
Related Company during the "determination year" and who, during the
"look-back year" (1) was a 5% owner of the Company or any Related Company;
(2) received compensation from the Company or any Related company in excess
of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (3)
received compensation from the Company or any Related Company in excess of
$50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a
member of the "top-paid group" for such year; or (4) was an officer of the
Company or any Related Company and received compensation during such year
that is greater than 50% of the dollar limitation in effect under Section
415(b)(1)(A) of the Code;
(b) Any Employee who performs services for the Company or any
Related Company during the determination year and who, with respect to the
determination year, is either described in (a)(1) above or is both one of
the 100 Employees who received the most compensation from the Company or any
Related Company during the determination year and is described in (a)(2),
(a)(3) or (a)(4); or
(c) Any Employee who separated from service (or was deemed to have
separated) prior to the determination year, performs no services for the
Company or any Related Company during the determination year, and met the
description in (a)
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or (b) above for either the separation year or any determination year ending
on or after the Employee's 55th birthday.
(d) If no officer of the Company or any Related Company has
compensation in excess of 50% of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code during a determination year or a look-back
year, the highest paid officer for such year shall be treated as a Highly
Compensated Employee.
(e) If an Employee is, during a determination year or look-back
year, a "family member" of either a 5% owner who is an Employee or of a
Highly Compensated Employee in the group consisting of the 10 most highly
compensated Employees ranked on the basis of compensation paid by the
Company or any Related Company during the determination year or the
look-back year, then the family member and 5% owner or top-ten Highly
Compensated Employee shall be treated as a single Employee, and their
compensation and contributions or benefits under this Plan shall be
aggregated. Except as otherwise provided under Section 401(a)(17) of the
Code, "family member" includes the spouse, lineal ascendants and descendants
of the Employee or former Employee and the spouses of such lineal ascendants
and descendants.
(f) The "determination year" shall be the Plan Year for which
compliance is being tested, and the "look-back year"
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<PAGE> 14
shall be the 12-month period immediately preceding the determination year.
(g) The top-paid group for a determination year or a look-back
year shall consist of the top 20% of Employees ranked on the basis of
compensation received during the year excluding Employees described in
Section 414(q)(8) of the Code and Treasury Regulations thereunder. The
number of Employees treated as officers shall be limited to 50 (or, if less,
the greater of 3 Employees or 10% of the Employees). For purposes of this
definition of "Highly Compensated Employee", "compensation" means
compensation within the meaning of Section 415(c)(3) of the Code, but
including elective or salary reduction contributions to a cafeteria plan,
cash or deferred arrangement or tax-sheltered annuity.
"HOUR OF SERVICE" shall mean an hour (a) for which an Employee is paid,
or entitled to payment, for the performance of duties for the Company or a
Related Company; (b) for which the Employee is paid or entitled to payment by
the Company or a Related Company on account of a period during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence; or (c) for
which back pay, irrespective of mitigation of damages, is either awarded or
agreed to by the Company or a Related Company.
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The following additional rules shall apply in calculating
Hours of Service: (1) no more than 501 Hours of Service are required to be
credited to an Employee on account of any single period during which the
Employee performs no duties; (2) an hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account of a period during which no
duties are performed is not required to be credited to the Employee if such
payment is made or due under a plan maintained solely for the purpose of
complying with applicable worker's compensation, unemployment compensation, or
disability insurance laws; (3) Hours of Service are not required to be credited
for a payment which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee; (4) a payment shall be deemed to be
made by or due from a Company or a Related Company regardless of whether such
payment is made by or due from the Company or a Related Company directly, or
indirectly through, among others, a trust fund, or insurer, to which the Company
or a Related Company contributes or pays premiums and regardless of whether
contributions made or due to the trust fund, insurer, or other entity are for
the benefit of particular Employees or on behalf of a group of Employees in the
aggregate; (5) no more than one Hour of Service shall be credited with respect
to any hour of time; (6) an "Hour of Service" shall include any hour for which
an Employee is entitled to payment by a "leasing organization" (as described in
Section 414(n)(2) of the Code) for the performance of duties for the Company or
a Related Company.
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<PAGE> 16
The definition of "Hour of Service" set forth herein shall also be
construed in accordance with, and shall include any additional periods of
service, that may be required by regulations promulgated by the United States
Department of Labor. The hour of service rules stated in the Department of Labor
Regulations Section 2530.200b-2(b) and -2(c) are herein incorporated by
reference.
"INVESTMENT FUND" shall mean one of the funds established by the
Committee for the investment of the assets of the Plan pursuant to Section 3.11.
"INVESTMENT MANAGER" shall mean a Fiduciary designated by the Committee
under this Plan to whom has been delegated the responsibility and authority to
manage, acquire or dispose of Plan assets (a) who (1) is registered as an
investment adviser under the Investment Advisers Act of 1940; (2) is a bank, as
defined in that Act; or (3) is an insurance company qualified to perform
investment advisory services under the laws of more than one state; and (b) who
has acknowledged in writing that he is a Fiduciary with respect to the
management, acquisition, and control of Plan assets.
"MATCHING ACCOUNT" shall mean the Account maintained for a Participant
that is credited with payments to the Plan by the Company and any Participating
Affiliate in accordance with Section
16
<PAGE> 17
3.3 on behalf of such Participant, together with the allocations thereto as
required by the Plan.
"NEW COMPANY ACCOUNT" shall mean the Account maintained by the
Committee for each Participant that is credited with payments to the Plan made
by the Company and any Participating Affiliate on or after May 1, 1990, in
accordance with Section 3.1 on behalf of such Employee, together with the
allocations thereto as required by the Plan.
"NEW ROLLOVER ACCOUNT" shall mean the Account maintained for a
Participant that is credited with the amount, if any, received by the Plan on or
after May 1, 1990, in accordance with Section 3.6 as a rollover distribution, as
defined in Section 402(a)(5) of the Code, (or, effective January 1, 1993, as an
eligible rollover distribution (as defined in Section 402(c)(4) of the Code)),
together with the allocations thereto as required by the Plan.
"NORMAL RETIREMENT AGE" shall mean a Participant's 65th birthday
"OLD COMPANY ACCOUNT" shall mean the Account maintained by the
Committee for each Participant that is credited with payments to the Plan made
by the Company and any Participating Affiliate before May 1, 1990 in accordance
with Section 3.1 on
17
<PAGE> 18
behalf of such Employee, together with allocations thereto as required by the
Plan.
"OLD ROLLOVER ACCOUNT" shall mean the Account maintained for a
Participant that is credited with the amount, if any, received by the Plan
before May 1, 1990 in accordance with Section 3.6 as a rollover distribution, as
defined in Section 402(a)(5) of the Code, together with the allocations thereto
as required by the Plan.
"ONE-YEAR BREAK IN SERVICE YEAR" shall mean any Plan Year in which an
Employee fails to complete more than 500 Hours of Service. Notwithstanding the
preceding sentence and solely for purposes of this paragraph, if an Employee
fails to complete more than 500 Hours of Service during a Plan Year by reason of
an absence that arises because of her pregnancy, the birth or adoption of the
Employee's child (or child care for a period immediately following such birth or
adoption), such Employee shall not necessarily incur a One-Year Break in Service
Year; rather, the Employee shall be credited for such Plan Year with (a) the
Hours of Service for which the Employee would have received credit (but for such
absence), if determinable, or (b) eight Hours of Service per day during such
absence. If a One-Year Break in Service Year would not occur in the Plan Year
that includes the beginning of such absence even in the absence of the preceding
sentence, the Employee shall receive credit for the hours specified under (a) or
(b) above
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<PAGE> 19
in the Plan Year immediately following the Plan Year in which such absence
initially occurs solely to prevent the occurrence of a One- Year Break in
Service Year in such Plan Year. Notwithstanding any other provision of this
paragraph, any Employee shall not be credited with more than 501 Hours of
Service by reason of such absence.
"PARTICIPANT" shall mean any Employee who becomes eligible for
participation in accordance with the provisions of this Plan.
"PARTICIPATING AFFILIATE" shall mean any Related Company which, by
resolution of its board of directors and with the approval of the Committee,
elects to participate in this Plan. By electing to participate in this Plan, a
Participating Affiliate agrees to be bound by any Plan or Trust amendment
adopted by resolution of the Board of Directors or by the written instrument of
any person to whom the Board of Directors has delegated its authority to adopt
the amendment. If a Participating Affiliate ceases to be a Related Company,
except by merger with its parent, the employment of each Employee of the
Participating Affiliate shall be deemed to have terminated for purposes of this
Plan, except to any extent any such Employee is required by law to continue to
be treated under the Plan as an Employee of the Company.
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"PLAN" shall mean the Lewis Galoob Toys, Inc. Savings and Retirement
Plan set forth herein, now in effect or hereafter amended.
"PLAN YEAR" shall mean the twelve-consecutive month period ending on
December 31. The Plan Year shall be the limitation year for purposes of Section
415 of the Code.
"QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS" shall mean an amount that
a Participant elects to contribute to the Plan on a tax-deductible basis in
accordance with Section 3.5 of the Plan.
"QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS ACCOUNT" shall mean the
Account maintained for a Participant that is credited with Qualified Voluntary
Employee Contributions made to the Plan in accordance with Section 3.5 on behalf
of such Participant, together with the allocations thereto as required by the
Plan.
"RELATED COMPANY" shall mean (a) each corporation which is a member of
a controlled group of corporations (within the meaning of Section 1563(a) of the
Code, determined without regard to Section 1563(a)(4) and (e)(3)(C) thereof) of
which the Company is a component member, (b) each entity (whether or not
incorporated) which is under common control with the Company, as such common
control is defined in Section 414(c) of the Code and
20
<PAGE> 21
Regulations issued thereunder, (c) any organization which is a member of an
affiliated service group (within the meaning of Section 414(m) of the Code) of
which the Company or a Related Company is a member, and (d) any organization
which is required by regulations issued under Section 414(o) of the Code to be
treated as a Related Company. For the purposes of Article IV of this Plan the
phrase "more than 50 percent" shall be substituted for the phrase "at least 80
percent" each place it appears in Section 1563(a)(1) of the Code. The term
"Related Company" shall also include each predecessor employer to the extent
required by Section 414(a) of the Code. Notwithstanding the foregoing, an
organization shall not be considered a Related Company for any purpose under the
Plan prior to the date it is considered affiliated under clauses (a) through (d)
above.
"SAVINGS ACCOUNT" shall mean the Account maintained by the Committee
for each Participant that is to be credited with Company payments to the Plan
attributable to the Participant's Compensation Deferrals that are credited to
this Account in accordance with Section 3.2, together with the allocations
thereto as required by the Plan.
"TRUST" shall mean the trust which is established to hold and invest
contributions under this Plan.
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<PAGE> 22
"TRUSTEE" (or "TRUSTEES," if more than one is appointed and acting)
shall mean the trustee or trustees, whether original or successor, appointed
under the Trust.
"VALUATION DATE" shall mean December 31 of each Plan Year. Effective
May 1, 1990, Valuation Date shall mean March 31, June 30, September 30 and
December 31 of each Plan Year.
"VOLUNTARY EMPLOYEE CONTRIBUTIONS" shall mean an amount that a
Participant elects to have deducted from his salary or wages and contributed to
the Participant's Voluntary Employee Contributions Account, after income taxes
have been withheld on such amounts. Section 3.4 contains the provisions under
which Voluntary Employee Contributions may be made.
"VOLUNTARY EMPLOYEE CONTRIBUTIONS ACCOUNT" shall mean the Account
maintained for a Participant that is credited with Voluntary Employee
Contributions to the Plan in accordance with Section 3.4 on behalf of such
Participant, together with the allocations thereto as required by the Plan.
"YEAR OF ELIGIBILITY SERVICE" means each Eligibility Computation Period
during which the Employee is credited with at least 1,000 Hours of Service.
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<PAGE> 23
"YEAR OF VESTING SERVICE" shall mean a Plan Year during which an
Employee is credited with at least 1,000 Hours of Service.
23
<PAGE> 24
ARTICLE II
PARTICIPATION
2.1 - ELIGIBILITY REQUIREMENTS.
Provided he or she is then an Eligible Employee, each Employee shall
become a Participant in the Plan on the Entry Date following his or her date of
employment by the Company. Notwithstanding the preceding sentence, until January
1, 1995, an Eligible Employee shall only become a Participant for purposes of
Sections 3.1 and 3.3 immediately following his or her completion of one Year of
Eligibility Service, provided he or she is then an Eligible Employee.
2.2 - PARTICIPATION.
Participation of a Participant shall commence as of the date specified
in Section 2.1 and shall continue during the Participant's Employment with the
Company and until the occurrence of a Break in Employment.
2.3 - REEMPLOYMENT.
(a) An Employee who has met the eligibility requirements described
herein but who incurs a Break in Employment prior to becoming a Participant and
is later reemployed as an Eligible
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<PAGE> 25
Employee shall become a Participant as of the later of (1) the Entry Date
following the date he or she met the eligibility requirements described herein
or (2) the date of reemployment.
(b) A Participant who incurs a Break in Employment and is later
reemployed as an Eligible Employee shall resume participation immediately upon
his or her reemployment.
2.4 - DESIGNATION OF BENEFICIARY.
Upon forms provided by the Committee, each Employee who becomes a
Participant shall designate in writing the Beneficiary or Beneficiaries whom
such Employee desires to receive any benefits payable under this Plan in the
event of such Employee's death. A Participant may from time to time change his
or her designated Beneficiary or Beneficiaries without the consent of such
Beneficiary or Beneficiaries by filing a new designation in writing with the
Committee. However, if a married Participant wishes to designate a person other
than his or her spouse as Beneficiary, such designation shall be consented to in
writing by the spouse, which consent shall acknowledge the effect of the
designation and be witnessed by a Plan representative or a notary public. The
Participant may change any election designating a Beneficiary or Beneficiaries
without any requirement of further spousal consent if the spouse's consent so
provides. Notwithstanding the foregoing, spousal consent shall be unnecessary if
it is established (to the
25
<PAGE> 26
satisfaction of a Plan representative) that there is no spouse or that the
required consent cannot be obtained because the spouse cannot be located, or
because of other circumstances prescribed by Treasury Regulations. The Company,
the Committee and the Trustee may rely upon the Participant's designation of
Beneficiary or Beneficiaries last filed in accordance with the terms of this
Plan. Upon the dissolution of marriage of a Participant, any designation of the
Participant's former spouse as a Beneficiary shall be treated as though the
Participant's former spouse had predeceased the Participant, unless (i) the
Participant executes another Beneficiary designation that complies with this
Section 2.4 and that clearly names such former spouse as a Beneficiary, or (ii)
a court order presented to the Committee prior to distribution on behalf of the
Participant explicitly requires the Participant to continue to maintain the
former spouse as the Beneficiary. In any case in which the Participant's former
spouse is treated under the Participant's Beneficiary designation as having
predeceased the Participant, no heirs or other beneficiaries of the former
spouse shall receive benefits from the Plan as a Beneficiary of the Participant
except as provided otherwise in the Participant's Beneficiary designation.
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ARTICLE III
CONTRIBUTIONS
3.1 - DISCRETIONARY COMPANY CONTRIBUTIONS.
(a) Permissible Amount of Company Contributions.
The Company and each Participating Affiliate shall contribute to the
Trust for each Plan Year such amounts as the Board of Directors shall determine
in its sole discretion. Notwithstanding the foregoing, contributions under this
Section shall be subject to the limitations of this Section 3.1 and Article IV.
(b) In no event shall the aggregate contribution for any Plan Year made
by the Company and any Participating Affiliates under Sections 3.1, 3.2 and 3.3,
and under any other profit sharing or stock bonus plan(s) maintained by the
Company or a Participating Affiliate, exceed 15% of the Compensation paid or
accrued to all Participants, plus the amount of any "unused pre-87 limitation
carryforwards" available under Section 404(a)(3)(A) of the Code. The
Compensation taken into account for purposes of the preceding sentence shall be
Compensation paid or accrued during the Company's taxable year ending with or
within the Plan Year to which the Company contribution relates.
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<PAGE> 28
(c) Allocation of Company Contributions and Forfeitures.
As of each Anniversary Date after May 1, 1990, there shall be allocated
from the Company contribution under Section 3.1(a) for the Plan Year and any
amount credited to a former Employee's Old Company Account or New Company
Account as of the preceding Anniversary Date which has been forfeited (as set
forth in Section 5.2), to the New Company Account of each Participant who (i)
retires, dies, suffers a Disability during the Plan Year, or (ii) who completes
at least 1000 Hours of Service during the Plan Year and who is a Participant on
the Anniversary Date, an amount equal to that portion of the total allocable
amount that the Participant's Compensation bears to the total Compensation of
all such Participants. As of each Anniversary Date prior to May 1, 1990, there
shall be allocated from the Company contribution under Section 3.1(a) for the
Plan Year and any amount credited to a former Employee's Old Company Account as
of the preceding Anniversary Date which has been forfeited (as set forth in
Section 5.2), to the Old Company Account of each Participant who (i) retires,
dies, suffers a Disability during the Plan Year, or (ii) who completes at least
1000 Hours of Service during the Plan Year and who is a Participant on the
Anniversary Date, an amount equal to that portion of the total allocable amount
that the Participant's Compensation bears to the total Compensation of all such
Participants. Allocations shall be in the following order:
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<PAGE> 29
(1) Allocation of forfeitures pursuant to this Section;
(2) Allocations required pursuant to Section 3.10 and, effective May 1,
1990, Section 3.12;
(3) Allocation of the Company contribution pursuant to this Section.
3.2 - COMPENSATION DEFERRALS.
(a) Election to Defer.
The provisions of this Section 3.2 shall be effective May 1, 1990.
Subject to the limitations in Sections 3.1, 3.5, 3.6 and Article IV, each
Participant may elect Compensation Deferrals, in writing on forms provided by
the Committee, in whole percentages from 2% to 15% of the Participant's
Compensation for each payroll period. The Participant's compensation shall be
reduced by the amount of his Compensation Deferrals, which shall be credited to
the Participant's Savings Account, and shall be made in accordance with rules
established by the Committee.
(b) Change in Percentage or Suspension of Compensation Deferrals.
A Participant's Compensation Deferral percentage will remain in effect,
notwithstanding any change in Compensation, until the Participant elects to
change the percentage. A Participant may elect at any time to suspend all
Compensation Deferrals, provided he files an election with the Committee in
writing. After the
29
<PAGE> 30
Committee receives a Participant's written election to suspend Compensation
Deferrals, such election shall be effective as soon as administratively
feasible. A Participant may elect to change or to resume his or her Compensation
Deferrals as of the first day of each calendar quarter upon at least 30 days'
written notice to the Committee.
(c) Status of Compensation Deferrals.
To make Compensation Deferrals under this Section, the Company will
reduce the Participant's compensation in the amount authorized by the
Participant and make a contribution to the Trustee equal to such reduction as of
the earliest date on which such amount can reasonably be segregated from the
Company's general assets, not to exceed 90 days from the date on which such
amount would otherwise have been payable to the Participant in cash.
Compensation Deferrals constitute Company contributions under the Plan and are
intended to qualify as elective contributions under Code Section 401(k).
(d) General Limitations on Compensation Deferrals.
As of the last day of the Plan Year, the Committee shall determine the
amount of Compensation Deferrals in excess of those permitted under Section 3.8
of the Plan, and any excess shall be distributed to the Participant responsible
for the excess Compensation Deferral or redesignated as an after-tax
contribution
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<PAGE> 31
and accounted for separately under the Plan in accordance with the Code,
Treasury Regulations and Section 3.8(d).
3.3 - EMPLOYER MATCHING CONTRIBUTIONS.
(a) Amount of Employer Matching Contribution.
The provisions of this Section 3.3 shall be effective as of May 1,
1990. Subject to the limitations of Section 3.1, 3.9 and Article IV, for each
Plan Year the Company and each Participating Affiliate shall contribute to the
Trust as an Employer Matching Contribution such amounts as the Board of
Directors shall determine in its sole discretion. Notwithstanding the foregoing,
an Employer Matching Contribution shall be made under this Section on behalf of
a Participant only if the Participant (i) completes more than 500 Hours of
Service during the Plan Year and is a Participant on the last day of the Plan
Year, or (ii) retires, dies, or suffers a Disability during the Plan Year. The
Company shall pay to the Trustee the Employer Matching Contribution, if any, for
any Plan Year within the time prescribed by law, including extensions of time,
for the filing of the Company's federal income tax return for the Company's
taxable year ending with or within the Plan Year to which the contribution
relates.
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(b) Allocation of Employer Matching Contributions and Forfeitures.
The Employer Matching Contributions for any Plan Year shall be
allocated to the Matching Account maintained for the Participant on behalf of
whom the contribution under Section 3.3(a) was made. In the event that any
portion of a Participant's Matching Account is forfeited under Section 5.2, such
amount shall be allocated to the Matching Account of each Participant who is a
Participant on the Anniversary Date of the Plan Year during which such
forfeiture occurs on the basis set forth in Section 3.1(c).
3.4 - VOLUNTARY EMPLOYEE CONTRIBUTIONS.
(a) Election to Make Voluntary Employee Contributions.
Subject to the limitations of Sections 3.9 and Article IV, each
Participant may elect Voluntary Employee Contributions on his own behalf in
whole percentages from 1% to 10% of the Participant's Compensation earned while
a Participant under this Plan. Such contributions by Participants shall be
credited to the Participant's Voluntary Employee Contributions Account, and
shall be made in accordance with rules established by the Committee.
Notwithstanding the foregoing, a Participant who withdraws any portion of the
amount previously credited to his Voluntary Employee Contribution Account
pursuant to Section 6.3 may not make a Voluntary Employee Contribution for one
Plan Year.
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(b) Status of Voluntary Employee Contributions.
To make Voluntary Employee Contributions under this Section, the
Company will deduct from the Participant's compensation the amount authorized by
the Participant, and shall withhold income taxes on such amount from the
Participant's other compensation. The Company will then contribute the amount
authorized by the Participant, to the Trustee as of the earliest date on which
such amount can reasonably be segregated from the Company's general assets, not
to exceed 90 days from the date on which such amount would otherwise have been
payable to the Participant in cash.
(c) Notwithstanding the foregoing, effective May 1, 1990, Participants
shall no longer be permitted to elect to make Voluntary Employee Contributions
in accordance with this Section 3.4.
3.5 - QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS.
(a) Each Participant may elect pursuant to this Section 3.5 to make a
voluntary contribution in cash up to $2,000 (but not more than 100% of the
Participant's Compensation for the taxable year to which the contribution
relates) which is to be treated as a "Qualified Voluntary Employee Contribution"
within the meaning of Section 219(e)(2) of the Internal Revenue Code of 1954, as
amended.
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(b) Any voluntary employee contribution made in cash after December 31,
1981 shall be treated as a Qualified Voluntary Employee Contribution within the
limitations of Section 219(b) of the Internal Revenue Code of 1954, as amended,
except to the extent that the Participant shall have designated such
contribution, pursuant to subparagraph (f) below, as one which should not be
taken into account under Section 219 as a "qualified retirement contribution" as
defined in Code Section 219(e)(1).
(c) All Qualified Voluntary Employee Contributions shall be transferred
to the Trustee during the Plan Year for which they are to be deemed paid; except
that the Committee may elect to have the provisions of Section 219(f)(3)(B) of
the Internal Revenue Code of 1954 (relating to the time when Qualified Voluntary
Employee Contributions are deemed made) apply to the Plan, effective January 1,
1983, by giving written notice of such election to all who are Participants on
the date of such notice, stating (1) that such election has been made, and (2)
the latest date following the end of the Plan Year (but not later than April
15th of such following Plan Year) when a Qualified Voluntary Employee
Contribution may be made and still be deemed to have been made on December 31st
of the preceding calendar year (but not before December 31, 1982). If the
Committee shall have made such election, and the same shall not have been
revoked, then a Qualified Voluntary Employee Contribution may be transferred to
the Trustee no later than the date stated in the foregoing notice. The Committee
may revoke or modify the
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foregoing election at any time and from time to time, effective at once, by
delivering a further written notice to that effect to all who are Participants
on the date of such further notice.
(d) Notwithstanding anything hereinabove to the contrary, a Qualified
Voluntary Employee Contribution may not be made by a Participant for his taxable
year in which such Participant attains the age of seventy and one-half (70-1/2)
years and/or any taxable year of such Participant thereafter.
(e) In the event that, in addition to making a Qualified Voluntary
Employee Contribution, a Participant shall also make, for the same taxable year,
a payment in cash to an individual retirement plan, he or she shall notify the
Committee, and in that case the allowable amount of his or her Qualified
Voluntary Employee Contribution shall be appropriately reduced as may be
required to assure that his or her aggregate "qualified retirement contribution"
(as defined above) for the year shall not exceed the amount allowable as a
deduction under the Internal Revenue Code as 1954, as amended.
(f) For purposes of subsection (b) of this Section 3.5, a Participant
may designate a voluntary employee contribution (including one made after the
end of the Plan Year, under subsection (c) above, if the election therein
described is in force) as one which is not to be taken into account as a
"qualified
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retirement contribution", by giving written notice to the Committee not later
than the last day of the Plan Year in respect of which the voluntary employee
contribution is made.
(g) In the event that a Participant's Qualified Voluntary Employee
Contribution exceeds the limitation of Section 3.5(a) (or a Participant
designates, pursuant to subsection (f), that his voluntary employee contribution
is not to be considered a Qualified Voluntary Employee Contribution), the
Committee shall consider such excess (or, in the event of such designation, the
entire amount) as a Voluntary Employee Contribution pursuant to Section 3.4,
provided the Voluntary Employee Contributions attributable to such excess (or
the entire amount, as the case may be) were made within the time limitation, and
satisfied the percentage limitation, pursuant to Section 3.4. If such
contributions were not made in a timely manner pursuant to Section 3.4, or
exceeded the percentage limitations thereunder, the Committee shall direct the
Trustee to return such contribution (or that amount which exceeded the
percentage limitation) to the Participant.
(h) In any case in which an Employee is a Participant in two or more
qualified plans maintained by the Company or a Related Company, the aggregate
Qualified Voluntary Employee Contributions to all plans may not exceed the
amount determined under Section 3.5(a).
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(i) In any case where any of the foregoing provisions of this Section
3.5 are not in conformity with Treasury Regulations, the nonconforming
provisions may be amended retroactively to assure conformity.
(j) Notwithstanding the foregoing, effective December 31, 1986,
Participants shall no longer be permitted to elect to make Qualified Voluntary
Employee Contributions in accordance with this Section 3.5.
3.6 - ROLLOVER CONTRIBUTIONS.
(a)(1) For Plan Years ending prior to January 1, 1993, an Eligible
Employee, regardless of whether he has satisfied the participation requirements
of Section 2.1 who, as a result of a termination of employment, disability or
attainment of age 59-1/2, has received a distribution from a plan which meets
the require ments of Section 401(a) of the Code may, in accordance with
procedures approved by the Committee, transfer the distribution received from
the other plan to the Trust; provided that the distribution is eligible for
rollover treatment and exclusion from the gross income of the Participant in
accordance with Section 402(a)(5) of the Code.
(2) Effective for Plan Years beginning on or after January 1, 1993, an
Eligible Employee, regardless of whether he or
37
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she has satisfied the participation requirements of Section 2.1, may, in
accordance with procedures approved by the Committee, (1) have any portion of an
"Eligible Rollover Distribution" (as defined in Section 402(f)(2)(A) of the
Code) paid directly to the Trust from another trust qualified under Section
401(a) of the Code; (2) within 60 days of receipt of an Eligible Rollover
Distribution, pay any portion of the Eligible Rollover Distribution to the
Trust; or (3) within 60 days of receipt of a distribution from a conduit IRA,
pay any portion of the distribution to the Trust. Notwithstanding the foregoing,
the amount transferred to the Trust must be in the form of cash.
(b) The Committee shall develop such procedures, and may require such
information from an Employee desiring to make such a transfer, as it deems
necessary or desirable to determine that the proposed transfer will meet the
requirements of this Section. Upon approval by the Committee, the amount
transferred shall be deposited in the Trust and shall be credited to the
Eligible Employee's Old Rollover Account (in the case of rollovers made prior to
May 1, 1990) or New Rollover Account (in the case of rollovers made on or after
May 1, 1990). Such account shall be 100% vested in the Employee and shall share
in income allocations as provided in the Plan, but shall not share in Company
contribution allocations.
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(c) Upon such transfer by an Eligible Employee who has not yet
completed the participation requirements of Section 2.1, his or her Old Rollover
Account or New Rollover Account, as the case may be, shall represent his or her
sole interest in the Plan until he or she becomes a Participant.
3.7 - SECTION 402(G) LIMIT ON COMPENSATION DEFERRALS.
(a) Compensation Deferrals made on behalf of any Participant under this
Plan and all other plans (which are described in Section 3.7(c)) maintained by
the Company or a Related Company shall not exceed the limitation under Code
Section 402(g)(1) for the taxable year of the Participant, as adjusted annually
under Section 402(g)(5) of the Code, and shall be effective as of January 1 of
each calendar year.
(b) In the event that the dollar limitation provided for in Section
3.7(a) is exceeded, the Participant is deemed to have requested a distribution
of the excess amount by the first March 1 following the close of the
Participant's taxable year, and the Committee shall distribute such excess
amount, and any income allocable to such amount, to the Participant by April
15th. In determining the excess amount distributable with respect to a
Participant's taxable year, excess Compensation Deferrals previously distributed
or redesignated as after-tax contributions
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for the Plan Year beginning with or within such taxable year shall reduce the
amount otherwise distributable under this Paragraph (b).
(c) In the event that a Participant is also a participant in (1)
another qualified cash or deferred arrangement as defined in Section 401(k) of
the Code, (2) a simplified employee pension, as defined in Section 408(k) of the
Code, or (3) a salary reduction arrangement, within the meaning of Section
3121(a)(5)(D) of the Code, and the elective deferrals, as defined in Section
402(g)(3) of the Code, made under such other arrangement(s) and this Plan
cumulatively exceed the dollar limit under Section 3.7(a) for such Participant's
taxable year, the Participant may, not later than March 1 following the close of
his taxable year, notify the Committee in writing of such excess and request
that the Compensation Deferrals made on his behalf under this Plan be reduced by
an amount specified by the Participant. The Committee may then determine to
distribute such excess in the same manner as provided in Section 3.7(b).
3.8 - SECTION 401(K) LIMITATIONS ON COMPENSATION DEFERRALS.
(a) The Committee will estimate, as soon as practical before the close
of the Plan Year and at such other times as the Committee in its discretion
determines, the extent, if any, to which Compensation Deferrals may not be
available to any Participant or class of Participants under Section 401(k) of
the
40
<PAGE> 41
Code. In accordance with any such estimate, the Committee may modify the limits
in Section 3.2(a) or set initial or interim limits for Compensation Deferrals
relating to any Participant or class of Participants. These rules may include
provisions authorizing the suspension or reduction of Compensation Deferrals
above a specified dollar amount or percentage of Compensation.
(b) (1) For each Plan Year, an actual deferral percentage will be
determined for each Participant equal to the ratio of the total amount of the
Participant's Compensation Deferrals allocated under Section 3.2(a) for the Plan
Year divided by the Participant's Compensation in the Plan Year.
(2) In the case of family members treated as a single Highly
Compensated Employee under paragraph (e) of the definition of "Highly
Compensated Employee" in Section 1.2, in accordance with the family aggregation
rules of Section 414(q)(6) of the Code, the actual deferral percentage shall be
determined by combining the Compensation Deferrals and Compensation of all
eligible family members. Except to the extent taken into account in the
preceding sentence, the Compensation Deferrals and Compensation of such family
members shall be disregarded for purposes of determining the actual deferral
percentages for the group of non-Highly Compensated Employees under this Section
3.8.
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<PAGE> 42
(3) In the case of a Participant who is a Highly Compensated Employee
and who is eligible to participate in a cash or deferred arrangement under
another plan(s) maintained by the Company or a Related Company which may be
aggregated with this Plan pursuant to Treasury Regulation Section
1.401(k)-1(b)(3)(ii) (except as provided by Treasury Regulation
1.401(k)-1(g)(1)(B)(3)), the employee contributions and matching contributions
from such other plan(s) shall be included for purposes of calculating the
Participant's actual deferral percentage under this Plan.
(4) An Employee's Compensation taken into account for this purpose
shall be limited to Compensation received during the Plan Year while the
Employee is a Participant. Except as otherwise provided in this Section 3.8(b),
with respect to Participants who have made no Compensation Deferrals under this
Plan, such actual deferral percentage will be zero.
(c) The average of the actual deferral percentages for Highly
Compensated Employees ("High Average") when compared with the average of the
actual deferral percentages for non-Highly Compensated Employees ("Low Average")
must meet one of the following requirements:
(1) The High Average is no greater than 1.25 times the Low Average; or
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<PAGE> 43
(2) The High Average is no greater than two times the Low Average, and
the High Average is no greater than the Low Average plus two percentage
points.
(d) If, at the end of a Plan Year, a Participant or class of
Participants has excess Compensation Deferrals, then the Committee may elect, at
its discretion, to pursue any of the following courses of action or any
combination thereof:
(1) Within 2-1/2 months after the end of the Plan Year, the Committee
may notify (in accordance with any rules prescribed by the Commissioner of
the Internal Revenue Service) a Participant who is a Highly Compensated
Employee that all or a portion of the Participant's excess Compensation
Deferrals for a Plan Year will be redesignated as after-tax contributions
and accounted for separately pursuant to Section 3.2(d). Excess Compensation
Deferrals, however, may not be redesignated as after-tax employee
contributions with respect to a Highly Compensated Employee to any extent
that such redesignated after-tax employee contributions would exceed the
limits of Section 3.4 when combined with the Voluntary Employee Contribution
of that Employee for the Plan Year. The Company may make any adjustments to
withhold any federal, state, or local taxes due on such amounts against
Compensation yet to be paid to the Participant during that taxable year.
(2) The Committee may return any or all excess Compensation Deferrals,
and any earnings attributable thereto
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<PAGE> 44
through the date of distribution, to the Company employing the Participant,
solely for the purpose of enabling the Company to withhold any federal,
state, or local taxes due on such amounts. The Company will pay all
remaining amounts to the Participant within the 2-1/2 month period following
the close of the Plan Year to which the excess Compensation Deferrals relate
to the extent feasible, but in all events no later than 12 months after the
close of such Plan Year.
(3) The Company, in its discretion, may make a contribution to the
Plan, which will be allocated as a fixed dollar amount among the Accounts of
non-Highly Compensated Employees who have met the requirements of Section
2.1.
Any such excess Compensation Deferrals recharacterized as after-tax
contributions or distributed from the Plan with respect to a Participant for a
Plan Year shall be reduced by any amount previously distributed to such
Participant under Section 3.7(b) for the Participant's taxable year ending with
or within such Plan Year.
(e) The amount of the excess Compensation Deferrals will be determined
by the Committee by reducing the actual deferral percentage of the Highly
Compensated Employee(s) with the highest actual deferral percentage to the
extent required to enable the Plan to meet the limits in (c) above or to cause
the actual deferral percentage of such Highly Compensated Employee(s) to equal
the actual deferral percentage of the Highly Compensated
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<PAGE> 45
Employee(s) with the next-highest actual deferral percentage. The process in the
preceding sentence shall be repeated until the Plan satisfies the limits in (c)
above. In the case of family members subject to the family aggregation rules of
Section 414(q)(6) of the Code, excess Compensation Deferrals will be allocated
among family members in proportion to the Compensation Deferrals of each family
member that have been combined under Section 3.8(b) above. The earnings
attributable to excess Compensation Deferrals will be determined in accordance
with Treasury Regulations. The Committee will not be liable to any Participant
(or his Beneficiary, if applicable) for any losses caused by inaccurately
estimating or calculating the amount of any Participant's excess Compensation
Deferrals and earnings attributable to the Compensation Deferrals.
(f) If the Committee determines that an amount to be deferred pursuant
to the election provided in Section 3.2 would cause Company contributions under
this and any other tax-qualified retirement plan maintained by any Company to
exceed the applicable deduction limitations contained in Section 404 of the
Code, or to exceed the maximum Annual Addition determined in accordance with
Article IV, the Committee may treat such amount in accordance with the rules in
subsection (a).
(g) For purposes of satisfying Section 410(b) of the Code, the
Committee may, in its discretion, aggregate the Plan with any other plans
permitted under the Code. If this Plan is
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<PAGE> 46
aggregated with any other plan(s) for purposes of satisfying Section 410(b) of
the Code (other than the average benefit percentage test), this Plan and such
other plan(s) shall be treated as a single plan for purposes of applying the
tests described in this section 3.8.
3.9 - SECTION 401(M) LIMITATIONS ON VOLUNTARY EMPLOYEE CONTRIBUTIONS AND
EMPLOYER MATCHING CONTRIBUTIONS.
(a) The Committee will estimate, as soon as practical, before the close
of the Plan Year and at such other times as the Committee in its discretion
determine, the extent, if any, to which Voluntary Employee Contributions and/or
Employer Matching Contributions may not be available to any Participant or class
of Participants under Code Section 401(m). In accordance with any such estimate,
the Committee may modify the limits in Section 3.3 and/or limits in Section 3.4
or set initial or interim limits or percentages for Voluntary Employee
Contributions and/or Employer Matching Contributions relating to any Participant
or class of Participants. After determining the amount of excess Compensation
Deferrals, if any, under Sections 3.8(a) and 3.8(b), the Committee shall
determine the aggregate contribution percentage under (b) below.
(b) (1) For each Plan Year, a contribution percentage will be
determined for each Participant equal to the ratio of the
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<PAGE> 47
total amount of the Participant's Voluntary Employee Contributions and Employer
Matching Contributions allocated under Sections 3.3 and 3.5 for the Plan Year
and any Compensation Deferrals of the Participant redesignated as after-tax
contributions under Section 3.2(d) and 3.8(d) in the Plan Year in which such
excess Compensation Deferrals would be included in the gross income of the
Participant divided by the Participant's Compensation in the Plan Year. For
purposes of this Section 3.9 the Company, in its sole discretion, may treat all
or any part of its Company Contributions and Compensation Deferrals as Employer
Matching Contributions to the extent permitted by Treasury Regulations. Except
as otherwise permitted by the Code or Treasury Regulations, any such Company
Contributions or Compensation Deferrals that are treated as Employer Matching
Contributions shall not be treated as Compensation Deferrals for purposes of
Section 3.8(b). If Compensation Deferrals are treated as Employer Matching
Contributions, the Plan must satisfy Section 3.8(b) both by counting such
amounts as Compensation Deferrals and by excluding such amounts as Compensation
Deferrals. Furthermore, any Employer Matching Contributions or Company
Contributions treated as Compensation Deferrals under Section 3.8(b) shall not
be used to satisfy the requirements of this Section 3.9(b), except as otherwise
permitted by the Code or Treasury Regulations.
(2) In the case of family members treated as a single Highly
Compensated Employee under Paragraph (e) of the definition
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<PAGE> 48
of "Highly Compensated Employee" in Section 1.2, in accordance with the family
aggregation rules of Section 414(q)(6) of the Code, the contribution percentage
shall be determined by combining the Voluntary Employee Contributions, Employer
Matching Contributions and Compensation of all eligible family members. Except
to the extent taken into account in the preceding sentence, the Voluntary
Employee Contributions, Employer Matching Contributions, Compensation and all
amounts treated as Employer Matching Contributions of such family members shall
be disregarded for purposes of determining the average of the contribution
percentages for the group of non-Highly Compensated Employees under this Section
3.8.
(3) In the case of a Participant who is a Highly Compensated Employee
and who makes employee contributions to or is entitled to matching contributions
from another plan(s) maintained by the Company or a Related Company which may be
aggregated with this Plan pursuant to Section 1.401(m)-1(b)(3)(ii) of the
Treasury Regulations (except as provided by Section 1.401(m)-1(f)(1)(ii)(B) of
the Treasury Regulations), the employee contributions and matching contributions
from such other plan(s) shall be included for purposes of calculating the
Participant's actual contribution percentage under this Plan.
(4) An Employee's Compensation taken into account for this purpose
shall be limited to Compensation received during the
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<PAGE> 49
Plan Year while the Employee is a Participant. Except as otherwise provided in
this Section 3.9(b), with respect to Participants for whom there were no
Employer Matching Contributions under this Plan, such contribution percentage
will be zero.
(c) The average of the contribution percentages for Highly Compensated
Employees ("High Average") when compared with the average of the contribution
percentages for non-Highly Compensated Employees ("Low Average") must meet one
of the following requirements:
(1) The High Average is no greater than 1.25 times the Low Average; or
(2) The High Average is no greater than two times the Low Average, and
the High Average is no greater than the Low Average plus two percentage
points.
(d) If, at the end of a Plan Year, a Participant or a class of
Participants has excess contributions, then the Committee may elect, at its
discretion, to pursue any of the following courses of action or any combination
thereof:
(1) Excess Employer Matching Contributions (and any earnings
attributable thereto through the date of distribution) attributable to
excess Compensation Deferrals under Section 3.7 or 3.8 may be forfeited.
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<PAGE> 50
(2) Employer Matching Contributions (and any earnings attributable
thereto through the date of distribution) that are not vested may be
forfeited.
(3) Excess Voluntary Employee Contributions and excess Employer
Matching Contributions (and any earnings attributable to such excess amounts
through the date of distribution) may be distributed to the Participant
within the 2-1/2 month period following the close of the Plan Year to the
extent feasible, and in all events no later than 12 months after the close
of Plan Year.
(e) The amount of excess Voluntary Employee Contributions and Employer
Matching Contributions shall be determined by the Committee by reducing the
contribution percentage of the Highly Compensated Employee(s) with the highest
contribution percentage to the extent required to enable the Plan to meet the
limits in (c) above or to cause the contribution percentage of such Employee(s)
to equal the contribution percentage of the Highly Compensated Employee(s) with
the next-highest contribution percentage. The process in the preceding sentence
shall be repeated until the Plan satisfies the limits in (c) above. In the case
of family members subject to the family aggregation rules of Section 414(q)(6)
of the Code, excess contributions will be allocated among family members in
proportion to the Voluntary Employee Contributions and Employer Matching
Contributions of each family member that have been combined under Section 3.9(b)
above.
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The earnings attributable to excess contributions will be determined in
accordance with Treasury Regulations. The Committee will not be liable to any
Participant (or to his Beneficiary, if applicable) for any losses cause by
inaccurately estimating or calculating the amount of any Participant's excess
contributions and earnings attributable to the contributions.
(f) For purposes of satisfying Section 410(b) of the Code, the
Committee may, in its discretion, aggregate the Plan with any other plans
permitted under the Code. If this Plan is aggregated with any other plan(s) for
purposes of satisfying Section 410(b) of the Code (other than the average
benefit percentage test), this Plan and such other plan(s) shall be treated as a
single plan for purposes of applying the tests described in section 3.9.
(g) The tests of Sections 3.8(c) and 3.9(c) shall be met in accordance
with the prohibition against the multiple use of the alternative limitation
under Code Section 401(m)(9).
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3.10 - VALUATION OF OLD COMPANY ACCOUNTS, OLD ROLLOVER ACCOUNTS, VOLUNTARY
EMPLOYEE CONTRIBUTIONS ACCOUNTS, AND QUALIFIED VOLUNTARY EMPLOYEE
CONTRIBUTIONS ACCOUNTS.
(a) The provisions of this Section 3.10 apply to a Participant's Old
Company Account, Old Rollover Account, Voluntary Employee Contributions Account
and Qualified Voluntary Employee Contributions Account. Notwithstanding the
preceding sentence, effective May 1, 1990, this Section 3.10 shall only apply to
that portion of a Participant's Old Company Account which as of May 1, 1990 was
invested in the Pooled Asset Fund. As of each Valuation Date, the Committee
(relying on the report of the Trustee) shall determine the fair market value of
the Trust assets and shall deduct from such fair market value the following
amounts in order to determine the net fair market value of the Trust assets as
of such date:
(1) The Company's contribution under Section 3.1 in which the Valuation
Date occurs to the extent such contribution has been paid on or prior to
such Valuation Date.
(2) Amounts which were contributed since the prior Valuation Date
pursuant to Sections 3.4, 3.5 and 3.6
(b) To determine any increase or decrease in the fair market value of
the Trust assets, the net fair market value of such assets determined in
accordance with the preceding subsection shall be compared to the total of the
fair market value on the preceding
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<PAGE> 53
Valuation Date of the Trust assets, less any distributions since the preceding
Valuation Date.
(c) Any increase or decrease in the net fair market value of such
assets so determined shall be allocated to all Participants' Accounts referred
to in subsection (a) above in the proportion that the cumulative amount
previously allocated and remaining credited to each Participant's Account(s)
referred to in subsection (a) bears to the total of the cumulative amounts
previously allocated and remaining credited to all such Accounts. The allocation
required by this Section 3.10 on the Anniversary Date shall be the second
allocation made by the Committee at the end of each Plan Year and shall be made
immediately following the allocation of forfeitures made under Section 3.1(c).
(d) Notwithstanding anything to the contrary herein, if the Committee
determines that an alternative method of allocating earnings and losses would
better serve the interests of Participants and Beneficiaries or could be more
readily implemented, the Committee may substitute such alternative; provided
that any such alternative method must result in Plan earnings being allocated on
the general basis of Account balances.
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3.11 - INVESTMENT FUNDS FOR OLD COMPANY ACCOUNTS, OLD ROLLOVER ACCOUNTS,
VOLUNTARY EMPLOYEE CONTRIBUTIONS ACCOUNTS, QUALIFIED VOLUNTARY EMPLOYEE
CONTRIBUTIONS ACCOUNTS, NEW COMPANY ACCOUNTS, NEW ROLLOVER ACCOUNTS,
SAVINGS ACCOUNTS, MATCHING ACCOUNTS.
(a) The provisions of this Section 3.11 are effective May 1, 1990, and
apply to a Participant's Old Rollover Account, Voluntary Employee Contributions
Account, Qualified Voluntary Employee Contributions Account, New Company
Account, New Rollover Account, Savings Account, Matching Account, and that
portion of a Participant's Old Company Account which was not invested in the
Pooled Asset Fund as of May 1, 1990 (collectively referred to herein as the
"Self-Directed Accounts"). The Committee shall select the Investment Funds
available under this Plan. Consistent with the preceding sentence, the Committee
may modify, add to or remove one or more of the Investment Funds in which
Participants may invest their Self-Directed Accounts. The Committee shall
describe the investments to be made under each Investment Fund in such detail as
the Committee deems appropriate in its sole discretion.
(b) Each Participant shall have the right upon open enrollment and as
of the first day of each calendar quarter, or as frequently as authorized by the
Committee, to elect in 10% increments the Investment Funds under which his or
her Self-
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<PAGE> 55
Directed Accounts will be invested, pursuant to such rules as the Committee may
adopt from time to time. A Participant must notify the Committee of his or her
allocation election prior to the effective date of such allocation. In the
absence of a designation under this subsection, the Participant's Self-Directed
Accounts shall be invested in the Investment Fund maintained under the Plan that
is a money market fund, or if no money market Investment Fund is then maintained
under the Plan, the Investment Fund that most strongly emphasizes conservation
of capital.
(c) Participant loans made pursuant to Section 9.11 shall not be
included in any of the Investment Funds. Instead, for any Participant who takes
such a loan, the loan shall be considered an investment of his or her
Self-Directed Accounts. Such Participant's Self-Directed Accounts shall be
credited with the investment gain or loss attributable to such loan.
3.12 - VALUATION OF OLD COMPANY ACCOUNTS, OLD ROLLOVER ACCOUNTS, VOLUNTARY
EMPLOYEE CONTRIBUTIONS ACCOUNTS, QUALIFIED VOLUNTARY EMPLOYEE
CONTRIBUTIONS ACCOUNTS, NEW COMPANY ACCOUNTS, NEW ROLLOVER ACCOUNTS,
SAVINGS ACCOUNTS, MATCHING ACCOUNTS.
This Section 3.12 is effective May 1, 1990 and applies to a
Participant's Self-Directed Accounts (as such term is defined in Section 3.11).
As of each Valuation Date, the Committee will
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<PAGE> 56
determine the net investment gain or loss, after adjustment for applicable
expenses, if any, of each Investment Fund since the immediately preceding
Valuation Date. The net investment gain or loss of each such Investment Fund
will be allocated to each Participant's Self-Directed Accounts balances in an
amount bearing the same ratio to the net investment gain or loss of that
Investment Fund as the portion of such Participant's Self-Directed Accounts
balances invested in such Investment Fund bears to the total of all
Participants' Self-Directed Accounts balances invested in such Investment Fund.
For purposes of this Section 3.12 only, a Participant's Self-Directed Accounts
balances means his or her Self-Directed Accounts balances as of the preceding
Valuation Date.
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ARTICLE IV
LIMITATION ON ANNUAL ADDITIONS
Notwithstanding anything else contained herein, the Annual Additions,
to all the Accounts of a Participant shall not exceed the lesser of $30,000 (or,
if greater, 1/4 of the defined benefit dollar limitation in effect under Section
415(b)(1) of the Code for the limitation year) or 25% of the Participant's
Section 415 Compensation from the Company and all Related Companies during the
Plan Year, in accordance with the provisions of Appendix A attached hereto.
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ARTICLE V
VESTING
5.1 - FULLY VESTED ACCOUNTS.
A Participant's Savings Account, Voluntary Employee Contributions
Account, Qualified Voluntary Employee Contributions Account, New Rollover
Account and Old Rollover Account shall be 100% vested and nonforfeitable.
5.2 - NEW COMPANY ACCOUNT, OLD COMPANY ACCOUNT AND MATCHING ACCOUNT.
(a) Vesting at Normal Retirement Age.
A Participant shall become 100% vested in his or her New Company
Account, Old Company Account and Matching Account upon reaching his or her
Normal Retirement Age if the Participant is then employed by the Company or a
Related Company.
(b) Vesting Before Normal Retirement Age.
(1) Prior to his or her Normal Retirement Age, a Participant shall
become 100% vested in his or her New Company Account, Old Company Account
and Matching Account if, while an Employee, the Participant incurs a
Disability, or dies; or
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<PAGE> 59
(2) With respect to a Participant's New Company Account and
Matching Account, the Participant shall become vested in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years of
Vesting Service Percentage Vested
--------------- -----------------
<S> <C>
less than 1 20%
1 40%
2 60%
3 80%
4 100%
</TABLE>
(3) With respect to a Participant's Old Company Account, the
Participant shall become vested in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of
Vesting Service Percentage Vested
--------------- -----------------
<S> <C>
less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(4) If a Participant incurs a One-Year Break in Service Year
before he has a vested interest under this Article V, in determining his or
her Years of Vesting Service under this Section 5.2, all Years of Vesting
Service earned before the One-Year Break in Service Year shall be forfeited
if the consecutive number of One-Year Break in Service Years equals
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<PAGE> 60
or exceeds the greater of five or the Years of Vesting Service earned before
the One-Year Break in Service Year.
(5) All Years of Service shall be taken into account in
determining the vested percentage in a Participant's New Company Account,
Old Company Account and Matching Account; provided, however, that if a
Participant incurs a Break in Employment which is followed by five
consecutive One-Year Break in Service Years and is subsequently reemployed,
no Year of Vesting Service after such five consecutive One-Year Break in
Service Years shall be taken into account in determining the vested
percentage in a Participant's New Company Account, OLD Company Account and
Matching Account accrued up to any such One-Year Break in Service Year.
(6) If a Participant who is less than 100% vested in his or her
New Company Account, Old Company Account and Matching Account ceases to
participate and receives a distribution of his or her New Company Account,
Old Company Account or Matching Account, such portion of his or her New
Company Account, Old Company Account or Matching Account as is not vested
shall be forfeited at the time of the distribution and allocated in the
manner provided in Section 3.1(c) or Section 3.3(b), as applicable. For
purposes of the preceding sentence, a Participant who ceases to participate
in the Plan and whose nonforfeitable percentage in his or her New Company
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<PAGE> 61
Account, Old Company Account or Matching Account is zero, shall be deemed to
have received a complete distribution of the nonforfeitable portion of his
or her New Company Account, Old Company Account or Matching Account. If a
former Participant who has suffered a forfeiture on account of his or her
termination of participation in accordance with this subsection (b)(6) is
reemployed as an Employee by the Company before incurring five consecutive
One-Year Break in Service Years and repays to the Plan all money distributed
from his or her New Company Account, Old Company Account and Matching
Account prior to 60 months after such reemployment, any amounts so forfeited
(unadjusted for any increase or decrease in the value of Trust assets
subsequent to the date on which the forfeiture occurred) shall be reinstated
to the Participant's New Company Account, Old Company Account or Matching
Account, as the case may be, within a reasonable time after such repayment.
Such reinstatement shall be made from forfeitures of Accounts of
Participants occurring during the Plan Year in which such reinstatement
occurs to the extent such forfeitures are attributable to contributions by
the same company (or a company that is a Related Company to that company)
and earnings on such contributions; provided, however, if such forfeitures
are not sufficient to provide such reinstatement, the reinstatement shall be
made from the current year's contribution by that Company to the Plan. If
the Participant does not make such repayment within the
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prescribed time limits, the amounts forfeited as a result of the Break in
Employment will not be restored.
(7) If a Participant was fully vested in such Participant's
Accounts at the time of his or her Break in Employment and, therefore,
received a distribution of the entire balance in his or her Accounts at that
time, such Participant will not be entitled to repay the distributed amounts
and have his or her Accounts restored. Such Participant will not, however,
lose credit for prior Years of Vesting Service.
(c) Notwithstanding the preceding subsections, in the case of a
Participant who incurs a Break in Employment prior to the first Plan Year
beginning after 1984, the word "one" shall be substituted for "five" in
subsections (b)(4), (b)(5) and/or (b)(6) if such substitution results in the
following conditions being met: in the case of subsection (b)(4), the described
forfeiture would have occurred prior to the first Plan Year beginning after
1984; or, in the case of subsections (b)(5) and (b)(6), a One-Year Break in
Service Year would have occurred before the first Plan Year beginning after
1984.
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ARTICLE VI
DISTRIBUTIONS
6.1 - DISTRIBUTION OF BENEFITS.
(a) Benefits shall become distributable to a Participant or his
Beneficiary (in the case of death) upon a Break in Employment.
(b) The amount of the benefits distributable to a Participant upon a
Break in Employment shall be the amount credited to such Participant's New
Company Account, Old Company Account and Matching Account as of the Valuation
Date referred to in subsections (c) and (d) below multiplied by the percentage
of his or her vested interest determined under Section 5.2 plus the amount
credited to such Participant's Savings Account, New Rollover Account, Old
Rollover Account, Voluntary Employee Contributions Account and Qualified
Voluntary Employee Contributions Account as of such Valuation Date plus any
contributions made to the Participant's Accounts after such Valuation Date and
less any withdrawals from the Participant's Accounts after such Valuation Date.
(c) If the nonforfeitable balance in the Participant's Accounts is
$3,500 or less, such amount shall be distributed in a cash lump sum upon a Break
in Employment. For purposes of the
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<PAGE> 64
preceding sentence, the Participant's Accounts shall be valued as of the
Valuation Date coinciding with or immediately preceding the Break in Employment.
(d)(1) If the nonforfeitable balance in the Participant's Accounts
exceeds $3,500, distribution shall be made upon a Break in Employment only if
the Participant consents in writing to a distribution. The distribution shall be
paid in the form of a cash lump sum (or an in-kind distribution of property
allocable to a Participant's Accounts or a combination of cash and such
property), provided, however, that the Participant may elect the optional forms
of benefits described in paragraph (2) of this Section 6.1(d) with respect to
the amounts credited to his or her Old Company Account, Old Rollover Account,
Voluntary Employee Contributions Account and Qualified Voluntary Employee
Contributions Account, and the Participant may elect the optional form of
benefits described in paragraph (3) of this Section 6.1(d) with respect to the
amounts credited his or her Savings Account, Matching Account, New Company
Account and New Rollover Account. For purposes of this subsection (d), the
Participant's Accounts shall be valued as of the Valuation Date immediately
following the Committee's acceptance of the Participant's written election for a
distribution.
(2) With respect to that portion of a Participant's distribution which
is attributable to the Participant's Old Company
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<PAGE> 65
Account, Old Rollover Account, Voluntary Employee Contributions Account and
Qualified Voluntary Employee Contributions Account, a Participant may elect
(instead of the lump sum distribution described in Section 6.1(d)(1)) the
following optional forms of distribution:
(A) An annuity for the life of the Participant or an annuity for the
life of the Participant with a survivor annuity for the life of the
Participant's designated Beneficiary which is either 50 percent, 75 percent
or 100 percent of the amount of the annuity which is payable during the
joint lives of the Participant and the Participant's designated Beneficiary;
provided, however, that any such annuity shall be subject to the provisions
of Section 6.2.
(B) Cash payments over a period certain in monthly, quarterly,
semiannual or annual installments of substantially equal designated amounts
over a period not to extend beyond the Participant's life expectancy (or the
life expectancy of the Participant and his or her designated Beneficiary).
If a Participant elects a form of distribution other than a lump sum, then the
amount to be distributed each year must be at least an amount equal to the
quotient obtained by dividing the Participant's entire interest by the life
expectancy of the participant or joint and last survivor expectancy of the
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Participant and designated Beneficiary. Life expectancy and joint and last
survivor expectancy shall be computed by the use of the return multiples
contained in Treasury Regulations Section 1.72-9. For purposes of this
computation, a Participant's life expectancy may be recalculated no more
frequently than annually. However, the life expectancy of a nonspouse
Beneficiary may not be recalculated.
(3) With respect to that portion of a Participant's distribution which
is attributable to the Participant's Savings Account, Matching Account, New
Rollover Account and New Company Account, a Participant may elect (instead of
the lump sum distribution described in Section 6.1(d)(1)) to have such amounts
paid in the form of installments in the manner described in Section
6.1(d)(2)(B).
(e) If a Participant whose nonforfeitable balance in his or her
Accounts exceeds $3,500 does not consent to receive a distribution, the amounts
payable shall commence to be distributed after the end of the Plan Year of the
Participant's death or the attainment of his or her Normal Retirement Age,
whichever occurs first.
(f) If a terminating Participant consents to an immediate distribution,
the nonvested portion of his or her Accounts shall be forfeited in the year of
distribution and his
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rights with respect to the forfeited portion shall be governed by Section
5.2(d).
6.2 - JOINT AND SURVIVOR ANNUITY.
(a) The provisions of this Section 6.2 shall apply to any Participant
(i) who is credited with at least one Hour of Service with the Company on or
after August 23, 1984, (ii) who has amounts in his or her Old Company Account,
Old Rollover Account, Voluntary Employee Contributions Account or Qualified
Voluntary Employee Contributions Account and (iii) who elects an annuity form of
payment in accordance with 6.1(d)(2)(A).
(b) Unless another form of benefit is selected pursuant to a Qualified
Election (as defined in Section 6.2(d)(2)) within the 90-day period ending on
the date benefit payments would commence, the distributable balance of the
Accounts described in Section 6.2(a) above will be used to purchase a Qualified
Joint and Survivor Annuity (as defined in Section 6.2(d)(3) below).
(c) Unless another form of benefit and/or a Beneficiary other than the
Participant's Spouse has been selected within the Election Period pursuant to a
Qualified Election, if a Participant dies before benefits have commenced then
the distributable balance of the Accounts described in Section 6.2(a) above
shall be applied toward the purchase of an annuity for the life of the surviving
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Spouse; the Spouse may, however, after the Participant's death elect any of the
forms of benefit under Section 6.1(d)(2).
(d) For purposes of this Section 6.2, the following terms shall have
the meaning specified below:
(1) Election Period: The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date of
the Participant's death. If a Participant has a Break in Employment prior to
the first day of the Plan Year in which age 35 is attained, with respect to
the balance of the Accounts described in Section 6.2(a) as of the Break in
Employment, the Election Period shall begin on the date the Break in
Employment occurs.
(2) Qualified Election: A waiver of a Qualified Joint and Survivor
Annuity or a Qualified Preretirement Survivor Annuity. The waiver must be in
writing and must be consented to by the Participant's Spouse. The Spouse's
consent to a waiver must be witnessed by a Plan representative or notary
public. Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of a Plan representative that such written
consent may not be obtained because there is no Spouse or the Spouse cannot
be located, a waiver will be deemed a Qualified Election. A revocation of a
prior waiver may be made by a Participant without the
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consent of the Spouse at any time before the commencement of benefits. The
number of revocations shall not be limited.
(3) Qualified Joint and Survivor Annuity: An annuity for the life of
the Participant with a survivor annuity for the life of the Spouse which is
50 percent of the amount of the annuity which is payable during the joint
lives of the Participant and the Spouse. For a Participant who is not
married, Qualified Joint and Survivor Annuity means a straight life annuity.
(4) Spouse (surviving Spouse): The spouse or surviving spouse of the
Participant, provided that a former spouse will be treated as the spouse or
surviving spouse to the extent provided under a qualified domestic relations
order as described in Section 414(p) of the Code.
(e) In the case of a Qualified Joint and Survivor annuity as described
in Section 6.2(d)(3), the Committee shall provide each Participant within a
reasonable period prior to the commencement of benefits a written explanation
of: (i) the terms and conditions of a Qualified Joint and Survivor Annuity; (ii)
the Participant's right to make and the effect of an election to waive the
Qualified Joint and Survivor Annuity form of benefit; (iii) the rights of a
Participant's Spouse; and (iv) the right to make, and
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the effect of, a revocation of a previous election to waive the Qualified Joint
and Survivor Annuity.
6.3 - WITHDRAWALS OF VOLUNTARY EMPLOYEE CONTRIBUTIONS AND QUALIFIED VOLUNTARY
EMPLOYEE CONTRIBUTIONS.
(a) A Participant may withdraw part or all of his or her Voluntary
Employee Contributions Account and Qualified Voluntary Employee Contributions
Account. In the event such a withdrawal is made, a Participant shall not be
permitted to make Voluntary Employee Contributions (in the case of a withdrawal
from his or her Voluntary Employees Contributions Account) or Qualified
Voluntary Employees Contributions (in the case of a withdrawal from his or her
Qualified Voluntary Employee Contributions Account) for one Plan Year.
(b) A withdrawal under this section may be made by written notice filed
with the Committee at least 10 days prior to the intended withdrawal date. A
Participant's withdrawal under this section shall be consented to in writing by
the Participant's spouse, which consent shall acknowledge the effect of the
consent and be witnessed by a Plan representative or a notary public.
Notwithstanding the foregoing, spousal consent shall be unnecessary if it is
established (to the satisfaction of the Plan representative) that there is no
spouse, that the required consent
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cannot be obtained because the spouse cannot be located, or because of other
circumstances prescribed by Treasury Regulations.
6.4 - HARDSHIP DISTRIBUTIONS FROM OLD COMPANY ACCOUNT.
(a) Subject to the approval of the Committee and guidelines promulgated
by the Committee, a Participant may request in writing to receive a distribution
of up to 75 percent of the vested portion of his or her Old Company Account
valued as of the immediately preceding Anniversary Date in order to meet a
financial hardship resulting from:
(1) Uninsured medical expenses previously incurred by the Participant,
or the Participant's spouse or dependent or necessary to obtain such medical
care;
(2) The purchase (excluding mortgage payments) of a principal residence
of the Participant;
(3) The payment of tuition for the next 12 months of post-secondary
education for the Participant, or the Participant's spouse, children or
dependents;
(4) The prevention of eviction of the Participant from his or her
principal residence, or foreclosure on the mortgage of the Participant's
principal residence; and
(5) Any other event described in Treasury Regulations or rulings as an
immediate and heavy financial need and approved by the Company as a reason
for permitting distribution under this Section.
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(b) Each distribution paid pursuant to this Section shall be deemed to
be made as of the first day of the Plan Year in which the Participant requests a
distribution and the Participant's Old Company Account shall be reduced
accordingly. No distribution shall be made pursuant to this section 6.4 unless
the balance in the Participant's Old Company Account has accumulated for at
least two (2) years or the Participant has completed 5 years of participation in
the Plan.
(c) A Participant's request for a distribution under this Section shall
be consented to in writing on forms provided by the Committee by the
Participant's spouse in the manner described in section 6.3(b).
6.5 - HARDSHIP WITHDRAWALS FROM SAVINGS ACCOUNTS.
(a) The provisions of this Section 6.5 are effective as of May 1, 1990.
Subject to the approval of the Committee and guidelines promulgated by the
Committee, withdrawals from the Participant's Savings Account may be permitted
to meet a financial hardship resulting from:
(1) Uninsured medical expenses previously incurred by the Participant,
or the Participant's spouse or dependent or necessary to obtain such medical
care;
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(2) The purchase (excluding mortgage payments) of a principal residence
of the Participant;
(3) The payment of tuition for the next 12 months of post-secondary
education for the Participant, or the Participant's spouse, children or
dependents;
(4) The prevention of eviction of the Participant from his or her
principal residence, or foreclosure on the mortgage of the Participant's
principal residence; and
(5) Any other event described in Treasury Regulations or rulings as an
immediate and heavy financial need and approved by the Company as a reason
for permitting distribution under this Section.
The Committee shall determine, in a non-discriminatory manner, whether a
Participant has a financial hardship. A distribution may be made under this
section only if such distribution does not exceed the amount required to meet
the immediate financial need created by the hardship (including taxes or
penalties reasonably anticipated from the distribution) and is not reasonably
available from other resources of the Participant.
(b) The withdrawal amount shall not in any event exceed the value of
the Participant's Savings Account as of the Valuation Date immediately following
the Committee's acceptance of the Participant's written application for a
hardship withdrawal. In addition, the withdrawal amount shall not exceed the
value of the
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Participant's Compensation Deferrals to such Account, less previous withdrawals
and excluding earnings. Payment of the withdrawal shall be in a single sum no
later than the end of the month following the date on which the withdrawal is
approved by the Committee.
(c) If a Participant withdraws any amount from his Savings Account
pursuant to this section, he must agree in writing that he shall be unable to
elect that any Compensation Deferrals or any other employee contributions
(excluding mandatory employee contributions to a defined benefit plan) be made
on his behalf under this Plan or under any other plan maintained by the Company
or a Related Company until one year after receipt of the withdrawal. For
purposes of the preceding sentence, a plan includes any qualified plan or
nonqualified plan of deferred compensation and any stock purchase or stock
option plan, but does not include cafeteria plans or any other health or welfare
benefit plans. In addition, a Participant who withdraws any amount from his
Savings Account pursuant to this Section shall be unable to elect any
Compensation Deferrals under this Plan or under any other plan maintained by the
Company or a Related Company for the Participant's taxable year immediately
following the taxable year of the withdrawal to any extent that such
Compensation Deferral would exceed the applicable limit under Section 402(g) of
the Code for such taxable year, reduced by the amount of such Participant's
Compensation Deferrals for the taxable year of the withdrawal.
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(d) A Participant shall not be permitted to make any withdrawals from
his Savings Account pursuant to this section until he has obtained all
distributions and all non-taxable loans currently available under all qualified
profit sharing and retirement plans maintained by the Company or a Related
Company.
(e) A Participant's withdrawal under this Section shall be consented to
in writing on forms provided by the Committee by the Participant's spouse in the
manner described in Section 6.3(b).
6.6 - WITHDRAWALS FROM SAVINGS ACCOUNTS UPON ATTAINING AGE 59-1/2.
The provisions of this Section 6.6 are effective as of May 1, 1990.
After attaining age 59-1/2, a Participant may elect to withdraw amounts, in
cash, from the nonforfeitable portion of his or her Savings Account. No more
than one withdrawal may be made in any Plan Year from the Participant's Savings
Account under this section. For purposes of withdrawals under this section, a
Participant's Savings Account shall be valued as of the Valuation Date
coinciding with or immediately preceding the Committee's acceptance of the
Participant's written application for a distribution under this section. A
Participant's withdrawal under this Section must be consented to in writing on
forms provided by this Committee by the Participant's spouse in the manner
described in Section 6.3(b).
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6.7 - QUALIFIED DOMESTIC RELATIONS ORDERS.
Subject to the procedures established by the Committee under Section
9.4(b), benefits may be paid from the nonforfeitable balance of a Participant's
Accounts in accordance with a qualified domestic relations order as defined in
Section 414(p) of the Code without regard to whether the Participant has
attained the "earliest retirement age," as defined in Section 414(p) of the
Code.
6.8 - INABILITY TO LOCATE PARTICIPANT.
In the case of any distribution of an Account under this Plan, if the
Committee is unable to make such payment within three years after payment is due
a Participant or Beneficiary because it cannot locate such Participant or
Beneficiary, the Trustee shall direct that such amount shall be forfeited and
shall be reallocated (as of the Anniversary Date coincident with or next
succeeding the expiration of the aforesaid time limit) to the remaining
Participants' Accounts, as in the case of amounts forfeited for any other reason
and the assets of this Plan shall be relieved of the liability for such payment.
If, after such forfeiture, the Participant or Beneficiary later claims such
benefit, such account shall be reinstated from forfeitures of Participants in
this Plan occurring during the Plan Year in which such reinstatement occurs;
provided, however, that if such forfeitures are not sufficient to
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provide such reinstatement, an additional Company contribution shall be made for
the Plan Year in which reinstatement occurs to cover such reinstatement.
Establishment of an account through such reinstatement shall not be deemed an
"annual addition" under Section 415 of the Code or Article IV of the Plan.
6.9 - LIMITATIONS ON DISTRIBUTIONS.
(a) When benefits become distributable, the Committee shall direct the
Trustee to distribute the amount described above promptly, the payment of such
benefits to commence, notwithstanding anything to the contrary contained herein,
no later than 60 days following the close of the later of the Plan Year in which
(1) a Participant reaches Normal Retirement Age, (2) the Participant incurs a
Break in Employment, or (3) occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan (unless the amount of the
Participant's benefit has not been calculated by that date or the Participant
cannot be located, in which case distribution shall begin no later than 60 days
after the payment can be calculated or the Participant located).
(b) Notwithstanding anything to the contrary contained herein, the
distribution options under the Plan shall comply with Section 401(a)(9) of the
Code and regulations promulgated thereunder, which are hereby incorporated by
this reference as a part of the Plan. Accordingly, unless otherwise permitted by
law,
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the entire interest of each Participant shall commence to be distributed, by
April 1 of the calendar year following the calendar year in which the
Participant reaches age 70-1/2. Except as provided by law, a Participant who
reached age 70-1/2 before January 1, 1988 and who was not a five percent owner
of the Company at any time during the Plan Year ending with or within the
calendar year in which the Participant attains age 66-1/2 or thereafter, is not
required to receive distribution of his interest until he separates from
service. If a Participant continues employment past the required beginning date
described above, distributions required to be made shall be appropriately
adjusted to reflect additional accruals in accordance with Treasury Regulations.
6.10 - DIRECT ROLLOVERS.
(a) This Section 6.10 applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 6.10, a Distributee
may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an Eligible Rollover Distribution paid directly to an eligible
Retirement Plan specified by the Distributee in a Direct rollover.
(b) Eligible Rollover Distributions: For purposes of this Section 6.10,
an "Eligible Rollover Distribution" is any
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distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include:
(1) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code; and
(2) the portion of any distribution that is non includable in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(c) Eligible Retirement Plan: For purposes of this Section 6.10, and
"Eligible Retirement Plan" is an individual retirement account described in
Section 408(a) of the Code, an individual retirement annuity described in
Section 408(b) of the Code, and annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section 401(a) of the Code, that accepts
the Distributee's Eligible Rollover Distribution. However, in the case of an
Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement
Plan is an individual retirement account or individual retirement annuity.
(d) Distributee: For purposes of this Section 6.10, a "Distributee"
includes an Employee or former Employee. In
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addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are Distributees with regard to the interest of the spouse or
former spouse.
(e) Direct Rollover: For purposes of this Section 6.10, a "Direct
Rollover" is a payment by the Plan to the Eligible Retirement Plan specified by
the Distributee."
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ARTICLE VII
THE COMMITTEE
7.1 - MEMBERS.
A committee (hereinafter referred to as the "Committee") shall be
appointed by, and shall serve at the pleasure of, the Board. The number of
members comprising the Committee shall be determined by the Board which may from
time to time vary the number of members. A member of the Committee may resign by
delivering a written notice of resignation to the Board. The Board may remove
any member by delivering a certified copy of its resolution of removal to such
member. Vacancies in the membership of the Committee shall be filled promptly by
the Board.
7.2 - COMMITTEE ACTION.
The Board shall choose a Chairman for the Committee and the Committee
shall choose a Secretary. The Secretary shall keep minutes of the Committee's
proceedings and all records and documents pertaining to the Committee's
administration of the Plan. Any action of the Committee shall be taken pursuant
to the vote or written consent of a majority of its members present, and such
action shall constitute the action of the Committee and be binding upon the same
as if all members had joined therein. A member of the Committee shall not vote
or act upon any matter which relates
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solely to himself or herself as a Participant. The Chairman or any other member
or members of the Committee designated by the Chairman may execute any
certificate or other written direction on behalf of the Committee. The Trustee
or any third person dealing with the Committee may conclusively rely upon any
certificate or other written direction so signed.
7.3 - RIGHTS AND DUTIES.
(a) The Company shall be the Plan Administrator (as defined in Section
3(16)(A) of ERISA.) The Company delegates its duties under the Plan to the
Committee. The Committee shall act as the Fiduciary with respect to control and
management of the Plan for purposes of ERISA on behalf of the Participants and
their Beneficiaries, shall enforce the Plan in accordance with its terms, shall
be charged with the general administration of the Plan, and shall have all
powers necessary to accomplish its purposes, including, but not by way of
limitation, the following:
(1) To determine all questions relating to the eligibility of Employees
to participate;
(2) To construe and interpret the terms and provisions of this Plan;
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(3) To compute, certify to, and direct the Trustee with regard to the
amount and kind of benefits payable to Participants and their Beneficiaries;
(4) To authorize all disbursements by the Trustee from the Trust;
(5) To maintain all records that may be necessary for the
administration of the Plan other than those maintained by the Trustee;
(6) To provide for the disclosure of all information and the filing or
provision of all reports and statements to Participants, Beneficiaries or
governmental agencies as shall be required by ERISA or other law, other than
those prepared and filed by the Trustee;
(7) To make and publish such rules for the regulation of the Plan as
are not inconsistent with the terms hereof;
(8) To appoint a plan administrator or, any other agent, and to
delegate to them or to the Trustee such powers and duties in connection with
the administration of the Plan as the Committee may from time to time
prescribe, and to designate each such administrator or agent as Fiduciary
with regard to matters delegated to him; and
(9) To establish claims procedures consistent with regulations of the
Secretary of Labor for presentation of claims by Participants and
Beneficiaries for Plan benefits, consideration of such claims, review of
claim denials and
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issuance of a decision on review. Such claims procedures shall at a minimum
consist of the following:
(A) The Committee shall notify Participants and, where
appropriate, Beneficiaries of their right to claim benefits under the
claims procedures, shall make forms available for filing of such
claims, and shall provide the name of the person or persons with whom
such claims should be filed.
(B) The Committee shall establish procedures for action upon
claims initially made and the communication of a decision to the
claimant promptly and, in any event, not later than 90 days after the
claim is received by the Committee, unless special circumstances
require an extension of time for processing the claim. If an extension
is required, notice of the extension shall be furnished the claimant
prior to the end of the initial 90-day period, which notice shall
indicate the reasons for the extension and the expected decision date.
The extension shall not exceed 90 days. The claim may be deemed by the
claimant to have been denied for purposes of further review described
below in the event a decision is not furnished to the claimant within
the period described in the three preceding sentences. Every claim for
benefits which is denied shall be denied by written notice setting
forth in a manner calculated to be understood by the claimant (i) the
specific reason or
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reasons for the denial, (ii) specific reference to any provisions of
this Plan on which denial is based, (iii) description of any additional
material or information necessary for the claimant to perfect his claim
with an explanation of why such material or information is necessary,
and (iv) an explanation of the procedure for further reviewing the
denial of the claim under the Plan.
(C) The Committee shall establish a procedure for review of claim
denials, such review to be undertaken by the Committee. The review
given after denial of any claim shall be a full and fair review with
the claimant or his duly authorized representative having 60 days after
receipt of denial of his claim to request such review, the right to
review all pertinent documents and the right to submit issues and
comments in writing.
(D) The Committee shall establish a procedure for issuance of a
decision by the Committee not later than 60 days after receipt of a
request for review from a claimant unless special circumstances, such
as the need to hold a hearing, require a longer period of time, in
which case a decision shall be rendered as soon as possible but not
later than 120 days after receipt of the claimant's request for review.
The decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be
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understood by the claimant with specific reference to any provisions of
this Plan on which the decision is based.
(b) With respect to management or control of investments, the Committee
shall have the power to direct the Trustee in writing with respect to the
investment of the Trust assets or any part thereof. Where investment authority,
management and control of Trust assets have been delegated to the Trustee by the
Committee, the Trustee shall be the Fiduciary with respect to the investment,
management and control of the Trust assets contributed by the Company and
Participants with full discretion in the exercise of such investment, management
and control. Except as otherwise provided by law, the Committee may appoint one
or more Investment Manager(s), as defined in Section 1.2 of the Plan, to invest
the Trust assets or any part thereof. Where investment authority, management,
and control of Trust assets is not specifically delegated to the Trustee, the
Trustee shall be subject to the direction of the Committee or the Investment
Manager(s) appointed by the Committee, if any, regarding the investment,
management and control of such assets, and in such case the Committee, or the
Investment Manager(s), as the case may be, shall be the Fiduciary with respect
to the investment, management and control of such assets.
(c) Each Fiduciary under the Plan and Trust shall be solely responsible
for its own acts or omissions. Except to the
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extent required by ERISA or the Code, no Fiduciary shall have the duty to
question whether any other Fiduciary is fulfilling any or all of the
responsibilities imposed upon such other Fiduciary by ERISA or by any
regulations or rulings issued thereunder. No Fiduciary shall have any liability
for a breach of fiduciary responsibility of another Fiduciary with respect to
the Plan or Trust unless he or she knowingly participates in such breach,
knowingly undertakes to conceal such breach, has actual knowledge of such breach
and fails to take reasonable remedial action to remedy said breach or, through
his or her negligence in performing his or her own specific fiduciary
responsibilities, has enabled such other Fiduciary to commit a breach of the
latter's fiduciary responsibilities.
7.4 - PROCEDURE FOR ESTABLISHING FUNDING POLICY -- TRANSMITTAL OF INFORMATION.
In order to enable the Committee to establish a funding policy and
perform its other functions under the Plan, the Company shall supply full and
timely information to the Committee on all matters relating to the Compensation,
employment, retirement, death, or the cause for termination of employment of
each Participant and such other pertinent facts as may be required. The
Committee shall advise the Trustee and the Investment Manager, as appropriate,
of such of the foregoing facts as may be pertinent to the duties of the Trustee
and Investment Manager under the Plan.
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7.5 - COMPENSATION, BONDING, EXPENSES AND INDEMNITY.
(a) The members of the Committee shall serve without compensation for
their services hereunder.
(b) Members of the Committee and any delegates shall be bonded to the
extent required by Section 412(a) of ERISA and the regulations thereunder. Bond
premiums and all expenses of the Committee or of any delegate who is an employee
of the Company shall be paid by the Company and the Company shall furnish the
Committee and any such delegate with such clerical and other assistance as is
necessary in the performance of their duties.
(c) The Committee is authorized at the expense of the Company to employ
such legal counsel as it may deem advisable to assist in the performance of its
duties hereunder. Expenses and fees in connection with the administration of the
Plan and the Trust shall be paid from the Trust assets to the fullest extent
permitted by law, unless the Company determines otherwise.
(d) To the extent permitted by applicable state law, the Company shall
indemnify and save harmless the Committee and each member thereof, the Board of
Directors and any delegate of the Committee who is an employee of the Company
against any and all expenses, liabilities and claims, including legal fees to
defend against such liabilities and claims arising out of their discharge
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in good faith of responsibilities under or incident to the Plan, other than
expenses and liabilities arising out of willful miscon duct. This indemnity
shall not preclude such further indemnities as may be available under insurance
purchased by the Company or provided by the Company under any by-law, agreement
or otherwise, as such indemnities are permitted under state law. Payments with
respect to any indemnity and payment of any expenses and fees under this Section
shall be made only from assets of the Company and shall not be made directly or
indirectly from Trust assets.
7.6 - MANNER OF ADMINISTERING.
The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to the Company and
any Participant or Beneficiary, except as otherwise provided by law. The
Committee shall administer such terms and provisions in a uniform and
nondiscriminatory manner and in full accordance with any and all laws applicable
to the Plan.
7.7 - DUTY OF CARE.
In the exercise of the powers and duties of the Committee as Plan
Administrator and Fiduciary with respect to the investment, management and
control of the Plan, each member of the Committee
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shall use the care, prudence, and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims.
7.8 - COMMITTEE REPORT.
The Committee shall keep the Board of Directors apprised of the
investment results of the Plan and shall report any other information necessary
to fully inform the Board of Directors of the status and operation of the Plan
and Trust.
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ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 - AMENDMENTS.
The Board of Directors of the Company, or its delegate, may amend or
modify the Plan at any time. Except as may be re quired to permit the Plan and
Trust to meet the requirements for qualification and tax exemption under the
Code, or the corresponding provisions of other or subsequent revenue laws or of
ERISA, no amendment may be made which may:
(a) Cause any of the assets of the Trust, at any time prior to the
satisfaction of all liabilities with respect to Participants and their
Beneficiaries, to be used for or diverted to purposes other than for the
exclusive benefit of Participants or their Beneficiaries;
(b) Decrease the accrued benefit of any Participant or Beneficiary
within the meaning of Section 411(d)(6) of the Code;
(c) Create or effect any discrimination in favor of Participants who
are Highly Compensated Employees; and
(d) Increase the duties or liabilities of the Trustee without its
written consent.
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8.2 - DISCONTINUANCE OF PLAN.
(a) It is the Company's expectation that this Plan and the payment of
contributions hereunder will be continued indefinitely, but continuance of the
Plan by the Company is not assumed as a contractual obligation, and the Company
reserves the right to permanently discontinue contributions hereunder. In the
event of the complete discontinuance of contributions by the Company, the entire
interest of each Participant affected thereby shall immediately become 100%
vested. The Company shall not be liable for the payment of any benefits under
this Plan and all benefits hereunder shall be payable solely from the assets of
the Trust.
(b) The Company may terminate this Plan at any time by action of the
Board of Directors of its delegate. Upon complete termination or partial
termination of the Plan, the entire interest of each of the affected
Participants shall become 100% vested. The Trustee shall thereafter, upon
direction of the Committee, dis tribute to the Participants the amounts in such
Participant's Company Accounts in the same manner as set forth in Article VI.
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8.3 - FAILURE TO CONTRIBUTE.
Any failure by the Company to contribute to the Trust in any year when
no contribution is required under this Plan shall not of itself be a
discontinuance of contributions under this Plan.
8.4 - PLAN MERGER OR CONSOLIDATION; TRANSFER OF PLAN ASSETS.
(a) This Plan shall not be merged or consolidated with, nor shall its
assets or liabilities be transferred to, any other plan unless each Participant
in this Plan (if the Plan then terminated) would receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit such Participant would have been entitled to receive immediately
before the merger, consolidation or transfer (if this Plan had been terminated).
Where the foregoing requirement is satisfied, this Plan and its related Trust
may be merged or consolidated with another qualified plan and trust.
(b) The Committee may, in its discretion, authorize a plan to plan
transfer, provided such a transfer will meet the requirements of Section 414(l)
of the Code and that all other actions legally required are taken. In the event
of a transfer of assets from the Plan pursuant to this subsection, any
corresponding benefit liabilities shall also be transferred.
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ARTICLE IX
MISCELLANEOUS
9.1 - CONTRIBUTIONS NOT RECOVERABLE.
Except where contributions or earnings are required to be returned to
the Company by the provisions of this Plan as permitted or required by ERISA or
the Code, it shall be impossible for any part of the contributions or earnings
made under this Plan to be used for, or diverted to, purposes other than the
exclusive benefit of Participants or their Beneficiaries. Notwithstanding this
or any other provision of this Plan, the Company shall be entitled to recover,
and the Participants under this Plan shall have no interest in (a) any
contributions made under this Plan by mistake of fact, so long as the
contribution is returned within one year after payment (b) in the event that the
Company receives an adverse determination from the Internal Revenue Service with
respect to the Plan's initial qualification with the result that the Trust is
not exempt from Federal income tax and the Company's contributions to the Trust
are not deductible in determining its Federal income tax, any contributions and
earnings made prior to that time, so long as such amounts are returned within
one year after such determination and the application for determination was made
by the time prescribed by law for filing the Company's return for the taxable
year in which the Plan was adopted or such later date as the Secretary of the
Treasury may prescribe and (c) any contributions
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for which deduction is disallowed under Section 404 of the Code, so long as the
contributions are returned to the Company within one year following such
disallowance or as permitted or required by the Code or ERISA. In the event of
such mistake of fact, determination by the Commissioner, or disallowance of
deductions, contributions shall be returned to the Company, subject to the
limitations, if any, of Section 403(c) of ERISA.
9.2 - LIMITATION ON PARTICIPANT'S RIGHTS.
Participation in this Plan shall not give any Employee the right to be
retained as an Employee of the Company or any right or interest under the Plan
other than as herein provided. The Company reserves the right to dismiss any
Employee without any liability for any claim either against the Trustee, the
Trust except to the extent provided in the Trust, or against the Company. All
benefits under the Plan shall be provided solely from the assets of the Trust.
9.3 - RECEIPT OR RELEASE.
Any payment to any Participant or Beneficiary in accordance with the
provisions of the Plan shall, to the extent thereof, be in full satisfaction of
all claims against the Trustee, the Committee, and the Company. The Trustee may
require such
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Participant or Beneficiary, as a condition precedent to such payment, to execute
a receipt and release to such effect.
9.4 - ALIENATION.
(a) None of the benefits, payments, proceeds or claims of any
Participant or Beneficiary shall be subject to any claim of any creditors and,
in particular, the same shall not be subject to attachment or garnishment or
other legal process by any creditor, nor shall any such Participant or
Beneficiary have the right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments or proceeds which such Participant or
Beneficiary may expect to receive, contingently or otherwise, under this Plan.
(b) The provisions of this Section 9.4 shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless (1) such
order is determined to be a qualified domestic relations order, as defined in
Section 414(p) of the Code, or (2) the Committee determines in its discretion to
treat any domestic relations order entered before January 1, 1985 as a qualified
domestic relations order. The Committee shall establish reasonable procedures to
determine the qualified status of domestic relations orders and to administer
distributions under such qualified orders. In the event a qualified domestic
relations
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order exists with respect to a benefit payable under the Plan, the benefits
otherwise payable to a Participant or Beneficiary shall be payable to the
alternate payee specified in the qualified domestic relations order. Payments to
an alternate payee pursuant to a qualified domestic relations order may be made
prior to the time the Plan may make payments to the Participant.
(c) Notwithstanding subsection (a), a loan described in Section 9.11 of
the Plan, shall not be considered a violation of this Section.
9.5 - PERSONS UNDER INCAPACITY.
In the event any amount is payable under the Plan to a person for whom
a conservator has been legally appointed, the payment shall be distributed to
the duly appointed and currently acting conservator, without any duty on the
part of the Committee to supervise or inquire into the application of any funds
so paid.
9.6 - GOVERNING LAW.
This Plan shall be construed, administered, and governed in all
respects under applicable federal law, and to the extent that federal law is
inapplicable, under the laws of the State of California; provided, however, that
if any provision is susceptible to more than one interpretation, such
interpretation shall be given
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thereto as is consistent with this Plan's remaining qualified within the meaning
of Section 401(a) of the Code. If any provisions of this instrument shall be
held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
9.7 - HEADINGS, ETC. NOT PART OF PLAN.
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.
9.8 - MASCULINE GENDER INCLUDES FEMININE AND NEUTER.
As used in this Plan, the masculine gender shall include the feminine
gender.
9.9 - INSTRUMENTS IN COUNTERPARTS.
This Plan may be executed in several counterparts, each of which shall
be deemed an original, and said counterparts shall constitute but one and the
same instrument, which may be sufficiently evidenced by any one counterpart.
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9.10 - REORGANIZATION OF COMPANY.
This Plan shall inure to the benefit of, and be binding upon the
parties hereto and their successors and assigns. If the Company merges or
consolidates with or into a successor, this Plan shall continue in effect unless
the successor terminates this Plan.
9.11 - LOANS TO PARTICIPANTS.
(a) Each Participant shall have the right, subject to prior approval by
the Committee, to borrow from his Accounts. Application for a loan must be
submitted by a Participant to the Committee on such form(s) as the Committee may
require. Approval shall be granted or denied as specified in subsection (b), on
the terms specified in subsection (c). For purposes of this Section 9.11, but
only to the extent required by Department of Labor Regulations Section
2550.408b-1, the term "Participant" shall include any Employee, former Employee,
Beneficiary or alternate payee under a qualified domestic relations order, as
defined in Section 414(p) of the Code, who has an interest in the Plan that is
not contingent. A loan made to a Participant under this Section 9.11 shall be
withdrawn from the Participant's Accounts in the order listed below to the
extent that any such Account contains liquid funds that are available for a loan
to the Participant (starting with the Account listed first):
(1) Voluntary Employee Contributions Account;
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(2) Qualified Voluntary Employee Contributions Account;
(3) Old Rollover Account;
(4) Old Company Account;
(5) New Rollover Account;
(6) New Company Account;
(7) Matching Account; and
(8) Savings Account.
(b) The Committee shall grant any loan which meets each of the
requirements of paragraphs (1), (2) and (3) below:
(1) The amount of the loan, when added to the outstanding balance of
all other loans to the Participant from the Plan or any other qualified plan
of the Company or any Related Company shall not exceed the lesser of:
(A) $50,000, reduced by the excess, if any, of a Participant's
highest outstanding balance of all loans from the Plan or any other
qualified plan maintained by the Company or any Related Company during
the preceding 12 months over the outstanding balance of such loans on
the loan date, or
(B) 50% of the value of the vested balance of the Participant's
Accounts established as of the Anniversary Date preceding the date upon
which the loan is made;
(2) Effective January 1, 1995, the loan shall be for at least $1,000;
and
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(3) Effective January 1, 1995, no more than one loan may be outstanding
to a Participant at any time.
Notwithstanding anything else contained herein, if a Participant obtains a loan
pursuant to this Section 9.11, the Participant shall not be permitted to obtain
another loan under this Plan until one year after receipt of the proceeds from
such prior loan.
(c) Each loan granted shall, by its terms, satisfy each of the
following additional requirements:
(1) Each loan must be repaid within five years;
(2) Each loan must require substantially level amortization over the
term of the loan, with payments not less frequently than quarterly; and
(3) Each loan must be adequately secured, with the security to consist
of the balance of the Participant's Accounts.
(A) In the case of any Participant who is an active Employee,
automatic payroll deductions shall be required as additional security.
(B) In the case of any other Participant, the outstanding loan
balance may at no time exceed 50% of the outstanding vested balance of
the Participant's Accounts. If such limit is at any time exceeded, or
if the Participant fails to make timely repayment, the loan will
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be treated as in default and become immediately payable in full.
(C) If a Participant's loan is secured by the Participant's
Accounts, the entire investment gain or loss attributable to the loan
shall not be included in the calculation or allocation of the increase
or decrease in fair market value of the general assets of the Plan
pursuant to Sections 3.10 and 3.12. Instead, the entire gain or loss
(including any gain or loss attributable to interest payments or
default) shall be allocated to the Accounts of the Participant.
(4) Each loan shall bear a reasonable rate of interest, which rate
shall be established by the Committee from time to time and shall in no
event be less than 2% over the then prime rate.
(d) All loan payments shall be transmitted by the Company to the
Trustee as soon as practicable but not later than the end of the month during
which such amounts were received or withheld. Each loan may be prepaid in full
at any time. Any prepayment shall be paid directly to the Trustee in accordance
with procedures adopted by the Committee.
(e) Each loan shall be evidenced by a promissory note executed by the
Participant and payable in full to the Trustee, not later than the earliest of
(1) a fixed maturity date meeting the
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requirements of subsection (c)(1) above, (2) the Participant's death, or (3) the
termination of the Plan. Such promissory note shall evidence such terms as are
required by this section.
(f) Each loan shall be consented to in writing on forms provided by the
Committee by the Participant's spouse in the manner described in Section 6.3(b).
(g) The Committee shall have the power to modify the above rules or to
establish any additional rules with respect to loans extended pursuant to this
section, including the imposition of a reasonable loan application fee to be
deducted from the Account of the Participant applying for the loan. Such rules
may be included in a separate document or documents and shall be considered a
part of this Plan; provided, each rule and each loan shall be made only in
accordance with the regulations and rulings of the Internal Revenue Service and
Department of Labor and other applicable state or federal law. The Committee
shall act in its sole discretion to ascertain whether the requirements of such
regulations and rulings and this section have been met.
9.12 - TOP-HEAVY PLAN REQUIREMENTS.
For any Plan Year for which this Plan is a Top-Heavy Plan, as defined
in Section B.3 of Appendix B, attached hereto, and
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despite any other provisions of this Plan to the contrary, this Plan will be
subject to the provisions of Appendix B.
IN WITNESS WHEREOF, the undersigned has caused this document to be
executed by its duly authorized officers on this ____ day of ____________, 19__.
LEWIS GALOOB TOYS, INC.
By
-----------------------------------
By
-----------------------------------
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APPENDIX A
ANNUAL ADDITION LIMITS
Article IV of the Plan shall be construed in accordance with this
Appendix A. Unless the context clearly requires otherwise, words and phrases
used in this Appendix A shall have the same meanings that are assigned to them
under the Plan.
A.1 - DEFINITIONS.
As used in this Appendix A, the following terms shall have the meanings
specified below.
"ANNUAL ADDITIONS" shall mean the sum credited to a Participant's
Accounts for any Plan Year of (a) Company contributions, (b) voluntary
contributions, (c) forfeitures, (d) amounts credited after March 31, 1984 to an
individual medical account, as defined in Section 415(l)(2) of the Code which is
part of a Defined Benefit Plan maintained by the Company, and (e) amounts
derived from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement medical
benefits allocated to the separate account required with respect to a key
employee (as defined in Section B.2(e) of Appendix B to the Plan) under a
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welfare benefit plan (as defined in Section 419(e) of the Code) maintained by
the Company.
"DEFINED BENEFIT PLAN" means a plan described in Section 414(j) of the
Code.
"DEFINED CONTRIBUTION PLAN" means a plan described in Section 414(i) of
the Code.
"DEFINED BENEFIT PLAN FRACTION" shall mean a fraction, the numerator of
which is the projected annual benefit (determined as of the close of the
relevant Plan Year) of the Participant under all Defined Benefit Plans
maintained by one or more Related Companies, and the denominator of which is the
lesser of (a) the product of 1.25 multiplied by the dollar limitation in effect
under Section 415(b)(1)(A) of the Code for the Plan Year, or (b) the product of
1.4 multiplied by the amount which may be taken into account under Section
415(b)(1)(B) of the Code with respect to the Participant for the Plan Year.
"DEFINED CONTRIBUTION PLAN FRACTION" shall mean a fraction, the
numerator of which is the sum of the annual additions to a Participant's
accounts under all Defined Contribution Plans maintained by one or more Related
Companies, and the denominator of which is the sum of the lesser of (a) or (b)
for such Plan Year and for each prior Plan Year of service with one or more
Related
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Companies, where (a) is the product of 1.25 multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Code for the Plan Year (determined
without regard to Section 415(c)(6) of the Code), and (b) is the product of 1.4
multiplied by the amount which may be taken into account under Section
415(c)(1)(B) of the Code (or Section 415(c)(7) of the Code, if applicable) with
respect to the Participant for the Plan Year. Solely for purposes of this
definition, contributions made directly by an Employee to a Defined Benefit Plan
which maintains a qualified cost-of-living arrangement as such term is defined
in Section 415(k)(2) shall be treated as Annual Additions. Notwithstanding the
foregoing, the numerator of the Defined Contribution Plan Fraction shall be
adjusted pursuant to Treasury Regulations 1.415-7(d)(1), Questions T-6 and T-7
of Internal Revenue Service Notice 83-10, and Questions Q-3 and Q-14 of Internal
Revenue Service Notice 87-21.
"SECTION 415 COMPENSATION" shall mean a Participant's earned income,
wages, salaries, and fees for professional services, and other amounts received
for personal services actually rendered in the course of employment with an
employer maintaining a plan (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips and bonuses), and excluding the
following:
(a) Employer contributions to a plan of deferred compensation which are
not included in the Employee's gross
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income for the taxable year in which contributed or employer contributions
under a simplified employee pension plan to the extent such contributions
are deductible by the Employee, or any distributions from a plan of deferred
compensation;
(b) Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture;
(c) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(d) Other amounts which received special tax benefits, or contributions
made by the employer (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in section 403(b) of the Code
(whether or not the amounts are actually excludable from the gross income of
the Employee).
Compensation for any limitation year is the compensation actually paid or
includable in gross income during such year.
A.2 - ANNUAL ADDITION LIMITATIONS.
(a) The compensation limitation of Section 4.1 of the Plan shall not
apply to any contribution for medical benefits (within the meaning of Section
419A(f)(2)) after separation from service which is treated as an Annual
Addition. In the event that
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Annual Additions to all the accounts of a Participant would exceed the
limitations of Section 4.1 of the Plan, they shall be reduced in the following
priority: (1) return of voluntary contributions to the Participant; (2)
reduction of Company contributions.
(b) If any Company or any Related Company contributes amounts, on
behalf of Participants covered by the Plan, to other Defined Contribution Plans,
the limitation on Annual Additions provided in Article IV of the Plan shall be
applied to Annual Additions in the aggregate to the Plan and such other plans.
Reduction of Annual Additions, where required, shall be accomplished by first
refunding any voluntary contributions to Participants, then by reducing
contributions under such other plans pursuant to the directions of the fiduciary
for administration of such other plans or under priorities, if any, established
by the terms of such other plans, and then, if necessary, by reducing
contributions under the Plan.
(c) In any case where a Participant under the Plan is also a
participant under a Defined Benefit Plan or a Defined Benefit Plan and other
Defined Contribution Plans maintained by the Company or a Related Company, the
sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan
Fraction shall not exceed 1.0. Reduction of contributions to or benefits from
all plans, where required, shall be accomplished by first reducing benefits
under such other Defined Benefit Plan or plans, then by
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allocating any excess in the manner set out above with respect to the Plan, and
finally by reducing contributions or allocating any excess contributions with
respect to other Defined Contribution Plans, if any; provided, however, that
adjustments necessary under this or the next preceding paragraph may be made in
a different manner and priority pursuant to the agreement of the Committee and
the administrators of all other plans covering such Participant, provided such
adjustments are consistent with procedures and priorities prescribed by Treasury
Regulations under Section 415 of the Code.
(d) In the event the limitations of Section 4.1 of the Plan or this
Appendix A are exceeded and the conditions specified in Treasury Regulations
Sections 1.415-6(b)(6) are met, the Committee may elect to apply the procedures
set forth in Treasury Regulations Sections 1.415-6(b)(6).
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APPENDIX B
TOP-HEAVY PROVISIONS
Section 9.12 of the Plan shall be construed in accordance with this
Appendix B. Definitions in this Appendix B shall govern for the purposes of this
Appendix B. Any other words and phrases used in this Appendix B, however, shall
have the same meanings that are assigned to them under the Plan, unless the
context clearly requires otherwise.
B.1 - GENERAL.
This Appendix B shall be effective for Plan Years beginning on or after
January 1, 1984. This Appendix B shall be interpreted in accordance with Section
416 of the Code and the regulations thereunder.
B.2 - DEFINITIONS.
(a) The "BENEFIT AMOUNT" for any Employee means (1) in the case of any
defined benefit plan, the present value of his normal retirement benefit,
determined on the Valuation Date as if the Employee terminated on such Valuation
Date, plus the aggregate amount of distributions made to such Employee within
the five-year period ending on the Determination Date (except to the extent
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already included on the Valuation Date) and (2) in the case of any defined
contribution plan, the sum of the amounts credited, on the Determination Date,
to each of the accounts maintained on behalf of such Employee (including
accounts reflecting any nondeductible employee contributions) under such plan
plus the aggregate amount of distributions made to such Employee within the
five-year period ending on the Determination Date. For purposes of this Section,
the present value shall be computed using a 5% interest assumption and the
mortality assumptions contained in the defined benefit plan for benefit
equivalence purposes, provided that, if more than one defined benefit plan is
being aggregated for top-heavy purposes, the actuarial assumptions which shall
be used for testing top-heaviness are those of the plan with the lowest interest
assumption, provided further that if the lowest interest assumption is the same
for two or more plans, the actuarial assumptions used shall be that of the plan
with the greatest value of assets on the applicable date.
(b) "COMPANY" means any company (including unincorporated
organizations) participating in the Plan or plans included in the "aggregation
group" as defined in this Appendix B.
(c) "DETERMINATION DATE" means the last day of the preceding Plan Year
or, in the case of the first Plan Year of the Plan, the last day of the Plan
Year.
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(d) "EMPLOYEES" means employees, former employees, beneficiaries, and
former beneficiaries who have a Benefit Amount greater than zero on the
Determination Date.
(e) "KEY EMPLOYEE" means any Employee who, during the Plan Year
containing the Determination Date or during the four preceding Plan Years, is:
(1) one of the ten Employees of a Company having annual compensation
from such Company of more than the limitation in effect under Section
415(c)(1)(A) of the Code and owning (or considered as owning within the
meaning of Section 318 of the Code) both more than a 1/2% interest and the
largest interests in such Company (if two Employees have the same interest
the Employee having the greater annual compensation from the Company shall
be treated as having a larger interest);
(2) a 5% owner of a Company;
(3) a 1% owner of a Company who has an annual compensation above
$150,000; or
(4) an officer of a Company having an annual compensation greater than
50% of the amount in effect under Section 415(b)(1)(A) of the Code for any
such Plan Year (however, no more than the lesser of (A) 50 employees or (B)
the greater of 3 employees or 10% of the Company's employees shall be
treated as officers). For purposes of determining the number of employees
taken into account under
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this Section B.2(e)(4), employees described in Section 414(q)(8) of the Code
shall be excluded.
(f) A "NON-KEY EMPLOYEE" means an Employee who is not a Key Employee.
(g) "VALUATION DATE" means the first day (or such other date which is
used for computing plan costs for minimum funding purposes) of the 12-month
period ending on the Determination Date.
(h) A "YEAR OF SERVICE" shall be calculated using the Plan rules that
normally apply for determining vesting service.
These definitions shall be interpreted in accordance with Section
416(i) of the Code and the regulations thereunder and such rules are hereby
incorporated by reference. The term "Key Employee" shall not include any officer
or employee of an entity referred to in Section 414(d) of the Code. For the
purpose of this subsection, "compensation" shall mean compensation as defined in
Section 414(q)(7) of the Code and shall be determined without regard to Sections
125, 402(a)(8), 402(h)(1)(B) or, in the case of employer contributions made
pursuant to a salary reduction agreement, Section 403(b).
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B.3 - TOP-HEAVY DEFINITION.
The Plan shall be top-heavy for any Plan Year if, as of the
Determination Date, the "top-heavy ratio" exceeds 60%. The top-heavy ratio is
the sum of the Benefit Amounts for all employees who are Key Employees divided
by the sum of the Benefit Amounts for all Employees. For purposes of this
calculation only, the following rules shall apply:
(a) The Benefit Amounts of all Non-Key Employees who were Key Employees
during any prior Plan Year shall be disregarded.
(b) The Benefit Amounts of all employees who have not performed any
services for any Company at any time during the five-year period ending on
the Determination Date shall be disregarded; provided, however, if an
Employee performs no services for five years and then again performs
services, such Employee's Benefit Amount shall be taken into account.
(c)(1) Required Aggregation. This calculation shall be made by
aggregating any plans, of the Company or a Related Company, qualified
under Section 401(a) of the Code in which a Key Employee participates
or which enables this Plan to meet the requirements of Section
401(a)(4) or 410 of the Code; all plans so aggregated constitute the
"aggregation group."
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(2) Permissive Aggregation. The Company may also aggregate any such
plan to the extent that such plan, when aggregated with this
aggregation group, continues to meet the requirements of Section
401(a)(4) and Section 410 of the Code.
If an aggregation group includes two or more defined benefit plans, the
actuarial assumptions used in determining an Employee's Benefit Amount shall
be the same under each defined benefit plan and shall be specified in such
plans. The aggregation group shall also include any terminated plan which
covered a Key-Employee and which was maintained within the five-year period
ending on the Determination Date.
(d) This calculation shall be made in accordance with Section 416 of
the Code (including 416(g)(3)(B) and (g)(4)(A)) and the regulations
thereunder and such rules are hereby incorporated by reference. For purposes
of determining the accrued benefit of a Non-Key Employee who is a
Participant in a defined benefit plan, this calculation shall be made using
the method which is used for accrual purposes for all defined benefit plans
of the Company, or if there is no such method, as if such benefit accrued
not more rapidly than the slowest accrual rate permitted under Section
411(b)(1)(C) of the Code.
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B.4 - VESTING.
(a) Notwithstanding the vesting provisions of the Plan, if the Plan is
top-heavy for any Plan Year, any Participant who completes one Hour of Service
during any day of such Plan Year or any subsequent Plan Year and who terminates
during any day of such Plan Year or any subsequent Plan Year shall be entitled
to a vested benefit which is the greater of his vested interest pursuant to
Section 5.2 of the Plan, or a vested interest at least equal to the product of
(x) the benefit such Participant would receive under the Plan if he was 100%
vested on the date of such termination times (y) the percentage shown below:
<TABLE>
<CAPTION>
Number of Completed
Years of Service Percentage
------------------- ----------
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(b) Notwithstanding the foregoing, the nonforfeitable percentage of a
Participant's benefit under the Plan shall not be less than that determined
under the Plan without regard to the preceding vesting schedule. Such benefit
shall be payable in
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accordance with the provisions of the Plan regarding payments to terminated
Participants.
(c) Notwithstanding the preceding paragraph, if the Plan is no longer
top-heavy in a Plan Year following a Plan Year in which it was top-heavy, a
Participant's vesting percentage shall be computed under the vesting schedule
that otherwise exists under the Plan. However, in no event shall a Participant's
vested percentage in his accrued benefit be reduced. In addition, a Participant
shall have the option of remaining under the vesting schedule set forth in this
Section if he has completed three years of Vesting Service. The period for
exercising such option shall begin on the first day of the Plan Year for which
the Plan is no longer top-heavy and shall end 60 days after the later of such
first day or the day the Participant is issued written notice of such option by
the Company or the Committee.
B.5 - MINIMUM BENEFITS OR CONTRIBUTIONS, COMPENSATION LIMITATIONS AND SECTION
415 LIMITATIONS.
If the Plan is top-heavy for any Plan Year, the following provisions
shall apply to such Plan Year:
(a)(1) Except to the extent not required by Section 416 of the Code or
any other provision of law, notwithstanding any other provision of this
Plan, if the Plan and all other plans which are part of the aggregation
group are defined
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contribution plans, each Participant (and any other Employee required by
Section 416 of the Code) other than Key employees shall receive an
allocation of employer contributions and forfeitures from a plan which is
part of the aggregation group at least equal to 3% (or, if lesser, the
largest percentage allocated to any Key Employee for the Plan Year) of such
Participant's compensation for such Plan Year (the "defined contribution
minimum"). For purposes of this subsection, salary reduction contributions
on behalf of a Key Employee must be taken into account. For purposes of this
subsection, a non-Key Employee shall be entitled to a contribution if he is
employed on the last day of the Plan Year (1) regardless of his level of
compensation, (2) without regard to whether he has made any mandatory
contributions required under the Plan, and (3) regardless of whether he has
less than 1,000 Hours of Service (or the equivalent) for the accrual
computation period.
(2) Except to the extent not required by Section 416 of the Code or any
other provision of law, notwithstanding any other provisions of the Plan, if
the Plan or any other plan which is part of the aggregation group is a
defined benefit plan each Participant who is a participant in any such
defined benefit plan (who is not a Key Employee) who accrues a full Year of
Service during such Plan Year shall be entitled to an annual normal
retirement benefit from a defined benefit plan which is part of the
aggregation group which shall not be less
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than the product of (1) the employee's average compensation for the five
consecutive years when the employee had the highest aggregate compensation
and (2) the lesser of 2% per Year of Service or 20% (the "defined benefit
minimum"). A Non-Key Employee shall not fail to accrue a benefit merely
because he is not employed on a specified date or is excluded from
participation because (1) his compensation is less than a stated minimum or
(2) he fails to make mandatory employee contributions. For purposes of
calculating the defined benefit minimum, (1) compensation shall not include
compensation in Plan Years after the last Plan Year in which the Plan is
top-heavy and (2) a Participant shall not receive a Year of Service in any
Plan Year before January 1, 1984 or in any Plan Year in which the Plan is
not top-heavy. This defined benefit minimum shall be expressed as a life
annuity (with no ancillary benefits) commencing at normal retirement age.
Benefits paid in any other form or time shall be the actuarial equivalent
(as provided in the plan for retirement benefit equivalence purposes) of
such life annuity. Except to the extent not required by Section 416 of the
Code or any other provisions of law, each Participant (other than Key
Employees) who is not a participant in any such defined benefit plan shall
receive the defined contribution minimum (as defined in paragraph (a)(1)
above).
(3) If a non-Key Employee is covered by plans described in both
paragraphs (1) and (2) above, he shall be entitled
B-10
<PAGE> 121
only to the minimum described in paragraph (1), except that for the purpose
of paragraph (1) "3% (or, if lesser, the largest percentage allocated to any
key employee for the Plan Year)" shall be replaced by "5%". Notwithstanding
the preceding sentence, if the accrual rate under the plan described in (2)
would comply with this Section B.5 absent the modifications required by this
Section, the minimum described in paragraph (1) above shall not be
applicable.
(b) For purposes of this Section, "compensation" shall mean all
earnings included in the Employee's Form W-2 for the calendar year that ends
within the Plan Year, not in excess of $200,000, adjusted at the same time
and in the same manner as under Section 415(d) of the Code.
(c)(1) Unless the Plan qualifies for an exception under Section
B.5(c)(2), "1.0" shall be substituted for "1.25" in the definitions of
Defined Benefit Plan Fraction and Defined Contribution Plan Fraction used in
Appendix A to the Plan.
(2) A Plan qualifies for an exception from the rule of Section
B.5(c)(1) if the Benefit Amount of all Employees who are Key Employees does
not exceed 90% of the sum of the Benefit Amounts for all Employees and one
of the following requirements is met:
(A) A defined benefit minimum of 3% per Year of Service (up to
30%) is provided;
(B) For Participants covered only by a
B-11
<PAGE> 122
defined contribution plan, a defined contribution minimum of 4% is
provided;
(C) For Participants covered by both types of plans, benefits from
the defined contribution minimum are comparable to the 3% defined
benefit minimum;
(D) The plan provides a floor offset where the floor is a 3%
defined benefit minimum; or
(E) A defined contribution minimum of 7-1/2% of compensation is
provided for any non-Key Employee who is covered under both a defined
benefit plan and a defined contribution plan (each of which is
top-heavy) of a Company.
B-12
<PAGE> 123
LEWIS GALOOB TOYS, INC.
SAVINGS AND RETIREMENT PLAN
(FORMERLY NAMED THE LEWIS GALOOB TOYS, INC. PROFIT SHARING PLAN)
(AMENDMENT AND RESTATEMENT EFFECTIVE JANUARY 1, 1987)
<PAGE> 124
LEWIS GALOOB TOYS, INC.
SAVINGS AND RETIREMENT PLAN
(AMENDMENT AND RESTATEMENT EFFECTIVE JANUARY 1, 1987)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - TITLE AND DEFINITIONS......................................... 2
1.1 - Title...................................................... 2
1.2 - Definitions................................................ 2
ARTICLE II - PARTICIPATION................................................ 23
2.1 - Eligibility Requirements................................... 23
2.2 - Participation.............................................. 23
2.3 - Reemployment............................................... 23
2.4 - Designation of Beneficiary................................. 24
ARTICLE III - CONTRIBUTIONS............................................... 26
3.1 - Discretionary Company Contributions........................ 26
3.2 - Compensation Deferrals..................................... 28
3.3 - Employer Matching Contributions............................ 30
3.4 - Voluntary Employee Contributions........................... 31
3.5 - Qualified Voluntary Employee Contributions................. 32
3.6 - Rollover Contributions..................................... 36
3.7 - Section 402(g) Limit on Compensation Deferrals............. 38
3.8 - Section 401(k) Limitations on Compensation
Deferrals.................................................. 39
3.9 - Section 401(m) Limitations on Voluntary Employee
Contributions and Employer Matching Contributions.......... 45
3.10 - Valuation of Old Company Accounts, Old Rollover
Accounts, Voluntary Employee Contributions
Accounts, Qualified Voluntary Employee
Contributions Accounts.................................... 51
3.11 - Investment Funds for Old Company Accounts, Old
Rollover Accounts, Voluntary Employee
Contributions Accounts, Qualified Voluntary
Employee Contributions Accounts, New Company
Accounts, New Rollover Accounts, Savings Accounts,
Matching Accounts......................................... 53
3.12 - Valuation of Old Company Accounts, Old Rollover
Accounts, Voluntary Employee Contributions
Accounts, Qualified Voluntary Employee
Contributions Accounts, New Company Accounts,
New Rollover Accounts, Savings Accounts,
Matching Accounts......................................... 54
ARTICLE IV - LIMITATION ON ANNUAL ADDITIONS............................... 56
ARTICLE V - VESTING...................................................... 57
5.1 - Fully Vested Accounts...................................... 57
</TABLE>
i
<PAGE> 125
<TABLE>
<S> <C>
5.2 - New Company Account, Old Company Account and
Matching Account............................................ 57
ARTICLE VI - DISTRIBUTIONS................................................. 62
6.1 - Distribution of Benefits.................................... 62
6.2 - Joint and Survivor Annuity.................................. 66
6.3 - Withdrawals of Voluntary Employee Contributions
and Qualified Voluntary Employee Contributions.............. 69
6.4 - Hardship Distributions from Old Company Account............. 70
6.5 - Hardship Withdrawals from Savings Accounts.................. 71
6.6 - Withdrawals from Savings Accounts Upon Attaining
Age 59-1/2.................................................. 74
6.7 - Qualified Domestic Relations Orders......................... 75
6.8 - Inability to Locate Participant............................. 75
6.9 - Limitations on Distributions................................ 76
6.10 - Direct Rollovers........................................... 77
ARTICLE VII - THE COMMITTEE................................................ 80
7.1 - Members..................................................... 80
7.2 - Committee Action............................................ 80
7.3 - Rights and Duties........................................... 81
7.4 - Procedure for Establishing Funding Policy --
Transmittal of Information.................................. 86
7.5 - Compensation, Bonding, Expenses and Indemnity............... 87
7.6 - Manner of Administering..................................... 88
7.7 - Duty of Care................................................ 88
7.8 - Committee Report............................................ 89
ARTICLE VIII - AMENDMENT AND TERMINATION................................... 90
8.1 - Amendments.................................................. 90
8.2 - Discontinuance of Plan...................................... 91
8.3 - Failure to Contribute....................................... 92
8.4 - Plan Merger or Consolidation; Transfer of Plan
Assets...................................................... 92
ARTICLE IX - MISCELLANEOUS................................................. 93
9.1 - Contributions Not Recoverable............................... 93
9.2 - Limitation on Participant's Rights.......................... 94
9.3 - Receipt or Release.......................................... 94
9.4 - Alienation.................................................. 95
9.5 - Persons Under Incapacity.................................... 96
9.6 - Governing Law............................................... 96
9.7 - Headings, etc. Not Part of Plan............................. 97
9.8 - Masculine Gender Includes Feminine and Neuter............... 97
9.9 - Instruments in Counterparts................................. 97
9.10 - Reorganization of Company.................................. 98
9.11 - Loans to Participants...................................... 98
9.12 - Top-Heavy Plan Requirements................................ 102
APPENDIX A ANNUAL ADDITION LIMITS................................... 1
APPENDIX B TOP-HEAVY PROVISIONS..................................... 1
</TABLE>
ii
<PAGE> 1
EXHIBIT 10.12(c)
Lease made as of the 1st day of December 9, 1995, between 200 FIFTH AVENUE
ASSOCIATES, having an office c/o Helmsley-Spear, Inc., 200 Fifth Avenue, New
York, New York, hereinafter referred to as "Landlord" or "Lessor", and LEWIS
GALOOB TOYS, INC., a California corporation with an office at 500 Forbes
Boulevard, South San Francisco, California 94080, hereinafter referred to as
"Tenant" or "Lessee".
Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the entire rentable area of the 11th floor, consisting of approximately
17,200 rentable square feet, approximately as shown on the space diagram
attached hereto and made a part hereof (said space is hereinafter called the
"premises") in the building known as THE INTERNATIONAL TOY CENTER located at
Block 125, Lot 37, with a mailing address of THE INTERNATIONAL TOY CENTER, 200
Fifth Avenue, ("the building") in the County of New York, City of New York,
10010, for a term of ten (10) years, five (5) months, to commence as of the
first day of December 1995, and to expire on the thirtieth day of April, 2006,
or until such term shall sooner end as in Article 12 and elsewhere herein
provided, both dates inclusive, at a fixed annual rental (subject to Articles 23
and 41) at the annual rate of $244,020 a year from December 1, 1995 through
November 30, 1997; $344,004 a year from December 1, 1997 through November 30,
2000; and $430,008 a year from December 1, 2000 through April 30, 2006; payable
in equal monthly installments in advance on the first day of each month, except
that the first installment of rent due under this lease shall be paid by Tenant
upon its execution of this lease, unless this lease be a renewal.
* NORTH
Landlord and Tenant covenant and agree:
PURPOSE.
1. Tenant shall use and occupy the premises only for offices and
wholesale showrooms relating to Tenant's business of toys and for no other
purpose.
RENT AND ADDITIONAL RENT.
2. Tenant agrees to pay rent as herein provided at the office of Landlord
or such other place as Landlord may designate, payable in United States legal
tender, by cash, or by good and sufficient check drawn on a New York City
Clearing House Bank, and without any set-off or deduction whatsoever. Any sum
other than fixed rent payable hereunder shall be deemed additional rent and due
on demand, unless other payment dates are hereinafter provided.
ASSIGNMENT.
3. Neither Tenant nor Tenant's legal representatives or successors in
interest by operation of law or otherwise, shall assign, mortgage or otherwise
encumber this lease, or sublet or permit all or part of the premises to be used
by others, without the prior written consent of Landlord in each instance. The
transfer of a majority of the issued and outstanding capital stock of any
corporate tenant or sublessee of this lease or a majority of the total interest
in any partnership tenant or sublessee, however accomplished, and whether in a
single transaction or in a series of related or unrelated transactions, and the
conversion of a tenant or sublessee entity to either a limited liability company
or a limited liability partnership shall be deemed an assignment of this lease
or of such sublease. The merger or consolidation of a corporate tenant or
sublessee where the net worth of the resulting corporation is less than the net
worth of the tenant or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If without Landlord's written consent this lease is assigned, or the premises
are sublet or occupied by anyone other than Tenant, Landlord may accept the rent
from such assignee, subtenant or occupant, and apply the net amount thereof to
the rent herein reserved, but no such assignment, subletting, occupancy or
acceptance of rent shall be deemed a waiver of this covenant. Consent by
Landlord to an assignment or subletting shall not relieve Tenant from the
obligation to obtain Landlord's written consent to any further assignment or
subletting. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a sublease.
DEFAULT.
4. Landlord may terminate this lease on five (5) days' notice: (a) if
rent or additional rent is not paid within ten (10) days after written notice
from Landlord; or (b) if Tenant shall have failed to cure a default in the
performance of any covenant of this lease (except the payment of rent), or any
rule or regulation hereinafter set forth, within fifteen (15) days after written
notice thereof from Landlord, or if default cannot be completely cured in such
time, if Tenant shall not promptly proceed to cure such default within said
fifteen (15) days, or shall not complete the curing of such default with due
diligence; or (c) when and to the extent permitted by law, if a petition in
bankruptcy shall be filed by or against Tenant or if Tenant shall make a general
assignment for the benefit of creditors, or receive the benefit of any
insolvency or reorganization act; or (d) if a receiver or trustee is appointed
for any portion of Tenant's property and such appointment is not vacated within
ninety (90) days; or (e) if an execution or attachment shall be issued the
premises shall be taken or occupied or attempted to be taken or occupied by
anyone other than Tenant; or (f) if the premises become and remain vacant or
deserted for a period of thirty (30) days; or (g) if Tenant shall default beyond
any grace period under any other lease between Tenant and Landlord; or (h) if
Tenant shall fail to move into or take possession of the premises within fifteen
(15) days after commencement of the term of this lease.
At the expiration of the five (5) day notice period, this lease and
any rights of renewal or extension thereof shall terminate as completely as
if that were the date originally fixed for the expiration of the term of
this lease, but Tenant shall remain liable as hereinafter provided.
<PAGE> 2
RELETTING, ETC.
5. If Landlord shall re-enter the premises on the default Tenant, by
summary proceedings or otherwise: (a) Landlord may re-let (provided, however,
that Landlord will seek to relet the demised premises when there is no other
comparable space in the building available for leasing by Landlord) the premises
or any part thereof as Tenant's agent, in the name of Landlord, or otherwise,
for a term shorter or longer than the balance of the term of this lease, and may
grant concessions or free rent. (b) Tenant shall pay Landlord any deficiency
between the rent hereby reserved and the net amount of any rents collected by
Landlord for the remaining term of this lease, through such reletting. Such
deficiency shall become due and payable monthly, as it is determined. Landlord
shall have no obligation to re-let the premises, and its failure or refusal to
do so, or failure to collect rent on re-letting, shall not affect Tenant's
liability hereunder. In computing the net amount of rents collected through
such re-letting, Landlord may deduct all reasonable expenses incurred in
obtaining possession or re-letting the premises, including legal expenses and
fees, brokerage fees, the cost of restoring the premises to good order, and the
cost of all alterations and decorations deemed reasonably necessary by Landlord
to effect re-letting. In no event shall Tenant be entitled to a credit or
repayment for rerental income which exceeds the sums payable by Tenant hereunder
or which covers a period after the original term of this lease. (c) Tenant
hereby expressly waives any right of redemption granted by any present or future
law. "Re-enter" and "re-entry" as used in this lease are not restricted to their
technical legal meaning. In the event of a breach or threatened breach of any of
the covenants or provisions hereof Landlord shall have the right of injunction.
Mention herein of any particular remedy shall not preclude Landlord from any
other available remedy. (d) Landlord shall recover as liquidated damages, in
addition to accrued rent and other charges, if Landlord's re-entry is the result
of Tenant's bankruptcy, insolvency, or reorganization, the full rental for the
maximum period allowed by any act relating to bankruptcy, insolvency or
reorganization.
If Landlord re-enters the premises for any cause, or if Tenant abandons or
vacate the premises, and after the expiration of the term of this lease, any
property left in the premises by Tenant shall be deemed to have been abandoned
by Tenant, and Landlord shall have the right to retain or dispose of such
property in any manner without any obligation to account therefor to Tenant. If
Tenant shall at any time default hereunder, and if Landlord shall institute an
action or summary proceedings against Tenant based upon such default, then
Tenant will reimburse Landlord for the reasonable legal expenses and fees
thereby incurred by Landlord.
LANDLORD MAY CURE DEFAULTS.
6. If Tenant shall default in performing any covenant or condition of
this lease and if Tenant shall fail to remedy such default with all reasonable
dispatch within fifteen (15) days after Landlord shall have notified Tenant in
writing thereof (except in an emergency, in which case no such notice shall be
required), Landlord may perform the same for the account of Tenant, and
Landlord, in connection therewith, or in connection with any default by Tenant,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonably attorney's fees, such sums so paid or
obligations incurred shall be deemed to be additional rent hereunder, and shall
be paid by Tenant to Landlord within ten (10) days after Tenant's receipt of any
bill or statement therefor, and if Tenant's lease term shall have expired at the
time of the making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Landlord as damages.
ALTERATIONS.
7. Tenant shall make no decoration, alteration, addition or improvement
in the premises, without the prior written consent of Landlord, and then only by
contractors or mechanics and in such manner and with such materials as shall be
approved by Landlord. All alterations, additions or improvements to the
premises, including window and central air conditioning equipment and duct work,
except movable office furniture and equipment installed at the expense of
Tenant, shall, unless Landlord elects otherwise in writing, become the property
of Landlord, and shall be surrendered with the premises at the expiration or
sooner termination of the term of this lease. Any such alterations, additions
and improvements which are non-standard office installations (such as private
lavatories, kitchens and internal stairways), and which are designated by
Landlord at the time Tenant requests Landlord's approval with respect to such
installation (provided Tenant reminds Landlord in writing of its need to make
such designation), shall be removed by Tenant and any damage repaired, at
Tenant's expense, prior to the expiration of the term of this lease.
LIENS.
8. Prior to commencement of its work in the demised premises, Tenant
shall obtain and deliver to Landlord a written letter of authorization, in form
satisfactory to Landlord's counsel, signed by architects, engineers and
designers to become involved in such work, which shall confirm that any of their
drawings or plans are to be removed from any filing with governmental
authorities, on request of Landlord, in the event that said architect, engineer,
or designer thereafter no longer is providing services with respect to the
demised premises. With respect to contractors, subcontractors, materialmen and
laborers, and architects, engineers and designers, for all work or materials to
be furnished to Tenant at the premises, Tenant agrees to obtain and deliver to
Landlord written and unconditional waiver of mechanics liens upon the premises
or the building, after payments to the contractors, etc., subject to any then
applicable provisions of the Lien law. Notwithstanding the foregoing, Tenant at
its expense shall cause any lien filed against the premises or the building, for
work or materials claimed to have been furnished to Tenant, to be discharged of
record within thirty (30) days after notice thereof, by payment, filing of the
bond required by law, or otherwise.
REPAIRS.
9. Tenant shall take care of the premises and the fixtures and
appurtenances therein, and shall make all repairs necessary to keep them in good
working order and condition, including structural repairs when those are
necessitated by the act, omission or negligence of Tenant or its agents,
employees or invitees. During the term of this lease, Tenant may have the use of
any air-conditioning equipment located in the premises, and Tenant, at its own
cost and expense, shall maintain and repair such equipment and shall reimburse
Landlord, in accordance with Article 41 of this lease, for electricity consumed
by the equipment. The exterior walls of the building, the windows and the
portions of all window sills outside same and areas above any hung ceiling are
not part of the premises demised by this lease, and Landlord hereby reserves all
rights to such parts of the building.
DESTRUCTION.
10. If the premises shall be partially damaged by fire or other casualty,
the damage shall be repaired at the expense of Landlord, but without prejudice
<PAGE> 3
to the rights of subrogation, if any, of Landlord's insurer. Landlord shall not
be required to repair or restore any of Tenant's property or any alteration or
leasehold improvement made by or for Tenant at Tenant's expense. The rent shall
abate in proportion to the portion of the premises not usable by Tenant.
Landlord shall not be liable to Tenant for any delay in restoring the premises.
Tenant's sole remedy being the right to an abatement of rent, as above provided.
If the premises are rendered wholly untenantable by fire or other casualty and
if Landlord shall decide not to restore the premises, or if the building shall
be so damaged that Landlord shall decide to demolish it or to rebuild it
(whether or not the premises have been damaged), Landlord may within ninety (90)
days after such fire or other cause give written notice to Tenant of its
election that the term of this lease shall automatically expire no less than ten
(10) days after such notice is given. Notwithstanding the foregoing, each party
shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Landlord and Tenant each hereby releases and
waives all right of recovery against the other or any one claiming through or
under each of them by way of subrogation or otherwise. The foregoing release and
waiver shall be in force only if both releasors' insurance policies contain a
clause providing that such a release or waiver shall not invalidate the
insurance and also, provided that such a policy can be obtained without
additional premiums. Tenant hereby expressly waives the provisions of Section
227 of the Real Property law and agrees that the foregoing provisions of this
Article shall govern and control in lieu thereof.
END OF TERM.
11. Tenant shall surrender the premises to Landlord at the expiration or
sooner termination of this lease in good order and condition, except for
reasonable wear and tear and damage by fire or other casualty, and Tenant shall
remove all of its property. Tenant agrees it shall indemnify and save Landlord
harmless against all costs, claims, loss or liability resulting from delay by
Tenant in so surrendering the premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay. Additionally, the
parties recognize and agree that other damage to Landlord resulting from any
failure by Tenant timely to surrender the premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Tenant therefore agrees that if possession
of the premises is not surrendered to Landlord within one (1) day after the date
of the expiration or sooner termination of the term of this lease, then Tenant
will pay Landlord as liquidated damages for each month and for each portion of
any month during which Tenant holds over the premises after expiration or
termination of the term of this lease, a sum equal to two (2) times the average
rent and additional rent which was payable per month under this lease during
the last six months of the term thereof. The aforesaid obligations shall survive
the expiration or sooner termination of the term of this lease. At any time
during the term of this lease, at reasonable times, after reasonable prior
notice (which may be oral and given on the same day), Landlord may exhibit the
premises to prospective purchasers or mortgages of Landlord's interest therein.
During the last year of the term of this lease, at reasonable times, after
reasonable prior notice (which may be oral and given on the same day), Landlord
may exhibit the premises to prospective tenants.
SUBORDINATION AND ESTOPPEL, ETC.
12. Tenant has been informed and understands that Landlord is the Tenant
under a lease of the land and entire building of which the premises form a part
(hereinafter called the "Master Lease"). This lease is and shall be subject and
subordinate to the Master Lease and all other ground and underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which the premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This Article shall be
self-operative and no further instrument of subordination shall be necessary. In
confirmation of such subordination, Tenant shall execute promptly any
certificate that Landlord may request. Tenant hereby appoints Landlord as
Tenant's irrevocable attorney-in-fact to execute any document of subordination
on behalf of Tenant. In the event that the Master Lease or any other ground or
underlying lease is terminated or any mortgage foreclosed, this lease shall not
terminate or be terminable by Tenant (except as hereinafter provided as to
Master Lease expiration of term) unless Tenant was specifically named in any
termination or foreclosure judgment or final order. In the event that the Master
Lease or any other ground or underlying lease is terminated as aforesaid, or
expires (as hereinafter provided), or if the interests of Landlord under this
lease are transferred by reason of or assigned in lieu of foreclosure or other
proceedings for enforcement of any mortgage, or if the holder of any mortgage
acquires a lease in substitution therefor, then tenant will, at the option to be
exercised in writing by the landlord under the Master Lease or such purchaser,
assignee or lessee, as the case may be, (i) attorn to it and will perform for
its benefit all the terms, covenants and conditions of this lease on the
Tenant's part to be performed with the same force and effect as if said landlord
or such purchaser, assignee or lessee, were the landlord originally named in
this lease, or (ii) enter into a new lease with said lessor or such purchaser,
assignee or lessee, as landlord, for the remaining term of this lease and
otherwise on the same terms, conditions and rentals as herein provided. If the
current term of the Master Lease shall expire prior to the date set forth herein
for the expiration of this lease, then, unless Landlord, at its sole option,
shall have elected to extend or renew the term of the Master Lease, or unless
the lessor under the Master Lease elects that the Tenant attorn or enter into a
new lease as aforesaid, the term of this lease shall expire on the date of
expiration of the Master Lease, notwithstanding the later expiration date
hereinabove set forth. If the Master Lease is renewed, then the term of this
lease shall expire as hereinabove set forth. Landlord represents that the term
of the within Lease expires prior to the expiration date of the current term of
the Master Lease. From time to time, Tenant, on at least ten (10) days' prior
written request by Landlord will deliver to Landlord a statement in writing
certifying that this lease is unmodified and in full force and effect (or if
there shall have been modifications, that the same is in full force and effect
as modified and stating the modification) and the dates to which the rent and
other charges have been paid and stating whether or not the Landlord is in
default in performance of any covenant, agreement, or condition contained in
this lease and, if so, specifying each such default of which Tenant may have
knowledge.
CONDEMNATION.
13. If the whole or any substantial part of the premises shall be
condemned by eminent domain or acquired by private purchase in lieu thereof for
any public or quasi-public purpose, this lease shall terminate on the date of
the vesting of title through such proceeding or purchase, and Tenant shall have
no claim against Landlord for the value of any unexpired portion of the term of
this lease, nor shall Tenant be entitled to any part of the condemnation award
or private purchase price. If less than a substantial part of the premises is
condemned, this lease shall not terminate, but rent shall abate in proportion to
the portion of the premises condemned.
REQUIREMENTS OF LAW.
14. (a) Tenant at its expense shall comply with all laws, orders and
regulations of any governmental authority having or asserting jurisdiction over
the premises, which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the premises or the use or occupancy thereof including,
<PAGE> 4
without limitation, compliance in the premises with all City, State and Federal
laws, rules and regulations on the disabled or handicapped, on fire safety and
on hazardous materials. The foregoing shall not require Tenant to do structural
work.
(b) Tenant shall require every person engaged by him to clean any
window in the premises from the outside, to use the equipment and safety devices
required by Section 202 of the labor law and the rules of any governmental
authority having or asserting jurisdiction.
(c) Tenant at its expense shall comply with all requirements of the
New York Board of Fire Underwriters, or any other similar body affecting the
premises and shall not use the premises in a manner which shall increase the
rate of fire insurance of Landlord or of any other tenant, over that in effect
prior to this lease. If Tenant's use of the premises increases the fire
insurance rate, Tenant shall reimburse Landlord for all such incurred costs.
That the premises are being used for the purpose set forth in Article 1 hereof
shall not relieve Tenant from the foregoing duties, obligations and expenses.
CERTIFICATE OF OCCUPANCY.
15. Tenant will at no time use or occupy the premises in violation of the
certificate of occupancy issued for the building. The statement in this lease of
the nature of the business to be conducted by Tenant shall not be deemed to
constitute a representation or guaranty by Landlord that such use is lawful or
permissible in the premises under the certificate of occupancy for the building.
POSSESSION.
16. If Landlord shall be unable to give possession of the premises on the
commencement date of the term because of the retention of possession of any
occupant thereof, alteration or construction work, or for any other reason
except as hereinafter provided, Landlord shall not be subject to any liability
for such failure. In such event, this lease shall stay in full force and effect,
without extension of its term. However, the rent hereunder shall not commence
until the premises are available for occupancy by Tenant. If delay in possession
is due to work, changes or decorations being made by or for Tenant, or is
otherwise caused by Tenant, there shall be no rent abatement and the rent shall
commence on the date specified in this lease. If permission is given to Tenant
to occupy the demised premises or other premises prior to the date specified as
the commencement of the term, such occupancy shall be deemed to be pursuant to
the terms of this lease, except that the parties shall separately agree as to
the obligation of Tenant to pay rent for such occupancy. The provisions of this
Article are intended to constitute an express provision to the contrary within
the meaning of Section 223(a), New York Real Property Law.
QUIET ENJOYMENT.
17. Landlord covenants that if Tenant pays the rent and performs all of
Tenant's other obligations under this lease, Tenant may peaceably and quietly
enjoy the demised premises, subject to the terms, covenants and conditions of
this lease and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
RIGHT OF ENTRY.
18. Tenant shall permit Landlord to erect and maintain pipes and conduits
in and through the premises. Landlord or its agents shall have the right to
enter or pass through the premises, at reasonable times, after reasonable prior
notice (which may be oral), except in an emergency, in which event such entry or
passage is permitted without notice and at all times, by master key, by
reasonable force or otherwise, to examine the same, and to make such repairs,
alterations or additions as it may deem necessary or desirable to the premises
or the building, and to take all material into and upon the premises that may be
required therefor. Such entry and work shall not constitute an eviction of
Tenant in whole or in part, shall not be grounds for any abatement of rent, and
shall impose no liability on Landlord by reason of inconvenience or injury to
Tenant's business. Landlord shall have the right at any time, without the same
constituting an actual or constructive eviction, and without incurring any
liability to Tenant, to change the arrangement and/or location of entrances or
passageways, windows, corridors, elevators, stairs, toilets, or other public
parts of the building, and to change the name or number by which the building is
known.
VAULTSPACE.
19. Anything contained in any plan or blueprint to the contrary
notwithstanding, no vault or other space not within the building property line
is demised hereunder. Any use of such space by Tenant shall be deemed to be
pursuant to a license, revocable at will by Landlord, without diminution of the
rent payable hereunder. If Tenant shall use such vault space, any fees, taxes or
charges made by any governmental authority for such space shall be paid by
Tenant.
INDEMNITY.
20. Tenant shall indemnify, defend and save Landlord harmless from and
against any liability or expense rising from the use or occupation of the
premises by Tenant, or anyone on the premises with Tenant's permission, or from
any breach of this lease.
LANDLORD'S LIABILITY.
21. This lease and the obligations of Tenant hereunder shall in no way be
affected because Landlord is unable to fulfill any of its obligations or to
supply any service, by reason of strike or other cause not within Landlord's
control. Landlord shall have the right, without incurring any liability to
Tenant, to stop any service because of accident or emergency, or for repairs,
alterations or improvements, necessary or desirable in the judgment of Landlord,
until such repairs, alterations or improvements shall have been completed.
Landlord shall not be liable to Tenant or anyone else, for any loss or damage to
person, property or business, unless due to the negligence of Landlord nor shall
Landlord be liable for any latent defect in the premises or the building.
Tenant, during the term of this lease, shall carry public liability and property
damage insurance, from a company authorized to do business in New York, with
limitations acceptable to Landlord, which policy or policies shall name the
Landlord and its designees as additional insureds. Evidence of the policies, and
of their timely renewal, shall be delivered to Landlord. All such insurance
shall contain an agreement by the insurance company that the policy or policies
will not be canceled or the coverage changed, without thirty (30) days' prior
written notice to the Landlord. Tenant agrees to look solely to Landlord's
estate and interest in the land and building, or the lease of the building or of
the land and building, and the demised premises, for the satisfaction of any
right or remedy of Tenant for the collection of a judgment (or other judicial
process) requiring the payment of money by Landlord, in the event or any
liability by Landlord, and no other property or assets of Landlord shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect
<PAGE> 5
to this lease, the relationship of Landlord and tenant hereunder, or Tenant's
use and occupancy of the demised premises or any other liability of Landlord to
Tenant (except for negligence).
CONDITION OF PREMISES.
22. Tenant acknowledges that Landlord has made no representation or
promise, except as herein expressly set forth. Tenant agrees to accept the
premises "as is", except for any work which Landlord has expressly agreed in
writing to perform.
COST OF LIVING ADJUSTMENTS.
23. The fixed annual rent reserved in this lease and payable hereunder
shall be adjusted, as of the times and in the manner set forth in this Article:
(a) Definitions: For the purposes of this Article, the following
definitions shall apply:
(i) The term "Base Year" shall mean the full calendar year during which
the term of this lease commences.
(ii) The term "Price Index" shall mean the "Consumer Price Index" published
by the Bureau of Labor Statistics of the U.S. Department of Labor, All Items,
New York, N.Y.-Northeastern, N.J., all urban consumers (presently denominated
"CPI-U"), or a successor or substitute index appropriately adjusted.
(iii) the term "Price Index for the Base Year" shall mean the average of
the monthly All Items Price Indexes for each of the 12 months of the Base Year.
(b) Effective as of each January and July subsequent to the Base Year,
there shall be based a cost of living adjustment of the fixed annual rental rate
payable hereunder. The July adjustment shall be based on the percentage
difference between the Price Index for the preceding, month of June and the
Price Index for the Base Year. The January adjustment shall be based on such
percentage difference between the Price Index for the preceding month of
December and the Price Index for the Base Year.
(i) In the event the Price Index for June in any calendar year during the
term of this lease reflects an increase over the Price Index for the Base Year,
then the fixed annual rent herein provided to be paid as of the July 1st
following such month of June (unchanged by any adjustments under this Article)
shall be multiplied by the percentage difference between the Price Index for
June and the Price Index for the Base Year, and the resulting sum shall be added
to such fixed annual rent, effective as of such July 1st. Said adjusted fixed
annual rent shall thereafter be payable hereunder, in equal monthly
installments, until it is readjusted pursuant to the terms of this lease.
(ii) In the event the Price Index for December in any calendar year during
the term of this lease reflects an increase over the Price Index for the Base
Year, then the fixed annual rent herein provided to be paid as of the January
1st following such month of December (unchanged by any adjustments under this
Article) shall be multiplied by the percentage difference between the Price
Index for December and the Price Index for the Base Year, and the resulting sum
shall be added to such fixed annual rent effective as of such January 1st. Said
adjusted fixed annual rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant to the terms of this
lease.
The following illustrates the intentions of the parties hereto as to the
computation of the aforementioned cost of living adjustment in the annual rent
payable hereunder.
Assuming that said fixed annual rent is $10,000, that the Price Index for
the Base Year was 102.0 and that the Price Index for the month of June in a
calendar year following the Base Year was 105.0, then the percentage increase
thus reflected, ie., 2.941% (3.0/102.0) would be multiplied by $10,000, and said
fixed annual rent would be increased by $294.10 effective as of July 1st of said
calendar year.
In the event that the Price Index ceases to use 1982-94=100 as the basis of
calculation, or if a substantial change is rude in the terms or number of items
contained in the Price Index, then the Price Index shall be adjusted to the
figure that would have been arrived at had the manner of computing the Price
Index in effect at the date of this lease not been altered. In the event such
Price Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Price Index shall be used.
(c) Landlord will cause statements of the cost of living adjustments
provided for in subdivision (b) to be prepared in reasonable detail and
delivered to Tenant.
(d) In no event shall the fixed annual rent originally provided to be paid
under this lease (exclusive of the adjustments under this Article) be reduced by
virtue of this Article.
(e) Any delay or failure of Landlord, beyond July or January of any year,
computing or billing for the rent adjustments hereinabove provided, shall not
constitute a waiver of or in any way impair the continuing obligation of Tenant
to pay such rent adjustments hereunder.
(f) Notwithstanding any expiration or termination of this lease prior to
the lease expiration date (except in the case of a cancellation by mutual
agreement) Tenant's obligation to pay rent as adjusted under this Article shall
continue and shall cover all periods up to the lease expiration date, and shall
survive any expiration or termination of this lease.
TAX ESCALATION.
24. Tenant shall pay to Landlord, as additional rent, tax escalation in
accordance with this Article:
(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 17,200 square feet.
(b) Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "base tax year" as hereinafter set forth for the
determination of real estate tax escalation shall mean the New York City real
estate tax year commencing July 1, 1996 and ending June 30,1997.
5.834 PERCENT
(ii) The term "The Percentage", for purposes of computing tax
escalation, shall mean 5.834 percent ( * %). The Percentage has been computed on
the basis of a fraction, the numerator of which is the rentable square foot of
the demised premises and the denominator of which is the total rentable square
foot area of the office and commercial space in the building project. The
parties acknowledge and agree that the total rentable square foot area of the
office and commercial space in the building project shall be deemed to be
294,816 sq. ft.
(iii) The term "the building project" shall mean the aggregate
combined parcel of land on a portion of which are the improvements of which the
demised premises form a part, with all the improvements thereon, said
improvements being a part of the block and lot for tax purposes which are
applicable to the aforesaid land.
(iv) The term "comparative year" shall mean the twelve (12) months
following the base tax year, and each subsequent Period of twelve (12) months
(or such other Period of twelve (12) months occurring during the term of this
lease as hereafter may be duly adopted as the tax year for real estate tax
purposes by the City of New York).
(v) The term "real estate taxes" shall mean the total of all taxes
and special or other assessments levied, assessed or imposed at any time by any
governmental authority upon or against the building project, and also any tax or
assessment levied, assessed or imposed at any time by any governmental authority
in connection with the receipt of income or rents from said building project to
the extent that same shall be in lieu of all or a portion of any of the
aforesaid taxes or assessments, or additions or increases thereof, upon or
against said building project. If, due to a future change in the method of
taxation or in the taxing authority, or for any other reason, a franchise,
income, transit, profit or other tax or governmental imposition, however
designated, shall be levied against landlord in substitution in whole or in part
for the real estate taxes, or in lieu of additions to or increases of said real
estate taxes, or in then such franchise, income, transit, profit or other tax or
governmental imposition shall be deemed to be included within the definition of
"real estate taxes" for the purposes hereof. As to special assessments which are
payable over a period of time extending beyond the term of this lease, only a
pro rata portion
<PAGE> 6
thereof covering the portion of the term of this lease unexpired at the time of
the imposition of such assessment, shall be included in "real estate taxes". If
by law, any assessment may be paid in installments, then, for the purposes
hereof (a) such assessment shall be deemed to have been payable in the maximum
number of installments permitted by law and (b) there shall be included in real
estate taxes, for each comparative year in which such installments may be paid,
the installments of such assessment so becoming payable during such comparative
year, together with interest payable during such comparative year.
(vi) Where more than one assessment is imposed by the City of New
York for any tax year, whether denominated an "actual assessment" or a
"transitional assessment" or otherwise, then the phrases herein "assessed value"
and "assessments" shall mean whichever of the actual, transitional or other
assessment is designated by the City of New York as the taxable assessment for
that tax year.
(vii) The phrase "real estate taxes payable during the base tax year"
shall mean that amount obtained by multiplying the assessed value of the land
and buildings of the building project for the base tax year by the tax rate for
the base tax year for each $100 of such assessed value.
(c) 1. In the event that the real estate taxes payable for any comparative year
shall exceed the amount of the real estate taxes payable during the base tax
year, tenant shall pay to landlord, as additional rent for such comparative
year, an amount equal to The Percentage of the excess. Before or after the start
of each comparative year, Landlord shall furnish to Tenant a statement of the
real estate taxes payable for such comparative year, and a statement of the real
estate taxes payable during the base tax year. If the real estate taxes payable
for such comparative year exceed the real estate taxes payable during the base
tax year, additional rent for such comparative year, in an amount equal to The
Percentage of the excess, shall be due from Tenant to Landlord, and such
additional rent shall be payable by Tenant to Landlord within ten (10) days
after receipt of the aforesaid statement. The benefit of any discount for any
earlier payment or prepayment of real estate taxes shall accrue solely to the
benefit of Landlord, and such discount shall not be subtracted from the real
estate taxes payable for any comparative year.
Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The
Percentage of any business improvement district assessment payable by the
building project.
2. Should the real estate taxes payable during the base tax year be reduced
by final determination of legal proceedings, settlement or otherwise, then, the
real estate taxes payable during the base tax year shall be correspondingly
revised, the additional rent theretofore paid or payable hereunder for all
comparative years shall be recomputed on the basis of such reduction, and tenant
shall pay to Landlord as additional rent, within (10) days after being billed
therefor, any deficiency between the amount of such additional rent as
theretofore computed and the amount thereof due as the result of such
recomputations. Should the real estate taxes payable during the base tax year be
increased by such final determination of legal proceedings, settlement or
otherwise, then appropriate recomputation and adjustment also shall be made.
3. If after Tenant shall have made a payment of additional rent under this
subdivision (c), Landlord shall receive a refund of any portion of the real
estate taxes payable for any comparative year after the base tax year on which
such payment of additional rent shall have been based, as a result of a
reduction of such real estate taxes by final determination of legal proceedings,
settlement or otherwise, Landlord shall within ten (10) days after receiving the
refund pay to Tenant Percentage of the refund less The Percentage of expenses
(including reasonable attorneys' and appraisers' fees) incurred by Landlord in
connection with any such application or proceeding. If prior to the payment of
taxes for any comparative year, Landlord shall have obtained a reduction of that
comparative year's assessed valuation of the building project, and therefore of
said taxes, then the term "real estate taxes" for that comparative year shall be
deemed to include the amount of Landlord's reasonable expenses in obtaining
such reduction in assessed valuation, including attorneys' and appraisers' fees.
4. The statements of the real estate taxes to be furnished by Landlord as
provided above shall be certified by Landlord and shall constitute a final
determination as between Landlord and Tenant of the real estate taxes for the
Periods represented thereby, unless Tenant within thirty (30) days after they
are furnished shall give a written notice to Landlord that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. If Tenant shall
so dispute said statement then, pending the resolution of such dispute, tenant
shall pay the additional rent to Landlord in accordance with the statement
furnished by Landlord.
5. In no event shall the fixed annual rent under this lease (exclusive of
additional rents under this Article) be reduced by virtue of this Article.
6. If the commencement date of the term of this lease is not the first day
of the rent comparative year, then the additional rent due hereunder for such
first comparative year shall be a proportionate share of said additional rent
for the entire comparative year, said proportionate share to be based upon the
length of time that the lease term will be in existence during such first
comparative year. Upon the date of any expiration or termination of this lease
(except termination because of Tenant's default) whether the same be the date
hereinabove set forth for the expiration of the term or any prior or subsequent
date, a proportionate share of said additional rent for the comparative year
during which such expiration or termination occurs shall immediately become due
and payable by Tenant to Landlord, if it was not theretofore already billed and
paid. The said proportionate share shall be based upon the length of time that
this lease shall have been in existence during such comparative year. Landlord
shall promptly cause statements of said additional rent for that comparative
year to be prepared and furnished to lessee. Landlord and Tenant shall thereupon
make appropriate adjustments of amounts then owing.
7. Landlord's and Tenant's obligations to make the adjustments referred to
in subdivision (6) above shall survive any expiration or termination of this
lease.
8. Any delay or failure of lessor in billing any tax escalation hereinabove
provided shall not constitute a waiver of or in any way impair the continuing
obligation of lessee to pay such tax escalation hereunder.
SERVICES.
25. Tenant acknowledges that it has been advised that the cleaning
contractor for the building may be a division or affiliate of Landlord. Tenant
agrees to employ said contractor, or such other contractor as Landlord may from
time to time designate, for any waxing, polishing and other maintenance work of
the demised premises and of the Tenant's furniture, fixtures and equipment,
provided that the prices charged by said contractor are comparable to the prices
charged by other contractors for the same work. Tenant agrees that it shall not
employ any other cleaning and maintenance contractor, nor any individual, firm
or organization for such purpose without Landlord's prior written consent. If
Landlord and Tenant cannot agree on whether the prices being charged by the
contractor designated by the Landlord are comparable to those charged by other
contractors, Landlord and Tenant shall each obtain two bona fide bids for such
work from reputable contractors, and the average of the four bids thus obtained
shall be the standard of comparison.
JURY WAIVER.
26. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim involving any matter whatsoever arising out of or in
any way connected with this lease, the relationship of Landlord and tenant,
Tenant's use or occupancy of the premises (except for personal injury or
property damage) or involving the right to any statutory relief or remedy.
Tenant will not interpose any counterclaim of any nature in any summary
proceeding, provided Tenant does not thereby waive any defense or the right to
assert such claim in a separate action or proceeding.
NO WAIVER, ETC.
27. No act or omission of Landlord or its agents shall constitute an actual
or constructive eviction, unless Landlord shall have first received written
notice of Tenant's claim and shall have had a reasonable opportunity to meet
such claim. In the event that any payment herein provided for by Tenant to
Landlord
<PAGE> 7
shall become overdue for a period in excess of ten (10) days, then at Landlord's
option a "late charge" shall become due and payable to Landlord, as additional
rent, from the date it was due until payment is made at the following rates:
the lower of (i) the rate of interest publicly announced in New York City from
time to time by The Chase Manhattan Bank N.A. as its so called prime rate, plus
six percent (6%), or (ii) the applicable maximum legal rate of interest. No act
or omission of Landlord or its agents shall constitute an acceptance of a
surrender of the premises, except a writing signed by Landlord. The delivery of
keys to Landlord or its agents shall not constitute a termination of this lease
or a surrender of the premises. Acceptance by Landlord of less than the rent
herein provided shall at Landlord's option be deemed on account of earliest rent
remaining unpaid. No endorsement on any check, or letter accompanying rent,
shall be deemed an accord and satisfaction, and such check may be cashed without
prejudice to Landlord. No waiver of any provision of this lease shall be
effective, unless such waiver be in writing signed by Landlord. This lease
contains the entire agreement between the parties, and no modification thereof
shall be binding unless in writing and signed by the party concerned. Tenant
shall comply with the rules and regulations printed in this lease, and any
reasonable modifications thereof or additions thereto. Landlord shall not be
liable to Tenant for the violation of such rules and regulations by any other
tenant. Failure of Landlord to enforce any provision of this lease, or any rule
or regulation, shall not be construed as the waiver of any subsequent violation
of a provision of this lease, or any rule or regulation. This lease shall not be
affected by nor shall Landlord in any way be liable for the closing, darkening
or bricking up of windows in the premises, for any reason, including as the
result of construction on any property of which the premises are not a part or
by Landlord's own acts.
OCCUPANCY AND USE BY TENANT.
28 (A). Tenant acknowledges that its continued occupancy of the demised
premises, and the regular conduct of its business therein, are of utmost
importance to the Landlord in the renewal of other leases in the building, in
the renting of vacant space in the building, in the providing of electricity,
air conditioning, steam and other services to the tenants in the building, and
in the maintenance of the character and quality of the tenants in the building.
Tenant therefore covenants and agrees that it will occupy the entire demised
premises, and will conduct its business therein in the regular and usual manner,
throughout the term of this lease. Tenant acknowledges the Landlord is executing
this lease in reliance upon these covenants, and that these covenants are a
material element of consideration inducing the Landlord to execute this lease.
Tenant further agrees that if it vacates the demised premises or fails to so
conduct its business therein, at any time during the term of this lease, without
the prior written consent of the Landlord, then all rent and additional rent
reserved in this lease from the date of such breach to the expiration date of
this lease shall become immediately due and payable to Landlord.
(B) The parties recognize and agree that the damage to Landlord
resulting from any breach of the covenants in subdivision (A) hereof will be
extremely substantial, will be far greater than the rent payable for the balance
of the term of this lease, and will be impossible of accurate measure. The
parties therefore agree that in the event of a breach or threatened breach of
the said covenants, in addition to all of Landlord's other rights and remedies,
at law or in equity or otherwise, Landlord shall have the right of injunction to
preserve Tenant's occupancy and use. The words "become vacant or deserted" as
used elsewhere in this lease shall include Tenant's failure to occupy or use as
by this Article required.
(C) If Tenant breaches either of the covenants in subdivision (A)
above, and this lease be terminated because of such default, then, in addition
to Landlord's rights of reentry, restoration, preparation for and rerental, and
anything elsewhere in this lease to the contrary notwithstanding, Landlord shall
retain its right to judgment on and collection of Tenant's aforesaid obligation
to make a single payment to Landlord of a sum equal to the total of all rent
and additional rent reserved for the remainder of the original term of this
lease, subject to future credit or repayment to Tenant in the event of any
rerenting of the premises by Landlord, after first deducting from rerental
income all expenses incurred by Landlord in reducing to judgment or otherwise
collecting Tenant's aforesaid obligation, and in obtaining possession of
restoring, preparing for and re-letting the premises. In no event shall Tenant
be entitled to a credit or repayment for rerental income which exceeds the sums
payable by Tenant hereunder or which covers a period after the original term of
this lease.
NOTICES.
29. Landlord acknowledges that it has been advised by Tenant that Tenant's
principal offices are located in San Francisco, California; that the within
demised premises will be used by Tenant primarily as its New York City location
for the Toy Fair (as hereinafter defined); and that, as a result of such use of
the demised premises by Tenant, there may be period during the year (other than
during the Toy Fair) when none or only a few of Tenant's personnel will be
occupying the demised premises. Landlord agrees that any such period (other than
during the Toy Fair) when the demised premises is unoccupied by Tenant's
personnel, or is only occupied by a few of Tenant's personnel, shall not be
deemed a breach of the provisions of this Article 28. Any bill, notice or demand
from Landlord to Tenant shall be sent by registered or certified mail to
Tenant's address as set forth in the preface to this Lease, Attention: William
G. Catron, General Counsel, except for rent bills (which may be sent by regular
mail), and except for emergency repair notices (which may be personally
delivered to the demised premises, provided that a copy of such emergency repair
notice is simultaneously sent by telecopier to Tenant's principal office at the
following fax number: (415) 583-5572). Such bill, notice or demand shall be
deemed to have been given at the time of delivery or mailing. Any notice from
Tenant to Landlord must be sent by registered or certified mail to the last
address designated in writing by Landlord.
WATER.
30. Tenant shall Pay the amount of Landlord's cost for all water used by
Tenant for any purpose other than ordinary lavatory uses, and any sewer rent or
tax based thereon. Landlord may install a water meter to measure Tenant's water
consumption for all purposes and Tenant agrees to pay for the installation and
maintenance thereof and for water consumed as shown on said meter. If water is
made available to Tenant in the building or the demised premises through a meter
which also supplies other premises, or without a meter, then Tenant shall pay to
Landlord $ a reasonable charge (it being understood that any such charge will be
comparable to the water charges paid by other tenants in the building) per month
for water.
SPRINKLER SYSTEM.
31. If there shall be a "sprinkler system" in the demised premises for any
period during this lease, Tenant shall pay $ a reasonable charge (it being
understood, however, that Landlord does not currently collect such a fee from
Tenant; that Landlord shall not commence to collect such a fee from Tenant
unless it does so as to all other tenants in the building; and that if Landlord
does commence to collect such a fee from Tenant, it will be comparable to the
sprinkler supervisory fees charged to other tenants in the building with the
same size premises as Tenant) per month, for sprinkler supervisory service. If
such sprinkler system is damaged by any act or omission of Tenant or its agents,
employees, licensees or visitors, Tenant shall restore the system to good
working condition at its own expense. If the New York Board of Fire
Underwriters, the New York Fire Insurance Exchange, the Insurance Services
Office or any governmental authority requires the installation or any alteration
to a sprinkler system by reason of Tenant's occupancy or use of the premises,
including any alteration necessary to obtain the full allowance for a sprinkler
system in the fire insurance rate of Landlord, or for any other reason, Tenant
shall make such installation or alteration promptly, and at its own expense.
HEAT, ELEVATOR, ETC.
<PAGE> 8
32. Landlord shall provide elevator service during all usual business
hours including Saturdays until 1 P.M., except on Sundays, State holidays,
Federal holidays, or building Service Employees Union Contract holidays.
Landlord shall furnish heat to the premises during the same hours on the same
days in the cold season in each year. Landlord shall cause the premises to be
kept clean in accordance with Landlord's customary standards for the building,
provided they are kept in order by Tenant. Landlord, its cleaning contractor and
their employees shall have after-hours access to the demised premises and the
use of Tenant's light, power and water in the demised premises as may be
reasonably required for the purpose of cleaning the demised premises. Landlord
may remove Tenant's extraordinary refuse from the building and Tenant shall pay
the cost thereof. If the elevators in the building are manually operated,
Landlord may convert to automatic elevators at any time, without in any way
affecting Tenant's obligations hereunder.
SECURITY DEPOSIT.
33. Tenant has deposited with Landlord the sum of $ NONE as security for
the performance by Tenant of the term of this lease. Landlord may use any part
of the Security to satisfy any default of Tenant and any expenses arising from
such default, including but not limited to any damages or rent deficiency before
or after re-entry by Landlord. Tenant shall, upon demand, deposit with Landlord
the full amount so used, in order that Landlord shall have the full security
deposit on hand at all times during the term of this lease. If Tenant shall
comply fully with the terms of this lease, the security shall be returned to
Tenant after the date fixed as the end of the lease. In the event of a sale or
lease of the building containing the premises. Landlord may transfer the
security to the purchaser or tenant, and Landlord shall thereupon be released
from all liability for the return of the security. This provision shall apply to
every transfer or assignment of the security to a new Landlord. Tenant shall
have no legal power to assign or encumber the security herein described.
ELECTRICITY.
34. Terms and conditions with respect to electricity rent inclusion, or
with respect to sub-metering, as the case may be, and general conditions with
respect to either, are set forth in Article 41 in the Rider annexed to and made
part of this lease.
RENT CONTROL
35. In the event the fixed annual rent or additional rent or any part
thereof provided to be paid by Tenant under the provisions of this lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, code or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Landlord, at its option, may at any time thereafter terminate this
lease, by not less than thirty (30) days' written notice to Tenant, on a date
set forth in said notice, in which event this lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date were the date originally fixed herein for the termination of the demised
term. Landlord shall not have the right so to terminate this lease if Tenant
within such period of (30) days shall in writing lawfully agree that the rentals
herein reserved are a reasonable rental and agree to continue to pay said
rentals, and if such agreement by Tenant shall then be legally enforceable by
Landlord.
SHORING.
36. Tenant shall Permit any person authorized to make an excavation on land
adjacent to the building containing the premises to do any work within the
premises necessary to preserve the wall of the building from injury or damage,
and Tenant shall have no claim against Landlord for damages or abatement of rent
by reason thereof.
EFFECT OF CONVEYANCE, ETC.
37. If the building containing the premises shall be sold, transferred or
leased, or the lease thereof transferred or sold, Landlord shall be relieved of
all future obligations and liabilities hereunder and the purchaser, transferee
or tenant of the building shall be deemed to have assumed and agreed to perform
all such obligations and liabilities of Landlord hereunder. In the event of such
sale, transfer or lease, Landlord shall also be relieved of all existing
obligations and liabilities hereunder, provided that the purchaser, transferee
or tenant of the building assumes in writing such obligations and liabilities.
RIGHTS OF SUCCESSORS AND ASSIGNS.
38. This lease shall bind and inure to the benefit of the heirs, executors,
administrators, successors, and, except as otherwise provided herein, the
assigns of the parties hereto. If any provision of any Article of this lease or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of that Article, or the application of
such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each provision
of said Article and of this lease shall be valid and be enforced to the fullest
extent permitted by law.
CAPTIONS.
39. The captions herein are inserted only for convenience, and are in no
way to be construed as a part of this lease or as a limitation of the scope of
any provision of this lease.
LEASE SUBMISSION.
40. Landlord and Tenant agree that this lease is submitted to Tenant on the
understanding that it shall not be considered an offer and shall not bind
Landlord in any way unless and until (i) Tenant has duly executed and delivered
duplicate originals thereof to Landlord and (ii) Landlord has executed and
delivered one of said originals to Tenant.
<PAGE> 9
SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF
In Witness Whereof, Landlord and Tenant have executed this lease as of the day
and year first above written.
200 FIFTH AVENUE ASSOCIATES
By: Helmsley-Spear, Inc., Agent
Witness for Landlord............... BY: - (
Witness for Tenant H. Alan Gaudie LEWIS GALOOB TOYS, INC.
Senior Vice President, Finance
BY:
William B. Towne
Executive Vice President,
Finance & Chief Financial
Officer
ACKNOWLEDGEMENTS
State of New York )
County of New York) ss.:
On the day of ,19 , before me
personally came
to me known, who, being by me duly sworn,
did depose and say that he
resides at No.
That he is the of
the corporation described in, and which
executed, the foregoing instrument; and
that he signed his name thereto by
authority of the Board of Directors of
said corporation
<PAGE> 10
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND LEWIS GALOOB TOYS, INC., LESSEE
RULES AND REGULATIONS REFERRED TO IN THIS LEASE
1. No animals, birds, bicycles or vehicles shall be brought into or kept
in the premises. The premises shall not be used for manufacturing or commercial
repairing or for retail sale of merchandise or as a lodging place, or for any
immoral or illegal purpose, nor shall the premises be used for a public
stenographer or typist: barber or beauty shop: telephone, secretarial or
messenger employment, travel or tourist agency: school or classroom; commercial
document reproduction: or for any business other than specifically provided for
in the tenant's lease. Lessee shall not cause or permit in the premises any
disturbing noises which may, interfere, with occupants of this or neighboring
buildings, any cooking or objectionable odors, or any nuisance of any kind or
any inflammable or explosive fluid, chemical or substance. Canvassing,
soliciting and peddling in the building are prohibited, and each Lessee shall
cooperate so as to prevent the same.
2. The toilet rooms and other water apparatus shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rags, ink, chemicals or any unsuitable substances shall be thrown therein.
Lessee shall not throw anything out of doors, windows or skylights, or into
hallways stairways or elevators, nor place food or objects on outside window
sills. Lessee shall not obstruct or cover the halls, stairways and elevators, or
use them for any purpose other than ingress and egress to or from Lessee's
premises, nor shall skylights, windows, doors and transoms that reflect or
admit light into the building be covered or obstructed in any way.
3. Lessee shall not place a load upon any floor of the premises in excess
of the load per square foot which such floor was designed to carry and which is
allowed by law. Lessor reserves the right to prescribe the weight and position
of all safes in the premises. Business machines and mechanical equipment shall
be placed and maintained by Lessee, at Lessee's expense, only with Lessor's
consent and in settings approved by Lessor to control weight, vibration, noise
and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the
elevators of the building is prohibited. If the premises are on the ground floor
of the building the tenant thereof at its expense shall keep the sidewalks and
curb in front of the premises clean and free from ice, snow, dirt and rubbish.
4. Lessee shall not move any heavy or bulky materials into or out of the
building without Lessor's prior written consent, and then only during such hours
and in such manner as Lessor shall approve. If any material or equipment
requires special handling, Lessee shall employ only persons holding a Master
Riggers License to do such work, and all such work shall comply with all legal
requirements. Lessor reserves the right to inspect all freight to be brought
into the building, and to exclude any freight which violates any rule,
regulation or other provision of this lease.
<PAGE> 11
5. No sign, advertisement, notice or thing shall be inscribed, painted or
affixed on any part of the building, without the prior written consent of
Lessor. Lessor may remove anything installed in violation of this provision, and
Lessee shall pay the cost of such removal. Interior signs on doors and
directories, shall be inscribed or affixed by Lessor at Lessee's expense.
Lessor shall control the color, size, style and location of all signs,
advertisements and notices. No advertising of any kind by Lessee shall refer to
the building, unless first approved in writing by Lessor.
6. No article shall be fastened to, or holes drilled or nails or screws
driven into, the ceilings, walls, doors or other portions of the premises, nor
shall any part of the premises be painted, papered or otherwise covered or in
any way marked or broken, without the prior written consent of Lessor.
7. No existing locks shall be changed, nor shall any additional locks or
bolts of any kind be placed upon Lessee, without the prior written consent of
Lessor. At the termination of this lease, Lessee shall deliver to Lessor all
keys for any portion of the premises or building. Before leaving the premises at
any time, Lessee shall close all windows and close and lock all doors.
8. No Lessee shall purchase or obtain for use in the premises any spring
water, ice, towels, food, bootblacking, barbering or other such service
furnished by any company or person not approved by Lessor; provided, however,
that the cost of any such services provided by any company approved by Lessor
shall be competitive, and the foregoing shall not prohibit Lessee and its
employees from having light meals delivered to the premises from restaurants
outside the building. Any necessary exterminating work in the premises shall be
done at Lessee's expense, at such times, in such manner and by such company as
Lessor shall require. Lessor reserves the right to exclude from the building,
from 6:00 p.m. to 8:00 a.m., and at all hours on Sunday and legal holidays, all
persons who do not present a pass to the building signed by Lessor. Lessor will
furnish passes to all persons reasonably designated by Lessee. Lessee shall be
responsible for the acts of all persons to whom passes are issued at Lessee's
request.
9. Whenever Lessee shall submit to Lessor any plan, agreement or other
document for Lessor's consent or approval, Lessee agrees to pay Lessor as
additional rent on demand the reasonable out-of-pocket cost to Lessor of any
architect, engineer or attorney employed by Lessor to review said plan,
agreement or document.
10. The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to produce space heating, is prohibited.
In case of any conflict or inconsistency between provisions of this lease
and any of the rules and regulations as originally or as hereafter adopted the
provisions of this lease shall control.
<PAGE> 12
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND LEWIS GALOOB TOYS, INC., LESSEE
Article 41
Electricity
41. Landlord and Tenant understand and agree that Tenant will obtain its
electricity for the demised premises through the presently existing wiring and
equipment servicing the demised premises, either on a "submetering" basis or on
a "rent inclusion" basis. Initially, the parties agree, electricity distribution
shall be on a "submetering" basis. If for any reason beyond Landlord's control,
including action by government or other authority asserting jurisdiction over
the matter, Tenant no longer can so obtain its electricity supply on a
"submetering" basis, then and in such event Landlord will redistribute to Tenant
the electricity for the demised premises, on a "rent inclusion" basis, as
hereinafter provided.
(A). Submetering: If and so long as Lessor provides electricity to the
demised premises on a submetering basis, Lessee covenants and agrees to purchase
the same from Lessor or Lessor's designated agent at charges, terms and rates
set, from time to time, during the term of this lease by Lessor but not more
than those specified in the service classification in effect on January 1, 1970
pursuant to which Lessor then purchased electric current from the public utility
corporation serving the part of the city where the building is located;
provided, however, said charges shall be increased in the same percentage as any
percentage increase in the billing to Lessor for electricity for the entire
building, by reason of increase in Lessor's electric rates or service
classifications, subsequent to January 1, 1970, and so as to reflect any
increase in Lessor's electric charges, fuel adjustment, or by taxes or charges
of any kind imposed on Lessor's electricity purchases, or for any other such
reason, subsequent to said date. Any such percentage increase in Lessor's
billing for electricity due to changes in rates or service classifications shall
be computed by the application of the average consumption (energy and demand) of
electricity for the entire building for the twelve (12) full months immediately
prior to the rate and/or service classification change, or any changed methods
of or rules on billing for same, on a consistent basis to the new rate and/or
service classification and to the service classification in effect on January 1,
1970. If the average consumption of electricity for the entire building for said
prior twelve (12) months cannot reasonably be applied and used with respect to
changed methods of or rules on billing, then the percentage increase shall be
computed by the use of the average consumption (energy and demand) for the
entire building for the first three (3) months after such change, projected to a
full twelve (12) months; and that same consumption, so projected, shall be
applied to the service classification in effect on January 1, 1970. Where more
than one meter measures the service of Lessee in the building, the service
rendered through each meter may be computed and billed separately in accordance
with the rates herein. Bills therefor shall be rendered at such times as Lessor
may elect and the amount, as computed from a meter, shall be deemed to be, and
be paid as, additional rent. In the event that such bills are not paid within
fifteen (15) days after Lessee's receipt of same, Lessor may, without further
notice, discontinue the service of electric current to the demised premises
without releasing Lessee from any liability under this lease and without Lessor
or Lessor's agent incurring any liability for any damage or loss sustained by
Lessee by such discontinuance of service. If any tax is imposed upon Lessor's
receipt from the sale or resale of electrical energy or gas or telephone service
to Lessee by any Federal, State or Municipal Authority, Lessee covenants and
agrees that where permitted by law, Lessee's pro-rata share of such taxes shall
be passed on to, and included in the bill of, and paid by, Lessee to Lessor.
<PAGE> 13
(B). Rent Inclusion: If and so long as Lessor provides electricity to the
demised premises on a rent inclusion basis, Lessee agrees that the fixed annual
rent shall be increased by the amount of the Electricity Rent Inclusion Factor
("ERIF"), as hereinafter defined. Lessee acknowledges and agrees (i) that the
fixed annual rent hereinabove set forth in this lease does not yet, but is to
include an ERIF of $3.00 per rentable square foot to compensate Lessor for
electrical wiring and other installations necessary for, and for its obtaining
and making available to Lessee the redistribution of, electric current as an
additional service; and (ii) that said ERIF, which shall be subject to periodic
adjustments as hereinafter provided, has been partially based upon an estimate
of the Lessee's connected electrical load, which shall be deemed to be the
demand (KW), and hours of use thereof, which shall be deemed to be the energy
(KWH), for ordinary lighting and light office equipment and the operation of the
usual small business machines, including Xerox or other copying machines (such
lighting and equipment are hereinafter called "Ordinary Equipment") during
ordinary business hours ("ordinary business hours" shall be deemed to mean 50
hours per week), with Lessor providing an average connected load of 4-1/2 watts
of electricity for all purposes per rentable square foot. Any installation and
use of equipment other than Ordinary Equipment and/or any connected load and/or
any energy usage by Lessee in excess of the foregoing shall result in adjustment
of the ERIF as hereinafter provided. For purposes of this lease the rentable
square foot area of the presently demised premises shall be deemed to be 17,200
square feet.
If the cost to Lessor of electricity shall have been, or shall be,
increased or decreased subsequent to May 1, 1995 (whether such change occurs
prior to or during the term of this lease), by change in Lessor's electric rates
or service classifications, or by any increase, subsequent to the last such
electric rate or service classification change, in fuel adjustments or charges
of any kind, or by taxes, imposed on Lessor's electricity purchases, or for any
other such reason, then the ERIF, which is a portion of the fixed annual rent,
shall be changed in the same percentage as any such change in cost due to
changes in electric rates or service classifications, and, also, Lessee's
Payment obligation, for electricity redistribution, shall change from time to
time so as to reflect any such increase in fuel adjustments or charges, and
taxes. Any such percentage change in Lessor's cost due to changes in electric
rates or service classifications shall be computed by the application of the
average consumption (energy and demand) of electricity for the entire building
for the twelve (12) full months immediately prior to the new rate and/or service
classification change, or any changed methods of or rules on billing for same,
on a consistent basis to the new rate and/or service classification and to the
immediately prior existing rate and/or service classification. If the average
consumption of electricity for the entire building for said prior twelve (12)
months cannot reasonably be applied and used with respect to changed methods of
or rules on billing, then the percentage increase shall be computed by the use
of the average consumption (energy and demand) for the entire building for the
first (3) months after such change, projected to a full twelve (12) months, so
as to reflect the different seasons; and that same consumption, so projected,
shall be applied to the rate and/or service classification which existed
immediately prior to the change. The parties agree that a reputable, independent
electrical consultant, selected by Lessor ('Lessor's electrical consultant'),
shall determine the percentage change for the changes in the ERIF due to
Lessor's changed costs, and that Lessor's electrical consultant may from time to
time make surveys in the demised premises of the electrical equipment and
fixtures and the use of current. (i) If any such survey shall reflect a
connected load in the demised premises in excess of 4 1/2 watts of electricity
for all purposes per rentable square foot and/or energy usage in excess of
ordinary business hours (each such excess is hereinafter called 'excess
electricity') then the connected load and/or the hours of use portion(s) of at
then existing ERIF shall each be increased by an amount which is equal to a
fraction of the then existing ERIF, the numerator of which is the excess
electricity (i.e., excess connected load and/or excess usage) and the
denominator of which is the, connected load and/or the energy usage which was
the basis for the computation of the then existing ERIF. Such fractions shall be
determined by Lessor's electrical consultant. The fixed annual rent shall then
be appropriately adjusted, effective as of the date of any such change in
connected load and/or usage, as disclosed by said survey. (ii) If such survey
disclose installation and use of other than Equipment, then effective as of the
date of said survey. there shall be added to the ERIF portion of the fixed
annual rent (computed and fixed as hereinbefore described) an additional amount
equal to what would be paid under the SC-4 Rate I Service. Classification in
effect on May 1, 1995 (and not the time-of-day rate schedule) for such load and
usage of electricity, with the connected electrical load deemed to be the demand
(KW) and the hours of use thereof deemed to be the energy (KWH), as hereinbefore
provided, (which addition to the ERIF shall be increased or decreased by all
electricity cost changes of Lessor, as hereinabove provided, from May 1, 1995
through the date of billing).
In no event, whether because of surveys or for any other reason, is the
originally specified $3.00 per rentable square foot ERIF portion of the fixed
annual rent (plus any net increase thereof, but not decrease, by virtue of all
electric rate or service classification changes subsequent to May 1, 1995) to be
reduced.
(C). General Conditions: The determinations by Lessor's electrical
consultant in respect of Subdivisions (A) or (B) above be binding and conclusive
on Lessor and on Lessee from and after the delivery of copies of such
determinations to Lessor and Lessee, unless, within fifteen (15) days after
delivery thereof, Lessee disputes such determination. If Lessee so disputes the
determination, it shall, at its own expense, obtain from a reputable,
independent electrical consultant its own determinations in accordance with the
provisions of this Article, Lessee's consultant and Lessor's consultant then
shall seek to agree. If they cannot agree within thirty (30) days they shall
choose a third reputable electrical consultant, whose cost shall be shared
equally by the parties, to make similar determinations which shall be
controlling. (If they cannot agree on such third consultant within ten (10)
days, then either party may apply to the Supreme Court in the County of New York
for such appointment.) However, pending such controlling determinations, Lessee
shall pay to Lessor the amount of additional rent or ERIF in accordance with the
determinations of Lessor's electrical consultant. If the controlling
determinations differ from Lessor's electrical consultant, then the parties
shall promptly make adjustment for any deficiency owed by Lessee or overage paid
by Lessee.
<PAGE> 14
At the option of Lessee, Lessee may purchase from Lessor or its agents all
lamps and bulbs used to the demised premises and to pay for the cost of
installation thereof. Lessor shall not be liable to Lessee for any loss or
damage or expense which Lessee may sustain or incur if either the quantity or
character of electric service is changed or is no longer available or suitable
for Lessee's requirements. Lessee covenants and agrees that at all times its use
of electric current shall never exceed the capacity of existing feeders to the
building or the risers or wiring installation. Lessee agrees not to connect any
additional electrical equipment to the building electric distribution system,
other than lamps, typewriters and other small office machines which consume
comparable amounts of electricity, without Lessor's prior written consent, which
consent shall not be unreasonably withheld. Any riser or risers, to supply
Lessee's electrical requirements, upon written request of Lessee, will be
installed by Lessor, at the sole cost and expense of Lessee, if in Lessor's sole
judgement, the same are necessary and will not cause permanent damage or injury
to the building or demised premises or cause, or create a dangerous or hazardous
condition or entail excessive or unreasonable alterations repairs or expense or
interfere with or disturb other tenants or occupants. In addition to the
installation of such riser or risers Lessor will also at the sole cost and
expense of Lessee, install all other equipment proper and necessary in
connection therewith subject to the aforesaid terms and conditions. The parties
acknowledge that they understand that it is anticipated that electric rates,
charges, etc., may be changed by virtue of time-of-day rates or other methods of
billing, and that the references; in the foregoing two paragraphs to changes in
methods of or rules on billing are intended to include any such changes.
Supplementing Article 35 hereof, if all or part of the submetering additional
rent or the ERIF payable in accordance with Subdivision (A) or (B) of this
Article becomes uncollectible or reduced or refunded by virtue of any law, order
or regulation, the parties agree that, at Lessor's option, in lieu of
submetering additional rent or ERIF, and in consideration of Lessee's use of the
building's electrical distribution system and receipt of redistributed
electricity and payment by Lessor of consultants' fees and other redistribution
costs, the fixed annual rental rates to be paid under this Lease shall be
increased by an "alternative charge" which shall be a sum equal to $3.00 per
year per rentable sq. ft. of the demised premises, changed in the same
percentage as any increases in the cost to Lessor for electricity for the entire
building subsequent to May 1, 1994, because of electric rate or service
classification changes, such percentage change to be computed as in Subdivision
(B) provided. The Lessor reserves the right, at any time upon ninety (90) days'
written notice, to change its furnishing of electricity to Lessee from a rent
inclusion submetering basis, or vice versa. The Lessor reserves the right to
terminate the furnishing of electricity on a rent-inclusion, submetering, or any
other basis at any time, upon ninety (90) days' written notice to the Lessee, in
which event the Lessee may make application directly to the public utility for
the Lessee's entire separate supply of electric current and Lessor shall permit
its wires and conduits, to the extent available and safely capable, to be used
for such purpose, but only to the extent of Lessee's then authorized load. Any
motors, riser's or other equipment or connections necessary to furnish
electricity on a submetering basis or to enable Lessee to obtain electric
current directly from such utility shall be installed at Lessee's sole cost and
expense. Only rigid conduit or electricity metal tubing (EMT) will be allowed.
The Lessor, upon the expiration of the aforesaid ninety (90) day's written
notice to the Lessee may discontinue furnishing the electric current but this
lease shall otherwise remain in full force and effect. If Lessee was provided
electricity on a rent inclusion basis when it was so discontinued, then
commencing when Lessee receives such direct service and as long as Lessee shall
continue to receive such service, the fixed annual rental rate payable under
this lease shall be reduced by the amount of the ERIF which was payable
immediately prior to such discontinuance of electricity on a rent inclusion
basis.
RIDER ATTACHED TO AND FORMING A PART OF
LEASE BETWEEN 200 FIFTH AVENUE ASSOCIATES,
LANDLORD, AND LEWIS GALOOB TOYS, INC., TENANT
Article 42
Existing Lease; Rent Credit; Initial
Alteration Work; Etc.
42. A. The parties acknowledge (i) that Tenant currently occupies Rooms
1416-1438 in the building known as the International Toy Center South (200 Fifth
Avenue), pursuant to a certain lease with Landlord, dated as of October 4, 1985,
for a term which is to expire on April 30, 1996 (the "Existing Lease"); and (ii)
that, as an accommodation to Tenant, and in consideration of Tenant's agreement
to enter into the within Lease, Landlord has agreed to permit Tenant to continue
to occupy the premises demised under the Existing Lease, on a "rent free" basis,
while Tenant is effecting its Initial Alteration Work (as hereinafter defined)
in the within demised premises. Accordingly, Landlord and Tenant hereby agree
that the Existing Lease shall be deemed to be, and hereby is, modified as
follows:
(a) Tenant shall not be obligated to pay any fixed annual rent (as escalated
under Article 23), real estate tax escalation additional rent or
electricity charges which are due and payable under the Existing Lease from
December 1, 1995 through the expiration date of the term of the Existing
Lease (as herein modified); and
(b) The term of the Existing Lease shall expire on the date which shall be the
earlier to occur of (i) the date Tenant notifies Landlord that it has
completed the Initial Alteration Work in the demised premises, or (ii)
February 9, 1996. Notwithstanding anything to the contrary contained in the
Existing Lease, upon such expiration date of the term thereof, Tenant shall
surrender possession of the premises demised thereunder to Landlord,
vacant, in broom clean condition and free of any furniture, moveable
fixtures or other
<PAGE> 15
personal property of Tenant, but with all ceiling light fixtures remaining
in place. Tenant agrees that it will repair any damage to the premises
caused by such removal.
Otherwise, the premises demised under the Existing Lease shall continue to be
leased to Tenant under all of the terms, covenants and conditions of the
Existing Lease, which are hereby ratified and confirmed.
B. If and so long as Tenant is not in default under this Lease beyond any
grace period, Tenant shall be entitled to a rent credit in the amount of
$172,002, which rent credit shall be applied, until fully depleted, against the
first fixed annual rent (without electricity) which is due under this Lease,
from and after the commencement date of the term hereof; except that Tenant
shall nevertheless be obligated, from and after said commencement date, to pay
any additional rent which is due hereunder, and to pay for Tenant's electricity
consumption in the demised premises under Article 41 hereof.
C. Supplementing Article 22 hereof, Tenant agrees that, at its sole cost
and expense, it will effect all alterations, additions and improvements, in and
to the demised premises, which are necessary to make such space suitable and
ready for Tenant's occupancy and use (the "Initial Alteration Work"). Tenant
will cause the Initial Alteration Work to be effected in a good and workmanlike
manner, in accordance with Tenant's approved plans and specifications, in
accordance with the provisions of Article 7, as supplemented by Article 43, and
all other applicable provisions of this Lease, and in compliance with all
applicable laws, rules and regulations.
Tenant shall, within five (5) business days after the execution and
delivery of this Lease, furnish Landlord for its approval a complete set of
architectural and engineering plans and specifications for the Initial
Alteration Work. Landlord agrees that it will not unreasonably withhold its
approval to any work in said plans and specifications which is non-structural
interior alteration work and which does not affect any of the building systems
or equipment. Landlord further agrees that, within five (5) business days after
receipt of same, Landlord shall approve said plans and specifications, or return
them with specific written advice as to what changes are required for its
approval to be forthcoming. In the event such plans and specifications are so
returned to Tenant, Tenant shall revise them to incorporate such changes as are
required for Landlord's approval to be forthcoming and shall resubmit such
revised plans and specifications to Landlord, within three (3) business days
after they are returned (unapproved) by Landlord. Such plan approval process
shall continue until a complete set of Tenant's plans and specifications for the
Initial Alteration Work has been approved by Landlord.
Landlord agrees that Tenant may commence its demolition work in the
demised premises, prior to Landlord's approval of a complete set of plans and
specifications for the Initial Alteration Work, provided that such demolition
work is effected by a general contractor which Landlord has previously approved
for the building, and provided, further, that such work is effected in
accordance with all applicable laws, rules and regulations and all applicable
provisions of this Lease regarding alterations and installations.
Landlord agrees that there will be no charge to Tenant for its use of
the building freight elevator, between the hours of 8:00 a.m. and 5:00 p.m., in
connection with the Initial Alteration Work. Tenant acknowledges that such use '
will be on a first come, first served basis. Any use of the building freight
elevator outside of such hours in connection with the Initial Alteration Work,
shall be subject to Landlord's then current charges therefor.
D. Notwithstanding anything contained in Article 23 to the contrary, the
Article 23 cost of living adjustments to the fixed annual rental rate shall not
in any single calendar year exceed an amount equal to (i) five percent (5%) of
the fixed annual rental rate payable under this Lease as of December 1st of the
immediately preceding calendar year (unadjusted by Article 23), multiplied by
(ii) the number of calendar years elapsed from the Base Year through the
calendar year for which such adjustments are made.
E. Tenant acknowledges that it has been advised that a portion of the
within demised premises is currently occupied by a certain tenant (the
"Occupying Tenant") pursuant to a certain lease (the "Occupying Lease"), the
term of which is to expire in the future. Landlord and Tenant agree that the
within Lease is conditioned upon the Landlord entering into a lease
cancellation agreement with the Occupying Tenant, pursuant to which the term of
the Occupying Lease is cancelled and terminated effective immediately. Landlord
agrees that it will give Tenant immediate written notice of the execution and
delivery of such lease cancellation agreement, which notice shall be sent by
telecopier to Tenant's attorney, Richard N. Cohen, Esq., fax no. 212-7589826.
If, for any reason whatsoever, including the Occupying Tenant's failure or
refusal to execute same, such lease cancellation agreement is not executed and
delivered by Landlord and the Occupying Tenant within seven (7) days after the
execution and delivery of the within Lease, then and in such event, Tenant
shall have the option to cancel and terminate the term of the within Lease,
upon immediate written notice to Landlord (which notice shall be sent to
Landlord's attorney, David J. Bleckner, Esq., fax no. 212-986-7679), whereupon
this Lease shall be deemed null and void and of no further force and effect,
and neither party shall have any liability to the other under this Lease, and
the Existing Lease shall remain in full force and effect, without the
modifications set forth above.
F. To the best of Landlord's knowledge, there is no asbestos-containing
material in the demised premises. Landlord, however, agrees that, in connection
with Tenant's initial alteration work in any portion of the premises, Landlord
shall be solely responsible for and shall, at Landlord's expense, cause to be
effected any removal, encapsulation, encasement or other treatment of asbestos
required by any law, rule, ordinance or regulation of any governmental authority
having jurisdiction over the demised premises. Landlord and Tenant further agree
that any such compliance made necessary by improvements or other work effected
by or for Tenant after Tenant opens for business in such portion of the demised
premises, shall be effected at Tenant's expense.
<PAGE> 16
Article 43
Alterations
43. Anything in Article 7 to the contrary notwithstanding, Landlord will
not unreasonably withhold or delay approval of written requests of Tenant to
make nonstructural interior alterations, additions and improvements (herein
referred to as "alterations,") in the demised premises, provided that such
alterations do not adversely affect utility services or plumbing and electrical
lines or other systems of the building. All alterations shall be performed in
accordance with the following conditions:
(a) All alterations costing more than $20,000.00 shall be performed in
accordance with plans and specifications first submitted to Landlord for its
prior written approval. Landlord shall be given, in writing, a good description
of all other alterations.
(b) All alterations shall be done in a good and workmanlike manner. Tenant
shall, prior to the commencement of any such alterations, at its sole cost and
expense, obtain and exhibit to Landlord any governmental permit required in
connection with such alterations.
(c) All alterations shall be done in compliance with all other applicable
provisions of this Lease and with all applicable laws, ordinances, directions,
rules and regulations of governmental authorities having jurisdiction,
including, without limitation, the Americans with Disabilities Act of 1990 and
New York City Local Law No. 58/87 and similar present or future laws, and
regulations issued pursuant thereto, and also (except as provided in Article 42F
hereof) New York City Local Law No. 76 and similar present or future laws, and
regulations issued pursuant thereto, on abatement, storage, transportation and
disposal of asbestos, which work, if required, shall be effected at Tenant's
sole cost and expense, by contractors and consultants approved by Landlord and
in strict compliance with the aforesaid rules and regulations and with
Landlord's rules and regulations thereon.
(d) All work shall be performed with union labor having the proper
jurisdictional qualifications.
(e) Tenant shall keep the building and the demised premises free and clear
of all liens for any work or material claimed to have been furnished to Tenant
or to the demised premises.
(f) Prior to the commencement of any work by or for Tenant, Tenant shall
furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons employed for
such work and with respect to whom death or bodily injury claims could be
asserted against Landlord, Tenant or the demised premises.
(ii) Broad form general liability insurance written on an occurrence basis
naming Tenant as an insured and naming Landlord and its designees as additional
insureds, with limits of not less than $3,000,000 combined single limit for
personal injury in any one occurrence, and with limits of not less then $500,000
for property damage (the foregoing limits may be revised from time to time by
Landlord to such higher limits as Landlord from time to time reasonably
requires). Tenant, at its sole cost and expense, shall cause all such insurance
to be maintained at all times when the work to be performed for or by Tenant is
in progress. All such insurance shall be obtained from a company authorized to
do business in New York and shall provide that it cannot be cancelled without
thirty (30) days prior written notice to Landlord. All policies, or certificates
therefor, issued by the insurer and bearing notations evidencing the payment of
premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable,
provided that coverage meeting the requirements of this paragraph is assigned to
Tenant's location at the demised premises.
(g) All work to be performed by or for Tenant shall be done in a manner
which will not unreasonably interfere with or disturb other tenants and
occupants of the building.
Article 44
Assignment and Subletting
44. Supplementing Articles 3 and 27 hereof, Landlord and Tenant agree
that:
A. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor
underlet, or suffer or permit the demised premises or any part thereof
<PAGE> 17
to be used or occupied by others, without the prior written consent of Landlord
in each instance. The merger or consolidation of a corporate lessee or sublessee
where the net worth of the resulting or surviving corporation is less than the
net worth of the lessee or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If this Lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, undertenant or occupant, and apply
the net amount collected to the rent herein reserved, but no assignment,
underletting, occupancy or collection shall be deemed a waiver of the provisions
hereof, the acceptance of the assignee, undertenant or occupant as Tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Landlord to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
underletting. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a sublease.
If any lien is filed against the demised premises or the building of which the
same form a part for real estate brokerage services claimed to have been
performed for Tenant, whether or not actually performed, the same shall be
discharged by Tenant within thirty (30) days thereafter, at Tenant's expense, by
filing the bond required by law or otherwise and paying any other necessary
sums, and Tenant agrees to indemnify Landlord and its agents and hold them
harmless from and against any and all claims, losses or liability resulting from
such lien for brokerage service rendered.
B. If Tenant desires to assign this Lease or to sublet all or any portion
of the demised premises, it shall first submit in writing to Landlord the
documents described in Section C hereof, and shall offer in writing, (i) with
respect to a prospective assignment, to assign this Lease to Landlord without
any payment of moneys or other consideration therefor, and with a full release
of Tenant from any and all obligations under the Lease accruing from and after
the effective date of the assignment, or, (ii) with respect to a prospective
subletting, to sublet to Landlord the portion of the demised premises involved
("Leaseback Area") for the term specified by Tenant in its proposed sublease,
and at the lower of (a) Tenant's proposed subrental or (b) at the same rate of
fixed rent and additional rent, and otherwise on the same terms, covenants and
conditions (including provisions relating to escalation rents), as are contained
herein and as are allocable and applicable to the portion of the demised
premises to be covered by such subletting. The offer shall specify the date when
the Leaseback Area will be made available to Landlord, which date shall be in no
event earlier than sixty (60) days nor later than one hundred eighty (180) days
following the acceptance of the offer. If an offer of sublease is made, and if
the proposed sublease will result in all or substantially all of the demised
premises being sublet, then Landlord shall have the option to extend the term of
its proposed sublease for the balance of the term of this Lease less one (1)
day.
Landlord shall have a period of thirty (30) days from the receipt of such
offer to either accept or reject the same. If Landlord shall accept such offer,
Tenant shall then execute and deliver to Landlord, or to anyone designated or
named by Landlord, an assignment or sublease, as the case may be, in either case
in a form reasonably satisfactory to Landlord's counsel.
If a sublease is so made it shall expressly:
(a) permit Landlord to make further subleases of all or any part of the
Leaseback Area and (at no cost or expense to Tenant) to make and
authorize any and all changes, alterations, installations and
improvements in such space as necessary;
(b) provide that Tenant will at all times permit reasonably appropriate
means of ingress and egress from the Leaseback Area;
(c) negate any intention that the estate created under such sublease be
merged with any other estate held by either of the parties;
(d) provide that Landlord shall accept the Leaseback Area "as is"
except that Landlord, at Tenant's expense, shall perform all such work
and make all such alterations as may be required physically to separate
the Leaseback Area from the remainder of the demised premises and to
permit lawful occupancy, it being intended that Tenant shall have no
other cost or expense in connection with the subletting of the
Leaseback Area;
(e) provide that at the expiration of the term of such sublease Tenant
will accept the Leaseback Area in its then existing condition,subject
to the obligations of Landlord to make such repairs thereto as may be
necessary to preserve the Leaseback Area in good order and condition,
ordinary wear and tear excepted.
Landlord shall indemnify and save Tenant harmless from all obligations
under this Lease as to the Leaseback Area during the period of time it is so
sublet, except for fixed annual rent and additional rent, if any, due under that
within Lease, which are in excess of the rents and additional sums due under
such sublease.
Subject to the foregoing, performance by Landlord, or its designee, under a
sublease of the Leaseback Area shall be deemed performance by Tenant of any
similar obligation under this Lease and any default under any such sublease
shall not give rise to a default under a similar obligation contained in this
Lease, nor shall Tenant be liable for any default under this Lease or deemed to
be in default hereunder if such default is occasioned by or arises from any act
or omission of the Tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease.
C. If Tenant requests Landlord's consent to a specific assignment or
subletting, it shall submit in writing to Landlord (i) the name and address of
the proposed assignee or sublessee, (ii) a duly executed counterpart of the
proposed agreement of assignment or sublease, (iii) reasonably satisfactory
information as to the nature and character of the business of
<PAGE> 18
the proposed assignee or sublessee, and as to the nature of its proposed use of
the space, and (iv) banking, financial or other credit information relating to
the proposed assignee or sublessee reasonably sufficient to enable Landlord to
determine the financial responsibility and character of the proposed assignee or
sublessee.
D. If Landlord shall not have accepted Tenant's offer, as provided in
Section B, then Landlord will not unreasonably withhold or delay its consent to
Tenant's request for consent to such specific assignment or subletting, where
Tenant will not move the conduct of its business to another building in New York
City. Any consent of Landlord under this article shall be subject to the terms
of this article and conditioned upon there being no default by Tenant, beyond
any grace period, under any of the terms, covenants and conditions of this Lease
at the time that Landlord's consent to any such subletting or assignment is
requested and on the date of the commencement of the term of any proposed
sublease or the effective date of any proposed assignment.
E. Tenant understands and agrees that no assignment or subletting shall
be effective unless and until Tenant, upon receiving any necessary Landlord's
written consent (and unless it was theretofore delivered to Landlord) causes a
duly executed copy of the sublease or assignment to be delivered to Landlord
within ten (10) days after execution thereof. Any such sublease shall provide
that the sublessee shall comply with all applicable terms and conditions of this
Lease to be performed by the Tenant hereunder. Any such assignment of lease
shall contain an assumption by the assignee of all of the terms, covenants and
conditions of this Lease to be performed by the Tenant.
F. Anything herein contained to the contrary notwithstanding:
1. Tenant shall not advertise (but may list with brokers) its space
for assignment or subletting at a rental rate lower than the greater of the then
building rental rate for such space or the rental rate then being paid-by Tenant
to Landlord.
2. The transfer of a majority of the issued and outstanding capital
stock of, or a controlling interest in, any corporate tenant or subtenant of
this Lease or a majority of the total interest in any partnership tenant or
subtenant, however accomplished, and whether in a single transaction or in a
series of related or unrelated transactions, and the conversion of a tenant or
subtenant entity to either a limited liability company or a limited liability
partnership, shall be deemed an assignment of this Lease or of such sublease.
The transfer of outstanding capital stock of any corporate tenant, for purposes
of the Article, shall not include sale of such stock by persons other than those
deemed "insiders" within the meaning of the Securities Exchange Act of 1934 as
amended, and which sale is effected through "over-the-counter market" or through
any recognized stock exchange.
3. No assignment or subletting shall be made:
(a) To any person or entity which shall at that time be a tenant,
subtenant or other occupant of any part of the building, or who was
negotiating with Landlord or Landlord's agent (directly or through a
broker) with respect to space in the building during the six (6)
months immediately preceding Tenant's request for Landlord's consent;
(b) By the legal representatives of the Tenant or by any person
to whom Tenant's interest under this Lease passes by operation of law,
except in compliance with the provisions of this Article;
(c) To any person or entity for the conduct of a business which
is not in keeping with the standards and the general character of the
building of which the demised premises form a part.
G. Anything hereinabove contained to the contrary notwithstanding, the
offer back to Landlord provisions of Section B hereof shall not apply to, and
Landlord herewith consents to an assignment of this Lease, or sublease of all or
part of the demised premises, to the parent of Tenant or to an affiliate (as
hereinafter defined) of Tenant or of said parent of Tenant, provided the net
worth of the transferor or sublessor, after such transaction, is equal to or
greater than its net worth immediately prior to such transaction; and provided,
also, that any such transaction complies with the other provisions of this
Article.
For purposes of this Lease, the term "affiliate" shall mean any entity
which controls, is controlled BY or under common control with Tenant. The term
"control" shall mean ownership of more than fifty percent (50%) of the equity
and voting interest in Tenant.
F. Anything hereinabove contained to the contrary notwithstanding, the
offer back to Landlord provisions of Section B hereof shall not apply to, and
Landlord will not unreasonably withhold or delay its consent to an assignment of
this Lease, or sublease of all or part of the demised premises, to any
corporation (i) to which substantially all the assets of Tenant are transferred
or (ii) into which Tenant may be merged or consolidated, provided that the net
worth, experience and reputation of such transferee or of the resulting or
surviving corporation, as the case may be, is equal to or greater than the net
worth, experience and reputation of Tenant and of any guarantor of this Lease
immediately prior to such transfer; and provided, also, that any such
transaction complies with the other provisions of this Article.
<PAGE> 19
No consent from Landlord shall be necessary under Subdivision H hereof
where (i) reasonably satisfactory proof is delivered to Landlord that the net
worth and other provisions of Subdivision H and the other provisions of this
Article, have been satisfied and (ii) Tenant, in a writing reasonably
satisfactory to Landlord's attorneys, agrees to remain primarily liable jointly
and severally with any transferee or assignee, for the obligations of Tenant
under this Lease.
I. If Landlord shall not have accepted any required Tenant's offer and/or
Tenant effects any assignment or subletting, then Tenant thereafter shall pay to
Landlord a sum equal to (a) fifty percent (50%) of any rent or other
consideration paid to Tenant by any subtenant which (after deducting the costs
of Tenant, if any, in effecting the subletting, including reasonable alteration
costs, commissions and legal fees) is in excess of the rent allocable to the
subleased space which is then being paid by Tenant to Landlord pursuant to the
terms hereof, and (b) fifty percent (50%) of any other profit or gain (after
deducting any necessary expenses incurred) realized by Tenant from any such
subletting or assignment. ALL sums payable hereunder by Tenant shall be payable
to Landlord as additional rent upon receipt thereof by Tenant.
J. In no event shall Tenant be entitled to make, nor shall Tenant make,
any claim, and Tenant hereby waives any claim, for money damages (nor shall
Tenant claim any money damages by way of set-off, counterclaim or defense) based
upon any claim or assertion by Tenant that Landlord has unreasonably withheld or
unreasonably delayed its consent or approval to a proposed assignment or
subletting as provided for in this Article. Tenant's sole remedy shall be an
action or proceeding to enforce any such provision, or for specific performance,
injunction or declaratory judgment.
<PAGE> 20
Article 45
INTENTIONALLY OMITTED
Article 46
Brokerage
46. Tenant-represents and warrants that it neither consulted nor
negotiated with any broker or finder with regard to the demised premises other
than Helmsley-Spear, Inc. Tenant agrees to indemnify, defend and save Landlord
harmless from and against any claims for fees or commissions from anyone other
than Helmsley-Spear, Inc. with whom Tenant has dealt in connection with the
demised premises or this Lease.
Landlord represents and warrants that it neither consulted nor
negotiated with any broker or finder with regard to the demised premises other
than Helmsley-Spear, Inc. Landlord agrees to indemnify, defend and save Tenant
harmless from and against any claims for fees or commissions from anyone other
than Helmsley-Spear, Inc. with whom Landlord has dealt in connection with the
demised premises or this Lease.
Landlord agrees to pay any commission or fee owing to the aforesaid
Helmsley-Spear, Inc.
Article 47
Discrepancies
47. In the event of any inconsistency between the provisions of this rider
and the provisions of the printed form of this Lease, the provisions of this
rider shall prevail.
<PAGE> 1
EXHIBIT 11
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary Earnings:
- -----------------
Net earnings (loss) applicable to
common shares ($000) $ 6,272 $ 15,297 $ (14,051)
=========== =========== ===========
Average shares of common stock
outstanding during the period 10,071,304 9,852,673 9,548,422
Add: Incremental shares from assumed
exercise of stock options and warrants 380,146 258,439 --
----------- ----------- -----------
10,451,450 10,111,112 9,548,422
=========== =========== ===========
Net earnings (loss) per common
share - primary $ 0.60 $ 1.51 $ (1.47)
=========== =========== ===========
Fully Diluted Earnings:
- -----------------------
Net earnings (loss) applicable to
common shares ($000) $ 6,272 $ 15,297 $ (14,051)
Add: Preferred stock dividends:
Paid ($000) -- -- --
In arrears ($000) 3,127 3,127 3,127
Add: Interest on Debentures ($000) 1,030 1,072 137
----------- ----------- -----------
$ 10,429 $ 19,496 $ (10,787)
=========== =========== ===========
Average shares of common stock
outstanding during the period 10,071,304 9,852,673 9,548,422
Add: Incremental shares from assumed
exercise of stock options and warrants 444,409 261,458 236,825
Add: Shares issuable upon assumed
conversion of Preferred Stock 2,180,148 2,180,148 2,180,148
Add: Shares issuable upon assumed
conversion of 8% Convertible
Subordinated Debentures, weighted 1,511,879 1,511,879 186,396
----------- ----------- -----------
14,207,740 13,806,158 12,151,791
=========== =========== ===========
Net earnings (loss) per common
share - Fully diluted $ (A) $ 1.41 (A)
=========== =========== ===========
</TABLE>
(A) Anti dilutive, therefore fully diluted earnings per share is same as primary
earnings per share, $0.60 and $(1.47) for 1995 and 1993, respectively.
<PAGE> 1
EXHIBIT 12
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(in thousands, except ratios)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net earnings (loss) $ 9,399 $18,424 $(10,924) $(2,447) $(7,540)
Income tax 600 778 9 238 --
------- ------- -------- ------- -------
Charge (credit) 9,999 19,202 (10,915) (2,209) (7,540)
------- ------- -------- ------- -------
Fixed charges:
Interest expense 3,429 2,609 1,836 1,550 1,775
Portion of rental expense 663 505 483 613 728
------- ------- -------- ------- -------
Total fixed charges 4,092 3,114 2,319 2,163 2,503
------- ------- -------- ------- -------
Earnings (loss) before
income taxes and fixed
charges $14,091 $22,316 $ (8,596) $ (46) $(5,037)
======= ======= ======== ======= =======
Preferred dividends
requirements $ 3,127(B) $ 3,127(B) $ 3,127(B) $ 3,127 $ 3,127
Ratio of pretax income
to net income 1.06 1.04 1.00 1.00 1.00
------- ------- -------- ------- -------
Preferred dividends
factored 3,315 3,252 3,127 3,127 3,127
Total fixed charges 4,092 3,114 2,319 2,163 2,503
------- ------- -------- ------- -------
Total fixed charges and
preferred dividends $ 7,407 $ 6,366 $ 5,446 $ 5,290 $ 5,630
======= ======= ======== ======= =======
Ratio of earnings to
fixed charges and
preferred dividends 1.90 3.51 (A) (A) (A)
======= ======= ======== ======= =======
</TABLE>
(A) Earnings are inadequate to cover fixed charges and preferred dividends in
1993, 1992, and 1991.
(B) Includes Preferred Stock dividends in arrears.
<PAGE> 1
EXHIBIT 21
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Galco International Toys, N.V., an Aruba corporation
<PAGE> 1
EXHIBIT 23
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of this Registration Statement on Form S-8 (No. 33-9393 and
No. 33-56004) and Form S-3 (No. 33-33640) of Lewis Galoob Toys, Inc. and its
subsidiaries of our report dated February 8, 1996, except for Note R, which is
as of February 12, 1996, appearing on page F-1 of this Form 10-K.
San Francisco, California
March 11, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,030
<SECURITIES> 0
<RECEIVABLES> 76,834
<ALLOWANCES> 9,982
<INVENTORY> 17,491
<CURRENT-ASSETS> 106,582
<PP&E> 15,584
<DEPRECIATION> 6,671
<TOTAL-ASSETS> 120,084
<CURRENT-LIABILITIES> 51,912
<BONDS> 14,000
36,790
0
<COMMON> 101
<OTHER-SE> 17,281
<TOTAL-LIABILITY-AND-EQUITY> 120,084
<SALES> 220,044
<TOTAL-REVENUES> 0
<CGS> 132,061
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 74,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,429
<INCOME-PRETAX> 9,999
<INCOME-TAX> 600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,399
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
