SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9599
GALOOB TOYS, INC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1716574
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
500 Forbes Boulevard, South San Francisco, California 94080
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 952-1678
--------------
Indicate by check 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
Common stock, par value $.01, 18,100,864 as of September 30, 1997.
<PAGE>
GALOOB TOYS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
- -------------------------------- ----
Item 1
- Condensed Consolidated Balance Sheets 1
- Condensed Consolidated Statements of Operations 2
- Condensed Consolidated Statements of Cash Flows 3
- Notes to Condensed Consolidated Financial Statements 4-6
Item 2
- Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
PART II - OTHER INFORMATION
- -----------------------------
Item 1
- Legal Proceedings 12
Item 6
- Exhibits and Reports on Form 8-K 12
SIGNATURE 13
- ---------
<PAGE>
GALOOB TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Audited)
September 30 September 30 December 31
1997 1996 1996
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $21,766 $2,244 $27,920
Accounts receivable, net 75,161 99,018 102,322
Inventories 23,402 23,219 19,974
Tooling and related costs 13,423 15,247 15,436
Prepaid expenses and other assets 8,057 9,069 12,361
Deferred income taxes 10,009 --- 2,404
---------- ---------- ---------
Total Current Assets 151,818 148,797 180,417
Land, building and equipment, net 10,550 9,746 10,013
Indebtedness from related party 950 950 950
Other assets 12,001 5,462 5,525
Deferred income taxes 8,316 -- ---
---------- ---------- ---------
Total Assets $183,635 $164,955 $196,905
========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ --- $44,043 $ ---
Accounts payable 24,056 25,137 19,655
Accrued expenses 30,329 17,159 24,680
Income taxes payable 449 1,742 1,671
Current portion of long-term debt --- 4,266 17
---------- ---------- ---------
Total Current Liabilities 54,834 92,347 46,023
Other liabilities 4,285 --- 20
Deferred income taxes --- --- 1,071
---------- ---------- ---------
Total Liabilities 59,119 92,347 47,114
---------- ---------- ---------
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share
authorized 50,000,000 shares
Issued and outstanding 18,100,864 shares,
15,149,651 shares, and 17,919,864 shares 181 152 179
Additional paid-in capital 171,707 106,030 170,291
Retained earnings (deficit) (46,808) (33,127) (20,232)
Cumulative translation adjustment (564) (447) (447)
---------- ---------- ---------
Total Shareholders' Equity 124,516 72,608 149,791
---------- ---------- ---------
Total Liabilities and Shareholders' Equity $183,635 $164,955 $196,905
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
1
<PAGE>
GALOOB TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $83,248 $88,547 $176,202 $175,270
Costs of products sold 56,734 45,590 108,460 93,871
------ ------ ------- ------
Gross margin 26,514 42,957 67,742 81,399
Operating expenses:
Advertising and promotion 17,437 11,066 32,319 23,477
Other selling and administrative 9,493 10,164 24,432 22,916
Royalties, research and development 14,437 10,097 28,913 25,599
------ ------ ------ ------
Total operating expenses 41,367 31,327 85,664 71,992
------ ------ ------ ------
Earnings (loss) from operations (14,853) 11,630 (17,922) 9,407
Micro Machines license rights and
litigation settlement -- -- (22,949) --
Interest expense (134) (1,069) (252) (2,665)
Other income (expense), net (3,269) 94 (2,445) 185
------- ------- ------- -------
Earnings (loss) before income taxes (18,256) 10,655 (43,568) 6,927
Provision for income taxes (7,121) 1,386 (16,992) 1,386
------- ------ -------- ------
Net earnings (loss) (11,135) 9,269 (26,576) 5,541
Preferred stock dividends -- -- -- 21
Charge related to the exchange of
preferred stock for common -- -- -- 24,279
------ ------ ------- ------
Net earnings (loss) applicable
to common shares ($11,135) $9,269 ($26,576) ($18,759)
========= ====== ========= =========
Average common shares outstanding 18,073 16,387 18,019 13,565
Net earnings (loss) per common share ($0.62) $0.57 ($1.47) ($1.38)
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE>
GALOOB TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except shares)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $(26,576) $5,541
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 654 540
Changes in assets and liabilities:
Accounts receivable 27,161 (30,616)
Inventories (3,428) (5,728)
Tooling and related costs 2,013 (6,936)
Prepaid expenses and other assets (2,172) (1,244)
Deferred income taxes (16,992) ---
Accounts payable 4,401 7,996
Accrued expenses and other liabilities 9,914 2,939
Income taxes payable (1,222) 1,011
------- --------
Net cash (used in) provided by operating
activities (6,247) (26,497)
------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in land, building and
equipment, net (1,191) (1,505)
------- -------
Net cash (used in) provided by investing activities (1,191) (1,505)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under notes payable --- 28,972
Repayments under long-term debt agreements (17) (156)
Proceeds from issuance of common stock 1,418 1,144
Redemption of preferred stock --- (462)
Costs associated with the conversion
of debentures and the preferred shares exchange --- (1,282)
Other, net (117) ---
------- -------
Net cash (used in) provided by financing activities 1,284 28,216
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,154) 214
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 27,920 2,030
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,766 $2,244
======= ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
During the nine months ended September 30, 1996, $14 million of the Company's 8%
convertible subordinated debentures were converted into 1,511,872 shares of its
common stock. Deferred loan costs and accrued interest amounting to
approximately $0.5 million, net, were charged against additional paid-in
capital. See Note F.
During the nine months ended September 30, 1996, 1,822,899 depositary shares of
the Company's preferred stock were exchanged for 3,359,432 shares of its common
stock. See Note G.
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE>
GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
NOTE A - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------
The condensed consolidated balance sheets as of September 30, 1997 and 1996 and
the condensed consolidated statements of operations for the three- and
nine-month periods ended September 30, 1997 and 1996 and the condensed
consolidated statements of cash flows for the nine-month periods ended September
30, 1997 and 1996 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1997 and 1996 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1996. Certain amounts in the financial statements of prior years have been
reclassified to conform with the current year's presentation.
The results of operations for the three- and nine-month periods ended September
30, 1997 and 1996 are not necessarily indicative of the operating results for
the full year.
NOTE B - LEGAL
- --------------
The current status of litigation is described in Part II, Item 1, herein.
NOTE C - LOAN AGREEMENT
- -----------------------
In 1995, the Company entered into an amended and restated loan and security
agreement (the "Loan Agreement") with Congress Financial Corporation (Central)
(the "Lender"). The Loan Agreement provided an original line of credit of $40
million which has been increased to $50 million, with a provision to increase
the line to $60 million at the option of the Company. Borrowing availability is
determined by a formula based on both accounts receivable and inventories. The
interest rate was generally prime rate plus 1% until March 31, 1997. In
consideration for entering into the Loan Agreement, the Company paid a $100,000
fee; additional fees of $100,000 were paid as the Company exercised 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 Loan Agreement has been amended to extend
until December 31, 1997. The interest rate was prime plus 2% for the period
April 1, 1997 through September 30, 1997 and will be prime plus 1% for the
period October 1, 1997 through December 31, 1997. A fee of $25,000 was paid for
these extensions. On October 10, 1997, the Company signed a letter agreement
with the Lender increasing the credit limit to $75 million, extending the Loan
Agreement until December 31, 2000 with the interest rate equal to prime. The
letter agreement is subject to certain conditions and final documentation.
<TABLE>
<CAPTION>
NOTE D - INVENTORIES
- --------------------
(in thousands) September 30 December 31
------------ -----------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Finished goods $23,089 $23,165 $19,667
Raw materials and parts 313 54 307
---------- --------- ----------
$23,402 $23,219 $19,974
========== ========= ==========
</TABLE>
4
<PAGE>
NOTE E - RESEARCH AND DEVELOPMENT
- ---------------------------------
Research and development expenses amounted to $2.1 million and $2.3 million for
the three months ended September 30, 1997 and 1996, respectively, and $7.8
million and $7.4 million for the nine months ended September 30, 1997 and 1996,
respectively.
NOTE F - LONG-TERM DEBT
- -----------------------
In February 1996, the Company issued a call for the redemption of its 8%
Convertible Subordinated Debentures originally due November 30, 2000 (the
"Debentures"). This call resulted in the conversion on March 15, 1996, of all
$14,000,000 Debentures at $9.26 per share and the issuance of 1,511,872 new
shares of common stock. Unamortized debt issuance costs of $833,000 were charged
against additional paid-in capital on conversion of the Debentures.
NOTE G - SHAREHOLDERS' EQUITY
- -----------------------------
In February 1996, the Company offered to exchange 1.85 shares of its common
stock for each Depositary Exchangeable Preferred Share (the "Depositary Shares")
outstanding. Each Depositary Share represents 1/10th of a share of $17.00
Convertible Exchangeable Preferred Stock. This inducement offer was accepted by
the owners of 98% of the Depositary Shares resulting in the issuance of
3,336,433 shares of common stock on March 29, 1996. Generally accepted
accounting principles require a non-cash charge to reduce Net Earnings
Applicable to Common Shares in the calculation of Earnings Per Share for the
fair value of the securities issued in excess of the existing conversion rate of
approximately 1.185 common shares per Depositary Share. This non-cash charge
amounted to $24,279,000 or $1.76 per common share in the nine months ended
September 30, 1996. Excluding this charge, net earnings for the nine months
ended September 30, 1996 would have been $0.38 per common share as compared to
$1.38 net loss per common share.
The balance of the Depositary Shares were converted at the specified 1.185
exchange rate or redeemed by the Company in June 1996.
NOTE H - MICRO MACHINES LICENSE RIGHTS AND LITIGATION SETTLEMENT
- ----------------------------------------------------------------
During June 1997, the Company finalized an agreement under which it acquired all
outstanding rights to its line of miniature vehicles, playsets and accessories
marketed under the Micro Machines(R) brand. The agreement also ended litigation
between the Company and Clemens V. Hedeen, Patti Jo Hedeen, and various
affiliated entities (the "Licensor") over past royalties claimed by the Licensor
and the extent of the Licensor's rights in Micro Machines. Under the agreement,
the Company paid the Licensor an initial payment of $22,500,000. Additional
amounts with a present value of $4,911,000, as of the agreement date, are due
periodically through June 1, 2012. The agreement eliminates all future royalty
payments to the Licensor, effective after March 31, 1997.
The Company accounted for this agreement by taking a pre-tax charge of
$22,949,000 in the quarter ended June 30, 1997. The present value of the
remaining balance amounting to $4,462,000 was classified as other assets and is
being amortized.
5
<PAGE>
NOTE I - RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
The FASB issued three new standards, SFAS No. 128, Earnings per Share, SFAS No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS 128 simplifies the
standards for computing earnings per share ("EPS") previously found in APB
Opinion No. 15 "Earnings per Share". This new standard replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. For the three and nine months ended September 30, 1997, SFAS 128 would
have had no impact on the reported EPS as primary and basic are equal since the
potentially dilutive securities were anti-dilutive. SFAS No. 130 establishes
standards for reporting comprehensive income and its components in a financial
statement and display of the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital. The Company
does not expect the implementation of SFAS No. 130 to have a significant impact
on the financial statements. SFAS No. 131 establishes standards for the
reporting of selected information about operating segments in annual financial
statements and interim financial reports issued to shareholders and the related
disclosures about products and services, geographic areas and major customers.
The Company has not determined the impact of SFAS No. 131 on the financial
statements. The Company will be required to adopt the SFAS 128 for the year
ending December 31, 1997, and SFAS 130 and SFAS 131 for the year ending December
31, 1998.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Overview
- --------
On October 14, 1997, the Company entered into an exclusive, worldwide license
with Lucas Licensing Ltd. to make small-scale figures, vehicles, playsets and
accessories for the next three Star Wars movies. In addition, the Company's
current rights to market toys based on the original Star Wars trilogy was
included in the new license. In a separate agreement, the Company also acquired
long-term preferential negotiating rights from Lucasfilm Ltd. for the same
categories of toys based on new Lucasfilm movies.
In consideration of these agreements, the Company has granted the Lucas
companies warrants for slightly less than 20% of the Company's issued and
outstanding common stock, equal to approximately 3.6 million shares as of the
closing date, at an exercise price of $15.00 per share. The new Star Wars
agreement also calls for advance payments against future royalties of $140
million payable as the three new films are released.
In connection with the acquisition of the Star Wars license, the Company has
restructured its product portfolio and changed its product selection strategy.
These adjustments are intended to maximize the future value of the rights
acquired to market small-scale toys for the next three Star Wars films and the
classic Star Wars Trilogy. Therefore, for the three months ended September 30,
1997, the Company incurred special charges amounting to $17.6 million after tax.
These special charges principally relate to the costs of discontinuing all of
the Company's male action lines introduced in 1996 and 1997, and all future male
action properties under development. These charges also include provisions for
unrecovered costs associated with the Company's Sky Dancers(R) line,
miscellaneous expenses, and expenses incurred for arranging financing the
Company ultimately did not need to use in connection with the acquisition of the
Star Wars license.
Results of Operations
- ---------------------
The following table sets forth for the periods indicated the percentage
relationships between revenues and certain expense and earnings items:
<TABLE>
<CAPTION>
Percentage of Net Revenues
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100% 100%
Costs of products sold 68.1 51.5 61.6 53.6
---- ---- ---- ----
Gross margin 31.9 48.5 38.4 46.4
Advertising and promotion 21.0 12.5 18.3 13.4
Other selling and administrative 11.4 11.5 13.9 13.0
Royalties, research and development 17.3 11.4 16.4 14.6
---- ---- ---- ----
Earnings (loss) from operations (17.8) 13.1 (10.2) 5.4
Micro Machines license rights and litigation settlement --- --- (13.0) ---
Interest expense (0.2) (1.2) (0.1) (1.5)
Other income (expense), net (3.9) 0.1 (1.4) 0.1
Provision for income taxes 8.5 (1.6) 9.6 (0.8)
----- ----- --- -----
Net earnings (loss) (13.4)% 10.4% (15.1)% 3.2%
======= ===== ======= ====
</TABLE>
Net earnings (loss) have been affected by certain unusual non-recurring items. A
comparison of the net earnings (loss) per common share and the net earnings
(loss) per common share adjusted to exclude unusual items is set forth below:
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) per common share
on a primary basis, as reported $ (0.62) $ 0.57 $(1.47) $(1.38)
Net earnings (loss) per common share on a
primary basis, adjusted to exclude the unusual items $ (0.62) $ 0.57 $(0.70) $ 0.38
</TABLE>
The unusual items excluded are as follows: Acquisition of Micro Machines license
rights and litigation settlement of $14.0 million (after tax) in the nine months
ended September 30, 1997 and a one-time charge related to the exchange of
preferred stock for common stock of $24.3 million in the nine months ended
September 30, 1996.
1997 Compared to 1996
- ---------------------
Net sales decreased 6% to $83.2 million in the third quarter of 1997 as compared
to $88.5 million in the third quarter of 1996. Domestic sales increased 6%, to
$57.7 million while international sales decreased 25% to $25.5 million, due to a
generally weak European retail environment.
The Company's worldwide sales of boys' toys decreased 17% in the third quarter
of 1997 as compared to the third quarter of 1996. This decrease was attributable
to reduced sales of the Company's Dragon Flyz(TM) and Jonny Quest(TM) lines of
toys which accounted for 37% of worldwide boys' toys sales in the third quarter
of 1996. This decrease was partially offset by an increase in the worldwide
sales of Micro Machines (including Star Wars(TM) Action Fleet(R)), which
increased by 16% in the third quarter of 1997 as compared to the third quarter
of 1996. United States retail sales success of Micro Machines continued,
reaching its nineteenth consecutive quarter of growth.
The Company's worldwide sales of girls' toys increased by 27% in the third
quarter of 1997 as compared to the third quarter of 1996. This increase was
attributable to the introduction of the Company's Anastasia(TM) line and growth
in the Company's Pound Puppies(R) line, offset by a decrease in worldwide sales
of the Company's Sky Dancers line.
Net sales increased 1% to $176.2 million in the nine months ended September 30,
1997 as compared to $175.3 million in the nine months ended September 30, 1996.
Domestic sales increased 12%, rising to $124.5 million. International sales
decreased 20%, to $51.7 million. This decrease was due to the same factors noted
for the third quarter.
As discussed above, the Company has discontinued several product lines. These
discontinued lines include Dragon Flyz, Jonny Quest and Men in Black(TM), its
male action lines introduced in 1996 and 1997. In addition, the Company has
discontinued Sky Dancers from the Company's girls' toys line.
Gross margins decreased $16.5 million to $26.5 million in the third quarter of
1997 from $43.0 million in the third quarter of 1996. The lower sales volume
decreased gross margin by $2.6 million and a decrease in the gross margin rate
accounted for $13.9 million. The gross margin rate decreased to 31.9% in the
third quarter of 1997 as compared to 48.5% in the third quarter of 1996. The
change in the gross margin rate was primarily attributable to provisions for
unrecovered costs associated with the Company's discontinued lines including
tooling, packaging development, inventory valuation allowances and price
concessions offset by a favorable mix of sales between domestic and
international markets. The Company's gross margin rate on domestic sales is
significantly greater than foreign sales because the Company's prices on foreign
sales are lower than on domestic sales as the foreign customer is responsible
for the cost of importing and promoting the products.
Gross margins decreased $13.7 million to $67.7 million in the nine months ended
September 30, 1997 from $81.4 million in the nine months ended September 30,
1996. The gross margin rate decreased to 38.4% in the nine months ended
September 30, 1997 as compared to 46.4% in the nine months ended September 30,
1996. This decrease was primarily attributable to the same factors as noted for
the third quarter.
8
<PAGE>
Advertising and promotion expenses were $17.4 million, or 21.0% of net revenues
in the third quarter of 1997, as compared to $11.1 million, or 12.5% of net
revenues in the third quarter of 1996. For the nine months ended September 30,
1997, these expenses were $32.3 million, or 18.3% of net revenues as compared to
$23.5 million, or 13.4% in the nine months ended September 30, 1996. The
increase in the advertising and promotion expenses in both periods reflected
higher television advertising expense, trade show and product promotion expenses
and sample costs which included the impact of the Company's discontinued lines.
Other selling and administrative expenses were $9.5 million in the third quarter
of 1997 as compared to $10.2 million in the third quarter of 1996. This decrease
was primarily attributable to lower personnel and legal costs partially offset
by provisions for expenses associated with the Company's future discontinued
lines. For the nine months ended September 30, 1997, these expenses were $24.4
million as compared to $22.9 million in the nine months ended September 30,
1996. Other selling and administrative expenses in the nine months ended
September 30, 1996 include a recovery received by the Company in settlement of a
claim for damages partially offset by unusual legal expenses related to this
claim and a lawsuit. Exclusive of this net recovery in the nine months ended
September 30, 1996, other selling and administrative expenses remained
relatively unchanged in the nine month comparable periods.
Royalties, research and development expenses were $14.4 million in the third
quarter of 1997 as compared to $10.1 million in the third quarter of 1996. For
the nine months ended September 30, 1997, these expenses were $28.9 million as
compared to $25.6 million in the nine months ended September 30, 1996. The
increase in royalties, research and development for the three- and nine-month
periods was primarily related to the write-off of royalty advances and
commitments associated with discontinued products.
During the nine months ended September 30, 1997, the Company acquired all
outstanding rights to its line of miniature vehicles, playsets and accessories
marketed under the Micro Machines brand and settled related litigation. In 1986,
the Licensor (as previously defined) licensed a concept to the Company that
contributed to the origination of Micro Machines. The Company had paid royalties
to the Licensor on the majority of Micro Machines sales. The agreement
eliminates all future royalty payments to the Licensor, effective after March
31, 1997. The agreement also ends litigation between the Company and the
Licensor over past royalties claimed by the Licensor and the extent of the
Licensor's rights in Micro Machines. The Company recorded a pre-tax charge to
earnings of $22.9 million in the nine months ended September 30, 1997, relating
to this transaction. Additionally, the Company capitalized $4.5 million which is
being amortized.
Interest expense was $0.1 million in the third quarter of 1997, as compared to
$1.1 million in the second quarter of 1996. For the nine months ended September
30, 1997, this expense was $0.3 million as compared to $2.7 million in the nine
months ended September 30, 1996. The decrease in interest expense was due to the
paydown of the Company's borrowings under its loan agreement with Congress
Financial Corporation in the fourth quarter of 1996 and the conversion of the
$14 million convertible debentures to common stock in the first quarter of 1996.
Other expense was $3.3 million in the third quarter of 1997 as compared to other
income of $0.1 million in the third quarter of 1996. For the nine months ended
September 30, 1997, other expense was $2.4 million as compared to other income
of $0.2 million in the nine months ended September 30, 1996. Other expenses in
the three- and nine-month periods ended September 30, 1997 include expenses
incurred for arranging financing the Company ultimately did not use in
connection with the acquisition of the Star Wars license.
The income tax benefit in the third quarter and nine months ended September 30,
1997 reflects the quarterly application of the estimated annual rate based on
projected full year earnings. The income tax provision for the three- and
nine-month periods ended September 30, 1996 reflects the quarterly application
of the estimated annual rate based on projected full-year earnings and includes
the effect of the utilization of net operating loss carryforwards and federal
tax credits.
All of the Company's products are manufactured to its specifications by
nonaffiliated parties located in China and, to a lesser extent, other foreign
locations. Therefore, the Company could be adversely affected by political or
economic unrest or disruptions affecting business in such countries. The Company
does not carry insurance for political or economic unrest or disruptions for
several reasons, including, but not limited to, costs of such insurance and the
limited insurance coverage available. The political unrest in 1989 in China had
9
<PAGE>
an insignificant impact on the manufacturing and shipping of the Company's
products. There can be no assurance that in the future the Company will not be
adversely affected by political or economic disruptions in China or other
foreign locations.
Further, changes in tariffs could have an adverse effect on the cost of goods
imported from China. While China is currently accorded Most Favored Nation
("MFN") status by the United States, this status (which was last renewed in May
1997) is subject to annual review and could be revoked prospectively for any
given year. Current MFN tariffs on toys imported into the United States are
zero, and the loss of MFN status for China would result in a substantial
increase in tariffs applicable to toys imported from China. This increase in
duty could be large enough that it could have a material adverse effect on the
Company's business, financial condition and results of operations. Products
shipped from China to other countries would not be affected by China's loss of
MFN status with the United States without similar actions being taken by the
other importing countries. Moreover, many other toy companies also source
products from China and could be affected to similar degrees.
The Company can also be subject to the imposition of retaliatory tariffs or
other import restrictions as a result of trade disputes between China and the
United States. Generally, trade negotiations over matters in dispute between the
two countries have been difficult but have been resolved without the imposition
of trade retaliation. In the past, proposed retaliation by the United States has
not included increased tariffs or other trade restrictions applicable to toys
imported from China. It is possible, however, that some future trade dispute
could result in substantial increases in tariffs or other restrictions on
imports, such as quotas, of toys from China. These increased tariffs or other
restrictions could be imposed under Section 301 of the Trade Act of 1974, as
amended, whether or not the trade dispute itself involved toys. Such increased
tariffs or other trade restrictions could have a material adverse effect on the
Company's business, financial condition and results of operations.
The impact on the Company of any political or economic unrest or disruptions in
China, the loss of China's MFN status or the imposition of retaliatory trade
restrictions on products manufactured in China would depend on several factors,
including, but not limited to, the Company's ability to (i) procure alternative
manufacturing sources satisfactory to the Company, (ii) retrieve its tooling
located in China, (iii) relocate its production in sufficient time to meet
demand, and (iv) pass cost increases likely to be incurred as a result of such
factors to the Company's customers through product price increases. As a result,
any political or economic unrest or disruptions in China, the loss of China's
MFN status or the imposition of retaliatory trade restrictions on products
manufactured in China could have a material adverse effect on the Company's
business, financial condition and results of operations.
In 1994, certain quotas on toy products made in China were introduced in the
European Economic Community. The quotas did not have a material impact on the
Company's business in 1995 and, although no assurance can be given, are not
expected to have a material impact on the Company's business in the foreseeable
future.
In addition, the Company's subsidiary, Galco International Toys, N.V. ("Galco")
is located in Hong Kong. On July 1, 1997, ownership of Hong Kong reverted back
to China. At the present time, the Company is unable to predict the effect, if
any, that such change will have on the Company's or Galco's business, financial
condition or results of operations. In addition, changes in the relationship
between the United States dollar and the Hong Kong dollar may have an impact on
the cost of goods purchased from manufacturers.
Disclosure Regarding Forward-Looking Statements
- -----------------------------------------------
All statements other than statements of historical fact included in this Form
10-Q Report, including, without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Important factors
that could cause actual results to differ materially from those discussed in
such forward-looking statements ("Cautionary Statements") include: the demand
for the Company's products (including those products developed under the new
Star Wars license); the Company's dependence on timely development, introduction
and customer acceptance of new products (including those products developed
under the new Star Wars license); possible weakness of the Company's markets;
the impact of competition on revenues, margins and pricing; the effect of
currency fluctuations; other risks and uncertainties as may be disclosed from
time to time in the Company's public announcements; the gross national product
10
<PAGE>
in the United States and other countries, which also influences demand for the
Company's products; customer inventory levels; the cost and availability of raw
materials; and changes in trade conditions regarding China. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on behalf of one or both of them are expressly qualified in their
entirety by such Cautionary Statements.
Liquidity, Financial Resources and Capital Expenditures
- -------------------------------------------------------
Demand for the Company's products is greatest in the third and fourth quarters
of the year. As a result, collections of accounts typically peak in the fourth
quarter and early first quarter of the following year. Due to the seasonality of
its revenues and collections, the Company's working capital requirements
fluctuate significantly during the year. The Company's seasonal financing
requirements are usually highest during the fourth quarter of each calendar
year.
In 1995, the Company entered into an amended and restated loan and security
agreement (the "Loan Agreement") with Congress Financial Corporation (Central)
(the "Lender"). The Loan Agreement provided an original line of credit of $40
million which has been increased to $50 million, with a provision to increase
the line to $60 million at the option of the Company. Borrowing availability is
determined by a formula based on both accounts receivable and inventories. The
interest rate was generally prime rate plus 1% until March 31, 1997. In
consideration for entering into the Loan Agreement, the Company paid a $100,000
fee; additional fees of $100,000 were paid as the Company exercised 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 Loan Agreement has been amended to extend
until December 31, 1997. The interest rate was prime plus 2% for the period
April 1, 1997 through September 30, 1997 and will be prime plus 1% for the
period October 1, 1997 through December 31, 1997. A fee of $25,000 was paid for
these extensions. On October 10, 1997, the Company signed a letter agreement
with the Lender increasing the credit limit to $75 million, extending the Loan
Agreement until December 31, 2000 with the interest rate equal to prime. The
letter agreement is subject to certain conditions and final documentation.
During the nine months ended September 30, 1997, the Company used $6.2 million
of cash in its operating activities. The net cash used by operating activities
resulted primarily from the net loss which included the acquisition of the Micro
Machines rights and litigation settlement. Also contributing to the use of cash
were increases in inventories and deferred taxes, offset by a decrease in
accounts receivable and increases in accounts payable and accrued expenses.
Working capital was $97.0 million at September 30, 1997 compared to $134.4
million at December 31, 1996 and $56.5 million at September 30, 1996. The ratio
of current assets to current liabilities was 2.8 to 1.0 at September 30, 1997
compared to 3.9 to 1.0 at December 31, 1996 and 1.6 to 1.0 at September 30,
1996.
The Company had no material commitments for capital expenditures at September
30, 1997.
On October 14, 1997, the Company entered into an exclusive, worldwide license
with Lucas Licensing Ltd. to make small-scale figures, vehicles, playsets and
accessories for the next three Star Wars movies as well as the Company's current
rights to market toys based on the original Star Wars trilogy. This licensing
agreement calls for advance payment against future royalties of $140 million
payable as the three new films are released. The first payment is anticipated to
be due in the Spring of 1999.
The Company believes that its cash flow from operations, cash on hand and
borrowings under the extended credit arrangement will be sufficient to meet its
working capital and capital expenditure requirements and provide the Company
with adequate liquidity to meet its anticipated operating needs for the
foreseeable future.
11
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Licensing Litigation
- --------------------
In June 1995, the Company filed a declaratory judgment action in the United
States District Court for the Northern District of California. The suit named
Clemens V. Hedeen, Jr., Patti Jo Hedeen, and various affiliated entities, as
defendants, and sought a determination that the Company is not obligated to pay
royalties to the defendants under their license agreement on certain specific
products sold under the Company's "Micro Machines" name and trademark. The
defendants filed a cross-complaint for breach of this license agreement
claiming, among other things, damages for past royalties allegedly due but not
paid under the license agreement, and claiming entitlement to additional
royalties on future sales of such product. On June 2, 1997, the Company entered
into a Settlement & Release Agreement (the "Agreement") with all of the
defendants in this pending litigation. Under the Agreement, the litigation was
terminated and the various claims and counterclaims were dismissed with
prejudice, and the Company acquired all of the outstanding rights to its "Micro
Machines" brand. Acquisition of these rights by the Company has eliminated all
future royalty payments by it to the defendants in connection with the Micro
Machines brand, effective after March 31, 1997.
In October 1995, the Company filed a breach of contract action in the United
States District Court for the Northern District of California. The suit named
Abrams Gentile Entertainment Inc. and Up, Up and Away as defendants, and alleged
damages for the licensing, marketing and sale of products that are in violation
of the Company's rights as licensee under its Sky Dancers and Dragon Flyz
license agreements with Abrams Gentile Entertainment, Inc. The defendants filed
a number of counterclaims, including breach of contract, interference with
contractual relationships, misappropriation of copyright, unfair competition and
trade libel. The Company has settled all of the open matters in this litigation,
and the various claims and counterclaims have been dismissed with prejudice. The
settlement will not result in additional liabilities to the Company, and the
Company's rights under the license agreements have been preserved.
Manufacturer Litigation
- -----------------------
In January 1991, the Company, through its wholly owned subsidiary, Galco, filed
a lawsuit in Hong Kong against Kader Industrial Co., Ltd. ("Kader") alleging
damages suffered by both Galco and the Company as a result of Kader's defective
manufacturing of two lead doll items for the Company's Bouncin' Babies toy line
in 1990. Kader filed counterclaims alleging breach of 17 individual contracts.
In August 1996, the trial court rendered a decision in favor of Kader on the
general issue of liability in this matter, including an award of damages based
on Kader's counterclaims which was approximately $250,000, plus prejudgment
interest. In addition, the court awarded certain litigation costs to Kader, the
amount of which will be determined in future proceedings and could substantially
exceed the amount of the damages awarded. However, in the opinion of management
of the Company, such amount is not likely to have a material adverse effect on
the business, financial condition and results of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
4.1 Warrant, dated as of October 14, 1997, between Lucasfilm
Ltd. and Galoob Toys, Inc.
4.2 Warrant, dated as of October 14, 1997, between Lucas
Licensing Ltd. and Galoob Toys, Inc.
4.3 Agreement of Strategic Relationship, dated as of October 14,
1997, between Lucasfilm Ltd., a California corporation, and
Galoob Toys, Inc.
10 Toy License Agreement, dated as of October 14, 1997, between
Lucas Licensing Ltd. and Galoob Toys, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8K dated October 14, 1997,
which sets forth information under Item 5, Other Events and Exhibits.
12
<PAGE>
Pursuant to the requirements 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.
GALOOB TOYS, INC.
(Registrant)
Date: November 13, 1997 By: /s/ Roger J. Kowalsky
----------------------------------
Roger J. Kowalsky
Executive Vice President, Finance
and Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
4.1 Warrant, dated as of October 14, 1997, between Lucasfilm Ltd. and
Galoob Toys, Inc.
4.2 Warrant, dated as of October 14, 1997, between Lucas Licensing Ltd.
and Galoob Toys, Inc.
4.3 Agreement of Strategic Relationship, dated as of October 14, 1997,
between Lucasfilm Ltd., a California corporation, and Galoob Toys,
Inc.
10 Toy License Agreement, dated as of October 14, 1997, between Lucas
Licensing Ltd. and Galoob Toys, Inc.
27 Financial Data Schedule
EXHIBIT 4.1
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (I)
AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (II)
AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (III) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (IV) OTHERWISE
COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THIS
WARRANT.
THIS WARRANT MAY NOT BE TRANSFERRED OTHER THAN TO AN
AFFILIATE (AS DEFINED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED) PRIOR TO THE SECOND ANNIVERSARY OF THE CLOSING
DATE.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated October 14, 1997
This certifies that for value received:
LUCASFILM LTD.
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from Galoob Toys, Inc., a Delaware corporation (the "Company"), up to
1,450,000 fully paid and nonassessable shares of the Common Stock of the
Company, at the exercise price of fifteen dollars ($15.00) per share, and the
number of shares purchasable hereunder are subject to adjustment in certain
events, all as more fully set forth under Article IV herein.
ARTICLE I.
DEFINITIONS
-----------
"Additional Stock" means Common Stock, Convertible Securities and Options,
other than (i) the Preferred Stock and (ii) Common Stock, Convertible Securities
or Options issued to officers, directors, employees or consultants of the
Company.
"Charter" means the certificate of incorporation of the Company, as filed
with the Delaware Secretary of State.
NYFS03...:\15\47315\0003\2475\CRTN017R.010
<PAGE>
"Closing Date" means October 14, 1997.
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Exchange Act of 1934 or the
Securities Act.
"Common Stock" means the Company's Common Stock, par value $.01 per share,
any stock into which such stock shall have been changed or any stock resulting
from any reclassification of such stock, and any other capital stock of the
Company of any class or series now or hereafter authorized having the right to
share in distributions either of earnings or assets of the Company without limit
as to amount or percentage.
"Company" means Galoob Toys, Inc., a Delaware corporation, and any
successor corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Exercise Period" means the period commencing on the Closing Date and
terminating at 5:00 p.m. Pacific Time on the twelfth anniversary of the Closing
Date.
"Exercise Price" means the exercise price per share of Common Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means
(i) If shares of Common Stock are being sold pursuant to a public
offering under an effective registration statement under the Securities Act
which has been declared effective by the Commission and Fair Market Value is
being determined as of the closing of the public offering, the "price to public"
specified for such shares in the final prospectus for such public offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
ten trading days before such date. The closing price for each day shall be the
last sale price on such date or, if no such sale takes place on such date, the
average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a registration described in
clause (i) of this definition, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
Nasdaq Stock
2
<PAGE>
Market or, if such shares are not then quoted in such system, as published by
the National Quotation Bureau, Incorporated or any similar successor
organization, and in either case as reported by any member firm of the New York
Stock Exchange selected by the Holder;
(iv) If no shares of Common Stock are then listed or admitted to
trading on any national exchange or traded on any national market system, if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a registration described in clause (i) of this definition, the fair
value of a share of Common Stock shall be as determined by an investment bank
selected by Holder with the approval of the Company (which approval shall not be
unreasonably withheld or delayed), the costs of such investment banker to be
paid by the Company.
"Fiscal Year" means the fiscal year of the Company.
"Holder" means the person in whose name this Warrant is registered on the
books of the Company maintained for such purpose and any permitted transferee of
all or a portion of this Warrant.
"Market Price" means $18 per share of Common Stock, which shall be
adjusted in the same manner as provided in Article IV as if it were the Exercise
Price.
"Option" means any right, warrant or option to subscribe for or purchase
shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, government entities and authorities and
other organizations, whether or not legal entities.
"Preferred Stock" means a series Preferred Stock with an aggregate
liquidation preference on the date of issuance and an aggregate purchase price
in an amount not exceeding $30 million.
"Principal Executive Office" means the Company's office at 500 Forbes
Boulevard, South San Francisco, California 94080 or such other office as
designated in writing to the Holder by the Company.
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
3
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means a holder of one or more Warrant Shares.
"Warrant" means the warrant dated as of Closing Date issued to the Holder
and all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"Warrant Shares" means the shares of Common Stock issued or issuable upon
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities issued
or issuable upon the exercise of the rights granted hereunder.
ARTICLE II.
EXERCISE
--------
2.1. Exercise Right; Manner of Exercise. The purchase rights represented
by this Warrant may be exercised by the Holder, in whole or in part, at any time
and from time to time during the Exercise Period upon (i) surrender of this
Warrant, together with an executed notice of exercise, substantially in the form
of Exhibit "D-1" ("Notice of Exercise") attached hereto, at the Principal
Executive Office, and (ii) payment to the Company of the aggregate Exercise
Price for the number of Warrant Shares specified in the Notice of Exercise (such
aggregate Exercise Price, the "Total Exercise Price"). The Total Exercise Price
shall be paid by check; provided, however, that if the Warrant Shares are
acquired in conjunction with a Registration of such Warrant Shares, then the
Holder may arrange for the aggregate Exercise Price for such Warrant Shares to
be paid to the Company from the proceeds of the sale of such Warrant Shares
pursuant to such Registration. The Person or Person(s) in whose name(s) any
certificate(s) representing the Warrant Shares which are issuable upon exercise
of this Warrant shall be deemed to become the Holder(s) of, and shall be treated
for all purposes as the record holder(s) of, such Warrant Shares, and such
Warrant Shares shall be deemed to have been issued, immediately prior to the
close of business on the date on which this Warrant and Notice of Exercise are
presented and payment made for such Warrant Shares, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within two business days after this Warrant is
exercised. If this Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant Shares which the
Holder is entitled to purchase hereunder. The issuance of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
4
<PAGE>
2.2. Conversion of Warrant.
(a) Right to Convert. In addition to, and without limiting, the
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X = Y (A-B)
-------
A
Where: X = The number of Warrant Shares to be issued to the Holder
Y = The number of Warrant Shares purchasable pursuant to this
Warrant or such lesser number of Warrant Shares as may be selected by the Holder
A = The Fair Market Value of one Warrant Share as of the
Conversion Date
B = The Exercise Price
(b) Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
the Holder intends to exercise the Conversion Right and indicating the number of
Warrant Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date") and, at the Holder's election,
may be made contingent upon the closing of the consummation of the sale of
Common Stock pursuant to a Registration. Certificates for the Warrant Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding two business days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares; provided that the Holder will be responsible for any
transfer taxes in respect of the issuance of Warrant Shares to a Person other
than the Holder.
2.3. Fractional Shares. The Company shall not issue fractional shares of
Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise or conversion, the Company shall
purchase from the Holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated to the nearest
1/100th of a share) by
5
<PAGE>
the Fair Market Value of a share of Common Stock on the date of the Notice of
Exercise or the Conversion Date, as applicable. Payment of such amount shall be
made in cash or by check payable to the order of the Holder at the time of
delivery of any certificate or certificates arising upon such exercise or
conversion.
2.4. Continued Validity. A Shareholder shall be entitled to all rights and
subject to all obligations which a Holder of this Warrant is entitled pursuant
to the provisions of this Warrant, except rights and obligations which by their
terms apply only to a Warrant. The Company shall, at the time of the exercise of
this Warrant, in whole or in part, upon the request of a Shareholder,
acknowledge in writing, in form reasonably satisfactory to the Shareholder, its
continuing obligation to afford to the Shareholder all rights to which the
Shareholder is entitled in accordance with the provisions of this Warrant;
provided, however, that if the Shareholder fails to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
the Shareholder all such rights.
ARTICLE III.
TRANSFER, EXCHANGE AND REPLACEMENT
----------------------------------
3.1. Maintenance of Registration Books. The Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever, and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. Restrictions on Transfers.
(a) Compliance with Securities Act. The Holder, by acceptance
hereof, agrees that this Warrant and the Common Stock to be issued to the Holder
upon exercise hereof are being acquired for investment, solely for the Holder's
own account and not as a nominee for any other Person, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any such shares of
Common Stock except under circumstances which will not result in a violation of
the Securities Act. Upon exercise of this Warrant, the Holder shall confirm in
writing, by executing the form attached as Exhibit "D-2" hereto, that the shares
of Common Stock purchased thereby are being acquired for investment, solely for
the Holder's own account and not as a nominee for any other Person, and not with
a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all Warrant Shares issued
upon exercise of this Warrant (unless Registered under the Securities Act) shall
be stamped or imprinted with legends in substantially the following form (in
addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
6
<PAGE>
UNDER ANY STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii)
AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THE WARRANT
UNDER WHICH THIS SECURITY WAS ISSUED.
In addition, the Warrant (unless Registered under the Securities
Act) shall be stamped or imprinted with a legend in substantially the following
form:
THIS WARRANT MAY NOT BE TRANSFERRED OTHER THAN TO AN
AFFILIATE (AS DEFINED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED) PRIOR TO THE SECOND ANNIVERSARY OF THE CLOSING
DATE.
(c) Additional Restriction on Transfer. The Holder shall not sell,
assign or otherwise transfer all or part of this Warrant until the second
anniversary of the Closing Date other than in connection with the transfer of
the Holder's entire business.
(d) Disposition of Warrant or Warrant Shares. With respect to any
offer, sale or other disposition of this Warrant or any Warrant Shares issued
upon exercise of this Warrant prior to Registration of such shares, the Holder
or the Shareholder, as the case may be, agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of the Holder's or Shareholder's counsel to the effect that such
offer, sale or other disposition may be effected without Registration under the
Securities Act or qualification under any applicable state securities laws of
this Warrant or such Warrant Shares, as the case may be, and indicating whether
or not under the Securities Act certificates for this Warrant or such Warrant
Shares, as the case may be, to be sold or otherwise disposed of, require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Securities Act and any other applicable securities
laws. Promptly upon receiving such written notice and reasonably satisfactory
opinion the Company, as promptly as practicable, shall notify the Holder or the
Shareholder, as the case may be, that it may sell or otherwise dispose of this
Warrant or such Warrant Shares, as the case may be, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subsection (d) that the opinion of counsel for the Holder or
the Shareholder, as the case may be, is not reasonably satisfactory to the
Company, the Company shall so notify the Holder or the Shareholder, as the case
may be, promptly after such determination has been made and shall specify the
legal analysis supporting any such conclusion. Notwithstanding the foregoing,
this Warrant or such Warrant Shares, as the case may be, may be offered, sold or
otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonable
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the shares thus
transferred (except a transfer pursuant to
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Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act, unless in
the aforesaid reasonably satisfactory opinion of counsel for the Holder or the
Shareholder, as the case may be, such legend is not necessary in order to insure
compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
(e) Warrant Transfer Procedure. Transfer of this Warrant to a third
party, following compliance with the preceding subsections of this Article III,
shall be effected by execution of the Assignment Form attached hereto as Exhibit
"D-3", and surrender for registration of transfer of this Warrant at the
Principal Executive Office, together with funds sufficient to pay any applicable
transfer tax. Upon receipt of the duly executed Assignment Form and the
necessary transfer tax funds, if any, the Company, at its expense, shall execute
and deliver, in the name of the designated transferee or transferees, one or
more new Warrants representing the right to purchase a like number of shares of
Common Stock.
(f) Termination of Restrictions. The restrictions imposed under this
Section 3.2 upon the transferability of the Warrant (other than those in Section
3.2(c)) and the shares of Common Stock acquired upon the exercise of this
Warrant shall cease when (i) a registration statement covering the applicable
securities becomes effective under the Securities Act, (ii) the Company is
presented with an opinion of counsel reasonably satisfactory to the Company that
such restrictions are no longer required in order to insure compliance with the
Securities Act or with a Commission "no-action" letter stating that future
transfers of such securities by the transferor or the contemplated transferee
would be exempt from registration under the Securities Act, or (iii) such
securities may be transferred in accordance with Rule 144(k). When such
restrictions terminate, the Company shall, or shall instruct its transfer agent
to, promptly, and without expense to the Holder or the Shareholder, as the case
may be, issue new securities in the name of the Holder and/or the Shareholder,
as the case may be, not bearing the legends required under subsection (b) of
this Section 3.2.
3.3. Exchange. At the Holder's option, this Warrant may be exchanged for
other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (i) in
the case of any such loss theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (ii) in the case of
any such mutilation, upon surrender of such Warrant for cancellation at the
Principal Executive Office, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
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ARTICLE IV.
ANTIDILUTION PROVISIONS
-----------------------
4.1. Reorganization, Reclassification or Recapitalization of the Company.
In case of (1) a capital reorganization, reclassification or recapitalization of
the Company's capital stock (other than in the cases referred to in Section 4.2
hereof), (2) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of the Company's
property as an entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation, sale
or transfer, lawful provision shall be made so that there shall thereafter be
deliverable upon the exercise of this Warrant or any portion thereof (in lieu of
or in addition to the number of shares of Common Stock theretofore deliverable,
as appropriate), and without payment of any additional consideration, the number
of shares of stock or other securities or property to which the holder of the
number of shares of Common Stock which would otherwise have been deliverable
upon the exercise of this Warrant or any portion thereof at the time of such
reorganization, reclassification, recapitalization, consolidation, merger, sale
or transfer would have been entitled to receive in such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer.
This Section 4.1 shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant.
4.2. Reclassifications. If the Company changes any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefore shall be appropriately adjusted.
4.3. Splits and Combinations. If the Company at any time subdivides any of
its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Exercise Price under this Section 4.3, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by dividing (i) the aggregate Exercise Price payable
for the purchase of all shares issuable upon exercise of this Warrant
immediately prior to such adjustment by (ii) the Exercise Price per share in
effect immediately after such adjustment.
4.4. Dividends and Distributions. If the Company declares a dividend or
other distribution on the Common Stock or if a dividend or other distribution on
the Common Stock occurs pursuant to the Charter (other than a cash dividend or
distribution), then, as part of such dividend or distribution,
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lawful provision shall be made so that there shall thereafter be deliverable
upon the exercise of this Warrant or any portion thereof, in addition to the
number of shares of Common Stock receivable thereupon and without payment of any
additional consideration, the amount of the dividend or other distribution to
which the holder of the number of shares of Common Stock obtained upon exercise
hereof would have been entitled to receive had the exercise occurred as of the
record date for such dividend or distribution.
4.5. Liquidation; Dissolution. If the Company shall dissolve, liquidate or
wind up its affairs, the Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in any
cash distribution to the Holder in excess of the aggregate Exercise Price for
the shares of Common Stock for which this Warrant is exercised, then the Holder
may, at its option, exercise this Warrant without making payment of such
aggregate Exercise Price and, in such case, the Company shall, upon distribution
to the Holder, consider such aggregate Exercise Price to have been paid in full,
and in making such settlement to the Holder, shall deduct an amount equal to
such aggregate Exercise Price from the amount payable to the Holder.
4.6. Antidilution.
(a) Adjustment of Exercise Price. If the Company issues any
Additional Stock for no consideration or for a consideration per share of Common
Stock (which, in the case of Convertible Securities or Options shall be the
consideration paid to purchase such security plus the conversion price, exercise
price or exchange price, as the case may be, per share of Common Stock)
("Additional Stock Price") less than the Market Price in effect immediately
prior to the time of such issuance (with the value of any non-cash consideration
paid for such Additional Stock reasonably determined by the Company's Board of
Directors), then the Exercise Price shall be reduced to a price equal to the
Exercise Price in effect immediately prior to such adjustment less the
difference between such Market Price and the Additional Stock Price; provided,
however, that (i) if any Convertible Securities or Options expire or otherwise
terminate prior to the exercise, conversion or exchange of such securities for
Common Stock ("Expiring Additional Securities"), such Expiring Additional
Securities shall no longer constitute Additional Stock for purposes of
adjustments under this Section 4.6, and the Exercise Price shall upon such
expiration or termination be readjusted to equal what the Exercise Price would
have been if those Expiring Additional Securities (and only those Expiring
Additional Securities) had never been issued and (ii) if shares of Common Stock
are issued pursuant to Convertible Securities or Options at a price different
from the Additional Stock Price originally calculated for such Convertible
Securities or Options, the Additional Stock Price for such Convertible
Securities or Options shall be recalculated to equal the actual price paid per
share of Common Stock in respect of such issuance, and the Exercise Price shall
be readjusted accordingly.
(b) Adjustment of Number of Shares Purchasable. Upon any adjustment
of the Exercise Price under subsection (a) of this Section 4.6, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by dividing (i) the Market Price immediately prior
to such adjustment multiplied by the number of shares issuable upon exercise of
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this Warrant immediately prior to such adjustment by (ii) the Market Price per
share in effect immediately after such adjustment.
4.7. Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
4.8. Other Dilutive Events. If any event occurs as to which the other
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant; provided, that no adjustments shall be made in connection with the
issuance of Common Stock upon exercise, conversion or exchange of Options or
Convertible Securities to the extent that adjustment has previously been made
upon issuance of such Options or Convertible Securities and each lowering of the
effective purchase price of Common Stock pursuant to such Option or Convertible
Securities. Upon receipt of such opinion, the Company shall promptly mail a copy
thereof to the Holder and shall make the adjustments described therein.
4.9. Certificates and Notices.
(a) Adjustment Certificates. Upon any adjustment of the Exercise
Price and/or the number of shares of Common Stock purchasable upon exercise of
this Warrant, a certificate, signed by (i) the Company's President or Chief
Financial Officer, or (ii) any independent firm of certified public accountants
of recognized national standing the Company selects at its own expense, setting
forth in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated, shall be mailed to the Holder and shall
specify the adjusted Exercise Price and the number of shares of Common Stock
purchasable upon exercise of the Warrant after giving effect to the adjustment.
(b) Extraordinary Corporate Events. If the Company, after the date
hereof, proposes to effect (i) any transaction described in Sections 4.1 or 4.2
hereof or (ii) a liquidation, dissolution or winding up of the Company described
in Section 4.5 hereof, then, in each such case, the Company shall mail to the
Holder a notice describing such proposed action and specifying the date on which
the Company's books shall close, or a record shall be taken, for determining the
holders of or Common Stock entitled to participate in such action, or the date
on which such reorganization, reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to receive securities and/or other
property deliverable upon such action, if any such date is to be fixed. Such
notice shall be mailed to the Holder at least twenty days prior to the record
date for such action in the case of any action described in clause (i) or clause
(iii) above, and
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in the case of any action described in clause (ii) above, at least twenty days
prior to the date on which the action described is to take place and at least
twenty days prior to the record date for determining holders of Common Stock
entitled to receive securities and/or other property in connection with such
action.
4.10. No Impairment. The Company shall not, by amendment of the Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in the carrying out of all the provisions of this Article IV
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment.
4.11. Application. Except as otherwise provide herein, all sections of
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V.
REGISTRATION RIGHTS
-------------------
5.1. Registration on Form S-3.
5.1.1. Filing of Registration Statement. The Company shall use its
best efforts to secure effectiveness of, as soon as practicable, and shall file
no later than 15 business days after the Closing Date, a registration statement
in form and substance satisfactory to the Holder on Form S-3 (the "Registration
Statement") with the Commission under the Securities Act to register: (i) the
resale of the Warrant; (ii) the exercise of the Warrant by any person, other
than Lucasfilm Ltd. or any transferee of Warrants prior to the resale of
Warrants pursuant to the Registration Statement; and (iii) the Warrant Shares
issued upon exercise of the Warrant by any person and the resale of any such
Warrant Shares by Lucasfilm Ltd. or any transferee of Warrants who exercised
such Warrants and received Warrant Shares otherwise than pursuant to the
Registration Statement. The Company shall amend such Registration Statement (or
file a new Registration Statement) (i) to include issuance of the Warrant Shares
to Lucasfilm Ltd. after one year from the Closing Date and (ii) to include the
transfer of the Warrant after two years from the Closing Date (the Warrant and
the Warrant Shares constituting the "Registrable Securities"); provided however,
that in the event the Company fails to file reports in a timely manner or
otherwise fails (due to an action or inaction of the Company) to be eligible to
file a registration statement on Form S-3, the Company shall file a registration
statement or a post-effective registration statement, as the case may be, on
Form S-1. In the event of a change in the interpretive position of the staff of
the Commission with respect to registration under the Securities Act of
warrants, the exercise of warrants and the sale of securities into which
warrants can be exercised, the Company shall comply with such changed position
promptly after consultation with counsel to Lucasfilm Ltd.
5.1.2. Registrable Expenses. The Company shall pay all Registration
Expenses (as defined below) in connection with any registration, qualification
or compliance hereunder, and each
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Holder shall pay all Selling Expenses (as defined below) and other expenses that
are not Registration Expenses relating to the Registrable Securities resold by
such Holder. "Registration Expenses" shall mean all expenses, except for Selling
Expenses, incurred by the Company in complying with the registration provisions
herein described, including, without limitation, all registration, qualification
and filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration. "Selling Expenses" shall mean
all selling commissions, underwriting fees and stock transfer taxes applicable
to the Registrable Securities and all fees and disbursements of counsel for any
Holder.
5.1.3. Additional Company Obligations. In the case of any
registration effected by the Company pursuant to these registration provisions,
the Company will use its best efforts to: keep such registration effective until
such date as all of the Registrable Securities have been sold; (ii) prepare and
file with the Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of the Registrable Securities; (iii) furnish such
number of prospectuses and other documents incident thereto, including any
amendment of or supplement to the prospectus, as a Holder from time to time may
reasonably request; (iv) cause all such Registrable Securities registered as
described herein to be listed on each securities exchange and quoted on each
quotation system on which similar securities issued by the Company are then
listed or quoted; (v) provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP number
for all such Registrable Securities; (vi) use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its securityholders, to the extent required, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months, but not
more than eighteen months, beginning with the first month after the effective
date of the Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and (vii) file the documents
required of the Company and otherwise use its best efforts to maintain requisite
blue sky clearance in (A) all jurisdictions in which any of the Warrant Shares
are originally sold and (B) all other states specified in writing by a Holder as
may reasonably be required to sell such Holder's Warrant Shares, provided as to
clause (B), however, that the Company shall not be required to qualify to do
business or consent to service of process in any state in which it is not now so
qualified or has not so consented.
5.1.4. Conditions and Limitations
(a) Cooperation by Holder. It shall be a condition precedent
to the obligation of the Company to take any action pursuant to this Article V
in respect of the Registrable Securities that the Holder shall furnish to the
Company such information regarding such Registrable Securities and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required in connection with the action taken by the Company.
(b) Notification Prior to Sale. If any Holder shall propose to
sell any Registrable Securities pursuant to the Registration Statement, it shall
notify the Company of its intent to do so at least three full business days
prior to such sale, and the provision of such notice to the
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Company shall be deemed to establish an agreement by such Holder to comply with
the registration provisions contained herein. Such notice shall be deemed to
constitute a representation that any information previously supplied by such
Holder is accurate as of the date of such notice. At any time within such three
business day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided,
however, that in order to exercise this right, the Company must deliver a
certificate in writing to the Holder to the effect that a delay in such sale is
necessary because, in the good faith judgment of the Company, a sale pursuant to
the Registration Statement would require the public disclosure of information
that would not otherwise be required to be disclosed (which disclosure would, in
the good faith judgment of the Company, have a material adverse effect on the
Company) or could in other respects constitute a violation of the federal
securities laws. In such an event, the Company shall use its best efforts to
amend the Registration Statement to the extent required to comply with Section
5.1.4 and to take all other actions necessary to allow such sale under the
federal securities laws, and shall notify the Holders promptly after it has
determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to refuse
to permit the Holder to resell any Registrable Securities more than twice in any
twelve-month period, and any individual period during which the Company refuses
to permit the Holder to resell any Registrable Securities shall not exceed sixty
days.
Subject to the foregoing, when a Holder is entitled to sell and gives
notice of its intent to sell pursuant to the Registration Statement, the Company
shall furnish to such Holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing.
5.2. Indemnification and Contribution.
5.2.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
such Holder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any claim by a third party
asserting any untrue statement of a material fact contained in the Registration
Statement or omission of a material fact therefrom necessary to make the
statements therein not misleading, on the effective date thereof, or arise out
of any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will, as incurred, reimburse such Holder
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damages or liability arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or (ii) any
untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
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5.2.2. Indemnification by Holder. Each Holder, severally and not
jointly, agrees to indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any claim by a
third party asserting (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in
preparation of the Registration Statement, provided, however, that no Holder
shall be liable in any such case for any untrue statement included in any
prospectus which statement has been corrected, in writing, by such Holder and
delivered to the Company at least three business days before the sale from which
such loss occurred or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered to the Holder prior to
the pertinent sale or sales by the Holder, and each Holder, severally and not
jointly, will, as incurred, reimburse the Company for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim.
5.2.3. Indemnification Procedures. Promptly after receipt by any
indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an indemnifying person
pursuant to this Section 5.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and the indemnifying
person shall have been notified thereof, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable opinion of counsel for the indemnified person for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that in the case of the immediately preceding proviso the indemnifying
person shall not be responsible for the legal expenses of more than one counsel
for all indemnified persons.
5.2.4. Contribution in Lieu of Indemnity. If the indemnification
provided for in this Section 5.2 is unavailable to or insufficient to hold
harmless an indemnified party under Section 5.2.1 or 5.2.2 above in respect of
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefit and relative fault
of the respective parties as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied
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by the Company on the one hand or a Holder on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Holders agree that it
would not be just and equitable if contribution pursuant to this Section 5.2.4
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
5.2.4. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 5.2.4 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5.2.4, no Holder shall be required to contribute any
amount in excess of the net amount received by the Holder from the sale of the
Registrable Securities to which such loss relates. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holders' obligations in this
Section 5.2.4 to contribute are several in proportion to their respective sales
of Registrable Securities to which such loss relates and not joint.
5.2.5. Controlling Persons Indemnified. The obligations of the
Company and the Holders under this Section 5.2 shall be in addition to any
liability which the Company and the respective Holders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls the Company or any Holder within the meaning of the Securities Act
including, without limitation, the directors and officers of the Company and the
Holder, as the case may be.
5.3. Transfer of Registration Rights. The right to sell Registrable
Securities pursuant to the registration statement described herein will
automatically be assigned to each transferee of the Warrant or Warrant Shares.
In the event that it is necessary, in order to permit a Holder to sell
Registrable Securities pursuant to the Registration Statement, to amend the
Registration Statement to name such Holder, such Holder shall, upon written
notice to the Company, be entitled to have the Company make such amendment as
soon as reasonably practicable.
ARTICLE VI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
----------------------------------------------------
6.1. Representations and Warranties. The Company represents and warrants
that:
(a) Legal Status; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
is qualified or licensed to do business in all other countries, states and
provinces in which the laws thereof require the Company to qualify and/or be
licensed, except where failure to qualify or be licensed would not have a
material adverse effect on the business or assets of the Company taken as a
whole;
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(b) Capitalization. The Company's authorized capital stock consists
of: 50,000,000 shares of Common Stock, of which shares are issued and
outstanding and 1,000,000 shares of preferred stock, par value $1.00 per share,
of which 30,000 shares Preferred Stock are outstanding;
(c) Options. Except as described in Exhibit "D-4" hereto there are
no Options, warrants or similar rights to acquire from the Company, or
agreements or other obligations by the Company, absolute or contingent, to issue
or sell Common Stock, whether on conversion or exchange of Convertible
Securities or otherwise;
(d) Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
(e) Authority. The Company has the right and power, and is duly
authorized and empowered, to enter into, execute, deliver and perform its
obligations under this Warrant;
(f) Binding Effect. This Warrant has been duly authorized, executed
and delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii)
general principles of equity;
(g) No Conflict. The execution, delivery and/or performance by the
Company of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the Company's Charter or Bylaws or contained in any
agreement, instrument or document to which the Company is a party or by which it
is bound;
(h) Consents. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the valid issuance of the Warrant or for the performance of any of
the Company's obligations hereunder, except in connection with listing on the
New York Stock Exchange, which filings will be effected in accordance with the
rules and regulations of the New York Stock Exchange;
(i) Offering. Neither the Company nor any agent acting on its behalf
has, either directly or indirectly, sold, offered for sale or disposed of, or
attempted or offered to dispose of, this Warrant or any part hereof, or any
similar obligation of the Company, to, or has solicited any offers to buy any
thereof from, any Person or Persons other than the Holder. Neither the Company
nor any agent acting on its behalf will sell or offer for sale or dispose of, or
attempt or offer to dispose of, this Warrant or any part thereof to, or solicit
any offers to buy any warrant of like tenor from, or otherwise approach or
negotiate in respect thereof, with, any Person or Persons so as thereby to bring
the issuance of this Warrant within the provisions of Section 5 of the
Securities Act;
(j) Registration. It is not necessary in connection with the
issuance and sale of this Warrant to the Holder to Register this Warrant under
the Securities Act.
17
<PAGE>
6.2. Covenants. The Company covenants that:
(a) Authorized Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant (for
purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all other Options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock shall
be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take all such
action as may be necessary to assure that the Common Stock issuable upon the
exercise of this Warrant may be so issued without violation of any applicable
law or regulation, or of any requirements of any domestic securities exchange or
automated quotation system upon which any capital stock of the Company may be
listed or quoted, as the case may be. Such action may include, but not be
limited to, causing such shares to be duly registered or approved, listed or
quoted on relevant domestic securities exchanges or automated quotation systems;
and
(c) Fully Paid Shares. The Company will take all actions necessary
or appropriate to validly and legally issue fully paid and nonassessable shares
of Common Stock upon exercise of this Warrant. All such shares will be free from
all taxes, liens and charges with respect to the issuance thereof, other than
any stock transfer taxes in respect to any transfer occurring contemporaneously
with such issuance.
ARTICLE VII.
MISCELLANEOUS
-------------
7.1. Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer and income taxes) and other
governmental charges that may be imposed in respect of, the issuance, sale and
delivery of the Warrant and the Warrant Shares.
7.2. Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company or (c) notice of any other proceedings of the
Company.
7.3. Like Tenor. All Warrants shall at all times be substantially
identical except as to the Preamble.
7.4. Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and
18
<PAGE>
that such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
7.5. Enforcement Costs. If any party to, or beneficiary of, this Warrant
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
7.6. Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
7.7. Notices. Any notice, demand or delivery to be made pursuant to this
Warrant will be sufficiently given or made if sent by certified or registered
mail, postage prepaid, nationally recognized overnight delivery service or
facsimile transmission, addressed to (a) the Holder and the Shareholders at
their last known addresses appearing on the books of the Company maintained for
such purpose or (b) the Company at its Principal Executive Office. The Holder,
the Shareholders and the Company may each designate a different address by
notice to the other pursuant to this Section 7.7. A notice shall be deemed
effective upon receipt.
7.8. Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns. The Company shall, at the time of exercise of
this Warrant, in whole or in part, upon request of the Holder or any Shareholder
but at the Company's expense, acknowledge in writing its continuing obligations
hereunder with respect to rights of the Holder or such Shareholder to which it
shall continue to be entitled after such exercise in accordance with the terms
hereof; provided that the failure of the Holder or any Shareholder to make any
such request shall not affect the continuing obligation of the Company to the
Holder or such Shareholder in respect of such rights.
19
<PAGE>
7.9. Modification; Severability.
(a) If, in any action before any court or agency legally empowered
to enforce any term, any term is found to be unenforceable, then such term shall
be deemed modified to the extent necessary to make it enforceable by such court
or agency.
(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
7.10. Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
7.11. Survival of Representations and Warranties. The representations and
warranties of any party in this Warrant shall survive the execution and delivery
of this Warrant and the consummation of the transactions contemplated hereby,
notwithstanding any investigation by the such party or its agents.
7.12. Amendment. This Warrant may not be modified or amended except by
written agreement of the Company, the Holder and the Shareholder(s), if any,
holding a majority of the Warrant Shares.
7.13. Headings. The headings of the Articles and Sections of this Warrant
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
7.14. Meanings. Whenever used in this Warrant, any noun or pronoun shall
be deemed to include both the singular and plural and to cover all genders; and
the words "herein," "hereof" and "hereunder" and words of similar import shall
refer to this instrument as a whole, including any amendments hereto.
7.15. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized officer this October 14, 1997.
LUCASFILM LTD. ("Holder") GALOOB TOYS, INC. ("Company")
By: /s/ Gordon Radley By: /s/ Mark Goldman
------------------------- -------------------------
Title: Title: President and CEO
---------------------- ----------------------
21
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT "D-1"-Notice of Exercise (Section 2.1)
EXHIBIT "D-2"-Investment Representation Certificate (Section 3.2(a))
EXHIBIT "D-3"-Assignment Form (Section 3.2(d))
EXHIBIT "D-4"-Schedule of Options and Preemptive Rights (Sections 6.1(c)
and 6.1(d))
22
<PAGE>
EXHIBIT "D-1"
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of Galoob Toys, Inc. and herewith makes payment therefor in the amount of
$_________, all at the price and on the terms and conditions specified in the
within Warrant and requests that a certificate (or _____ certificates in
denominations of shares) for the shares of Common Stock of Galoob Toys, Inc.
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) [NAME], whose address is and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Common Stock of Galoob Toys, Inc. not being purchased hereunder be issued in the
name of and delivered to (choose one) (a) the undersigned or (b) [NAME], whose
address is
------------------------------.
Dated: ______________________
NOTICE: The signature to this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
23
<PAGE>
EXHIBIT "D-2"
INVESTMENT REPRESENTATION CERTIFICATE
-------------------------------------
Purchaser:
Company: Galoob Toys, Inc.
Security: Common Stock
Amount:
Date:
(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(b) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act");
(c) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein;
(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and
(e) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of
24
<PAGE>
securities being sold during any three-month period not exceeding the specified
limitations stated therein.
The Purchaser represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act or any successor
regulation thereunder.
Date: _________________________ PURCHASER: _____________________
25
<PAGE>
EXHIBIT "D-3"
ASSIGNMENT FORM
---------------
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto _____ , whose address is ____________
all of the rights of the undersigned under the within Warrant, with respect to
shares of Common Stock of Galoob Toys, Inc. and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Common Stock of Galoob Toys, Inc. not being transferred hereunder be issued in
the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ____________ attorney to register such transfer on the
books of Galoob Toys, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated: _________________________
------------------------------------
------------------------------------
By:
--------------------------------
(Signature of Registered Holder)
Title:
-----------------------------
NOTICE: The signature to this Assignment must correspond with the name upon
the face of the within Warrant in every particular, without alteration
or enlargement or any change whatever.
26
<PAGE>
EXHIBIT "D-4"
OUTSTANDING OPTIONS AND PREEMPTIVE RIGHTS
-----------------------------------------
(Sections 6.1(c) and 6.1(d))
Options
1. Options to purchase shares of the Company's Common Stock are
outstanding pursuant to the following employee benefit plans:
o 1984 Amended and Restated Employee Stock Option Plan
o 1994 Senior Management Stock Option Plan
o 1995 Non-Employee Director Stock Option Plan
o 1996 Share Incentive Plan
2. Gerard Klauer Mattison & Co., LLC holds a warrant to purchase 25,000
shares of Common Stock.
3. Each share of Common Stock has appurtenant thereto one preferred stock
purchase right (a "Right") issued pursuant to the Company's Stockholder Rights
Plan. Upon the occurrence of certain events involving a change in control of the
Company, Rights not held by an "acquiring person" will entitle the holder to
purchase shares of Common Stock pursuant to the terms of the Stockholder Rights
Plan.
Preemptive Rights
None.
27
EXHIBIT 4.2
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (I)
AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (II)
AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (III) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (IV) OTHERWISE
COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THIS
WARRANT.
THIS WARRANT MAY NOT BE TRANSFERRED OTHER THAN TO AN
AFFILIATE (AS DEFINED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED) PRIOR TO THE SECOND ANNIVERSARY OF THE CLOSING
DATE.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated October 14, 1997
This certifies that for value received:
LUCAS LICENSING LTD.
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from Galoob Toys, Inc., a Delaware corporation (the "Company"), up to
2,130,000 fully paid and nonassessable shares of the Common Stock of the
Company, at the exercise price of fifteen dollars ($15.00) per share, and the
number of shares purchasable hereunder are subject to adjustment in certain
events, all as more fully set forth under Article IV herein.
ARTICLE I.
DEFINITIONS
-----------
"Additional Stock" means Common Stock, Convertible Securities and Options,
other than (i) the Preferred Stock and (ii) Common Stock, Convertible Securities
or Options issued to officers, directors, employees or consultants of the
Company.
"Charter" means the certificate of incorporation of the Company, as filed
with the Delaware Secretary of State.
"Closing Date" means October 14, 1997.
NYFS03...:\15\47315\0003\2475\CRTN017P.570
<PAGE>
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Exchange Act of 1934 or the
Securities Act.
"Common Stock" means the Company's Common Stock, par value $.01 per share,
any stock into which such stock shall have been changed or any stock resulting
from any reclassification of such stock, and any other capital stock of the
Company of any class or series now or hereafter authorized having the right to
share in distributions either of earnings or assets of the Company without limit
as to amount or percentage.
"Company" means Galoob Toys, Inc., a Delaware corporation, and any
successor corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Exercise Period" means the period commencing on the Closing Date and
terminating at 5:00 p.m. Pacific Time on the twelfth anniversary of the Closing
Date.
"Exercise Price" means the exercise price per share of Common Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means
(i) If shares of Common Stock are being sold pursuant to a public
offering under an effective registration statement under the Securities Act
which has been declared effective by the Commission and Fair Market Value is
being determined as of the closing of the public offering, the "price to public"
specified for such shares in the final prospectus for such public offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
ten trading days before such date. The closing price for each day shall be the
last sale price on such date or, if no such sale takes place on such date, the
average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a registration described in
clause (i) of this definition, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
Nasdaq Stock Market or, if such shares are not then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization,
2
<PAGE>
and in either case as reported by any member firm of the New York Stock Exchange
selected by the Holder;
(iv) If no shares of Common Stock are then listed or admitted to
trading on any national exchange or traded on any national market system, if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a registration described in clause (i) of this definition, the fair
value of a share of Common Stock shall be as determined by an investment bank
selected by Holder with the approval of the Company (which approval shall not be
unreasonably withheld or delayed), the costs of such investment banker to be
paid by the Company.
"Fiscal Year" means the fiscal year of the Company.
"Holder" means the person in whose name this Warrant is registered on the
books of the Company maintained for such purpose and any permitted transferee of
all or a portion of this Warrant.
"Market Price" means $18 per share of Common Stock, which shall be
adjusted in the same manner as provided in Article IV as if it were the Exercise
Price.
"Option" means any right, warrant or option to subscribe for or purchase
shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, government entities and authorities and
other organizations, whether or not legal entities.
"Preferred Stock" means a series Preferred Stock with an aggregate
liquidation preference on the date of issuance and an aggregate purchase price
in an amount not exceeding $30 million.
"Principal Executive Office" means the Company's office at 500 Forbes
Boulevard, South San Francisco, California 94080 or such other office as
designated in writing to the Holder by the Company.
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
3
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means a holder of one or more Warrant Shares.
"Warrant" means the warrant dated as of Closing Date issued to the Holder
and all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"Warrant Shares" means the shares of Common Stock issued or issuable upon
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities issued
or issuable upon the exercise of the rights granted hereunder.
ARTICLE II.
EXERCISE
--------
2.1. Exercise Right; Manner of Exercise. The purchase rights represented
by this Warrant may be exercised by the Holder, in whole or in part, at any time
and from time to time during the Exercise Period upon (i) surrender of this
Warrant, together with an executed notice of exercise, substantially in the form
of Exhibit "D-1" ("Notice of Exercise") attached hereto, at the Principal
Executive Office, and (ii) payment to the Company of the aggregate Exercise
Price for the number of Warrant Shares specified in the Notice of Exercise (such
aggregate Exercise Price, the "Total Exercise Price"). The Total Exercise Price
shall be paid by check; provided, however, that if the Warrant Shares are
acquired in conjunction with a Registration of such Warrant Shares, then the
Holder may arrange for the aggregate Exercise Price for such Warrant Shares to
be paid to the Company from the proceeds of the sale of such Warrant Shares
pursuant to such Registration. The Person or Person(s) in whose name(s) any
certificate(s) representing the Warrant Shares which are issuable upon exercise
of this Warrant shall be deemed to become the Holder(s) of, and shall be treated
for all purposes as the record holder(s) of, such Warrant Shares, and such
Warrant Shares shall be deemed to have been issued, immediately prior to the
close of business on the date on which this Warrant and Notice of Exercise are
presented and payment made for such Warrant Shares, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within two business days after this Warrant is
exercised. If this Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant Shares which the
Holder is entitled to purchase hereunder. The issuance of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
4
<PAGE>
2.2. Conversion of Warrant.
(a) Right to Convert. In addition to, and without limiting, the
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X = Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
or such lesser number of Warrant Shares as may be selected by the Holder
A= The Fair Market Value of one Warrant Share as of the
Conversion Date
B= The Exercise Price
(b) Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
the Holder intends to exercise the Conversion Right and indicating the number of
Warrant Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date") and, at the Holder's election,
may be made contingent upon the closing of the consummation of the sale of
Common Stock pursuant to a Registration. Certificates for the Warrant Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding two business days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares; provided that the Holder will be responsible for any
transfer taxes in respect of the issuance of Warrant Shares to a Person other
than the Holder.
2.3. Fractional Shares. The Company shall not issue fractional shares of
Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise or conversion, the Company shall
purchase from the Holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated to the nearest
1/100th of a share) by the Fair Market Value of a share of Common Stock on the
date of the Notice of Exercise or the Conversion Date, as applicable. Payment of
such amount shall
5
<PAGE>
be made in cash or by check payable to the order of the Holder at the time of
delivery of any certificate or certificates arising upon such exercise or
conversion.
2.4. Continued Validity. A Shareholder shall be entitled to all rights and
subject to all obligations which a Holder of this Warrant is entitled pursuant
to the provisions of this Warrant, except rights and obligations which by their
terms apply only to a Warrant. The Company shall, at the time of the exercise of
this Warrant, in whole or in part, upon the request of a Shareholder,
acknowledge in writing, in form reasonably satisfactory to the Shareholder, its
continuing obligation to afford to the Shareholder all rights to which the
Shareholder is entitled in accordance with the provisions of this Warrant;
provided, however, that if the Shareholder fails to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
the Shareholder all such rights.
ARTICLE III.
TRANSFER, EXCHANGE AND REPLACEMENT
----------------------------------
3.1. Maintenance of Registration Books. The Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever, and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. Restrictions on Transfers.
(a) Compliance with Securities Act. The Holder, by acceptance
hereof, agrees that this Warrant and the Common Stock to be issued to the Holder
upon exercise hereof are being acquired for investment, solely for the Holder's
own account and not as a nominee for any other Person, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any such shares of
Common Stock except under circumstances which will not result in a violation of
the Securities Act. Upon exercise of this Warrant, the Holder shall confirm in
writing, by executing the form attached as Exhibit "D-2" hereto, that the shares
of Common Stock purchased thereby are being acquired for investment, solely for
the Holder's own account and not as a nominee for any other Person, and not with
a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all Warrant Shares issued
upon exercise of this Warrant (unless Registered under the Securities Act) shall
be stamped or imprinted with legends in substantially the following form (in
addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT
6
<PAGE>
RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF
THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
In addition, the Warrant (unless Registered under the Securities Act)
shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT MAY NOT BE TRANSFERRED OTHER THAN TO AN
AFFILIATE (AS DEFINED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED) PRIOR TO THE SECOND ANNIVERSARY OF THE CLOSING
DATE.
(c) Additional Restriction on Transfer. The Holder shall not sell,
assign or otherwise transfer all or part of this Warrant until the second
anniversary of the Closing Date other than in connection with the transfer of
the Holder's entire business.
(d) Disposition of Warrant or Warrant Shares. With respect to any
offer, sale or other disposition of this Warrant or any Warrant Shares issued
upon exercise of this Warrant prior to Registration of such shares, the Holder
or the Shareholder, as the case may be, agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of the Holder's or Shareholder's counsel to the effect that such
offer, sale or other disposition may be effected without Registration under the
Securities Act or qualification under any applicable state securities laws of
this Warrant or such Warrant Shares, as the case may be, and indicating whether
or not under the Securities Act certificates for this Warrant or such Warrant
Shares, as the case may be, to be sold or otherwise disposed of, require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Securities Act and any other applicable securities
laws. Promptly upon receiving such written notice and reasonably satisfactory
opinion the Company, as promptly as practicable, shall notify the Holder or the
Shareholder, as the case may be, that it may sell or otherwise dispose of this
Warrant or such Warrant Shares, as the case may be, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subsection (d) that the opinion of counsel for the Holder or
the Shareholder, as the case may be, is not reasonably satisfactory to the
Company, the Company shall so notify the Holder or the Shareholder, as the case
may be, promptly after such determination has been made and shall specify the
legal analysis supporting any such conclusion. Notwithstanding the foregoing,
this Warrant or such Warrant Shares, as the case may be, may be offered, sold or
otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonable
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Securities Act, unless in the aforesaid
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reasonably satisfactory opinion of counsel for the Holder or the Shareholder, as
the case may be, such legend is not necessary in order to insure compliance with
the Securities Act. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
(e) Warrant Transfer Procedure. Transfer of this Warrant to a third
party, following compliance with the preceding subsections of this Article III,
shall be effected by execution of the Assignment Form attached hereto as Exhibit
"D-3", and surrender for registration of transfer of this Warrant at the
Principal Executive Office, together with funds sufficient to pay any applicable
transfer tax. Upon receipt of the duly executed Assignment Form and the
necessary transfer tax funds, if any, the Company, at its expense, shall execute
and deliver, in the name of the designated transferee or transferees, one or
more new Warrants representing the right to purchase a like number of shares of
Common Stock.
(f) Termination of Restrictions. The restrictions imposed under this
Section 3.2 upon the transferability of the Warrant (other than those in Section
3.2(c)) and the shares of Common Stock acquired upon the exercise of this
Warrant shall cease when (i) a registration statement covering the applicable
securities becomes effective under the Securities Act, (ii) the Company is
presented with an opinion of counsel reasonably satisfactory to the Company that
such restrictions are no longer required in order to insure compliance with the
Securities Act or with a Commission "no-action" letter stating that future
transfers of such securities by the transferor or the contemplated transferee
would be exempt from registration under the Securities Act, or (iii) such
securities may be transferred in accordance with Rule 144(k). When such
restrictions terminate, the Company shall, or shall instruct its transfer agent
to, promptly, and without expense to the Holder or the Shareholder, as the case
may be, issue new securities in the name of the Holder and/or the Shareholder,
as the case may be, not bearing the legends required under subsection (b) of
this Section 3.2.
3.3. Exchange. At the Holder's option, this Warrant may be exchanged for
other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (i) in
the case of any such loss theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (ii) in the case of
any such mutilation, upon surrender of such Warrant for cancellation at the
Principal Executive Office, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
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ARTICLE IV.
ANTIDILUTION PROVISIONS
-----------------------
4.1. Reorganization, Reclassification or Recapitalization of the Company.
In case of (1) a capital reorganization, reclassification or recapitalization of
the Company's capital stock (other than in the cases referred to in Section 4.2
hereof), (2) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of the Company's
property as an entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation, sale
or transfer, lawful provision shall be made so that there shall thereafter be
deliverable upon the exercise of this Warrant or any portion thereof (in lieu of
or in addition to the number of shares of Common Stock theretofore deliverable,
as appropriate), and without payment of any additional consideration, the number
of shares of stock or other securities or property to which the holder of the
number of shares of Common Stock which would otherwise have been deliverable
upon the exercise of this Warrant or any portion thereof at the time of such
reorganization, reclassification, recapitalization, consolidation, merger, sale
or transfer would have been entitled to receive in such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer.
This Section 4.1 shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant.
4.2. Reclassifications. If the Company changes any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefore shall be appropriately adjusted.
4.3. Splits and Combinations. If the Company at any time subdivides any of
its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Exercise Price under this Section 4.3, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by dividing (i) the aggregate Exercise Price payable
for the purchase of all shares issuable upon exercise of this Warrant
immediately prior to such adjustment by (ii) the Exercise Price per share in
effect immediately after such adjustment.
4.4. Dividends and Distributions. If the Company declares a dividend or
other distribution on the Common Stock or if a dividend or other distribution on
the Common Stock
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occurs pursuant to the Charter (other than a cash dividend or distribution),
then, as part of such dividend or distribution, lawful provision shall be made
so that there shall thereafter be deliverable upon the exercise of this Warrant
or any portion thereof, in addition to the number of shares of Common Stock
receivable thereupon and without payment of any additional consideration, the
amount of the dividend or other distribution to which the holder of the number
of shares of Common Stock obtained upon exercise hereof would have been entitled
to receive had the exercise occurred as of the record date for such dividend or
distribution.
4.5. Liquidation; Dissolution. If the Company shall dissolve, liquidate or
wind up its affairs, the Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in any
cash distribution to the Holder in excess of the aggregate Exercise Price for
the shares of Common Stock for which this Warrant is exercised, then the Holder
may, at its option, exercise this Warrant without making payment of such
aggregate Exercise Price and, in such case, the Company shall, upon distribution
to the Holder, consider such aggregate Exercise Price to have been paid in full,
and in making such settlement to the Holder, shall deduct an amount equal to
such aggregate Exercise Price from the amount payable to the Holder.
4.6. Antidilution.
(a) Adjustment of Exercise Price. If the Company issues any
Additional Stock for no consideration or for a consideration per share of Common
Stock (which, in the case of Convertible Securities or Options shall be the
consideration paid to purchase such security plus the conversion price, exercise
price or exchange price, as the case may be, per share of Common Stock)
("Additional Stock Price") less than the Market Price in effect immediately
prior to the time of such issuance (with the value of any non-cash consideration
paid for such Additional Stock reasonably determined by the Company's Board of
Directors), then the Exercise Price shall be reduced to a price equal to the
Exercise Price in effect immediately prior to such adjustment less the
difference between such Market Price and the Additional Stock Price; provided,
however, that (i) if any Convertible Securities or Options expire or otherwise
terminate prior to the exercise, conversion or exchange of such securities for
Common Stock ("Expiring Additional Securities"), such Expiring Additional
Securities shall no longer constitute Additional Stock for purposes of
adjustments under this Section 4.6, and the Exercise Price shall upon such
expiration or termination be readjusted to equal what the Exercise Price would
have been if those Expiring Additional Securities (and only those Expiring
Additional Securities) had never been issued and (ii) if shares of Common Stock
are issued pursuant to Convertible Securities or Options at a price different
from the Additional Stock Price originally calculated for such Convertible
Securities or Options, the Additional Stock Price for such Convertible
Securities or Options shall be recalculated to equal the actual price paid per
share of Common Stock in respect of such issuance, and the Exercise Price shall
be readjusted accordingly.
(b) Adjustment of Number of Shares Purchasable. Upon any adjustment
of the Exercise Price under subsection (a) of this Section 4.6, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by
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<PAGE>
dividing (i) the Market Price immediately prior to such adjustment multiplied by
the number of shares issuable upon exercise of this Warrant immediately prior to
such adjustment by (ii) the Market Price per share in effect immediately after
such adjustment.
4.7. Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
4.8. Other Dilutive Events. If any event occurs as to which the other
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant; provided, that no adjustments shall be made in connection with the
issuance of Common Stock upon exercise, conversion or exchange of Options or
Convertible Securities to the extent that adjustment has previously been made
upon issuance of such Options or Convertible Securities and each lowering of the
effective purchase price of Common Stock pursuant to such Option or Convertible
Securities. Upon receipt of such opinion, the Company shall promptly mail a copy
thereof to the Holder and shall make the adjustments described therein.
4.9. Certificates and Notices.
(a) Adjustment Certificates. Upon any adjustment of the Exercise
Price and/or the number of shares of Common Stock purchasable upon exercise of
this Warrant, a certificate, signed by (i) the Company's President or Chief
Financial Officer, or (ii) any independent firm of certified public accountants
of recognized national standing the Company selects at its own expense, setting
forth in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated, shall be mailed to the Holder and shall
specify the adjusted Exercise Price and the number of shares of Common Stock
purchasable upon exercise of the Warrant after giving effect to the adjustment.
(b) Extraordinary Corporate Events. If the Company, after the date
hereof, proposes to effect (i) any transaction described in Sections 4.1 or 4.2
hereof or (ii) a liquidation, dissolution or winding up of the Company described
in Section 4.5 hereof, then, in each such case, the Company shall mail to the
Holder a notice describing such proposed action and specifying the date on which
the Company's books shall close, or a record shall be taken, for determining the
holders of or Common Stock entitled to participate in such action, or the date
on which such reorganization, reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to receive securities and/or other
property deliverable upon such action, if any such date is to be fixed. Such
notice shall be mailed to the Holder at least twenty days prior to the record
date for such action in the case of any action described in clause (i) or clause
(iii) above, and in the
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case of any action described in clause (ii) above, at least twenty days prior to
the date on which the action described is to take place and at least twenty days
prior to the record date for determining holders of Common Stock entitled to
receive securities and/or other property in connection with such action.
4.10. No Impairment. The Company shall not, by amendment of the Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in the carrying out of all the provisions of this Article IV
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment.
4.11. Application. Except as otherwise provide herein, all sections of
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V.
REGISTRATION RIGHTS
-------------------
5.1. Registration on Form S-3.
5.1.1. Filing of Registration Statement. The Company shall use its
best efforts to secure effectiveness of, as soon as practicable, and shall file
no later than 15 business days after the Closing Date, a registration statement
in form and substance satisfactory to the Holder on Form S-3 (the "Registration
Statement") with the Commission under the Securities Act to register: (i) the
resale of the Warrant; (ii) the exercise of the Warrant by any person, other
than Lucas Licensing Ltd. or any transferee of Warrants prior to the resale of
Warrants pursuant to the Registration Statement; and (iii) the Warrant Shares
issued upon exercise of the Warrant by any person and the resale of any such
Warrant Shares by Lucas Licensing Ltd. or any transferee of Warrants who
exercised such Warrants and received Warrant Shares otherwise than pursuant to
the Registration Statement. The Company shall amend such Registration Statement
(or file a new Registration Statement) (i) to include issuance of the Warrant
Shares to Lucas Licensing Ltd. after one year from the Closing Date and (ii) to
include the transfer of the Warrant after two years from the Closing Date (the
Warrant and the Warrant Shares constituting the "Registrable Securities");
provided however, that in the event the Company fails to file reports in a
timely manner or otherwise fails (due to an action or inaction of the Company)
to be eligible to file a registration statement on Form S-3, the Company shall
file a registration statement or a post-effective registration statement, as the
case may be, on Form S- 1. In the event of a change in the interpretive position
of the staff of the Commission with respect to registration under the Securities
Act of warrants, the exercise of warrants and the sale of securities into which
warrants can be exercised, the Company shall comply with such changed position
promptly after consultation with counsel to Lucas Licensing Ltd.
5.1.2. Registrable Expenses. The Company shall pay all Registration
Expenses (as defined below) in connection with any registration, qualification
or compliance
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hereunder, and each Holder shall pay all Selling Expenses (as defined below) and
other expenses that are not Registration Expenses relating to the Registrable
Securities resold by such Holder. "Registration Expenses" shall mean all
expenses, except for Selling Expenses, incurred by the Company in complying with
the registration provisions herein described, including, without limitation, all
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration.
"Selling Expenses" shall mean all selling commissions, underwriting fees and
stock transfer taxes applicable to the Registrable Securities and all fees and
disbursements of counsel for any Holder.
5.1.3. Additional Company Obligations. In the case of any
registration effected by the Company pursuant to these registration provisions,
the Company will use its best efforts to: keep such registration effective until
such date as all of the Registrable Securities have been sold; (ii) prepare and
file with the Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of the Registrable Securities; (iii) furnish such
number of prospectuses and other documents incident thereto, including any
amendment of or supplement to the prospectus, as a Holder from time to time may
reasonably request; (iv) cause all such Registrable Securities registered as
described herein to be listed on each securities exchange and quoted on each
quotation system on which similar securities issued by the Company are then
listed or quoted; (v) provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP number
for all such Registrable Securities; (vi) use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its securityholders, to the extent required, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months, but not
more than eighteen months, beginning with the first month after the effective
date of the Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and (vii) file the documents
required of the Company and otherwise use its best efforts to maintain requisite
blue sky clearance in (A) all jurisdictions in which any of the Warrant Shares
are originally sold and (B) all other states specified in writing by a Holder as
may reasonably be required to sell such Holder's Warrant Shares, provided as to
clause (B), however, that the Company shall not be required to qualify to do
business or consent to service of process in any state in which it is not now so
qualified or has not so consented.
5.1.4. Conditions and Limitations
(a) Cooperation by Holder. It shall be a condition precedent
to the obligation of the Company to take any action pursuant to this Article V
in respect of the Registrable Securities that the Holder shall furnish to the
Company such information regarding such Registrable Securities and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required in connection with the action taken by the Company.
(b) Notification Prior to Sale. If any Holder shall propose to
sell any Registrable Securities pursuant to the Registration Statement, it shall
notify the Company of
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its intent to do so at least three full business days prior to such sale, and
the provision of such notice to the Company shall be deemed to establish an
agreement by such Holder to comply with the registration provisions contained
herein. Such notice shall be deemed to constitute a representation that any
information previously supplied by such Holder is accurate as of the date of
such notice. At any time within such three business day period, the Company may
refuse to permit the Holder to resell any Registrable Securities pursuant to the
Registration Statement; provided, however, that in order to exercise this right,
the Company must deliver a certificate in writing to the Holder to the effect
that a delay in such sale is necessary because, in the good faith judgment of
the Company, a sale pursuant to the Registration Statement would require the
public disclosure of information that would not otherwise be required to be
disclosed (which disclosure would, in the good faith judgment of the Company,
have a material adverse effect on the Company) or could in other respects
constitute a violation of the federal securities laws. In such an event, the
Company shall use its best efforts to amend the Registration Statement to the
extent required to comply with Section 5.1.4 and to take all other actions
necessary to allow such sale under the federal securities laws, and shall notify
the Holders promptly after it has determined that such circumstances no longer
exist. Notwithstanding the foregoing, the Company shall not under any
circumstances be entitled to refuse to permit the Holder to resell any
Registrable Securities more than twice in any twelve-month period, and any
individual period during which the Company refuses to permit the Holder to
resell any Registrable Securities shall not exceed sixty days.
Subject to the foregoing, when a Holder is entitled to sell and gives
notice of its intent to sell pursuant to the Registration Statement, the Company
shall furnish to such Holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing.
5.2. Indemnification and Contribution.
5.2.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
such Holder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any claim by a third party
asserting any untrue statement of a material fact contained in the Registration
Statement or omission of a material fact therefrom necessary to make the
statements therein not misleading, on the effective date thereof, or arise out
of any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will, as incurred, reimburse such Holder
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damages or liability arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration
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Statement or (ii) any untrue statement in any prospectus that is corrected in
any subsequent prospectus that was delivered to the Holder prior to the
pertinent sale or sales by the Holder.
5.2.2. Indemnification by Holder. Each Holder, severally and not
jointly, agrees to indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any claim by a
third party asserting (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in
preparation of the Registration Statement, provided, however, that no Holder
shall be liable in any such case for any untrue statement included in any
prospectus which statement has been corrected, in writing, by such Holder and
delivered to the Company at least three business days before the sale from which
such loss occurred or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered to the Holder prior to
the pertinent sale or sales by the Holder, and each Holder, severally and not
jointly, will, as incurred, reimburse the Company for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim.
5.2.3. Indemnification Procedures. Promptly after receipt by any
indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an indemnifying person
pursuant to this Section 5.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and the indemnifying
person shall have been notified thereof, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable opinion of counsel for the indemnified person for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that in the case of the immediately preceding proviso the indemnifying
person shall not be responsible for the legal expenses of more than one counsel
for all indemnified persons.
5.2.4. Contribution in Lieu of Indemnity. If the indemnification
provided for in this Section 5.2 is unavailable to or insufficient to hold
harmless an indemnified party under Section 5.2.1 or 5.2.2 above in respect of
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefit and relative fault
of the respective parties as well as any other
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relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a Holder on
the other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders agree that it would not be just and equitable if contribution
pursuant to this Section 5.2.4 were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 5.2.4. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 5.2.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5.2.4, no Holder shall
be required to contribute any amount in excess of the net amount received by the
Holder from the sale of the Registrable Securities to which such loss relates.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 5.2.4 to contribute are several in proportion to
their respective sales of Registrable Securities to which such loss relates and
not joint.
5.2.5. Controlling Persons Indemnified. The obligations of the
Company and the Holders under this Section 5.2 shall be in addition to any
liability which the Company and the respective Holders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls the Company or any Holder within the meaning of the Securities Act
including, without limitation, the directors and officers of the Company and the
Holder, as the case may be.
5.3. Transfer of Registration Rights. The right to sell Registrable
Securities pursuant to the registration statement described herein will
automatically be assigned to each transferee of the Warrant or Warrant Shares.
In the event that it is necessary, in order to permit a Holder to sell
Registrable Securities pursuant to the Registration Statement, to amend the
Registration Statement to name such Holder, such Holder shall, upon written
notice to the Company, be entitled to have the Company make such amendment as
soon as reasonably practicable.
ARTICLE VI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
----------------------------------------------------
6.1. Representations and Warranties. The Company represents and warrants
that:
(a) Legal Status; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
is qualified or licensed to do business in all other countries, states and
provinces in which the laws thereof require the Company to qualify and/or be
licensed, except where failure to qualify or be
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licensed would not have a material adverse effect on the business or assets of
the Company taken as a whole;
(b) Capitalization. The Company's authorized capital stock consists
of: 50,000,000 shares of Common Stock, of which shares are issued and
outstanding and 1,000,000 shares of preferred stock, par value $1.00 per share,
of which 30,000 shares Preferred Stock are outstanding;
(c) Options. Except as described in Exhibit "D-4" hereto there are
no Options, warrants or similar rights to acquire from the Company, or
agreements or other obligations by the Company, absolute or contingent, to issue
or sell Common Stock, whether on conversion or exchange of Convertible
Securities or otherwise;
(d) Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
(e) Authority. The Company has the right and power, and is duly
authorized and empowered, to enter into, execute, deliver and perform its
obligations under this Warrant;
(f) Binding Effect. This Warrant has been duly authorized, executed
and delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii)
general principles of equity;
(g) No Conflict. The execution, delivery and/or performance by the
Company of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the Company's Charter or Bylaws or contained in any
agreement, instrument or document to which the Company is a party or by which it
is bound;
(h) Consents. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the valid issuance of the Warrant or for the performance of any of
the Company's obligations hereunder, except in connection with listing on the
New York Stock Exchange, which filings will be effected in accordance with the
rules and regulations of the New York Stock Exchange;
(i) Offering. Neither the Company nor any agent acting on its behalf
has, either directly or indirectly, sold, offered for sale or disposed of, or
attempted or offered to dispose of, this Warrant or any part hereof, or any
similar obligation of the Company, to, or has solicited any offers to buy any
thereof from, any Person or Persons other than the Holder. Neither the Company
nor any agent acting on its behalf will sell or offer for sale or dispose of, or
attempt or offer to dispose of, this Warrant or any part thereof to, or solicit
any offers to buy any warrant of like tenor from, or otherwise approach or
negotiate in respect thereof, with,
17
<PAGE>
any Person or Persons so as thereby to bring the issuance of this Warrant within
the provisions of Section 5 of the Securities Act;
(j) Registration. It is not necessary in connection with the
issuance and sale of this Warrant to the Holder to Register this Warrant under
the Securities Act.
6.2. Covenants. The Company covenants that:
(a) Authorized Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant (for
purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all other Options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock shall
be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take all such
action as may be necessary to assure that the Common Stock issuable upon the
exercise of this Warrant may be so issued without violation of any applicable
law or regulation, or of any requirements of any domestic securities exchange or
automated quotation system upon which any capital stock of the Company may be
listed or quoted, as the case may be. Such action may include, but not be
limited to, causing such shares to be duly registered or approved, listed or
quoted on relevant domestic securities exchanges or automated quotation systems;
and
(c) Fully Paid Shares. The Company will take all actions necessary
or appropriate to validly and legally issue fully paid and nonassessable shares
of Common Stock upon exercise of this Warrant. All such shares will be free from
all taxes, liens and charges with respect to the issuance thereof, other than
any stock transfer taxes in respect to any transfer occurring contemporaneously
with such issuance.
ARTICLE VII.
MISCELLANEOUS
-------------
7.1. Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer and income taxes) and other
governmental charges that may be imposed in respect of, the issuance, sale and
delivery of the Warrant and the Warrant Shares.
7.2. Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company or (c) notice of any other proceedings of the
Company.
18
<PAGE>
7.3. Like Tenor. All Warrants shall at all times be substantially
identical except as to the Preamble.
7.4. Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.5. Enforcement Costs. If any party to, or beneficiary of, this Warrant
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
7.6. Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
7.7. Notices. Any notice, demand or delivery to be made pursuant to this
Warrant will be sufficiently given or made if sent by certified or registered
mail, postage prepaid, nationally recognized overnight delivery service or
facsimile transmission, addressed to (a) the Holder and the Shareholders at
their last known addresses appearing on the books of the Company maintained for
such purpose or (b) the Company at its Principal Executive Office. The Holder,
the Shareholders and the Company may each designate a different address by
notice to the other pursuant to this Section 7.7. A notice shall be deemed
effective upon receipt.
7.8. Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns. The Company shall, at the time of exercise of
this Warrant, in whole or in part, upon request of the Holder or any Shareholder
but at the Company's expense, acknowledge in writing its continuing obligations
hereunder with respect to rights of the Holder or such Shareholder to which it
shall continue to be entitled after such exercise in accordance with the terms
hereof; provided that the failure of the Holder or any Shareholder to make any
19
<PAGE>
such request shall not affect the continuing obligation of the Company to the
Holder or such Shareholder in respect of such rights.
7.9. Modification; Severability.
(a) If, in any action before any court or agency legally empowered
to enforce any term, any term is found to be unenforceable, then such term shall
be deemed modified to the extent necessary to make it enforceable by such court
or agency.
(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
7.10. Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
7.11. Survival of Representations and Warranties. The representations and
warranties of any party in this Warrant shall survive the execution and delivery
of this Warrant and the consummation of the transactions contemplated hereby,
notwithstanding any investigation by the such party or its agents.
7.12. Amendment. This Warrant may not be modified or amended except by
written agreement of the Company, the Holder and the Shareholder(s), if any,
holding a majority of the Warrant Shares.
7.13. Headings. The headings of the Articles and Sections of this Warrant
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
7.14. Meanings. Whenever used in this Warrant, any noun or pronoun shall
be deemed to include both the singular and plural and to cover all genders; and
the words "herein," "hereof" and "hereunder" and words of similar import shall
refer to this instrument as a whole, including any amendments hereto.
7.15. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer this October 14, 1997.
LUCAS LICENSING LTD. ("Holder") GALOOB TOYS, INC. ("Company")
By: /s/ Gordon Radley By: /s/ Mark Goldman
-------------------------- ------------------------------
Title: Title: President and CEO
---------------------- ---------------------------
21
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT "D-1"-Notice of Exercise (Section 2.1)
EXHIBIT "D-2"-Investment Representation Certificate (Section 3.2(a))
EXHIBIT "D-3"-Assignment Form (Section 3.2(d))
EXHIBIT "D-4"-Schedule of Options and Preemptive Rights (Sections 6.1(c) and
6.1(d))
22
<PAGE>
EXHIBIT "D-1"
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby irrevocably
exercises the within Warrant for and purchases shares of Common Stock of Galoob
Toys, Inc. and herewith makes payment therefor in the amount of $ _____________,
all at the price and on the terms and conditions specified in the within Warrant
and requests that a certificate (or _____________ certificates in denominations
of shares) for the shares of Common Stock of Galoob Toys, Inc. hereby purchased
be issued in the name of and delivered to (choose one) (a) the undersigned or
(b) [NAME], whose address is and, if such shares of Common Stock shall not
include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of Galoob Toys, Inc. not being purchased hereunder be issued in the name
of and delivered to (choose one) (a) the undersigned or (b) [NAME], whose
address is ____________________.
Dated:
---------------------
NOTICE: The signature to this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
23
<PAGE>
EXHIBIT "D-2"
INVESTMENT REPRESENTATION CERTIFICATE
-------------------------------------
Purchaser:
Company: Galoob Toys, Inc.
Security: Common Stock
Amount:
Date:
(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(b) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act");
(c) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein;
(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and
(e) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein.
The Purchaser represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act or any successor
regulation thereunder.
Date: PURCHASER:
------------------- -----------------------------
24
<PAGE>
EXHIBIT "D-3"
ASSIGNMENT FORM
---------------
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within
Warrant hereby sells, assigns and transfers unto _________________, whose
address is _______________ all of the rights of the undersigned under the within
Warrant, with respect to shares of Common Stock of Galoob Toys, Inc. and, if
such shares of Common Stock shall not include all the shares of Common Stock
issuable as provided in the within Warrant, that a new Warrant of like tenor for
the number of shares of Common Stock of Galoob Toys, Inc. not being transferred
hereunder be issued in the name of and delivered to the undersigned, and does
hereby irrevocably constitute and appoint _____________ attorney to register
such transfer on the books of Galoob Toys, Inc. maintained for the purpose, with
full power of substitution in the premises.
Dated:
------------------
----------------------------------------
----------------------------------------
By:
-----------------------------------
(Signature of Registered Holder)
Title:
----------------------------------
NOTICE: The signature to this Assignment must correspond with the name upon
the face of the within Warrant in every particular, without alteration
or enlargement or any change whatever.
25
<PAGE>
EXHIBIT "D-4"
OUTSTANDING OPTIONS AND PREEMPTIVE RIGHTS
-----------------------------------------
(Sections 6.1(c) and 6.1(d))
Options
1. Options to purchase shares of the Company's Common Stock are outstanding
pursuant to the following employee benefit plans:
o 1984 Amended and Restated Employee Stock Option Plan
o 1994 Senior Management Stock Option Plan
o 1995 Non-Employee Director Stock Option Plan
o 1996 Share Incentive Plan
2. Gerard Klauer Mattison & Co., LLC holds a warrant to purchase 25,000 shares
of Common Stock.
3. Each share of Common Stock has appurtenant thereto one preferred stock
purchase right (a "Right") issued pursuant to the Company's Stockholder Rights
Plan. Upon the occurrence of certain events involving a change in control of the
Company, Rights not held by an "acquiring person" will entitle the holder to
purchase shares of Common Stock pursuant to the terms of the Stockholder Rights
Plan.
Preemptive Rights
None.
26
EXHIBIT 4.3
AGREEMENT OF STRATEGIC RELATIONSHIP
-----------------------------------
This AGREEMENT OF STRATEGIC RELATIONSHIP (the "agreement") is made and entered
into as of October 14, 1997, between Lucasfilm Ltd., a California corporation
("Lucasfilm"), on the one hand, located at P. O. Box 2009, San Rafael, CA 94912
and Galoob Toys, Inc., a Delaware Corporation, located at 500 Forbes Boulevard,
South San Francisco, CA 94080 ("Galoob"), on the other hand.
WHEREAS:
- --------
A.Lucasfilm is a California corporation engaged in the production of
theatrical motion pictures and the licensing of intellectual property rights
related to such theatrical motion pictures;
B. Lucasfilm owns or controls rights in respect of the Property (as
hereinafter defined);
C. Galoob is engaged in the manufacture, distribution and sale of consumer
products in the form of toys including, without limitation, toys based on
entertainment intellectual properties licensed from third parties;
D. Lucasfilm and Galoob have a long standing relationship with respect to
the licensing of such rights; and.
E. Lucasfilm and Galoob wish to establish a strategic relationship whereby
Galoob would acquire the opportunity to license certain rights in and to
theatrical motion pictures produced by Lucasfilm for the manufacture,
distribution and sale of Products in the Territory, subject to the terms and
conditions of this agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. GRANT OF RIGHTS.
----------------
Subject to the terms and conditions of this agreement, and in
consideration for all of Galoob's obligations hereunder, including,
without limitation, Galoob's agreement to grant to Lucasfilm a warrant as
provided in Paragraph 4 hereinbelow, Lucasfilm grants to Galoob an
exclusive, non-transferable, non-assignable right of first negotiation
(the "First Negotiation Right") and, as more specifically provided in
Subparagraph 3.3 hereinbelow, right of first refusal (the "First Refusal
Right") during the Term and
NYFS03...:\15\47315\0003\2475\AGRN017P.530
<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
throughout the Territory to license the Property as provided in Paragraph
3 hereinbelow:
1.1. to develop, design, manufacture, distribute, advertise, publicize,
market and sell the Products , for sale to retail Customers through all
channels of wholesale and retail distribution permitted hereunder; and
1.2. for reproduction on containers, packaging, display and promotional
material and in Advertising and Advertising Materials for the Products.
The First Negotiation Right and First Refusal Right shall be exercised by
Galoob in accordance with the terms and conditions contained in this
agreement.
2. TERM AND TERRITORY.
-------------------
2.1. Term. The term of Galoob's rights pursuant to this agreement with
respect to the First Negotiation Right and First Refusal Right (the
"Term") shall consist of the time period commencing as of the date hereof
and ending on October 14, 2009.
2.2. Territory. The territory of Galoob's rights hereunder (the
"Territory") consists of the world excluding China and India.
3. EXERCISE OF FIRST NEGOTIATION RIGHT AND FIRST REFUSAL RIGHT.
------------------------------------------------------------
The First Negotiation Right and in certain situations First Refusal Right
as to each theatrical motion picture which is an element of the Property
shall be exercisable by Galoob in accordance with the following procedure:
3.1. If Lucasfilm desires to license the rights referenced in
Subparagraphs 1.1 and 1.2 hereinabove with respect to any theatrical
motion picture which is an element of the Property, then Lucasfilm shall
notify Galoob in writing. Lucasfilm shall concurrently make available to
Galoob at Lucasfilm's premises all materials then extant regarding such
motion picture, including script, artwork, casting, to the extent
available.
3.2. Galoob shall thereafter have thirty (30) days from the date of such
notice (the "First Negotiation Period") to negotiate and enter into a
written agreement (the "Agreement"), which agreement shall incorporate no
less than all of the terms and conditions of that certain license
agreement between Galoob and Lucas Licensing Ltd. dated as of October 14,
1997 (the "Toy Agreement") with the exception of Royalties (Paragraph 8),
Advance (Paragraph 7), Term (Paragraph 2), Staffing/Overhead (Subparagraph
4.3), Minimum Sales Levels (Subparagraph 4.2), and the definition of
2
<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
Licensed Property (Subparagraph 24.43) (collectively the "Excluded
Terms"); provided, however, that neither party shall be obligated to
conclude an Agreement with respect to a particular theatrical motion
picture which is an element of the Property. During the First Negotiation
Period, the parties shall negotiate with respect to the Excluded Terms,
provided that the Royalty Percentage shall be no less than ten percent
(10%) of Net Sales and no more than the rates specified in Paragraph 8 of
the Toy Agreement.
3.3. If the parties fail to enter into an Agreement with respect to such
theatrical motion picture during the First Negotiation Period, then
Lucasfilm shall be free to negotiate with and conclude an agreement with
any third party with respect to the rights that are incorporated in the
First Negotiation Right provided, that with respect to those theatrical
motion pictures set forth in Subparagraphs 5.2(a)(i), (ii), (iii), and
(iv) ("First Refusal Pictures"), Lucasfilm shall not conclude an agreement
with a third party with respect to such rights on terms that are less
favorable to Lucasfilm than those terms last offered by Galoob without
giving notice of such third party offer to Galoob and providing Galoob
with a ten (10) day period (the "First Refusal Period") within which to
enter into an Agreement with Lucasfilm on the same terms and conditions
contained in the third party offer (the "First Refusal Right"). If Galoob
fails to execute such Agreement within such First Refusal Period with
respect to a First Refusal Picture or within the First Negotiation Period
with respect to all other theatrical motion pictures included within the
Property, then Lucasfilm shall be free to enter into an agreement with
such third party with respect to a First Refusal Picture or with any third
party with respect to all other theatrical motion pictures subject to the
First Negotiation Right and such theatrical motion picture shall be
deleted from the definition of the Property hereunder.
3.4. Lucasfilm makes no representation or warranty that any rights which
otherwise would be subject to the First Negotiation Right and First
Refusal Right as to any theatrical motion picture produced by Lucasfilm
following the date hereof and during the Term will be owned or controlled
by Lucasfilm or that Lucasfilm will retain the right or ability to include
such theatrical motion picture as an element of the Property
notwithstanding the fact that at any point in time, Lucasfilm may have
owned or controlled such rights. In this connection, Galoob acknowledges
that Lucasfilm may enter into an arrangement with respect to a particular
theatrical motion picture (other than a grant of a license for the
Products alone for such theatrical motion picture) in which the grant of
such rights to a third party may be necessary in Lucasfilm's sole judgment
in order to finance, produce, distribute or exploit such theatrical motion
picture or any underlying rights relating to such theatrical motion
picture.
3
<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
4. WARRANT.
--------
4.1. General. Concurrently with the execution of this Agreement, Galoob
shall grant to Lucasfilm a warrant (the "Warrant") for the purchase of up
to 1,450,000 fully paid and non-assessable shares of the common stock of
Galoob following exercise of the Warrant at a per share exercise price
equal to $15.00, subject to adjustment as provided in the warrant dated as
of the date hereof between Lucasfilm and Galoob (the "Warrant").
4.2. Additional Warrants. If at any time prior to the termination of the
Warrant, Galoob grants any Common Stock, Convertible Securities or Options
(as defined in the Warrant) to any officer, director, employee or
consultant of Galoob ("EE Stock"), then Galoob shall simultaneously
therewith grant to Lucasfilm a warrant ("Springing Warrant"), on the same
terms and conditions as the Warrant (except that the exercise price per
share of such Springing Warrant shall equal the exercise price per, or the
amount paid for each, share of such EE Stock), to purchase that number of
shares of Common Stock computed using the following formula:
X = .154(B/A)(X+Y)
Where:
X = The number of shares of Common Stock to be issued to Lucasfilm
upon exercise of the Springing Warrant
Y = The number of shares of Common Stock issued or issuable pursuant
to the grant of such EE Stock
A = The original number of Warrant Shares (as defined in the
Warrant)
B = The number of Warrant Shares owned by Lucasfilm on the date of
such grant of Additional Stock (as defined in the Warrant)
5. DEFINITIONS.
------------
5.1. "Products" means those products, goods and articles, within the
enumerated categories in Schedule II of the Toy Agreement and which are
based on or incorporating elements of the Property.
4
<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
5.2. "Property" means, subject to the terms, conditions and restrictions
contained in Lucasfilm's or any Lucasfilm Related Entity's agreements with
persons, firms or entities rendering services or granting rights:
(a) the original titles, designs, character names and likenesses,
dialogue, music and sound effects, words, symbols, logographics and
the footage, photographs, artwork, visual representations of the
props, costumes, sets, special effects and any other original
creative elements) which appear in, have become directly associated
with, and as are depicted in, any theatrical motion picture produced
by Lucasfilm prior to or during the Term, as to which Lucasfilm owns
and controls the rights hereunder, subject to Section 3.4,
including, but not limited to:
(i) any theatrical motion picture based on or related to the
character "Indiana Jones," including without limitation:
Raiders of the Lost Ark, Indiana Jones and the Temple of Doom,
Indiana Jones and the Last Crusade, and any prequel or sequel
theatrical motion picture based on the "Indiana Jones"
character including the sequel theatrical motion picture
currently in development and tentatively entitled "Indiana
Jones IV" and intended to star Harrison Ford and be directed
by Steven Spielberg;
(ii) the theatrical motion picture entitled "Willow" and any
sequels, prequels or remakes thereof, including, without
limitation, those based upon the "Shadow Wars" book series
written by George Lucas and Chris Claremont;
(iii) any theatrical motion picture based upon the book series
entitled "Lucasfilm's Alien Chronicles" published by Berkeley
Books;
(iv) the theatrical motion pictures entitled "Tucker: The Man
and His Dream" and any sequels, prequels or remakes thereof;
and
(b) such original trademarks, tradenames, servicemarks and
servicenames owned by Lucasfilm and arising out of and which become
directly associated with any theatrical motion picture which is an
element of the Property, to the extent of Lucasfilm's rights in each
applicable country of the Territory under such country's applicable
trademark laws.
Notwithstanding anything set forth above, Property shall not include any
theatrical motion picture based on or related to "Star Wars", including
without limitation:
5
<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
(A) those certain previously released theatrical motion
pictures (and the special editions thereof released
theatrically in 1997) entitled "STAR WARS: EPISODE IV -
A NEW HOPE," "STAR WARS: EPISODE V - THE EMPIRE STRIKES
BACK" and "STAR WARS: EPISODE VI - RETURN OF THE JEDI"
(the "Classic Trilogy"); and
(B) each of the first three succeeding prequel theatrical motion
pictures to the Classic Trilogy tentatively entitled "Episode I,"
"Episode II" and "Episode III," respectively (each such prequel
theatrical motion picture a "Prequel" herein).
In connection with such exclusion, the parties acknowledge that Galoob has
entered into the Toy Agreement with Lucas Licensing Ltd., the owner of the
applicable rights related to Star Wars.
6. GENERAL.
--------
6.1. Assignment. Subject to the other terms and conditions of this
Subparagraph 6.1, this agreement will bind and inure to the benefit of
each party and to their respective successors and assigns. Galoob shall
not voluntarily or by operation of law assign, sub-license, transfer,
encumber or otherwise dispose of all or part of any right or privilege
licensed to Galoob in this agreement, including to a Galoob Affiliate,
without Lucasfilm's prior written approval to be given or withheld in
Lucasfilm's absolute discretion. Lucasfilm shall not voluntarily or by
operation of law assign, transfer or otherwise dispose of all or part of
its rights or obligations under Section 4.2 without Galoob's prior written
approval to be given or withheld in Galoob's absolute discretion, except
that Lucasfilm may assign or otherwise dispose of all or part of such
rights or obligations in connection with a sale or other transfer of all
or substantially all of Lucasfilm's theatrical motion picture business.
For purposes of this Subparagraph 6.1, any change in control of Galoob,
whether through merger, acquisition, reorganization, liquidation,
foreclosure, involuntary sale in bankruptcy, or the purchase of
substantially all of Galoob's assets or otherwise, shall be deemed a
purported assignment subject to Lucasfilm's prior written approval. Any
attempted assignment, sublicense, transfer, encumbrance or other disposal
without such approval will be null and void and constitute a material
default and material breach of this agreement.
6.2. Governing Law. This agreement will be governed by and construed in
accordance with the laws of the federal laws of the United States and the
laws of the State of California applicable to agreements entered into, and
to be performed entirely, within California between California residents
(and excluding the United Nations Convention on Contracts for the
International Sale of Goods) without regard to choice
6
<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
of law provisions and regardless of the place or places of its actual
execution or performance. Any suit, action or proceeding between or among
any of the parties hereto arising out of or related to this agreement will
be brought solely in the federal or state courts in the Northern District
of California, and Galoob hereby submits to the personal jurisdiction
thereof and agrees to such courts as the appropriate venue.
Notwithstanding the foregoing, Galoob agrees that, for purposes of
collecting monies due pursuant to this agreement, Galoob, at Lucasfilm's
election, may be subject to whatever local laws and courts have
jurisdiction in any country of the Territory over Galoob. Process in any
action or proceeding referenced to in this Subparagraph 6.2 may be served
on Galoob at the address for notices set forth in Subparagraph 6.4
hereinbelow.
6.3. Attorneys' Fees. In the event of any legal proceeding between the
parties arising out of or related to this agreement, the prevailing party
shall be entitled to recover, in addition to any other relief awarded or
granted, its costs and expenses (whether or not in connection with
litigation and including, without limitation, attorneys' fees and costs)
incurred in connection with any such proceeding.
6.4. Notices. Any notice to be given or served under this agreement shall
be in writing and shall be delivered to the parties addressed as set forth
below, or to such other address as either party shall notify the other
party of in writing, as follows: personally or sent by cable, telegram or
telemessage or by facsimile, telex, telecopy or other print out
communication mechanism or by first class, prepaid, registered or
certified mail (if available) post (air mail if posted to another country)
to the party to be served at the address set forth below in this
Subparagraph 6.4 or to such other address as either party may from time to
time notify in writing to the other. Such notice shall be deemed to have
been served: (a) immediately in the case of personal delivery; (b) in the
case of a cable, telegram or telemessage, on the first business day after
the receipt by the relevant service of the order therefor; (c) in the case
of facsimile, telex, telecopy or other print out mechanism, on the
expiration of four (4) hours from the time of transmission subject in the
case of telex or facsimile to proof by the sender that he/she holds an
acknowledgment (whether in mechanical form other otherwise) confirming its
receipt at its destination and subject in the case of facsimile or other
print out transmission in the absence of an acknowledgment to the original
notice being sent by post or by personal delivery in accordance with this
Subparagraph 6.4 not later than the next business day after such
transmission; and (d) in the case of postal delivery, on the second
business day following the date of posting (the fifth business day if
posted to another country) or on acknowledgment of receipt if earlier.
If to Lucasfilm:
----------------
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Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
For notices to Lucasfilm: P. O. Box 2009, San Rafael, CA 94912,
Attention: President; with a copy to: General Counsel.
For wire transfers: pursuant to Lucasfilm's written wire transfer
instructions
For deliveries requiring Lucasfilm's street address: 5858 Lucas
Valley Road, Nicasio, CA 94946
If to Galoob:
-------------
Galoob Toys, Inc.
500 Forbes Blvd.
South San Francisco, CA 94080
Attn: Executive Vice President
6.5. No Waiver. No action taken by either party pursuant to this
agreement, and no waiver by either party, whether express or implied, of
any provision or right in this agreement or any breach thereof, and no
failure of either party to exercise or enforce any of its rights under
this agreement, will constitute a continuing waiver with respect to such
provision or right or as a breach or waiver or any other provision or
right, whether or not similar.
6.6. Independent Contractors. The parties to this agreement are and shall
remain independent contractors. There is no relationship of partnership,
employer, employee, principal, agent, joint venture, employment, franchise
or agency between the parties. Except as expressly provided in this
agreement, neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written
approval and shall not represent that it has such right.
6.7. Nonexclusive Remedy. The exercise by either party of any remedy under
this agreement will be without prejudice to its other remedies under this
agreement or otherwise.
6.8. Severability. This agreement is severable. If any provision of this
agreement is found invalid or unenforceable in any jurisdiction, that
provision, as to that jurisdiction, will be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or
unenforceable the other remaining provisions of this agreement, which
other remaining provisions will not be affected and shall remain in force,
to the maximum extent permissible.
8
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Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
6.9. Headings, Captions and Names. The name of this agreement, and all
headings and captions herein contained, are for reference and convenience
only and do not define, limit or expand the scope or intent of any
provision hereof and shall not be relied upon in or in connection with the
construction or interpretation of this agreement. The words "herein,"
"hereunder," "hereof" and similar terms refer to this entire agreement and
shall not be limited to the specific paragraphs or subparagraphs in which
they are used.
6.10. Capitalized Terms. All capitalized terms contained in this agreement
shall have the same meaning as set forth in the Toy Agreement, except as
otherwise expressly set forth herein.
6.11. Counterparts. This agreement may be executed in one or more
counterparts, and by facsimile, telex, telecopy or other print out
communication mechanism, each copy of which shall be deemed an original
and all of which, when taken together, shall constitute one and the same
instrument, but this agreement shall not be binding upon the parties until
it has been signed by both parties. The parties hereto agree that
facsimile signatures on a copy of this agreement shall be effective and
enforceable as if they were original signatures.
6.12. Further Instruments. Except as otherwise expressly provided in this
agreement, each party shall furnish to the other (and shall deliver and
cause to be executed, acknowledged and delivered to the other) any further
instruments, which such other party may reasonably require or deem
necessary from time to time to evidence, establish, protect, enforce,
defend or secure to such other party any or all of its rights hereunder or
to more effectuate or carry out the purposes, provisions or intent of this
agreement.
6.13. Entire Agreement. This agreement together with the Warrant
constitute the complete and entire agreement between the parties with
respect to the subject matter hereof, superseding and replacing any and
all prior agreements, negotiations, communications, and understandings
(both written and oral) regarding such subject matter. This agreement may
only be modified, or any rights under it waived, by a written document
executed by both parties.
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<PAGE>
Agreement Between Lucasfilm Ltd. and Galoob Toys, Inc. dated October 14, 1997
LUCASFILM LTD. ("Lucasfilm"), GALOOB TOYS, INC. ("Galoob"),
a California Corporation a Delaware Corporation, on behalf of
itself and all Galoob Affiliates
By: /s/ Gordon Radley By: /s/ Mark Goldman
------------------------------ -------------------------------
Title: Title: President and CEO
--------------------------- ---------------------------
10
EXHIBIT 10
Information contained herein, marked with [**], has been omitted pursuant to a
request for confidential treatment. A complete copy of this document has been
supplied to the Securities and Exchange Commission under separate cover.
TOY LICENSE AGREEMENT
BETWEEN LUCAS LICENSING LTD. AND GALOOB
DATED AS OF OCTOBER 14, 1997
<PAGE>
Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
TOY LICENSE AGREEMENT
TABLE OF CONTENTS
1. GRANT OF LICENSE............................................... 1
2. TERM AND TERRITORY............................................. 2
3. RESTRICTIONS ON LICENSE........................................ 3
4. OBLIGATIONS OF LICENSEE........................................ 7
5. LICENSOR APPROVALS............................................. 13
6. ARTWORK AND FILM CLIPS/THIRD PARTY APPROVALS................... 15
7. ADVANCE/[**]................................................... 16
8. ROYALTIES...................................................... 18
9. STATEMENTS AND PAYMENTS........................................ 22
10. TAXES.......................................................... 25
11. RECORDS AND AUDITS............................................. 25
12. COPYRIGHT AND TRADEMARK NOTICES................................ 26
13. OWNERSHIP...................................................... 26
14. PROMOTIONAL VALUE, TRADEMARK RIGHTS AND GOODWILL............... 30
15. APPROVAL OF MANUFACTURERS...................................... 30
16. CONFIDENTIALITY................................................ 31
17. PRODUCT SAMPLES................................................ 33
18. INTENTIONALLY DELETED.......................................... 34
19. REPRESENTATIONS AND WARRANTIES................................. 34
20. INDEMNITIES.................................................... 35
2
NYFS03...:\15\47315\0003\2475\AGRN017P.41A
<PAGE>
21. INSURANCE...................................................... 37
22. EXPIRATION AND TERMINATION..................................... 38
23. RESERVED RIGHTS................................................ 42
24. DEFINITIONS.................................................... 42
25. GENERAL........................................................ 49
3
<PAGE>
SCHEDULE I - PERMITTED LICENSEE AFFILIATES
SCHEDULE II - LICENSED PRODUCTS
SCHEDULE III- ADVANCES AND MINIMUM SALES LEVELS
SCHEDULE IV - DEDICATED RETAIL SPACE
SCHEDULE V - EXCLUDED DISTRIBUTION CHANNELS
SCHEDULE VI - LICENSOR TRADEMARKS
EXHIBIT A - TRADEMARK LICENSE AGREEMENT
EXHIBIT B - APPROVAL OF SUBLICENSEE AGREEMENT
EXHIBIT C - STANDARD APPROVAL FORM
EXHIBIT D - ROYALTY REPORT FORM
EXHIBIT E - THIRD PARTY COPYRIGHT ASSIGNMENT
EXHIBIT F - APPROVAL OF MANUFACTURER AGREEMENT
4
<PAGE>
TOY LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is made and entered into as of October
14, 1997, between Lucas Licensing Ltd., a California corporation ("Licensor"),
on the one hand, located at P. O. Box 2009, San Rafael, CA 94912 and Galoob
Toys, Inc., a Delaware corporation, located at 500 Forbes Boulevard, South San
Francisco, CA 94080, and all Permitted Licensee Affiliates (jointly and
severally "Licensee" or "Galoob"), on the other hand.
WHEREAS:
A. Licensor is a California corporation engaged in the licensing of
entertainment intellectual properties related to the "Pictures" (as hereinafter
defined);
B. Licensor owns or controls rights in respect of the Licensed Property
(as hereinafter defined);
C. Licensee is engaged in the manufacture, distribution and sale of
consumer products in the form of toys including, without limitation, toys based
on entertainment intellectual properties licensed from third parties; and
D. Licensee wishes to be licensed to use the Licensed Property for the
manufacture, distribution and sale of Licensed Products in the Territory and
Licensor has agreed to license rights in the Licensed Property to Licensee,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. GRANT OF LICENSE.
Subject to the terms and conditions of this Agreement, and in
consideration for all of Licensee's warranties, representations and
obligations hereunder, including, without limitation, Licensee's agreement
to pay and actual payment to Licensor of the Royalties and Advances,
Licensor grants to Licensee a non-transferable, non-assignable license
during the Term and throughout the Territory:
1.1. to use the Licensed Property, to develop, design, manufacture, have
manufactured, distribute, advertise, publicize, market and sell the
Licensed Products set forth in Schedule II attached hereto, for sale to
retail Customers through all channels of wholesale and retail distribution
permitted hereunder; and
1.2. to reproduce the Licensed Property and to use the Licensor Trademarks
on containers, packaging, display and promotional material and in
Advertising and Advertising Materials for the Licensed Products as
provided in this Agreement. Concurrently with its execution of this
Agreement, Licensee shall execute a Trademark License Agreement with
Licensor on
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Licensor's then-current form for such agreements (the "Trademark License
Agreement"), a current copy of which form is attached hereto and by this
reference incorporated herein as Exhibit A.
2. TERM AND TERRITORY.
2.1. Term. Unless earlier terminated as provided in this Agreement,
including, without limitation, pursuant to this Subparagraph 2.1, the term
of Licensee's rights pursuant to this Agreement (the "Term") shall consist
of the time period commencing as of the date hereof (subject to
Subparagraph 25.14 hereinbelow) and ending on the final day of the third
Calendar Year following the Calendar Year in which the initial general
theatrical release in the United States (the "U.S. Release Date") of
Episode III occurs (such final day constituting the "Expiration Date").
Notwithstanding anything to the contrary contained herein or otherwise,
the Term shall terminate prior to the Expiration Date:
(a) if the U.S. Release Date of Episode I does not occur on or
before June 30, 2004 (the "Episode I Outside Date"), then the Term
shall terminate as of the Episode I Outside Date;
(b) if the U.S. Release Date of Episode I occurs on or before the
Episode I Outside Date, but the U.S. Release Date of Episode II does
not occur prior to the date which is five (5) years following the
U.S. Release Date of Episode I (the "Episode II Outside Date"), then
the Term shall terminate as of the Episode II Outside Date; or
(c) if the U.S. Release Date for Episode I occurs on or before the
Episode I Outside Date and the U.S. Release Date of Episode II
occurs on or before the Episode II Outside Date, but the U.S.
Release Date of Episode III does not occur on or before the date
which is five (5) years after the U.S. Release Date of Episode II
(the "Episode III Outside Date"), then the Term shall terminate as
of the Episode III Outside Date.
2.2. Territory. The territory of Licensee's rights hereunder (the
"Territory") consists of the enumerated countries and groupings of
countries set forth in Column A of Schedule III attached hereto (each such
enumerated country or grouping of countries a "Sub-Territory" herein);
provided, however, that the sole activity of manufacturing Licensed
Products hereunder may take place in a country outside of the Territory if
the terms and conditions of Paragraph 15 hereinbelow have been first
satisfied and so long as no Licensed Product manufactured in such country
is distributed by Licensee (or with Licensee's express or implied
authority) from such country for the "sale" thereof (as defined in
Subparagraph 8.2 hereinbelow) to a Customer outside of the Territory.
Subject to Paragraph 23 hereinbelow, if Licensor elects to license to any
third party the right to manufacture, distribute and sell during the Term
of this Agreement any Licensed Product in any country outside of the
Territory, then Licensor shall notify Licensee of such election in
writing. Licensee shall thereafter have thirty (30) days from the date of
such notice to negotiate and enter into a written agreement regarding such
license which
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<PAGE>
agreement shall incorporate all of the terms and conditions of this
Agreement except for Paragraph 7 (Advance) and Paragraph 4 (Minimum Sales
Levels) hereinbelow; provided, however, that neither Licensee nor Licensor
shall be obligated to enter into an agreement with respect to such
license. For purposes of this Agreement, a country shall be deemed to
include all territories and possessions thereof.
3. RESTRICTIONS ON LICENSE.
3.1. Distribution.
(a) General. Licensee shall not have the right:
(i) to distribute or sell (or authorize any entity to
distribute or sell) any Licensed Product other than to a "bona
fide and recognized" (as such term is commonly understood in
the U.S. toy industry) third party wholesale entity for
distribution directly to a Retail Entity or to a bona fide and
recognized third party Retail Entity (whether such third party
Retail Entity is a third party "traditional retail store" [as
that term is commonly understood in the U.S. toy industry] or
a third party direct-to-consumer paper-printed catalog
company). In particular, but not by way of limitation,
Licensee shall not distribute any Licensed Product through any
channel, method or outlet of distribution denoted as an
Excluded Distribution Channel on Schedule V attached hereto;
(ii) to distribute or sell (or authorize any entity to
distribute or sell) any Licensed Product to any party if
Licensee knows, or in the exercise of its reasonable good
faith business judgment should know, that such distribution or
sale will result in the distribution for sale or resale of any
Licensed Product outside of the Territory;
(iii) to conduct or authorize any entity to conduct
Advertising primarily intended to be disseminated outside of
the Territory for any Licensed Product; or
(iv) Except with Licensor's prior written approval, to
distribute or sell any Licensed Product to any Closeout Store
in any country of the Territory prior to the date eighteen
(18) months after the initial "sale" (as such term is defined
in Subparagraph 8.2 hereinbelow) of such Licensed Product to a
Customer in such country.
(b) Licensor Channels. Notwithstanding the rights licensed to
Licensee hereunder, Licensor shall also have the right to distribute
and/or sell any Licensed Product that has been distributed and/or
sold hereunder by Licensee, through any Licensor Channel and, in
this connection, Licensor shall purchase or have the right to
purchase from Licensee,
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<PAGE>
a Manufacturer or a Sublicensee any Licensed Product for which
Licensee has exclusive rights hereunder and which is to be sold
through a Licensor Channel, provided, Licensee, such Manufacturer or
such Sublicensee shall manufacture and supply to Licensor or to
Licensor's designee those numbers of such Licensed Product as
Licensor shall request for the applicable Licensor Channel, and
shall sell such Licensed Product to Licensor or to Licensor's
designee at the lowest price and on the most favorable terms given
by Licensee, a Licensee Affiliate or a Sublicensee to a Customer for
the same or comparable Licensed Product, whether or not such
Licensed Product is Account Specific Merchandise, F.O.B. Product or
otherwise.
(c) Internet/Electronic Retailers. Licensee shall not have the right
to manufacture, distribute and/or sell (or authorize any entity to
manufacture, distribute or sell) any Licensed Product:
(i) through the Internet (except if such distribution or sale
is a Licensor Channel as permitted pursuant to Subparagraph
3.1[b] hereinabove) without Licensor's prior written approval
in each instance; or
(ii) through any Electronic Retailer except that, at
Licensor's request, Licensee is hereby licensed to supply to
Licensor or to Licensor's designee such specific Licensed
Products to such specific Electronic Retailer(s) as Licensor
may approve, in advance in writing.
3.2. Exclusivity. The rights licensed to Licensee hereunder in respect of
all Licensed Products shall be exclusive.
3.3. Sublicenses.
(a) Approval of Sublicensee Agreement. Licensee shall have no right
to sublicense to any entity (including to a distributor or to a
Licensee Affiliate that is not a Permitted Licensee Affiliate) any
right licensed to it hereunder (other than the right to manufacture
any Licensed Product, which shall be subject to Paragraph 15
hereinbelow) or transfer or dispose of any Licensed Property to any
distributor, including to a Licensee Affiliate that is not a
Permitted Licensee Affiliate or to any other third party unless and
until: (i) Licensor has provided Licensee with its prior written
approval of the proposed sublicensee and the terms and conditions of
any and all agreements between Licensee and such proposed
sublicensee (and any modifications thereof, whether oral or written)
for such sublicense (collectively the "Sublicense Agreement"); (ii)
such sublicensee shall have executed an Approval of Sublicensee
Agreement with Licensor on Licensor's then-current form for such
agreement, as such form may be revised by Licensor in its sole
reasonable discretion from time to time (any such sublicensee and
all affiliated and related entities of such sublicensee approved by
Licensor for which an Approval of Sublicensee Agreement is fully
executed, a
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<PAGE>
"Sublicensee" herein); (iii) such Sublicensee shall agree in the
Sublicense Agreement to be fully bound at all times by the terms and
conditions of this Agreement which are applicable to the exercise of
the rights so sublicensed, including, but not limited to, the
distribution and/or sale of any Licensed Product governed by such
Sublicense Agreement; (iv) such Sublicensee shall provide to both
Licensee and to Licensor, on a monthly basis, a complete written
list of such Sublicensee's then-current prices for each and every
Licensed Product SKU in respect of each and every Customer of such
Sublicensee; (v) such Sublicensee shall execute a Trademark License
Agreement with Licensor; and (vi) such Sublicensee shall further
agree in such Approval of Sublicensee Agreement that Licensor shall
be a third party beneficiary thereof. A copy of Licensor's current
form for Approval of Sublicensee Agreement is attached hereto as
Exhibit B. The sublicense by Licensee of any rights licensed to
Licensee hereunder shall in no manner whatsoever affect Licensee's
obligations hereunder, and Licensee shall execute, and shall ensure
that each prospective Sublicensee executes, the Approval of
Sublicensee Agreement. Any sublicense (in whole or in part) of
Licensee's rights hereunder in violation of this Subparagraph 3.3
shall be a material breach of this Agreement.
(b) Enforcement of Sublicense Agreement. Licensee agrees to include
and strictly enforce in each Sublicense Agreement all of the terms
and conditions of this Agreement relevant to the sublicense to
Sublicensee of any right licensed to Licensee hereunder. Licensee
shall advise Licensor of any breach thereof by any Sublicensee and
of any corrective action taken by Licensee as well as the results
thereof and, at the request of Licensor, shall terminate such
Sublicense Agreement in the event of any such breach, if such breach
is not cured within twenty (20) days after Licensee first becomes
aware of such breach, to the extent such breach is curable. If
Licensee fails to exercise such termination rights by giving written
notice to such Sublicensee within ten (10) days after being
requested to do so in writing by Licensor, notwithstanding anything
to the contrary contained in the Sublicense Agreement, Licensee
hereby appoints Licensor its attorney-in-fact to send a notice of
termination in the name of Licensee to such Sublicensee for the
purpose of terminating such Sublicense Agreement or any specific
rights thereunder, which appointment is irrevocable and coupled with
an interest. In the event of termination of a Sublicense Agreement,
Licensee shall thereafter have a reasonable period of time (not to
exceed ninety [90] days after such termination, or one hundred
twenty [120] days for any Sublicense Agreement for distribution
rights for a Licensed Product in a Sub-Territory hereinbelow defined
as Underdeveloped) in which Licensee itself, or a new Sublicensee
designated by Licensee shall undertake the same responsibilities of
the terminated Sublicensee, subject to the terms and conditions of
this Subparagraph 3.3.
3.4. (a) No Rights to Products Other Than Licensed Products. Other than
the products, goods and articles expressly set forth in Schedule II
as "Licensed Products," all products, goods, items, devices and
articles of any kind based on or incorporating the
5
<PAGE>
Licensed Property are expressly excluded from the rights licensed to
Licensee pursuant to this Agreement and are expressly reserved to
Licensor.
(b) No Joint or Cross Distributing, Marketing, Promoting or Selling.
No Licensed Product shall be jointly or cross distributed, marketed,
promoted or sold with any other product or service without
Licensor's prior written consent in each instance.
3.5. Other Products. Licensee acknowledges and agrees that the fact that a
Licensed Product is capable (whether or not by means of any electronic
media or through the use of any electronic feature, mechanical feature,
sound effect, light feature, mechanism or otherwise) of interacting with
another product, good, item, device or article that is not a Licensed
Product (the "Other Product") does not render such Other Product a
Licensed Product hereunder or confer to Licensee any rights hereunder with
respect to the use of the Licensed Property in conjunction with such Other
Product.
3.6. Licensor Third Party Obligations. Notwithstanding anything to the
contrary contained in this Agreement or otherwise, but without limitation
of Licensor's other rights and remedies:
(a) Licensee acknowledges that Licensor may have heretofore executed
agreements with third parties which may encompass rights with
respect to some or all of the Licensed Products and/or which may
grant to such third parties the right to dispose of, distribute and
sell Licensed Products during their respective sell-off periods,
which sell- off periods may occur during the Term, and that such
sell-off rights shall not violate the terms of this Agreement; and
(b) Licensor shall have the unrestricted right, prior to the
expiration or termination of the Term to provide for the disposition
of any or all of the rights licensed to Licensee hereunder,
including, without limitation, entering into agreements with any
third party(ies) which provide for the right for such third
party(ies) to design, manufacture and/or distribute Licensed
Products anywhere in the Territory, provided, that such agreement(s)
shall not by its terms authorize the shipment of Licensed Products
to retail customers on a date that would allow such Licensed
Products to be sold to end users at retail prior to the expiration
or termination of the Term.
3.7. No Similar Products or Dumping of Licensed Products. Licensee
recognizes and acknowledges that the Licensed Property, and all elements
thereof, and the goodwill associated with the same are material and
substantial business assets of Licensor. In that connection, Licensee
agrees that, during the Term and throughout the Territory Licensee:
(a) will not Dump any Licensed Product in any country of the
Territory during the Term and during any Sell-Off Period, subject to
applicable law;
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(b) will not manufacture, distribute or sell any merchandise or
authorize the manufacture, distribution or sale of any merchandise
bearing any artwork or other representation which is confusingly
similar to or which disparages the Licensed Property (or any element
thereof); and
(c) shall use its best efforts to sell Licensed Products at a price
which, in its reasonable, good faith business judgment, represents
the best attainable price from its Customers.
3.8. No Sales Prior to October 1, 1998. Notwithstanding anything to the
contrary contained in this Agreement, subject to the final sentence of
Subparagraph 25.14 hereinbelow, Licensee shall not sell or distribute, or
authorize the sale or distribution of, any Licensed Product manufactured
hereunder to a retail or wholesale entity for such entity's receipt
anywhere in the Territory prior to October 1, 1998; provided, however,
that the foregoing shall not preclude Licensee, in the exercise of its
rights licensed pursuant to this Agreement, from showing Licensed Products
to its Customers, or taking and booking orders for Licensed Products or
undertaking other similar business activities, prior to October 1, 1998
subject to Licensor's prior written consent in each instance and to
Licensor's approval rights pursuant to Paragraph 5 hereinbelow and to the
provisions of Paragraph 16 hereinbelow.
4. OBLIGATIONS OF LICENSEE.
4.1. Marketing Plans. Prior to the manufacture, distribution or sale of
any Licensed Product hereunder for the applicable time period to which a
"Marketing Plan" (as hereinafter defined) relates, Licensee shall submit
Marketing Plans to Licensor for Licensor's written approval in its sole
discretion, as follows:
(a) Submissions to Licensor. On or before the applicable due dates
set forth hereinbelow, Licensee shall prepare and submit to Licensor
thorough and detailed marketing plans for the manufacture,
distribution, Advertising, marketing and sale of Licensed Products
on a Sub-Territory by Sub-Territory basis (each such marketing plan
a "Marketing Plan" herein). Each Marketing Plan shall contain the
"Plan Elements" (as hereinafter defined) for each Sub-Territory, but
Licensor's approval rights will not extend to product pricing or
discounts provided to any Customer. Licensor's approval of any one
Marketing Plan or Quarterly Update shall not be deemed to constitute
Licensor's approval of any other Marketing Plan or Quarterly Update;
it being the intention of the parties that the Quarterly Updates may
contain revisions of the Annual Marketing Plans.
(i) Initial Marketing Plan: On or before January 1, 1998,
Licensee shall submit a Marketing Plan, for Licensor's written
approval, for Licensed Products to be manufactured,
distributed and sold from and after October 1, 1998 through
December 31, 1999 (the "Initial Marketing Plan"); and
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(ii) Annual Marketing Plan: On or before March 1st of each
Calendar Year of the Term, commencing with March 1, 1999,
Licensee shall submit a Marketing Plan, for Licensor's written
approval, for Licensed Products to be manufactured,
distributed and sold for the next succeeding Calendar Year of
the Term (each such annual marketing plan an "Annual Marketing
Plan"), notwithstanding when such manufacture, distribution or
sale occurs; and
(iii) Quarterly Updates: On or before the close of each
Calendar Quarter of the Term, commencing with the Calendar
Quarter ending March 31, 1998, Licensee shall prepare and
submit to Licensor, for Licensor's written approval, a
modification of the Annual Marketing Plan showing any actual
or projected additions, deletions, modifications or changes
(the "Quarterly Updates").
(b) Plan Elements. Each Marketing Plan shall detail for each
Sub-Territory, at least the following components with respect to the
applicable time period to be covered thereby (collectively the "Plan
Elements"):
(i) Brand Management Strategy (for Initial Marketing Plan and
Annual Marketing Plans only): a detailed overall strategy on
the management of the "STAR WARS" brand in the context of the
manufacture, distribution, Advertising and sale of Licensed
Products, including, but not limited to, Licensee's ongoing
staffing requirements for its SW Toy Team.
(ii) Licensed Product Specifications and Ship Dates: a
detailed product plan on a SKU-by-SKU basis (including,
without limitation, quantities to be manufactured and ship
dates), a detailed description of the Licensed Products to be
manufactured hereunder, the manufacturing schedule and
specific tooling plans for the Licensed Products. Included in
the foregoing shall be, without limitation, a detailed product
plan and description of all Licensed Products to be created
exclusively for specific retail accounts ("Account Specific
Merchandise") and any product specifically created for sale to
a Customer of Licensee, a Licensee Affiliate or a Sublicensee
on an F.O.B. or Ex-Works basis ("F.O.B. Product").
(iii) Forecasts: separate, detailed forecasts of sales for
Licensed Products (the "Sales Projections") by Sub-Territory,
by distribution channel, by Customer, by Licensed Product and
by SKU.
(iv) Product Pricing List: a complete product pricing list by
distribution channel, by customer and by SKU, including,
without limitation, for all Licensed Products destined for
normal retail distribution channels as well as Account
Specific Merchandise and F.O.B. Product, as well as any
material deviations from the product pricing for any SKUs from
the product pricing list
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submitted for the immediately preceding Quarterly Updates
and/or Annual Marketing Plan, as the case may be.
(v) Policies and Procedures: a detailed summary of Licensee's
policies and procedures with respect to discounts, product
pricing, promotions and sales incentive programs as the same
relate to the Licensed Products (and any material changes
thereto [e.g., deletions, additions or modifications] of which
Licensee has not previously apprised Licensor in writing).
(vi) Advertising:
(A) Ad Plan: a detailed overall strategy for all
Advertising campaigns related to the Licensed Products,
the proposed advertising agencies to be engaged in
connection with such campaigns and the specific
strategic and creative criteria to be given to such
advertising agencies in the formulation of such
campaigns.
(B) Advertisements:
(1) Television Advertising: specific details,
including type of media (e.g., without limitation,
national, local spot, etc.), length, demographics,
commencement and expiration dates and media value
(including GRP's and TRP's set forth on a weekly
basis);
(2) Radio Advertising: specific details, including
type of commercial, market reach, demographics,
length, commencement dates, expiration dates and
media value;
(3) Print Advertising: specific details of the
proposed media, commencement dates, expiration
dates, demographics, market reach, circulation and
media value;
(4) Outdoor Advertising: specific details of the
proposed outdoor Advertising exhibited anywhere
(e.g., without limitation, roadside benches,
billboards, public transportation vehicles, stands
and walls);
(5) Retail Advertising: specific details,
including type of media (in-store displays,
materials, signage, roto advertisements, product
give-aways, etc.);
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(6) Consumer Promotions: specific details of
proposed promotions which may include sweepstakes,
free goods offers, offers to purchase or otherwise
receive special products, or "cross promotions"
with third parties (e.g., with PepsiCo), or other
promotions directed to consumers;
(7) Public Relations Efforts: specific details,
including the type of media targeted, the specific
consumer "message" strategy, and the public
relations agency, if any, contracted by Licensee;
and
(8) Other Media Advertising: specific details of
proposed Advertising media other than the forms of
media Advertising set forth in Subparagraphs
4.1(b)(vi)(B)(1)-(7) hereinabove, whether such
media is now or hereafter known, devised, invented
or developed.
(vii) Public Relations: to the extent not included in
Subparagraph 4.1(b)(vi)(B) hereinabove, specific details of
proposed publicity campaigns, event marketing plans, trade and
consumer press articles related to the Licensed Products and
(subject to seasonality) featured sections devoted entirely to
Licensed Products in trade circulars to Customers.
(viii) Trade Support: specific details of Licensee's trade
support programs for the five (5) key retail Customers in each
Sub-Territory, specific descriptions of the P.O.S. proposed to
be designed and manufactured hereunder, the proposed channels
of distribution at which such P.O.S. will be displayed and the
time schedules proposed for such displays, and specific
details of each and every Dedicated Retail Space pursuant to
Subparagraph 4.6 hereinbelow.
(ix) Consumer Research: Licensee's plans for specific consumer
research that will be conducted as required pursuant to
Subparagraph 4.7 hereinbelow.
(x) Retail Marketing: to the extent not included in
Subparagraph 4.1(b)(vi)(B) hereinabove, specific details of
inventory management, fulfillment and refilling of retail
product assortments, stock balancing and retail presentations.
(c) Adherence to Marketing Plans: Licensee's timely submission of
and compliance with each Marketing Plan and each Plan Element
approved by Licensor is of the essence of this Agreement.
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4.2. Minimum Sales Levels. Licensee shall exercise good faith commercial
efforts to ensure that Net Sales during each time period for which a
Marketing Plan is due hereunder will be equal to or exceed the Sales
Projections set forth in such Marketing Plan as approved by Licensor for
such time period including the Net Sales outlined in Column D of Schedule
III for Calendar Years 1999 and 2000 (the "Minimum Sales Levels").
4.3. Staffing/Overhead. Licensee shall employ a team of individuals whose
services shall at all times hereunder be dedicated "exclusively" (i.e.,
one hundred percent [100%] dedicated) or "primarily" (i.e., more than
fifty percent [50%] but less than one hundred percent [100%] dedicated) as
hereinbelow denoted as "Exclusively" or "Primarily," respectively, to
Licensee's activities hereunder (collectively the "SW Toy Team"). The
number of individuals comprising such SW Toy Team shall be subject to the
mutual reasonable approval of Licensor and Licensee. All salary, overhead,
benefits and expenses of the SW Toy Team and of their support staff will
be Licensee's sole cost, expense and responsibility. The SW Toy Team shall
consist of at least the following positions, and the individuals occupying
such positions shall be subject to Licensor's approval:
(a) Senior Worldwide SW Toy Brand Executive: a senior executive
position with overall responsibility for managing and overseeing
Licensee's activities on a worldwide basis in the exercise of
Licensee's obligations hereunder (the "Senior Worldwide SW Toy Brand
Executive"). (Exclusively)
(b) Domestic Marketing Executive: an executive position with overall
responsibility for the management and oversight of Licensee's
marketing efforts in the United States for the Licensed Products,
including, without limitation, the implementation of Licensee's
specific trade support programs for, and sales relationships with,
and all distribution of Licensed Products, to all retail and other
Customer accounts in the United States (the "Domestic Marketing
Executive").
(Exclusively)
(c) International Marketing Executive: an executive position with
overall responsibility for the management and oversight of
Licensee's marketing efforts outside of the United States for the
Licensed Products including, without limitation, the implementation
of Licensee's specific trade support programs for, and sales
relationships with, and all distribution of Licensed Products to all
retail and other Customer accounts in all Sub-Territories outside of
the United States (the "International Marketing Executive").
(Primarily)
(d) Product Development Team: a number of individuals whose services
are exclusively dedicated to the design and development of Licensed
Products hereunder (the "Product Development Team"). The Product
Development Team shall consist of at least a general manager and a
minimum of ten (10) designers, sculptors and artists.
(Primarily)
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
(e) Retail Marketing Organization: an in-house staff or third party
organization contracted by Licensee, whose primary function will be
servicing, throughout each and every Sub-Territory, all retail
Customers of Licensee in the coordination of inventory management
and product allocations and in the management of the physical
presentation of Licensed Products on shelves in retail outlets, as
well as performing such other functions customarily performed by
retail marketing organizations in the toy industry; provided,
however, that for Sub-Territories outside of the U.S. and Canada
Licensee shall not be responsible to comply with its obligations
pursuant to this Subparagraph 4.3(e) to the extent that a retail
Customer prohibits retail marketing representatives from all toy
distribution companies from performing such functions in such
Sub-Territory for such retail Customer. (Primarily)
(f) Research Analyst: a full-time research analyst position
exclusively dedicated to collating and analyzing all sell-through
information relating to the Licensed Products in each such
Sub-Territory designated by Licensor and producing weekly updates
for Licensor and Licensee of the information so collated and
analyzed. (Primarily)
4.4. Licensor Representative. Licensee acknowledges that Licensor intends
to secure the services of a senior executive who will oversee, on
Licensor's behalf, Licensee's activities in relation to the exercise of
the rights licensed to and obligations assumed by Licensee pursuant to
this Agreement (the "Licensor Representative"). [**]
4.5. Advertising Commitment. In each and every Calendar Year of the Term
beginning with Calendar Year 1999, Licensee shall expend in each
Sub-Territory hereunder not less than such Ad Spend as Licensor shall have
approved as part of the Marketing Plan and Quarterly Updates for such
Sub-Territory. The "Ad Spend" shall be defined as the actual, direct,
out-of-pocket costs (without any overhead and administrative charges) for
the third party creation and placement of Advertising for the sale of
Licensed Products, net of all rebates and credits of any kind (however
calculated or denominated). Within thirty (30) days for the
Sub-Territories of the U.S. and Canada, and within sixty (60) days for the
Sub-Territories outside of the U.S. and Canada, following the end of each
Calendar Year of the Term, beginning with Calendar Year 1999, Licensee
shall submit to Licensor a true and accurate statement setting forth, Sub-
Territory-by-Sub-Territory, the actual Ad Spend within each Sub-Territory,
and Licensee shall concurrently supply to Licensor documentation
sufficient to evidence Licensee's compliance with the requirements of this
Subparagraph 4.5. If Licensor requires an English translation of any
non-English language documentation, the sixty (60) day period for the
applicable Sub- Territory will be extended accordingly. If Licensee fails
to expend the full amount of the Ad Spend approved by Licensor for any
Sub-Territory then, as liquidated damages for such failure by Licensee,
within fifteen (15) business days following the end of the aforementioned
thirty (30) or sixty (60) day period, Licensee shall pay to Licensor an
amount equal to the shortfall between the amount of Ad Spend approved by
Licensor and the actual amount of Ad Spend expended by Licensee for such
Sub-Territory.
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4.6. Dedicated Retail Space. On a continuous basis throughout the Term,
Licensee agrees to use commercially reasonable efforts to secure a retail
space that is one hundred percent (100%) dedicated to the sale of Licensed
Products and other toy products based on the Licensed Property (a
"Dedicated Retail Space") in ninety percent (90%) or more of the stores
that are owned or controlled by any and all of the top five (5) retail
Chains in the U.S. Sub-Territory and the top three (3) retail Chains, if
any, in each Sub-Territory enumerated in Column A of Schedule III. Each
Dedicated Retail Space shall consist of not less than the number of
running square feet of space set forth on Schedule IV. Licensee shall
cooperate with Licensor and with a designated third party licensee of
Licensor concerning toy products based on the Licensed Property in working
with retailers to secure such Dedicated Retail Space, and as between
Licensee and such third party licensee, Licensee shall be responsible for
an amount equal to a pro-rata portion of the costs of each such Dedicated
Retail Space in any country of the Territory equal to the ratio that the
running square feet of such Dedicated Retail Space utilized by Licensee
bears to the total running square feet of such Dedicated Retail Space
utilized by both Licensee and such third party licensee.
4.7. Consumer Research. No less frequently than annually, throughout the
Term and with respect to each Sub-Territory, Licensee shall generate such
ongoing qualitative and quantitative consumer research concerning the
Licensed Products or the Licensed Property as Licensor and Licensee shall
mutually agree, and Licensee shall provide Licensor with a copy of all
such research.
5. LICENSOR APPROVALS.
5.1. Creative Materials. Subject to Subparagraph 5.3 hereinbelow, Licensor
will have the right to approve in its sole discretion the following
material, in accordance with the procedures set forth in Subparagraph 5.2
hereinbelow:
(a) the Licensed Products, including, but not limited to, the
initial concepts, design documents, scripts, copy, alpha version,
beta version, unpainted sculpts, painted sculpts, prototypes and
manufacturing samples;
(b) any and all audio and/or visual materials (including, without
limitation, artwork, photographs, images and designs) incorporating
any part of the Licensed Property, including, without limitation,
initial concepts, preliminary designs and final artwork intended for
any uses hereunder (the "Designs"); and
(c) any and all cartons, containers, packaging, instructions, tags,
labeling and wrapping material for the Licensed Products and any and
all Advertising and marketing, publicity, promotional and similar
materials for the Licensed Products (including, by way of
illustration, but not limitation, catalogs, trade advertisements,
flyers, sales sheets, labels, package inserts and display materials)
which are used in connection with the Licensed Products and which
make use of any of the Licensed Property, as well as
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any trade or other Advertising or similar announcements intended to
advise potential customers of the rights acquired by Licensee under
this Agreement, whether or not such materials make use of the
Licensed Property (collectively the "Advertising Materials").
All materials submitted in a language other than English will be
accompanied by a complete and accurate English translation. Licensee shall
ensure that all Licensed Products, in their finished goods form, shall in
all material respects reflect and be accurate representations of the
prototypes for the Licensed Products as approved by Licensor, and
Licensee's failure to do so shall, at Licensor's sole option, be deemed to
be a material breach of this Agreement.
5.2. Approval Procedure.
(a) In General.
(i) Marketing Plans: Licensee will submit to Licensor each
Marketing Plan (including the Initial Marketing Plan, the
Annual Marketing Plans and Quarterly Updates) for Licensor's
approval, subject to Subparagraph 25.10 hereinbelow, on or
before the dates required pursuant to Subparagraph 4.1 above.
If Licensor disapproves all or any part of a Marketing Plan,
Licensee shall revise such Marketing Plan (or any Plan Element
thereof) and re-submit same to Licensor for its approval again
pursuant to this Subparagraph 5.2, until such Marketing Plan
(or Plan Element, as the case may be) is approved by Licensor.
(ii) Creative Materials: Licensee will submit to Licensor,
along with Licensor's Standard Approval Form attached hereto
as Exhibit C, the Licensed Products, the Designs, Advertising
Materials and Copyright Materials for Licensor's approval,
subject to Subparagraph 25.10 hereinbelow, prior to
manufacture, printing, production, duplication, distribution,
sale or other use by Licensee thereof and each and every
modification thereto. If Licensor requires alterations, then
such alterations shall be made at Licensee's sole cost and
shall be submitted to Licensor for further written approval in
accordance with this Subparagraph 5.2. Licensee agrees to
strictly adhere to all of Licensor's product approval
procedures, and to comply with Licensor's style and legal
guides provided to Licensee, and cause all parties with whom
Licensee contracts relative to the Licensed Products to do so,
and, where necessary, to incorporate changes in compliance
therewith. Any modification of any Licensed Product, Design,
Advertising Material and/or Copyright Material must be
re-submitted in advance for Licensor's written approval as if
it were a new Licensed Product, Design, Advertising Material
and/or Copyright Material. Licensee agrees not to change the
Licensed Product, Design, Advertising Material or Copyright
Material, as the case may be, without first submitting to
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Licensor samples showing such proposed changes and obtaining
Licensor's written approval of such samples.
(b) Licensor's Discretion. Except as otherwise expressly provided in
this Agreement, approval and disapproval of all matters for which
Licensor's approval is required pursuant to this Agreement shall be
at Licensor's discretion, and any product, good or article not so
approved in writing by Licensor prior to the manufacture thereof or
for which a Marketing Plan has not been approved by Licensor
hereunder shall not be a Licensed Product and Licensee shall have no
right to manufacture, market, distribute, sell or exercise any other
right licensed to it hereunder with respect to such product, good or
article. Notwithstanding and without waiver of any other rights or
remedies available to Licensor, if any product, good or article not
approved by Licensor is manufactured, distributed or sold by
Licensee or any third party authorized by Licensee, then Licensor
shall have the right to terminate this Agreement subject to and
pursuant to the terms of Subparagraph 22.2(a) hereinbelow.
Licensor's approval of any Copyright Materials in accordance with
Subparagraph 5.2 hereinabove with respect to the Licensed Product
shall not be deemed to be approval for the use of any part of such
Copyright Materials with respect to another Licensed Product.
(c) Third Party Sourcing. Licensee shall not have the right to use
any artwork or other creative material incorporating elements of the
Licensed Property used in connection with the products, goods or
articles of third parties (including, without limitation, books,
comics and trading cards) without first advising Licensor in writing
of the third party which had used such artwork and without first
obtaining Licensor's written approval thereof in accordance with
this Paragraph 5.
5.3. Pre-Existing Approvals. Licensor hereby acknowledges and affirms the
written approvals given by it in respect of any Licensed Product
heretofore approved by Licensor pursuant to that certain agreement between
Licensor and Licensee dated as of October 30, 1992, as amended (the "Prior
Agreement") with respect to any materials that would constitute Licensed
Products, Designs or Advertising Materials hereunder.
6. ARTWORK AND FILM CLIPS/THIRD PARTY APPROVALS.
6.1. Artwork and Film Clips. Licensee agrees and acknowledges that,
notwithstanding the license granted by Licensor under this Agreement, use
of visual materials, audio representations and audiovisual materials
relating to the Licensed Property (whether or not supplied by Licensor)
(collectively, "Artwork and Film Clips") may require license payments to
third parties independent of and unrelated to Licensee's obligations to
make payments to Licensor under this Agreement. Examples of such licenses
and/or payments include, without limitation, payments to talent, trade
unions and guilds, reuse fees, synchronization licenses and residuals.
Licensee agrees and acknowledges that Licensee may in addition be required
under any applicable talent agreements or collective bargaining agreements
to obtain releases from third
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
parties, including performers, artists, talent, unions or guilds, for use
of Artwork and Film Clips.
6.2. Third Party Approvals. Licensee shall not have the right to make any
use of the Licensed Property, including, without limitation, Artwork and
Film Clips, without first obtaining any required third party
authorization, release, approval or license, and the prior written
approval of Licensor. Licensor agrees that it shall use reasonable efforts
to inform Licensee of any third party license or payment of which Licensor
has knowledge that is required in connection with any proposed use of the
Licensed Property or any Artwork or Film Clips hereunder; provided,
however, that Licensor makes no warranty or representation as to the
accuracy or completeness of such information and Licensor shall not be
liable with respect thereto or with respect to any payment that may be
required. Licensee shall be solely responsible for any and all payments
required with respect to the use of any Artwork and Film Clips in
connection with a Licensed Product and the marketing, Advertising, sale,
distribution and/or promotion thereof. All specific uses of any Artwork
and Film Clips shall be subject to the prior written approval of Licensor,
as provided in Paragraph 5 above. Without limitation of Licensor's rights
and remedies in such event, Licensee's failure to comply with this
Subparagraph 6.2 shall be deemed to be a material breach of this
Agreement.
6.3. Licensor's Costs. Any and all costs and expenses incurred by Licensor
in producing, copying, and duplicating Artwork and Film Clips for Licensee
and in shipping, handling and delivering Artwork and Film Clips to
Licensee shall be reimbursed and paid to Licensor within thirty (30) days
after Licensee's receipt of an invoice therefor. The foregoing
reimbursement obligation by Licensee shall apply to any original artwork
done at Licensee's request by Licensor, or by third parties under contract
to Licensor.
7. ADVANCE/[**].
7.1. Advance. Licensee agrees to pay to Licensor, an advance of One
Hundred Forty Million Dollars ($140,000,000) payable in the following
amounts, at the following times:
(a) Sixty Million Dollars ($60,000,000) thereof, contingent upon the
occurrence of the initial general theatrical release in the United
States of Episode I and payable on the U.S. Release Date of Episode
I;
(b) Forty Million Dollars ($40,000,000) thereof, contingent upon the
occurrence of the initial general theatrical release in the United
States of Episode I and payable on the U.S. Release Date of Episode
I;
(c) Twenty Million Dollars ($20,000,000) thereof, contingent upon
the occurrence of the initial general theatrical release in the
United States of Episode II and payable on the U.S. Release Date of
Episode II; and
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
(d) Twenty Million Dollars ($20,000,000) thereof, contingent upon
the occurrence of the initial general theatrical release in the
United States of Episode III and payable on the U.S. Release Date of
Episode III.
The aforementioned advance is apportioned among Sub-Territories as set
forth in Schedule III. The advance for a Sub-Territory shall be recouped
only by Royalties payable to Licensor for such Sub-Territory (each such
advance apportioned for the applicable Sub-Territory is hereinafter
referred to as an "Advance"). Royalties actually paid to Licensor from
January 1, 1999 through the U.S. Release Date of Episode I may be credited
against and in reduction of the Advances otherwise payable to Licensor
pursuant to Subparagraphs 7(a) and 7(b) hereinabove. Royalties paid to
Licensor for a Sub-Territory in excess of an Advance for such
Sub-Territory shall not be used to reduce the amount of a subsequent
Advance payable on release of an Episode subsequent to Episode I.
Notwithstanding the above, Licensee shall have the right to delay payment
of sums due pursuant to Subparagraphs 7.1(b), 7.1(c) and 7.1(d)
hereinabove for up to four (4) months; provided, however, that any such
delayed payment shall accrue interest charges from the date due until the
date of payment to Licensor at a rate equal to three percent (3%) over the
prime lending rate set by the Bank of America N.T.S.A. and such interest
shall be payable upon demand; provided, that any such interest paid shall
not be recoupable by any Royalties or Advances payable hereunder.
7.2. Cross-Collateralization. For the avoidance of doubt,
(a) Advances for one Sub-Territory shall not be cross-collateralized
by the recoupment of Royalties in another Sub-Territory; and
(b) For the purpose of determining recoupment of Advances, a sale
with respect to a Licensed Product shall be deemed to take place in
the Sub-Territory into which Licensee, a Licensee Affiliate or a
Sublicensee ships or delivers (or authorizes the shipment or
delivery) such Licensed Product to a Customer.
7.3. [**]
8. ROYALTIES.
8.1. Royalty Percentage. Licensee will pay to Licensor sums ("Royalties")
equal to the following applicable percentage of Net Sales ("Royalty
Percentage") for each unit of a Licensed Product: [**].
8.2. Net Sales. "Net Sales" shall be equal to one hundred percent (100%)
of all gross amounts derived by Licensee or a Sublicensee (whether or not
such Sublicensee is a Licensee Affiliate), as the case may be, from the
"sale" (as defined in this Subparagraph 8.2) of each and every Licensed
Product hereunder, less only: (a) any and all reasonable and actual trade
and promotional discounts and allowances which are shown on an invoice and
which do not exceed
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
in their totality [**] of the total amount shown on the invoice, and (b)
returns supported by credit memos actually issued to a Customer, provided
that such returns may not exceed [**] of the total invoiced amount
(regardless of whether such returns are the result of return policies,
defective products, product warranties, stock balancing, price protection
or any other provision or obligation) and further provided that if the Net
Sales of any such resold return (in excess of the [**] returns cap
mentioned hereinabove) exceeds the original Net Sales therefor, then in
addition to the Royalty paid in respect thereof, Licensor shall also be
entitled to the applicable Royalty on the difference between the original
Net Sales and the Net Sales upon resale of such return. Net Sales shall
not be reduced in any other way not specified above in this Subparagraph
8.2 and [**]. A "sale" shall be defined to occur for a specific Licensed
Product in any country of the Territory when the first of any of the
following events occurs: (i) the date of the invoice for such Licensed
Product actually issued by Licensee, by a Licensee Affiliate or by a
Sublicensee to a Customer; (ii) the date of the shipment of such Licensed
Product to a Customer of Licensee, of a Licensee Affiliate or of a
Sublicensee; or (iii) the date payment is received in respect of such
Licensed Product by Licensee, by a Licensee Affiliate or by a Sublicensee
from a Customer.
8.3. Rebates, Discounts, Deductions. Notwithstanding anything to the
contrary in Subparagraph 8.2 hereinabove, there shall be no rebates,
discounts, allowances, deductions from or reductions to the gross amounts
derived by Licensee, a Licensee Affiliate or a Sublicensee with respect to
a Licensed Product as a result of the manufacturing, distribution,
marketing, promotion or sale of a product, good or article that is not a
Licensed Product, and any rebate, discount, allowance, deduction from or
reduction to such gross amounts with respect to a Licensed Product shall
be no higher on a per unit basis than the lowest rebate, discount,
allowance, deduction or reduction granted to a Customer within the
previous two (2) Calendar Years for the same volume of any other product,
good or article similar to such Licensed Product distributed by Licensee,
a Licensee Affiliate or a Sublicensee to such Customer.
8.4. F.O.B. or Ex Works. Notwithstanding anything to the contrary
contained herein or otherwise, with respect to the "sale" (as defined in
Subparagraph 8.2 hereinabove) of a Licensed Product on a F.O.B., Ex Works
or similar basis (collectively herein "F.O.B."), the applicable Royalty
for such Licensed Product shall be as follows:
(a) In those cases where the Licensed Product is specifically
designed as and is intended to be sold as an F.O.B. Product, is sold
directly to retailers on an F.O.B. basis and is not sold by Licensee
other than on an F.O.B. basis (e.g., the current product line of
Galoob Direct, Inc.), then the applicable Royalty for such Licensed
Product shall be the product of the Royalty Percentage in
Subparagraph 8.1 hereinabove multiplied by one and sixty-seven one
hundredths (1.67) (such Royalty hereinafter the "F.O.B. Royalty").
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(b) In those cases where the Licensed Product is offered for sale to
a Customer in a Sub-Territory on other than an F.O.B. basis and the
same Licensed Product SKU is also sold to the same Customer in the
same country on an F.O.B. basis and the number of units of the same
Licensed Product SKU that are sold to a Customer in the country on
an F.O.B. basis in the applicable Calendar Year do not exceed fifty
percent [50%] of the aggregate number of units of such Licensed
Product SKU sold to such Customer in such country in the same
Calendar Year, then the applicable Royalty for such Licensed Product
sold on an F.O.B. basis shall be the Royalty that would have been
payable pursuant to Subparagraph 8.1 hereinabove had such Licensed
Product been sold to such Customer in such country on other than an
F.O.B. basis. In those cases where all the conditions of this
Subparagraph 8.4(b) have been met except that the applicable number
of units sold on an F.O.B. basis exceed fifty percent (50%) of the
applicable aggregated number of units sold, then the provisions of
Subparagraph 8.4(d) shall apply.
(c) In those cases where the Licensed Product is sold on an F.O.B.
basis to a Sublicensee for subsequent distribution to a Customer,
then the following shall apply:
(i) for purposes of this Subparagraph 8.4(c) only, the
Sublicensee shall be deemed to be a Customer for purposes of
determining when the sale has occurred and the applicable Net
Sales, and
(ii) the applicable Royalty for such Licensed Product shall be
the greater of the F.O.B. Royalty or the Royalty that would be
payable pursuant to Subparagraph 8.1 hereinabove if such
Sublicensee is not deemed a Customer. For purposes of this
Subparagraph 8.4(c), the Royalty shall initially be accounted
for and paid as if the Sublicensee is deemed to be a Customer;
thereafter, at such time as such Sublicensee sells such
Licensed Product to a Customer, Licensee shall reconcile the
accounting and payment to Licensor in accordance with the
terms of this Subparagraph 8.4(c)(ii).
(d) In those cases where a Licensed Product is sold on an F.O.B.
basis not described in Subparagraphs 8.4(a)-(c) hereinabove, the
particular method of sale and the applicable Royalty must be
approved in writing by Licensor, it being the intention of the
parties that such Royalty will in all cases be equal to the higher
of the F.O.B. Royalty or the Royalty that would be payable pursuant
to Subparagraph 8.1 hereinabove if such sale were made on other than
an F.O.B. basis.
8.5. Other Consideration. Notwithstanding anything to the contrary
contained in this Agreement, if Licensee, a Licensee Affiliate or a
Sublicensee shall derive any consideration (other than the Net Sales for a
Licensed Product hereunder) for the right to exercise any of the rights
licensed to Licensee hereunder, then Licensor shall be entitled to fifty
percent (50%) of any such consideration, which shall be payable and
accountable to Licensor in accordance with
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the provisions of this Agreement and when first received by or credited to
Licensee, a Licensee Affiliate or a Sublicensee, as the case may be.
8.6. Bundling Royalty. Licensee shall not have the right to distribute,
market or sell (or authorize a third party to distribute, market or sell)
any Licensed Product with any other product, good or article (including
another Licensed Product) in a single package at a single price
("Bundling") without Licensor's prior written approval of: (a) whether or
not such Bundling may occur; (b) the terms and conditions of such
Bundling; and (c) Licensor's Royalty in such instance.
8.7. Evaluation Unit. Any shipment by Licensee, a Licensee Affiliate or a
Sublicensee to a Customer of a promotional or evaluation unit ("Evaluation
Unit") of a Licensed Product will be deemed Net Sales and shall be
calculated at an amount equal to the average invoice amount charged for
such Licensed Product for the applicable distribution channel in the
applicable Sub- Territory from the time of its initial commercial release
until the date of such shipment or, if such Licensed Product has not been
commercially released, at an amount equal to the average invoice amount
charged for a comparable Licensed Product for the applicable distribution
channel in the applicable Sub-Territory from the time of its initial
commercial release until the date of shipment of such Evaluation Unit,
except to the extent that Licensee has obtained Licensor's prior written
consent to exempt a Licensed Product SKU from Licensee's Royalty
obligations hereunder.
8.8. Value-Added Taxes. Calculation of Net Sales shall not include any
Value Added Tax ("VAT") or any other tax (except as expressly provided in
this Agreement) and accordingly Licensee shall not pass along to Licensor
and Licensor shall not bear any VAT or any other tax charges incurred with
respect to a Licensed Product.
8.9. No Waiver. Acceptance of any sums by Licensor by way of Advances,
Royalties or otherwise shall not prevent Licensor at any time from
disputing or demanding particulars with reference to the amounts due nor
shall such acceptance constitute Licensor's waiver of any breach by
Licensee of any terms hereof.
8.10. No Carryover. If the parties agree to an extension of the Term and
if, on the expiration of the Term, any Advance shall not have been
recouped by the applicable Royalties paid to Licensor, then the shortfall
will not be carried forward to any extension of the Term.
8.11. Warrant.
(a) Concurrently with the execution of this Agreement, Licensee
shall grant to Licensor a warrant (the "Warrant") for the purchase
of up to 2,130,000 fully paid and non-assessable shares of the
common stock of Licensee following exercise of the Warrant at a per
share exercise price equal to $15, subject to adjustment as provided
in the Warrant.
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(b) If at any time prior to the termination of the Warrant, Licensee
grants any Common Stock, Convertible Securities or Options (as
defined in the Warrant) to any officer, director, employee or
consultant of Licensee ("EE Stock"), then Licensee shall
simultaneously therewith grant to Licensor a warrant ("Springing
Warrant"), on the same terms and conditions as the Warrant (except
that the exercise price per share of such Springing Warrant shall
equal the exercise price per, or the amount paid for each, share of
such EE Stock), to purchase that number of shares of Common Stock
computed using the following formula:
X = .154(B/A)(X+Y)
Where:
X = The number of shares of Common Stock to be issued to
Licensor upon exercise of the Springing Warrant
Y = The number of shares of Common Stock issued or issuable
pursuant to the grant of such EE Stock
A = The original number of Warrant Shares (as defined in the
Warrant)
B = The number of Warrant Shares owned by Licensor on the date
of such grant of Additional Stock
9. STATEMENTS AND PAYMENTS.
9.1. Payment Terms. Licensee will wire transfer (as immediately available
funds) to Licensor all sums due to it hereunder for Licensor's receipt
thereof within thirty (30) days following the end of each calendar month
based on the Net Sales of Licensed Products in such calendar month. Net
Sales generated by a Sublicensee (whether or not such Sublicensee is a
Licensee Affiliate) shall be reported to Licensor in the calendar month in
which such Net Sales are paid or reported to Licensee, whichever first
occurs. All payments made to Licensor pursuant to this Agreement will be
in United States currency. Late payments will accrue interest charges from
the due date through the date of payment at an interest rate equal to
three percent (3%) over the prime lending rate set by the Bank of America
N.T.S.A., or the maximum legal rate, if such maximum legal rate is lower,
and shall be payable upon demand.
9.2. Remittance of Funds. All compensation amounts stated in this
Agreement, including without limitation, Advances and Royalties accrued
and/or payable to Licensor pursuant to this Agreement shall be computed,
accrued, paid and remitted to Licensor as follows, and Licensee shall bear
all costs (including, without limitation, all transactional and transfer
costs, points and fees), as follows:
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(a) All Royalties due and payable to Licensor hereunder shall be
converted from the local currency of the source country to U.S.
Dollars at the rate of exchange published in The Wall Street Journal
for such local currency which is in effect on the date payment is
due or, if payment is late, then the rate of exchange published in
The Wall Street Journal on the date payment is due or the date of
actual payment, whichever rate yields the higher amount of U.S.
Dollars.
(b) It shall be Licensee's sole responsibility and expense to obtain
the approval of any governmental authorities to take whatever steps
that may be required and to comply in all respects with all
applicable laws and regulations in order to remit funds to Licensor.
9.3. Blocked Funds. Royalties are payable to Licensor hereunder on all Net
Sales of Licensed Products, regardless of whether monies cannot be
converted into U.S. Dollars or cannot be promptly remitted to Licensor in
the United States or because any or all of such monies are otherwise
restricted due to moratorium, embargo, banking regulations, exchange
restrictions or other governmentally-imposed restrictions against such
conversion and remittance (such restricted monies the "Blocked Funds").
9.4. Payment Reports. Within thirty (30) days after the close of each
calendar month, Licensee will prepare and deliver to Licensor a Royalty
report form in the form attached hereto as Exhibit D, as such form shall
be modified by Licensor from time to time, together with all other
information required by Licensor hereunder (the "Royalty Report Form").
Commencing with the month of October, 1998, a Royalty Report Form will be
due on a calendar monthly basis whether or not Royalties are payable to
Licensor hereunder.
9.5. Report Information.
(a) Licensee shall furnish to Licensor, concurrently with the
delivery of the Royalty Report Form pursuant to Subparagraph 9.4
hereinabove, a full and complete statement, duly certified by an
officer of Licensee to be true and accurate, providing at least the
following information:
(i) one hundred percent (100%) of all gross amounts derived by
Licensee or a Sublicensee (whether or not such Sublicensee is
a Licensee Affiliate), as the case may be, from the "sale" (as
defined in Subparagraph 8.2 hereinabove) of each and every
Licensed Product SKU hereunder, itemized by Licensed Product
SKU;
(ii) itemization of all allowable deductions, if any, in
calculating the Net Sales for each Licensed Product;
(iii) the Net Sales for each and every Licensed Product SKU;
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(iv) the amount of Royalties due to Licensor with respect to
such Net Sales;
(v) credits for any Advance recoupment or other payments made
since the last Royalty Report Form rendered to Licensor
hereunder;
(vi) the balance payable;
(vii) an itemization of each and every Licensed Product SKU
utilizing the name, voice or likeness of such individual
previously identified to Licensee by Licensor to whom Licensor
has an obligation to pay a participation in proceeds generated
by the sale of such Licensed Product and the identification of
each and every name, voice or likeness of a character which is
embodied in such Licensed Product SKU;
(viii) an itemization of all information required by Licensor
and previously advised to Licensee for Licensor to calculate
any participation referred to in Subparagraph 9.5(a)(vii)
hereinabove and/or to render accountings with respect thereto;
and
(ix) such other pertinent information as Licensor may
reasonably request from time to time.
(b) Each and every item of financial information required to be
submitted by Licensee pursuant to Subparagraphs 9.5(a)(i) through
9.5(a)(ix) hereinabove shall be broken down into the following
categories: the calendar month to which the statement applies;
cumulative from the inception of the Calendar Year to which such
statement applies; and cumulative from and after the date of this
Agreement to the close of the calendar month to which such statement
applies; and such information shall be aggregated as follows:
(i) by Sub-Territory (and in each country within such
Sub-Territory, if more than one country exists in a
Sub-Territory); and
(ii) by all Licensed Products throughout the Territory as a
whole.
(c) All amounts to be reported pursuant to Subparagraph 9.5(a) above
shall be first stated in the local currency in which the pertinent
Net Sales occurred. If several currencies are involved in any
reporting category, that category shall be broken down by each such
currency. Next to each local currency amount shall be set forth the
equivalent amount stated in U.S. Dollars, and the rate of exchange
required to be used hereunder in making the conversion calculation.
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(d) Each such statement and Royalty Report Form shall be provided by
Licensee, at its sole expense, to Licensor in ASCII format or any
other electronic media format as Licensor may reasonably request.
(e) Upon Licensor's written request, Licensee shall also provide to
Licensor such relevant data and information which Licensor shall
require to substantiate any Royalty Report Form submitted to
Licensor, the proper exercise of the rights licensed to Licensee
hereunder and/or the operation and performance of Licensor's duties
and obligations hereunder. Such data and information shall be
included within the definition of "Licensee's Records" set forth in
Subparagraph 11.1 hereinbelow and shall include, without limitation,
all sales, manufacturing, distribution and accounting records
related to the Licensed Products, all information relating to the
inventory of Licensed Products (including components thereof
anywhere in the world and "works-in-progress" [as such term is
commonly understood in the U.S. toy industry]), all production and
sales orders, invoices and bills of lading related to a Licensed
Product, and copies of all material contracts and leases between
Licensee and any third parties (e.g., without limitation, lenders,
manufacturers, vendors, distributors, co-venturers) related to a
Licensed Product, to any aspect of Licensor's rights and/or to any
aspect of Licensee's obligations hereunder in connection with the
manufacture, distribution, marketing, promotion and/or sale of any
Licensed Product.
10. TAXES.
In addition to any other sums payable hereunder, Licensee agrees that it
shall immediately and timely pay or reimburse Licensor for the payment of
all amounts imposed as taxes, however designated, arising from or based
upon this Agreement or the rights licensed hereunder including, without
limitation, all sales, use and value-added taxes, local privilege or
excise tax, tariffs, duties, property taxes or assessments, but excluding
any taxes based upon Licensor's net income and subject to Subparagraph 8.8
hereinabove. Except as provided in the remainder of this Paragraph 10, no
withholding taxes of any kind may be deducted from any Royalties or gross
amounts derived with respect to the sale of a Licensed Product. If and
only to the extent that Royalties hereunder remitted directly to Licensor
are subject to a withholding tax requirement of a country other than the
United States, then Licensee is authorized by Licensor to deduct and to
withhold from Royalties generated from such country any withholding tax
imposed by such country at the local statutory rate or lower income tax
convention rate, if applicable; provided, however, that the Royalties due
to Licensor with respect to the "sale" (as defined in Subparagraph 8.2
hereinabove) of any particular Licensed Product may not be reduced by
withholding taxes from more than one country, that such tax payments made
by Licensee on behalf of Licensor may not reduce the amounts payable and
paid to Licensor under this Agreement by more than the applicable
withholding taxes of the relevant country and, that Licensee shall
promptly provide Licensor with notification of and official receipts for
all tax payments made on Licensor's behalf pursuant to this Agreement. If,
within forty-five (45) days after each payment is made hereunder Licensor
has not received either: (a) an
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
authenticated withholding tax certificate (stamped by the appropriate tax
authority); or (b) written evidence by Licensee (in form satisfactory to
Licensor) that Licensee has filed an application to receive a withholding
tax certificate from such tax authority, then Licensee shall immediately
pay to Licensor an amount equal to the amount previously withheld by
Licensee from such payment, divided by 1 minus the applicable withholding
tax rate, (e.g.: if the tax withheld was $15, and the withholding tax rate
was 15%, then Licensee shall remit to Licensor $15 divided by 85%, or
$17.65).
11. RECORDS AND AUDITS.
11.1. Licensee's Records. During the Term and for not less than five (5)
years following the expiration or termination of this Agreement, Licensee
will maintain complete and accurate records of all transactions relating
to this Agreement and/or Licensee's obligations hereunder including, but
not limited to, the data and information described in Subparagraphs
9.5(a)-(e) hereinabove (collectively "Licensee Records") and Licensee will
contractually obligate and cause all Sublicensees and Manufacturers to
maintain complete and accurate records of all transactions relating to
this Agreement and the Sublicense Agreement or the Manufacturing
Agreement, as the case may be, including, but not limited to, the data and
information described in Subparagraph 9.5(e) hereinabove.
11.2. Audits. Licensor or any independent certified public accountant
selected by Licensor may from time to time, but not more frequently than
two (2) times per Calendar Year, upon reasonable notice and during normal
business hours, inspect at Licensee's main headquarters located in the
United States any and all Licensee Records. If, upon performing such
audit, it is determined that Licensee has underpaid Licensor, Licensee
will immediately make full payment under Paragraph 8 hereinabove. If the
amount of underpayment exceeds [**] of the payments due Licensor in the
period being audited, Licensee will bear all expenses and costs related to
such audit in addition to its obligation to make full payment under
Paragraph 8 hereinabove. All underpayments and late payments will be
subject to interest charges, at the rate specified for late payments in
Subparagraph 9.1 hereinabove, calculated from the due date to the actual
payment date. The obligation to maintain records and to grant Licensor and
Licensor's representatives access to such records shall survive the
expiration or earlier termination of this Agreement.
12. COPYRIGHT AND TRADEMARK NOTICES.
12.1. Copyright and Trademark Notices. Licensee will place the following
notice on each unit of a Licensed Product and on all Advertising,
promotional material, packaging and any other material using the Licensed
Property:
TM or (R) (if verified in writing by Licensor) & (C) (______) LUCAS.
In English or local language: All Rights Reserved. Used under
Authorization.)
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( ) First year of Publication.
If this notice cannot be used due to space limitations, Licensor will
supply an alternative notice upon request. Licensee agrees that trademarks
arising from the Licensed Property will only be displayed in a form and
manner approved by Licensor. Licensor reserves the right to require
changes in the required notice if Licensor in its reasonable judgment
deems changes required by applicable law. Licensor makes no
representations or warranties with respect to the validity or
effectiveness of any trademarks in any country of the Territory.
12.2. First Use. Licensee agrees to provide Licensor with the date of
first use of each Licensed Product in each country of the Territory,
together with documentation evidencing the first sale or shipment of such
Licensed Product. In addition, Licensee shall submit to Licensor at the
beginning of each Calendar Year, a statement on Licensor's standard form
describing the Licensed Products that are being offered for sale.
13. OWNERSHIP.
13.1. Ownership of Copyright Materials. Licensor represents and warrants
that it has the right to grant the license granted to Licensee in this
Agreement. Licensee acknowledges and agrees that, as between Licensor and
Licensee, the Licensed Property is owned solely and exclusively by
Licensor, and that Licensee has no rights thereto other than as expressly
set forth herein. Further, Licensee acknowledges and agrees that if and to
the extent that any Licensed Products, Designs, Advertising Materials,
Production Materials or other works are based on derived from the Licensed
Property or any part thereof (all of the foregoing to such extent being
individually and collectively the "Copyright Materials"), such Copyright
Materials will immediately from the inception of creation become the
property of Licensor and be owned solely and exclusively by Licensor.
Licensor's ownership rights under this Subparagraph 13.1 will include any
and all copyrights and any other intellectual property rights in the
Licensed Property and in any Copyright Materials; provided, however, that
such Licensor ownership rights will not include any Licensee patent,
copyright, trademark or other intellectual property that is used by
Licensee hereunder on or in connection with products sold by Licensee
owned or controlled by Licensee which patent, copyright, trademark or
other intellectual property shall be, as between Licensee and Licensor,
the property of Licensee to the extent that such intellectual property
does not constitute any Licensed Property. Licensor acknowledges and
agrees that, as between Licensor and Licensee, Licensee is the owner of
all tangible rights in and to any physical inventory of Licensed Products
and, subject to Subparagraph 13.2 hereinbelow, in all Production
Materials.
13.2. Ownership of Production Materials. In addition to Licensor's other
rights and remedies hereunder, if Licensee is in material breach of this
Agreement or if the Agreement, in whole or in part, is terminated prior to
the expiration of the Term then, at Licensor's sole option exercisable
within ninety (90) days of the termination date by written notice to
Licensee, Licensee shall transfer, assign and deliver to Licensor, and
shall cause all Sublicensees and
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Manufacturers to transfer and assign to Licensor the full, complete and
immediate ownership and possession of any and all physical, tangible
tools, molds and printing plates used in the development or production of
the Licensed Products created pursuant to this Agreement which reproduce
any aspect of the Licensed Property (collectively "Production Materials"),
whether or not developed by or on behalf of Licensee, a Licensee
Affiliate, a Sublicensee, a Manufacturer or any third party. For any such
Production Materials to be purchased by Licensor, Licensor shall pay
Licensee an amount equal to ten percent (10%) of Licensee's then remaining
net book value of the Production Materials so purchased. Licensee also
agrees that upon such termination or expiration of this Agreement, at
Licensor's sole discretion and upon Licensor's request, Licensee shall
provide to Licensor satisfactory evidence of the destruction of any or all
Production Materials not otherwise purchased by Licensor pursuant to this
Paragraph 13.2, and that Licensor shall have the right at any time
thereafter to enter the premises where the Licensed Products (or their
components) are stored or manufactured to take inventory of witness the
destruction of and/or take possession of and remove any inventory and/or
Production Materials purchased pursuant to this Paragraph 13.2.
13.3. Assignment of Ownership.
(a) Assignment by Licensee. Licensee acknowledges that the
copyrights and all other proprietary rights in and to the Licensed
Property are exclusively owned by and reserved to Licensor. Licensee
shall neither acquire nor assert copyright ownership or any other
intellectual property right in the Licensed Property or in any
derivation, adaptation, variation or name thereof. Without limiting
the foregoing, Licensee hereby assigns, and shall contractually
obligate all entities with whom it contracts relative to a Licensed
Product or Copyright Material to assign to Licensor, all right,
title and interest which Licensee or any such other entity may have
in the Licensed Property, any Licensed Product or any Copyright
Material heretofore or hereafter created by Licensee, such other
entity or by any employee of Licensee or such other entity
including, without limitation, any copyrights and any other
intellectual property rights therein and the goodwill associated
therewith. All such new materials shall be included in the
definition of "Licensed Property" under this Agreement. Licensee
acknowledges that said assignment includes, without limitation, the
right on Licensor's part to license such materials outside the
Territory during the Term and anywhere thereafter and, upon
Licensor's written request, to deliver such materials and all items
embodying any Licensed Property used in the manufacture or
production of such materials when Licensor determines, in its sole
discretion, that they are no longer needed by Licensee for the
manufacture, sale or promotion of any Licensed Product.
(b) Employment for Hire. Licensee acknowledges that the Licensed
Property is owned solely and exclusively by Licensor. All Copyright
Materials created or developed by any employee of Licensee shall be
prepared by such employee as an employee for hire of Licensee under
Licensee's sole supervision, responsibility and monetary obligation
and shall be on a "work for hire" basis within the meaning of the
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U.S. Copyright Act of 1978, as amended. Licensee has caused or shall
cause such Copyright Materials to be "works made for hire" (as that
term is understood in the U.S. Copyright Law) within the scope of
such employee's employment for Licensee, and such Copyright
Materials, and the results and proceeds of such employee's services
are freely assignable by Licensee hereunder.
(c) Assignment of Third Parties. Prior to and as a condition of
retaining any third party who is not an employee of Licensee to
assist with or contribute to the development or creation of any
Copyright Materials, or any part thereof, Licensee, at its sole
expense, will obtain from such third party a complete, executed
written assignment of all right, title and interest in such
Copyright Materials in the form attached hereto as Exhibit E.
13.4. Further Assurances. During and after the Term, Licensee will assist
and cooperate, and will cause all of its employees and contractors to
assist and cooperate, with Licensor in all respects, including, without
limitation, by executing documents (including the form attached hereto as
Exhibit E), by giving testimony, executing documents and taking such
further acts reasonably requested by Licensor to acquire, transfer,
maintain, perfect and enforce copyright, trademark, trade secret, contract
rights and other legal protection for the Licensed Property, any Copyright
Materials and/or Production Materials. Further, if Licensee fails to
comply with any of the obligations set forth above within ten (10)
business days of Licensor's request, Licensee hereby appoints the officers
of Licensor as its attorneys-in-fact (which appointment is irrevocable and
coupled with an interest) to execute documents on behalf of Licensee and
its employees and contractors for this limited purpose. Licensee shall not
make any representations or do any act which may be taken to indicate that
it has any right, title or interest in or to the ownership or use of the
Licensed Property except under the terms of this Agreement. Nothing
contained in this Agreement shall give Licensee any right, title or
interest in or to the Licensed Property except for the rights licensed
hereunder, subject to the terms and conditions hereof.
13.5. Moral Rights. Licensee hereby, on behalf of itself, its employees
and its contractors, irrevocably transfers and assigns to Licensor, and
waives and agrees never to assert, any and all "Moral Rights" (defined
hereinbelow) Licensee or its or their respective employees or its
contractors may have in or with respect to the Licensed Property or in
Licensed Products and/or any Copyright Materials.
13.6. Quality Assurance. Licensee shall ensure that the form, quality and
standard of all materials used in connection with the Licensed Products
conforms to that of the samples approved by Licensor pursuant to this
Agreement and complies with all good manufacturing practices relevant to
the Licensed Products including methods of storage and with all laws and
regulations relevant to the Licensed Products including any relevant
regulations concerning the manufacture, sale or promotion or labeling or
marking of such Licensed Products. Any material modifications by or on
behalf of Licensee to the Licensed Products previously
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approved above shall be submitted to Licensor for written approval as if
the same were new and without approval.
13.7. Right To Inspect. Licensee shall allow Licensor and/or its duly
authorized representative the right to inspect samples of the Licensed
Products during normal business hours and on reasonable notice, and on
similar terms shall afford Licensor every reasonable assistance and allow
or procure them access to any premises of Licensee or other premises where
the Licensed Products are being created or held on behalf of Licensee, for
so long as any use is made of the Licensed Property hereunder by Licensee.
13.8. Recall Of Product. Licensee shall recall immediately, or take other
appropriate action, on the written demand of Licensor, that certain
Licensed Product is defective and harmful when used as intended and
directed and presents a substantial product hazard under the Federal
Hazardous Substance Act or the Consumer Product Safety Act or violates any
applicable law or regulation, Licensee shall cease the manufacture,
distribution and sale of such Licensed Products until such time as such
Licensed Products have been corrected to Licensor's reasonable
satisfaction. Licensee shall have in place appropriate procedures to
ensure that such recall and cessation can be carried out as promptly as
practicable.
14. PROMOTIONAL VALUE, TRADEMARK RIGHTS AND GOODWILL.
14.1. Promotional Value. Licensee acknowledges that Licensor is entering
into the Agreement not only in consideration of the Royalties to be paid,
but also for the promotional value to be secured by Licensor for the
Pictures as a result of the manufacture, sale and distribution by Licensee
of Licensed Products and the Advertising and promotion of the Licensed
Products.
14.2. Trademark License Agreement. Licensee will execute the Trademark
License Agreement attached hereto as Exhibit A, and Licensee's use of
Licensor Trademarks will be subject to the terms and conditions of the
Trademark License Agreement.
14.3. Goodwill. Licensee recognizes the great value of the goodwill
associated with the Licensed Property and acknowledges that such goodwill
exclusively belongs to Licensor and that the Licensed Property has
acquired a secondary meaning in the mind of the public. Further, any and
all goodwill arising from use of the Licensed Property by Licensee, a
Licensee Affiliate or a Sublicensee and/or a Manufacturer pursuant to this
Agreement will inure to Licensor's sole benefit.
14.4. Registrations. Except with the written approval of Licensor,
Licensee will not register or attempt in any country to register
copyrights in, or register as a trademark, service mark, design patent or
industrial design, or business designation, any of the Licensed Property,
Licensor Trademarks or derivations or adaptations thereof, or any word,
symbol or design
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which is so similar thereto as to suggest association with or sponsorship
by Licensor or by any Licensor-Related Entities.
14.5. Unlicensed Use Of Licensed Property. Licensee agrees to give
Licensor prompt written notice of any unlicensed use by third parties of
any Licensed Property including, without limitation, any Licensor
Trademarks, and Licensee agrees that it will not, without Licensor's
written approval, bring or cause to be brought any criminal prosecution,
lawsuit or administrative action for infringement, interference with or
violation of any rights to the Licensed Property or any Licensor
Trademarks. Licensee agrees to cooperate with Licensor, and, if necessary,
to be named by Licensor as a sole complainant or co-complainant in any
action against an infringer of the Licensed Property or Licensor
Trademarks in the Territory.
15. APPROVAL OF MANUFACTURERS.
15.1. Approval of Manufacturer Agreement. Licensee shall have no right to
sublicense the right to manufacture any Licensed Product hereunder to any
entity (including to a Licensee Affiliate that is not a Permitted Licensee
Affiliate or any other third party) unless and until: (a) Licensor has
provided Licensee with its prior written approval of the proposed
manufacturer and the terms and conditions of any and all agreements
between Licensee and any proposed manufacturer (and any modifications
thereof), whether oral or written, for the manufacture of Licensed
Products (individually and collectively, the "Manufacturing Agreement");
(b) such manufacturer shall have executed an Approval of Manufacturer
Agreement with Licensor on Licensor's then-current form for such
agreement, as such form may be revised by Licensor in its sole discretion
from time to time (any such manufacturer approved by Licensor for which an
Approval of Manufacturer Agreement is fully executed, a "Manufacturer");
(c) such Manufacturer shall agree in the Manufacturing Agreement to be
fully bound at all times by the terms and conditions of this Agreement
applicable to the manufacture of Licensed Products governed by the
Manufacturing Agreement; (d) such Manufacturer shall execute a Trademark
License Agreement with Licensor; and (e) such Manufacturer shall further
agree in such Manufacturing Agreement that Licensor shall be a third party
beneficiary thereof. A copy of Licensor's current form of Approval of
Manufacturer Agreement is attached hereto as Exhibit F. The manufacture of
Licensed Products by any third party shall in no manner whatsoever affect
Licensee's obligations hereunder and Licensee shall execute, and ensure
that each prospective Manufacturer executes, the Approval of Manufacturer
Agreement. Any manufacture of Licensed Products hereunder in violation of
this Subparagraph 15.1 shall be a material breach of this Agreement.
15.2. Enforcement of Manufacturing Agreement. Licensee agrees to include
and strictly enforce in each Manufacturing Agreement, all of the terms and
conditions of this Agreement relevant to the manufacture of the Licensed
Products. Licensee shall advise Licensor of any breach thereof by a
Manufacturer and of any corrective action taken by Licensee as well as the
results thereof and, at the request of Licensor, shall terminate such
Manufacturing Agreement in the event of any such breach, if such breach is
not cured within twenty (20) days after Licensee
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first becomes aware of such breach, if and to the extent such breach is
curable. If Licensee fails to exercise such termination rights by giving
written notice to such Manufacturer within ten (10) days after being
requested to do so in writing by Licensor, notwithstanding anything to the
contrary contained in the Manufacturing Agreement, Licensee hereby
appoints Licensor its attorney-in-fact to send a notice of termination in
the name of Licensee to such Manufacturer for the purpose of terminating
Manufacturing Agreement or any specific rights thereunder, which
appointment is irrevocable and coupled with an interest.
16. CONFIDENTIALITY.
16.1. Confidential Information. The parties hereto acknowledge and agree
that (a) the material terms and conditions contained in this Agreement
and/or in any other agreement between Licensor and Licensee related to the
Licensed Products; (b) any Marketing Plans, Quarterly Updates and Plan
Elements; (c) any project, product, good or article pertaining to any
Licensed Product; and (d) any other proprietary financial, marketing,
product development, promotional or other information pertaining to the
business or operations of Licensee or Licensor are confidential
("Confidential Information"). Without the prior written consent of the
party disclosing Confidential Information (the "Disclosing Party"), the
recipient of any Confidential Information (the "Recipient") shall neither
disclose to any third party (including a Licensee Affiliate) any
Confidential Information so disclosed to the Recipient hereunder, nor
permit any such third party to have access to such Confidential
Information, except to the Recipient's employees, directors, officers and
shareholders, attorneys, financial advisors, agents, Sublicensees,
Manufacturers and Customers and/or accountants in their capacities as
such, if such disclosure is for the purpose of effectuating the terms and
conditions of this Agreement, and such individuals or entities are advised
in writing of the confidentiality of such Confidential Information and to
restrict the use of such Confidential Information to said purpose. The
parties' obligations pursuant to this Subparagraph 16.1 shall not apply to
any Confidential Information which: (i) was previously known to the
Recipient without obligations of confidentiality; (ii) is obtained after
the date hereof from a third party which is lawfully in possession of such
information and not in violation of any contractual or legal obligations
to a Disclosing Party with respect to such information; (iii) is or
becomes publicly available or part of public domain through no fault of
the Recipient or of its employees; or (iv) is the minimum amount required
to be publicly disclosed in order to comply with any applicable law,
regulation, stock exchange rule, subpoena or valid order of a court of
competent jurisdiction.
16.2. Licensor Information. Notwithstanding, and without limitation of the
foregoing terms of Subparagraph 16.1 hereinabove, Licensee expressly
acknowledges and agrees that any and all information and material
concerning or pertaining to the following are confidential and proprietary
to Licensor (collectively "Licensor Information"): (a) any script,
concept, schedule of Licensor or of any Licensor-Related Entity
(including, without limitation, any pre-production, production or
post-production schedule or release schedule for any Prequel or for any
derivative work thereof); (b) any term or condition of any agreement
between Licensor and any individual or entity relating to any Picture
(including, without limitation, any talent
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agreement); and (c) any Copyright Material and/or any Production Material
(including without limitation, any artwork, design or prototype created
for any Licensed Product or any Copyright Material). Licensee further
acknowledges and agrees that pursuant to this Agreement, Licensee may have
access to Licensor Information and that, except as otherwise expressly
provided in this Subparagraph 16.2, Licensee shall not use, copy or
disclose, or authorize or permit the use, copy or disclosure of, any
Licensor Information in whole or in part in any manner or to any person,
firm, enterprise, organization, corporation or entity unless authorized in
advance in writing by Licensor. Licensee agrees and acknowledges that
Licensor's sole purpose in disclosing Licensor Information to Licensee or
allowing Licensee access to Licensor Information is for the sole purpose
of aiding Licensee in performing its obligations hereunder. Licensee shall
receive and hold, and shall contractually obligate and cause all entities
with whom it contracts relative to the Licensed Products to maintain, all
Licensor Information and Confidential Information in the strictest
confidence and Licensee acknowledges, represents, warrants and agrees to
use its best efforts to protect the confidentiality of all Licensor
Information and Confidential Information. Furthermore, Licensee will not
disclose any Licensor Information to any third party for any purpose
(including the exercise of its rights or performance of its obligations)
unless Licensor otherwise agrees or such third party has executed a
written confidentiality agreement in form and substance acceptable to
Licensor, which confidentiality agreement, inter alia, shall restrict the
use of any Licensor Information to the minimal extent necessary to
effectuate the terms and conditions of this Agreement as they apply to
such third party and requires such third party to use its best efforts to
maintain all Licensor Information in the strictest confidence. Licensee's
obligations pursuant to this Subparagraph 16.2 shall not apply to any
Licensor Information which: (i) is authorized in writing by Licensor to
become publicly known; (ii) is rightfully received from a third party
authorized by Licensor to receive such information without restriction and
without breach of this Agreement; or (iii) is the minimum amount required
to be publicly disclosed in order to comply with any applicable law,
regulation, stock exchange rule, subpoena, or valid order of a court of
competent jurisdiction.
16.3. Publicity or Announcements. Without limitation of the foregoing and
notwithstanding anything to the contrary contained in this Agreement or
otherwise, no announcements, press releases, or publicity about the
existence or any terms of this agreement, the relationship of the parties
or about the rights relating to the Licensed Products to be exercised
hereunder shall be made or authorized to be made by Licensee or a Licensee
Affiliate without the prior written approval of Licensor in each instance.
16.4. Rights of Publicity. Except as expressly set forth herein, Licensee
acquires no right to use and will not use without Licensor's prior written
approval the characters, artwork, designs, trade names, copyrighted
materials, trademarks or service marks of Licensor or any Licensor-
Related Entities in any Advertising, publicity or promotion, to express or
imply any endorsement by Licensor or any Licensor-Related Entities of
Licensee's services or products, or in any other manner except as
expressly authorized in this Agreement. The foregoing provision shall
survive expiration or termination of this Agreement.
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
17. PRODUCT SAMPLES.
Upon commercial release of each version of a Licensed Product SKU
(including each language version or modified version) by or for Licensee,
Licensee will furnish to Licensor [**] the following items:
(a) one hundred (100) samples of each United States version of a
Licensed Product SKU and six (6) samples of all versions and
variations of such SKU created for separate countries, as well as
all containers, tags, labels and packaging provided that if the
minimum selling price of such SKU is Twenty-Five U.S. Dollars (U.S.
$25) or more, the number of samples shall be reduced in half;
(b) twenty (20) samples of all Advertising, promotional and display
materials referencing each version of the Licensed Product SKU; and
(c) five (5) videocassette copies of any film or video Advertising
Material for each and every Licensed Product SKU.
If Licensor requests additional items, Licensee will supply to Licensor
such samples at Licensee's direct out-of-pocket cost of manufacture. For
the avoidance of doubt, Licensor shall not be entitled to a Royalty
hereunder in respect of a Licensed Product distributed to Licensor
pursuant to this Paragraph 17.
18. INTENTIONALLY DELETED.
19. REPRESENTATIONS AND WARRANTIES.
19.1. Licensee. Licensee represents and warrants that:
(a) Galoob Toys, Inc. has the full power and authority to enter into
this Agreement on behalf of itself and all Permitted Licensee
Affiliates and that Galoob Toys, Inc. and all Permitted Licensee
Affiliates have the full power and authority to perform all of
Licensee's obligations pursuant to this Agreement;
(b) it is and shall remain throughout the term a corporation in good
standing in the jurisdiction of its incorporation;
(c) it will not harm or misuse the Licensed Property or bring the
Licensed Property into disrepute;
(d) it will not create any expenses chargeable to Licensor without
the prior written approval of Licensor;
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(e) it will comply in all material respects with all laws and
regulations relating or pertaining to the manufacture, production,
distribution, sale, Advertising and use of the Licensed Property,
the Licensed Products and Copyright Materials, and will maintain the
highest quality and standards of Licensee as of the date of this
Agreement;
(f) it will diligently and continuously at all times throughout the
Term market and distribute the Licensed Products in each of the
following Sub-Territories enumerated in Schedule III: 1, 2, 3, 4, 5,
6, 7, 8, 9, 10, 11, 12, 20, 21, 22, 23, 24, 25, 26, 28, 29, 30 and
35;
(g) each Licensed Product will be of good quality in design,
material and workmanship and will be suitable for their intended
purpose and that no injurious, deleterious, or toxic substances will
be used in or on any Licensed Product;
(h) the Licensed Products will not cause harm when used as
instructed and with ordinary care for their intended purpose; and
that the Licensed Products will be manufactured, sold, and
distributed in compliance with all applicable laws and regulations;
and
(i) each and every Permitted Licensee Affiliate set forth in
Schedule I meets the definition of a Licensee Affiliate in
Subparagraph 24.44 hereinbelow.
20. INDEMNITIES.
20.1. By Licensor. Subject to Subparagraph 20.3 hereinbelow, Licensor
shall indemnify and hold harmless Licensee from any and all loss,
liability, damage, cost or expense (including reasonable counsel fees and
costs, whether or not in connection with litigation) to the extent arising
out of any claims or suits brought or made against Licensee by reason of
the warranty made by Licensor in the first sentence of Subparagraph 13.1
above. Licensor's indemnity obligation shall be conditioned upon
Licensee's prompt written notice, cooperation and assistance to Licensor
relative to any such claim or suit. Licensor shall have the option to
undertake and conduct the defense of any suit so brought. If Licensor
undertakes such defense and Licensee nevertheless retains its own counsel
to monitor such defense, Licensee shall be solely responsible for the fees
and any other expenses related to such counsel. Licensee shall not,
however, be entitled to recover for lost profits.
20.2. By Licensee. Except for Licensor's obligations under Subparagraph
20.1 above, Licensee shall indemnify and hold harmless Licensor and all
"Licensor-Related Entities" (as hereinafter defined) from any and all
loss, liability, damage, cost or expense (including reasonable counsel
fees and costs, whether or not in connection with litigation) arising out
of any claims or suits brought or made against Licensor or any
Licensor-Related Entities arising out of or in connection with:
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(a) any activities of Licensee related to this Agreement or to any
of the matters herein contained;
(b) any alleged defects or inherent dangers in the Licensed
Products;
(c) any breach or alleged breach by Licensee of any warranty,
covenant or obligation contained in this Agreement;
(d) any infringement or violation of any copyrights, patents,
trademarks, trade secrets or other intellectual property or
proprietary rights of any third party in connection with the
Licensed Products, Designs, Advertising Materials or any other
materials based on or derived from the Licensed Property;
(e) libel, slander, or other forms of defamation arising out of or
connected with any activities of Licensee, a Licensee Affiliate or a
Sublicensee related to this Agreement;
(f) plagiarism, piracy or unfair competition resulting from the
alleged unauthorized use of titles, formats, ideas, characters,
plots, performers, or other material arising out of or connected
with any activities of Licensee, a Licensee Affiliate or a
Sublicensee related to this Agreement; and/or
(g) breach of contract, implied in fact or in law, resulting from
the alleged submission, acquisition or use of program, musical or
literary material used by Licensee.
Licensee's indemnity obligation shall be conditioned upon Licensor's
prompt written notice, cooperation and assistance to Licensee relative to
any such claim or suit. Subject to Licensor's prior written approval,
Licensee shall have the option to undertake and conduct the defense of any
suit so brought, provided that, in addition, Licensee's selection of
counsel shall be subject to Licensor's prior approval, and further,
provided, that Licensee regularly consults with Licensor regarding such
defense. Licensee will not enter into any settlement of any claims or
suits without the prior written approval of Licensor. If Licensee
undertakes such defense and Licensor nevertheless retains its own counsel
to monitor such defense, Licensor shall be solely responsible for the fees
and any other expenses related to such counsel. Licensee shall not at any
time defend on its own behalf any action arising directly or indirectly
from any claim that the Licensed Property (or any element of it) infringes
or otherwise violates any rights of any third party. This agreement to
indemnify shall survive the expiration or earlier termination of this
Agreement.
20.3. Trademarks and Copyrights. Notwithstanding anything to the contrary
contained in this Agreement or otherwise, no warranty or indemnity,
express or implied, is given by Licensor with respect to any liability or
expense arising from any claim that use of the Licensed Property or any
Licensor Trademark or copyright on or used in connection with the Licensed
Products
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hereunder or any packaging, Advertising or promotional material is
registered, registrable, or infringes on any trademark or other
intellectual property right of any third party or otherwise constitutes
unfair competition. Without limitation of the foregoing, title, character
and place names may or may not be registered trademarks or trademarks in
the United States and other countries in the classes covering Licensed
Products and Licensor makes no representations with respect thereto. It is
expressly agreed that it is Licensee's sole responsibility to carry out
such investigations as Licensee may deem appropriate to establish that
Licensed Products, Copyright Materials, packaging, promotional and
Advertising Material which are manufactured or created hereunder,
including any uses made of any Licensed Property, do not infringe such
right of any third party and Licensor shall not be liable to Licensee if
such infringement occurs.
20.4. Notification. Licensee and Licensor agree to give each other prompt
written notice of any claim or suit which may arise under the indemnity
provisions set forth above. Without limiting the foregoing, Licensee
agrees to give Licensor written notice of any product liability claim made
with respect to any Licensed Product within seven (7) days of Licensee's
receipt of the claim.
20.5. Intellectual Property Protections. Licensee shall assist Licensor
(subject to Licensee's indemnity hereunder), to the extent reasonably
necessary, in protecting any of Licensor's rights to the Licensed
Property. Licensor may commence or prosecute any claims or suits in its
own name or (with the approval of Licensee, which approval will not be
unreasonably withheld) in the name of Licensee or may join Licensee as a
party thereto. In the event Licensee becomes aware of an apparent
infringement of the Licensed Property by any third party, Licensee shall
notify Licensor within ten (10) days of receiving such information.
Licensor and Licensee will discuss the appropriate enforcement steps and
which steps are taken shall be determined by Licensor in its sole
discretion. If Licensor declines to participate in or otherwise pursue any
enforcement, Licensee may take steps to do so, provided that Licensee
first obtains Licensor's prior written approval. Licensee in such
circumstances agrees to provide current reports regarding the status of
any action or negotiations concerning such alleged infringing activity,
and shall proceed in consultation with Licensor and Licensor's counsel.
Licensee's choice of counsel in any such proceeding shall be subject to
Licensor's prior written approval. Licensee shall not settle or compromise
any claim without Licensor's prior written approval. Should Licensee
recover any sums from the alleged infringer, it shall be entitled to
retain the proceeds of any such actions to the extent of Licensee's
out-of-pocket expenses for the proceeding, and the remainder will be
shared equally between Licensee and Licensor. If Licensor takes any action
in protection of any rights licensed to Licensee hereunder, then Licensee
shall reimburse Licensor fifty percent (50%) of any and all costs and
expenses related to any such action (including, without limitation,
attorneys' fees and costs, whether or not in connection with litigation)
within thirty (30) days following its receipt of invoices for such
payments due. Late payments will accrue interest charges from the due date
through the date of payment at an interest rate equal to three percent
(3%) over the prime lending rate set by the Bank of America N.T.S.A., or
the maximum legal rate, if such maximum legal rate is lower, and shall be
payable upon demand. In the event any monies are recovered from any such
action which are in
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
excess of Licensor's costs and expenses, then such monetary recoveries
shall be shared equally between Licensor and Licensee.
21. INSURANCE.
21.1. Insurance. Licensee will, commencing October 1, 1998 and continuing
throughout the Term and for a period no less than three (3) years
following the expiration or termination of this Agreement, maintain
insurance obtained from a reputable carrier with a Best's rating of "A" or
better naming Licensor and George W. Lucas, Jr. and all other
Licensor-Related Entities as additional insureds in the amounts, for the
purposes set forth in and in accordance with this Paragraph 21, covering
any and all claims brought anywhere in the world relating to the Licensed
Products, as follows:
(a) Product Liability and Advertising Injury Liability. Licensee
will carry Product Liability and Advertising Injury Liability
Insurance covering any and all claims, demands and causes of action
for personal injury or property damage arising out of or purporting
to arise out of any defects in or failure to perform by any Licensed
Product or arising out of or purporting to arise out of any
Advertising Material and/or any physical or intangible material used
in connection therewith in a minimum amount of [**] combined single
limit for each occurrence for personal injury and property damage.
(b) Standard Error and Omissions. Licensee will carry coverage
commonly known as Standard Errors and Omissions which will include
but not be limited to claims arising out of:
(i) invasion or infringement of or interference with the right
of privacy or publicity, whether under common law or statutory
law;
(ii) infringement of copyright or trademark, whether under
statutory or common law;
(iii) libel, slander or other forms of defamation;
(iv) plagiarism, piracy or unfair competition resulting from
the alleged unauthorized use of titles, formats, ideas,
characters, plots, performers, or other material; or
(v) breach of contract, implied in fact or in law, resulting
from the alleged submission, acquisition or use of program,
musical or literary material used by Licensee.
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
The amount of coverage under the Standard Errors and Omissions policy
shall be a minimum of [**].
21.2. Notification. Each policy shall provide for prompt written notice
(not to exceed thirty [30] days) to Licensor from the insurer by
registered mail, return receipt requested, in the event of any material
modification, cancellation or termination of such policy. Licensee will
furnish to Licensor within thirty (30) business days after the date of
execution of this Agreement a Certificate of Insurance naming Licensor and
George W. Lucas, Jr. and all other Licensor- Related Entities as
additional insureds on each of the above named policies. Licensee's
compliance with this Subparagraph 21.2 in no way limits Licensee's
indemnity obligations, except to the extent that Licensee's insurance
company actually pays Licensor amounts which Licensee would otherwise be
obligated to pay Licensor.
22. EXPIRATION AND TERMINATION.
22.1. Term. This Agreement will continue in full force and effect during
the Term, unless terminated earlier in accordance with the provisions of
this Agreement, except with respect to those matters which by the terms of
this Agreement or by their nature survive termination or expiration.
22.2. Events of Termination. Without prejudice to any other right or
remedy available to Licensor, Licensor will have the right to terminate
this Agreement immediately upon written notice to Licensee:
(a) if Licensee materially breaches any of the terms of this
Agreement and, if such breach is curable, such breach is not
corrected within twenty (20) days after Licensor sends Licensee
written notice thereof (or, in the event of a curable breach which
cannot be corrected within twenty [20] days, if Licensee fails to
commence such correction within twenty [20] days and thereafter
diligently prosecutes it to completion);
(b) if Licensee becomes insolvent or generally fails to pay, or
admits in writing its inability to pay its debts as they become due,
or makes any assignment for the benefit of creditors, or files a
petition in bankruptcy, or is adjudged bankrupt, or is placed in the
hands of a receiver, or if the equivalent of any such proceedings or
acts occurs, though known by some other name or term; provided,
however, that if Licensee becomes the subject of a voluntary or
involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation or composition for
the benefit of creditors, then only if such petition or proceeding
is not dismissed within sixty (60) days of filing;
(c) if Licensee is not permitted or is unable to operate Licensee's
business in the usual manner, or is not permitted or is unable to
provide Licensor with assurance reasonably satisfactory to Licensor
that Licensee will so operate Licensee's business, as
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debtor in possession or its equivalent, or is not permitted or is
unable to otherwise meet any of Licensee's obligations under this
Agreement or to provide Licensor with assurance satisfactory to
Licensor that Licensee will meet such obligations; or
(d) if Licensee attacks the title of Licensor in and to any Licensed
Property (including, without limitation, any copyright or trademark
pertaining thereto) or Licensee attacks the validity of any license
granted hereunder.
22.3. Effect of Expiration or Termination.
(a) Cessation and Delivery. Upon the expiration or earlier
termination of this Agreement, subject to Subparagraph 22.3(c)
hereinbelow:
(i) Licensee shall:
(A) immediately cease and cause the cessation of all of
its activities hereunder respecting the Licensed
Property including, without limitation, the design,
development, manufacture, sale, Advertising, marketing
and distribution of Licensed Products and, within thirty
(30) days after such expiration or termination, send
Licensor a complete inventory report of Licensed
Products; and
(B) comply with the provisions of Subparagraph 13.2
hereinabove.
Licensee shall have no further right to exercise any of the
rights licensed hereunder or otherwise acquired in relation to
this Agreement. Licensee agrees that its failure to stop in
all respects the manufacture, sale and/or distribution upon
the termination of this Agreement will result in immediate
irreparable damage to Licensor for which there is not adequate
remedy at law, and in the event of such failure by Licensee,
Licensor shall be entitled to injunctive relief in addition to
its other rights and remedies in such event. Licensor shall be
entitled to recover from Licensee, in addition to any other
remedies in the event of default, reasonable attorneys' fees,
costs and expenses, including collection agency fees incurred
by Licensor in the enforcement of any provision hereof.
Licensor's exercise of any of the foregoing remedies shall not
operate as a waiver of any other rights or remedies which
Licensor may have.
(ii) Licensee shall immediately cancel or terminate all
contracts, orders and requests for the manufacture, sale,
distribution or supply of any goods or services which involve
or may lead to any use, application or exploitation of the any
Licensed Product or the rights herein licensed or any part
thereof.
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(b) Reversion of Rights. Upon the expiration or earlier termination
of this Agreement, subject to Subparagraph 22.3(c) hereinbelow, all
rights licensed to Licensee hereunder will immediately revert to
Licensor, Licensor may exploit such license rights itself or grant
such rights to any third party.
(c) Limited Sell-Off Rights. Licensee shall have the non-exclusive
right, for a period of ninety (90) days after expiration or earlier
termination of this Agreement (the "Sell-Off Period") to dispose of
its inventory of Licensed Products "in hand" (as such term is
commonly understood in the U.S. toy industry), which Licensed
Products are manufactured during the Term pursuant to orders
actually received by Licensee from its retail Customers prior to the
close of the Sell-Off Period (the "Final Orders"); provided,
however, that:
(i) this Agreement has not been terminated for Licensee's
breach or any other reason set forth in Subparagraph 22.2
hereinabove;
(ii) Licensee shall not manufacture (or authorize or permit
the manufacture of) Licensed Products after the expiration of
the Term;
(iii) Licensee shall not distribute or sell (or authorize or
permit the distribution or sale of) Licensed Products after
the expiration of the Sell-Off Period;
(iv) Licensee shall only distribute and sell Licensed Products
in amounts necessary to fulfill such Final Orders;
(v) Licensee shall not manufacture (or authorize or permit the
manufacture of) Licensed Products in excess of amounts set
forth in the Marketing Plan approved by Licensor for the
applicable time period hereunder;
(vi) Licensor has the right to pre-approve the amounts of each
and every Licensed Product SKU manufactured hereunder and to
be distributed during the Sell-Off Period; and
(vii) Royalties are paid and statements are furnished to
Licensor hereunder with respect to such Sell-Off Period.
(d) Return of Confidential Information and Licensor Information.
Upon termination or expiration of this Agreement, each party will
immediately return all Confidential Information (and, in the case of
Licensee all Licensor Information) received from the other party
that is in such party's possession or control, and an officer of
such party will certify to the other party in writing that such
party has done so.
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(e) Payments. Upon termination of this Agreement or upon expiration
of the Sell- Off Period, all monies owed Licensor will become
immediately due and payable by Licensee to Licensor.
22.4. No Damages for Termination. Licensor will not be liable to Licensee
for damages of any kind, including incidental or consequential damages, on
account of the expiration or rightful termination of this Agreement in
accordance with the terms and conditions of this Agreement. Licensee
waives any right it may have to receive any compensation or reparations on
account of expiration or rightful termination of this Agreement by
Licensor in accordance with the terms and conditions of this Agreement,
other than as expressly provided in this Agreement. Without limiting the
generality of this Subparagraph 22.4, Licensor will not be liable to
Licensee, on account of such termination or expiration, for reimbursement
or damages for the loss of goodwill, prospective profits or anticipated
income, or on account of any expenditures, investments, leases or
commitments made by either party or for any other reason whatsoever based
upon or growing out of such termination or expiration.
23. RESERVED RIGHTS.
Notwithstanding anything to the contrary contained in this Agreement,
Licensor retains all rights not expressly licensed to Licensee pursuant to
this Agreement, including, without limitation, the exclusive right to
license to Licensee or to any third party the right to manufacture,
market, conduct Advertising, distribute or sell any Licensed Product in
connection with any Premiums, giveaways, promotional arrangements and, in
this connection, if Licensee is selected by Licensor or by its designee to
manufacture, market, distributed or sell Licensed Products as part of such
arrangement, then Licensee shall supply such Licensed Product or to
Licensor or its designee at an amount equal to the lowest price given by
Licensee or any Sublicensee to any Customer for the same or comparable
Licensed Product.
24. DEFINITIONS.
24.1. "Account Specific Merchandise" has the meaning set forth in
Subparagraph 4.1(b)(ii) hereinabove.
24.2. "Ad Spend" has the meaning set forth in Subparagraph 4.5
hereinabove.
24.3. "Advance" has the meaning set forth in Paragraph 7 hereinabove.
24.4. "Advertising" means the solicitation and/or commercial enticement
for the sale of any product, good or article by means of television,
radio, print media, outdoor, Internet or by any other means, whether now
or hereafter known, devised, invented or developed.
24.5. "Advertising Materials" has the meaning set forth in Subparagraph
5.1(c) hereinabove.
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24.6. "Annual Marketing Plan" has the meaning set forth in Subparagraph
4.1(a)(ii) hereinabove.
24.7. "Artwork and Film Clips" has the meaning set forth in Subparagraph
6.1 hereinabove.
24.8. "Blocked Funds" has the meaning set forth in Subparagraph 9.3
hereinabove.
24.9. "Bundling" has the meaning set forth in Subparagraph 8.6
hereinabove.
24.10. "Calendar Quarter" means any of the following applicable
consecutive successive three (3) month period during a Calendar Year:
January 1 through and including March 31, April 1 through and including
June 30; July 1 through and including September 30; and October 1 through
and including December 31.
24.11. "Calendar Year" means the time period from January 1 through and
including December 31 of the same successive consecutive twelve (12) month
period, except with respect to 1998 for which "Calendar Year" means the
time period from October 1, 1998 through and including December 31, 1998.
24.12."Chain" means a group of twenty (20) or more retail store outlets.
24.13."Classic Trilogy" has the meaning set forth in Subparagraph
24.43(a)(i) hereinbelow.
24.14. "Closeout Stores" means Retail Entities that offer for sale a
majority of their inventory initially on a so-called "closeout" basis (as
such terms are customarily understood in the U.S. toy industry). For
purposes of this Agreement, KayBee Toys, as it practices business as of
the date of this Agreement, does not constitute a Closeout Store.
24.15. "Confidential Information" has the meaning set forth in
Subparagraph 16.1 hereinabove.
24.16."Copyright Materials" has the meaning set forth in Subparagraph 13.1
hereinabove.
24.17. "Customer" means an entity that is not a Licensee, a Licensee
Affiliate (including any Permitted Licensee Affiliate) or a Sublicensee,
except as provided in Subparagraph 8.4(c) hereinabove.
24.18."Dedicated Retail Space" has the meaning set forth in Subparagraph
4.6 hereinabove.
24.19."Designs" has the meaning set forth in Subparagraph 5.1(b)
hereinabove.
24.20."Disclosing Party" has the meaning set forth in Subparagraph 16.1
hereinabove.
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
24.21. "Dump" means to distribute a Licensed Product in a manner which
disparages the Licensed Property, and/or materially diminishes the value
of Licensor's goodwill, business opportunities, trademark or tradename
rights pursuant to any applicable laws in the relevant country of the
Territory.
24.22. "Electronic Retailers" means retailers that market and sell
products to consumers primarily through electronic media, including,
without limitation, by means of television (such as, without limitation,
QVC, HSN) or Internet.
24.23. INTENTIONALLY OMITTED.
24.24."Episode I" has the meaning set forth in Subparagraph 24.43(a)(ii)
hereinbelow.
24.25. "Episode I Outside Date" has the meaning set forth in Subparagraph
2.1(a) hereinabove.
24.26."Episode II" has the meaning set forth in Subparagraph 24(a)(ii)
hereinbelow.
24.27. "Episode II Outside Date" has the meaning set forth in Subparagraph
2.1(b) hereinabove.
24.28."Episode III" has the meaning set forth in Subparagraph 24(a)(ii)
hereinbelow.
24.29. "Episode III Outside Date" has the meaning set forth in
Subparagraph 2.1(c) hereinabove.
24.30."Evaluation Unit" has the meaning set forth in Subparagraph 8.5
hereinabove.
24.31. "Event Window" means a minimum four (4) week period associated with
the theatrical release of a Picture, the video release of a Picture, the
Christmas Holiday, or other key promotional event.
24.32."Excluded Distribution Channels" has the meaning set forth in
Schedule V hereinbelow.
24.33."Final Orders" has the meaning set forth in Subparagraph 22.3
hereinabove.
24.34."F.O.B. Product" has the meaning set forth in Subparagraph
4.1(b)(ii) hereinabove.
24.35."F.O.B. Royalty" has the meaning set forth in Subparagraph 8.4(a)
hereinabove.
24.36. [**]
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24.37. "Highly Developed" means the following Sub-Territories: U.S.,
Canada, U.K., France, Germany, and Japan.
24.38."Initial Marketing Plan" has the meaning set forth in Subparagraph
4.1(a)(i) hereinabove.
24.39."Intermediate Vehicles" has the meaning set forth in Schedule II
hereinbelow.
24.40. "International Marketing Executive" has the meaning set forth in
Subparagraph 4.3(c) hereinabove.
24.41. "Internet" means the computer-generated, computer-mediated or
computer-assisted transmission, reception, recordation or display arising
from any network or other connection of instruments or devices now known
or hereafter invented capable of transmission, reception, recordation
and/or display (such instruments or devices to include, without
limitation, computers, laptops, cellular or PCS telephones, pagers, PDAs,
wireless transmitters or receivers, modems, radios, televisions, satellite
receivers, cable networks, smart cards and set- top boxes).
24.42. "Licensed Products" means those products, goods and articles,
within the enumerated categories set forth in Schedule II attached hereto,
and which are based on or incorporating elements of the Licensed Property.
24.43. "Licensed Property" means, subject to the terms, conditions and
restrictions contained in Licensor's or any Licensor Related Entity's
agreements with persons, firms or entities rendering services or granting
rights,
(a) the original titles, designs, character names and likenesses,
dialogue, music and sound effects, words, symbols, logographics and
the footage, photographs, artwork, visual representations of the
props, costumes, sets, special effects and any other original
creative elements) which appear in, have become directly associated
with, and as are depicted in, the following motion pictures:
(i) those certain previously released theatrical motion
pictures (and the special editions thereof released
theatrically in 1997) entitled "STAR WARS: EPISODE IV - A NEW
HOPE," "STAR WARS: EPISODE V - THE EMPIRE STRIKES BACK" and
"STAR WARS: EPISODE VI - RETURN OF THE JEDI" (the "Classic
Trilogy"); and/or
(ii) each of the first three succeeding prequel theatrical
motion pictures to the Classic Trilogy tentatively entitled
"Episode I," "Episode II" and "Episode III," respectively
(each such prequel theatrical motion picture a "Prequel"
herein).
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(Classic Trilogy and the Prequels are jointly, severally and
collectively referred to as the "Picture[s]");
(b) such original titles, designs, character names and likenesses,
dialogue, music and sound effects, words, symbols, logographics,
photographs, artwork, visual representation of the props, costumes,
sets, special effects, and any other original creative elements
which do not exist in the Pictures but which are embodied in games,
novels, comics, videogames, television programs or series (whether
live or animated) based on and derived from the Pictures, to the
extent of Licensor's right to grant the rights licensed to Licensee
pursuant to Paragraph 1 hereinabove (collectively "Spin-Off
Properties"); and
(c) such original trademarks, tradenames, servicemarks and
servicenames owned by Licensor and arising out of and which have
become directly associated with the Pictures, to the extent of
Licensor's rights in each applicable country of the Territory under
such country's applicable trademark laws, including, but not limited
to, those specified in Schedule VI (the "Licensor Trademarks").
24.44. "Licensee Affiliate" means any entity other than Licensor that is
directly or indirectly controlled by, under common control with or that
controls Licensee (including, without limitation, any Permitted Licensee
Affiliate). For purposes of this definition of "Licensee Affiliate," an
entity will control another entity, or be deemed to control another
entity, if such entity: (a) has the ability to elect a majority of the
directors, trustees (or other managers) of such other entity; (b) is a
general partner or joint venturer of such other entity; (c) directly or
indirectly holds (or has power to vote) twenty percent (20%) or more of
the economic interests of such other entity; or (d) directly or indirectly
holds (or has power to vote) five percent (5%) or more of the voting
equity interests of such other entity (except for an investment fund which
holds such voting equity interests).
24.45. "Licensee's Records" has the meaning set forth in Subparagraphs
9.5(e) and 11.1 hereinabove.
24.46. "Licensor Channel" means an outlet and/or method of distribution or
delivery of any products, goods or articles (including, without
limitation, through catalogs, direct mail, Internet and/or fan clubs),
which outlet and/or method of distribution or delivery is owned or
controlled (in whole or in part) or licensed by Licensor or by any
Licensor-Related Entity.
24.47."Licensor Information" has the meaning set forth in Subparagraph
16.2 hereinabove.
24.48. "Licensor-Related Entities" means George W. Lucas, Jr. and all of
Licensor's present and future affiliated, related and/or subsidiary
entities, including, without limitation, Lucasfilm Ltd., LucasArts
Entertainment Company LLC, Lucas Digital Ltd. LLC and/or Lucas Learning
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Ltd. and their respective divisions, subsidiaries, directors, employees,
officers, successors, assigns, agents and joint venturers.
24.49. "Licensor Trademarks" has the meaning set forth in Subparagraph
24.43(c) hereinabove.
24.50. "Manufacturer" has the meaning set forth in Subparagraph 15.1
hereinabove.
24.51. "Manufacturing Agreement" has the meaning set forth in Subparagraph
15.1 hereinabove.
24.52."Marketing Plan" has the meaning set forth in Subparagraph 4.1(a)
hereinabove.
24.53."Micro Figures" has the meaning set forth in Schedule II
hereinbelow.
24.54."Micro Playsets" has the meaning set forth in Schedule II
hereinbelow.
24.55."Micro Vehicles" has the meaning set forth in Schedule II
hereinbelow.
24.56. "Mid-Level" means the following Sub-Territories: Spain/Portugal,
Italy, Australia/New Zealand, Scandinavia, Benelux, Far East/Asia (All
Countries), Mexico, Latin America, and Austria/Switzerland.
24.57."Minimum Sales Levels" has the meaning set forth in Subparagraph 4.2
hereinabove.
24.58. "Moral Rights" means any rights to claim authorship of a work, to
object to or prevent the modification of a work, or to withdraw from
circulation or control the publication or distribution of a work, and any
similar right, existing under the law of any country in the world or under
any treaty.
24.59."Net Sales" has the meaning set forth in Subparagraph 8.2
hereinabove.
24.60."Other Product" has the meaning set forth in Subparagraph 3.5
hereinabove.
24.61. "Permitted Licensee Affiliates" means those Licensee Affiliates set
forth in Schedule I and such additional Licensee Affiliates as Licensor
shall approve, if at all, in writing.
24.62."Pictures" has the meaning set forth in Subparagraph 24.43(a)
hereinabove.
24.63."Plan Elements" has the meaning set forth in Subparagraph 4.1(b)
hereinabove.
24.64. "P.O.S." means all "point of sale" items, including, without
limitation, endcaps, shelf- talkers, electronic cart "smart ads,"
dedicated retail aisles, pamphlets, leaflets, standees,
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displays and other "point of sale" items which prominently and exclusively
feature elements of or based on the Licensed Property.
24.65. "Premium" means a product, good or article based on or
incorporating the Licensed Property that is used in connection with
promotional activities intended to augment or enhance the sale or other
exploitation of products other than Licensed Products, whether or not as
part of in purchase-with-purchase promotions, self-liquidator programs,
joint merchandising programs, giveaways, sales incentive programs, fan
club programs, fund-raisers or entries in sweepstakes or to customers for
resale by direct mail or other direct marketing methods.
24.66."Prequel" has the meaning set forth in Subparagraph 24.43(a)(ii)
hereinabove.
24.67."Prior Agreement" has the meaning set forth in Subparagraph 5.3
hereinabove.
24.68. "Product Development Team" has the meaning set forth in
Subparagraph 4.3(d) hereinabove.
24.69."Production Materials" has the meaning set forth in Subparagraph
13.2 hereinabove.
24.70."Quarterly Update" has the meaning set forth in Subparagraph
4.1(a)(iii) hereinabove.
24.71."Recipient" has the meaning set forth in Subparagraph 16.1
hereinabove.
24.72. "Retail Entity" means a Customer which is ordinarily in the
business of selling goods and products directly to a public (non-business)
consumer.
24.73. "Royalties" means the applicable "Royalty Percentage" of "Net
Sales," as such terms are defined and set forth in Subparagraphs 8.1, 8.2
and 8.4 hereinabove.
24.74."Royalty Percentage" has the meaning set forth in Subparagraph 8.1
hereinabove.
24.75."Royalty Report Form" has the meaning set forth in Subparagraph 9.4
hereinabove.
24.76."Sales Projections" has the meaning set forth in Subparagraph
4.1(b)(iii) hereinabove.
24.77."Sell-Off Period" has the meaning set forth in Subparagraph 22.3(c)
hereinabove.
24.78. "Senior Worldwide SW Toy Brand Executive" has the meaning set forth
in Subparagraph 4.3(a) hereinabove.
24.79."Spin-Off Properties" has the meaning set forth in Subparagraph
24.43(b) hereinabove.
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24.80. "Standard Dedicated Retail Space" means the Dedicated Retail Space
at all times other than during an Event Window.
24.81."Sublicense Agreement" has the meaning set forth in Subparagraph 3.3
hereinabove.
24.82."Sublicensee" has the meaning set forth in Subparagraph 3.3
hereinabove.
24.83."Sub-Territory" has the meaning set forth Subparagraph 2.2
hereinabove.
24.84."SW Toy Team" has the meaning set forth in Subparagraph 4.3
hereinabove.
24.85."Term" has the meaning set forth in Subparagraph 2.1 hereinabove.
24.86."Territory" has the meaning set forth in Subparagraph 2.2
hereinabove.
24.87. "Trademark License Agreement" has the meaning set forth in
Subparagraph 1.2 hereinabove.
24.88. "Underdeveloped" means the following Sub-Territories: Greece,
Turkey, Israel, Eastern Europe, Middle East & Africa, Brazil and all
Sub-Territories other than Highly Developed and Mid-Level.
24.89."U.S. Release Date" has the meaning set forth in Subparagraph 2.1
hereinabove.
24.90."VAT" has the meaning set forth in Subparagraph 8.8 hereinabove.
25. GENERAL.
25.1. Assignment. Subject to the other terms and conditions of this
Subparagraph 25.1, this Agreement will bind and inure to the benefit of
each party and to their respective successors and assigns. Licensee shall
not voluntarily or by operation of law assign, sub-license, transfer,
encumber or otherwise dispose of all or part of any right or privilege
licensed to Licensee in this Agreement, including to a Licensee Affiliate,
without Licensor's prior written approval. For purposes of this
Subparagraph 25.1, any change in control of Licensee, whether through
merger, acquisition, reorganization, liquidation, foreclosure, involuntary
sale in bankruptcy, or the purchase of substantially all of Licensee's
assets or otherwise, shall be deemed a purported assignment subject to
Licensor's prior written approval. Any attempted assignment, sublicense,
transfer, encumbrance or other disposal without such approval will be null
and void and constitute a material default and material breach of this
Agreement.
25.2. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the federal laws of the United States and the
laws of the State of California applicable to agreements entered into, and
to be performed entirely, within California between
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California residents (and excluding the United Nations Convention on
Contracts for the International Sale of Goods) without regard to choice of
law provisions and regardless of the place or places of its actual
execution or performance. Any suit, action or proceeding between or among
any of the parties hereto arising out of or related to this Agreement will
be brought solely in the federal or state courts in the Northern District
of California, and Licensee hereby submits to the personal jurisdiction
thereof and agrees to such courts as the appropriate venue.
Notwithstanding the foregoing, Licensee agrees that, for purposes of
collecting monies due pursuant to this Agreement, Licensee, at Licensor's
election, may be subject to whatever local laws and courts have
jurisdiction in any country of the Territory over Licensee. Process in any
action or proceeding referenced to in this Subparagraph 25.2 may be served
on Licensee at the address for notices set forth in Subparagraph 25.5
hereinbelow.
25.3. Attorneys' Fees. In the event of any legal proceeding between the
parties arising out of or related to this Agreement, the prevailing party
shall be entitled to recover, in addition to any other relief awarded or
granted, its costs and expenses (whether or not in connection with
litigation and including, without limitation, attorneys' fees and costs)
incurred in connection with any such proceeding.
25.4. Equitable Relief. Licensee recognizes and acknowledges that a
material breach by Licensee of any covenants, agreements or undertakings
made or assumed by it will cause Licensor irreparable damage, which cannot
be readily remedied in damages in an action at law, and may, in addition
thereto, constitute an infringement of Licensor's intellectual property
and other rights in the Licensed Property, thereby entitling Licensor to
equitable remedies (including, without limitation, injunctive relief),
costs (including, without limitation, whether or not in connection with
litigation) and reasonable attorney's fees. For purposes of this
Subparagraph 25.4, Licensee acknowledges that (by way of example and not
limitation) infringement of Licensor's intellectual property rights
include any use of the Licensed Property by Licensee other than those
licensed under this Agreement, failure to obtain approvals required under
this Agreement, use or release of any Licensed Product or Confidential
Information in violation of this Agreement, and failure to secure
permissions and transfers of rights from third parties as required
pursuant to this Agreement.
25.5. Notices. Any notice to be given or served under this Agreement shall
be in writing and shall be delivered to the parties addressed as set forth
below, or to such other address as either party shall notify the other
party of in writing, as follows: personally or sent by cable, telegram or
telemessage or by facsimile, telex, telecopy or other print out
communication mechanism or by first class, prepaid, registered or
certified mail (if available) post (air mail if posted to another country)
to the party to be served at the address set forth below in this
Subparagraph 25.5 or to such other address as either party may from time
to time notify in writing to the other. Such notice shall be deemed to
have been served: (a) immediately in the case of personal delivery; (b) in
the case of a cable, telegram or telemessage, on the first business day
after the receipt by the relevant service of the order therefor; (c) in
the case of facsimile, telex, telecopy or other print out mechanism, on
the expiration of four (4) hours from the time of
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transmission subject in the case of telex or facsimile to proof by the
sender that he/she holds an acknowledgment (whether in mechanical form
other otherwise) confirming its receipt at its destination and subject in
the case of facsimile or other print out transmission in the absence of an
acknowledgment to the original notice being sent by post or by personal
delivery in accordance with this Subparagraph 25.5 not later than the next
business day after such transmission; and (d) in the case of postal
delivery, on the second business day following the date of posting (the
fifth business day if posted to another country) or on acknowledgment of
receipt if earlier.
If to Licensor:
For notices to Licensor: P. O. Box 2009, San Rafael, CA 94912,
Attention: Vice President; with a copy to: General Counsel.
For all approvals by Licensor pursuant to Paragraph 5 above: P. O.
Box 2009, San Rafael, CA 94912, Attention: Approvals Coordinator
For all other approvals by Licensor including, without limitation,
pursuant to Paragraph 4 above: P.O. Box 2009, San Rafael, CA 94912,
Attention: Vice President
For statements and payments to Licensor: P. O. Box 2009, San Rafael,
CA 94912, Attention: Cashier
For wire transfers: pursuant to Licensor's written wire transfer
instructions
For deliveries requiring Licensor's street address: 5858 Lucas
Valley Road, Nicasio, CA 94946
If to Licensee:
Galoob Toys, Inc.
500 Forbes Blvd.
South San Francisco, CA 94080
Attn: Gary Niles, Executive Vice President
cc: William Catron, Executive Vice President
25.6. No Waiver. No action taken by either party pursuant to this
Agreement, and no waiver by either party, whether express or implied, of
any provision or right in this Agreement or any breach thereof, and no
failure of either party to exercise or enforce any of its rights under
this Agreement, will constitute a continuing waiver with respect to such
provision or right or as a breach or waiver or any other provision or
right, whether or not similar.
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25.7. Independent Contractors. The parties to this Agreement are and shall
remain independent contractors. There is no relationship of partnership,
employer, employee, principal, agent, joint venture, employment, franchise
or agency between the parties. Except as expressly provided in this
Agreement, neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written
approval and shall not represent that it has such right.
25.8. Nonexclusive Remedy. The exercise by either party of any remedy
under this Agreement will be without prejudice to its other remedies under
this Agreement or otherwise.
25.9. Severability. This Agreement is severable. If any provision of this
Agreement is found invalid or unenforceable in any jurisdiction, that
provision, as to that jurisdiction, will be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or
unenforceable the other remaining provisions of this Agreement, which
other remaining provisions will not be affected and shall remain in force,
to the maximum extent permissible.
25.10. Approvals. Except as otherwise expressly stated herein, any and all
Licensor approvals pursuant to this Agreement may be given or withheld in
Licensor's sole discretion for any reason or for no reason. Failure by
Licensor to give written approval within fourteen (14) days from the date
of receipt of any submission for approval will be deemed to be Licensor's
disapproval thereof; provided, however, if Licensee thereafter notifies
Licensor in writing that it has not received a response from Licensor, and
Licensor does not respond within forty-eight (48) hours of receipt of such
notice, then the submission will be deemed approved. A delivery to and an
approval made by an authorized representative of Galoob Toys, Inc. shall
be deemed to constitute a delivery to and an approval made by Galoob Toys,
Inc. and all Permitted Licensee Affiliates.
25.11. Headings, Captions and Names. The name of this Agreement, and all
headings and captions herein contained, are for reference and convenience
only and do not define, limit or expand the scope or intent of any
provision hereof and shall not be relied upon in or in connection with the
construction or interpretation of this Agreement. The words "herein,"
"hereunder," "hereof" and similar terms refer to this entire Agreement and
shall not be limited to the specific paragraphs or subparagraphs in which
they are used.
25.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by telefacsimile transmission, each copy of which shall
be deemed an original and all of which, when taken together, shall
constitute one and the same instrument, but this Agreement shall not be
binding upon the parties until it has been signed by both parties. The
parties hereto agree that facsimile signatures on a copy of this Agreement
shall be effective and enforceable as if they were original signatures.
25.13. Further Instruments. Except as otherwise expressly provided in this
Agreement, each party shall furnish to the other (and shall deliver and
cause to be executed, acknowledged and
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delivered to the other) any further instruments, which such other party
may reasonably require or deem necessary from time to time to evidence,
establish, protect, enforce, defend or secure to such other party any or
all of its rights hereunder or to more effectuate or carry out the
purposes, provisions or intent of this Agreement.
25.14. Conditioned Effectiveness of License. Notwithstanding anything in
this Agreement to the contrary, this Agreement will not be deemed
effective until the expiration or early termination of the waiting period
applicable to the transactions contemplated hereby under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Upon
such expiration or early termination, this Agreement will be deemed
effective, without any further action of Licensor or Licensee.
25.15. Entire Agreement. This Agreement (including all Exhibits and
Schedules attached hereto, which Exhibits and Schedules are incorporated
herein by this reference) constitute the complete and entire agreement
between the parties with respect to the subject matter hereof, superseding
and replacing the Prior Agreement and any and all prior agreements,
negotiations, communications, and understandings (both written and oral)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties.
Subject to the foregoing, the "Royalty" (set forth and defined in the
Prior Agreement) shall be applicable to the "Licensed Products" (set forth
and defined in the Prior Agreement) in the "Territories" (set forth and
defined in the Prior Agreement) for Net Sales occurring up to and
including December 31, 1998, and the parties agree that Licensee shall no
longer have the right to the "Sell-Off Period" (set forth and defined in
the Prior Agreement).
LUCAS LICENSING LTD. ("LICENSOR") GALOOB TOYS, INC. ON BEHALF OF
ITSELF AND ALL PERMITTED LICENSEE
AFFILIATES (JOINTLY AND SEVERALLY
("LICENSEE")
By: /s/ Gordon Radley By: /s/ Mark Goldman
-------------------------------- ---------------------------------
Title: Title: President and CEO
----------------------------- ------------------------------
52
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
This schedule contains summary financial information extracted from the
financial statements of Galoob Toys, Inc. for the quarter ended September 30,
1997, and is qualified in its entirety by reference to such financial
statements.
Article 5
Multiplier 1,000
Period Type 3 months
Fiscal year-end December 31, 1997
Period Start July 1, 1997
Period End September 30, 1997
Cash $ 21,766
Securities 0
Receivables 83,329
Allowances 8,168
Inventory 23,402
Current Assets 151,818
PP&E 17,036
Depreciation 6,486
Total Assets 183,635
Current Liabilities 54,834
Bonds 0
Common 181
Preferred Mandatory 0
Preferred 0
Other - SE 124,335
Total Liability and Equity 183,635
Sales 83,248
Total Revenue 83,248
CGS 56,734
Total Costs 56,734
Other Expenses 41,367
Loss Provision 0
Interest Expense 134
Income Pretax (18,256)
Income Tax (7,121)
Income Continuing (11,135)
Discontinued 0
Extraordinary 0
Changes 0
Net Income (11,135)
EPS - Primary (.62)
EPS - Diluted (.62)
</TABLE>
