<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from ___________ to ____________
Commission File Number: 1-9357
TYCO TOYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3319358
(State or other jurisdiction (I.R.S. Employer Identification No.)
or organization)
Tyco Toys, Inc.
6000 Midlantic Drive, Mt. Laurel, New Jersey
(Address of principal executive offices)
08054
(Zip Code)
(Registrant's Telephone number, including area code)
(609)234-7400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on which registered
- ------------------------------------------------- ---------------------------------------------------
<S> <C>
Common Stock New York Stock Exchange
Philadelphia Stock Exchange
Senior Subordinated Debentures New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days, Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant on March 15, 1996 was $208,882,596
Numbers of shares of Common Stock outstanding as of March 22, 1996:
34,813,766
Documents Incorporated by Reference
Proxy Statement for Annual Meeting of Stockholders to be held May 26, 1996
is incorporated by reference into Part III of this Form 10-K.
================================================================================
<PAGE>
1
Part I.
Item 1. Business
Tyco designs and markets, on a worldwide basis, a broad range of toy
products.
The Company includes Tyco Toys, Inc. (the Company, Tyco or Tyco Toys)
and its direct and indirect wholly-owned subsidiaries. Principal
subsidiaries include Tyco Industries Inc. (Tyco Industries), Tyco (Hong
Kong) Ltd., Tyco Manufacturing Corp., Tyco Distribution Corp., Tyco
Manufacturing (Europe) Inc., Tyco Funding I Corp., Tyco Funding II
Corp., Tyco Toys (UK) Ltd., Matchbox Toys, Ltd., Tyco Toys (France)
S.A., Tyco Toys (Canada) Inc., Tyco Toys Europe n.v., Tyco Toys
(Benelux) n.v., Tyco Matchbox (Deutschland) GmbH, Tyco Toys (Espana)
S.A., Tyco Preschool Toys Inc. (Tyco Preschool), Ensueno-Tyco Toys de
Mexico, Tyco Services Inc., Universal Product Innovations, Inc., Tyco
Toys (Switzerland) A.G., Tyco Toys GmbH and Tyco Toys (New Zealand) Pty.
Ltd.
Tyco owns a 75% interest in Croner-Tyco Toys Pty., Ltd., an Australian
Company, and a 50% interest in Rivergate Partnership L.P., an operator
of warehousing space in Portland, Oregon.
Tyco also owns interests in foreign joint venture entities including a
manufacturing entity in Thailand, and three manufacturing entities and
one tool-making entity in the Peoples Republic of China.
The Company markets its toys through three separate marketing groups:
Domestic (Tyco U.S.), International, and Tyco Preschool.
TYCO U.S.
In 1995, Tyco's domestic sales rose approximately 3% and the U.S.
division, which designs and develops most of the toys marketed by the
Company around the world, improved its operating results for the second
successive year. An ongoing focus on strengthening the Company's core
brands and the successful introduction of new toys contributed to the
improved results of this group in 1995.
Radio Control
-------------
Tyco maintains the largest market share in the radio control toy
category. In 1995, Tyco's line featured the top selling 6.0V Jet
Turbo/R/ Rebound 4x4/TM/ and the Harley-Davidson/R/ Radio Control
Motorcycle. For 1996, Tyco's line will include the 6.0V Jet Turbo
Dagger/TM/, a three wheeled dragster, the 6.0V Jet Turbo Samurai/TM/
racing motorcycle, the 9.6V Turbo Mutator/TM/ as well as the return of
Rebound 4x4/TM/.
<PAGE>
2
Matchbox/R/
-----------
Matchbox/R/ is among the Company's largest core brands. In 1996, Tyco is
expanding this line to include Action System/TM/, a new track system
featuring interconnecting, interchangeable track and traditional
playsets. In 1995, the line grew by over 5% primarily as a result of the
Collectibles business and the new Zero G/TM/ action track system. In
addition, the Company is further developing the Matchbox Collectibles
business in 1996 by adding new product to the core line of vehicles
including Peterbilt/TM/ Tractor Trailer replicas and an expansion of its
fire engine series.
Large Dolls
-----------
The Company is among the market leaders in the large doll category. In
1996, the Company will market several TV-advertised large dolls
including a new version of My Newborn Nancy/TM/. Brand new for 1996 are
the value-priced Baby Wiggles 'n Giggles/TM/, and Milk 'n Cookies
Baby/TM/. Tyco is also expanding its line of promoted Kenya/R/ African-
American dolls with Bedtime Kenya/TM/, which comes with a book featuring
an African-American story, and Hairplay Fun Kenya/TM/, which allows
girls to create designer hairstyles.
Magna Doodle/R/
---------------
Magna Doodle/R/ continues to be the number one selling drawing toy
worldwide. The Company's "try-me" packaging and second year of parent-
directed advertising helped increase Magna Doodle sales in 1995. In
1995, the Company also introduced the Magna Doodle/R/ 3-in-1 Play
Center, a child's table-top desk with three board surfaces for doodling,
drawing and playing with building blocks. In 1996, the Color
Doodler/TM/, an erasable color marker board set is being added to the
line.
Electric Racing
---------------
Tyco continues to maintain a leading market share in the electric racing
category. For 1996, the Company will feature 1995's successful Haunted
Highway/TM/ race set which highlights a monster's rolling eyeball as an
obstacle and Super Cliff Hangers/TM/ race sets with cars that race up a
wall, upside down and through a loop. New in 1996 will be Gravity
Twisting Cliff Hanger/R/ which, along with the existing race sets for
1996, will offer Tyco's faster Magnum X-3/TM/ cars.
In 1996 Tyco will be introducing a new concept in racing. Combining
Tyco's skills in both the radio control and racing categories, the Radio
Control Speedway/TM/ features two full function radio control trucks and
a racetrack layout.
<PAGE>
3
Games
-----
Tyco's core game business growth is based on the continued strength of
classic games such as Toss Across/R/, Rock em Sock em Robots/R/,
Jeopardy!/R/, Wheel of Fortune/R/, Magic 8 Ball/R/, Rebound/R/ and
Kerplunk/R/. In 1996, four new games are being introduced: Pickin
Chickens/TM/, an action game of collecting chicken eggs; Power Zone/TM/,
an arcade-like turbo-disk shooting action game; Up for Grabs/TM/, an
interactive word game; and Game Babies/TM/, a series of action games
featuring miniature baby-shaped playing pieces.
View-Master/R/
--------------
Tyco's View-Master/R/ line of 3-D viewers continues to hold the dominant
market share in this category. In 1996, new story reels featuring Disney
classics like the Hunchback of Notre Dame, 101 Dalmatians and Toy Story,
along with titles based upon Flipper and Spiderman join the existing
inventory of titles offered.
Other Toys
----------
Girls' Toys
Tyco's line of plush toys has continued to expand in 1995 led by the
successful introduction of Doodle Bear/TM/. In 1996, Doodle Bear/TM/ is
further expanded to include Doodle Pets/TM/ and Secret Message Doodle
Bear/TM/. Two value-priced plush products, Doggie Bag Doggies/TM/,
little puppies with a unique packaging concept and the Lil' Fursons/TM/
line of fluffy creatures will be added to the 1996 line. Tyco will also
offer an electronic talking plush doll in 1996, Real Talkin' Bubba/TM.
Tyco will be offering a new line of diecast kitchen, food and dining
miniatures in 1996 called Kitchen Littles/TM/. The line is designed for
girls' role-playing and is scaled to be compatible with all fashion
dolls so that the products will also have a place in the fashion doll
accessory market.
Activity Toys
Tyco's Doctor Dreadful/TM/ 'looks gross, tastes great' playsets were
very successful in 1995, and an expanded line for 1996 will feature the
new Doctor Dreadful MD/TM/ line of products. A more conventional cooking
line is also available with Tyco's Betty Crocker/R/ Watch-It Bake/R/
Oven and 3-Minute Ice Cream Maker/TM/. In addition, Tyco's line of
science and crafts sets returns in 1996. Fingernail Fun/TM/, which
provides for fingernail decorating play, and Scrunch 'n Wear Minis/TM/,
which allows girls to make the latest fashion hairwear, will also be
joining the Fashion Magic/R/ girls' activity line.
<PAGE>
4
Children's Electronics
In 1996, Tyco will be entering a new category, Children's Electronics.
The Company's proprietary product in this category is TycoVideoCam/TM/,
a child's video camera. Key features of this product are its $100 retail
price, which is significantly less than adult video cameras, its point-
and-shoot, easy-to-use design, and its durability.
Direct Import
For 1996, Tyco US will be marketing a line of products offered on a
letter of credit basis (direct import) which were previously sold by its
Tyco Playtime division. Certain of the products are lower cost versions
of Tyco's promoted brand names, for example, Matchbox/R/ or Doodle
Bear/TM/. In addition, 1996 direct import products will continue to
include well known dolls from the past, such as Tiny Tears/R/ and Betsy
Wetsy/R/. A new line of plush toys also will be introduced in 1996 using
the brand name of the successful direct marketing company, Vermont Teddy
Bears/TM/.
TYCO INTERNATIONAL
In 1996, the Company's International subsidiaries will continue to
market products developed by the Tyco U.S. business unit as well as, in
select countries, third-party product. The Company's International
subsidiaries accounted for approximately 34% of 1995's consolidated
sales. In order to reduce its operating costs, the Company extensively
reorganized its International operations in 1995. As part of the
restructuring, the Company consolidated the marketing and administrative
functions of its subsidiaries in Germany, France and Benelux into the
Company's newly created European Headquarters in Belgium. In the United
Kingdom, the Company consolidated its Tyco and Matchbox operations. The
Company is also closing its manufacturing facility located in Temse,
Belgium and its distribution facility located in the United Kingdom.
TYCO PRESCHOOL
In 1996, new Sesame Street/R/ toys will be added to the historically
popular line of Sesame Street products including new plush, talking and
promotional lines. Tyco Preschool will also expand the product offering
of its Looney Tunes Lovables/TM/ line, which is based on Warner Bros.'
characters as toddlers. Two new Sesame Street products, 1-2-3 Melody
Keys/TM/ and Tickle me Elmo/TM/, will be marketed with television
advertising in 1996.
During 1995, the Company also restructured its Tyco Playtime Unit
whereby its non-preschool products and certain administrative functions
were consolidated into Tyco U.S. As part of the program, Tyco Playtime
was renamed Tyco Preschool with its focus on the profitable long-term
growth of the preschool business, primarily Sesame Street/R/ toy
products. In connection with this focus, Children's Television Workshop
(CTW), designated the Company as its primary toy licensee in June 1995.
Under the terms of the agreement, Tyco will nearly double the number of
Sesame Street/R/ product categories, including the plush toy category.
The Company was also awarded the rights to several additional categories
including pop-up toys, figurines, talking phones, and diecast vehicles.
<PAGE>
5
Seasonality and Backlog
The toy industry is highly seasonal due to heavy consumer demand for toy
products during the December holiday season. Traditionally, orders
received by toy manufacturers in the first six months range between 55%
to 90% of total calendar year orders, while shipments for that period
represent 30% to 40% of the year's total. Due to these significant
fluctuations, the results of operations for any quarterly period are not
necessarily indicative of the results of operations for the full year.
The timing of orders is largely influenced by the degree of consumer
demand for a product line, inventory levels at retailers, marketing
strategies and overall economic conditions. The Company's fulfillment of
its order backlog is dependent upon manufacturing capacity and the
extent to which orders may be received and/or cancelled due to changes
in consumer demand. There can be no assurance that cancellations will
not reduce the amount of net sales realized from the fulfillment of
backlog orders.
Design and Development
The Company is engaged in a continuing product development and packaging
design program. The Company spent $20,740,000, $17,519,000 and
$19,062,000 in the years ended December 31, 1995, 1994 and 1993,
respectively, for this program. The Company employs its own designers,
artists, model makers, and product engineers, and also utilizes
independent inventors who submit their ideas and designs. Typically, the
Company acquires exclusive rights from inventors to market such items
under agreements which provide for royalty payments to the designer or
inventor for varying periods.
Marketing and Distribution
The Company markets its products in the United States to large retail
chains, wholesalers and independent retailers through full-time salesmen
and several independent sales representative organizations. The Company
markets its products internationally in various foreign countries
through its subsidiaries and licensees. International sales accounted
for approximately 34%, 40% and 41% of the Company's sales in the three
years ended December 31, 1995, 1994 and 1993, respectively.
For the years ended December 31, 1995, 1994 and 1993, approximately 62%,
59% and 54%, respectively, of the Company's net sales were attributable
to its ten largest customers. For the years ended December 31, 1995,
1994 and 1993, Toys "R" Us, Inc. (Toys "R" Us), a chain of retail toy
stores, accounted for 25%, 27% and 24%, respectively, of Company
revenues. During the three years ended December 31, 1995, Wal-Mart
Stores, Inc. (Wal-Mart), a chain of discount stores, accounted for
approximately 13%, 10% and 9%, respectively, of net sales. No other
customer accounted for more than 10% of net sales during these periods.
The Company's business would be adversely impacted in the event that it
lost either Toys "R" Us or Wal-Mart as a customer. The Company believes,
however, that its relationships with Toys "R" Us and Wal-Mart are good
and it has no reason to expect such a development.
<PAGE>
6
The primary competitive factors with respect to the Company's products
are consumer identification, price, play-value and quality of
manufacturing. The Company utilizes a high level of product promotion
primarily through advertising in order to retain consumer recognition
of, and commercial success for, its product lines. The Company's
advertising program is similar to other companies in the toy industry in
that most of its advertising budget is allocated to children-oriented
television programming. In 1995, 1994 and 1993, the Company's
expenditures for marketing, advertising and promotion were approximately
23%, 23% and 25% of net sales, respectively.
Trademarks
The Company markets its products under a variety of trademarks, some of
which are not owned by the Company and for which the Company pays a
royalty. In 1995, the most important of these were Tyco/R/, View-
Master/R/, 9.6V Turbo/R/, Matchbox/R/, Doctor Dreadful/TM/, 6.0V Jet
Turbo Rebound/TM/, Doodle Bear/TM/ and Kenya/R/, all of which are owned
by the Company, and the licensed trademarks, Sesame Street/R/, Kitty
Kitty Kittens/R/, Looney Tunes/R/, Magna Doodle/R/ and Harley-
Davidson/R/.
License agreements for certain trademarks require minimum guaranteed
royalty payments over the term of the license. Reference is made to note
10 of the Notes to Consolidated Financial Statements.
Competition
The toy industry is highly competitive. Some of the Company's
competitors are significantly larger firms which have greater financial
resources than the Company.
The Company holds the leading market share in several of its product
categories, including radio control vehicles, electric racing, drawing
toys, and 3-D viewers. Other major product categories in which the
Company holds a significant market share include diecast vehicles, plush
toys, activity toys, action games and dolls.
Manufacturing and Suppliers
Tyco (Hong Kong) Ltd. negotiates with factories throughout the Orient
for the manufacture of various Tyco products. Products obtained by Tyco
(Hong Kong) Ltd. are shipped to facilities of the Company or its
licensees where they are packaged and/or distributed. The Company's
radio control toy products are manufactured in the Orient exclusively by
Taiyo Kogyo Co., Ltd., a company in which Tyco holds an 18.5% ownership
interest. Reference is made to note 14 of the Notes to Consolidated
Financial Statements. The View-Master product line is manufactured in
Beaverton, Oregon. The Matchbox product line is manufactured primarily
at joint venture facilities in Thailand and the People's Republic of
China. The Company's suppliers utilize manufacturing facilities located
in China, Hong Kong and other Asian countries. The Company could be
adversely affected by political or economic disruptions affecting
businesses in or trade
<PAGE>
7
with such countries. The most favored nation (MFN) status for China was
extended until June 1996. If the United States Congress were to override
such extension or place significant conditions on MFN status for China
or if such MFN status should terminate for any other reason, the result
would be the imposition of burdensome duties on toys made in China and
imported into the United States. The European Community has also imposed
limitations on the importation of Chinese products. To date, such
regulations have not materially affected the Company.
The Company believes that it has the ability to develop, over a period
of time, adequate alternative sources for the products obtained from its
present foreign suppliers should such alternative sources be required.
However, if the Company is prevented from acquiring products from its
joint venture partners and suppliers in the Far East, the Company's
operations would be seriously disrupted, resulting in a significantly
adverse financial impact. The Company maintains close contact with its
subcontractors in Hong Kong, China, Singapore, Malaysia, Taiwan,
Thailand and Indonesia through its employees in various Far East
locations.
Packaging, plastics, and other raw materials essential to the production
and marketing of toy products are currently in adequate supply. The
Company does not anticipate shortages of raw materials in the
foreseeable future.
Employees
As of December 31, 1995, the Company employed approximately 2,200
people, including approximately 1,000 in various foreign countries. In
the opinion of management, the Company has good working relations with
its employees.
Item 2. Properties
The Company leases a total of 1,400,000 square feet for its operations
and administrative offices. The Company believes that its facilities are
suitable for its business needs at the present time and for the
immediate future.
Item 3. Legal
Reference is made to note 10 of the Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of 1995 to a vote of
security holders through the solicitation of proxies or otherwise.
<PAGE>
8
Part II.
Item 5. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
Market Information
The Company's common stock is listed for trading on the New York Stock
Exchange under the symbol "TTI".
The following table sets forth, for the fiscal quarters indicated, the
high and low closing sale prices of the common stock as reported on the
New York Stock Exchange.
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $5.750 $4.500 $9.750 $8.375
Second 7.375 4.625 9.000 6.625
Third 7.125 5.250 8.500 6.750
Fourth 5.875 4.250 8.125 5.375
</TABLE>
Stockholders
As of March 15, 1996, the number of shareholders of Tyco common stock
was approximately 24,500.
Dividends
Total cash dividends declared on common stock during 1993 were
$2,531,000. During 1994 and 1995, the Company was precluded from paying
cash dividends pursuant to restrictions under its principal credit
facilities. The new credit facilities entered into with General Electric
Capital Corporation and affiliates on February 24, 1995 restrict the
Company's ability to pay cash dividends until the Company achieves a
defined level of tangible net worth. Reference is made to note 5 of the
Notes to Consolidated Financial Statements. The terms of the Company's
6% Series B Voting Convertible Exchangeable Preferred Stock, 10.125%
Senior Subordinated Notes and 7% Convertible Subordinated Notes also
have limitations on the payment of dividends by the Company.
The Company was required to pay stock dividends on its preferred stock.
Dividends issued in shares of preferred stock in lieu of cash during
1995 and 1994 were $3,200,000 and $2,157,000, respectively.
<PAGE>
9
Item 6. Selected Financial Data
(In thousands, except per share data)
The following table presents selected historical financial data for the Company.
The information contained herein should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements and Notes thereto of the
Company.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales [1] $709,109 $753,098 $730,179 $768,589 $548,701
======== ======== ======== ======== ========
Restructuring and other
special charges [2] 8,900 4,700 28,214 2,797 6,938
Operating income (loss) (2,282) 635 (56,914) 44,082 46,277
Interest and other expense, net 25,952 32,108 26,426 13,946 19,083
-------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary loss (28,234) (31,473) (83,340) 30,136 27,194
Provision (benefit) for income taxes [3] (1,005) 1,500 (13,400) 12,124 7,994
-------- -------- -------- -------- --------
Income (loss) before extraordinary item (27,229) (32,973) (69,940) 18,012 19,200
Extraordinary loss on retirement
of debentures, net of tax benefit - - - - 759
-------- -------- -------- -------- --------
Net income (loss) (27,229) (32,973) (69,940) 18,012 18,441
Preferred stock dividends 3,200 2,157 - - -
-------- -------- -------- -------- --------
Net income (loss) applicable
to common shareholders $(30,429) $(35,130) $(69,940) $ 18,012 $ 18,441
======== ======== ======== ======== ========
Net income (loss) per common share:
Primary:
Income (loss) before extraordinary
loss $ (0.87) $ (1.01) $ (2.08) $ 0.60 $ 1.14
Extraordinary loss - - - - 0.04
-------- -------- -------- -------- --------
Net income (loss) $ (0.87) $ (1.01) $ (2.08) $ 0.60 $ 1.10
======== ======== ======== ======== ========
Fully diluted:
Income (loss) before extraordinary
loss $ (0.87) $ (1.01) $ (2.08) $ 0.60 $ 0.97
Extraordinary loss - - - - 0.03
-------- -------- -------- -------- --------
Net income (loss) $ (0.87) $ (1.01) $ (2.08) $ 0.60 $ 0.94
======== ======== ======== ======== ========
Dividends per common share $ - $ - $ 0.075 $ 0.10 $ -
======== ======== ======== ======== ========
Weighted average shares outstanding:
Primary 34,788 34,687 33,595 29,743 18,412
======== ======== ======== ======== ========
Fully diluted 34,788 34,687 33,595 31,127 25,152
======== ======== ======== ======== ========
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $103,851 $124,352 $132,341 $212,616 $125,292
Total assets 615,132 670,635 715,169 749,229 390,338
Short-term debt 61,976 78,996 84,222 29,664 5,027
Long-term debt 147,180 146,851 179,771 198,865 91,017
Stockholders' equity 265,340 296,232 277,449 335,241 181,222
</TABLE>
[1] See note 1 of the Notes to Consolidated Financial Statements of the
Company.
[2] See note 2 of the Notes to Consolidated Financial Statements of the
Company.
[3] See note 8 of the Notes to Consolidated Financial Statements of the
Company.
<PAGE>
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Summary
- -------
Results of operations expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 58.7 59.1 59.8
----- ----- -----
Gross profit 41.3 40.9 40.2
Marketing, advertising
and promotion 22.7 22.9 24.7
Selling, distribution and
administrative expenses 16.8 16.4 18.5
Restructuring and other
special charges 1.2 0.6 3.9
Amortization of goodwill 0.9 0.8 0.9
----- ----- -----
Total operating expenses 41.6 40.7 48.0
----- ----- -----
Operating income (loss) (0.3) 0.2 (7.8)
Interest expense, net 4.0 4.2 3.2
Foreign exchange loss - 0.4 0.5
Other income, net (0.3) (0.3) (0.1)
----- ----- -----
Loss before income taxes (4.0) (4.1) (11.4)
Provision (benefit) for income
taxes (0.1) 0.2 (1.8)
----- ----- -----
Net loss (3.9)% (4.3)% (9.6)%
===== ===== =====
</TABLE>
Results of Operations
- ---------------------
Year Ended December 31, 1995 vs. Year Ended December 31, 1994
The Company markets its toys through three separate groups: Domestic,
International and Tyco Preschool (certain previously reported amounts have been
reclassified to conform to the 1995 presentation). Net sales were $709,109,000
in 1995 compared to $753,098,000 in 1994, a decrease of $43,989,000 or 5.8%. In
the Company's Domestic unit, sales increased $11,783,000 or 3.1% to
$386,058,000. Sales of Radio Control products (12.3% increase), led by the new
Rebound/TM/ product, Matchbox products (5.5% increase) particularly Collectibles
and Drawing toys (9.6% increase), contributed to the majority of the sales
growth. International sales, however, decreased in 1995 to $242,090,000 from
$289,141,000 in the prior year. This decrease was primarily attributable to
weaker sales in Europe, particularly in the United Kingdom, Germany, France and
the Benelux Countries, which collectively represented over $50 million in
reduced sales and offset increases in the Company's other International
operations. The sales decrease in the United Kingdom and Benelux were primarily
attributable to discontinued product lines (e.g. action figures). In Germany
and France, the weak retail environment, particularly with respect to radio
control and Matchbox products, together with certain inefficiencies resulting
from the Company's restructuring program contributed to the sales declines.
Sales of the Company's Tyco Preschool products were $84,171,000 in 1995, a
$7,208,000 reduction from the 1994 level primarily as a result of reduced sales
of non-Sesame Street(R) products.
<PAGE>
12
Gross profit was $292,873,000 in 1995 compared to $307,704,000 in 1994, a
decrease of $14,831,000 or 4.8%, primarily due to the reduced sales volume.
Gross profit as a percentage of net sales increased marginally to 41.3% from
40.9% in 1994. Domestic margins improved by approximately 2% and International
margins remained relatively unchanged. Preschool margins, however, declined by
approximately 6.0%. Domestic margins improved for the year primarily as a
result of reduced duty costs. Reduced margins in the Preschool business reflect
increased tooling and royalty costs coupled with increased vendor costs for
plastic resin. By year end 1995, resin costs had declined substantially from
mid-year levels.
Total operating expenses in 1995 were $295,155,000, representing an $11,914,000
improvement over the prior year despite a current year restructuring charge of
$8,900,000. This reduction reflects the Company's continued cost containment
efforts. On a business unit basis, Domestic operating expenses decreased
slightly. Internationally, operating expenses were reduced by $12,090,000 over
1994. Approximately 70% of this reduction reflects volume-related reduced
marketing costs with the remainder attributable to the Company's restructuring
and streamlining initiatives. In the Preschool business, a $3,758,000 or 16%
reduction in operating expenses was achieved.
During the second quarter of 1995, the Company adopted a restructuring program
focused on reducing the overhead costs of its European, United Kingdom and Tyco
Playtime units. The restructuring program resulted in a pre-tax charge of
$4,900,000 and is expected to generate annual savings in excess of $10,000,000
through the combined effect of job eliminations, facility consolidations and
streamlined operations.
The program included the elimination in 1995 of approximately 10% of the
Company's worldwide salaried workforce. As part of the restructuring, the
Company consolidated the marketing and administrative functions of its
subsidiaries in Germany, France and Benelux into the Company's European
Headquarters in Belgium. In the United Kingdom, the Company consolidated its
Tyco and Matchbox operations. The restructuring also included a reorganization
of the Tyco Playtime unit whereby its non-preschool products and certain
administrative functions were consolidated into Tyco U.S. As part of the
program, Tyco Playtime was renamed Tyco Preschool with its focus on the
profitable long-term growth of the preschool business, primarily Sesame
Street(R) toy products. The reduction in workforce included the elimination of
72 positions in Continental Europe and the United Kingdom and 61 positions at
Tyco Preschool and Tyco U.S. The charge consisted primarily of approximately
$3,000,000 in termination and other employee benefits, $1,300,000 of facility
consolidation costs and lease termination payments, and an approximate $300,000
non-cash write-off of assets. The program was substantially completed as of
December 31, 1995.
During the fourth quarter of 1995, the Company adopted an additional
restructuring program to further reduce European operating expenses. As part of
this restructuring program, the Company will be closing its manufacturing
facility located in Temse, Belgium and its distribution facility located in the
United Kingdom. The program resulted in a pre-tax charge of $4,000,000 and is
expected to generate annual savings primarily from reduced product costs
resulting from the transfer of production to lower cost sources in the Far East
and Portland. Approximately 75 positions have been eliminated as a result of
this restructuring. The program is expected to be substantially completed by
April 1996. The fourth quarter charge consisted primarily of termination
benefits which totalled $3,500,000.
As of December 31, 1995, $4,434,000 of the 1995 restructuring charges (primarily
termination benefits) were reflected in accrued expenses.
<PAGE>
13
During 1994, the Company recorded a $4,700,000 pre-tax charge related to
additional costs to close its Italian subsidiary, including legal costs
associated with the lawsuit filed by the former managing director of Tyco Italy
against the Company (see note 10 of the Notes to Consolidated Financial
Statements).
Interest expense decreased $2,887,000 to $28,026,000 in 1995 due to reduced bank
amendment fees and lower average borrowing rates. Total average borrowings were
$235,909,000 in 1995 with an average borrowing rate of 10.9% compared to average
borrowings of $235,560,000 with an average borrowing rate of 11.6% in 1994.
Excluding long-term debt, average short-term borrowings were $89,501,000 and
$90,015,000 in 1995 and 1994, respectively, with maximum seasonal borrowings of
$170,122,000 and $156,971,000, respectively.
Other income in 1995 included a gain of approximately $2,500,000 resulting from
the Company's sale of its distribution rights for Kidsongs music videos. The
sale was made in conjunction with the Company's increased focus on the continued
development of its core brands.
Realized and unrealized gains on foreign currency transactions were $250,000 in
1995 compared to a loss of $3,138,000 in the prior year which included an
approximate $2,000,000 loss with respect to the December 1994 devaluation of the
Mexican peso.
As of December 31, 1995, the Company had domestic net operating loss
carryforwards of $76,493,000. These net operating loss carryforwards are
available to reduce the Company's future taxable income and expire in the years
2008 through 2010. The Company also has net operating loss carryforwards of
$47,500,000 related to preacquisition loss carryforwards of Matchbox. The
Matchbox net operating losses are subject to an annual limitation and can only
be used to offset taxable income of the Matchbox domestic companies. These net
operating losses expire during the years 2001 through 2004.
The reconciliation of the Company's loss before taxes for financial statement
purposes to domestic taxable loss for the three years ended December 31, 1995 is
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Loss before taxes $(28,234) $(31,473) $(83,340)
Differences between loss before taxes for
financial statement purposes and taxable loss:
Permanent differences (9,055) 13,768 14,608
Loss from subsidiaries not included in
the consolidated tax return 24,821 18,174 42,022
Net change in temporary differences (2,510) (14,018) (30,813)
Stock option deductions - - (1,264)
-------- -------- --------
Taxable loss $(14,978) $(13,549) $(58,787)
======== ======== ========
</TABLE>
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109), the Company is required to record a net deferred tax
asset for the future tax benefits of tax loss and tax credit carryforwards, as
well as for other temporary differences, if realization of such benefits is more
likely than not. Based on the weight of available evidence, management has
concluded that it is more likely than not that the Company's future taxable
income (by taxing jurisdiction) will be sufficient in the carryforward period to
realize a tax benefit on certain of its temporary differences. Accordingly, the
Company has recorded a benefit on that portion of its temporary differences,
including net operating loss carryforwards which will more likely than not be
realized prior to their expiration dates.
<PAGE>
14
Management believes that the Company's future taxable income will be at a level
sufficient to fully utilize the 1995, 1994, and 1993 domestic net operating loss
carryforwards and other temporary differences. Annual domestic pre-tax income
(as adjusted for changes in temporary differences, certain permanent items,
nonrecurring charges and other appropriate adjustments) for the four year period
ending December 31, 1995 averaged approximately $2,600,000. This level of
domestic taxable income, if earned each year over the carryforward period, would
not be sufficient to realize approximately $13,000,000 of the tax benefits
represented by the net domestic net operating loss and tax credit carryforwards
and other temporary differences prior to their expiration. SFAS 109 includes
the consideration of tax planning strategies in the determination of the amount
of valuation allowance needed. Through the use of an appropriate tax planning
strategy, which management would implement to prevent the expiration of tax
benefits, an additional $3,500,000 of annual domestic taxable income would be
realized. This additional taxable income, when added to the above average
income, would be sufficient to fully realize the tax benefits represented by the
net operating loss carryforwards and other temporary differences prior to their
expiration. If no tax planning strategies were implemented, adjusted average
annual domestic pre-tax income would have to grow at an average annual compound
rate of 8% in order to fully realize the tax benefits prior to their expiration.
Management believes that taxable income over a four-year period represents the
cyclical pattern of the Company's core business. The Company's core business
includes product lines with lives exceeding three years. These core products
appear in the Company's product line from year to year in their base form with
some modifications. During 1995, sales of core products approximated 70% of
sales.
Based on the Company's core product line and expanded non-core or promotional
product line, as well as the Company's prior history of earnings, management
anticipates that the Company will be able to return to profitability.
Management believes that the Company's domestic subsidiaries' royalty
arrangements with its international subsidiaries will contribute to future
domestic profitability.
While management expects the Company to return to profitability, future levels
of operating income are dependent upon general economic conditions, including
competitive pressures on sales and profit margins, and other factors beyond the
Company's control. Accordingly, no assurance can be given that sufficient
taxable income will be generated to allow full utilization of the net operating
loss and tax credit carryforwards and other temporary differences. Management
has considered these factors in reaching its conclusion that it is more likely
than not that future taxable income will be sufficient to utilize certain net
operating loss carryforwards and other temporary differences prior to their
expiration.
Valuation allowances totalling $82,207,000 have been established due to
management's analysis indicating that certain tax credit and net operating loss
carryforwards, the use and life of which are limited under the income tax laws,
may expire prior to their full utilization. The valuation allowances include
$16,168,000 related to the preacquisition net operating losses of Matchbox. Any
subsequently recognized benefits related to these net operating losses will be
allocated to reduce goodwill.
The Company also has general business and foreign tax credit carryovers of
$625,000 and $7,101,000, respectively. The Company's future federal income tax
liability can be reduced by the general business tax credits through the year
2009 and by the foreign tax credits through the year 2000. These credits expire
as follows (in thousands):
<TABLE>
<CAPTION>
Year of Expiration General Business Foreign
------------------ ---------------- -------
<S> <C> <C>
1996 $ - $ 682
1997 24 1,338
1998 47 2,045
1999 112 1,883
2000 60 1,153
2001 to 2009 382 -
---- ------
$625 $7,101
==== ======
</TABLE>
<PAGE>
15
Additionally, the Company's international subsidiaries had, in the aggregate,
approximately $112,143,000 of tax loss carryforwards available at December 31,
1995. These tax losses are available to reduce the originating subsidiary's
future taxable income and have varying expiration dates.
The Internal Revenue Service has examined the consolidated federal income tax
returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987 through
August 31, 1990. The Company reached a settlement that did not materially
affect the results of operations (including realization of net operating losses
and tax credit carryforwards), financial condition or liquidity of the Company.
Additionally, the consolidated federal income tax returns of Tyco Toys, Inc. for
the fiscal years ended December 31, 1990 through December 31, 1992 are presently
being examined by the Internal Revenue Service. While the final outcome of this
examination is not determinable at this time, management of the Company believes
that any proposed adjustments, if sustained, will not materially affect the
financial condition, results of operations (including realization of net
operating loss carryforwards) or liquidity of the Company.
Year Ended December 31, 1994 vs. Year Ended December 31, 1993
Net sales were $753,098,000 in 1994 compared to $730,179,000 in 1993, an
increase of $22,919,000 or 3.1%. In the Domestic unit, sales increased
$36,616,000 or 10.8% to $374,275,000. Sales of activity toys, led by the new
Dr. Dreadful product line, contributed to a majority of the sales increase. A
more than 30% increase in Matchbox-related product which included the
Collectibles lines, a 50% increase in games sales and a 6% increase in girls'
toys also contributed to the sales growth. Within the girls' category,
increases in plush product sales offset declines in the large doll and The
Little Mermaid lines. International sales decreased slightly in 1994 to
$289,141,000 from $295,354,000 in the prior year. The Company's continued
worldwide focus on development of its core product lines resulted in a 50%
increase in radio control and a 30% increase in View-Master sales
internationally. These increases offset an approximate $60,000,000 aggregate
decrease in promotional toy lines including The Incredible Crash Dummies, The
Little Mermaid and Thunderbirds. The 1994 results also included approximately
$20,000,000 of close-out sales as the Company focused on aggressive inventory
reduction. Sales of the Company's Playtime product lines were $91,379,000 in
1994, a more than $13,000,000 reduction from the 1993 level. Delays in the
market availability of new products, primarily based upon the popular Sesame
Street license, caused this sales decrease. However, by the fourth quarter of
1994, these delays were eliminated and sales during that quarter were
approximately 6% above the comparable quarter in 1993.
Gross profit was $307,704,000 in 1994 compared to $293,538,000 in 1993, an
increase of $14,166,000 or 4.8%, primarily due to higher sales volume in 1994.
Gross profit as a percentage of net sales increased to 40.9% from 40.2% in 1993
as the higher margin Domestic business experienced an approximate 5% increase
which was substantially offset by an approximate 5% decrease in International
margins. Domestic percentage margins improved primarily as a result of lower
obsolescence provisions reflected in 1994 results compared with higher
obsolescence levels recorded in the prior year. Also contributing to the margin
improvements was the 1994 introduction of the Dr. Dreadful product line. In the
International business unit, approximately half of the 5% reduction in gross
profit margin was related to the Company's inventory reduction program. The
change in the product mix contributed to the remainder of the margin decrease.
Playtime 1994 gross profit as a percentage of net sales remained unchanged from
1993.
<PAGE>
16
Total operating expenses in 1994 were $307,069,000, representing a more than
$43,000,000 improvement over the prior year. Operating expenses, net of
restructuring and other special charges, decreased by $19,869,000 despite a
$22,919,000 increase in sales. This reduction reflects the Company's continued
cost containment efforts. On a business unit basis, Domestic operating expenses
remained virtually unchanged as a 4% increase in marketing, advertising and
promotional costs required to support the 9.7% sales increase was offset by
reduced selling and administrative expenses. Internationally, continued cost
reduction and streamlining initiatives resulted in an 11% reduction in operating
expenses. In the Playtime business, a $6,400,000 improvement, or more than 20%,
was achieved through a reduction in all operating expense categories.
During 1994, the Company recorded a $4,700,000 pre-tax charge related to
additional costs to close its Italian subsidiary, including legal costs
associated with the lawsuit filed by the former managing director of Tyco Italy
against the Company (see note 10 of the Notes to Consolidated Financial
Statements). In 1994, the Company entered into a five-year agreement with an
Italian distributor to market the Company's products in Italy. The Company is
entitled to minimum royalty payments in accordance with this agreement. During
1993, the Company recorded restructuring and other special charges aggregating
$28,214,000, of which $22,238,000 were non-cash in nature. The restructuring
plan was based upon consolidations of Company subsidiaries in Germany and
Australia, the planned sale of the Company's Italian subsidiary, as well as the
integration of the two separate Playtime operations in the U.S. and Hong Kong.
The charges also included severance of $3,721,000 and facility consolidation
costs totalling $2,255,000. The restructuring program and related cash payments
were completed in 1994.
Interest expense increased $7,426,000 to $30,913,000 in 1994, reflecting
increased bank interest associated with greater utilization of the Company's
credit facilities and the payment of bank amendment fees. Total average
borrowings were $235,560,000 in 1994 with an average borrowing rate of 11.6%
compared to average borrowings of $218,167,000 with an average borrowing rate of
10.3% in 1993. Excluding long-term debt, average short-term borrowings were
$90,015,000 and $72,594,000 in 1994 and 1993, respectively, with maximum
seasonal borrowings of $156,971,000 and $112,056,000, respectively.
Realized and unrealized losses on foreign currency transactions decreased to
$3,138,000 in 1994 from $3,746,000 in the prior year. The 1994 loss, however,
included approximately $2,000,000 from the devaluation of the Mexican peso in
December 1994.
Financial Condition and Liquidity
- ---------------------------------
Year Ended December 31, 1995 vs. Year Ended December 31, 1994
For the year ended December 31, 1995, cash and cash equivalents decreased
$2,872,000 to $27,604,000. Non-cash depreciation and amortization of
$37,021,000 and a significant reduction in receivables ($17,824,000) and
inventories ($16,040,000) more than offset the $27,229,000 net loss and
contributed to $40,219,000 in cash generated from operating activities. The
cash provided by the Company's operating activities along with available cash
balances were used primarily to fund capital expenditures of $15,959,000, to
repay $17,779,000 of short-term debt, and to provide for the fees and expenses
associated with the Company's New Credit Facilities. The effect of foreign
exchange rate translation for the year ended December 31, 1995 accounted for a
$3,849,000 reduction in cash.
New Credit Facilities
In February and March 1995, the Company entered into $290,000,000 of new credit
facilities (the New Credit Facilities). The New Credit Facilities consist of
three separate three-year revolving credit facilities with General Electric
Capital Corporation and affiliates in an aggregate amount of $90,000,000 and a
$200,000,000 five-year domestic receivables securitization facility arranged
through General Electric Capital Corporation (see note 5 of the Notes to
Consolidated Financial Statements for a more detailed
<PAGE>
17
discussion of these facilities). Borrowings under the New Credit Facilities
were used to refinance outstanding indebtedness under the prior principal credit
facility with a bank group led by NationsBank of North Carolina, N.A. and
certain other credit facilities of the Company's foreign subsidiaries.
Under the terms of the New Credit Facilities, the Company and its subsidiaries
are (1) subject to covenants and conditions relating to the maintenance of net
worth, fixed charge coverage and operating income; (2) restricted from incurring
additional indebtedness or certain obligations and from acquiring any other
entities, whether by asset purchase, merger or otherwise; (3) restricted in the
ability to pay cash dividends on capital stock subject to certain limitations;
and (4) permitted to guarantee additional amounts of debt incurred by certain of
its subsidiaries up to an aggregate of $70,000,000. During the fourth quarter
of 1995, the Company was not in compliance with certain financial covenants
under the New Credit Facilities and received waivers from General Electric
Capital Corporation and affiliates. The Company has amended the New Credit
Facilities to reflect revisions to its financial covenants. As a result of the
amendment, the interest rate on the facilities was increased by .25% beginning
in 1996.
At December 31, 1995 and 1994, certain foreign subsidiaries of the Company have
agreements with various banks which provide for credit extensions of
approximately $35,764,000 and $65,483,000, respectively. Short-term borrowings
under these facilities were $15,503,000 and $24,216,000, at December 31, 1995
and 1994, respectively. Borrowings under these agreements are subject to a
variety of terms and conditions, including collateral requirements. These
subsidiaries also had outstanding letters of credit aggregating $7,826,000 and
$15,534,000 at December 31, 1995 and 1994, respectively.
The Company has the following sources of liquidity to support the cyclical
working capital requirements of its business: existing cash balances and
related interest earnings, internally-generated funds, available borrowings
under foreign lines of credit and the credit facilities with General Electric
Capital Corporation, and proceeds from potential equity or debt offerings. The
Company believes that its existing credit facilities as amended and internally-
generated funds will provide adequate financing for its current and foreseeable
levels of operation.
Dividends
During 1995 and 1994, the Company was precluded from paying cash dividends
pursuant to restrictions under its bank credit facilities. Dividends declared
on common stock were $2,531,000 in 1993. The New Credit Facilities restrict the
Company's ability to pay cash dividends until the Company achieves a defined
level of tangible net worth. Reference is made to note 5 of the Notes to
Consolidated Financial Statements. The terms of the Company's 6% Convertible
Exchangeable Preferred Stock, 10.125% Senior Subordinated Notes and 7%
Convertible Subordinated Notes also have limitations on the payment of dividends
by the Company.
During 1995, the Company was permitted to issue additional shares of Preferred
Stock in lieu of cash dividends. Preferred Stock dividends valued at $3,200,000
and $2,157,000 were issued in 1995 and 1994, respectively.
Commitments
Guaranteed Royalties
The Company markets its products under a variety of trademarks, some of which
are not owned by the Company and for which the Company pays a royalty. For the
years ended December 31, 1995, 1994 and 1993, the Company incurred $33,016,000,
$33,079,000 and $33,036,000 in royalty expense, respectively. Certain license
agreements require minimum guaranteed royalty payments over the term of the
license. At December 31, 1995, the Company is committed to pay total future
minimum guaranteed royalties aggregating $88,204,000 which are payable as
follows: 1996 - $14,726,000; 1997 - $11,660,000; 1998 - $12,067,000; 1999-
$12,292,000; 2000 - $12,897,000, and thereafter - $24,562,000.
<PAGE>
18
Guaranteed Purchases
In the ordinary course of business, the Company has entered into guaranteed
purchase agreements with certain suppliers to ensure the timely delivery and
availability of products. As of December 31, 1995, the Company was committed
for future purchases aggregating $7,701,000 from its suppliers.
Foreign Exchange Risk Management
The primary focus of the Company's foreign exchange risk management program is
to reduce earnings and cash flow volatility due to foreign exchange rate
fluctuations. In accordance with this policy, the Company enters into foreign
currency forward exchange contracts and options as hedges of inventory
purchases, and various other intercompany transactions. The credit risks
associated with the Company's foreign currency forward exchange contracts and
options are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed to
losses in the event of nonperformance by the counterparties, the Company does
not expect such losses, if any, to be significant.
At December 31, 1995, the Company had outstanding foreign currency forward
exchange contracts totalling $33,141,000 to purchase U.S. dollars. In January
1996, the Company entered into an additional $32,432,000 of forward contracts
which primarily provide for the purchase of U.S. dollars with foreign
currencies. The principal currencies being hedged are the Belgian franc,
British pound, Australian dollar and Canadian dollar. Foreign currency forward
exchange contracts and options expire within twelve months.
Legal Proceedings
Italian Litigation
In 1994, the former managing director of the Company's Italian subsidiary
initiated court action against the Company in Italy, alleging breach of a letter
of intent with the plaintiff for the sale of the subsidiary. The Company is
awaiting the court's decision in this matter. In the opinion of management and
its outside counsel, the Company has meritorious legal and factual defenses to
the claims made in this litigation, and the outcome is not likely to have a
material adverse impact on the Company's earnings, financial condition or
liquidity. The Trustee liquidating the Italian subsidiary has also lodged
claims against the former managing director on behalf of the subsidiary.
U.S. Customs
- ------------
In 1992, the U.S. Customs Service issued a penalty notice of an assessment for
lost duty in the amount of $1,500,000, penalties for gross negligence of
$5,800,000, and penalties for fraud of $5,600,000. All of the claims arise from
activities of the Company's View-Master subsidiary for periods prior to its
acquisition by the Company in 1989. Management and the Company's outside
counsel are of the opinion that the Company has legal and factual defenses to
the penalty claims made by the U.S. Customs Service, and that the outcome of the
proceedings relating to these claims, which proceedings may be protracted, are
not likely to have a material adverse impact on the earnings, financial
condition or liquidity of the Company.
<PAGE>
19
Environmental Litigation
Tyco Industries, a subsidiary of the Company, is a party to three matters
arising out of waste hauled by a transporter to various sites, including the
GEMS Landfill. In litigation relating directly to remediation of the landfill,
Tyco Industries has signed a Consent Order and Trust Agreement and made a
settlement contribution of an amount not material to Tyco Industries. In
another matter, homeowners near the GEMS Landfill have filed class action claims
against approximately 150 defendants, including Tyco Industries, for various
types of unspecified monetary damages, including punitive damages. In
management's opinion, there are meritorious factual and legal defenses to these
claims. In the third matter, the New Jersey Department of Environmental
Protection is asserting claims for remediation expenses at a different site in
Sewell, New Jersey used as a waste transfer station by the same transporter
involved in the other two matters.
In the opinion of management of the Company and its outside counsel, none of
these three matters is likely to have a material adverse impact on the earnings,
financial condition or liquidity of the Company. In addition, the Company will
receive a contribution from a third party towards certain expenses in these
matters.
Other Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's earnings, financial condition or liquidity.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which will be adopted by the Company in 1996 as
required by the statement. The Company has elected to continue to measure such
compensation expense using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS
123. When adopted, SFAS 123 will not have a significant effect on the Company's
financial position or results of operations but will require the Company to
provide expanded disclosure regarding its stock-based-employee compensation
plans.
Cautionary Statement - Private Securities Litigation Reform Act of 1995
The Company desires to take full advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. For the cautionary
statement intended to support any forward looking statements or projections
which may be made from time to time by the Company or its officers, please refer
to Exhibit 10.53 of this Annual Report on Form 10-K.
<PAGE>
20
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets
December 31, 1995 and 1994 F-2
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-6 to F-23
</TABLE>
<PAGE>
21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III.
Items 10, 11, 12 and 13.
Pursuant to Instruction G of Form 10-K, the definitive proxy statement
for the 1995 Annual Meeting of Stockholders of Tyco Toys, Inc. to be
held May 16, 1996 is hereby incorporated by reference.
<PAGE>
22
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<TABLE>
<CAPTION>
(a)(1). Financial Statements Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1995
and 1994 F-2
Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-6 to F-23
(a)(2). The Financial Statement Schedules
For the Three Years Ended December 31, 1995
Schedule II - Valuation and Qualifying Accounts and Reserves 28
</TABLE>
All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
set forth in the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
(a)(3). Exhibits
<S> <C>
3.1 Certificate of Amendment of Restated Certificate of
Incorporation of the Company (10)
3.1a Certificate of Designation of Preferred Stock issued to
First Chicago
Investment Corporation and Madison Dearborn Partners VII (1)
3.1b Certificate of Designation of Series B Voting Convertible Exchangeable
Preferred Stock (dated April 14, 1994) (12)
3.2 By-Laws of the Company (2)
4.1 Rights Agreement dated as of September 8, 1988 between the Company
and Manufacturers Hanover Trust Company relating to Preferred Stock
Rights Plan (3)
4.2 Form of Indenture dated as of August 15, 1992 between the
Company and NationsBank of Virginia, N.A., as Trustee, as amended as
of October 17, 1992 (9)
4.3 Supplemental Indenture dated as of June 8, 1993, among the Company,
NationsBank of Virginia, N.A. as Trustee and certain subsidiaries of the
Company as Additional Guarantors (8)
4.5 Agreement of Successorship dated as of January 14, 1994 among the
Company, NationsBank of Virginia, N.A. as Resigning Trustee and
Bankers' Trust Company as Successor Trustee (8)
</TABLE>
<PAGE>
23
<TABLE>
<S> <C>
4.6 Agreement of Purchase dated as of July 18, 1991 between the Company,
First Chicago Investment Corporation and Madison Dearborn Partners IV
(5)
10.1 Credit Agreement dated as of June 3, 1992 among the Company and
certain other subsidiaries as Guarantor, and Tyco Industries, Inc. as
Borrower, and NationsBank, N.A. as Agent for the Banks named therein,
as amended as of October 2, 1992 (9)
10.2 Letter of Waiver dated February 5, 1993 between the Company and
NationsBank N.A. and other banks to the Company (9)
10.3 Letter of Waiver dated November 12, 1993 from NationsBank of North
Carolina, N.A. and other banks to the Company (8)
10.4 Letter of Waiver dated January 31, 1994 from NationsBank of North
Carolina, N.A. and other banks to the Company (8)
10.5 Amendment Agreement and letter dated February 10, 1994 between the
Company and NationsBank of North Carolina, N.A. and other banks. (8)
10.6 Lease Amendment dated August 6, 1993 between Tyco Industries, Inc. and
6000 Midlantic Associates, L.P.
10.7 Lease Amendment dated January 9, 1996 between Tyco Industries, Inc. and
6000 Midlantic Associates, L.P.
10.11 Lease dated April 2, 1993, between Whitesell Enterprises and Tyco
Industries, Inc. (8)
10.12 Lease Amendments dated November 11, 1992, December 18, 1992,
January 25, 1993 and February 1, 1993 between Tyco Industries, Inc. and
6000 Midlantic Associates, L.P. (9)
10.13 Lease Agreement dated March 9, 1990 between Harbour City Management
Limited and Tyco (Hong Kong) Limited (5)
10.14 Amendment to lease dated June 16, 1993 between Tyco Industries, Inc.
and 6000 Midlantic Drive Associates, L.P. (8)
10.15 Lease dated March 23, 1992 between GP Portland Limited Partnership I
and Tyco Manufacturing Corp. (9)
10.17 Lease Agreement dated June 10, 1995 between Tyco Asia Limited and
Harrison Leasing Limited for the 12th floor, World Shipping Centre,
Harbour City, Hong Kong.
10.25 Employment Agreement dated as of January 24, 1994 between Tyco
Industries, Inc. and Karsten Malmos (8)
10.29 Employment Agreement dated as of January 24, 1993 between Tyco
Industries, Inc. and B. James Alley (8)
10.30 Agreement dated February 1, 1994 between Tyco Industries and Arnold
Thaler (8)
10.31 Asset Purchase Agreement dated September 10, 1990 between Tyco
Toys, Inc., TNI Inc., Playtime Electronics Limited, Playtime Products,
Inc., and Stanley Cohen (2)
10.31a Amendment Agreement dated October 31, 1990 between Tyco Toys, Inc.,
Playtime Acquisition Corp., Wide Frank Limited, Nasta International,
Inc., and Playtime Products, Inc., Playtime Electronics Limited and
Stanley Cohen (2)
</TABLE>
<PAGE>
24
<TABLE>
<S> <C>
10.33 Agreement of Purchase dated as of April 30, 1993 between the
Company and Jaime Kopchinsky (8)
10.34 Agreement of Amalgamation between Universal Matchbox Group
Limited and the Company dated as of July 13, 1992 (9)
10.35 Agreement of Purchase between Illco Toy Company USA, Ltd.
and the Company dated as of June 3, 1992 (9)
10.36 Agreement of Purchase dated as of November 17, 1992 between and
among Tyco Toys, Inc., Croner Trading Pty. Ltd., Len Hunter Trading
Co. Pty. Ltd., J.V.H. Pty. Ltd. and John Victor Hunter and Pamela Jean
Hunter (8)
10.37 Agreement and Plan of Merger dated as of May 22, 1989 among the
Company, VMIG Acquisition Corporation and View-Master Ideal Group,
Inc. (7)
10.38 Agreement and Plan of Merger dated as of September 18, 1990 between
Tyco Toys, Inc., TNI, Inc., and Nasta International, Inc. (8)
10.39 Incentive Stock Option Plan of the Company (3)
10.40 1992 Non-Qualified Stock Option Plan of the Company (10)
10.41 Tyco Toys, Inc. Deferred Stock Unit Plan (10)
10.42 Tyco Toys, Inc. Executive Bonus Plan (10)
10.43 Employment Agreement dated as of October 3, 1994 between Tyco
Industries and Gary Baughman (8)
10.44 Employment Agreement dated July 27, 1994 between Tyco Industries and
Richard E. Grey (8)
10.45 Employment Agreement dated July 27, 1994 between Tyco Industries and
Harry J. Pearce (8)
10.46 Credit Agreement dated February 24, 1995 among Tyco Manufacturing,
Inc. and Tyco Distribution Corp., as Borrowers, and General Electric
Capital Corporation, as Lender (12)
10.47 Receivables Transfer Agreement dated February 24, 1995 among Tyco
Industries, Inc., Tyco Funding Corporation I, Inc., and Tyco Funding
Corporation II, Inc. (12)
10.48 Receivables Funding Agreement dated February 24, 1995 among Tyco
Funding I Corporation, Tyco Funding II Corporation, Redwood
Receivables Corporation and Financial Security Assurance, Inc. (12)
10.49 Credit Agreement dated February 24, 1995 among Tyco Toys (Canada),
Inc., as Borrower, and Royal Bank of Canada and General Electric Capital
Corporation (Canada), as Lenders. (12)
10.50 Credit Agreement dated March 13, 1995 among Tyco Toys (UK) Ltd.
and Matchbox Toys (UK) Ltd. as Borrowers, and Lloyd's Bank and
General Electric Capital Corporation, as Lenders. (12)
10.51 Stock Purchase Agreement dated April 15, 1994 among Tyco Toys, Inc.,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The State
Board of Administration of Florida, and Corporate Advisors, L.P (12)
10.52 Registration Rights Agreement dated April 15, 1994 among Tyco Toys,
Inc., Corporate Partners, L.P., Corporate Offshore Partners, L.P., and The
State Board of Administration of Florida. (11)
</TABLE>
<PAGE>
25
10.53 Cautionary Statement; Private Securities Litigation
Reform Act of 1995
11 Computation of Loss Per Share Data
22 Subsidiaries of the Company
24.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
<PAGE>
26
(1) Incorporated by reference to Exhibit 4.5 to Post Effective Amendment No. 1
on Form S-3 to the Company's Registration Statement on Form S-1 (File No.
33-24222), filed with the Securities and Exchange Commission on August 15,
1991.
(2) Incorporated by reference to the Exhibit of the same number to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990 as filed
with the Securities and Exchange Commission on March 31, 1991.
(3) Incorporated by reference to the Exhibit of the same number to Amendments
No. 1 and 2 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-24222, as filed with the Securities and Exchange
Commission on November 17 and 30, 1988.
(4) Exhibit 4.3 incorporated by reference to Exhibit 10.35 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988, as filed
with the Securities and Exchange Commission on March 31, 1989.
(5) Incorporated by reference to the Exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991, as filed with the Securities and Exchange Commission on March 31,
1992.
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1986, as filed with the Securities and
Exchange Commission on March 31, 1987.
(7) Incorporated by reference to Exhibit (C)(4) to Amendment No. 2 to the
Schedule 13E-3 filed by Tyco Toys, Inc., TNI, Inc., and Nasta
International, Inc. with the Securities and Exchange Commission on
September 19, 1990.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994, as filed with the Securities and
Exchange Commission on March 30, 1995.
(9) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992, as filed with the Securities and
Exchange Commission on March 30, 1993.
(10) Exhibits 3.1, 10.40, 10.41 and 10.42 are incorporated by reference to
Exhibits A, B, C & D respectively of the Registrants Proxy Statement dated
April 7, 1995, as filed with the Securities and Exchange Commission on
April 10, 1995.
(11) Exhibits 3.1(b), 10.51 and 10.52 are incorporated by reference to Exhibits
5.2, 5.1 and 5.3 filed by the Registrant with Form 8-K, with the Securities
and Exchange Commission on May 19, 1994.
(12) Incorporated by reference to Exhibits of the same number filed by the
Registrant with Form 8-K with the Securities and Exchange Commission on
April 10, 1995.
<PAGE>
27
(b). Reports on Form 8-K
--------------------
None.
(c). Exhibits
--------
See (a) (3) above.
(d). Financial Statement Schedules
-----------------------------
See (a) (2) above.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Tyco Toys, Inc.
Mount Laurel, New Jersey
We have audited the accompanying consolidated balance sheets of Tyco Toys, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included the
financial statement schedule listed in the index at Item 14(a)2. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tyco Toys, Inc. and subsidiaries as
of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 7, 1996 except for note 5, as to which the date is February 15, 1996
F-1
<PAGE>
Tyco Toys, Inc.
Consolidated Balance Sheets
As of December 31, 1995 and 1994
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1995 1994
---- ----
ASSETS
- ------
<S> <C> <C>
Current assets
Cash and cash equivalents (note 1) $ 27,604 $ 30,476
Receivables, net (note 3) 187,503 211,400
Inventories, net (note 1) 56,710 66,284
Prepaid expenses and other current assets 19,738 24,389
Deferred taxes (note 8) 13,008 17,231
-------- --------
Total current assets 304,563 349,780
Property and equipment, net (note 1) 33,021 47,240
Goodwill, net of accumulated amortization (note 1) 226,112 231,292
Deferred taxes (note 8) 28,560 23,732
Other assets 22,876 18,591
-------- --------
Total assets $615,132 $670,635
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes and acceptances payable (note 5) $ 60,923 $ 77,831
Current portion of long-term debt (note 6) 1,053 1,165
Accounts payable 45,557 51,325
Accrued expenses and other current liabilities (note 4) 93,179 95,107
-------- --------
Total current liabilities 200,712 225,428
Long-term debt (note 6) 147,180 146,851
Other liabilities 1,900 2,124
Commitments and contingencies (notes 8, 9 and 10)
Stockholders' equity (notes 5, 6, 7 and 8)
Preferred stock, $.10 par value, $1,050 liquidation value per share,
1,000,000 shares authorized; 52,059 and 49,055 shares issued and 5 5
outstanding in 1995 and 1994
Common stock, $.01 par value, 75,000,000 shares authorized;
35,017,158 and 34,893,516 shares issued in 1995 and 1994 350 349
Additional paid-in capital 347,033 343,213
Accumulated deficit (58,261) (27,832)
Treasury stock, at cost (1,676) (1,595)
Cumulative translation adjustment (22,111) (17,908)
-------- --------
Total stockholders' equity 265,340 296,232
-------- --------
Total liabilities and stockholders' equity $615,132 $670,635
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Tyco Toys, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $709,109 $753,098 $730,179
Cost of goods sold 416,236 445,394 436,641
-------- -------- --------
Gross profit 292,873 307,704 293,538
Marketing, advertising and promotion 160,779 172,462 180,815
Selling, distribution and administrative expenses 119,066 123,622 134,947
Restructuring charges (note 2) 8,900 4,700 28,214
Amortization of goodwill 6,410 6,285 6,476
-------- -------- --------
Total operating expenses 295,155 307,069 350,452
-------- -------- --------
Operating income (loss) (2,282) 635 (56,914)
Interest expense, net 28,026 30,913 23,487
Foreign currency (gain) loss (250) 3,138 3,746
Other income, net (1,824) (1,943) (807)
-------- -------- --------
Loss before income taxes (28,234) (31,473) (83,340)
Provision (benefit) for income taxes (note 8) (1,005) 1,500 (13,400)
-------- -------- --------
Net loss (27,229) (32,973) (69,940)
Preferred stock dividends 3,200 2,157 -
-------- -------- --------
Net loss applicable to common shareholders $(30,429) $(35,130) $(69,940)
======== ======== ========
Net loss per common share (notes 1, 6 and 7) $ (0.87) $ (1.01) $ (2.08)
Weighted average number of common shares outstanding 34,788 34,687 33,595
Dividends per common share $ - $ - $0.075
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Tyco Toys, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred stock Common Stock Additional Retained Treasury Stock Cumulative
--------------- ------------ Paid - In Earnings -------------- Translation
Shares Amount Shares Amount Capital (Deficit) Shares Amount Adjustment Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 - $- 32,005,344 $320 $271,417 $ 79,769 (175,590) $(1,595) $(14,670) $335,241
Exercise of stock options - - 170,500 1 611 - - - - 612
Exercise of warrants - - 2,671,472 27 22,017 - - - - 22,044
Foreign currency
translation adjustment - - - - - - - - (8,431) (8,431)
Common stock dividends - - - - - (2,531) - - - (2,531)
Tax benefit from exercise
of stock options - - - - 454 - - - - 454
Net loss - - - - - (69,940) - - - (69,940)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 - - 34,847,316 348 294,499 7,298 (175,590) (1,595) (23,101) 277,449
Exercise of stock options - - 46,200 1 208 - - - - 209
Issuance of preferred stock 47,619 5 - - 46,995 - - - - 47,000
Preferred stock dividends 1,436 - - - 1,511 (2,157) - - - (646)
Foreign currency
translation adjustment - - - - - - - - 5,193 5,193
Net loss - - - - - (32,973) - - - (32,973)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 49,055 5 34,893,516 349 343,213 (27,832) (175,590) (1,595) (17,908) 296,232
Issuance of restricted
stock - - 42,342 - 338 - - - - 338
Exercise of stock options - - 81,300 1 328 - - - - 329
Acquisition of treasury
stock - - - - - - (14,900) (81) - (81)
Preferred stock dividends 3,004 - - - 3,154 (3,200) - - - (46)
Foreign currency
translation adjustment - - - - - - - - (4,203) (4,203)
Net loss - - - - - (27,229) - - - (27,229)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 52,059 $5 35,017,158 $350 $347,033 $(58,261) (190,490) $(1,676) $(22,111) $265,340
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Tyco Toys, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(27,229) $(32,973) $(69,940)
Adjustments to reconcile net loss to net cash
provided (utilized) by operating activities:
Restructuring charges - - 7,569
Depreciation 27,086 24,566 24,837
Amortization 9,935 7,594 6,973
Non-cash interest expense 1,066 1,468 -
Deferred income tax provision (benefit) - 1,161 (14,452)
Increase (decrease) in allowance for bad debts, returns,
markdowns, discounts and other receivable reserves 4,943 (5,885) (5,480)
Increase (decrease) in allowance for obsolescence and other
inventory reserves (5,104) (3,449) 2,974
Change in assets and liabilities, net of effects from acquisitions:
Decrease in receivables 17,824 18,273 14,723
Decrease in inventories 16,040 37,582 504
Decrease in prepaid expenses and other current assets 5,381 3,011 4,513
Increase in other assets (3,503) (3,957) (1,803)
Decrease in accounts payable (7,121) (13,354) (3,893)
Increase (decrease) in accrued expenses and other current liabilities 1,086 (16,420) (9,234)
Increase (decrease) in other liabilities (185) 656 -
-------- -------- --------
Total adjustments 67,448 51,246 27,231
-------- -------- --------
Net cash provided (utilized) by operating
activities 40,219 18,273 (42,709)
Cash Flows From Investing Activities:
Disposition of property and equipment 1,005 1,433 6,319
Capital expenditures (15,959) (21,158) (29,731)
Acquisitions and earnout payments (1,144) (855) (6,343)
-------- -------- --------
Net cash utilized by investing activities (16,098) (20,580) (29,755)
-------- -------- --------
Cash Flows From Financing Activities:
Financing costs (5,694) - -
Repayment of long-term debt (1,700) (30,052) (10,827)
Increase in (repayment of) notes payable, net (16,079) (10,633) 52,022
Proceeds from issuance of preferred stock - 50,000 -
Preferred stock issuance costs - (3,000) -
Proceeds from issuance of common stock, net 329 209 22,656
Payment of cash dividends on common stock - - (3,324)
-------- -------- --------
Net cash provided (utilized) by financing activities (23,144) 6,524 60,527
-------- -------- --------
Effect of exchange rate changes on cash (3,849) (5,777) (7,208)
-------- -------- --------
Net Decrease in Cash and Cash Equivalents (2,872) (1,560) (19,145)
Cash and Cash Equivalents, Beginning of Year 30,476 32,036 51,181
-------- -------- --------
Cash and Cash Equivalents, End of Year $ 27,604 $ 30,476 $ 32,036
======== ======== ========
Cash Payments During Year For:
Interest $ 25,031 $ 30,863 $ 21,134
Taxes 1,523 2,843 5,158
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies
------------------------------
Principles of Consolidation
- ----------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Investments in joint ventures and other
companies are accounted for on the equity method or cost basis depending upon
the level of the investment and/or the Company's ability to exercise influence
over operating and financial policies.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity at the date of
purchase of three months or less to be cash equivalents. Short-term investments
included in cash and cash equivalents primarily represent money market funds at
December 31, 1995 and 1994 and are valued at cost, which approximates market
value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories, net, consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
---- ----
<S> <C> <C>
Raw materials $15,483 $16,655
Work-in-process 1,534 1,893
Finished goods 47,561 60,708
Less obsolescence and
other reserves 7,868 12,972
------- -------
$56,710 $66,284
======= =======
</TABLE>
Advertising
Media costs are charged to operations in the year in which the related product
is released.
F-6
<PAGE>
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
provided on a straight-line basis over estimated useful lives which range from
10 to 50 years for buildings, 18 months to 10 years for machinery, equipment and
fixtures, the lease term or life of improvements (whichever is less) for
leasehold improvements and the remaining lease term for assets under capital
leases. Property and equipment, net, consists of (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Property and equipment owned:
Land and buildings, machinery,
equipment, and fixtures $114,436 $116,759
Leasehold improvements 10,309 10,767
Construction in progress 8,647 9,458
-------- --------
133,392 136,984
Less accumulated depreciation
and amortization 101,801 91,352
-------- --------
Net property and equipment owned 31,591 45,632
-------- --------
Machinery, equipment, and fixtures under
capitalized leases:
Machinery, equipment, and fixtures 2,602 2,959
Less accumulated amortization 1,172 1,351
-------- --------
Net property under capitalized leases 1,430 1,608
-------- --------
$ 33,021 $ 47,240
======== ========
</TABLE>
Goodwill
Costs in excess of net assets acquired are amortized on a straight-line basis
over forty years. Accumulated amortization of goodwill was $29,141,000 and
$22,731,000 at December 31, 1995 and 1994, respectively.
Deferred Costs
Patent and trademark costs are deferred and amortized over a period of eighteen
months. Deferred financing costs are amortized over the term of the related
indebtedness.
Carrying Value of Noncurrent Assets
The Company periodically evaluates the carrying value of noncurrent assets,
including goodwill and other intangible assets. The determination of potential
impairment in carrying value is based upon current and anticipated undiscounted
operating income which the Company has determined to approximate future
undiscounted cash flows. Recognition of an impairment occurs when it is
probable that such estimated future operating income will be less than the
current carrying value of the asset being evaluated. Measurement of the amount
of impairment loss, if any, is based upon the difference between the carrying
value of the asset and its estimated fair market value. The Company must adopt
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), in 1996. Adoption of SFAS 121 is not expected to have a significant
effect on the financial position or results of operations of the Company.
F-7
<PAGE>
Revenue Recognition
Sales are recorded as product is shipped, free on board from point of shipment.
The Company provides for defective returns and other allowances as a percentage
of gross sales, based on historical experience.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated into
the U.S. dollar at exchange rates at the balance sheet date. Income, expenses
and cash flows are translated at exchange rates prevailing during the year. The
resulting currency translation adjustments are accumulated in a separate
component of stockholders' equity. The Company enters into foreign currency
forward exchange contracts and options as a hedge against currency
fluctuations. Realized and unrealized foreign currency transaction gains and
losses are included in earnings when incurred, except for those relating to
intercompany transactions of a long-term investment nature which are accumulated
in stockholders' equity. The Company does not speculate in foreign currencies.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see note 8).
The Company does not provide deferred federal income taxes on the undistributed
earnings of its foreign subsidiaries since such earnings are not expected to be
remitted to the Company in the foreseeable future. Federal income taxes are
provided currently on that portion of undistributed foreign earnings required to
be included in accordance with the U.S. tax laws.
Net Loss Per Share
Net loss per share is computed by dividing the loss applicable to common
shareholders by the weighted average number of common and common equivalent
shares outstanding during the year. Outstanding options, and the Company's
convertible notes and preferred securities were determined to be anti-dilutive
for the three years ended December 31, 1995, and were therefore excluded from
the per share calculations.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates and
assumptions.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which will be adopted by the Company in 1996 as
required by the statement. The Company has elected to continue to measure such
compensation expense using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS
123. When adopted, SFAS 123 will not have a significant effect on the
F-8
<PAGE>
Company's financial position or results of operations but will require the
Company to provide expanded disclosure regarding its stock-based employee
compensation plans.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
1995 presentation.
(2) Restructuring and Other Special Charges
---------------------------------------
During the second quarter of 1995, the Company adopted a restructuring program
focused on reducing the overhead costs of its European, United Kingdom and Tyco
Preschool (formerly Tyco Playtime) units. The restructuring program is expected
to generate annual savings through the combined effect of job eliminations,
facility consolidations and streamlined operations. The pre-tax restructuring
charge of $4,900,000 primarily consisted of approximately $3,000,000 in
termination and other employee benefits; $1,300,000 of facility consolidation
costs and lease termination payments; and an approximate $300,000 non-cash
write-off of assets. The program was substantially completed by December 31,
1995.
During the fourth quarter of 1995, the Company adopted an additional
restructuring program to further reduce European operating expenses. As part of
the restructuring program, the Company will be closing its manufacturing
facility located in Temse, Belgium and its distribution facility located in the
United Kingdom. The program resulted in a pre-tax charge of $4,000,000 and is
expected to generate annual savings primarily from reduced product costs
resulting from the transfer of production to lower cost sources in the Far East
and Portland. Approximately 75 positions will be eliminated as a result of this
restructuring. The program is expected to be substantially completed by April
1996. The fourth quarter charge consists primarily of termination benefits
which totalled $3,500,000.
As of December 31, 1995, $4,434,000 of the 1995 restructuring charges (primarily
termination benefits) were reflected in accrued expenses.
During 1994, the Company recorded a $4,700,000 pre-tax charge related to
additional costs to close its Italian subsidiary, including legal costs
associated with the lawsuit filed by the former managing director of Tyco Italy
against the Company (see note 10). In 1994, the Company entered into a five-
year agreement with an Italian distributor to market the Company's products in
Italy. The Company is entitled to minimum royalty payments in accordance with
this agreement.
During 1993, the Company recorded restructuring and other special charges
aggregating $28,214,000, of which $22,238,000 were non-cash in nature. The
restructuring plan was based upon consolidations of Company subsidiaries in
Germany and Australia, the planned sale of the Company's Italian subsidiary, as
well as the integration of the two separate Playtime operations in the U.S. and
Hong Kong. The charges also included severance of $3,721,000 and facility
consolidation costs totalling $2,255,000. The restructuring program and related
cash payments were completed in 1994.
F-9
<PAGE>
<TABLE>
<CAPTION>
(3) Receivables, Net
----------------
Receivables, net, consist of (in thousands):
December 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Trade receivables $237,041 $251,141
Other receivables 6,186 11,040
Less:
Doubtful accounts 6,052 6,312
Returns, markdowns, discounts
and other reserves 49,672 44,469
------- -------
$187,503 $211,400
======= =======
(4) Accrued Expenses and Other Current Liabilities
----------------------------------------------
Accrued expenses and other current liabilities consist of (in thousands):
December 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
Advertising $23,295 $24,584
Income taxes 19,498 23,586
Royalties 13,825 13,344
Compensation 7,593 5,634
Taxes other than income 4,362 4,433
Interest 4,907 6,861
Reserves for restructuring costs 4,434 460
Other 15,265 16,205
------ ------
$93,179 $95,107
====== =======
</TABLE>
(5) Notes and Acceptances Payable
-----------------------------
In February and March 1995, the Company entered into $290,000,000 of new credit
facilities (the New Credit Facilities). The New Credit Facilities consist of
three separate three-year revolving credit facilities with General Electric
Capital Corporation and affiliates in an aggregate amount of $90,000,000 and a
$200,000,000 five-year domestic receivables securitization facility arranged by
General Electric Capital Corporation. Borrowings under the New Credit
Facilities were used to refinance outstanding indebtedness under the Company's
prior principal credit facility (the Prior Facility) and certain credit
facilities of foreign subsidiaries.
The revolving credit facilities consist of up to $35,000,000 for certain
domestic entities (of which up to $10,000,000 may be used for letters of
credit), $20,000,000 for Tyco Canada, and $35,000,000 for the Company's
subsidiaries in the United Kingdom (UK). Availability under the domestic
revolving credit is based upon inventory, as defined, and availability under the
foreign revolving credits is based upon an aggregate of eligible accounts
receivable and inventory, as defined. The revolving credit facilities are
secured by a lien on substantially all of the Company's domestic assets and are
also guaranteed by certain foreign subsidiaries. Subject to the maximum
commitment under each of these facilities, borrowings are permitted up to 60% of
eligible inventory and, in the Canadian and UK agreements, up to 80% of eligible
accounts receivable. Interest rates on borrowings are determined at the option
of the borrower based on various indices, including LIBOR or bankers' acceptance
rate, plus 2.5%.
F-10
<PAGE>
Under the securitization facility, Tyco Industries and Tyco Manufacturing
Corporation sell substantially all of their accounts receivable to Tyco Funding
I Corporation (TFC I) and Tyco Funding II Corporation (TFC II). These companies
are bankruptcy remote subsidiaries of Tyco Industries and are consolidated in
the financial statements of the Company. TFC I and TFC II purchase the accounts
receivable with proceeds from their borrowings under a commercial paper facility
(limited to a maximum of 75% of eligible accounts receivable, as defined) and
certain deferred payments. The interest rate on the facility is the market rate
for commercial paper plus 1.30%. The accounts receivable that are sold are
solely the assets of TFC I or TFC II and are pledged as security for their
borrowings. In the event of liquidation of TFC I or TFC II, the creditors of
TFC I or TFC II would be entitled to satisfy their claims from the assets of TFC
I or TFC II prior to any distribution to Tyco Industries.
At December 31, 1995, total utilization under the New Credit Facilities was
$51,874,000 which included $45,420,000 in borrowings and $6,454,000 in letters
of credit.
Under the terms of the New Credit Facilities, the Company and its subsidiaries
are (1) subject to covenants and conditions relating to the maintenance of net
worth, fixed charge coverage and income; (2) restricted from incurring
additional indebtedness or certain obligations and from acquiring any other
entities, whether by asset purchase, merger or otherwise; (3) restricted in the
ability to pay cash dividends on capital stock subject to certain limitations;
and (4) permitted to guarantee additional amounts of debt incurred by certain of
its subsidiaries up to an aggregate of $70,000,000. During the fourth quarter
of 1995, the Company was not in compliance with certain financial covenants
under the New Credit Facilities and received waivers from General Electric
Capital Corporation and affiliates. The Company has amended the New Credit
Facilities to reflect revisions to its financial covenants. As a result of the
amendment, the interest rate on the facilities was increased by .25% beginning
in 1996.
The Prior Facility between a subsidiary of the Company and a group of fifteen
banks led by NationsBank of North Carolina, N.A. matured on February 24, 1995.
The Prior Facility consisted of a $155,000,000 short-term revolving credit
facility and a $55,000,000 term-reducing facility with quarterly installment
payments of $3,400,000 which commenced in September 1993. During April 1994,
the Company prepaid $14,300,000 of the term-reducing facility with part of the
proceeds from the issuance of its preferred stock. The Company fully repaid its
outstanding obligations under the Prior Facility at maturity. The Prior
Facility provided for borrowings at various rates to a maximum of 3% over the
prime rate. At December 31, 1994, total utilization of the Prior Facility
included approximately $53,615,000 of borrowings ($20,300,000 of which
represented the term-reducing facility) and $2,516,000 in letters of credit.
At December 31, 1995 and 1994, certain foreign subsidiaries of the Company have
agreements with various banks which provide for credit extensions of
approximately $35,764,000 and $65,483,000, respectively. Short-term borrowings
under these facilities were $15,503,000 and $24,216,000, at December 31, 1995
and 1994, respectively. Borrowings under these agreements are subject to a
variety of terms and conditions, including collateral requirements. These
subsidiaries also had outstanding letters of credit aggregating $7,826,000 and
$15,534,000 at December 31, 1995 and 1994, respectively.
F-11
<PAGE>
<TABLE>
<CAPTION>
(6) Long-Term Debt
--------------
Long-term debt consists of (in thousands):
December 31,
--------------------
1995 1994
---- ----
<S> <C> <C>
Subordinated notes $142,534 $141,468
Mortgage 4,143 4,656
Other 1,556 1,892
------- -------
148,233 148,016
Less amounts due within
one year 1,053 1,165
------- -------
$147,180 $146,851
======= =======
</TABLE>
Subordinated notes include $126,500,000 of Senior Subordinated Notes and
$16,034,000 of Convertible Subordinated Notes.
The Senior Subordinated Notes mature in 2002 and bear interest at 10.125%
payable on February 15 and August 15. The Notes are redeemable at the option of
the Company in whole or in part after August 15, 1997, at redemption prices
equal to 103.797% of the principal amount reducing annually to 100% by August
15, 2000. The Senior Subordinated Notes are guaranteed by Tyco Industries and
certain of its subsidiaries.
The Convertible Subordinated Notes, which are to be repaid in four equal annual
payments commencing in 1998, bear interest at 7% payable on June 30 and December
31. The Notes are convertible at a price of $10 per share into approximately
1,603,000 shares of common stock of the Company at December 31, 1995. During
1995 and 1994, $1,066,000 and $1,467,691 of additional Convertible Subordinated
Notes were issued in lieu of interest payments.
The Company's 7.04% mortgage is secured by land and buildings having a net book
value of approximately $4,457,000 at December 31, 1995. The mortgage is payable
in annual installments of $478,000 and matures in 2004.
Long-term debt is payable subsequent to December 31, 1995 as follows:
1996 - $1,053,000; 1997 - $1,096,000; 1998 - $4,835,000; 1999 - $4,498,000;
2000 - $4,491,000; and thereafter - $132,260,000.
F-12
<PAGE>
(7) Stockholders' Equity
--------------------
Stock Option Plans
The Company has four stock option plans: 1985 Tyco Toys Incentive Stock Option
Plan, 1986 Non-Qualified Stock Option Plan, 1986 Non-Qualified Stock Option Plan
2 and 1992 Non-Qualified Stock Option Plan. A total of 4,520,000 shares of
common stock were originally reserved for issuance pursuant to options to be
granted under these stock option plans. At December 31, 1995, there are 764,505
options available for grant. The plans provide for option grants at exercise
prices not less than the closing market value as listed on the New York Stock
Exchange on the date the option is granted, subject to adjustment for such
changes as stock splits. Transactions involving the plans are summarized as
follows:
<TABLE>
<CAPTION>
Range of
Number Exercise Prices
of Shares Per Share
--------- ----------------------
Lowest Highest
------ -------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992 1,668,080 $ 4.50 - $17.00
Granted 12,000 11.50 - 12.88
Exercised (170,500) 4.50 - 4.50
Cancelled (58,020) 7.19 - 15.03
--------- ----- -----
Outstanding at December 31, 1993 1,451,560 4.50 - 17.00
--------- ----- -----
Granted 991,762 7.38 - 9.00
Exercised (46,200) 4.50 - 4.50
Cancelled (1,198,094) 7.21 - 17.00
--------- ----- -----
Outstanding at December 31, 1994 1,199,028 4.50 - 17.00
--------- ----- -----
Granted 706,009 5.63 - 7.25
Exercised (81,300) 4.50 - 4.50
Cancelled (162,566) 4.50 - 9.00
--------- ----- -----
Outstanding at December 31, 1995 1,661,171 5.63 - 17.00
========= ===== =====
</TABLE>
Options granted prior to 1995 are fully exercisable from the date of grant.
Options granted in 1995 become excerciseable in equal installments on the first
through third anniversaries of the date of grant. Of the options outstanding,
955,062 were exercisable as of December 31, 1995. In 1994, new stock options
were issued subject to the surrender and cancellation of certain outstanding
stock options.
Long-Term Incentive Plan
During 1995, the Board of Directors and shareholders of the Company approved the
establishment of a new Long-Term Incentive Plan for certain senior executive
managers of the Company. Under the Plan, the Company has the authority to issue
up to 2,000,000 restricted stock units (Restricted Stock Units). This Plan is
designed to supplement the 1992 Non-Qualified Stock Option Plan of the Company
through grants of Restricted Stock Units. Participants are entitled to receive
a prescribed number of shares of Company stock after seven years of continued
employment. A participant's vesting of Restricted Stock Units can be
accelerated if total return to shareholders exceeds targeted levels. During
1995, the Company granted 759,000 Restricted Stock Units to senior executive
managers of the Company pursuant to the Plan. The market price of the stock on
the date of grant was $5.63. The aggregate fair market value of the Restricted
Stock Units is being amortized to compensation expense over the restriction
period. Total compensation expense reflected in the Consolidated Statements of
Operations for 1995 was $464,000. During 1995, the Company issued 2,342 shares
of Common Stock pursuant to the Long-Term Incentive Plan.
F-13
<PAGE>
Preferred Stock
On April 15, 1994, the Company issued $50,000,000 of 6% Series B Voting
Convertible Exchangeable Preferred Stock (Preferred Stock) to an investment
group consisting of Corporate Partners, L.P., Corporate Offshore Partners, L.P.,
and the State Board of Administration of Florida, collectively referred to as
the Purchasers. The $47,000,000 of net proceeds after issuance costs were used
to reduce net borrowings of the Company and for general corporate purposes.
The Preferred Stock has an annual dividend yield of 6% which may be paid in the
form of additional shares of Preferred Stock through April 15, 1996. Dividends
issuable in shares of Preferred Stock in lieu of cash during 1995 and 1994
totalled $3,200,000 and $2,157,000, respectively. The Preferred Stock has a
liquidation value of $1,050 per share and is convertible into shares of common
stock of the Company at a conversion price of $10 per share. The Company has
the option, at any time, to exchange the Preferred Stock for 6% Convertible
Subordinated Notes. The Company, at its option, may redeem the Preferred Stock
at any time after April 15, 1997 at an amount equal to 105.25% of the
liquidation value which reduces annually to 100% of the liquidation value in
2004. On April 15, 2004, the Company is required to redeem all outstanding
Preferred Stock. The redemption price shall be paid, at the Company's option,
in cash or in shares of common stock. The Preferred Stock issued to the
Purchasers entitles the holder to vote (on an as-converted basis) with the
common shares as a single class on all matters on which the Company's common
shareholders vote.
The Registration Agreement, dated April 15, 1994, gives the Purchasers demand
and incidental registration rights, as defined, with respect to the Preferred
Stock, common stock issued upon conversion, or notes issued in an exchange for
such Preferred Stock.
Common Stock Dividends
For the year ended December 31, 1993, the Company declared common stock
dividends aggregating $2,531,000. As a result of the dividend restrictions
imposed by its credit facilities, the Company was precluded from paying
dividends for the years ended December 31, 1995 and 1994. The terms of the
Company's Preferred Stock, 10.125% Senior Subordinated Notes and 7% Convertible
Subordinated Notes also have limitations on the payment of cash dividends.
(8) Income Taxes
------------
The Company adopted SFAS 109 as of January 1, 1993. There was no cumulative
effect on the deferred tax balances as a result of adopting this pronouncement.
In accordance with SFAS 109, deferred income taxes reflect the impact of
temporary differences between values recorded for assets and liabilities for
financial reporting purposes and the values utilized for measurement in
accordance with current tax laws. SFAS 109 requires the Company to record the
net deferred tax benefits of net operating loss and tax credit carryforwards, if
realization is more likely than not.
F-14
<PAGE>
The components of loss before income taxes consist of (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic $ (3,337) $(14,539) $(42,002)
Foreign (24,897) (16,934) (41,338)
------- ------ ------
$(28,234) $(31,473) $(83,340)
======= ====== ======
The provision (benefit) for income taxes consists of (in thousands):
Year ended December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ - $ - $ (2,397)
State - - 995
Foreign (1,005) 339 2,000
----- --- -----
(1,005) 339 598
----- --- ---
Deferred:
Federal (3,038) (127) (9,039)
State - (1,327) (696)
Foreign 3,038 2,615 (4,717)
----- ----- -----
- 1,161 (14,452)
----- ----- ------
Tax benefit from the exercise
of employee stock options - - 454
----- ----- ------
$(1,005) $ 1,500 $(13,400)
===== ===== ======
</TABLE>
F-15
<PAGE>
Income taxes recorded by the Company differ from the amounts computed by
applying the statutory U.S. federal income tax rate to the loss before income
taxes. The following schedule reconciles the income tax benefit at the
statutory rate and the actual income tax provision (benefit) as reflected in the
Consolidated Statements of Operations (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Loss before income taxes $(28,234) $(31,473) $(83,340)
======== ======== ========
Tax benefit at the federal statutory rate (9,600) (10,701) (28,336)
Tax on deemed repatriation of
foreign earnings 861 3,233 1,241
State income taxes, net of the
federal tax provision (benefit) - (2,567) (1,730)
U.S. benefit for foreign tax credits - (798) (1,710)
Impact of foreign operations 10,498 9,139 11,338
Limitation on utilization of domestic
tax benefits 271 883 4,236
Deductible shutdown expenses (4,438) - -
Amortization of nondeductible expenses 1,716 1,678 1,734
Other (313) 633 (173)
-------- -------- --------
$( 1,005) $ 1,500 $(13,400)
======== ======== ========
</TABLE>
The tax effects of the significant temporary differences giving rise to the
Company's deferred tax assets (liabilities) for the years ended December 31,
1995, 1994 and 1993, which the adoption of SFAS 109 has required the Company to
recognize, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
Current:
<S> <C> <C> <C>
Sales and product allowances $ 3,524 $ 4,240 $ 4,790
Co-operative advertising 4,320 4,343 4,738
Receivable reserves 1,071 811 4,230
Obsolescence reserve 1,503 4,451 3,934
State temporary differences 3,195 3,307 -
Other 2,865 3,551 -
-------- -------- --------
16,478 20,703 17,692
Valuation allowance (3,470) (3,472) (1,203)
-------- -------- --------
$ 13,008 $ 17,231 $ 16,489
======== ======== ========
Noncurrent:
Net operating losses $ 85,337 $ 61,134 $ 48,461
State temporary differences 11,186 9,672 10,411
Foreign tax credits 7,221 6,068 5,269
Depreciation 1,517 (1,002) (1,885)
Other 2,036 1,371 5,983
-------- -------- --------
107,297 77,243 68,239
Valuation allowance (78,737) (53,511) (42,604)
-------- -------- --------
$ 28,560 $ 23,732 $ 25,635
======== ======== ========
</TABLE>
F-16
<PAGE>
Management believes, considering all available evidence, including the Company's
history of earnings from prior years (after adjustments for nonrecurring items,
restructuring charges, permanent differences, and other appropriate adjustments)
and after considering appropriate tax planning strategies, it is more likely
than not that the Company will generate sufficient taxable income in the
appropriate carryforward periods to realize the benefit of certain net operating
losses and future deductible temporary differences. The total net deferred tax
assets (both current and noncurrent) have been reduced to the amount management
considers realizable by establishing valuation allowances aggregating
$82,207,000. Based on the weight of available evidence, management has
concluded that more likely than not, its future taxable income will be
sufficient to support the current recognition of total net deferred tax assets
of $41,568,000.
The valuation allowances have been established due to management's analysis
indicating that certain tax credit and net operating loss carryforwards, the use
and life of which are limited under the income tax laws, may expire prior to
their full utilization. The valuation allowances include $16,168,000 related to
the preacquisition net operating losses of Matchbox. Any subsequently recognized
benefits related to these net operating losses will be allocated to reduce
goodwill. The net increase of $25,224,000 in the valuation allowance for
deferred tax assets in 1995 relates primarily to foreign net operating loss
carryforwards.
As of December 31, 1995, the Company had domestic net operating loss
carryforwards for federal income tax purposes of $76,493,000, exclusive of the
Matchbox net operating loss carryforwards discussed below. These net operating
loss carryforwards are available to reduce future federal taxable income and
expire in the years 2008, 2009 and 2010. The Company's international
subsidiaries have, in the aggregate, approximately $112,143,000 of tax loss
carryforwards available at December 31, 1995. These tax losses are available to
reduce the originating subsidiary's future taxable income and have varying
expiration dates.
The Company has general business and foreign tax credit carryovers of $625,000
and $7,101,000, respectively, at December 31, 1995. The Company's future
federal income tax liability can be reduced by the general business tax credits
through the year 2009 and by the foreign tax credits through the year 2000.
These credits expire as follows (in thousands):
<TABLE>
<CAPTION>
Year of Expiration General Business Foreign
------------------ ---------------- -------
<S> <C> <C>
1996 $ - $ 682
1997 24 1,338
1998 47 2,045
1999 112 1,883
2000 60 1,153
2001 to 2009 382 -
---- ------
$625 $7,101
==== ======
</TABLE>
The Company also has nonexpiring alternative minimum tax credits totalling
$1,412,000. Additionally, as of the October 2, 1992 acquisition date, the
Matchbox domestic companies have regular and alternative minimum tax net
operating loss carryforwards of approximately $47,500,000 which may expire
during the years 2001 to 2004. These Matchbox loss carryforwards are subject to
an annual limitation and can only be used to offset taxable income of the
Matchbox domestic companies.
F-17
<PAGE>
Accumulated net undistributed earnings of the Company's foreign subsidiaries
included in accumulated deficit were $104,437,000 at December 31, 1995. The
Company has not recognized a deferred tax liability of $26,002,000 for the
undistributed earnings of its foreign subsidiaries at December 31, 1995 since
the Company currently does not expect these earnings to be remitted to the U.S.
in the foreseeable future. A deferred tax liability will be recognized when the
Company expects that it will recover the undistributed earnings in a taxable
manner, such as through receipt of dividends, a loan of the unremitted earnings
to the Company or one of its U.S. affiliates, or a sale of a foreign
subsidiary's stock.
The Internal Revenue Service has examined the consolidated federal income tax
returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987 through
August 31, 1990. The Company reached a settlement that did not materially
affect the results of operations (including realization of net operating loss
carryforwards and tax credit carryforwards), financial condition or liquidity of
the Company.
Additionally, the consolidated federal income tax returns of Tyco Toys, Inc. for
the years ended December 31, 1990 through December 31, 1992 are presently being
examined by the Internal Revenue Service. While the final outcome of this
examination is not determinable at this time, management of the Company believes
that any proposed adjustments, if sustained, will not materially affect the
financial condition, results of operations (including realization of net
operating loss carryforwards) or liquidity of the Company.
(9) Lease Commitments
-----------------
The Company leases facilities and equipment under noncancellable operating
leases with terms of up to ten years. Most leases contain escalation and
renewal clauses and require the Company to pay real estate taxes and utility
charges. Aggregate rental expense for operating leases was $15,523,000,
$14,945,000 and $14,836,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
Future minimum lease commitments aggregating $65,375,000 are payable as follows:
1996 - $13,239,000; 1997 - $12,183,000; 1998 - $10,100,000; 1999 - $6,847,000;
2000 - $4,914,000 and thereafter - $18,092,000.
(10) Commitments and Contingencies
-----------------------------
Letters of Credit
The Company was contingently liable for open letters of credit of approximately
$14,280,000 at December 31, 1995.
Foreign Exchange Risk Management
The primary focus of the Company's foreign exchange risk management program is
to reduce earnings and cash flow volatility due to foreign exchange rate
fluctuations. In accordance with this policy, the Company enters into foreign
currency forward exchange contracts and options as hedges of inventory purchases
and various other intercompany transactions. The credit risks associated with
the Company's foreign currency forward exchange contracts and options are
controlled through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such losses,
if any, to be significant.
F-18
<PAGE>
At December 31, 1995, the Company had outstanding foreign currency forward
exchange contracts totalling $33,141,000 to purchase U.S. dollars. In January
1996, the Company entered into an additional $32,432,000 of forward contracts
which primarily provide for the purchase of U.S. dollars with foreign
currencies. The principal currencies being hedged are the Belgian franc,
British pound, Australian dollar and Canadian dollar. Foreign currency forward
exchange contracts and options expire within twelve months.
Guaranteed Royalties
The Company markets its products under a variety of trademarks, some of which
are not owned by the Company and for which the Company pays a royalty. For the
years ended December 31, 1995, 1994 and 1993, the Company incurred $33,016,000,
$33,079,000 and $33,036,000 in royalty expense, respectively. Certain license
agreements require minimum guaranteed royalty payments over the term of the
license. At December 31, 1995, the Company was committed to pay total minimum
guaranteed royalties aggregating $88,204,000 which are payable as follows:
1996 - $14,726,000; 1997 - $11,660,000; 1998 - $12,067,000; 1999 - $12,292,000;
2000 - $12,897,000; and thereafter - $24,562,000.
Guaranteed Purchases
In the ordinary course of business, the Company has entered into guaranteed
purchase agreements with certain suppliers to ensure the timely delivery and
availability of product. As of December 31, 1995, the Company was committed for
purchases aggregating $7,701,000 from its suppliers.
Legal Proceedings
Italian Litigation
In 1994, the former managing director of the Company's Italian subsidiary
initiated court action against the Company in Italy, alleging breach of a letter
of intent with the plaintiff for the sale of the subsidiary. The Company is
awaiting the court's decision in this matter. In the opinion of management and
its outside counsel, the Company has meritorious legal and factual defenses to
the claims made in this litigation, and the outcome is not likely to have a
material adverse impact on the Company's earnings, financial condition or
liquidity. The Trustee liquidating the Italian subsidiary has also lodged
claims against the former managing director on behalf of the subsidiary.
U.S. Customs
In 1992, the U.S. Customs Service issued a penalty notice of an assessment for
lost duty in the amount of $1,500,000, penalties for gross negligence of
$5,800,000, and penalties for fraud of $5,600,000. All of the claims arise from
activities of the Company's View-Master subsidiary for periods prior to its
acquisition by the Company in 1989. Management and the Company's outside
counsel are of the opinion that the Company has legal and factual defenses to
the penalty claims made by the U.S. Customs Service, and that the outcome of the
proceedings relating to these claims, which proceedings may be protracted, are
not likely to have a material adverse impact on the earnings, financial
condition or liquidity of the Company.
F-19
<PAGE>
Environmental Litigation
Tyco Industries, a subsidiary of the Company, is a party to three matters
arising out of waste hauled by a transporter to various sites, including the
GEMS Landfill. In litigation relating directly to remediation of the landfill,
Tyco Industries has signed a Consent Order and Trust Agreement and made a
settlement contribution of an amount not material to Tyco Industries. In
another matter, homeowners near the GEMS Landfill have filed class action claims
against approximately 150 defendants, including Tyco Industries, for various
types of unspecified monetary damages, including punitive damages. In
management's opinion, there are meritorious factual and legal defenses to these
claims. In the third matter, the New Jersey Department of Environmental
Protection is asserting claims for remediation expenses at a different site in
Sewell, New Jersey used as a waste transfer station by the same transporter
involved in the other two matters.
In the opinion of management of the Company and its outside counsel, none of
these three matters is likely to have a material adverse impact on the earnings,
financial condition or liquidity of the Company. In addition, the Company will
receive a contribution from a third party towards certain expenses in these
matters.
Other Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's earnings, financial condition or liquidity.
(11) Disclosure About Fair Value of Financial Instruments
-----------------------------------------------------
The estimated fair value amounts have been determined by the Company using
available market information and appropriate methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The Company believes that the carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and other current liabilities
are a reasonable estimate of their fair values at December 31, 1995 and 1994.
F-20
<PAGE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Long-term debt - The fair value of the Company's publicly-issued debt is based
- --------------
on the quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues not quoted on an
exchange. The carrying amounts and estimated fair values of long-term debt are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Publicly-issued $126,500 $114,324 $126,500 $94,400
Privately-issued 21,733 21,733 21,516 21,516
</TABLE>
Investments - It was not practicable to estimate the fair value of privately-
- -----------
held investments of $5,800,000, and $6,100,000 at December 31, 1995 and 1994,
respectively, due to the lack of quoted market prices and the excessive cost
involved in determining such fair value.
Foreign currency forward exchange contracts - The Company had commitments under
- -------------------------------------------
foreign currency forward exchange contracts in various foreign currencies
totalling approximately $33,141,000 and $7,400,000 as of December 31, 1995, and
1994, respectively. Based on quoted market rates, the carrying amounts of these
items approximated their fair value at December 31, 1995 and 1994.
The fair value estimates presented herein were based on pertinent information
available to management of the Company as of December 31, 1995 and 1994.
Although management is not aware of any factors that would have a significant
adverse effect on the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates and current estimates of fair value may differ significantly from the
amounts presented herein.
(12) Business Segment Information
----------------------------
Product Development and Packaging Design Costs
The Company incurred product development and packaging design costs of
approximately $20,740,000, $17,519,000 and $19,062,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Major Customer Information
For the years ended December 31, 1995, 1994 and 1993, Toys "R" Us, Inc., a chain
of retail toy stores, accounted for approximately 25%, 27% and 24%,
respectively, of net sales. For the three years ended December 31, 1995, Wal-
Mart Stores, Inc., a chain of discount stores, accounted for approximately 13%,
10% and 9%, respectively, of net sales. No other customer accounted for more
than 10% of the Company's net sales for these periods.
Product Line Information
The Company is engaged primarily in one segment which is the design,
development, manufacture and distribution of a variety of toy products.
F-21
<PAGE>
Geographic Information
Information with respect to legal entity net sales, operating income (loss), and
identifiable assets by geographic area for the three years ended December 31,
1995 is presented as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
North America $ 470,045 $ 464,751 $ 452,444
Far East 222,625 239,208 303,832
Europe and Pacific Rim 189,889 264,736 231,653
--------- --------- ---------
882,559 968,695 987,929
Intercompany (173,450) (215,597) (257,750)
--------- --------- ---------
$ 709,109 $ 753,098 $ 730,179
========= ========= =========
Operating income (loss):
North America $ 8,299 $ (11,240) $ (55,375)
Far East 10,176 13,221 18,270
Europe and Pacific Rim (20,746) (1,830) (19,218)
--------- --------- ---------
(2,271) 151 (56,323)
Intercompany (11) 484 (591)
--------- --------- ---------
$ (2,282) $ 635 $ (56,914)
========= ========= =========
Identifiable assets:
North America $ 510,547 $ 525,389 $ 517,531
Far East 104,717 125,449 123,048
Europe and Pacific Rim 133,023 182,994 216,693
--------- --------- ---------
748,287 833,832 857,272
Intercompany (133,155) (163,197) (142,103)
--------- --------- ---------
$ 615,132 $ 670,635 $ 715,169
========= ========= =========
</TABLE>
Intercompany Pricing
Intercompany sales are made on a basis intended to reflect the market value of
the products. Sales generated by the Company's operations in the Far East
substantially represent export sales to the Company's subsidiaries and
unaffiliated customers in North America, Europe and the Pacific Rim.
F-22
<PAGE>
(13) Selected Quarterly Financial Data
---------------------------------
(Unaudited)
Summarized quarterly financial data for 1995 and 1994 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------------------
1995 First Second Third Fourth
- ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net Sales $116,060 $151,692 $226,285 $215,072
Gross profit 49,103 63,830 95,583 84,357
Net income (loss) (6,669) (8,835) [1] 5,546 (17,271) [2]
Net income (loss) applicable
to common shareholders (7,453) (9,625) [1] 4,738 (18,089) [2]
Net income (loss) per common
share (0.21) (0.28) [1] 0.14 (0.52) [2]
<CAPTION>
1994 First Second Third Fourth
- ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales $106,791 $158,454 $241,085 $246,768
Gross profit 44,221 69,439 97,584 96,460
Net income (loss) (13,375) 1,207 (8,103) [3] (12,702)
Net income (loss) applicable
to common shareholders (13,375) 582 (8,853) [3] (13,484)
Net income (loss) per common
share (0.39) 0.02 (0.26) [3] (0.39)
</TABLE>
The calculation of net income (loss) per share is prepared independently for
each of the quarters presented. Therefore, the sum of the quarterly per share
amounts in 1995 and 1994 may not necessarily equal the total for the years
because of certain transactions which occurred during the respective periods.
[1] Reflects a $4,900,000 restructuring charge representing the consolidations
in the International and Preschool businesses.
[2] Reflects a $4,000,000 restructuring charge primarily related to the closure
of a manufacturing facility in Temse, Belgium.
[3] Reflects a $4,700,000 restructuring charge related to the closure of Tyco
Italy.
(14) Related Parties
---------------
Taiyo Kogyo
The Company owns an 18.5% interest in Taiyo Kogyo Co., Ltd. (Taiyo Kogyo), the
Company's exclusive radio control vehicle manufacturer. No single manufacturer
other than Taiyo Kogyo supplies the Company with more than 10% of its products.
F-23
<PAGE>
Schedule II
Tyco Toys, Inc.
Valuation and Qualifying Accounts and Reserves
For the three years ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deductions End of
of Period Expenses (a) Period
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
For the year ended December
31, 1995
Allowances on:
Accounts receivable $50,781 $67,937 $62,994 $55,724
Inventories 12,972 11,219 16,323 7,868
For the year ended December
31, 1994
Allowances on:
Accounts receivable $56,666 $69,088 $74,973 $50,781
Inventories 16,421 19,921 23,370 12,972
For the year ended December
31, 1993
Allowances on:
Accounts receivable $62,146 $52,320 $57,800 $56,666
Inventories 13,447 28,566 25,592 16,421
</TABLE>
- ------------------------
(a) Amounts written-off against related assets.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused the report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TYCO TOYS, INC.
---------------
(Registrant)
By /s/ Gary Baughman
-----------------
Gary Baughman
President, Chief Executive Officer,
and Director
March 26, 1996
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Richard E. Grey /s/ Gary Baughman
- ------------------- -----------------
Richard E. Grey Gary Baughman
Chairman of the Board President, Chief Executive Officer,
and Director and Director
March 26, 1996 March 26, 1996
/s/ Harry J. Pearce
- -------------------
Harry J. Pearce
Vice Chairman, Chief Financial Officer,
and Director
March 26, 1996
/s/ Arnold Thaler /s/ Joel M. Handel
- ----------------- ------------------
Arnold Thaler Joel M. Handel
Director Director
March 26, 1996 March 26, 1996
/s/ John A. Canning, Jr. /s/ David B. Golub
- ------------------------ ------------------
John A. Canning, Jr. David B. Golub
Director Director
March 26, 1996 March 26, 1996
/s/ Jerome I. Gellman /s/ Jonathan H. Kagan
- --------------------- ---------------------
Jerome I. Gellman Jonathan H. Kagan
Director Director
March 26, 1996 March 26, 1996
/s/ Timothy J. Danis /s/ Dr. LaSalle D. Leffall, Jr.
- -------------------- -------------------------------
Timothy J. Danis Dr. LaSalle D. Leffall, Jr.
Director Director
March 26, 1996 March 26, 1996
<PAGE>
EXHIBIT 10.6
LEASE AMENDMENT #6
This Lease Amendment made and entered into this 6th day of August, 1993, by and
between 6000 Midlantic Drive Associates, L.P., hereinafter referred to as
"Lessor" and Tyco Industries, Inc., hereinafter referred to as "Lessee".
Whereas Lessor leased certain premises known as 6000 Midlantic Drive, Mount
Laurel, New Jersey pursuant to that certain Lease Agreement dated September 21,
1992, previously amended on November 11, 1992, December 18, 1992, January 5,
1993, February 1, 1993, and June 16, 1993, the terms and conditions being more
particularly described therein, and
Whereas, Lessor and Lessee wish to further amend the Lease Agreement, the
parties hereby agree to the following:
1. Lessee shall temporarily lease from Lessor, 2,388 square feet of space on the
first floor of 8000 Midlantic Drive, Mount Laurel, New Jersey.
2. The term of this agreement shall commence on June 9, 1993 and terminate on
September 30, 1993.
3. Lessee shall pay Lessor the sum of $4.00 per square foot or $796.00 per month
for the use of this space.
All other terms and conditions of the original agreement, as amended, shall
remain in full force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/18/96
c:lease#6.doc - word
<PAGE>
EXHIBIT 10.7
LEASE AMENDMENT #7
This Lease Amendment made and entered into this 9th day of January, 1996, by and
between 6000 Midlantic Drive Associates, L.P.(the "Lessor") and Tyco Industries,
Inc.(the "Lessee").
Whereas, the Lessor leased certain premises known as 6000 Midlantic Drive, Mount
Laurel, New Jersey (the "Property") to the Lessee pursuant to that certain Lease
Agreement dated September 21, 1992, previously amended on November 11, 1992,
December 18, 1992, January 5, 1993, February 1, 1993, June 16, 1993, and August
6, 1993, the terms and conditions being more particularly described therein (the
Lease Agreement and amendments shall hereinafter be collectively referred to as
the "Lease Agreement").
Whereas, paragraph 24 of the Lease Agreement provides that the Lessee may
terminate the Lease Agreement if, due to foreclosure or sale or otherwise, the
Lessor or its affiliate ceases to be the owner of or managing agent for the
Property (this option to terminate the Lease Agreement shall hereinafter be
referred to as the ("Termination Option").
Whereas, the Lessor has entered into negotiations with Lehman Brothers Holdings,
Inc. ("LBHI") to obtain refinancing for the Property, and LBHI has indicated
that as a condition of any refinancing the Lessee must waive the Termination
Option.
Now therefore, the Lessor and the Lessee wish to further amend the Lease
Agreement, and intending to be bound hereby agree as follows:
1. The Lessee waives the Termination Option, such that if LBHI, its successors
and/or assigns, due to foreclosure or sale or otherwise, becomes the owner or
managing agent of the Property, the Lease Agreement shall not be subject to
termination by the Lessee due to the Lessor's loss of ownership of the
Property. Accordingly, the last five (5) lines of paragraph 24 of the Lease
Agreement are hereby deleted in their entirety.
All other terms and conditions of the original Lease Agreement, shall remain in
full force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/20/96
c:lease #7.doc - word
<PAGE>
EXHIBIT 10.11
LEASE AMENDMENT #1
This Lease Amendment made and entered into this 2nd day of April, 1993, by and
between Whitesell Enterprises, hereinafter referred to as "Lessor" and Tyco
Industries, Inc. hereinafter referred to as "Lessee".
Whereas Lessor leased certain premises known as 823 Eastgate Drive, Unit #5,
Mount Laurel, New Jersey to Lessee, pursuant to that certain lease agreement
dated December 15, 1992, the terms and conditions being more particularly
described therein, and
Whereas, Lessor and Lessee wish to amend the Lease Agreement, the parties hereby
agree to the following:
1. The Lease Commencement Date shall be changed to reflect receipt of the
Certificate of Occupancy from February 1, 1993 to March 15, 1993. The
termination date of March 1, 2000, will not change.
All other terms and conditions of the original agreement shall remain in full
force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/20/96
c:lease#1e.doc - word
<PAGE>
EXHIBIT 10.12
LEASE AMENDMENT #1
This Lease Amendment made and entered into this 11th day of November, 1992, by
and between 6000 Midlantic Drive Associates, L.P., hereinafter referred to as
"Lessor" and Tyco Industries, Inc., hereinafter referred to as "Lessee".
Whereas, Lessor and Lessee have entered into a Lease Agreement for the premises
at 6000 Midlantic Drive, Mount Laurel, New Jersey dated September 21, 1992, the
terms and conditions more particularly described therein, and
Whereas, Lessor and Lessee wish to amend the Lease Agreement, the parties hereby
agree to the following:
1. Lessee wishes to exercise its option, as indicated in Paragraph 43 - Option
on Additional Space, to include 4,397 square feet located on the second
floor, North Building, bringing the total square footage to 110,216 square
feet.
2. At the time of occupancy the rental rate shall change according to the
following schedule:
<TABLE>
<CAPTION>
SQUARE RENTAL MONTHLY
TERM FOOTAGE RATE RENTAL
- ---------------------- ------- ---------- -----------
<S> <C> <C> <C>
3/01/93-3/01/94 110,216 $10.25 psf $ 94,142.83
3/01/94-3/01/95 110,216 $11.00 psf $101,031.33
3/01/95-3/01/96 110,216 $11.75 psf $107,919.83
3/01/96-3/01/97 110,216 $12.50 psf $114,808.33
3/01/97-3/01/98 110,216 $13.25 psf $121,696.83
3/01/98-3/01/99 110,216 $14.00 psf $128,585.33
3/01/99-3/01/00 110,216 $14.75 psf $135,473.83
</TABLE>
All other terms and conditions of the original Agreement shall remain in full
force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/18/96
c:lease #1.doc - word
<PAGE>
EXHIBIT 10.12
LEASE AMENDMENT #2
This Lease Amendment made and entered into this 18th day of December, 1992, by
and between 6000 Midlantic Drive Associates, L.P., hereinafter referred to as
"Lessor" and Tyco Industries, Inc., hereinafter referred to as "Lessee".
Whereas, Lessor and Lessee have entered into a Lease Agreement for the premises
at 6000 Midlantic Drive, Mount Laurel, New Jersey dated September 21, 1992,
subsequently amended by Lease Amendment #1 on November 11, 1992, the terms and
conditions more particularly described therein, and
Whereas, Lessor and Lessee wish to further amend the Lease Agreement, the
parties hereby agree to the following:
1. The square footage of the Mail Room on the first floor, North Tower, shall be
reduced to 1,020 square feet to allow for the Telephone Room to be leased to
others.
The total area commitment by Lessee shall therefore be reduced to 109,487
square feet.
2. At the time of occupancy the rental rate shall change according to the
following schedule:
<TABLE>
<CAPTION>
SQUARE RENTAL MONTHLY
TERM FOOTAGE RATE RENTAL
- ---------------------- ------- ---------- -----------
<S> <C> <C> <C>
3/01/93-3/01/94 109,487 $10.25 psf $ 94,520.15
3/01/94-3/01/95 109,487 $11.00 psf $100,363.08
3/01/95-3/01/96 109,487 $11.75 psf $107,206.02
3/01/96-3/01/97 109,487 $12.50 psf $114,048.96
3/01/97-3/01/98 109,487 $13.25 psf $120,891.90
3/01/98-3/01/99 109,487 $14.00 psf $127,734.83
3/01/99-3/01/00 109,487 $14.75 psf $134,577.77
</TABLE>
3. The pro rate share shall be adjusted to reflect this change in square footage
from 64.13% to 63.71%.
All other terms and conditions of the original agreement, as amended, shall
remain in full force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/18/96
c:lease #2.doc - word
<PAGE>
EXHIBIT 10.12
LEASE AMENDMENT #3
This Lease Amendment made and entered into this 25th day of January, 1993, by
and between 6000 Midlantic Drive Associates, L.P., hereinafter referred to as
"Lessor" and Tyco Industries, Inc., hereinafter referred to as "Lessee".
Whereas, Lessor and Lessee have entered into a Lease Agreement for the premises
located at 6000 Midlantic Drive, Mount Laurel, New Jersey dated September 21,
1992, subsequently amended by Lease Amendment #1 on November 11, 1992 and Lease
Amendment #2 on December 18, 1992, the terms and conditions being more
particularly described therein, and
Whereas, Lessor and Lessee wish to further amend the Lease Agreement, the
parties hereby agree to the following:
1. As of January 1, 1993, Lessee's lease obligation shall be increased by 17,101
square feet from 65,256 square feet to 82,357 square feet reflecting the
occupancy of Suite 400 North and the mailroom located on the first floor of
the North Tower. The additional 17,101 square feet shall be leased at a
rental rate of $10.25 per square foot or $14,607.10 per month net of
operating expenses for January and February.
All other terms and conditions of the original lease agreement shall remain in
full force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/18/96
c:lease #3.doc - word
<PAGE>
EXHIBIT 10.12
LEASE AMENDMENT #4
This Lease Amendment made and entered into this 1st day of February, 1993, by
and between 6000 Midlantic Drive Associates, L.P., hereinafter referred to as
"Lessor" and Tyco Industries, Inc., hereinafter referred to as "Lessee".
Whereas Lessor leased certain premises known as 6000 Midlantic Drive, Mount
Laurel, New Jersey pursuant to that certain lease agreement dated September 21,
1992, previously amended by Lease Amendment #1 on November 11, 1992, Lease
Amendment #2 on December 18, 1992 and Lease Amendment #3 on January 5, 1993, the
terms and conditions being more particularly described therein, and
Whereas, Lessor and Lessee wish to further amend the Lease Agreement, the
parties hereby agree to the following:
1. As of January 1, 1993, Lessee's lease obligation shall be increased by 2,613
square feet for the temporary use of space occupied on the lower level of the
four story tower formerly known as Midlantic Bank's "Executive Dining Rooms".
The rent for this space shall be $4,420.33 per month for each month that
Lessee occupies the space and until such time as Lessee returns same to
Lessor in good clean condition except for normal wear and tear.
All other terms and conditions of the original agreement, as amended, shall
remain in full force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/18/96
c:lease #4.doc - word
<PAGE>
EXHIBIT 10.14
LEASE AMENDMENT #5
This Lease Amendment made and entered into this 16th day of June, 1993, by and
between 6000 Midlantic Drive Associates, L.P., hereinafter referred to as
"Lessor" and Tyco Industries, Inc., hereinafter referred to as "Lessee".
Whereas Lessor leased certain premises known as 6000 Midlantic Drive, Mount
Laurel, New Jersey pursuant to that certain Lease Agreement dated September 21,
1992, previously amended by Lease Amendment #1 on November 11, 1992, Lease
Amendment #2 on December 18, 1992, Lease Amendment #3 on January 5, 1993, and
Lease Amendment #4 on February 1, 1993, the terms and conditions being more
particularly described therein, and
Whereas, Lessor and Lessee wish to further amend the Lease Agreement, the
parties hereby agree to the following:
In accordance with the current and projected occupancy plan, Lessee's obligation
shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A. 3/01/93-3/05/93 Existing 82,357 $10.25 = $ 70,346.60
B. 3/05/93-4/01/93 3rd Flr N 7,752 $10.25
(Partial) Total A+B = $ 76,968.10
C. 4/01/93-5/07/93 6th Flr N 5,540 $10.25
Total A+B+C = $ 81,700.18
D. 5/07/93-6/18/93 2nd Flr N 4,397 $10.25
Total A+B+C+D = $ 85,455.95
E. 6/18/93-2/01/94 3rd Flr N 8,541 $10.25
Total A+B+C+D+E = $ 92,751.39
F. 2/01/94-3/01/94 3rd Flr S 11,927 $10.25
Total A+B+C+D+E+F = $102,939.04
G. 3/01/94-3/01/95 All Above 120,514 $11.00 = $110,471.17
3/01/95-3/01/96 All Above 120,514 $11.75 = $118,003.29
3/01/96-3/01/97 All Above 120,514 $12.50 = $125,535.42
3/01/97-3/01/98 All Above 120,514 $13.25 = $133,067.54
3/01/98-3/01/99 All Above 120,514 $14.00 = $140,599.67
3/01/99-3/01/00 All Above 120,514 $14.75 = $148,131.79
</TABLE>
Lessee exercises its option to lease additional space on the Third Floor-South
in accordance with Section #43 "Option on Additional Space".
All other terms and conditions of the original agreement, as amended, shall
remain in full force and effect.
LESSOR: 6000 Midlantic Drive Associates, L.P.
By: ______________________________________
Thomas R. Whitesell
LESSEE: TYCO INDUSTRIES, INC.
By: ______________________________________
Fredrick Rudloff, V/P - MIS
cp: 3/18/96
c:lease #5.doc - Word
<PAGE>
Ex. 10.53
CAUTIONARY STATEMENT; Private Securities Litigation
Reform Act of 1995
TYCO TOYS, Inc. ("the Company") desires to take full adantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act"), and in order to do so is filing this Exhibit 10.53 as part of its Report
on Form 10-K for the fiscal year ended December 31, 1995.
From time to time the Company or its officers may issue forward-looking
statements about the Company's sales, profits, operations, liquidity or
prospects. It is important to note that there are a variety of important factors
that could cause actual results to differ materially from projections or
forward-looking statements issued by the Company. These factors include, among
others, the following.
"(1) The business operated by the Company is in a highly competitive industry,
and the Company's principal competitors are much larger firms; many of the
Company's competitors have financial resources greater than those of the
Company. In addition, the large amounts of capital required to operate the
business of the Company require extensive borrowings, which borrowings
frequently necessitate agreement by the Company to various affirmative and
negative covenants with lenders; these covenants may limit the flexibility of
management in certain respects. The amount and type of financing available to
the Company, changes in that financing and the costs of such financing are also
important considerations which could materially affect the operations results of
the Company in a given year. [See Business and Competition, pages 1 et ff. and
6, Annual Report on Form 10-K for Year Ended December 31, 1995 ("Report").]
(2) Political or economic disruptions affecting the conduct of business in
countries where the Company or its suppliers employ manufacturing facilities, or
changes in monetary or fiscal policies in those countries, could adversely and
materially affect the Company. For example, the imposition by the US congress of
duties or other burdensome conditions on the importation of children's products
made in the People's Republic of China, or the adoption by the European
Community of additional limitations on the importation of such products, could
materially affect the Company. [See Manufacturing and Suppliers, page 7,
Report.]
(3) As a result of the seasonality of the toy industry, much of the Company's
manufacturing, packaging and distribution must be completed during short time
periods and cannot be spread out evenly on a year-round basis. If the Company
were prevented from acquiring its products from its joint venture partners or
suppliers in the far east, or if issues arise having an effect on
<PAGE>
Page Two Ex. 10.53
the several joint ventures in which the Company has an interest, significant
adverse financial impact could result, depending on the seriousness of the
disruption or the issue. [See Business, pp. 1 et ff., Report.]
(4) The cost of plastics, plastic resin, packaging and other raw materials or
components could increase or the Company could experience shortages of supply of
such materials; such increases or shortages could affect the profit margins
associated with the Company's products. [See Manufacturing and Suppliers, p. 7,
Report.]
(5) Certain customers account for a disproportionately large share of net sales
of the Company; if any such customer ceased doing business with the Company, or
significantly reduced the amount of their purchases from the Company, the
Company's business could be adversely impacted. Other similar factors which
could have material adverse effects include pressures on the Company to provide
financial incentives to its customers; pressures to reduce the price or change
the terms of sale of the Company's products and the effects of such changes on
the Company's profit margins; changes in the rate of growth associated with
consumer purchases of the Company's products; decisions of third parties, such
as retailers, relating to the price and promotion of the Company's products.
[See Marketing and Distribution, p. 6, Report, and note 12, p. F-21 of Notes to
Consolidated Financial Statements ("Notes").]
(6) The Company has traditionally enjoyed good working relations with its
employees throughout the world; labor strife or work disruptions could have a
material adverse impact on the Company. Other factors of this type which could
have a material effect include manufacturing constraints, production
inefficiencies, higher costs of production and underutilization of manufacturing
capacity. [See Employees, p. 7, Report.]
(7) Consumer identification, play-value, price and the quality of manufacturing
are all important factors with respect to the Company's products; in addition,
the Company uses a high degree of product promotion, primarily through
advertising, for commercial success of its products. The toy industry is subject
to a constant need for creating and developing new products, which frequently
are successfully marketed for only one or two years. Changes in consumer
behavior patterns (which can occur quickly), including the potential for
decrease in consumer demand for products which are seasonal in nature, or the
imposition of additional restrictions on children-oriented television
programming and advertising could adversely affect the Company. [See Seasonality
and Backlog, p. 5 and Marketing and Distribution, pp. 5-6, Report.]
<PAGE>
Page Three Ex. 10.53
(8) The Company markets its products under a variety of trademarks, including
some owned by third parties and covered by license agreements; certain license
agreements require minimum guaranteed royalty payments regardless of the actual
sales of the products in question. In addition, the inability of a particular
licensed product or line of products to achieve a level of sales large enough to
support the required minimum guarantee payments could adversely affect the
Company's ability to retain the trademark license for that product or line. [See
Trademarks, page 6, Committments - Guaranteed Royalties, p. 19, Report and also
note 10, page F-18, Notes.]
(9) The cost of acquisition by the Company of tangible and intangible assets,
and changes in the tax laws, regulations or rates applicable to such
acquisitions. [See pp. 14-16, Report.]
(10) Difficulties which may be experienced by the Company in the testing,
development, production or marketing of new products. [See Design and
Development, p. 5, Report.]
(11) The toy industry is highly competitive and barriers to entry are not
significant. Increased competition may occur within categories in which the
Company enjoys a substantial market share. [See Competition, p. 6, Report.]
(12) The level of expenses associated with selling, distribution and
administrative activities of the Company, growth in such expenses, and the
impact of unusual items resulting from the ongoing evaluation by the Company of
its organization and strategy. [See Management Discussion and Analysis, pp. 12
et ff., Report.]
(13) Changes to the compensation and benefit plans at the Company, and changes
in the accounting policies and the results of their application to the Company.
[See note 1, pp. F-6 et ff., Notes.]
(14) The ability of the Company to engage in hedging activities against various
foreign currencies. [See Foreign Exchange Risk Management, p. 19, Report.]
(15) The costs of legal and administrative proceedings involving the Company or
its subsidiaries. [See Legal Proceedings, pp. 19-20, Report, and note 11, pp. F-
18,19, Notes.]
<PAGE>
Exhibit 11
TYCO TOYS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary loss Per Share:
1. Net loss $(27,229) $(32,973) $(69,940)
2. Less preferred dividends 3,200 2,157 -
-------- -------- --------
3. Net loss applicable to common
shareholders $(30,429) $(35,130) $(69,940)
======== ======== ========
4. Weighted average shares outstanding 34,788 34,687 33,595
5. Add additional shares issuable upon the
assumed exercise of outstanding stock
options * - - -
-------- -------- --------
6. Adjusted weighted average shares outstanding 34,788 34,687 33,595
======== ======== ========
7. Net loss per share (3/6) $ (0.87) $ (1.01) $ (2.08)
======== ======== ========
Fully Diluted Loss Per Share:
8. Line 3 above $(30,429) $(35,130) $(69,940)
9. Add back preferred dividends (line 2 above) 3,200 2,157 -
10. Add back interest, net of tax, on assumed
conversion of the Company's 7% Convertible
Subordinated Notes 1,066 995 567
-------- -------- --------
11. Adjusted net loss $(26,163) $(31,978) $(69,373)
======== ======== ========
12. Line 4 above 34,788 34,687 33,595
13. Add additional shares issuable upon assumed
conversion of preferred shares from dates of
issuance 5,326 3,749 -
14. Add additional shares issuable upon assumed
conversion of the Company's 7% Convertible
Subordinated Notes from dates of issuance 1,523 1,430 1,350
15. Add additional shares issuable upon the assumed
conversion of outstanding stock options * - - -
-------- -------- --------
16. Adjusted weighted average shares outstanding 41,637 39,866 34,945
======== ======== ========
17. Net loss per share (11/16) * $ (0.63) $ (0.80) $ (1.99)
======== ======== ========
</TABLE>
* For the calculation of loss per share, the inclusion of the assumed exercise
of options for the three years ended 1995, 1994 and 1993 did not result in a
dilutive effect and were therefore excluded from the per share calculations.
** Fully diluted loss per share is not presented in the Consolidated Statements
of Operations as the assumed conversion of the Company's Convertible
Preferred Stock and Convertible Subordinated Notes is anti-dilutive.
<PAGE>
Exhibit 22
Tyco Toys, Inc.
Subsidiaries of the Company
Almat Toy Company, Inc.
Croner-Tyco Toys Pty. Ltd.
DI Hong Kong Limited
Ensueno-Tyco Toys de Mexico, S.A.de C.V.
Hingham Enterprises Ltd.
Illco (UK) Ltd.
Illco Acquisition Corp.
LI & HE Manufacturing Hong Kong, Ltd.
Macau Die-casting Toys Ltd.
Macau Toys Ltd.
Matchbox Acquisition Ltd.
Matchbox Collectibles (Deutschland) GmbH
Matchbox Collectibles (UK) Ltd.
Matchbox Collectibles Pty. Ltd.
Matchbox Collectibles, Inc.
Matchbox International Ltd.
Matchbox Japan Ltd.
Matchbox Toys (USA), Inc.
Matchbox Toys Pty. Ltd.
Matchbox Toys, Ltd.
Nasta Far East, Ltd.
Playtime Toys UK, Ltd.
TBL, Ltd.
TVMI Service Corp.
Tyco (Hong Kong) Ltd.
Tyco Distribution Corp.
Tyco Far East Ltd.
Tyco Funding I Corp.
Tyco Funding II Corp.
Tyco Industries, Inc.
Tyco Investment Corp.
Tyco Management I, Inc.
Tyco Manufacturing (Europe), Inc.
Tyco Manufacturing Corp.
Tyco Matchbox (Deutschland) GmbH
Tyco Preschool Toys, Inc.
Tyco Services, Inc.
Tyco Toys (Benelux) n.v.
Tyco Toys (Canada) Inc.
Tyco Toys (Espana) S.A.
Tyco Toys (France) S.A.
Tyco Toys (Italy) S.p.A.
Tyco Toys (New Zealand) Pty., Ltd.
Tyco Toys (Switzerland) A.G.
Tyco Toys (UK) Ltd.
Tyco Toys Europe n.v.
Tyco Toys GmbH
Tyco Toys(Singapore) Pte., Ltd.
Unitoys Company Ltd.
Universal International (Holdings) Ltd.
Universal Product Innovations, Inc.
View-Master Ideal (UK) Ltd.
View-Master International (Singapore) Pte., Ltd.
<PAGE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
17857 of Tyco Toys, Inc. and subsidiaries on Form S-8 of our report dated
February 7, 1996, except for Note 5, as to which the date is February 15, 1996
appearing in this Annual Report on Form 10-K of Tyco Toys, Inc. for the year
ended December 31, 1995.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 26, 1996
(#7521)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 27,604
<SECURITIES> 0
<RECEIVABLES> 243,227
<ALLOWANCES> (55,724)
<INVENTORY> 56,710
<CURRENT-ASSETS> 304,563
<PP&E> 135,994
<DEPRECIATION> (102,973)
<TOTAL-ASSETS> 615,132
<CURRENT-LIABILITIES> 200,712
<BONDS> 147,180
0
51,661
<COMMON> 295,727
<OTHER-SE> (82,048)
<TOTAL-LIABILITY-AND-EQUITY> 615,132
<SALES> 709,109
<TOTAL-REVENUES> 709,109
<CGS> 416,236
<TOTAL-COSTS> 416,236
<OTHER-EXPENSES> 289,293
<LOSS-PROVISION> 3,788
<INTEREST-EXPENSE> 28,026
<INCOME-PRETAX> (28,234)
<INCOME-TAX> (1,005)
<INCOME-CONTINUING> (27,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,229)
<EPS-PRIMARY> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
<PAGE>
Office
Exhibit 10.17
---------------
TENANCY AGREEMENT
WORLD SHIPPING CENTRE
---------------------
Suite: 1200
Tenant: Tyco Asia Limited
<PAGE>
Office
INDEX
-----
SECTION I INTERPRETATION AND AGREEMENT PAGE
----
1 1(1) Interpretation 1
1(2) Headings and index 1
1(3) Gender 1
2 Term premises rent and charges 1
SECTION II RENT AND OTHER CHARGES
1 Rent and Charges 2
2 Rates 2
3 Gas water and electricity charges 3
SECTION III TENANT'S OBLIGATIONS
1 Compliance with Ordinances 3
2 Fitting out 3
2(1) Installations and alternations 3
2(2) Damage to walls, ceilings and floors 4
2(3) Floor covering 4
3 Good repair of interior 4
4 Replacement of windows 4
5 Repair of electrical installation 4
6 Repair of gas installation 5
7 Maintenance of sanitary and water apparatus 5
8 Cleaning of drains 5
9 Responsibility for defects 5
10 Third party insurance 5
11 Insurance of contents 6
12 Protection from typhoons 6
13 Entry by Landlord 6
14 Notice to repair 6
15 Outside windows 7
16 Inform Landlord of damage 7
17 Regulations 7
18 Cleaning contractors 7
19 Directory boards 7
20 Service entrances and lifts 7
21 Refuse and garbage removal 7
22 Title deeds 8
23 Yield up premises and handover 8
24 Indemnity against breach 8
- i -
<PAGE>
Office
SECTION IV LANDLORD'S OBLIGATIONS
1 Quiet enjoyment 8
2 Crown rent and property tax 9
3 Roof and main structure 9
4 Building management services 9
5 Facilities 9
6 Air-conditioning services 9
7 Directory boards 9
SECTION V RESTRICTIONS AND PROHIBITIONS
1 Damage to common areas 10
2 Floor loading 10
3 Air-conditioning units 10
4 Structural stability 10
5 Locks 10
6 Loading of lifts 10
7 Use of lifts 10
8 Nuisance or annoyance 10
9 Noise 11
10 Signs 11
11 User 11
12 Illegal or immoral use 11
13 Sleeping or domestic use 12
14 Manufacture of storage of goods 12
15 Combustible or dangerous goods 12
16 Obstructions in passages 12
17 Toilet facilities 12
18 Wiring and cables in common areas 13
19 Preparation of food and prevention of odours 13
20 Animals, pets and infestation 13
21 Subletting and assigning 13
22 Breach of Conditions 14
23 Breach of insurance policy 14
24 Aerials 14
25 Parking 14
26 Use of building name 14
SECTION VI EXCLUSIONS OF LIABILITY
1 1.1 Lifts escalators and other services 15
1.2 Electricity/gas/water supply 15
1.3 Fire overflow of water and vermin 15
1.4 Water sprinklers 15
1.5 Services 15
- ii -
<PAGE>
Office
SECTION VII ABATEMENT OF RENT
1 Abatement 16
SECTION VIII DEFAULT
1 Default 16
2 Exercise of right 17
3 Acceptance of rent 17
4 Acts of contractors servants agents licensees customers 17
5 Distraint 17
6 Interest and legal costs 17
SECTION IX DEPOSIT
1 Deposit 18
2 Increase in deposit 18
3 Repayment of deposit 18
4 Transfer of deposit 19
SECTION X REGULATIONS
1 Introduction of Regulations 19
2 Conflict 19
SECTION XI MARKET RENTAL
1 Determination of market rental 19
SECTION XII GENERAL
1 Landlord and tenant legislation 20
2 Condonation not a waiver 21
3 Letting notices 21
4 Service of notices 21
5 No fine 21
6 Exclusion of warranties 21
7 Name of building 22
8 Stamp Duty and costs 22
- iii -
<PAGE>
Office
9 Tenant's obligations not affected 22
10 No enforcement of third party covenants 22
11 No implied covenants 22
12 Changes in common areas 23
13 Reservations 23
14 Severance 24
15 Tenant's effects 24
16 Use of other premises 24
17 Deed of Mutual Covenant 24
18 Sale and Redevelopment 24
19 Special conditions 25
SCHEDULE 26
SIGNATURES 27
ANNEXURES 28
- iv -
<PAGE>
Section I
AN AGREEMENT made the 10th day of JUNE 1995 BETWEEN the party described as the
Landlord in the Schedule hereto (hereinafter called "the Landlord") of the one
part and the party named and described as the Tenant in the Schedule hereto
(hereinafter called "the Tenant") of the other part.
WHEREBY IT IS AGREED as follows:
SECTION I
INTERPRETATION AND AGREEMENT
1 1(1) Interpretation
In this Tenancy Agreement the expressions set out in the Schedule
hereto shall where the context so admits have the meanings
respectively ascribed to them therein.
1(2) Headings and index
The headings and index are intended for guidance only and do not
form part of this Agreement nor shall any of the provisions of this
Agreement be construed or interpreted by reference thereto or in any
way affected or limited thereby.
1(3) Gender
Unless the context otherwise requires words herein importing the
masculine gender shall include the feminine and neuter and vice
versa and words herein in the singular shall include the plural and
vice versa.
2 Term premises rent and charges
The Landlord shall let and the Tenant shall take for the said term All Those
the said premises as delineated in pink on the plan(s) annexed hereto
Together with the use in common with the Landlord and all others having the
like right of :
2(1) the entrances staircases landings passages and toilets in the said
building, and
2(2) the lifts and escalators in the said building whenever the same
shall be operating,
insofar as the same are necessary for the proper enjoyment of the said
premises but except as the Landlord may from time to time restrict such use
YIELDING AND PAYING therefor throughout the said term the rent air-
conditioning charge and service charge (all of which are unless the context
otherwise requires hereinafter included under the term "rent") as are set out
in the Schedule which sums shall be payable exclusive of rates and other out-
goings and in advance on the first day of each calendar month the first of
such payments to be apportioned according to the number of days then
unexpired in the month in respect of which such payment is due and the
- 1 -
<PAGE>
Section I/II
last of such payments to be apportioned according to the number of days of
the said term remaining in the month in respect of which such payment is due.
SECTION II
RENT AND OTHER CHARGES
The tenant hereby agrees with the Landlord as follows:
1 Rent and charges
1(1) To pay the rent air-conditioning charge and service charge on the
days and in the manner hereinbefore provided for payment thereof
without deduction or set off (whether equitable or otherwise) and in
banknotes or by bankers order if so required by the Landlord.
1(2) The Landlord shall be entitled at any time and from time to time
during the said term to serve a notice upon the Tenant increasing
either one or both of the air-conditioning charge and service charge
by an amount which the Landlord shall deem appropriate having regard
to all or any of the elements affecting the cost of providing the
respective services, and thereafter such increased charge or charges
shall be payable in lieu of the charge or charges provided for
above. The Landlord's assessment of the appropriate increase shall
be conclusive and binding on the Tenant.
2 Rates
2(1) To pay and discharge all rates taxes assessments duties charges
impositions and outgoings of an annual or recurring nature now or
hereafter to be assessed imposed or charged by the Government of
Hong Kong or other lawful authority upon the said premises or upon
the owner or occupier thereof (Crown Rent and Property Tax only
excepted.)
2(2) In the event that an assessment to rates in respect of the said
premises shall be raised upon the Landlord direct the Landlord shall
during the month immediately preceding any quarter in respect of
which such rates may fall due be at liberty to debit the Tenant with
the amount thereof and the same shall forthwith be paid by the
Tenant to the Landlord whereupon the Landlord shall account for the
same to the Government of Hong Kong.
2(3) In the event that no valuation of the said premises shall have been
made in accordance with the Rating Ordinance (Cap.116) or any
statutory amendment or modification thereof for the time being in
force the Landlord shall be at liberty to make an interim valuation
thereof and to debit the Tenant with the amount which would be
payable upon such interim valuation and the same shall forthwith be
paid by the Tenant to the Landlord and any over-payment or under-
payment by the Tenant on such interim valuation shall be adjusted
when a valuation under the Rating Ordinance shall have been made
known.
- 2 -
<PAGE>
Section II/III
2(4) The Landlord shall be entitled to treat non-payment of any amount
debited to the Tenant in accordance with the foregoing provisions of
this Clause or any part thereof in all respects as non-payment of
rent under this Agreement.
3 Gas water and electricity charges
To pay and discharge all charges for gas water and electricity consumed in
the said premises.
SECTION III
TENANT'S OBLIGATIONS
The Tenant hereby agrees with the Landlord as follows:
1 Compliance with Ordinances
To obey and comply with all ordinances regulations bye-laws rules and
requirements of any Governmental or other competent authority relating to the
conduct and carrying on of the Tenant's business on the said premises or to
any other act deed matter or thing done permitted suffered or omitted therein
or thereon by the Tenant or any employee agent contractor or licensee of the
Tenant and to notify the Landlord forthwith in writing of any notice received
from any statutory or public authority concerning or in respect of the said
premises or any services supplied thereto.
2 Fitting out
To fit out the said premises in accordance with such plans and specifications
as shall have been first submitted to and approved in writing by the Landlord
in a good and proper workmanlike fashion and in carrying out any approved
work hereunder the Tenant shall and shall cause its servants agents
contractors and workmen to cooperate fully with the Landlord and all servants
agents contractors and workmen of the Landlord and with the building manager
and other tenants and contractors carrying out any work on the said building
and to obey and comply with all instructions and directions which may be
given by the Landlord's architect or other authorized representative or by
the building manager in connection with the carrying out of such work and in
carrying out any work to the electrical or gas installations or to the air
conditioning plumbing drainage fire fighting/detection building automation
and/or security systems the Tenant shall use only those contractors nominated
by the Landlord in writing for the purpose Provided That the Tenant shall not
at any time during the said term without the prior written consent of the
Landlord.
2(1) Installations and alterations
erect install remove or alter any fixtures partitioning or other
erection or installation in the said premises or any part thereof or
without the like consent make or permit or suffer to be made
alterations in or additions to the electrical
- 3 -
<PAGE>
Section III
or gas installations or to the air conditioning plumbing drainage
fire fighting/detection or security systems or install or permit or
suffer to be installed any equipment apparatus or machinery which
requires any additional electrical/gas mains wiring/piping or which
consumes electricity/gas not metered through the Tenant's separate
meter or which imposes a weight on any part of the flooring in
excess of that for which it is designed, it being agreed that the
Landlord shall be entitled to prescribe the maximum weight and
permitted location of safes and other heavy equipment and to require
that the same stand on supports of such dimensions and material to
distribute the weight as the Landlord may deem necessary, nor
2(2) Damage to walls ceilings and floors
drive or insert or permit or suffer to be driven or inserted any
nails screws hooks brackets or similar articles into the doors
ceilings windows walls beams floors structural members or any part
of the fabric of the said premises or any of the plumbing or
sanitary or air-conditioning or fire fighting/detection apparatus or
installation therein nor to cut maim injure drill into mark or
deface the same or permit or suffer the same to be cut maimed
injured drilled into marked or defaced, nor
2(3) Floor covering
lay or use any floor covering or do anything which may damage or
penetrate the existing flooring floor screed or slab.
3 Good repair of interior
To keep all the interior of the said premises including the flooring and
interior plaster or other finishes or rendering to walls floors and ceilings
and the Landlord's fixtures therein and all additions thereto and including
all doors windows electrical and gas and plumbing installations and wiring
and piping in good clean and tenantable repair and condition and properly
preserved and painted and so to maintain the same throughout the said term at
the expense of the Tenant and to the satisfaction of the Landlord, and
subject to Clause 23 of Section III to deliver up the same to the Landlord at
the expiration or sooner determination of the said term in like condition.
4 Replacement of windows
To reimburse to the Landlord and/or the building manager the cost of
replacing all broken and damaged windows and glass whether or not the same be
broken or damaged by the negligence of the Tenant.
5 Repair of electrical installation
To repair or replace any electrical installation or wiring of the Tenant if
the same becomes dangerous or unsafe or if so reasonably required by the
Landlord or by the relevant utility company and in so doing the Tenant shall
use only a contractor approved by the Landlord in writing for the purpose.
- 4 -
<PAGE>
Section III
6 Repair of gas installation
To repair or replace any gas installation or piping of the Tenant if the same
becomes dangerous or unsafe or if so reasonably required by the Landlord or
by the relevant utility company and in so doing the Tenant shall use only a
contractor approved by the Landlord in writing for the purpose.
7 Maintenance of sanitary and water apparatus
To keep the sanitary and water apparatus used exclusively by the Tenant and
its servants agents licensees and customers in good clean and tenantable
repair and condition to the satisfaction of the Landlord and in accordance
with the regulations or bye-laws of all Public Health and other Government
Authorities concerned.
8 Cleaning of drains
To pay to the Landlord on demand all costs incurred by the Landlord and/or
the building manager in cleansing clearing repairing or replacing any of the
drains pipes or sanitary or plumbing apparatus choked or stopped up owing to
the careless or improper use or neglect by the Tenant or any employee agent
licensee or customer of the Tenant.
9 Responsibility for defects
To be wholly responsible for any loss damage or injury caused to any person
whomsoever or any property whatsoever whether directly or indirectly:
9(1) through the defective or damaged condition of any part of the
interior of the said premises or any fittings fixtures wiring or
piping therein, or
9(2) through or in any way owing to the spread of fire or smoke or the
leakage or overflow of water including storm or rain water into or
from the said premises or any part thereof, or
9(3) through the negligence or the act neglect default or omission of the
Tenant, or
9(4) through the use of the said premises by the Tenant, or
9(5) through the operation by the Tenant of its business at or from the
said premises.
10 Third party insurance
To effect and maintain throughout the said term insurance cover in respect of
the Tenant's obligations under Section III Clause 9 with a reputable
insurance company to the satisfaction of the Landlord and to produce to the
Landlord as and when so required by the Landlord the policy of such insurance
together with the receipt for the last payment of premium and a certificate
from the relevant insurance company that the policy is fully paid up and in
all respects valid and subsisting, in default of which
- 5 -
<PAGE>
Section III
the Landlord shall be entitled (but not obliged) at the Tenant's expense to
effect such insurance cover. The policy of such insurance shall be in the
name of the Tenant and endorsed to show the interest of the Landlord in the
said building and shall be in such amount as the Landlord shall from time to
time stipulate and shall contain a clause to the effect that the insurance
cover thereby effected and the terms and conditions thereof shall not be
cancelled modified or restricted without the prior written consent of the
Landlord.
11 Insurance of contents
To be wholly responsible for any loss or damage to property within the said
premises including without limitation all furniture fixtures fittings goods
chattels samples personal effects contents and stock and to effect with a
reputable insurance company adequate insurance cover for the same in their
full replacement value against all risks including without limitation those
risks perils or under circumstances for which the Landlord's liability is
expressly or impliedly excluded under this Agreement. The Tenant undertakes
to produce and make available to the Landlord as and when so required by the
Landlord the policy of such insurance together with the receipt for the last
payment of premium and a certificate from the relevant insurance company that
the policy is fully paid up and in all respects valid and subsisting.
12 Protection from typhoons
To take all reasonable precautions to protect the interior of the said
premises against damage by storm typhoon heavy rainfall or the like and in
particular to ensure that all exterior doors and windows are securely
fastened upon the threat of such adverse weather conditions.
13 Entry by Landlord
To permit the Landlord and all persons authorised by it at all reasonable
times to enter and view the state of repair of the said premises to take
inventories of the fixtures therein to carry out any works repairs or
maintenance which require to be done and to show the said premises to
prospective tenants during the last three months of the said term or to pro-
spective purchasers at any time during the said term Provided that in the
event of an emergency the Landlord its servants or agents may enter without
notice and forcibly if need be.
14 Notice to repair
On receipt of any notice from the Landlord or its authorised representative
specifying any works or repairs which require to be done and which are the
responsibility of the Tenant hereunder forthwith to put in hand and execute
the same with all possible despatch and without any delay. Failure by the
Tenant so to do will entitle the Landlord or its servants or agents to enter
upon the said premises and forcibly if need be to carry out such works or
repairs at the sole expense of the Tenant.
- 6 -
<PAGE>
Section III
15 Outside windows
To keep all outside windows closed.
16 Inform Landlord of damage
To give notice in writing to the Landlord or its agent of any damage that may
be suffered to the said premises or to persons thereon and of any accident to
or defects in the water pipes gas pipes electrical wiring or fittings
fixtures or other facilities provided by the Landlord.
17 Regulations
To observe and comply with such regulations as the Landlord and/or the
building manager may introduce for the better operation and management of the
commercial part of the said building as office premises and/or for the use of
the carpark in the said building and/or its recreational areas and outdoor
facilities.
18 Cleaning contractors
To engage as cleaning contractors for the said premises only such contractors
as may be nominated by the Landlord, provided that the Tenant may in addition
to or substitution for such contractors employ its own direct staff for
cleaning. Such cleaning contractors shall be employed at the sole expense of
the Tenant and at the rates agreed between the Landlord and the contractors.
19 Directory boards
To pay the Landlord immediately upon demand the cost of affixing repairing
altering or replacing as necessary the Tenant's name on the directory boards
provided by the Landlord.
20 Service entrances and lifts
To load and unload goods only at such times and through such service
entrances and by such service lifts as shall be designated by the Landlord
and/or the building manager for this purpose from time to time.
21 Refuse and garbage removal
To be responsible for the removal of garbage and refuse from the said
premises to such location as shall be specified by the Landlord and/or the
building manager from time to time and to use only that type of refuse
container as is specified by the Landlord and/or the building manager from
time to time. In the event of the Landlord and/or the building manager
providing a collection service for garbage and refuse the same shall be used
by the Tenant to the exclusion of any other similar service and the use of
such service provided by the Landlord and/or the building manager shall be at
the sole cost of the Tenant.
- 7 -
<PAGE>
Section III/IV
22 Title deeds
To observe and perform the covenants terms conditions and restrictions under
which the said Lot(s) is/are held from the Crown or as referred to in any
deed of mutual covenant or deed of dedication or other deed or instrument
affecting the said building and/or its recreational areas and outdoor
facilities for the time being in force (whether or not executed prior to the
date of this Tenancy Agreement) so far as they relate to the said premises or
the use thereof or the use of the common areas and facilities of the said
building and/or its recreational areas and outdoor facilities but except
always to the extent that the Landlord is obliged to observe and comply with
the same pursuant to Section IV.
23 Yield up premises and handover
At the expiration or sooner determination of this tenancy to deliver up to
the Landlord vacant possession of the said premises notwithstanding any rule
of law or equity to the contrary together with such fittings fixtures
alterations or additions thereto as the Landlord in its absolute discretion
may be willing to retain by without payment of any compensation for such
fittings fixtures alterations or additions and deliver to the Landlord all
keys giving access to all parts of the said premises. The Tenant shall be
entitled to remove its own trade fixtures subject to making good all damage
including damage to the decoration caused by such removal and shall if
required by the Landlord reinstate the said premises to their original state
and condition as at the date of commencement of this tenancy.
24 Indemnity against breach
To keep the Landlord indemnified from and against all actions claims losses
damages and expenses arising from any breach non-observance or non-
performance of any of the agreements or convenants on the part of the Tenant
herein contained or from the operation by the Tenant of its business at or
from the said premises or from the use of the said premises or of the
electrical or gas installation or apparatus therein or out of any works
carried out at any time during the said term to the said premises or out of
anything now or during the said term attached to or projecting from the said
premises or arising from the negligence or the act neglect default or
omission of the Tenant.
SECTION IV
LANDLORD'S OBLIGATIONS
The Landlord hereby agrees with the Tenant as follows:
1 Quiet enjoyment
That the Tenant paying the rent on the days and in the manner herein provided
for payment of the same and observing and performing the agreements
stipulations and conditions herein contained and on the Tenant's part to be
observed and performed shall peaceably hold and enjoy the said premises
during the said term without any
- 8 -
<PAGE>
Section IV
interruption by the Landlord or any person lawfully claiming under or in
trust for the Landlord.
2 Crown rent and property tax
To pay the Crown rent payable in respect of the said Lot(s) and the property
tax payable in respect of the said building.
3 Roof and main structure
To use all reasonable endeavours to keep the roof of the said building and
the main structure and walls thereof and the mains drains pipes and cables
therein in a proper state of repair provided that the Landlord shall not
incur any liability under this Clause unless and until written notice of any
defect or want of repair has been given by the Tenant to the Landlord and the
Landlord shall have after the lapse of a reasonable time from the date of
service of such notice either failed to take reasonable steps to repair or
remedy the same or failed to give due notice of the defect or want of repair
to the building manager.
4 Building management services
To carry out or arrange for such building management services as the Landlord
may in its absolute discretion think fit with a view to maintaining the
commercial part of the said building as first class office premises.
5 Facilities
To use all reasonable endeavours to maintain the escalators lifts and fire
fighting/detection and air-conditioning plant and other facilities of the
said building in proper working order.
6 Air-conditioning services
Subject to Clause 5 of this Section IV and to Clauses 1(1) and 1(2) of
Section VI to provide or arrange for air-conditioning services to the said
premises from 8:30 a.m. until 6:00 p.m. daily from Monday to Friday (both
inclusive) and from 8:30 a.m. to 2:00 p.m. on Saturdays. If the Tenant shall
require additional air-conditioning services on Sundays and public holidays
or outside the times specified the Landlord shall on receiving reasonable
notice of the Tenant's requirements and subject as aforesaid provide the same
to the Tenant or request the building manager to arrange for the same. The
charges for air-conditioning services on Sundays and public holidays and
outside the times specified shall be determined by the Landlord and/or the
building manager and notified to the Tenant from time to time.
7 Directory boards
To supply directory boards and to allot space thereon for the Tenant's name
to be affixed in such uniform lettering or characters as shall be designated
by the Landlord.
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<PAGE>
Section V
SECTION V
RESTRICTIONS AND PROHIBITIONS
The Tenant hereby agrees with the Landlord as follows:
1 Damage to common areas
Not to damage injure or deface any part of the fabric or walls or roof of the
said building or of the common areas stairs and lifts and other facilities of
the said building.
2 Floor loading
Not to load the floor of the said premises or any part thereof beyond the
designed weight as stated in Clause 5 of the Schedule hereto.
3 Air-conditioning units
Not to install air-conditioning units at the said premises without the prior
written consent of the Landlord.
4 Structural stability
Not to dig any hole or holes in or otherwise damage the concrete floor slab
of the said premises.
5 Locks
Not without the prior written consent of the Landlord to alter the existing
locks bolts and fittings on the entrance doors to the said premises nor to
install any additional locks bolts or fittings thereon.
6 Loading of lifts
Not to place in any of the lifts in the said building anything the weight of
which shall exceed the maximum weight as shown inside the said lifts.
7 Use of lifts
Not to load or unload or receive delivery of or despatch any goods or
merchandise or permit or suffer the same to be loaded unloaded delivered or
despatched in any of the lifts designated from time to time by the Landlord
and/or the building manager as passenger lifts.
8 Nuisance or annoyance
Not to do or permit or suffer to be done any act or thing which may be or
become a nuisance or annoyance or cause damage or danger to the Landlord or
to the tenants
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<PAGE>
Section V
or occupiers of other premises in the said building or in any adjoining or
neighbouring building.
9 Noise
Not to produce or suffer or permit to be produced at any time in the said
premises any noise which may in the opinion of the Landlord or the building
manager (which opinion shall be conclusive) constitute a nuisance or give
cause for reasonable complaint from the occupants of any other premises in
the said building or persons using or visiting the same.
10 Signs
Not without the prior written consent of the Landlord to affix or display or
permit or suffer to be affixed or displayed within or outside the said
premises any signboard sign decoration advertising matter or other device
whether illuminated or not save that:
10(1) the Tenant shall be entitled to have its name displayed in English
and Chinese in uniform lettering or characters designated by the
Landlord on the directory boards such lettering and characters and
any additions or alterations thereto to be placed thereon be the
Landlord at the Tenant's expense, and
10(2) the Tenant shall be entitled at its own expense to have its name
affixed in lettering and/or characters approved by the Landlord on
the entrance door or doors to the said premises such lettering
and/or characters thereon and any additions or alterations thereto
or thereon to be made by the Landlord at the Tenant's expense. If
the Tenant carries on business under a name other than its own name
it shall notify the Landlord of the name under which its business is
carried on and shall be entitled to have that name displayed as
aforesaid, but the Tenant shall not be entitled to change its
business name without the prior written consent of the Landlord
which the Landlord may give or withhold at its discretion, and
without prejudice to the foregoing, the Landlord may in connection
with any application for consent under this Clause require the
Tenant to produce such evidence as it may think fit to show that no
breach of Clause 21 of this Section V has taken place or is about to
take place.
11 User
Not to use or permit or suffer the said premises to be used for any purpose
other than as described in Clause 5 of the Schedule hereto.
12 Illegal or immoral use
Not to use or permit or suffer the said premises to be used for any illegal
or immoral purpose.
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<PAGE>
Section V
13 Sleeping or domestic use
Not to use or permit or suffer the said premises or any part thereof to be
used as sleeping quarters or as domestic or residential premises within the
meaning of any landlord and tenant legislation for the time being in force
nor to allow any person to remain in the said premises overnight.
14 Manufacture or storage of goods
Not to use or permit or suffer the said premises to be used for the purpose
of the production manufacture or working of goods and merchandise or for the
storage of goods and merchandise other than samples reasonably required in
connection with the Tenant's business carried on therein.
15 Combustible or dangerous goods
Not to keep or store or permit or suffer to be kept or stored in the said
premises any arms ammunition gun-powder salt-petre kerosene or other
explosive or combustible substance or hazardous goods or any dangerous goods
(as defined in the Dangerous Goods Ordinance Cap. 295 or any legislation
replacing the same or any orders or regulations made thereunder) other than
in accordance with the appropriate legislation from time to time in force
and in such areas as the Landlord shall designate for such purposes.
16 Obstructions in passages
Not to encumber or obstruct or permit or suffer to be encumbered or
obstructed with any boxes packaging rubbish or other obstruction of any kind
or nature nor cause or permit any of its servants agents contractors
licensees or customers to obstruct or use for any purpose other than that for
which they are intended any of the entrances staircases landings passages
lifts lobbies or other parts of the said building in common use and the
Landlord and the building manager shall be entitled without notice and at the
Tenant's risk and expense to remove dispose of or clear as it sees fit any
such material or obstruction and neither the Landlord nor the building
manager shall thereby incur any liability to the Tenant or any other person
whomsoever and the Tenant shall indemnify the Landlord and the building
manager against all losses claims damages or expenses of and against the
Landlord and the building manager in respect thereof.
17 Toilet facilities
Not to use or permit or suffer the toilet facilities in the said building,
whether used exclusively by the Tenant or not, to be used for any purpose
other than that for which they are intended and not to throw or permit or
suffer to be thrown therein any foreign substance of any kind and the Tenant
shall on demand pay to the Landlord or the building manager as the case may
be the whole expense of any breakage blockage or damage resulting from a
violation of this Clause.
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<PAGE>
Section V
18 Wiring and cables in common areas
Not to lay install affix or attach any wiring cables or other articles or
thing in or upon any of the entrances staircases landings passages lobbies or
other parts of the said building in common use.
19 Preparation of food and prevention of odours
Not to prepare or permit or suffer to be prepared any food in the said
premises or to cause or permit any odours which shall in the sole opinion of
the Landlord be offensive or unusual to be produced upon permeate through or
emanate from the said premises.
20 Animals pets and infestation
Not to keep or permit or suffer to be kept any animals or pets inside the
said premises and at the Tenant's expense to take all such steps and
precautions as shall be required by the Landlord and/or the building manager
to prevent the said premises or any part thereof from becoming infested by
termites rats mice roaches or any other pests or vermin. The Tenant shall
employ at the Tenant's cost such pest extermination contractors as the
Landlord or the building manager may require and at such intervals as the
Landlord and/or the building manager may direct and to the exclusion of all
others.
21 Subletting and assigning
Not to assign underlet share part with the possession of or transfer the said
premises or any part thereof or any interest therein nor permit or suffer any
arrangement or transaction whereby any person who is not a party to this
Agreement obtains the use possession occupation or enjoyment of the said
premises or any part thereof irrespective of whether any rental or other
consideration is given therefor. The tenancy shall be personal to the Tenant
named in this Agreement and without in any way limiting the generality of the
foregoing the following acts and events shall unless approved in writing by
the Landlord be deemed to be breaches of this Clause 21:
21(1) In the case of a tenant which is a partnership the taking in of one
or more new partners whether on the death or retirement of an
existing partner or otherwise;
21(2) In the case of a tenant who is an individual (including a sole
surviving partner of a partnership tenant) the death insanity or
other disability of that individual to the intent that no right to
use possess occupy or enjoy the said premises or any part thereof
shall vest in the executors administrators personal representatives
next of kin trustee or committee of any such individual;
21(3) In the case of a tenant which is a corporation any take-over
reconstruction amalgamation merger voluntary liquidation or change
in the person or persons who directly or indirectly owns or own or
controls or control a majority of its voting shares or who otherwise
has or have effective control thereof.
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<PAGE>
Section V
21(4) The giving by the Tenant of a power of attorney or similar authority
whereby the donee of the power obtains the right to use possess
occupy or enjoy the said premises or any part thereof or does in
fact use possess occupy or enjoy the same;
21(5) The change of the Tenant's business name.
21(6) Notwithstanding any provisions to the contrary herein contained, it
22 is hereby expressly agreed and declared that the said premises may
be occupied or used by the holding, subsidiary or associated
companies of the Tenant and/or of Tyco Toys, Inc. If the said
premises are occupied or used by the holding, sub-sidiary or
associated companies of the Tenant and/or Tyco Toys, Inc., the
Tenant shall notify the Landlord accordingly and such notification
shall be certified by a Director of the Tenant (namely, a member of
the Board of Directors of the Tenant). It is hereby expressly and
specifically agreed and declared that the notification will be
merely a notification requirement and that no approval or consent of
the Landlord will be required.
23 Breach of insurance policy
Not to do or permit or suffer to be done any act deed matter or thing
whatsoever whereby the insurance on the said building against loss or damage
by fire and/or other insurable perils and/or claims by third parties for the
time being in force may be rendered void or voidable or whereby the premium
thereon may be increased Provided that if as the result of any act deed
matter or thing done permitted or suffered by the Tenant the premium on any
such policy of insurance shall be increased the Landlord shall be entitled
without prejudice to any other remedy hereunder to recover from the Tenant
the amount of any such increase.
24 Aerials
Not to erect or permit or suffer to be erected on or from any part of the
said building or on or within or from any part of the said premises any
aerial antenna satellite dish or other device for any telepoint network or
telecommunication purpose or otherwise, and not to interfere with remove
dismantle or alter those common aerials (if any) provided by the Landlord
and/or the building manager.
25 Parking
Not to park in obstruct or otherwise use nor permit any employee agent or
licensee of the Tenant to park in obstruct or otherwise use those areas of
the said building allocated to the parking or movement of or access for
vehicles or designated as loading/unloading areas otherwise than in
accordance with the Regulations from time to time made by or on behalf of the
Landlord and/or the building manager.
26 Use of building name
Not without the prior written consent of the Landlord to use or permit to be
used the name/logo or any part of the name/logo of the Landlord or of the
said building or any picture representation or likeness of the whole or any
part of such name/logo or of the
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<PAGE>
Section V/VI
said building or of the said premises in connection with the business or
operations of the Tenant or for any purpose whatsoever other than to indicate
the address and place of business of the Tenant.
SECTION VI
EXCLUSIONS OF LIABILITY
1 The Landlord shall not be liable to the Tenant in respect of any claim loss
or damage or expense by or to person or property sustained by the Tenant by
or through or in any way owing to:
1(1) Lifts escalators and other services
any defect in or breakdown or suspension of the lifts escalators
fire fighting/detection or water sprinkler equipment air-
conditioning plant or other facilities or the said building or any
of them, or
1(2) Electricity/gas/water supply
any failure malfunction explosion or suspension of the electricity
gas or water supply to the said building or the said premises, or
1(3) Fire overflow of water and vermin
fire or the overflow or leakage of water including rain, storm or
sea water from anywhere within the said building or the influx of
water including rain, storm or sea water into the said building or
the said premises or the activity of termites pests rats or other
vermin in the said building, or
1(4) Water sprinklers
any use of water sprinkler devices whether by intentional operation
or as a result of mechanical failure or malfunction, or
1(5) Services
the adequacy or otherwise of any of the management services
(including security) rendered by the Landlord and/or the building
manager or the failure to render the same or the suspension or
interruption thereof for whatever reason,
whether or not the same may be caused by the negligence of the Landlord or
any of its servants agents contractors or licensees, nor shall the rent or
air-conditioning charge or service charge or any part thereof cease to be
payable other than in the circumstances set out in Section VII.
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<PAGE>
Section VII
SECTION VII
ABATEMENT OF RENT
1 Abatement
If:
1(1) the said building or the said premises or any part thereof shall be
destroyed or so damaged by fire typhoon Act of God Force Majeure or
other cause so as to be rendered unfit for use and occupation, or
1(2) the said building is made the subject of a closure order or
demolition order,
then provided the insurance on the said building shall not be vitiated by the
act neglect default or omission of the Tenant the rent or a part thereof
proportionate to the damage sustained shall cease to be payable until the
said premises shall have been restored or reinstated.
2 The Landlord shall be under no obligation to repair or reinstate the said
premises if in its opinion it is not reasonably economical or practicable so
to do.
3 If the whole or substantially the whole of the said premises shall in the
circumstances set out in Clause 1 of this Section VII have been destroyed or
rendered unfit for use and occupation and shall not have been repaired and
reinstated within six months of the occurrence of the destruction or damage
either party shall be entitled at any time thereafter before the same are so
repaired and reinstated to terminate this Agreement by notice in writing to
the other.
SECTION VIII
DEFAULT
It is hereby further expressly agreed and declared as follows:
1 Default
If the rent or any part thereof shall be unpaid for fourteen days after the
same shall become payable (whether legally or formally demanded or not) or if
the Tenant shall fail or neglect to observe or perform any of the agreements
stipulations or conditions herein contained and on the Tenant's part to be
observed and performed or if the Tenant shall become bankrupt or being a
corporation shall go into liquidation or if any petition shall be filed for
the winding up of the Tenant or if the Tenant shall otherwise become
insolvent or make any composition or arrangement with creditors or shall
suffer any execution to be levied on the said premises or otherwise on the
Tenant's goods then and in any such case it shall be lawful for the Landlord
at any time
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<PAGE>
Section VII
thereafter to re-enter on the said premises or any part thereof in the name
of the whole whereupon this Agreement shall absolutely cease and determine
but without prejudice to any right of action by the Landlord in respect of
any outstanding breach or non-observance or non-performance of any of the
agreements stipulations and conditions herein contained and on the Tenant's
part to be observed and performed and to the Landlord's right to deduct all
loss and damages thereby incurred from the deposit paid by the Tenant in
accordance with Section IX hereof and without prejudice to the Landlord's
right of forfeiture thereof.
2 Exercise of right
A written notice served by the Landlord on the Tenant in manner hereinafter
mentioned to the effect that the Landlord thereby exercises the power of re-
entry herein contained shall be a full and sufficient exercise of such power
without physical entry on the part of the Landlord.
3 Acceptance of rent
Acceptance of rent by the Landlord shall not be deemed to operate as a waiver
by the Landlord of any right to proceed against the Tenant in respect of any
breach non-observance or non-performance by the Tenant of any of the
agreements stipulations and conditions herein contained and on the Tenant's
part to be observed and performed.
4 Acts of contractors servants agents licensees customers
For the purpose of these presents the negligence or act neglect default or
omission of any contractor servant agent licensee or customer of the Tenant
shall be deemed to be the negligence or act neglect default or omission of
the Tenant.
5 Distraint
For the purposes of distress for rent in terms of Part III of the Landlord
and Tenant (Consolidation) Ordinance (Cap.7) or any statutory modification or
re-enactment for the time being in force and of these presents the rent
payable in respect of the said premises shall be and be deemed to be in
arrears if not paid in advance at the times and in manner hereinbefore
provided for payment thereof.
6 Interest and legal costs
The Landlord shall have the right without prejudice to any other right or
remedy hereunder to charge interest at three per cent over the best lending
rate from time to time of The Hongkong & Shanghai Banking Corporation Limited
in respect of any payments to be made to the Landlord under Clauses 1 and 2
of Section II as shall be more than fourteen days in arrears and such
interest shall be payable from the date upon which such payment in arrears
fell due and not fourteen days thereafter. The Landlord shall further be
entitled to recover from the Tenant as a debt all Solicitors' and/or
Counsel's fees (on a solicitor and own client basis) and court fees incurred
by the Landlord for the purpose of recovering any rent in arrears and/or
other moneys
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<PAGE>
Section VIII/IX
unpaid or any part thereof from the Tenant or in enforcing any of the
provisions of this Agreement against the Tenant.
SECTION IX
DEPOSIT
1 Deposit
The Tenant shall on the signing hereof deposit with the Landlord the sum
specified as the deposit in the Schedule to secure the due observance and
performance by the Tenant of the agreements stipulations and conditions
herein contained and on the Tenant's part to be observed and performed. The
said deposit shall be retained by the Landlord throughout the said term free
of any interest to the Tenant and in the event of any breach or non-
observance or non-performance by the Tenant of any of the agreements
stipulations or conditions aforesaid the Landlord shall be entitled to
terminate this Agreement in which event the said deposit may be forfeited to
the Landlord by way of liquidated damages. Notwithstanding the foregoing the
Landlord may at its option elect not to terminate this Agreement but to
deduct from the deposit the amount of any monetary loss incurred by the
Landlord in consequence of the breach non-observance or non-performance by
the Tenant in which event the Tenant shall as a condition precedent to the
continuation of the tenancy deposit with the Landlord the amount so deducted
and if the Tenant shall fail so to do the Landlord shall forthwith be
entitled to re-enter on the said premises or any part thereof in the name of
the whole and to determine this Agreement in which event the deposit may be
forfeited to the Landlord as hereinbefore provided.
2 Increase in deposit
If there shall for whatever reason be any increase or increases in the rent
and/or rates and/or air-conditioning charge and/or service charge during the
said term the Tenant shall upon such increase becoming applicable pay to the
Landlord by way of an increase in the said deposit a sum proportional to the
said increase in rent rates air-conditioning charge and/or service charge and
the payment of such amount shall be a condition precedent to the continuation
of the tenancy.
3 Repayment of deposit
Subject as aforesaid the said deposit shall be refunded to the Tenant by the
Landlord without interest within thirty days after the expiration of this
Agreement and the delivery of vacant possession to the Landlord or within
thirty days of the settlement of the last outstanding claim by the Landlord
against the Tenant in respect of any breach non-observance or non-performance
of any of the agreements stipulations or conditions herein contained and on
the part of the Tenant to be observed and performed whichever is the later.
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<PAGE>
Section IX/X/XI
4 Transfer of deposit
On an assignment by the Landlord of its reversionary interest the Landlord
may transfer the said deposit to the assignee of the Landlord's reversion
(The "Assignee") subject to the Landlord procuring prior to the transfer a
covenant from the Assignee in favour of the Tenant that the Assignee shall
hold the said deposit upon and subject to the terms of this Section IX
whereupon the Landlord shall thereby be released from any and all further
obligations to the Tenant or otherwise in respect of the said deposit.
SECTION X
REGULATIONS
1 Introduction of Regulations
The Landlord reserves the right for itself and/or for the building manager
from time to time and by notice in writing to the Tenant to make and
introduce and subsequently amend adapt or abolish if necessary such
Regulations as it may consider necessary for the better operation and
management of the commercial part of the said building as office premises
and/or for the use of the carpark in the said building and/or its
recreational areas and outdoor facilities.
2 Conflict
Such Regulations shall be supplementary to the terms and conditions contained
in this Agreement and shall not in any way derogate from such terms and
conditions. In the event of conflict between such Regulations and the terms
and conditions of this Agreement the terms and conditions of this Agreement
shall prevail.
SECTION XI
MARKET RENTAL
1 Determination of market rental
In respect of each period of the said term in relation to which reference is
made to market rental the same shall be determined as follows:
1(1) During the penultimate month of the period immediately preceding the
period in question the Landlord shall notify the Tenant of the
Landlord's assessment of the market rental for the period in
question and the Tenant shall within fourteen days of such notice
lodge with the Landlord a written notice accepting or objecting to
the Landlord's assessment. If the Tenant shall fail to lodge such
notice within the time limit as aforesaid then the Landlord's
assessment shall
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<PAGE>
Section XI/XII
be and be deemed to be the market rental for the period in question.
1(2) If within fourteen days of the lodging of the Landlord's notice the
parties fail or are otherwise unable to agree the market rental for
the period in question either party may by notice in writing require
the same to be determined by arbitration.
1(3) The arbitration shall be held before a single arbitrator and shall
be conducted in accordance with the provisions of the Arbitration
Ordinance (Cap. 341) or any statutory amendment or modification
thereof for the time being in force.
1(4) The arbitrator shall be a chartered surveyor practicing in Hong Kong
to be appointed in default of agreement between the parties by the
Chairman for the time being of the Royal Institution of Chartered
Surveyors (Hong Kong Branch).
1(5) The arbitrator shall be required to determine the sum which in his
opinion represents a fair market rental for the said premises for
the period in question and such sum shall be and be deemed to be the
market rental for the period in question. Pending determination of
the arbitration the minimum rental specified in the Schedule hereto
for the period in question shall be payable. Upon determination of
the arbitration the rent for the period in question shall be
adjusted and any increase due by the Tenant shall be paid within
twenty one days.
1(6) The expenses of the arbitration shall be borne by the Tenant unless
the market rental determined by the arbitrator shall be less that
assessed by the Landlord in accordance with Clause 1(1) of this
Section XI in which case the expenses of the arbitration shall be
borne by the Landlord and the Tenant in equal shares and each party
shall bear its own costs.
SECTION XII
GENERAL
1 Landlord and tenant legislation
To the extent that the Tenant can lawfully so do the Tenant hereby expressly
agrees to deprive itself of all rights (if any) to protection against
eviction or ejectment afforded by any existing or future legislation from
time to time in force and applicable to the said premises or to this tenancy
and the Tenant agrees to deliver up vacant possession of the said premises to
the Landlord on the expiration or sooner termination of the tenancy hereby
created notwithstanding any rule of law or equity to the contrary.
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<PAGE>
Section XII
2 Condonation not a waiver
No condoning excusing or overlooking by the Landlord of any default breach or
non-observance or non-performance by the Tenant at any time or times of any
of the Tenant's obligations herein contained shall operate as a waiver of the
Landlord's rights hereunder in respect of any continuing or subsequent
default breach or non-observance or non-performance or so as to defeat or
affect in any way the rights and remedies of the Landlord hereunder in
respect of any such continuing or subsequent default or breach and no waiver
by the Landlord shall be inferred from or implied by anything done or omitted
by the Landlord unless expressed in writing and signed by the Landlord. Any
consent given by the Landlord shall operate as a consent only for the
particular matter to which it relates and in no way shall be considered as a
waiver or release of any of the provisions hereof nor shall it be construed
as dispensing with the necessity of obtaining the specific written consent of
the Landlord in the future unless expressly so provided.
3 Letting notices
During the three months immediately preceding the expiration of the said term
the Landlord shall be at liberty to affix and maintain without interference
upon any external part of the said premises a notice stating that the said
premises are to be let and such other information in connection therewith as
the Landlord shall reasonably require.
4 Service of notices
Any notice required to be served hereunder shall if to be served on the
Tenant be sufficiently served if addressed to the Tenant and sent by prepaid
post to or delivered at the said premises or the Tenant's last known place of
business or residence in Hong Kong and if to be served on the Landlord shall
be sufficiently served if addressed to the Landlord and sent by prepaid post
to or delivered at its registered office or any other address which the
Landlord may notify to the Tenant from time to time.
5 No fine
The Tenant acknowledges that no fine premium key money or other consideration
has been paid by the Tenant to the Landlord for the grant of this tenancy.
6 Exclusion of warranties
6(1) This Agreement sets out the full agreement reached between the
parties and no other representations have been made or warranties
given relating to the Landlord or the Tenant or the said building or
the said premises and if any such representation or warranty has
been made given or implied the same is hereby waived.
6(2) Nothing herein contained or implied nor any statement or
representation made by or on behalf of the Landlord prior to the
date hereof shall be taken to be a covenant warranty or
representation that the said premises can lawfully be
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<PAGE>
Section XII
used for the use specified herein.
7 Name of building
The Landlord reserves the right to name the said building with any such name
or style as it in its sole discretion may determine and at any time and from
time to time to change alter substitute or abandon any such name and without
compensation to the Tenant provided that the Landlord shall give the Tenant
and the Postal and other relevant Government Authorities not less than three
months notice of its intention so to do.
8 Stamp Duty and costs
The stamp duty and registration fees (if any) on this Agreement and its
counterpart shall be borne by the Landlord and the Tenant in equal shares and
each party shall pay its own legal costs (if any) of and incidental to the
preparation and completion of this Agreement.
9 Tenant's obligations not affected
This tenancy and the obligation of the Tenant to observe and perform the
covenants and agreements on the part of the Tenant herein contained shall in
no way be affected impaired or excused because the Landlord is unable to
fulfill or is delayed in fulfilling any of its obligations under this tenancy
or is unable to make or is delayed in making any repair addition alteration
or decoration or is unable to supply or is delayed in supplying any equipment
or service hereunder.
10 No enforcement of third party covenants
Nothing herein contained shall confer on the Tenant any right to the benefit
of or to enforce any covenant or agreement contained in any lease or tenancy
agreement or any other instrument relating to any other part or parts of the
said building or to any other premises belonging to the Landlord or limit or
affect the right of the Landlord to deal with the same now or at any time
hereafter in any manner which the Landlord may think appropriate and this
tenancy shall not be deemed to include and shall not operate to convey or let
to the Tenant any ways liberties privileges easements rights or advantages
whatsoever in through over or upon any land or premises adjoining or near to
the said premises except as herein expressly provided.
11 No implied covenants
11(1) The Landlord shall be under no obligation to provide or supply to
the Tenant or arrange for the same services or other things as the
Landlord may be providing or supplying or arranging to any other
part or parts of the said building or to any other premises
belonging to the Landlord or to the tenants or occupiers thereof,
nor to provide or supply or arrange for any services or other things
save those services or things which the Landlord hereinbefore
expressly covenants to provide or supply or arrange for.
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<PAGE>
Section XII
11(2) Notwithstanding anything in any provision contained in this tenancy
the Landlord shall not be liable to the Tenant nor shall the Tenant
have any claim against the Landlord in respect of any interruption
in any of the services or things which the Landlord provides or
supplies or arranges by reason of:
(i) any necessary inspection overhaul repair or maintenance of
any plant equipment installation or apparatus or damage
thereto or destruction thereof by reason of electrical
mechanical or other defect or breakdown, or
(ii) inclement conditions or shortage of fuel materials water or
labour, or
(iii) whole or partial failure or stoppage of any mains supply, or
(iv) any other circumstances of whatsoever nature beyond the
control of the Landlord or the building manager.
12 Changes in common areas
The Landlord shall be entitled at any time and from time to time to extend or
reduce the areas of the entrances landings staircases passages lobbies or
other parts of the said building intended for common use or to make or cause
to be made changes or alterations thereto for whatsoever reason as may be
determined by the Landlord without incurring any liability to the Tenant on
any account whatsoever.
13 Reservations
There is reserved to the Landlord and all other persons at any time
authorized by the Landlord or otherwise so entitled full right and liberty
at all times without the necessity of obtaining consent and without
compensation:
13(1) to enter upon and/or pass through the said premises for the purpose
of access to and egress from any part of the said building
(including without prejudice to the generality thereof the roof
plant rooms and meter rooms ducts shafts and lightwells) to which
access cannot be readily obtained without entry upon the said
premises, and
13(2) to enter upon and be in the said premises for the purpose of
carrying out any inspection repairs or maintenance of or other
necessary works to any services installations or facilities upon
over in through or under the said premises and serving other
premises within the said building where such work cannot reasonably
be carried out from outside the said premises, the persons
exercising such right causing as little inconvenience as reasonably
practicable and making good all damage thereby occasioned to the
said premises or anything thereon, and
13(3) to use the external surfaces of the walls windows window frames and
other parts of the said premises for the purposes of repairs
maintenance improvements and decoration (whether permanent or
seasonal) or otherwise
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<PAGE>
Section XII
together with the right to erect attach and retain scaffolding or
other structures as shall be convenient for such purposes.
14 Severance
If any part of any provision of this Agreement shall to any extent be invalid
or unenforceable the remainder of such provision and all other provisions of
this Agreement shall remain valid and enforceable to the fullest extent
permitted by law.
15 Tenant's effects
The Tenant hereby irrevocably appoints the Landlord as its agent to deal with
at the Tenant's risk and expense any of the Tenant's effects left on or about
the said premises for more than seven days after the end of the said term to
the intent that the Landlord may without liability to the Tenant dispose of
or destroy or otherwise deal with the same as the Landlord shall think fit.
16 Use of other premises
The Tenant shall not be entitled to complain about nor shall the Tenant have
any claim against the Landlord in respect of any alleged noise or nuisance or
interference with its user of the said premises due to any operations being
carried on in other parts of the said building, whether by the Landlord or
any other owner or by any of their respective tenants licensees or occupiers.
17 Deed of Mutual Covenant
If the Landlord shall at any time cease to be the sole registered owner of
the said Lot(s) and/or the said building the Landlord shall be at liberty to
enter into any deed(s) of mutual covenant and/or management agreement(s) in
relation to the said building as it sees fit provided that no such deed of
mutual covenant or management agreement shall contain any covenant term or
condition which shall unreasonably limit or restrict the proper use by the
Tenant of the said premises pursuant to and in accordance with the whole
provisions of this Tenancy Agreement.
18 Sale and redevelopment
If at any time during the tenancy hereby created the Landlord shall enter
into a contract for the sale of the said building or of any part thereof
which shall include the said premises or if the Landlord shall resolve to
redevelop the said building or any part thereof whether wholly by demolition
and rebuilding or otherwise, or partially by renovation, refurbishment or
otherwise (which intention so to redevelop shall be sufficiently evidenced by
a copy of a Resolution of its Directors certified to be a true and correct
copy by its Secretary) then in either of such events the Landlord shall be
entitled to give six clear calendar months' notice in writing expiring at the
end of any calendar month during the tenancy hereby created terminating this
Agreement and immediately upon the expiration of such notice this Agreement
and everything herein contained shall cease and be void but without prejudice
to the rights and remedies of either party against the other in respect of
any antecedent claim or breach of any of
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<PAGE>
Section XII
the agreements or stipulations herein set out.
19 Special conditions
AS WITNESS the hands of the parties hereto the day and year first above written.
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<PAGE>
SCHEDULE
--------
1. The Landlord means the registered owner of the said Lot (including where the
context so admits its successors and assigns) acting by its duty authorised
agent, Harriman Leasing Limited.
2. The Tenant means TYCO ASIA LIMITED
3. The said Lot means SECTION B OF KML NO. 11 & THE EXTENSION THERETO
4. The said building means WORLD SHIPPING CENTRE, HARBOUR CITY
5. The said premises means 12TH FLOOR
where shall be used for no purpose other than AS COMMERCIAL OFFICES ONLY
and the floor loading of which shall not exceed 60 lbs. per square foot.
6. The said term means the period commencing on the 1ST day of AUGUST 1995
and expiring on the 31ST day of JULY 1998
7. The rent means
(a) in respect of the period from the date of commencement of the said term
to the 31ST day of JULY 1998 the sum of Hong Kong Dollars
FIVE HUNDRED AND SIXTY THOUSAND FOUR HUNDRED AND EIGHTEEN
(HK$ 560,418.00 ) per calendar month, and
8. The air-conditioning charge means the sum payable from time to time for the
provision of air-conditioning services, being Hong Kong Dollars THIRTY SEVEN
THOUSAND NINE HUNDRED AND SIXTY THREE AND EIGHTY CENTS (HK$ 37,963.80) per
calendar month at the date of commencement of the said term, subject to
increase from time to time in accordance with the provisions of Clause 1(2)
of Section II.
9. The service charge means the sum payable from time to time for the provision
of building management services, being Hong Kong Dollars TWENTY FIVE THOUSAND
THREE HUNDRED AND NINE AND TWENTY CENTS (HK$ 25,309.20) per calendar
month at the date of commencement of the said term, subject to increase from
time to time in accordance with the provisions of Clause 1(2) of Section II.
10.The deposit means the sum of Hong Kong Dollars ONE MILLION NINE HUNDRED AND
FORTY TWO THOUSAND EIGHT HUNDRED AND FORTY EIGHT (HK$ 1,942,848.00) subject
to increase from time to time in accordance with the provisions of Clause 2
of Section IX.
11.The building manager means the person company or firm (if any) from time to
time responsible for the proper management of the said building pursuant to
any appointment either by the Landlord or under a deed of mutual covenant or
management agreement.
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<PAGE>
SIGNATURES
SIGNED by ) For and on behalf of
) HARRIMAN LEASING LIMITED
as the duly authorized agent )
for and on behalf of the ) /s/ Signature appears here
Landlord ) ................................
in the presence of: ) Director & General Manager
STEPHEN Y.H. LAU /s/ Stephen Lau
For and on behalf of
TYCO ASIA LIMITED
SIGNED by )
)
the Tenant/for and ) /s/ Signatures appear here
on the behalf of the Tenant ) ....................................
in the presence of: ) Authorized Signature(s)
KENNETH WORSDALE
MANAGING DIRECTOR
For and on behalf of
TYCO ASIA LIMITED
...............................
Authorized Signature(s)
LAM KIN KWOK
DIRECTOR OF FINANCE & ADMIN.
12/F WORLD SHIPPING CENTRE
HARBOUR CITY
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<PAGE>
ANNEXURES
[FLOOR PLAN OF WORLD SHIPPING CENTRE, SUITE NO. 1200 APPEARS HERE]
FOR IDENTIFICATION PURPOSES ONLY
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