UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 28, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from__________________ to __________________
Commission File Number: 0-15817
THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2849283
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices, including zip code)
(212) 376-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of outstanding shares of Common Stock as of October 7, 1999 was
46,565,092.
<PAGE>
THE TOPPS COMPANY, INC.
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Index Page
Condensed Consolidated Balance Sheets as of
August 28, 1999 and February 27, 1999 3
Condensed Consolidated Statements of Operations
for the thirteen and twenty-six weeks ended
August 28, 1999 and August 29, 1998 4
Condensed Consolidated Statements of Comprehensive
Income for the thirteen and twenty-six weeks ended
August 28, 1999 and August 29, 1998 5
Condensed Consolidated Statements of Cash Flows
for the twenty-six weeks ended August 28, 1999
and August 29, 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K 16
The condensed consolidated financial statements for the thirteen and twenty-six
weeks ended August 28, 1999 included herein have been reviewed by Deloitte &
Touche LLP, independent public accountants, in accordance with established
professional standards for such a review. The report of Deloitte & Touche LLP is
included on page 11.
2
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
August February
28, 1999 27, 1999
-------- --------
(amounts in thousands
except share data)
<TABLE>
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 57,090 $ 41,728
Accounts receivable - net ...................... 42,688 29,118
Inventories .................................... 16,536 16,221
Income tax receivable .......................... 212 269
Deferred tax assets ............................ 3,369 1,342
Prepaid expenses and other current assets ...... 3,860 4,860
--------- --------
TOTAL CURRENT ASSETS ....................... 123,755 93,538
--------- --------
PROPERTY, PLANT, & EQUIPMENT ..................... 14,340 13,045
Less: accumulated depreciation and amortization 6,357 5,616
--------- --------
NET PROPERTY, PLANT & EQUIPMENT ............ 7,983 7,429
--------- --------
INTANGIBLE ASSETS, net of accumulated
amortization of $42,002 and $40,693 ............ 58,898 60,207
OTHER ASSETS ..................................... 2,898 2,908
--------- --------
TOTAL ASSETS ............................... $ 193,534 $164,082
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable ............................... $ 12,820 $ 15,022
Accrued expenses and other liabilities ......... 52,318 38,051
Current portion of long-term debt .............. 10,367 10,625
Income taxes payable ........................... 7,889 4,921
--------- --------
TOTAL CURRENT LIABILITIES .................. 83,394 68,619
LONG-TERM DEBT, less current portion ............. -- 5,158
DEFERRED INCOME TAXES ............................ 4,495 5,143
OTHER LIABILITIES ................................ 8,486 7,938
--------- --------
TOTAL LIABILITIES .......................... 96,375 86,858
--------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share
authorized 10,000,000 shares, none issued
Common stock, par value $.01 per share,
authorized 100,000,000 shares;
issued 47,668,259 shares, less 1,102,500
shares in Treasury stock ..................... 477 475
Additional paid-in capital ..................... 17,390 16,841
Treasury stock, 1,102,500 shares ............... (8,881) (8,881)
Retained earnings .............................. 88,923 69,775
Cumulative foreign currency adjustment ......... (750) (986)
--------- --------
TOTAL STOCKHOLDERS'EQUITY .................... 97,159 77,224
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ..................................... $ 193,534 $164,082
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
3
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Thirteen weeks ended Twenty-six weeks ended
August August August August
28, 1999 29, 1998 28, 1999 29, 1998
-------- -------- -------- --------
(Amounts in thousands, except share data)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Net sales .................................. $ 80,391 $ 57,868 $ 165,332 $ 111,195
Cost of sales .............................. 43,105 32,563 90,299 64,211
--------- --------- --------- ---------
Gross profit on sales ................ 37,286 25,305 75,033 46,984
Other income (expense) ..................... 557 (197) 465 72
--------- --------- -------- ---------
37,843 25,108 75,498 47,056
Selling, general and administrative expenses 21,318 19,276 43,395 37,170
Gain on disposition of assets .............. -- 2,836 -- 3,876
--------- --------- --------- ---------
Income from operations ................ 16,525 8,668 32,103 13,762
Interest income (expense), net ............. 223 (226) 352 (591)
--------- --------- --------- ---------
Income before provision for income taxes ... 16,748 8,442 32,455 13,171
Provision for income taxes ................. 6,867 3,629 13,307 5,662
--------- --------- --------- ---------
Net income ............... $ 9,881 $ 4,813 $ 19,148 $ 7,509
========= ========= ========= =========
Net income per share - basic ................ $ 0.21 $ 0.10 $ 0.41 $ 0.16
- diluted .............. 0.21 0.10 0.40 0.16
Weighted average shares outstanding - basic 46,495,362 46,400,010 46,461,568 46,400,010
- diluted 47,541,323 46,723,151 47,295,484 46,727,217
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
4
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Thirteen weeks ended Twenty-six weeks ended
August August August August
28, 1999 29, 1998 28, 1999 29, 1998
-------- -------- -------- --------
(amounts in thousands)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Net income .................................. $ 9,881 $ 4,813 $ 19,148 $ 7,509
Currency translation adjustment ............. (170) (230) 236 352
------ ------ ------ ------
Comprehensive income ........................ $ 9,711 $ 4,583 $ 19,384 $ 7,861
====== ====== ====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
5
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Twenty-six weeks ended
August August
28, 1999 29, 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 19,148 $ 7,509
Add (subtract) non-cash items included in income:
Depreciation and amortization ....................... 2,225 2,316
Deferred taxes on income ............................ (2,674) 377
Gain on sale of property, plant and equipment ....... -- (3,876)
Net effect of changes in:
Receivables ......................................... (13,570) 17,285
Inventories ......................................... (314) 2,481
Income tax receivable ............................... 57 6,505
Prepaid expenses and other current assets ........... 997 (2,645)
Payables and other current liabilities .............. 15,031 (8,987)
Other ............................................... 667 842
-------- --------
Cash provided by operating activities ....... 21,567 21,807
-------- --------
Cash flows from investing activities:
Proceeds from disposition of property, plant and equipment -- 5,562
Additions to property, plant and equipment ............... (1,338) (335)
-------- --------
Cash provided (used) by investing activities . (1,338) 5,227
-------- --------
Cash flows from financing activities:
Reduction of debt ....................................... (5,417) (10,167)
Exercise of employee stock options ...................... 550 --
-------- --------
Cash provided (used) by financing activities (4,867) (10,167)
-------- --------
Net increase in cash ......................................... 15,362 16,867
Cash at beginning of year .................................... 41,728 22,153
-------- --------
Cash at end of period ........................................ $ 57,090 $ 39,020
======== ========
Interest paid ................................................ $ 603 $ 1,532
Income taxes paid ............................................ $ 4,330 $ 214
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
6
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED AUGUST 28, 1999
1. Basis of Presentation
The accompanying unaudited condensed interim consolidated financial
statements have been prepared by The Topps Company, Inc. and subsidiaries
(the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments, which are, in the opinion
of management, considered necessary for a fair presentation. These
statements do not include all information required by generally accepted
accounting principles to be included in a full set of financial statements.
Operating results for the thirteen weeks and twenty-six weeks ended August
28, 1999 and August 29, 1998 are not necessarily indicative of the results
that may be expected for the year ending February 26, 2000. For further
information refer to the consolidated financial statements and notes
thereto in the Company's annual report for the year ended February 27,
1999.
2. Quarterly Comparison
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of factors, including the timing
of product introductions and variations in shipping and production
scheduling requirements. Thus, annual sales and earnings amounts are
unlikely to consist of equal quarterly portions.
3. Inventories
(Unaudited)
August February
28, 1999 27, 1999
-------- --------
(amounts in thousands)
Raw materials $ 2,238 $ 2,097
Work in process 348 1,020
Finished products 13,950 13,104
------- -------
Total $ 16,536 $ 16,221
======= =======
4. Segment Information
Following is the breakdown of industry segments as required by SFAS No.
131. The Company has three reportable business segments: Collectible Sports
Products, Confectionery and Entertainment Products.
The Collectible Sports Products segment primarily consists of trading cards
featuring players from Major League Baseball, the National Basketball
Association, the National Football League and the National Hockey League as
well as sticker/album products featuring players from certain European
soccer leagues.
The Confectionery segment consists of a variety of lollipop products
including Ring Pop, Push Pop, Baby Bottle Pop and Flip Pop, the Bazooka
bubble gum line and other children's confectionery products.
7
<PAGE>
The Entertainment Products segment consists of trading cards, sticker/album
products and magazines utilizing licenses that feature elements from
popular films, television shows and other entertainment properties.
The Company's management evaluates the performance of each segment based
upon its contributed margin, which is net sales ( defined as gross sales
net of provisions for returns and discounts & allowances)less cost of
goods, product development costs, advertising and promotional costs and
obsolescence, but before unallocated general and administrative expenses
and manufacturing overhead, depreciation and amortization, other income
(expense), gains on disposition of assets and interest income (expense).
The Company does not allocate assets among its business segments and
therefore does not include a breakdown of assets or depreciation and
amortization by segment.
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
August August August August
28, 1999 29, 1998 28, 1999 29, 1998
-------- -------- -------- --------
(In thousand of dollars)
<S> <C> <C> <C> <C>
Net Sales
Collectible Sports Products ............... $ 29,721 $ 27,554 $ 70,029 $ 51,465
Confectionery ............................. 36,488 28,492 70,375 55,491
Entertainment Products .................... 14,182 1,822 24,928 4,239
--------- -------- --------- ---------
Total ..................................... $ 80,391 $ 57,868 $ 165,332 $ 111,195
========= ======== ========= =========
Contributed Margin
Collectible Sports Products ............... $ 11,534 $ 10,685 $ 27,712 $ 19,793
Confectionery ............................. 12,008 7,940 20,617 15,728
Entertainment Products .................... 7,168 535 12,197 889
--------- -------- --------- ---------
Total ..................................... $ 30,710 $ 19,160 $ 60,526 $ 36,410
========= ======== ========= =========
Reconciliation of contributed margin to
income before provision for income taxes:
Total contributed margin .................. $ 30,710 $ 19,160 $ 60,526 $ 36,410
Unallocated general and administrative
expenses and manufacturing overhead ..... (13,633) (11,977) (26,663) (24,280)
Depreciation & amortization ............... (1,109) (1,154) (2,225) (2,316)
Other income (expense) .................... 557 (197) 465 72
Gain on disposition of assets ............. -- 2,836 -- 3,876
--------- -------- --------- ---------
Income from operations .................... 16,525 8,668 32,103 13,762
Interest income (expense), net ............ 223 (226) 352 (591)
--------- -------- --------- ---------
Income before provision for income taxes .. $ 16,748 $ 8,442 $ 32,455 $ 13,171
========= ======== ========= =========
</TABLE>
8
<PAGE>
Beginning with the periods shown above, the Company has refined its methodology
for segment reporting. These refinements have resulted in changes in the
allocations of net sales among the segments and the transfer of certain labor
costs from unallocated general and administraive expenses and manufacturing
overhead to within confectionery contributed margin. These refinements do not
result in any change in previously-reported figures for net sales or net income.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Full Year Ended
May May February February
29, 1999 30, 1998 27, 1999 28, 1998
-------- -------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Net Sales
Collectible Sports Products ............ $ 40,308 $ 23,911 $ 124,855 $ 141,324
Confectionery .......................... 33,887 26,999 95,238 84,514
Entertainment Products ................. 10,746 2,417 9,321 15,412
--------- --------- --------- ---------
Total .................................. $ 84,941 $ 53,327 $ 229,414 $ 241,250
========= ========= ========= =========
Contributed Margin
Collectible Sports Products ............ $ 16,178 $ 9,108 $ 48,414 $ 40,326
Confectionery .......................... 8,609 7,788 24,736 16,496
Entertainment Products ................. 5,029 354 1,594 (1,668)
--------- --------- --------- ---------
Total .................................. $ 29,816 $ 17,250 $ 74,744 $ 55,154
========= ========= ========= =========
Reconciliation of contributed margin
to income before provision
for income taxes:
Total contributed margin ............... $ 29,816 $ 17,250 $ 74,744 $ 55,154
Unallocated general and
administrative expenses and
manufacturing overhead .............. (13,030) (12,303) (47,370) (49,508)
Depreciation & amortization ............ (1,116) (1,162) (4,871) (4,374)
Other income (expense) ................. (92) 269 676 390
Gain on disposition of assets .......... -- 1,040 3,479 (3,682)
--------- --------- --------- ---------
Income from operations ................. 15,578 5,094 26,658 (2,020)
Interest income (expense), net ......... 129 (365) (454) (1,585)
--------- --------- --------- ---------
Income before provision for income taxes $ 15,707 $ 4,729 $ 26,204 $ (3,605)
========= ========= ========= =========
</TABLE>
9
<PAGE>
In addition, business segment information for the third and fourth quarters of
Fiscal 1999 which has not been previously reported, is shown below.
<TABLE>
<S> <C> <C>
Thirteen Weeks Ended
February November
27, 1999 28, 1998
-------- --------
(In thousands of dollars)
Net Sales
Collectible Sports Products ............ $ 34,340 $ 39,050
Confectionery .......................... 15,825 23,922
Entertainment Products ................. 407 4,675
-------- --------
Total .................................. $ 50,572 $ 67,647
======== ========
Contributed Margin
Collectible Sports Products ............ $ 14,812 $ 13,809
Confectionery .......................... 3,279 5,729
Entertainment Products ................. (265) 970
-------- --------
Total .................................. $ 17,826 $ 20,508
======== ========
Reconciliation of contributed margin
to income before provision
for income taxes:
Total contributed margin ............... $ 17,826 $ 20,508
Unallocated general and administrative
expenses and manufacturing overhead .. (11,073) (12,017)
Depreciation & amortization ............ (1,399) (1,156)
Other income (expense) ................. 742 (138)
Gain on disposition of assets .......... (397) --
-------- --------
Income from operations ................. 5,699 7,197
Interest income (expense), net ......... 77 60
-------- --------
Income before provision for income taxes $ 5,776 $ 7,257
======== ========
</TABLE>
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
Board of Directors and Stockholders
The Topps Company, Inc.
We have made a review of the accompanying condensed consolidated balance sheet
of The Topps Company, Inc. and subsidiaries (the "Company") as of August 28,
1999, and the related condensed consolidated statements of operations and cash
flows for the thirteen week and twenty-six week periods ended August 28, 1999
and August 29, 1998, in accordance with the standards established by the
American Institute of Certified Public Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical procedures to financial data, and of making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of February 27,
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated April 2, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of February 27, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
September 22, 1999
New York, New York
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
Second Quarter of Fiscal 2000 (thirteen weeks ended August 28, 1999) compared to
- --------------------------------------------------------------------------------
Second Quarter of Fiscal 1999 (thirteen weeks ended August 29, 1998)
- --------------------------------------------------------------------------------
Net sales for the second quarter of fiscal 2000 increased 38.9% to $80.4 million
from $57.9 million for the same period last year. This was the result of
increases in each of the Company's three key business segments.
Net sales of collectible sports products, which consist of both sports cards and
sports sticker/album products, increased 7.9% to $29.7 million in the second
quarter of fiscal 2000 from $27.6 million in the comparable quarter last year.
This increase was largely the result of the timing of certain sports card
releases versus the prior year. Excluding the impact of timing, sales of sports
card products were virtually flat as increased sales of football and basketball
products were offset by lower sales of U.S. baseball and European soccer
products.
Net sales of confectionery products increased 28.1% in the second quarter of
this year to $36.5 million from $28.5 million in fiscal 1999. This growth was
the result of the continuing success of Baby Bottle Pop as well as increased
sales in the U.S. of Ring Pop and Push Pop.
Net sales of entertainment products, which consist of entertainment cards,
magazines and sticker/album products, increased to $14.2 million in the second
quarter of fiscal 2000 from $1.8 million in fiscal 1999. This was primarily the
result of the domestic introduction of Pokemon trading cards and the
international roll out of Star Wars sticker/album collections. Distribution of
Pokemon cards began during the last week of the period and accounted for
approximately $7 million in net sales and $0.05 of earnings per share in the
second quarter.
Gross profit as a percentage of net sales for the second quarter of fiscal 2000
increased to 46.4% as compared with 43.7% for the same period last year. This
margin improvement was the result of an increase in the percentage of
entertainment product sales, as well as the overall increase in revenues, which
resulted in the further leverage of fixed costs.
Other income (expense) (previously referred to as Royalties and other income and
expense), increased to $557,000 in the second quarter this year from an expense
of $197,000 last year. This was primarily the result of the recovery of VAT
(Value Added Tax) taxes in Mexico and France and the absence of foreign exchange
translation losses in Mexico.
Selling, general and administrative ("SG&A") expenses decreased as a percentage
of net sales to 26.5% in the second quarter of fiscal 2000 from 33.3% a year ago
as a result of the increase in sales. SG&A dollar spending increased to $21.3
million from $19.3 million due to higher advertising and marketing expenditures,
higher broker commissions as a result of the increase in confectionery sales and
the effect of an earlier accrual in connection with the Company's annual
incentive bonus plan.
Income from operations in the second quarter of fiscal 1999 included a $2.8
million gain on the sales of the Company's manufacturing plant in Cork, Ireland
and equipment from both the Cork, Ireland and Duryea, Pennsylvania facilities.
Interest income (expense), net increased to $223,000 in fiscal 2000 from
$(226,000) in fiscal 1999 due to a reduction in the Company's outstanding loan
balance and an increase in cash on hand.
The effective tax rate for the second quarter of fiscal 2000 was 41.0% versus an
effective rate of 43.0% for the same period a year ago.
12
<PAGE>
Net income for the second quarter of fiscal 2000 was $9.9 million, or $0.21 per
diluted share, as compared with $4.8 million, or $0.10 per diluted share, for
the same period last year.
First Half of Fiscal 2000 (twenty-six weeks ended August 28,1999) compared to
- --------------------------------------------------------------------------------
the First Half of Fiscal 1999 (twenty-six weeks ended August 29, 1998)
- --------------------------------------------------------------------------------
Net sales for the first half of fiscal 2000 increased 48.7% to $165.3 million
from $111.2 million for the same period last year. This was the result of
increases in each of the Company's three key segments.
Net sales of collectible sports products increased 36.1% to $70.0 million in the
first half of fiscal 2000 from $51.5 million in the comparable period last year.
This increase was the result of several factors including the shipment of
basketball card products which normally would have occurred in the fourth
quarter of fiscal 1999, but were delayed into fiscal 2000 due to the NBA
lockout. Higher baseball card sales (in part the result of the timing of
shipments), the Company's return to the NHL hockey market and increased sales of
football products also contributed to the increase. Sales of international
soccer sticker/album products were less this year than last.
Net sales of confectionery products increased 26.8% in the first half of this
year to $70.4 million from $55.5 million in fiscal 1999. This growth was the
result of the continuing success of Baby Bottle Pop which was introduced last
year, increased sales in the U.S. of Ring Pop and Push Pop and the roll out of
Bazooka Pop (the Company's new gum-filled lollipop). Confectionery sales in
Brazil were less this year than last as a result of the currency devaluation.
Net sales of entertainment products increased to $24.9 million in the first half
of fiscal 2000 from $4.2 million last year. This increase was primarily the
result of the sales of Star Wars products in the U.S. and abroad, as well as the
initial shipment of Pokemon cards at the end of the second quarter. WCW
wrestling cards also contributed to year-over-year growth.
Gross profit as a percentage of net sales for the first half of fiscal 2000
increased to 45.4% as compared with 42.3% for the same period last year. The
margin improvement was the result of the favorable product mix as well as the
increase in sales overall which resulted in the further leverage of fixed costs.
Other income (expense) (previously referred to as Royalties and other income and
expense), increased to $465,000 in the first half of this year from $72,000 last
year. This increase was primarily the result of the recovery of VAT taxes in
Mexico and France and the absence of foreign exchange translation losses in
Mexico.
Selling, general & administrative ("SG&A") expenses decreased as a percentage of
net sales to 26.2% in the first half of fiscal 2000 from 33.4% a year ago as a
result of higher sales. SG&A dollar spending increased to $43.4 million from
$37.2 million due to increases in advertising and marketing costs, higher broker
commissions as a result of the increase in confectionery sales and the timing of
an accrual for the incentive bonus program.
Income from operations in the first half of fiscal 1999 included a $3.9 million
gain on the sales of the Company's manufacturing plant in Cork, Ireland and
equipment from both the Cork, Ireland and Duryea, Pennsylvania facilities.
Interest income (expense), net increased to $352,000 in the first half of fiscal
2000 from $(591,000) last year due to a reduction in the Company's outstanding
loan balance and an increase in cash on hand.
The effective tax rate for the first six months of fiscal 2000 was 41.0% versus
43.0% for the comparable period last year.
13
<PAGE>
Net income for the first half of fiscal 2000 was $19.1 million, or $0.40 per
diluted share, compared with $7.5 million, or $0.16 per diluted share, for the
same period last year.
Liquidity and Capital Resources
- --------------------------------
In July 1995, the Company entered into a $65 million credit agreement with a
syndicate of eight banks in order to finance the acquisition of Topps Europe,
Ltd., formerly known as Merlin Publishing, Ltd., and to provide for working
capital and letter of credit needs. In May 1998, the Company refinanced this
facility with Chase Manhattan Bank. The new credit agreement included a term
loan in the aggregate amount of $25.0 million (which was used to repay the prior
loan) and a $9.5 million facility to cover letter of credit and revolver needs.
The letter of credit and revolver facility was increased to $12.5 million in
February 1999. Both the term loan and the letter of credit and revolver facility
expire on July 6, 2000. This credit agreement is secured by a pledge of the
Company's domestic trademarks and 65% of the stock of Topps Europe. Interest
rates are variable and a function of short-term indices. The credit agreement
contains restrictions and prohibitions of a nature generally found in loan
agreements of this type and requires the Company, among other things, to comply
with certain financial covenants, limits the Company's ability to repurchase its
shares, sell or acquire assets or borrow additional money and prohibits the
payment of dividends.
As of August 28, 1999, the Company had $57.1 million in cash, and $10.4 million
in debt under the term loan.
During the first six months of fiscal 2000, the Company's net increase in cash
and cash equivalents was $15.4 million versus $16.9 million in fiscal 1999. Cash
provided by operating activities in the first six months of this year was $21.6
million versus $21.8 million last year, as higher net income and an increase in
payables and other current liabilities were offset by an increase in
receivables, the absence of an income tax refund this year and a slight increase
in inventories versus a decrease in inventories last year. Cash provided by
(used by) investing activities this year reflects $1.3 million in capital
expenditures compared with $5.6 million in proceeds from the disposition of a
manufacturing facility and related equipment and $ 0.3 million in capital
expenditures last year. Cash used by financing activities reflects term loan
payments of $5.4 million this year versus term loan and revolver payments of
$10.2 million in the first half last year.
Management believes that, in light of the Company's borrowing capacity, cash on
hand as of August 28, 1999 and expected cash flow from operations, the Company
has adequate means to meet its working capital, capital expenditure, interest
and principal repayment requirements for the foreseeable future.
Year 2000
- ---------
The Year 2000 issue is the result of computer programs using only two digits to
identify a year in the date field. If not corrected, many systems could fail or
create erroneous results on January 1, 2000 by reading the date as January 1,
1900. Failure to fix this problem could result in systems failures or
miscalculations leading to disruption in the Company's operations.
The Company began work on Year 2000 issues in 1996. As of August 28, 1999, all
of the Company's mainframe programs have been reviewed for compliance. Where
necessary, programs have been fixed, tested and put into production. The Company
has also addressed the needs of its other systems such as personal computers,
customer and vendor systems, telephone systems and other electronic hardware.
Year 2000 compliance costs have not significantly affected and are not expected
to significantly affect the financial condition or results of operations of the
Company.
14
<PAGE>
The Company expects that its essential systems and business functions will be
Year 2000 compliant in all material respects in a timely manner. Given that the
Company's fiscal Year 2000 began on February 28, 1999, many essential operating
systems have already proven to be Year 2000 compliant. In a worst case scenario,
the Company believes that its essential processes could be handled manually.
The Company has contacted key vendors, customers and other third parties
regarding their Year 2000 readiness. Although no issues have been identified to
date, the Company will continue to monitor these relationships and will develop
contingency plans for dealing with risks, if necessary.
Cautionary Statements
- ---------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements of the Company made by or on behalf of the Company, whether oral or
written. Among the factors that could cause the Company's actual results to
differ materially from those indicated in any such forward statements are: (i)
the failure of certain of the Company's principal products, particularly sports
cards, entertainment cards, lollipops and sticker/album collections, to achieve
expected sales levels; (ii) weakness in sales of basketball products due to last
year's NBA lockout; (iii) quarterly fluctuations in results; (iv) the Company's
loss of important licensing arrangements; (v) a decrease in the popularity of
Pokemon licensed products without a corresponding increase in the popularity of
a replacement product; (vi) the Company's loss of important supply arrangements
with third parties; (vii) the loss of any of the Company's key customers or
distributors; (viii) further prolonged and material contraction in the trading
card industry as a whole; (ix) further declines in the sale of U.K. Premier
League sticker/album collections; (x) excessive returns of the Company's
products; (xi) an adverse outcome in the Rodriguez Action; (xii) civil unrest,
currency devaluation or political upheaval in certain foreign countries in which
the Company conducts business; (xiii) significant disruption to the Company's
operations due to Year 2000 failures; as well as other risks detailed from time
to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission.
15
<PAGE>
THE TOPPS COMPANY, INC.
PART II
OTHER INFORMATION
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K
10.37 Pokemon Merchandise License Agreement - U.S.
10.38 Pokemon Merchandise License Agreement - U.K.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOPPS COMPANY, INC.
-----------------------
REGISTRANT
/s/ Catherine Jessup
-----------------------
Vice President-Chief Financial
Officer
October 12, 1999
17
<PAGE>
Pokemon
Merchandise License Agreement
THIS MERCHANDISE LICENSE AGREEMENT by and between Nintendo of America Inc.,
4820 150th Avenue NE, Redmond, WA 98052 (hereinafter referred to as "Licensor")
and The Topps Company, Inc., One Whitehall Street, New York, NY 10004-2109
(hereinafter referred to as "Licensee") is made as of the latest date signed by
the parties.
THIS WILL CONFIRM OUR AGREEMENT AS FOLLOWS:
1. GRANT OF LICENSE: Subject to the terms and conditions of this Agreement,
Licensor grants to Licensee for the Term (defined herein), the license to use
the trademarks, copyrights, characters, designs, and likenesses described in
Schedule A (collectively called the "Property"), to be used solely in connection
with the manufacture, distribution, promotion, advertisement and sale of the
article(s) described in Schedule B (herein called the "Licensed Products"). This
license does not constitute and may not be used so as to imply the endorsement
of the Licensed Products by Licensor. The license granted herein is
non-exclusive; nothing herein shall be construed so as to prevent Licensor from
granting any other licenses for the Property or from using the Property in any
matter whatsoever.
2. TERRITORY: Licensee shall be entitled to use the license granted
hereunder only in the territory described in Schedule C (called the
"Territory"). If the Territory includes one or more countries in the European
Community, the Licensee agrees as follows (i) that it will not seek customers
outside the Terriroty for the Licensed Products; (ii) that it will not establish
outside the Territory any branch for the sale of the Licensed Products; and
(iii) that it will not maintain outside the Territory any distribution depot for
the Licensed Products; nothing in this sentence shall be deemed to prevent the
Licensee from fulfilling orders for the Licensed Products received from
unsolicited customers located in countries of the European Community outside the
Territory.
3. LICENSE PERIOD: The License granted hereunder shall be effective and
terminate as of the dates specified in Schedule D (the "Term"), unless sooner
terminated or renewed in accordance with the terms and conditions hereof.
4. PAYMENT:
(a) Rate. Licensee shall pay to Licensor as its royalty a sum equal to the
percentages set forth in Schedule E of all Net Sales (defined below) of the
Licensed Products by Licensee or any of its affiliated, associated or subsidiary
companies. The term "Net Sales" shall mean the gross amount of sales of Licensed
Products at the invoiced selling price, net normal and reasonable cash and
quantity discounts and returns for credit, not to exceed in the aggregate ten
percent (10%) of gross sales and returns for credit. No deduction shall be made
for uncollectible accounts or for costs incurred in manufacturing, selling,
distributing, advertising (including cooperative allowances). Licensee may
establish a reserve against anticipated return not to exceed twenty percent
(20%) of cumulative gross sales; provided, however, Licensee shall reconcile
such reserve within six months after any such reserve is taken.
(b) Minimum Royalties. Licensee shall pay to Licensor a minimum royalty
consisting of an advance payment to be applied against a minimum guarantee for
the Term, and in any renewal term ("Renewal Term") hereunder, in the amounts and
at the time specified in Schedule F. No part of any such minimum royalty shall
in any event be repayable to Licensee. Royalty payments which exceed the Term's
minimum royalty or any Renewal Term's minimum royalty shall not be credited
toward the next succeeding term's minimum royalty.
(c) Periodic Statements. Within thirty (30) days after the end of the
calendar quarter in which the initial shipment of Licensed Products is made, and
thereafter within thirty (30) days after the end of each calendar quarter,
Licensee shall furnish to Licensor (in a form to be supplied by Licensor, or in
the absence thereof, in a form acceptable to Licensor) complete and accurate
statements certified to be accurate by Licensee showing the number, description,
gross sales price, itemized deductions from gross sale price, and net sales
price of each Licensed Product sold by Licensee or any of its affiliated,
associated or subsidiary companies, and any returns made during the period,
<PAGE>
together with a computation of the royalties due. Licensee shall provide such
statements to Licensor whether or not any of the Licensed Products have been
sold during said period. All information shall be shown separately for each
country within the Territory. Licensee agrees that royalty reports will indicate
clearly (by name or character or similar description) the Licensed Products sold
and will be given in sufficient detail to enable Licensor to separate royalties
by Licensed Products. It is understood that timely rendering of all statements
required hereunder is essential under the terms of this Agreement.
(d) Royalty Payments. Licensee shall remit the royalties due in excess of
any previously paid advance sum for each calendar quarter within thirty (30)
days after the end of each calendar quarter, and payment shall be made with the
statement rendered for that quarter. Payment shall be in the currency set forth
in Schedule I. The receipt or acceptance by Licensor of any of the statements
hereunder, or any royalties paid hereunder, or the cashing of any royalty check
paid hereunder, shall not preclude Licensor from questioning the correctness
thereof at any time. In the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately be rectified
and the appropriate payment made by Licensee.
(e) Records and Audits. At its principal place of business, Licensee shall
keep and maintain accurate records of the transactions underlying the statements
to be furnished hereunder. Licensee shall allow representatives of Licensor
during office hours, upon reasonable notice and at reasonable intervals (not to
exceed two times per calendar year), to audit and make copies of such records
for the purpose of ascertaining the correctness of such statements. If any such
audit shall disclose any deficiency of five percent (5%) or more, Licensee shall
pay, in addition to such deficiency, the actual and reasonable cost of such
audit. Upon demand of Licensor, not to exceed two times per calendar year,
Licensee shall at its own expense furnish to Licensor a detailed statement
signed and verified by Licensee's chief financial officer showing the number,
description, gross sales price, itemized deductions from gross sales price and
net sales price of the Licensed Products covered by this Agreement distributed
and/or sold by Licensee (and any of its affiliated, associated, or subsidiary
companies) up to the date of Licensor's demand. All books of account and records
shall be kept available for at least three (3) years after the termination or
expiration of this Agreement.
(f) Payments. Until otherwise instructed in writing by Licensor, all
payments or royalties hereunder including advance payments and minimum
guarantees, shall be made payable to "Agent", as defined in Schedule J.
5. LICENSED PRODUCTS, QUALITY AND APPROVALS:
(a) General Quality. Licensee agrees that the Licensed Products shall: (i) be of
high standard and of such style, appearance and quality so as to protect and
enhance the Property and the goodwill pertaining thereto; (ii) meet Licensor's
quality standards and specifications, and (iii) be manufactured, sold,
distributed, advertised, and promoted in accordance with all applicable laws.
(b) Preapproval of Licensed Products & Related Materials. Before
distributing, selling, advertising, or promoting any of the Licensed Products,
Licensee shall furnish to Licensor, free of cost, for its written approval, the
following in the order listed: (i) sketches; (ii) finished artwork and final
proofs; (iii) pre-production samples or strike-offs; (iv) the number of
post-production samples of each Licensed Product as set forth in Schedule K; and
(v) all other finished cartons, labels, containers, packing and wrapping
material, and similar materials upon which the Property appears (collectively
the "Related Materials"). The Licensed Products and the Related Materials are
subject to the written approval of Licensor.
(c) Packaging/Components. Licensor shall have the right to approve how the
Property is packaged in assortments, and shall have the right to approve which
components of the Property shall be included in combination with other
components of the Property.
(d) Additional Samples. In addition to the samples provided to Licensor
pursuant to Paragraph 5(b), Licensor may request, from time to time, up to
twelve (12) samples per year, individual random samples of each Licensed Product
and the Related Materials.
<PAGE>
(e) Notices. Licensee shall cause to appear on or within each Licensed
Product and all Related materials the notice set forth in Schedule G, or other
notice specified by Licensor.
(f) Advertising, Promotional and Display Materials. Before finalizing,
using or distributing any advertising, promotional, display or other similar
materials bearing the Property, Licensee shall furnish same to Licensor for its
written approval.
(g) Approvals. With respect to all approvals by Licensor required under
this Paragraph 5, each item submitted by Licensee shall be deemed disapproved if
Licensee has not received the written approval of Licensor of the item in
question within twenty (20) days after its submission by Licensee to Licensor.
Nothing herein, however, shall be deemed to obligate Licensor to respond to any
such submission within the twenty (20) day period.
6. ARTWORK AND OWNERSHIP OF PROPERTY:
(a) Artwork. Licensor shall provide to Licensee, free of charge, one set of
digital artwork supplied on CD-ROM (depicting some, but not necessarily all, of
the Property) that Licensor generally makes available to its merchandise
licensees. All artwork and related material involving the Property,
notwithstanding their invention, creation, or use by Licensee, shall be and
remain the property of Licensor; and Licensor shall be entitled to use the same
and to license the use of same by others without restriction; provided, however,
that Licensor may not utilize or license to others the right to utilize the
Topps trademark without Topps' written permission.
(b) Ownership of Property. Licensee recognizes all of Licensor's rights and
interests in and to the Property, and that all use of the Property licensed
hereunder inures to the benefit of Licensor or its grantor(s). No right, title,
or interest, except the license interest granted by Paragraph 1 hereof, is
transferred by this Agreement. At the termination or expiration of this
Agreement, Licensee will be deemed to have assigned, transferred and conveyed to
Licensor or its grantor(s) all trademarks, service marks, trade dress,
copyrights, equities, goodwill, titles or other rights in and to the Property
which may have been obtained by Licensee or which may have vested in Licensee as
a result of its activities under this Agreement, and that Licensee will, at
Licensor's expense in connection with the preparation thereof, execute any
instruments reasonably requested by Licensor to confirm the foregoing. No
consideration other than the mutual covenants and consideration of this
Agreement shall be necessary for any such assignment, transfer or conveyance.
Licensor shall acquire no right, title or interest in or to any trademarks owned
by Licensee and used by Licensee in connection with the Property, which rights
shall be and remain those of Licensee.
7. DISTRIBUTION:
(a) Marketing Date. Licensee shall diligently and continuously manufacture,
sell, distribute, advertise, and promote the Licensed Products during the Term,
and shall make and maintain adequate arrangements for the distribution of the
Licensed Products. Licensee shall offer the Licensed Products for sale in
substantial quantities by the marketing date specified in Schedule H, with
delivery within a reasonable time thereafter, including at least one of the
Licensed Products in each of the categories listed in Schedule B. If, at any
time thereafter, Licensee for a period of three (3) consecutive months has
failed to sell any of the Licensed Products (or any class or category of the
Licensed Products) covered hereunder, Licensor, in addition to all other
remedies available to it hereunder, may terminate this license with respect to
such Licensed Products or class or category thereof which have not been so sold
during such period by giving written notice of termination to such effect to
Licensee, which shall become effective thirty (30) days thereafter.
(b) Sale/Distribution. With regard to the sale and distribution of the
Licensed Products covered by this Agreement, Licensee agrees as follows:
(i) Licensee shall sell and distribute the Licensed Products outright
and not on an approval or consignment;
<PAGE>
(ii) Licensee shall sell and distribute the Licensed Products to
specialty stores, and mass merchants for sale or distribution directly to
the public;
(iii) Except with the prior written consent of Licensor, Licensee
shall not directly or indirectly sell or distribute the Licensed Products
for Promotional Purposes (defined below).
Licensor specifically reserves the right unto itself to use,
manufacture, sell, and/or directly or indirectly distribute, or license
third parties to use, manufacture, sell and/or distribute, products similar
to or the same as the Licensed Products, which may use all, some, or none
of the Property, for Promotional Purposes. Promotional Purposes shall be
defined to include any of the following, regardless of whether the
product(s) is given away free or a fee is charged to the end consumer:
promotions including on-pack promotions, in-pack promotions, instant win
games, tours or exhibitions; and any other premium or promotion; any
giveaway; any sweepstakes or contest; any mail order; any movie, video, or
show, or record-related promotion, premium, or publicity; or any other
similar type of publicity. Licensee specifically acknowledges that Licensor
may exercise its rights contained in this paragraph concurrently with the
rights exercised to Licensee under this Agreement.
(iv) Except with the prior written consent of Licensor, Licensee will
not use, or knowingly permit the use of, the Licensed Product as a Premium
(defined herein). The term "Premium" includes, but is not limited to, free
or self-liquidating items offered to the public in conjunction with the
sale or promotion of a product or service, including traffic building or
continuity visits by the consumer/customer, or any similar scheme or
device, the prime intent of which is to use the Licensed Product(s) in such
a way as to promote, publicize and/or sell the products, services, or
business image of the third party company or manufacturer. "Premium" also
includes distribution of the Licensed Products for retail sale through
distribution channels offering earned discounts or "bonus" points based
upon the extent of usage of the offeror's product or service.
(v) In the event any sale is made at a special price to any of
Licensee's subsidiaries or to any other person, firm or corporation related
in any manner to Licensee, or its officers, directors, or major
stockholders, there shall be a royalty paid on such sales based upon the
price generally charged the trade by Licensee.
(c) Suggested Retail Price. Licensee agrees to keep Licensor, at Licensor's
request, advised of the wholesale and suggested retail prices at which Licensee
sells the Licensed Products covered hereunder.
(d) Sales to Licensor. Licensee agrees to sell to Licensor and/or
Licensor's Agent such reasonable quantities of the Licensed Products as Licensor
and/or Licensor's Agent shall request at as low a rate and on as good terms as
Licensee sells similar quantities of the Licensed Products to the general trade.
8. SHOPRO'S AND LICENSOR'S WARRANTY:
(a) The parties acknowledge that under the agreement between Licensor and
Shogakukan Production Co., Ltd. ("ShoPro") effective April 30, 1998, ShoPro
indemnifies and holds harmless Licensee from and against any and all claims,
damages, liabilities, costs and expenses, including reasonable attorneys' fees,
arising out of a breach by ShoPro of its representation and warranty that
Licensee's use of the Property (excluding trademarks), as provided herein, does
not infringe upon the intellectual property rights of any third party.
(b) With respect to the trademarks which are included under the definition
of Property in Schedule A, Licensor represents and warrants that, to the best of
its knowledge, the trademarks do not infringe upon the intellectual property
rights of any third party.
<PAGE>
(c) In addition, Licensor represents and warrants that, to the best of its
knowledge, it holds all such rights and interest in the Property as are required
to permit Licensor to enter into this Agreement and expressly warrants that
Licensor is authorized to enter into this Agreement.
9. PROTECTION OF LICENSOR'S RIGHTS: Licensee agrees to assist Licensor, as
Licensor's sole cost and expense, to the extent reasonably necessary to protect
Licensor's rights to the Property. Licensor or its grantor(s) may commence or
prosecute any claims or suits in their own name or, subject to Licensee's
consent, not to be unreasonably withheld, in the name of Licensee or join
Licensee as a party thereto. Licensee shall promptly notify Licensor in writing
of any infringements or imitations of the Property on Licensed Products similar
to those covered by this Agreement which may come to Licensee's attention, and
Licensor shall have the sole right to determine whether or not any action shall
be taken on account of such infringements or imitations. Licensee shall not
institute any suit or take any actions on account of any such infringements or
imitations without first obtaining the written consent of the Licensor.
10. INDEMNIFICATION BY LICENSEE: Licensee shall indemnify Licensor and shall
defend Licensor against, and hold Licensor harmless from, all claims,
liabilities, suits, losses, damages, and expenses (including reasonable
attorneys' fees) brought by a third party against Licensor arising out of or
relating to:
(a) any alleged or actual unauthorized use of any intellectual property
right (including, but without limitation, any copyright, patent, trademark, or
other intellectual property right) by Licensee in connection with the Licensed
Products (except for claims that the Property infringes any copyright, patent,
or trademark), or
(b) any alleged or actual defect in the Licensed Products (including, but
without limitation, any claim or product liability); or
(c) any alleged or actual act or omission by Licensee or Licensee's agents
or employees (whether wrongful, negligent, or otherwise) in connection with the
Licensed Products or this Agreement.
Licensor shall indemnify Licensee and shall defend Licensee against, and
hold Licensee harmless from all claims, liabilities, suits, losses, damages, and
expenses (including reasonable attorneys' fees) brought by a third party against
Licensee arising out of or relating to a breach by Licensor of any of the
representations or warranties provided by Licensor under this Agreement.
Notwithstanding this Paragraph 10, in no event shall Licensor's liability to
Licensee under this Agreement exceed the money actually received by Licensor
(excluding any portion of such money retained by Licensor's Agent) under this
Agreement.
As used in this paragraph, "Licensor" shall also include the grantor(s),
officers, directors, agents, and employees of Licensor, its subsidiaries, and
affiliates. This indemnity shall survive the termination or expiration of this
Agreement.
11. INSURANCE:
(a) Type of Insurance/Amount. During the Term and any Renewal Term,
Licensee shall obtain and maintain, at its own expense, comprehensive general
liability insurance (including products' liability insurance), from an insurance
company acceptable to Licensor, providing adequate protection for Licensee
against any claims, liabilities, suits, losses, damages and expenses arising out
of or relating to the circumstances set forth in Paragraph 10, in the amount of
U.S. Five Million and no/100 Dollars (U.S. $5,000,000) for products' liability
and U.S. One Million and no/100 Dollars for advertising and publishing
insurance, or the maximum amount available in the Territory, whichever is lower,
per incident or occurrence, with a reasonable deductible. If General Civil
Insurance is solely available in the Territory, during the Term and any Renewal
Term, Licensee shall obtain and maintain, at its own expense, a General Civil
Insurance Policy in accordance with the conditions specified in this
subparagraph; provided, however, if such General Civil Insurance does not
include products' liability coverage and products' liability coverage thereafter
becomes available in the Territory, Licensee shall immediately obtain such
products liability coverage through the remainder of the Term and any Renewal
Term. Such insurance shall remain in full force during the Term, any Renewal
Term, and for a period of three (3) years thereafter.
<PAGE>
(b) Certificate/Additional Insured. Simultaneously with the execution of
this Agreement, and thereafter as requested by Licensor, Licensee shall provide
Licensor and Agent with a certificate of insurance (the original or a
translation of which must be provided in English) evidencing such insurance.
Licensor and Agent shall be named as additional insureds on such insurance
coverage; provided, however, such requirement may be waived by Licensor if
Licensee submits a written opinion of Licensee's attorney or insurance agent
that such additional insured coverage is not available as a matter of law or
local practice.
12. DEFAULT AND TERMINATION: If a petition in bankruptcy is filed by or against
Licensee, or if Licensee becomes insolvent, or makes an assignment for the
benefit of its creditors or an arrangement pursuant to any bankruptcy law, or if
Licensee discontinues its business or if a receiver is appointed for it or its
business, to the fullest extent permitted by law at the time of the occurrence,
the license hereby granted shall automatically terminate forthwith without any
notice whatsoever being necessary. In the event this license is so terminated,
Licensee, its receivers, representatives, trustees, agents, administrators,
successors, and/or assigns shall have no right to sell, exploit, or in any way
deal with or in any Licensed Products or any Related Materials.
13. BREACH. If Licensee breaches any covenant or fails to perform any of its
obligations under the terms of this Agreement, Licensor shall have the right to
terminate the license hereby granted upon thirty (30) days' notice in writing,
except as otherwise provided herein, and except that with regard to any failure
or breach relating to copyright, trademark or service mark notices, monetary
payments or royalty statements, the notification period shall be fifteen (15)
days, and such termination shall become effective automatically (without any
obligation to serve any notice of termination or to accomplish any formality or
undertake any court proceeding) unless Licensee shall take reasonable steps to
completely remedy the failure or breach within either the fifteen (15) or thirty
(30) day period as appropriate. Termination of the license under the provisions
of this paragraph shall be without prejudice to any rights which Licensor may
otherwise have against Licensee. Upon termination of this license, all royalties
on sales theretofore made shall become immediately due and payable; no advances
against royalties shall be repayable; and the balance of any minimum royalty
shall be immediately due and payable. Furthermore, in the event that litigation
of any nature with respect to the performance by Licensee or Licensor of its
obligations hereunder is initiated, then and in such event, the prevailing
party's costs and expenses, including reasonable attorneys' fees, shall be
reimbursed promptly by the non-prevailing party to the prevailing party.
14. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Sixty (60) days before the
expiration of this license and, in the event of its termination, ten (10) days
after receipt of notice of termination or the happening of the event which
terminates this Agreement where no such notice is required, a statement showing
the number and description of Licensed Products covered by this Agreement on
hand or in process shall be furnished by Licensee to Licensor. Licensor shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such physical
inventory by Licensor shall forfeit Licensee's right to dispose of such
inventory, Licensor retaining all other legal and equitable rights Licensor may
have in the circumstances.
15. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION: After termination or
expiration of this Agreement, except as otherwise provided herein, Licensee may
dispose of Licensed Products covered by this Agreement which are on hand or in
process at the time notice of termination is received or upon the expiration
date, for the sell-off period set forth in Schedule L on a non-exclusive basis,
provided Licensee is not in breach or otherwise in default under this Agreement.
All applicable royalties shall be paid on Licensed Products sold during the
sell-off period within twenty (20) days following the expiration of the sell-off
period. Notwithstanding anything to the contrary herein, Licensee shall not
manufacture, sell, or dispose of any Licensed Products covered by this license
after its expiration or its termination based on the failure of Licensee to
comply with Paragraph 5.
16. EFFECT OF TERMINATION OR EXPIRATION: Upon and after the expiration or
termination of this license, all rights granted to Licensee hereunder shall
forthwith revert to Licensor, and Licensee will refrain from further use of the
Property or any further reference to it, direct or indirect, or anything deemed
by Licensor to be similar to the Property in connection with the manufacture,
sale, distribution, or promotion of Licensee's products, except as provided in
Paragraph 15.
<PAGE>
17. LICENSOR'S REMEDIES: Licensee acknowledges that its failure (except as
otherwise provided herein) to cease the manufacture, sale, distribution,
advertising, or promotion of the Licensed Products covered by this Agreement or
any class or category thereof at the termination or expiration of this Agreement
or any portion thereof may result in immediate and irreparable damage to
Licensor and to the rights of any subsequent licensee. Licensee acknowledges and
admits that there is no adequate remedy at law for such failure to cease
manufacture, sale, distribution, advertising, or promotion, and Licensee agrees
that in the event of such failure, Licensor shall be entitled to equitable
relief by way of temporary and permanent injunctions and such other and further
relief as any court of competent jurisdiction may deem just and proper.
18. NOTICES: All notices and statements required under this Agreement shall be
in writing addressed to the parties at the addresses above, unless notification
of a change of address is given in writing. The date of mailing shall be deemed
the date the notice or statement is given.
19. RELATIONSHIP BETWEEN THE PARTIES: Neither party shall represent itself as
the agent or legal representative of the other party for any purpose whatsoever,
and neither party shall have the right to create or assume any obligation of any
kind, express or implied, for or on behalf of the other party in any way
whatsoever. This Agreement shall not create or be deemed to create any agency,
partnership, or joint venture between the parties.
20. NO ASSIGNMENT OR SUBLICENSE: This Agreement shall not be assigned or
sublicensed by Licensee, except with the prior written consent of Licensor,
which consent shall not be unreasonably withheld, and shall not be assigned by
operation of law. Any assignment or sublicense in violation of the preceding
sentence shall be null and void. This Agreement may be assigned by Licensor upon
written notice to Licensee but without any consent, provided, however, that any
such assignment shall not release the Licensor from its obligations to the
Licensee under this Agreement. Subject to such restriction and to the
restriction against assignment by operation of law provided above, this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors and assigns. Nothing herein shall be deemed to prevent Licensee from
causing the Licensed Products to be manufactured by other parties, subject to
the terms and conditions of this Agreement. If any manufacturing of the Licensed
Products shall be conducted outside the Territory, Licensee shall advise
Licensor in advance of the name, address and manufacturing location and any
third party subcontractors shall sign the "Manufacturer's Agreement" set forth
in Exhibit A annexed hereto.
21. FORCE MAJEURE: The inability of Licensee to commence or complete its
obligations hereunder by the dates herein required resulting from delays caused
by strikes, picketing, insurrection, acts of God, war, emergencies, shortages,
or unavailability of materials, limitations imposed by exchange control
regulations or foreign investments regulations, or other causes beyond
Licensee's reasonable control, shall excuse performance during the continuation
thereof and extend the period for the performance of the obligations for the
period equal to the period(s) of any such delay(s). Notwithstanding the
foregoing, in the event performance by Licensee is suspended for three (3)
consecutive months in accordance with this Paragraph 21, then Licensor may, by
written notice to Licensee, elect to terminate this Agreement.
22. ENTIRE AGREEMENT: This Agreement is intended by the parties as a final and
complete expression of their agreement, and supersedes any and all prior and
contemporaneous agreements and understandings relating to it.
23. MODIFICATION AND WAIVER: This Agreement may not be modified and none of its
terms may be waived, except in writing signed by both parties. The failure of
either party to enforce, or the delay by either party in enforcing, any of its
rights shall not be deemed a continuing waiver or a modification of this
Agreement.
24. SEPARABILITY: If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving not less than ten (10) days'
written notice to Licensee.
<PAGE>
25. GOVERNING LAW/JURISDICTION: The parties agree that this Agreement shall be
governed by the laws of the State of Washington as to all matters, without
giving effect to the principles of conflicts of law. Licensor and Licensee agree
that any judicial proceeding brought against any of the parties to this
Agreement arising from this Agreement or any matter related hereto may be
brought in the State Court situated in Seattle, Washington or in the United
States District Court located in Seattle, Washington. Licensee, by execution of
this Agreement, hereby accepts for itself the non-exclusive jurisdiction of the
aforesaid courts. Licensee further appoints its counsel, Hutton Ingram Yuzek
Gainen Carroll and Bertolotti, Attn: David G. Ebert, Esq., 250 Park Avenue, New
York, NY 10017, as its agent to receive on its behalf service of process in any
such proceeding covered by Paragraph 25. The foregoing consent to jurisdiction
and appointment of agent for service of process shall not constitute a general
consent to service of process in the State of Washington for any purpose except
as provided in this Paragraph 25 and shall not be deemed to confer rights on any
person other than the parties to this Agreement.
26. PARAGRAPH HEADINGS: The headings of the paragraphs are for convenience only
and in no way limit or affect the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
LICENSOR: LICENSEE:
NINTENDO OF AMERICA INC.
By: Leisure Concepts, Inc. The Topps Company, Inc.
Merchandising Licensing Agent
By By
------------------------------ ----------------------------------
Al Kahn, Chief Executive Officer or Its
Joe Garrity, Chief Financial Officer
Date ________________________ Date ____________________________
<PAGE>
Pokemon
Merchandise License Agreement
SCHEDULE PAGE
Schedules Annexed to the License Agreement dated as of April 16, 1999, between
Nintendo of America Inc. ("Licensor") and The Topps Company, Inc. ("Licensee").
Schedule A: The Property: The following trademarks:Nintendo. The following
trademarks and characters and artwork associated
with the listed video game/story or audiovisual
work of the same name: Pokemon.
Schedule B: Licensed Products:Nonexclusive license for Trading cards; lollipops
with molded sticks, with and without special
treats in and around sticks.
Schedule C: Territory: U.S., its territories and possessions;
U.S. Military Installations and Canada
for trading cards/lollipops.
Latin/South America for lollipop distribution only
Schedule D: Term: April 16, 1999 through December 31, 2001
Renewal Term: Licensee shall have the option to renew this Agreement upon
the same terms and conditions for one two year term, such option exercisable by
written notice to Licensor to such effect at least thirty (30) days prior to the
end of the Term, provided that (i) Licensee is not in breach of this agreement
and (ii) during the Term, royalties paid or due to be paid by Licensee equal at
least $150,000. In the event of such exercise, said written notice shall be
accompanied by the requisite advance payment for the Renewal Term as provided in
Schedule F below.
Schedule E: Royalty Rate: [Information subject to request for confidential
treatment.]
Schedule F: Minimum Royalty during the Term:
Advance Payment: [Information subject to request for confidential
treatment.]
Minimum Guarantee (due by end of the term):
[Information subject to request for confidential treatment.]
Minimum Royalty during the Renewal Term:
Advance Payment (due on first day):
[Information subject to request for confidential treatment.]
Minimum Guarantee (due by end of the term):
[Information subject to request for confidential treatment.]
Schedule G: Notice:
For Merchandising:
@ [year of first use] Nintendo, Creatures, Game Freak (except
where a shortened version is required because of the nature of
the product, then @ [year of first use] Nintendo). All Rights
Reserved.
<PAGE>
Pokemon
Merchandise License Agreement
SCHEDULE PAGE
Schedule H: Marketing Date: Trading Cards [Information subject to request for
confidential treatment.]
Lollipops [Information subject to request for
confidential treatment.]
Ship Date: Trading Cards [Information subject to request for
confidential treatment.]
Lollipops [Information subject to request for
confidential treatment.]
Schedule I: Currency: U.S. Dollars
Schedule J: Agent's Name and Address:
Leisure Concepts, Inc.
1414 Avenue of the Americas, 6th Floor
New York, NY 10019
Schedule K: Number of Samples of Each Licensed Product: 20 of each
Schedule L: Sell-Off Period: 90 Days
Contract #3190
<PAGE>
EXHIBIT A
Manufacturer's Agreement
The Licensor: NINTENDO OF AMERICA INC.
The Licensee: Topps Co., Inc.
Contract No.: 3190
Expiration Date: License agreement and this Manufacturer's Agreement
(unless sooner terminated or extended) will expire on:
The Licensed Products:
The Property:
Name and address
of Manufacturer:
Territory of Manufacture:
Territory of Shipment:
In order to induce Licensor to consent to the manufacture of the Licensed
Products by the undersigned for the Licensee, the undersigned agrees that
(unless otherwise authorized by the Licensor, under a similar manufacturer's
agreement for another Licensee):
1) It will not manufacture the Licensed Products to the order of anyone but
the Licensee, will invoice only the Licensee and will not ship to anyone
other than the Licensee or Licensee's customers.
2) It will not subcontract production of the Licensed Products or components
which contain the Property without the prior written consent of the
Licensor.
3) It will not without the prior written consent of the Licensor manufacture
merchandise utilizing any of the copyrighted material and/or trademarks
owned by the Licensor other than the Licensed Products.
4) It will permit the authorized representative of the Licensor to inspect its
activities and premises, books of account and invoices relevant to the
manufacture and supply of the Licensed products.
5) It will not publish or cause the publication of pictures of the Licensed
Products in any publication or promotional material, nor advertise the fact
that it is permitted to manufacture the Licensed Products.
6) Upon expiration or termination of the License Agreement, or upon
notification by the Licensor, the undersigned manufacturer will immediately
cease manufacturing the Licensed Products and deliver to the Licensor or
its authorized representative evidence that the Property has been removed
from any molds, plates or other devices used to produce the Licensed
Products, or in the event removal is not practical or effective, that such
molds or plates have been destroyed.
Agreed to and accepted: Agreed to and accepted:
Manufacturer Nintendo of America Inc. ("Licensor")
By: Leisure Concepts, Inc.
Merchandising Licensing Agent
- ------------------------------ --------------------------------------------
By: Alfred R. Kahn, Chief Executive Officer or
Joseph P. Garrity, Chief Financial Officer
<PAGE>
Pokemon
Merchandise License Agreement
THIS MERCHANDISE LICENSE AGREEMENT by and between Nintendo of America Inc.,
4820 150th Avenue NE, Redmond, WA 98052 (hereinafter referred to as"Licensor")
and Topps Europe Ltd., 18 Vincent Avenue, Crownhill, Milton Keynes,
Buckinghamshire, MK8 QAW, England (hereinafter referred to as "Licensee") is
made as of the latest date signed by the parties.
THIS WILL CONFIRM OUR AGREEMENT AS FOLLOWS:
1. GRANT OF LICENSE: Subject to the terms and conditions of this Agreement,
Licensor grants to Licensee for the Term (defined herein), the license to use
the trademarks, copyrights, characters, designs, and likenesses described in
Schedule A (collectively called the "Property"), to be used solely in connection
with the manufacture, distribution, promotion, advertisement and sale of the
article(s) described in Schedule B (herein called the "Licensed Products"). This
license does not constitute and may not be used so as to imply the endorsement
of the Licensed Products by Licensor. The license granted herein is
non-exclusive; nothing herein shall be construed so as to prevent Licensor from
granting any other licenses for the Property or from using the Property in any
matter whatsoever.
2. TERRITORY: Licensee shall be entitled to use the license granted hereunder
only in the territory described in Schedule C (called the "Territory"). If the
Territory includes one or more countries in the European Community, the Licensee
agrees as follows (i) that it will not seek customers outside the Territory for
the Licensed Products; (ii) that it will not establish outside the Territory any
branch for the sale of the Licensed Products; and (iii) that it will not
maintain outside the Territory any distribution depot for the Licensed Products;
nothing in this sentence shall be deemed to prevent the Licensee from fulfilling
orders for the Licensed Products received from unsolicited customers located in
countries of the European Community outside the Territory.
3. LICENSE PERIOD: The License granted hereunder shall be effective and
terminate as of the dates specified in Schedule D (the "Term"), unless sooner
terminated or renewed in accordance with the terms and conditions hereof.
4. PAYMENT:
(a) Rate. Licensee shall pay to Licensor as its royalty a sum equal to the
percentages set forth in Schedule E of all Net Sales (defined below) of the
Licensed Products by Licensee or any of its affiliated, associated or subsidiary
companies. The term "Net Sales" shall mean the gross amount of sales of Licensed
Products at the invoiced selling price, net normal and reasonable cash and
quantity discounts and returns for credit, not to exceed in the aggregate ten
percent (10%) of gross sales and returns for credit. No deduction shall be made
for uncollectible accounts or for costs incurred in manufacturing, selling,
distributing, advertising (including cooperative allowances). Licensee may
establish a reserve against anticipated return not to exceed twenty percent
(20%) of cumulative gross sales; provided, however, Licensee shall reconcile
such reserve within six months after any such reserve is taken.
(b) Minimum Royalties. Licensee shall pay to Licensor a minimum royalty
consisting of an advance payment to be applied against a minimum guarantee for
the Term, and in any renewal term ("Renewal Term") hereunder, in the amounts and
at the time specified in Schedule F. No part of any such minimum royalty shall
in any event be repayable to Licensee. Royalty payments which exceed the Term's
minimum royalty or any Renewal Term's minimum royalty shall not be credited
toward the next succeeding term's minimum royalty.
(c) Periodic Statements. Within thirty (30) days after the end of the
calendar quarter in which the initial shipment of Licensed Products is made, and
thereafter within thirty (30) days after the end of each calendar quarter,
Licensee shall furnish to Licensor (in a form to be supplied by Licensor, or in
the absence thereof, in a form acceptable to Licensor) complete and accurate
statements certified to be accurate by Licensee showing the number, description,
gross sales price, itemized deductions from gross sale price, and net sales
price of each Licensed Product sold by Licensee or any of its affiliated,
associated or subsidiary companies, and any returns made during the period,
<PAGE>
together with a computation of the royalties due. Licensee shall provide such
statements to Licensor whether or not any of the Licensed Products have been
sold during said period. All information shall be shown separately for each
country within the Territory. Licensee agrees that royalty reports will indicate
clearly (by name or character or similar description) the Licensed Products sold
and will be given in sufficient detail to enable Licensor to separate royalties
by Licensed Products. It is understood that timely rendering of all statements
required hereunder is essential under the terms of this Agreement.
(d) Royalty Payments. Licensee shall remit the royalties due in excess of
any previously paid advance sum for each calendar quarter within thirty (30)
days after the end of each calendar quarter, and payment shall be made with the
statement rendered for that quarter. Payment shall be in the currency set forth
in Schedule I. The receipt or acceptance by Licensor of any of the statements
hereunder, or any royalties paid hereunder, or the cashing of any royalty check
paid hereunder, shall not preclude Licensor from questioning the correctness
thereof at any time. In the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately be rectified
and the appropriate payment made by Licensee.
(e) Records and Audits. At its principal place of business, Licensee shall
keep and maintain accurate records of the transactions underlying the statements
to be furnished hereunder. Licensee shall allow representatives of Licensor
during office hours, upon reasonable notice and at reasonable intervals (not to
exceed two times per calendar year), to audit and make copies of such records
for the purpose of ascertaining the correctness of such statements. If any such
audit shall disclose any deficiency of five percent (5%) or more, Licensee shall
pay, in addition to such deficiency, the actual and reasonable cost of such
audit. Upon demand of Licensor, not to exceed two times per calendar year,
Licensee shall at its own expense furnish to Licensor a detailed statement
signed and verified by Licensee's chief financial officer showing the number,
description, gross sales price, itemized deductions from gross sales price and
net sales price of the Licensed Products covered by this Agreement distributed
and/or sold by Licensee (and any of its affiliated, associated, or subsidiary
companies) up to the date of Licensor's demand. All books of account and records
shall be kept available for at least three (3) years after the termination or
expiration of this Agreement.
(f) Payments. Until otherwise instructed in writing by Licensor, all
payments or royalties hereunder including advance payments and minimum
guarantees, shall be made payable to "Agent", as defined in Schedule J.
5. LICENSED PRODUCTS, QUALITY AND APPROVALS:
(a) General Quality. Licensee agrees that the Licensed Products shall: (i)
be of high standard and of such style, appearance and quality so as to protect
and enhance the Property and the good will pertaining thereto; (ii) meet
Licensor's quality standards and specifications, and (iii) be manufactured,
sold, distributed, advertised, and promoted in accordance with all applicable
laws.
(b) Preapproval of Licensed Products & Related Materials. Before
distributing, selling, advertising, or promoting any of the Licensed Products,
Licensee shall furnish to Licensor, free of cost, for its written approval, the
following in the order listed: (i) sketches; (ii) finished artwork and final
proofs; (iii) pre-production samples or strike-offs; (iv) the number of
post-production samples of each Licensed Product as set forth in Schedule K; and
(v) all other finished cartons, labels, containers, packing and wrapping
material, and similar materials upon which the Property appears (collectively
the "Related Materials"). The Licensed Products and the Related Materials are
subject to the written approval of Licensor.
(c) Packaging/Components. Licensor shall have the right to approve how the
Property is packaged in assortments, and shall have the right to approve which
components of the Property shall be included in combination with other
components of the Property.
(d) Additional Samples. In addition to the samples provided to Licensor
pursuant to Paragraph 5(b), Licensor may request, from time to time, up to
twelve (12) samples per year, individual random samples of each Licensed Product
and the Related Materials.
<PAGE>
(e) Notices. Licensee shall cause to appear on or within each Licensed
Product and all Related materials the notice set forth in Schedule G, or other
notice specified by Licensor.
(f) Advertising, Promotional and Display Materials. Before finalizing,
using or distributing any advertising, promotional, display or other similar
materials bearing the Property, Licensee shall furnish same to Licensor for its
written approval.
(g) Approvals. With respect to all approvals by Licensor required under
this Paragraph 5, each item submitted by Licensee shall be deemed disapproved if
Licensee has not received the written approval of Licensor of the item in
question within twenty (20) days after its submission by Licensee to Licensor.
Nothing herein, however, shall be deemed to obligate Licensor to respond to any
such submission within the twenty (20) day period.
6. ARTWORK AND OWNERSHIP OF PROPERTY:
(a) Artwork. Licensor shall provide to Licensee, free of charge, one set of
digital artwork supplied on CD-ROM (depicting some, but not necessarily all, of
the Property) that Licensor generally makes available to its merchandise
licensees. All artwork and related material involving the Property,
notwithstanding their invention, creation, or use by Licensee, shall be and
remain the property of Licensor; and Licensor shall be entitled to use the same
and to license the use of same by others without restriction; provided, however,
that Licensor may not utilize or license to others the right to utilize the
Topps trademark without Topps' written permission.
(b) Ownership of Property. Licensee recognizes all of Licensor's rights and
interests in and to the Property, and that all use of the Property licensed
hereunder inures to the benefit of Licensor or its grantor(s). No right, title,
or interest, except the license interest granted by Paragraph 1 hereof, is
transferred by this Agreement. At the termination or expiration of this
Agreement, Licensee will be deemed to have assigned, transferred and conveyed to
Licensor or its grantor(s) all trademarks, service marks, trade dress,
copyrights, equities, good will, titles or other rights in and to the Property
which may have been obtained by Licensee or which may have vested in Licensee as
a result of its activities under this Agreement, and that Licensee will, at
Licensor's expense in connection with the preparation thereof, execute any
instruments reasonably requested by Licensor to confirm the foregoing. No
consideration other than the mutual covenants and consideration of this
Agreement shall be necessary for any such assignment, transfer or conveyance.
Licensor shall acquire no right, title or interest in or to any trademarks owned
by Licensee and used by Licensee in connection with the Property, which rights
shall be and remain those of Licensee.
7. DISTRIBUTION:
(a) Marketing Date. Licensee shall diligently and continuously manufacture,
sell, distribute, advertise, and promote the Licensed Products during the Term,
and shall make and maintain adequate arrangements for the distribution of the
Licensed Products. Licensee shall offer the Licensed Products for sale in
substantial quantities by the marketing date specified in Schedule H, with
delivery within a reasonable time thereafter, including at least one of the
Licensed Products in each of the categories listed in Schedule B. If, at any
time thereafter, Licensee for a period of three (3) consecutive months has
failed to sell any of the Licensed Products (or any class or category of the
Licensed Products) covered hereunder, Licensor, in addition to all other
remedies available to it hereunder, may terminate this license with respect to
such Licensed Products or class or category thereof which have not been so sold
during such period by giving written notice of termination to such effect to
Licensee, which shall become effective thirty (30) days thereafter.
(b) Sale/Distribution. With regard to the sale and distribution of the
Licensed Products covered by this Agreement, Licensee agrees as follows:
(i) Licensee shall sell and distribute the Licensed Products outright
and not on an approval or consignment;
<PAGE>
(ii) Licensee shall sell and distribute the Licensed Products to chain
stores, independent traders, supermarkets, specialist multiples, and mass
merchants for sale or distribution directly to the public, and may also
sell to catalog companies;
(iii) Except with the prior written consent of Licensor, Licensee
shall not directly or indirectly sell or distribute the Licensed Products
for Promotional Purposes (defined below).
Licensor specifically reserves the right unto itself to use,
manufacture, sell, and/or directly or indirectly distribute, or license
third parties to use, manufacture, sell and/or distribute, products similar
to or the same as the Licensed Products, which may use all, some, or none
of the Property, for Promotional Purposes. Promotional Purposes shall be
defined to include any of the following, regardless of whether the
product(s) is given away free or a fee is charged to the end consumer:
promotions including on-pack promotions, in-pack promotions, instant win
games, tours or exhibitions; and any other premium or promotion; any
giveaway; any sweepstakes or contest; any mail order; any movie, video, or
show, or record-related promotion, premium, or publicity; or any other
similar type of publicity. Licensee specifically acknowledges that Licensor
may exercise its rights contained in this paragraph concurrently with the
rights exercised to Licensee under this Agreement. Notwithstanding anything
in this Agreement to the contrary, Licensee may give-away sticker albums as
a marketing strategy to induce the sale of stickers and no royalty will be
due on such give-aways, provided, however, that Licensee receives no
compensation for such give-aways.
(iv) Except with the prior written consent of Licensor, Licensee will
not use, or knowingly permit the use of, the Licensed Product as a Premium
(defined herein). The term "Premium" includes, but is not limited to, free
or self-liquidating items offered to the public in conjunction with the
sale or promotion of a product or service, including traffic building or
continuity visits by the consumer/customer, or any similar scheme or
device, the prime intent of which is to use the Licensed Product(s) in such
a way as to promote, publicize and/or sell the products, services, or
business image of the third party company or manufacturer. "Premium" also
includes distribution of the Licensed Products for retail sale through
distribution channels offering earned discounts or "bonus" points based
upon the extent of usage of the offeror's product or service.
(v) In the event any sale is made at a special price to any of
Licensee's subsidiaries or to any other person, firm or corporation related
in any manner to Licensee, or its officers, directors, or major
stockholders, there shall be a royalty paid on such sales based upon the
price generally charged the trade by Licensee.
(d) Suggested Retail Price. Licensee agrees to keep Licensor, at Licensor's
request, advised of the wholesale and suggested retail prices at which Licensee
sells the Licensed Products covered hereunder.
(e) Sales to Licensor. Licensee agrees to sell to Licensor and/or
Licensor's Agent such reasonable quantities of the Licensed Products as Licensor
and/or Licensor's Agent shall request at as low a rate and on as good terms as
Licensee sells similar quantities of the Licensed Products to the general trade.
8. SHOPRO'S AND LICENSOR'S WARRANTY:
(a) The parties acknowledge that under the agreement between Licensor and
Shogakukan Production Co., Ltd. ("ShoPro') effective April 30, 1998, ShoPro
indemnifies and holds harmless Licensee from and against any and all claims,
damages, liabilities, costs and expenses, including reasonable attorneys' fees,
arising out of a breach by ShoPro of its representation and warranty that
Licensee's use of the Property (excluding trademarks), as provided herein, does
not infringe upon the intellectual property rights of any third party.
<PAGE>
(b) With respect to the trademarks which are included under the definition
of Property in Schedule A, Licensor represents and warrants that, to the best of
its knowledge, the trademarks do not infringe upon the intellectual property
rights of any third party.
(c) In addition, Licensor represents and warrants that, to the best of its
knowledge, it holds all such rights and interest in the Property as are required
to permit Licensor to enter into this Agreement and expressly warrants that
Licensor is authorized to enter into this Agreement.
9. PROTECTION OF LICENSOR'S RIGHTS: Licensee agrees to assist Licensor, as
Licensor's sole cost and expense, to the extent reasonably necessary to protect
Licensor's rights to the Property. Licensor or its grantor(s) may commence or
prosecute any claims or suits in their own name or, subject to Licensee's
consent, not to be unreasonably withheld, in the name of Licensee or join
Licensee as a party thereto. Licensee shall promptly notify Licensor in writing
of any infringements or imitations of the Property on Licensed Products similar
to those covered by this Agreement which may come to Licensee's attention, and
Licensor shall have the sole right to determine whether or not any action shall
be taken on account of such infringements or imitations. Licensee shall not
institute any suit or take any actions on account of any such infringements or
imitations without first obtaining the written consent of the Licensor.
10. INDEMNIFICATION BY LICENSEE: Licensee shall indemnify Licensor and shall
defend Licensor against, and hold Licensor harmless from, all claims,
liabilities, suits, losses, damages, and expenses (including reasonable
attorneys' fees) brought by a third party against Licensor arising out of or
relating to:
(a) any alleged or actual unauthorized use of any intellectual property
right (including, but without limitation, any copyright, patent, trademark, or
other intellectual property right) by Licensee in connection with the Licensed
Products (except for claims that the Property infringes any copyright, patent,
or trademark), or
(b) any alleged or actual defect in the Licensed Products (including, but
without limitation, any claim or product liability); or
(c) any alleged or actual act or omission by Licensee or Licensee's agents
or employees (whether wrongful, negligent, or otherwise) in connection with the
Licensed Products or this Agreement.
Licensor shall indemnify Licensee and shall defend Licensee against, and
hold Licensee harmless from all claims, liabilities, suits, losses, damages, and
expenses (including reasonable attorneys' fees) brought by a third party against
Licensee arising out of or relating to a breach by Licensor of any of the
representations or warranties provided by Licensor under this Agreement.
Notwithstanding this Paragraph 10, in no event shall Licensor's liability to
Licensee under this Agreement exceed the money actually received by Licensor
(excluding any portion of such money retained by Licensor's Agent) under this
Agreement.
As used in this paragraph, "Licensor" shall also include the grantor(s),
officers, directors, agents, and employees of Licensor, its subsidiaries, and
affiliates. This indemnity shall survive the termination or expiration of this
Agreement.
11. INSURANCE:
(a) Type of Insurance/Amount. During the Term and any Renewal Term,
Licensee shall obtain and maintain, at its own expense, comprehensive general
liability insurance (including products' liability insurance), from an insurance
company acceptable to Licensor, providing adequate protection for Licensee
against any claims, liabilities, suits, losses, damages and expenses arising out
of or relating to the circumstances set forth in Paragraph 10, in the amount of
U.S. Five Million and no/100 Dollars (U.S. $5,000,000) for products' liability
and U.S. One Million and no/100 Dollars for advertising and publishing
insurance, or the maximum amount available in the Territory, whichever is lower,
per incident or occurrence, with a reasonable deductible. If General Civil
Insurance is solely available in the Territory, during the Term and any Renewal
Term, Licensee shall obtain and maintain, at its own expense, a General Civil
Insurance Policy in accordance with the conditions specified in this
<PAGE>
subparagraph; provided, however, if such General Civil Insurance does not
include products' liability coverage and products' liability coverage thereafter
becomes available in the Territory, Licensee shall immediately obtain such
products liability coverage through the remainder of the Term and any Renewal
Term. Such insurance shall remain in full force during the Term, any Renewal
Term, and for a period of three (3) years thereafter.
(b) Certificate/Additional Insured. Simultaneously with the execution of
this Agreement, and thereafter as requested by Licensor, Licensee shall provide
Licensor and Agent with a certificate of insurance (the original or a
translation of which must be provided in English) evidencing such insurance.
Licensor and Agent shall be named as additional insureds on such insurance
coverage; provided, however, such requirement may be waived by Licensor if
Licensee submits a written opinion of Licensee's attorney or insurance agent
that such additional insured coverage is not available as a matter of law or
local practice.
12. DEFAULT AND TERMINATION: If a petition in bankruptcy is filed by or against
Licensee, or if Licensee becomes insolvent, or makes an assignment for the
benefit of its creditors or an arrangement pursuant to any bankruptcy law, or if
Licensee discontinues its business or if a receiver is appointed for it or its
business, to the fullest extent permitted by law at the time of the occurrence,
the license hereby granted shall automatically terminate forthwith without any
notice whatsoever being necessary. In the event this license is so terminated,
Licensee, its receivers, representatives, trustees, agents, administrators,
successors, and/or assigns shall have no right to sell, exploit, or in any way
deal with or in any Licensed Products or any Related Materials.
13. BREACH. If Licensee breaches any covenant or fails to perform any of its
obligations under the terms of this Agreement, Licensor shall have the right to
terminate the license hereby granted upon thirty (30) days' notice in writing,
except as otherwise provided herein, and except that with regard to any failure
or breach relating to copyright, trademark or service mark notices, monetary
payments or royalty statements, the notification period shall be fifteen (15)
days, and such termination shall become effective automatically (without any
obligation to serve any notice of termination or to accomplish any formality or
undertake any court proceeding) unless Licensee shall take reasonable steps to
completely remedy the failure or breach within either the fifteen (15) or thirty
(30) day period as appropriate. Termination of the license under the provisions
of this paragraph shall be without prejudice to any rights which Licensor may
otherwise have against Licensee. Upon termination of this license, all royalties
on sales theretofore made shall become immediately due and payable; no advances
against royalties shall be repayable; and the balance of any minimum royalty
shall be immediately due and payable. Furthermore, in the event that litigation
of any nature with respect to the performance by Licensee or Licensor of its
obligations hereunder is initiated, then and in such event, the prevailing
party's costs and expenses, including reasonable attorneys' fees, shall be
reimbursed promptly by the non-prevailing party to the prevailing party.
14. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Sixty (60) days before the
expiration of this license and, in the event of its termination, ten (10) days
after receipt of notice of termination or the happening of the event which
terminates this Agreement where no such notice is required, a statement showing
the number and description of Licensed Products covered by this Agreement on
hand or in process shall be furnished by Licensee to Licensor. Licensor shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such physical
inventory by Licensor shall forfeit Licensee's right to dispose of such
inventory, Licensor retaining all other legal and equitable rights Licensor may
have in the circumstances.
15. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION: After termination or
expiration of this Agreement, except as otherwise provided herein, Licensee may
dispose of Licensed Products covered by this Agreement which are on hand or in
process at the time notice of termination is received or upon the expiration
date, for the sell-off period set forth in Schedule L on a non-exclusive basis,
provided Licensee is not in breach or otherwise in default under this Agreement.
All applicable royalties shall be paid on Licensed Products sold during the
sell-off period within twenty (20) days following the expiration of the sell-off
period. Notwithstanding anything to the contrary herein, Licensee shall not
manufacture, sell, or dispose of any Licensed Products covered by this license
after its expiration or its termination based on the failure of Licensee to
comply with Paragraph 5.
<PAGE>
16. EFFECT OF TERMINATION OR EXPIRATION: Upon and after the expiration or
termination of this license, all rights granted to Licensee hereunder shall
forthwith revert to Licensor, and Licensee will refrain from further use of the
Property or any further reference to it, direct or indirect, or anything deemed
by Licensor to be similar to the Property in connection with the manufacture,
sale, distribution, or promotion of Licensee's products, except as provided in
Paragraph 15.
17. LICENSOR'S REMEDIES: Licensee acknowledges that its failure (except as
otherwise provided herein) to cease the manufacture, sale, distribution,
advertising, or promotion of the Licensed Products covered by this Agreement or
any class or category thereof at the termination or expiration of this Agreement
or any portion thereof may result in immediate and irreparable damage to
Licensor and to the rights of any subsequent licensee. Licensee acknowledges and
admits that there is no adequate remedy at law for such failure to cease
manufacture, sale, distribution, advertising, or promotion, and Licensee agrees
that in the event of such failure, Licensor shall be entitled to equitable
relief by way of temporary and permanent injunctions and such other and further
relief as any court of competent jurisdiction may deem just and proper.
18. NOTICES: All notices and statements required under this Agreement shall be
in writing addressed to the parties at the addresses above, unless notification
of a change of address is given in writing. The date of mailing shall be deemed
the date the notice or statement is given.
19. RELATIONSHIP BETWEEN THE PARTIES: Neither party shall represent itself as
the agent or legal representative of the other party for any purpose whatsoever,
and neither party shall have the right to create or assume any obligation of any
kind, express or implied, for or on behalf of the other party in any way
whatsoever. This Agreement shall not create or be deemed to create any agency,
partnership, or joint venture between the parties.
20. NO ASSIGNMENT OR SUBLICENSE: This Agreement shall not be assigned or
sublicensed by Licensee, except with the prior written consent of Licensor,
which consent shall not be unreasonably withheld, and shall not be assigned by
operation of law. Any assignment or sublicense in violation of the preceding
sentence shall be null and void. This Agreement may be assigned by Licensor upon
written notice to Licensee but without any consent, provided, however, that any
such assignment shall not release the Licensor from its obligations to the
Licensee under this Agreement. Subject to such restriction and to the
restriction against assignment by operation of law provided above, this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors and assigns. Nothing herein shall be deemed to prevent Licensee from
causing the Licensed Products to be manufactured by other parties, subject to
the terms and conditions of this Agreement. If any manufacturing of the Licensed
Products shall be conducted outside the Territory, Licensee shall advise
Licensor in advance of the name, address and manufacturing location and any
third party subcontractors shall sign the "Manufacturer's Agreement" set forth
in Exhibit A annexed hereto.
21. FORCE MAJEURE: The inability of Licensee to commence or complete its
obligations hereunder by the dates herein required resulting from delays caused
by strikes, picketing, insurrection, acts of God, war, emergencies, shortages,
or unavailability of materials, limitations imposed by exchange control
regulations or foreign investments regulations, or other causes beyond
Licensee's reasonable control, shall excuse performance during the continuation
thereof and extend the period for the performance of the obligations for the
period equal to the period(s) of any such delay(s). Notwithstanding the
foregoing, in the event performance by Licensee is suspended for three (3)
consecutive months in accordance with this Paragraph 21, then Licensor may, by
written notice to Licensee, elect to terminate this Agreement.
22. ENTIRE AGREEMENT: This Agreement is intended by the parties as a final and
complete expression of their agreement, and supersedes any and all prior and
contemporaneous agreements and understandings relating to it.
23. MODIFICATION AND WAIVER: This Agreement may not be modified and none of its
terms may be waived, except in writing signed by both parties. The failure of
either party to enforce, or the delay by either party in enforcing, any of its
rights shall not be deemed a continuing waiver or a modification of this
Agreement.
<PAGE>
24. SEPARABILITY: If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving not less than ten (10) days'
written notice to Licensee.
25. GOVERNING LAW/JURISDICTION: The parties agree that this Agreement shall be
governed by the laws of the State of Washington as to all matters, without
giving effect to the principles of conflicts of law. Licensor and Licensee agree
that any judicial proceeding brought against any of the parties to this
Agreement arising from this Agreement or any matter related hereto may be
brought in the State Court situated in Seattle, Washington or in the United
States District Court located in Seattle, Washington. Licensee, by execution of
this Agreement, hereby accepts for itself the non-exclusive jurisdiction of the
aforesaid courts. Licensee further appoints its counsel, Hutton Ingram Yuzek
Gainen Carroll and Bertolotti, Attn: David G. Ebert, Esq., 250 Park Avenue, New
York, NY 10017, as its agent to receive on its behalf service of process in any
such proceeding covered by Paragraph 25. The foregoing consent to jurisdiction
and appointment of agent for service of process shall not constitute a general
consent to service of process in the State of Washington for any purpose except
as provided in this Paragraph 25 and shall not be deemed to confer rights on any
person other than the parties to this Agreement.
26. PARAGRAPH HEADINGS: The headings of the paragraphs are for convenience only
and in no way limit or affect the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
LICENSOR: LICENSEE:
NINTENDO OF AMERICA INC.
By: Leisure Concepts, Inc. Topps Europe Ltd.
Merchandising Licensing Agent
By By
-------------------------------- ----------------------------------
Al Kahn, Chief Executive Officer or Its
Joe Garrity, Chief Financial Officer
Date __________________________ Date ___________________________
<PAGE>
Pokemon
Merchandise License Agreement
SCHEDULE PAGE
Schedules Annexed to the License Agreement dated as of June 4, 1999, between
Nintendo of America Inc. ("Licensor") and Topps Europe Ltd. ("Licensee").
Schedule A: The Property: The following trademarks: Nintendo. The following
trademarks and characters and artwork associated with the listed video
game/story or audiovisual work of the same name: Pokemon.
Schedule B: Licensed Products: Nonexclusive license for: 1. Stickers and Sticker
Albums; 2. Trading Cards; 3. Temporary tattoos; 4. Molded Plastic Novelties
containing hard sugar confectionery or pressed candy or chewing/bubble gum; 5.
Popzoid Lollipops - a molded plastic stick with character specific head
surrounded by clear hard candy; and 6. Treasure Pop Lollipops - a hollow plastic
handle which will contain plastic Pokemon novelties.
Licensor reserves the right to license strategy card games to third parties.
Schedule C: Territory: Australia, Austria, Bulgaria, Benelux, Armenia,
Azerbaydzhan, Albania, Belo Russia, Channel Islands, Croatia, Czechoslovakia,
Cyprus, EIRE, Estonia, France, Germany, Georgia, Gibraltar, Greece, Hungary,
Israel, Isle of Man, Italy, Latvia, Lithuania, Liechtenstein, Monaco, Malta, New
Zealand, Portugal, Poland, Romania, Russia, South Africa, Scandinavia, Slovakia,
Slovenia, San Marino, Spain, Switzerland, Turkey, United Kingdom, Vatican State
and Yugoslavia.
Schedule D: Term: June 4, 1999 through March 31, 2002
If the animated series, Pokemon, is not
broadcast, or the Nintendo Game Boy game,
Pokemon, is not released by December 31,
1999, the Term of the Agreement shall be
extended by one(1) year with no additional
advance or guarantee.
Renewal Term: N/A
Schedule E: Royalty Rate: [Information subject to request for
confidential treatment.]
All sales are to be reported by Territory.
Schedule F: Minimum Royalty during the Term:
Advance Payment: [Information subject to request for
confidential treatment.]
Minimum Guarantee (due by end of the term): [Information subject
to request for confidential treatment.]
Minimum Royalty during the Renewal Term:
Advance Payment (due on first day):[Information subject to
request for confidential treatment.]
Minimum Guarantee (due by end of the term): [Information subject
to request for confidential treatment.]
<PAGE>
Pokemon
Merchandise License Agreement
SCHEDULE PAGE
Schedule G: Notice:
For Merchandising:
@ [year of first use] Nintendo, Creatures, Game Freak (except
where a shortened version is required because of the nature of
the product, then @ [year of first use] Nintendo). All Rights
Reserved.
Schedule H: Marketing Date: [Information subject to request for confidential
treatment.]
Ship Date: [Information subject to request for confidential
treatment.]
Schedule I: Currency: U.S. Dollars
Schedule J: Agent's Name and Address:
Leisure Concepts, International (UK) Ltd.
Unit One, Alice Court
116 Putney Bridge Road
London SW15 2NQ
England
Schedule K: Number of Samples of Each Licensed Product: 20 of each
Schedule L: Sell-Off Period: 90 Days
Contract #20752
<PAGE>
EXHIBIT A
Manufacturer's Agreement
The Licensor: NINTENDO OF AMERICA INC.
The Licensee: Topps Europe Ltd.
Contract No.: 20752
Expiration Date: License agreement and this Manufacturer's Agreement
(unless sooner terminated or extended) will expire on:
The Licensed Products:
The Property:
Name and address
of Manufacturer:
Territory of Manufacture:
Territory of Shipment:
In order to induce Licensor to consent to the manufacture of the Licensed
Products by the undersigned for the Licensee, the undersigned agrees that
(unless otherwise authorized by the Licensor, under a similar manufacturer's
agreement for another Licensee):
7) It will not manufacture the Licensed Products to the order of anyone but
the Licensee, will invoice only the Licensee and will not ship to anyone
other than the Licensee or Licensee's customers.
8) It will not subcontract production of the Licensed Products or components
which contain the Property without the prior written consent of the
Licensor.
9) It will not without the prior written consent of the Licensor manufacture
merchandise utilizing any of the copyrighted material and/or trademarks
owned by the Licensor other than the Licensed Products.
10) It will permit the authorized representative of the Licensor to inspect its
activities and premises, books of account and invoices relevant to the
manufacture and supply of the Licensed products.
11) It will not publish or cause the publication of pictures of the Licensed
Products in any publication or promotional material, nor advertise the fact
that it is permitted to manufacture the Licensed Products.
12) Upon expiration or termination of the License Agreement, or upon
notification by the Licensor, the undersigned manufacturer will immediately
cease manufacturing the Licensed Products and deliver to the Licensor or
its authorized representative evidence that the Property has been removed
from any molds, plates or other devices used to produce the Licensed
Products, or in the event removal is not practical or effective, that such
molds or plates have been destroyed.
Agreed to and accepted: Agreed to and accepted:
Manufacturer Nintendo of America Inc. ("Licensor")
By: Leisure Concepts, Inc.
Merchandising Licensing Agent
- ---------------------------- ------------------------------------
By: Alfred R. Kahn, Chief Executive Officer or
Joseph P. Garrity, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
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<FISCAL-YEAR-END> Feb-26-2000
<PERIOD-START> May-30-1999
<PERIOD-END> Aug-28-1999
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<INVENTORY> 16,536
<CURRENT-ASSETS> 123,755
<PP&E> 14,340
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<TOTAL-ASSETS> 193,534
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<BONDS> 9,375
0
0
<COMMON> 477
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<TOTAL-LIABILITY-AND-EQUITY> 193,534
<SALES> 80,391
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<INTEREST-EXPENSE> 268
<INCOME-PRETAX> 16,748
<INCOME-TAX> 6,867
<INCOME-CONTINUING> 9,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,881
<EPS-BASIC> .21
<EPS-DILUTED> .21
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