<PAGE>
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 MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
----------------
COMMISSION FILE NUMBER 0-20612
----------------
JUST TOYS, INC.
(Exact Name of Registrant as specified in its Charter)
----------------
DELAWARE 13-3677074
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
50 WEST 23RD STREET, NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 645-6335
Indicate by check mark whether the Registrant (1) has filed all reports 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 aggregate number of the Registrant's shares outstanding on May 13, 1997 was
4,150,000 shares of Common Stock, par value $.01 per share
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1997
and 1996 (unaudited) and December 31, 1996............ 1
Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 1997 and 1996.... 2
Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 1997 and 1996.... 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 9
SIGNATURES........................................................ 11
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------------------- ------------
1997 1996 1996
------------- ------------- ------------
ASSETS (Unaudited)
Current Assets:
<S> <C> <C> <C>
Cash..................................................... $ 120,504 $ 430,725 $ 153,707
Accounts receivable, net of allowances of $732,000,
$875,000 and $603,000 (Note 2)........................... 60,800 881,142 287,578
Inventories (Note 3).................................. 4,475,589 2,735,097 4,113,300
Prepaid and refundable income taxes................... 41,776 24,368 28,914
Prepaid expenses and other current assets............. 1,342,555 932,598 1,118,128
------------ ------------ ----------
Total current assets................................. 6,041,224 5,003,930 5,701,627
Property and equipment, at cost, net of accumulated
depreciation and amortization.............................. 3,483,448 2,521,507 3,504,468
Goodwill, net of accumulated amortization................... 648,991 - 660,376
Property held for sale (Note 5)............................. - 2,907,340 -
Other assets................................................ 112,299 91,112 119,650
------------ ------------ ----------
TOTAL............................................. $ 10,285,962 $ 10,523,889 $9,986,121
============ ============ ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt (Note 5)............ $ - $ 360,000 $ -
Due to factor......................................... 909,663 - -
Accounts payable...................................... 1,927,393 885,994 1,622,532
Due RGA Accessories, Inc.............................. - 52,850 15,417
Accrued liabilities................................... 843,153 1,266,970 1,305,604
Deposit received for property held for sale (Note 5).. - 633,398 -
------------ ------------ --------------
Total current liabilities............................ 3,680,209 3,199,212 2,943,553
Long-term debt, less current portion (Note 5)............... - 1,796,000 -
Deferred income taxes....................................... 15,971 15,971 15,971
Series B Convertible Redeemable Preferred
Stock, 650,000 shares authorized,
538,243 shares issued and outstanding
(liquidation value $1,951,131)............................. 991,768 - 972,778
------------ ------------ -------------
Total liabilities and Series B Stock................. 4,687,948 5,011,183 3,932,302
------------ ------------ -------------
Commitments and contingencies...............................
STOCKHOLDERS' EQUITY
Stockholders' equity (Note 4):
Preferred stock, $1.00 par value, 1,000,000 shares
authorized:
Series A Convertible Redeemable Preferred
Stock, 150,000 shares authorized, 120,000
shares issued and outstanding (liquidation value
$120,000).......................................... $ 120,000 $ 120,000 $ 120,000
Common stock, par value $.01 per share, 15,000,000
shares authorized, 4,150,000 issued and outstanding.. 41,500 41,500 41,500
Additional paid-in capital................................. 29,795,768 29,795,768 29,795,768
Accumulated deficit................................... (24,359,254) (24,444,562) (23,903,449)
------------ ------------ --------------
Total stockholders' equity........................... 5,598,014 5,512,706 6,053,819
------------ ------------ --------------
TOTAL............................................. $ 10,285,962 $ 10,523,889 $ 9,986,121
============ ============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-1-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Net Sales......................................... $4,457,826 $4,173,874
Cost of goods sold................................ 2,743,769 2,764,143
---------- ----------
Gross profit...................................... 1,714,057 1,409,731
---------- ----------
Expenses:
Merchandising, selling, warehousing and
distribution................................... 904,041 810,560
Royalties...................................... 161,504 155,997
General and administrative..................... 954,595 892,570
---------- ----------
Total................................... 2,020,140 1,859,127
---------- ----------
Operating loss.................................... (306,083) (449,396)
---------- ----------
Other income (expenses):
Interest expense............................... (93,606) (121,452)
Interest and dividend income................... - 3,242
Other income................................... 674 72,395
---------- ----------
Net loss.......................................... (399,015) (495,211)
Preferred stock dividends and accretion (Note 4).. (56,790) -
---------- ----------
Net loss attributable to common stockholders...... $ (455,805) $ (495,211)
========== ==========
Weighted average common shares outstanding........ 4,150,000 4,150,000
========== ==========
Per share data:
Net loss attributable to common stockholders...... $ (0.11) $(0.12)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(399,015) $ (495,211)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................. 244,840 167,025
Changes in operating assets and
liabilities (net of the effects of acquisitions
in 1996):
(Increase) decrease in:
Accounts receivable......................... 226,778 898,456
Inventories................................. (362,289) 535,109
Prepaid and refundable income taxes.............. (12,862) 224,091
Prepaid expenses and other current assets... (224,427) (286,176)
Other assets................................ 7,351 (14,924)
Increase (decrease) in:
Accounts payable............................ 304,861 (1,039,473)
Due RGA Accessories, Inc.................... (15,417) 7,608
Accrued liabilities......................... (462,451) (315,791)
--------- -----------
Net cash used in operating activities......... (692,631) (319,286)
--------- -----------
Cash flows from investing activities:
Deposit received for property held for sale.......... - 633,398
Acquisition of property and equipment............ (212,435) (34,830)
--------- -----------
Net cash (used in) provided by investing
activities........................................ (212,435) 598,568
--------- -----------
Cash flows from financing activities:
Borrowings from factor........................... 909,663 -
Payment of long-term debt........................ - (90,000)
Dividends paid................................... (37,800) -
--------- -----------
Net cash provided by (used in) financing
activities................................... 871,863 (90,000)
--------- -----------
Net decrease (increase) in cash......................... (33,203) 189,282
Cash - beginning of period.............................. 153,707 241,443
--------- -----------
Cash - end of period.................................... $ 120,504 $ 430,725
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and Summary of Significant Accounting
Policies
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair presentation have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for a full year. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
(1) Loss per share attributable to common stockholders:
Loss per share attributable to common stockholders is based on the
weighted average number of shares and common share equivalents, if dilutive,
outstanding during each period. The preferred stock is not considered to be
common stock equivalents and assumed conversion would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. Statement 128
will not have a material impact on net loss per share for the three months
ended March 31, 1997 and 1996.
(2) Reclassifications
Certain previously reported amounts have been reclassified to conform
to the 1997 presentation and that of the Form 10-K for the year ended
December 31, 1996.
-4-
<PAGE>
Note 2 - Accounts Receivable
Accounts receivable and amounts due from factor consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
------------------- ------------------
1997 1996 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Accounts Receivable - factor......................... $ 2,254,732 $ 3,149,383 $ 3,897,562
Borrowings from factor............................... (2,254,732) (1,825,396) (3,649,628)
------------ ------------ -----------
Net due from factor.................................. 0 1,323,987 247,935
Accounts receivable - trade.......................... 792,800 432,155 642,643
------------ ------------ -----------
Total accounts receivable........................ 792,800 1,756,142 890,578
Less: Accounts receivable allowances................. (732,000) (875,000) (603,000)
------------ ------------ -----------
Total accounts receivable, net of
allowances....................................... $ 60,800 $ 881,142 $ 287,578
============ ============ ===========
Note 3 - Inventories
The inventories consist of the following:
<CAPTION>
March 31, December 31,
--------------------------- -------------
1997 1996 1996
(Unaudited)
<S> <C> <C> <C>
Finished goods....................................... $ 2,987,663 $ 1,526,496 $ 2,758,085
Material components and supplies..................... 1,487,926 1,208,601 1,355,215
------------ ------------ -----------
Total............................................. $ 4,475,589 $ 2,735,097 $ 4,113,300
============ ============ ===========
</TABLE>
Note 4 - Stockholders' Equity
Stockholders' equity consists of the following:
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
--------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996............................ $120,000 $41,500 $29,795,768 $(23,903,449) $ 6,053,819
Net loss (unaudited)................................. (399,015) (399,015)
Preferred Stock dividends and
accretion........................................... (56,790) (56,790)
Balance March 31, 1997 -------- ------- ----------- ------------- ------------
(unaudited)......................................... $120,000 $41,500 $29,795,768 $(24,359,254) $ 5,598,014
======== ======= =========== ============= ============
</TABLE>
-5-
<PAGE>
Note 5 - Property Held for Sale
Because the Company decided to sell its property in Hong Kong, the book
value of the property was written down in 1995 to reflect management's
estimate of the net proceeds from the sale. In March 1996, the Company
entered into a provisional sale agreement for the sale of this property.
The transaction closed on April 30, 1996.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales for the three months ended March 31, 1997 increased 6.8% to
$4,458,000 from $4,174,000 in the comparable period in 1996. Net sales of
the Company's Sports toys decreased 13.5% to $2,460,000 during the first
quarter of 1997 from $2,844,000 in the comparable period in 1996. This
decrease was offset by an increase in the Toys category of 57.7% to
$2,098,000 in the first three months of 1997 from $1,330,000 in the same
period of 1996. The increase in sales in the Toys category was primarily
attributable to product acceptance and increased sales from the doll
carriage and stroller line.
Gross profit increased 21.6% to $1,714,000 in the first quarter of 1997
from $1,410,000 in the comparable period in 1996. Gross profit as a
percentage of net sales was 38.5% for the three months ended March 31, 1997
compared to 33.8% for the three months ended March 31, 1996. This increase
resulted primarily from a change in product mix and a shift in product
distribution location.
The Company's net sales and gross margin, as a percentage of sales, is
dependent on its mix of business during a given time period. Variables
include such factors as whether merchandise is shipped from a domestic
warehouse or directly from the Orient, whether the merchandise is purchased
from overseas sources or is produced domestically and the specific blend of
products shipped to the Company's customers.
Merchandising, selling, warehousing and distribution expenses increased
11.5% to $904,000 for the first quarter of 1997 compared to $811,000 in the
comparable 1996 period. The increase in expenses is primarily attributable
to rental expense not incurred in the first quarter of 1996 relating to the
Company's Hong Kong operations (the Company having sold its Hong Kong
property in April 1996) and product development costs incurred in 1997 on
the two additional product lines acquired in 1996.
General and administrative expenses increased 6.9% to $955,000 for the
first quarter of 1997 from $893,000 in the comparable period in 1996 due to
an increase in noncash charges such as depreciation and amortization
associated with the acquisition by the Company of certain assets of Table
Toys, Inc. in June 1996.
Operating loss decreased to $306,000 in the three months ended March
31, 1997 from $449,000 in the comparable period in 1996.
Interest expense decreased to $94,000 in the three months ended March
31, 1997 as compared to $121,000 in the comparable period in 1996. This
decrease was due primarily to the termination of interest payments under the
mortgage discharged in connection with the sale of the Company's property in
Hong Kong in April 1996, which was partially offset by increased advances
under the Company's factoring arrangement.
-7-
<PAGE>
Because the Company decided to sell its property in Hong Kong, the book
value of the property was written down in 1995 to reflect management's
estimate of the net proceeds from the sale. In March 1996, the Company
entered into a provisional sale agreement for the sale of this property.
The transaction closed on April 30, 1996.
Net loss was $399,000 in the first quarter of 1997 as compared to
$495,000 in the comparable period in 1996. During the first quarter of
1997, the Company recorded the dividends paid on its preferred stock
outstanding and the accretion of the Series B Stock issued in 1996 to its
redemption value as a change in stockholder's equity and deducted these
expenses in computing net loss attributable to common stockholders. In the
first quarter of 1996, no material amounts of dividends were recorded. Net
loss per share attributable to common stockholders decreased to $0.11 per
share from $0.12 per share on 4,150,000 weighted average shares outstanding
in the three months ended March 31, 1997 and 1996, respectively.
OTHER INFORMATION
The business of the Company is characterized by customer order patterns
which vary from one year to the next largely because of the different levels
of consumer acceptance of a product line, product availability, marketing
strategies and inventory levels of retailers. The use of just-in-time/quick
response inventory techniques and replenishment programs by larger retailers
has resulted in fewer orders being placed in advance of shipment. This
distorts the comparisons of unshipped orders at any given date. The Company
expects both of these trends to continue. Additionally, it is a general
industry practice that orders are subject to amendment or cancellation by
customers prior to shipment. Therefore, comparisons of unshipped orders in
any specific period in any given year with those same periods in preceding
years are not necessarily indicative of sales for an entire year. The
Company's unshipped orders were approximately $1,363,000 at March 31, 1997
compared to approximately $1,536,000 at March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 1997 was $2,361,000 as
compared to $2,758,000 at December 31, 1996.
Inventory levels were $1,740,000 higher at March 31, 1997 compared with
March 31, 1996 due to the additional product lines acquired in 1996 and to
the shift in product distribution location during the first quarter of 1997
compared with the first quarter of 1996.
Cash used in investing activities was $212,000 in the period ended
March 31, 1997 which was primarily attributable to capital expenditures for
fixed assets, including molds and tooling for new products. Cash provided
by investing activities was $599,000 in the period ending March 31, 1996,
which was attributable to the deposit received on account of the sale of the
Company's Hong Kong property, partially offset by an investment in
equipment, molds and tooling for new products.
Cash provided by financing activities was $872,000 in the first three
months of 1997, primarily from borrowings from the Company's factor. Cash
used in financing activities was $90,000 in the first three months of 1996
which was used to repay the principal portion of the mortgage on the
Company's facility in Hong Kong.
-8-
<PAGE>
The Company's factoring agreement with Milberg Factors, Inc.
("Milberg") provides for advances equal to the lesser of 85% of total
accounts receivable or $5,000,000. The factoring charge is .65% of
receivables. Advances bear interest at the rate of prime plus one percent.
Milberg has also agreed to advance to the Company, at the Company's request,
the lesser of $2,000,000 or 50% of the Company's inventory located in the
United States. Such advances will also bear interest at the rate of prime
plus one percent. Additionally, the factoring arrangement with Milberg is
secured by a mortgage on the real property owned by the Company's
manufacturing subsidiary.
The Company believes that its cash flow from operations and available
borrowings will be adequate to meet its obligations for the ensuing year.
SEASONALITY
The toy industry is typically seasonal in nature due to the heavy
demand for toy products during the Christmas season, with the majority of
orders being placed during the first two-thirds of the year for shipment
during the third and fourth quarters, and with the majority of collections
from such sales being received in the fourth quarter.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Incorporation, incorporated by reference to Exhibit
3.1 to the Registration Statement on Form S-1 (File No. 33-50878).
3.2 Certificate of Amendment of Certificate of Incorporation
incorporated by reference to Exhibit 3.5 of the Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on
November 8, 1996 (the "1996 3rd Quarter 10-Q").
3.3 Certificate of Designations, Preferences and Rights of the Series
A Convertible Redeemable Preferred Stock (included in Exhibit 4.1
hereof).
3.4 Certificate of Designations, Preferences and Rights of the Series
B Convertible Redeemable Preferred Stock (included in Exhibit 4.2
hereof).
3.5 Amended and Restated By-laws incorporated by reference to Exhibit
3.4 to the 1996 3rd Quarter 10-Q.
4.1 Certificate of Designations, Preferences and Rights of the Series
A Convertible Redeemable Preferred Stock, incorporated by
reference to Exhibit 4 of the Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 7, 1995.
-9-
<PAGE>
4.2 Certificate of Designations, Preferences and Rights of the Series
B Convertible Redeemable Preferred Stock, incorporated by
reference to Exhibit 3.2 of the Current Report on From 8-K filed
with the Securities and Exchange Commission on July 10, 1996 (the
"July 1996 Form 8-K").
4.3 Form of Warrant, dated June 26, 1995, issued to various parties in
respect of the aggregate of 60,000 shares of the Company's Common
Stock, incorporated by reference to Exhibit 4.2 of the July 1996
Form 8-K.
*4.4 Stock Option granted to Morton J. Levy dated December 5,
1996.
*10.1 Agreement dated December 5, 1996 between Just Toys, Inc. and
Morton J. Levy.
+27 Financial Data Schedule
__________________________
* Filed herewith
+ Filed with the Securities and Exchange Commission only pursuant to
Article 5 of Regulation S-X.
(b) Reports on Form 8-K -- None
-10-
<PAGE>
SIGNATURES
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.
Dated: May 14, 1997
JUST TOYS, INC.,
a Delaware corporation
By: /s/ Morton J. Levy
------------------------------------
Morton J. Levy
Chief Executive Officer
By: /s/ David Schwartz
------------------------------------
David Schwartz
Chief Financial Officer and
Principal Accounting Officer
-11-
<PAGE>
Exhibit 4.4
JUST TOYS, INC.
STOCK OPTION
OPTION dated this 5th day of December 1996 (the "Effective Date"),
granted by Just Toys, Inc., a Delaware corporation (hereinafter the
"Company"), to Morton J. Levy (the "Holder").
WHEREAS, the Company desires to afford the Holder the opportunity to
purchase shares of its Common Stock, par value $.01 per share (the "Common
Stock"), as hereinafter provided; and
WHEREAS, on December 5, 1996, the Board of Directors authorized the
grant of the option conferred hereby to the Holder.
NOW, THEREFORE, in consideration of the foregoing premises, the Company
hereby agrees as follows:
1. Grant of Option. The Company hereby grants to the Holder an
---------------
option (the "Option") to purchase up to an aggregate of 50,000 shares of
Common Stock (such number of shares being subject to adjustment as provided
in paragraph 5 hereof) on the terms and subject to the conditions
hereinafter set forth. The Holder shall not have any of the rights of a
shareholder of the Company with respect to the shares of Common Stock
covered by the Option except to the extent that one or more certificates for
such shares shall be delivered to him upon the due exercise of the Option.
2. Purchase Price. The purchase price per share of the shares of
--------------
Common Stock to be issued upon exercise of the Option shall be the closing
price of a share of the Common Stock on the Nasdaq National Market on the
Effective Date.
3. Expiration Date; Vesting of Option. (a) Subject to the provisions
----------------------------------
of paragraph 5 hereof, the Option shall expire at 5:00 P.M. New York time on
December 4, 2006 (the "Expiration Date"), and any portion of the Option
remaining unexercised after such time shall be cancelled without further
notice or action.
(b) The Option may be exercised in full or in installments at any
time after the Effective Date and prior to the Expiration Date.
4. Non-Transferability. The Option, and the rights and privileges
-------------------
conferred hereby, are not transferable by the Holder other than by will or
under the laws of descent and distribution. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of
<PAGE>
the Option contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option, shall render the Option null
and void.
5. Adjustments. (a) New option rights may be substituted for the
-----------
Option, or the Company's duties as to the Option may be assumed, by a
corporation other than the Company, or by a parent or subsidiary of the
Company or such corporation, in connection with any merger, consolidation,
acquisition, separation, reorganization, liquidation or like occurrence in
which the Company is involved. Notwithstanding the foregoing or the
provisions of Sections 5.1(b) and (c) hereof, in the event such corporation,
or parent or subsidiary of the Company or such corporation, does not
substitute new option rights for and substantially equivalent to, the
Option, or assume the Option, the Option shall terminate and thereupon
become null and void (i) upon dissolution or liquidation of the Company, or
similar occurrence, (ii) upon any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will
not be a surviving entity or (iii) upon a transfer of substantially all of
the assets of the Company or more than 80% of the outstanding shares of
Common Stock in a single transaction; provided, however, that the Holder
shall have the right immediately prior to or concurrently with such
dissolution, liquidation, merger, consolidation, acquisition, separation,
reorganization or similar occurrence, to exercise any unexpired portion of
the Option whether or not then exercisable.
(b) The existence the Option shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation
of the Company, or any issuance of Common Stock or subscription rights
thereto, or any merger or consolidation of the Company, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting
the Common Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(c) In the event that the Stock Option Committee (the "Committee")
of the Company's Board of Directors determines that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities,
or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other corporate transaction or event affects
the Common Stock such that an adjustment is determined by the Committee to
be appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Option, then
the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number of shares of Common Stock subject to the Option and
(ii) the exercise price with respect to the Option or, if deemed
appropriate, make provision for a cash payment to the Holder. Without
limiting the generality of the foregoing, any such adjustment shall be
deemed to have prevented any dilution and enlargement of the Holder's rights
if the Holder receives in any such adjustment rights
-2-
<PAGE>
which are substantially similar (after taking into account the fact that the
Holder has not paid the applicable exercise price) to the rights the Holder
would have received had he exercised the Option and become a shareholder of
the Company immediately prior to the event giving rise to such adjustment.
(d) Adjustments and elections under this Section 5 shall be made
by the Committee whose determination as to what adjustments, if any, shall
be made and the extent thereof shall be final, binding and conclusive.
6. Securities Regulations. (a) If at any time the Company's Board of
----------------------
Directors shall in its discretion determine that the listing, registration
or qualification of the shares of Common Stock subject to the Option upon
any securities exchange or under any federal or state law, or the approval
or consent of any governmental regulatory body, is necessary or desirable in
connection with the issuance or purchase of such shares hereunder, the
Option shall not be exercisable in whole or in part unless such listing,
registration, qualification, approval or consent shall have been effected or
obtained free from any conditions not reasonably acceptable to the Company's
Board of Directors.
(b) Unless at the time of the exercise of the Option and the
issuance of the shares of Common Stock purchased by the Holder pursuant
thereto there shall be in effect as to such shares a Registration Statement
under the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations of the Securities and Exchange Commission (the "Commission"),
the Holder shall deliver to the Company at the time of exercise, a
certificate in a form reasonably satisfactory to the Company and/or counsel
to the Company (i) acknowledging that the shares of Common Stock so acquired
may be "restricted securities" within the meaning of Rule 144 promulgated
under the Act; (ii) certifying that he is acquiring the shares of Common
Stock issuable to him upon such exercise for the purpose of investment and
not with a view to their sale or distribution; and (iii) containing the
Holder's agreement that such shares of Common Stock may not be sold or
otherwise disposed of except in accordance with applicable provisions of the
Act. The Company shall not be required to issue or deliver certificates for
shares of Common Stock until there shall have been compliance with all
applicable laws, rules and regulations, including rules and regulations of
the Commission.
7. Loans and Financial Accommodations to Holder. (a) In order to
--------------------------------------------
assist the Holder with the acquisition of shares of Common Stock pursuant to
the exercise of the Option, including the payment of any taxes resulting
from such exercise, the Committee may, in its discretion authorize (i) the
extension of a loan to the Holder by the Company, (ii) the payment by the
Holder of the purchase price of such shares in installments, (iii) the
guarantee by the Company of a loan obtained by the Holder from a third party
or (iv) such other reasonable arrangements to facilitate the exercise of the
Option in accordance with applicable law.
(b) The Committee or the Board of Directors shall determine the
terms of any loan or guarantee made pursuant hereto, including the interest
rate and other terms of repayment thereof, and whether such loan or
guarantee shall be secured or unsecured. Each loan shall be
-3-
<PAGE>
evidenced by a promissory note having a maximum term to maturity of not more
than sixty (60) months. The maximum amount of any loan or guarantee shall
be the option price for shares purchased upon exercise of the Option plus
(i) related interest payments and (ii) the amount of tax liability incurred
by the Holder as a result of the exercise of the Option. No amount loaned
to the Holder and no amount the repayment of which is guaranteed by the
Company shall be used for any purpose other than payment of (i) the purchase
price of shares acquired upon the exercise of the Option, (ii) taxes
attributable to such exercise and (iii) interest.
8. Method of Exercising Option. (a) The Option (or installments
---------------------------
thereof) may be exercised by executing and delivering an Option Exercise
Notice in the form attached hereto as Exhibit A. Such notice shall be
---------
accompanied by payment of the full purchase price as follows: (i) in cash
(including check, bank draft or money order) payable to the order of the
Company or (ii) at the discretion of the Committee, by delivering to the
Company shares of Common Stock already owned by the Holder, and having a
fair market value (as defined in paragraph 8(b)) on the date of exercise
equal to the option price or a combination of such shares and cash, or (iii)
by any other proper method specifically approved by the Committee.
(b) For the purpose of any computation under paragraph 8(a) of
the fair market value per share of Common Stock, such value shall be deemed
to mean (i) if the of Common Stock is quoted on the Nasdaq National Market
System or listed on a national securities exchange, the closing price on
such market or such exchange, (ii) if the of Common Stock is not quoted on
the Nasdaq National Market System or listed on a national securities
exchange, the mean between the closing bid and asked prices of publicly-
traded shares of Common Stock in the over-the-counter market as reported on
the Nasdaq system or by any nationally recognized quotation service selected
by the Company, or (iii) if the Common Stock is not then publicly-traded, as
determined, in good faith, by the Committee, on the date of exercise of the
Option, or if such date shall not be a day during which shares of Common
Stock were traded, then on the next date immediately preceding such date
during which such trades were effected.
(c) If the Option should be exercised in part only, the Company
shall, upon surrender of the Option for cancellation, execute and deliver a
new option evidencing the rights of the Holder to purchase the balance of
the shares of Common Stock purchasable hereunder. All shares purchased
hereunder shall be deemed to be fully paid and non-assessable.
9. Conditions to Issuance of Shares. The Company shall not be
--------------------------------
required to issue any certificate for shares of Common Stock purchased upon
the exercise of the Option unless such shares are at the time of such
exercise listed on the Nasdaq National Market or any national securities
exchange on which the Common Stock may then be listed.
10. General. (a) The Option shall be construed in accordance with
-------
the laws of the State of New York and shall be binding upon the Company and
inure to the benefit of the Holder and any successors of the business of the
Company, but, except as provided for herein, neither the Option nor any
rights or privileges conferred hereunder shall be assignable by the Holder.
-4-
<PAGE>
(b) The Company may establish from time to time, appropriate
procedures to provide for payment or withholding of such income or other
taxes as may be required by law to be paid or withheld in connection with
the exercise of the Option. The Holder shall pay the Company all such
amounts requested by the Company to permit the Company to take any deduction
available to it resulting from the exercise of the Option. The Company may
also establish, from time to time, appropriate procedures to ensure that the
Company receives prompt advice concerning the occurrence of any event which
may create, or affect the timing or amount of, any obligation to pay or
withhold any such taxes or which may make available to the Company any tax
deduction resulting from the occurrence of such event, and the Holder will
comply with all such procedures so established.
IN WITNESS WHEREOF, the Company has caused the Option to be duly
executed by its duly authorized officer, on the day and year first above
written.
JUST TOYS, INC.
By: /s/ Barry Shapiro
-----------------
Barry Shapiro
President and Chief Operating Officer
Agreed to and Accepted:
/s/ Morton J. Levy
------------------
Morton J. Levy
-5-
<PAGE>
EXHIBIT A
---------
FORM OF OPTION EXERCISE NOTICE
------------------------------
____________ __, ____
Just Toys, Inc.
50 West 23rd Street
New York, New York 10010
Attention: President
Ladies and Gentlemen:
The undersigned hereby irrevocably elects to exercise the within
Option to the extent of purchasing ________ shares of Common Stock at
$__________ per share for an aggregate purchase price of
$__________________. Enclosed is payment of the purchase price as follows
(check applicable box):
[ ] 1. Payment in Cash.
Check, bank draft or money order in the aggregate amount of the
exercise price, payable to Just Toys, Inc.
[ ] 2. Payment with Common Stock or Common Stock and Cash.
(a) Delivery of Certificate No.(s)__________ representing ________
shares of Common Stock, duly endorsed to Just Toys, Inc. The
shares of Common Stock evidenced by such certificate have been
valued at $_______ per share, in accordance with Section 8(b)
of the Option. I understand that if the enclosed certificate
represents more full shares of Common Stock than are necessary
to cover the exercise price, the Company will deliver to the
undersigned a certificate covering the excess number of full
shares.
(b) Check, bank draft or money order for the remaining exercise
price of $__________, payable to Just Toys, Inc. (required if
a fractional share is involved or if payment is being made
only partly with Common Stock).
Please have the certificate representing said shares forwarded to
me as indicated below.
A-1
<PAGE>
Instructions: PLEASE PRINT YOUR NAME BELOW (FIRST, MIDDLE
-------------
INITIAL, LAST). If joint tenancy is requested, please mark the box below
and list both names in full.
Mr._________________ Soc. Sec. # __________________
Mrs.________________ Soc. Sec. # __________________
Miss________________ Soc. Sec. # __________________
Ms._________________ Soc. Sec. # __________________
Joint Tenancy [ ]
Street Address _______________________________________
City ________________ State ___________ Zip Code _____
Very truly yours,
- -
________________________
(Signature)
________________________
(Signature)
A-2
<PAGE>
Exhibit 10.1
[Just Toys, Inc. Letterhead]
December 5, 1996
Mr. Morton J. Levy
Just Toys, Inc.
50 West 23rd Street
New York, NY 10010
Dear Morton:
I am pleased to confirm the arrangements made with the Board of
Directors concerning your relinquishing the helm as Chief Executive Officer
of the Company.
1. Until June 30, 1997 you will continue to serve as both Chief
Executive Officer and as Chairman of the Board at a base salary at the rate
of $225,000 per annum. In addition, with respect to the 1997 bonus pool
established by the Company's Board of Directors, you will receive one-half
of the amount you would have been entitled to had you been employed by the
Company for all of 1997.
2. On July 1, 1997 you will relinquish the post of Chief
Executive Officer and thereafter you will continue to serve as Chairman of
the Board and make yourself reasonably available to render advice and
assistance to the Company upon reasonable prior notice from the Company.
For such services the Company will pay you at the rate of: $100,000 per
annum during the period from July 1, 1997 through December 31, 1997; $75,000
per annum during the period from January 1, 1998 through December 31, 1998;
and $50,000 per annum during the period from January 1, 1999 through
December 31, 1999. In the event of your death, payments will be made to
your estate or as designated in your will.
3. Through December 31, 1999, the Company will provide you with
the use of an office, private telephone and secretarial services.
4. The Company will grant to you the following fully vested and
exercisable ten year options to purchase shares of the Company's common
stock, par value $.01 per share ("Common Stock"): i) on December 5, 1996, an
option to purchase up to 50,000 shares of Common Stock at an exercise price
of $1.50 per share; and ii) on June 30, 1997, an option to purchase up to
50,000 shares of Common Stock at an exercise price equal to the closing
price of the Common Stock on the Nasdaq National Market on such date. The
December 5, 1996
<PAGE>
Mr. Morton J. Levy -2- December 5, 1996
option is delivered to you concurrently herewith. The June 30, 1997 option
will be delivered to you on such date in substantially the form of the
December 5, 1996 option.
Please acknowledge your agreement with the terms set forth in this
letter by signing a copy of this letter below under the words "Agreed to and
Accepted" and returning it to the Company.
Sincerely,
JUST TOYS, INC.
By: /s/ Barry Shaprio
-------------------------------------
Barry Shapiro
President and Chief Operating Officer
Agreed to and Accepted:
/s/ Morton J. Levy
--------------------
Morton J. Levy
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 120504
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<RECEIVABLES> 792800
<ALLOWANCES> 732000
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<COMMON> 41500
<OTHER-SE> 5436514
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<SALES> 4457826
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<CGS> 2743769
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<OTHER-EXPENSES> (674)
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<INTEREST-EXPENSE> 93606
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