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Item 9A. Controls and Procedures

2021-03-19 compared with 2020-05-13 · 188 added, 348 removed, 927 unchanged (37% of the section changed)

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In November 2019, our stockholders approved the Company’s Amended and Restated Certificate of Incorporation, which divided the Board of Directors into three classes, as nearly equal in number as possible with one class standing for election each year for a three-year term.

At our 2020 Annual Meeting we will be electing directors pursuant to a class system, directors in Class I will be elected to a one-year term and directors in Class II will be elected to a two-year term.

At our 2020 Annual Meeting we elected directors pursuant to a class system, directors in Class I were elected to a one-year term and directors in Class II were elected to a two-year term.

The directors in Class III were designated and identified in the Certificate of Designations with their initial terms expiring at the annual meeting of our stockholders to be held in 2023, and thereafter the directors in Class III will be elected to a three-year term solely by the holders of our Series A Senior Preferred Stock and the common stockholders have no right to vote with respect to the election of such Class III directors.

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Any such director elected in accordance with our Second Amended and Restated By-laws to fill a vacancy on our Board of Directors will serve in accordance with our Second Amended and Restated By-laws until the next election of the class for which such director shall have been chosen and until his or her successor is elected and qualified or until his or her earlier death, disability, retirement, resignation or removal.

In our 2020 Annual Meeting we will identify Messrs.

Berman and Zhao as Class I Directors, and Messrs.

Shoghi, Cascade and Ms.

Levine as Class II Directors.

Axelrod and Winkler have been established as Class III Directors in the Certificate of Designations.

Berman and Zhao are Class I Directors, Messrs.

Shoghi and Cascade, and Ms.

Levine are Class II Directors, and Messrs.

Axelrod and Winkler are Class III Directors.

Qualifications for All Directors

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Zhao, who contributes his business experience, including experience in manufacturing and his experience with Chinese markets, to the Board.

Prior to the closing of the Recapitalization on August 9, 2019, a majority of our Directors were “independent,” as defined under the rules of the Nasdaq Stock Market.

Such independent Directors were Messrs.

Sitrick, Poulsen, Shoghi and Gross.

Our Directors hold office until the next annual meeting of stockholders and until their successors are elected and qualified.

Our officers are elected annually by our Board of Directors and serve at its discretion.

Those independent Directors were selected for their experience as businessmen (Sitrick, Gross and Zhao) or financial expertise (Poulsen and Gross) or financial management expertise (Shoghi).

We believed that our Board was best served by benefiting from this blend of business and financial expertise and experience.

Our remaining Directors then consisted of our chief executive officer (Berman) who brings management’s perspective to the Board’s deliberations, a businessman with experience in manufacturing and experience with Chinese markets (Zhao) and, our longest serving director (Skala) and an attorney with many years with our Company and expertise advising businesses.

California recently passed a law which requires publicly held companies headquartered in the state (such as the Company) to include board members from underrepresented communities.

The action follows passage of a similar law in 2018 mandating that public companies headquartered in the state have at least one woman on their board of directors by the end of 2019, with further future increases required depending on board size.

The new law requires that by the end of 2021 California-headquartered public companies have at least one director on their board who is from an underrepresented community, defined as “an individual who self‑identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self‑identifies as gay, lesbian, bisexual, or transgender.” In addition to that initial 2021 requirement, the law mandates that the number of directors from underrepresented communities be increased by the end of calendar year 2022, depending on the size of the board.

The Company is currently in compliance with both laws, but the Board will have to take further action in order to be in compliance in 2022.

In October 2019 and February 2020, Mr.

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The Company provides the appropriate funding to such persons as determined by the Compensation Committee, which also conducts an independence assessment of its outside advisors using the six factors contained in Exchange Act Rule 10C-1.

The Compensation Committee receives legal advice from our outside general counsel and since 2016 has retained Willis Towers Watson (“WTW”), a compensation consulting firm, to directly advise the Compensation Committee.

The Compensation Committee receives legal advice from our outside general counsel and has retained Willis Towers Watson (“WTW”), a compensation consulting firm, to directly advise the Compensation Committee from time to time.

The Compensation Committee also annually reviews the overall compensation of our executive officers to determine whether discretionary bonuses should be granted.

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The Compensation Committee reviews this information along with details about the components of each executive officer’s compensation.

LCI also provided guidance to the Compensation Committee with respect to the extension of Messrs.

McGrath’s and Bennett’s, our former CFO, employment agreements.

The Compensation Committee consulted with Frederick W.

Cook & Co., Inc., a compensation consulting firm, with respect to determination of a portion of Mr.

Berman’s bonus criteria for 2012, 2013, and 2014 and Mr.

McGrath’s bonus criteria for 2013 and 2014.

The Compensation Committee consulted with LCI with respect to establishing the bonus criteria for Messrs.

Berman and McGrath for 2015 and with WTW with respect to the amendments to the employment agreements for Messrs.

Berman and McGrath in 2016.

A compensation consultant was not consulted during 2020.

Nominating Committee .

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This procedure was implemented following our 2016 Annual Meeting of Stockholders.

Capital Allocation Committee .

The Capital Allocation Committee was dissolved in connection with the Recapitalization.

Special Committees.

In addition to the above described standing committees, the Board establishes special committees as it deems warranted.

On October 18, 2017, the Board formed a Special Committee, which was comprised solely of disinterested directors, to consider a proposal from Hong Kong Meisheng Cultural Company Limited (the “Meisheng Proposal”).

In addition to the evaluation and negotiation of the Meisheng Proposal, the Special Committee authorized its advisors to consider other potential strategic alternatives to the Meisheng Proposal, including the Recapitalization.

The Board authorized the Special Committee to retain its own financial and legal advisors in connection therewith.

The initial members of this Special Committee were Messrs.

Poulsen, Sitrick and Gross and, as of immediately prior to the closing of the Recapitalization, were Messrs.

Poulsen and Gross.

Executive Officers

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Prior to joining the Company, Mr.

McGrath was a Brand Marketer for Hot Wheels ® at Mattel Inc.

McGrath was a Brand Marketer for Hot Wheels®

at Mattel Inc.

and part of its Asia Pacific marketing team.

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Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us during and for 2019, each of our executive officers filed one Form 4 one day late and one director filed a Form 3 late, but all other Forms 3, 4 and 5 required to be filed during 2019 by our Directors and executive officers were timely filed.

Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us during and for 2020, all Forms 3, 4 and 5 required to be filed during 2020 by our Directors and executive officers were timely filed.

Stockholder Communications

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(b) the names and addresses of the stockholders making the nomination and the number of shares of Common Stock which are owned beneficially and of record by such stockholders;

and (c) appropriate biographical information and a statement as to the qualification of each nominee, and must be submitted in the time frame described under the caption, “ Stockholder Proposals for 2021 Annual Meeting ,” in our last Proxy Statement.

and (c) appropriate biographical information and a statement as to the qualification of each nominee, and must be submitted in the time frame described under the caption, “Stockholder Proposals for 2021 Annual Meeting,” in our Proxy Statement for the 2020 Annual Meeting.

The Nominating Committee will evaluate candidates recommended by stockholders in the same manner as candidates recommended by other sources, using additional criteria, if any, approved by the Board from time to time.

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Our executive compensation program is administered by the Compensation Committee.

The Compensation Committee receives legal advice from our outside general counsel and has retained Willis Towers Watson (“WTW”), a compensation consulting firm, which provides advice directly to the Compensation Committee.

The Compensation Committee receives legal advice from our outside general counsel and in previous years has retained a compensation consulting firm, such as Willis Towers Watson (“WTW”) and Lipis Consulting, Inc.

(“LCI”), which provides advice directly to the Compensation Committee.

Historically, the base salary, bonus structure and long-term equity compensation of our executive officers are governed by the terms of their individual employment agreements (see “Employment Agreements and Termination of Employment Arrangements”) and we expect that to continue in the future.

With respect to our chief executive officer and president and our chief operating officer, the Compensation Committee, with input from WTW, establishes target performance levels for incentive bonuses based on a number of factors that are designed to further our executive compensation objectives, including our performance, the compensation received by similarly-situated executive officers at peer group companies, the conditions of the markets in which we operate and the relative earnings performance of peer group companies.

The chief financial officer also received a bonus based upon performance criteria established by the Compensation Committee.

Historically, factors given considerable weight in establishing bonus performance criteria are Net Sales, Adjusted EPS, which is the net income per share of our common stock calculated on a fully-diluted basis in accordance with GAAP, and Adjusted EBITDA applied on a basis consistent with past periods, as adjusted in the sole discretion of the Compensation Committee to take account of extraordinary or special items.

As explained in greater detail below (see “Employment Agreements and Termination of Employment Arrangements”), pursuant to a September 2012 amendment to Mr.

Berman’s employment agreement, commencing in 2013 his annual bonus was restructured so that part of it was capped at 300% of his base salary, and the performance criteria and vesting are solely within the discretion of the Compensation Committee, which establishes all of the criteria during the first quarter of each fiscal year for that year’s bonus, based upon financial and non-financial factors selected by the Compensation Committee, and another part of his annual performance bonus is based upon the success of a joint venture entity we initiated in September 2012.

The portion of the bonus equal to the first 200% of base salary is payable in cash and the balance in restricted stock vesting over three years.

In addition, the annual grant of $500,000 of restricted stock was changed to $3,500,000 of restricted stock and the vesting criteria was changed from being solely based upon established EPS targets to being based upon performance standards established by the Compensation Committee during the first quarter of each year.

On June 7, 2016 we further amended the employment agreement to provide, among other things, for (i) extension of the term to December 31, 2020;

As explained in greater detail below (see “Employment Agreements and Termination of Employment Arrangements”), on June 7, 2016 we further amended Mr.

Berman’s employment agreement to provide, among other things, for (i) extension of the term to December 31, 2020;

(ii) modification of the performance and vesting standards for each $3.5 million Annual Restricted Stock Grant (“Berman Annual Stock Grant”) provided for under Section 3(b) of his Employment Agreement, effective as of January 1, 2017, so that 40% ($1.4 million) of each Berman Annual Stock Grant will be subject to time vesting in four equal annual installments over four years and 60% ($2.1 million) of each Berman Annual Stock Grant will be subject to three year “cliff vesting” (i.e.

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(iii) addition of a special sale transaction bonus equal to $1,000,000 if the Company enters into and consummates a Sale Transaction on or before February 15, 2020, subject to additional terms and conditions as set forth therein;

(iv) modification of the Berman Annual Stock Grant provided for under section 3(b) of the Employment Agreement, effective as of January 2020, so that the number of shares of Restricted Stock granted pursuant to the Berman Annual Stock Grant equal the lesser of (a) $3,500,000 in value (based on the closing price of a share of Common Stock on December 31, 2019), or (b) 1.5% of outstanding shares of Common Stock, which shall vest in four equal installments on each anniversary of grant;

modification of the Berman Annual Stock Grant provided for under section 3(b) of the Employment Agreement, effective as of January 2020, so that the number of shares of Restricted Stock granted pursuant to the Berman Annual Stock Grant equal the lesser of (a) $3,500,000 in value (based on the closing price of a share of Common Stock on December 31, 2019), or (b) 1.5% of outstanding shares of Common Stock, which shall vest in four equal installments on each anniversary of grant;

(v) waiver of certain “Change of Control”, Liquidity Event, and other provisions under the Employment Agreement with respect to certain Specified Transactions;

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All capitalized terms used but not defined in the previous sentence have the meanings ascribed thereto in the Employment Agreement, as amended by the fourth amendment.

On February 18, 2021, we further amended Mr.

Berman’s Employment Agreement as follows:

(i) extension of the Term of the Employment Agreement for an additional three years through December 31, 2024;

(ii) addition of a performance bonus opportunity for 2022 – 2024 in a range between twenty-five percent (25%) and three hundred percent (300%) of Base Salary, based upon the level of EBITDA achieved by the Company for the fiscal year, as determined by the Compensation Committee, which shall be payable in cash and is subject to additional terms and conditions as set forth therein;

and (iii) modification of the Annual Restricted Stock Grant provided for under section 3(b) of the Employment Agreement, effective as of January 2022, so that the number of shares of Restricted Stock granted pursuant to such Annual Restricted Stock Grant equal the lesser of (a) $3,500,000 in value (based on the closing price of a share of Common Stock on the last business day of the prior year), or (b) 2.25% of outstanding shares of Common Stock, which shall vest in three equal installments on each anniversary of grant, provided, that no such award under (a) or (b) above shall be made to Mr.

Berman (and no cash substitute shall be provided to Mr.

Berman) to the extent shares are not available for grant under the Plan as of such date;

and, provided, further, that the Company shall not be obligated to amend the Plan and/or seek shareholder approval of any amendment to increase the amount of available shares under the Plan.

All capitalized terms used but not defined in the previous sentence have the meanings ascribed thereto in the Employment Agreement, as amended by the fifth amendment.

On August 23, 2011 we entered into an amended employment agreement with John J.

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McGrath’s employment agreement also provides for fixed and adjustable bonuses payable based upon adjusted EPS targets set in the agreement, based upon input from our outside consulting firm, with the adjustable bonus capped at a maximum of 125% of base salary.

On March 31, 2015, the Compensation Committee increased for 2015 the performance bonus that can be earned by Mr.

McGrath from a maximum of up to 125% of his base salary to a maximum of up to 150% of his base salary, subject to achievement of certain performance based conditions established by the Committee, and also awarded Mr.

McGrath the opportunity to earn an additional $925,000 of restricted stock subject to achievement of certain performance based vesting conditions.

On September 29, 2016 we entered into a Fourth Amendment to the employment agreement with Mr.

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The Kimble Employment Agreement also contains provisions relating to benefits, change of control, and an annual performance-based bonus award equal to up to 125% of base salary.

On February 18, 2021, we amended the Kimble Employment Agreement as follows:

(i) changing Mr.

Kimble’s status from an “employee at will” by providing for a term extending through December 31, 2024;

(ii) increase in annual salary to $520,000 effective immediately and annual increases of at least 4% commencing January 1, 2022;

(iii) modification of the cash performance bonus opportunity for 2021 – 2024 to provide for a range between twenty-five percent (25%) and one hundred twenty five percent (125%) of Base Salary, based upon the level of EBITDA achieved by the Company for the fiscal year, as determined by the Compensation Committee, which shall be payable in cash and is subject to additional terms and conditions as set forth therein;

(iv) modification of the provision of the Kimble Employment Agreement captioned “Restricted Stock Awards”, effective as of January 2022, to provide for the annual grant of a number of shares of Restricted Stock equal to the lesser of (a) his Base Salary in value (based on the closing price of a share of Common Stock on the last business day of the prior year), or (b) 1.05% of outstanding shares of Common Stock, which shall vest in three equal installments on each anniversary of grant, provided, that no such award under (a) or (b) above shall be made to Mr.

Kimble (and no cash substitute shall be provided to Mr.

Kimble) to the extent shares are not available for grant under the Plan as of such date;

and, provided, further, that the Company shall not be obligated to amend the Plan and/or seek shareholder approval of any amendment to increase the amount of available shares under the Plan;

and (v) as described above, inasmuch as this first amendment changes Mr.

Kimble’s status as an employee at will, the Kimble Employment Agreement has also been revised to include provisions regarding minimum stock ownership requirements, “clawback” provisions and termination provisions for “Cause” and “Good Reason”, all of which new provisions, are similar to the provisions in the employment agreements of the Company’s other executive officers .

All capitalized terms used but not defined in the previous sentence have the meanings ascribed thereto in the Kimble Employment Agreement, as amended by the first amendment.

While the Compensation Committee did not establish target performance levels for our former Chief Financial Officer, Joel Bennett, it did consider similar factors when determining such officer’s bonus.

On February 18, 2014, we entered into a Continuation and Extension of Term of Employment Agreement with respect to Mr.

Bennett’s Employment Agreement dated October 21, 2011 such that it is deemed to have been renewed and continued from January 1, 2014 without interruption and it was extended through December 31, 2015.

On June 11, 2015 Mr.

Bennett’s employment agreement was extended through December 31, 2017.

On December 27, 2017, we entered into a letter agreement with Mr.

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In 2018, after consultation with WTW, the Compensation Committee determined to continue using the performance criteria presented in WTW’s 2017 report to the Compensation Committee comparing our performance, size and executive compensation levels to those of peer group companies.

The Compensation Committee did not consult with, or retain, a compensation consultant in 2020.

One of the factors considered by the Compensation Committee is the relative performance and the compensation of executives of peer group companies, which are comprised of a group of companies selected in conjunction with WTW that we believe provides relevant comparative information and represent a cross-section of publicly-traded companies with product lines and businesses similar to our own throughout the comparison period.

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Electronic Arts, Inc.

● Hasbro, Inc.

● Mattel, Inc.

Take-Two Interactive, Inc.

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As described elsewhere herein, Mr.

Berman’s employment agreement was further amended in 2016 and 2019 and Mr.

McGrath’s employment agreement was further amended in 2011 and 2019.

Berman’s employment agreement was further amended in 2016, 2019 and 2021, Mr.

McGrath’s employment agreement was further amended in 2011 and 2019 and Mr.

Kimble’s employment agreement was amended in 2021.

The employment agreements in effect on January 1, 2017 for Messrs.

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and then compares such data to our corresponding performance data.

Based upon our philosophy of executive compensation described above, the Committee approved discretionary bonuses for 2017 to Messrs.

Berman and McGrath of $750,000 and $138,000, respectively, nil for 2018, and $ 762,500 and $ 200,000 for 2019 to Messrs.

Berman and McGrath, respectively.

Based upon our philosophy of executive compensation described above, the Committee did not approve discretionary bonuses for 2018, approved discretionary bonuses of $750,000 and $138,000 to Messrs.

Berman and McGrath, respectively, for 2019.

Kimble received a $100,000 discretionary bonus for 2020.

Long-Term Compensation

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This bonus, if earned, is payable partially in cash and partially in shares of restricted common stock.

Berman and McGrath earned 75% of the bonus based upon EBITDA criteria in 2020.

Berman and McGrath did not earn this bonus for 2019 or 2018.

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Berman and McGrath were awarded $762,500 and $200,000 of discretionary bonus, respectively, for 2019.

Kimble received a $100,000 discretionary bonus for 2020.

Other Benefits and Perquisites

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Additional details of the terms of the change of control agreements and termination provisions outlined above are provided below.

Impact of Accounting and Tax Treatments

Section 162(m) of the Internal Revenue Code (the “Code”) prohibits publicly held companies like us from deducting certain compensation to any one named executive officer in excess of $1,000,000 during the tax year.

However, with respect to Messrs.

Berman and McGrath, the amended Section 162(m) provides that, to the extent that compensation is based on the attainment of performance goals set by the Compensation Committee pursuant to plans approved by the Company’s shareholders, the compensation is not included for purposes of arriving at the $1,000,000.

The Company, through the Compensation Committee, intends to attempt to qualify executive compensation as tax deductible to the extent feasible and where it believes it is in our best interests and in the best interests of our shareholders.

However, the Committee does not intend to permit this arbitrary tax provision to distort the effective development and execution of our compensation program.

Thus, the Committee is permitted to and will continue to exercise discretion in those instances in which mechanistic approaches necessary to satisfy tax law considerations could compromise the interests of our shareholders.

Because of the uncertainties associated with the application and interpretation of Section 162(m) and the regulations issued thereunder, there can be no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m) will in fact be deductible.

Compensation Risk Management

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Impact of Shareholder Advisory Vote

At our 2018 annual meeting (held in June 2019), our shareholders approved our current executive compensation with over 71% of all shares actually voting on the issue affirmatively giving their approval.

At our 2020 annual meeting, our shareholders approved our current executive compensation with over 86% of all shares actually voting on the issue affirmatively giving their approval.

Accordingly, we believe that this vote ratifies our executive compensation philosophy and policies, as currently adopted and implemented, and we intend to continue such philosophy and policies.

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This amount significantly differs from the 2020 amount of $3.5 million shown on the Summary Compensation Table.

The Summary Compensation table includes $1.5 million of restricted stock awards granted on July 3, 2019, none of which were earned and vested as of December 31, 2019.

The Summary Compensation table includes $0.5 million of restricted stock awards granted on January 1, 2020, none of which were earned and vested as of December 31, 2020.

The total amount of compensation earned by Mr.

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and Chief Financial Officer

Berman and McGrath, the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled $3.5 million and $1.0 million, respectively, in 2017, 2018, 2019.

Bennett, the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled $294,000 in 2017 and $750,000 in 2018, respectively.

Berman, the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled the lesser of (a) $3.5 million in value (based on the closing price of a share of Common Stock on the last business day of the prior year), or (b) 1.5% of outstanding shares of Common Stock in 2020, and $3.5 million in 2019 and 2018, respectively.

McGrath, the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled the lesser of (a) $1.0 million in value (based on the closing price of a share of Common Stock on the last business day of the prior year), or (b) 0.5% of outstanding shares of Common Stock in 2020, and $1.0 million in 2019 and 2018, respectively.

Bennett, the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled $750,000 in 2018.

Novak, the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled $750,000 in 2019 and 2018.

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Novak was forfeited in the same year due to his departure.

Kimble the grant-date fair value of the awards assuming 100% achievement of the applicable performance conditions totaled $500,000 in 2020 and 2019 respectively.

The awards to Mr.

Berman and Mr.

McGrath are capped at the amount of available shares in the Plan.

Represents automobile allowances paid in the amount of $21,463, $24,079 and $17,291 for Mr.

Berman for 2017, 2018 and 2019, respectively, $14,000 per year for 2017, 2018 and 2019 for Mr.

McGrath, $1,500 for Mr.

Kimble in 2019, $9,000 and $11,000 for Mr.

Novak for 2018 and 2019, respectively, and $12,000 and $14,500 for Mr.

Bennett for 2017 and 2018, respectively;

The amounts include matching contributions made by us to the Named Executive Officer’s 401(k) defined contribution plan in the amount of $12,000, $13,750 and $14,000, respectively, for 2017, 2018 and 2019, for Messrs.

The amounts include matching contributions made by us to the Named Executive Officer’s 401(k) defined contribution plan in the amount of $12,000, $13,750 and $9,344, respectively, for 2017, 2018 and 2019, for Messrs.

Berman for 2020, 2019 and 2018, respectively, $8,400, $14,000 and $14,000 for Mr.

McGrath for 2020, 2019 and 2018, respectively, $7,000 and $1,500 for Mr.

Kimble for 2020 and 2019, respectively, $11,000 and $9,000 for Mr.

Novak for 2019 and 2018, respectively, and $14,500 for Mr.

Bennett for 2018.

The amounts include matching contributions made by us to the Named Executive Officer’s 401(k) defined contribution plan in the amount of nil, $14,000 and $13,750, respectively, for 2020, 2019 and 2018, for Mr.

The amounts include matching contributions made by us to the Named Executive Officer’s 401(k) defined contribution plan in the amount of nil, $9,344 and $13,750, respectively, for 2020, 2019 and 2018, for Mr.

McGrath, and includes $2,745, $14,015 and $7,985 related to a life insurance policy for Mr.

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Bennett’s employment terminated in March 2018.

Compensation in 2018 consists of $105,208 of salary, vacation and personal day payout of $71,863 and severance pay of $505,000.

Compensation in 2019 consists of severance pay of $126,250.

Compensation in 2018 consists of $105,208 of salary, vacation and personal day payout of $71,863 and severance pay of $505,000.

Novak's employment terminated in December 2019.

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Andrew Axelrod

Matthew Winkler

Carole Levine

Joshua Cascade

(1) The value of the shares was determined by taking the product of (a) 54,705 shares of restricted stock multiplied by (b) $1.47, the last sales price of our common stock on January 1, 2019, as reported by Nasdaq, the date prior to the date the shares were granted, all of which shares vested on January 1, 2020.

(2) The value of the shares was determined by taking the product of (a) 41,029 shares of restricted stock multiplied by (b) $1.47, the last sales price of our common stock on January 1, 2019, as reported by Nasdaq, the date prior to the date the shares were granted, all of which shares vested on January 1, 2020.

The share amounts reflected in the table are net of the shares forfeited in the amount of 13,676 upon Directors' resignations.

Employment Agreements and Termination of Employment Arrangements

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Novak on April 1, 2018 when he became our Chief Financial Officer.

On November 11, 2010, we entered into a second amended and restated employment agreement with Mr.

Berman that extended the term of his agreement to December 31, 2015 and provides, among other things, new provisions for (i) an annual salary of $1,140,000 in 2011 and annual increases thereafter at the discretion of the Board but no less than $25,000;

(ii) an annual restricted stock award of $500,000 of our common stock commencing January 1, 2011, subject to vesting in equal installments through January 1, 2017, except that the vesting of each annual $500,000 award is conditioned on EPS (defined as our net income per share of our common stock, calculated on a fully diluted basis) for the fiscal year in which the shares are issued being equal to minimum EPS as follows:

$1.41 for 2011, $1.45 for 2012, $1.49 for 2013, $1.54 for 2014, and $1.59 for 2015.

If the minimum EPS vesting condition for the first tranche is not met, then the $500,000 grant lapses, but if the vesting condition is satisfied for the first tranche of the $500,000 grant, then each subsequent tranche of the $500,000 grant will vest;

(iii) an annual performance bonus as follows:

(x) 2010 bonus (previously established in March 2010) remains unchanged except that 20% of the bonus will be paid in restricted stock which will vest in six equal annual installments of 14.5% of the number of shares, the first on the date in 2011 that the bonus is determined to have been earned, and a seventh and final installment of 13% of the shares on January 1, 2017, and (y) for years commencing January 1, 2011, an amount equal to up to 200% of base salary, to be paid in stock and cash (20-40% in stock, in the percentages set forth on Exhibit E to the agreement), bonus criteria using “Adjusted” EPS growth (as defined in the agreement) to be determined by our Compensation Committee in the first quarter of each fiscal year, except that "Adjusted" EPS criteria (but not vesting) for 2011 shall range from $1.37 - $1.78 as stated in Exhibit D to the agreement, and shares will vest in equal annual installments commencing with the date the Bonus for a fiscal year is determined to have been earned and thereafter on January 1 in each subsequent year until the final installment on January 1, 2017, and (z) an additional bonus equal to 100% of base salary to be paid entirely in restricted stock;

the criteria and vesting schedules to be determined by our Compensation Committee in the first fiscal quarter of each year, using criteria to be selected by such Committee which are in its discretion such as grown in net sales, return on invested capital, growth in free cash flow, total shareholder return (or any combination);

(iv) restrictions on sale of our securities such that he cannot sell any shares of our common stock if his shares remaining after a sale are not equal to at least three times his then base salary;

(v) life insurance in the amount of $1.5 million;

(vi) severance if we terminate the agreement without cause (as defined in the agreement) or Mr.

Berman terminates it for Good Reason (as defined in the agreement), in an amount equal to the base salary at termination date multiplied by the number of years and partial years remaining in the term;

and (vii) restrictive covenants, change of control provisions and our ownership of certain intellectual property.

On October 19, 2011, we clarified our employment agreement with Mr.

Berman and entered into a letter amendment dated October 20, 2011 which corrects and clarifies certain cross references relating to Mr.

Berman’s entitlement to severance upon a qualifying termination following a change of control (as defined in his employment agreement).

It also clarifies that a material change in the nature and/or scope of the duties, obligations, rights or powers of his employment under the agreement would be deemed to include his ceasing to be the Chief Executive Officer and President of a publicly traded company (one of the standards for determining whether Mr.

Berman has “good reason” to terminate his employment under his employment agreement), and further provides that Mr.

Berman's post-change of control severance benefits shall be payable upon a qualifying termination of employment within a two year period following a change of control (the agreement originally provided for a one year period).

On September 21, 2012, in connection with our entry into agreements dated September 10, 2012 with NantWorks LLC to form DreamPlay Toys LLC and DreamPlay LLC, all Delaware limited liability companies, we entered into Amendment Number One to Mr.

Berman’s Second Amended and Restated Employment Agreement dated November 11, 2012 (as previously modified by the October 20, 2011 letter amendment);

DreamPlay Toys LLC will develop, market and sell toys and consumer products incorporating NantWorks’ proprietary iD (iDream) image recognition technology and DreamPlay LLC’s business is the extension of such image recognition technology to non-toy consumer products and applications.

The following description modifies and supersedes, to the extent inconsistent with, the disclosure in the preceding paragraphs.

The term of Mr.

Berman’s employment agreement has been extended to December 31, 2018 and provides (i) that commencing on January 1, 2013 the amount of the annual restricted stock award shall increase to up to $3.5 million, with the vesting of each annual grant to be determined by the Compensation Committee based upon performance criteria it establishes during the first quarter of the year of grant;

(ii) commencing with 2013 Mr.

Berman can earn an annual performance bonus described below.

Part of the annual performance bonus in an amount not exceeding 300% of that year’s base salary can be earned based upon financial and non-financial factors determined annually by the Compensation Committee during the first quarter of each year.

The other part of the additional annual performance bonus can be earned in an amount equal to one-half of the cash distributions we receive from DreamPlay LLC, subject to satisfaction of the following three conditions:

(1) we have positive net income after deducting the aggregate annual performance bonus, (2) the aggregate annual performance bonus cannot exceed 2.9% of our net income for such year except that if our net income exceeds $385,000 for the year the percentage limitation shall be reduced to 1% and if our net income for the year exceeds $770,000 the percentage limitation is reduced to 0.5% and (3) we have received an aggregate of at least $15 million of net income from DreamPlay Toys LLC and DreamPlay LLC.

The amendment also provides (i) that the portion of the annual performance bonus up to an amount equal to 200% of that year’s base salary shall be paid in cash, and any excess over 200% of such base salary shall be paid in shares of restricted stock vesting in equal quarterly installments with the initial installment vesting upon grant and the balance over three years following the award date;

(ii) for a life insurance policy of $5 million or such lesser amount we can obtain for an annual premium of up to $10,000;

(iii) for the reimbursement of legal fees in negotiating this amendment of up to $25,000, (iv) that the full amount of the payments and benefits payable in the event of a Change in Control (as defined in the employment agreement) shall be paid, even if it triggers an excise tax imposed by the tax code if the net after-tax amount would still be greater than reducing the total payments and benefits to avoid such excise tax, and (vi) the term “Good Reason Event” has been expanded to include a change in the composition of our Board of Directors where the majority of the Directors were not in office on September 15, 2012.

This provision would have been triggered if management’s slate of nominee Directors at our 2014 Annual Meeting were elected so prior to such meeting, Mr.

Berman waived such provision of his employment agreement with respect to the slate of nominees at such meeting.

Berman waived the provision again following our 2017 Annual Meeting.

We entered into a new employment agreement with Mr.

Kimble on November 20, 2019 when he became our Chief Financial Officer.

On June 7, 2016, we amended the employment agreement between us and Mr.

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All capitalized terms used but not defined in the previous sentence have the meanings ascribed thereto in the Employment Agreement, as amended by the fourth amendment.

On August 23, 2011, we entered into an amended employment agreement with Mr.

McGrath whereby he became our Chief Operating Officer.

The amended employment agreement, which ran through December 31, 2013, provided for an annual salary of $600,000;

an annual increase over the prior year’s base salary of at least $15,000;

an annual award of $75,000 of restricted stock, subject to vesting in equal installments over three years, provided, however, that the initial vesting of the first installment of each year’s award is conditioned on “Adjusted” EPS (as defined in the amended agreement) for the fiscal year in which the shares are issued being equal to minimum “Adjusted” EPS as follows:

2011 vesting condition:

greater of $1.41 or 3% higher than 2010 “Adjusted” EPS;

2012 vesting:

greater of $1.45 or 3% higher than 2011“Adjusted” EPS;

and 2013 vesting condition:

greater of $1.49 or 3% higher than “Adjusted” 2012 EPS.

The amended agreement also provides for an annual bonus opportunity of up to 125% of salary payable 50% in cash and 50% in restricted stock (with a four year vesting) based upon “Adjusted” EPS growth.

Bonus targets for 2011 ranged from $1.37 -$1.78.

Commencing in 2012 the bonus targets are to be set by the Compensation Committee.

On May 15, 2013, we entered a Second Amendment to Mr.

McGrath’s Employment Agreement dated March 4, 2010 (effective January 1, 2010), as previously amended on August 23, 2011.

McGrath’s employment agreement was amended as follows:

(i) the term was extended by two years to December 31, 2015;

(ii) it provides for two annual grants of $75,000 worth of restricted shares of common stock of the Company (A) the first such grant to be made on January 1, 2014, which grant shall vest in three annual equal installments as set forth on Exhibit B to the amendment, provided that "Adjusted" EPS (as defined in the employment agreement) for the 2014 fiscal year is equal to the greater of $1.05 or an amount that is 3% higher than the actual "Adjusted" EPS for the 2014 fiscal year;

(B) the second grant to be made on January 1, 2015, which grant shall vest in two annual equal installments as set forth on Exhibit B to the amendment, provided that "Adjusted" EPS for the 2015 fiscal year is equal to the greater of $2.10 or an amount that is 3% higher than the actual "Adjusted" EPS for the 2015 fiscal year;

and (iii) in each of 2014 and 2015 Mr.

McGrath can earn an annual performance bonus of up to 125% of his then base salary based upon such financial (e.g., growth in EPS, return on equity, growth in the Common Stock price) and non-financial (e.g., organic growth, personnel development) factors determined annually by the Compensation Committee of the Board of Directors during the first quarter of the relevant calendar year for which the annual performance bonus criteria are being established;

one-half of such bonus shall be paid in cash, and one-half in shares of restricted common stock, which shall vest in two equal annual installments, the first installment of which shall vest on the Annual Performance Bonus Award Date (as defined in the employment agreement) and thereafter on January 1 in each subsequent year until the final vesting date on January 1, 2017.

On June 11, 2016, we extended Mr.

McGrath’s employment agreement through December 31, 2017.

On February 18, 2021, we further amended Mr.

Berman’s Employment Agreement as follows:

(i) to extend the Term of the Employment Agreement for an additional three years through December 31, 2024;

Berman (and no cash substitute shall be provided to Mr.

Berman) to the extent shares are not available for grant under the Plan as of such date;

and, provided, further, that the Company shall not be obligated to amend the Plan and/or seek shareholder approval of any amendment to increase the amount of available shares under the Plan.

All capitalized terms used but not defined in the previous sentence have the meanings ascribed thereto in the Employment Agreement, as amended by the fifth amendment.

On September 29, 2016, we entered into a Fourth Amendment to the employment agreement between us and Mr.

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Novak notified us of his decision to resign from his position as the Company’s Executive Vice President and Chief Financial Officer, effective December 6, 2019.

On October 21, 2011, we entered into an employment agreement with Joel M.

Bennett, the Company’s former Executive Vice President and Chief Financial Officer, with a term ending on December 31, 2013.

Pursuant to the new agreement, Mr.

Bennett is entitled to an annual base salary of $420,000, to be increased annually by at least $15,000 over the prior year’s base salary, and will be eligible at the discretion of the Compensation Committee to receive bonuses or other compensation in the form of cash or equity-based awards upon the achievement of performance goals determined by the Board or the Compensation Committee.

In the event of Mr.

Bennett’s termination of employment by the Company without “cause” or by Mr.

Bennett for “good reason,” in each case other than within two years following a “change in control” (each as defined in the agreement), Mr.

Bennett would be entitled to receive, in addition to accrued benefits, cash severance equal to the amount of base salary payable for the remainder of his term and continuation of his medical, hospitalization and dental insurance through the remainder of his term.

In the event of Mr.

Bennett’s termination of employment by the Company without “cause” or by Mr.

Bennett for “good reason” within two years following a “change of control,” Mr.

Bennett would be entitled to receive, in addition to accrued benefits, severance equal to the higher of two times his annual base salary and his base salary payable for the remainder of his term.

On February 18, 2014, we entered into a Continuation and Extension of Term of Employment Agreement with respect to Mr.

Bennett’s Employment Agreement dated October 21, 2011 such that it is deemed to have been renewed and continued from January 1, 2014 without interruption through December 31, 2015.

On June 11, 2016, we extended Mr.

Bennett’s employment agreement through December 31, 2017.

On December 27, 2017, we entered into a letter agreement with Mr.

Bennett (the “Letter Agreement”), which provided for his stepping down from his position as chief financial officer after completion of our annual report for the 2017 fiscal year or such earlier date that a successor has been named and transitioned to the office of Chief Financial Officer.

The Letter Agreement provides, among other things, that Mr.

Bennett will receive a severance payment in a maximum amount of up to 15 month’s salary, accelerated vesting of a portion of his restricted stock units and continued health care coverage for up to 12 months.

The Letter Agreement also requires Mr.

Bennett to comply with confidentiality, non-disparagement and cooperation obligations.

Effective November 20, 2019, we entered into a letter agreement with John L.

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The Kimble Employment Agreement also contains provisions relating to benefits, change of control, and an annual performance-based bonus award equal to up to 125% of base salary.

On February 18, 2021, we amended the Kimble Employment Agreement as follows:

(i) changing Mr.

Kimble’s status from an “employee at will” by providing for a term extending through December 31, 2024;

(ii) increase in annual salary to $520,000 effective immediately and annual increases of at least 4% commencing January 1, 2022;

(iii) modification of the cash performance bonus opportunity for 2021 – 2024 in a range between twenty-five percent (25%) and one hundred twenty five percent (125%) of Base Salary, based upon the level of EBITDA achieved by the Company for the fiscal year, as determined by the Compensation Committee, which shall be payable in cash and is subject to additional terms and conditions as set forth therein;

Kimble’s Base Salary in value (based on the closing price of a share of Common Stock on the last business day of the prior year), or (b) 1.05% of outstanding shares of Common Stock, which shall vest in three equal installments on each anniversary of grant, provided, that no such award under (a) or (b) above shall be made to Mr.

Kimble (and no cash substitute shall be provided to Mr.

Kimble) to the extent shares are not available for grant under the Plan as of such date;

and, provided, further, that the Company shall not be obligated to amend the Plan and/or seek shareholder approval of any amendment to increase the amount of available shares under the Plan;

and (v) as described above, inasmuch as this first amendment changes Mr.

All capitalized terms used but not defined in the previous sentence have the meanings ascribed thereto in the Kimble Employment Agreement, as amended by the first amendment.

The foregoing is only a summary of the material terms of our employment agreements with the Named Executive Officers.

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We eliminated the match on March 31, 2019.

Company matching contributions, which vested immediately, totaled $2.3 million, $2.4 million and $1.1 million for the years ended December 31, 2017, 2018 and 2019, respectively.

Company matching contributions, which vested immediately, totaled nil, $1.1 million, and $2.4 million for the year ended December 31, 2020, 2019 and 2018, respectively.

Compensation Committee Interlocks and Insider Participation

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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information as of May 1, 2020 with respect to the beneficial ownership of our common stock by (1) each person known by us to own beneficially more than 5% of the outstanding shares of our common stock, (2) each of our Directors, (3) each of our executive officers named in the Summary Compensation Table set forth under the caption “Executive Compensation”, above, and (4) all our Directors and executive officers as a group.

The following table sets forth certain information as of March 3, 2021 with respect to the beneficial ownership of our common stock by (1) each person known by us to own beneficially more than 5% of the outstanding shares of our common stock, (2) each of our directors, (3) each of our named executive officers, and (4) all our directors and executive officers as a group.

Name and Address of

Beneficial Owner (1)(2)

ATGAMES of America Inc.

Oasis Management Company Ltd.

Renaissance Technologies LLC

Hong Kong Meisheng Cultural Company Limited

Benefit Street Partners, L.L.C.

Alexander Shoghi

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Except as otherwise indicated, exercises sole voting power and sole investment power with respect to such shares.

Based upon 5,900,463 shares outstanding on March 3, 2021.

Does not include, unless noted otherwise, any shares of common stock issuable upon the conversion of any outstanding convertible senior notes or Restricted Stock Units (“RSUs”).

The address of ATGAMES of America Inc.

is 2228 East Maple Avenue, El Segundo, CA 90245.

Possesses shared voting and dispositive power of such shares.

All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G filed on January 16, 2020.

All share amounts reflect the 1-for-10 Reverse Stock Split, effective July 9, 2020.

The address of Oasis Management Company Ltd.

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Possesses shared voting and dispositive power of such shares.

Note that 752,269 of such shares underlie convertible senior notes.

All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on May 16, 2019.

The address of Renaissance Technologies LLC is 800 Third Avenue, New York, NY 10022.

All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 13, 2020.

Does not include 2,101,423 shares of common stock underlying convertible senior notes.

If all such notes were currently converted this beneficial owner would own 28.5% of the outstanding stock.

Information presented in this Item with respect to this beneficial owner was extracted from the Schedule 13D/A filed on May 16, 2019.

The address of Hong Kong Meisheng Culture Company Ltd is Room 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.

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All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on January 26, 2018.

Does not include 528,156 shares of common stock issued on January 1, 2020 pursuant to the terms of Mr.

Berman’s January 1, 2003 Employment Agreement (as amended to date) which shares will be subject to the terms of a Restricted Stock Award Agreement with Mr.

Berman (the “Berman Agreement”).

The Berman Agreement provides that Mr.

Berman will forfeit his rights to some or all of such 528,156 shares unless certain conditions precedent are met, as described in the Berman Agreement, whereupon the forfeited shares will become authorized but unissued shares of our common stock.

The address of Benefit Street Partners, L.L.C.

is c/o Benefit Street Partners L.L.C., 9 West 57th Street, Suite 4920, New York, NY 10019.

Possesses shared voting and dispositive power with respect to all of such shares.

Does not include 1,952,072 shares of common stock underlying convertible senior notes.

If all such notes were currently converted this beneficial owner would own 27.9% of the outstanding stock.

Information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D filed on March 3, 2021.

The address of Mr.

Rosen is 1578 Sussex Turnpike (Bldg.

5), Randolph, NJ 07869.

Possesses shared voting and dispositive power with respect to all of such shares.

All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on March 3, 2021.

All of such shares were issued pursuant to the terms of Mr.

Berman’s January 1, 2003 Employment Agreement (as amended to date) and all of such shares are subject to the terms of Restricted Stock Award Agreements with Mr.

Berman (the “Berman Agreements”).

The Berman Agreements provide that Mr.

Berman will forfeit his rights to up to 232,222 shares unless certain performance conditions are met, as described in the Berman Agreements, whereupon the forfeited shares will become authorized but unissued shares of our common stock and 160,828 shares are subject to vesting over time.

Unvested shares have no voting rights and may not be sold, mortgaged, pledged, transferred or otherwise encumbered prior to vesting.

Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

Does not include 591,737 shares underlying currently unvested restricted stock units (“RSUs”) issued November 20, 2019 which will vest pursuant to the terms of Mr.

Kimble’s November 18, 2019 Employment Agreement, which RSUs are further subject to the terms of our November 20, 2019 Restricted Stock Unit Award Agreement with Mr.

Does not include 125,691 shares underlying currently unvested restricted stock units (“RSUs”) which will vest pursuant to the terms of Mr.

Kimble’s November 18, 2019 Employment Agreement, which RSUs are further subject to the terms of our Restricted Stock Unit Award Agreements with Mr.

Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

Does not include 176,052 shares of common stock issued on January 1, 2020 pursuant to the terms of Mr.

McGrath’s March 4, 2010 Employment Agreement (as amended to date) which shares will be subject to the terms of a Restricted Stock Award Agreement with Mr.

McGrath (the “McGrath Agreement”).

The McGrath Agreement provides that Mr.

McGrath will forfeit his rights to some or all of such 176,052 shares unless certain conditions precedent are met, as described in the McGrath Agreement, whereupon the forfeited shares will become authorized but unissued shares of our common stock.

All of such shares were issued pursuant to the terms of Mr.

McGrath’s March 4, 2010 Employment Agreement (as amended to date) and all of such shares are subject to the terms of Restricted Stock Award Agreements with Mr.

McGrath (the “McGrath Agreements”).

The McGrath Agreements provide that Mr.

McGrath will forfeit his rights to up to 66,351shares unless certain performance conditions are met, as described in the McGrath Agreements, whereupon the forfeited shares will become authorized but unissued shares of our common stock and 48,466 shares are subject to vesting over time.

Unvested shares have no voting rights and may not be sold, mortgaged, pledged, transferred or otherwise encumbered prior to vesting.

Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

Consists of 125,633 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan.

Consists of 12,564 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan (the “2002 Plan”).

Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

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reported above, of which entity Alex Shoghi is a portfolio manager.

Consists of 96,285 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan.

Consists of 9,629 shares of common stock issued pursuant to our 2002 Plan.

Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

Does not include the 523,954 shares owned by Hong Kong Meisheng Cultural Company Limited reported above, of which entity Zhao Xiaoqiang is executive director.

Does not include 1,141,235 shares of common stock and 38,997 shares of preferred stock owned by entities controlled, directly or indirectly, by Mr.

Does not include any shares underlying RSUs.

Does not include the 5,239,538 shares owned by Hong Kong Meisheng Cultural Company Limited reported above, of which entity Zhao Xiaoqiang is executive director, or the 1,851,175 shares reported above as owned by Oasis Management Company Ltd, of which entity Alex Shoghi is a portfolio manager.

Does not include the 523,954 shares owned by Hong Kong Meisheng Cultural Company Limited reported above, of which entity Zhao Xiaoqiang is executive director, or the 2,278,508 shares reported above as owned by Oasis Management Company Ltd, of which entity Alex Shoghi is a portfolio manager, or the 2,188,364 shares reported above as owned by Benefit Street Partners, L.L.C., of which entity Matthew Winkler is a managing director.

Certain Relationships and Related Transactions, and Director Independence

(a) Transactions with Related Persons

During 2018 and continuing until August 9, 2019, one of our directors was Murray L.

Skala, a partner in the law firm of Feder Kaszovitz LLP, which provided legal services for us during such periods.

In 2018 and in 2019, we incurred approximately $1.3 million and $1.5 million, respectively, for legal fees and reimbursable expenses payable to that firm.

As of December 31, 2018 and 2019, legal fees and reimbursable expenses of $0.2 million and $0.1 million, respectively, were payable to this law firm.

A former director of the Company, who resigned on August 9, 2019 is a partner in a law firm that acts as counsel to the Company.

The Company incurred legal fees and expenses to the law firm in the amount of approximately $1.5 million in 2019 and $1.3 million in 2018.

As of December 31, 2019, legal fees and reimbursable expenses of $0.1 million was payable to this law firm.

The owner of NantWorks, the Company’s DreamPlay Toys joint venture partner, beneficially owned more than 5.0% of the Company’s outstanding common stock.

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This agreement expired on September 30, 2018.

All of the Company's shares beneficially owned by the owner of NantWorks were sold on December 30, 2019.

For the years ended and as of December 31, 2018 and 2019 preferred returns earned and payable to NantWorks were nil.

As of December 31, 2018 and 2019, the Company's receivable balance from NantWorks was nil.

As of March 1, 2020, Hong Kong Meisheng Cultural Company Limited (“Meisheng”) owns 14.7% of our outstanding common stock.

We have entered into joint ventures in Hong Kong, China, with Meisheng Culture.

Meisheng Culture generated an income (loss) of ($57,000) and $169,000 in 2018 and 2019, respectively.

Zhao Xiaoqiang, the control person of Meisheng, is one of our directors.

Meisheng also serves as a significant manufacturer of ours.

For the years ended December 31, 2018 and 2019, we made inventory-related payments to Meisheng of approximately $36.2 million and $94.3 million, respectively.

As of December 31, 2018 and 2019, amounts due Meisheng for inventory received, but not paid by us, totaled $3.6 million and $18.1 million, respectively.

The owner of NantWorks sold all of its holdings of the Company's shares on December 30, 2019.

In November 2014, the Company entered into a joint venture with Meisheng Cultural & Creative Corp., Ltd., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China.

The joint venture includes a subsidiary in the Shanghai Free Trade Zone that sells, distributes and markets these products, which include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys, based on top entertainment licenses and JAKKS’ own proprietary brands.

The Company owns fifty-one percent of the joint venture and consolidates the joint venture since control rests with the Company.

The non-controlling interest’s share of the income (loss) from the joint venture for the year ended December 31, 2020, 2019 and 2018 was $130,000, $169,000 and ($57,000), respectively.

In October 2016, the Company entered into a joint venture with Hong Kong Meisheng Cultural Company Limited (“Meisheng”), a Hong Kong-based subsidiary of Meisheng Culture & Creative Corp, for the purpose of creating and developing original, multiplatform content for children including new short-form series and original shows.

JAKKS and Meisheng each own fifty percent of the joint venture and will jointly own the content.

JAKKS will retain merchandising rights for kids’ consumer products in all markets except China, which Meisheng Culture & Creative Corp.

will oversee through the Company’s existing distribution joint venture.

The results of operations of the joint venture are consolidated with the Company’s results.

The non-controlling interest’s share of the loss from the joint venture for the years ended December 31, 2020, 2019, and 2018 was nil.

As of December 31, 2020, Meisheng beneficially owns 9.2% of the Company’s outstanding common stock.

In March 2017, the Company entered into an agreement to issue 366,089 shares of its common stock at an aggregate price of $19.3 million to a Hong Kong affiliate of its China joint venture partner.

After their shareholder and China regulatory approval, the transaction closed on April 27, 2017.

Upon the closing, the Company added a representative of Meisheng Culture & Creative Corp as a non-employee director and issued 1,332 shares of restricted stock at a value of $0.1 million, which vested in January 2018.

In 2018, the Company issued 4,158 shares of restricted stock at a value of $0.1 million to the non-employee director, which vested in January 2019.

In 2019, the Company issued 5,471 shares of restricted stock at a value of $0.1 million to the non-employee director, which vested in January 2020.

Meisheng also serves as a significant manufacturer of the Company.

In the first quarter of 2019, Meisheng acquired New Time Group, which was a third-party manufacturer of the Company.

For the year ended December 31, 2020, 2019 and 2018, the Company made inventory-related payments to Meisheng of approximately $64.8 million, $94.3 million, and $36.2 million respectively.

As of December 31, 2020 and 2019, amounts due to Meisheng for inventory received by the Company, but not paid totaled $10.1 million and $18.1 million, respectively.

A director of the Company is a portfolio manager at Oasis Management.

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In August 2019, the Company entered into the Recapitalization Transaction.

In connection with the Recapitalization Transaction, the Company issued (i) amended and restated notes with respect to the $21.6 million Oasis Note issued on November 7, 2017, and the $8.0 million Oasis Note issued on July 26, 2018 (together, the “Existing Oasis Notes”), and (ii) a new $8.0 million convertible senior note having the same terms as such amended and restated notes (the "New $8.0 million Oasis Note" and collectively, the “New Oasis Notes” or the " 3.25% convertible senior notes due 2023").

Interest on the New Oasis Notes is payable on each May 1 and November 1 until maturity and accrues at an annual rate of (i) 3.25% if paid in cash or 5.00% if paid in stock plus (ii) 2.75% payable in kind.

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A director of the Company is a director at Benefit Street Partners.

Benefit Street Partners funded $25.8 million of the new term loan issued in connection with the Recapitalization Transaction (See Note 10 to the Consolidated Financial Statements included within Item 8 for further information).

Amounts outstanding under the New Term Loan accrue interest at 10.50% per annum, payable semi-annually (with 8% per annum payable in cash and 2.5% per annum payable in kind).

The New Term Loan matures on February 9, 2023.

A director of the Company is the managing Partner and portfolio manager at Axar Capital Management Axar Capital Management funded $26.3 million of the New Term Loan issued in connection with the Recapitalization Transaction (See Note 10 to the Consolidated Financial Statements included within Item 8 for further information).

Amounts outstanding under the New Term Loan accrue interest at 10.50% per annum, payable semi-annually (with 8% per annum payable in cash and 2.5% per annum payable in kind).

The New Term Loan matures on February 9, 2023.

As of December 31, 2020, Benefit Street Partners held $61.1 million in principal amount (including $2.3 million in payment-in-kind interest) of the New Term Loan.

On February 5, 2021, Benefit Street Partners and Oasis Investment II Master Funds Ltd, both related parties, entered into a purchase and sale agreement wherein Benefit Street Partners purchased $11.0 million of principal amount, plus all accrued and unpaid interest thereon, of the New Oasis Notes from Oasis Investment II Master Funds Ltd.

The transaction closed on February 8, 2021 (see Item 8 "Consolidated Financial Statements and Supplementary Data Note 10 - Debt”).

A director of the Company is the managing Partner and portfolio manager at Axar Capital Management.

As of December 31, 2020, Axar Capital Management held $24.3 million in principal amount (including $0.9 million in payment-in-kind interest) of the New Term Loan.

(b) Review, Approval or Ratification of Transactions with Related Persons

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Audit Related Fees consist of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements and were not otherwise included in Audit Fees.

These fees primarily relate to statutory audit requirements and audits of employee benefit plans.

These fees primarily relate to audits of employee benefit plans.

Our Audit Committee has considered whether the provision of the non-audit services described above is compatible with maintaining our auditors’ independence and determined that such services are appropriate.

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Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (32)

Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (34)

Amended and Restated By-Laws of the Company (2)

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Amendment Number Four dated November 18, 2019 to Mr.

Berman’s Second Amended and Restated (30)

Berman’s Second Amended and Restated Employment Agreement (30)

Amendment Number Five dated February 18, 2021 to Mr.

Berman’s Second Amended and Restated Employment Agreement (36)

Office Lease dated November 18, 1999 between the Company and Winco Maliview Partners (14)

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Letter Agreement dated November 18, 2019 between the Company and John L.

First Amendment to Employment Agreement between the Company and John L.

Kimble dated February 18, 2021 (36)

Transaction Agreement, dated as of August 7, 2019, by and among the Company, certain of the Company’s affiliates and subsidiaries, certain holders of the Company’s 4.875% Convertible Senior Notes due 2020 and Oasis Investments II Master Fund Ltd.

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and Kids Only, Inc., as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as agent (28)

Consent and Amendment No.

3 to Amended and Restated Credit Agreement (35)

First Lien Term Loan Facility Credit Agreement, dated as of August 9, 2019, by and among the Company, the financial institutions party thereto, as lenders, and Cortland Capital Market Services LLC, as agent (28)

Amendment No.

2 to First Lien Term Loan Facility Credit Agreement (35)

Amended and Restated Convertible Senior Note due 2023 issued to Oasis Investments II Master Fund Ltd.

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Section 1350 Certification of John L.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement, filed August 23, 2002, and incorporated herein by reference.

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Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2018, filed March 18, 2019, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed July 9, 2020 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 19, 2020 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed February 19, 2021 and incorporated herein by reference.

Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K under the Securities Act.

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 19, 2021

JAKKS PACIFIC, INC.

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/s/ STEPHEN G.

March 19, 2021

Chief Executive Officer

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(Principal Financial Officer and

March 19, 2021

Principal Accounting Officer)

/s/ CAROLE LEVINE

March 19, 2021

Carole Levine

/s/ JOSHUA CASCADE

March 19, 2021

Joshua Cascade

/s/ MATTHEW WINKLER

March 19, 2021

Matthew Winkler

/s/ ALEXANDER SHOGHI

March 19, 2021

Alexander Shoghi

/s/ ANDREW AXELROD

March 19, 2021

Andrew Axelrod

/s/ ZHAO XIAOQIANG

March 19, 2021

Zhao Xiaoqiang

EXHIBIT INDEX

Amended and Restated Certificate of Incorporation of the Company (1)

Certificate of Designations of Series A Senior Preferred Stock (28)

Certificate of Amendment to Certificate of Designations of Series A Senior Preferred Stock (31)

Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (32)

Amended and Restated By-Laws of the Company (2)

Second Amended and Restated By-Laws of the Company (28)

Indenture dated July 24, 2013 by and between the Registrant and Wells Fargo Bank, N.A (3)

Form of 4.25% Senior Convertible Note (3)

Convertible Senior Note due November 7, 2020 (24)

Convertible Senior Note due November 1, 2020 (25)

Credit Agreement dated as of March 27, 2014 by and among Registrant and its U.S.

wholly-owned subsidiaries and General Electric Capital Corporation (10)

Fourth Amendment to Credit Agreement dated as of June 5, 2015 by and among Registrant and its U.S.

wholly-owned subsidiaries and General Electric Capital Corporation (20)

Eleventh Amendment to Credit Agreement dated as of June 14, 2018 by and among Registrant and its wholly-owned U.S.

subsidiaries and Wells Fargo Bank, National Association (27)

Revolving Loan Note dated March 27, 2014 by Registrant and its U.S.

wholly-owned subsidiaries in favor of General Electric Capital Corporation (10)

Indenture dated June 9, 2014 by and between the Registrant and Wells Fargo Bank, N.A (19)

Form of 4.875% Senior Convertible Note (19)

Term Loan Agreement dated as of June 14, 2018 by and among Registrant and certain of its wholly-owned subsidiaries and GACP Finance Co., LLC (27)

Term Note dated June 14, 2018 by and among Registrant and certain of its wholly-owned subsidiaries in favor of GACP II L.P.

Third Amended and Restated 1995 Stock Option Plan (4)

1999 Amendment to Third Amended and Restated 1995 Stock Option Plan (5)

2000 Amendment to Third Amended and Restated 1995 Stock Option Plan (6)

2001 Amendment to Third Amended and Restated 1995 Stock Option Plan (7)

2002 Stock Award and Incentive Plan (8)

2008 Amendment to 2002 Stock Award and Incentive Plan (9)

Second Amended and Restated Employment Agreement between the Company and Stephen G.

Berman dated as of November 11, 2010 (11)

Clarification Letter dated October 20, 2011 with respect to Mr.

Berman’s Second Amended and Restated employment agreement (12)

Amendment Number One dated September 21, 2012 to Mr.

Berman’s Second Amended and Restated Employment Agreement (13)

Amendment Number Two dated June 7, 2016 to Mr.

Berman’s Second Amended and Restated Employment Agreement (21)

Amendment Number Three dated June 7, 2016 to Mr.

Berman’s Second Amended and Restated Employment Agreement (28)

Amendment Number Four dated November 18, 2019 to Mr.

Berman’s Second Amended and Restated (30) (Employment Agreement (28)

Office Lease dated November 18, 1999 between the Company and Winco Maliview Partners (14)

Form of Restricted Stock Agreement (10)

Employment Agreement between the Company and Joel M.

Bennett, dated October 21, 2011 (12)

Continuation and Extension of Term of Employment Agreement Between JAKKS Pacific, Inc.

Bennett dated February 18, 2014 (15)

Amendment Extending Term of Employment Agreement Between JAKKS Pacific, Inc.

Bennett dated June 11, 2015 (20)

Letter Agreement dated December 27, 2017 between the Company and Joel M.

Employment Agreement between the Company and John a/k/a Jack McGrath, dated March 4, 2010 (16)

First Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated August 23, 2011 (16)

Second Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated May 15, 2013 (17)

Third Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated June 11, 2015 (20)

Fourth Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated September 29, 2016 (22)

Fifth Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated February 28, 2018 (33)

Sixth Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated December 31, 2019 (29)

Exchange Agreement dated November 7, 2017 between the Company and Oasis Investments II Master Fund Ltd.

Exchange Agreement dated July 25, 2018 between the Company and Oasis Investments II Master Fund Ltd.

Employment Agreement between the Company and Brent T.

Novak, dated April 1, 2018 (26)

Correction Letter dated February 28, 2019 with respect to Mr.

Novak’s Employment Agreement (33)

Letter Agreement dated November 18, 2019 between the Company and John L.

Amended and Restated Credit Agreement, dated as of August 9, 2019, by and among the Company, Disguise, Inc., JAKKS Sales LLC, Maui, Inc., Moose Mountain Marketing, Inc.

and Kids Only, Inc., as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as agent (28)

Amended and Restated Convertible Senior Note due 2023 issued to Oasis Investments II Master Fund Ltd.

in the face amount of $21,550,000 (28)

Amended and Restated Convertible Senior Note due 2023 issued to Oasis Investments II Master Fund Ltd.

in the face amount of $8,000,000 (28)

Convertible Senior Note due 2023 issued to Oasis Investments II Master Fund Ltd.

in the face amount of $8,000,000 (28)

Amended and Restated Registration Rights Agreement, dated as of August 9, 2019, by and between JAKKS Pacific, Inc.

and Oasis Investments II Master Fund Ltd.

Code of Ethics (18)

Subsidiaries of the Company (**)

Consent of BDO USA, LLP (**)

Rule 13a-14(a)/15d-14(a) Certification of Stephen G.

Rule 13a-14(a)/15d-14(a) Certification of John L.

Section 1350 Certification of Stephen G.

Section 1350 Certification of John L.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement, filed August 23, 2002, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.

Filed previously as Appendix A to the Company’s Schedule 14A Proxy Statement, filed June 23, 1998, and incorporated herein by reference

Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg.

333-90055), filed November 1, 1999, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg.

333-40392), filed June 29, 2000, and incorporated herein by reference.

Filed previously as Appendix B to the Company’s Schedule 14A Proxy Statement, filed June 11, 2001, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg.

333-101665), filed December 5, 2002, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Schedule 14A Proxy Statement, filed August 20, 2008, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 17, 2010, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 25, 2012, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999, filed March 30, 2000, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed February 20, 2014, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed August 24, 2011, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed May 21, 2013, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003, filed March 15, 2004, and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2016 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 30, 2016 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed December 29, 2017 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 11, 2017 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed July 26, 2018 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2018 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 15, 2018 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed August 9, 2019 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed January 2, 2020 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 20, 2019 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 23, 2019 and incorporated herein by reference.

Filed previously as an annex to the Company’s Schedule 14A filed October 28, 2019 and incorporated herein by reference.

Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2018, filed March 18, 2019, and incorporated herein by reference.

Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K under the Securities Act.

The Company agrees to furnish supplementally any omitted schedules to the Securities and Exchange Commission upon request.

Filed herewith.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures