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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 7, 1997 (October 24, 1997)
JAKKS PACIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-28104 95-4527222
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
22761 Pacific Coast Highway, Suite # 226
Malibu, California 90265
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 456-7799
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to a Trademark Purchase Agreement between the Registrant and
Azrak- Hamway International, Inc. (the "Seller"), on October 24, 1997, the
Registrant purchased from the Seller all of the Seller's world-wide rights to
the Remco(R), Child Guidance(R) and certain other related trademarks, trade
rights and intellectual property (the "Trademarks") for an aggregate purchase
price of $11,800,000, of which $10,600,000 was paid at the closing of the
transaction and $1,200,000 is to be paid in five equal quarterly installments
from December 31, 1997 to December 31, 1998. The obligation of the Registrant to
pay the deferred portion of the purchase price of the Trademarks is represented
by a note (the "Note") bearing interest at the rate of 10% per annum.
In addition, the Registrant entered into a Manufacturing and Supply
Agreement (the "Supply Agreement"), with the Seller, pursuant to which the
Seller will, during the 30-month period following the closing, make available to
the Registrant the Seller's tools, dies, molds, forms and other manufacturing
equipment and apparatus (the "Tools") for the manufacture of products sold under
the Trademarks (the "Products"), and manufacture or arrange for the manufacture
of Products upon request by the Registrant or, if the Registrant does not agree
with the Seller as to the price or other terms under which the Seller would be
willing to supply Products to the Registrant, the Registrant may arrange for
alternative sources to manufacture and supply Products, in which event, the
Seller is obligated to make the Tools available to such other sources. In
consideration therefor, the Registrant will pay $1,400,000 to the Seller in ten
quarterly installments the first four of which are in the amount of $110,000 and
remaining six of which are in the amount of $160,000, subject to certain
adjustments, and pay for any Products supplied by the Seller under the Supply
Agreement at the Seller's cost.
The purchase price for the Trademarks and the amount of the payments
under the Supply Agreement were determined through arms-length negotiations
between the Registrant and the Seller.
Certain of the Registrant's obligations to the Seller, including the
Note, are secured by a security interest in the Trademarks in favor of the
Seller.
The purchase price for the Trademarks was funded in part through a
private placement (the "Private Placement") of the Registrant's 4% Redeemable
Convertible Preferred Stock, par value $.001 per share (the "Preferred Stock").
In the Private Placement, which also closed on October 24, 1997, the Registrant
sold 3,525 shares of Preferred Stock to ten investors at a price of $2,000 per
share for aggregate proceeds of $7,050,000, of which the net proceeds, estimated
to be $6,790,000, were applied to the closing payment. The balance of the
closing payment was provided from the Registrant's cash reserves.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS.
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Designation of 4% Redeemable Convertible Preferred Stock
of the Registrant
10.1 Trademark Purchase Agreement dated October 24, 1997 between the
Registrant and Azrak-Hamway International, Inc.
10.2 $1,200,000 Promissory Note dated October 24, 1997 of the Registrant
payable to Azrak-Hamway International, Inc.
10.3 Manufacturing and Supply Agreement dated October 24, 1997 between the
Registrant and Azrak-Hamway International, Inc.
10.4 Security Agreement dated October 24, 1997 between the Registrant and
Azrak- Hamway International, Inc.
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 hereunto duly authorized.
Dated: November 7, 1997
JAKKS PACIFIC, INC.
By:/s/ Jack Friedman
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Jack Friedman
Chairman and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Designation of 4% Redeemable Convertible Preferred
Stock
10.1 Trademark Purchase Agreement dated October 24, 1997 between the
Registrant and Azrak-Hamway International, Inc.
10.2 $1,200,000 Promissory Note dated October 24, 1997 of the Registrant
payable to Azrak-Hamway International, Inc.
10.3 Manufacturing and Supply Agreement dated as of October 24, 1997
between the Registrant and Azrak-Hamway International, Inc.
10.4 Security Agreement dated October 24, 1997 between the Registrant and
Azrak- Hamway International, Inc.
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EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF
4% REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
JAKKS PACIFIC, INC.
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned hereby certifies on behalf of JAKKS Pacific, Inc., a
Delaware corporation (the "Company"), as follows:
The Company's Board of Directors, pursuant to authority expressly vested
in it by the Company's Restated Certificate of Incorporation, has duly adopted
the following resolution designating a class of 4% Redeemable Convertible
Preferred Stock:
RESOLVED, that, of the 5,000 shares of preferred stock, par value $.001
per share, that the Company, pursuant to its Restated Certificate of
Incorporation, is authorized to issue, 3,525 shares be designated as "4%
Redeemable Convertible Preferred Stock" (the "4% Preferred Stock"), and that the
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof be as follows:
1. Dividends.
(a) The holders of 4% Preferred Stock shall be entitled to receive
dividends, when and as declared by the Company's Board of Directors, out of any
funds legally available for such purpose, in cash at the rate per annum of $80
per share, and no more, payable semiannually on March 31 and September 30 (each,
a "Dividend Payment Date") to the holders of record of 4% Preferred Stock on the
preceding March 1 and September 1, respectively.
(b) Dividends on the 4% Preferred Stock shall be cumulative and
shall accrue daily, whether or not declared or funds sufficient for the payment
thereof are legally available, from the date of original issuance thereof.
(c) Dividends on the 4% Preferred Stock may be declared and paid
in part.
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(d) No dividend, other than a dividend payable in shares of any
class or series of stock ranking junior to the 4% Preferred Stock as to
dividends and upon liquidation, shall be declared or paid on, and no assets
shall be distributed or set aside in respect of, shares of any class or series
of stock ranking on a parity with or junior to the 4% Preferred Stock as to
dividends (except in connection with the liquidation, in whole or in part, of
the assets of the Company, to or in respect of any class or series of stock
ranking senior to or on a parity with the 4% Preferred Stock upon liquidation),
unless and until all dividends accumulated through the then most recently
preceding Dividend Payment Date are declared and paid on the 4% Preferred Stock;
provided that, if there are not sufficient funds legally available for the
payment of such accumulated dividends on the 4% Preferred Stock prior to or at
the time of payment of any dividend on any shares of any class or series of
stock ranking on a parity with the 4% Preferred Stock, dividends may be declared
and paid thereon, if dividends on the 4% Preferred Stock are declared and paid
prior to or at the time of payment of the dividend on such other class or series
pro rata so that the ratio of the amount of the dividend per share of 4%
Preferred Stock to the amount of all dividends accumulated thereon through the
most recently preceding Dividend Payment Date shall be the same as the ratio of
the amount of the dividend per share of such other class or series to the amount
of all dividends accumulated thereon though the then most recently preceding
dividend payment date for such class or series or, if dividends on such class or
series do not accumulate, the amount of all dividends theretofore declared
thereon.
2. Liquidation Preference.
(a) In the event of any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, the holders of 4% Preferred Stock
shall be entitled to receive out of the assets of the Company, for each share of
4% Preferred Stock then outstanding, before any payment or distribution shall be
made in respect of any other class or series of stock ranking junior to the 4%
Preferred Stock upon liquidation, cash in the amount of $2,000 (as adjusted for
any stock dividend, split, combination or other similar recapitalization or
capital reorganization of the Company), plus the aggregate amount of all
dividends (as so adjusted) accumulated thereon through the Dividend Payment Date
most recently preceding the date of such dissolution, liquidation or winding up.
(b) If the assets of the Company available for distribution to the
holders of 4% Preferred Stock upon any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, shall be insufficient to pay the
full preferential amount to which the holders of 4% Preferred Stock are entitled
pursuant to Subsection 2(a), no distribution shall be made in respect of any
shares of any other class or series or stock ranking on a parity with the 4%
Preferred Stock upon liquidation, unless the distribution is made pro rata so
that the ratio of the amount distributed per share of 4% Preferred Stock to the
amount of the liquidation preference thereof shall be the same as the ratio of
the amount distributed per share of each such other class or series of stock to
the amount of the liquidation preference thereof.
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(c) If upon any dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, payment shall have been made first to
the holders of 4% Preferred Stock of the full preferential amount to which they
shall be entitled pursuant to Subsection 2(a), the entire remaining assets of
the Company available for distribution to stockholders shall be distributed,
subject to any liquidation preference or participation of the holders of any
series or class of preferred stock, other than the 4% Preferred Stock, to the
holders of common stock, par value $.001 per share, of the Company (the "Common
Stock").
(d) For purposes of this Section 2, any redemption or other
purchase by or for the account of the Company of at least a majority of the
outstanding Common Stock, recapitalization or capital reorganization of the
Company, sale, exchange or other disposition of all or substantially all of the
assets of the Company to any other Person, merger or consolidation of the
Company with or into any other Person, whether or not the Company is the
surviving or emerging Person, unless in any such case such Person is a
wholly-owned subsidiary of the Company, in any of which cash or stock or other
securities or property of the Company, transferee or surviving or emerging
Person or an Affiliate thereof are to be received by or distributed to the
holders of Common Stock shall be deemed to be a dissolution, liquidation or
winding up of the Company.
(e) The Company shall give each holder of 4% Preferred Stock
written notice of any dissolution, liquidation or winding up not later than
fifteen (15) days prior to any meeting of stockholders to approve such
dissolution, liquidation or winding up or, if no meeting is to be held, not
later than thirty (30) days prior to the date of such dissolution, liquidation
or winding up.
3. Optional Conversion.
(a) At any time on or after January 1, 1998, any holder of 4%
Preferred Stock may, at such holder's option, convert any or all of the 4%
Preferred Stock then held of record by such holder into Common Stock, so that
each share of 4% Preferred Stock shall be convertible, without the payment of
additional consideration, into the number of shares of Common Stock determined
by dividing $2,000 (as adjusted for any stock dividend, split, combination or
other similar recapitalization or capital reorganization of the Company) by the
Optional Conversion Price (as defined in Subsection 3(f)) in effect on the
Optional Conversion Date (as defined in Subsection 3(b)).
(b) To effect the optional conversion of shares of 4% Preferred
Stock in accordance with Subsection 3(a), the holder of record thereof shall
irrevocably make a written demand for such conversion (a "Conversion Demand")
upon the Company at its principal executive offices setting forth therein: (i)
the number of shares so to be converted; (ii) the certificate or certificates
representing such shares; (iii) the proposed date of such conversion, which
shall be a business day not less than fifteen (15) nor more than thirty (30)
days after the date of such Conversion Demand (the "Optional Conversion Date");
and (iv) the name of any nominee to which any shares of Common Stock into which
such shares are to be
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converted are to be registered. On or before the Optional Conversion Date, the
holder of 4% Preferred Stock so to be converted shall surrender the certificate
or certificates representing such shares, duly endorsed for transfer or
accompanied by a duly executed stock power or other instrument of assignment, if
the Company shall have theretofore given written notice to such holder stating
that the certificate or certificates to be surrendered are required to be
endorsed for transfer or accompanied by a duly executed stock power or other
appropriate instrument of assignment, and the form of such endorsement or power
or other instrument of assignment, to the Company, at the principal executive
offices of the Company, or, if the Company shall have theretofore given written
notice to such holder of any other place or places at which such certificate or
certificates are to be surrendered, at any such other place. As soon as
practicable after the Optional Conversion Date and the surrender of the
certificate or certificates representing such shares, the Company shall issue
and deliver to such holder, or its nominee, at such holder's address as it
appears on the records of the stock transfer agent for the 4% Preferred Stock,
if any, or, if none, of the Company a certificate or certificates for the number
of whole shares of Common Stock issuable upon such conversion in accordance with
the provisions hereof, together with cash payable in lieu of any fraction of a
share of Common Stock pursuant to Subsection 3(c).
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of 4% Preferred Stock. In lieu of any fractional share
of Common Stock to which the holder of 4% Preferred Stock would be entitled
pursuant to this Section 3, but for the provisions of this Subsection 3(c),
based on the full number of shares of 4% Preferred Stock held by such holder,
the Company shall pay cash in an amount equal to the same fraction of the
Current Market Price (as defined in Subsection 3(j)) of one share of Common
Stock on the Optional Conversion Date.
(d) The Company shall at all times when any shares of 4% Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, such number of shares of Common Stock as shall from time to time
be sufficient to effect the optional conversion of all outstanding shares of 4%
Preferred Stock.
(e) All outstanding shares of 4% Preferred Stock to be converted
pursuant to the Conversion Demand shall, on the Optional Conversion Date, be
converted into Common Stock for all purposes, notwithstanding the failure of the
holder thereof to surrender any certificate representing such shares on or prior
to such date. On and after the Optional Conversion Date, (i) no such share of 4%
Preferred Stock shall be deemed to be outstanding or be transferrable on the
books of the Company or the stock transfer agent, if any, for the 4% Preferred
Stock, and (ii) the holder of such shares, as such, shall not be entitled to
receive any dividends or other distributions, to receive notices or to vote such
shares or to exercise or to enjoy any other powers, preferences or rights in
respect thereof, other than the right, upon surrender of the certificate or
certificates representing such shares, to receive a certificate or certificates
for the number of shares of Common Stock into which such shares shall have been
converted and payment of cash payable in lieu of any fraction of a share of
Common Stock.
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On the Optional Conversion Date, all such shares shall be retired and resume the
status of preferred stock of the Company without designation.
(f) The "Optional Conversion Price" of a share of 4% Preferred
Stock shall be $7.50, subject to adjustment as hereinafter provided.
(g) If at any time after the date of the first issuance of 4%
Preferred Stock, the Company shall issue any shares of Common Stock, Convertible
Securities (as hereinafter defined), Rights (as hereinafter defined) or Related
Rights (as hereinafter defined; any such shares, Convertible Securities, Rights
or Related Rights, "Securities") without consideration or for a consideration
per share or unit less than the Optional Conversion Price in effect immediately
prior to the issuance of such Securities, then the Optional Conversion Price in
effect immediately prior to each such issuance shall forthwith be reduced, (A)
as to any such issuance prior to January 1, 1998, to the lowest per share price
paid for Common Stock (or deemed paid for such Common Stock), and (B) as to any
such issuance thereafter, to the quotient obtained by dividing:
(i) an amount equal to the sum of (1) the total number of
shares of Common Stock outstanding immediately prior to such
issuance (including for this purpose the number of shares of Common
Stock into which the shares of 4% Preferred Stock outstanding
immediately prior to such issuance are convertible on the date of
such issuance in accordance with Subsection 3(a) (without regard to
Subsection 3(c)), without giving effect to such issuance) multiplied
by the Optional Conversion Price in effect immediately prior to such
issuance, and (2) the amount of consideration, if any, received by
the Company upon such issuance, by
(ii) the total number of shares of Common Stock (1)
outstanding immediately after such issuance (including the number of
shares of Common Stock into which the shares of 4% Preferred Stock
outstanding immediately prior to such issuance are convertible on
the date of such issuance in accordance with Subsection 3(a)
(without regard to Subsection 3(c)), without giving effect to such
issuance) or (2) into or for which any such newly issued Convertible
Securities are then convertible or exchangeable or (3) issuable upon
the exercise of any such Rights or Related Rights).
(iii) For the purpose of this Section 3, the following
definitions and procedures shall be applicable:
(A) In the case of the issuance of options, warrants
or other rights to purchase or otherwise acquire Common Stock,
whether or not at the time exercisable ("Rights"), the total
number of shares of Common Stock issuable upon exercise of
such Rights shall be deemed to have been issued at the time
such Rights are issued, for a
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consideration equal to the sum of the consideration, if any,
received by the Company upon the issuance of such Rights and
the minimum purchase or exercise price payable upon the
exercise of such Rights for the Common Stock to be issued upon
the exercise thereof.
(B) In the case of the issuance of any class or series
of stock or any bonds, debentures, notes or other securities
or obligations convertible into or exchangeable for Common
Stock, whether or not then convertible or exchangeable
("Convertible Securities"), or options, warrants or other
rights to purchase or otherwise acquire Convertible Securities
("Related Rights"), the total number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible
Securities or exercise of such Related Rights shall be deemed
to have been issued at the time such Convertible Securities or
Related Rights are issued, for a consideration equal to the
sum of (I) the consideration, if any, received by the Company
upon issuance of such Convertible Securities or Related Rights
(excluding any cash received on account of accrued interest or
dividends) and (II) (1) in the case of Convertible Securities,
the minimum additional consideration, if any, to be received
by the Company upon the conversion or exchange of such
Convertible Securities or (2) in the case of Related Rights,
the sum of (x) the minimum purchase or exercise price payable
upon the exercise of such Related Rights for Convertible
Securities and (y) the minimum additional consideration, if
any, to be received by the Company upon the conversion or
exchange of the Convertible Securities issued upon the
exercise of such Related Rights.
(C) On any change in the number of shares of Common
Stock issuable upon the exercise of Rights or Related Rights
or upon the conversion or exchange of Convertible Securities
or on any change in the minimum purchase or exercise price of
Rights, Related Rights or Convertible Securities, including,
but not limited to, a change resulting from the anti-dilution
provisions of such Rights, Related Rights or Convertible
Securities, the Optional Conversion Price to the extent in any
way affected by such Rights, Related Rights or Convertible
Securities shall forthwith be readjusted to be thereafter the
Optional Conversion Price that would have been obtained had
the adjustment which was made upon the issuance of such
Rights, Related Rights or Convertible Securities been made
after giving effect to such change. No further adjustment
shall be made in respect of such change upon the actual
issuance of Common Stock or any payment of consideration upon
the exercise of any such Rights or Related Rights or the
conversion or exchange of such Convertible Securities.
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(D) On the expiration or cancellation of any such
Rights, Related Rights or Convertible Securities, if the
Optional Conversion Price shall have been adjusted upon the
issuance thereof, the Optional Conversion Price shall
forthwith be readjusted to such Optional Conversion Price as
would have been obtained had the adjustment made upon the
issuance of such Rights, Related Rights or Convertible
Securities been made upon the basis of the issuance of only
the number of shares of Common Stock actually issued upon the
exercise of such Rights or Related Rights or the conversion or
exchange of such Convertible Securities.
(E) In the case of the issuance of such Securities for
cash, the amount of consideration received by the Company
shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses paid or
incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(h) In case the Company shall merge or consolidate with or into,
or sell, exchange or otherwise dispose of all or substantially all of its assets
to, any other Person, then lawful and adequate provision shall be made whereby
each share of 4% Preferred Stock shall, after such merger, consolidation, sale,
exchange or other disposition, be convertible into the kind and number of shares
of stock or other securities or property of the Person resulting from such
merger or consolidation, or to which assets shall have been sold, exchanged or
otherwise disposed, to which the holder of shares of 4% Preferred Stock would
have been entitled if it had held the Common Stock issuable upon the conversion
pursuant to this Section 3 of such shares of 4% Preferred Stock on the record
date, or, if none, immediately prior to such merger, consolidation, sale,
exchange or other disposition, at the Optional Conversion Price in effect on
such date.
(i) If the Company shall (i) declare a dividend or other
distribution payable in Securities or (ii) split its outstanding shares of
Common Stock into a larger number or (iii) combine its outstanding shares of
Common Stock into a smaller number, then the Optional Conversion Price in effect
immediately prior to such dividend or other distribution, split or combination,
as the case may be, shall forthwith be proportionally adjusted so that each
holder of 4% Preferred Stock shall be entitled to receive the number of shares
of Common Stock which such holder would have owned or been entitled to receive
had such 4% Preferred Stock been converted pursuant to this Section 3
immediately prior to the record date for such dividend or other distribution,
split or combination. Successive adjustments to the Optional Conversion Price
shall be made upon each such dividend or other distribution, split or
combination.
(j) For the purpose hereof, the "Current Market Price" of one
share of Common Stock on any date shall be the last reported sales price regular
way or, in case no
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such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any national securities exchange, the
last reported sales price on the Nasdaq National Market, if the Common Stock is
included therein or, if not, the average of the highest reported bid and lowest
reported asked prices as reported by The Nasdaq Market, Inc., or, if not so
reported, as reported by the National Quotation Bureau Incorporated, or, if not
so reported, by the nearest comparable authoritative quotation system, or, if no
such price is available, as determined in good faith by the Board of Directors.
(k) The Company shall not, by amendment of its certificate of
incorporation or through any recapitalization or capital reorganization, sale,
exchange or other disposition of assets, merger, consolidation, dissolution,
liquidation, winding up, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed under this Section 3 or Section 4 by the Company,
but will at all times in good faith carry out all the provisions of this Section
3 or Section 4, as applicable, and take all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of 4%
Preferred Stock against impairment.
(l) Upon the occurrence of each adjustment or readjustment of the
Optional Conversion Price pursuant to this Section 3 or Mandatory Conversion
Price (as defined in Subsection 4(b)) pursuant to Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and cause its principal financial officer to prepare and
furnish to each holder of 4% Preferred Stock a certificate setting forth such
adjustment or readjustment and, in reasonable detail, the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time of any holder of 4% Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Optional Conversion Price and the Mandatory
Conversion Price in effect at such time for the 4% Preferred Stock; and (iii)
the number of shares of Common Stock and the amount, if any, of cash or other
property that at such time would be received upon the conversion of the 4%
Preferred Stock, pursuant to Section 3 or Section 4, as the case may be.
(m) In the event (i) any record date is fixed for the purpose of
determining the holders of any class or series of stock or other securities of
the Company who are entitled to receive any dividend or other distribution or
(ii) of any recapitalization or capital reorganization of the Company, any sale,
exchange or other disposition of all or substantially all the assets of the
Company, any merger or consolidation of the Company, or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the Company
shall mail to each holder of 4% Preferred Stock at least thirty (30) days prior
to the earliest applicable date set forth therein, a notice setting forth: (i)
such record date and a description of such dividend or distribution; (ii) the
date on which any such recapitalization, reorganization, disposition, merger,
consolidation, dissolution, liquidation or winding up is expected to become
effective; and (iii) the time, if any is to be fixed, as to when the holders of
record of
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Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such recapitalization, reorganization, disposition, merger, consolidation,
dissolution, liquidation or winding up.
(n) The Company shall pay any and all stamp, documentary or other
issue taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of 4% Preferred Stock.
(o) No adjustment of the Optional Conversion Price or Mandatory
Conversion Price shall be made in an amount less than one cent; provided that
any adjustment which is not made by reason of this Subsection 3(o) shall be
carried forward and shall be taken into account in any subsequent adjustment.
Except to the limited extent provided in Subsection 3(g)(iii)(C) or (D) or 3(h),
no adjustment of the Optional Conversion Price in accordance with Section 3
shall have the effect of increasing the Optional Conversion Price above the
Optional Conversion Price in effect immediately prior to such adjustment.
4. Mandatory Conversion.
(a) If the Current Market Price equals or exceeds $8.50 on any ten
(10) consecutive trading days in any Reference Period (as defined in Subsection
4(b)), commencing on or after March 1, 1998, the Company may, at its option,
convert all, but not less than all, of the 4% Preferred Stock then outstanding
into Common Stock, so that, on the Mandatory Conversion Date (as defined in
Subsection 4(d)), each share of 4% Preferred Stock shall be convertible into the
number of shares of Common Stock determined by dividing $2,000 (as adjusted for
any stock dividend, split, combination or other similar recapitalization or
capital reorganization of the Company) by the Mandatory Conversion Price.
(b) For the purposes of this Section 4:
(i) "Reference Period" means any period of thirty (30)
consecutive days on which the Common Stock is traded on the Nasdaq
National Market (or any exchange or other automated interdealer
quotation system or over-the-counter market so that a Current Market
Price is determinable on such day); and
(ii) "Mandatory Conversion Price" means the average Current
Market Price over the Reference Period ending on the fifth calendar
day preceding the date of the Conversion Notice (as defined in
Subsection 4(d)).
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of 4% Preferred Stock. In lieu of any fractional share
of Common Stock to which any holder of 4% Preferred Stock would be entitled
pursuant to this Section 4, but for the provisions of this Subsection 4(c),
based on the full number of shares of 4% Preferred
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Stock held by such holder, the Company shall pay cash in an amount equal to the
same fraction of the Mandatory Conversion Price.
(d) The Company shall give to each holder of record of 4%
Preferred Stock written notice of mandatory conversion (the "Conversion Notice")
on a date, which shall be a business day not less than thirty (30) nor more than
sixty (60) days after the date of the Conversion Notice (the "Mandatory
Conversion Date"), setting forth therein: (i) the Mandatory Conversion Price;
(ii) the number of shares of Common Stock into which such holder's shares of 4%
Preferred Stock are to be converted based on such Mandatory Conversion Price;
(iii) the amount of cash, if any, to be paid in lieu of a fractional share
pursuant to Subsection 4(c); (iv) that the conversion is to be effective on the
Mandatory Conversion Date; (v) the address of the place or places at which the
certificate or certificates representing such holder's shares of 4% Preferred
Stock are to be surrendered; and (vi) whether the certificate or certificates to
be surrendered are required to be endorsed for transfer or accompanied by a duly
executed stock power or other appropriate instrument of assignment and, if so,
the form of such endorsement or power or other instrument of assignment. The
Conversion Notice shall be sent by first class mail, postage prepaid, to each
holder of record of 4% Preferred Stock at such holder's address as it appears on
the records of the stock transfer agent for the 4% Preferred Stock, if any, or,
if none, of the Company. On or before the Mandatory Conversion Date, each holder
of 4% Preferred Stock shall surrender the certificate or certificates
representing all such holder's shares, duly endorsed for transfer or accompanied
by a duly executed stock power or other instrument of assignment, if the
Conversion Notice so provides, to the Company at any place set forth in such
notice or, if no such place is so set forth, at the principal executive offices
of the Company. As soon as practicable after the Mandatory Conversion Date and
the surrender of the certificate or certificates representing shares of 4%
Preferred Stock, the Company shall issue and deliver to each such holder, or its
nominee, at such holder's address as it appears on the records of the stock
transfer agent for the 4% Preferred Stock, if any, or, if none, of the Company a
certificate or certificates for the number of whole shares of Common Stock
issuable upon such conversion in accordance with the provisions hereof, together
with cash payable in lieu of any fraction of a share of Common Stock pursuant to
Subsection 4(c).
(e) All shares of 4% Preferred Stock outstanding on the Mandatory
Conversion Date shall be converted into Common Stock pursuant to this Section 4,
for all purposes, notwithstanding the failure of any holder or holders thereof
to surrender any certificate representing such shares on or prior to such date.
On and after the Mandatory Conversion Date, (i) no share of 4% Preferred Stock
shall be deemed to be outstanding or be transferrable on the books of the
Company or the stock transfer agent, if any, for the 4% Preferred Stock, and
(ii) each holder of 4% Preferred Stock, as such, shall not be entitled to
receive any dividends or other distributions, to receive notices or to vote such
shares or to exercise or to enjoy any other powers, preferences or rights in
respect thereof, other than the right, upon surrender of the certificate or
certificates representing such shares, to receive a certificate or certificates
for the number of shares of Common Stock into which such shares shall have been
converted and payment of cash payable in lieu of any fraction of a share of
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Common Stock. On the Mandatory Conversion Date, all shares of 4% Preferred Stock
shall be retired and resume the status of preferred stock of the Company without
designation.
5. Mandatory Redemption.
(a) At any time on or after April 1, 1998, the Company may, at its
option, redeem any or all shares of 4% Preferred Stock at a redemption price per
share (the "Redemption Price"), payable in cash of $2,000 (as adjusted for any
stock dividend, split, combination or other similar recapitalization or capital
reorganization of the Company) plus (i) the amount of dividends (as so adjusted)
accumulated thereon through the Dividend Payment Date most recently preceding
the Redemption Date (as defined in Subsection 5(b)), and (ii) the amount of any
other distributions (as so adjusted) declared but unpaid on the 4% Preferred
Stock. If fewer than all outstanding shares of 4% Preferred Stock are so to be
redeemed, the Company shall redeem such shares pro rata among the holders
thereof or by lot or by any other equitable method determined by the Company's
Board of Directors.
(b) To effect a redemption of shares of 4% Preferred Stock in
accordance with Subsection 5(a), the Company shall give written notice (a
"Redemption Notice") to each holder of 4% Preferred Stock all or part of whose
shares are to be redeemed, setting forth therein: (i) the date of such
redemption, which shall be a business day not less thirty (30) nor more than
sixty (60) days after the date of such Redemption Notice ( the "Redemption
Date"); (ii) the Redemption Price and the aggregate amount to be paid to such
holder in respect of the shares to be redeemed from such holder on the
Redemption Date; (iii) the address of the place or places at which the
certificate or certificates representing the shares so to be redeemed are to be
surrendered; and (iv) whether the certificate or certificates to be surrendered
are required to be endorsed for transfer or accompanied by a duly executed stock
power or other appropriate instrument of assignment and, if so, the form of such
endorsement or power or other instrument of assignment. The Redemption Notice
shall be sent by first class mail, postage prepaid, to each such holder at such
holder's address as it appears on the records of the stock transfer agent for
the 4% Preferred Stock, if any, or, if none, of the Company not less than thirty
(30) nor more than sixty (60) days prior to the Redemption Date.
(c) On or before the Redemption Date, each holder of 4% Preferred
Stock to be redeemed pursuant to the Redemption Notice shall surrender the
certificate or certificates representing such shares, duly endorsed for transfer
or accompanied by a duly executed stock power or other instrument of assignment,
if the Redemption Notice so provides, to the Company at any place set forth for
such purpose in the Redemption Notice or, if no such place is so set forth, at
the principal executive offices of the Company. Provided that such holder shall
have so surrendered such certificate or certificates, on the Redemption Date,
such holder shall become entitled to payment of the Redemption Price for such
shares, by check payable to the order of such holder sent by first-class mail,
postage prepaid, to such holder's address, as it appears on the records of the
stock transfer agent for the 4% Preferred Stock, if any, or, if none, of the
Company. If less than all the shares represented by any certificate so
surrendered are to be redeemed, the Company shall issue and
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deliver, or cause to be issued and delivered, in the same manner as the check
for payment of the Redemption Price is delivered, a new certificate representing
the shares not redeemed registered in the name of the holder of record of such
shares or, if such holder, by written notice given to the Company prior to the
Redemption Date so requests, in the name of such holder's nominee.
(d) The redemption of any shares of 4% Preferred Stock shall be
effective as of the opening of business on the Redemption Date, notwithstanding
the failure of the holder thereof to surrender any certificate or certificates
representing such shares on or prior to such date, after which time, (i) such
shares shall not be deemed to be outstanding and shall not be transferable on
the books of the Company or the stock transfer agent, if any, for the 4%
Preferred Stock, and (ii) each holder of such shares, as such, shall not be
entitled to receive any dividends or other distributions, to receive notices or
to vote such shares or to exercise or to enjoy any other powers, preferences or
rights in respect thereof, other than the right to receive the Redemption Price
for such shares, upon surrender of the certificate or certificates representing
such shares in accordance with the Redemption Notice.
(e) On the Redemption Date, all shares of 4% Preferred Stock so
redeemed by the Company shall be retired and resume the status of preferred
stock of the Company without designation.
6. Voting; Protective Provisions.
(a) Subject to Subsection 6(b), except as otherwise required by
the Delaware General Corporation Law or other applicable law, the holders of 4%
Preferred Stock shall not be entitled to vote on any matter on which the holders
of Common Stock or any other class of stock of the Company shall be entitled to
vote.
(b) The consent of the holders of a majority (or such greater
number as may then be required by law) of the shares of 4% Preferred Stock at
the time outstanding, given in person or by proxy, by a vote at a meeting called
for the purpose, or by consent in lieu thereof, at which the holders of shares
of 4% Preferred Stock shall vote together as a separate class, shall be
necessary for authorizing, effecting or validating:
(i) any action which alters in any manner the designation,
powers, preferences, rights, or qualifications, limitations or restrictions of
the 4% Preferred Stock;
(ii) any amendment to or waiver of any provision of the
Company's Restated Certificate of Incorporation (including this Certificate of
Designation) or by-laws relating to or affecting the 4% Preferred Stock; or
(iii) any increase in the number of shares of 4% Preferred
Stock that the Company is authorized to issue.
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7. Definition of Certain Preferences.
(a) For purposes hereof, any class or series of stock of the
Company shall be deemed to rank:
(i) senior to the 4% Preferred Stock either as to dividends
or upon liquidation, if a holder of shares of that class or series of stock
shall be entitled to receive dividends or amounts distributable upon
dissolution, liquidation or winding up of the Company, as the case may be, in
preference or priority to the holders of shares of 4% Preferred Stock;
(ii) on a parity with the 4% Preferred Stock, either as to
dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates, redemption or liquidation prices per share or conversion or
sinking fund provisions, if any, are different from those of the 4% Preferred
Stock, if a holder of shares of that class or series of stock shall be entitled
to receive dividends or amounts distributable upon dissolution, liquidation or
winding up of the Company, as the case may be, in proportion to their respective
dividend preferences (whether based on their respective dividend rates or the
respective amounts of accumulated and unpaid dividends thereon) or their
respective liquidation preferences, without preference or priority, one over the
other, as between the holders of shares of that class or series of stock and the
holders of shares of 4% Preferred Stock; and
(iii) junior to the 4% Preferred Stock, either as to dividends
or upon liquidation, if a holder of shares of 4% Preferred Stock shall be
entitled to receive dividends or amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of that class or series of stock.
(b) The 4% Preferred Stock shall rank as to dividends and upon
dissolution, liquidation or winding up of the Company, senior to (i) the Common
Stock, and (ii) each class or series of stock of the Company now or hereinafter
authorized, issued or outstanding that provides that it is junior to the 4%
Preferred Stock.
8. Certain Definitions.
(a) "Affiliate" of a Person means another Person that, directly or
indirectly, controls or is controlled by, or is under common control with, such
Person; for this purpose, "control" of a Person means the power (whether or not
exercised) to direct the policies, operations or activities of such Person by
reason of the ownership of, or right to vote, or direct the manner of voting of,
securities of such Person, or pursuant to agreement or applicable law or
otherwise.
(b) "Person" includes without limitation any natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, government or governmental agency, authority or
instrumentality, or any of the foregoing acting in concert.
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IN WITNESS WHEREOF, the undersigned has duly executed this Certificate on
the 23rd day of October, 1997.
JAKKS PACIFIC, INC.
By: /s/ Jack Friedman
-------------------------------------
Name: Jack Friedman
Title: President
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EXHIBIT 10.1
TRADEMARK PURCHASE AGREEMENT
THIS TRADEMARK PURCHASE AGREEMENT dated as of October 24, 1997, by and
between JAKKS Pacific, Inc., a Delaware corporation ("Buyer"), and Azrak-Hamway
International, Inc., a New York corporation ("Seller"),
W I T N E S S E T H :
WHEREAS, Seller owns the R/CG Trade Rights (as hereinafter defined); and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, the R/CG Trade Rights, on the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS.
Capitalized terms, not defined elsewhere herein, are used herein as
defined as follows:
1.1. "Affiliate" of a Person means another Person directly or
indirectly controlling, controlled by, or under common control with, such
Person; for this purpose, "control" of a Person means the power (whether or not
exercised) to direct the policies, operations or activities of such Person by
virtue of the ownership of, or right to vote, or direct the manner of voting of,
securities of such Person, or pursuant to agreement or Law or otherwise.
1.2. "Assignment" means the Assignment of R/CG Trade Rights,
substantially in the form of Exhibit A.
1.3. "Business" means the design, manufacture, distribution and
sale of Products as conducted by Seller during 1997.
1.4. "Closing" means the closing of the sale of the R/CG Trade
Rights as provided in Article 5.
1.5. [Reserved]
<PAGE> 2
1.6. "Closing Payment" means that portion of the Purchase Price, in
the amount of $10,600,000, payable in cash at the Closing.
1.7. "Confidentiality Agreement" means the Confidentiality
Agreement dated May 7, 1997 between Buyer and Seller.
1.8. "Consent" means any approval, authorization, consent or
ratification by or on behalf of any Person that is not a party to this
Agreement, or any waiver of, or exemption or variance from, any License or
Order.
1.9. "Contract" means any contract or evidence of indebtedness,
including without limitation any purchase, sales, supply or service order or
agreement, equipment lease, or license of Trade Rights.
1.10. "Copyright" means any copyright, claim of copyright or
registration or application for registration thereof.
1.11. "Governmental Authority" means any federal, state or local
government or governmental authority, agency or instrumentality, or any court or
arbitration panel of competent jurisdiction, or any recognized professional or
industry association or organization that establishes policies or standards or
otherwise regulates or supervises services and activities related to the
Business, the R/CG Trade Rights or the Products.
1.12. "Intercreditor Agreement" means the Intercreditor Agreement to
be dated as of the date hereof between Seller and Norwest Bank Minnesota,
National Association, substantially in the form of Exhibit B.
1.13. "Law" means any statute, rule, regulation or ordinance of any
Governmental Authority.
1.14. "License" means any license, permit, certification,
qualification, franchise or privilege issued or granted by any Governmental
Authority.
1.15. "Lien" means any security interest, conditional sale or other
title retention agreement, mortgage, pledge, lien, charge, encumbrance or other
adverse claim or interest.
1.16. "Material Adverse Effect" means a material adverse effect on
the R/CG Trade Rights or the Business.
1.17. "Note" means the Buyer's note in partial payment of the
Purchase Price, substantially in the form of Exhibit C.
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1.18. "Notice" means giving any notice to, or making any declaration
or filing, or registration or recordation with any Person.
1.19. "Order" means any judgment, order, writ, decree, award,
directive, ruling or decision of any Governmental Authority.
1.20. "Other Trade Right" means any Trade Right, other than an R/CG
Trade Right or a Trade Right listed on Schedule 1.27B, relating to any R/CG
Trade Right or Product or otherwise used by Seller in the Business at any time
during 1997.
1.21. "Patent" means any patent, letters patent, patent application
or patent claim.
1.22. "Person" includes without limitation a natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, Governmental Authority, or any group of the
foregoing acting in concert.
1.23. "Proceeding" means any action, suit, investigation or
proceeding, at law or in equity, before or by any Governmental Authority.
1.24. "Product" means any toy vehicle, model, action figure, doll,
game or other toy or assortment thereof offered for sale by Seller during 1997
under any R/CG Trade Right, as listed on Schedule 1.24.
1.25. "Purchase Price" means the total purchase price for the R/CG
Trade Rights in the amount of $11,800,000.
1.26. "R/CG Lienor" means any Person that holds or asserts a Lien on
or against any R/CG Trade Right.
1.27. "R/CG Trade Right" means a Trade Right owned by Seller and
used in the Business, including without limitation those listed on Schedule
1.27A (setting forth thereon a brief description, including, if applicable, the
date of any Notice to any Governmental Authority, or application therefor, and
number thereof), but excluding those listed on Schedule 1.27B.
1.28. "Restricted Business" means the business of designing,
manufacturing, distributing or selling toy vehicles or pre-school toys,
excluding however (i) any products sold under the license granted pursuant to
Section 6.4, (ii) any products listed on Schedule 1.27B, (iii) magnets, pens and
waterguns, (iv) any product currently offered for sale by Funomenon LLC or
American Marketing Enterprises, and (v) any product to be sold by Funomenon LLC
or American Marketing Enterprises to retailers whose sales are not primarily
toys or to buyers, other than buyers of pre-school toys or toy vehicles, of
other retailers.
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1.29. "Security Agreement" means the Security Agreement to be dated
as of the date hereof between Buyer and Seller, substantially in the form of
Exhibit D.
1.30. "Supply Agreement" means the Manufacturing and Supply
Agreement to be dated as of the date hereof between Buyer and Seller,
substantially in the form of Exhibit E.
1.31. "Trademark" means a trademark, trade name, brand name, service
mark, trade dress, logo, symbol, design or representation or expression of any
thereof, or registration or application for registration thereof.
1.32. "Trade Right" means a Trademark, Patent, Copyright, trade
secret or other proprietary or confidential intellectual property.
1.33. "Transaction Documents" means this Agreement, the Assignment,
the Intercreditor Agreement, the Note, the Security Agreement, the Supply
Agreement, and any other agreement, instrument, certificate or other document to
be delivered pursuant to this Agreement or in connection with the Closing.
2. PURCHASE AND SALE OF THE TRADEMARKS.
2.1. At the Closing, Seller shall sell, assign, convey, transfer
and deliver to Buyer the R/CG Trade Rights, and the goodwill of the business
symbolized by the Trademarks included therein, and for such purpose, shall
execute and deliver to Buyer the Assignment.
2.2. Buyer is not assuming any obligation or liability of Seller of
any nature whatsoever (including without limitation any obligation or liability
arising in contract, tort or strict liability), and all obligations and
liabilities of Seller are expressly retained by Seller.
2.3. As payment in full for the R/CG Trade Rights, at the Closing,
Buyer shall pay to Seller the Purchase Price by:
(a) paying to Seller the Closing Payment by federal funds
wire transfer to Seller's account; and
(b) delivering to Seller the Note.
2.4. The Purchase Price shall be allocated among the acquired
assets in accordance with Schedule 2.4. Seller and Buyer each agrees to file IRS
Form 8594, and all federal, state, local and foreign tax returns, in accordance
with such allocation schedule, and shall use their reasonable best efforts to
sustain such allocation in any subsequent tax audit or tax dispute.
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3. SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller hereby represents and warrants to Buyer as follows:
3.1. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York and has full power and
authority to own its assets and carry on its business as and in the places where
such assets are now owned or such business is now being conducted.
3.2. Seller has full corporate power and authority to execute and
deliver this Agreement and each other Transaction Document to which it is a
party and to assume and perform its obligations hereunder and thereunder. The
execution and delivery by Seller of this Agreement and each other Transaction
Document to which it is a party and the performance of its obligations hereunder
and thereunder have been duly authorized by all requisite corporate action on
the part of Seller. This Agreement has been, and each other Transaction Document
to which it is a party will be, duly executed and delivered by Seller, and this
Agreement is, and each other Transaction Document to which it is a party will
be, legally valid and binding obligations of Seller, enforceable against Seller
in accordance with their respective terms, except to the extent that such
enforceability may be subject to bankruptcy, insolvency, arrangement,
reorganization, fraudulent conveyance or transfer, moratorium and other laws and
court decisions now or hereafter in effect affecting or relating to creditors'
rights generally and is subject to the application of and may be limited by
general equitable principles. The execution and delivery of this Agreement do
not, and the execution and delivery of each other Transaction Document to which
it is a party, and the performance by Seller of its obligations hereunder and
thereunder, will not, violate any provision of Seller's Certificate of
Incorporation or By-Laws and do not and will not conflict with or result in any
breach of any condition or provision of, or constitute a default under, or
create or give rise to any adverse right of termination or cancellation by, or
excuse the performance of, any other Person under, any Contract to which Seller
is a party, except for the Factoring Agreement, dated January 31, 1985, between
Seller and NationsBank Commercial Corporation, as heretofore amended, and
related Security Agreement, or result in the creation or imposition of any Lien
upon any of the R/CG Trade Rights or have a Material Adverse Effect by reason of
the terms of, any Contract, Lien or Order to which Seller is a party or is
subject or which is or purports to be binding upon it or any of its assets.
3.3. Except as set forth on Schedule 3.3, no Consent of, or Notice
to, any Person is required as to Seller in connection with Seller's execution
and delivery of this Agreement or any other Transaction Document to which it is
a party, or the performance of Seller's obligations hereunder or thereunder.
3.4. Except as set forth on Schedule 3.11, no Proceeding is pending
or, to Seller's knowledge, threatened relating to the R/CG Trade Rights, the
Products, the Business or any other assets or operations of Seller in which an
unfavorable Order would have a
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Material Adverse Effect, or prohibit, invalidate or make unlawful, in whole or
in part, this Agreement or any other Transaction Document, or the carrying out
of the provisions hereof or thereof or the transactions contemplated hereby or
thereby, or adversely affect Seller's ability to perform its obligations
hereunder or thereunder.
3.5. Seller is not in default in respect of any Order or in
material breach of or default under any Contract, nor is there any such Order
enjoining Seller in respect of, or the effect of which is to prohibit or to
curtail Seller's performance of, or to adversely affect Seller's ability to
perform, its obligations hereunder or under any other Transaction Document to
which it is a party.
3.6. Schedule 3.6 sets forth gross sales and prime cost of goods
sold relating to products sold under the R/CG Trade Rights in 1996, which
schedule is complete and correct in all material respects.
3.7. Except for the R/CG Trade Rights, the Other Trade Rights and
the Trade Rights listed on Schedule 1.27B, Seller is not using and has not used
any Trade Right in the Business at any time during 1997.
3.8. No Affiliate of Seller directly or indirectly (other than
through any ownership or controlling interest in Seller) engages in the Business
or owns or has any right or interest in any R/CG Trade Right or Other Trade
Right.
3.9. Except as set forth on Schedules 3.9 and 3.11, Seller (a) owns
all the United States R/CG Trade Rights, and (b) has not taken any action to
create, grant or incur any Lien on any R/CG Trade Right.
3.10. Schedule 3.10 is a complete and correct list of all licenses
and other Contracts pursuant to which Seller uses or has a right to use any
Other Trade Right. Except as set forth on Schedule 3.10, each such Contract is
in full force and effect and there is no material breach or default thereunder
by Seller or, to Seller's knowledge, any other party. True copies of all such
written Contracts have been heretofore delivered to Buyer.
3.11. Except as set forth on Schedule 3.11, no R/CG Trade Right and,
to Seller's knowledge, no use by Seller of any Other Trade Right conflicts with
or infringes on, and there has been no misappropriation or unauthorized use by
Seller of, any Trade Right of any other Person, and, to Seller's knowledge, no
Trade Right of any other Person conflicts with or infringes on, and there has
been no misappropriation or unauthorized use by any other Person of, any R/CG
Trade Right or Seller's use of any Other Trade Right. Except as set forth on
Schedule 3.11, since January 1, 1993, there has not been any claim, dispute or
Proceeding in the United States, or, to Seller's knowledge, any claim, dispute,
action, suit, investigation or proceeding outside the United States relating to
any R/CG Trade Right or any product offered for sale by Seller under any R/CG
Trade Right at any time since January 1, 1993, against Seller, including without
limitation any opposition, interference or other
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challenge to the validity of, or use by, or rights of Seller in any R/CG Trade
Right or Proceeding to deny, cancel, revoke, rescind or modify any registration
of any R/CG Trade Right or, to Seller's knowledge, Other Trade Right.
3.12. Since January 1, 1993, Seller has obtained and maintains all
Consents and Licenses required for the conduct of its business of designing,
manufacturing, distributing and selling products under the R/CG Trade Rights in
the United States and Seller has conducted such business in compliance with all
applicable Laws and Orders, except where the failure to have obtained or
maintain such Consent or License or so to conduct such business would not have a
Material Adverse Effect. Schedule 3.12 is a correct and complete list of all
such Consents, Licenses and Orders applicable to the Business conducted by
Seller.
3.13. Seller is not in material breach of or default, nor has Seller
received Notice of any breach or default, under any Contract with any
manufacturer or other supplier of Products to Seller.
3.14. Seller is, and after giving effect to the transactions
contemplated hereby will be, solvent. Seller has, and after giving effect to the
transactions contemplated hereby will have, sufficient capital to conduct its
business in ordinary course and sufficient funds to pay its debts as they become
due.
3.15. Seller has not employed or engaged any Person to act as a
broker, finder or other intermediary in connection with the transactions
contemplated hereby, and no Person is entitled to any fee, commission or other
compensation relating to any such employment or engagement by Seller, except
Gerard Klauer Mattison & Co. LLC.
3.16. Seller's principal executive offices, where its books and
records are located, are in New York County, New York State.
3.17. No representation or warranty by Seller in this Agreement or
in any instrument, certificate, schedule or other document furnished pursuant
hereto or in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements or facts contained therein not misleading.
4. BUYER'S REPRESENTATIONS AND WARRANTIES.
Buyer hereby represents and warrants to Seller as follows:
4.1. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full power and
authority to own its assets and carry on its business as and in the places where
such assets are now owned or such business is now being conducted.
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4.2. Buyer has full corporate power and authority to execute and
deliver this Agreement and each other Transaction Document to which it is a
party and to assume and perform its obligations hereunder and thereunder. The
execution and delivery by Buyer of this Agreement and each other Transaction
Document to which it is a party and the performance of its obligations hereunder
and thereunder have been duly authorized by all requisite corporate action on
the part of Buyer. This Agreement has been, and each other Transaction Document
to which it is a party will be, duly executed and delivered by Buyer, and this
Agreement is, and each other Transaction Document to which it is a party will
be, legally valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms, except to the extent that such
enforceability may be subject to bankruptcy, insolvency, arrangement,
reorganization, fraudulent conveyance or transfer, moratorium and other laws and
court decisions now or hereafter in effect affecting or relating to creditors'
rights generally and is subject to the application of and may be limited by
general equitable principles. The execution and delivery of this Agreement do
not, and the execution and delivery of the each other Transaction Document to
which it is a party, and the performance by Buyer of its obligations hereunder
and thereunder, will not, violate any provision of Buyer's Certificate of
Incorporation or By-Laws and do not and will not conflict with or result in any
breach of any condition or provision of, or constitute a default under, or
create or give rise to any adverse right of termination or cancellation by, or
excuse the performance of, any other Person, or result in the creation or
imposition of any Lien upon Buyer or any of its assets or the acceleration of
the maturity or date of payment or other performance of any obligation of Buyer
by reason of the terms of, any Contract, Lien or Order to which Buyer is a party
or is subject or which is or purports to be binding upon it or any of its
assets.
4.3. No Proceeding is pending or, to the best of Buyer's knowledge,
threatened relating to the assets, operations or financial or other condition of
Buyer in which an unfavorable Order would prohibit, invalidate or make unlawful,
in whole or in part, this Agreement or any other Transaction Document, or the
carrying out of the provisions hereof or thereof or the transactions
contemplated hereby or thereby, or adversely affect Buyer's ability to perform
its obligations hereunder or thereunder.
4.4. Buyer is not in default in respect of any Order or in material
breach of or default under any Contract, nor is there any such Order enjoining
Buyer in respect of, or the effect of which is to prohibit or to curtail Buyer's
performance of, or to adversely affect Buyer's ability to perform, its
obligations hereunder or under any other Transaction Document to which it is a
party.
4.5. Buyer is not required to obtain or maintain any Consents or
Licenses for the conduct of its business in the United States and Buyer conducts
its business in compliance with all applicable Laws and Orders, except where the
failure to have obtained or maintain such a Consent or License or so to conduct
its business would not have a material adverse effect on its business.
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4.6. Buyer has not employed or engaged any Person to act as a
broker, finder or other intermediary in connection with the transactions
contemplated hereby, and no Person is entitled to any fee, commission or other
compensation relating to any such employment or engagement by Buyer.
4.7. No representation or warranty by Buyer in this Agreement or in
any instrument, certificate, schedule or other document furnished pursuant
hereto or in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements or facts contained therein not misleading.
5. CLOSING.
5.1. The Closing shall be held at the offices of Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue, New York, New York
10022 on October 24, 1997, or at such other place or on such other date, and at
such time, as the parties hereto may agree. The execution and/or delivery of
each document to be executed and/or delivered at the Closing and each other
action to be taken at the Closing shall be subject to the condition that every
other document to be executed and/or delivered at the Closing is so executed
and/or delivered and every other action to be taken at the Closing is so taken,
and all such documents and actions shall be deemed to be executed and/or
delivered or taken, as the case may be, simultaneously.
5.2. At the Closing, Seller shall:
(a) execute and deliver to Buyer the Assignment, the
Security Agreement and the Supply Agreement;
(b) deliver to Buyer a copy of an amendment or supplement to
the security agreement with each R/CG Lienor pursuant to which, or other written
evidence, in form and substance reasonably satisfactory to Buyer, that, the R/CG
Trade Rights have been released from the Lien of such R/CG Lienor, and, if a
financing statement or other Notice has been given or made with respect to such
Lien, a Form UCC-3 or other written Notice evidencing such release, executed by
such R/CG Lienor, and in suitable form for filing, registration or recordation;
(c) deliver to Buyer the opinions of Kramer, Levin, Naftalis
& Frankel and Amster, Rothstein & Ebenstein, substantially in the form of
Exhibit F-1 and F- 2, respectively;
(d) deliver to Buyer a copy of the Intercreditor Agreement;
and
(e) deliver to Buyer a secretarial certificate as to
incumbency of officers and certain other matters.
9
<PAGE> 10
5.3. At the Closing, Buyer shall:
(a) pay the Purchase Price by making the Closing Payment and
delivering the Note to Seller as provided in Section 2.3;
(b) execute and deliver to Seller the Security Agreement and
the Supply Agreement;
(c) deliver to Seller the opinion of Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, substantially in the form of Exhibit G; and
(d) deliver to Seller a secretarial certificate as to
incumbency of officers and certain other matters.
6. ADDITIONAL COVENANTS OF BUYER AND SELLER.
6.1. From and after the date hereof, Seller shall keep absolutely
confidential all material commercially sensitive information relating to or
concerned with the R/CG Trade Rights, the Other Trade Rights, the Products and
the Business, including without limitation all product information, customer and
supplier lists, marketing and sales data, personnel and financing and tax
matters; provided that Seller may use or disclose any such information (a) for
the purpose of recovering, but only to the extent reasonably necessary to pursue
its remedies hereunder or under the Security Agreement in any Proceeding to
recover, the R/CG Trade Rights, and (b) if it so recovers the R/CG Trade Rights,
without restriction hereunder. Seller acknowledges that the confidentiality of
all such information is absolutely essential to the operation of Buyer's
Business. Seller shall not, at any time after the date hereof, use or disclose
to any Person any such information, without Buyer's prior written consent,
except as may be required by Law or any Order (in which case Seller shall
promptly give notice to Buyer of any Order, demand, subpoena or other legal
process requiring disclosure so that Buyer may seek a protective Order or other
confidential treatment of such information), unless, with respect to disclosure
of such information to a third party, such information (i) is or shall have
become generally available to the public through no wrongful act or omission of
Seller, or (ii) is independently disclosed to Seller after the date hereof by a
third party who or which did not acquire such information under any obligation
of confidentiality to Buyer, including without limitation, as a direct or
indirect result of the breach by any other party of any obligation of
confidentiality to Buyer.
6.2. (a) From and after the date hereof and until October 24, 2002,
unless Seller or another creditor of Buyer shall theretofore recover or dispose
of the R/CG Trade Rights pursuant to the Security Agreement, Seller shall not,
and shall not permit any Affiliate of Seller to, directly or indirectly, engage
in the Restricted Business, or license to any Person, or permit the use by any
Person of, its name or any Trade Right in connection with such Person's engaging
in the Restricted Business, or serve as a partner, manager, director, officer or
employee of, or consultant or advisor to, or in any manner own, control,
10
<PAGE> 11
manage, operate, or otherwise participate or invest in, or be connected with,
any Person that engages in the Restricted Business.
(b) From and after the date hereof and until October 24,
1998, unless Seller shall recover the R/CG Trade Rights pursuant to the Security
Agreement, Seller shall not for itself or on behalf of any other Person, without
Buyer's prior written consent, employ, engage or retain any Person who at any
time during the preceding 12 month period shall have been an employee of Buyer,
or contact any employee of Buyer for the purpose of soliciting or diverting any
such employee from Buyer.
(c) The foregoing provisions notwithstanding, Seller and any
Affiliate of Seller may invest its funds in securities that are listed for
trading on a registered stock exchange or actively traded in the
over-the-counter market if Seller's and all of Seller's Affiliates' aggregate
holdings therein represent less than 5% of the total number of shares or
principal amount of such securities then outstanding.
(d) Seller acknowledges that the provisions of this Section
6.2, and the period of time, geographic area and scope and type of restrictions
on its activities set forth herein, are reasonable and necessary for the
protection of Buyer and are an essential inducement to Buyer's purchase of the
R/CG Trade Rights.
6.3. From and after the date hereof, Buyer shall keep absolutely
confidential all material commercially sensitive information relating to or
concerned with Seller, including without limitation all financial information,
product information, customer and supplier lists, marketing and sales data,
personnel and financing and tax matters, but excluding information the
disclosure of which is necessary for the sale of products under the R/CG Trade
Rights. Buyer acknowledges that the confidentiality of all such information is
absolutely essential to Seller. Buyer shall not, at any time after the date
hereof, use or disclose to any Person any such information, without Seller's
prior written consent, except as may be required by Law or any Order (in which
case Buyer shall promptly give notice to Seller of any Order, demand, subpoena
or other legal process requiring disclosure so that Seller may seek a protective
Order or other confidential treatment of such information), unless, with respect
to disclosure of such information to a third party, Buyer can demonstrate that
such information (i) is or shall have become generally available to the public
through no wrongful act or omission of Buyer, (ii) was, prior to its disclosure
by or on behalf of Seller to Buyer, already in Buyer's lawful possession, or
(iii) was or shall be independently disclosed to Buyer by a third party who or
which did not acquire such information under any obligation of confidentiality
to Seller, including without limitation, as a direct or indirect breach by any
other party of any obligation of confidentiality to Seller.
6.4. Buyer hereby grants to Seller a worldwide royalty-free license
to use the R/CG Trade Rights during the period commencing on the date hereof and
ending on January 31, 1998, solely for the purpose of marketing, distributing
and selling any Products
11
<PAGE> 12
owned on September 30, 1997, as listed on Schedule 6.4, as well as waterguns and
pens and Steel Tec products sold under the Remco Trademark, or to be delivered
to Seller pursuant to currently outstanding non-cancelable purchase orders after
the date hereof; provided that any such sales shall be made in a manner
consistent with sales made to customers of Seller in 1997 at prices reflecting
commercially reasonable rates. All products sold by Seller during the term of
this license shall be of a high quality consistent with the standards
established by Buyer for Products to be sold under the R/CG Trade Rights;
provided that Buyer acknowledges that any products offered for sale under this
license that are similar to those heretofore sold by Seller are consistent with
such standards. During the term of such license, or, if earlier, until all such
Products are sold by Seller, (a) Buyer shall not sell any Products to any
customer listed on Schedule 6.4; and (b) Buyer shall have the right to inspect,
in a commercially reasonable manner, all products sold by Seller pursuant to
this license to confirm the quality and condition of such products. Promptly
upon termination of this license, Seller may sell, at close-out prices, all
products remaining in Seller's inventory; provided that Buyer shall have a right
of first refusal to purchase such Products at such prices.
6.5. Buyer shall maintain product liability insurance covering all
products manufactured and sold by Buyer using the R/CG Trade Rights, with Seller
named as an additional insured thereon, reasonably satisfactory to Seller, for a
period of six years from the date hereof.
7. INDEMNIFICATION.
7.1. Seller shall indemnify Buyer and each shareholder, director,
officer, employee and agent of Buyer against, and hold each of them harmless
from, any loss, liability, obligation, damage or expense (including reasonable
attorneys' fees and disbursements) which Buyer or any shareholder, director,
officer, employee or agent of Buyer may suffer or incur incidental to any claim
or any Proceeding against Buyer or any shareholder, director, officer, employee
or agent of Buyer based upon or resulting from:
(a) any obligation or liability of Seller of any nature
whatsoever which arose prior to the date hereof or which may arise from the sale
of products by Seller under the license granted under Section 6.4 (including
without limitation any obligation or liability arising in contract, tort or
strict liability);
(b) the failure of any representation or warranty made by
Seller to be true in all material respects on the date hereof; or
(c) Seller's failure, in all material respects, to perform
or to comply with any covenant required of Seller to be performed or complied
with hereunder.
7.2. Buyer shall indemnify Seller and each shareholder, director,
officer, employee and agent of Seller against, and hold each of them harmless
from, any loss,
12
<PAGE> 13
liability, obligation, damage or expense (including reasonable attorneys' fees
and disbursements) which Seller or any shareholder, director, officer, employee
or agent of Seller may suffer or incur incidental to any claim or any Proceeding
against Seller or any shareholder, director, officer, employee or agent of
Seller based upon or resulting from:
(a) any obligation or liability arising from or based upon
Buyer's conduct of its business after the Closing;
(b) the failure of any representation or warranty made by
Buyer to be true in all material respects on the date hereof; or
(c) Buyer's failure, in all material respects, to perform or
to comply with any covenant required of Buyer to be performed or complied with
hereunder.
7.3. Promptly after Notice to an indemnified party of any claim or
the commencement of any Proceeding by a third party involving any loss,
liability, obligation, damage or expense referred to in Section 7.1 or 7.2, such
indemnified party shall, if a claim for indemnification in respect thereof is to
be made against an indemnifying party, give written Notice to the latter of the
commencement of such claim or Proceeding, setting forth in reasonable detail the
nature thereof and the basis upon which such party seeks indemnification
hereunder; provided that the failure of any indemnified party to give such
Notice shall not relieve the indemnifying party of its obligations under such
Section, except to the extent that the indemnifying party is actually prejudiced
by the failure to give such Notice. In case any such Proceeding is brought
against an indemnified party, and provided that proper Notice is duly given, the
indemnifying party may assume the defense thereof insofar as such Proceeding
involves any loss, liability, obligation, damage or expense in respect of which
indemnification may be sought hereunder, with counsel reasonably satisfactory to
such indemnified party, and, after Notice from the indemnifying party to such
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by such
indemnified party as a result of the settlement or compromise thereof (without
the written consent of the indemnifying party), except that, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines based upon written advice of
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the other party or that a
material conflict of interest between such parties may exist in respect of such
Proceeding, the indemnifying party may decline to assume the defense on behalf
of the indemnified party or the indemnified party may retain the defense on its
own behalf, and, in either such case, after Notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses, including without
13
<PAGE> 14
limitation reasonable attorneys' fees and disbursements incurred by the
indemnified party in such defense; provided, however, that the indemnifying
party shall not be liable for such expenses on account of more than one separate
firm of attorneys (and, if necessary, local counsel) at any time representing
such indemnified party in connection with any Proceeding or separate Proceedings
in the same jurisdiction arising out of or based upon substantially the same
allegations or circumstances. If the indemnifying party shall assume the defense
of any such Proceeding, the indemnified party shall cooperate fully with the
indemnifying party and shall appear and give testimony, produce documents and
other tangible evidence, allow the indemnifying party access to the books and
records of the indemnified party and otherwise assist the indemnifying party in
conducting such defense. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
or compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper Notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, the indemnified party may respond to, contest and
defend against such Proceeding (but the indemnifying party shall have the right
to participate at its own cost and expense in such defense by counsel of its own
choice) and may make in good faith any compromise or settlement with respect
thereto, provided such settlement or compromise is entered into with the written
consent of the indemnifying party, and recover the entire cost and expense
thereof, but only with the written consent of the indemnifying party, including
without limitation reasonable attorneys' fees and disbursements and all amounts
paid or foregone as a result of such Proceeding, or the settlement or compromise
thereof, from the indemnifying party. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.
7.4. Any other provision hereof notwithstanding:
(a) no party hereto shall be required to indemnify any
Person unless and until the aggregate amount of loss, liability, obligation,
damage or expense as to which indemnification would be required from such party
(but for the provisions of this Section 7.4) exceeds $125,000, and thereafter
such party shall be required in the manner and to the extent otherwise provided
in this Article 7 to indemnify any Person and pay all amounts required to be
paid by such party in respect of any liability, obligation, damage or expense
suffered or incurred by such Person in excess of such amount; and
(b) the aggregate amount required to be paid by Buyer or
Seller pursuant to this Article 7 shall not exceed (i) at any time during the
period commencing on the date hereof and ending on October 24, 1999, the sum of
the Closing Payment and the aggregate amount of principal paid to Seller under
the Note prior to such time, or (ii) at any time during the period commencing on
October 25, 1999 and ending April 24, 2000, the sum of one-half of the Closing
Payment and $600,000.
14
<PAGE> 15
8. MISCELLANEOUS.
8.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each party herein shall survive the Closing,
notwithstanding any investigation or inquiry made by the other party, and
continue until April 24, 2000, except that the representations and warranties of
Seller made in Section 3.9 shall survive without limitation hereunder.
8.2. LIMITATION OF AUTHORITY. No provision hereof shall be deemed
to create any partnership, joint venture or joint enterprise or association
between the parties hereto, or to authorize or to empower either party hereto to
act on behalf of, obligate or bind the other party hereto.
8.3. FEES AND EXPENSES. Each party hereto shall bear such fees and
expenses as may be incurred by it in connection with this Agreement and the
transactions contemplated hereby.
8.4. NOTICES. Any Notice or demand required or permitted to be
given or made hereunder to or upon either party hereto shall be deemed to have
been duly given or made for all purposes if (a) in writing and sent by (i)
messenger or an overnight courier service against receipt, or (ii) certified or
registered mail, postage paid, return receipt requested, or (b) sent by
telegram, telecopy, telex or similar electronic means, provided that a written
copy thereof is sent on the same day by postage-paid first-class mail, to such
party at the following address:
to Seller at: Azrak-Hamway International, Inc.
1107 Broadway, Suite 808
New York, New York 10010-2894
Attn: President
Fax (212) 243-4271
with a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022-3903
Attn: David P. Levin, Esq.
Fax (212) 715-8000
to Buyer at: JAKKS Pacific, Inc.
22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
15
<PAGE> 16
with a copy to: Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
or such other address as either party hereto may at any time, or from time to
time, direct by Notice given to the other party in accordance with this Section.
The date of giving or making of any such Notice or demand shall be, in the case
of clause (a) (i), the date of the receipt; in the case of clause (a) (ii), five
business days after such Notice or demand is sent; and, in the case of clause
(b), the business day next following the date such Notice or demand is sent. Any
such Notice may be given on behalf of any party by its counsel.
8.5. AMENDMENT. Except as otherwise provided herein, no amendment
of this Agreement shall be valid or effective, unless in writing and signed by
or on behalf of the parties hereto.
8.6. WAIVER. No course of dealing or omission or delay on the part
of either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
8.7. GOVERNING LAW. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
8.8. JURISDICTION. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the Supreme Court of the
State of New York or the United States District Court for the Southern District
of New York in connection with any Proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, waives any objection to venue
in the County of New York, State of New York. or such District, and agrees that
service of any summons, complaint, Notice or other process relating to such
Proceeding may be effected in the manner provided by clause (a) (ii) of Section
8.4.
8.9. REMEDIES. In the event of any actual or prospective breach or
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages; provided,
however, that
16
<PAGE> 17
the indemnification provisions of Article 7 shall be the sole and exclusive
remedy with respect to any claim under this Agreement.
8.10. SEVERABILITY. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
8.11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute
one and the same agreement.
8.12. FURTHER ASSURANCES. Each party hereto shall promptly execute,
deliver, file or record such agreements, instruments, certificates and other
documents and perform such other and further acts as the other party hereto may
reasonably request, provided that the requesting party bears any costs related
thereto, or as may otherwise be necessary or proper to consummate and perfect
the transactions contemplated hereby. In particular, from time to time after the
Closing, without cost to Seller, Seller shall execute any further instruments
provided by Buyer to Seller pursuant to Notice as may be reasonably necessary to
make effective the assignment of the R/CG Trade Rights, including without
limitation forms of assignment suitable for recordation in each foreign
jurisdiction where a Trademark application or registration is of record. All
costs, including fees and taxes, related to the preparation and recordation of
any such further instruments shall be the sole responsibility of Buyer.
8.13. ASSIGNMENT. This Agreement, and each right, interest and
obligation hereunder, may not be assigned by either party hereto without the
prior written consent of the other party hereto, and any purported assignment
without such consent shall be void and without effect.
8.14. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not intended, and shall not be deemed, to
create or confer any right or interest for the benefit of any Person not a party
hereto.
(the next page is numbered 17-a)
17
<PAGE> 18
8.15. TITLES AND CAPTIONS. The titles and captions of the Articles
and Sections of this Agreement are for convenience of reference only and do not
in any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
8.16. GRAMMATICAL CONVENTIONS. Whenever the context so requires,
each pronoun or verb used herein shall be construed in the singular or the
plural sense and each capitalized term defined herein and each pronoun used
herein shall be construed in the masculine, feminine or neuter sense.
8.17. REFERENCES. The terms "herein," "hereto," "hereof," "hereby,"
and "hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
8.18. NO PRESUMPTIONS. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
8.19. INCORPORATION BY REFERENCE. The Exhibits and Schedules hereto
are an integral part of this Agreement and are incorporated in their entirety
herein by this reference.
8.20. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
any prior agreement, commitment or arrangement relating thereto.
17-a
<PAGE> 19
IN WITNESS WHEREOF, the parties have, by their respective duly authorized
officers, duly executed this Agreement on the date set forth in the Preamble
hereto.
AZRAK-HAMWAY INTERNATIONAL, INC. JAKKS PACIFIC, INC.
By: /s/ Ezra Hamway By: /s/ Jack Friedman
-------------------------------- -----------------------------------
Name: Ezra Hamway Name: Jack Friedman
Title: President Title: President
18
<PAGE> 20
EXHIBIT A
ASSIGNMENT OF TRADEMARKS
AZRAK-HAMWAY INTERNATIONAL, INC., a New York corporation ("Assignor"), for
good and valuable consideration, pursuant to the Trademark Purchase Agreement
dated as of October 24, 1997 between Assignor and JAKKS PACIFIC, INC., a
Delaware corporation ("Assignee"), and Assignor, does hereby sell, assign,
convey and transfer to Assignee all of Assignor's right, title and interest in
and to the R/CG Trade Rights (as defined in the Agreement), including without
limitation the trademarks, and all registrations and applications for
registration thereof, throughout the world, as set forth on Schedule A hereto,
together with the goodwill of the business represented thereby or associated
therewith.
IN WITNESS WHEREOF, the undersigned have, by their duly authorized
officers, duly executed this Assignment of Trademarks as of this 24th day of
October, 1997.
ASSIGNOR: AZRAK-HAMWAY INTERNATIONAL, INC.
By: ________________________________________
Name:
Title:
ASSIGNEE: JAKKS PACIFIC, INC.
By: ________________________________________
Name: Stephen G. Berman
Title: Executive Vice President
<PAGE> 21
SCHEDULE A
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
1
<PAGE> 22
SCHEDULE A (cont'd)
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
============= ========================= =============== ===================== ===================
<S> <C> <C> <C> <C>
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
20
25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
24
U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
</TABLE>
* Intent to Use
2
<PAGE> 23
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
============= ========================= =============== ===================== ===================
<S> <C> <C> <C> <C>
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 1036/80
France Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 84241
Italy Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
24
Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
</TABLE>
* Intent to Use
3
<PAGE> 24
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
============= ========================= =============== ===================== ===================
<S> <C> <C> <C> <C>
Singapore Remco 28 77145 77145
Spain Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco NA 22 5120-78 96.302F
</TABLE>
* Intent to Use
4
<PAGE> 25
EXHIBIT B
INTERCREDITOR AGREEMENT
This Agreement is entered into as of the ___ day of _____________, 1997,
by and among Azrak-Hamway International, Inc., a New York corporation ("AHI")
and Norwest Bank Minnesota, National Association, a national banking association
(the "Lender").
RECITALS
A. JAKKS Pacific, Inc. ("JAKKS") has entered into a Trademark Purchase
Agreement with AHI on or about the date of this Agreement (the "Trademark
Purchase Agreement"), pursuant to which JAKKS is purchasing from AHI the
Trademarks (as defined in the Trademark Purchase Agreement) subject to the terms
of the Trademark Purchase Agreement.
B. A portion of the Purchase Price (as defined in the Trademark
Purchase Agreement) being paid to JAKKS for the Trademarks is being paid by the
issuance and delivery by JAKKS to AHI of a Secured Note, payable to the order of
AHI in the original principal amount of $1,200,000 (the "Secured Note").
C. The Secured Note is secured by JAKKS granting to AHI of a security
interest in the Trademarks.
D. JAKKS and certain affiliates of JAKKS have requested the Lender to
make loans and extend other credit and financial accommodations to JAKKS and
such affiliates.
E. As a condition to making loans and extending other credit and
financial accommodations to JAKKS and its affiliates, the Lender has required,
among other things, that AHI enter into this Agreement with the Lender.
ACCORDINGLY, in consideration of the premises, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Lender and AHI hereby agree as follows:
1. AHI will not accelerate the maturity of the indebtedness evidenced
by the Note or exercise any or right or remedy available to AHI under the
Trademark Purchase Agreement, the Secured Note or otherwise or exercise any
right or remedy with respect to its security interest in the Trademark, unless
AHI has provided the Lender with not less than ten (10) days prior written
notice of any of the above-described actions.
2. AHI agrees that the Lender shall have the right to sell or otherwise
dispose of all of the Lender's collateral bearing or using the Trademark for
which the Lender has provided financing or extended credit prior to the Lender's
receipt of written notice from
<PAGE> 26
AHI that AHI has reacquired the Trademark through the exercise of its rights or
remedies or otherwise, all without any charge, cost or expense to the Lender.
3. All notices and other communications hereunder shall be in writing
and shall be (i) personally delivered, (ii) transmitted by registered mail,
postage prepaid, or (iii) transmitted by telecopy, in each case addressed to the
party to whom notice is being given at its address as set forth below:
If to the Lender:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0085
Attention: Lisa M. Hippen
Telecopier: (612) 667-2269
If to AHI:
Azrak-Hamway International, Inc.
1107 Broadway, Suite 808
New York, New York 11010-2894
Attention: President
Telecopier: (212) 243-4271
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
4. Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Minnesota.
5. Binding Effect; Acceptance. This Agreement shall be binding upon the
parties and their successors and assigns and shall inure to the benefit of the
parties and their participants, successors and assigns.
6. Miscellaneous. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
NORWEST BANK MINNESOTA
NATIONAL ASSOCIATION
By: _____________________________
Its _________________________
AZRAK-HAMWAY INTERNATIONAL, INC.
By: _____________________________
Its _________________________
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ACKNOWLEDGMENT BY JAKKS PACIFIC AND SUBSIDIARIES
The undersigned, being JAKKS Pacific, hereby acknowledges reciept of a
copy thereof and agrees to all of the terms and provisions thereof.
JAKKS PACIFIC, INC.
By: _____________________________
Its _________________________
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<PAGE> 29
EXHIBIT C
PROMISSORY NOTE
$1,200,000.00 October 24, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, JAKKS Pacific, Inc., a Delaware
corporation (the "Maker") hereby promises to pay to the order of Azrak-Hamway
International, Inc., a New York corporation (the "Payee"), or its assigns, at
its offices at 1107 Broadway, Suite 808, New York, New York 10010-2894, or at
such other place as may be designated in writing from time to time by the Payee,
the principal sum of One Million Two Hundred Thousand Dollars ($1,200,000.00) on
or before December 31, 1998 (the "Maturity Date"), payable in five consecutive
quarterly installments in the amount of $240,000.00, plus interest at a rate of
ten percent (10%) per annum on the unpaid principal amount, on the last day of
each December, March, June and September after the date hereof through and
including the Maturity Date (each, a "Payment Date"). Upon the occurence of an
Acceleration Event (as defined below) interest shall accrue on the unpaid
principal balance hereunder at the rate of thirteen percent (13%) per annum.
Interest shall be computed on the basis of a 365-day year and the actual number
of days elapsed. Payments under this Note shall be made in lawful money of the
United States and in immediately available funds.
Pursuant to the Security Agreement, dated as of the date hereof (the
"Security Agreement"), between the Maker and the Payee, the Maker has pledged
certain assets as collateral (the "Collateral") to the Payee to secure its
prompt and full performance of its obligations hereunder and thereunder. To the
extent that the Collateral is insufficient to satisfy all of the Maker's
obligations under this Note, the Maker shall remain liable for any such
deficiency.
This Note may be prepaid in whole at any time or in part from time
to time, together with accrued interest on the amount prepaid to the date of
prepayment, at the option of the Maker, without premium or penalty.
Upon the occurrence of any of the following events (the
"Acceleration Events"):
(a) The failure of the Maker to make any payment of principal of,
or interest on, this Note when due and payable, and such failure shall
have continued unremedied for a period of ten (10) days;
(b) In the event that the Maker breaches any obligation, covenant,
agreement, warranty or representation contained in the Manufacturing and
Supply Agreement, dated as of the date hereof, by and between the Maker
and the Payee (the "Manufacturing Agreement"), including, without
limitation, the obligation of the Maker to make any quarterly payment
provided for therein within five (5) days of such payments becoming due;
<PAGE> 30
(d) The Maker shall default in due observance or performance of
any term, obligation, agreement or covenant to be observed or performed by
such Maker pursuant to any evidence of indebtedness or liability for
borrowed money in excess of $500,000 (other than this Note), if such
default permits the obligee thereof to accelerate the maturity of such
evidence of indebtedness or liability;
(e) If any voluntary proceeding by the Maker is commenced under
any chapter of the Federal Bankruptcy Code or other law relating to
bankruptcy, bankruptcy reorganization, insolvency or relief of debtors, or
any such proceeding is commenced against the Maker and such proceeding is
not dismissed within sixty (60) days from the date on which it is filed or
instituted;
(f) If the Maker becomes insolvent or is unable to pay (or admits
in writing its inability to pay) its debts as they become due or makes an
assignment for the benefit of creditors; or
(g) The dissolution or other winding up of the Maker;
all unpaid principal of and interest (including penalty interest) on this Note
shall become immediately due and payable, all without demand or notice of any
kind, and the Payee may proceed to protect and enforce its rights hereunder by
an action at law, suit in equity or other appropriate proceeding, in the Payee's
sole discretion. The Maker shall forthwith notify the Payee, in writing, of the
occurrence of any of the events set forth in this paragraph.
In the event any Acceleration Event shall occur, the Maker will pay
to the Payee such further amount as shall be sufficient to cover all costs and
expenses directly or indirectly incurred in connection with any action relating
to collection of this Note and/or the enforcement of the Payee's rights,
including but not limited to reasonable attorneys' fees, expenses and
disbursements.
In the event any Acceleration Event shall occur, the Maker shall
also become liable to the Payee for all payments to be made by the Maker under
the Manufacturing Agreement, regardless of when such payments would have become
due.
The Maker hereby waives presentment, protest and demand, and also
notice of protest, of demand, of nonpayment, of dishonor and of maturity. No
course of dealing and no delay on the part of the Payee in exercising any right,
power or remedy shall operate as a waiver thereof or otherwise prejudice any of
such Payee's rights, powers and remedies, and no single or partial exercise of a
right, power or remedy shall preclude a further exercise thereof or the exercise
of another right, power or remedy.
The obligation of the Maker to make payments to the Payee hereunder
is absolute and unconditional and shall not be subject to any defense, set-off,
counterclaim or recoupment which the Maker may have against the Payee by reason
of any indebtedness or
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liability at any time owing by the Payee to the Maker, including, without
limitation, any liabilities of the Payee to the Maker under the Manufacturing
Agreement.
This Note shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to the conflict of
laws principles thereof. Any provisions hereof which may prove unenforceable
under any law shall not affect the validity of any other provisions hereof.
This Note shall be enforceable in any court of competent
jurisdiction. In furtherance of and not in limitation of the foregoing, the
Maker hereby agrees to consent to the personal jurisdiction and venue of the
state and federal courts sitting in the county and State of New York in any
action or proceeding arising out of or connected in any way with this Note and
agrees that service of process in any such action or proceeding will be
sufficient if mailed to the Maker at 24955 Pacific Coast Highway, Malibu,
California 90265, Attention: Jack Friedman, and that such service shall
constitute "personal service," and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All notices by the Payee to the Maker pursuant to this Note shall be
deemed sufficient and given if (i) delivered personally, sent by
nationally-recognized overnight courier or mail by registered or certified mail
(return receipt requested), postage prepaid, to the Maker's address set forth in
the preceding paragraph, or (ii) telecopied to the attention of Jack Friedman at
(310) 317-8527. All such notices shall be deemed to have been received (a) in
the case of personal delivery, on the date of such delivery, (b) in the case of
a telecopy, when the telecopier of the Maker receiving such copy shall have
confirmed receipt of the communication, (c) in the case of delivery by
nationally-recognized overnight courier, on the business day following dispatch,
and (d) in the case of mailing, on the third business day following such
mailing.
This Note may not be altered or amended except by a writing duly
signed by the party against whom such alteration or amendment is sought to be
enforced. All of the terms and provisions of this Note shall be applicable to
and binding upon each and every maker, holder, endorser, surety, guarantor, and
all other persons who are or may become liable for the payment hereof and their
respective successors or assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the undersigned has duly executed and
delivered this Note as of the date and year first above written.
JAKKS PACIFIC, INC.
By: ________________________
Name: Jack Friedman
Title: President
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EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Security Agreement") dated as of
October 24, 1997, between JAKKS Pacific, Inc., a Delaware corporation (the
"Debtor"), and Azrak-Hamway International, Inc., a New York corporation (the
"Lender").
W I T N E S S E T H :
WHEREAS, pursuant to the terms of the Trademark Purchase
Agreement, dated as of the date hereof, by and among the Debtor and the Lender
(the "Acquisition Agreement"), the Lender has agreed to receive $1,200,000 of
consideration thereunder in the form of a promissory note of the Debtor (the
"Note") upon the terms and subject to the conditions set forth in Acquisition
Agreement and the Note (collectively, the "Loan").
NOW, THEREFORE, in consideration of these premises and to induce
the Lender to enter into the Acquisition Agreement and to make the Loan to the
Debtor under the Note, the Debtor and the Lender hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are used herein and not otherwise defined shall have the respective
meanings ascribed to them in the Acquisition Agreement; terms for which meanings
are provided in the UCC are used herein with such meanings unless otherwise
defined herein; and the following terms shall have the following meanings:
"Acceleration Event" has the meaning set forth in Paragraph 5 of
the Note.
"Books and Records" means all books, documents, files and
records, now or hereafter existing, pertaining to the Collateral wherever
located, including, without limitation, all correspondence, ledger sheets,
computer files and programs, tapes, discs, cards, accounting records, customer
lists, credit files, marketing materials and data, and all Equipment containing
any of the foregoing.
"Business Day" means any day other than a Saturday, Sunday or any
day which is a legal or bank holiday under the laws of the State of New York.
"Collateral" has the meaning set forth in Section 2 of this
Security Agreement.
"Lien" means any lien, security interest, pledge or other charge
or encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on title
to real property.
<PAGE> 34
"Person" means any person, firm, corporation, partnership,
limited liability company, joint venture, association, trust or other enterprise
or any governmental or political subdivision or agency, department or
instrumentality thereof.
"Secured Obligations" means the collective reference to, but
without duplication, all obligations and liabilities (direct or indirect,
absolute or contingent, due or to become due or now existing or hereafter
incurred), whether for principal, interest, premium, fees, indemnity, costs,
expenses or otherwise, of the Debtor under the Acquisition Agreement, the Note
and the Manufacturing and Supply Agreement, dated as of the date hereof, by and
between the Debtor and the Lender.
"UCC" means the Uniform Commercial Code as in effect in the State
of New York; provided, however, that if by reason of any mandatory provision of
law, the perfection or the effect of perfection or non-perfection of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, the Debtor
hereby pledges, assigns, transfers and grants to the Lender a continuing
security interest in all of the property described on Schedule A hereto
(collectively, the "Collateral") subordinate in right only to those creditors of
the Debtor set forth on Schedule B hereto. The Lender acknowledges and agrees
that the Lien of each such creditor is senior and prior in right to the security
interests granted to the Lender hereby, and that the Lender shall not take any
action the effect of which would be to restrict or impair the prior rights of
such other creditors to enforce their respective Liens.
3. Representations and Warranties. The Debtor hereby represents
and warrants that:
(a) Title; No Other Liens. Except for the Liens granted to the
creditors of the Debtor listed on Schedule B and the Lender pursuant to this
Security Agreement, the Debtor owns each item of the Collateral free and clear
of any and all Liens or claims of others. Except as set forth on Schedule B, no
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public office.
(b) Perfected Liens. Upon proper filing of the applicable UCC
financing statements, the Liens granted pursuant to this Security Agreement
constitute perfected Liens on the Collateral in favor of the Lender, enforceable
as such against all creditors of and purchasers from the Debtor (except
purchasers of goods in the ordinary course of business).
(c) Power and Authority; Authorization. The Debtor has the
requisite corporate power and authority and the legal right to execute and
deliver, to perform its
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<PAGE> 35
obligations under, and to grant the Lien on the Collateral pursuant to, this
Security Agreement and has taken all necessary action to authorize the
execution, delivery and performance of, and grant the Lien on the Collateral
pursuant to, this Security Agreement.
(d) Enforceability. This Security Agreement constitutes a legal,
valid and binding obligation of the Debtor enforceable against the Debtor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
(g) No Conflict. The execution, delivery and performance of this
Security Agreement and the granting by the Debtor of the Lien hereunder will not
violate any provision of any requirement of law or contractual obligation of the
Debtor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of the Debtor pursuant to any requirement of law or
contractual obligation of the Debtor, except as contemplated hereby.
(h) No Consents, etc. No consent or authorization of, filing
with, or other act by or in respect of, any arbitrator or governmental authority
and no consent of any other Person (including, without limitation, any creditor
of the Debtor), is required either (i) for the execution, delivery and
performance of this Security Agreement or for the grant by the Debtor of the
Lien granted hereby or (ii) to ensure the legality, validity, enforceability or
admissibility of this Security Agreement in any jurisdiction in which any of the
Collateral is located.
4. Performance by the Lender of the Debtor's Obligations. If the
Debtor fails to perform or comply with any of its agreements contained herein
and the Lender, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the out-of-pocket expenses of the Lender incurred in connection
with such performance or compliance shall be payable by the Debtor to the Lender
on demand and shall constitute Secured Obligations secured hereby.
5. Further Assurances. The Debtor covenants and agrees with the
Lender that, from and after the date of this Security Agreement until the
Secured Obligations are paid and finally discharged in full and this Security
Agreement is terminated pursuant to the terms hereof:
(a) Further Documentation. At any time and from time to time,
upon the request of the Lender and at the sole expense of the Debtor, the Debtor
will promptly and duly execute and deliver such further instruments, agreements
and documents and take such further action as the Lender may deem desirable and
may request for the purpose of obtaining or preserving the full benefits of this
Security Agreement and the rights and powers herein granted, including, without
limitation, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereunder or hereby, or to
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<PAGE> 36
enable the Lender to exercise and enforce its rights and remedies hereunder with
respect to any Collateral.
(b) Financing Statements. The Debtor hereby authorizes the Lender
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
the Debtor to the extent permitted by applicable law.
6. Remedies. If an Acceleration Event shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, but subject to the UCC, if applicable, the Lender,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Debtor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Lender shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Debtor, which right or equity is hereby waived or released. The Debtor further
agrees at the Lender's request upon the occurrence and continuance of an
Acceleration Event to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Debtor's premises or elsewhere. The Lender shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, and only after such application
and after the payment by the Lender of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the UCC,
need the Lender account for the surplus, if any, to the Debtor. If any notice of
a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least five days
before such sale or other disposition. The Debtor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Secured Obligations and the reasonable fees and
disbursements of counsel employed by the Lender to collect such deficiency.
7. Severability. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to
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<PAGE> 37
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8. No Waiver; Cumulative Remedies. The Lender shall not by any
act (except by a written instrument pursuant to Section 9 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Acceleration Event or in any breach of
any of the terms or conditions hereof. No failure to exercise nor any delay in
exercising any right, power or privilege hereunder on the part of the Lender
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
9. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Debtor and the Lender, provided that any provision of this Security
Agreement may be waived by the Lender in a written letter or agreement executed
by the Lender. Subject to Section 11 hereof, this Security Agreement shall be
binding upon the successors and assigns of the Debtor and shall inure to the
benefit of the Lender and its successors and assigns.
10. Termination and Reinstatement. This Security Agreement and
the security interests in the Collateral created hereby will terminate when the
Secured Obligations have been paid and finally discharged in full.
Notwithstanding any such termination, if at any time, all or part of the payment
of the Secured Obligations theretofore made by the Debtor or any other Person is
rescinded or otherwise must be returned by the Lender for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
the Debtor or such other Person), the Liens granted hereunder or under any other
present or future agreement between the Debtor and the Lender, and all rights of
the Lender and all Secured Obligations shall be reinstated as to the monetary
Secured Obligations that were satisfied by the payment to be rescinded or
returned, all as though such payment had not been made, and the Debtor shall
sign and deliver to the Lender all documents and things necessary to re-perfect
all terminated Liens. The Debtor may not assign this Security Agreement without
the express written consent of the Lender.
11. Notices. Any notices, elections or demands permitted or
required to be made under this Security Agreement shall be in writing, signed by
the Person giving such notice, sent by personal delivery or through a nationally
recognized overnight courier service or by registered or certified mail, postage
prepaid, or transmitted by telecopier and shall be addressed as follows:
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If to the Debtor: JAKKS Pacific, Inc.
24955 Pacific Coast Highway
Malibu, California 90265
Attention: Jack Friedman
Fax: (310) 317-8527
With a copy to: Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP
International Plaza
750 Lexington Avenue
New York, NY 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
If to the Lender: Azrak-Hamway International, Inc.
1107 Broadway, Suite 808
New York, New York 10010-2894
Attn: Marvin Azrak
Fax: (212) 675-3365
With a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: David P. Levin, Esq.
Fax: (212) 715-8000
All notices, elections and demands shall be deemed to have been delivered on the
date of their delivery if personally delivered or if transmitted by telecopier
(provided receipt of such transmission is confirmed by answer back), on the
second Business Day after deposit with the courier service if delivered by a
nationally recognized overnight courier service or five Business Days after the
date on which the same is mailed if delivered by registered or certified mail.
12. Governing Law. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS SECURITY
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE LENDER OR THE DEBTOR SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
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THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE DEBTOR AND THE LENDER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. THE DEBTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK. THE DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE DEBTOR HAS OR HEREAFTER
MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL
PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OF ITS
PROPERTY, THE DEBTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF THE
SECURED OBLIGATIONS UNDER THIS SECURITY AGREEMENT.
14. Waiver of Jury Trial. THE LENDER AND THE DEBTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS SECURITY AGREEMENT AND EVERY OTHER DOCUMENT
RELATING HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE DEBTOR. THE DEBTOR ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER DOCUMENT RELATING HERETO TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
LENDER ENTERING INTO THE ACQUISITION AGREEMENT, AND ANY RELATED DOCUMENTS, AND
MAKING THE LOAN AVAILABLE.
15. Counterparts. This Agreement may be executed in counterparts,
each one of which shall be deemed an original and which together shall
constitute one and the same instrument.
16. No Presumptions. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision
-7-
<PAGE> 40
hereof or the resolution of any alleged ambiguity herein based on any claim that
the other party hereto drafted or controlled the drafting of this Agreement.
17. Incorporation by Reference. The Schedules hereto are an
integral part of this Agreement and are incorporated in their entirety herein by
this reference.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
-8-
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
JAKKS PACIFIC, INC.
By:
--------------------------
Name:
Title:
AZRAK-HAMWAY INTERNATIONAL, INC.
By:
--------------------------
Name:
Title:
-9-
<PAGE> 42
SCHEDULE A
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
<PAGE> 43
SCHEDULE A (cont'd)
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
- ------------- ------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
20
25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
24
U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
</TABLE>
* Intent to Use
<PAGE> 44
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
- ------------- ------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 1036/80
France Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 84241
Italy Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
24
Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
</TABLE>
* Intent to Use
<PAGE> 45
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
- ------------- ------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Singapore Remco 28 77145 77145
Spain Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco NA 22 5120-78 96.302F
</TABLE>
* Intent to Use
<PAGE> 46
SCHEDULE B
SENIOR LENDERS
1. Holders of the Debtor's 9% Convertible Debentures Due 2003
2. NorWest Bank Minnesota, National Association
3. NorWest Business Credit, Inc.
<PAGE> 47
EXHIBIT E
MANUFACTURING AND SUPPLY AGREEMENT
THIS MANUFACTURING AND SUPPLY AGREEMENT dated as of October 24, 1997, by
and between JAKKS Pacific, Inc., a Delaware corporation ("JAKKS"), and Azrak-
Hamway International, Inc., a New York corporation ("AHI"),
W I T N E S S E T H :
WHEREAS, JAKKS is engaged in the Business (as hereinafter defined); and
WHEREAS, AHI owns or has the rights to use the Tools (as hereinafter
defined) and has the resources and experience in the manufacture of products
similar to the Products (as hereinafter defined); and
WHEREAS, to secure a reliable source of manufacture and supply of
Products, JAKKS desires to obtain from AHI, and AHI desires to give to JAKKS, a
commitment for AHI to make the Tools and other manufacturing resources of AHI
available for the manufacture of Products, and, upon request by JAKKS and
agreement as to price and delivery date, to manufacture or arrange for the
manufacture of Products for JAKKS;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS.
Capitalized terms, not defined elsewhere herein, are used herein
as defined as follows:
1.1. "Base Amount" means the fixed quarterly fee in the amount of
$110,000 on the first four Payment Dates and $160,000 thereafter.
1.2. "Business" means the design, manufacture, distribution and
sale of Products.
1.3. "Consent" means any approval, authorization, consent or
ratification by or on behalf of any Person that is not a party to this
Agreement, or any waiver of, or exemption or variance from, any License or
Order.
<PAGE> 48
1.4. "Governmental Authority" means any federal, state or local
government or governmental authority, agency or instrumentality, or any court or
arbitration panel of competent jurisdiction, or any recognized professional or
industry association or organization that establishes policies or standards or
otherwise regulates or supervises services and activities related to the
Business, the Trademarks or the Products.
1.5. "Law" means any statute, rule, regulation or ordinance of
any Governmental Authority.
1.6. "License" means any license, permit, certification,
qualification, franchise or privilege issued or granted by any Governmental
Authority.
1.7. "Notice" means giving any notice to, or making any
declaration or filing, or registration or recordation with any Person.
1.8. "Order" means any judgment, order, writ, decree, award,
directive, ruling or decision of any Governmental Authority.
1.9. "Ordered Products" has the meaning ascribed thereto in
Section 2.1 hereof.
1.10. "Payment Date" means the last day of each December, March,
June and September after the date hereof until March 31, 2000.
1.11. "Payment Period" means the three month period ending on a
Payment Date.
1.12. "Person" includes without limitation a natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, Governmental Authority, or any group of the
foregoing acting in concert.
1.13. "Product" means any toy or assortment thereof listed on
Schedule 1.13.
1.14. "Purchase Price" has the meaning ascribed to it in Section
2.1 hereof.
1.15. "Quote" has the meaning ascribed thereto in Section 2.1
hereof.
1.16. "Request Form" has the meaning ascribed thereto in Section
2.1 hereof.
1.17. "Substitute Manufacturer" means a manufacturer or supplier
of Ordered Products to JAKKS, other than AHI or a manufacturer or supplier
engaged by or acting on behalf of AHI.
1.18. "Term" means the period commencing on the date hereof and
ending on March 31, 2000.
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<PAGE> 49
1.19. "Tools" means the tools, molds, forms, dies and other
equipment and apparatus of AHI used in the manufacture of Products.
1.20. "Trademark" means one of the trademarks, including all
registrations and applications for registration thereof, set forth on Schedule
1.20.
2. MANUFACTURE AND SUPPLY OF PRODUCTS.
2.1. JAKKS may, but shall not be required to, request in writing
from time to time that AHI provide JAKKS with a quote of the price (the
"Purchase Price") at which AHI would be willing to manufacture and deliver, or
arrange for the manufacture and delivery, of Products (the "Ordered Products")
to JAKKS. Any such request shall be made on AHI's customary purchase order form
on the terms and conditions set forth therein or on such other form, having such
terms and conditions, as AHI shall, in its sole discretion, provide to JAKKS
(any such form being referred to herein as the "Request Form"). AHI shall
provide JAKKS with such quote in writing (the "Quote") within 30 days after
AHI's receipt of the Request Form from JAKKS. JAKKS shall, within 15 days after
its receipt of the Quote from AHI, inform AHI in writing whether it will accept
AHI's offer to manufacture and deliver, or arrange for the manufacture and
delivery of, the Ordered Products at the price and delivery date set forth in
the Quote.
2.2. If JAKKS shall accept AHI's offer, AHI shall manufacture and
deliver, or arrange for the manufacture and delivery of, the Ordered Products on
the terms and conditions set forth in the Request Form. Unless otherwise
specified in writing by AHI to JAKKS, delivery of any Ordered Products AHI shall
manufacture or arrange for the manufacture of, shall be FOB Hong Kong, JAKKS
shall pay freight and insurance for shipment of such Ordered Products.
2.3. If JAKKS shall reject AHI's offer, JAKKS may arrange for the
manufacture and delivery of the Ordered Products from a Substitute Manufacturer
of its own choosing, which Substitute Manufacturer shall be of a quality and
reputation reasonably acceptable to AHI. AHI shall make the Tools available to
such Substitute Manufacturer to the extent necessary for such Substitute
Manufacturer to manufacture and deliver the Ordered Products. AHI shall not be
required to incur any expense in connection with the provision of the Tools to a
Substitute Manufacturer or a manufacturer engaged by AHI pursuant to Section
2.2, all of which expense shall be borne by JAKKS, including the expense of
replacement, restoration or repair of any lost, destroyed or damaged Tools that
JAKKS requests be made available hereunder. Title to the Tools shall be and at
all times remain with AHI.
2.4. AHI shall keep and maintain the Tools and make the Tools
available for the manufacture of Ordered Products as described herein.
3
<PAGE> 50
2.5. JAKKS shall maintain commercial insurance, including without
limitation for products liability, with AHI named as an additional insured
thereon, reasonably satisfactory to AHI to protect the interests of AHI and
JAKKS under this Agreement.
3. PAYMENT.
3.1. In consideration of AHI agreeing to make its Tools and
manufacturing resources available to JAKKS and for agreeing to manufacture or
arrange for the manufacture of Ordered Products as described herein, JAKKS shall
pay to AHI:
(a) quarterly, on each Payment Date, the Base Amount
payable in respect of the Payment Period then ending; and
(b) the Purchase Price for any Ordered Products supplied
to JAKKS by AHI, in accordance with the applicable invoices therefor.
4. COVENANTS OF JAKKS AND AHI.
4.1. Each of JAKKS and AHI shall:
(a) comply with all Laws and Orders applicable to it and
the Business, the Trademarks or the Products; and
(b) use commercially reasonable efforts to cooperate with
the other party in order to effect the timely manufacture and supply of Ordered
Products, including consulting with the other party with respect to the choice
of subcontractors and off-shore manufacturers.
4.2. AHI shall:
(a) manufacture or arrange for manufacture of any Ordered
Products that JAKKS has agreed to pay the Purchase Price for pursuant to Section
2.2 hereof in accordance with the specifications set forth in JAKKS' Request
Form therefor; and
(b) give Notice to JAKKS of any change in the Tools or the
location thereof.
5. SECURITY INTEREST.
To secure the performance of its obligations hereunder, AHI
hereby grants to JAKKS a security interest in and lien upon the Tools. Upon
request by JAKKS, AHI shall execute, deliver and file or record any financing
statements or other documents reasonably requested by JAKKS to perfect such
security interest. In addition to any other remedy or relief available to JAKKS
hereunder or under applicable Law in the event of a material
4
<PAGE> 51
breach by AHI of its obligations hereunder, JAKKS may exercise all rights and
remedies of a secured creditor under the New York Uniform Commercial Code,
including without limitation taking possession of the Tools. AHI represents and
warrants to JAKKS that on the date hereof there is no, and AHI shall not during
the Term grant, create or suffer to exist, any other, security interest or other
lien, encumbrance or adverse claim in or upon the Tools, which would interfere
in a material way with JAKKS' security interest granted hereby.
6. TERMINATION.
6.1. This Agreement shall terminate on the last day of the Term,
or if earlier,
(a) at any time upon the mutual agreement of the parties;
(b) immediately, at the option of either party, upon (i)
the issuance of an order for relief of the other party in any bankruptcy
proceeding under Title 11 of the United States Code; or (ii) an assignment for
the benefit of creditors by the other party; or (iii) the written admission by
the other party of its inability to pay its debts as they mature or that it is
otherwise insolvent; or (iv) the appointment of a trustee, receiver, custodian
or other fiduciary or fiscal agent for the other party or substantially all of
its assets, if the other party consents to or acquiesces in such appointment,
or, notwithstanding that the other party opposes such appointment, such
appointment is not removed, avoided or withdrawn within 30 days after such
appointment; or (v) the liquidation, winding up, dissolution or termination of
the other party; or
(c) by either party, immediately upon Notice to such
effect given to the other party, if there is a material breach of any material
provision of, or material default under, this Agreement by the other party, and
the other party fails to cure such breach or default within 30 days after a
Notice, setting forth therein in reasonable detail the factual basis for the
asserted breach or default and demanding that such breach or default be cured in
the manner set forth therein or in a manner to be agreed (the "Default Notice"),
is given to such other party (unless such breach or default is by its nature
incapable of being cured, in which case no such Notice is required to be given
and the party may terminate this Agreement upon Notice without giving any prior
Default Notice).
6.2. Upon termination of this Agreement pursuant to Section 6.1,
all obligations of the parties shall terminate; provided, that no such
termination shall relieve either party of any liability to the other party
pursuant to Sections 2.2 and 2.3, Section 3, Section 7 or by reason of any
breach of or default under this Agreement.
5
<PAGE> 52
7. INDEMNIFICATION.
7.1. AHI shall indemnify JAKKS and each shareholder, director,
officer, employee and agent of JAKKS against, and hold each of them harmless
from, any loss, liability, obligation, damage or expense (including reasonable
attorneys' fees and disbursements) up to an aggregate amount which is equal to
or less than the Base Amount which JAKKS or any shareholder, director, officer,
employee or agent of JAKKS may suffer or incur incidental to any claim or any
Proceeding against JAKKS or any such shareholder, director, officer, employee or
agent of JAKKS based upon or resulting from:
(a) any obligation on account of the manufacture or supply
of Ordered Products that are produced by AHI;
(b) any obligation or liability arising from or based upon
any aggregated defects in any Ordered Product supplied to JAKKS by AHI
representing in excess of 3% of the aggregate of Ordered Products; or
(c) AHI's failure, in all material respects, to perform or
to comply with any covenant or condition required of AHI to be performed or
complied with hereunder.
7.2. JAKKS shall indemnify AHI and each shareholder, director,
officer, employee and agent of AHI against, and hold each of them harmless from,
any loss, liability, obligation, damage or expense (including reasonable
attorneys' fees and disbursements) which AHI or any shareholder, director,
officer, employee or agent of AHI may suffer or incur incidental to any claim or
any Proceeding against AHI or any shareholder, director, officer, employee or
agent of AHI based upon or resulting from:
(a) any obligation or liability in connection with the
marketing, distribution or sale of any Product or the exploitation of any
Trademark after the date hereof; or
(b) JAKKS's failure, in all material respects, to perform
or to comply with any covenant or condition required of JAKKS to be performed or
complied with hereunder.
7.3. Promptly after Notice to an indemnified party of any claim
or the commencement of any Proceeding by a third party involving any loss,
liability, obligation, damage or expense referred to in Section 7.1 or 7.2, such
indemnified party shall, if a claim for indemnification in respect thereof is to
be made against an indemnifying party, give written Notice to the latter of the
commencement of such claim or Proceeding, setting forth in reasonable detail the
nature thereof and the basis upon which such party seeks indemnification
hereunder; provided that the failure of any indemnified party to give such
Notice shall not relieve the indemnifying party of its obligations under such
Section, except to the extent that the indemnifying party is actually prejudiced
by the failure to give such
6
<PAGE> 53
Notice. In case any such Proceeding is brought against an indemnified party, and
provided that proper Notice is duly given, the indemnifying party shall assume
the defense thereof insofar as such Proceeding involves any loss, liability,
obligation, damage or expense in respect of which indemnification may be sought
hereunder, with counsel reasonably satisfactory to such indemnified party, and,
after Notice from the indemnifying party to such indemnified party of its
assumption of the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof (but the
indemnified party shall have the right, but not the obligation, to participate
at its own cost and expense in such defense by counsel of its own choice) or for
any amounts paid or foregone by such indemnified party as a result of the
settlement or compromise thereof (without the written consent of the
indemnifying party), except that, if both the indemnifying party and the
indemnified party are named as parties or subject to such Proceeding and either
such party determines, based upon written advice of counsel, that there may be
one or more legal defenses available to it that are different from or additional
to those available to the other party or that a material conflict of interest
between such parties may exist in respect of such Proceeding, the indemnifying
party may decline to assume the defense on behalf of the indemnified party or
the indemnified party may retain the defense on its own behalf, and, in either
such case, after Notice to such effect is duly given hereunder to the other
party, the indemnifying party shall be relieved of its obligation to assume the
defense on behalf of the indemnified party, but shall be required to pay any
legal or other expenses, including without limitation reasonable attorneys' fees
and disbursements incurred by the indemnified party in such defense; provided,
however, that the indemnifying party shall not be liable for such expenses on
account of more than one separate firm of attorneys (and, if necessary, local
counsel) at any time representing such indemnified party in connection with any
Proceeding or separate Proceedings in the same jurisdiction arising out of or
based upon substantially the same allegations or circumstances. If the
indemnifying party shall assume the defense of any such Proceeding, the
indemnified party shall cooperate fully with the indemnifying party and shall
appear and give testimony, produce documents and other tangible evidence, allow
the indemnifying party access to the books and records of the indemnified party
and otherwise assist the indemnifying party in conducting such defense. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement or compromise which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or Proceeding. Provided that proper Notice is duly given, if the
indemnifying party shall fail promptly and diligently to assume the defense
thereof, the indemnified party may respond to, contest and defend against such
Proceeding (but the indemnifying party shall have the right to participate at
its own cost and expense in such defense by counsel of its own choice) and may
make in good faith, provided such settlement or compromise was entered into with
the written consent of the indemnifying party, any compromise or settlement with
respect thereto, and recover the entire cost and expense thereof, including
without limitation reasonable attorneys' fees and disbursements and all amounts
paid or foregone as a result of such Proceeding, or the settlement or compromise
thereof, but only with the written consent of the indemnifying party, from the
indemnifying
7
<PAGE> 54
party. The indemnification required hereunder shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills or invoices are received or loss, liability, obligation, damage or
expense is actually suffered or incurred.
8. MISCELLANEOUS.
8.1. LIMITATION OF AUTHORITY. No provision hereof shall be deemed
to create any partnership, joint venture or joint enterprise or association
between the parties hereto, or to authorize or to empower either party hereto to
act on behalf of, obligate or bind the other party hereto.
8.2. FEES AND EXPENSES. Each party hereto shall bear such fees
and expenses as may be incurred by it in connection with this Agreement and the
transactions contemplated hereby.
8.3. NOTICES. Any Notice or demand required or permitted to be
given or made hereunder to or upon either party hereto shall be deemed to have
been duly given or made for all purposes if (a) in writing and sent by (i)
messenger or an overnight courier service against receipt, or (ii) certified or
registered mail, postage paid, return receipt requested, or (b) sent by
telegram, telecopy, telex or similar electronic means, provided that a written
copy thereof is sent on the same day by postage-paid first-class mail, to such
party at the following address:
to AHI at: Azrak-Hamway International, Inc.
1107 Broadway, Suite 808
New York, New York 10010-2894
Attn: President
Fax (212) 243-4271
with a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022-3903
Attn: David P. Levin, Esq.
Fax (212) 715-8000
to JAKKS at: JAKKS Pacific, Inc.
22761 Pacific Coast Highway, #226
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
8
<PAGE> 55
with a copy to: Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
or such other address as either party hereto may at any time, or from time to
time, direct by Notice given to the other party in accordance with this Section.
The date of giving or making of any such Notice or demand shall be, in the case
of clause (a) (i), the date of the receipt; in the case of clause (a) (ii), five
business days after such Notice or demand is sent; and, in the case of clause
(b), the business day next following the date such Notice or demand is sent.
8.4. AMENDMENT. Except as otherwise provided herein, no amendment
of this Agreement shall be valid or effective, unless in writing and signed by
or on behalf of the parties hereto.
8.5. WAIVER. No course of dealing or omission or delay on the
part of either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
8.6. GOVERNING LAW. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
8.7. JURISDICTION. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of either (i) the Supreme
Court of the State of New York, or (ii) the United States District Court for the
Southern District of New York in connection with any Proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in the County of New York, State of New York. or such
District, and agrees that service of any summons, complaint, Notice or other
process relating to such Proceeding may be effected in the manner provided by
clause (a) (ii) of Section 8.3.
8.8. REMEDIES. In the event of any breach or default by either
party hereto, the other party shall be entitled to equitable relief, including
remedies in the nature of rescission, injunction and specific performance. All
remedies hereunder are cumulative and not exclusive, and nothing herein shall be
deemed to prohibit or limit either party from pursuing any other remedy or
relief available at law or in equity for such actual or prospective breach or
default, including the recovery of damages; provided, however, that the
9
<PAGE> 56
indemnification provisions of Article 7 shall be the sole and exclusive remedy
with respect to any claim under this Agreement.
8.9. SEVERABILITY. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
8.10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original and which together shall
constitute one and the same agreement.
8.11. FURTHER ASSURANCES. Each party hereto shall promptly
execute, deliver, file or record such agreements, instruments, certificates and
other documents and perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.
8.12. ASSIGNMENT. This Agreement, and each right, interest and
obligation hereunder, may not be assigned by either party hereto without the
prior written consent of the other party hereto, and any purported assignment
without such consent shall be void and without effect.
8.13. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not intended, and shall not be deemed, to
create or confer any right or interest for the benefit of any Person not a party
hereto.
8.14. TITLES AND CAPTIONS. The titles and captions of the
Articles and Sections of this Agreement are for convenience of reference only
and do not in any way define or interpret the intent of the parties or modify or
otherwise affect any of the provisions hereof.
8.15. GRAMMATICAL CONVENTIONS. Whenever the context so requires,
each pronoun or verb used herein shall be construed in the singular or the
plural sense and each capitalized term defined herein and each pronoun used
herein shall be construed in the masculine, feminine or neuter sense.
8.16. REFERENCES. The terms "herein," "hereto," "hereof,"
"hereby," and "hereunder," and other terms of similar import, refer to this
Agreement as a whole, and not to any Article, Section or other part hereof.
10
<PAGE> 57
8.17. NO PRESUMPTIONS. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
8.18. INCORPORATION BY REFERENCE. The Exhibits and Schedules
hereto are an integral part of this Agreement and are incorporated in their
entirety herein by this reference.
8.19. FORCE MAJEURE. The performance of either party under this
Agreement shall be excused to the extent and during any event which reasonably
prevents the affected party from fulfilling its obligations hereunder. Such
events shall include, but shall not be limited to, fire, explosion, storm
damage, flood, labor troubles including strikes, lockouts or slowdowns,
government intervention (not including fines for violations of permits),
shortages of raw materials, labor or transportation, war, sabotage, riot or
civil disturbances, or governmental regulation or statute (any such event, a
"Force Majeure"). In the event of a Force Majeure, the affected party shall
promptly notify the other party, describing the nature of the cause and its
expected duration. The affected party shall take reasonable steps to cure the
cause and mitigate damages to the other party. The term of this Agreement shall
not be extended by the occurrence of a Force Majeure. Voluntary curtailment of
production through slowdowns or scheduled shutdowns shall not be considered
Force Majeure.
8.20. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any prior agreement, commitment or arrangement relating thereto.
11
<PAGE> 58
IN WITNESS WHEREOF, the parties have, by their respective duly
authorized officers, duly executed this Agreement on the date set forth in the
Preamble hereto.
AZRAK-HAMWAY INTERNATIONAL, INC. JAKKS PACIFIC, INC.
By: By:
------------------------- -----------------------------
Name: Name:
Title: Title:
12
<PAGE> 59
SCHEDULE 1.13
1. Die Cast Trucks Price List for 1997.
2. Child-Guidance Price List for 1997.
3. Child Guidance Crayons.
<PAGE> 60
SCHEDULE 1.20
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
<PAGE> 61
SCHEDULE 1.20 (cont'd)
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------- -------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
20
25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
24
U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
</TABLE>
* Intent to Use
<PAGE> 62
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------- -------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 1036/80
France Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 84241
Italy Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
24
Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
</TABLE>
* Intent to Use
<PAGE> 63
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------- -------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Singapore Remco 28 77145 77145
Spain Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco NA 22 5120-78 96.302F
</TABLE>
* Intent to Use
<PAGE> 64
EXHIBIT F-1
KRAMER, LEVIN, NAFTALIS & FRANKEL
[Letterhead]
Ladies and Gentlemen:
We have acted as counsel to Azrak-Hamway International, Inc., a New
York corporation (the "Corporation") in connection with (i) a Trademark
Purchase Agreement (the "Trademark Purchase Agreement") between the Corporation
and JAKKS Pacific, Inc. ("JAKKS"), (ii) the Promissory Note issued by JAKKS and
payable to the order of the Corporation (the "Note"), (iii) the Security
Agreement between the Corporation and JAKKS, (iv) the Manufacturing and Supply
Agreement (the "Manufacturing Agreement") between the Corporation and JAKKS,
and (v) the Intercreditor Agreement among NorWest Bank, N.A., the Company and
JAKKS, each dated as of the date hereof (the Trademark Purchase Agreement, the
Note, the Security Agreement, the Manufacturing Agreement and the Intercreditor
Agreement are collectively referred to herein as the "Transaction Documents").
Unless otherwise expressly provided, terms defined in the Trademark Purchase
Agreement are used herein as therein defined.
In rendering the opinion set forth herein, we have reviewed the
Transaction Documents and have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments (collectively,
"Documents") as in our judgment we have deemed necessary or advisable for
purposes of this opinion.
<PAGE> 65
In our examination we have assumed the genuineness of all
signatures, the authenticity of all Documents submitted to us as originals, the
conformity to original documents of all Documents submitted to us as certified
or photostatic copies, and the authenticity of the originals of such copies. As
to facts material to this opinion, we have relied exclusively upon statements
and representations of officers and other representatives of the Corporation
and certificates of public officials, and have assumed the accuracy of
representations and warranties by all parties in the Transaction Documents. We
also have assumed (i) the valid authorization, execution and delivery of the
Transaction Documents by the party or parties thereto (other than the
Corporation), (ii) that each such other party has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of its
organization with the corporate or other organizational power to perform its
obligations thereunder, and (iii) that the Transaction Documents constitute the
legal, valid and binding obligation of each such other party, enforceable
against each such other party in accordance with their respective terms.
Based upon the foregoing, and subject to the qualifications set
forth herein, we are of the opinion that:
1. The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
full corporate power and authority to own its assets and carry on its business
as and in the places where the Corporation has indicated to us that such assets
are now owned or such business is now being conducted;
2. The Corporation has full corporate power and authority to
execute and deliver each Transaction Document to which it is a party and to
perform its obligations thereunder. The execution and deliver by the
Corporation of each Transaction Document to which it is a party and the
performance of its obligations thereunder have been duly authorized by all
requisite corporate action on the part of the Corporation;
3. Each Transaction Document to which the Corporation is a party
has been duly executed and delivered by the Corporation and is the legally
valid and binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms;
4. The execution and delivery of each Transaction Document to
which the Corporation is a party do not, and the performance by the Corporation
of its obligations thereunder will not, violate any provision of the
Corporation's Certificate of Incorporation or By-Laws; and
<PAGE> 66
5. To our knowledge, except with respect to the Federal Trade
Commission's May 2, 1996 Order concerning Remco Toys Steel Tec Construction
System, as to which we do not express any opinion, the Corporation is not in
default in respect of any Order known to us, nor is there known to us any Order
enjoining the Corporation from performing, or the effect of which is to
prohibit or to curtail the Corporation's performance of, its obligations under
any Transaction Document to which it is a party.
The foregoing opinions are subject to the following qualifications
and limitations:
(a) We are members of the Bar of the State of New York and
do not purport to be expert or express any opinion except as to matters
involving the laws of such State and the federal laws of the United States of
America;
(b) We express no opinion as to the validity, binding effect
or enforceability of any choice of law, consent to jurisdiction, consent to
venue or consent to service provision in any agreement, or the waiver of the
right to a trial by jury;
(c) The enforceability of the Transaction Documents may be
subject to or limited by bankruptcy, insolvency, reorganization, arrangement,
fraudulent conveyance or transfer, moratorium, or other laws and court
decisions now or hereafter in effect relating to or affecting the rights of
creditors generally and by general principles of equity, including, without
limitation, concepts of materiality, reasonableness, impracticability or
impossibility, good faith and fair dealing (regardless of whether considered
in a proceeding in equity or at law);
(d) The remedy of specific performance and injunctive and
other forms of equitable relief are subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought;
(e) The enforceability of the provisions of Article 7 of the
Trademark Purchase Agreement and Article 7 of the Manufacturing Agreement may
be limited by laws rendering unenforceable indemnification contrary to state or
federal laws, including, but not limited to, securities laws, or public policy
underlying such laws;
(f) Our opinion is subject to applicable laws which limit the
right of a creditor to use force or cause breach of the peace in enforcing
rights and which relate to the sale or disposition of collateral and the
requirements of a commercially reasonable sale; and
<PAGE> 67
(g) As used in this opinion letter, "to our knowledge" shall
mean the conscious awareness that attorneys employed by us have obtained solely
from their representation of the Corporation. However, except as specifically
noted above, we do not purport to have made, and have not made, any review of
court records or proceedings or made any other independent review or
investigation of any factual matter.
The opinion expressed herein is based upon the laws in effect on
the date hereof, and we assume no obligations to review or supplement this
opinion should any such law be changed by legislative action, judicial decision
or otherwise.
This opinion letter is being provided to you pursuant to Section
5.2(c) of the Trademark Purchase Agreement and may not be relied upon by any
other person or for any other purpose without our prior written consent.
Very truly yours,
<PAGE> 68
EXHIBIT F-2
[AMSTER, ROTHSTEIN & EBENSTEIN LETTERHEAD]
Dear Ladies and Gentlemen:
This Opinion is furnished to you pursuant to Section 7.2(c) of the
Trademark Purchase Agreement dated as of October 24, 1997 ("Trademark
Agreement") between Azrak Hamway International, Inc., a New York corporation
("Seller"), and Jakks Pacific, Inc., a Delaware corporation ("Buyer"). The
terms defined in the Trademark Agreement and not otherwise defined herein are
used herein as therein defined.
We have acted as special intellectual property counsel to Seller, in
connection with the preparation, execution and delivery of the Trademark
Agreement.
We have investigated such questions of law for the purpose of rendering
this Opinion as we have deemed necessary. This Opinion is rendered only as to
the effect on the subject transaction of United States Federal Law relating to
intellectual property. We express no opinion as to any intellectual property in
any foreign country or otherwise governed by or controlled pursuant to the laws
of any foreign country.
<PAGE> 69
Page -2-
In connection with this Opinion, we have examined execution forms of the
following documents:
(i) the Trademark Agreement;
(ii) the Assignment of R/CG Trade Rights, substantially in the form
of Exhibit A to the Trademark Agreement; and
(iii) originals and copies, certified or otherwise identified to our
satisfaction, of such other agreements, instruments and other documents as we
have deemed necessary as a basis for the opinions hereinafter set forth.
In rendering this Opinion, we have assumed:
(a) the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity to originals of all
documents submitted to us as certified or photostatic copies of such latter
documents and the authenticity of the originals of such latter documents;
(b) that Seller is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has full
corporate power and authority to execute, deliver and perform its obligations
under the Trademark Agreement and each other Transaction Document;
(c) that Seller has taken all necessary corporate action to
authorize the execution, delivery and performance of the Trademark Agreement
and each other Transaction Document;
(d) that the Trademark Agreement and each of the Transaction
Documents constitute the legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms;
(e) that the Trademark Agreement and each other Transaction Document
has been duly executed and delivered on behalf of Seller;
(f) that the execution, delivery and performance by Seller of the
Trademark Agreement and each other Transaction Document will not violate the
provisions of any existing order, judgment, award or decree by which Seller is
bound, or the provisions of any existing agreement, including any existing
security agreement, to which Seller is a party;
<PAGE> 70
(g) that Seller has not changed its name or its identity or
corporate structure, whether by amendment of its charter, by reorganization, or
otherwise, within the past four months;
(h) that there are no Liens perfected by UCC financing statements
anywhere in the United States relating to (1) the United States trademark
registrations and applications contained on schedule 1.27A to the Trademark
Agreement or (2) the general intangible property of Seller; and
(i) that an original copy of the Assignment will be presented for
recordation by Buyer to the appropriate division of the United States Patent and
Trademark Office (hereinafter referred to as "PTO") for recording in said
Office within three (3) months of the execution thereof, together with
provision for payment of all requisite fees, and that Buyer has taken or will
take all other steps which may be required to assure prompt recording thereof
in said Office with respect to the trademark registrations and applications
contained on Schedule 1.27A to the Trademark Agreement, and that the same will
be validly recorded in the records of the PTO.
Based upon and subject to the foregoing, and based on the qualification
that we have expressly not conducted any independent inquiry as to any facts
(other than a search of the Assignee Index of the Trademark Branch of the PTO
of marks owned by Azrak Hamway International, Inc.), and that we rely solely on
those documents provided to us by Seller and upon our own review of those files
in our possession which were also reviewed by counsel for Buyer, and the
further qualifications set forth below, it is our opinion that:
1. Except as described in Footnote 1 below/1, to the best of our
knowledge, Seller is the owner of the entire right, title and interest in and
to the United States trademark registrations and applications contained on
Schedule 1.27A to the Trademark Agreement, and those trademark registrations
and applications are free and clear of any Lien recorded in the records of the
PTO. As of September 29, 1997, there were no
- ----------
/1 The chain of title in the records of the PTO concerning Registration No.
657,565 for the mark CHILD GUIDANCE TOYS (Stylized) is missing an
assignment from CBS, Inc. to Hasbro, Inc.
<PAGE> 71
effective financing or continuation statements or other instruments similar in
effect covering any of the United States trademark registrations and
applications contained on Schedule 1.27A to the Trademark Agreement and on file
in the PTO.
2. To the best of our knowledge, each of the United States trademark
registrations and applications contained on Schedule 1.27A is subsisting and has
not been adjudged invalid, unregistrable or unenforceable, in whole or in part,
and is in full force and effect.
3. To the best of our knowledge, no Proceeding in the United States is
pending or threatened relating to the R/CG Trade Rights, the Products, or the
Business in which an unfavorable Order would have a Material Adverse Effect.
4. We are advised by Seller that as of the date hereof Seller does not
own any interest in any copyright registrations or copyright applications in the
United States Copyright Office that are being transferred to Buyer, or any
Patents that are being transferred to Buyer.
5. To the best of our knowledge, other than as disclosed on Schedule
3.11 to the Trademark Agreement and incorporated herein by reference, and
excluding Other Trade Rights, (a) no R/CG Trade Right in the United States
conflicts with or infringes on any Trade Right of any other Person which would
have a Material Adverse Effect, (b) no Trade Right of any other Person conflicts
with or infringes on, and there has been no misappropriation or unauthorized use
by any other Person of any United States R/CG Trade Right which would have a
Material Adverse Effect; and (c) since January 1, 1993, Seller has not received
Notice of any claim, dispute or Proceeding relating to the R/CG Trade Rights or
the Products which would have a Material Adverse Effect including, without
limitation, any opposition, interference or other challenge to the validity, use
by, or rights of Seller in any R/CG Trade Right, against Seller (a) to deny,
cancel, revoke, rescind or modify any Registration of, or otherwise relating to,
any R/CG Trade Right (but not including Other Trade Right) or (b) relating to
any Product sold by Seller.
We are qualified to practice in the State of New York and we do not
purport to be experts on, or to express any opinion herein concerning, any law
other than the law of the State of New York and the Federal law of the United
States pertaining to trademarks, patents and copyrights.
<PAGE> 72
Page -5-
We do not give any opinion except as set forth above. This Opinion is being
delivered solely in connection with the subject transaction as of this date.
Very truly yours,
AMSTER, ROTHSTEIN & EBENSTEIN
<PAGE> 73
EXHIBIT G
[FEDER, KASZOVITZ, ISAACSON, WEBER, SKALA & BASS LLP LETTERHEAD]
Gentlemen:
We have acted as counsel to JAKKS Pacific, Inc., a Delaware corporation
(the "Company") in connection with (i) a Trademark Purchase Agreement (the
"Trademark Purchase Agreement") between the Company and Azrak-Hamway
International, Inc. ("AHI"), (ii) the Promissory Note issued by the Company and
payable to the order of AHI, (iii) the Security Agreement between the Company
and AHI, and (iv) the Manufacturing and Supply Agreement (the "Manufacturing
Agreement") between the Company and AHI, each dated as of the date hereof (the
Trademark Purchase Agreement, the Note, the Security Agreement and the
Manufacturing Agreement being collectively referred to herein as the
"Transaction Documents"). Unless otherwise expressly provided herein, terms
defined in the Trademark Purchase Agreement are used herein as therein defined.
In rendering the opinions set forth herein, we have reviewed the
Transaction Documents and have examined originals or copies, certified or
otherwise authenticated to our satisfaction, of such corporate records,
certificates of public officials and officers and other representatives of the
Company and other documents (collectively, "Documents") as in our judgment we
have deemed necessary or advisable for purposes of this opinion.
In our examination we have assumed the genuineness of all signatures, the
authenticity of all Documents submitted to us as originals, the conformity to
authentic original documents of all Documents submitted to us as certified or
photostatic copies. As to facts material to this opinion, we he relied
exclusively upon certificates of public officials and officers and other
representatives of the Company and representations and warranties by all
parties in the Transactions Documents, the accuracy of which we have assumed
without investigation. We have also assumed (i) the valid authorization,
execution and delivery of the Transaction Documents by the party or parties
thereto (other than the Company), (ii) that each such other party has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization with the corporate or other
<PAGE> 74
organizational power to perform its obligations thereunder, and (iii) that
the Transaction Documents constitute the legal, valid and binding obligation of
each such other party, enforceable against each such other party in
accordance with their respective terms.
Based upon the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to own its assets and carry on its business as and in the
places where the Company has indicated to us that such assets are now owned or
such business is now being conducted.
2. The Company has full corporate power and authority to execute and
deliver each Transaction Document to which it is a party and to assume and
perform its obligations thereunder. The execution and delivery by the Company
of each Transaction Document to which it is a party and the performance of its
obligations thereunder have been duly authorized by all requisite corporate
action on the part of the Company.
3. Each Transaction Document to which the Company is a party has been duly
executed and delivered by the Company and is the legally valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
4. The execution and delivery of each Transaction Document to which the
Company is a party do not, and the performance by the Company of its
obligations thereunder will not, violate any provision of the Company's
Certificate of Incorporation or By-Laws.
5. All forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) filed by the Company under the Securities
Exchange Act of 1934, as amended, and the respective rules and regulations
thereunder, comply as to form in all material respects with such rules and
regulations.
The foregoing opinions are subject to the following qualifications and
limitations:
(a) We are members of the Bar of the State of New York and do not
purport to be expert or express any opinion except as to matters involving the
laws of such State, the Delaware General Corporation Law and the federal laws
of the United States of America;
<PAGE> 75
(b) We express no opinion as to the validity, binding effect or
enforceability of any choice of law, consent to jurisdiction, consent to venue
or consent to service provision in any agreement, or the waiver of the right to
a trial by jury;
(c) The enforceability of the Transaction Documents may be subject to or
limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent
conveyance or transfer, moratorium or other laws and court decisions now or
hereafter in effect relating to or affecting the rights of creditors generally
and by general principles of equity, including, without limitation, concepts of
materiality, reasonableness, impracticability or impossibility, good faith and
fair dealing (regardless of whether considered in a proceeding in equity or at
law);
(d) The remedy of specific performance and injunctive and other forms of
equitable relief are subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought;
(e) The enforceability of the provisions of Article 7 of the Trademark
Purchase Agreement and Article 7 of the Manufacturing Agreement may be limited
by laws rendering unenforceable indemnification contrary to state or federal
laws, including, but not limited to, securities laws, or public policy
underlying such laws;
(f) Our opinion is subject to applicable laws which limit the right of a
creditor to use force or cause breach of the peace in enforcing rights and which
relate to the sale or disposition of collateral and the requirements of a
commercially reasonable sale; and
(g) As used in this opinion letter, "to our knowledge" shall mean the
conscious awareness that attorneys of this firm have obtained solely from their
representation of the Company. Nothing has come to our attention which has
caused us to believe that the statements so made herein "to our knowledge" are
untrue or incorrect. However, except as specifically noted above, we do not
purport to have made, and have not made, any review of court records or
proceedings or made any other independent review or investigation of any factual
matter.
The opinion expressed herein is based upon the laws in effect on the
date hereof, and we assume no obligation to review or supplement this opinion
should any such law be changed by legislative action, judicial decision or
otherwise.
<PAGE> 76
This opinion letter is being provided to you pursuant to Section 5.3(c)
of the Trademark Purchase Agreement and may not be relied upon by any other
person or for any other purpose without our prior written consent.
Very truly yours,
FEDER, KASZOVITZ, ISAACSON, WEBER,
SKALA & BASS LLP
By:
---------------------------
A Member of the Firm
<PAGE> 77
Schedule 1.24
1. Die Cast Trucks Price List for 1997.
2. Child-Guidance Price List for 1997.
3. Child Guidance Crayons.
<PAGE> 78
SCHEDULE 1.27A
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
<PAGE> 79
SCHEDULE 1.27A (cont'd)
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------ -------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
20
25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
24
U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
</TABLE>
* Intent to Use
<PAGE> 80
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------ -------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 1036/80
France Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 84241
Italy Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
24
Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
</TABLE>
* Intent to Use
<PAGE> 81
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------ -------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Singapore Remco 28 77145 77145
Spain Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco NA 22 5120-78 96.302F
</TABLE>
* Intent to Use
<PAGE> 82
SCHEDULE 1.27B
1. Trademark Applications and Registrations.
2. Copyright Applications and Registrations.
3. Patents and Patent Applications.
4. (Spring) Price List for 1998.
5. (Steel Tec) Price List for 1997.
6. American Home Entertainment Price List for 1997.
7. All Trade Rights related to any of the above and not expressly scheduled
on Schedules 1.24 or 1.27A.
<PAGE> 83
SCHEDULE 2.4
PURCHASE PRICE ALLOCATION SCHEDULE
<TABLE>
<CAPTION>
ASSET AMOUNT
- ----- ------
<S> <C>
Non-Competition Agreement $500,000
All Other Assets Being Sold $11,300,000
</TABLE>
<PAGE> 84
SCHEDULE 3.3
CONSENTS OF AND NOTICES TO THIRD PARTIES
Waiver of Section 5(c) to the Amended and Restated Security Agreement
between Azrak-Hamway International, Inc. and NationsBank of Georgia, N.A.
<PAGE> 85
SCHEDULE 3.4
Governmental Proceedings Relating to the R/CG Trade
Rights, Products, Business, assets or operations
Reference is made to Schedule 3.11, which is incorporated herein with
respect to all items required to be disclosed under Section 3.4.
<PAGE> 86
SCHEDULE 3.6
Sales and Cost of Goods Relating to Products
for Fiscal Year Ended December 31, 1996
<TABLE>
<CAPTION>
1996 1996 1996
REMCO CHILD
TOTAL VEHICLES GUIDANCE
$ $ $
<S> <C> <C> <C>
GROSS SALES:
Domestic $ 5,744,978 $ 406,412 $ 5,338,566
L/C - U.S.A. Accounts 17,326,474 8,018,202 9,308,272
L/C - International Accounts 2,405,963 2,119,022 286,941
TOTAL GROSS SALES $25,477,415 $10,543,636 $14,933,779
----------- ----------- -----------
PRIME COST OF GOODS SOLD:
Domestic $ 3,762,217 $ 348,668 $ 3,413,549
L/C - U.S.A. Accounts 11,856,364 5,526,473 6,329,891
L/C - International Accounts 1,693,651 1,504,576 189,075
TOTAL PRIME COST OF
GOODS SOLD: $17,312,232 $ 7,379,717 $ 9,932,515
----------- ----------- -----------
</TABLE>
<PAGE> 87
SCHEDULE 3.9
List of Liens on R/CG Trade Rights
Reference is made to Schedule 3.11, which is incorporated herein with
respect to all items required to be disclosed under Section 3.9.
Name: Azrak-Hamway International, Inc. Reference No. 99135-0001
Type of Service: Copies from Previous Searches
Jurisdiction: New York County, New York
88PN05208, 1/28/88 Citizens and Southern Commercial Corporation,
110 East 59th Street, New York, NY 10022
97PN38920, 9/4/97 NationsBanc Commercial Corporation f/k/a Citizens and
Southern Commercial Corporation, P.O. Box 4095,
Atlanta, Georgia
89PN52913, 9/21/89 Citizens and Southern Commercial Corporation,
110 East 59th Street, New York, NY 10022
Type of Service: Bankruptcy Search
Jurisdiction: Southern District, New York
New York City, New York County
U.S. Bankruptcy Court - No statements on file
Type of Service: Pending Suit and Judgment Search - State Court
Jurisdiction: New York County, New York
Supreme Court, New York County
One Pending Judgment on file from 10/27/97 (JJ-00224741-00, 4/17/90
Creditor: Regal Consolidating & Warehouse Serv.
150 Marsh St., Port Newark, NJ 07114
Amount: $200.00
One Satisfied Judgment on file
Creditor: Federal Insurance Company
110 William Street, New York, NY
Amount: $72.00
Satisfied: 1/11/89
<PAGE> 88
Type of Service: Pending Suit and Judgment Search - State Court
Jurisdiction: New York County, New York
No pending suits or judgments on file from 10/2/77
One vacated judgment
Creditor: Star Air Freight Co. Ltd.
Amount: $415.00
Satisfied: 10/1/86
One vacated N.Y.C. Tax Warrant
Creditor: N.Y.C. Dept. of Finance
Amount: $420.00
Vacated: 8/17/95
New York City Register Office - UCC Division
<TABLE>
<CAPTION>
UCC-3
-----
File Date File No. Type Date Secured Party
- --------- -------- ---- ---- -------------
<S> <C> <C> <C> <C>
11/16/95 95PN48563 Initial Filing NationsBanc Commercial
96PN06420 Release 2/16/96 Corporation,
96PN53379 Release 12/5/96 P.O. Box 4095
Atlanta, GA 30302
6/9/93 93PN29168 Initial Filing Copelco Capital, Inc., 1 Maynard
96PN13883 Amendment 3/29/96 Drive, Park Ridge, NJ 07458
Copelco Credit Corp., 1 Maynard
Drive, Park Ridge, NJ 07458
12/27/96 96PN56972 Initial Filing Gabriel Capital, L.P., 450 Park
Avenue, New York, NY 10022
1/28/88 88PN05208 Initial Filing NationsBanc Commercial
88PN52913 Amendment 9/21/89 Corporation, P.O. Box 4095,
92PN43928 Continuation 9/22/92 Atlanta, GA 30302
96PN06593 Release 2/20/96
96PN53380 Release 12/5/96
97PN38920 Amendment 9/4/97
</TABLE>
2
<PAGE> 89
State of New York, Department of State - Information Request Response
The following is a listing of all presently effective financing
statements and federal tax liens which name the above debtor and which are on
file as of September 27, 1997
<TABLE>
<CAPTION>
File No. File Date Creditor
- -------- --------- --------
<S> <C> <C>
023633 1/28/88 Citizens and Southern Commercial Corporation,
110 East 59th Street, New York, NY 10022
023633 1/28/88 Amendment - Secured Party's name is changed to
read NationsBanc Commercial Corporation
023633 1/28/88 Release
200627 8/9/89 Citizens and Southern Commercial Corporation,
110 East 59th Street, New York, NY 10022
239755 11/17/92 NationsBanc Commercial Corporation f/k/a
Citizens and Southern Commercial Corporation,
P.O. Box 4095, Atlanta, GA 30302
121019 6/7/93 Copelco Credit Corporation, 10 Mountainview
Road, Upper Saddle River, NJ 07458
121019 6/7/93 Amendment - Secured Party amended to read
Copelco Capital, Inc. (f/k/a Copelco Credit Corp.)
One Maynard Drive, Park Ridge, NJ 07458
187283 9/1/93 Pitney Bowes Credit Corporation, 201 Mewrritt
Seven, Norwalk CT 06856
225946 9/9/95 NationsBanc Commercial Corporation,
NationsBanc of Georgia, N.A., P.O. Box 4095,
Atlanta, GA 30302
225946 11/9/95 Release
636855 Gabriel Capital, L.P., 450 Park Avenue, New
York, NY 10022
156058 National Leasing, Inc., 14 E. 33rd Street, New
York, NY 10016
</TABLE>
3
<PAGE> 90
SCHEDULE 3.10
List of Licenses or Other Contracts Giving
Rights to Use Other Trade Rights
Various Azrak-Hamway International, Inc. License Agreements List
1. License Agreement dated August 5, 1993 between Stephen Schwartz Design
and AHI concerning the Brite Time Turtle, amended September 29, 1995 to
include the Sound & Light Bear, amended on February 20, 1996 to include
the Rock 'N Roller, amended October 19, 1996 to include the Touch 'N
Play Telephone and the Touch 'N Play Drum, amended February 16, 1997 to
include the Touch 'N Play Dalmatian, and amended August 14, 1997 to
include the Touch 'N Play Pony and the Touch 'N Play Lion.
2. License Agreement dated August 10, 1994 between Stephen Schwartz Design
and Claire Marschak and AHI concerning the Sound and Light Ball and the
Sound and Light Farm.
3. License Agreement dated January 27, 1997 between Stephen Schwartz Design
and Blue Sky Design and AHI concerning Busy Springs.
4. License Agreement dated August 14, 1997 between Stephen Schwartz Design
and Blue Sky Design and Azrak Hamway, Remco and Child Guidance
concerning the Wiggle Waggle.
5. License Agreement dated August 28, 1990 between David Glickson and Remco
Baby, Inc. concerning the Musical Light Up Mobile.
6. License Agreement dated February 5, 1991 between Design-O-Matic and AHI
concerning the Dump Truck (#7544), Fire Pumper (#7546), Hook & Ladder
(#7550), Car Carrier (#7551), and Construction (#7552), with amendments
to include the Princess and Her Puppies, the Bow 'N' Arrow, the Radio
Control Hot Track Vehicle, the Bullseye Sling Shot, the Patriot Missile
Sound Vehicle and the Garbage Truck Sound Vehicle all with changes to
the Royalty Percent and the Royalty Advance, all made on February 5,
1991.
7. License Agreement dated June 22, 1994 between Universal Product
Innovations (UPI) and AHI, amended January 16, 1995, concerning the Sky
Riser with Air Pump (Item #7560).
8. License Agreement dated December 31, 1994 between Ford Motor Company and
AHI, amended May 13, 1997, amended July 15, 1996, concerning The Ford
Script in
1
<PAGE> 91
Oval, Big Foot, The Original Monster Truck and Snake Bite in association
with the "Steel Tec" Monster Truck Construction Sets and Accessories.
9. License Agreement dated February 27, 1996 between Gregory Hyman
Associates and A. Edward Fogerty Associates (GHA/AEF) and AHI concerning
Baby Twinkle Tunes.
10. License Agreement dated March 20, 1996 between HRT Enterprises and
Joseph Marino and AHI concerning the Bead Fishing Rod (Roll Arounder
Fishing Rod).
11. License Agreement dated June 24, 1996 between George Castanis and AHI
concerning the Bead Sorter.
12. License Agreement dated June 24, 1996 between Bergman Design Consortium,
Inc. and AHI concerning Prancin'Pets.
13. License Agreement dated July 29, 1996 between BIGFOOT 4X4 Inc. and AHI
concerning BIGFOOT, The Original Monster Truck, Snakebite, in
association with the "Steel Tec" Monster truck construction sets and
accessories.
14. License Agreement dated May 27, 1997 between Meyer/Glass Design and AHI,
amended August 5, 1997 concerning Sound Pathways (Jr. Sound Pathways and
Deluxe Sound Pathways).
15. Good Housekeeping Agreement for 1997/1998.
2
<PAGE> 92
Frex Corporation
License Agreements
1. License Agreement dated October 1, 1990 between Frex Corporation and
Seabrook International concerning the R-5 Musical Car, the Dinosaur Car
(Item #B718), the Dinosaur Car (Item #B728), and the Dinosaur Car Light
& Sound (Item #B779).
2. License Agreement dated October 1, 1990 between Frex Corporation and
Seabrook International concerning the R-1 Loco and the Dinosaur Train
(Item #B782).
3. License Agreement dated October 1, 1990 between Frex Corporation and
Seabrook International concerning the R-6 Musical Plane, the Dinosaur
Plane (Item #B787), the Dinosaur Plane (Item #B777) and the R/C Dinosaur
Plane (Item #B202).
3
<PAGE> 93
SCHEDULE 3.11
List of Claims, Disputes or Other Proceedings
Relating to R/CG Trade Rights
Consumer Product Safety Commission (CPSC) Claims
1. Scented Teether
a. CPSC letter dated July 20, 1994 requesting a "Full Report."
b. Copy of the "Full Report."
2. Pacifier & Holder Set
a. CPSC letter dated October 17, 1995 regarding intent to export;
attached with a letter from the CPSC addressed to Celso Marcos
Vieira De Souza of the Brazilian Embassy notifying them of the
intent to export.
3. Model No. B-250 Play & Learn Animal Sound Farm Trucks
Model No. B-150 Play & Learn Animal Sound Circus Trucks
a. CPSC letter dated October 12, 1995 prohibiting distribution of
toy.
b. Important Safety Notice (December 1995).
c. Important Safety Notice (November 1995).
d. Recall.
e. Corrective Action Notice.
f. Press Release.
4. Samples T800-3172/3/4/5 - Remco Inflatable Toys
a. CPSC letter dated April 10, 1995 approving destruction of
inventory.
b. CPSC letter dated January 3, 1995 prohibiting the sale of the
inflatable toys.
c. Return form.
d. Press Release.
5. Item No. B308 Muppet Shake 'N' Rattle Assortment
a. Letter from Locker Greenberg & Brainin, P.C. to Beverly J. Cohen
of the CPSC.
b. Copies of the Epidemiologic Investigation Report, Notice of
Inspection, photo of rattles, Acts Testing Lab results, SGS Hong
Kong test results, CMA Testing & Certification Laboratories test
reports.
1
<PAGE> 94
6. Federal Trade Commission Complaint & Order Docket No. C-3653 in the
matter of Azrak-Hamway International, Inc.
7. R/CG Trade Right Conflicts, etc.
8. Current Schedule of Insurance loss runs.
2
<PAGE> 95
SCHEDULE 3.12
List of Consents, Licenses and Orders
Applicable to the Seller's Business
1. Stuffed Toys Registration Certificate No. PA-5916 (RC), State of
Pennsylvania Stuffed Toy Law - Mfr. Ovation Toys Co., Ltd.
2. Stuffed Toys Registration Certificate No. PA-4954-HK, State of
Pennsylvania Stuffed Toy Law - Mfr. Parkson Industrial Company.
3. Stuffed Toys Registration Certificate No. PA-4435 (RC), State of
Pennsylvania Stuffed Toy Law - Mfr. Pro Skill Toys Mfg.
4. Stuffed Toys Registration Certificate No. PA-5866 (HK), State of
Pennsylvania Stuffed Toy Law - Mfr. Toys Plus.
5. Bedding & Upholstered Furniture Inspection, Annual License, No. PA 4954
HK, State of Ohio.
6. Stuffed Toy Registration Certificate No. 2037-ST, State of Maine.
7. License to Manufacture and Sell Stuffed Toys, No. 10-1382, Commonwealth
of Massachusetts - Child Guidance
8. License to Manufacture and Sell Stuffed Toys, No. 10-1381, Commonwealth
of Massachusetts - Remco Baby, a Division of Azrak-Hamway International,
Inc.
1
<PAGE> 96
SCHEDULE 4.7
List of Consents, Licenses and Orders
Applicable to the Buyer's Business
NONE.
1
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
$1,200,000.00 October 24, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, JAKKS Pacific, Inc., a
Delaware corporation (the "Maker") hereby promises to pay to the order of
Azrak-Hamway International, Inc., a New York corporation (the "Payee"), or its
assigns, at its offices at 1107 Broadway, Suite 808, New York, New York
10010-2894, or at such other place as may be designated in writing from time to
time by the Payee, the principal sum of One Million Two Hundred Thousand Dollars
($1,200,000.00) on or before December 31, 1998 (the "Maturity Date"), payable in
five consecutive quarterly installments in the amount of $240,000.00, plus
interest at a rate of ten percent (10%) per annum on the unpaid principal
amount, on the last day of each December, March, June and September after the
date hereof through and including the Maturity Date (each, a "Payment Date").
Upon the occurence of an Acceleration Event (as defined below) interest shall
accrue on the unpaid principal balance hereunder at the rate of thirteen percent
(13%) per annum. Interest shall be computed on the basis of a 365-day year and
the actual number of days elapsed. Payments under this Note shall be made in
lawful money of the United States and in immediately available funds.
Pursuant to the Security Agreement, dated as of the date hereof
(the "Security Agreement"), between the Maker and the Payee, the Maker has
pledged certain assets as collateral (the "Collateral") to the Payee to secure
its prompt and full performance of its obligations hereunder and thereunder. To
the extent that the Collateral is insufficient to satisfy all of the Maker's
obligations under this Note, the Maker shall remain liable for any such
deficiency.
This Note may be prepaid in whole at any time or in part from
time to time, together with accrued interest on the amount prepaid to the date
of prepayment, at the option of the Maker, without premium or penalty.
Upon the occurrence of any of the following events (the
"Acceleration Events"):
(a) The failure of the Maker to make any payment of principal of,
or interest on, this Note when due and payable, and such failure shall
have continued
unremedied for a period of ten (10) days;
(b) In the event that the Maker breaches any obligation,
covenant, agreement, warranty or representation contained in the
Manufacturing and Supply Agreement, dated as of the date hereof, by and
between the Maker and the Payee (the "Manufacturing Agreement"),
including, without limitation, the obligation of the Maker to make any
quarterly payment provided for therein within five (5) days of such
payments becoming due;
-1-
<PAGE> 2
(d) The Maker shall default in due observance or performance of
any term, obligation, agreement or covenant to be observed or performed
by such Maker pursuant to any evidence of indebtedness or liability for
borrowed money in excess of $500,000 (other than this Note), if such
default permits the obligee thereof to accelerate the maturity of such
evidence of indebtedness or liability;
(e) If any voluntary proceeding by the Maker is commenced under
any chapter of the Federal Bankruptcy Code or other law relating to
bankruptcy, bankruptcy reorganization, insolvency or relief of debtors,
or any such proceeding is commenced against the Maker and such
proceeding is not dismissed within sixty (60) days from the date on
which it is filed or instituted;
(f) If the Maker becomes insolvent or is unable to pay (or admits
in writing its inability to pay) its debts as they become due or makes
an assignment for the benefit of creditors; or
(g) The dissolution or other winding up of the Maker;
all unpaid principal of and interest (including penalty interest) on this Note
shall become immediately due and payable, all without demand or notice of any
kind, and the Payee may proceed to protect and enforce its rights hereunder by
an action at law, suit in equity or other appropriate proceeding, in the Payee's
sole discretion. The Maker shall forthwith notify the Payee, in writing, of the
occurrence of any of the events set forth in this paragraph.
In the event any Acceleration Event shall occur, the Maker will
pay to the Payee such further amount as shall be sufficient to cover all costs
and expenses directly or indirectly incurred in connection with any action
relating to collection of this Note and/or the enforcement of the Payee's
rights, including but not limited to reasonable attorneys' fees, expenses and
disbursements.
In the event any Acceleration Event shall occur, the Maker shall
also become liable to the Payee for all payments to be made by the Maker under
the Manufacturing Agreement, regardless of when such payments would have become
due.
The Maker hereby waives presentment, protest and demand, and also
notice of protest, of demand, of nonpayment, of dishonor and of maturity. No
course of dealing and no delay on the part of the Payee in exercising any right,
power or remedy shall operate as a waiver thereof or otherwise prejudice any of
such Payee's rights, powers and remedies, and no single or partial exercise of a
right, power or remedy shall preclude a further exercise thereof or the exercise
of another right, power or remedy.
The obligation of the Maker to make payments to the Payee
hereunder is absolute and unconditional and shall not be subject to any defense,
set-off, counterclaim or recoupment which the Maker may have against the Payee
by reason of any indebtedness or liability at any time owing by the Payee to the
Maker, including, without limitation, any liabilities of the Payee to the Maker
under the Manufacturing Agreement.
-2-
<PAGE> 3
This Note shall be governed by and construed in accordance with
the internal laws of the State of New York without giving effect to the conflict
of laws principles thereof. Any provisions hereof which may prove unenforceable
under any law shall not affect the validity of any other provisions hereof.
This Note shall be enforceable in any court of competent
jurisdiction. In furtherance of and not in limitation of the foregoing, the
Maker hereby agrees to consent to the personal jurisdiction and venue of the
state and federal courts sitting in the county and State of New York in any
action or proceeding arising out of or connected in any way with this Note and
agrees that service of process in any such action or proceeding will be
sufficient if mailed to the Maker at 24955 Pacific Coast Highway, Malibu,
California 90265, Attention: Jack Friedman, and that such service shall
constitute "personal service," and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All notices by the Payee to the Maker pursuant to this Note shall
be deemed sufficient and given if (i) delivered personally, sent by
nationally-recognized overnight courier or mail by registered or certified mail
(return receipt requested), postage prepaid, to the Maker's address set forth in
the preceding paragraph, or (ii) telecopied to the attention of Jack Friedman at
(310) 317-8527. All such notices shall be deemed to have been received (a) in
the case of personal delivery, on the date of such delivery, (b) in the case of
a telecopy, when the telecopier of the Maker receiving such copy shall have
confirmed receipt of the communication, (c) in the case of delivery by
nationally-recognized overnight courier, on the business day following dispatch,
and (d) in the case of mailing, on the third business day following such
mailing.
This Note may not be altered or amended except by a writing duly
signed by the party against whom such alteration or amendment is sought to be
enforced. All of the terms and provisions of this Note shall be applicable to
and binding upon each and every maker, holder, endorser, surety, guarantor, and
all other persons who are or may become liable for the payment hereof and their
respective successors or assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has duly executed and
delivered this Note as of the date and year first above written.
JAKKS PACIFIC, INC.
By: /s/ Jack Friedman
--------------------------
Name: Jack Friedman
Title: President
-4-
<PAGE> 1
EXHIBIT 10.3
MANUFACTURING AND SUPPLY AGREEMENT
THIS MANUFACTURING AND SUPPLY AGREEMENT dated as of October 24, 1997, by
and between JAKKS Pacific, Inc., a Delaware corporation ("JAKKS"), and
Azrak-Hamway International, Inc., a New York corporation ("AHI"),
W I T N E S S E T H:
WHEREAS, JAKKS is engaged in the Business (as hereinafter defined); and
WHEREAS, AHI owns or has the rights to use the Tools (as hereinafter
defined) and has the resources and experience in the manufacture of products
similar to the Products (as hereinafter defined); and
WHEREAS, to secure a reliable source of manufacture and supply of
Products, JAKKS desires to obtain from AHI, and AHI desires to give to JAKKS, a
commitment for AHI to make the Tools and other manufacturing resources of AHI
available for the manufacture of Products, and, upon request by JAKKS and
agreement as to price and delivery date, to manufacture or arrange for the
manufacture of Products for JAKKS:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto hereby agree as follows:
1. Certain Definitions.
Capitalized terms, not defined elsewhere herein, are used herein as
defined as follows:
1.1. "Base Amount" means the fixed quarterly fee in the amount of
$110,000 on the first four Payment Dates and $160,000 thereafter.
1.2. "Business" means the design, manufacture, distribution and
sale of Products.
1.3. "Consent" means any approval, authorization, consent or
ratification by or on behalf of any Person that is not a party to this
Agreement , or any waiver of, or exemption or variance from, any License or
Order.
<PAGE> 2
1.4. "Governmental Authority" means any federal, state or local
government or governmental authority, agency or instrumentality, or any court
or arbitration panel of competent jurisdiction, or any recognized professional
or industry association or organization that establishes policies or standards
or otherwise regulates or supervises services and activities related to the
Business, the Trademarks or the Products.
1.5. "Law" means any statute, rule, regulation or ordinance of any
Governmental Authority.
1.6. "License" means any license, permit, certification,
qualification, franchise or privilege issued or granted by any Governmental
Authority.
1.7. "Notice" means giving any notice to, or making any declaration
or filing, or registration or recordation with any Person.
1.8. "Order" means any judgement, order, writ, decree, award,
directive, ruling or decision of any Governmental Authority.
1.9. "Ordered Products" has the meaning ascribed thereto in Section
2.1 hereof.
1.10. "Payment Date" means the last day of each December, March, June
and September after the date hereof until March 31, 2000.
1.11. "Payment Period" means the three month period ending on a
Payment Date.
1.12. "Person" includes without limitation a natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, Governmental Authority, or any group of the
foregoing acting in concert.
1.13. "Product" means any toy or assortment thereof listed on
Schedule 1.13.
1.14. "Purchase Price" has the meaning ascribed to it in Section 2.1
hereof.
1.15. "Quote" has the meaning ascribed thereto in Section 2.1 hereof.
1.16. "Request Form" has the meaning ascribed thereto in Section 2.1
hereof.
1.17. "Substitute Manufacturer" means a manufacturer or supplier of
Ordered Products to JAKKS, other than AHI or a manufacturer or supplier engaged
by or acting on behalf of AHI.
1.18. "Term" means the period commencing on the date hereof and
ending on March 31, 2000.
2
<PAGE> 3
1.19. "Tools" means the tools, molds, forms, dies and other
equipment and apparatus of AHI used in the manufacture of Products.
1.20. "Trademark" means one of the trademarks, including all
registrations and applications for registration thereof, set forth on Schedule
1.20.
2. MANUFACTURE AND SUPPLY OF PRODUCTS.
2.1. JAKKS may, but shall not be required to, request in writing
from time to time that AHI provide JAKKS with a quote of the price (the
"Purchase Price") at which AHI would be willing to manufacture and deliver, or
arrange for the manufacture and delivery, of Products (the "Ordered Products")
to JAKKS. Any such request shall be made on AHI's customary purchase order
form on the terms and conditions set forth therein or on such other form,
having such terms and conditions, as AHI shall, in its sole discretion, provide
to JAKKS (any such form being referred to herein as the "Request Form"). AHI
shall provide JAKKS with such quote in writing (the "Quote") within 30 days
after AHI's receipt of the Request Form from JAKKS. JAKKS shall, within 15
days after its receipt of the Quote from AHI, inform AHI in writing whether it
will accept AHI's offer to manufacture and deliver, or arrange for the
manufacture and delivery of, the Ordered Products at the price and delivery
date set forth in the Quote.
2.2 If JAKKS shall accept AHI's offer, AHI shall manufacture and
deliver, or arrange for the manufacture and delivery of, the Ordered Products
on the terms and conditions set forth in the Request Form. Unless otherwise
specified in writing by AHI to JAKKS, delivery of any Ordered Products AHI
shall manufacture or arrange for the manufacture of, shall be FOB Hong Kong.
JAKKS shall pay freight and insurance for shipment of such Ordered Products.
2.3 If JAKKS shall reject AHI's offer, JAKKS may arrange for the
manufacture and delivery of the Ordered Products from a Substitute
Manufacturer of its own choosing, which Substitute Manufacturer shall be of a
quality and reputation reasonably acceptable to AHI. AHI shall make the Tools
available to such Substitute Manufacturer to the extent necessary for such
Substitute Manufacturer to manufacture and deliver the Ordered Products. AHI
shall not be required to incur any expense in connection with the provision of
the Tools to a Substitute Manufacturer or a manufacturer engaged by AHI pursuant
to Section 2.2, all of which expense shall be borne by JAKKS, including the
expense of replacement, restoration or repair of any lost, destroyed or damaged
Tools that JAKKS requests be made available hereunder. Title to the Tools shall
be and at all times remain with AHI.
2.4 AHI shall keep and maintain the Tools and make the Tools
available for the manufacture of Ordered Products as described herein.
3
<PAGE> 4
2.5 JAKKS shall maintain commercial insurance, including without
limitation for products liability, with AHI named as an additional insured
thereon, reasonably satisfactory to AHI to protect the interests of AHI and
JAKKS under this agreement.
3. PAYMENT.
3.1. In consideration of AHI agreeing to make its Tools and
manufacturing resources available to JAKKS and for agreeing to manufacture or
arrange for the manufacture of Ordered Products as described herein, JAKKS
shall pay to AHI:
(a) quarterly, on each Payment Date, the Base Amount payable in
respect of the Payment Period then ending; and
(b) the Purchase Price for any Ordered Products supplied to
JAKKS by AHI, in accordance with the applicable invoices therefor.
4. COVENANTS OF JAKKS AND AHI.
4.1. Each of JAKKS and AHI shall:
(a) comply with all Laws and Orders applicable to it and the
Business, the Trademarks or the Products; and
(b) use commercially reasonable efforts to cooperate with the
other party in order to effect the timely manufacture and supply of Ordered
Products, including consulting with the other party with respect to the choice
of subcontractors and off-shore manufacturers.
4.2. AHI shall:
(a) manufacture or arrange for manufacture of any Ordered
Products that JAKKS has agreed to pay the Purchase Price for pursuant to
Section 2.2 hereof in accordance with the specifications set forth in JAKKS'
Request Form therefor; and
(b) give Notice to JAKKS of any change in the Tools or the
location thereof.
5. SECURITY INTEREST.
To secure the performance of its obligations hereunder, AHI hereby
grants to JAKKS a security interest in and lien upon the Tools. Upon request by
JAKKS, AHI shall execute, deliver and file or record any financing statements
or other documents reasonably requested by JAKKS to perfect such security
interest. In addition to any other remedy or relief available to JAKKS hereunder
or under applicable Law in the event of a material
4
<PAGE> 5
breach by AHI of its obligations hereunder, JAKKS may exercise all rights and
remedies of a secured creditor under the New York Uniform Commercial code,
including without limitation taking possession of the Tools. AHI represents and
warrants to JAKKS that on the date hereof there is no, and AHI shall not during
the Term grant, create or suffer to exist, any other security interest or other
lien, encumbrance or adverse claim in or upon the Tools, which would interfere
in a material way with JAKKS' security interest granted hereby.
6. TERMINATION.
6.1 This Agreement shall terminate on the last day of the Term, or
if earlier,
(a) at any time upon the mutual agreement of the parties;
(b) immediately, at the option of either party, upon (i) the
issuance of an order for relief of the other party in any bankruptcy proceeding
under Title 11 of the United States Code; or (ii) an assignment for the benefit
of creditors by the other party; or (iii) the written admission by the other
party of its inability to pay its debts as they mature or that it is otherwise
insolvent; or (iv) the appointment of a trustee, receiver, custodian or other
fiduciary or fiscal agent for the other party or substantially all of its
assets, if the other party consents to or acquiesces in such appointment, or,
notwithstanding that the other party opposes such appointment, such appointment
is not removed, avoided or withdrawn within 30 days after such appointment;
or (v) the liquidation, winding up, dissolution or termination of the other
party; or
(c) by either party, immediately upon Notice to such effect
given to the other party, if there is a material breach of any material
provision of, or material default under, this Agreement by the other party, and
the other party fails to cure such breach or default within 30 days after a
Notice, setting forth therein in reasonable detail the factual basis for the
asserted breach or default and demanding that such breach or default be cured in
the manner set forth therein or in a manner to be agreed (the "Default Notice"),
is given to such other party (unless such breach or default is by its nature
incapable of being cured, in which case no such Notice is required to be given
and the party may terminate this Agreement upon Notice without giving any prior
Default Notice).
6.2 Upon termination of this Agreement pursuant to Section 6.1, all
obligations of the parties shall terminate; provided, that no such termination
shall relieve either party of any liability to the other party pursuant to
Section 2.2 and 2.3, Section 3, Section 7 or by reason of any breach of or
default under this Agreement.
5
<PAGE> 6
7. INDEMNIFICATION.
7.1 AHI shall indemnify JAKKS and each shareholder, director,
officer, employee and agent of JAKKS against, and hold each of them harmless
from, any loss, liability, obligation, damage or expense (including reasonable
attorneys' fees and disbursements) up to an aggregate amount which is equal to
or less than the Base Amount which JAKKS or any shareholder, director, officer,
employee or agent of JAKKS may suffer or incur incidental to any claim or any
Proceeding against JAKKS or any such shareholder, director, officer, employee or
agent of JAKKS based upon or resulting from:
(a) any obligation on account of the manufacture or supply of
Ordered Products that are produced by AHI;
(b) any obligation or liability arising from or based upon any
aggregated defects in any Ordered Products supplied to JAKKS by AHI representing
in excess of 3% of the aggregate of Ordered Products; or
(c) AHI's failure, in all material respects, to perform or to
comply with any covenant or condition required of AHI to be performed or
complied with hereunder.
7.2 JAKKS shall indemnify AHI and each shareholder, director,
officer, employee and agent of AHI against, and hold each of them harmless from,
any loss, liability, obligation, damage or expense (including reasonable
attorneys' fees and disbursements) which AHI or any shareholder, director,
officer, employee or agent of AHI may suffer or incur incidental to any claim or
any Proceeding against AHI or any shareholder, director, officer, employee or
agent of AHI based upon or resulting from:
(a) any obligation or liability in connection with the
marketing, distribution or sale of any Product or the exploitation of any
Trademark after the date hereof; or
(b) JAKKS' failure, in all material respects, to perform or to
comply with any covenant or condition required of JAKKS to be performed or
complied with hereunder.
7.3 Promptly after Notice to an indemnified party of any claim or the
commencement of any Proceeding by a third party involving any loss, liability,
obligation, damage or expense referred to in Section 7.1 or 7.2, such
indemnified party shall, if a claim for indemnification in respect thereof is to
be made against any indemnifying party, give written Notice to the latter of the
commencement of such claim or Proceeding, setting forth in reasonable detail the
nature thereof and the basis upon which such party seeks indemnification
hereunder; provided that the failure of any indemnified party to give such
Notice shall not relieve the indemnifying party of its obligations under such
Section, except to the extent that the indemnifying party is actually prejudiced
by the failure to give such
6
<PAGE> 7
Notice. In case any such Proceeding is brought against an indemnified party,and
provided that proper Notice is duly given, the indemnifying party shall assume
the defense thereof insofar as such Proceeding involves any loss, liability,
obligation, damage or expense in respect of which indemnification may be sought
hereunder, with counsel reasonably satisfactory to such indemnified party, and,
after Notice from the indemnifying party to such indemnified party of its
assumption of the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof (but the
indemnified party shall have the right, but not the obligation, to participate
at its own cost and expense in such defense by counsel of its own choice) or for
any amounts paid or foregone by such indemnified party as a result of the
settlement or compromise thereof (without the written consent of the
indemnifying party), except that, if both the indemnifying party and the
indemnified party are named as parties or subject to such Proceeding and either
such party determines, based upon written advice of counsel, that there may be
one or more legal defenses available to it that are different from or additional
to those available to the other party or that a material conflict of interest
between such parties may exist in respect of such Proceeding, the indemnifying
party may decline to assume the defense on behalf of the indemnified party or
the indemnified party may retain the defense on its own behalf, and, in either
such case, after Notice to such effect is duly given hereunder to the other
party, the indemnifying party shall be relieved of its obligation to assume the
defense on behalf of the indemnified party, but shall be required to pay any
legal or other expenses, including without limitation reasonable attorneys' fees
and disbursements incurred by the indemnified party in such defense; provided,
however, that the indemnifying party shall not be liable for such expenses on
account of more than one separate firm of attorneys (and, if necessary, local
counsel) at any time representing such indemnified party in connection with any
Proceeding or separate Proceedings in the same jurisdiction arising out of or
based upon substantially the same allegations or circumstances. If the
indemnifying party shall assume the defense of any such Proceeding, the
indemnified party shall cooperate fully with the indemnifying party and shall
appear and give testimony, produce documents and other tangible evidence, allow
the indemnifying party access to the books and records of the indemnified party
and otherwise assist the indemnifying party in conducting such defense. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement or compromise which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or Proceeding. Provided that proper Notice is duly given, if the
indemnifying party shall fail promptly and diligently to assume the defense
thereof, the indemnified party may respond to, contest and defend against such
Proceeding (but the indemnifying party shall have the right to participate at
its own cost and expense in such defense by counsel of its own choice) and may
make in good faith, provided such settlement or compromise was entered into with
the written consent of the indemnifying party, any compromise or settlement with
respect thereto, and recover the entire cost and expense thereof, including
without limitation reasonable attorneys' fees and disbursements and all amounts
paid or foregone as a result of such Proceeding, or the settlement or compromise
thereof, but only with the written consent of the indemnifying party, from the
indemnifying
7
<PAGE> 8
party. The indemnification required hereunder shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills or invoices are received or loss, liability,
obligation, damage or expense is actually suffered or incurred.
8. MISCELLANEOUS.
8.1. LIMITATION OF AUTHORITY. No provision hereof shall be deemed to
create any partnership, joint venture or joint enterprise or association
between the parties hereto, or to authorize or to empower either party hereto
to act on behalf of, obligate or bind the other party hereto.
8.2. FEES AND EXPENSES. Each party hereto shall bear such fees and
expenses as may be incurred by it in connection with this Agreement and the
transactions contemplated hereby.
8.3. NOTICES. Any Notice or demand required or permitted to be given
or made hereunder to or upon either party hereto shall be deemed to have been
duly given or made for all purposes if (a) in writing and sent by (i) messenger
or an overnight courier service against receipt, or (ii) certified or
registered mail, postage paid, return receipt requested, or (b) sent by
telegram, ,telecopy, telex or similar electronic means, provided that a written
copy thereof is sent on the same day by postage-paid first-class mail, to such
party at the following address:
to AHI at: Azrak-Hamway International, Inc.
1107 Broadway, Suite 808
New York, New York 10010-2894
Attn: President
Fax (212) 243-4271
with a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022-3903
Attn: David P. Levin, Esq.
Fax (212) 715-8000
to JAKKS at: JAKKS Pacific, Inc.
22761 Pacific Coast Highway, #226
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
8
<PAGE> 9
with a copy to: Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
or such other address as either party hereto may at any time, or from time to
time, direct by Notice given to the other party in accordance with this
Section. The date of giving or making of any such Notice or demand shall be, in
the case of clause (a)(i), the date of the receipt; in the case of clause
(a)(ii), five business days after such Notice or demand is sent; and, in the
case of clause (b), the business day next following the date such Notice or
demand is sent.
8.4. AMENDMENT. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing and signed by or
on behalf of the parties hereto.
8.5. WAIVER. No course of dealing or omission or delay on the part
of either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless
expressly so stated in writing.
8.6. GOVERNING LAW. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
8.7. JURISDICTION. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of either (i) the Supreme
Court of the State of New York, or (ii) the United States District Court for the
Southern District of New York in connection with any Proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in the County of New York, State of New York, or such
District, and agrees that service of any summons, complaint, Notice or other
process relating to such Proceeding may be effected in the manner provided by
clause (a)(ii) of Section 8.3.
8.8. REMEDIES. In the event of any breach or default by either party
hereto, the other party shall be entitled to equitable relief, including
remedies in the nature of rescission, injunction and specific performance. All
remedies hereunder are cumulative and not exclusive, and nothing herein shall
be deemed to prohibit or limit either party from pursuing any other remedy or
relief available at law or in equity for such actual or prospective breach or
default, including the recovery of damages; provided however, that the
<PAGE> 10
indemnification provisions of Article 7 shall be the sole and exclusive remedy
with respect to any claim under this Agreement.
8.9. SEVERABILITY. The provisions hereof are severable and in
the event that any provision of this Agreement shall be determined to be
invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions hereof shall not be affected, but shall, subject to
the discretion of such court, remain in full force and effect, and any invalid
or unenforceable provision shall be deemed, without further action on the part
of the parties hereto, amended and limited to the extent necessary to render the
same valid and enforceable.
8.10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original and which together
shall constitute one and the same agreement.
8.11. FURTHER ASSURANCES. Each party hereto shall promptly
execute, deliver, file or record such agreements, instruments, certificates and
other documents and perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.
8.12. ASSIGNMENT. This Agreement, and each right, interest and
obligation hereunder, may not be assigned by either party hereto without the
prior written consent of the other party hereto, and any purported assignment
without such consent shall be void and without effect.
8.13. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not intended, and shall not be deemed, to
create or confer any right or interest for the benefit of any Person not a
party hereto.
8.14. TITLES AND CAPTIONS. The titles and captions of the
Articles and Sections of this Agreement are for convenience of reference only
and do not in any way define or interpret the intent of the parties or modify
or otherwise affect any of the provisions hereof.
8.15. GRAMMATICAL CONVENTIONS. Whenever the context so
requires, each pronoun or verb used herein shall be construed in the singular
or the plural sense and each capitalized term defined herein and each pronoun
used herein shall be construed in the masculine, feminine or neuter sense.
8.16. REFERENCES. The terms "herein," "hereto," "hereof," and
"hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
10
<PAGE> 11
8.17. NO PRESUMPTIONS. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
8.18. INCORPORATION BY REFERENCE. The Exhibits and Schedules hereto
are an integral part of this Agreement and are incorporated in their entirety
herein by this reference.
8.19. FORCE MAJEURE. The performance of either party under this
Agreement shall be excused to the extent and during any event which reasonably
prevents the affected party from fulfilling its obligations hereunder. Such
events shall include, but shall not be limited to, fire, explosion, storm
damage, flood, labor troubles including strikes, lockouts or slowdowns,
government intervention (not including fines for violations of permits),
shortages of raw materials, labor or transportation, war, sabotage, riot or
civil disturbances, or governmental regulation or statute (any such event, a
"Force Majeure"). In the event of a Force Majeure, the affected party shall
promptly notify the other party, describing the nature of the cause and its
expected duration. The affected party shall take reasonable steps to cure the
cause and mitigate damages to the other party. The term of this Agreement shall
not be extended by the occurrence of a Force Majeure. Voluntary curtailment of
production through slowdowns or scheduled shutdowns shall not be considered
Force Majeure.
8.20. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have, by their respective duly authorized
officers, duly executed this Agreement on the date set forth in the Preamble
hereto.
<TABLE>
<S> <C>
AZRAK-HAMWAY INTERNATIONAL, INC. JAKKS PACIFIC, INC.
By: /s/ Ezra Hamway By: /s/ Jack Friedman
------------------------ --------------------------
Name: Ezra Hamway Name: Jack Friedman
Title: President Title: President
</TABLE>
12
<PAGE> 13
SCHEDULE 1.13
1. Die Cast Trucks Price List for 1997.
2. Child-Guidance Price List for 1997.
3. Child Guidance Crayons.
<PAGE> 14
SCHEDULE 1.20
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
<PAGE> 15
SCHEDULE 1.20 (cont'd)
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
- ------------ -------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
20
25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
24
U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
</TABLE>
* Intent to Use
<PAGE> 16
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
- ------------ -------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 1036/80
France Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 84241
Italy Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
24
Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
</TABLE>
* Intent to Use
<PAGE> 17
<TABLE>
<CAPTION>
International Current Current
COUNTRY Trademark Class Application No. Registration No.
- ------------ -------------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Singapore Remco 28 77145 77145
Spain Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco NA 22 5120-78 96.302F
</TABLE>
* Intent to Use
<PAGE> 1
EXHIBIT 10.4
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Security Agreement"), dated as of
October 24, 1997, between JAKKS Pacific, Inc., a Delaware corporation (the
"Debtor"), and Azrak-Hamway International, Inc., a New York corporation (the
"Lender").
W I T N E S S E T H :
WHEREAS, pursuant to the terms of the Trademark Purchase
Agreement, dated as of the date hereof, by and among the Debtor and the Lender
(the "Acquisition Agreement"), the Lender has agreed to receive $1,200,000 of
consideration thereunder in the form of a promissory note of the Debtor (the
"Note") upon the terms and subject to the conditions set forth in Acquisition
Agreement and the Note (collectively, the "Loan").
NOW, THEREFORE, in consideration of these premises and to induce
the Lender to enter into the Acquisition Agreement and to make the Loan to the
Debtor under the Note, the Debtor and the Lender hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are used herein and not otherwise defined shall have the respective
meanings ascribed to them in the Acquisition Agreement; terms for which meanings
are provided in the UCC are used herein with such meanings unless otherwise
defined herein; and the following terms shall have the following meanings:
"Acceleration Event" has the meaning set forth in Paragraph 5 of
the Note.
"Books and Records" means all books, documents, files and
records, now or hereafter existing, pertaining to the Collateral wherever
located, including, without limitation, all correspondence, ledger sheets,
computer files and programs, tapes, discs, cards, accounting records, customer
lists, credit files, marketing materials and data, and all Equipment containing
any of the foregoing.
"Business Day" means any day other than a Saturday, Sunday or any
day which is a legal or bank holiday under the laws of the State of New York.
"Collateral" has the meaning set forth in Section 2 of this
Security Agreement.
"Lien" means any lien, security interest, pledge or other charge
or encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on title
to real property.
-1-
<PAGE> 2
"Person" means any person, firm, corporation, partnership,
limited liability company, joint venture, association, trust or other enterprise
or any governmental or political subdivision or agency, department or
instrumentality thereof.
"Secured Obligations" means the collective reference to, but
without duplication, all obligations and liabilities (direct or indirect,
absolute or contingent, due or to become due or now existing or hereafter
incurred), whether for principal, interest, premium, fees, indemnity, costs,
expenses or otherwise, of the Debtor under the Acquisition Agreement, the Note
and the Manufacturing and Supply Agreement, dated as of the date hereof, by and
between the Debtor and the Lender.
"UCC" means the Uniform Commercial Code as in effect in the State
of New York; provided, however, that if by reason of any mandatory provision of
law, the perfection or the effect of perfection or non-perfection of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, the Debtor
hereby pledges, assigns, transfers and grants to the Lender a continuing
security interest in all of the property described on Schedule A hereto
(collectively, the "Collateral") subordinate in right only to those creditors of
the Debtor set forth on Schedule B hereto. The Lender acknowledges and agrees
that the Lien of each such creditor is senior and prior in right to the security
interests granted to the Lender hereby, and that the Lender shall not take any
action the effect of which would be to restrict or impair the prior rights of
such other creditors to enforce their respective Liens.
3. Representations and Warranties. The Debtor hereby represents
and warrants that:
(a) Title; No Other Liens. Except for the Liens granted to the
creditors of the Debtor listed on Schedule B and the Lender pursuant to this
Security Agreement, the Debtor owns each item of the Collateral free and clear
of any and all Liens or claims of others. Except as set forth on Schedule B, no
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public office.
(b) Perfected Liens. Upon proper filing of the applicable UCC
financing statements, the Liens granted pursuant to this Security Agreement
constitute perfected Liens on the Collateral in favor of the Lender, enforceable
as such against all creditors of and purchasers from the Debtor (except
purchasers of goods in the ordinary course of business).
(c) Power and Authority; Authorization. The Debtor has the
requisite corporate power and authority and the legal right to execute and
deliver, to perform its obligations under, and to grant the Lien on the
Collateral pursuant to, this Security
-2-
<PAGE> 3
Agreement and has taken all necessary action to authorize the execution,
delivery and performance of, and grant the Lien on the Collateral pursuant to,
this Security Agreement.
(d) Enforceability. This Security Agreement constitutes a legal,
valid and binding obligation of the Debtor enforceable against the Debtor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
(g) No Conflict. The execution, delivery and performance of this
Security Agreement and the granting by the Debtor of the Lien hereunder will not
violate any provision of any requirement of law or contractual obligation of the
Debtor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of the Debtor pursuant to any requirement of law or
contractual obligation of the Debtor, except as contemplated hereby.
(h) No Consents, etc. No consent or authorization of, filing
with, or other act by or in respect of, any arbitrator or governmental authority
and no consent of any other Person (including, without limitation, any creditor
of the Debtor), is required either (i) for the execution, delivery and
performance of this Security Agreement or for the grant by the Debtor of the
Lien granted hereby or (ii) to ensure the legality, validity, enforceability or
admissibility of this Security Agreement in any jurisdiction in which any of the
Collateral is located.
4. Performance by the Lender of the Debtor's Obligations. If the
Debtor fails to perform or comply with any of its agreements contained herein
and the Lender, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the out-of-pocket expenses of the Lender incurred in connection
with such performance or compliance shall be payable by the Debtor to the Lender
on demand and shall constitute Secured Obligations secured hereby.
5. Further Assurances. The Debtor covenants and agrees with the
Lender that, from and after the date of this Security Agreement until the
Secured Obligations are paid and finally discharged in full and this Security
Agreement is terminated pursuant to the terms hereof:
(a) Further Documentation. At any time and from time to time,
upon the request of the Lender and at the sole expense of the Debtor, the Debtor
will promptly and duly execute and deliver such further instruments, agreements
and documents and take such further action as the Lender may deem desirable and
may request for the purpose of obtaining or preserving the full benefits of this
Security Agreement and the rights and powers herein granted, including, without
limitation, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereunder or hereby, or to enable
the Lender to exercise and enforce its rights and remedies hereunder with
respect to any Collateral.
-3-
<PAGE> 4
(b) Financing Statements. The Debtor hereby authorizes the Lender
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
the Debtor to the extent permitted by applicable law.
6. Remedies. If an Acceleration Event shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, but subject to the UCC, if applicable, the Lender,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Debtor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Lender shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Debtor, which right or equity is hereby waived or released. The Debtor further
agrees at the Lender's request upon the occurrence and continuance of an
Acceleration Event to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Debtor's premises or elsewhere. The Lender shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, and only after such application
and after the payment by the Lender of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the UCC,
need the Lender account for the surplus, if any, to the Debtor. If any notice of
a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least five days
before such sale or other disposition. The Debtor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Secured Obligations and the reasonable fees and
disbursements of counsel employed by the Lender to collect such deficiency.
7. Severability. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
-4-
<PAGE> 5
8. No Waiver; Cumulative Remedies. The Lender shall not by any
act (except by a written instrument pursuant to Section 9 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Acceleration Event or in any breach of
any of the terms or conditions hereof. No failure to exercise nor any delay in
exercising any right, power or privilege hereunder on the part of the Lender
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
9. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Debtor and the Lender, provided that any provision of this Security
Agreement may be waived by the Lender in a written letter or agreement executed
by the Lender. Subject to Section 11 hereof, this Security Agreement shall be
binding upon the successors and assigns of the Debtor and shall inure to the
benefit of the Lender and its successors and assigns.
10. Termination and Reinstatement. This Security Agreement and
the security interests in the Collateral created hereby will terminate when the
Secured Obligations have been paid and finally discharged in full.
Notwithstanding any such termination, if at any time, all or part of the payment
of the Secured Obligations theretofore made by the Debtor or any other Person is
rescinded or otherwise must be returned by the Lender for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
the Debtor or such other Person), the Liens granted hereunder or under any other
present or future agreement between the Debtor and the Lender, and all rights of
the Lender and all Secured Obligations shall be reinstated as to the monetary
Secured Obligations that were satisfied by the payment to be rescinded or
returned, all as though such payment had not been made, and the Debtor shall
sign and deliver to the Lender all documents and things necessary to re-perfect
all terminated Liens. The Debtor may not assign this Security Agreement without
the express written consent of the Lender.
11. Notices. Any notices, elections or demands permitted or
required to be made under this Security Agreement shall be in writing, signed by
the Person giving such notice, sent by personal delivery or through a nationally
recognized overnight courier service or by registered or certified mail, postage
prepaid, or transmitted by telecopier and shall be addressed as follows:
If to the Debtor: JAKKS Pacific, Inc.
24955 Pacific Coast Highway
Malibu, California 90265
Attention: Jack Friedman
Fax: (310) 317-8527
-5-
<PAGE> 6
With a copy to: Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP
International Plaza
750 Lexington Avenue
New York, NY 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
If to the Lender: Azrak-Hamway International, Inc.
1107 Broadway, Suite 808
New York, New York 10010-2894
Attn: Marvin Azrak
Fax: (212) 675-3365
With a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: David P. Levin, Esq.
Fax: (212) 715-8000
All notices, elections and demands shall be deemed to have been delivered on the
date of their delivery if personally delivered or if transmitted by telecopier
(provided receipt of such transmission is confirmed by answer back), on the
second Business Day after deposit with the courier service if delivered by a
nationally recognized overnight courier service or five Business Days after the
date on which the same is mailed if delivered by registered or certified mail.
12. Governing Law. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS SECURITY
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE LENDER OR THE DEBTOR SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE DEBTOR AND THE LENDER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF
-6-
<PAGE> 7
ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE DEBTOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE
DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE DEBTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OF ITS PROPERTY, THE DEBTOR HEREBY IRREVOCABLY
WAIVES SUCH IMMUNITY IN RESPECT OF THE SECURED OBLIGATIONS UNDER THIS SECURITY
AGREEMENT.
14. Waiver of Jury Trial. THE LENDER AND THE DEBTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS SECURITY AGREEMENT AND EVERY OTHER DOCUMENT
RELATING HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE DEBTOR. THE DEBTOR ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER DOCUMENT RELATING HERETO TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
LENDER ENTERING INTO THE ACQUISITION AGREEMENT, AND ANY RELATED DOCUMENTS, AND
MAKING THE LOAN AVAILABLE.
15. Counterparts. This Agreement may be executed in counterparts,
each one of which shall be deemed an original and which together shall
constitute one and the same instrument.
16. No Presumptions. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
17. Incorporation by Reference. The Schedules hereto are an
integral part of this Agreement and are incorporated in their entirety herein by
this reference.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
JAKKS PACIFIC, INC.
By: /s/ JACK FRIEDMAN
------------------------------
Name: Jack Friedman
Title: President
AZRAK-HAMWAY INTERNATIONAL, INC.
By: /s/ EZRA HAMWAY
------------------------------
Name: Ezra Hamway
Title: President
-8-
<PAGE> 9
SCHEDULE A
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
<PAGE> 10
SCHEDULE A (cont'd)
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------- ------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
20
25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
24
U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
</TABLE>
* Intent to Use
<PAGE> 11
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------- ------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 1036/80
France Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 84241
Italy Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
24
Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
</TABLE>
* Intent to Use
<PAGE> 12
<TABLE>
<CAPTION>
International Current Current
Country Trademark Class Application No. Registration No.
- ------------- ------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Singapore Remco 28 77145 77145
Spain Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco NA 22 5120-78 96.302F
</TABLE>
* Intent to Use
<PAGE> 13
SCHEDULE B
SENIOR LENDERS
1. Holders of the Debtor's 9% Convertible Debentures Due 2003
2. NorWest Bank Minnesota, National Association
3. NorWest Business Credit, Inc.
