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UNITED STATES
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):
February 21, 1997 (February 6, 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.)
24955 Pacific Coast Highway, Suite B202
Malibu, California 90265
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(310) 456-7799
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JAKKS PACIFIC, INC.
INDEX TO FORM 8-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FEBRUARY 21, 1997
ITEMS IN FORM 8-K
Page
Facing page
Item 2. Acquisition or Disposition of Assets. 3
Item 7. Financial Statements and Exhibits. 4
Signatures 5
Exhibit Index 6
2
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 6, 1997 (the "Closing Date") the Registrant, through a
wholly-owned subsidiary, completed the purchase of all of the shares of Road
Champs, Inc. ("RC Inc."), a Pennsylvania corporation, which owned all of the
shares of Road Champs, Ltd. ("RC Ltd."), a Hong Kong corporation, and the
operating assets of Die Cast Associates, Inc. ("Die Cast"), a related Florida
corporation (collectively referred to herein as "Road Champs"), pursuant to the
terms of a purchase agreement between Registrant, its wholly-owned subsidiary,
JAKKS Acquisition Corp., a Delaware corporation, RC Inc., RC Ltd., Die Cast,
and the stockholders of RC Inc. (the "Agreement"). Under the terms of the
Agreement, the Registrant acquired the Road Champs line of die cast toy and
collectible vehicles. Also acquired were cash, inventory, tools and molds,
licenses and trademarks, as well as Road Champs' leases for office and
warehouse space in New Jersey, New York and Hong Kong. The Registrant intends
to continue manufacturing and selling the Road Champs line of die cast toy and
collectible vehicles. The acquired business will be operated as a subsidiary
of the Registrant.
The purchase price for Road Champs (the "Purchase Price") was
$12,045,604, which consisted of a cash payment at closing of $4,619,061,
$1,500,000 by issuance and delivery of 198,020 shares of the Registrant's Common
Stock (the "Shares"), $1,987,941 payable for inventory as utilized, but not
later than August 6, 1997, $1,001,461 payable for the cash of RC Ltd., not later
than May 6, 1997, and a deferred payment of $2,937,141, payable over twelve
months, bearing interest at the rate of 7% per annum.
The purchase price was determined by arms-length negotiation between
the management of Registrant and Road Champs. The number of Shares delivered
at closing was determined by dividing one million five hundred thousand dollars
($1,500,000) by the average closing price of the Registrant's Common Stock for
twenty (20) consecutive trading days on the NASDAQ SmallCap stock market ending
two (2) business days prior to the Closing Date. Registrant has agreed to
use its best efforts to cause a registration statement covering the Shares to
be filed permitting their sale under the Securities Act of 1933.
The former stockholders of RC Inc. ("RC Inc. Stockholders") have
agreed that during the period commencing with the Closing Date until February
6, 1998, the RC Inc. Stockholders will not sell, assign, or otherwise transfer
or dispose of the Shares, except as specified in the Agreement for failure of
the Registrant to register the Shares within one year from the Closing Date.
To fund the cash portion of the purchase price, Registrant used its
general corporate and working capital, as well as a portion of the funds raised
through a debenture financing in January 1997.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Business Acquired.
It is impracticable at this time to include herein the financial
statements of Road Champs for the periods specified in Item 310(c)(3) of
Regulation S-B. The required financial statements of Road Champs will be filed
under cover of Form 8-KA as soon as practicable, but not later than April 22,
1997, which is sixty (60) days after the date by which this Report on Form 8-K
must be filed.
(b) Pro Forma Financial Information
It is impracticable at this time to include herein the pro forma
financial information of the Registrant reflecting the purchase of Road Champs.
The required pro forma information will be filed under cover of Form 8-KA as
soon as practicable.
(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
2 Purchase Agreement among JAKKS Pacific, Inc. and JAKKS
Acquisition Corp. and Road Champs, Inc., Road Champs Ltd. and
Die Cast Associates, Inc. and the shareholders of Road Champs,
Inc. for the purchase of all of the shares of stock of Road
Champs, Inc. and Road Champs Ltd. and the operating assets of
Die Cast Associates, Inc. dated January 21, 1997.
Schedules to this agreement are being filed by paper via
Form S-E.
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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: February 21, 1997 JAKKS PACIFIC, INC.
By:/s/ Jack Friedman
-------------------------------------
Jack Friedman
President and Chief Executive Officer
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Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
2 Purchase Agreement among JAKKS Pacific, Inc. and JAKKS
Acquisition Corp. and Road Champs, Inc., Road Champs Ltd. and
Die Cast Associates, Inc. and the shareholders of Road Champs,
Inc. for the purchase of all of the shares of stock of Road
Champs, Inc. and Road Champs Ltd. and the operating assets of
Die Cast Associates, Inc. dated January 21, 1997.
Schedules to this agreement are being filed by paper via
Form S-E.
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EXHIBIT 2
PURCHASE AGREEMENT AMONG JAKKS PACIFIC, INC. AND JAKKS ACQUISITION CORP. AND
ROAD CHAMPS, INC., ROAD CHAMPS LTD. AND DIE CAST ASSOCIATES, INC.
AND THE SHAREHOLDERS OF ROAD CHAMPS, INC. FOR THE PURCHASE OF ALL OF THE SHARES
OF STOCK OF ROAD CHAMPS, INC. AND ROAD CHAMPS LTD. AND THE
OPERATING ASSETS OF DIE CAST ASSOCIATES, INC. DATED JANUARY 21, 1997.
Schedules to this agreement are being filed by paper via Form S-E.
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EXHIBIT 2
PURCHASE AGREEMENT
AMONG
JAKKS PACIFIC, INC. AND JAKKS ACQUISITION CORP.
AND
ROAD CHAMPS, INC., ROAD CHAMPS LTD. AND DIE CAST ASSOCIATES, INC.
AND
THE SHAREHOLDERS OF ROAD CHAMPS, INC.
FOR THE PURCHASE OF ALL OF THE SHARES OF STOCK OF
ROAD CHAMPS, INC. AND ROAD CHAMPS LTD.
AND
THE OPERATING ASSETS OF DIE CAST ASSOCIATES, INC.
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TABLE OF CONTENTS
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ARTICLE 1: SALE AND PURCHASE OF ROAD CHAMPS SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 SALE AND PURCHASE OF SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 EXCLUDED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2: SALE AND PURCHASE OF DIE CAST ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 ACQUIRED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 EXCLUDED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 CHARACTER OF DIE CAST'S BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3: CALCULATION AND PAYMENT OF PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 THE PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1.1. CALCULATION OF PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . 2
3.2 POST CLOSING ADJUSTMENTS TO PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . 4
3.2.1. ADJUSTMENTS BASED ON 12 MONTH 1996 FINANCIAL STATEMENTS. . . . . . . 4
3.2.2. ADDITIONAL ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . 4
3.2.3. INVENTORY AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 PAYMENT OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3.1. DEFINITION OF ADJUSTED PURCHASE PRICE. . . . . . . . . . . . . . . . 5
3.3.2. DEFINITION OF RC ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . 5
3.3.3. PAYMENT OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . 6
3.3.4. ALLOCATION OF PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . 7
3.3.5. PREPAID ITEMS AND DEPOSITS. . . . . . . . . . . . . . . . . . . . . . 7
3.3.6. TAX REFUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3.7. SECURITY FOR PAYMENT OF ADJUSTED PURCHASE PRICE BALANCE. . . . . . . 7
ARTICLE 4: THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 DELIVERIES BY JACK ROBBINS AT CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 DELIVERIES BY PURCHASER AT CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 5: REGISTRATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 AGREEMENT TO REGISTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1.1. FAILURE TO FILE. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1.2. REPURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 LOCK UP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 ADJUSTMENTS TO PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3.1. SHARE ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3.2. CASH ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3.3. DEATH OF A SELLING STOCKHOLDER. . . . . . . . . . . . . . . . . . . . 11
5.4 PREPARATION AND FILING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 PREPARATION; REASONABLE INVESTIGATION . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS AND ROAD CHAMPS COMPANIES . . . . . 12
6.1 EXISTENCE AND GOOD STANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3.1. FINANCIAL STATEMENTS DELIVERED BY ROAD CHAMPS COMPANIES. . . . . . . 13
6.3.2. ABSENCE OF ADVERSE CHANGES . . . . . . . . . . . . . . . . . . . . . 14
6.4 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.5 REAL PROPERTY; PERSONAL PROPERTY; MACHINERY AND EQUIPMENT . . . . . . . . . . . . . . 14
6.5.1. LEASEHOLD AND OTHER REAL PROPERTY INTERESTS. . . . . . . . . . . . 14
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6.5.2. TITLE TO ACQUIRED ASSETS. . . . . . . . . . . . . . . . . . . . . . . 14
6.5.3. MACHINERY AND EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . 14
6.5.4. CONSENTS OF LESSORS. . . . . . . . . . . . . . . . . . . . . . . . . 15
6.5.5. SUFFICIENCY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 15
6.6 CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.7 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.8 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.9 LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.10 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.12 LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.13 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.14 SUPPLIER AND CUSTOMER RELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.15 EMPLOYMENT RELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.16 PERSONNEL; COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.16.1. THE ROAD CHAMPS COMPANIES' PERSONNEL. . . . . . . . . . . . . . . . . 18
6.16.2. EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . 19
6.17 NO CHANGES SINCE THE BALANCE SHEET DATE . . . . . . . . . . . . . . . . . . . . . . . 19
6.18 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 19
6.19 REQUIRED APPROVALS, NOTICES AND CONSENTS . . . . . . . . . . . . . . . . . . . . . . . 20
6.20 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.21 ENVIRONMENTAL CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.22 HEALTH AND SAFETY CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.23 COPIES OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.24 NO BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.25 THE RC ACCOUNTS PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 7: REPRESENTATIONS OF JAKKS PACIFIC AND PURCHASER . . . . . . . . . . . . . . . . . . . . . . 23
7.1 EXISTENCE AND GOOD STANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.3 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 23
7.4 REQUIRED APPROVALS, NOTICES AND CONSENTS . . . . . . . . . . . . . . . . . . . . . . . 24
7.6 FINANCIAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.7 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.8 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.9 NO BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.10 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 8: CONDITIONS TO THE PURCHASER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.1 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.2 TRUTH OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 25
8.3 PERFORMANCE OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.4 NO LITIGATION THREATENED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.5 LETTER OF NON-APPLICABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.6 GOVERNMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.7 PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 9: CONDITIONS TO SELLING STOCKHOLDERS' AND DIE CAST'S OBLIGATIONS . . . . . . . . . . . . . . 26
9.1 TRUTH OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 26
9.2 PERFORMANCE OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.3 GOVERNMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.5 CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.6 PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 10: POST CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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10.2 TRANSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 RESTRICTIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4.1. COVENANTS AGAINST COMPETITION. . . . . . . . . . . . . . . . . . . . 28
10.4.2. PERMITTED COMPETITION. . . . . . . . . . . . . . . . . . . . . . . . 28
10.4.3. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.4.4. ENFORCEMENT THROUGH INJUNCTION. . . . . . . . . . . . . . . . . . . . 29
10.4.5. BLUE LINING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.5 COOPERATION IN PREPARATION OF SECURITIES LAW FILINGS . . . . . . . . . . . . . . . . . 29
10.6 GUARANTEES BY JAKKS PACIFIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.7 CHANGE OF NAME OF AFFILIATED FACTORY . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.8 PURCHASER'S EMPLOYMENT OF ROAD CHAMPS COMPANIES' EMPLOYEES AND SALES REPRESENTATIVES . 30
ARTICLE 11: SURVIVAL OF REPRESENTATIONS; INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS AND DIE CAST . 30
11.2 OBLIGATIONS OF THE SELLING STOCKHOLDERS AND DIE CAST TO INDEMNIFY . . . . . . . . . . 31
11.2.1. GENERAL INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2.3. LIMITATION ON INDEMNIFICATION OBLIGATION. . . . . . . . . . . . . . . 32
Survival of Representations and Warranties of JAKKS Pacific and the Purchaser . . . . 32
11.3.1. OBLIGATION OF JAKKS PACIFIC AND PURCHASER TO INDEMNIFY. . . . . . . . 33
11.3.2. LIMITATION ON INDEMNIFICATION OBLIGATION. . . . . . . . . . . . . . . 33
11.4 NOTICE AND OPPORTUNITY TO DEFEND . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.4.1. NOTICE OF ASSERTED LIABILITY . . . . . . . . . . . . . . . . . . . . 33
11.4.2. OPPORTUNITY TO DEFEND . . . . . . . . . . . . . . . . . . . . . . . . 34
11.4.3. SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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ARTICLE 12: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.1 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.2 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.3 INTERCHANGEABILITY OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.4 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.5 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.6 PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.7 PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.8 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.9 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.10 ENTIRE AGREEMENT; AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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PURCHASE AGREEMENT
PURCHASE AGREEMENT between and among JAKKS ACQUISITION CORP., a
Delaware corporation, having an address at 24955 Pacific Coast Highway, Malibu,
California 90265 (hereafter referred to as "PURCHASER") and JAKKS PACIFIC,
INC., a Delaware corporation, having an address at 24955 Pacific Coast Highway,
Malibu, California 90265 (hereafter referred to as "JAKKS PACIFIC") and ROAD
CHAMPS, INC., a Pennsylvania corporation, having an address at 7 Patton Drive,
West Caldwell, New Jersey 07006-6404 (hereafter referred to as "RC INC"), ROAD
CHAMPS, LTD., a Hong Kong corporation, having an address at 7 Patton Drive,
West Caldwell, New Jersey 07006-6404 (hereafter referred to as "RC LTD"), DIE
CAST ASSOCIATES, INC. a Florida corporation, having an address at 7 Patton
Drive, West Caldwell, New Jersey 07006-6404 (hereafter referred to as "DIE
CAST"), and JACK ROBBINS, an individual residing at 197 Summit Avenue, Pompton
Lakes, New Jersey 07442 (hereafter referred to as "JACK ROBBINS"), and the
other Stockholders of RC Inc. identified on SCHEDULE 6.2 to this Agreement
(hereafter Jack Robbins and such other stockholders are referred to as the
"SELLING STOCKHOLDERS"). RC Inc, RC Ltd and Die Cast are sometimes
collectively referred to as the "ROAD CHAMPS COMPANIES".
W I T N E S S E T H :
WHEREAS, the Selling Stockholders desire to sell, and Purchaser
desires to purchase, all of the shares of stock of RC Inc on the terms set
forth in this Agreement; and
WHEREAS, Die Cast and Jack Robbins as its sole shareholder desire to
sell and Purchaser desires to purchase all of the operating assets of Die Cast
on the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE ARTICLE 1: SALE AND PURCHASE OF ROAD CHAMPS SHARES
1.1 SALE AND PURCHASE OF SHARES OF STOCK
1.1.1. RC INC AND RC LTD SHARES. Subject to the terms and
conditions set forth in this Agreement, the Selling Stockholders
hereby agree to sell to Purchaser and Purchaser hereby agrees to
purchase all of the shares of RC Inc (the "RC Inc Shares"), free and
clear of any liabilities, liens, security interests, pledges, or
encumbrances. Among the assets of RC Inc are shares of RC Ltd which
constitute all of the issued and outstanding shares of RC Ltd except
for one (1) share of RC Ltd held by Jack Robbins as nominee, which
Jack Robbins agrees to transfer to Jack Friedman ("FRIEDMAN"), as
nominee for Purchaser (the "RC LTD SHARE"), and which RC Ltd Share
shall be transferred at the Closing free and clear of any liabilities,
liens, security interests, pledges, or encumbrances. The RC Inc
Shares and the RC Ltd Share shall be collectively referred to as the
"Road Champs Shares".
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1.2 EXCLUDED LIABILITIES
All inter-company accounts, liabilities, credits and debits among and
between the Road Champs Companies or among and between Jack Robbins
and the Road Champs Companies and any other entities owned or
controlled by or under common control with the Road Champs Companies
shall be satisfied or eliminated as of the Closing, and all
obligations of RC Inc and RC Ltd to Die Cast or Jack Robbins shall be
deemed terminated and released, except for the obligations
specifically assumed or undertaken by RC Inc and RC Ltd under this
Agreement which are stated to survive the Closing.
ARTICLE 2: SALE AND PURCHASE OF DIE CAST ASSETS
2.1 ACQUIRED ASSETS.
Subject to the terms and conditions set forth in this Agreement, Die
Cast hereby agrees to sell to Purchaser, and Purchaser hereby agrees to
purchase from Die Cast at the Closing all of the operating assets of Die Cast
(the "ACQUIRED ASSETS") free and clear of any liabilities, liens, security
interests, pledges or encumbrances (except for those listed on SCHEDULE 6.5.2
or expressly permitted in accordance with this Agreement) which consists solely
of the trademark "Monster Wheels" (toy vehicles), Reg No. 1,443,385, and the
transfer of which shall be effective as of the Closing Date. The following
assets shall not be included among the Acquired Assets: Die Cast's accounts
receivable and other receivables, marketable securities, cash, cash-like items,
deposits, and automobiles, if any.
2.2 EXCLUDED LIABILITIES
Purchaser will not assume any of Die Cast's accounts payable,
liabilities or other debts or obligations, all of which will remain Die Cast's
obligations. All inter-company accounts, liabilities, credits and debits among
and between Die Cast and the other Road Champs Companies and Jack Robbins and
any other entities owned or controlled by or under common control with Die Cast
and the other Road Champs Companies shall be eliminated as of the Closing, and
all obligations of RC Inc and RC Ltd to Die Cast shall be deemed terminated and
released.
2.3 CHARACTER OF DIE CAST'S BUSINESS
JAKKS Pacific and Purchaser acknowledge that Die Cast is neither a
manufacturer nor distributor and that its sole business activity was to license
products to RC Inc and RC Ltd and to provide sales, marketing, and consulting
services to RC Inc and RC Ltd. Jack Robbins and Die Cast represent and warrant
that Die Cast owns no tangible assets such as machinery, equipment, inventory,
tools, and the like, other than minor items of equipment such as fax and copy
machines.
ARTICLE 3: CALCULATION AND PAYMENT OF PURCHASE PRICE
3.1 THE PURCHASE PRICE
3.1.1. CALCULATION OF PURCHASE PRICE.
i. The Purchase Price for the Road Champs Shares
and the Acquired Assets transferred to Purchaser shall be an
amount (the "PURCHASE PRICE") equal to the sum of
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(1) $9,221,198.00 (hereafter such sum
is referred to as the "Fixed Price Component"); plus
(2) an amount equal to RC Inc's and RC
Ltd's landed cost (indicated on their books and
records consistent with past practices), for their
finished, current inventory in saleable condition
existing as of the Closing, including goods in
transit (with cost of transportation) and also
including product samples of current merchandise in
saleable condition even if not reflected on the Road
Champs Companies' financial statements, all of which
shall be estimated at Closing and confirmed by audit
of such inventory within twenty (20) business days
after Closing (such amount, together with the amount
calculated pursuant to subpart (5) below is referred
to as the "INVENTORY PAYMENT"); plus
(3) an amount equal to the cash and
cash equivalents of RC Ltd and RC Inc on hand as of
the Closing Date (hereafter such amount is referred
to as the "RC CASH"); plus
(4) an amount equal to the accounts
receivable of RC Inc and RC Ltd as of the Closing
Date (hereafter referred to as the "RC ACCOUNTS
RECEIVABLE"); plus
(5) an amount equal to RC Inc's and RC
Ltd's delivered cost for raw materials (including
packaging materials) that are usable for the
manufacture of current products which shall be
estimated at Closing and which shall be deemed
correct if not subjected to an audited inventory
within twenty (20) business days after Closing (or as
confirmed by such audited inventory if one is taken),
such amount to be included as part of the Inventory
Payment; less
(6) the RC Accounts Payable (as
defined in Section 3.3.2 below) as of the Closing
Date, other than the liabilities under the equipment
and real property leases disclosed on the schedules
annexed to this Agreement (hereafter such other
liabilities are referred to as the "Assumed
Liabilities"); and less
(7) the sum of One Hundred and Sixty
Two Thousand U.S. Dollars ($162,000.00).
ii. The Purchase Price shall also be decreased by
an amount equal to the taxes on the net income, if any, of RC
Inc and/or RC Ltd during the period from January 1, 1997 to the
Closing Date, and shall be increased by the tax benefit derived
from the net loss, if any, of RC Inc and/or RC Ltd during the
period from January 1, 1997 to the Closing Date, computed in
either case by RC Inc's corporate tax rate at the combined
federal and state level and by RC Ltd's corporate tax rate in
Hong Kong and any other jurisdiction in which either RC Inc or
RC Ltd is subject to taxation; in making such calculations,
sums paid in 1997, if any, by RC Inc to employees of RC Inc or
RC Ltd on account of (a)
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bonuses and (b) the RC Inc stock appreciation plan (the "Stock
Appreciation Plan"), shall be treated as an expense provided
that such payments are deductible by RC Inc for tax purposes
in 1997, and income arising from the sale by RC Inc or RC Ltd
of securities after December 31, 1996 and immediately prior to
Closing shall be included as income.
iii. The term "1996 EBIDTA" means earnings before
interest, depreciation, taxes and amortization of the Road
Champs Companies for the fiscal year ending December 31, 1996
on a consolidated basis, prepared in accordance with generally
accepted accounting principles consistently applied, and
consistent with past practices employed by the Road Champs
Companies in preparing their financial statements, adjusted
for the period from January 1, 1996 through December 31, 1996
to reflect officer's salary of $420,000.00 per annum and to
reflect cost of sales based upon prices charged by the Chinese
factory which supplies product to the Road Champs Companies
which are not less than prices charged for years prior to
fiscal 1996, and eliminating all inter-company accounts
(debits and credits) among the Road Champs Companies, or
involving Jack Robbins or other entities controlled by him.
No reduction in 1996 EBIDTA shall be attributable to loan
losses or bad check losses with Road Champs Die Casting
Factory Limited or shall be attributable to payments made in
1996 or 1997 or accruals in 1996 for amounts payable (a) to
employees of RC Inc and RC Ltd with respect to special
bonuses, not consistent with past practices, aggregating not
more than $130,000, or (b) to participants in the Stock
Appreciation Plan.
3.2 POST CLOSING ADJUSTMENTS TO PURCHASE PRICE.
The Fixed Price Component is subject to adjustment after closing as provided in
this Section 3.2.
3.2.1. ADJUSTMENTS BASED ON 12 MONTH 1996 FINANCIAL
STATEMENTS. Jack Robbins shall cause the Financial Statements of the
Road Champs Companies for the fiscal year ending December 31, 1996
(the "12 MONTH 1996 FINANCIAL STATEMENTS"), to be prepared promptly
after the Closing (on a review basis with respect to RC Inc and on a
combined basis with respect to the consolidated Road Champs Companies)
by Edelman & Associates P.A., and upon completion immediately
delivered to JAKKS Pacific. The 12 Month 1996 Financial Statements
shall be prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP") and consistent with the
practices employed in preparing the Road Champs Companies' compiled
consolidated balance sheet and statement of earnings on an EBIDTA
basis for the period from January 1, 1996 through October 31, 1996
(the "10 MONTH 1996 FINANCIAL STATEMENTS"). The Fixed Price Component
shall be adjusted based upon the Road Champs Companies' 1996 EBIDTA
derived from the 12 Month 1996 Financial Statements by multiplying the
Road Champs Companies' 1996 EBIDTA by 3.75. If the resulting product
differs from the Fixed Price Component, then the Fixed Price Component
shall be changed to correspond to the resulting product, but there
shall be no adjustment to the Fixed Price Component of the Purchase
Price unless there is a difference of one (1%) percent or more in the
Road Champs Companies 1996 EBIDTA
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set forth on the 12 Month 1996 Financial Statements from the Road
Champs Companies 1996 EBIDTA estimated at Closing based upon the 10
Month 1996 Financial Statements. Any change required to be made to
the Purchase Price shall be made by increasing or reducing (as the
case may be) the Adjusted Purchase Price Balance (as such term is
defined below).
3.2.2. ADDITIONAL ADJUSTMENTS. The Fixed Price Component
shall also be subject to adjustment for the following items to the
extent they are not accurately reflected on the 12 Month 1996
Financial Statements and result in a reduction of the Road Champs
Companies 1996 EBIDTA:
i. Liabilities to employees (e.g. bonuses,
salaries, pension, benefits, employee claims), but only if, at
the time such liability is discovered, GAAP requires revision
of the 12 Month 1996 Financial Statements;
ii. Liabilities for royalties and license fees
and amounts due to commission agents and other sales
representatives (other than inter-company liabilities among
the Road Champs Companies, all of which shall have been
satisfied or eliminated as of the Closing);
iii. Liabilities to customers incurred in 1996, or
incurred in 1997 with respect to the RC Accounts Receivable
(e.g. chargebacks, allowances and returns, where such were
accepted by the Road Champs Companies in 1996 or prior to the
Closing Date);
iv. Liabilities for accounts payable to vendors
and other third parties which should be recognized under
generally accepted accounting principles, consistently
applied; or
v. Special Liabilities (as that term is defined
in Section 3.3.8 below).
No adjustment shall be made to the Fixed Price Component until
the aggregate reduction in the Road Champs Companies 1996
EBIDTA as a result of the operation of the foregoing paragraph
exceeds $100,000.00; as a result, there shall be no adjustment
to the Fixed Price Component until the total adjustment to the
Fixed Price Component exceeds $375,000.00 (i.e. $100,000
multiplied by 3.75), and then only to the extent the
adjustment to the Fixed Price Component exceeds $375,000.00.
Any claim for adjustment of the Fixed Price Component shall
survive the Closing under this Agreement until the date of
expiration of the relevant federal, state or other statute of
limitations and shall not be subject to the limitations upon
Claims for indemnification contained in Section 11.1 or 11.2.3
of this Agreement. The reference in this Section 3.2.2 to
Section 3.3.8, which in turn refers to representations in
Article 6, shall not be deemed to modify the limitations in
Section 11.1 or 11.2 of this Agreement on Claims for
indemnification arising out a breach of representations and
warranties in Article 6.
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3.2.3. INVENTORY AUDIT. The parties agree that the items of
inventory listed on SCHEDULE 3.2 annexed hereto (which Schedule shall
be amended at or shortly after Closing to accurately reflect the
inventory of finished goods and raw materials as exists or existed at
the Closing Date) shall be considered to be current inventory
notwithstanding the fact that such items exist in larger quantities
than the amount an independent auditor might believe to be prudent
under the circumstances because of the rate of sale of such items.
3.3 PAYMENT OF PURCHASE PRICE.
3.3.1. DEFINITION OF ADJUSTED PURCHASE PRICE. The term
"ADJUSTED PURCHASE PRICE" shall mean the Purchase Price less the
following amounts:
i. $1,500,000.00; and
ii. the Inventory Payment; and
iii. the sum of the RC Cash and RC Accounts
Receivable.
3.3.2. DEFINITION OF RC ACCOUNTS PAYABLE. The term RC
Accounts Payable as used in this Agreement shall mean all accounts
payable or liabilities (liquidated or unliquidated, fixed or
contingent) of RC Inc or RC Ltd, short or long term, to customers,
creditors, or other third parties other than JAKKS Pacific or
Purchaser, and whether or not any such item was known or not known or
should have been known to Jack Robbins, any Selling Stockholder, Die
Cast, JAKKS Pacific, or the Purchaser, for which either or both of RC
Inc and RC Ltd is liable as of the Closing Date.
3.3.3. PAYMENT OF PURCHASE PRICE. The Purchase Price for
the Road Champs Stock and the Acquired Assets shall be payable as
follows:
i. Sixty One (61%) Percent of the Adjusted
Purchase Price shall be paid in cash (the "CLOSING CASH
PAYMENT") at Closing by certified check or wire transfer, such
Cash Payment being subject to adjustment to the extent, if
any, that the Fixed Price Component is less than the sum of
the Closing Cash Payment plus the Inventory Payment;
ii. the balance of the Adjusted Purchase Price
(hereafter referred to as the "ADJUSTED PURCHASE PRICE
BALANCE") shall be paid in three equal installments, the first
installment payable four (4) months after the Closing, the
second installment payable eight (8) months after the Closing,
and the third installment payable one (1) year after the
Closing, each installment with interest at the rate of seven
(7%) percent per annum;
iii. One Million Five Hundred Thousand US Dollars
($1,500,000.00) shall be payable in shares of common stock par
value $.001 per share of JAKKS Pacific (the "COMMON STOCK"),
the number of such shares (the "SHARES"), to be
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determined by the average closing (last sale) price of JAKKS'
Pacific's common stock for twenty (20) consecutive trading
days immediately preceding the Closing (hereafter such price
is referred to as the "CLOSING STOCK PRICE");
iv. the Inventory Payment shall be paid as to
specific items shipped within thirty (30) days after shipment
to customers and the balance of the Inventory Payment, if any,
shall be paid, six (6) months following the Closing, without
interest;
v. the RC Cash attributable to RC Ltd shall be
paid without interest on the earlier of seven (7) days after
the closing of JAKKS Pacific's second common stock public
offering and ninety (90) days after Closing under this
Agreement;
vi. the RC Cash attributable to RC Inc shall be
paid immediately after and concurrently with the Closing;
vii. the RC Accounts Receivable shall be paid to
Jack Robbins as agent for the Selling Stockholders within ten
(10) business days after their collection as collected by
Purchaser, and in accordance with the procedures described in
SECTION 10.3 of this Agreement; the Selling Stockholders shall
bear the entire risk of collection of the RC Accounts
Receivable; any RC Accounts Receivable that are not collected
within six (6) months after closing shall be assigned to Jack
Robbins as agent for the Selling Stockholders and Jack Robbins
or his designee may take all steps deemed necessary or
desirable to collect such RC Accounts Receivable, provided,
however, that Jack Robbins shall give notice to Purchaser of
any dispute with an account debtor, and, in the event that
such account debtor is a customer of Purchaser, then Jack
Robbins and Purchaser will consult concerning the collection
of such account receivable, taking into consideration the
nature of the dispute and the materiality of the relationship
of Purchaser with such customer, and Jack Robbins will not
institute any formal legal action to collect such account
receivable without Purchaser's consent, which shall not be
unreasonably withheld or delayed.
3.3.4. ALLOCATION OF PURCHASE PRICE. The allocation of the
Purchase Price between the RC Shares and the Acquired Assets is
annexed hereto as SCHEDULE 3.3.4; subject to approval of their
respective independent accountants the parties agree that the Acquired
Assets have nominal value, if any.
3.3.5. PREPAID ITEMS AND DEPOSITS. Deposits, [sundry
receivables], prepaid items, and prepaid expenses on the financial
records of RC Inc and RC Ltd as of the Closing Date, if any, shall be
paid to the Selling Stockholders as an adjustment to the Purchase
Price.
3.3.6. TAX REFUNDS. Any tax refunds received by Purchaser,
RC Inc, and RC Ltd after Closing and attributable to the taxes of RC
Inc or RC Ltd for any period prior to January 1, 1997 shall be
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remitted to Jack Robbins, as agent for the Selling Stockholders,
within ten (10) business days after receipt. Purchaser shall
cooperate with Jack Robbins in executing such documents he reasonably
requests in connection with RC Inc and RC Ltd making application for
prosecuting the collection of any such refunds payable to RC Inc and
RC Ltd attributable to the period before January 1, 1997. Obtaining
any such refund shall be the responsibility and at the expense of the
Selling Stockholders.
3.3.7. SECURITY FOR PAYMENT OF ADJUSTED PURCHASE PRICE
BALANCE. The Purchaser's obligation to pay the Adjusted Purchase
Price Balance shall be secured by a pledge of the Road Champs Shares
and a security interest in the assets of RC Inc and RC Ltd (the Road
Champs Shares and such assets shall be collectively referred to as the
"Collateral"), pursuant to the New Jersey Uniform Commercial Code,
subordinated to the security interest in the Collateral to be given
simultaneously with the Closing by JAKKS Pacific and Purchaser to
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth & Income Trust PLC (collectively referred to as "Renaissance").
The subordinated pledge and security interest in the Collateral shall
be evidenced by the terms of a Security Agreement in the form annexed
hereto as SCHEDULE 3.3.7 (the "Security Agreement").
3.3.8. DEFINITION OF SPECIAL LIABILITIES. For purposes of
this Agreement, the term "SPECIAL LIABILITIES" shall mean liabilities
arising out of any breach of representation in Article 6 hereof where
such liability, at the time discovered, is required by GAAP to be
included on the 12 Month 1996 Financial Statements.
ARTICLE 4: THE CLOSING
4.1 CLOSING
The consummation of the sale and purchase of the Road Champs Shares
and the Acquired Assets ("CLOSING") shall take place at a time and place
mutually agreeable to JAKKS Pacific and Jack Robbins.
4.2 DELIVERIES BY JACK ROBBINS AT CLOSING.
At Closing Jack Robbins shall deliver, or shall cause to be delivered,
to Purchaser:
i. the 10 Month 1996 Financial Statements,
certified by an authorized officer of each of the Road Champs
Companies that to the best of his actual knowledge it was
prepared in accordance with the provisions of this Agreement;
ii. documents effecting the transfer of all
Acquired Assets, including all items of machinery and
equipment and Intellectual Property, to the Purchaser to the
extent and in the manner required by this Agreement;
iii. an amendment, in the form annexed to this
Agreement as part of SCHEDULE 4.2(III) to the lease annexed to
this Agreement as part of SCHEDULE 4.2(III), of the office and
warehouse facility at 7 Patton Drive, West Caldwell, New
Jersey between Robbins Realty, L.P. as Landlord and RC Inc as
Tenant (the "WAREHOUSE LEASE AMENDMENT");
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iv. an agreement in the form annexed hereto as
SCHEDULE 4.2(iv) providing for his consulting services to
Purchaser for a term of one (1) year following the Closing for
a consulting fee at the rate of $13,000.00 per annum (the
"CONSULTING AGREEMENT"), executed by Jack Robbins;
v. the Security Agreement, executed by Jack
Robbins as agent for the Selling Stockholders and Die Cast;
vi. the opinion of Messrs. Meislik & Levavy, as
counsel for RC Inc, Die Cast, and the Selling Stockholders, in
the form annexed hereto as SCHEDULE 4.2(v);
vii. the Certificates required by Article 8 of
this Agreement, dated the Closing Date;
viii. a copy of RC Inc's Certificate or Articles of
Organization, including all amendments, certified by the
office of the Secretary of State of the Commonwealth of
Pennsylvania, and a certificate from the office of the
Secretary of State of each state in which RC Inc is qualified
as a foreign corporation to do business, to the effect that
such corporation is in good standing in each such state, (and,
if available at the time of Closing, that it owes no taxes);
ix. a copy of RC Inc's By Laws certified by an
officer of the corporation;
x. a copy of RC Ltd's Memorandum and Articles of
Association, including all amendments; and a certificate (or a
facsimile thereof) from Hong Kong and each jurisdiction in
which RC Ltd is qualified as a foreign corporation to do
business, to the effect that such corporation is in good
standing in Hong Kong and each such foreign jurisdiction;
xi. the RC Inc Shares either endorsed for
transfer to Purchaser, or accompanied by a signed stock power
for transfer to Purchaser, except for the single share of RC
Ltd in the name of Jack Robbins for which Jack Robbins shall
deliver a signed stock power for transfer of that share to
Friedman and an affidavit that such certificate has been lost
or misplaced;
xii. the resignation of the current officers and
directors of each of RC Inc and RC Ltd, if and to the extent
requested by Purchaser;
xiii. such other documents or instruments as may be
necessary in order to consummate the transactions described in
this Agreement, including bills of sale in form and substance
reasonably acceptable to Purchaser.
4.3 DELIVERIES BY PURCHASER AT CLOSING. At Closing Purchaser shall
deliver to Jack Robbins as agent for the Selling Stockholders:
i. the Closing Cash Payment;
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ii. certificate(s) representing the Shares in the
name of the Selling Stockholders or their designees (who are
stockholders or employees of the Road Champs Companies) as set
forth on SCHEDULE 4.3(ii) annexed hereto (the "SHARE
CERTIFICATES"), which Share Certificates shall bear the
following legend:
the shares of stock represented by this Certificate
have not been registered under the United States
Securities Act of 1933, as amended (the "Act") and
may be transferred only if (i) registered under the
Act and if the requirements of any state having
jurisdiction are complied with or (ii) the transfer
is exempt from such registration and state
requirements and counsel reasonably acceptable to the
Corporation has delivered to the Corporation a
written opinion reasonably acceptable to the
Corporation setting forth the basis for such
exemption.
iii. the Warehouse Lease Amendment;
iv. the opinion of Messrs. Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, Purchaser's counsel, in the
form annexed hereto as SCHEDULE 4.3(iv);
v. the Consulting Agreement, executed by
Purchaser;
vi. the Security Agreement, executed by Purchaser
and JAKKS Pacific;
vii. an authorized officer of JAKKS Pacific and
Purchaser shall have delivered to Jack Robbins the
certificates required by Article 9 of this Agreement, dated
the Closing Date;
viii. a copy of JAKKS Pacific's and Purchaser's
respective Certificates of Incorporation, including all
amendments, certified by the Secretary of State of the State
of Delaware; and
ix. such other documents or instruments as may be
necessary in order to consummate the transactions described in
this Agreement.
4.4 DELIVERIES TO ESCROW AGENT AT CLOSING.
At the Closing, Purchaser, JAKKS Pacific, and Robbins as agent for the
Selling Stockholders shall execute and deliver the Escrow Agreement in the form
annexed hereto as Schedule 11.2.2 (the "ESCROW AGREEMENT"), and the Escrow
Agent will execute the Escrow Agreement and deliver copies to the other parties
thereto.
ARTICLE 5: REGISTRATION OF SHARES
5.1 AGREEMENT TO REGISTER
Within twelve (12) months after the Closing, JAKKS Pacific agrees to
use its best efforts to file a Registration Statement with the United States
Securities and Exchange Commission (the "Commission") and to have such
Registration Statement declared effective, to permit, when such Registration
Statement is declared effective, the sale of the
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Shares in the public securities markets. JAKKS Pacific may satisfy its
obligation under this paragraph by arranging for "piggy-back" registration of
the Shares as part of the registration by JAKKS Pacific of any of its
securities under the Securities Act of 1933, as amended (the "Securities Act")
(other than pursuant to a registration statement on Forms S-8, S-4 or similar
or successor forms). As used in this Agreement, the terms "register,"
"registered" and "registration" shall refer to a registration effected by
preparing and filing a Registration Statement with the Commission, in
compliance with the Securities Act, and/or the Securities and Exchange Act of
1934, and applicable rules and regulations under either such Act. JAKKS
Pacific may include in the Registration Statement filed pursuant to this
Article 5 any authorized but unissued shares of Common Stock for sale by JAKKS
Pacific or any issued and outstanding securities for sale by others.
5.1.1. FAILURE TO FILE. If a Registration Statement
permitting the sale of the Shares in the public securities markets has
not been filed within one (1) year after the Closing, and sale of the
Shares in such markets is not permitted at that time under Rule 144 or
other rule or exemption permitting sale without such registration,
then JAKKS Pacific agrees to repurchase the Shares at the price
described in SECTION 5.1.2 of this Agreement from those holders of the
Shares ("HOLDERS") who make written request therefor, within thirty
(30) days after the first anniversary of the Closing, such repurchase
to be made within thirty (30) days after the sending of the written
request, provided the Holder delivers the Share Certificates
representing the Shares to be repurchased to JAKKS Pacific (or its
designated agent) together with stock powers endorsed in blank in form
for transfer contemporaneously with JAKKS Pacific's payment to the
Holders.
5.1.2. REPURCHASE PRICE. The price per Share to be paid
pursuant to SECTION 5.1.1 of this Agreement shall be the higher of:
(a) the Closing Stock Price, and (b) the average closing (last Sale
Price) price on the date that the written request for repurchase is
sent by the Holder.
5.2 LOCK UP AGREEMENT
The Holders of the Shares will execute a document at Closing agreeing
that except as otherwise provided in this Agreement, he or she will not sell
the Shares until the expiration of one (1) year following the Closing (the
"Lock-up Period").
5.3 ADJUSTMENTS TO PURCHASE PRICE
5.3.1. SHARE ADJUSTMENT. If the average closing (last Sale
Price) price of the Common Stock for twenty (20) consecutive trading
days immediately preceding the last day of the Lock-up Period (the
"Adjusted Stock Price") is less than the Closing Stock Price, an
additional number of Shares will be delivered to Jack Robbins as agent
for the Selling Stockholders pro-rated among the persons identified in
Schedule 4.3(ii) such that the number of Shares ultimately delivered
to the Selling Stockholders equals $1,500,000 at the Adjusted Stock
Price. If the Registration Statement is filed prior to the end of the
Lock-up Period and JAKKS Pacific releases each Holder of the Shares
from the Lock-up as to all or any portion of the Shares, and if the
average closing (Last Sale) price of the Common Stock for twenty (20)
consecutive trading days immediately preceding the later of (a) the
effective
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date of registration, or (b) the date of release from the Lock-up, is
equal to or greater than the Closing Stock Price, then, with respect
to those Shares released from the Lock-up, no adjustment shall be made
to the number of those Shares at the end of the Lock-up Period even if
the Adjusted Stock Price is less than the Closing Stock Price.
5.3.2. CASH ADJUSTMENT. If the Adjusted Stock Price is not
at least $0.50 higher than the Closing Stock Price, the Purchase Price
will be increased by an amount equal to the product of (A) the number
of days elapsed from the Closing Date to the end of the Lock-up
multiplied by (B) a fraction, the numerator of which is the product of
$1,500,000.00 multiplied by four (4%) percent and the denominator of
which is three hundred and sixty-five (365), which amount, if it is
due, shall be paid in cash by Purchaser or JAKKS Pacific to Jack
Robbins as agent for the Selling Stockholders within ten (10) business
days after the end of the Lock-up. If the Registration Statement is
filed prior to the end of the Lock-up Period, and JAKKS Pacific
releases the Holder of the Shares from the Lock-up Period, and if the
average closing price of JAKKS Pacific' common stock for twenty (20)
consecutive trading days immediately preceding the effective date of
registration is at least $0.50 higher than the Closing Stock Price
then no adjustment shall be made to the Purchase Price under this
paragraph 5.3.2.
5.3.3. DEATH OF A SELLING STOCKHOLDER. In the event of the
death of any Holder of Shares during the Lock-up Period, the Lock-up
Period with respect to the Shares held by the deceased Holder shall
end on the earlier of (i) six (6) months after the date of death and
(ii) one (1) year following the Closing and the Share Adjustment
provided for in Section 5.3.1 of this Agreement shall be made as of
such termination of the Lock-up Period.
5.4 PREPARATION AND FILING
JAKKS Pacific shall, at its sole expense, as expeditiously as
practicable, use its best efforts to:
(i) prepare and file with the Commission a Registration
Statement necessary to permit the sale of the Shares in the
public securities markets when such Registration Statement
becomes effective, and such amendments and supplements to the
Registration Statement and the prospectus as may be necessary
to have the Registration Statement declared effective;
(ii) furnish to then Holders of the Shares such number of
copies of the prospectus included in the Registration
Statement and such other documents as each may reasonably
request in order to facilitate the sale of the Shares in the
public securities markets;
(iii) register or qualify the Shares under the laws of any
state in the United States governing the purchase and/or sale
of securities in such state or jurisdiction ("Blue Sky Laws")
as the Holders may reasonably request (provided, however, that
JAKKS Pacific will not be required to (1) qualify generally to
do business in any jurisdiction where
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it would not otherwise be required to qualify but for this
paragraph or (2) subject itself to taxation in any such
jurisdiction);
(iv) notify each Holder promptly, and confirm such advice in
writing:
(A) when the Registration Statement or any
amendment thereto has been filed and when it has
become effective;
(B) of the issuance by the Commission of any stop
order suspending the effectiveness of the
Registration Statement or the initiation of any
proceedings for that purpose; and
(C) of the qualification of the Shares for sale
under the securities or Blue Sky Laws of any
jurisdiction affecting such qualification;
(v) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Registration
Statement;
(vi) cause all of the Shares covered by the Registration
Statement to be listed on each securities exchange on which
the Common Stock is listed; and
(vii) provide and cause to be maintained a transfer agent
for all Shares covered by the Registration Statement from and
after a date not later than the effective date of the
Registration Statement.
5.5 PREPARATION; REASONABLE INVESTIGATION
In connection with the preparation and filing of the Registration
Statement and any amendments thereto and of the filing of any document with the
governmental agency of any state necessary to qualify the sale of the Shares in
such state through the public securities markets (any such filings hereafter
referred to as a "Blue Sky Filing"), JAKKS Pacific will give the Holders of the
Shares and their respective counsel and accountants the opportunity to review
the Registration Statement, each prospectus included therein or filed with the
Commission, each document incorporated by reference therein and each amendment
thereof or supplement thereto and any Blue Sky Filing in order to verify the
accuracy of any factual information concerning the Holders whose Shares are
being registered or qualified, and will give each of them such access to its
books and records and such opportunities to discuss the business of JAKKS
Pacific with its Accountants as shall be necessary to conduct a reasonable
investigation within the meaning of the Securities Act. The Road Champs
Companies shall give JAKKS Pacific, its counsel and Accountants access to their
books and records, and provide it with such documents, as shall be necessary in
connection with the preparation of the Registration Statement or any Blue Sky
Filing. JAKKS Pacific shall pay for all registration and filing fees, printing
expenses and fees and disbursements of JAKKS Pacific's counsel and its
independent certified public accountants in connection with the preparation and
filing of the Registration Statement or any Blue Sky Filing pursuant to this
Article
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5; provided, however, that the Holders of the Shares shall pay the fees and
expenses of their own counsel or other advisers in connection with the Holders'
own review of such registration and qualification of the Shares, selling
commissions and stock transfer taxes.
ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS AND ROAD
CHAMPS COMPANIES
Jack Robbins and Die Cast, jointly and severally, represent, warrant
and covenant to Purchaser and JAKKS Pacific the following to the best of their
actual knowledge without any duty to investigate, except that the
representations, warranties and covenants contained in Section 6.25 are made
absolutely and without the foregoing qualification as to knowledge or duty to
investigate:
6.1 EXISTENCE AND GOOD STANDING
Each of the Road Champs Companies is a corporation, duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation, and each has all requisite power and authority
to own, lease and operate all its properties and to carry on its business as
now being conducted. Except as set forth in Schedule 6.1 annexed hereto, none
of the Road Champs Companies to the best knowledge, information and belief of
the Selling Stockholders and Die Cast is required to qualify to do business in
any jurisdiction such that failure to qualify would have a material adverse
effect on the conduct of its business or on the use by Purchaser of their
respective assets acquired by Purchaser.
6.2 CAPITAL STOCK
The Stockholders and capitalization of the Road Champs Companies are
set forth on Schedule 6.2. All such outstanding shares of the Road Champs
Companies have been duly authorized and validly issued and are fully paid and
non-assessable, and have not been issued in violation of any preemptive rights
of stockholders. No other class of capital stock of the Road Champs Companies
is authorized or outstanding. There are no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of the capital stock of the Road Champs Companies except as set
forth on Schedule 6.2 annexed hereto. The Road Champ Shares when delivered to
Purchaser at Closing will be free and clear of any liabilities, liens, security
interests, pledges, or encumbrances.
6.3 FINANCIAL STATEMENTS
6.3.1. FINANCIAL STATEMENTS DELIVERED BY ROAD CHAMPS
COMPANIES. The Road Champs Companies have heretofore furnished to the
Purchaser, or will furnish to the Purchaser by the Closing Date, the
following financial statements and tax returns (the "Financial
Statements"):
1. federal and state tax returns of RC Inc and
Die Cast and the Hong Kong tax returns of RC Ltd, for 1994 and
1995; and
2. balance sheets and the related statements of
income, retained earnings and cash flows of RC Inc and Die
Cast for
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the fiscal years ended December 31, 1994 and December 31, 1995
as compiled by Edelman & Associates, P.A.;
3. balance sheets and the related statements of
income, retained earnings and cash flows of RC Ltd for the
fiscal years ended December 31, 1994 and December 31, 1995
audited by Lui & Mak, certified public accountants;
4. the 10 Month 1996 Financial Statements.
The Financial Statements including the footnotes thereto, are true and
correct in all material respects and have been prepared in accordance
with generally accepted United States and Hong Kong accounting
practices, as the case may be, consistently applied. Each of the
balance sheets fairly presents the financial condition of the Road
Champs Companies at the date thereof and, except as indicated therein,
reflects all known material claims against and all debts and
liabilities of the Road Champs Companies, fixed or contingent, as at
the date thereof, required to be shown thereon and the related
statements of operations, and cash flows for the period indicated.
6.3.2. ABSENCE OF ADVERSE CHANGES. Since October 31, 1996
(the "BALANCE SHEET DATE"), except as set forth on SCHEDULE 6.3.2,
there has been (a) no material adverse change in the assets or
liabilities, or in the business or financial condition, or in the
results of operations of the Road Champs Companies, and (b) no fact or
condition exists or is contemplated or threatened which might cause
such a material adverse change in the future.
6.4 BOOKS AND RECORDS
All accounts, books, ledgers, minute books and official and other
records of the Road Champs Companies of whatsoever kind have been fully,
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies of any kind contained or
reflected therein, and taken as a whole they give and reflect a true and fair
view of the financial position of the Road Champs Companies. The Road Champs
Companies do not own or possess any records, systems, controls, data or
information material or necessary to the conduct of their respective businesses
which is recorded, stored, maintained, operated or otherwise wholly or partly
dependent on or held by any means (including all means of access thereto and
therefrom) that are not under the exclusive ownership and direct control of the
Road Champs Companies, other than financial records which are maintained at the
locations identified on SCHEDULE 6.4 annexed hereto, and which are readily
available to Purchaser.
6.5 REAL PROPERTY; PERSONAL PROPERTY; MACHINERY AND EQUIPMENT
6.5.1. LEASEHOLD AND OTHER REAL PROPERTY INTERESTS. None
of the Road Champs Companies owns or has any leasehold or other
interest in any real property which is necessary to conduct the
development, marketing and sale of the Road Champs Line as operated by
the Road Champs Companies other than the premises demised under the RC
Leases and the Warehouse Lease (collectively, the "LEASED PREMISES").
Except as set forth on SCHEDULE 6.5.1, the real property and the
buildings in which the Leased Premises are located are not subject to
any mortgage, easement, restriction, or other claim or encumbrance of
any nature
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whatsoever that would materially adversely affect the use or
usefulness of such Leased Premises. Jack Robbins has the authority to
cause the lessor to enter into the Warehouse Lease Amendment. The
Leased Premises are in good condition and repair consistent with their
present use and are available for immediate use by Purchaser. None of
the Selling Stockholders or the Road Champs Companies have received
any written notice that the Leased Premises are presently in violation
of any environmental, zoning or other laws.
6.5.2. TITLE TO ACQUIRED ASSETS. Except as set forth in
SCHEDULE 6.5.2, RC Inc and RC Ltd each has good and marketable title
or holds a valid, existing, enforceable lease or license to their
respective assets and Die Cast has good and marketable title or holds
a valid, existing enforceable lease or license to all of the Acquired
Assets, subject to no encumbrance, lien, charge or other restriction
of any kind or character.
6.5.3. MACHINERY AND EQUIPMENT. SCHEDULE 6.5.3 contains,
as of the date hereof, an accurate and complete list and description
of all machinery and equipment used, owned or leased by the Road
Champs Companies having an initial acquisition cost of more than
$50,000.00, all of which in the aggregate are in good condition or
repair. SCHEDULE 6.5.3 includes a true and complete copy of (i) all
leases under which the Road Champs Companies leases equipment; and
(ii) each contract for the purchase of yet undelivered equipment.
Each lease is in full force and effect and constitutes a legal, valid
and binding obligation of the Road Champs Company that is party to it,
and to the knowledge of the Selling Jack Robbins and Die Cast,
constitutes a legal, valid and binding obligation by the other party
thereto, enforceable by the Road Champs Company that it is a party to
it in accordance with its terms. Except as disclosed on SCHEDULE
6.5.3, there are no existing material defaults by the Road Champs
Companies under such leases beyond applicable notice and grace periods
or which have not been waived by the respective lessor, and the Road
Champs Companies enjoy quiet possession of their respective
leaseholds. Neither Jack Robbins nor Die Cast represents, warrants or
covenants that it will not be a breach of any such agreement if
consent is required by reason of the transactions contemplated by this
Agreement and such consent is not obtained.
6.5.4. CONSENTS OF LESSORS. If the sale of the RC Inc
Shares or transfer of control of RC Ltd would constitute a default
(without regard to notice or the passage of time) under any personal
property or real property lease to which RC Inc or RC Ltd is a party,
or if any personal property lease or real property lease constituting
part of the Acquired Assets is not assignable by its terms or if
consent to transfer of the Road Champs Shares or assignment of the
lease can not be obtained from the lessor, Purchaser shall still
assume responsibility for such lease and the parties shall take such
steps as are necessary or desirable to allow Purchaser to enjoy the
benefits of such property or lease.
6.5.5. SUFFICIENCY OF ASSETS. The Acquired Assets and the
assets owned, leased or controlled by RC Inc and RC Ltd constitute all
of the assets necessary or relating to the development, marketing and
sale of the Road Champs Line as conducted by the
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Road Champs Companies and are available for immediate use by the
Purchaser (other than obsolete or other Acquired Assets not used in
the conduct of the Road Champs Companies' business).
6.6 CONTRACTS
Except as set forth in SCHEDULE 6.6 or any other schedule annexed
hereto, none of the Road Champs Companies is a party to or bound by any
agreement, contract or commitment relating to any bonus, deferred compensation,
pension, profit sharing, stock option, retirement or other employee benefit
plan; any loan or advance to, or investment in, any other Person or any
agreement relating to the making of any such loan, advance or investment; any
guarantee or other contingent liability in respect of any indebtedness or
obligation of any other Person (other than the endorsement of negotiable
instruments for collection in the ordinary course of business); any management
service, employment, consulting or any other similar type of contract; any
agreement, contract or commitment limiting the freedom of the Road Champs
Companies to engage in any line of business or to compete with any other
Person; any agreement, contract or commitment which involves Twenty-Five
Thousand US Dollars (US$25,000) or more, other than commitments for molds
entered into in the ordinary course of business, as to which the US dollar
amount shall be Fifty Thousand US Dollars (US$50,000.00), and is not cancelable
without penalty within thirty (30) days; any collective bargaining agreement;
any agreement with any officer or director of any of the Road Champs Companies;
any secrecy or confidentiality agreement with any Person, including any
employee of or consultant to any of the Road Champs Companies; any licensing or
franchise agreement; or any contract with customers or other third parties for
the delivery of goods or performance of services which involves more than One
Hundred Thousand US Dollars (US$100,000.00).
Each contract or agreement set forth on SCHEDULE 6.6 (or required to
be set forth on SCHEDULE 6.6) is in full force and effect pursuant to its
terms, and there exists no default or event of default by any of the Road
Champs Companies by any other party, or occurrence, condition, or act
(including this transaction) which, with the giving of notice, the lapse of
time or the happening of any other event or condition, would become a default
or event of default thereunder such that the assets of the Road Champs
Companies would, in the aggregate, be materially adversely affected. None of
the Road Champs Companies has violated any of the material terms or conditions
of any contract or agreement set forth on SCHEDULE 6.6 (or required to be set
forth on SCHEDULE 6.6), or any material term or condition which would permit
termination or material modification of any such contract or agreement where
such would, in the aggregate, materially adversely affect the assets of the
Road Champs Companies, and all of the covenants to be performed by any other
party thereto have been substantially performed, and there are no outstanding
claims of breach or indemnification or notice of default or termination of any
such agreements, contracts or commitments.
6.7 LITIGATION
Except as set forth in SCHEDULE 6.7, there is no action, suit,
proceeding at law or in equity by any Person, or any arbitration or any
administrative or other proceeding by or before any governmental or other
instrumentality or agency, pending or, to the best knowledge of the Selling
Stockholders, threatened in writing, against or affecting any of the Road
Champs Companies or any of their respective properties
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or rights or the operation of their respective businesses, and the Selling
Stockholders do not know of any valid basis for any such action, proceeding or
investigation. Except as disclosed on SCHEDULE 6.7, neither the Road Champs
Companies nor any other person or entity controlling, controlled by or under
common control with the Road Champs Companies (hereafter referred to as an
"AFFILIATE"), and none of the Selling Stockholders is subject to any judgment,
order or decree entered in any lawsuit or proceeding which affects the business
of the Road Champs Companies or which would prevent or interfere with the
consummation of the transactions contemplated hereby.
6.8 TAXES
Except as set forth in SCHEDULE 6.8 to this Agreement, each of the
Road Champs Companies has filed, or caused to be filed, within the times and
within the manner prescribed by law, all federal, state, local and foreign tax
returns and tax reports which are required to be filed by, or with respect to
their business. Such returns and reports reflect accurately taxable income and
all liability for taxes of the Road Champs Companies for the periods covered
thereby. Except as set forth in SCHEDULE 6.8, all federal, state, local and
foreign income, profits, franchise, sales, use, occupancy, excise, payroll, and
other taxes and assessments (including interest and penalties) payable by, or
due from, the Road Champs Companies (whether in their own right or as
transferee of the assets of, or successor to, any Person) have been fully paid
or adequately disclosed and fully provided for in the books and financial
statements of the Road Champs Companies, and to the best knowledge, information
and belief of the Road Champs Companies no other tax of any nature whatsoever,
interest or penalty, will be payable by the Road Champs Companies with respect
to any business conducted through December 31, 1996. Except as set forth in
SCHEDULE 6.8, the federal, state and local taxable income and tax liability of
the Road Champs Companies has never been finally determined for any fiscal
period; and no examination of any return of any Road Champs Company by any
taxing authority is currently in progress and no Road Champs Company has
received notice of any proposed audit or examination; and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of any Road Champs Company.
6.9 LIABILITIES
To the best knowledge, information and belief of the Road Champs
Companies, no Road Champs Company has any outstanding claims, liabilities or
indebtedness, contingent or otherwise, except as set forth in the Financial
Statements or referred to in the footnotes thereto, other than (i) liabilities
incurred subsequent to the Balance Sheet Date in the ordinary course of
business and consistent with past practice and other liabilities which in the
aggregate, are not material to the business prospects, operation, properties,
income or condition (financial or otherwise) of the Road Champs Companies or
(ii) liabilities set forth on any Schedule hereto or which are not required to
be set forth on any Schedule hereto because such liabilities are specifically
excluded from disclosure on the Schedules provided for by the provisions of
this Agreement or are not material to the financial condition of the Road
Champs Companies. SCHEDULE 6.9.1 sets forth a list of all current arrangements
of the Road Champs Companies for borrowed money and all outstanding balances as
of the date hereof with respect thereto but excluding accounts payable, wages
payable and
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operating expenses payable. None of the Road Champs Companies is in default in
respect of the terms or conditions of any such indebtedness.
6.10 INTELLECTUAL PROPERTY
SCHEDULE 6.10 contains an accurate and complete list of all material
Intellectual Property owned or used or anticipated to be used by the Road
Champs Companies in the development, marketing and sale of the Road Champs
Line. Except as noted on SCHEDULE 6.10, no claim of infringement or
misappropriation of Intellectual Property has been made against any of the Road
Champs Companies and, in operating their respective businesses, the Road Champs
Companies do not infringe or misappropriate any Intellectual Property of any
third party.
6.11 COMPLIANCE WITH LAWS
Each Road Champs Company is in compliance with all applicable foreign,
federal, state and local laws, regulations and orders and all other applicable
requirements of any governmental, regulatory or administrative agency or
authority or court or other tribunal having jurisdiction, the violation of
which, in the aggregate, would have a material adverse effect on the Road
Champs Line or the Acquired Assets. No Road Champs Company is now charged
with, and none of the Road Champs Companies, to their knowledge, is now under
individual investigation with respect to, any violation of any law,
regulations, or order affecting its business, and each Road Champs Company has
filed all reports required to be filed with any governmental, regulatory or
administrative agency.
6.12 LICENSES
Each Road Champs Company has all licenses and permits and other
governmental certificates, authorizations and approvals (collectively,
"LICENSES") required by any governmental or regulatory body for the
development, marketing and sale of the Road Champs Line and the use of its
properties as presently operated or used, except where the failure to have such
Licenses would not have a material adverse effect on the financial condition,
results of operations, assets, properties or business of the Road Champs
Companies. All of such Licenses are in full force and effect and to the
knowledge, information and belief of any of the Selling Stockholders, no action
or claim is pending to revoke or terminate any of the Licenses or declare any
License invalid.
6.13 INSURANCE
SCHEDULE 6.13 is a schedule of all insurance policies (including life
insurance) or binders maintained by the Road Champs Companies. All such
policies are in full force and effect and all premiums that have become due
have been currently paid. The coverage under such policies for occurrences
prior to the Closing shall not be materially adversely affected by reason of
the transactions contemplated hereby. Neither the Selling Stockholders nor any
Road Champs Company has received notice of cancellation or non-renewal of any
such policy or binder. Neither the Selling Stockholders nor any Road Champs
Company has received any notice from any of its insurance carriers that any
premiums will be materially increased in the future or that any insurance
coverage listed on SCHEDULE 6.13 will not be available in the future on
substantially the same terms now in effect.
6.14 SUPPLIER AND CUSTOMER RELATIONS
Other than certain events involving Road Champs Die Casting Factory,
Ltd. described in SCHEDULE 6.14 annexed hereto, there has not
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been, and the Road Champs Companies do not have any knowledge that would lead
them to anticipate, any material adverse change in relations with their
suppliers or customers as a result of the transactions contemplated by this
Agreement. SCHEDULE 6.14 lists the ten largest suppliers and customers of the
Road Champs Companies, as at the date hereof. Except as set forth on SCHEDULE
6.14, none of these current suppliers and except as disclosed in writing to
JAKKS Pacific, none of these current customers has advised any of the Road
Champs Companies, orally or in writing, formally or informally, that it is
terminating or considering terminating, or is materially dissatisfied with its
business relationship with the Road Champs Companies, as a whole or in respect
of any particular product or service, or that any of these current customers is
contemplating reducing or discontinuing its purchases from the Road Champs
Companies, or that any of these suppliers is contemplating reducing or
discontinuing its services or sales to the Road Champs Companies.
6.15 EMPLOYMENT RELATIONS
Each of the Road Champs Companies is in substantial compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; no unfair labor practice complaint against the Road Champs
Companies is pending before any applicable government entity; there is no labor
strike, dispute, slowdown or stoppage actually pending or threatened against or
involving the Road Champs Companies; no representation question exists
respecting the employees of the Road Champs Companies; no grievance which might
have a material adverse effect on the Road Champs Companies or the conduct of
the business involving the development, marketing and sale of the Road Champs
Line conducted by the Road Champs Companies nor any arbitration proceeding
arising out of or under any collective bargaining agreement is pending and no
claim therefor has been asserted; no collective bargaining agreement is
currently being negotiated by any of the Road Champs Companies; and none of
the Road Champs Companies has experienced any work stoppage or any other labor
difficulty during the last three (3) years. There has not been, and the Road
Champs Companies do not anticipate, any material adverse change in relations
with employees as a result of the transactions contemplated by this Agreement.
6.16 PERSONNEL; COMPLIANCE WITH ERISA
6.16.1 THE ROAD CHAMPS COMPANIES' PERSONNEL. SCHEDULE
6.16.1 contains a true and complete list of all persons
employed (and their latest rates of compensation) or retained
as independent contractors by the Road Champs Companies as of
December 31, 1996. SCHEDULE 6.16.1 also lists all sales agents
or sales representatives as of December 31, 1996. No employees
of the Road Champs Companies are entitled to any accrued
vacation pay, sick leave or non-statutory severance benefits,
other than shall be paid and satisfied by the Road Champs
Companies at the Closing. Purchaser shall be liable for the
payment of any statutory severance benefit payable to a current
employee of RC Inc or RC Ltd (other than a Selling Stockholder)
if no offer of employment is made to such employee by
Purchaser.
6.16.2. EMPLOYEE BENEFIT PLANS. Except as listed on
SCHEDULE 6.16.2, none of the Road Champs Companies has at any
time established, maintained or contributed to any Employee
Benefit
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Plans within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any other pension, welfare or
retirement benefit plans, without regard to whether or not any such Employee
Benefit Plans are exempt from the provisions of ERISA (including for this
purpose and for the purpose of all of the representations in this SECTION 6.16,
all employers (whether or not incorporated) which by reason of common control
are treated together with the Road Champs Companies as a single employer within
the meaning of Section 414 of the Code).
6.17 NO CHANGES SINCE THE BALANCE SHEET DATE
Since October 31, 1996, except as specifically stated on SCHEDULE
6.17, none of the Road Champs Companies has incurred any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise),
except in the ordinary course of business; permitted any of its assets to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, except as will be released at Closing; sold,
transferred or otherwise disposed of any assets except in the ordinary course
of business; made any capital expenditure or commitment therefor involving the
expenditure of more than Twenty-Five Thousand US Dollars (US$25,000.00), other
than for molds purchased in the ordinary course of business, as to which the
amount referred to shall be Fifty Thousand US ($US50,000.00) Dollars; made any
bonus or profit sharing distribution or payment of any kind; granted any
increase in the rate of wages, salaries, bonuses or other remuneration of any
employee who after giving effect to such increase or prior thereto receives
compensation at an annual rate of Twenty-Five Thousand US (US$25,000.00)
Dollars or more, or except in the ordinary course of business any other
employees; canceled or waived any claims or rights of substantial value; made
any change in any method of accounting or auditing practice; otherwise
conducted its business or entered into any transaction, except in the usual and
ordinary manner and in the ordinary course of its business; amended or
terminated any agreement which is material to the business of any of the Road
Champs Companies; renewed, extended or modified any lease of real property or
except in the ordinary course of business any lease of personal property; or
agreed, whether or not in writing, to do any of the foregoing; and there has
been no material adverse change in the financial condition or results of
operations of the Road Champs Companies.
6.18 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS
Each of the Road Champs Companies has the full legal right and
capacity to execute, deliver and perform this Agreement, and all Schedules and
Exhibits to this Agreement and all other instruments, agreements and documents
executed or to be executed by any party hereto in connection with the
transactions contemplated hereby (such schedules, exhibits and other documents
are referred to collectively as the "OTHER DOCUMENTS") and the transactions
contemplated thereby, all of which has been, or will be, duly authorized by all
necessary shareholder and corporate action of the Road Champs Companies. This
Agreement and the Other Documents have been duly executed and delivered by the
Road Champs Companies and constitute the valid and binding obligation of the
Road Champs Companies enforceable against the Road Champs Companies in
accordance with its terms except as the enforcement thereof may be limited by
bankruptcy, reorganization, moratorium, insolvency and other laws of general
applicability relating to or
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affecting creditors' rights or general principles of equity. Except as set
forth in SCHEDULE 6.18, or in any other Schedule or Exhibit to this Agreement,
no Road Champs Company is subject to, or a party to, any charter, by-law,
mortgage, lien, lease, license, permit, contract, instrument, law, regulation,
order, judgment or decree, or any other restriction of any kind or character,
which materially adversely affects its business or the condition of any of
their respective Assets, or which would prevent consummation of the
transactions contemplated by this Agreement or compliance by the Road Champs
Companies or the Selling Stockholders with the terms, conditions and provisions
of this Agreement and the Other Documents. Except as set forth in SCHEDULE
6.18, the execution, delivery and performance of this Agreement and the Other
Documents and the consummation of the transactions contemplated thereby will
not violate, conflict with or result in the breach of any provision of the
charter documents or by-laws of the Road Champs Companies; violate, conflict
with or result in the breach or material modification of any of the terms of,
or constitute (or with notice or lapse of time or both constitute) a default
under, or otherwise give any other contracting party the right to accelerate or
terminate, any obligation, contract, agreement, lien, judgment, decree or other
instrument to which any of the Road Champs Companies is a party or by or to
which it or any of their respective assets or properties may be bound or
subject, and which acceleration or termination would have a material adverse
effect on RC Inc, RC Ltd or the Acquired Assets or the business currently being
conducted by the Road Champs Companies; violate any order, writ, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, any of the Road Champs Companies or
upon any of its assets and which violation would have a material adverse effect
on RC Inc, RC Ltd or the Acquired Assets, or the conduct of the business
currently being conducted by the Road Champs Companies; or violate any statute,
law or regulation of the U.S., Pennsylvania, New Jersey or Hong Kong and which
violation would have a material adverse effect on RC Inc, RC Ltd or the
Acquired Assets or the conduct of the business currently being conducted by the
Road Champs Companies.
6.19 REQUIRED APPROVALS, NOTICES AND CONSENTS
Except as set forth on SCHEDULE 6.19, or elsewhere in this Agreement,
no consent or approval of, other action by, or notice to, any governmental body
or agency, domestic or foreign, or any third party is required in connection
with the execution and delivery by the Road Champs Companies of this Agreement
and the Other Documents or the consummation by the Road Champs Companies of the
transactions contemplated thereby.
6.20 DISCLOSURE
None of this Agreement, the Financial Statements, or any Schedule
hereto, or any certificate, document or statement in writing to be delivered as
required under this Agreement by or on behalf of the Road Champs Companies
contains, or will contain, any untrue statement of a material fact, or omits,
or will omit, any statement of a material fact required to be stated or
necessary in order to make the statements contained herein or therein not
misleading such that , in the aggregate, the assets or financial condition of
the Road Champs Companies would be materially adversely affected. There is no
fact actually known to the Selling Stockholders which, in their reasonable
judgment, materially adversely affects the business or financial condition of
the Road Champs Companies or the Acquired Assets, in the
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aggregate, which has not been, or will not be, set forth in this Agreement or
any Schedule hereto, or in the certificates, documents or statements in writing
to be delivered at the Closing.
6.21 ENVIRONMENTAL CONDITIONS
SCHEDULE 6.21 sets forth the following:
(i) all treatment, storage and disposal facilities (as
defined in the Resource Conservation and Recovery Act of 1976,
as amended, and the rules and regulations promulgated
thereunder ("RCRA"), which are currently owned or used by any
of the Road Champs Companies; all hazardous waste disposal
sites which are or have been owned or used by any of the Road
Champs Companies in connection with the Acquired Assets; and
all underground storage tanks which are or were owned or used
by the Road Champs Companies in connection with the assets of
RC Inc and RC Ltd and the Acquired Assets. As to each such
facility, site or underground storage tank, SCHEDULE 6.21
describes the time period used and the type of hazardous waste
treated, stored or disposed of and, in the case of the
underground storage tanks, the type of material stored;
(ii) all sites at which hazardous wastes from the
operation of the business of the Road Champs Companies have
been disposed and, as to each such site, SCHEDULE 6.21
describes the time period used and the type of waste disposed;
and
(iii) all internal environmental audits conducted by the
Road Champs Companies or by the Selling Stockholders with
respect to the Road Champs Companies since January 1, 1990
relating to the business of the Road Champs Companies.
Except as disclosed on SCHEDULE 6.21 in connection with, or in any way
related to the Acquired Assets or the business of the Road Champs Companies:
(i) Each Road Champs Company holds, and is in substantial
compliance with, all permits, licenses, registrations or other
authorizations required under applicable foreign, federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
governmental authority, or requirements of law (including,
without limitation, common law) relating in any manner to
contamination, pollution, or protection of human health or the
environment (collectively, "ENVIRONMENTAL LAWS") and is, and
has been, otherwise in substantial compliance with all
applicable Environmental Laws. To the best knowledge,
information and belief of Jack Robbins, there is no condition
of the Road Champs Companies or their respective assets that
could prevent or interfere with continued compliance with
Environmental Laws by the Road Champs Companies or Purchaser.
(ii) None of the Selling Stockholders or the Road Champs
Companies has received any written notice of any Environmental
Claim, as hereinafter defined, and none of the Selling
Stockholders or the Road Champs Companies is aware,
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without any duty of inquiry, of any threatened Environmental
Claim. For purposes of this Agreement, Environmental Claim
means any written notice, claim, demand, action, suit,
complaint, proceeding or other communication by any person
alleging liability or potential liability (including, without
limitation, liability or potential liability for investigatory
costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on, or resulting
from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials, as hereinafter
defined, at any location, or (ii) circumstances forming the
basis of any violation or alleged violation by the Road Champs
Companies of any Environmental Laws, including, but not
limited to, any violations or alleged violations by the Road
Champs Companies of any permit, license, registration or other
authorization required under applicable Environmental Laws.
For purposes of this Agreement, Hazardous Materials means any
and all hazardous or toxic substances, wastes, materials or
chemical, petroleum, including crude oil or any fraction
thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants,
ethylene glycol, diethylene glycol, polychlorinated biphenyl
and any and all other materials and substances regulated
pursuant to any Environmental Laws or that could result in the
imposition of liability under any Environmental Laws;
(iii) No Road Champs Company has entered into, has agreed
to, or is subject to any judgment, decree, order or other
similar requirement of any governmental authority under any
Environmental Laws, including, without limitation, relating to
compliance or to investigation, cleanup, remediation or
removal of Hazardous Materials;
(iv) Hazardous Materials have not been generated,
transported, treated, stored, disposed of, released or
threatened to be released at, on, from or under any of the
properties included among the assets of RC Inc or RC Ltd or
constituting part of the Acquired Assets in violation of, or
in an manner or to a location that could give rise to
liability of any of the Road Champs Companies under any
Environmental Laws;
(v) There are no past or present actions, activities,
events, conditions or circumstances, including, without
limitation, the presence, release, threatened release,
emission, discharge, generation, treatment, storage or
disposal of Hazardous Materials in respect of the Road Champs
Companies at any location, that are reasonably likely to give
rise to liability under any Environmental Laws or any contract
or agreement;
(vi) RC Inc's "SIC Code" is 5092 for purposes of the New
Jersey Industrial Site Recovery Act ("NJSA 13:6-1(k)") and
that no approval is required under any Environmental Law for
the Selling Stockholders' sale of the Shares of RC Inc,
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transfer of control of RC Ltd, or sale of the Acquired Assets
to Purchaser.
6.22 HEALTH AND SAFETY CONDITIONS
None of the Road Champs Companies has conducted since January 1, 1994
any internal health and safety audits, or industrial hygiene surveys. Neither
the Selling Stockholders nor any Road Champs Company has any actual knowledge
that any Road Champs Company, with respect to its operation of its business, is
not in substantial compliance with the requirements of OSHA and all other
federal, state and local occupational health and safety laws, rules and
regulations.
6.23 COPIES OF DOCUMENTS
The Road Champs Companies have caused to be made available for
inspection and copying by the Purchaser, its President or its advisers, true,
complete and correct copies of all documents referred to in this Article 6 or
in any Schedule furnished pursuant to this Article 6.
6.24 NO BROKERS
The Selling Stockholders and Die Cast represent and warrant to the
Purchaser that, except as listed on SCHEDULE 6.24 hereto, no broker, finder,
agent or similar intermediary has acted on behalf of the Selling Stockholders
and Die Cast in connection with this Agreement or the transactions contemplated
hereby, and that there are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection therewith based on any agreement,
arrangement or understanding with any of them, or any action taken by any of
them, except as listed on SCHEDULE 6.24 hereto. The Selling Stockholders and
Die Cast agree to indemnify and save the Purchaser and its respective officers,
directors, employees and agents harmless from any claim or demand for
commission or other compensation by any broker, finder, agent or similar
intermediary claiming to have been employed by or on behalf of the Selling
Stockholders and Die Cast, and to bear the cost of legal expenses incurred in
defending against any such claim.
6.25 THE RC ACCOUNTS PAYABLE
Jack Robbins and Die Cast absolutely and unconditionally represent,
warrant and covenant that there are no RC Accounts Payable other than the RC
Accounts Payable identified on the 10 Month 1996 Financial Statements or in
SCHEDULE 6.25 annexed hereto, as such Schedule may be updated as of the
Closing, but a breach of this Section 6.25 shall not be the basis for avoiding
the Closing, unless it constitutes a failure of a condition precedent to JAKKS
Pacific's or the Purchaser's obligation to close under SECTION 8.1 of this
Agreement. The only remedies available to JAKKS Pacific and Purchaser with
respect to any breach of this Section 6.25 shall be those described elsewhere
in this Agreement regarding adjustments to the Purchase Price and
indemnification or under Article 8 of this Agreement regarding the conditions
precedent to Closing.
ARTICLE 7: REPRESENTATIONS OF JAKKS PACIFIC AND PURCHASER
JAKKS Pacific and Purchaser jointly and severally represent, warrant
and covenant to the Selling Stockholders and Die Cast as follows:
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7.1 EXISTENCE AND GOOD STANDING
JAKKS Pacific and Purchaser are each corporations duly organized,
validly existing and in good standing under the laws of Delaware. Neither
Purchaser nor JAKKS Pacific is required to qualify to do business in any
jurisdiction such that failure to qualify would have a material adverse effect
on the conduct of its respective business.
7.2 SHARES
The Shares, when delivered at Closing or subsequent thereto, as the
case may be, will have been duly authorized and validly issued and be fully
paid and non-assessable.
7.3 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS
JAKKS Pacific and Purchaser each have the full authority to execute,
deliver and perform this Agreement and the Other Documents and the transactions
contemplated thereby. This Agreement and the Other Documents have been duly
and validly authorized, executed and delivered by JAKKS Pacific and Purchaser
and constitute a valid and binding agreement of each of them enforceable
against it in accordance with their terms, except as the enforcement thereof
may be limited by bankruptcy, reorganization, moratorium, insolvency and other
laws of general applicability relating to or affecting creditors' rights or
general principles of equity. Except as set forth in SCHEDULE 7.3, Purchaser
and JAKKS Pacific are not subject to, or a party to, any mortgage, lien, lease,
license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character, which would prevent consummation of the transactions contemplated by
this Agreement and the Other Documents or compliance by Purchaser or JAKKS
Pacific with the terms, conditions and provisions of this Agreement and the
Other Documents. The execution, delivery and performance of this Agreement and
the Other Documents and the consummation of the transactions contemplated
thereby will not (i) violate, conflict with or result in the breach or material
modification of any of the terms of, or constitute (or with notice or lapse of
time or both constitute) a default under, or otherwise give any other
contracting party the right to accelerate or terminate, any obligation,
contract, agreement, lien, judgment, decree or other instrument to which JAKKS
Pacific or Purchaser is a party or by or to which JAKKS Pacific or Purchaser
may be bound or subject, except where such acceleration or termination will not
result in a material adverse effect on JAKKS Pacific and Purchaser in the
aggregate or on JAKKS Pacific's or Purchaser's conduct of its business; (ii)
violate any order, writ, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, JAKKS
Pacific or Purchaser or their assets, except where such violation will not
result in a material adverse effect on JAKKS Pacific and Purchaser in the
aggregate or on JAKKS Pacific's conduct of its business as it is presently
conducted or shall be conducted immediately following the Closing; or (iii)
violate any statute, law or regulation of Delaware, except where such violation
will not result in a material adverse effect on JAKKS Pacific and Purchaser in
the aggregate or on JAKKS Pacific's conduct of its business as it is presently
conducted.
7.4 REQUIRED APPROVALS, NOTICES AND CONSENTS
Except as set forth in SCHEDULE 7.4, or elsewhere in this Agreement,
no consent or approval of, other action by, or notice to, any governmental body
or agency, domestic or foreign, or any third
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party is required in connection with the execution and delivery by JAKKS
Pacific or Purchaser of this Agreement and the Other Documents or the
consummation by JAKKS Pacific or Purchaser of the transactions contemplated
thereby.
7.5 SECURITIES VIOLATIONS
None of the outstanding equity securities or other securities of JAKKS
Pacific was issued in violation of (a) the Act and regulations issued pursuant
to the Act, or (b) any other federal, state, local, municipal, foreign, or
other administrative order, constitution, law, statute, treaty or regulation.
7.6 FINANCIAL REPORTS
JAKKS Pacific has delivered to Jack Robbins copies of all of its
filings made with the Commission within the past twelve months. No such filing
contains any untrue statement of a material fact, or omits any statement of a
material fact required to be stated therein or necessary in order to make the
statements contained therein misleading such that, in the aggregate, the assets
or financial condition of JAKKS Pacific would be materially adversely affected.
The financial statements included in such filings, including the footnotes
thereto, are true and correct in all material respects. Each of the balance
sheets included as part of such financial statements fairly presents the
financial condition of JAKKS Pacific at the date thereof and, except as
indicated therein, reflects all claims against and all debts and liabilities of
JAKKS Pacific fixed or contingent, as at the date thereof, required to be shown
thereon, and have been prepared in accordance with generally accepted
accounting principles, consistently applied.
7.7 NO MATERIAL ADVERSE CHANGE
Since November 13, 1996, the date of last filing of a Form 10-Q by
JAKKS Pacific with the Commission, there has not been any material adverse
change in the financial condition or results of operations of JAKKS Pacific
and, to the best knowledge, information and belief of JAKKS Pacific and
Purchaser, no circumstance exists which would result in such material adverse
change in the immediate future.
7.8 NO UNDISCLOSED LIABILITIES
Except as set forth in SCHEDULE 7.8, any liabilities or obligations
which in the aggregate would have a material adverse effect on the assets or
financial condition have been reflected or reserved against in the aforesaid
financial reports filed with the Commission, other than current liabilities
incurred in the ordinary course of business since the respective dates thereof.
7.9 NO BROKERS
The Purchaser represents and warrants to the Selling Stockholders and
Die Cast that, except as listed on SCHEDULE 7.9 hereto, no broker, finder,
agent or similar intermediary has acted on behalf of the Purchaser in
connection with this Agreement or the transactions contemplated hereby, and
that there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection therewith based on any agreement, arrangement
or understanding with the Purchaser, or any action taken by the Purchaser. The
Purchaser agrees to indemnify and save the Selling Stockholders and Die Cast
and its officers, directors, employees and agents harmless from any claim or
demand for commission or other compensation by any broker, finder,
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agent or similar intermediary claiming to have been employed by or on behalf of
the Purchaser, except as listed on SCHEDULE 7.9 hereto, and to bear the cost of
legal expenses incurred in defending against any such claim.
7.10 DISCLOSURE
(a) No representation or warranty of JAKKS Pacific or Purchaser in
this Agreement or in any Other Document omits to state a material fact
necessary to make the statements herein, in light of the circumstances in which
they were made, not misleading, such that, in the aggregate, the assets or
financial condition of JAKKS Pacific would be materially adversely affected.
(b) There is no fact known to JAKKS Pacific or Purchaser which, in
the opinion of JAKKS Pacific or Purchaser, materially adversely affects the
business or financial condition of JAKKS Pacific or Purchaser, which has not
been, or will not be, set forth in this Agreement or any Schedule thereto, or
in any document to be delivered at Closing.
ARTICLE 8: CONDITIONS TO THE PURCHASER'S OBLIGATIONS
The acquisition of the Road Champs Shares and the Acquired Assets by
the Purchaser on the Closing Date, and all other obligations of Purchaser and
JAKKS Pacific under this Agreement and the Other Documents is conditioned upon
the fulfillment on or prior to the Closing Date of the following conditions,
any one or more of which may be waived in writing by JAKKS Pacific.
8.1 NO MATERIAL ADVERSE CHANGE
Between the date hereof and the Closing Date, there shall be no
material adverse change in the assets or liabilities, the business or
condition, financial or otherwise, or the results of operations of the Road
Champs Companies, and Jack Robbins as a Selling Stockholder and as an officer
of Die Cast shall have delivered to the Purchaser a certificate to the best of
his knowledge (without a duty of investigation), dated the Closing Date, to
such effect.
8.2 TRUTH OF REPRESENTATIONS AND WARRANTIES
Jack Robbins, as a Selling Stockholder and as an officer of Die Cast,
shall have delivered to the Purchaser and JAKKS Pacific a certificate, dated
the Closing Date, to the effect that the representations and warranties of the
Selling Stockholders and Die Cast contained in this Agreement or in any
schedule or document delivered pursuant hereto are substantially true and
correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date except as
to changed circumstances since the original date of such representation(s),
which changed circumstances shall be noted on a schedule to the certification,
and if such changed circumstances constitute a material adverse change
described in SECTION 8.1 of this Agreement, then JAKKS Pacific and Purchaser
shall not be obligated to close under this Agreement.
8.3 PERFORMANCE OF AGREEMENTS
Each and all of the agreements of the Selling Stockholders and Die
Cast to be performed pursuant to the terms hereof on or before the
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Closing Date shall have been substantially performed, and Jack Robbins, as a
Selling Stockholder and as an officer of Die Cast, shall have delivered to the
Purchaser, from an authorized officer, a certificate, dated the Closing Date,
to such effect.
8.4 NO LITIGATION THREATENED
To the knowledge of Jack Robbins and the Road Champs Companies, no
action or proceedings shall have been instituted or shall have been threatened,
in writing, before a court or other government body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Jack
Robbins shall have delivered to the Purchaser a certificate, dated the Closing
Date, to such effect.
8.5 LETTER OF NON-APPLICABILITY
The Selling Stockholders shall have obtained a letter of
non-applicability from the New Jersey Department of Environmental Conservation
and provide a copy to JAKKS Pacific.
8.6 GOVERNMENTAL APPROVALS
All governmental and other consents and approvals, if any, necessary
to permit the consummation of the transactions contemplated by this Agreement
shall have been received.
8.7 PROCEEDINGS
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and the Other Documents, shall be reasonably
satisfactory in form and substance to the Purchaser and its counsel, and the
Purchaser shall have received copies of all such documents and other evidences
as the Purchaser or its counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
8.8 WAIVER
If Jakks Pacific or Purchaser waives in writing fulfillment of any
condition under this Article 8, the obligation to fulfill the condition shall
not survive the Closing. This paragraph shall have no effect on the provisions
of ARTICLE 11 or SECTION 3.2.2 or any other provision of this Agreement
regarding survival of representations, warranties or covenants of the Selling
Stockholders or Die Cast.
ARTICLE 9: CONDITIONS TO SELLING STOCKHOLDERS' AND DIE CAST'S OBLIGATIONS
The sale of the Road Champs Shares and the Acquired Assets on the
Closing Date and all other obligations of Seller under this Agreement and the
Other Documents is conditioned upon the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be waived by
Jack Robbins, on behalf of the Selling Stockholders and Die Cast.
9.1 TRUTH OF REPRESENTATIONS AND WARRANTIES
JAKKS Pacific shall have delivered to Seller a certificate, dated the
Closing Date, to the effect that the representations and warranties of the
JAKKS Pacific and Purchaser contained in this Agreement are true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date.
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9.2 PERFORMANCE OF AGREEMENTS
Each and all of the agreements of the JAKKS Pacific and Purchaser to
be performed on or before Closing Date pursuant to the terms hereof shall have
been duly performed, and the JAKKS Pacific and Purchaser shall have delivered
to Seller a certificate, dated the Closing Date, to such effect.
9.3 GOVERNMENTAL APPROVALS
All governmental and other consents and approvals, if any, necessary
to permit the consummation of the transactions contemplated by this Agreement
shall have been received.
9.4 PROCEEDINGS
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and the Other Documents shall be reasonably
satisfactory in form and substance to Jack Robbins and his counsel, and Jack
Robbins as agent for the Selling Stockholders shall have received copies of all
such documents and other evidences as he or his counsel may reasonably request
in order to establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
9.5 CERTIFICATES
Each certificate to be delivered pursuant to the terms of Article 9
shall be signed by the President or by the Chief Financial Officer of JAKKS
Pacific.
9.6 PROCEEDINGS
If the Selling Stockholders or Die Cast waives in writing the
fulfillment of any condition under this Article 9, the obligation to fulfill
the condition shall not survive the Closing. This paragraph shall have no
effect on the provisions of ARTICLE 11 or any other provision of this Agreement
regarding survival of representations, warrants or covenants of JAKKS Pacific
or the Purchaser.
ARTICLE ARTICLE 10: POST CLOSING COVENANTS
10.1 GENERAL
In case at any time after the Closing any further action is necessary
to carry out the purposes of this Agreement, each of the parties will take such
further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at
the sole cost and expense of the requesting party (unless the requesting party
is entitled to indemnification therefor under SECTION 11 hereof). The Selling
Stockholders and Die Cast acknowledge and agree that from and after the Closing
JAKKS Pacific and Purchaser will be entitled to possession of all documents,
books, records (including tax records) agreements and financial data of any
sort relating to RC Inc and RC Ltd and the Acquired Assets. Jack Robbins will,
after the Closing, be entitled to full access to all such documents, books,
records, agreements and financial data during normal business hours.
10.2 TRANSITION
Neither the Selling Stockholders nor Die Cast will take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of
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the Road Champs Companies from maintaining the same business relationships with
JAKKS Pacific and Purchaser after the Closing as it maintained with the Road
Champs Companies prior to the Closing.
10.3 COLLECTIONS OF PAYMENT FOR PURCHASE ORDERS
Purchaser shall act as agent for RC Inc and RC Ltd in the collection
of payment for the RC Accounts Receivable whether identified in SCHEDULE 8.3
annexed hereto or not. If requested by Jack Robbins, in writing, Jack Robbins
and Purchaser will establish a "LOCK-BOX" account for the deposit and
disbursement of the proceeds from collection of the RC Accounts Receivable and
account debtors will be instructed by Purchaser to make payment to such
lock-box account.
10.4 RESTRICTIVE COVENANTS
10.4.1. COVENANTS AGAINST COMPETITION. In consideration of
the Purchase Price being paid by JAKKS Pacific and Purchaser for the
Road Champs Shares and the Acquired Assets, Jack Robbins, directly or
indirectly, by himself or through any other person, firm, company,
entity or enterprise (including, but without limitation to the
foregoing, Die Cast) shall prior to the second anniversary of the
Closing Date:
i. engage in the sale of toy vehicle products
which compete directly or indirectly with the Road Champs Line;
ii. directly or indirectly, endeavor to entice
away from the employ of the Purchaser or JAKKS Pacific or
otherwise interfere with the relationship of the Purchaser or
JAKKS Pacific with any individual, partnership, firm,
corporation or other business organization that is then, or at
any time during the preceding twelve months was, employed by
the Purchaser or JAKKS Pacific or is otherwise performing
services for the Purchaser or JAKKS Pacific, or;
iii. attempt in any manner to solicit,
directly or indirectly, from any customer of Purchaser or
JAKKS Pacific (except on behalf of the Purchaser or JAKKS
Pacific) toy vehicle products business which competes directly
or indirectly with the Road Champs Line business conducted by
the Purchaser or JAKKS Pacific or persuade any person, firm or
corporation which is a customer of the Purchaser or JAKKS
Pacific to cease doing business or to reduce the amount of
business which any such customer has customarily done or
contemplates doing with the Purchaser or JAKKS Pacific,
whether or not the relationship between the Purchaser or JAKKS
Pacific and such customer was originally established in whole
or in part through the efforts of any of the Selling
Stockholders.
The term "CUSTOMERS OF THE PURCHASER" includes, without
limitation, the customers of the Road Champs Companies prior to the
Closing.
10.4.2. PERMITTED COMPETITION. Notwithstanding the
provisions of SECTION 10.4.1 to the contrary, Jack Robbins may sell by
mail order, television or telemarketing activities, premium die cast
vehicles directly to consumers who are end-users of the products
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(but specifically excluding retailers, wholesalers, distributors and
other resellers of the products), provided that no such sales are made
by Jack Robbins to retailers, wholesalers, distributors and other
resellers of the products. Jack Robbins or any entity designated by
Jack Robbins may deal directly with any supplier of Purchaser,
including Road Champs Die Casting Factory, Ltd., and may purchase items
directly from such suppliers, provided that at no time will Jack
Robbins take any action which would impair or adversely affect
Purchaser's, JAKKS Pacific's, RC Inc's or RC Ltd's relationship with
such supplier or interfere with the supplier's furnishing of goods and
materials to them. Purchaser shall allow Jack Robbins or his
designated entity(ies) the license to utilize tooling owned by
Purchaser or RC Inc or RC Ltd for the purposes of producing die-cast
vehicles, but Jack Robbins and his designated entity(ies) shall
indemnify Purchaser for any damage that may be caused to such tooling
and shall utilize such tooling in a way, and at times, that do not
interfere with the production requirements of Purchaser, RC Inc and RC
Ltd. Jack Robbins or his designated entity(ies) shall pay Purchaser a
5% royalty based upon the factory selling price of the items to be
produced if the items are produced with Purchaser's tooling. Jack
Robbins agrees that all tooling, molds and dies are the property of
Purchaser, RC Inc, RC Ltd and he shall not directly or indirectly copy
or duplicate or cause others to copy or duplicate any of such tools,
molds or dies.
10.4.3. CONFIDENTIALITY. The Selling Stockholders shall keep
secret and retain in strictest confidence, and shall not use for the
benefit of itself, himself or others, except in connection with the
business and affairs of the Purchaser or JAKKS Pacific, all
confidential matters relating to the Road Champs Companies, including,
but not limited to, "know-how," trade secrets, customer lists,
subscription lists, pricing policies, operational methods, marketing
plans or strategies, product development techniques or plans,
information pertaining to the Road Champs Companies' customers and
their requirements, formulae, methods of manufacture, technical
processes, designs and design projects, inventions and research
projects and other business affairs relating to the Acquired Assets,
and shall never disclose such matters to anyone outside of the
Purchaser or JAKKS Pacific and its Affiliates, except (i) with JAKKS
Pacific's express written consent; (ii) with respect to such
information which is generally known to the public or becomes known to
the public though no fault of the Selling Stockholders or Die Cast; or
(ii) as may be required by law.
10.4.4. ENFORCEMENT THROUGH INJUNCTION. The Selling
Stockholders acknowledge that the restrictions imposed in this SECTION
10.4 are fair and reasonable and are reasonably required for the
protection of JAKKS Pacific and the Purchaser and the goodwill,
business and assets of RC Inc, RC Ltd and the Acquired Assets and are
given as an integral part of the acquisition by the Purchaser of the
Road Champs Shares and the Acquired Assets. The Selling Stockholders
each acknowledges that a breach of the provisions of this SECTION 10.4
would irreparably damage Purchaser or JAKKS Pacific, and that once such
a breach has occurred, there may be no accurate way of determining the
amount of damage or loss suffered by Purchaser or JAKKS Pacific. The
Selling Stockholders
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each therefore agrees that the terms of this SECTION 10.4 may be
enforced through preliminary or final injunctive relief or other
equitable remedy.
10.4.5. BLUE LINING. If any of the provisions of this SECTION
10.4 relating to time, geographical area, services, products, devices
and/or information are deemed by a court of competent jurisdiction to
be overly broad or for any other reason unenforceable, the parties
agree that such restrictions herein as to time, geographical area,
services products, devices and/or information shall be reduced to such
time, geographical area, services, products, devices and/or information
as such court shall hold to be reasonable and legally enforceable. In
addition, if any court determines that any of the restrictive covenants
contained in this SECTION 10.4 or any part thereof, is invalid or
unenforceable, the remainder of the restrictive covenants shall not
thereby be affected and shall be given full effect without regard to
the invalid portions.
10.5 COOPERATION IN PREPARATION OF SECURITIES LAW FILINGS
The Selling Stockholders agree to cooperate, and Jack Robbins will
request Edelman & Associates P.A. and Lui & Mak (the "PRESENT ACCOUNTANTS") to
cooperate with Purchaser and its accountants in the provision of such
information and documents as may be reasonably required in order to complete
any filings required under the United States securities laws relating to the
acquisition transactions described in this Agreement. The cost of such
audit(s) and the reasonable charges of the Present Accountants in such
connection shall be borne by Purchaser.
10.6 GUARANTEES BY JAKKS PACIFIC
JAKKS Pacific hereby guarantees the payment and performance by
Purchaser when due of Purchaser's obligations under Article 3 of this
Agreement, and the performance by Purchaser of any other of Purchaser's
obligations due prior to, at or after the Closing.
10.7 CHANGE OF NAME OF AFFILIATED FACTORY
Following the Closing, Purchaser acknowledges that the corporation
controlled by Jack Robbins which operates a factory in China will continue to
use the name "ROAD CHAMPS DIE CASTING FACTORY, LTD."
10.8 PURCHASER'S EMPLOYMENT OF ROAD CHAMPS COMPANIES' EMPLOYEES AND SALES
REPRESENTATIVES
Following the Closing, Purchaser agrees to (i) offer employment to Lee
Vitulano, Elmen Lai and Mike Brien on substantially the same terms (including
providing automobiles in the case of Lee Vitulano and Mike Brien) comparable to
that paid to them by Die Cast, RC Inc or RC Ltd, as the case may be, and if
they accept such employment to continue to employ each such individual for at
least one (1) year provided they perform their duties and responsibilities in a
manner which is reasonably satisfactory to Purchaser, (ii) continue for at
least one (1) year to use RC Inc's independent sales representatives in
connection with the sale of the Road Champs Line, subject to termination in the
event the performance of any such individual is not reasonably satisfactory to
Purchaser; and (iii) offer employment to and continue to employ for at least
one (1) year other employees of RC Inc and RC Ltd, subject to termination in
the event the performance of any such individual is not reasonably satisfactory
to Purchaser or in the
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event that a reduction in the number of employees is, in the judgment of
Purchaser, prudent under the circumstances of the Purchaser's business at the
time of such reduction.
ARTICLE 11: SURVIVAL OF REPRESENTATIONS; INDEMNITIES
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS
AND DIE CAST
Neither Purchaser nor JAKKS Pacific shall have the right to rely upon
the representations and warranties of the Selling Stockholders and Die Cast
contained in this Agreement or any of the Other Documents if prior to Closing
either or both of Purchaser or JAKKS Pacific had actual written knowledge that
such representation or warranty was not true, except that the covenants
contained in SECTION 3.2.2 and the representations, warranties and covenants
contained in SECTION 6.8, SECTION 6.21 and SECTION 6.25 are made absolutely and
without the foregoing qualification as to knowledge of JAKKS Pacific and
Purchaser. Such representations, warranties and covenants and the
indemnification obligations under SECTION 11.2 shall survive the execution and
delivery of this Agreement and the Other Documents and the Closing hereunder
for the periods set forth on Schedule 11.1 annexed to this Agreement, provided,
however, that the covenants contained in SECTION 3.2.2 and the representations
and warranties made in SECTION 6.2, SECTION 6.8, SECTION 6.21 and SECTION 6.251
and the obligation to indemnify for Securities Claims as that term is defined
in SECTION 11.2.1, shall survive the execution of this Agreement and the Other
Documents and the Closing hereunder until the date of expiration of the
relevant federal, state or other statute of limitations; provided further,
however, that as to matters as to which any Indemnitee has given a proper
Claims Notice under SECTION 11.4 on or prior to the expiration of the
applicable survival period aforesaid, the right to indemnification with respect
thereto shall survive the expiration of any such period until such claim is
finally resolved and any obligations with respect thereto are fully satisfied.
Any claim for indemnification based on fraud or intentional misrepresentation
shall survive for a period of three (3) years from the closing, notwithstanding
any provision of this Agreement which would provide a shorter limitation, but
this shall not operate to shorten any survival period which extends beyond
three (3) years under the terms of this Agreement. Any representation or
warranty which does not have an express survival period in this Agreement shall
survive until the first anniversary of Closing.
11.2 OBLIGATIONS OF THE SELLING STOCKHOLDERS AND DIE CAST TO
INDEMNIFY
11.2.1. GENERAL INDEMNITY. Jack Robbins and Die Cast jointly
and severally agree to indemnify, defend and hold harmless the
Purchaser and JAKKS Pacific, and their respective officers, directors,
employees and agents, and any of their successors and assigns from and
against any and all losses, liabilities, damages,
____________________
1 The reference to Section 3.2.2, which in turn refers to Section
3.3.8, which in turn refers to representations in Article 6, shall not
be deemed to modify the limitation as to knowledge which qualifies the
representations and warranties set forth in Article 6 which shall
remain applicable to Article 6 other than Sections 6.2, 6.8, 6.21 and
6.25 thereof.
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deficiencies, demands, claims, actions, judgments or causes of action,
assessments, costs or expenses (including, without limitation,
interest, penalties and reasonable attorneys' fees and disbursements)
("CLAIMS"), whether such Claims are incurred in Purchaser's or JAKKS
Pacific's disputes with the Selling Stockholders or Die Cast or
involving third-party claims against the Purchaser or JAKKS Pacific,
based upon, arising out of or otherwise in respect of any material
inaccuracy in or any material breach of any representation or warranty
of the Selling Stockholders and Die Cast contained in this Agreement
and/or any of the Other Documents. In particular, but without limiting
the generality of the foregoing, the indemnification obligations of Die
Cast and Jack Robbins shall cover any Claims arising out of any claims
by creditors of the Road Champs Companies, whether contingent, absolute
or otherwise, and whether or not known to Purchaser or JAKKS Pacific,
except for claims for payment of the Assumed Liabilities or liabilities
of RC Inc or liabilities of RC Inc at the time of Closing or any other
liabilities assumed by Purchaser under the terms of this Agreement. In
addition, the Selling Stockholders and the Holders of the Shares being
registered shall indemnify and hold harmless JAKKS Pacific, each
director of JAKKS Pacific, each officer of JAKKS Pacific who shall sign
the Registration Statement and any Person who controls JAKKS Pacific
within the meaning of the Securities Act, against any and all Claims to
which any of the foregoing Persons may become subject under the
Securities Act or otherwise, insofar as such Claims arise out of or are
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or any document incident to the registration or
qualification of the Shares in reliance upon and in conformity with
information furnished to JAKKS Pacific by such Holder solely for use in
the preparation thereof ("SECURITIES CLAIMS"). Purchaser and JAKKS
Pacific shall have no right to set-off Claims against the Purchase
Price Balance due after the Closing under SECTION 3.2 of this
Agreement. Purchaser and JAKKS Pacific shall look to the Deposit
before seeking any other source of funds for reimbursement from an
indemnifying party.
11.2.2. SECURITY FOR INDEMNIFICATION OBLIGATIONS OF SELLING
STOCKHOLDERS AND DIE CAST. In order to secure their indemnification
obligations under this Agreement, Jack Robbins and Die Cast shall
deposit in escrow with the firm of Feder, Kaszovitz, Isaacson, Weber,
Skala, and Bass LLP (the ESCROW AGENT") the sum of US$500,000.00 (the
"DEPOSIT"), pursuant to the terms of the Escrow Agreement, which shall
remain in escrow for a period of one (1) year following the Closing,
except that the Deposit shall continue to be held in escrow to the
extent of one hundred (100%) percent of the amount of any Claim until
such Claim is finally resolved and any obligations with respect thereto
are fully satisfied. In the event that the Selling Stockholders do not
perform their obligations under Section 11.4.2 of this Agreement, the
Purchaser shall have the right to demand that the Escrow Agent release
such portion of the Deposit as is necessary in order to satisfy such
Claim. The Deposit shall be held, invested, and disbursed strictly in
accordance with the terms of the ESCROW AGREEMENT annexed as SCHEDULE
11.2.2.
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11.2.3. LIMITATION ON INDEMNIFICATION OBLIGATION. No
indemnification shall be required to be made by Jack Robbins and Die
Cast for the first $100,000.00 of valid Claims; their liability is
limited to the amount of Claims in excess of $100,000.00, and the total
indemnification liability of Jack Robbins and Die Cast (combined) for
all Claims is five hundred thousand (US$500,000) US dollars.
Notwithstanding the limitations in the first sentence of this
paragraph, Jack Robbins and Die Cast shall be liable for the full
amount of any Claim for (i) environmental matters pursuant to SECTION
6.21, (ii) taxes pursuant to SECTION 6.8, (iii) any unscheduled RC
Accounts Payable pursuant to SECTION 6.25, and (iv) for fraud or
intentional misrepresentation, without regard to the limitations in the
preceding sentence and, as to the Claims described in this sentence,
there shall be no such $100,000.00 indemnification deductible and
$500,000 limitation on liability. In addition, any claim for
adjustment of the Fixed Price Component under SECTION 3.2.2 shall not
be subject to Article 11 or the limitations contained in this SECTION
11.2.3.
11.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF JAKKS PACIFIC
AND THE PURCHASER
Neither the Selling Stockholders nor Die Cast shall have the right to
rely upon the representations and warranties of the JAKKS Pacific and Purchaser
contained in this Agreement or any of the Other Documents if prior to Closing
either or both of Selling Stockholders or Die Cast had actual written knowledge
that such representation or warranty was not true. Such representations and
warranties and the indemnification obligations under Section 11.4 shall survive
the execution and delivery of this Agreement and the Other Documents and the
Closing hereunder for a period of one (1) year following the Closing Date,
provided, however, that (i) the representations and warranties made in SECTION
7.4, shall not survive the Closing, and (ii) the representations and warranties
made in SECTION 7.2 and the obligation to indemnify for JAKKS' Securities
Claims (as such term is defined in SECTION 11.3.1), shall survive the execution
of this Agreement and the Other Documents and the Closing hereunder until the
date of expiration of the relevant federal, state or other statute of
limitations; provided further, however, that as to matters as to which any
Indemnitee has given a proper Claims Notice under Section 11.4 on or prior to
the expiration of the applicable period aforesaid, the right to indemnification
with respect thereto shall survive the expiration of any such period until such
claim is finally resolved and any obligations with respect thereto are fully
satisfied. Any claim for indemnification based on fraud or intentional
misrepresentation shall survive for a period of three (3) years from the
closing, notwithstanding any provision of this Agreement which would provide a
shorter limitation, but this shall not operate to shorten any survival period
which extends beyond three (3) years under the terms of this Agreement.
11.3.1. OBLIGATION OF JAKKS PACIFIC AND PURCHASER TO INDEMNIFY. JAKKS
Pacific and the Purchaser agree to indemnify, defend and hold harmless
the Selling Stockholders and Die Cast from and against any and all
Claims based upon, arising out of or otherwise in respect of any
Assumed Liability or any inaccuracy in or any breach of any
representation or warranty of the Purchaser contained in this Agreement
or in any document or other papers delivered by the Purchaser in
connection with this Agreement
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and/or the Other Documents. In addition, JAKKS Pacific and Purchaser
shall indemnify and hold harmless the Selling Stockholders and Die
Cast and each Person acting on behalf of the Selling Stockholders and
Die Cast and each other Person, if any, who controls any of the
foregoing Persons, within the meaning of the Securities Act, against
any and all Claims to which any of the foregoing Persons may become
subject under the Securities Act or otherwise, insofar as such Claims
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
any preliminary prospectus or final prospectus contained therein, any
document incorporated by reference therein or any amendment or
supplement thereto, or any document prepared and/or furnished by JAKKS
Pacific incident to the registration or qualification of the Shares,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with
respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made, not misleading,
or any violation by JAKKS Pacific of the Securities Act or state
securities or Blue Sky Laws applicable to it and relating to action or
inaction required of JAKKS Pacific in connection with such
registration or qualification under such state securities or Blue Sky
Laws ("JAKKS SECURITIES CLAIMS"); provided, however, that JAKKS
Pacific shall not be liable in any such case to the extent that such
Claims arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the
Registration Statement, said preliminary prospectus or said prospectus
or said amendment or supplement or any document incident to the
registration or qualification of the Shares in reliance upon and in
conformity with information furnished to it by a Selling Stockholder
or any other Holder of such Shares or their respective agents solely
for use in the preparation thereof.
11.3.2. LIMITATION ON INDEMNIFICATION OBLIGATION. No
indemnification shall be required to be made by JAKKS Pacific or
Purchaser except to the extent that the aggregate amount of Claims
exceeds $100,000, but this shall not serve as a limitation of the
obligation of JAKKS Pacific and Purchaser to pay the full Purchase
Price.
11.4 NOTICE AND OPPORTUNITY TO DEFEND
11.4.1. NOTICE OF ASSERTED LIABILITY. Promptly after receipt
of any party hereto (the "INDEMNITEE") of notice of any demand, claim
or circumstances which, with the lapse of time, would or might give
rise to a claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "ASSERTED LIABILITY") that may
result in any Claims, the Indemnitee shall promptly give notice thereof
(the "CLAIMS NOTICE") to the party obligated to provide indemnification
pursuant to SECTION 11.2 OR 11.4 (the "INDEMNIFYING PARTY"). The
Claims Notice shall describe the Asserted Liability in reasonable
detail, shall contain supporting documentation (if applicable), and
shall indicate the amount (estimated, if necessary and to the extent
feasible) of the Claims that have been or may be suffered by the
Indemnitee. No indemnification obligation shall be imposed
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upon an Indemnifying Party unless a proper Claims Notice is given to
that Indemnifying Party and the Escrow Agent on or before the last day
of survival period for the representation, warranty, or covenant, the
alleged breach of which forms the basis for the Claim.
11.4.2. OPPORTUNITY TO DEFEND The Indemnifying Party may
elect to compromise or defend, at its own expense and by its own
counsel, any Asserted Liability. If the Indemnifying Party elects to
compromise or defend such Asserted Liability, it shall within thirty
(30) days (or sooner, if the nature of the Asserted Liability so
requires) notify the Indemnitee of its intent to do so, and the
Indemnitee shall cooperate, at the expense of the Indemnifying Party,
in the compromise of, or defense against, such Asserted Liability. If
the Indemnifying Party elects not to compromise or defend the Asserted
Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement,
the Indemnitee may pay, compromise or defend such Asserted Liability at
the expense of the Indemnifying Party. Subject to the limitations
contained in Section 11.4.3 on the obligations of the Indemnifying
Party in respect of proposed settlements, the Indemnitee shall have the
right to employ its own counsel with respect to any Asserted Liability,
but the fees and expenses of such counsel shall be at the expense of
such Indemnitee unless (a) the employment of such counsel at the
expense of the Indemnifying Party shall have been authorized in writing
by the Indemnifying Party in connection with the defense of such
action, or (b) such Indemnifying Party shall not have, as provided
above, promptly employed counsel reasonably satisfactory to the
Indemnitee to take charge of the defense of such action. The
Indemnitee, at its own cost, may employ separate counsel to assert,
based on an opinion of counsel, one or more legal defenses available to
it which are different from or additional to those available to such
Indemnifying Party the Indemnifying Party shall not have the right to
direct the defense of such action on behalf of the Indemnitee in
respect of such different or additional defenses. If the Indemnifying
Party chooses to defend any claim, the Indemnitee shall make available
to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
11.4.3. SETTLEMENT. Notwithstanding the provisions of SECTION
11.4.2, neither the Indemnifying Party nor the Indemnitee may settle or
compromise any claim for which indemnification has been sought and is
available hereunder, over the objection of the other; provided,
however, that consent to settlement or compromise shall not be
unreasonably withheld or delayed. If, however, the Indemnitee refuses
to consent to a bona fide offer of settlement which the Indemnifying
Party wishes to accept, the Indemnitee may continue to pursue such
matter, free of any participation by the Indemnifying Party, at the
sole expense of the Indemnitee. In such event, the obligation of the
Indemnifying Party to the Indemnitee shall be equal to the lesser of
(i) the amount of the offer of settlement which the Indemnitee refused
to accept plus the costs and expenses of the Indemnitee prior to the
date the Indemnifying Party notified the Indemnitee of the offer of
settlement, and (ii) the actual out-of-pocket amount the
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Indemnitee is obligated to pay as a result of the Indemnitee's
continuing to pursue such matter.
ARTICLE 12: MISCELLANEOUS
12.1 EXPENSES
Except as otherwise provided herein, the parties hereto shall pay all
of their own expenses relating to the transactions contemplated by this
Agreement the Other Documents, including, without limitation, the fees and
expenses of their respective counsel and financial advisers.
12.2 GOVERNING LAW
The interpretation and construction of the Documents, and all matters
relating hereto, shall be governed by the law of the State of New Jersey,
without reference to its conflict of laws provisions.
12.3 INTERCHANGEABILITY OF SCHEDULES
Any information contained on any Schedule to this Agreement or in the
Financial Statements shall be deemed to be contained on each and every other
Schedule to this Agreement.
12.4 CAPTIONS
The article and section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
12.5 NOTICES
Any notice or other communications required or permitted hereunder
shall be in writing and shall be deemed effective (a) upon personal delivery, if
delivered by hand and followed by notice by mail or facsimile transmission; (b)
one day after the date of delivery by Federal Express or other nationally
recognized courier service that provides a delivery receipt, if delivered by
priority overnight delivery between any two points within the United States; or
(c) five days after deposit in the mails, if mailed by certified or registered
mail (return receipt requested) between any two points within the United States,
and in each case of mailing, postage prepaid, addressed to a party at its
address first set forth above, with copies to Messrs. Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue, New York, New York
10022-1200, Attention: Murray L. Skala, Esq., to Jack Robbins, 197 Summit
Avenue, Pompton Lakes, New Jersey 07442, and Meislik & Levavy, 66 Park Street,
Montclair, New Jersey 07042, Attn.: Ira Meislik, Esq., or such other address as
shall be furnished in writing by like notice by any such party.
12.6 PARTIES IN INTEREST
This Agreement and the Other Documents may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement and the Other Documents shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns. Each party hereto
intends that this Agreement shall not benefit or create any right or cause of
action in or on behalf of any Person other than the parties hereto and their
respective successors and assigns.
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12.7 PERSON
"PERSON" means and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or other department or agency thereof.
12.8 SEVERABILITY
In the event any provision of this Agreement or the Other Documents is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement or such Other Documents shall
nevertheless be binding upon the parties with the same effect though the void or
unenforceable part had been severed and deleted.
12.9 COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.
12.10 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, and the Other Documents, contain the entire
understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
This Agreement may not be changed orally, but only by an agreement in writing
signed by both parties.
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IN WITNESS WHEREOF, the individual parties have executed and the
corporate parties have each caused its corporate name to be hereunto subscribed
by its duly authorized officer on the date written below.
JAKKS PACIFIC, INC.
Dated: January 17, 1997 By: /s/ Jack Friedman
------------------------------------
Name: JACK FRIEDMAN
Title: President & Chief
Executive Officer
JAKKS ACQUISITION CORP., INC.
Dated: January 17, 1997 By: /s/ Jack Friedman
-----------------------------------
Name: JACK FRIEDMAN
Title: President
ROAD CHAMPS, INC.
Dated: January 17, 1997 By: /s/ Jack Robbins
-----------------------------------
Name: JACK ROBBINS
Title: President
ROAD CHAMPS, LTD.
Dated: January 17, 1997 By: /s/ Jack Robbins
-----------------------------------
Name: JACK ROBBINS
Title: President
DIE CAST ASSOCIATES, INC.
Dated: January 17, 1997 By: /s/ Jack Robbins
-----------------------------------
Name: JACK ROBBINS
Title: President
Dated: January 17, 1997 Jack Robbins
-----------------------------------
JACK ROBBINS
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<PAGE> 48
The Selling Stockholders become parties to this Agreement by signing their
names below:
Date: January 20 , 1997 /s/ Barbara Mulloy Robbins
------------ ----------------------------------
Name: Barbara Mulloy Robbins
Date: January 21 , 1997 /s/ Stephen Robbins
------------ ----------------------------------
Name: Stephen Robbins
Date: January 20 , 1997 /s/ Deborah Robbins Wischnia
------------ ----------------------------------
Name: Deborah Robbins Wischnia
Date: January 20 , 1997 /s/ Rebecca Foulds
------------ ----------------------------------
Name: Rebecca Foulds
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SCHEDULE 11.1 TO
ROAD CHAMPS STOCK AND ASSET PURCHASE AGREEMENT
SURVIVAL PERIODS OF REPRESENTATIONS & WARRANTIES
The representations, warranties and covenants of the Selling Stockholders and
Die Cast contained in Article 6 of this Agreement, and the indemnification
obligations with respect thereto shall survive for the periods listed next to
the Section number in which such representation, warranty or covenant is found:
Section Number Survival Period
-------------- ---------------
6.1 One (1) year
6.2 relevant Statute of Limitations
6.3 Two (2) years
6.4 Eighteen (18) months
6.5 Nine (9) months
6.6 One (1) year
6.7 Eighteen (18) months
6.8 relevant Statute of Limitations
6.9 One (1) year
6.10 Eighteen (18) months
6.11 One (1) year
6.12 One (1) year
6.13 Nine (9) months
6.14 Nine (9) months
6.15 One (1) year
6.16 Six (6) months
6.17 Eighteen (18) months
6.18 One (1) year
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SCHEDULE 11.1 TO
ROAD CHAMPS STOCK AND ASSET PURCHASE AGREEMENT (CONTINUED)
Section Number Survival Period
- -------------- ---------------
6.19 Does Not Survive
6.20 Six (6) months, or such longer period set
forth in this Schedule with respect to a
specific Section of this Agreement if the
failure to disclose relates to a matter
referred to in such Section
6.21 relevant Statute of Limitations
6.22 Three (3) months
6.23 Does not survive
6.24 One (1) year
6.25 relevant Statute of Limitations
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LIST OF SCHEDULES AND EXHIBITS
Schedule 2.2 Purchase and Other Commitments for Assets (Die Cast)
Schedule 3.2 Inventory Adjustment
Schedule 3.3 Purchase Price Allocation
Schedule 3.3.7 Security Agreement
Schedule 4.2(iv) Warehouse Lease
Schedule 4.2(v) Consulting Agreement
Schedule 4.2(vi) Opinion of the Selling Stockholders and Die Cast's
Counsel
Schedule 4.3(ii) List of distributees of JAKKS Pacific Shares
Schedule 4.3(iv) Opinion of Purchaser's Counsel
Schedule 6.1 Corporate Good Standing
Schedule 6.2 Stockholders and Capitalization of Road Champs
Companies
Schedule 6.3.2 Changes to the Road Champs Companies since Balance
Sheet Date
Schedule 6.4 Location of Books and Records
Schedule 6.5.2 Encumbrances
Schedule 6.5.3 Machinery and Equipment
Schedule 6.6 Contracts
Schedule 6.7 Litigation
Schedule 6.8 Tax Liabilities
Schedule 6.9.1 Liabilities
Schedule 6.10 Intellectual Property
Schedule 6.13 Insurance
Schedule 6.14 Suppliers & Customers
Schedule 6.16.1 Personnel
Schedule 6.17 Changes Since Balance Sheet Date
Schedule 6.18 Valid Agreements; Restricted Documents
Schedule 6.19 Approvals
Schedule 6.21 Environmental Conditions
Schedule 6.24 Brokers
Schedule 6.25 RC Accounts Payable
Schedule 7.3 Valid Agreements; Restricted Documents (JAKKS Pacific)
Schedule 7.4 Consents for JAKKS Pacific & Purchaser
Schedule 7.8 Liabilities of JAKKS Pacific
Schedule 7.9 Brokers (JAKKS Pacific)
Schedule 8.3 RC Accounts Receivable
Schedule 11.1 Survival Periods of Representations & Warranties
Schedule 11.2 Escrow Agreement
45
