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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 19, 1999 (October 5, 1999)
JAKKS PACIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-28104 95-4527222
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
22761 Pacific Coast Highway, Malibu, California 90265
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 456-7799
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to a Stock Purchase Agreement dated as of September 22, 1999
among the Registrant, Flying Colors Toys, Inc. f/k/a Colorbok Paper Products,
Inc. (the "Company") and all the shareholders of the Company (each, a
"Shareholder"), as amended (the "Stock Purchase Agreement"), the Registrant
acquired all of the Company's business and assets, subject to related
liabilities, related to its Flying Colors branded product lines by purchasing
from the Shareholders all of the Company's outstanding capital stock (the
"Shares") for an aggregate purchase price of $35,850,000, of which $34,725,685
was paid in cash on the closing of the transaction and $1,124,315 is to be paid
out of cash collections of the Company's pre-closing accounts receivable, and,
in any event, on or before January 29, 2000. Also, the Registrant paid on behalf
of the Company, on the closing of the acquisition, $17,624,315 in satisfaction
of certain indebtedness of the Company and, on October 12, 1999, a transfer fee
in the amount of $150,000 to obtain the consent of the licensor under one of the
Company's character licenses with respect to the acquisition. In addition, the
Registrant agreed to pay to the Shareholders an earn-out in an amount up to
$4,500,000 in each of the three 12-month periods following the closing if
Gross Profit (as defined) of Flying Colors branded products achieve certain
prescribed levels in each of such periods.
The Registrant entered into employment agreements with two of the
Shareholders who had been senior executives of the Company to continue to serve
in essentially the same capacities after the acquisition. Each of these
employment agreements provides, among other things, an employment term ending on
December 31, 2002 and an annual base salary at a rate of $300,000, and includes
covenants prohibiting certain activities by these employees that may be
competitive with the Registrant's business.
The Company entered into a Transition Services Agreement with an entity
that acquired from the Company immediately prior to the closing of the
Registrant's purchase of the Shares all of the Company's business and assets,
subject to related liabilities, not related to the Flying Colors branded product
lines (the "Divestee"), pursuant to which the Divestee will, during an initial
period following the closing subject to termination by either party upon prior
written notice, perform certain services for the Company, including, among
others, inventory control and warehousing, order processing, customer service,
shipping and billing, until the Company assumes control of these functions
internally. In consideration therefor, the Company will pay to the Divestee a
monthly base fee of $310,000 and an additional fee based on Gross Sales (as
defined) of Flying Colors branded products processed by the Divestee. The
Company also entered into a lease for certain premises indirectly owned by two
of the Shareholders, one of whom is employed by the Registrant (the "Lease").
The Lease provides for an initial term of six months and a monthly base rent of
approximately $5,000.
On September 30, 1999, the parties to the Stock Purchase Agreement
entered into an escrow agreement pursuant to which, as of October 1, 1999, the
purchase price for the Shares and certain additional amounts were paid into
escrow and the Shares and related stock powers assigning the Shares to the
Registrant and certain other documents related to the consummation of the
acquisition were delivered into escrow, to be released upon termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, or on the satisfaction of other conditions set forth therein. The
Registrant and the Shareholders were advised of early
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termination of such waiting period on October 4, 1999 and the escrowed funds and
documents were released by the escrow agent and delivered in accordance with the
escrow agreement and the parties' instructions thereunder on October 5, 1999.
Accordingly, the closing of the acquisition occurred on October 5, 1999, but, as
among the parties to the Stock Purchase Agreement, the acquisition was deemed to
have become effective immediately prior to the opening of business on
October 1, 1999.
The purchase price for the Shares, the compensation payable to the
executives employed by the Registrant, the fees payable under the Termination
Services Agreement and the rent payable under the Lease were determined through
arms' length negotiations between the Registrant, on the one hand, and the
Shareholders, the executives, the Divestee and the landlord, respectively, on
the other hand.
The entire purchase price for the Shares was funded out of the
Registrant's cash reserves.
The Company designs, produces and markets activity sets, including
stamp-and-sticker, poster, puzzles, project, jewelry making and make-and-paint
character kits, "art studios," molding compound playsets, lunch boxes and
stationery. In connection with the purchase of the Shares, the Registrant
acquired the Company's assets, consisting primarily of proprietary marks and
trade rights; character licenses, including for Barbie*, Rugrats*, Blue's Clues*
and Hello Kitty* characters; inventory; accounts receivable and certain
equipment. The Registrant intends to use the acquired equipment, consisting
primarily of tools, molds and other product processing equipment, office
equipment and vehicles that were used in the operation of the Company's business
prior to the acquisition, in the same manner for the immediate future.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not included herein; to be filed by amendment on or before December 20,
1999.
(b) Pro Forma Financial Information.
Not included herein; to be filed by amendment on or before December 20,
1999.
(c) Exhibits.
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of September 22, 1999 among the
Registrant, the Company and the Shareholders.
2.2 First Amendment to Stock Purchase Agreement dated as of September 30,
1999.
</TABLE>
- --------
* Trademarks of other companies
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<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.3 Escrow Agreement dated as of September 30, 1999 among Joshua H.
Pokempner, as agent for the Shareholders, the Registrant and Bank One
Trust Company, NA, as escrow agent.
2.4 Transition Services Agreement dated as of October 1, 1999 between the
Divestee and the Company.
2.5 Lease dated as of October 1, 1999 between Shore Properties LLC and the
Company.
2.6 Employment Agreement dated as of October 1, 1999 between the Registrant
and Michael Bianco.
2.7 Employment Agreement dated as of October 1, 1999 between the Registrant
and Joshua H. Pokempner.
</TABLE>
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: October 19, 1999
JAKKS PACIFIC, INC.
By: /s/ Joel M. Bennett
---------------------------------
Joel M. Bennett
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of September 22, 1999 among the
Registrant, the Company and the Shareholders.
2.2 First Amendment to Stock Purchase Agreement dated as of September 30,
1999.
2.3 Escrow Agreement dated as of September 30, 1999 among Joshua H.
Pokempner, as agent for the Shareholders, the Registrant and Bank One
Trust Company, NA, as escrow agent.
2.4 Transition Services Agreement dated as of October 1, 1999 between the
Divestee and the Company.
2.5 Lease dated as of October 1, 1999 between Shore Properties LLC and the
Company.
2.6 Employment Agreement dated as of October 1, 1999 between the Registrant
and Michael Bianco.
2.7 Employment Agreement dated as of October 1, 1999 between the Registrant
and Joshua H. Pokempner.
</TABLE>
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 22, 1999
AMONG
JAKKS PACIFIC, INC.,
COLORBOK PAPER PRODUCTS, INC.
AND
THE SHAREHOLDERS OF
COLORBOK PAPER PRODUCTS, INC.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
1. Certain Definitions 2
2. Purchase of the Shares 15
3. The Agent and the Paying Agent 21
4. Representations and Warranties of the Company and the Shareholders 22
5. Representations and Warranties of JAKKS 33
6. Certain Covenants 36
7. Conditions to Closing 42
8. Closing 45
9. Additional Covenants 48
10. Termination 58
11. Indemnification 60
12. Miscellaneous 67
12.1 Survival of Representations and Warranties 67
12.2 Limitation of Authority 67
12.3 Fees and Expenses 67
12.4 Notices 67
12.5 Amendment 69
12.6 Waiver 70
12.7 Governing Law 70
12.8 Arbitration 70
12.9 Jurisdiction 70
12.10 Remedies 71
12.11 Severability 72
12.12 Counterparts 72
12.13 Further Assurances 72
12.14 Binding Effect 72
12.15 Assignment 72
12.16 Titles and Captions 73
12.17 Grammatical Conventions 73
</TABLE>
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<TABLE>
<S> <C> <C>
12.18 References 73
12.19 Knowledge 73
12.20 No Presumptions 74
12.21 Exhibits and Schedules 74
12.22 Entire Agreement 75
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of September 22, 1999 by and
among JAKKS Pacific, Inc., a Delaware corporation ("JAKKS"), Colorbok Paper
Products, Inc., a Michigan corporation (the "Company"), and the shareholders of
the Company listed on Schedule I (the "Shareholders")
W I T N E S S E T H :
WHEREAS, the Company has heretofore been engaged in the Flying Colors
Business (hereinafter defined) and the Divested Business (as hereinafter
defined); and
WHEREAS, JAKKS desires to acquire the Flying Colors Business, but not to
acquire the Divested Business; and
WHEREAS, the Shareholders own all of the outstanding capital stock of
the Company and desire to sell to JAKKS, and JAKKS desires to purchase from the
Shareholders, all such capital stock; and
WHEREAS, to enable JAKKS to acquire only the Flying Colors Business, and
not the Divested Business, prior to the purchase of such capital stock of the
Company, the Company will transfer the Divested Business to the Divestee (as
hereinafter defined), transfer all of its interest in the Divestee to the
Shareholders, and change its name from "Colorbok Paper Products, Inc." to
"Flying Colors Toys, Inc.," and the Divestee will change its name to "Colorbok
Paper Products, LLC";
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
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1. Certain Definitions.
1.1 "Account" means any account receivable or other right to receive
payment arising from the sale of merchandise or services in the Business, any
loan or extension of credit or any other sale, lease, exchange or other
disposition of any assets of the Company by, or for the account of, the Company,
whether or not in the ordinary course of business.
1.2 "Acquisition" means the purchase of the Shares and the related
transactions contemplated by the Acquisition Agreements.
1.3 "Acquisition Agreement" means this Agreement, the Agent
Agreement, the Paying Agent Agreement and each agreement and certificate to be
executed and delivered at the Closing pursuant to this Agreement, including the
New Lease, the Transition Services Agreement, the Special Indemnity Agreement
and the Employment Agreements, but excluding any agreement relating to the
Divestiture to which JAKKS is not a party.
1.4 "Affiliate" of a Person means another Person directly or
indirectly controlling, controlled by, or under common control with, such
Person; for this purpose, "control" of a Person means the power (whether or not
exercised) to direct the policies, operations or activities of such Person by
virtue of the ownership of, or right to vote or direct the manner of voting of,
securities of such Person, or pursuant to agreement or Law or otherwise.
1.5 "Agent" means Joshua H. Pokempner, as agent of the Shareholders
pursuant to the Agent Agreement.
1.6 "Agent Agreement" means the Shareholders' Agent Agreement of even
date herewith among the Shareholders and the Agent.
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1.7 "Agreement" means this Stock Purchase Agreement, as amended or
supplemented.
1.8 "Assets" means the assets of the Company.
1.9 "Bank" means Bank One, Michigan, a Michigan banking corporation.
1.10 "Bank Loan" means the bank loan and revolving credit facility
under the Amended and Restated Revolving Credit Agreement dated August 17, 1999,
between the Company and the Bank.
1.11 "Basic Closing Purchase Price" means $34,500,000, less the
Sellers' Transfer Fees.
1.12 "Bianco" means Michael Bianco.
1.13 "Business" means the business of designing, developing,
manufacturing, marketing and otherwise dealing and trading in or with
stationery, scrapbooks, activity sets, novelties, lunch boxes, gifts and toys
and all business activities incidental thereto.
1.14 "Certificate of Amendment" means the Certificate of Amendment to
the Articles of Incorporation of the Company, substantially in the form of
Exhibit A, to be executed and filed pursuant to Section 6.8.
1.15 "Closing" means the closing of the Acquisition as provided in
Article 8.
1.16 "Closing Date" means the date of the Closing.
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1.17 "Closing Debt Payments" means the sum of the amounts required to
be paid by JAKKS in cash at the Closing pursuant to Section 8.9 in respect of
the Bank Loan and pursuant to Section 8.10 in respect of the indebtedness set
forth on Schedule 8.10.
1.18 "Closing Net Liquid Assets" means cash, Accounts and inventory of
the Company, less total liabilities (including provision for all Taxes accrued
for any period ending prior to the Closing Date and accrual of all costs
incurred in connection with the engagement of the Company Accountants for the
audit that has been completed with regard to the Company's fiscal year ended May
31, 1999, but not reflecting any charge or accrual for Transfer Fees) of the
Company in each case attributable to Flying Colors and after giving effect to
the Divestiture (notwithstanding that the Divestiture may not have been effected
prior to the Closing Date), as of the close of business on the day preceding the
Closing Date, determined in accordance with GAAP on a basis consistent with that
applied in the Company's fiscal year ended May 31, 1999.
1.19 "Closing Net Worth" means total assets of the Company (including
without limitation cash, Accounts, inventory, refundable Taxes (excluding the
Tax refunds described on Schedule 9.9(e)), deferred Taxes, prepaid expenses,
royalty advances and net property, plant and equipment), less total liabilities
(including provision for all Taxes accrued for any period ending prior to the
Closing Date and accrual of all costs incurred in connection with the engagement
of the Company Accountants for the audit that has been completed with regard to
the Company's fiscal year ended May 31, 1999, but not reflecting any charge or
accrual for Transfer Fees) of the Company, in each case attributable to Flying
Colors and after giving effect to the Divestiture (notwithstanding that the
Divestiture may not have been effected prior to the Closing Date), as of the
close of business on the day preceding the Closing Date, determined in
accordance with GAAP on a basis consistent with that applied in the Company's
fiscal year ended May 31, 1999.
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1.20 "Closing Purchase Price" means the Basic Closing Purchase Price
reduced by the Interim Net Income, including the Deferred Closing Purchase
Price, if any, as increased or decreased by the Purchase Price Adjustment.
1.21 "Code" means the Internal Revenue Code of 1986, as amended, and
the treasury regulations promulgated thereunder.
1.22 "Company Accountants" means Plante & Moran, LLP, the Company's
regularly engaged independent certified public accountants and auditors.
1.23 "Consent" means any approval, authorization, consent or
ratification by or on behalf of any Person that is not a party to this
Agreement, or any waiver of, or exemption or variance from, any Contract, Permit
or Order.
1.24 "Contract" means any material contract (including without
limitation any material purchase, sale, supply or service order or agreement, or
material real property or equipment lease) to which the Company or a Shareholder
is a party that relates to the Business or the Assets, as described on Schedule
1.24. For the purposes hereof, a Contract is "material" if (a) it relates to a
transaction or series of transactions involving the expenditure or receipt by
the Company of an amount in excess of $50,000 (or the transfer of property with
a fair market value in excess of $50,000), (b) a breach or default thereunder
would have a Material Adverse Effect, (c) it relates to any transaction not in
the ordinary course of business or (d) it (i) is a License Agreement or (ii)
prohibits or limits the Company's use of a Trade Right of another Person or
(iii) provides for any other Person to use or exploit, or prohibits or limits
any other Person's use of, a Trade Right of the Company and, in any such case,
involves the expenditure or receipt by the Company of an amount in excess of
$25,000.
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1.25 "Deferred Closing Purchase Price" has the meaning set forth in
Section 2.4.
1.26 "Divested Assets" means the non-Flying Colors Assets to be
transferred to the Divestee in the Divestiture.
1.27 "Divested Business" means the non-Flying Colors Business subject
to the Divestiture.
1.28 "Divested Liabilities" means the liabilities of the Company set
forth on Schedule 1.28.
1.29 "Divestee" means the Person to whom the Divested Business is
transferred in the Divestiture.
1.30 "Divestiture" means the transaction by which the Divested
Business is to be transferred by the Company pursuant to Section 6.10.
1.31 "Earn-Out" means that portion of the Purchase Price payable,
under certain conditions, to the Shareholders pursuant to Section 2.5.
1.32 "Earn-Out Payment Date" means a date on which any portion of the
Earn-Out is payable pursuant to Section 2.5.
1.33 "Earn-Out Period" means the 12-month period beginning on (and
including) the first day of the first month beginning on or after the Closing
Date and ending on (and including) the day immediately prior to the first
anniversary of such date and the two succeeding 12-month periods beginning on
(and including) the first and second anniversaries of such date.
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1.34 "Employee Plan" means an employee benefit plan (including a
multi-employer plan) as defined in Section 3(3) of ERISA.
1.35 "Employment Agreement" means one of the employment agreements,
substantially in the form of Exhibit B, to be entered into at the Closing by
JAKKS and Pokempner and Bianco, respectively.
1.36 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.37 "Excepted Lien" means a Lien created or imposed after the date
hereof that:
(a) is for Taxes that are not delinquent, Taxes that can be
paid later without penalty or Taxes that are being contested in good
faith and by appropriate Proceedings;
(b) is imposed by Law, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course
of business, to secure payment of obligations not more than 60 days past
due or which are being contested in good faith by appropriate
Proceedings and for which adequate reserves have been set aside on the
Company's books;
(c) arises out of pledges or deposits under worker's
compensation Laws, unemployment insurance, old age pensions or other
social security or retirement benefits, or similar legislation;
(d) is a utility easement, building restriction or other
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encumbrance or charge against real property which is of a nature
generally existing with respect to properties of a similar character and
which does not in any material way affect their marketability or
interfere with their use in the Business; or
(e) is a purchase money security interest on specific assets
securing the obligation to pay the purchase price thereof.
1.38 "Flying Colors" means the portion of the Business and Assets,
subject to related liabilities, relating to Flying Colors Products.
1.39 "Flying Colors Products" means products included in product lines
marketed by or on behalf of the Company before the Closing or by JAKKS, the
Company or any of their respective Affiliates after the Closing, in each case,
either under the Flying Colors brand name or as private label products
developed, manufactured, designed, sold or purchased by the Company.
1.40 "GAAP" means generally accepted accounting principles in the
United States.
1.41 "Governmental Authority" means any United States or foreign
federal, state or local government or governmental authority, agency or
instrumentality, or any court or arbitration panel of competent jurisdiction, or
any recognized professional or industry association or organization which
establishes policies or standards or otherwise regulates or supervises services
and activities related to the Business or the Assets.
1.42 "Gross Profit" means, in any period beginning on or after the
Closing Date, Sales less cost of goods (consisting of materials, direct labor,
costs of components and ex-factory costs of manufacturing of finished goods and
inbound freight) and license royalties
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(including guaranteed or minimum royalties and non-refundable royalty advances
to the extent allocable to such period under GAAP applied on a basis consistent
with that of prior periods) payable in respect of product sales included in
Sales in such period, all as determined in accordance with the accounting
principles and practices consistently applied in the determination by the
Company and the Company Accountants prior to the Closing of the gross profit as
defined above, except with the following adjustments:
(a) All inventory shall be valued consistently and on the
first-in,-first-out method.
(b) If JAKKS requires the Company to purchase items of
inventory, components thereof or other goods or services from JAKKS or
an Affiliate of JAKKS or any other Person and the Agent objects thereto
in writing within 60 days of the Agent becoming aware of such
requirement, the cost of such inventory, components, goods or services
shall be adjusted and treated as if purchased at prices the Company
would have otherwise obtained for similar quantities of similar quality
items, components, goods or services.
1.43 "Gross Profit Margin" means, in any period beginning on or after
the Closing Date, the ratio (expressed as a percentage) of Gross Profit to Sales
in such period.
1.44 "Hazardous Material" means any contaminant, pollutant or toxic or
hazardous waste, effluent or other substance or material, including without
limitation any radioactive, explosive, flammable, corrosive or infectious
substance or material, or any substance or material containing asbestos,
polychlorinated biphenyls or urea formaldehyde or which is otherwise subject to
any Law, Permit or Order relating to the protection of the environment or human
health or safety.
1.45 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976,
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as amended.
1.46 "HSR Form" means a Notification and Report Form for Certain
Mergers and Acquisitions required to be filed pursuant to the HSR Act in
connection with the Acquisition.
1.47 "Interim Net Income" means the after-tax net income or loss of
the Company attributable to Flying Colors and after giving effect to the
Divestiture (notwithstanding that the Divestiture may not have been effected
prior to October 1, 1999) for the period beginning on (and including) October 1,
1999 and ending on (and including) the day preceding the Closing Date,
determined in accordance with GAAP on a basis consistent with that applied in
the Company's fiscal year ended May 31, 1999.
1.48 "Landlord" means William Taylor and Pokempner, d/b/a Shore
Properties, or their successor as owner of the real property known as 2716 Baker
Road, Dexter, Michigan 48130.
1.49 "Law" means any statute, rule, regulation or ordinance of any
Governmental Authority.
1.50 "Lease" means a lease of real property described on Schedule
1.50.
1.51 "License Agreement" means a license, royalty or other Contract
pursuant to which the Company has the right to use or exploit any Trade Right of
another Person.
1.52 "Lien" means any security interest, conditional sale or other
title retention agreement, mortgage, pledge, lien, charge, encumbrance or other
adverse claim or interest.
1.53 "Lien Report" means a report in customary form of a Lien search
or survey
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conducted by JAKKS with respect to the Company prior to the Closing.
1.54 "Material Adverse Effect" means a material adverse effect on
Flying Colors, taken as a whole, unless such material adverse effect results
from any transaction, event or circumstance involving the Divested Business and
the Shareholders promptly take all necessary action to cause such transaction,
event or circumstance no longer to have such material adverse effect, including,
by way of example, but without limitation, depositing sufficient funds in escrow
to provide for the payment of any loss, liability, obligation, damage or expense
(including reasonable attorneys' fees and disbursements) or arranging for the
settlement of any Proceeding or the resolution of any dispute relating to the
same without any cost or expense to JAKKS or the Company.
1.55 "New Lease" means the Lease, substantially in the form of Exhibit
C, to be entered into at the Closing by the Company and the Landlord.
1.56 "Notice" means giving any notice to, or making any declaration or
filing, or registration or recordation, with any Person.
1.57 "Order" means any judgment, order, writ, decree, award,
directive, ruling or decision of any Governmental Authority.
1.58 "Paying Agent" means a Person appointed to serve as the
Shareholders' paying agent pursuant to the Paying Agent Agreement.
1.59 "Paying Agent Agreement" means the Paying Agent Agreement to be
entered into among the Shareholders and the Paying Agent, as contemplated by
Section 6.12.
1.60 "Permit" means any permit, license, certification, qualification,
franchise or
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privilege issued or granted by any Governmental Authority.
1.61 "Person" includes without limitation a natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, Governmental Authority, or any group of the
foregoing acting in concert.
1.62 "Pokempner" means Joshua H. Pokempner.
1.63 "Prime Rate" means, on any date, the rate of interest announced
by the Bank as its base or reference rate for prime commercial customers in
effect on such date.
1.64 "Proceeding" means any action, suit, arbitration, audit,
investigation or other proceeding, at law or in equity, before or by any
Governmental Authority.
1.65 "Purchase Price" means the aggregate of the Closing Purchase
Price, including the Deferred Closing Purchase Price, if any, and the Earn-Out.
1.66 "Purchase Price Adjustment" means the adjustment to the Purchase
Price to be made pursuant to Section 2.3.
1.67 "Real Property" means any real property subject to a Lease.
1.68 "Restricted Business" means that portion of the Business relating
to (a) molded, plastic, spray-masked, large and medium activity cases, as
evidenced by the "Rugrats" activity cases, or (b) the marketing, distribution or
sale of any products competitive with the Flying Colors Products if such
products are marketed, distributed or sold to or through the toy departments of
national or regional mass merchandise chains.
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1.69 "Retained Divestee Contract" means a contract listed under the
heading "Divested Business License Agreements," "Customer and Supplier
Contracts" (in the latter case as it relates to the Divested Business) or
"Software Agreements" on Schedule 1.24 and that relates to the Divested Business
but as to which the Company shall not have obtained prior to the Closing
(notwithstanding the provisions of Section 6.1) the Consent of any counterparty
thereto required as a condition to the assignment thereof to the Divestee, or
otherwise to avoid a default thereunder, in connection with the Divestiture.
1.70 "Sales" means, in any period ending prior to the Closing Date,
the net sales of the Company in such period attributable to Flying Colors and,
in any period beginning on or after the Closing Date, the net sales of the
Company in such period determined on a "stand alone" basis in accordance with
the accounting principles and practices consistently applied in the
determination by the Company and the Company Accountants prior to the Closing of
the Company's net sales as reflected in its regularly prepared statements of
operations, including those included in its audited 1997, 1998 and 1999
Financial Statements.
1.71 "Sellers' Transfer Fees" means the portion of the Transfer Fees
to be borne by the Shareholders in an amount equal to (a) the aggregate amount
of all Transfer Fees, if such amount does not exceed $200,000 or (b) if such
amount does exceed $200,000, the sum of (i) $200,000 and (ii) one-half of the
excess, if any, of the aggregate amount of all Transfer Fees over $400,000.
1.72 "Shareholder" means a Person who owns any Shares of record as
listed on Schedule I.
1.73 "Shares" means the outstanding shares of Stock.
1.74 "Special Indemnity Agreement" means the Special Indemnity
Agreement,
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substantially in the form of Exhibit D, to be entered into at the Closing by the
Company, the Divestee and JAKKS.
1.75 "Stock" means the common stock, $1.00 par value, of the Company.
1.76 "Tax" means any United States or foreign federal, state, local
income, excise, sales, property, withholding, social security or franchise tax
or assessment, and any interest, penalty or fine due thereon or with respect
thereto.
1.77 "Termination Fee" has the meaning given in Section 10.3.
1.78 "Trade Right" means a patent, claim of copyright, trademark,
trade name, brand name, service mark, logo, symbol, trade dress or design, or
representation or expression of any thereof, or registration or application for
registration thereof, or any other invention, trade secret, technical
information, know-how, proprietary right or intellectual property.
1.79 "Transaction" means, whether effected in one transaction or a
series of transactions: (a) any merger, consolidation, reorganization or other
business combination pursuant to which the assets, business or operations of
Flying Colors are sold, acquired, combined with, or otherwise transferred to
another Person, (b) an acquisition, directly or indirectly, by another Person of
more than 50% of the capital stock outstanding of the Company or all or
substantially all of the assets of Flying Colors by way of a tender or exchange
offer, negotiated purchase or otherwise, or (c) the acquisition, directly or
indirectly, by another Person of control of the Company or the ability to effect
such control, through a proxy contest or otherwise; provided, however, that a
Transaction will not include sales of Company securities by the Company to any
Shareholder or by any Shareholder to any other Shareholder or to a family member
or trust or other Person for estate planning purposes.
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1.80 "Transfer Fee" means a payment required to be made because of the
Acquisition to obtain any Consent of any counterparty to any Contract or
otherwise continue any Contract in effect after the Closing.
1.81 "Transition Services Agreement" means the Transition Services
Agreement, substantially in the form of Exhibit E, to be entered into at the
Closing by the Company and the Divestee.
1.82 "Waiver Documents" means a Termination Agreement in the form of
Schedule 1.82A to be entered into at the Closing by the Company, the
Shareholders, Phil Jenkins, individually, Jentra Investment Limited Partnership
and Lee Tracy, and a Waiver in the form of Schedule 1.82B to be entered into at
the Closing by the Shareholders, Phil Jenkins, individually, and the Company.
2. Purchase of the Shares.
2.1 At the Closing, each Shareholder shall sell, assign, transfer and
deliver to JAKKS the Shares then owned by such Shareholder.
2.2 Subject to Section 2.4, at the Closing JAKKS shall pay the
Closing Purchase Price (notwithstanding that JAKKS may dispute the amount of the
Purchase Price Adjustment or the Interim Net Income, in which case, such dispute
shall be subject to resolution in accordance with Section 9.8) to the Paying
Agent (for the benefit and account of the several Shareholders as set forth on
Schedule 2.2).
2.3 The Purchase Price Adjustment shall be determined as follows:
(a) On or before the second business day preceding the
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Closing Date, the Agent shall give to JAKKS a written Notice setting
forth therein a good faith estimate of the Closing Net Worth, the
Closing Net Liquid Assets and the Interim Net Income and a brief
statement of the basis for the determination thereof. The calculation of
the Purchase Price Adjustment pursuant to this Section 2.3 in order to
pay the Closing Purchase Price on the Closing Date shall be made based
on the good faith estimates set forth in such Notice.
(b) If (i) the Closing Net Worth equals or exceeds $3,000,000
and (ii) the Closing Net Liquid Assets equal or exceed $2,100,000, the
Purchase Price Adjustment shall increase the Closing Purchase Price by
an amount equal to the least of (A) the excess, if any, of the Closing
Net Worth over $3,000,000, (B) the excess, if any, of the Closing Net
Liquid Assets over $2,100,000 and (C) $2,000,000.
(c) If either (i) the Closing Net Worth is less than
$3,000,000 or (ii) the Closing Net Liquid Assets are less than
$2,100,000, the Purchase Price Adjustment shall decrease the Closing
Purchase Price by an amount equal to the greater of (A) the excess, if
any, of $3,000,000 over the Closing Net Worth and (B) the excess, if
any, of $2,100,000 over the Closing Net Liquid Assets.
2.4 If the sum of the Closing Purchase Price plus the Closing Debt
Payments exceeds the sum of the Basic Closing Purchase Price plus $18,000,000,
JAKKS shall pay in cash at the Closing only that portion of the Closing Purchase
Price equal to the sum of the Basic Closing Purchase Price plus $18,000,000,
reduced by the Closing Debt Payments, and the balance thereof (the "Deferred
Closing Purchase Price") shall be payable by JAKKS to the Paying Agent (for the
benefit and account of the several Shareholders as set forth on Schedule 2.2) in
monthly installments as follows:
(a) Subject to Subsection 2.4(c), if and when the Company
actually
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receives payments in any calendar month ending after the Closing Date in
respect of Accounts arising prior to the Closing Date, the Company shall
set such payments aside and, on or before the 10th day of the next
succeeding calendar month, pay over to the Paying Agent the same, until
the entire amount of the Deferred Closing Purchase Price shall have been
paid to the Paying Agent.
(b) JAKKS shall cause the Company to collect payments in
respect of Accounts arising prior to the Closing Date in accordance with
JAKKS' customary collection practices. JAKKS shall not take any action
to cause any Account debtor to not pay, or to delay payment of, the
Accounts arising prior to the Closing Date. If an Account debtor does
not specify the invoice to which a payment relates, such payment shall
be credited against the earliest outstanding Account owed by such
debtor.
(c) In any case, JAKKS shall pay the entire Deferred Closing
Purchase Price prior to the 120th day following the Closing Date.
2.5 In addition to the Closing Purchase Price, each Shareholder shall
be entitled to receive a portion of the Earn-Out in the amount and payable in
the manner and upon the terms and conditions set forth below:
(a) The Earn-Out shall be in an amount determined in
accordance with Schedule 2.5.
(b) The Earn-Out, if any, for each Earn-Out Period shall be
paid as soon as practicable, but in any event not later than 60 days,
after the end of such Earn-Out Period.
(c) On each Earn-Out Payment Date, JAKKS shall pay the
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Earn-Out, if any, for the applicable Earn-Out Period to the Paying Agent
(for the benefit and account of the several Shareholders in the
percentages set forth on Schedule 2.5).
(d) Notwithstanding any other provision hereof, no Earn-Out
shall be payable for any Earn-Out Period unless the Gross Profit Margin
in such period shall equal or exceed 29%.
(e) Notwithstanding any other provision of this Section 2.5,
if (i) the Company terminates the employment of Bianco or Pokempner for
cause (pursuant to Section 13 of his Employment Agreement), or (ii)
Bianco or Pokempner terminates his employment other than for good reason
(pursuant to Section 14 of his Employment Agreement), then, in either
such case, the Earn-Out shall continue to be payable in accordance with
the terms and conditions of this Agreement for the Earn-Out Period in
which such termination of employment occurs, but shall not be payable
for any subsequent Earn-Out Period.
(f) Notwithstanding any other provision of this Section 2.5,
if JAKKS terminates the employment of Bianco or Pokempner, other than
for cause (pursuant to Section 13 of his Employment Agreement), or if
Bianco or Pokempner terminates his employment with JAKKS for good reason
(pursuant to Section 14 of his Employment Agreement), then, in either
such case, the provisions of this subsection (f) shall apply:
(i) If JAKKS terminates the employment of Bianco as
described in this subsection (f) or if Bianco terminates his
employment with JAKKS as described in this
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subsection (f), then Bianco shall be referred to in this
subsection (f) as the "Terminated Executive." If JAKKS terminates
the employment of Pokempner as described in this subsection (f)
or if Pokempner terminates his employment with JAKKS as described
in this subsection (f), then Pokempner shall be referred to in
this subsection (f) as the "Terminated Executive."
(ii) Promptly upon termination of the employment of the
Terminated Executive, JAKKS shall pay to the Paying Agent (for
the benefit and account of the several Shareholders in the
percentages set forth on Schedule 2.5) an amount (the
"Accelerated Earn-Out") equal to fifty percent (50%) of the
maximum Earn-Out that would otherwise be payable to the
Terminated Executive in accordance with the terms and conditions
of this Agreement for the Earn-Out Period in which such
termination occurs.
(iii) The amount of the Accelerated Earn-Out shall be
offset against any Earn-Out that would thereafter otherwise be
payable by JAKKS in accordance with the terms and conditions of
this Agreement for such Earn-Out Period.
(iv) Any Earn-Out payable for any subsequent Earn-Out
Period shall continue to be payable in accordance with the terms
and conditions of this
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Agreement.
(g) JAKKS and the Shareholders contemplate that, after the
Closing, Bianco and Pokempner shall be responsible for the development,
creation, merchandising, marketing and sales of, and acquisitions of
licenses for, products of the Company and for the sourcing, procurement
and purchasing of products for new product launches, in each case,
subject to general oversight and direction from JAKKS, all as more fully
set forth in the Employment Agreements.
(h) During the Earn-Out Period, JAKKS shall operate and manage
the business of the Company in good faith in the ordinary course of
business and consistent with prudent business practices. JAKKS shall
not, during the Earn-Out Period, unreasonably require that the business
of the Company be operated substantially differently than Flying Colors
was operated in the past (unless the prior practices are unreasonable or
imprudent), including without limitation substantially changing existing
business plans and policies of the Company in a manner that materially
increases the expenses or decreases the revenues of the Company in a
manner that adversely affects the calculation of Gross Profit for
purposes of the Earn-Out. Without limiting the generality of the
foregoing, and notwithstanding anything to the contrary in this
Agreement, any sales after the Closing Date of Flying Colors Products,
whether by JAKKS, the Company or any of their Affiliates, shall be
included in the definition of Sales for purposes of calculation of the
Earn-Out.
(i) JAKKS shall not require the Company to acquire any
additional businesses without the consent of Bianco and Pokempner. If
JAKKS, Bianco and Pokempner so agree to any acquisition of an additional
business by the Company, JAKKS and the Agent shall negotiate in good
faith as to if, how and to what extent any such acquisition shall affect
or amend the provisions of this Agreement relating to the
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Earn-Out.
2.6 Of the Purchase Price, the amount of $1,000,000 is being paid at
the Closing in consideration of the Shareholders' covenant not to compete
provided in Section 9.2 (with such $1,000,000 allocated among the Shareholders
in accordance with Schedule 2.2). The entire balance of the Purchase Price is
being paid solely to acquire the Shares. No party hereto shall (or permit any of
its Affiliates to) report or treat any part of the Purchase Price as allocable
in any other manner.
3. The Agent and the Paying Agent.
3.1 Except as provided in Section 3.2, any party hereto may rely upon
any Notice given by the Agent on behalf of any Shareholder with respect to any
election, determination or other action to be made or taken by him hereunder as
the act and deed of such Shareholder. It shall be sufficient to deliver to the
Agent at his address set forth in Section 12.4 below any Notice or other
document to be delivered hereunder to any Shareholder and it shall be the sole
responsibility of the Agent to deliver any Notice or other document so delivered
to him in such manner as he and the Shareholders, or any of them, may agree. As
between JAKKS and any other party to this Agreement, each election,
determination or other action of the Agent in connection with this Agreement
shall be binding upon all of the Shareholders, and no Shareholder shall have any
right to object, dissent from, or protest or otherwise contest the same or take
any separate action relating to the same; provided that the foregoing shall not
limit or affect any right or remedy any Shareholder may have against the Agent,
whether pursuant to this Agreement or otherwise.
3.2 Any payment to be made hereunder to or for the account of any
Shareholder shall be made by federal funds wire transfer to an account to be
specified by the Paying Agent in writing two days prior to the Closing Date
unless and until the Agent shall
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give written Notice to JAKKS in accordance with Section 12.4 of any other means
of payment to the Paying Agent, and any payment so made shall constitute, as
between JAKKS and the Shareholders, payment in full of the amount thereof. It
shall be the sole responsibility of the Paying Agent to hold for the account of
the Shareholders and to disburse to them such funds as JAKKS may pay to it
pursuant hereto.
4. Representations and Warranties of the Company and the Shareholders.
The Company and the Shareholders, jointly and severally, hereby
represent and warrant to JAKKS as follows:
4.1 The Company is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Michigan and has full power and
authority to own the Assets and carry on the Business as and in the places where
such Assets are now owned or such Business is now being conducted. Complete and
correct copies of the Company's Articles of Incorporation, including all
amendments thereto, certified by the Michigan Department of Consumer and
Industry Services, and the Company's Bylaws, including all amendments thereto,
certified by the Secretary of the Company, have been delivered to JAKKS. The
Company is Permitted to transact business as a foreign corporation in each
jurisdiction where such Permit is required under applicable Law in light of the
location or character of the Assets or the operation of the Business, except
where the failure so to be Permitted would not have a Material Adverse Effect,
and each such jurisdiction is listed on Schedule 4.1. The only capital stock
that the Company is authorized to issue consists of 50,000 shares of Stock.
Except as set forth on Schedule I or Schedule 4.1, each Shareholder owns
beneficially and of record all of the Shares set forth opposite such
Shareholder's name on Schedule I, free and clear of all Liens or any restriction
with respect to the voting or disposition thereof (other than restrictions of
general applicability imposed by federal or state securities Laws), and such
Shares constitute in the aggregate all of the Shares. All of the
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Shares are duly authorized, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are reserved for issuance, and, except as
set forth on Schedule 4.1, there are no agreements, commitments or arrangements
providing for the issuance or sale of any thereof, or any issued or outstanding
options, warrants or other rights to purchase, or securities or instruments
convertible into or exchangeable for, any capital stock of the Company.
4.2 The Company has full corporate power and authority, and each
Shareholder has the legal capacity, power and authority, to execute and deliver
this Agreement and each other Acquisition Agreement to which it is a party and
to assume and perform its obligations hereunder and thereunder. The execution
and delivery by the Company of this Agreement and each other Acquisition
Agreement to which it is a party and the performance of its obligations
hereunder and thereunder have been duly authorized by all requisite corporate
action on the part of the Company. This Agreement has been, and each other
Acquisition Agreement to which the Company or any Shareholder is a party will
be, duly executed and delivered by it, and this Agreement is, and each other
Acquisition Agreement to which the Company or any Shareholder is a party, when
so executed and delivered, will be, its legally valid and binding obligation,
enforceable against it in accordance with their respective terms, subject to (a)
bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or
hereafter in effect relating to creditors' rights generally and (b) equitable
principles limiting the availability of specific performance, injunctive relief
and other equitable remedies. Except as set forth on Schedule 4.2, the execution
and delivery of this Agreement by the Company or any Shareholder do not, and the
execution and delivery of each other Acquisition Agreement by the Company or any
Shareholder and the performance by the Company and the Shareholders of their
respective obligations hereunder and thereunder will not, violate any provision
of the Company's Articles of Incorporation or Bylaws and do not and will not
conflict with or result in any breach of any condition or provision of, or
constitute a default under, or create or give rise to any adverse right of
termination or cancellation by, or excuse
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the performance of, any other Person under, any Contract, or result in the
creation or imposition of any Lien upon any of the Assets or have a Material
Adverse Effect by reason of the terms of, any Contract, indenture, instrument,
Lien or Order relating to the Business to which the Company or any Shareholder
is a party or is subject or which is binding upon any of them or the Assets.
4.3 Except for the filing by the Company of an HSR Form and the
expiration or early termination of the waiting period under the HSR Act and
except as set forth on Schedule 4.3, no Consent of, or Notice to, any Person is
required as to the Company or any Shareholder in connection with its execution
and delivery of this Agreement or any other Acquisition Agreement to which it is
a party, or the performance of its obligations hereunder or thereunder.
4.4 Except as set forth on Schedule 4.4, no Proceeding to which the
Company or any Shareholder is a party is pending or, to the Company's knowledge,
threatened against or affecting the Business, the Assets or the operations of
the Company in which an unfavorable Order would have a Material Adverse Effect,
or prohibit, invalidate, or make unlawful, in whole or in part, the Acquisition,
this Agreement or any other Acquisition Agreement, or the carrying out of the
provisions hereof or thereof. The Company is not in default in respect of any
Order, nor is there any Order enjoining the Company or any Shareholder in
respect of, or the effect of which is to prohibit or curtail the Company's or
any Shareholder's performance of, its obligations hereunder or thereunder.
4.5 The Company has delivered to JAKKS the Company's balance sheets
at May 31, 1997, 1998 and 1999 (the "Balance Sheets") and the related statements
of operations and cash flows for each of the Company's fiscal years then ended
(collectively, the "Financial Statements"), together with the unqualified audit
report of the Company Accountants thereon, all of which Financial Statements are
complete and correct in all material respects, have been
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prepared in accordance with GAAP, and present fairly in all material respects
the financial position of the Company at such dates and the results of its
operations for each of the periods then ended. The Company has no liabilities or
obligations of any kind, contingent or otherwise, relating to the Business or
the Assets which are required under GAAP to be reflected on the Balance Sheet at
May 31, 1999 which are not so reflected thereon, except as set forth on Schedule
4.5, and all of the liabilities and obligations set forth on such Schedule have
arisen in the ordinary course of business (except as set forth on such
Schedule).
4.6 Except as set forth on Schedule 4.6 or another Schedule or
specifically disclosed elsewhere herein, since May 31, 1999 there has not been
any Material Adverse Effect, nor has the Company:
(a) incurred any damage, destruction or similar loss, whether
or not covered by insurance, materially affecting the Business or the
Assets;
(b) other than in the ordinary course of business, sold,
assigned or transferred any of the Assets or any interest therein;
(c) incurred any obligation or liability relating to the
Business or the Assets, or paid, satisfied or discharged any obligation
or liability relating to the Business or the Assets prior to the due
date or maturity thereof, except, in each case, current obligations and
liabilities in the ordinary course of business;
(d) other than in the ordinary course of business, created,
incurred, assumed, granted or suffered to exist any Lien on any of the
Assets;
(e) other than in the ordinary course of business, waived any
right of material value relating to the Business or the Assets or
cancelled, forgiven or
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discharged any debt relating to the Business or the Assets owed to it or
claim relating to the Business or the Assets in its favor; or
(f) effected any transaction relating to the Business or the
Assets other than in the ordinary course of business.
4.7 Schedule 4.7 is a complete and correct list of the Assets,
separately identifying, to the extent practicable, the Divested Assets. Except
as set forth on Schedule 4.7, the Assets, other than the Divested Assets,
consist of all assets required to conduct the Flying Colors Business as
currently conducted. The Company owns all of the Assets free and clear of all
Liens, except for the Liens listed on Schedule 4.7. Except as set forth on
Schedule 4.7, all Assets, other than the Divested Assets, consisting of
equipment or other tangible property, are in good operating condition and in a
good state of maintenance and repair. The Company does not own, directly or
indirectly, any capital stock of, or other equity interest or participation in,
any other Person or any option, warrant or other right to purchase, or any
security or instrument convertible into or exchangeable for, any such capital
stock or other equity interest or participation.
4.8 All Contracts in effect on the date hereof are listed on Schedule
1.24. There is no material breach or default by the Company or, to the Company's
knowledge, by any other party under any such Contract, all of which are in full
force and effect. True and complete copies of all such Contracts have been
delivered or made available to JAKKS.
4.9 Except as set forth on Schedule 4.9, the Company's inventory
(other than inventory included in the Divested Assets) consists solely of
merchandise usable or salable in the ordinary course of business. Since May 31,
1999, there has been no change in the inventory reflected on the Balance Sheet
at May 31, 1999, except in the ordinary course of business or for any change
made in connection with the Divestiture or as set forth on
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Schedule 4.9.
4.10 Except as set forth on Schedule 4.10, the Accounts result from
bona fide sales to non-Affiliate customers in the ordinary course of business.
4.11 The Company has all Permits and all Consents required for it to
conduct the Business as presently conducted, a complete and correct list of
which is set forth on Schedule 4.11, and all such Permits and Consents are in
full force and effect and no cancellation or suspension of any thereof is
pending or, to the Company's knowledge, threatened. Except as set forth on
Schedule 4.11, the applicability and validity of all such Permits and Consents
relating to Flying Colors will not be materially adversely affected by the
consummation of the Acquisition. The Company is in compliance with each Law
applicable to it and the Business, including without limitation with respect to
occupational safety, environmental protection and employment practices.
4.12 Schedule 4.12 is a complete and correct list (including, if
applicable, date of application, filing or registration, as the case may be, and
the registration and application number) of each Trade Right relating to the
Business, whether or not registered in the name of or applied for by the
Company, in which the Company has any right or interest, whether through any
agreement or otherwise. Except as otherwise listed on Schedule 4.12, the Company
is not a licensor or a licensee in respect of any such Trade Right. The Trade
Rights listed on Schedule 4.12 are adequate for the Company to conduct the
Flying Colors Business as now operated. To the Company's knowledge, except as
set forth on Schedule 4.12, (a) no Trade Right of the Company relating to the
Business conflicts with or infringes on, and there has been no misappropriation
or unauthorized use by the Company of, any Trade Right of any other Person, and
(b) no Trade Right of any other Person conflicts with or infringes on, and there
has been no misappropriation or unauthorized use by any other Person of, any
Trade Right of the Company relating to the Business.
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4.13 The Company does not own, lease, use or occupy any real property
except the Real Property leased by the Company as described on Schedule 4.13,
which Schedule lists the applicable Lease, the area and the current uses
thereof. Each Lease is legal, valid and binding as between the Company and each
other party thereto, and the Company is a tenant in good standing thereunder,
free of any material breach or default whatsoever and quietly enjoys the Real
Property subject thereto. The Company does not sublease any Real Property, nor
is any Real Property used or occupied by any other Person. The Real Property is
zoned for the purposes for which such Real Property is currently being used. The
Company has legal and valid occupancy permits and other required Permits for the
Real Property. No improvement, fixture or equipment on the Real Property, nor
the lease, use or occupancy thereof, is in violation of any applicable Law. No
Real Property is subject to any Law, Order or Lien which would materially
adversely affect its use or value for the purposes now made of it, or has been
condemned or otherwise taken by any Governmental Authority, and, to the
Company's knowledge, no condemnation or taking is threatened or contemplated.
4.14 No Hazardous Material has been generated, used, stored, released
or disposed of at, or transported to or from, the Real Property or in connection
with the Business, and no Law, Permit, Order or Proceeding applicable to the
Company or the Assets requires any clean-up or remediation or participation in
or contribution to any such clean-up or remediation.
4.15 The Company is not a member of any consolidated, combined or
unitary group for federal income Tax purposes. The Company has duly filed all
Tax and information returns and reports required to have been filed by it, each
of which is complete and correct in all material respects. Except as set forth
on Schedule 4.15, the Company has paid all Taxes due to any Governmental
Authority required to have been paid by it and has created sufficient reserves
or made provision for all Taxes accrued but not yet due and payable by it. The
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Company has paid to the proper Governmental Authorities all customs, duties and
similar or related charges required to be paid by it with respect to the
importation of goods into the United States. Except as set forth on Schedule
4.15, no Governmental Authority is now asserting or, to the Company's knowledge,
threatening to assert any deficiency or assessment for additional Taxes with
respect to the Company, nor, to the Company's knowledge, is there any reasonable
basis for any such deficiency or assessment. Except for Tax years that have been
closed by the applicable statute of limitations, all of the Tax years of the
Company ended after its fiscal year ended May 31, 1994 remain open. To the
Company's knowledge, except as set forth on Schedule 4.15, no audit by any
Governmental Authority has been threatened or proposed for any fiscal year of
the Company from or after its fiscal year ended May 31, 1994. The Company has
not waived or consented to any tolling of any limitation period with respect to
any Tax liability. The Company has delivered to JAKKS complete and correct
copies of the federal income Tax returns of the Company for each of its fiscal
years ended May 31, 1996, 1997 and 1998. The Company has not filed any
subsequent federal income Tax returns.
4.16 Schedule 4.16 sets forth a complete and correct list of all
Employee Plans either maintained or to which contributions have been made by the
Company and all contributions made to each Employee Plan for each of the three
most recently ended fiscal years of the Company. Except as set forth on Schedule
4.16, the Company has no liability on account of any such Employee Plan, for (a)
contributions accruing under any such Employee Plan with respect to periods
prior to the date hereof; (b) fiduciary breaches by the Company, any employee of
the Company or any other Person under ERISA or any other applicable Law; or (c)
income Taxes by reason of non-qualification of any such Employee Plan. Except as
set forth on Schedule 4.16, with respect to each such Employee Plan, the Company
has delivered or made available to JAKKS copies of (i) the plan, any related
trust documents and amendments thereto, (ii) the most recent summary plan
description and annual report, if applicable, and (iii) the most recent
actuarial valuation, if applicable. No event has occurred for which, and there
exists no condition or set of circumstances under which, (A) the Company
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or any Employee Plan would be subject to any material liability under any Law,
including without limitation Section 502(i) of ERISA or Section 4975 of the
Code, or (B) the Company would incur any liability with respect to an Employee
Plan that is a multi-employer plan, other than, in either case, the payment of
Pension Benefit Guaranty Corporation premiums and contributions. With respect to
each Employee Plan, (I) the Company is in compliance in all material respects
with the requirements prescribed by all applicable Laws, including without
limitation ERISA and the Code, and Orders, and (II) there is no Proceeding
(other than routine claims for benefits) pending or, to the Company's knowledge,
threatened, with respect to any Employee Plan or against the assets of any
Employee Plan.
4.17 The Company is not a party to any collective bargaining, union
representation or other labor contract or arrangement; except as set forth on
Schedule 4.17, the Company has not received any Notice from any labor union or
group of employees that such union or group represents or intends to represent
any of the employees of the Company involved in the Business; and, to the
Company's knowledge, no strike or work interruption by any of the Company's
employees involved in the Business is planned, threatened or imminent. Except as
set forth on Schedule 4.17, at no time during the past five years has the
Company experienced any strikes, work stoppages or demands for collective
bargaining by any union or labor organization or any other group of employees
involved in the Business, or been involved in or the subject of any grievance,
dispute or controversy by or with any union or labor organization or any other
group of employees involved in the Business or any Proceeding based on or
related to any employment grievance, dispute or controversy or, to the Company's
knowledge, received any Notice of any of the foregoing.
4.18 Schedule 4.18 is a complete and correct list of the names and
current annual salary, bonus, commission and perquisite arrangements, written or
unwritten, for each current employee of the Company, separately identifying each
such employee whose employment by the Company is proposed to be terminated in
connection with the Divestiture. Other than in
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connection with the Divestiture or except as set forth on Schedule 4.18, to the
Company's knowledge, no employee listed thereon intends to terminate his or her
employment relationship with the Company.
4.19 Except as set forth on Schedule 4.19, no Shareholder and no
Affiliate of the Company or any Shareholder or any relative, associate or agent
of any of them has any interest in any property of the Company, including
without limitation any contract for the furnishing of services by, or rental of
real or personal property from or to, or requiring payments to, any Shareholder
or such Affiliate. Schedule 4.19 also sets forth all memberships in resort,
recreational or entertainment facilities or organizations owned or paid for, or
the dues for which are borne, by the Company, and all vehicles, apartments and
other facilities owned, leased or operated by the Company and not listed on any
other Schedule hereto. The Company has delivered to JAKKS complete and correct
copies of all written agreements referred to on Schedule 4.19.
4.20 Schedule 4.20 is a complete and correct list of the names and
addresses of the ten largest suppliers and ten largest customers of Flying
Colors during the Company's fiscal year ended May 31, 1999 and the total sales
to or purchases from such customers or suppliers made by the Company during such
fiscal year. No supplier or customer of the Company representing in excess of 5%
of Flying Colors' purchases or sales during such fiscal year has, to the
Company's knowledge, given Notice to the Company that it intends to terminate,
discontinue or substantially reduce its business with the Company with respect
to Flying Colors by reason of the transactions contemplated by this Agreement or
otherwise.
4.21 Schedule 4.21 is a complete and correct list (including the
insurer, policy number and term and type of insurance) of all insurance
maintained by the Company. All such insurance is in full force and effect. To
the Company's knowledge, no insurer has given Notice that it intends to cancel
or refuse to renew any insurance listed on Schedule 4.21 and
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there is no reasonable basis for any such cancellation or non-renewal. No
insurer has disputed or, to the Company's knowledge, intends to dispute any
claim made under any policy listed on Schedule 4.21, and, to the Company's
knowledge, no event has occurred and no circumstance exists which would excuse
the performance by any insurer of any of its obligations under any such policy
with respect to such claim. Since June 1, 1996, the Company has not been refused
any insurance relating to the Business for which it has applied, nor has any
insurance relating to the Business carried by the Company been cancelled (other
than at the Company's request).
4.22 Except as set forth on Schedule 4.22, (a) the Company has not
employed or engaged any Person to act as a broker, finder or other intermediary
in connection with the Acquisition, and (b) no Person is entitled to any fee,
commission or other compensation relating to any such employment or engagement
by the Company. Any fee, commission or other compensation payable to any Person
listed on Schedule 4.22 is solely the obligation of the Shareholders (and not
the Company) and shall be promptly paid in full by the Shareholders (and not the
Company).
4.23 Each Shareholder has duly appointed the Agent to act as such
Shareholder's agent and attorney-in-fact with respect to the Acquisition in
accordance with the Agent Agreement, a correct and complete copy of which has
been heretofore delivered to JAKKS, and authorized the Agent to take any action
necessary in connection with (a) the implementation of this Agreement on behalf
of such Shareholder, (b) the waiver of any condition to the obligations of such
Shareholder to close the Acquisition, or (c) the compromise or settlement of any
dispute hereunder, all as more fully set forth therein.
4.24 The Company has delivered to JAKKS, at least two business days
prior to the date of this Agreement, a Business Transferor's Notice to
Transferee of Unemployment Tax Liability and Rate on MESC Form 1027 ("Form
1027") relating to the Acquisition in accordance with applicable law. The
information reported on such Form 1027 makes no
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adjustment for the Divestiture (which has not been completed as of the date of
receipt of such Form 1027 or as of the date of this Agreement and, for Michigan
unemployment tax purposes, will be deemed to be effected prior to the Closing).
4.25 No representation or warranty by the Company or any Shareholder
in this Agreement or any other Acquisition Agreement (excluding the Agent
Agreement and the Paying Agent Agreement) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
or facts contained herein or therein not misleading.
5. Representations and Warranties of JAKKS.
JAKKS hereby represents and warrants to the Company and the Shareholders
as follows:
5.1 JAKKS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has full power and
authority to own its assets and carry on its business as and in the places where
such assets are now owned or such business is now being conducted. Complete and
correct copies of JAKKS' Certificate of Incorporation, including all amendments
thereto, certified by the Secretary of State of Delaware, and Bylaws, including
all amendments thereto, certified by the Secretary of JAKKS, have been delivered
to the Shareholders.
5.2 JAKKS has full corporate power and authority to execute and
deliver this Agreement and each other Acquisition Agreement to which it is a
party and to assume and perform its obligations hereunder and thereunder. The
execution and delivery by JAKKS of this Agreement and each other Acquisition
Agreement to which it is a party and the performance of its obligations
hereunder and thereunder have been duly authorized by all
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<PAGE> 37
requisite corporate action on its part. This Agreement has been, and each other
Acquisition Agreement to which it is a party will be, duly executed and
delivered by JAKKS, and this Agreement is, and each other Acquisition Agreement
to which it is a party, when so executed and delivered, will be, a legally valid
and binding obligation of JAKKS, enforceable against it in accordance with their
respective terms, subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to
creditors' rights generally, and (b) equitable principles limiting the
availability of specific performance, injunctive relief and other equitable
remedies. The execution and delivery of this Agreement by JAKKS do not, and the
execution and delivery of each other Acquisition Agreement by JAKKS and the
performance by JAKKS of its obligations hereunder and thereunder will not,
violate any provisions of its Certificate of Incorporation or Bylaws and do not
and will not conflict with or result in any breach of any condition or provision
of, or constitute a default under, or create or give rise to any adverse right
of termination or cancellation by, or excuse the performance of, any other
Person, under any material agreement, or result in the creation or imposition of
any Lien upon it or any of its assets or the acceleration of the maturity or
date of payment or other performance of any of its obligations or have a
material adverse effect on JAKKS' business or assets by reason of the terms of,
any agreement, license, lease, indenture, instrument, Lien or Order to which it
is a party or is subject or which is binding upon it or its assets.
5.3 Except for the filing of an HSR Form and the expiration or early
termination of the waiting period under the HSR Act, no Consent of, or Notice
to, any Person is required as to JAKKS in connection with its execution and
delivery of this Agreement or any other Acquisition Agreement to which it is a
party, or the performance of its obligations hereunder or thereunder.
5.4 No Proceeding is pending, or, to the best of JAKKS' knowledge,
threatened against or affecting its business, assets, operations or financial or
other condition in
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which an unfavorable Order would have a material adverse effect on JAKKS'
business or assets or prohibit, invalidate, or make unlawful, in whole or in
part, the Acquisition, this Agreement or any other Acquisition Agreement, or the
carrying out of the provisions hereof or thereof. JAKKS is not in default in
respect of any Order nor is there any Order enjoining it in respect of, or the
effect of which is to prohibit or curtail its performance of, its obligations
hereunder or thereunder.
5.5 JAKKS has not employed or engaged any Person to act as a broker,
finder or other intermediary in connection with the Acquisition, and no Person
is entitled to any fee, commission or other compensation relating to any such
employment or engagement by JAKKS.
5.6 JAKKS is acquiring the Shares for its own account, for investment
and not with a view to, or in connection with, or with any present intention of,
any resale or other distribution thereof.
5.7 JAKKS (a) is an informed and sophisticated purchaser, (b)
possesses such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its investment under this
Agreement, (c) has engaged and consulted with expert legal, accounting and tax
advisors experienced in the evaluation of transactions such as the Acquisition,
and (d) has conducted a review and examination of information provided to it
regarding the Shareholders, the Company, the Business, the Assets, the Shares,
the Acquisition Agreements and the transactions contemplated thereby, including
information which JAKKS considers necessary or advisable to enable it to make an
informed decision concerning its purchase of the Shares.
5.8 JAKKS will have on the Closing Date sufficient funds to pay the
Closing Purchase Price.
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5.9 JAKKS has received, at least two business days prior to the date
of this Agreement, a Form 1027 relating to the Acquisition. The information
reported on such Form 1027 makes no adjustment for the Divestiture (which has
not been completed as of the date of receipt of such Form 1027 or as of the date
of this Agreement and, for Michigan unemployment tax purposes, will be deemed to
be effected prior to the Closing).
5.10 No representation or warranty by JAKKS in this Agreement or any
other Acquisition Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements or facts
contained herein or therein not misleading.
6. Certain Covenants.
6.1 From and after the date hereof and until the Closing, the parties
hereto shall use their respective commercially reasonable best efforts, and
shall cooperate with each other, to cause the consummation of the Acquisition in
accordance with the terms and conditions hereof, including using commercially
reasonable best efforts to obtain the Consent of any Governmental Authority
(including any Consent required under the HSR Act) required by reason of the
Acquisition or any other Person required by reason of the Acquisition with
respect to each Contract. Without limiting the generality of the foregoing,
promptly after the date of this Agreement, each party shall prepare and make (or
cause to be prepared and made) any required Notices under any applicable Laws to
the extent necessary to consummate the Acquisition, including any Notices
required by the HSR Act. Each party hereto shall promptly consult with the other
parties with regard to, and provide any necessary information and reasonable
assistance to the other party in connection with, all Notices made and other
information supplied by such party with or to any Governmental Authority in
connection with this Agreement or the Acquisition. Each party shall furnish to
any such Governmental
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<PAGE> 40
Authority such necessary information and reasonable assistance as such
Governmental Authority may reasonably request in connection with the foregoing.
6.2 From and after the date hereof and until the Closing, except for
(a) any transfer of Shares by any Shareholder to any other Shareholder or (b)
any redemption, repurchase or other reacquisition of Shares by the Company or
the retirement or cancellation of any thereof, in either case in connection with
the Divestiture, no Shareholder shall, without the prior written consent of
JAKKS, sell, assign, transfer (including without limitation by gift) or
otherwise dispose of any Shares owned of record by such Shareholder, or any
interest therein or right thereto; or pledge, hypothecate or otherwise create,
incur or suffer to exist any Lien thereon; or agree or otherwise become legally
obligated to do any thereof; and, unless JAKKS otherwise consents, no such
transfer or disposition of Shares to any Person shall be valid or effective as
between such Shareholder and such Person, unless such Person executes and
becomes a party to this Agreement and each other Acquisition Agreement to which
the Shareholder (as such) transferring such Shares is a party (and Schedule I
hereto shall thereupon be amended accordingly).
6.3 From and after the date hereof and until the Closing, except as
otherwise provided on Schedule 6.3 or elsewhere herein or as JAKKS may otherwise
consent (which consent shall not be unreasonably withheld), the Shareholders
shall cause the Company to, and the Company shall:
(a) conduct the Business in ordinary course;
(b) use its commercially reasonable best efforts to preserve
the Flying Colors Business and the Flying Colors Assets and maintain its
relationship with customers and other Persons with which it has material
business dealings with respect to Flying Colors;
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(c) not (i) sell, lease, transfer or dispose of any Flying
Colors Asset, other than sales of merchandise from inventory in the
ordinary course of business or disposal of defective, obsolete or
otherwise unusable Assets, or (ii) terminate any Contract relating to
Flying Colors, except upon expiration of the term thereof as provided
therein;
(d) use its commercially reasonable best efforts to maintain
all Permits and Consents listed on Schedule 4.11 relating to Flying
Colors;
(e) use its commercially reasonable best efforts to maintain
all insurance listed on Schedule 4.21 in full force and effect;
(f) except as required under a Contract or in the ordinary
course of business consistent with the Company's past practices, not
increase the compensation or other employment benefits payable to or for
the benefit of any employee of the Company;
(g) except for the filing of the Certificate of Amendment, not
amend its Articles of Incorporation or Bylaws;
(h) not merge or consolidate with any other Person or effect
any capital reorganization;
(i) not acquire (other than in the ordinary course of
business) any business or assets of any other Person, or make any
capital expenditure in excess of $25,000;
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(j) not issue or reserve for issuance any shares of its
capital stock or issue or grant any options, warrants or other rights to
purchase, or securities or instruments convertible into or exchangeable
for, any capital stock of the Company or agree or otherwise become
legally obligated to issue or grant any thereof; and
(k) not redeem, repurchase or otherwise reacquire any Shares
or retire or cancel any capital stock;
provided that no provision of this Agreement shall be construed to prohibit or
restrict (i) any action reasonably necessary or appropriate to effect the
Divestiture or (ii) the Company from declaring, setting aside, paying or making
any dividend or other distribution to the Shareholders if such action, dividend
or distribution would not reasonably be expected to cause any closing condition
set forth in Article 7 not to be satisfied.
6.4 From and after the date hereof and until the Closing, the Company
shall furnish to JAKKS such information with respect to the Business and Assets
as JAKKS may from time to time reasonably request and shall permit JAKKS and its
authorized representatives access, during regular business hours and upon
reasonable Notice, to conduct, at JAKKS's sole expense, a physical inventory of
the Assets, to inspect the Real Property, to examine the books and records of
the Company and to make inquiries of responsible Persons designated by the
Company with respect thereto; provided that any information so disclosed to
JAKKS shall not constitute an additional representation or warranty of the
Company or any Shareholder beyond those expressly set forth in Article 4, and
provided further that all such information shall be subject to Section 6.7.
6.5 From and after the date hereof and until the Closing, except for
a press release, substantially in the form of Exhibit F, to be made by JAKKS
promptly after the execution of this Agreement, no party hereto shall make any
press release or other public
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announcement with respect to this Agreement or the Acquisition, without the
prior written consent of the other parties (which consent shall not be
unreasonably withheld), unless such announcement is required by Law, in which
case the other party shall be given Notice of such requirement prior to such
announcement and the parties shall consult with each other as to the scope and
substance of such disclosure.
6.6 From and after the date hereof, none of the Company, any
Shareholder, any Affiliate thereof, or any director, officer, employee or other
agent or representative of any of them, shall, directly or indirectly, accept,
solicit or entertain any offer or proposal for, affirmatively respond to any
inquiry regarding, or enter into any negotiations or discussions with any Person
other than JAKKS with respect to, any transaction other than the Divestiture
involving the sale or other disposition (including without limitation by or
through the merger or consolidation of the Company with any other Person) of the
Business or any Assets (other than in the ordinary course of business) or any
capital stock of the Company. The Agent or the Shareholders shall promptly
advise JAKKS of the receipt of any such inquiry, offer or proposal and the
material terms thereof.
6.7 JAKKS acknowledges that all information relating to or concerned
with the Business and affairs of the Company, including without limitation all
Trade Rights, product information, customer and supplier lists, marketing and
sales data, personnel and financing and Tax matters is proprietary to the
Company and that its confidentiality is absolutely essential to the operation of
the Business. Until the Closing, all of such information shall be subject to the
obligations provided in that certain letter agreement dated as of May 28, 1999
(a copy of which is attached hereto as Schedule 6.7) to which the parties hereby
agree to be bound and which is incorporated herein by this reference.
6.8 Prior to the Closing, the Company shall file the Certificate of
Amendment with the Michigan Department of Consumer and Industry Services.
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6.9 The Company shall deliver to the Divestee, at least two business
days prior to the date of the definitive agreements for the Divestiture, a Form
1027 relating to the Divestiture, which, for Michigan unemployment tax purposes,
shall be deemed to be effected prior to the Closing. The Company shall file with
the Michigan Employment Security Commission a Form UA 1772 (Discontinuance or
Disposition of Business or Assets), substantially in the form of Exhibit G,
promptly after the Divestiture but before the Closing, to report the Divestiture
as a transfer of business and the Divestee as the successor/transferee under MCL
421.22(c).
6.10 The Shareholders shall cause the Company to effect the
Divestiture prior to the Closing in accordance with the procedures set forth on
Schedule 6.10. The Divested Business shall consist of the Divested Assets,
including without limitation the Company's corporate name and any Trade Right
incorporating "Colorbok," subject to the Divested Liabilities. The Shareholders
shall (a) cause the Divestee to discharge prior to the Closing or to assume
prior to the Closing and discharge when due all Divested Liabilities and (b)
cause the structure and mechanics of the Divestiture to not result in any
additional costs or liabilities (including contingent liabilities) to JAKKS or
the Company, except for any such costs and liabilities accrued as part of
Closing Net Worth.
6.11 The Shareholders shall use their respective commercially
reasonable best efforts to cause at the Closing (a) the Landlord to enter into
the New Lease; and (b) the Divestee to enter into the Special Indemnity
Agreement and the Transition Services Agreement.
6.12 Prior to the Closing, the Shareholders shall enter into the
Paying Agent Agreement with the Paying Agent, pursuant to which the Shareholders
shall appoint the Paying Agent to act as the Shareholders' agent to receive,
hold and disburse any funds paid to it
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hereunder. The Shareholders shall cause the Paying Agent to provide to JAKKS the
wire transfer information required by Section 3.2. Upon execution and delivery
of the Paying Agent Agreement, the Shareholders shall cause a true and complete
copy thereof to be delivered to JAKKS.
7. Conditions to Closing.
7.1 The obligation of JAKKS to consummate the Acquisition in
accordance herewith shall be subject to the satisfaction (or waiver) prior to
the Closing of each of the following conditions:
(a) the failure of any representations and warranties made by
the Company and the Shareholders herein to be true in all material
respects on and as of the Closing Date and any failures of the Company
or any Shareholder to perform or comply with their respective
obligations and conditions hereunder shall not, in the aggregate, have
had or be reasonably expected to have a Material Adverse Effect;
(b) no Order or Law shall be in effect which prohibits
consummation of the Acquisition;
(c) the waiting period under the HSR Act shall have expired or
been terminated;
(d) (i) each Consent of, or Notice to, any Governmental
Authority required for the consummation of the Acquisition or
other Person listed on Schedule 7.1(d) shall have been obtained
or given;
(ii) none of the parties hereto shall have received any
Notice withdrawing or adversely amending the Consent of Mattel,
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Inc. to the Acquisition, which Consent is set forth in Exhibit H;
(e) there shall not have occurred, since the date of this
Agreement, any Material Adverse Effect;
(f) the Lien Report shall not disclose any Lien, other than a
Lien set forth on Schedule 4.7 or an Excepted Lien;
(g) the Divestiture shall have been effected prior to or
concurrently with the Closing;
(h) the Shareholders shall have entered into the Paying Agent
Agreement;
(i) JAKKS shall have received at the Closing a certificate on
behalf of the Company of the Company's Chief Executive Officer to the
effect that to such officer's knowledge:
(i) Sales for the Company's fiscal year ended May 31,
1999 were at least $49,084,000;
(ii) Closing Net Worth shall be positive; and
(iii) Closing Liquid Net Assets shall be positive; and
(j) the Company and the Shareholders shall execute and/or
deliver at the Closing all the documents so to be executed and/or
delivered by them and take all other actions at the Closing so to be
taken by them, pursuant to Article 8.
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7.2 The obligation of the Shareholders to consummate the Acquisition
in accordance herewith shall be subject to the satisfaction (or waiver) prior to
or at the Closing of each of the following conditions:
(a) the representations and warranties made by JAKKS herein
shall be true in all material respects on and as of the Closing Date;
(b) JAKKS shall have, in all material respects, performed and
complied with all obligations and conditions to be performed or complied
with by it hereunder;
(c) no Order or Law shall be in effect which prohibits
consummation of the Acquisition;
(d) the waiting period under the HSR Act shall have expired or
been terminated;
(e) each Consent of, or Notice to, any Governmental Authority
required for the consummation of the Acquisition shall have been
obtained or given; and
(f) JAKKS shall execute and/or deliver at the Closing all the
documents and monies so to be executed and/or delivered by it and take
all other actions at the Closing so to be taken by it, pursuant to
Article 8.
7.3 Notwithstanding anything to the contrary in this Agreement, any
party hereto shall have the right to waive (or to consummate the Acquisition
without satisfaction of)
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any condition to such party's obligation to consummate the Acquisition as set
forth in Article 7, and to the extent that any party so waives (and consummates
the Acquisition without satisfaction of) any such condition, such party shall
have no right or remedy against any other party hereto for failure of such
condition to have been satisfied, including without limitation any right to
indemnification under Article 11, any of the rights or remedies contemplated by
Section 12.10 or any right to any adjustment to the Purchase Price as a result
of the failure of such condition to have been satisfied; provided that the
foregoing shall not limit any party's right or remedy based upon or arising from
any breach or default hereunder (notwithstanding that such breach or default
involves or relates to the same transaction, event or circumstance constituting
such condition).
8. Closing.
8.1 The Closing shall be held at the offices of Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue, New York, New York
10022 on the earliest practicable date, and in any event within five days, after
the satisfaction (or waiver) of all conditions to the Closing provided in
Article 7 shall have been satisfied, or at such other place or on such other
date, and at such time, as the parties hereto may agree. The execution and/or
delivery of each document to be executed and/or delivered at the Closing and
each other action to be taken at the Closing shall be subject to the condition
that every other document to be executed and/or delivered at the Closing is so
executed and/or delivered and every other action to be taken at the Closing is
so taken, and all such documents and actions shall be deemed to be executed
and/or delivered or taken, as the case may be, simultaneously.
8.2 At the Closing, the Shareholders shall deliver to JAKKS:
(a) certificates representing the Shares, each duly endorsed
for transfer to JAKKS or together with a duly executed stock power in
favor of JAKKS;
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(b) all Consents listed on Schedule 7.1(d);
(c) the resignations, effective at the Closing, of all of the
Company's directors and officers immediately prior to the Closing;
(d) the Waiver Documents;
(e) the certificate referred to in Section 7.1(i);
(f) a Notice setting forth the Retained Divestee Contracts;
and
(g) certificates of the Company's Chief Executive Officer and
the Shareholders, respectively, to the effect that all the conditions to
Closing set forth in Sections 7.1(a), (d), (e) and (g) have been
satisfied; provided that any such certificate may update any
representation or warranty of the Company or any Shareholder made in any
Acquisition Agreement by setting forth therein any additional
information or change to any schedule relating to such representation or
warranty or by adding a schedule to relate to any such representation or
warranty.
8.3 At the Closing, JAKKS shall:
(a) pay and deliver the Closing Purchase Price to the Paying
Agent in the manner provided in Sections 2.2 and 3.2; and
(b) deliver to the Company and the Shareholders a certificate
of JAKKS' Chief Executive Officer to the effect that all the conditions
to Closing set
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forth in Sections 7.2(a), (b) and (e) have been satisfied.
8.4 At the Closing:
(a) JAKKS and Pokempner shall each execute and deliver to the
other the Employment Agreement for Pokempner; and
(b) JAKKS and Bianco shall each execute and deliver to the
other the Employment Agreement for Bianco.
8.5 At the Closing, the Company and the Landlord shall each execute
and deliver to the other the New Lease.
8.6 At the Closing, the Company and the Divestee shall each execute
and deliver to the other the Transition Services Agreement.
8.7 At the Closing, JAKKS, the Company and the Divestee shall each
execute and deliver to the other the Special Indemnity Agreement.
8.8 At the Closing, JAKKS shall cause the Company to pay all Transfer
Fees.
8.9 At the Closing, JAKKS shall pay on behalf of the Company or shall
cause the Company to pay the entire indebtedness of the Company to the Bank
under the Bank Loan, and JAKKS shall cause the Company to, and the Company
shall, give such Notice to the Bank and take such other actions as are
reasonably necessary and appropriate to terminate the Bank Loan on the Closing
Date.
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8.10 At the Closing, JAKKS shall pay on behalf of the Company or shall
cause the Company to pay any indebtedness of the Company on the Closing Date
with respect to the loans or other obligations set forth on Schedule 8.10.
9. Additional Covenants.
9.1 JAKKS and the Company shall use their respective commercially
reasonable best efforts to cause each guaranty or similar agreement and any
related security agreement (including any mortgage or deed of trust relating to
real property) made by any Shareholder or any family relation thereof or any
Affiliate of any of them to be terminated, and to obtain from the Bank such
Notices or other documents as are customarily obtained to evidence and confirm
such termination, as soon as practicable after the Closing.
9.2 From and after the Closing Date and until December 31, 2002, no
Shareholder shall, directly or indirectly through any Affiliate or other
intermediary (a) engage in the Restricted Business, or serve as a partner,
member, manager, director, officer or employee of, or consultant or advisor to,
or in any manner own, control, manage, operate or otherwise participate or
invest in (in each case, other than as required or permitted in the Employment
Agreements), any Person that engages in the Restricted Business, or authorize
the use of its name in connection therewith, or (b) for itself or on behalf of
any other Person, employ, engage or retain any Person (other than a Shareholder)
who at any time during the preceding 12-month period shall have been an employee
of the Company, except for the employment, in connection with the Divestiture,
of those employees of the Company to be employed by the Divested Business, as
set forth on Schedule 4.18, or contact any supplier, customer or employee of the
Company for the purpose of soliciting or diverting any such supplier, customer
or employee from the Company. The foregoing provisions notwithstanding, any
Shareholder may invest his funds in securities of an issuer if the
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securities of such issuer are listed for trading on a registered securities
exchange or actively traded in the over-the-counter market and the Shareholders'
aggregate holdings therein represent less than 5% of the total number of shares
or principal amount of the securities of such issuer then outstanding. In
addition, no provision of this Section 9.2 is intended or shall be deemed to
preclude the Divestee or any Person acting on its behalf from engaging any sales
representative or conducting business or dealing with any vendor, supplier or
customer in the ordinary course of the Divested Business. The Shareholders
acknowledge that the provisions of this Section, and the period of time,
geographic area and scope and type of restrictions on their activities set forth
herein, are reasonable and necessary for the protection of JAKKS and are an
essential inducement to JAKKS entering into this Agreement.
9.3 From and after the Closing Date, the Shareholders shall keep
absolutely confidential all confidential or proprietary information on the
Closing Date relating to or concerned with Flying Colors, including without
limitation all of the Company's Trade Rights relating to Flying Colors, product
information, customer and supplier lists, marketing and sales data, personnel
and financing and Tax matters relating thereto. The Shareholders acknowledge
that the confidentiality of all such information is absolutely essential to the
operation of the Flying Colors Business. No Shareholder shall, at any time after
the Closing Date, use or disclose to any Person any such information, without
JAKKS' prior written consent, except as may be required by Law or an Order (in
which case such Shareholder shall promptly give notice to JAKKS of any demand,
subpoena, Order or legal process requiring disclosure so that JAKKS may oppose
such disclosure or seek a protective Order or other confidential treatment of
such information), unless (a) such use or disclosure is permitted under an
Employment Agreement or (b) such use or disclosure is reasonably necessary to
conduct the Divested Business or (c) such Shareholder can demonstrate that such
information (i) has become, at any time after the Closing Date, generally
available in the public domain or (ii) was already known to a Person to whom he
discloses such information other than, in either case, through the disclosure of
such information in violation of any confidentiality obligation to or
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for the benefit of JAKKS or the Company that is known or should have been known
to the disclosing Shareholder.
9.4 From and after the Closing Date and until December 31, 2002,
JAKKS shall not, directly or indirectly through any Affiliate (including without
limitation the Company) or other intermediary (a) engage in the Divested
Business, or serve as a partner, member, manager, director, officer or employee
of, or consultant or advisor to, or in any manner own, control, manage, operate
or otherwise participate or invest in, any Person that engages in the Divested
Business, or authorize the use of its name in connection therewith, or (b) for
itself or on behalf of any other Person, employ, engage or retain any Person
(other than a Shareholder) who at any time during the preceding 12-month period
shall have been an employee of the Company listed on Schedule 4.18 or an
employee of the Divested Business, or contact any supplier, customer or employee
of the Divested Business for the purpose of soliciting or diverting any such
supplier, customer or employee from the Divested Business. The foregoing
provisions notwithstanding, JAKKS may invest its funds in securities of an
issuer if the securities of such issuer are listed for trading on a registered
securities exchange or actively traded in the over-the-counter market and JAKKS'
aggregate holdings therein represent less than 5% of the total number of shares
or principal amount of the securities of such issuer then outstanding. JAKKS
acknowledges that the provisions of this Section, and the period of time,
geographic area and scope and type of restrictions on its activities set forth
herein, are reasonable and necessary for the protection of the Divestee and are
an essential inducement to the Shareholders entering into this Agreement.
9.5 From and after the Closing Date, JAKKS and the Company shall keep
absolutely confidential all confidential or proprietary information on the
Closing Date relating to or concerned with the Divested Business, including
without limitation all of its Trade Rights, product information, customer and
supplier lists, marketing and sales data, personnel and financing and Tax
matters relating thereto. JAKKS and the Company acknowledge that
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the confidentiality of all such information is absolutely essential to the
operation of the Divested Business. Neither JAKKS nor the Company shall, at any
time after the Closing Date, use or disclose to any Person any such information,
without the Divestee's prior written consent, except as may be required by Law
or an Order (in which case JAKKS or the Company, as the case may be, shall
promptly give notice to the Divestee of any demand, subpoena, Order or legal
process requiring disclosure so that the Divestee may oppose such disclosure or
seek a protective Order or other confidential treatment of such information),
unless (a) such use or disclosure is reasonably necessary (i) to conduct the
Flying Colors Business or (ii) to respond to any matter affecting the Company
after the Closing or (b) JAKKS or the Company can demonstrate that such
information (i) has become, at any time after the Closing Date, generally
available in the public domain or (ii) was already known to a Person to whom it
discloses such information other than, in either case, through the disclosure of
such information in violation of any confidentiality obligation to or for the
benefit of the Divestee that is known or should have been known to JAKKS or the
Company.
9.6 No party hereto shall, at any time after the date hereof,
directly or indirectly disparage or demean, or make, encourage, support or
concur in any statement (written or oral) which disparages or demeans in any
manner, whether for a commercial purpose or otherwise, any other party hereto or
any Affiliate thereof, or any stockholder, director, officer, employee or agent
of any of them; provided that no provision of this Section 9.6 shall be
construed to prohibit or restrict any statement by any Person made in
furtherance or defense of any claim or in the course of any Proceeding or the
resolution of any dispute pursuant to Section 9.8.
9.7 In addition to the provisions of Section 2.5, JAKKS shall cause
the Company to, and the Company shall, operate the Flying Colors Business
throughout the Earn-Out Periods, in a manner consistent with JAKKS' customary
business practices and policies, and neither JAKKS nor the Company shall take
any action for the purpose of reducing the
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Earn-Out or limiting or adversely affecting the ability of the Shareholders to
achieve the Earn-Out under Section 2.5. JAKKS and the Company shall maintain
complete and correct records relating to the determination of the Earn-Out, and
shall permit the Shareholders and their authorized representatives, from time to
time during normal business hours and upon reasonable prior written Notice, to
examine and to audit such records (including ledgers, work papers and other
relevant documents and information) in order to confirm JAKKS' and the Company's
compliance with the provisions of this Section 9.7 and to verify the Earn-Out
for any Earn-Out Period. JAKKS and the Company shall cooperate with such
examination and make available appropriate financial and accounting personnel to
respond to inquiries relating thereto. Any information so disclosed to any
Shareholder or his authorized representative shall be subject to the
confidentiality restrictions of Section 9.3; provided that no provision of
Section 9.3 shall be construed to prohibit or restrict any statement by any
Person made in furtherance or defense of any claim or in the course of any
Proceeding or the resolution of any dispute pursuant to Section 9.8.
9.8 If (a) JAKKS and the Shareholders, or any of them, disagree with
the determination of any amount made or certified by another party hereto,
within 30 days of delivery of evidence of such determination or certificate,
including without limitation the Earn-Out for any Earn-out Period, or (b) any
party asserts in writing, within 60 days after the Closing Date, that the
determination of the Closing Net Worth, the Closing Net Liquid Assets or the
Interim Net Income differ from the good faith estimates thereof set forth in the
Notice given to JAKKS pursuant to Section 2.3(a), then, in either such case,
such party shall give written Notice (the "Dispute Notice") to the other parties
to such effect, setting forth therein any change proposed by it and, in
reasonable detail, its objections to such determination and the reasons for such
change. In such event, unless the parties involved promptly, and, in any event,
within 30 days of the giving of the Dispute Notice, resolve all such objections
and agree upon the determination of the amount in dispute, the determination
thereof shall be promptly referred to their respective regular independent
certified public accountants, who shall confer
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and attempt to resolve the objections as to such determination set forth in or
arising as a consequence of the Dispute Notice. If, within 30 days of such
referral, such accountants resolve such dispute and determine the amount, they
shall give Notices to the parties involved to such effect, setting forth therein
the amount as so determined and the basis therefor, and such determination shall
be final and binding on the parties involved. If such accountants do not make
such determination within such 30-day period, the parties involved shall refer
such dispute to Pricewaterhouse Coopers or such other accountants to which JAKKS
and the Shareholders may agree (the "Neutral Accountants"). Unless the Neutral
Accountants expressly determine otherwise, each of the parties involved shall
submit to the Neutral Accountants (a) within 10 days of the engagement thereof,
and in such form and manner as they may prescribe, a statement setting forth
such party's position with respect to each of the objections or other issues set
forth in or arising as a consequence of the Dispute Notice, together with any
exhibits or other supporting documents relating thereto, and send a copy thereof
to each other party involved, and (b) within 10 days thereafter, and in such
form and manner as the Neutral Accountants may prescribe, a rebuttal statement
responding to the initial statement of each other party, together with any
exhibits or other supporting documents relating thereto, and send a copy thereof
to each other party involved. The Neutral Accountants shall conduct a hearing if
all the parties involved so request in their respective statements, and may
conduct a hearing, whether or not any (but fewer than all) the parties involved
so request, if the Neutral Accountants reasonably deem it necessary for the
performance of their engagement; provided that any such hearing shall be held
only upon reasonable prior written Notice to all parties involved and only if
all such parties have an opportunity to appear and present evidence at such
hearing. The Neutral Accountants may require any party hereto (whether or not a
party to the dispute) to submit or produce additional statements, documents or
information, to appear and testify at any hearing or other proceeding, or
otherwise to produce tangible or oral evidence to the extent such Neutral
Accountants reasonably deem necessary or appropriate for them to determine any
amounts to be determined by them pursuant to their engagement. Based on such
submissions and the evidence presented
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at any hearing, the Neutral Accountants shall resolve all obligations and other
issues set forth in or arising as a consequence of the Dispute Notice and
determine the amount to be determined by them pursuant to their engagement, and
give Notice to the parties involved, setting forth therein such amounts and the
basis of determination thereof, such determination to be final and binding on
the parties involved. Upon agreement or determination of any portion of any
amount covered by the Dispute Notice, any payment or adjustment based thereon
shall be paid promptly, and in any event within 10 days of such agreement or
determination, with interest accrued thereon from the date on which such payment
should have been made (i.e., the Closing Date for any amounts relating to the
Closing Purchase Price (other than the Deferred Closing Purchase Price)) through
the date of payment thereof at the Prime Rate. Any such payment to the
Shareholders shall be made to the Paying Agent (for the benefit and account of
the several Shareholders in the manner in which such payment would otherwise be
required to be made in accordance with Article 2) in accordance with Section
3.2. Any such payment to JAKKS shall be made to JAKKS by federal funds wire
transfer to an account set forth in a written Notice theretofore given by JAKKS
to the Agent or, if no such Notice is received by the Agent, by mailing to JAKKS
at its address set forth in Section 12.4 a bank cashier's check payable to the
order of JAKKS. Each party shall cooperate with the other parties and make
available to such other parties financial information reasonably requested by
such other parties for the determination of amounts contemplated by this
Agreement. The fees and expenses of a party's independent certified public
accountants incurred in the determination of any amount as provided herein shall
be separately borne by such party. The fees and expenses of the Neutral
Accountants incurred, if required pursuant to this Section 9.8, shall be borne
and promptly paid equally by JAKKS, on the one hand, and the Shareholders, on
the other.
9.9 After the Closing, each of JAKKS and the Company shall:
(a) permit the Shareholders to prepare and file (and JAKKS
hereby
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irrevocably authorizes the Agent to prepare and file on behalf of the
Company) all United States federal and state income Tax returns or
reports of the Company for any period ending on or before the Closing
Date which shall not have been filed prior to the Closing Date;
provided, however, that at least 30 days prior to the proposed date of
filing thereof, the Shareholders shall deliver a copy thereof to JAKKS,
which may review the same and, if it so desires, have a reasonable
opportunity to make inquiries or discuss the same with the Agent or
other appropriate personnel designated by the Shareholders, and the
Shareholders shall make any revision thereto requested by JAKKS which
may affect its interests and is reasonably acceptable to the
Shareholders;
(b) not make any amendment to any Tax return or report of the
Company for any period ending on or before the Closing Date without the
prior written consent of the Agent, if such amendment would result in a
material liability to any Shareholder, unless at least 30 days prior to
the filing thereof, JAKKS gives to the Agent written Notice of such
amendment, and the Agent fails to deliver to JAKKS within 20 days of his
receipt of the Notice of such amendment a written Notice objecting to
such amendment, setting forth therein in reasonable detail a reasonable
basis for such objection and the changes, if any, he asserts are
required to be made therein, in which case, JAKKS and the Agent shall
promptly confer and attempt to resolve such objections or, if they fail
to promptly do so, submit such dispute for resolution in accordance with
Section 9.8;
(c) not agree to any extension or tolling of any statute of
limitations under any applicable Tax Law with respect to any matter for
which any Shareholder may have any liability, without the prior written
consent of such Shareholder;
(d) maintain, until the seventh anniversary of the Closing
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Date, all accounting ledgers, books and records of the Company with
respect to the periods ending on or before the Closing Date and permit
any Shareholder reasonable access thereto in connection with the
preparation of financial reports, Tax returns, Tax audits or the defense
or prosecution of any Proceeding;
(e) pay to the Paying Agent (or, if the Paying Agent Agreement
has been terminated, to the Agent) (for the benefit and account of the
several Shareholders in the percentages set forth on Schedule 2.2) the
refunds of Taxes described on Schedule 9.9(e); and
(f) pay to the Paying Agent (or, if the Paying Agent Agreement
has been terminated, to the Agent) (for the benefit and account of the
several Shareholders in the percentages set forth on Schedule 2.2) any
other refund of Taxes of the Company for any period ending on or before
the Closing Date (including without limitation any refund resulting from
any audit of the Company's Tax returns for any such period), except to
the extent that any portion of such refund was included as an asset in
Closing Net Worth, and cooperate with the Shareholders in filing any
amended Tax return or claim for refund for any such period necessary to
obtain such a refund.
Any information delivered to the Agent or any Shareholder pursuant to this
Section 9.9 shall be subject to the confidentiality restrictions of Section 9.3
and any information delivered to JAKKS pursuant to this Section 9.9 shall be
subject to the confidentiality restrictions of Section 9.5.
9.10 JAKKS shall not offer for sale, sell, assign, transfer, pledge,
hypothecate or otherwise dispose of any of the Shares, without registration
under the Securities Act of 1933, as amended, and any applicable state
securities Laws, except pursuant to an exemption from
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such registration under such Act and Laws.
9.11 JAKKS shall be responsible for any severance payments required to
be made in connection with the termination of employment of the employees listed
on Schedule 9.11 (which also sets forth, as to each such employee, the amount of
such severance payment and the basis therefor) and for any severance payments or
other employment termination expenses required to be made in connection with the
termination of employment of any of the employees identified on Schedule 4.18
who are designated thereon to remain employees of the Company or to become
employees of JAKKS (rather than to become employees of the Divestee), and the
Shareholders shall be responsible for any other severance payments or other
employment termination expenses required to be paid in connection with the
Acquisition.
9.12 JAKKS hereby consents to the engagement of the Company
Accountants at any time by the Divestee, any Shareholder or any Affiliate of any
of them, including without limitation representation of any of them in
connection with any dispute relating to any Acquisition Agreement or the
Acquisition, notwithstanding JAKKS' engagement of the Company Accountants to
audit the separate financial statements of Flying Colors or any conflict that
may arise by reason thereof.
9.13 (a) After the Closing Date:
(i) JAKKS shall not take any action to perform or,
subject to Subsection 9.13(b), to terminate any Retained Divestee
Contract, except as reasonably directed by the Agent; provided
that any loss, liability, obligation, damage or expense suffered
or incurred on account of any such Retained Divestee Contract
shall be borne solely by the Divestee and the Shareholders and
any payment required to be made by JAKKS or the Company shall be
advanced, at its request, to JAKKS or the Company, as the case
may
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be;
(ii) JAKKS shall, and shall cause the Company to,
promptly remit or deliver to the Divestee any payment or property
actually received by JAKKS or the Company pursuant to any
Retained Divestee Contract, except that JAKKS or the Company, as
the case may be, may retain any such payment or property and
credit the same against any amount owed by the Divestee or the
Shareholders with respect to any Retained Divestee Contract
pursuant to Subsection 9.13(a)(i); and
(iii) JAKKS and the Company shall cooperate with the
Divestee and take any commercially reasonable action requested by
the Divestee, at the sole cost and expense of the Divestee and
the Shareholders, to obtain any required Consent of any
counterparty to any Retained Divestee Contract required as a
condition to the assignment thereof to the Divestee, or otherwise
to avoid a default thereunder, in connection with the
Divestiture.
(b) After the 120th day after the Closing Date, JAKKS or the
Company may terminate any Retained Divestee Agreement or take any other
commercially reasonable action to relieve JAKKS, the Company and their
respective Affiliates of any further obligation, liability, cost or
expense thereunder, and the Divestee shall bear and promptly pay to
JAKKS or the Company, as the case may be, the actual cost and expense
incurred by JAKKS or the Company by reason of such termination or other
actions.
9.14 Bianco grants to JAKKS an exclusive, fully-paid, royalty-free
license to use the Trade Rights under the patents and patent applications
described on Schedule 4.12 as the patent applications of Bianco for a period of
six years after the Closing Date.
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10. Termination.
10.1 This Agreement may be terminated at any time prior to the
Closing:
(a) by the mutual agreement of JAKKS and the Shareholders;
(b) by any party (if such party is not in breach of or default
under this Agreement) giving written Notice to such effect to the other
parties if the Closing shall not have occurred on or before October 25,
1999, or such later date as the parties shall have agreed upon prior to
the giving of such Notice;
(c) by (i) JAKKS, upon written Notice to such effect to the
Shareholders, in the event of a breach or default by any party hereto
other than JAKKS that has or is reasonably likely to have a Material
Adverse Effect; provided that written Notice of such breach or default
is given to the breaching or defaulting party and such breach or default
is not cured within 30 days of such Notice; or (ii) any party other than
JAKKS, upon written Notice to such effect to the other parties, in the
event of a material breach by or default of JAKKS; provided that written
Notice of such breach or default is given to JAKKS, and such breach or
default is not cured within 30 days of such Notice; or
(d) by any party if any Governmental Authority issues an Order
or takes any other action restraining, enjoining or otherwise
prohibiting, or seeking material damages in respect of, any transaction
contemplated by any Acquisition Agreement and such Order becomes final
and non-appealable, or any Law having the same effect becomes applicable
to any party hereto.
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10.2 Upon termination of this Agreement pursuant to Section 10.1, all
obligations of the parties shall terminate except those under Section 6.7,
Section 10.3 and Articles 11 and 12; provided that no such termination shall
relieve any party of any liability to another party by reason of any breach of
or default under this Agreement.
10.3 (a) If (i) JAKKS terminates this Agreement pursuant to Section
10.1(c) or (ii) all the conditions precedent set forth in Section 7.2 are
satisfied (except for any such condition which is not satisfied by reason of any
breach of or default under this Agreement by any Shareholder or the Agent) and
the Shareholders nevertheless (A) fail to set a Closing as provided in Section
8.1 or (B) fail to close the Acquisition in accordance with Article 8
notwithstanding that JAKKS is ready, able and willing to close in accordance
with Article 8, and, in the case of either clause (i) or clause (ii), there
occurs a Transaction within a period of six months after the date of such
termination, in the case of clause (i), or the date proposed by JAKKS or agreed
to by the parties, in the case of clause (ii), the Shareholders and the Company
shall pay to JAKKS a termination fee in the total amount of $2,000,000 (the
"Termination Fee").
(b) The Termination Fee shall be payable by wire transfer of
immediately available funds to an account designated by JAKKS
concurrently with the closing of the Transaction.
(c) The Termination Fee shall constitute liquidated damages to
JAKKS in respect of all losses, liabilities, damages and expenses
suffered or incurred by JAKKS by reason of the termination of this
Agreement or the failure of the Shareholders to close in accordance with
Section 10.3, and, notwithstanding any other provision hereof, including
without limitation those of Section 12.10, shall be in lieu of any other
remedy or relief otherwise available to JAKKS by reason thereof. The
parties hereto acknowledge that it would be impracticable to ascertain
the amount of all
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losses, liabilities, damages and expenses that would be suffered or
incurred by JAKKS under the circumstances described in Section 10.3(a)
and that the amount of the Termination Fee is a fair and reasonable
estimate of such losses, liabilities, damages and expenses and provides
a reasonable and certain amount to compensate JAKKS therefor.
11. Indemnification.
11.1 The Shareholders, jointly and severally, shall indemnify and
defend JAKKS and, after the Closing, the Company and each director, officer,
employee and agent of JAKKS and after the Closing, the Company against, and hold
each of them harmless from, any loss, liability, obligation, damage or expense
(including reasonable attorneys' fees and disbursements) which any of them may
suffer or incur incidental to any claim or any Proceeding against any of them to
the extent based upon or resulting from:
(a) the failure of any representation or warranty made by the
Company or the Shareholders in any Acquisition Agreement (excluding the
Agent Agreement and the Paying Agent Agreement) to be true in all
material respects on the date hereof and on the Closing Date;
(b) the Company's or the Shareholders' failure, in all
material respects, to perform or to comply with any covenant required
hereunder to be performed or complied with by the Company or a
Shareholder prior to the Closing or by any Shareholder at any time
hereafter;
(c) the failure of Pokempner or Bianco to enter into his
Employment Agreement in the form of Exhibit B;
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(d) the matters described on Schedule 11.1(d); or
(e) any transaction, event or circumstance to the extent
relating to the Divested Business, whether occurring or existing before,
at or after the Closing.
11.2 JAKKS shall indemnify and defend each Shareholder and, prior to
the Closing, the Company and each director, officer, employee or agent of any
Shareholder or, prior to the Closing, the Company against, and hold each of them
harmless from, any loss, liability, obligation, damage or expense (including
reasonable attorneys' fees and disbursements) which any of them may suffer or
incur incidental to any claim or any Proceeding against any of them to the
extent based upon or resulting from:
(a) the failure of any representation or warranty made by
JAKKS in any Acquisition Agreement to be true in all material respects
on the date hereof and on the Closing Date;
(b) JAKKS' failure, in all material respects, to perform or to
comply with any covenant required hereunder to be performed or complied
with by JAKKS;
(c) any transaction, event or circumstance relating to the
Business occurring or existing at any time unless JAKKS is entitled to
indemnification with respect thereto under Section 11.1; provided that
for purposes of determining whether JAKKS is entitled to indemnification
with respect thereto under Section 11.1, Section 11.4 shall be
disregarded if the indemnification obligation under this Section 11.2(c)
relates to a claim by third party; or
(d) any claim by any creditor of the Company that the
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Acquisition (excluding the Divestiture) (together with any related or
subsequent financing transactions engaged in by JAKKS or the Company
within 18 months after the Closing Date) violates any applicable
bankruptcy, insolvency, fraudulent transfer or fraudulent conveyance
Laws or Laws limiting the availability of funds for distribution to
shareholders.
11.3 Promptly after Notice to an indemnified party of any claim or the
commencement of any Proceeding by a third party involving any loss, liability,
obligation, damage or expense referred to in Section 11.1 or 11.2, such
indemnified party shall, if a claim for indemnification in respect thereof is to
be made against an indemnifying party, give written Notice to the latter of the
commencement of such claim or Proceeding, setting forth in reasonable detail the
nature thereof and the basis upon which such party seeks indemnification
hereunder; provided that the failure of any indemnified party to give such
Notice shall not relieve the indemnifying party of its obligations under such
Section, except to the extent that the indemnifying party is actually prejudiced
by the failure to give such Notice. In case any such Proceeding is brought
against an indemnified party, and provided that proper Notice is duly given, the
indemnifying party shall assume and control the defense thereof insofar as such
Proceeding involves any loss, liability, obligation, damage or expense in
respect of which indemnification may be sought hereunder, with counsel selected
by the indemnifying party (and reasonably satisfactory to such indemnified
party), and, after Notice from the indemnifying party to such indemnified party
of its assumption of the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof (but
the indemnified party shall have the right, but not the obligation, to
participate at its own cost and expense in such defense by counsel of its own
choice) or for any amounts paid or foregone by the indemnified party as a result
of the settlement or compromise thereof (without the written consent of the
indemnifying party), except that, if both the indemnifying party and the
indemnified party are named as parties or subject to such Proceeding and either
such party
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reasonably determines with advice of counsel that a material conflict of
interest between such parties may exist in respect of such Proceeding, the
indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after Notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any reasonable legal or other expenses, including without
limitation reasonable attorneys' fees and disbursements incurred by the
indemnified party in such defense; provided, however, that the indemnifying
party shall not be liable for such expenses on account of more than one separate
firm of attorneys (and, if necessary, local counsel) at any time representing
such indemnified party in connection with any Proceeding or separate Proceedings
in the same jurisdiction arising out of or based upon substantially the same
allegations or circumstances. If the indemnifying party shall assume the defense
of any such Proceeding, the indemnified party shall cooperate fully with the
indemnifying party and shall appear and give testimony, produce documents and
other tangible evidence, allow the indemnifying party access to the books and
records of the indemnified party and otherwise assist the indemnifying party in
conducting such defense. No indemnifying party shall, without the consent of the
indemnified party, which consent shall not be unreasonably withheld, consent to
entry of any judgment or enter into any settlement or compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or Proceeding. Provided that proper Notice is duly given, if the
indemnifying party shall fail promptly and diligently to assume the defense
thereof, if and in the manner required hereunder, the indemnified party may
respond to, contest and defend against such Proceeding (but the indemnifying
party shall have the right to participate at its own cost and expense in such
defense by counsel of its own choice) and may make in good faith any compromise
or settlement with respect thereto, and recover the entire cost and expense
thereof, including, without limitation, reasonable attorneys' fees and
disbursements and all amounts paid or foregone as a result of such Proceeding,
or the settlement or compromise thereof, from the
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indemnifying party. Any indemnification required to be made hereunder shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills or invoices are received or loss,
liability, obligation, damage or expense is actually suffered or incurred.
11.4 Any other provision hereof notwithstanding:
(a) no Shareholder or, prior to the Closing, the Company shall
be required to indemnify any Person unless and until the aggregate
amount of loss, liability, obligation, damage or expense as to which
indemnification would be required from all the Shareholders and the
Company, collectively, under Section 11.1(a) (but for the provisions of
this Section 11.4) exceeds $500,000, and thereafter the Shareholders
and, prior to the Closing, the Company shall be required, in the manner
and to the extent otherwise provided in this Article, to indemnify any
Person and to pay all amounts otherwise required to be paid by the
Shareholders and, prior to the Closing, the Company but only to the
extent that the entire loss, liability, obligation, damage or expense
suffered or incurred by such Person and any other Person so entitled to
indemnification pursuant to Section 11.1(a) exceeds $500,000;
(b) the aggregate amount required to be paid by the
Shareholders and, prior to the Closing, the Company, under Sections
11.1(a), 11.1(b), 11.1(c) and 11.1(d) pursuant to this Article shall not
exceed $16,000,000;
(c) the aggregate amount of indemnification payable by any
Shareholder under Section 11.1(a), 11.1(b), 11.1(c) and 11.1(d) shall
not exceed such Shareholder's share of the Purchase Price actually
received by such Shareholder;
(d) the indemnification obligations provided herein shall
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terminate with respect to any claim for indemnification arising (i)
under Section 11.1(a) or Section 11.2(a) or (ii) under Section 11.1(b)
or 11.2(b) with respect to performance or compliance with any covenant
provided in Article 6 or elsewhere herein which by its terms is required
to be performed or complied with prior to or at the Closing (each, a
"Pre-Closing Covenant") that is, in any such case, not made prior to the
first anniversary of the Closing Date, except that any claim under the
last four sentences of Section 4.1 or Section 4.14, 4.15 or 4.16 or
arising under Section 11.1(b) (other than with respect to a Pre-Closing
Covenant), 11.1(d) or 11.1(e) or arising under Section 11.2(b) (other
than with respect to a Pre-Closing Covenant), 11.2(c) or 11.2(d) shall
not be so limited under this Section and shall terminate in accordance
with the statute of limitations of applicable Law;
(e) if JAKKS is entitled to receive indemnification from the
Shareholders pursuant to Section 11.1, JAKKS may, upon 14 days prior
written Notice to the Shareholders, offset and retain the amount thereof
from any Earn-Out otherwise payable to the Shareholders hereunder;
(f) Neither JAKKS nor any other indemnified parties shall be
entitled to any indemnification under Section 11.1 to the extent that:
(i) JAKKS or any such other indemnified party actually
receives or is entitled to receive any amount in respect of any
loss, liability, obligation, damage or expense from other
sources, including without limitation insurance or third-party
indemnity; provided that JAKKS or such other indemnified party
uses commercially reasonable best efforts to collect any such
amount, except that neither JAKKS nor any such other indemnified
party shall be required to commence any Proceeding to collect any
such amount; and provided further that, if JAKKS or any such
other indemnified party fails to collect any amount which it is
so entitled to receive and JAKKS or any
69
<PAGE> 70
such other indemnified party receives the indemnification it is
entitled to receive pursuant to Section 11.1, JAKKS or such other
indemnified party shall assign to the indemnifying party JAKKS'
or such other indemnified party's rights to collect such amount;
or
(ii) such loss, liability, obligation, damage or expense
results in a benefit to JAKKS included in the Purchase Price,
including the Purchase Price Adjustment; and
(g) JAKKS shall not be entitled to any indemnification under
Section 11.1 if it receives the Termination Fee.
12. Miscellaneous.
12.1 Survival of Representations and Warranties. Subject to Section
11.4(d), the representations and warranties of each party hereto shall survive
the Closing, notwithstanding any investigation or inquiry made by any other
party hereto.
12.2 Limitation of Authority. Except as expressly provided herein, no
provision hereof shall be deemed to create any partnership, joint venture or
joint enterprise or association among the parties hereto, or to authorize or to
empower any party hereto to act on behalf of, obligate or bind any other party
hereto.
12.3 Fees and Expenses. Each party hereto shall bear such fees and
expenses as may be incurred by it in connection with this Agreement, the other
Acquisition Agreements and the Acquisition.
12.4 Notices. Any Notice or demand required or permitted to be given
or made
70
<PAGE> 71
hereunder to or upon any party hereto shall be deemed to have been duly given or
made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage paid, return receipt requested, or (b) sent by telecopy (confirmed
orally), telex or similar electronic means, provided that a written copy thereof
is sent on the same day by postage-paid first-class mail, to such party at the
following address:
to JAKKS: JAKKS Pacific, Inc.
22761 Pacific Coast Highway
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
with a copy to: Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
to the Company,
the Agent or any
Shareholder (in each
case, prior to the
Closing): Colorbok Paper Products, Inc.
Joshua H. Pokempner
2716 Baker Road
Dexter, Michigan 48130
Fax: (734) 424-9535
MUST BE MARKED
"PERSONAL AND CONFIDENTIAL"
71
<PAGE> 72
to the Agent or any
Shareholder (in each case,
after the Closing): Joshua H. Pokempner
Flying Colors Toys, Inc.
2716 Baker Road
Dexter, Michigan 48130
Fax: (734) 424-9535
MUST BE MARKED
"PERSONAL AND CONFIDENTIAL"
to the Paying Agent: The First National Bank of Chicago
611 Woodward Avenue
Detroit, Michigan 48226
Fax: (313) 225-3420
Attn: Amy Brehler
with a copy, in each case,
to: Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226-3583
Attn: Alan S. Schwartz, Esq.
Fax: (313) 465-7575
Howard Rice, Esq.
230 Glenwood Drive
Delray Beach, Florida 33445
Fax: (561) 638-1136
Barris, Sott, Denn & Driker, PLLC
211 West Forth #1500
Detroit, Michigan 48226-3211
Attn: Dan Share
Fax: (313) 965-2493
William E. Taylor
2745 Peters Road
Dexter, Michigan 48130
Fax: (734) 424-9535
72
<PAGE> 73
or such other address as any party hereto may at any time, or from time to time,
direct by Notice given to the other parties in accordance with this Section.
Except as otherwise expressly provided herein, the date of giving or making of
any such Notice or demand shall be, in the case of clause (a) (i), the date of
the receipt; in the case of clause (a) (ii), three business days after such
Notice or demand is sent; and, in the case of clause (b), the business day next
following the date such Notice or demand is sent.
12.5 Amendment. No amendment of this Agreement shall be valid or
effective, unless in writing and signed by or on behalf of the parties hereto.
12.6 Waiver. No course of dealing or omission or delay on the part of
any party hereto in asserting or exercising any right hereunder shall constitute
or operate as a waiver of any such right. No waiver of any provision hereof
shall be effective, unless in writing and signed by or on behalf of the party to
be charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
12.7 Governing Law. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
12.8 Arbitration. Any claim, dispute or controversy between or among
any of the parties hereto (other than a claim, dispute or controversy subject to
Section 9.8), including without limitation with respect to any claim, dispute or
controversy involving the Termination Fee, shall be submitted to arbitration in
New York City in accordance with the then current Commercial Arbitration Rules
of the American Arbitration Association. JAKKS, on the one hand, and the
Shareholders and, prior to the Closing, the Company, on the other, shall each
pay one-half of any filing fees or other administrative costs to be paid in
advance of or during such Proceeding. There shall be a single arbitrator. The
arbitrator shall render a
73
<PAGE> 74
reasoned decision with respect to such Proceeding which shall include, in
addition to the imposition of monetary damages or any other remedy or relief
available hereunder, an allocation of the costs thereof. The decision of the
arbitrator shall be final and binding upon the parties to such Proceeding, and
judgment thereon may be entered in any court of competent jurisdiction. No party
hereto shall be liable for punitive damages, unless such party is found to have
committed fraud or willful malfeasance against another party hereto.
12.9 Jurisdiction. Subject to the provisions of Section 12.8, each of
the parties hereto hereby irrevocably consents and submits to the jurisdiction
of the Supreme Court of the State of New York and the United States District
Court for the Southern District of New York in connection with any Proceeding
arising out of or relating to this Agreement or the Acquisition, waives any
objection to venue in the County of New York, State of New York, or such
District, and agrees that service of any summons, complaint, Notice or other
process relating to such Proceeding may be effected in the manner provided by
clause (a) (ii) of Section 12.4.
12.10 Remedies. Notwithstanding the provisions of Section 12.8, in the
event of any actual or prospective breach or default by any party hereto, any
other party hereto shall be entitled to equitable relief, including remedies in
the nature of rescission, injunction and specific performance; provided that
JAKKS shall seek, and shall be entitled to, rescission as a remedy for any such
breach or default only if and to the extent that (a) an award of monetary
damages in any amount would not constitute adequate relief to compensate JAKKS
for, or otherwise remedy any such breach or default (without regard to the fact
that the amount of monetary damages actually recoverable from the Shareholders
hereunder is limited by the provisions of Section 11.4), and (b) the basis for
rescission is either (i) a willful actual breach of any Acquisition Agreement
(excluding the Agent Agreement and the Paying Agent Agreement) or (ii) an actual
breach or another defect in the Acquisition that is so substantial and
fundamental so as to strongly tend to defeat the object of the parties in
entering into the
74
<PAGE> 75
Acquisition Agreements, in either case which breach or defect has or would
reasonably be expected to have a Material Adverse Effect. Subject to the
provisions of Sections 9.8, 10.3, 12.8 and this Section 12.10 and Article 11,
all remedies hereunder are cumulative and not exclusive, and nothing herein
shall be deemed to prohibit or limit any party from pursuing any other remedy or
relief available at law or in equity for such actual or prospective breach or
default, including the recovery of damages; provided, however, that the
indemnification provisions of Article 11 shall be the sole and exclusive remedy,
as among the parties hereto, with respect to any claim for monetary damages
under this Agreement; and provided, further, that no party hereto shall be
liable under this Agreement, pursuant to Article 11 or otherwise, for lost
profits or other consequential damages.
12.11 Severability. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
12.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute
one and the same agreement.
12.13 Further Assurances. Each party hereto agrees to cooperate fully
with the other parties in connection with preparing and filing any Notices or
documents in connection with the Acquisition. Each party hereto shall promptly
execute, deliver, file or record such agreements, instruments, certificates and
other documents and perform such other and further acts as any other party
hereto may reasonably request, or as may otherwise be reasonably
75
<PAGE> 76
necessary or proper, to consummate and perfect the Acquisition.
12.14 Binding Effect. Subject to Section 12.15, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement is not intended, and shall not
be deemed, to create or confer any right or interest for the benefit of any
Person not a party hereto, except for the rights of and benefits to the Divestee
provided herein or in the Special Indemnity Agreement.
12.15 Assignment. This Agreement, and each right, interest and
obligation hereunder, may not be assigned by any party hereto without the prior
written consent of the other parties hereto, and any purported assignment
without such consent shall be void and without effect; provided that any
Shareholder may assign its right to receive all or any portion of the Purchase
Price without the consent of any other party hereto.
12.16 Titles and Captions. The titles and captions of the Articles and
Sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
12.17 Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
12.18 References. The terms "herein," "hereto," "hereof," "hereby" and
"hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
12.19 Knowledge. For the purposes of this Agreement, the phrase "to the
76
<PAGE> 77
Company's knowledge" with respect to any matter means the actual knowledge of
(a) William E. Taylor and Pokempner and, in addition, with regard to each
particular Section of this Agreement so qualified by such phrase, those
individuals, if any, set forth on Schedule 12.19 with regard to such Section,
who are, in each such case, the employees of the Company principally responsible
for the respective matters subject to such phrase or (b) any Shareholder, as
such, in each case, after commercially reasonable inquiry, except that any
Shareholder may rely, as to any matter so qualified, on a certificate of an
officer of the Company to the effect that such Shareholder may rely on a
certificate with respect to each of the representations and warranties of the
Company and the Shareholders set forth in this Agreement; provided that such
matter is within the scope of authority of such officer and such reliance is
reasonable and justified. In addition, for purposes of this Agreement, the
"knowledge" of any officer means the knowledge of such officer, after
commercially reasonable inquiry.
12.20 No Presumptions. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that any other party hereto drafted or
controlled the drafting of this Agreement.
12.21 Exhibits and Schedules. The Exhibits and Schedules hereto are an
integral part of this Agreement and are incorporated in their entirety herein by
this reference. Capitalized terms not otherwise defined in the Exhibits or
Schedules to this Agreement have the meanings given to them in this Agreement.
Notwithstanding anything to the contrary in any Acquisition Agreement, (i) the
disclosure of any item on any Exhibit or Schedule to this Agreement will be
deemed to be a disclosure of such item for all purposes of all Acquisition
Agreements, including a disclosure of such item on each other Exhibit and
Schedule to this Agreement, and (ii) matters reflected in any Exhibit or
Schedule to this Agreement are not necessarily limited to matters required to be
reflected in any such Exhibit or Schedule, any
77
<PAGE> 78
such additional matters are set forth for informational purposes and do not
necessarily include other matters of a similar nature and inclusion of any
matter in any Exhibit or Schedule to this Agreement will not be considered an
admission that such matter is or may be "material" or would constitute a
Material Adverse Effect for purposes of any Acquisition Agreement or otherwise.
The foregoing is not intended to affect or eliminate the requirement set forth
in this Agreement that any matters set forth on the Exhibits or Schedules to
this Agreement (including those for informational purposes) do not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements or facts contained therein not misleading.
12.22 Entire Agreement. This Agreement embodies the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, commitments or arrangements relating thereto, except for the
provisions of the letter agreement referred to in Section 6.7, which shall
remain in full force and effect until the Closing, including without limitation
the non-binding term sheet dated June 21, 1999 and all prior drafts thereof.
Each party hereto is relying solely upon the agreements, covenants,
representations and warranties of the parties set forth herein or in another
Acquisition Agreement, and no party hereto is entitled to rely on any other
information provided to, or acquired by, it in any other manner (including
without limitation any presentation made or any other documents delivered by the
management of the Company or any Shareholder or any representative of any of
them).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
78
<PAGE> 79
IN WITNESS WHEREOF, JAKKS and the Company, by their respective duly
authorized officers, and the other parties hereto have duly executed this
Agreement as of the date set forth in the Preamble hereto.
COLORBOK PAPER PRODUCTS, INC. JAKKS PACIFIC, INC.
By: /s/ WILLIAM E. TAYLOR By: /s/ STEPHEN G. BERMAN
------------------------------- --------------------------
Name: William E. Taylor Name: Stephen G. Berman
Title: Chief Executive Officer Title: President and
Chief Operating Officer
/s/ MICHAEL BIANCO
- ----------------------
Michael Bianco
/s/ JAMES A. COURTNEY
- ----------------------
James A. Courtney
/s/ HOWARD DIAMOND
- ----------------------
Howard Diamond
79
<PAGE> 80
TRACY-GABRIEL IRREVOCABLE
TRUST DATED DECEMBER 17, 1997
By: /s/ PHIL JENKINS
----------------------------
Phil Jenkins, Trustee
/s/ JOSHUA H. POKEMPNER
- -------------------------------
Joshua H. Pokempner, individually
and as Agent
/s/ WILLIAM E. TAYLOR
- -------------------------------
William E. Taylor
80
<PAGE> 81
INDEX TO EXHIBITS AND SCHEDULES
Exhibit A Form of Certificate of Amendment
Exhibit B Form of Employment Agreement
Exhibit C Form of New Lease
Exhibit D Form of Special Indemnity Agreement
Exhibit E Form of Transition Services Agreement
Exhibit F Form of Press Release
Exhibit G Form UA 1772
Exhibit H Consent of Mattel, Inc.
Schedule I Shareholders, Etc.
Schedule 1.24 Certain Contracts
Schedule 1.28 Divested Liabilities
Schedule 1.50 Real Property Leases
Schedule 1.82A Termination Agreement
Schedule 1.82B Waiver
Schedule 2.2 Allocation of Closing Purchase Price
Schedule 2.5 Earn-Out
Schedule 4.1 Foreign Qualifications; Capitalization
Schedule 4.2 Violations, Conflicts, Etc.
Schedule 4.3 Consents and Notices
Schedule 4.4 Proceedings; Orders
Schedule 4.5 Certain Liabilities
Schedule 4.6 Certain Changes
Schedule 4.7 Assets; Liens
Schedule 4.9 Inventory Exceptions
Schedule 4.10 Accounts
81
<PAGE> 82
Schedule 4.11 Certain Permits and Consents
Schedule 4.12 Trade Rights
Schedule 4.13 Certain Property
Schedule 4.15 Taxes
Schedule 4.16 Employee Plans
Schedule 4.17 Labor Matters
Schedule 4.18 Employees
Schedule 4.19 Related Party Transactions; Other Employee Costs
Schedule 4.20 Certain Suppliers and Customers
Schedule 4.21 Insurance
Schedule 4.22 Brokers
Schedule 6.3 Certain Actions
Schedule 6.7 Confidentiality and Exclusivity Agreement
Schedule 6.10 Divestiture
Schedule 7.1(d) Necessary Consents
Schedule 8.10 Certain Indebtedness
Schedule 9.9(e) Certain Tax Refunds
Schedule 9.11 Severance Obligations
Schedule 11.1(d) Certain Indemnified Claims
Schedule 12.19 "Knowledge" Individuals
82
<PAGE> 83
SCHEDULE I - SHAREHOLDERS, ETC.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARE
NAME AND ADDRESS NUMBER OF SHARES OWNERSHIP
- ---------------- ---------------- ---------
<S> <C> <C>
Michael Bianco
6161 Windmill Court
Saline, Michigan 48176 3,216 13.498
James A. Courtney
11390 Bellwood
Plymouth, Michigan 48170 2,406 10.099
Howard Diamond
18 Haverhill Court
Ann Arbor, Michigan 48105 206 0.865
Tracy-Gabriel Irrevocable Trust
dated December 17, 1997,
Phil Jenkins, Trustee
c/o Phil Jenkins
2041 Greenview
Ann Arbor, Michigan 48103 2,584 10.846
Joshua Pokempner
2908 W. Delhi Road
Ann Arbor, Michigan 48103 7,706 32.344
William E. Taylor
2645 Peters Road
Dexter, Michigan 48130 7,707 32.348
------ -------
Total 23,825 100.0%
</TABLE>
*Assumption:
The foregoing list treats the shares purchased from Jim Courtney by Bill and
Josh on March 1, 1996 as owned by Bill and Josh even though some of these shares
remain in escrow.
<PAGE> 84
SCHEDULE 1.28 - DIVESTED LIABILITIES
All liabilities and obligations of the Company relating to the Divested
Business or any of the Divested Assets, including, without limitation, any of
the following relating to the Divested Business or any of the Divested Assets:
(a) accounts and notes payable, including any borrowings from banks
or financial institutions;
(b) obligations of the Company to fill and otherwise perform purchase
orders to the extent relating to the Divested Business and to the
extent such orders are unfulfilled or unperformed at the time of
the Divestiture;
(c) accrued royalties payable;
(d) accrued operating expenses;
(e) all liabilities and obligations to employees of the Company who,
under Section 4.18 of the Agreement and Schedule 4.18, are to
become employees of the Divestee at the time of the Divestiture,
including, without limitation, accrued compensation and benefits
(including, without limitation, accrued salaries, wages, profit
sharing, 401(k) withheld and vacations) with regard to such
employees;
(f) accrued Taxes; and
(g) all liabilities and obligations relating to the Assigned
Agreements (as defined on Schedule 4.7).
Except as otherwise provided in this paragraph, the Divested Liabilities
will be determined as of the time of the Divestiture in a commercially
reasonable manner, consistent with the manner used in the preparation of the
unaudited, estimated, consolidating balance sheet of the Company as of May 31,
1999 allocating assets and liabilities between Flying Colors and the Divested
Business, a copy of which balance sheet is attached hereto (the "May 31, 1999
Consolidating Balance Sheet"). Notwithstanding the foregoing, the Agent will
have the right to determine, in his sole discretion, which of the Company's
borrowings from banks or financial institutions and which of the Company's
accrued Taxes are to be included as Divested Liabilities by inclusion of such
borrowings and/or Taxes as Divested Liabilities on the Estimated Consolidating
Balance Sheet or the Final Consolidating Balance Sheet.
At the time at which the Agent delivers to JAKKS estimates of Closing
Net Worth, Closing Net Liquid Assets and the Interim Net Income, the Agent will
also deliver to JAKKS an unaudited,
<PAGE> 85
estimated, consolidating balance sheet of the Company as of the day preceding
the Closing Date, which balance sheet will estimate the allocation of assets and
liabilities between Flying Colors and
(Schedule 1.28 continued)
the Divested Business as of such date in the manner described in the preceding
paragraph (the "Estimated Consolidating Balance Sheet"). At the time after the
Closing at which the Agent has a right under Section 9.8 of the Agreement to
deliver to JAKKS the Agent's final calculation of Closing Net Worth, Closing Net
Liquid Assets and Interim Net Income the Agent will also have a right to deliver
to JAKKS its final determination of the consolidating balance sheet of the
Company as of such date (the "Final Consolidating Balance Sheet"), which balance
sheet will provide the Agent's final estimation of such allocation.
<PAGE> 86
SCHEDULE 2.5 - EARN OUT
<TABLE>
<CAPTION>
Earn-Out Period Gross Profit Earn-Out
--------------- ------------ --------
<S> <C> <C>
First less than or equal to $0
$19,550,000
more than $19,550,000, Amount determined
but less than $22,950,000 by Formula (A) below
equal to or greater than
$22,950,000 $4,500,000
Second less than $21,505,000 $0
more than $21,505,000, Amount determined
but less than $25,245,000 by Formula (B) below
equal to or greater than $4,500,000
$25,245,000
Third less than or equal to $0
$23,460,000
more than $23,460,000, Amount determined
but less than $27,540,000 by Formula (C) below
equal to or greater than $4,500,000
$27,540,000
</TABLE>
(A) The sum of (1) $2,500,000 and (2) the product of (a) $2,000,000 and (b)
a fraction, the numerator of which is the excess of (i) Gross Profit in
the first Earn-Out Period over (ii) $19,550,000, and the denominator of
which is $3,400,000.
(B) The sum of (1) $2,500,000 and (2) the product of (a) $2,000,000 and (b)
a fraction, the numerator of which is the excess of (i) Gross Profit in
the second Earn-Out Period over (ii) $21,505,000, and the denominator of
which is $3,740,000.
(C) The sum of (1) $2,500,000 and (2) the product of (a) $2,000,000 and (b)
a fraction, the numerator of which is the excess of (i) Gross Profit in
the third Earn-Out Period over (ii) $23,460,000, and the denominator of
which is $4,080,000.
<PAGE> 87
(Schedule 2.5 continued)
Each portion of the Earn-Out will be divided among and paid to the Shareholders
by the Paying Agent as follows:
<TABLE>
<CAPTION>
Shareholder Percent of Each Earn-Out Payout
----------- -------------------------------
<S> <C>
Michael Bianco 31.749%
James A. Courtney 5.050
Howard Diamond .433
Phil Jenkins, Trustee 5.423
Joshua H. Pokempner 41.172
William E. Taylor 16.174
-------
100.001
</TABLE>
<PAGE> 88
SCHEDULE 6.10 - DIVESTITURE
1. The Company has caused CPP Acquisition, LLC, a new Michigan limited
liability company ("NewCo"), to be created. All of the membership
interests in NewCo are owned by the Company.
2. The Company will contribute the Divested Assets to NewCo, subject to the
Divested Liabilities.
3. Immediately prior to the Closing, the Company will make a distribution
to its shareholders of the Company's membership interests in NewCo. The
Company's shareholders will, therefore, own the membership interests in
NewCo.
4. NewCo will change its name to Colorbok Paper Products, LLC.
<PAGE> 89
SCHEDULE 7.1(d) - NECESSARY CONSENTS
Consents and/or Notices of the following Licensors under the following License
Agreements:
1. Agreement dated September 15, 1998 between MTV Networks and Colorbok
Paper Products, Inc. (Blue's Clues)
2. Agreement dated February 1, 1998 between MTV Networks and Colorbok Paper
Products, Inc., as amended November 4, 1998 (Blue's Clues)
3. Merchandise License Agreement dated August 1, 1997 between MTV Networks
and Colorbok Paper Products, Inc. (Rugrats)
4. License Agreement dated September 3, 1998 between Sanrio, Inc. and
Flying Colors, as amended October 26, 1998, November 16, 1998 and
January 28, 1999
5. Agreement dated June 16, 1999 between MTV Networks and Colorbok Paper
Products, Inc. (Blue's Clues)
6. Agreement dated June 16, 1999 between MTV Networks and Colorbok Paper
Products, Inc. (Rugrats)
<PAGE> 90
SCHEDULE 8.10 - CERTAIN INDEBTEDNESS
All amounts due and owing in connection with the loan from Jentra Investment
Limited Partnership, of which Phil Jenkins and Steve Tracy are partners, to the
Company in the principal amount of $650,000.
All amounts due and owing in connection with the loan from Jentra Investment
Limited Partnership to the Company in the principal amount of $570,000.
All amounts due and owing in connection with the loan from Phil F. Jenkins
Revocable Living Trust to the Company in the principal amount of $190,000.
All amounts due and owing in connection with the loan from Lee Tracy, who is
Phil Jenkins' daughter, to the Company in the principal amount of $230,000.
<PAGE> 91
SCHEDULE 9.9(e) - CERTAIN TAX REFUNDS
<TABLE>
<CAPTION>
Michigan Refunds Applied For
(Amended Returns Filed Under RAB 1998-1) TAX AMOUNT
- ---------------------------------------- ----------
<S> <C>
Fiscal Year Ended May 31, 1995 $ 53,489
Fiscal Year Ended May 31, 1996 $ 13,346
Fiscal Year Ended May 31, 1997 $ 19,224
Federal Refund
- --------------
Fiscal Year Ended May 31, 1999 $350,000
(estimate based upon
preliminary return)
</TABLE>
<PAGE> 92
SCHEDULE 11.1(d) - CERTAIN INDEMNIFIED CLAIMS
1. Franchise Taxes in Item 1 of Schedule 4.15.
2. Taxes payable on account of the audit, if any, referred to in Item 2 of
Schedule 4.15 (without limitation under Section 11.4(a)).
<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "First
Amendment") is made on September 30, 1999, among Michael Bianco, James A.
Courtney, Howard Diamond, Tracy-Gabriel Irrevocable Trust dated December 17,
1997, Phil Jenkins, Trustee, Joshua H. Pokempner and William E. Taylor, Colorbok
Paper Products, Inc., a Michigan corporation (the "Company"), and JAKKS Pacific,
Inc., a Delaware corporation ("JAKKS").
RECITALS
A. The parties hereto entered into a Stock Purchase Agreement dated
as of September 22, 1999 (the "Agreement"), pursuant to which JAKKS agreed to
purchase all of the capital stock of the Company.
B. The parties desire to amend certain provisions of and Schedules
to the Agreement in accordance with this First Amendment.
THEREFORE, the parties agree as follows:
1. Section 11.1(e) is hereby amended and restated to read in its
entirety as follows:
"(e) any transaction, event or circumstance to the extent
relating to the Divested Business, whether occurring or existing
before, at or after the Closing, or to the extent relating to
the Divestiture."
2. Schedule 2.2 of the Agreement is hereby amended to read in its
entirety as set forth on Exhibit A attached hereto.
3. Schedule 6.3 of the Agreement is hereby amended to read in its
entirety as set forth on Exhibit B attached hereto.
4. The Stock Purchase Agreement is hereby amended to add a new
Section 9.15 to read in its entirety as follows:
9.15 From and after the Closing Date, JAKKS will not permit the
Company to write any checks or make any withdrawals on any accounts of
the Company with the Bank existing at or prior to the Closing Date to
the extent that such checks or withdrawals would cause an overdraft on
any such accounts. Promptly after the delivery of the HSR Fulfillment
Notice (as defined in the Escrow Agreement dated as of the date hereof
among JAKKS, the Shareholders' Agent and Bank One Trust Company, NA, as
escrow agent thereunder) to the Escrow Agent thereunder, JAKKS will
cause the Company to deliver to the Bank documentation (including
without limitation signature cards with standard corporate resolutions)
reasonably necessary to evidence a change in control of such accounts to
JAKKS.
5. The Agreement shall not be amended or otherwise modified except
as set forth in this First Amendment. Except as expressly amended by this First
Amendment, the Agreement is hereby ratified and confirmed and shall remain in
full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this First Amendment on
the date first above written.
COLORBOK PAPER PRODUCTS, INC. JAKKS PACIFIC, INC.
By: /s/ WILLIAM E. TAYLOR By: /s/ JOEL M. BENNETT
----------------------------- ---------------------------------
Name: William E. Taylor Name: Joel M. Bennett
Title: Chief Executive Officer Title: Chief Financial Officer
/s/ MICHAEL BIANCO
- --------------------------------
Michael Bianco
/s/ JAMES A. COURTNEY
- --------------------------------
James A. Courtney
/s/ HOWARD DIAMOND
- --------------------------------
Howard Diamond
TRACY-GABRIEL IRREVOCABLE
TRUST DATED DECEMBER 17, 1997
By: /s/ PHIL JENKINS
-----------------------------
Phil Jenkins, Trustee
/s/ JOSHUA H. POKEMPNER
- --------------------------------
Joshua H. Pokempner, individually
and as Agent
/s/ WILLIAM E. TAYLOR
- --------------------------------
William E. Taylor
2
<PAGE> 1
EXHIBIT 2.3
ESCROW AGREEMENT
This Escrow Agreement (this "Escrow Agreement") is made as of September
30, 1999, among (i) Joshua H. Pokempner, as agent for the Shareholders (as
defined in the Purchase Agreement, as defined in Recital A below) (the
"Shareholders' Agent"), pursuant to a Shareholders' Agent Agreement dated as of
September 22, 1999 (the "Shareholders Agent Agreement"), among the Shareholders
and the Shareholders' Agent, (ii) JAKKS Pacific, Inc., a Delaware corporation
("JAKKS"), and (iii) Bank One Trust Company, NA (the "Escrow Agent"). Recitals
A. JAKKS, Flying Colors Toys, Inc., f/k/a Colorbok Paper Products,
Inc., a Michigan corporation (the "Company"), and the Shareholders are parties
to a Stock Purchase Agreement dated as of September 22, 1999 (the "Purchase
Agreement"), pursuant to which JAKKS has agreed to purchase all of the issued
and outstanding shares of capital stock of the Company from the Shareholders, in
accordance with the terms and conditions of the Purchase Agreement. Capitalized
terms used but not defined herein will have the meanings given to them in the
Purchase Agreement.
B. It is a condition to the obligations of JAKKS and the
Shareholders to consummate the Acquisition that the waiting period under the HSR
Act shall have expired or been terminated (the "HSR Condition").
C. All of the remaining conditions to the parties' obligations to
consummate the Acquisition have been, or are capable of being fulfilled, on the
date hereof. The parties, therefore, wish to enter into this Agreement to
facilitate the Closing under the Purchase Agreement upon fulfillment of the HSR
Condition and to provide a mechanism for returning the payments and documents
delivered into escrow pursuant to this Agreement if the HSR Condition has not
been fulfilled in certain circumstances.
D. The Escrow Agent has agreed to serve as escrow agent and to hold
and disburse the funds and documents delivered to it pursuant to this Agreement
in accordance with the terms and conditions of this Agreement.
Therefore, the parties agree as follows:
1. Escrow Documents and Escrow Fund.
1.1 Deposit of Escrow Documents. Concurrently with the
execution and delivery of this Agreement, (a) the share certificates,
stock powers and other documents, if any, described on Exhibit A
(collectively, the "Main Stock Documents") and the share certificates,
stock powers and other documents, if any, described on Exhibit B (the
"U.S. Bank Stock Documents" and, collectively with the Main Stock
Documents, the "Stock Documents") are being delivered into escrow with
the Escrow Agent, and (b) the
<PAGE> 2
documents described on Exhibit C (the "Other Closing Documents" and,
collectively with the Stock Documents, the "Escrow Documents") are being
delivered into escrow with the Escrow Agent. Of the Other Closing
Documents, those annotated with an asterisk on Exhibit C are documents
relating to the Divestiture and will be referred to in this Agreement as
the "Divestiture Documents."
1.2 Deposit of Funds. Concurrently with the execution and
delivery of this Agreement, JAKKS is delivering to the Escrow Agent, by
wire transfer of immediately available funds, $52,350,000.00 (the
"Escrow Payment"), which is the sum of (a) $34,746,504.79, which
represents the portion of the Closing Purchase Price to be paid in cash
at Closing pursuant to Article 2 of the Purchase Agreement, (b)
$15,986,770.33, which represents the Closing Debt Payments to be made by
JAKKS in cash at the Closing pursuant to Section 8.9 of the Purchase
Agreement in respect of the Bank Loan (calculated through the time
immediately prior to the start of business on the Closing Date) (the
"Bank Loan Payment") and (c) $1,616,724.88, which represents the Closing
Debt Payments to be made by JAKKS in cash at the Closing pursuant to
Section 8.10 of the Purchase Agreement in respect of the indebtedness
set forth on Schedule 8.10 to the Purchase Agreement (the "Insider
Debt") (calculated through the time immediately prior to the start of
business on the Closing Date)(the "Insider Debt Payment").
1.3 Acknowledgement of Receipt by the Escrow Agent. The Escrow
Agent acknowledges receipt of the Escrow Documents and the Escrow
Payment and will hold in escrow and distribute and disburse the Escrow
Documents and the Escrow Fund (as defined in Section 2 below) in
accordance with this Agreement.
2. Deposit of Escrow Payment. From the date of this Agreement until the
first to occur of the Finalization Date (as defined in Section 3.2 below) or the
Early Return Date (as defined in Section 3.3 below), the Escrow Agent shall
deposit the Escrow Payment (together with the interest accrued thereon, the
"Escrow Fund") in a separate trust account of the Escrow Agent. The Escrow Agent
shall invest the Escrow Fund in (1) U.S. Treasury obligations, obligations
issued or guaranteed by U.S. government agencies or instrumentalities and/or (2)
mortgage-backed securities and/or (3) commercial paper and/or (4) bank
obligations and deposit notes, as directed in a joint written Notice signed by
JAKKS and the Shareholders' Agent or, if no such direction is given, in the One
Group Prime Money Market Fund, or a successor or similar fund.
3. Disposition of the Escrow Documents and the Escrow Fund.
3.1 Instructions to be Provided by Parties.
(a) On the business day on which JAKKS and the
Shareholders' Agent receive Notice that the HSR Condition has
been fulfilled, they will provide written Notice (either by
joint written Notice or by separate written Notices to the same
effect) to such effect signed by JAKKS and the Shareholders'
Agent (the "HSR Fulfillment Notice") to the Escrow Agent.
2
<PAGE> 3
(b) If JAKKS or the Shareholders' Agent receives Notice
that any Governmental Authority has issued any Request for
Additional Information or has taken any other action to delay or
prevent the expiration or termination of the waiting period
under the HSR Act with regard to the Acquisition, such party
will provide written Notice to such effect signed by such party
(the "Non-Fulfillment Notice") to the Escrow Agent.
3.2 Distribution Upon Expiration of HSR Waiting Period or
Receipt of HSR Fulfillment Notice. If (x) the Escrow Agent has not
received a Non-Fulfillment Notice by 11:00 a.m. (local time) on October
25, 1999 or (y) the Escrow Agent receives the HSR Fulfillment Notice,
then, in the case of clause (x), on October 25, 1999, and, in the case
of clause (y), as promptly as practicable (and in any event within one
business day) after receipt of the HSR Fulfillment Notice, the Escrow
Agent shall distribute and disburse the Escrow Documents and the Escrow
Fund in accordance with this Section 3.2. The date of such distribution
and disbursement shall be deemed the "Finalization Date. "
(a) The Escrow Agent shall distribute to the Bank, from
the Escrow Fund, an amount sufficient to repay the Bank Loan in
full as of the Finalization Date, as such amount is set forth in
a written Notice signed by JAKKS and the Shareholders' Agent and
provided to the Escrow Agent pursuant to Section 10 below (either
by joint written Notice or by separate written Notices to the
same effect), with such amount being distributed to the Bank in
the manner set forth in such Notice.
(b) The Escrow Agent shall distribute an amount
sufficient to repay the Insider Debt in full as of the
Finalization Date to such Persons, in such manner and in such
amount(s) as are set forth in a written Notice from JAKKS and the
Shareholders' Agent to the Escrow Agent (either by joint written
Notice or by separate written Notices to the same effect).
(c) The Escrow Agent shall distribute the amounts
remaining in the Escrow Fund to the Paying Agent pursuant to the
Paying Agent Agreement, to be held and disbursed in accordance
therewith.
(d) The Escrow Agent will deliver all of the Stock
Documents (consisting of the Main Stock Documents and the U.S.
Bank Stock Documents) to JAKKS by recognized overnight courier at
JAKKS' address set forth in Section 10 below (with a copy of the
transmittal memo provided to Murray L. Skala, Esq., as set forth
in Section 10).
(e) The Escrow Agent will deliver the Other Escrow
Documents to the Shareholders' Agent, by hand delivery, c/o
Honigman Miller Schwartz and Cohn ("HMS&C"), 2290 First National
Building, Detroit, Michigan 48226-3583,
3
<PAGE> 4
Attention: Lisa M. Panepucci, and the Shareholders' Agent will
cause such Documents to be disbursed as required by the Purchase
Agreement.
3.3 Distribution upon Receipt of Non-Fulfillment Notice. As
promptly as practicable upon the Escrow Agent's receipt of the
Non-Fulfillment Notice and in any event within one business day after
receipt thereof, the Escrow Agent shall distribute and disburse the
Escrow Documents and the Escrow Fund in accordance with this Section
3.3. The date of such distribution and disbursement will be deemed the
"Early Return Date."
(a) The Escrow Agent will return all of the Main Stock
Documents to the Shareholders' Agent, who will return them to the
Shareholders, as appropriate.
(b) The Escrow Agent will return all of the U.S. Bank
Stock Documents to HMS&C, as escrow agent pursuant to Escrow
Agreement dated as of September 28, 1999, among William E.
Taylor, Joshua H. Pokempner, James A. Courtney and HMS&C.
(c) The Escrow Agent will transfer all amounts in the
Escrow Fund to JAKKS by wire transfer of immediately available
funds to the account specified in writing to the Escrow Agent by
JAKKS.
(d) Unless otherwise instructed by JAKKS and the
Shareholders' Agent, the Escrow Agent will destroy all of the
Other Escrow Documents, all of which will be deemed rescinded ab
initio and of no force or effect whatsoever.
4. Effectiveness of Acquisition; Certain Adjustments; Ownership of the
Company's Shares.
4.1 Effectiveness of Acquisition. Notwithstanding anything to
the contrary in this Agreement, the Stock Purchase Agreement, any other
Acquisition Agreement or any of the Other Escrow Documents, if the HSR
Condition is fulfilled, then for all purposes, (a) the Closing will be
deemed to have taken place immediately prior to the start of business on
October 1, 1999 and the Closing Date will be deemed to be October 1,
1999, notwithstanding that the HSR Condition may not be fulfilled until
subsequent thereto, and (b) the closing of the Divestiture will be
deemed to have taken place, and the Divestiture Documents will be deemed
effective, immediately prior to the Closing. As a consequence of the
foregoing, Interim Net Income shall be deemed to be equal to zero.
4.2 Certain Adjustments. If a distribution of the Escrow Fund
is made pursuant to Section 3.2 above, then, the Deferred Closing
Purchase Price will be increased by an amount equal to the sum of (a)
the excess, if any, of (i) the amount payable pursuant to Section 3.2(a)
to repay the Bank Loan in full on the Finalization Date over (ii) the
amount of interest accruing in the Escrow Fund after the date hereof to
(but not including) the Finalization Date on the entire Bank Loan
Payment, and (b) the excess, if any, of (i) the amount payable pursuant
to Section 3.2(b) to repay the Insider Debt in
4
<PAGE> 5
full on the Finalization Date over (ii) the amount of interest accruing
in the Escrow Fund after the date hereof to (but not including) the
Finalization Date on the entire Insider Debt Payment.
4.3 Ownership of the Company's Shares. Notwithstanding
anything to the contrary in this Agreement, until the HSR Condition is
fulfilled, the Shareholders will continue to have record and beneficial
ownership of the Shares and will continue to be responsible, through the
Board of Directors elected by the Shareholders, for all management and
operations of the Company.
5. Escrow Agent Fee. The Escrow Agent shall be entitled to compensation for
its services hereunder as per EXHIBIT D, which is attached hereto and made a
part hereof, and for reimbursement of its out-of-pocket expenses including, but
not by way of limitation, the fees and costs of attorneys or agents which it may
find necessary to engage in performance of its duties hereunder, all to be paid
by the Shareholders and JAKKS (jointly and severally), and the Escrow Agent
shall have, and is hereby granted, a prior lien upon any property, cash, or
assets held hereunder, with respect to its unpaid fees and nonreimbursed
expenses, superior to the interests of any other persons or entities. Although
the obligations of the Shareholders and JAKKS to pay the fees and costs
contemplated by the preceding sentence (collectively, the "Escrow Agent Fees")
shall be joint and several in regard to the Paying Agent, as among the
Shareholders and JAKKS, 50% of the Escrow Agent Fees shall be the responsibility
of JAKKS and 50% of the Escrow Agent Fees shall be the responsibility of the
Shareholders. Responsibility for the portion of the Escrow Agent Fees that are
the responsibility of the Shareholders shall be determined as though such
portion of the Escrow Agent Fees were "Obligations" under the Contribution
Agreement dated as of September 22, 1999 among the Shareholders (the
"Contribution Agreement").
6. Nature of the Escrow Agent's Obligations.
6.1 Duties and Obligations of the Escrow Agent. The Escrow
Agent shall have no duties or obligations other than those specifically
set forth in or contemplated by this Escrow Agreement.
6.2 Failure to Perform. The Escrow Agent shall not be
responsible in any manner whatsoever for any failure or inability of the
Agent, any Shareholder or JAKKS to honor any provision of this Escrow
Agreement.
6.3 Reliance Upon the Agent and Documents. Except to the
extent otherwise notified in writing by an affected party, the Escrow
Agent may rely on, and shall be protected in acting upon, any
certificate, warrant, instrument, opinion, notice, letter, telecopy or
other document or security delivered to it and reasonably believed by it
to be genuine and to have been signed by the proper party or parties
and, without limiting the generality of the foregoing, upon the
authority of the Agent to act on behalf of all of the Shareholders.
5
<PAGE> 6
6.4 Errors or Omissions. The Escrow Agent shall not be liable
for any error of judgment, or for any act done or step taken or omitted
by it in good faith or for any mistake in fact or law, or for anything
which it may do or refrain from doing in connection with this Agreement,
except for its own gross negligence, willful misconduct or act of bad
faith.
6.5 Disputes. The Escrow Agent shall, in the event that any
dispute shall arise between the parties with respect to the disposition
or disbursement of any of the assets held hereunder, be permitted to
interplead all of the assets held hereunder into a court of competent
jurisdiction, and thereafter be fully relieved from any and all
liability or obligation with respect to such interpleaded assets. The
parties further agree to pursue any redress or recourse in connection
with such a dispute, without making the Escrow Agent a party to same.
6.6 Advice of Counsel. The Escrow Agent shall have the right,
but not the obligation, to consult with counsel of choice and shall not
be liable for action taken or omitted to be taken by the Escrow Agent in
accordance with the advice of such counsel.
6.7 Reliance on Documents. The Escrow Agent shall be entitled
to deem the signatories of any documents or instruments submitted to it
hereunder as being those purported to be authorized to sign such
documents or instruments on behalf of the parties hereto, and shall be
entitled to rely upon the genuineness of the signatures of such
signatories without inquiry and without requiring substantiating
evidence of any kind.
7. Indemnification. The Escrow Agent shall be, and hereby is, jointly and
severally indemnified and held harmless by the Shareholders and JAKKS from all
losses, costs and expenses (including reasonable attorneys' fees) which may be
incurred by the Escrow Agent as a result of or arising out of this Agreement,
including its involvement in any litigation arising from performance of its
duties under this Agreement, other than any of the foregoing resulting from any
bad faith or grossly negligent or wrongful action taken or omitted by the Escrow
Agent. Such indemnification shall survive termination of this Agreement until
extinguished by any applicable statute of limitations. Although the
indemnification obligation of the Shareholders and JAKKS under this Section 7
shall be joint and several in regard to the Escrow Agent, as among the
Shareholders and JAKKS, 50% of such indemnification obligations shall be the
responsibility of JAKKS and 50% of such indemnification obligations shall be the
responsibility of the Shareholders. Responsibility for the portion of any
amounts to be paid by the Shareholders under this Section 7 shall be determined
as though such amounts were "Obligations" under the Contribution Agreement.
8. Replacement of the Escrow Agent.
8.1 Resignation or Removal. The Escrow Agent may resign as
such after giving 30 days' prior written Notice to JAKKS and the
Shareholders' Agent. Similarly, the Escrow Agent may be removed and
replaced after the giving of 30 days' prior written Notice from JAKKS
and the Shareholders' Agent. In either event, the duties of the
6
<PAGE> 7
Escrow Agent shall terminate upon the later to occur of 30 days after
the date of such Notice or the appointment of a successor Escrow Agent;
and the Escrow Agent shall transfer the amounts in the Escrow Fund and
the Escrow Documents to the successor Escrow Agent appointed by JAKKS
and the Shareholders' Agent upon termination of the duties of the Escrow
Agent, as evidenced by a written Notice filed with the Escrow Agent by
JAKKS and the Shareholders' Agent.
8.2 Appointment of Successor. If JAKKS and the Shareholders'
Agent are unable to agree upon a successor Escrow Agent or JAKKS and the
Shareholders' Agent shall have failed to appoint a successor Escrow
Agent prior to the expiration of 30 days following the date of the
Notice of resignation or removal, the then acting Escrow Agent shall,
and JAKKS, the Shareholders' Agent or any Shareholder may, petition any
court of competent jurisdiction for the appointment of a success Escrow
Agent or other appropriate relief, and any such resulting appointment
shall be binding upon all of the parties to this Agreement.
8.3 Obligation Upon Resignation or Removal. Within 30 days of
the Escrow Agent's resignation or removal, as the case may be, the
Escrow Agent shall deliver to JAKKS and the Shareholders' Agent a final
report of the payments made and the transactions effected by the Escrow
Agent under this Agreement.
8.4 Relief from Obligations. Upon acknowledgment by any
successor Escrow Agent of the receipt of the Escrow Fund and the Escrow
Documents, (a) the former Escrow Agent shall be fully relieved of all
duties, responsibilities and obligations under this Agreement, except
with respect to actions previously taken or omitted by such Escrow
Agent, and (b) the successor Escrow Agent shall agree in writing to be
bound by all of the duties and obligations of the Escrow Agent under
this Agreement.
9. Termination. This Agreement shall terminate upon the earlier to occur of
(a) the Finalization Date and (b) the Early Return Date, except for any
ministerial actions to be taken by the Escrow Agent thereafter.
10. Notices. Unless written designation of a different address is received
by each of the other parties to this Agreement, all notices required to be given
under the Agreement shall be deemed to have been properly given if delivered
personally or mailed by registered or certified mail (return receipt requested),
or by recognized overnight courier, or by telecopier (with confirmation of
receipt thereof), to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
To the Escrow Agent: Bank One Trust Company, N.A.
611 Woodward Avenue MI1-8110
Detroit, Michigan 48226
Attn: Amy J. Brehler
Tel: (313) 225-3628
Fax: (313) 225-4935
7
<PAGE> 8
To the Agent:
Joshua H. Pokempner
2908 W. Delhi Road
Ann Arbor, MI 48103
Fax: (734) 663-4863
With a copy to:
Alan S. Schwartz, Esq. Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, MI 48226-3583
Fax: (313) 465-7575
and
Howard Rice, Esq. 230 Glenwood Dr.
Delray Beach, Florida 33445
Fax: 561) 638-1136
and
Dan Share, Esq. Barris, Sott, Denn & Driker, PLLC
211 W. Fort #1500
Detroit, MI 48226-3211
Fax: (313) 965-2493
To JAKKS: JAKKS Pacific, Inc.
22761 Pacific Coast Highway
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
with a copy to: Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
11. Tax Matters.
11.1 Preparation and Filing of Tax Returns. Any tax returns
required to be
8
<PAGE> 9
prepared and filed in connection with this Agreement shall be prepared
and filed by JAKKS and/or the Shareholders with the Internal Revenue
Service and other relevant taxing authorities in all years income is
earned, whether or not income is received or distributed in any
particular tax year, and the Escrow Agent shall have no responsibility
for the preparation and/or filing of any tax return with respect to any
income earned by the Escrow Fund.
11.2 Payment of Taxes. Any taxes payable on income earned from
the investment of any sums held in the Escrow Fund shall be paid by
JAKKS and/or the Shareholders, as appropriate, whether or not the income
is distributed by the Escrow Agent during any particular year.
11.3 Form 1099. The Escrow Agent shall issue an IRS Form 1099
to the Shareholders' Agent, as nominee for the Shareholders, reporting
the payment of interest to the extent that any amount distributed by the
Escrow Agent pursuant to Section 3.2(c) represents interest on the
portion of the Escrow Payment described in Section 1.2(a) and shall
issue a Form 1099 to JAKKS for the balance of the interest earned on the
Escrow Fund. JAKKS and the Shareholders' Agent shall furnish the Escrow
Agent with a completed IRS Form W-9 upon the Closing.
12. Miscellaneous.
12.1 Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Michigan, without regard to principles of conflicts of laws, and each of
the parties consents to be subject to personal jurisdiction of the state
and federal courts in the State of Michigan.
12.2 Entire Agreement. This Agreement contains the entire
agreement of the parties, and supersedes any prior and contemporaneous
agreements, understandings and communications, oral and written, among
the parties, with respect to the subject matter hereof. This Agreement
may not be amended, modified, waived or terminated except by an
instrument in writing signed by an authorized representative of the
Escrow Agent, JAKKS and the Agent.
12.3 No Third Party Beneficiaries. Except as expressly stated
in this Agreement, no Person not a party to this Agreement shall have
any rights or duties hereunder except as specifically provided for in
this Agreement.
12.4 Severability. If any provision or clause of this Agreement
or the application thereof to any Person is held invalid or
unenforceable, such invalidity or unenforceability shall not affect
other provisions or applications of this Agreement, which shall be given
effect without the invalid or unenforceable provision or application,
and to this end the provisions of this Agreement are declared to be
severable.
12.5 Counterparts. This Agreement may be signed (including by
facsimile) in
9
<PAGE> 10
any number of counterparts with the same effect as if the signatures of
all parties were upon the same instrument, all of which counterparts
taken together shall constitute one and the same instrument.
12.6 Further Assurances. From and after the execution of this
Agreement, each party shall take such actions and do all things
necessary or appropriate to carry out the intent of the parties and to
accomplish the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SHAREHOLDERS' AGENT:
/s/ JOSHUA H. POKEMPNER
- ----------------------------------
Joshua H. Pokempner, as Agent
JAKKS:
JAKKS PACIFIC, INC.
By: /s/ JOEL M. BENNETT
------------------------------
Its: Chief Financial Officer
-------------------------
ESCROW AGENT:
BANK ONE TRUST COMPANY, NA
By: /s/ AMY J. BREHLER
------------------------------
Its: Authorized Officer
-------------------------
Exhibits
10
<PAGE> 11
Exhibit A -- Main Stock Documents
Exhibit B -- U.S. Bank Stock Documents
Exhibit C -- Other Escrow Documents
11
<PAGE> 12
EXHIBIT A
MAIN STOCK DOCUMENTS
3,216 shares of common stock in favor of Michael Bianco represented by the
following certificate number: 158
2,406 shares of common stock in favor of James Courtney represented by the
following certificate number: 26
206 shares of common stock in favor of Howard Diamond represented by the
following certificate number: 15
2,584 shares of common stock in favor of Phil Jenkins, Trustee of the
Tracy-Gabriel Irrevocable Trust dated December 17, 1997, represented by the
following certificate numbers: 150 and 152
6,752 shares of common stock in favor of Joshua H. Pokempner represented by the
following certificate numbers: 7, 11, 12, 18, 22, 25, 31, 33, 35, 37, 39, 41,
43, 45, 47, 49, 51, 53, 55, 57, 59, 61, 63, 65, 67, 69, 71, 73, 75, 77, 79, 81,
83, 85, 87, 89, 91, 93, 95, 97, 99, 101, 103, 105 and 107
6,753 shares of common stock in favor of William E. Taylor represented by the
following certificate numbers: . 6, 9, 10, 19, 23, 24, 30, 32, 34, 36, 38, 40,
42, 44, 46, 48, 50, 52, 54, 56, 58, 60, 62, 64, 66, 68, 70, 72, 74, 76, 78, 80,
82, 84, 86, 88, 90, 92, 94, 96, 98, 100, 102, 104 and 106
12
<PAGE> 13
EXHIBIT B
U.S. BANK STOCK DOCUMENTS
954 shares of common stock in favor of Joshua H. Pokempner represented by the
following certificate numbers: 109, 111, 113, 115, 117, 119, 121, 123, 125, 127,
129, 131, 133, 135, 137, 139, 141, 143, 145, 147 and 149
954 shares of common stock in favor of William E. Taylor represented by the
following certificate numbers: 108, 110, 112, 114, 116, 118, 120, 122, 124, 126,
128, 130, 132, 134, 136, 138, 140, 142, 144, 146 and 148
13
<PAGE> 14
EXHIBIT C
OTHER ESCROW DOCUMENTS
*Resolutions of Colorbok Board contributing Divested Assets, subject to Divested
Liabilities, to Colorbok LLC
*Assignment and Assumption Agreement and Bill of Sale
*Certificates of Title for Vehicles
*Assignments of Intellectual Property (Trade Rights)
*Employee Transfer Agreement
*Assignment of Membership Interest from Colorbok to existing Colorbok
Shareholders
*Partial Assignment of Membership Interests in LLC from LLC Members to Michael
Bianco
Employment Agreement of Bianco
Stock Option Agreement of Bianco with JAKKS
Employment Agreement of Pokempner
Stock Option Agreement of Pokempner with JAKKS
New Lease
Special Indemnity Agreement
Transition Services Agreement
Termination Agreement
Waiver
Documents to "Settle Up" 1996 Taylor/Pokempner Buy-Out of Courtney
o Courtney Note by Taylor
o Courtney Note by Pokempner
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<PAGE> 15
Resignations of Taylor, Pokempner, Jenkins and Bianco
Certificate of Chief Executive Officer re: Financial Condition (Section 7.1(i))
Condition Fulfillment Certificate of Corporation and Shareholders (including
Schedule Updates) (Sections 8.2 (g) and 7.1(a), (d), (e) and (g))
Notice of Retained Divestee Contracts (Section 9.13)
Certificate of Secretary of Colorbok as to Bylaws
Condition Fulfillment Certificate of Chief Executive Officer of JAKKS (Sections
8.3(b) and 7.2 (a), (b) and (e))
Certified Resolutions of JAKKS
15
<PAGE> 1
EXHIBIT 2.4
Exhibit E
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (this "Agreement"), is dated as of
October 1, 1999, by and between Colorbok LLC, f/k/a CPP Acquisition, LLC, a
Michigan limited liability company ("Divestee"), and Flying Colors Toys, Inc.,
f/k/a Colorbok Paper Products, Inc., a Michigan corporation (the "Acquired
Company").
RECITALS
A. The members of Divestee and JAKKS Pacific, Inc., a Delaware
corporation ("JAKKS"), have entered into a Stock Purchase Agreement dated as of
September 22, 1999 (the "Purchase Agreement") pursuant to which JAKKS has
purchased all of the outstanding capital stock of the Acquired Company from the
members of Divestee.
B. The Purchase Agreement provides that the Acquired Company and
Divestee will enter into this Agreement relating to certain services Divestee
will provide to the Acquired Company after the Closing.
THEREFORE, the parties agree as follows:
1. Definitions.
1.1 Definitions in Purchase Agreement. Capitalized terms used but not
defined in this Agreement shall have the same meanings given to them in the
Purchase Agreement.
1.2 Other Defined Terms.
"Consistent Basis" means in a manner consistent with the practices of
the Flying Colors Division of the Acquired Company (the "Division") prior to the
Closing Date.
"Transition Services" means the services described on Attachment A to
this Agreement. The Transition Services will not include any services not listed
on Attachment A. Without limiting the generality of the foregoing, the
Transition Services will not include, and the Acquired Company will directly
bear the costs and expenses associated with, the items and services listed on
Attachment B to this Agreement.
2. Services and Fees.
2.1 Services. Except as otherwise provided in this Agreement,
Divestee agrees to
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provide to the Acquired Company, during the Term (as defined in Section 5.1
below), such Transition Services as the Acquired Company may reasonably request
from time to time. All Transition Services shall be provided by Divestee to the
Acquired Company on a Consistent Basis. Divestee shall be entitled to obtain
Transition Services from a third party if (a) it does so for its other
operations during the Term and (b) it will not result in a material change in
the level and type of Transition Services provided.
2.2 Costs of Services. Except for the costs contemplated by
Attachment C to this Agreement or as otherwise provided in this Section 2.2,
Divestee will pay its costs incurred in connection with providing the Transition
Services to the Acquired Company. All other costs related to the operation of
the business of the Acquired Company including, without limitation, the items
and services listed on Attachment B, shall be paid by the Acquired Company,
except for the costs listed on Attachment D to this Agreement, which shall be
paid by Divestee during the Term, and the costs specifically described in
Section 3.5(b).
3. Fees.
3.1 Base Fee. The Acquired Company will pay to Divestee, within five
days after the beginning of each month during the Term, $310,000 (the "Base
Fee"), which fee covers services provided in the month in which the Base Fee is
required to be paid. The Base Fee for the first month during the Term will be
pro rated based upon the number of days remaining in such month and will be paid
simultaneously with the signing of this Agreement.
3.2 Percentage Fee. In addition to the Base Fee, the Acquired Company
will pay to Divestee, in arrears, with respect to each whole or partial month
during the Term and each month subsequent thereto, an amount equal to the sum of
3.0% of the first $8,000,000 of Gross Sales (as defined in Section 3.3 below)
during such month plus 2.5% of Gross Sales in excess of $8,000,000 during such
month (such sum, the "Percentage Fee"). Divestee shall calculate the Gross Sales
for each month during the Term and each month subsequent thereto and provide the
Acquired Company with a monthly report setting forth the Gross Sales for such
month. The Acquired Company shall pay the Percentage Fee within 10 days of its
receipt of each such report. The Percentage Fee for the first month during the
Term shall be based solely upon the Gross Sales during the portion of the month
beginning on the Closing Date.
3.3 Gross Sales. For purposes of this Agreement "Gross Sales" shall
mean the gross sales of the Acquired Company, without reduction or deduction for
any expenses or costs including, without limitation, deductions for advertising
expenses, advertising allowances, defect allowances, returns, charge backs,
freight, freight allowances, brokerage fees, recall expenses, commissions, or
other allowances, costs or expenses. Gross Sales shall be deemed to have been
made when shipped or, if later, when invoiced.
3.4 Disputes Regarding Fees. In the event the Acquired Company
disputes the calculation of the fees by Divestee, such dispute will be resolved
in accordance with the procedures for resolving disputes under this Agreement
provided in Section 6.8. Pending the resolution of any such dispute, the
Acquired Company will pay all amounts invoiced by Divestee
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hereunder.
3.5 Assembly and Rework.
(a) Except as provided in subsection (b) below, this Agreement shall
not govern assembly of products or rework of products. To the extent the
Acquired Company desires that Divestee provide any services relating to assembly
of products or rework of products, the parties will separately negotiate the
terms upon which such services will be performed.
(b) The Divestee shall provide to the Acquired Company the product
rework services specifically described on Attachment E, at no cost or expense to
the Acquired Company.
4. Disclaimer of Warranty and Limitation of Liability. Divestee makes no
representations or warranties with respect to the provision of Transition
Services pursuant to this Agreement, whether express or implied. DIVESTEE HEREBY
DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT
WILL DIVESTEE BE LIABLE FOR ANY DAMAGES ARISING FROM THE PROVISION OF TRANSITION
SERVICES HEREUNDER EXCEPT AS A RESULT OF DIVESTEE'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT AND IN NO EVENT WILL DIVESTEE BE LIABLE FOR LOST PROFITS OR OTHER
SPECIAL OR CONSEQUENTIAL DAMAGES.
5. Term and Termination.
5.1 Term. The term of this Agreement (the "Term") will commence on
the date of this Agreement and continue, unless sooner terminated in accordance
with Section 5.2 below, until Divestee provides the Acquired Company with at
least 60 days prior written notice of its desire to terminate this Agreement or
the Acquired Company provides Divestee with at least 30 days prior written
notice of its desire to terminate this Agreement. In either such case, this
Agreement shall terminate on the last day of the month containing the date which
is, (a) in the case of a termination by Divestee, 60 days following the giving
of such notice, or (b) in the case of a termination by the Acquired Company, 30
days following the giving of such notice, or the last day of such later month as
is specified in such notice.
5.2 Default Termination. If the Acquired Company or Divestee defaults
in the performance of any of its obligations under this Agreement, and if such
default is not cured within 10 days after written notice from the non-defaulting
party specifying such default, then the non-defaulting party may, at any time
thereafter, terminate this Agreement by giving the defaulting party five days
prior written notice of such termination. In the event this Agreement is
terminated by Divestee as a result of a default by the Acquired Company in
accordance with this Section 5.2, the Acquired Company shall pay to Divestee, as
Divestee's damages for such default, by wire transfer of immediately available
funds, upon such termination, all amounts owing by the Acquired Company to
Divestee hereunder (including amounts due and owing
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through the date of termination), plus an amount equal to the lesser of (a)
$310,000 and (b) the product of (i) $10,333 and (ii) a number equal to the day
of the month of the date of termination. Termination of this Agreement and the
receipt of such amounts shall be Divestee's sole remedy for the Acquired
Company's breach of this Agreement.
6. General Provisions.
6.1 Assignment. This Agreement, and each right, interest and
obligation hereunder, may not be assigned by either party hereto without the
prior written consent of the other party hereto, and any purported assignment
without such consent shall be void and without effect.
6.2 Severability. The provisions of this Agreement are severable and,
in the event that any provision of this Agreement is determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof will not be affected, but will, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision will be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
6.3 Waiver. No course of dealing or omission or delay on the part of
any party hereto in asserting or exercising any right hereunder shall constitute
or operate as a waiver of any such right. No waiver of any provision hereof
shall be effective, unless in writing and signed by or on behalf of the waiving
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
6.4 Notices. Any notice or demand required or permitted to be given
or made hereunder to or upon any party hereto shall be deemed to have been duly
given or made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage paid, return receipt requested, or (b) sent by, telecopy (confirmed),
telex or similar electronic means, to such party at the following address:
(a) If to the Acquired Company, to:
JAKKS Pacific, Inc.
22761 Pacific Coast Highway
Suite 226
Malibu, CA 90265
Telecopy: (310) 317-8527
Attention: President
With a copy to:
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP
750 Lexington Avenue
New York, NY 10022-1200
Telecopy: (212) 888-7776
Attention: Murray L. Skala
4
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(b) If to Divestee, to:
Colorbok Paper Products, LLC
2716 Baker Road
Dexter, MI 48130
Telecopy: (734) 424-9535
Attention: William Taylor
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226-3583
Telecopy: (313) 465-7574
Attention: Alan Stuart Schwartz
or such other address as any party hereto may at any time, or from time to time,
direct by notice given to the other parties in accordance with this Section.
Except as otherwise expressly provided herein, the date of giving or making of
any such notice or demand shall be, in the case of clause (a) (i), the date of
the receipt; in the case of clause (a) (ii), three business days after such
notice or demand is sent; and, in the case of clause (b), the business day such
notice or demand is sent.
6.5 Force Majeure. Neither party hereto will be liable in any manner
for failure or delay of performance of all or part of this Agreement, directly
or indirectly, owing to acts of God, governmental orders or restrictions,
strikes or other labor disturbances or shortages, riots, embargoes, computer
failures, power failures, telecommunication line failures, unknown or
uncorrected program errors, revolutions, wars (declared or undeclared),
sabotage, fires, floods or any other causes or circumstances beyond the control
of the parties. The party, however, in such delay or failure shall give
reasonably prompt notice to the other party and shall exert its reasonable
efforts to remove the causes or circumstances of nonperformance.
6.6 Applicable Law. This Agreement will be governed by, and
interpreted and enforced in accordance with, the laws of the State of Michigan,
without regard to principles of conflict of laws.
6.7 Arbitration. If there is a dispute between the parties with
regard to any of the matters set forth in this Agreement, the parties will first
use their commercially reasonable best efforts to resolve such dispute among
themselves. If the parties are unable to resolve such dispute within 30 calendar
days of the initiation of such procedure, such dispute will be settled by
arbitration as provided for below, which will be the sole and exclusive
procedure for the resolution of any such dispute. Within 10 calendar days after
receipt of written notice from one party that it is submitting the matter to
arbitration, each party will designate in writing one
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arbitrator to resolve the dispute who will, in turn, jointly select a third
arbitrator within 20 calendar days of their designation, with the third
arbitrator to be selected in accordance with the procedures established by the
American Arbitration Association. The arbitrators so designated will each be a
lawyer experienced in commercial and business affairs who is not a
representative of any party and who has not received any compensation, directly
or indirectly, from any party or any affiliate of any party during the two year
period preceding the date of this Agreement or during the period from the date
of this Agreement through the time of such dispute. The arbitration will be
governed by the then existing rules of the American Arbitration Association. The
decision and award (if any) of the arbitrators will be final and binding upon
the parties and not subject to appeal. Any such determination shall have the
same effect as an arbitration pursuant to Michigan Compiled Laws Annotated
Section 600.5001, and a judgment upon the award may be entered in and enforced
by any court having jurisdiction thereof and the parties consent and commit
themselves to the jurisdiction of the courts of the State of Michigan for
purposes of the enforcement of any arbitration award. Each party will pay the
fees and expenses of its respective designated arbitrator and its own costs and
expenses of the arbitration. The fees and expenses of the third arbitrator will
be paid 50% by the Acquired Company and 50% by Divestee. Any arbitration
pursuant to this Section 6.7 will be conducted in Detroit, Michigan.
6.8 Independent Contractor. Divestee will, for all purposes, be
deemed to be an independent contractor, and, except as required or convenient
for the performance of Divestee's duties hereunder or as otherwise agreed to by
the parties, neither party will become the agent of the other by virtue of this
Agreement.
6.9 Entire Agreement. This Agreement constitutes the entire
understanding of parties with respect to the Transition Services to be provided
and supersedes all prior agreements, commitments, understandings, communications
or arrangements relating thereto, and no modification of or amendment to this
Agreement shall be valid unless in writing and duly signed by both parties.
6.10 Headings. The Section headings in this Agreement are included for
convenience only and shall not in any way affect the interpretation or
construction of any of the provisions of this Agreement.
6.11 No Presumptions. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that any other party hereto drafted or
controlled the drafting of this Agreement.
6.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together will constitute one
and the same agreement.
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The parties hereto have executed this Agreement as of the date first
written above.
FLYING COLORS TOYS, INC. COLORBOK LLC
f/k/a Colorbok Paper Products, Inc. f/k/a CPP Acquisition, LLC
By: /s/ JOEL M. BENNETT By: /s/ WILLIAM E. TAYLOR
------------------------------ ------------------------------
Joel M. Bennett
Its: Chief Financial Officer Its: Manager
----------------------------- -----------------------------
GUARANTY
In order to induce Divestee to enter into the above Agreement with the
Acquired Company, JAKKS' wholly owned subsidiary, JAKKS hereby unconditionally
and irrevocably guarantees to Divestee the full and prompt payment of all
amounts due or to become due hereunder to Divestee and the timely performance by
the Acquired Company of all of its obligations hereunder. This is a guaranty of
payment and performance and not of collection. JAKKS is obligated for the
payment and performance of each and every obligation of the Acquired Company
hereunder as fully as if any such obligation was directly owing to Divestee by
JAKKS, without setoff, recoupment, counterclaim or defense, and Divestee need
not seek to obtain payment or performance by the Acquired Company before
exercising its rights to payment and performance by JAKKS. JAKKS waives notice
of acceptance or any other notices, demands or defenses to which JAKKS may
otherwise be entitled, except any defenses that the Acquired Company would have
relating to the validity of the obligations of the Acquired Company hereunder.
JAKKS PACIFIC, INC.
By: /s/ JOEL M. BENNETT
------------------------------
Joel M. Bennett
Its: Chief Financial Officer
-----------------------------
7
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ATTACHMENT A
TRANSITION SERVICES
Inventory control and stock customers locator management
PickPack for independent customers (Flying Colors orders)
Pack out for major customers
Order processing
Customer service
Electronic data interchange
Allocation of products among customers
Coordinating inbound and outbound trucking
Managing import containers
Interface with JAKKS to insure timely and accurate invoicing of all shipments
CDI management
Direct ship management
Full warehousing services in Belleville and Dexter (receiving, store stock,
pull stock, order assembly, shipping)
Interface between customers and purchasing/marketing/sales/product launch
Billing
MIS support related to distribution services
<PAGE> 9
ATTACHMENT B
EXCLUDED SERVICES AND EXPENSES
Collections
Ad allowance
Returns
Charge backs
Royalties
Tooling
New product processing
Quality and testing
Recall expenses
Travel expenses
Entertainment expenses
Phone system
Office supplies (except for distribution related office supplies which Divestee
will order and pay for)
Computer supplies
Art supplies
Bad debt expense
Design center (including rent)
Catalogs
Trade show expense
Commissions
Product advertising
Sales design salaries
Letter of credit expenses
Expenses related to the transfer of goods to JAKKS
Assembly or rework of products (except for rework specifically required by
Section 3.5 of the Agreement)
Ordering and purchasing of products
MIS support related to services other than distribution related services
<PAGE> 10
ATTACHMENT C
CERTAIN COSTS OF TRANSITION SERVICES TO BE BORNE BY THE ACQUIRED COMPANY
All costs related to the California Distribution Center
Freight (inbound, outbound and transfers)
Freight insurance
Air freight
Brokerage fees
Mailing expenses (including postage)
Storage of excess inventory
<PAGE> 11
ATTACHMENT D
OTHER COSTS TO BE BORNE BY DIVESTEE
Belleville Distribution Center rent
<PAGE> 12
ATTACHMENT E
1. Handy Dandy Notebook - Item No. 3093; quantity: 85,000; Replacement of
defective coil.
2. Handy Dandy Activity Set - Item No. 3094; quantity: 54,000; Replacement of
defective coil and re-pack in carton.
3. Blues Clues Inflatable Chair - Item No. 31140; quantity: 84,500; Insertion
of bumpers into package.
<PAGE> 1
EXHIBIT 2.5
DETROIT BOARD OF REALTORS(R) BUSINESS PROPERTY LEASE FORM
113-A
NOTICE: MICHIGAN LAW ESTABLISHES RIGHTS AND OBLIGATIONS FOR
PARTIES TO RENTAL AGREEMENTS. THIS AGREEMENT IS REQUIRED TO
COMPLY WITH THE TRUTH IN RENTING ACT. IF YOU HAVE A QUESTION
ABOUT THE INTERPRETATION OR THE LEGALITY OF A PROVISION OF
THIS AGREEMENT, YOU MAY WANT TO SEEK ASSISTANCE FROM A
LAWYER OR OTHER QUALIFIED PERSON.
THIS LEASE is made as of the 1st day of October, 1999, by
and between Shore Properties LLC, a Michigan limited
liability company, as Landlord, and Flying Colors Toys,
Inc., a Michigan corporation, formerly known as Colorbok
Paper Products, Inc., as Tenant, and the parties agree as
follows:
DESCRIPTION (1) WITNESSETH: The Landlord, in consideration of the
rents to be paid and the covenants and agreements to be
performed by Tenant, hereby leases to Tenant the premises
situated in the Village of Dexter, Washtenaw County,
Michigan described as: 2716 Baker, Suite 100, Dexter,
Michigan 48130, as depicted on Exhibit A (approximately 7800
square feet) (SEE ATTACHED LEGAL DESCRIPTION, EXHIBIT B)
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TERM (2) The term shall begin on the Closing Date, as
RENT defined in the Stock Purchase Agreement between Jakks
Pacific, Inc. and the shareholders of Colorbok Paper
Products, Inc. ("Purchase Agreement"), for an initial term
of six (6) months and thereafter shall be a month to month
lease; provided, however, neither party may terminate this
Lease unless six (6) months prior written notice is given to
the other party.
The total monthly rent in the amount of $4,998.50,
shall be payable on the first day of each month commencing
on the Closing Date. In the event the Closing Date is other
than the first day of the calendar month or the termination
date of this Lease is other than the last day of the
calendar month then the monthly rental and additional rent
for the first and last fractional months of the term of this
Lease shall be appropriately prorated. Monthly rent shall be
increased by 5% per annum commencing on the first
anniversary of the Closing Date and on each yearly
anniversary date thereafter while this Lease is in effect.
All rents shall be paid to Landlord or the authorized
agent, at the following address:
2716 Baker Road, Suite 100
Dexter, Michigan 48130
or at such other place as may be designated by Landlord from
time to time. If Tenant fails to make a rent payment on or
before the due date, a late charge of 5% of the past due
amount shall be added to the rent and paid with the overdue
payment.
Tenant shall pay to Landlord any increase in real
property taxes after the base year 1999 ("Base Year") on the
leased premises. On or before the first day of each month
during each ensuing calendar year, Tenant shall pay
one-twelfth (1/12th) of such estimated increase over the
Base Year. Landlord shall provide to Tenant copies of the
bills for real property taxes. Tenant shall receive its pro
rata share of any refunds of real property taxes with
respect to real property taxes paid by Tenant after
deduction of its pro rata share of all expenses attributable
to obtaining such refund are paid (and Landlord shall
provide Tenant with a brief statement of the basis for such
refund and proration).
DEFAULT (3) If Tenant shall default in any payment other than
rent required to be paid by Tenant under the terms hereof,
Landlord may make such payment, in which event the amount
thereof shall be payable as rental to Landlord by Tenant on
the next rent day together with interest at 2% over the
prime rate of interest as published in the Wall Street
Journal ("Prime Rate") from the date of such payment by
Landlord. In addition, on default in any such payment,
Landlord shall have the same remedies as on default in
payment of rent.
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ASSIGNMENT (4) Tenant shall not assign this lease or mortgage or
AND SUBLETTING sublet any portion of the premises without prior written
consent of Landlord. Notwithstanding the foregoing, Tenant
may mortgage or encumber its leasehold interest to financial
institutions so long as such mortgage or encumbrance is
clearly subordinate to the interest and rights of Landlord
under this Lease. If Tenant so mortgages or encumbers its
leasehold interest, Tenant shall give written notice of such
mortgage or encumbrance to Landlord (including a notice
address for the mortgagee) and, after receipt of such
notice, Landlord shall give the mortgagee notice of any
default hereunder at such address and opportunity to cure
any such default on behalf, and in lieu, of Tenant in
accordance with Paragraph 39 hereof. Any permitted mortgagee
of Tenant must expressly agree to be bound by the terms of
this Lease. Any such assignment, mortgage or subletting
without consent shall be void and shall give Landlord the
right to terminate this lease and reenter and repossess the
leased premises. For the purposes of this Lease, a merger or
sale of 50% or more of the shares of stock of Tenant shall
be deemed an assignment.
TAXES (5) [INTENTIONALLY OMITTED]
BANKRUPTCY (6) Tenant agrees that if the estate created hereby
AND INSOLVENCY shall be taken in execution, or by other process of law, or
if Tenant shall be declared bankrupt or insolvent or any
receiver be appointed for the business and property of
Tenant, or if any assignment shall be made of the Tenant's
property for the benefit of creditors, then this lease may
be canceled at the option of Landlord, unless adequate
assurance of performance is provided by Tenant to Landlord's
satisfaction, and affirmation is in strict conformance with
the Federal Bankruptcy Code.
RIGHT TO (7) Landlord reserves the right to subordinate this
MORTGAGE lease to the lien of any mortgage or mortgages now or
hereafter placed upon Landlord's interest in the premises
and on the land and buildings of which the premises are a
part or upon any buildings hereafter placed upon the land of
which the leased premises form a part. Tenant covenants and
agrees to execute and deliver on demand, without additional
consideration being paid to Tenant, an instrument or
instruments subordinating this lease to the lien of any such
mortgage or mortgages and hereby irrevocably appoints
Landlord the attorney-in-fact of Tenant to execute and
deliver any such instrument or instruments in the name of
Tenant. In connection with such subordination, Landlord
shall use its commercially reasonable best efforts to cause
any mortgagee of Landlord to deliver to Tenant such
mortgagee's standard non-disturbance agreement for execution
by the parties.
USE AND (8) The premises shall be used and occupied for
OCCUPANCY distribution of toy products and for office purposes and for
no other purpose without the written consent of Landlord and
Tenant will not use the premises for any purpose in
violation of any law, municipal ordinance or regulation or
which will increase the existing rate of insurance upon the
property or cause cancellation of insurance covering the
property. On any breach of this agreement, Landlord shall
have the option to terminate this lease forthwith and
reenter and repossess the leased premises.
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INSURANCE (9) Tenant at Tenant's expense, shall maintain plate
glass and public liability insurance including bodily injury
and property damage insuring Tenant and Landlord with
minimum coverage as follows: $2,000,000 single limit. Tenant
shall provide Landlord with a Certificate of Insurance
showing Landlord as additional insured. The Certificate
shall provide for a thirty-day written notice to Landlord in
the event of cancellation or material change of coverage.
Tenant shall also maintain business interruption coverage
during the term of this lease. Tenant agrees to pay as
additional rent any increase in premiums for insurance that
are charged during the term of this lease on the amount of
insurance now carried by Landlord related to the premises
and improvements thereon, resulting from the activities of
Tenant or its affiliates and agents on the premises during
the term. To the maximum extent permitted by insurance
policies which may be owned by Landlord or Tenant, Tenant
and Landlord, for the benefit of each other, waive any and
all rights of subrogation which might otherwise exist.
FIRE (10) It is understood and agreed that if the premises
are damaged or destroyed in whole or in part by fire or
other casualty during the term, Landlord will repair and
restore the same to good tenantable condition with
reasonable dispatch, and the rent herein provided for shall
abate entirely in case the entire premises are untenantable
and pro rata for the portion rendered untenantable, in case
a part only is untenantable, until the premises are restored
to a tenantable condition. If the Tenant shall fail to
adjust Tenant's own insurance or to remove damaged goods,
wares, equipment or property within a reasonable time, and
as a result thereof the repairing and restoration is
delayed, there shall be no abatement of rental during the
period of such delay. There shall be no abatement of rental
if such fire or other cause damaging or destroying the
leased premises shall result from the negligence or willful
act of the Tenant, Tenant's agents or employees. If Tenant
shall use any part of the leased premises for storage during
the period of repair a reasonable charge shall be made
therefor against Tenant. In case the leased premises, or the
building of which they are a part shall be destroyed, to the
extent of more than one-half of the value thereof, Landlord
shall have the option to terminate this lease by a written
notice to Tenant.
REPAIRS (11) Landlord after receiving written notice from
Tenant and having reasonable opportunity thereafter to
obtain the necessary workmen therefor agrees to keep in good
order and repair the foundation, roof and four outer walls
of the premises and the mechanical, electrical and HVAC
systems servicing the premises at Landlord's cost and
expense, subject to the next sentence, but not the doors,
door frames, the window glass, window casings, window frames
and windows, or any attachment thereto or attachments to
said building or premises used in connection therewith which
shall be the responsibility of Tenant. Tenant shall bear, as
to the repair of the mechanical, electrical and HVAC systems
servicing the premises, a percentage of the cost and expense
thereof equal to the product of (a) 15% and (b) the number
of 12-month periods (or portion thereof) elapsed from the
date hereof to the date of incurrence of such cost and
expense, but in no event more than 100% of such cost and
expense.
TENANT TO (12) Tenant agrees to indemnify, represent, defend and
INDEMNIFY hold harmless the Landlord from any liability for damages to
any person or property in, on or about said leased premises
from any cause whatsoever except for any unlawful or
tortious acts of Landlord and its employees or agents.
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REPAIRS AND (13) Except as provided in Paragraph 11 hereof, Tenant
ALTERATIONS/ further covenants and agrees that Tenant will, at Tenant's
CARE OF PREMISES expense, during the continuation of this lease, keep the
said premises and every part thereof in as good repair and
at the expiration of the term yield and deliver up the same
in like condition as when taken, reasonable use and wear
thereof and damage by the elements, fire, explosion or other
casualty excepted. Tenant shall not make any alterations,
additions or improvements to the premises without Landlord's
written consent, and all alterations, additions or
improvements made by either of the parties hereto upon the
premises, except movable office furniture and trade fixtures
put in at the expense of Tenant, shall be the property of
Landlord, and shall remain upon and be surrendered with the
premises at the termination of this lease.
Tenant covenants and agrees that if the demised
premises consist of only a part of a structure owned or
controlled by Landlord, Landlord may enter the demised
premises at reasonable times and install or repair pipes,
wires, and other appliances or make any repairs deemed by
Landlord essential to the use and occupancy of the other
parts of Landlord's building.
Tenant shall not perform any acts or carry on any
practices which may injure the building or be a nuisance or
menace to other Tenants in the building and shall keep
premises under Tenant's control (including adjoining drives,
streets, alleys or yard) clean and free from rubbish, dirt,
snow and ice at all times. If Tenant shall not comply with
these provisions, Landlord may enter upon said premises and
have rubbish, dirt and ashes removed and the side walks
cleaned, in which event Tenant agrees to pay all charges
that Landlord shall pay for hauling rubbish, ashes and dirt,
or cleaning walks. Said charges shall be paid to Landlord by
Tenant as soon as the bill is presented and Landlord shall
have the same remedy as is provided in Paragraph 3 of this
lease in the event of Tenant's failure to pay.
The Tenant shall at Tenant's own expense under penalty
of forfeiture and damages promptly comply with all lawful
laws, orders, regulations or ordinances of all municipal,
County and State authorities affecting the premises hereby
leased and the cleanliness, safety, occupation and use of
same. Notwithstanding anything herein to the contrary,
Landlord shall be solely responsible for the repair items of
Landlord (i.e., mechanical, electrical and HVAC systems
(except to the extent the responsibility of Tenant pursuant
to Paragraph 11 hereof), foundation, roof and four outer
walls) set forth in Paragraph 11 hereof.
EMINENT DOMAIN (14) If any part of the premises shall be taken or
condemned for public use, and a part thereof remains which
is susceptible of occupation, this lease shall, as to the
part taken, terminate as of the date the condemner acquires
possession, and thereafter Tenant shall be required to pay
such proportion of the rent for the remaining terms as the
value of the premises remaining bears to the total value of
the premises at the date of condemnation; provided however,
that Landlord may at Landlord's option, terminate this lease
as of the date the condemner acquires possession. In the
event that the demised premises are condemned in whole, or
that such portion is condemned that the remainder is not
susceptible for use hereunder, this lease shall terminate
upon the date upon which the condemner acquires possession.
All sums which may be payable on account of any condemnation
shall belong to Landlord, and Tenant shall not be entitled
to any part thereof except any amount awarded to Tenant for
Tenant's trade fixtures or moving expenses.
Page 5
<PAGE> 6
RESERVATION (15) The Landlord reserves the right of free access at
all times to the roof of the leased premises and reserves
the right to rent the roof for advertising purposes. The
tenant shall not erect any structures for storage or any
aerial, or use the roof for any purpose without the consent
in writing of Landlord.
CONDITION OF (16) Tenant acknowledges that Tenant has examined the
PREMISES leased premises prior to the making of this lease, and knows
the condition thereof, and that no representations as to the
condition or state of repairs thereof have been made by
Landlord, or Landlord's agent, which are not herein
expressed, and Tenant hereby accepts the leased premises in
their present condition at the date of the execution of this
lease. This provision is not intended to negate or waive any
specific representation and warranty as to the physical
condition of the leased premises set forth in the Purchase
Agreement if such representation and warranty expressly
survives the Closing under the terms of the Purchase
Agreement.
Landlord shall not be responsible or liable to the
Tenant for any loss or damage that may be caused by the acts
or omissions of persons occupying adjoining premises or any
part of the building of which the leased premises are a part
or for any loss or damage resulting to Tenant or Tenant's
property from bursting, stoppage or leaking of water, gas,
sewer or steam pipes.
RE-RENTING (17) Tenant hereby agrees that for a period commencing
ninety (90) days prior to the termination of this lease,
Landlord may show the premises to prospective purchasers or
tenants, and sixty (60) days prior to the termination of
this lease, may display in and about said premises and in
the windows thereof, the usual "TO RENT" or "FOR SALE"
signs.
HOLDING OVER (18) It is hereby agreed that if Tenant holds over
after the termination of this lease, thereafter the tenancy
shall be from month to month in the absence of a written
agreement to the contrary.
GAS, WATER, [INTENTIONALLY OMITTED - SEE ATTACHED ADDENDUM]
HEAT, ELECTRICITY
ACCESS TO (20) Landlord shall have the right to enter upon the
PREMISES leased premises at all reasonable hours for the purpose of
inspecting the same. If Landlord deems any repairs necessary
which are the responsibility of Tenant, Landlord may demand
that Tenant make such repairs. If Tenant refuses or neglects
forthwith to commence such repairs and complete them with
reasonable dispatch, Landlord may make such repairs or cause
them to be made and shall not be responsible to Tenant for
any loss or damage that may accrue to his stock or business
by reason thereof (except as to any unlawful or tortious
acts of Landlord for which Landlord shall be responsible).
If Landlord makes such repairs or causes them to be made,
Tenant agrees that Tenant will forthwith on demand pay to
Landlord the cost thereof with interest at 2% over the Prime
Rate, and if Tenant shall make default in such payment the
Landlord shall have the remedies provided in Paragraph 3
hereof.
REENTRY (21) In case any rent shall be due and unpaid or if
default be made in any of the covenants herein contained, or
if the leased premises shall be deserted or vacated, then it
shall be lawful for the Landlord, his certain attorney,
heirs, representatives and assigns, to reenter into,
repossess the said premises and the tenant and each and
every occupant to remove and put out.
Page 6
<PAGE> 7
QUIET ENJOYMENT (22) Landlord covenants that Tenant, on payment of all
rent due and performing all the covenants herein, shall and
may peacefully and quietly have, hold and enjoy the demised
premises for the term. Landlord and Tenant will each, upon
written request from the other party, provide an estoppel
certificate within ten (10) days of such request, setting
forth the terms of this Lease and their compliance as to the
terms of this Lease by each party.
EXPENSES - (23) If Landlord shall, during the period covered by
DAMAGES - this lease, obtain possession of the premises by reentry,
REENTRY summary proceedings, or otherwise, Tenant hereby agrees to
pay Landlord the expense incurred in obtaining possession of
the premises, including, without limitation, attorneys' fee
and also all expenses and commissions which may be paid for
the letting of the premises, and all other damages.
REMEDIES NOT (24) It is agreed that each and every of the rights,
EXCLUSIVE remedies and benefits provided by this lease shall be
cumulative, and shall not be exclusive of any other of said
rights, remedies and benefits, or of any other rights,
remedies and benefits allowed by law, in equity, any other
agreement or otherwise.
WAIVER (25) One or more waivers of any covenant or condition
by Landlord shall not be construed as a waiver of a further
breach of the same covenant or condition.
DELAY OF (26) [INTENTIONALLY OMITTED]
POSSESSION
NOTICES (27) Any notice which either party may or is required
to give, shall be given by mailing the same, postage
prepaid, to Tenant at c/o JAKKS Pacific, Inc., 22761 Pacific
Coast Highway, Suite 226, Malibu, California 90265, or to
Landlord, at 2716 Baker Road, Suite 100, Dexter, Michigan
48130 or at such other place as may be designated by the
parties from time to time.
HAZARDOUS (28) Tenant shall not use, store, or dispose of any
SUBSTANCES hazardous substances upon the premises, except use and
storage of such substances if they are customarily used in
Tenant's business, and such use and storage complies with
all environmental laws and regulations. Hazardous substances
means any hazardous waste, substance or toxic materials
regulated under any federal or state environmental laws or
local regulations or ordinances applicable to the property.
SECURITY DEPOSIT (29) Landlord acknowledges the receipt of $4,998.50 to
secure the performance of Tenant's obligations hereunder.
Landlord shall not be obligated to apply all or portions of
said deposit on account of Tenant's obligations hereunder.
Any balance remaining upon termination shall be returned to
Tenant. Tenant shall not have the right to apply the
Security Deposit in payment of last month's rent.
(30) The covenants, conditions and agreements herein
are binding on the heirs, successors, representatives and
assigns of the parties hereto.
(31) - (39) See Attached Addendum incorporated herein
by reference
Page 7
<PAGE> 8
IN WITNESS WHEREOF, The parties have hereunto set their hands and seals the day
and year first above written.
WITNESSED BY: LANDLORD
SHORE PROPERTIES LLC,
a Michigan limited liability company
By: /s/ JOSHUA H. POKEMPNER
-----------------------------
Joshua H. Pokempner, Member
By: /s/ WILLIAM E. TAYLOR
-----------------------------
William E. Taylor, Member
TENANT
FLYING COLORS TOYS, INC.,
a Michigan corporation, formerly known as
Colorbok Paper Products, Inc.
By: /s/ JOEL M. BENNETT
-------------------------------
Its: Chief Financial Officer
ACKNOWLEDGMENT OF LANDLORD
STATE OF MICHIGAN )
)ss
COUNTY OF WAYNE )
On this 30th day of September, 1999, before me personally appeared
Joshua H. Pokemner and William E. Taylor, members of Shore Properties LLC, a
Michigan limited liability company, to me known to be the persons described in
and who executed the foregoing Lease on behalf of the company and acknowledged
before me that they executed the same as the free act and deed of said company.
/s/ DIANE P. WASILEWSKI
----------------------------------
Notary Public
Macomb County, MI
My Commission Expires: 7-29-01
acting in Wayne County, MI
Diane P. Wasilewski
Notary Public, Macomb County, Michigan
My Commission Expires July 29 2001
ACKNOWLEDGMENT OF TENANT
STATE OF Michigan )
)ss
COUNTY OF Wayne )
Page 8
<PAGE> 9
On this 30th day of September, 1999, before me personally appeared Joel
M. Bennett, to me personally known, who, being by me duly sworn, did for himself
say that he is the Chief Financial Officer of Flying Colors Toys, Inc., a
Michigan corporation, formerly known as Colorbok Paper Products, Inc., the
corporation named in and which executed the within instrument, and that said
instrument was signed on behalf of said corporation by authority of its board of
directors and he acknowledged before me said instrument to be the free and act
and deed of said corporation.
/s/ DIANE P. WASILEWSKI
--------------------------
Notary Public
Macomb County, MI
My Commission Expires: 7-29-01
acting in Wayne County, MI
Diane P. Wasilewski
Notary Public, Macomb County, Michigan
My Commission Expires July 29 2001
Page 9
<PAGE> 10
ADDENDUM TO BUSINESS PROPERTY LEASE
This Addendum is made as of the Closing Date by and between Shore
Properties LLC, a Michigan limited liability company, as Landlord, and Flying
Colors Toys, Inc., a Michigan corporation, formerly known as Colorbok Paper
Products, Inc., as Tenant.
(31) Notwithstanding Paragraph (28) hereof, the Tenant shall not cause
or permit the premises to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose of, transfer, produce or process hazardous
substances except in the ordinary course of Tenant's business and in full
compliance with all applicable laws, ordinances, rules, regulations and
statutes. The Tenant shall not cause or permit any release or discharge of
hazardous substance on to the premises or on to any adjacent area as the result
of any intentional or unintentional act or omission on the part of Tenant, its
employees, officers agents and invitees. Tenant hereby indemnifies, defends and
holds harmless Landlord and its successors, transferees or assigns and its
employees, attorneys, agents, advisors, members, shareholders, officers and
directors from and against any claims, suits, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses of whatever kind or nature,
including attorneys' fees, fees of environmental consultants and laboratory fees
known or unknown, contingent or otherwise, arising out of or in any way related
to a violation by Tenant or its employees, agents or invitees of Paragraph (28)
and this Paragraph (31).
(32) In addition to the rent set forth in Paragraph (2) hereof and the
insurance premiums required of Tenant under Paragraph (9) hereof, the Tenant
agrees to pay all premiums for fire and extended coverage insurance for the
leased premises maintained by the Landlord. The Tenant shall pay monthly
one-twelfth of the estimated amount of such premium, together with its monthly
payment, subject to adjustment annually.
(33) Landlord shall supply all heat, electricity, water and sewer to
the leased premises as are existing as of the Closing Date. Notwithstanding the
foregoing, Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation, use or interruption of use
of any equipment in connection with the furnishing of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services when such
failure or delay is caused by an accident or any condition beyond the reasonable
control of Landlord or by the making of necessary repairs or improvements to the
leased premises, or (iii) any limitation, curtailment, rationing or restriction
on use of water, electricity, gas or any other form of energy serving the leased
premises. Landlord shall use reasonable diligent efforts to remedy any
interruption in the furnishing of such services.
(34) Tenant shall have a non-exclusive right to use the parking areas,
sidewalks and lawns adjacent to the leased premises and owned by the Landlord
("Common Areas"). Tenant's non-exclusive rights to utilize the Common Areas
shall be in common with Landlord and/or other tenants or occupants and others to
whom Landlord grants such rights from time to time. Landlord agrees to maintain
the Common Areas in good order and condition as reasonably determined by
Landlord. Landlord shall not grant any rights to use the Common Areas which will
materially and adversely affect Tenant's reasonable use of the Common Areas.
(35) Tenant hereby waives all claims against Landlord for damage to
any property or injury or death of any person in, upon or about the leased
premises arising at any time and from any cause whatsoever arising from and
after the date hereof which are not caused by any unlawful or tortious acts of
Landlord or its employees or agents, and Tenant shall hold Landlord harmless
from any damage to any property or injury to or death of any person arising in,
on or about the leased premises. The foregoing indemnity obligation of Tenant
shall include reasonable attorneys' fees, investigation costs and all other
reasonable costs and expenses incurred by Landlord from the first notice that
any claim or demand is to be made or may be made. The provisions of this
10
<PAGE> 11
Paragraph (35) shall survive the termination of this Lease with respect to any
damage, injury or death occurring prior to such termination.
(36) If Landlord shall fail to perform any covenant, term or condition
of this lease upon Landlord's part to be performed, and, if as a consequence of
such default, Tenant shall recover a money judgment against Landlord, such
judgment shall be satisfied only against the right, title and interest of
Landlord in the leased premises and the property owned by Landlord adjacent to
the leased premises ("Premises") and out of rents or other income from the
Premises receivable by Landlord, or out of the consideration received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title and interest in the leased premises, and neither Landlord nor any
of the members or partners of Landlord shall be liable for any deficiency.
(37) Landlord and Tenant shall each request from their respective
insurers under all policies of fire insurance maintained by either of them at
any time during the term of this lease insuring or covering the property owned
by Tenant or any portion thereof or operations therein, a waiver of all rights
of subrogation which the insurer of one party might have against the other
party, and Landlord and Tenant shall each indemnify the other against any loss
or expense, including reasonable attorneys' fees, resulting from the failure to
obtain such waiver and, so long as such waiver is outstanding, each party
waives, to the extent of the proceeds received under such policy, any right of
recovery against the other party for any loss covered by the policy containing
such waiver; provided, however, that if at any time their respective insurers
shall refuse to permit waivers of subrogation, Landlord or Tenant, in each
instance, may revoke said waiver of subrogation effective thirty (30) days from
the date of such notice, unless within such thirty (30) day period, the other is
able to secure and furnish (without additional expense) equivalent insurance
with such waivers with other companies satisfactory to the other party.
(38) Landlord shall indemnify, defend and hold Tenant harmless against
any actual damages experienced by Tenant because of any unlawful or tortious
acts of Landlord under this Lease.
(39) In connection with Paragraph (21) hereof, Tenant shall have three
(3) days to cure any monetary defaults under this Lease and ten (10) days after
written notice of any non-monetary defaults under this Lease to cure such
default. This right to cure shall not be given more than three (3) times in any
Lease year.
TENANT:
Initials /s/ JB
LANDLORD:
Initials /s/ WET
11
<PAGE> 12
EXHIBIT A
[SCHEMATIC DIAGRAM OF PREMISES]
<PAGE> 13
EXHIBIT B
LEGAL DESCRIPTION
Land situated in the Township of Scio, Washtenaw County, Michigan, to wit:
PARCEL A:
Commencing at the South 1/4 post of Section, Town 2 South, Range 6 East,
Washtenaw County, Michigan; thence East along the South line of the
Section, 333.5 feet to the centerline of Baker Road, so-called; thence
Northerly deflecting 89 degrees 01 minutes 30 seconds to the left 1371.8
feet along the centerline of Baker Road for a Place of Beginning; thence
Easterly deflecting 90 degrees 38 minutes to the right along the line of
the fence 265.0 feet; thence Northerly deflecting 90 degrees 38 minutes to
the left 330.0 feet; thence Westerly deflecting 89 degrees 22 minutes to
the left 365.00 feet to the centerline of Baker Road; thence South along
the centerline of Baker Road 330.0 feet to the Place of Beginning, being a
part of the Southeast 1/4 of Section 6, Scio Township, Washtenaw County,
Michigan.
PARCEL B:
Commencing at the South 1/4 corner of Section; thence 333.5 feet in the
South line of Section; thence deflecting 89 degrees 01 minutes 30 seconds
to the left 1371.8 feet in the center of Baker Road; thence deflecting 90
degrees 38 minutes to the right 365 feet for a Place of Beginning; thence
deflecting 90 degrees 38 minutes to the left 330 feet; thence deflecting 90
degrees 38 minutes to the right 295 feet; thence deflecting 89 degrees 22
minutes to the right 330 feet; thence deflecting 90 degrees 38 minutes to
the right 295 feet to the Place of Beginning, being a part of the Southeast
1/4 of Section 6, Town 2 South, Range 5 East, excepting therefrom that part
that lies northerly of the following described line: Commencing at the
South 1/4 corner of Section 6, Town 2 South, Range 5 East, Scio Township,
Washtenaw County, Michigan; thence East 333.5 feet along the South line of
said Section; thence North deflecting 89 degrees 01 minutes 30 seconds to
the left 1371.8 feet along the centerline of Baker Road; thence East
deflecting 90 degrees 38 minutes to the right 365.0 feet; thence North
deflecting 90 degrees 38 minutes to the left 322.33 feet; thence East
deflecting 90 degrees 35 minutes to the right 30.97 feet for a Place of
Beginning; thence continuing East on extension of the previous line 136.74
feet for a Place of Ending, said line being 0.50 feet North of new Jenkins
Equipment Company building and the extension of said building line
easterly. Together with a perpetual non-exclusive easement three feet in
width and bounded on the South by the aforesaid line, for purposes of
ingress and egress to and from and for performing any and all future
repairs or other work on or maintenance to the building presently situated
0.50 feet South of the aforesaid line recorded in Liber 1569, Page 261.
<PAGE> 14
PARCEL D:
a PARCEL OF LAND IN THE Southeast 1/6 of Section 6, Town 2 South, Range 5
East, Scio Township, Washtenaw County, Michigan, described as: Commencing
at the South 1/4 corner of said Section 6; then North 89 degrees 25
minutes 55 seconds East 333.61 feet (recorded as 333.5 feet) along the
South line of said Section 6; then North 00 degrees 23 minutes 00 seconds
East 1176.8 feet along the centerline of Baker Road to the Point of
Beginning; thence continuing North 00 degrees 23 minutes 00 seconds East
20.00 feet along said centerline; thence South 88 degrees 59 minutes 00
seconds East 660.00 feet; thence South 85 degrees 289 minutes 10 seconds
West 206.89 feet; thence North 88 degrees 59 minutes 00 seconds West 453.86
feet to the Point of Beginning.
PARCEL E:
Commencing at the South 1/4 post of Section; thence East 333.5 feet in the
South line of Section; thence deflecting the 89 degrees 01 minutes 30
seconds to the left 1196.8 feet in the center of Baker Road for a Place of
Beginning; thence deflecting 90 degrees 38 minutes to the right 660 feet;
thence deflecting 90 degrees 38 minutes to the left 175 feet; thence
deflecting 89 degrees 22 minutes to the left 660 feet; thence South 175
feet in the center of Baker Road to the Place of Beginning, being a part
of the Southeast 1/4 Section 6.
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 1, 1999 by and between JAKKS
Pacific, Inc., a Delaware corporation (the "Company"), and Michael Bianco
("Executive")
W I T N E S S E T H :
WHEREAS, concurrently with the effectiveness of this Agreement, the
Company is acquiring (the "Acquisition") all of the outstanding capital stock of
Flying Colors Toys, Inc., a Michigan corporation formerly known as "Colorbok
Paper Products, Inc." ("Flying Colors"); and
WHEREAS, Executive was, until the closing of the Acquisition, an
executive officer and shareholder of Flying Colors; and
WHEREAS, the Company desires to employ Executive on the terms and
subject to the conditions hereinafter set forth, and Executive desires so to be
employed;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the Company and Executive agree as follows:
1. Offices and Duties. The Company hereby employs Executive during the
Term (as hereinafter defined) to serve as the senior employee of Flying Colors
responsible for sales and marketing with the divisional title of Senior Vice
President - Sales and Development and to perform such executive and supervisory
duties on behalf of Flying Colors as the Board of Directors or an executive
officer of the Company or the Board of Directors or an executive officer of
Flying Colors may from time to time reasonably direct; provided that such duties
are substantially within the scope of the duties required to be performed by
Executive for Flying Colors immediately prior to the date hereof. The Board of
Directors of Flying Colors may elect or designate Executive to serve in such
other corporate offices of Flying Colors or a subsidiary thereof as they may
from time to time deem necessary, proper or advisable. Executive hereby accepts
such employment and agrees that throughout the Term he shall faithfully,
diligently and to the best of his ability, in furtherance of the business of the
Company and Flying Colors, perform the duties assigned to him or incidental to
the offices assumed by him pursuant to this Section. Executive shall devote
substantially all of his business time and attention to the business and affairs
of the Company, but Executive shall not be required to devote any minimum amount
of time or report or perform his duties hereunder on a fixed or periodic basis,
and Executive may engage or participate in such other activities incidental to
any other employment, occupation or business venture or enterprise as do not
materially interfere with or compromise his ability to perform his duties
hereunder. Executive shall at all times be subject to the direction and control
of the Boards
<PAGE> 2
of Directors of the Company and Flying Colors, respectively, and observe and
comply with such rules, regulations, policies and practices as the Board of
Directors of the Company or of Flying Colors may from time to time establish.
2. Term. The employment of Executive hereunder shall commence on the
date hereof and continue for a term ending on December 31, 2002, subject to
earlier termination upon the terms and conditions provided elsewhere herein (the
"Term"). As used herein, "Termination Date" means the last day of the Term.
3. Compensation.
(a) As compensation for his services hereunder:
(i) the Company is granting to Executive on the date hereof
options to purchase 10,000 shares of the Company's Common Stock pursuant to the
Company's Third Amended and Restated Stock Option Plan and subject to the terms
and conditions set forth in Annex I hereto; and
(ii) the Company shall pay to Executive during the Term:
(A) a base salary at the rate of $300,000
per annum (the "Base Salary"), such Base Salary to be
paid in substantially equal installments no less often
than twice monthly; and
(B) such additional incentive or bonus compensation
as the Company's Board of Directors may from time to time
determine.
(b) In addition to his Base Salary and other compensation
provided herein, Executive shall be entitled to participate, to the extent he is
eligible under the terms and conditions thereof, in any stock, stock option or
other equity participation plan and any profit-sharing, pension, retirement,
insurance, medical service or other employee benefit plan generally available to
the executive officers of the Company, and to receive any other benefits or
perquisites generally available to the executive officers of the Company
pursuant to any employment policy or practice, which may be in effect from time
to time during the Term. Except as otherwise expressly provided herein, the
Company shall be under no obligation hereunder to institute or to continue any
such employee benefit plan or employment policy or practice.
(c) During the Term, Executive shall not be entitled to
additional compensation for serving as a director or officer of the Company (or
any subsidiary thereof) to which he is elected or appointed; provided that such
duties are substantially within the scope of the duties required to be performed
by Executive for Flying Colors immediately prior to the date hereof. Throughout
any period or periods during which he shall serve as a director of the Company
(or such subsidiary), Executive shall be entitled to directors' fees in
2
<PAGE> 3
accordance with the policies and practices of the Company (or such subsidiary)
then in effect.
4. Expense Allowance.
The Company shall pay directly, or advance funds to Executive
or reimburse Executive for, all expenses reasonably incurred by him in
connection with the performance of his duties hereunder and the business of the
Company, upon the submission to the Company of itemized expense reports,
receipts or vouchers in accordance with its then customary policies and
practices.
5. Location. Except for routine travel and temporary accommodation
reasonably required to perform his services hereunder, Executive shall not be
required to perform his services hereunder at any location other than the
principal executive office of Flying Colors, which office shall be located
throughout the Term at its location on the date hereof, or, if relocated, at a
location within a distance of 30 miles from its location on the date hereof, or
at such other office or site to which Executive may, in his sole discretion,
consent; nor shall he be required to relocate his principal residence to, or
otherwise to reside at, any location specified by the Company.
6. Office. The Company shall provide Executive with suitable office
space, furnishings and equipment, secretarial and clerical services and such
other facilities and office support as are reasonably necessary for the
performance of his services hereunder.
7. Vacation. Executive shall be entitled to four weeks paid vacation
during each year of his employment hereunder, such vacation to be taken at such
time or times as shall be agreed upon by Executive and the Company. Vacation
time shall be cumulative from year to year, except that Executive shall not be
entitled to take more than six weeks vacation during any consecutive 12-month
period during the Term.
8. Key-Man Insurance. The Company shall have the right from time to
time to purchase, increase, modify or terminate insurance policies on the life
of Executive for the benefit of the Company in such amounts as the Company may
determine in its sole discretion. In connection therewith, Executive shall, at
such time or times and at such place or places as the Company may reasonably
direct, submit himself to such physical examinations and execute and deliver
such documents as the Company may deem necessary or appropriate.
9. Trade Secrets. Executive shall hold in a fiduciary capacity for the
benefit of the Company all confidential or proprietary information relating to
or concerned with its operations, business and affairs, and he shall not, at any
time hereafter, use or disclose any such information to any person other than to
the Company or its designees or except as may otherwise be required in
connection with the business and affairs of the Company.
3
<PAGE> 4
10. Intellectual Property. Subject to Sections 2870 and 2871 of the
California Labor Code:
(a) Any invention, design, process, system, procedure,
improvement, development or discovery conceived, developed, created or made by
Executive, alone or with others, during the Term and applicable to the business
of the Company, whether or not patentable or registrable, shall become the sole
and exclusive property of the Company.
(b) Executive shall disclose the same promptly and completely
to the Company and shall, during the Term or thereafter, (i) execute all
documents requested by the Company for vesting in the Company the entire right,
title and interest in and to the same, (ii) execute all documents requested by
the Company for filing and procuring such applications for patents, trademarks,
service marks or copyrights as the Company, in its sole discretion, may desire
to prosecute, and (iii) give the Company all assistance it may reasonably
require, including the giving of testimony in any Proceeding (as hereinafter
defined), in other to obtain, maintain and protect the Company's right therein
and thereto; provided that the Company shall bear the entire cost and expense of
such assistance, including without limitation paying the Executive reasonable
compensation for any time or effort expended by him in connection with such
assistance after the Termination Date.
11. No Competition.
(a) During the Term, and unless his employment terminates
pursuant to Section 14 or by action of the Company or Flying Colors other than
pursuant to Section 13, for a further period of three years thereafter,
Executive shall not, directly or indirectly:
(i) own, control, manage, operate, participate or invest in, or
otherwise be connected with, in any manner, any business activity, venture or
enterprise which is engaged in the Restricted Business or any other business in
which the Company (or any subsidiary thereof) is engaged at the time of
termination of Executive's employment hereunder; provided, however, that
Executive may invest his funds in securities of an issuer engaged in the
Restricted Business or any other business in which the Company (or any
subsidiary thereof) is engaged if the securities of such issuer are listed for
trading on a registered securities exchange or actively traded in an
over-the-counter market and Executive's holdings therein represent less than 1%
of the total number of shares or principal amount of the securities of such
issuer outstanding; or
(ii) for himself or on behalf of any other person, employ or
engage any Person (other than a Shareholder) who at the time shall have been
within the preceding 12-month period an employee of the Company (or any
subsidiary thereof) or contact any supplier, customer or employee of the Company
(or such subsidiary) for the purpose of soliciting or diverting any supplier,
customer or employee from the Company (or such subsidiary);
4
<PAGE> 5
provided that no provision of this Section 11(a) is intended or shall be deemed
to preclude Executive or the Divestee from engaging any sales representative or
conducting business or dealing with any vendor, supplier or customer in the
ordinary course of the Divested Business.
(b) The provisions of Section 11(a) notwithstanding, Executive may:
(i) retain (but not increase, except pursuant to an agreement
in effect on the date hereof or by operation of law) his interest in the
Divestee; and
(ii) until December 31, 2000, serve as a director of, and
perform consulting services for, the Divestee.
(c) Executive acknowledges that the provisions of this Section, and the
period of time, geographic area and scope and type of restrictions on his
activities set forth herein, are reasonable and necessary for the protection of
the Company.
12. Termination Upon Death or Disability. Executive's employment hereunder shall
terminate immediately upon his death. In the event that Executive is unable to
perform his duties hereunder by reason of any disability or incapacity (due to
any physical or mental injury, illness or defect) for an aggregate of 90 days in
any consecutive 12-month period, the Company shall have the right to terminate
Executive's employment hereunder within 60 days after the 90th day of his
disability or incapacity by giving Executive notice to such effect at least 30
days prior to the date of termination set forth in such notice, and on such date
such employment shall terminate.
13. Termination for Cause.
(a) In addition to any other rights or remedies provided by law or in
this Agreement, the Company may terminate Executive's employment under this
Agreement if:
(i) Executive is convicted of, or enters a plea of guilty or
nolo contendere (which plea is not withdrawn prior to its approval by the court)
to, a felony offense and either Executive fails to perfect an appeal of such
conviction prior to the expiration of the maximum period of time within which,
under applicable law or rules of court, such appeal may be perfected or, if
Executive does perfect such an appeal, his conviction of a felony offense is
sustained on appeal; or
(ii) the Company's Board of Directors determines, after due
inquiry, that Executive has:
(A) committed fraud against, or embezzled or misappropriated
funds or other assets of, the Company (or any subsidiary thereof);
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<PAGE> 6
(B) violated, or caused the Company (or any
subsidiary thereof) or any officer, employee or other agent
thereof, or any other Person to violate, any material law,
regulation or ordinance, which violation has or would
reasonably be expected to have a significant detrimental
effect on the Company or Flying Colors, or any material rule,
regulation, policy or practice established by the Board of
Directors of the Company or Flying Colors;
(C) willfully, or because of gross or persistent
negligence, (A) failed properly to perform his duties
hereunder or (B) acted in a manner detrimental to, or adverse
to the interests of, the Company; or
(D) violated, or failed to perform or satisfy any
material covenant, condition or obligation required to be
performed or satisfied by Executive hereunder.
(b) The Company may effect such termination for cause by giving
Executive notice to such effect, setting forth in reasonable detail the factual
basis for such termination, at least 20 days prior to the date of termination
set forth therein; provided however that Executive may avoid such termination if
Executive, prior to the date of termination set forth in such notice, cures or
explains to the reasonable satisfaction of the Company's Board of Directors the
factual basis for termination set forth therein.
(c) In making any determination pursuant to Section 13(a) as to the
occurrence of any act or event described in clauses (A) to (D) of paragraph (ii)
thereof (each, a "For Cause Event"), each of the following shall constitute
convincing evidence of such occurrence:
(i) if Executive is made a party to, or target of, any
Proceeding arising under or relating to any For Cause Event, Executive's failure
to defend against such Proceeding or to answer any complaint filed against him
therein, or to deny any claim, charge, averment, or allegation thereof asserting
or based upon the occurrence of a For Cause Event;
(ii) any judgment, award, order, decree or other adjudication
or ruling in any such Proceeding finding or based upon the occurrence of a For
Cause Event (that is not reversed or vacated on appeal); or
(iii) any settlement or compromise of, or consent decree
issued in, any such Proceeding in which Executive expressly admits the
occurrence of a For Cause Event;
provided that none of the foregoing shall be dispositive or create an
irrebuttable presumption of the occurrence of such For Cause Event; and provided
further that the Company's Board of Directors may rely on any other factor or
event as convincing evidence of the occurrence of a For Cause Event.
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14. Termination by Executive for Good Reason. In addition to any other
rights or remedies provided by law or in this Agreement, Executive may terminate
his employment hereunder if (a) the Company violates, or fails to perform or
satisfy any material covenant, condition or obligation required to be performed
or satisfied by it hereunder or, (b) as a result of any action or failure to act
by the Company, there is a material change in the nature or scope of the duties,
obligations, rights or powers of Executive's employment, by giving the Company
notice to such effect, setting forth in reasonable detail the factual basis for
such termination, at least 20 days prior to the date of termination set forth
therein; provided however that the Company may avoid such termination if it,
prior to the date of termination set forth in such notice, cures or explains to
the reasonable satisfaction of Executive the factual basis for termination set
forth therein. The termination by Executive of his employment pursuant to this
Section 14 shall not constitute or be deemed to constitute for any purpose a
"voluntary resignation" of his employment.
15. Compensation upon Termination.
(a) Upon termination of Executive's employment hereunder, he
shall be entitled to receive, in any case, any compensation or other amount due
to him pursuant to Section 3 or 4 in respect of his employment prior to the
Termination Date, and from and after the Termination Date, except as otherwise
provided in Section 15(b), the Company shall have no further obligation to
Executive hereunder. Any amount payable to Executive pursuant to this Section
15(a) upon termination of his employment hereunder shall be paid promptly, and
in any event within 30 days, after the Termination Date.
(b) If Executive terminates his employment hereunder for Good
Reason pursuant to Section 14 or if the Company terminates his employment
hereunder other than upon his disability or incapacity pursuant to Section 12
and other than for cause pursuant to Section 13, the Company shall make to
Executive payments at the times and in the amounts provided herein for the
payment of his Base Salary during the period beginning on the day after the
Termination Date and ending on December 31, 2002 offset by any amount earned by
Executive as compensation for services he performs for any other Person during
such Period.
(c) Executive shall have no obligation hereunder to seek or to
accept any other employment after the Termination Date or otherwise to mitigate
the payments required to be made by this Section. Except as provided in Section
15(b), no compensation or other amount received or receivable by Executive on
account of any employment or engagement after the Termination Date shall be
offset against or deducted from any payment required to be made by this Section.
16. Limitation of Authority. Except as expressly provided herein, no
provision hereof shall be deemed to authorize or empower either party hereto to
act on behalf of, obligate or bind the other party hereto.
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<PAGE> 8
17. Notices. Any notice or demand required or permitted to be given or
made hereunder to or upon either party hereto shall be deemed to have been duly
given or made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage paid, return receipt requested, or (b) sent by telegram, telecopy, telex
or similar electronic means, provided that a written copy thereof is sent on the
same day by postage-paid first-class mail, to such party at the following
address:
to the Company at: 22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
with a copy to: Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
to Executive at: 6161 Windmill Court
Saline, Michigan 48176
with a copy to: Howard Rice, Esq.
230 Glenwood Drive
Delray Beach, FL 33445
Fax: (561) 638-1136
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a) (i), the date of the receipt; in the case of clause (a) (ii), five
business days after such notice or demand is sent; and, in the case of clause
(b), the business day next following the date such notice or demand is sent.
18. Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing and signed by or
on behalf of the parties hereto.
19. Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
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<PAGE> 9
20. Governing Law. This Agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of California without
regard to principles of choice of law or conflict of laws.
21. Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the jurisdiction of the courts of the State of
California and the United States District Court for the Southern District of
California in connection with any suit, action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of Los Angeles, State of California, or such
District, and agrees that service of any summons, complaint, notice or other
process relating to such proceeding may be effected in the manner provided by
clause (a) (ii) of Section 17.
22. Remedies. In the event of any actual or prospective breach or
default under this Agreement by either party hereto, the other party shall be
entitled to equitable relief, including remedies in the nature of rescission,
injunction and specific performance. All remedies hereunder are cumulative and
not exclusive, and nothing herein shall be deemed to prohibit or limit either
party from pursuing any other remedy or relief available at law or in equity for
such actual or prospective breach or default, including the recovery of damages;
provided that, except as provided in Section 15 and except with respect to a
breach by Executive of his obligations pursuant to Sections 9, 10 and 11, no
party hereto shall be liable under this Agreement for lost profits or
consequential damages.
23. Severability. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
24. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute one
and the same agreement.
25. Assignment. This Agreement, and each right, interest and obligation
hereunder, may not be assigned by either party hereto without the prior written
consent of the other party hereto, and any purported assignment without such
consent shall be void and without effect, except that this Agreement shall be
assigned to, and assumed by, any person with or into which the Company merges or
consolidates, or which acquires all or substantially all of its assets, or which
otherwise succeeds to and continues the Company's business substantially as an
entirety. Except as otherwise expressly provided herein or required by law,
Executive shall not have any power of anticipation, assignment or alienation of
any payments required to be made to him hereunder, and no other person may
acquire any
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<PAGE> 10
right or interest in any thereof by reason of any purported sale, assignment or
other disposition thereof, whether voluntary or involuntary, any claim in a
bankruptcy or other insolvency proceeding against Executive, or any other
ruling, judgment, order, writ or decree.
26. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is not intended, and shall not be deemed, to create or
confer any right or interest for the benefit of any person not a party hereto.
27. Titles and Captions. The titles and captions of the Articles and
Sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
28. Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
29. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
30. No Presumptions. Each party hereto acknowledges that it has had an
opportunity to consult with counsel and has participated in the preparation of
this Agreement. No party hereto is entitled to any presumption with respect to
the interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
31. Certain Definitions. As used herein:
(a) "Person" includes without limitation a natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, government or governmental authority, agency or
instrumentality, or any group of the foregoing acting in concert.
(b) A "Proceeding" is any suit, action, arbitration, audit,
investigation or other proceeding before or by any court, magistrate,
arbitration panel or other tribunal, or any governmental agency, authority or
instrumentality of competent jurisdiction.
(c) Other capitalized terms not defined herein are used herein
as defined in the Stock Purchase Agreement dated as of September 22, 1999
relating to the Acquisition.
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32. Entire Agreement. This Agreement embodies the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto, including without
limitation Sections 1, 2, 3 and 6 of the Employment Reinstatement Agreement
dated as of May 1, 1999 among Flying Colors, Executive and certain other
Persons, as amended, which shall terminate, notwithstanding any contrary
provision thereof, immediately upon the commencement of the Term, except that
(a) each party thereto shall (i) remain required to perform any act and to
satisfy any obligation or condition that such party is required to perform or
satisfy thereunder with respect to any event occurring or circumstance existing
during the term thereof (including without limitation the payment or delivery to
Executive of any compensation, reimbursable expense or employee benefit or
perquisite to which he may be entitled, but which has not yet been paid to him,
on account of his employment thereunder) that has not been so performed or
satisfied, and (ii) retain its right thereunder to assert or to allege any claim
or cause of action relating to or based upon, or otherwise to enforce, any
provision thereof with respect to any event occurring or circumstance existing
during the term thereof, and (b) Sections 4, 5, 7, 8 and 9 of such Employment
Reinstatement Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
JAKKS PACIFIC, INC.
By: /s/ Joel M. Bennett
------------------------------------
Name: Joel M. Bennett
Title: Chief Financial Officer
EXECUTIVE:
/s/ Michael Bianco
----------------------------------------
Michael Bianco
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ANNEX I
Exercise Price: closing sale price as reported by Nasdaq National
Market on grant date
Term: 6 years from grant date
Vesting Schedule: 1,500 shares after 1st anniversary of grant date
1,500 shares after 2nd anniversary of grant date
1,500 shares after 3rd anniversary of grant date
2,500 shares after 4th anniversary of grant date
3,000 shares after 5th anniversary of grant date
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<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 1, 1999 by and between JAKKS
Pacific, Inc., a Delaware corporation (the "Company"), and Joshua H. Pokempner
("Executive")
W I T N E S S E T H :
WHEREAS, concurrently with the effectiveness of this Agreement, the
Company is acquiring (the "Acquisition") all of the outstanding capital stock of
Flying Colors Toys, Inc., a Michigan corporation formerly known as "Colorbok
Paper Products, Inc." ("Flying Colors"); and
WHEREAS, Executive was the founder and, until the closing of the
Acquisition, an executive officer and shareholder of Flying Colors; and
WHEREAS, the Company desires to employ Executive on the terms and
subject to the conditions hereinafter set forth, and Executive desires so to be
employed;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the Company and Executive agree as follows:
1. Offices and Duties. The Company hereby employs Executive during the
Term (as hereinafter defined) to serve as the General Manager of Flying Colors'
operations with the divisional title of Senior Vice President - Development and
to perform such executive and supervisory duties on behalf of Flying Colors as
the Board of Directors or an executive officer of the Company or the Board of
Directors or an executive officer of Flying Colors may from time to time
reasonably direct; provided that such duties are substantially within the scope
of the duties required to be performed by Executive for Flying Colors
immediately prior to the date hereof. The Board of Directors of Flying Colors
may elect or designate Executive to serve in such other corporate offices of
Flying Colors or a subsidiary thereof as they may from time to time deem
necessary, proper or advisable. Executive hereby accepts such employment and
agrees that throughout the Term he shall faithfully, diligently and to the best
of his ability, in furtherance of the business of the Company and Flying Colors,
perform the duties assigned to him or incidental to the offices assumed by him
pursuant to this Section. Executive shall devote substantially all of his
business time and attention to the business and affairs of the Company, but
Executive shall not be required to devote any minimum amount of time or report
or perform his duties hereunder on a fixed or periodic basis, and Executive may
engage or participate in such other activities incidental to any other
employment, occupation or business venture or enterprise as do not materially
interfere with or compromise his ability to perform his duties hereunder.
Executive shall at all times be subject to the direction and control of the
Boards of Directors of the Company and Flying Colors, respectively, and observe
and comply with such rules, regulations, policies and
<PAGE> 2
practices as the Board of Directors of the Company or of Flying Colors may from
time to time establish.
2. Term. The employment of Executive hereunder shall commence on the
date hereof and continue for a term ending on December 31, 2002, subject to
earlier termination upon the terms and conditions provided elsewhere herein (the
"Term"). As used herein, "Termination Date" means the last day of the Term.
3. Compensation.
(a) As compensation for his services hereunder:
(i) the Company is granting to Executive on the date
hereof options to purchase 10,000 shares of the Company's Common Stock pursuant
to the Company's Third Amended and Restated Stock Option Plan and subject to the
terms and conditions set forth in Annex I hereto; and
(ii) the Company shall pay to Executive during the Term:
(A) a base salary at the rate of $300,000
per annum (the "Base Salary"), such Base Salary to be
paid in substantially equal installments no less
often than twice monthly; and
(B) such additional incentive or bonus
compensation as the Company's Board of Directors may
from time to time determine.
(b) In addition to his Base Salary and other compensation
provided herein, Executive shall be entitled to participate, to the extent he is
eligible under the terms and conditions thereof, in any stock, stock option or
other equity participation plan and any profit-sharing, pension, retirement,
insurance, medical service or other employee benefit plan generally available to
the executive officers of the Company, and to receive any other benefits or
perquisites generally available to the executive officers of the Company
pursuant to any employment policy or practice, which may be in effect from time
to time during the Term. Except as otherwise expressly provided herein, the
Company shall be under no obligation hereunder to institute or to continue any
such employee benefit plan or employment policy or practice.
(c) During the Term, Executive shall not be entitled to
additional compensation for serving as a director or officer of the Company (or
any subsidiary thereof) to which he is elected or appointed; provided that such
duties are substantially within the scope of the duties required to be performed
by Executive for Flying Colors immediately prior to the date hereof. Throughout
any period or periods during which he shall serve as a director of the Company
(or such subsidiary), Executive shall be entitled to directors' fees in
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<PAGE> 3
accordance with the policies and practices of the Company (or such subsidiary)
then in effect.
4. Expense Allowance.
The Company shall pay directly, or advance funds to Executive
or reimburse Executive for, all expenses reasonably incurred by him in
connection with the performance of his duties hereunder and the business of the
Company, upon the submission to the Company of itemized expense reports,
receipts or vouchers in accordance with its then customary policies and
practices.
5. Location. Except for routine travel and temporary accommodation
reasonably required to perform his services hereunder, Executive shall not be
required to perform his services hereunder at any location other than the
principal executive office of Flying Colors, which office shall be located
throughout the Term at its location on the date hereof, or, if relocated, at a
location within a distance of 30 miles from its location on the date hereof, or
at such other office or site to which Executive may, in his sole discretion,
consent; nor shall he be required to relocate his principal residence to, or
otherwise to reside at, any location specified by the Company.
6. Office. The Company shall provide Executive with suitable office
space, furnishings and equipment, secretarial and clerical services and such
other facilities and office support as are reasonably necessary for the
performance of his services hereunder.
7. Vacation. Executive shall be entitled to four weeks paid vacation
during each year of his employment hereunder, such vacation to be taken at such
time or times as shall be agreed upon by Executive and the Company. Vacation
time shall be cumulative from year to year, except that Executive shall not be
entitled to take more than six weeks vacation during any consecutive 12-month
period during the Term.
8. Key-Man Insurance. The Company shall have the right from time to
time to purchase, increase, modify or terminate insurance policies on the life
of Executive for the benefit of the Company in such amounts as the Company may
determine in its sole discretion. In connection therewith, Executive shall, at
such time or times and at such place or places as the Company may reasonably
direct, submit himself to such physical examinations and execute and deliver
such documents as the Company may deem necessary or appropriate.
9. Trade Secrets. Executive shall hold in a fiduciary capacity for the
benefit of the Company all confidential or proprietary information relating to
or concerned with its operations, business and affairs, and he shall not, at any
time hereafter, use or disclose any such information to any person other than to
the Company or its designees or except as may otherwise be required in
connection with the business and affairs of the Company.
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10. Intellectual Property. Subject to Sections 2870 and 2871 of the
California Labor Code:
(a) Any invention, design, process, system, procedure,
improvement, development or discovery conceived, developed, created or made by
Executive, alone or with others, during the Term and applicable to the business
of the Company, whether or not patentable or registrable, shall become the sole
and exclusive property of the Company.
(b) Executive shall disclose the same promptly and completely
to the Company and shall, during the Term or thereafter, (i) execute all
documents requested by the Company for vesting in the Company the entire right,
title and interest in and to the same, (ii) execute all documents requested by
the Company for filing and procuring such applications for patents, trademarks,
service marks or copyrights as the Company, in its sole discretion, may desire
to prosecute, and (iii) give the Company all assistance it may reasonably
require, including the giving of testimony in any Proceeding (as hereinafter
defined), in other to obtain, maintain and protect the Company's right therein
and thereto; provided that the Company shall bear the entire cost and expense of
such assistance, including without limitation paying the Executive reasonable
compensation for any time or effort expended by him in connection with such
assistance after the Termination Date.
11. No Competition.
(a) During the Term, and unless his employment terminates
pursuant to Section 14 or by action of the Company or Flying Colors other than
pursuant to Section 13, for a further period of three years thereafter,
Executive shall not, directly or indirectly:
(i) own, control, manage, operate, participate or invest
in, or otherwise be connected with, in any manner, any business activity,
venture or enterprise which is engaged in the Restricted Business or any other
business in which the Company (or any subsidiary thereof) is engaged at the time
of termination of Executive's employment hereunder; provided, however, that
Executive may invest his funds in securities of an issuer engaged in the
Restricted Business or any other business in which the Company (or any
subsidiary thereof) is engaged if the securities of such issuer are listed for
trading on a registered securities exchange or actively traded in an
over-the-counter market and Executive's holdings therein represent less than 1%
of the total number of shares or principal amount of the securities of such
issuer outstanding; or
(ii) for himself or on behalf of any other person, employ
or engage any Person (other than a Shareholder) who at the time shall have been
within the preceding 12-month period an employee of the Company (or any
subsidiary thereof) or contact any supplier, customer or employee of the Company
(or such subsidiary) for the purpose of soliciting or diverting any supplier,
customer or employee from the Company (or such subsidiary);
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provided that no provision of this Section 11(a) is intended or shall be deemed
to preclude Executive or the Divestee from engaging any sales representative or
conducting business or dealing with any vendor, supplier or customer in the
ordinary course of the Divested Business.
(b) The provisions of Section 11(a) notwithstanding, Executive may:
(i) retain (but not increase, except pursuant to an agreement
in effect on the date hereof or by operation of law) his interest in the
Divestee; and
(ii) until December 31, 2000, serve as a director of, and
perform consulting services for, the Divestee.
(c) Executive acknowledges that the provisions of this Section, and the
period of time, geographic area and scope and type of restrictions on his
activities set forth herein, are reasonable and necessary for the protection of
the Company.
12. Termination Upon Death or Disability. Executive's employment hereunder shall
terminate immediately upon his death. In the event that Executive is unable to
perform his duties hereunder by reason of any disability or incapacity (due to
any physical or mental injury, illness or defect) for an aggregate of 90 days in
any consecutive 12-month period, the Company shall have the right to terminate
Executive's employment hereunder within 60 days after the 90th day of his
disability or incapacity by giving Executive notice to such effect at least 30
days prior to the date of termination set forth in such notice, and on such date
such employment shall terminate.
13. Termination for Cause.
(a) In addition to any other rights or remedies provided by law or in
this Agreement, the Company may terminate Executive's employment under this
Agreement if:
(i) Executive is convicted of, or enters a plea of guilty or
nolo contendere (which plea is not withdrawn prior to its approval by the court)
to, a felony offense and either Executive fails to perfect an appeal of such
conviction prior to the expiration of the maximum period of time within which,
under applicable law or rules of court, such appeal may be perfected or, if
Executive does perfect such an appeal, his conviction of a felony offense is
sustained on appeal; or
(ii) the Company's Board of Directors determines, after due
inquiry, that Executive has:
(A) committed fraud against, or embezzled or
misappropriated funds or other assets of, the Company (or any
subsidiary thereof);
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<PAGE> 6
(B) violated, or caused the Company (or any
subsidiary thereof) or any officer, employee or other agent
thereof, or any other Person to violate, any material law,
regulation or ordinance, which violation has or would
reasonably be expected to have a significant detrimental
effect on the Company or Flying Colors, or any material rule,
regulation, policy or practice established by the Board of
Directors of the Company or Flying Colors;
(C) willfully, or because of gross or persistent
negligence, (A) failed properly to perform his duties
hereunder or (B) acted in a manner detrimental to, or adverse
to the interests of, the Company; or
(D) violated, or failed to perform or satisfy any
material covenant, condition or obligation required to be
performed or satisfied by Executive hereunder.
(b) The Company may effect such termination for cause by giving
Executive notice to such effect, setting forth in reasonable detail the factual
basis for such termination, at least 20 days prior to the date of termination
set forth therein; provided however that Executive may avoid such termination if
Executive, prior to the date of termination set forth in such notice, cures or
explains to the reasonable satisfaction of the Company's Board of Directors the
factual basis for termination set forth therein.
(c) In making any determination pursuant to Section 13(a) as to the
occurrence of any act or event described in clauses (A) to (D) of paragraph (ii)
thereof (each, a "For Cause Event"), each of the following shall constitute
convincing evidence of such occurrence:
(i) if Executive is made a party to, or target of, any
Proceeding arising under or relating to any For Cause Event, Executive's failure
to defend against such Proceeding or to answer any complaint filed against him
therein, or to deny any claim, charge, averment, or allegation thereof asserting
or based upon the occurrence of a For Cause Event;
(ii) any judgment, award, order, decree or other adjudication
or ruling in any such Proceeding finding or based upon the occurrence of a For
Cause Event (that is not reversed or vacated on appeal); or
(iii) any settlement or compromise of, or consent decree
issued in, any such Proceeding in which Executive expressly admits the
occurrence of a For Cause Event;
provided that none of the foregoing shall be dispositive or create an
irrebuttable presumption of the occurrence of such For Cause Event; and provided
further that the Company's Board of Directors may rely on any other factor or
event as convincing evidence of the occurrence of a For Cause Event.
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<PAGE> 7
14. Termination by Executive for Good Reason. In addition to any other
rights or remedies provided by law or in this Agreement, Executive may terminate
his employment hereunder if (a) the Company violates, or fails to perform or
satisfy any material covenant, condition or obligation required to be performed
or satisfied by it hereunder or, (b) as a result of any action or failure to act
by the Company, there is a material change in the nature or scope of the duties,
obligations, rights or powers of Executive's employment, by giving the Company
notice to such effect, setting forth in reasonable detail the factual basis for
such termination, at least 20 days prior to the date of termination set forth
therein; provided however that the Company may avoid such termination if it,
prior to the date of termination set forth in such notice, cures or explains to
the reasonable satisfaction of Executive the factual basis for termination set
forth therein. The termination by Executive of his employment pursuant to this
Section 14 shall not constitute or be deemed to constitute for any purpose a
"voluntary resignation" of his employment.
15. Compensation upon Termination.
(a) Upon termination of Executive's employment hereunder, he
shall be entitled to receive, in any case, any compensation or other amount due
to him pursuant to Section 3 or 4 in respect of his employment prior to the
Termination Date, and from and after the Termination Date, except as otherwise
provided in Section 15(b), the Company shall have no further obligation to
Executive hereunder. Any amount payable to Executive pursuant to this Section
15(a) upon termination of his employment hereunder shall be paid promptly, and
in any event within 30 days, after the Termination Date.
(b) If Executive terminates his employment hereunder for Good
Reason pursuant to Section 14 or if the Company terminates his employment
hereunder other than upon his disability or incapacity pursuant to Section 12
and other than for cause pursuant to Section 13, the Company shall make to
Executive payments at the times and in the amounts provided herein for the
payment of his Base Salary during the period beginning on the day after the
Termination Date and ending on December 31, 2002 offset by any amount earned by
Executive as compensation for services he performs for any other Person during
such Period.
(c) Executive shall have no obligation hereunder to seek or to
accept any other employment after the Termination Date or otherwise to mitigate
the payments required to be made by this Section. Except as provided in Section
15(b), no compensation or other amount received or receivable by Executive on
account of any employment or engagement after the Termination Date shall be
offset against or deducted from any payment required to be made by this Section.
16. Limitation of Authority. Except as expressly provided herein, no
provision hereof shall be deemed to authorize or empower either party hereto to
act on behalf of, obligate or bind the other party hereto.
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17. Notices. Any notice or demand required or permitted to be given or
made hereunder to or upon either party hereto shall be deemed to have been duly
given or made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage paid, return receipt requested, or (b) sent by telegram, telecopy, telex
or similar electronic means, provided that a written copy thereof is sent on the
same day by postage-paid first-class mail, to such party at the following
address:
to the Company at: 22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
with a copy to: Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
to Executive at: 2908 West Delhi Road
Ann Arbor, Michigan 48103
with a copy to: Howard Rice, Esq.
230 Glenwood Drive
Delray Beach, FL 33445
Fax: (561) 638-1136
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a) (i), the date of the receipt; in the case of clause (a) (ii), five
business days after such notice or demand is sent; and, in the case of clause
(b), the business day next following the date such notice or demand is sent.
18. Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing and signed by or
on behalf of the parties hereto.
19. Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
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20. Governing Law. This Agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of California without
regard to principles of choice of law or conflict of laws.
21. Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the jurisdiction of the courts of the State of
California and the United States District Court for the Southern District of
California in connection with any suit, action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of Los Angeles, State of California, or such
District, and agrees that service of any summons, complaint, notice or other
process relating to such proceeding may be effected in the manner provided by
clause (a) (ii) of Section 17.
22. Remedies. In the event of any actual or prospective breach or
default under this Agreement by either party hereto, the other party shall be
entitled to equitable relief, including remedies in the nature of rescission,
injunction and specific performance. All remedies hereunder are cumulative and
not exclusive, and nothing herein shall be deemed to prohibit or limit either
party from pursuing any other remedy or relief available at law or in equity for
such actual or prospective breach or default, including the recovery of damages;
provided that, except as provided in Section 15 and except with respect to a
breach by Executive of his obligations pursuant to Sections 9, 10 and 11, no
party hereto shall be liable under this Agreement for lost profits or
consequential damages.
23. Severability. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
24. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute one and
the same agreement.
25. Assignment. This Agreement, and each right, interest and obligation
hereunder, may not be assigned by either party hereto without the prior written
consent of the other party hereto, and any purported assignment without such
consent shall be void and without effect, except that this Agreement shall be
assigned to, and assumed by, any person with or into which the Company merges or
consolidates, or which acquires all or substantially all of its assets, or which
otherwise succeeds to and continues the Company's business substantially as an
entirety. Except as otherwise expressly provided herein or required by law,
Executive shall not have any power of anticipation, assignment or alienation of
any payments required to be made to him hereunder, and no other person may
acquire any
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right or interest in any thereof by reason of any purported sale, assignment or
other disposition thereof, whether voluntary or involuntary, any claim in a
bankruptcy or other insolvency proceeding against Executive, or any other
ruling, judgment, order, writ or decree.
26. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is not intended, and shall not be deemed, to create or
confer any right or interest for the benefit of any person not a party hereto.
27. Titles and Captions. The titles and captions of the Articles and
Sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
28. Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
29. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
30. No Presumptions. Each party hereto acknowledges that it has had an
opportunity to consult with counsel and has participated in the preparation of
this Agreement. No party hereto is entitled to any presumption with respect to
the interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
31. Certain Definitions. As used herein:
(a) "Person" includes without limitation a natural person,
corporation, joint stock company, limited liability company, partnership, joint
venture, association, trust, government or governmental authority, agency or
instrumentality, or any group of the foregoing acting in concert.
(b) A "Proceeding" is any suit, action, arbitration, audit,
investigation or other proceeding before or by any court, magistrate,
arbitration panel or other tribunal, or any governmental agency, authority or
instrumentality of competent jurisdiction.
(c) Other capitalized terms not defined herein are used herein
as defined in the Stock Purchase Agreement dated as of September 22, 1999
relating to the Acquisition.
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32. Entire Agreement. This Agreement embodies the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agree ment as of the day and year first above written.
THE COMPANY:
JAKKS PACIFIC, INC.
By: /s/ Joel M. Bennett
---------------------------------
Name: Joel M. Bennett
Title: Chief Financial Officer
EXECUTIVE:
/s/ Joshua H. Pokempner
--------------------------------------
Joshua H. Pokempner
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ANNEX I
Exercise Price: closing sale price as reported by Nasdaq National
Market on grant date
Term: 6 years from grant date
Vesting Schedule: 1,500 shares after 1st anniversary of grant date
1,500 shares after 2nd anniversary of grant date
1,500 shares after 3rd anniversary of grant date
2,500 shares after 4th anniversary of grant date
3,000 shares after 5th anniversary of grant date
12
