<PAGE> 1
As filed with the Securities and Exchange Commission on October , 1996
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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FUNDEX GAMES, LTD
(Name of Small Business Issuer in its Charter)
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NEVADA 3944 35-1846155
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
3750 W. 16TH STREET
INDIANAPOLIS, INDIANA 46222
TELEPHONE: (317) 263-9869
(Address and Telephone Number of Registrant's Principal Executive Offices and
Principal Place of Business)
MR. CARL E. (CHIP) VOIGT, IV, PRESIDENT
FUNDEX GAMES, LTD.
3750 W. 16TH STREET
INDIANAPOLIS, INDIANA 46222
TELEPHONE: (317) 263-9869
(Name, Address and Telephone Number of Agent for Service)
Please address a copy of communications to:
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Steven Schwartz, Esq. Alan I. Annex, Esq.
Mitchell S. Roth, Esq. Robert S. Matlin, Esq.
Much Shelist Freed Denenberg Ament Bell & Rubenstein, Camhy Karlinsky & Stein LLP
P.C. 1740 Broadway, 16th Floor
200 N. LaSalle Street, Suite 2100 New York, New York 10019
Chicago, Illinois 60601-1095 Telephone: (212) 977-6600
Telephone: (312) 346-3100 Fax: (212) 977-8389
Fax: (312) 621-1750
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the Securities being registered in this form are to be offered, on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $.001 par value(2) 1,150,000 shares $8.00(1) $9,200,000(1) $2,787.88
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1,150,000
Redeemable Common Stock Purchase Warrants warrants $.10 $115,000 $34.85
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Common Stock issuable on exercise of
Redeemable Common Stock Purchase
Warrants(3) 1,150,000 shares $12.00 $13,800,000 $4,181.82
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Representative's Warrants(4) 100,000 warrants $.0001 $10 $ --
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Common Stock Underlying Representative's
Warrants(4) 100,000 shares $9.60 $960,000 $290.91
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Redeemable Common Stock Purchase Warrants
issuable upon Exercise of Representative's
Warrant(4) 100,000 warrants $.12 $12,000 $3.64
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Common Stock issuable upon exercise of
Warrants issuable upon exercise of
Representative's Warrants(6) 100,000 shares $12.00 $1,200,000 $363.64
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TOTAL $25,287,010 $7,662.74
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 150,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) Reserved for issuance upon exercise of Redeemable Common Stock Purchase
Warrants.
(4) To be issued to the Representative of the Underwriters at the Closing.
(5) Reserved for Issuance upon exercise of Representative's Warrants.
(6) Pursuant to Rule 416, this Registration Statement also relates to an
indeterminate number of additional shares as may be issued as a result of
anti-dilution provisions of the Representative's Warrants and the Redeemable
Common Stock Purchases Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Number of pages in sequential numbering system
Index to Exhibits appears on page
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FUNDEX GAMES, LTD.
Cross Reference Sheet
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FORM SB-2 ITEM NUMBER AND CAPTION CAPTION LOCATION IN PROSPECTUS
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1. Front of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors...... Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution.................................. Risk Factors; Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page, Inside Front
Cover Page; Underwriting
9. Legal Proceedings......................... Business
10. Directors, Executive Officers, Promoters Management; Certain Relationships and
and Control Persons..................... Related Transactions
11. Security Ownership of Certain Beneficial
Owners and Management................... Principal Stockholders; Management
12. Description of Securities................. Prospectus Summary; Description of
Securities
13. Interest of Named Experts and Counsel..... Legal Matters; Experts
14. Disclosure of Commission Position on Underwriting; Management -- Limitation on
Indemnification for Securities Act Officers' and Director's Liability and
Liabilities............................. Indemnification
15. Organization Within Last 5 Years.......... Business; Certain Relationships and
Related Transactions
16. Description of Business................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis of
Plan of Operation....................... Financial Condition and Results of
Operations
18. Description of Property................... Business-Properties
19. Certain Relationships and Related Certain Relationships and Related
Transactions............................ Transactions
20. Market for Common Equity and Related Risk Factors; Dividend Policy;
Stockholder Matters..................... Capitalization; Description of
Securities; Shares Eligible for Future
Sale
21. Executive Compensation.................... Management
22. Financial Statements...................... Prospectus Summary; Capitalization;
Selected Financial Information; Financial
Statements
23. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure.............................. Not Applicable
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS DATED , 1996
SUBJECT TO COMPLETION
FUNDEX GAMES, LTD.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Fundex Games, Ltd. (the "COMPANY") hereby offers (the "Offering")
1,000,000 shares of its common stock, $.001 par value (the "COMMON STOCK"), and
1,000,000 Redeemable Common Stock Purchase Warrants (the "WARRANTS"). Upon the
completion of this Offering, the shares of Common Stock and the Warrants
offered hereby may only be purchased together on the basis of one share of
Common Stock and one Warrant, but will trade separately immediately after the
Offering. Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock and an initial exercise price of $ per share at
any time during the period commencing one year from the date of this Prospectus
and terminating five years from the date of this Prospectus. The Warrant
exercise price is subject to adjustment under certain circumstances. Commencing
eighteen months after the date of this Prospectus, the Company may redeem the
Warrants at $.01 per Warrant on 30 days prior written notice to the Warrant
holders if the average closing bid price of the Common Stock as reported on the
American Stock Exchange ("AMEX") equals or exceeds $ per share
(subject to adjustment under certain circumstances) for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Common
Stock and Warrants and there can be no assurance that any such market will
develop. It is anticipated that the initial public offering price of the Common
Stock will be between $7 and $8 per share, and the initial public offering price
per Warrant will be between $ and $ . The initial public
offering price has been determined by negotiation between the Company and the
Underwriter and does not necessarily reflect the Company's assets, book value,
performance or other generally accepted criteria of value. See "Risk Factors"
and "Underwriting." The Company will file an application for quotation of
its Common Stock and Warrants on the American Stock Exchange under the symbols
"FDX" and "FDXW," respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE OFFERING
PRICE. SEE "RISK FACTORS" AND "DILUTION" AT PAGES
.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Discounts Proceeds to
Price to Public and Commission (1) Company (2)
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Per Share $ $ $
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Per Warrant $ $ $
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Total (3) $ $ $
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(1) Excludes additional compensation to be received by National Securities
Corporation, the representative (the "Representative") of the several
underwriters (the "UNDERWRITERS") in the form of (i) a nonaccountable
expense allowance equal to 3% of the gross proceeds to the Company and, (ii)
sale to the Representative for nominal consideration of warrants (the
"REPRESENTATIVE'S WARRANTS") to purchase up to 100,000 shares of Common
Stock and 100,000 Warrants. In addition, the Company has agreed to indemnify
the Underwriter against certain liabilities. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ which includes the nonaccountable expense allowance described in
Note 1 above.
(3) The Company has granted to the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 150,000 additional
shares of Common Stock and 150,000 Warrants on the same terms as set forth
above, solely to cover overallotments, if any. If such option is exercised
in full, the total Price to Public will be $ , the total Underwriting
Discounts and Commissions will be $ and the Proceeds to the Company
will be $ . See "Underwriting."
The shares of Common Stock are being offered by the Underwriter on a firm
commitment basis, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval of certain legal matters
by counsel and to certain other conditions. The Underwriter reserves the right
to withdraw, cancel or modify the Offering and to reject any order in whole or
in part. It is expected that delivery of the certificates for the shares will be
made against payment therefor at the offices of National Securities Corporation,
1001 Fourth Avenue, Seattle, Washington, on or about , 1996.
NATIONAL SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
After completion of this Offering, the Company intends to furnish its
stockholders with annual reports containing audited financial statements and
with such other periodic reports as the Company may from time to time deem
appropriate or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Prior to this Offering, the Company has not been subject to the reporting
requirements of the Securities Act of 1934. After completion of this Offering,
the Company will be subject to certain informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith will file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "COMMISSION"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington,
D.C. 20549 or at the regional offices of the Commission at Room 1400, 500 West
Madison Street, Chicago, Illinois 60601 and 7 World Trade Center, 13th floor,
New York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street
N.W., Washington, D.C. 20549. Reports and other information concerning the
Company can also be inspected at the office of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
---------------------------------
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Except as otherwise indicated, the information in
this Prospectus (i) assumes no exercise of the Underwriter's overallotment
option, (ii) does not give effect to the issuance of up to 1,000,000 shares of
Common Stock upon exercise of the Warrants; (iii) does not give effect to the
issuance of up to 100,000 shares of Common Stock and 100,000 Warrants upon
exercise of the Representative's Warrants; (iv) does not give effect to the
issuance of up to 100,000 shares of Common Stock upon exercise of Warrants
underlying the Representative's Warrants; (v) does not give effect to the
issuance of 300,000 additional shares of Common Stock reserved for issuance upon
exercise of additional stock options that may be granted under the Company's
1996 Employee Stock Option Plan and 1996 Stock Option Plan for Non-Employee
Directors; (vi) reflects the reincorporation of the Company from Indiana
to Nevada (the "REINCORPORATION") in August, 1996; and (vii) reflects the 1,000
for 1 stock split of the Common Stock effected in August, 1996 in connection
with the Reincorporation, and the 1.15 for 1 stock split of the Common Stock
effected in August, 1996.
THE COMPANY
Fundex Games, Ltd. (the "COMPANY"), develops, markets and sells games and
toys nationwide through discount retailers, specialty toy retailers, toy
wholesalers, drug and grocery retailers and certain catalog and specialty
accounts. The Company's principal products include card games, children's board
games, skill and action games, family games, puzzles and spring and summer toys.
The Company's largest selling item is a card game called "Phase 10." Phase 10 is
the second best selling card game in the United States with sales in excess of
1,000,000 units per year. The Company's products are manufactured to the
Company's specifications by manufacturers based in the United States, Taiwan,
Indonesia and China.
The Company has recently acquired certain rights to use characters and
properties from The Big Comfy Couch(TM), which it will incorporate into games,
puzzles and an inflatable couch. The Big Comfy Couch(TM) is a popular children's
show broadcast on public broadcasting stations nationwide. The Company intends
to seek additional licenses for widely-recognized children's characters.
The toy industry is a large and growing business. Based on published data
by Toy Manufactures of America, Inc., toy sales in the United States increased
to approximately $20.0 billion in 1995 from approximately $18.7 billion in 1994,
representing a 7% increase without adjustment for inflation. Certain industry
segments such as traditional card and board games have experienced strong
growth. During the last five years, consolidation of toy and game manufacturers
has created an opportunity for those few remaining independent companies such as
the Company to increase their market share for several reasons. These reasons
include: (i) similar competing products were consolidated creating less
competition within product lines; (ii) the consolidated companies have high
minimum sales requirements and have withdrawn products previously sold by their
constituent companies prior to consolidation, thereby reducing competition for
certain of the Company's products; (iii) the consolidated companies cannot
review or accept all good toy and game ideas submitted by inventors, enabling
the Company to be in position to acquire new toys and games from inventors
regularly; and (iv) retailers are reluctant to allocate all of their shelf
space to only one or two suppliers, making additional shelf space available to
the Company.
The Company intends to expand its business through (a) acquiring and
developing new products; (b) moving into international markets; (c) increasing
advertising and promotion; (d) acquiring licenses for the use of highly
recognized properties and characters in connection with games and toy products;
and (e) diversifying its product line.
The Company's goal is to continue to take advantage of the consolidation in
the games industry to strengthen its position in the marketplace and to continue
offering innovative toy and game products in existing and new product
categories, providing both a high retail margin to retailers and high perceived
value to consumers. The Company intends to achieve this goal through (i)
management's extensive experience in the industry; (ii) acquisition of
established products and product lines and extension of its existing product
lines; and (iii) increased advertising.
The Company was originally incorporated in Indiana in 1991 and
reincorporated in Nevada in 1996.
The Company's principal executive offices are located at 3750 W. 16th
Street, Indianapolis, Indiana 46222. Its telephone number is (317) 263-9869.
2
<PAGE> 6
THE OFFERING
SECURITIES OFFERED......... 1,000,000 shares of Common Stock and 1,000,000
Warrants
Exercise Price of
Warrants................... Each Warrant entitles the holder to purchase, at
any time over a four year period commencing one
year after the date of this Prospectus, one share
of Common Stock at a price of $ per share.
Redemption of Warrants..... Commencing eighteen (18) months after the date of
this Prospectus, the Warrants are subject to
redemption by the Company at $.01 per Warrant on 30
days prior written notice, if the average closing
price of the Common Stock equals or exceeds
$ per share for any 20 trading days within
a period of 30 consecutive trading days ending on
the fifth trading day prior to the date of notice
of redemption.
Securities Outstanding:
Before the Offering...... 1,225,000 shares of Common Stock
After the Offering....... 2,225,000 shares of Common Stock and 1,000,000
Warrants
Use of Proceeds............ For general corporate purposes, including (i)
working capital, (ii) increased advertising, (iii)
the development of new products and product lines,
(iv) repayment of short-term borrowings, and (iv)
possible acquisitions.
Proposed AMEX Trading
Symbols.................. Common Stock -- FDX
Warrants -- FDXW
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(in thousands, except for per share data)
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YEAR ENDED DECEMBER EIGHT MONTHS ENDED
31, AUGUST 31,(1)
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1994 1995 1995 1996
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STATEMENT OF OPERATIONS DATA:
Net Sales................................... $ 3,802 $ 4,601 $ 2,634 $ 3,519
Gross Margin................................ 1,327 1,382 831 1,125
Operating Income............................ 359 339 263 315
Net Income -- Pro forma(2).................. 218 205 161 195
Net Income per Share........................ .18 .17 .13 .16
Weighted average number of shares
outstanding............................... 1,225,000 1,225,000 1,225,000 1,225,000
</TABLE>
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<CAPTION>
AUGUST 31, 1996
---------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(3)
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BALANCE SHEET DATA:
Working capital.................................... 540 543 7,218
Total assets....................................... 1,234 2,850 9,172
Current Liabilities................................ 590 1,695 1,342
Long term debt..................................... -- -- --
Stockholders' equity............................... 644 1,140 7,815
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(1) Historically, the Company's net sales have been the highest in the fourth
quarter of each year. The Company's business is seasonal, with sales
increasing significantly during the Christmas holiday season. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Fluctuations and Seasonablity."
(2) Pro forma net income gives effect to income taxes which would have been
required if the Company had been taxed as a "C" Corporation.
(3) As adjusted to reflect the sale of 1,000,000 shares of Common Stock and
1,000,000 Warrants offered hereby and application of the net proceeds
therefrom, based upon an assumed initial public offering price of $8 per
share of Common Stock and $.10 per Warrant. See "Use of Proceeds."
4
<PAGE> 8
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. In analyzing this Offering and in evaluating the Company and its business,
prospective investors should carefully consider the following risk factors, in
addition to the other information included in this Prospectus.
CUSTOMER CONCENTRATION
The five largest customers of the Company accounted for approximately 53.3%
and 50.7% of net sales in 1994 and 1995, respectively. The loss of any of these
major customers or a substantial reduction in orders from such customers would
have a material adverse effect on the results of the Company's operations. The
Company does not have any contracts with any of its customers and none are
expected to be signed. See "Business -- Marketing, Distribution and Sales."
PRODUCT OBSOLESCENCE
Consumer preferences can change rapidly, and the Company's success will
depend on its ability to successfully introduce new products. The success of new
products depends on a variety of factors including product selection, timely
completion of product design, timely and efficient implementation of
manufacturing and assembly processes and effective sales and marketing. Because
new product commitments must be made well in advance of sales, new product
decisions must anticipate future market demand. There is no assurance that the
Company will be successful in introducing new products.
COMPETITION
The Company competes with many other companies in the design and
development of new toys and games, the procurement of licenses, and the
marketing and distribution of its products. Many of the Company's competitors
have greater financial resources, more sophisticated sales forces, larger
facilities for product development and greater name recognition than the
Company. Many of the competitors do more consumer advertising than the Company
and have products more competitively priced than the Company's products. There
can be no assurance that the Company will be able to compete successfully or
that it will have the ability to expand its operations as it is contemplating.
GAME/TOY INDUSTRY CONDITIONS -- ONE SIGNIFICANT PRODUCT LINE.
Although, during recent years, the game and toy industry has experienced
consistent growth overall, the performance of individual game and toy companies
has not been predictable. The variability of individual company results can be
attributed in part to the reliance by a number of companies on the success or
failure of a single product line or product category or the introduction of
promotional products. The Company derived 49.9% and 44.8% of net sales in 1994
and 1995, respectively, from its Phase 10 product line. The success of the
Company could be adversely affected if it cannot maintain the marketability of
the Phase 10 line, and there can be no assurance that the Company will be able
to do so. See "Business -- Industry Background."
UNAVAILABILITY AND FLUCTUATING COSTS OF RAW MATERIALS
The raw materials primarily used in the Company's products are paper and
plastic. The Company believes that there are adequate supplies of these
materials readily available to the Company and its contract manufacturers.
However, as the price of these materials fluctuates, the Company's manufacturing
costs will fluctuate accordingly. When material costs rise during the year, the
Company is often unable to increase the sales prices of its products to account
for the increased costs until the beginning of a calendar year, if at all.
DEPENDENCE ON KEY PERSONNEL
The Company's business depends to a large extent on the abilities,
experience and continued participation of key employees, including Carl E.
(Chip) Voigt, IV, President, who has primary responsibility for product
development and advertising and Carl E. (Pete) Voigt, III, Executive Vice
President, who has primary responsibility for sales and marketing. The loss of
services of either of the Voigts would have a material adverse effect upon the
Company's business if suitable replacements could not be promptly found. No
assurances can be given that the Company would be able to hire adequate
replacements. The success of the Company will depend in part on the ability of
the Company to attract and retain qualified operating, marketing, research and
development and financial personnel. Competition for qualified personnel is
often intense, and no assurance can be given as to the ability of the Company to
attract and retain qualified personnel. See "Management."
5
<PAGE> 9
DEPENDENCE ON LICENSES
The Company obtains many of its products through licenses from inventors.
The Company competes with numerous other companies for such licenses, many of
which have substantially greater financial and other resources than those of the
Company. In addition, one of the Company's new product lines is dependent upon
certain proprietary character licenses. The Company intends to seek other
character licenses to expand its business. Many of the Company's licensing
agreements are non-exclusive and limited in duration. Competition for licenses
is intense, and there can be no assurance that the Company will be successful in
renewing its present licenses or obtaining new licenses. See "Business
Products."
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company does not have manufacturing facilities. All of the Company's
products are manufactured by contract manufacturers, many of which are located
in Indonesia, China and Taiwan. The Company does not have long term contracts
with any of its manufacturers. Foreign manufacturing is subject to a number of
risks, including transportation delays and interruptions, political and economic
disruptions, the impositions of tariffs and import and export controls,
restrictions on the transfer of funds, work stoppages and changes in
governmental policies. While the Company has not to date experienced any
material adverse effects due to such risks, there can be no assurance that such
event will not occur in the future with the result of possible increases in
costs and delays of, or interferences with, product deliveries, resulting in
losses of revenues and goodwill. See "Business -- Manufacturing."
GOVERNMENT REGULATION
The Company's operations are subject to various laws including the Federal
Consumer Product Safety Act. The commission charged with enforcement of these
laws has the authority to exclude from the market items that are found to be
hazardous.
SEASONAL AND QUARTERLY FLUCTUATIONS
Sales of games and puzzles are seasonal, with the majority of retail sales
occurring during the period from September to December. Shipments of games and
puzzles are greatest during the third and fourth quarters, and inventory levels
are at their highest during such time period. The Company generates a
substantial portion of its revenues during the third and fourth quarters and
therefore operating results may fluctuate significantly among quarters.
Operating results may fluctuate as a result of a number of other factors,
including the timing of shipments of new products, activities of competitors of
the Company, including advertising, and the emergence of new companies and
products to the market. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Fluctuations and Seasonality."
PROPRIETARY PROTECTION
The Company seeks to protect its products through tradenames, trademarks,
copyrights and licenses. The Company also relies on proprietary protections of
its licensors. Despite the efforts of the Company and its licensors to protect
and maintain their proprietary rights, there can be no assurance that the
Company or its licensors will be successful in doing so or that the Company's
competitors will not independently develop or patent products that are
substantially equivalent or superior to the Company's products. In addition, the
laws of certain foreign jurisdictions do not protect intellectual property to
the same extent as the United States. Many of the Company's products have little
or no proprietary protection. Although the Company has applied for protection of
its name and logo with the U.S. Patent and Trademark Office, there can be no
assurance that the Company will be granted such protection.
BROAD DISCRETION AS TO USE OF PROCEEDS
The net proceeds of this Offering are primarily allocated to working
capital, product development, advertising and other corporate purposes.
Accordingly, management will have broad discretion with respect to the
expenditure of a substantial portion of the net proceeds of this Offering.
Purchasers of the Securities offered hereby will be entrusting their funds to
the Company's management, upon whose judgment the investors must depend, with
only limited information concerning management's specific intentions. See "Use
of Proceeds." The Company may use a portion of the proceeds of this Offering in
connection with joint ventures, acquisitions or other arrangements which
management deems necessary for the development of the Company's business
activities.
6
<PAGE> 10
CONTINUING CONTROL BY MANAGEMENT
Upon the completion of the Offering, the current employee-stockholders of
the Company will own approximately 52% of the Company's outstanding shares of
Common Stock. Accordingly, such stockholders will be able to exert significant
influence in the election of the Board of Directors. It is likely that investors
in this Offering will have little or no influence on the direction of the
Company.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock, and to determine the rights, preferences and
privileges of those shares without any further vote of the stockholders. The
rights of the holders of the Common Stock may be adversely affected by the
rights of the holders of the Preferred Stock. The Company is also subject to the
anti-takeover provisions of the Nevada Revised Statutes which restrict certain
business combinations with interested stockholders unless certain conditions are
met. By delaying and deterring unsolicited takeover attempts, these provisions
could adversely affect prevailing market prices for the Company's Common Stock.
POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS
At the consummation of the Offering, the Company will sell to the
Representative, for nominal consideration, Representative's Warrants entitling
the Representative to purchase up to 100,000 shares of Common Stock and 100,000
Warrants. The Representative's Warrants will be exercisable for a period of four
years commencing one year after the effective date of the Offering at an
exercise price of $ per share and $ per Warrant. The Warrants
obtained upon exercise of the Representative's Warrants will be exercisable for
a period of four years commencing one year after the effective date of this
Offering, at an exercise price of $ per share. The holders of the
Representative's Warrants will have, at nominal cost, the opportunity to profit
from a rise in the market price of the Securities without assuming the risk of
ownership, with resulting dilution in the interests of other security holders.
The Company's ability to obtain additional capital might be adversely affected
during the time that the Representative's Warrants remain unexercised. Moreover,
the Representative may exercise the Representative's Warrants at a time when the
Company would, in all likelihood, be able to obtain any needed capital through a
new offering of its securities on terms more favorable than those provided by
the Representative's Warrants. See "Description of Securities -- Warrants" and
"Underwriting".
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Commencing eighteen months after the date of the this Prospectus, the
Warrants are subject to redemption by the Company at $.01 per Warrant on 30 days
prior written notice to the Warrant holders if the average closing bid price of
the Common Stock equals or exceeds $ per share for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption. If the Warrants are redeemed,
holders of the Warrants will lose their rights to exercise the Warrants after
the expiration of the 30 day notice of redemption. Upon receipt of the notice of
redemption, holders will be required to: (i) exercise the Warrants and pay the
exercise price at a time when they may be unable or unwilling to do so; (ii)
sell the Warrants at the current market price, if any; or (iii) accept the
redemption price which is likely to be substantially less than the market value
of the Warrants at the time of redemption. See "Description of Securities --
Warrants".
POTENTIAL ADVERSE AFFECTS OF SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
The Company has reserved a total of 1,650,000 shares of Common Stock for
issuance as follows: (i) 1,150,000 shares for issuance upon exercise of the
Warrants; (ii) 100,000 shares for issuance upon exercise of the Representative's
Warrants; (iii) 100,000 shares for issuance upon exercise of the Warrants
issuable upon exercise of the Representative's Warrants and (iv) 300,000 shares
for issuance pursuant to the 1996 Employee Stock Option Plan and the 1996
Stock Option Plan for Non-Employee Directors (collectively the "1996 Stock
Option Plan"). As of the date of this Offering, the Company has not issued any
options. The reservation of the Common Stock and the existence of the Warrants,
Representative's Warrants and options may adversely affect the Company's
ability to consummate future equity financing. In addition, the holders of the
Warrants, Representative's Warrants and options may exercise them at a time
when the Company would otherwise be able to obtain additional equity capital on
terms more favorable to the Company.
7
<PAGE> 11
LACK OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
securities. Although the Company has applied to have the Common Stock included
on AMEX there can be no assurance that an active market in any such securities
will develop or, if such a market develops, that it will be sustained. The
initial public offering price for the shares of Common Stock was determined by
negotiations between the Company and the Representative, and should not be
regarded as indicative of any future market price of the Common Stock. See
"Underwriting." The stock market has, from time to time, experienced
significant price and volume fluctuations that may be unrelated to the
operating performance of particular companies. The market price of the Common
Stock may be affected by many factors, including new products introduced by the
Company or its competitors, disputes regarding proprietary rights, new
regulations affecting foreign manufacturing and periodic fluctuations in the
Company's financial results. In addition, the fact that the Company has two
stockholders with significant holdings may affect the public market for the
Common Stock.
DILUTION
A purchaser in this Offering will experience immediate substantial price
dilution from the initial public offering price per share of Common Stock and
Warrants. See "Dilution." The immediate dilution to purchasers of the Securities
offered hereby is $4.70 or 59% per share of Common Stock. Additional dilution is
likely to occur as a result of the exercise of the Representative's Warrants to
purchase up to 100,000 shares of Common Stock, and may occur upon the exercise
of the Warrants and options that are outstanding or to be issued under the 1996
Stock Option Plan.
SHARES ELIGIBLE FOR FUTURE SALE
All of the presently issued and outstanding shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended (the "ACT"). In the event that a
public market develops for the Company's Common Stock, the Company is unable to
predict the effect that sales made under Rule 144 or other sales may have on
the then prevailing market price of the Common Stock. See "Description of
Capital Stock--Shares Eligible for Future Sale." The current shareholders have
agreed, pursuant to lock-up agreements ("the LOCK-UP AGREEMENTS"), that they
will not, without the prior written consent of the Representative, sell or
otherwise dispose of their shares for a period of 13 months after the date of
this Prospectus. At such time, 1,150,000 shares will become eligible for sale,
subject to the volume limitations of Rule 144. The Company intends, immediately
after this Offering, to register 300,000 shares of Common Stock reserved for
issuance under the 1996 Stock Option Plan. The Company is also authorized to
issue preferred stock without stockholder approval, with such designations,
preferences and other rights, qualifications and restrictions as determined by
the Board of Directors.
ARBITRARY DETERMINATION OF OFFERING PRICE
The initial public offering price of the Securities and the exercise price
and terms of the Warrants have been determined arbitrarily by negotiations
between the Company and the Representative. Factors considered in such
negotiations, in addition to prevailing market conditions, included the history
and prospects for the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, the Company's capital
structure and other relevant factors. Therefore, the initial public offering
price of the Securities and the exercise price and terms of the Warrants
do not necessarily bear any relationship to established valuation criteria and
may not be indicative of prices that may prevail at any time from time to time
in the public market for the Securities. See "Underwriting".
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS
The Warrants are exercisable only if a current prospectus relating to the
Common Stock underlying such Warrants is then in effect, and only if such
Common Stock is qualified for sale or exempt from qualification under applicable
state securities laws of the state in which a holder of the Warrants resides.
Although the Company has undertaken to maintain the effectiveness of a current
prospectus covering the Common Stock underlying the Warrants, there can be no
assurance that the Company will able to do so. The Warrants may be deprived of
any value if a current prospectus covering the Common Stock issuable upon
exercise of the Warrants is not effective, or if such Common Stock is not
qualified or exempt from qualification in the states in which the holders of
Warrants reside.
The Common Stock and the Warrants are separately transferable immediately
upon issuance. In the event that an investor purchases the Warrants in the
secondary market or moves to a jurisdiction in which the shares of Common Stock
underlying the Warrants are not registered or qualified during the period that
the
8
<PAGE> 12
Warrants are exercisable, the Company will be unable to issue shares to such
investor desiring to exercise the Warrants, unless and until the shares are
qualified for sale in the jurisdiction in which such investor resides, or an
exemption from such qualification exists in such jurisdiction. If the shares are
not qualified for sale in the jurisdiction in which a Warrant holder resides,
such holder would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities -- Warrants."
RISK OF LOW-PRICED STOCKS
If the Company's securities are delisted from AMEX because they no longer
met the qualifications, they will be subject to the "penny stock" rules of
Rule 15c2-6 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
which imposes additional sales practice requirements on broker-dealers which
sell such securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser or have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability or willingness of broker-dealers to sell the Company's Common
Stock and may affect the ability of purchasers in this Offering to sell any of
the Common Stock acquired hereby in the secondary market.
The Commission has adopted regulations which define a "penny stock" to be
any equity that has a market price (as therein defined) less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule, prepared by the Commission, relating to the penny stock
market. Disclosure of commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities is also
required. Finally, monthly statements are required to be sent to stockholders
disclosing recent price information for the penny stock held in each
stockholder's account and information on the limited market in penny stocks.
The foregoing penny stock restrictions will generally not apply to the
Company's Common Stock if the Common Stock is listed on AMEX. If the Company's
Common Stock were subject to the rules on penny stocks, the market liquidity
for the Common Stock could be severely adversely affected.
NO COMMON STOCK DIVIDENDS ANTICIPATED
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company anticipates that any earnings generated
from the Company's operations will be retained to fund operations of the
Company.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements and information that
are based on management's beliefs and assumptions, as well as information
currently available to management. When used in this document, the words
"anticipate," "estimate," "expect," and similar expressions are intended to
identify forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or expected. Among the key factors that may have a
direct bearing on the Company's operating results are fluctuations in the
economy, the degree and nature of competition, the Company's ability to
successfully expand its product line, and its ability to obtain products and
licenses.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock and the 1,000,000 Warrants offered hereby, after deduction of
underwriting discounts and commissions and Offering expenses, are estimated to
be approximately $ at an assumed public offering price of
$ per share of Common Stock and $ per
Warrant. The Company expects to use approximately $1,500,000 of the net proceeds
for increased consumer advertising, including new television advertisements.
Approximately $300,000 of the net proceeds will be used for capital
expenditures, including a new computer system, forklift, and warehouse racking.
The Company expects that between $500,000 and $1,000,000 will be used for
acquisition of new products and product licenses, and that
9
<PAGE> 13
approximately $500,000 will be used to develop new products, including costs of
injection molds, design, models and packaging. The Company also intends to repay
$540,000 of short term debt from the net proceeds of the Offering, including the
repayment of the $500,000 Bridge Loan. The Company intends to use the remaining
net proceeds for working capital requirements. In the ordinary course of its
business, the Company regularly reviews acquisition opportunities in the game
and toy industry. Accordingly, a portion of the proceeds of the Offering may be
used to finance possible strategic acquisitions of other game companies, toy
companies or product lines, although the Company has no agreements,
understandings or commitments in respect of any specific acquisition candidates,
nor is the Company engaged in negotiations with respect to any acquisition.
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this Offering based on current planning and business
conditions. The Company reserves the right to change the use of the proceeds
when and if market conditions or unexpected changes in operating conditions or
results occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future sales growth and the amount
of cash generated by the Company's operations.
Pending application of the net proceeds, the Company intends to invest the
net proceeds principally in short-term, interest bearing obligations or U.S.
Government obligations, money market funds or other short term securities. The
proceeds, if any, from the exercise of the Underwriter's over-allotment option
are expected to be used for working capital and general corporate purposes.
DILUTION
As of August 31, 1996, the net tangible book value of the Company's Common
Stock was $671,198, or $.55 per share. "Net tangible book value" per share of
Common Stock represents the tangible assets (total assets less intangible
assets) reduced by total liabilities divided by the number of outstanding shares
of Common Stock. After giving effect to the sale of the 1,000,000 shares offered
hereby at the assumed initial public offering price of $8.00 per share and the
receipt of estimated net proceeds to the Company of $6,675,000 (after deducting
underwriting commissions and discounts and estimated expenses of this Offering)
the adjusted net tangible book value of the Company's Common Stock at August 31,
1996 would have been $7,346,198 or $3.30 per share. This represents an increase
in the net tangible book value of $2.75 per share to the existing stockholders
and an immediate dilution to new investors in this Offering of $4.70 per share
(59%).
The following table illustrates the dilution, in terms of net tangible book
value, that will be experienced by purchasers of the Common Stock offered
hereby, and the increase in terms of net tangible book value that will be
experienced by the existing stockholders:
Assumed initial public offering price per share............................$8.00
Net tangible book value per share at August 31, 1996.....$ .55
Increase in net tangible book value per share attributable to
new investors............................................$2.75
Pro forma net tangible book value per share after Offering.................$3.30
Dilution per share to new investors........................................$4.70
The following table sets forth a comparison of the respective numbers of
shares of Common Stock purchased or to be purchased from the Company and total
cash consideration paid or to be paid to the Company by the existing holders of
the Common Stock and investors purchasing 1,000,000 shares of Common Stock in
this Offering. The calculation in this table assumes an initial public offering
price of $8.00 per share before deducting the underwriting discounts and
commissions and estimated Offering expenses payable by the Company.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED -----------------------------------
------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 1,225,000 55% $ 456,125 5.4% $ .37
New investors................................ 1,000,000 45% $8,000,000 94.6% $8.00
--------- ---- ---------- ------
Total........................................ 2,225,000 100% $8,456,125 100.0%
========= ==== ========== ======
</TABLE>
DIVIDEND POLICY
The Company does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company presently expects to retain its earnings to
finance the development and expansion of its business. The payment by the
Company of dividends, if any, on its Common Stock in the future is subject to
the
10
<PAGE> 14
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors. See
"Description of Securities."
CAPITALIZATION
The following table sets forth the capitalization of the Company at August
31, 1996, and as adjusted to reflect the sale of the 1,000,000 shares of Common
Stock and 1,000,000 Warrants offered hereby at an assumed offering price of
$8.00 per share of Common Stock and $0.10 per Warrant and the application of the
net proceeds therefrom as set forth under "Use of Proceeds." The information set
forth below should be read in conjunction with the Financial Statement and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
AUGUST 31, 1996
--------------------
ACTUAL AS ADJUSTED
------ -----------
(in thousands)
<S> <C> <C>
Long-term debt............................................................ -- --
Stockholders' equity:
Preferred Stock, par value $1.00 per share, 1,000,000 shares authorized,
none issued or outstanding.............................................. -- --
Common Stock, $.001 par value, 8,000,000 shares authorized;
1,225,000 shares issued and outstanding;
2,225,000 shares issued and outstanding as adjusted (2)............... $ 1 $ 2
Additional paid-in capital................................................ 1,139 7,813
Retained earnings......................................................... -- --
------ ------
Total stockholders' equity.............................................. 1,140 7,815
------ ------
Total Capitalization................................................. $1,140 $ 7,815
====== ======
</TABLE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of income for the years ended December 31, 1994 and 1995 and balance
sheet data at December 31, 1995 are derived from the audited financial
statements of the Company included elsewhere in this Prospectus. An opinion with
respect to these statements has been provided by BDO Seidman, LLP, independent
certified public accountants. The selected financial data as of August 31, 1996
and for the eight (8) month periods ended August 31, 1995 and 1996 have been
derived from the Company's unaudited financial statements which in the opinion
of the Company reflect all adjustment of a normal, recurring nature which the
Company considers necessary for a fair presentation of the results for such
periods. The results of operations for the eight (8) months ended August 31,
1996 are not necessarily indicative of the results of operations to be expected
for any future quarter or the fiscal year ending December 31, 1996. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes related thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
DECEMBER 31, ENDED AUGUST 31,(1)
--------------------- ---------------------
1994 1995 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
STATEMENTS OF OPERATIONS DATA:
Net Sales................................... 3,802 4,601 2,634 3,519
Cost of Sales............................... 2,475 3,218 1,803 2,394
Gross Margin................................ 1,327 1,382 831 1,125
Selling, general and administrative
expenses.................................. 968 1,044 567 810
Operating Income............................ 359 339 263 315
Net Income -- Pro forma(2).................. 218 205 161 195
Net Income per common share................. .18 .17 .13 .16
Weighted average number of shares
outstanding............................... 1,225,000 1,225,000 1,225,000 1,225,000
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
DECEMBER 31, 1995 AUGUST 31, 1996
----------------- -----------------------
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Working capital.......................................... 540 543 7,218
Total assets............................................. 1,234 2,850 9,172
Current liabilities...................................... 590 1,695 1,342
Long term debt........................................... -- -- --
Stockholders' equity..................................... 644 1,140 7,815
</TABLE>
- ------------------------
(1) Historically, the Company's net sales have been the highest in the fourth
quarter of each year. The Company's business is seasonal, with sales
increasing significantly during the Christmas holiday season. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Fluctuations and Seasonably."
(2) Pro forma net income gives effect to income taxes which would have been
required if the Company had been taxed as a "C" Corporation.
(3) As adjusted to reflect the sale of 1,000,000 shares of Common Stock and
1,000,000 Warrants offered hereby and application of the net proceeds
therefrom, based upon an assumed initial public Offering price of $8.00 per
share of Common Stock and $.10 per Warrant. See "Use of Proceeds."
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the business of developing, manufacturing,
marketing and selling of games and toys that feature a broad market appeal. The
Company's products are distributed through mass market and major toy retailers
throughout the United States. In addition to its best selling "Phase 10" card
game, the Company has entered into license agreements for the character license
"The Big Comfy Couch" to be used on games, puzzles and inflatable toys for 1996.
In order to minimize operating costs, the Company relies on new products
from the game and toy inventing community, as well as new products from licensed
properties. This strategy allows the Company to avoid the expenses of
maintaining in-house product research and development staffs. The Company pays
royalties of 2% to 10% of net sales to the inventor or licenser.
Net sales of the Company consist of gross sales less the amount of
discounts, credits and certain promotional or other allowances. The Company's
net sales for the years ended December 31, 1994 and 1995 were $3,802,001 and
$4,600,819, respectively.
Cost of sales consists primarily of manufacturing costs of the Company's
products. The Company's gross margin, which is net sales less cost of sales, was
34.9% for the year ended December 31, 1994, 30% for the year ended December 31,
1995 and 32% for the eight months ended August 31, 1996. The Company's gross
margin decreased during 1995 primarily as a result of an unexpected increase in
material cost. However, the gross margin during the first eight months of 1996
exceeded the 1995 gross margin. The Company expects a further increase in gross
margin because: (i) raw material prices have stabilized; and (ii) the Company's
product mix has shifted to more proprietary products which usually produce
higher gross margins.
Selling, general and administrative expenses consist primarily of sales
commissions, marketing expenses, advertising expenses and administrative
expenses, which includes salaries, rent and other general office expenses. The
Company anticipates that selling, general and administrative expenses will
increase in 1996 and 1997 as a result of the hiring of a chief financial
officer, increased advertising, increased expenses related to the increase in
net sales, and expenses incurred in connection with this Offering. However,
because the Company expects increased net sales in 1996 and 1997, the Company
believes that such expenses should remain relatively consistent as a percentage
of net sales with the 1995 level.
RESULTS OF OPERATION
The following table sets forth for the periods indicated a statement of
operations as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED 8 MONTHS ENDED
DECEMBER 31 AUGUST 31
--------------- ---------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net Sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................................. 65.1 70.0 68.5 68.0
----- ----- ----- -----
Gross Margin.............................................. 34.9 30.0 31.5 32.0
Selling, General and Administrative Expenses.............. 25.5 22.7 21.5 23.0
----- ----- ----- -----
Income from operations.................................... 9.4 7.3 10.0 9.0
Other Income.............................................. 0.3 0.2 0.3 0.4
Interest Expense.......................................... (0.3) (0.2) (0.3) (0.2)
Tax Benefit............................................... -- -- -- 0.5
----- ----- ----- -----
Net Income................................................ 9.4% 7.3% 10.0% 9.7%
===== ===== ===== =====
</TABLE>
13
<PAGE> 17
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
Net Sales - Net sales for the year ended December 31, 1995 were $4,600,819
compared with $3,802,001 for the same period in 1994, an increase of $798,818 or
21.0%. This increase was primarily attributed to the increased sales of new
products introduced in 1995. Net sales also benefited from increased sales of
the Company's Phase 10 product line.
Cost of Sales - Cost of sales for the year ended December 31, 1995 was
$3,218,443 compared to $2,474,809 for the same period in 1994, an increase of
$743,634 or 30%. The increase reflects a proportional increase attributable to
the increase in net sales in 1995, plus an unexpected increase in raw material
costs.
Gross Margin - Gross margin for the year ended December 31, 1995 increased
by $55,184 or 4.2% over gross margin for the prior year. The Company's gross
margin as a percentage of sales was 30.0% for 1995, compared with 34.9% in 1994.
The decrease primarily occurred due to a rapid increase in material prices,
primarily in paper, paperboard and corrugated paper products. The Company was
unable to increase its selling prices to reflect the increased material prices
as most pricing is locked in for the year. The Company did raise prices at the
end of 1995 for 1996 orders.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for the year ended December 31, 1995 were $1,043,673 or
22.7% of net sales, compared with $967,840 or 25.5% of net sales for the year
ended December 31, 1994. The decrease as a percentage of net sales was primarily
attributed to higher net sales without a significant increase in expenses
because of the relatively fixed nature of the Company's general and
administrative expenses. The dollar increase in selling, general and
administrative expenses is attributable to the increase in sales commissions and
royalties paid to inventors, which are directly related to increased sales.
Increased staffing and additional warehouse facilities to handle the increased
sales were also required.
Net Income - Net income for the year ended December 31, 1995 was $337,185
compared to $358,923 for the same period in 1994, a decrease of $21,738 or 6.4%.
COMPARISON OF THE EIGHT MONTHS ENDED AUGUST 31, 1995
AND THE EIGHT MONTHS ENDED AUGUST 31, 1996
Net Sales - Net sales for the eight months ended August 31, 1996 were
$3,518,701 compared with $2,633,721 for the eight months ended August 31, 1995,
an increase of $884,980 or 33.6%. This increase was attributable to sales of new
products introduced in 1996, increased sales of products introduced in 1995 and
continued increased sales of the Phase 10 product line.
Cost of Sales - Cost of sales for the eight months ended August 31, 1996
was $2,394,024 compared to $1,803,156 for the same period in 1995, an increase
of $590,868 or 32.8%. This reflects a proportional increase attributable to the
increase in net sales for the eight months ended August 31, 1996.
Gross Margin - Gross Margin increased $294,112 or 35.4% for the eight month
period ended August 31, 1996, as compared to the same period for 1995. Gross
margin as a percentage of net sales was 32.0% for the eight months of 1996,
compared to 31.5% for the same period in 1995. The increase in gross margin is
primarily due to the price increase instituted in late 1995 for 1996 purchases
and the relatively stable material prices.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses in the first eight months of 1996 were $810,140 or 23.0%
of net sales compared with $567,496 or 21.5% of net sales in the same period of
1995. This increase was primarily attributable to higher sales commissions and
royalties to inventors, which are directly related to the higher sales, and
increases in staffing to meet the higher sales demand.
Net Income - Net income for the eight months ended August 31, 1996 was
$339,803 compared to $264,502 for the same period in 1995, an increase of 28.5%.
QUARTERLY FLUCTUATIONS AND SEASONALITY
The following table sets forth net sales and operating results by quarter
for 1994 and 1995. This unaudited information has been prepared on the same
basis as the annual information presented elsewhere in the Prospectus and in
management's opinion, reflects all adjustments necessary for a fair presentation
of the information presented.
14
<PAGE> 18
<TABLE>
<CAPTION>
1994 1995
--------------------------------------------- -------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........................ 512,295 988,213 1,068,302 1,233,191 663,060 1,157,276 1,351,756 1,428,727
Gross Margin................. 164,502 317,125 386,086 459,479 246,449 301,725 425,890 408,312
Net Income................... 7,298 112,136 124,950 114,539 12,678 87,550 158,490 78,467
</TABLE>
The preceding table highlights the quarterly fluctuations and seasonality
in sales and net income. Historically, the Company experiences significant
fluctuations in operating results and expects this trend to continue in the
future. The Company's business is seasonal because the Christmas holiday season
causes significant sales volume increases in the third and fourth quarters. The
first quarter is typically the least profitable as sales are the lowest and
fixed operating expenses are comparable to such expenses in other quarters. The
first quarter operating results of the Company are consistent with results of
other companies in the toy and game industry. The fourth quarter net income, as
a percentage of sales, has been lower as a result of annual discretionary
bonuses payable in such quarter and obsolete inventory and bad debts expensed in
the fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
Prior to this Offering, the Company has financed its operations primarily
through loans and paid in capital from stockholders and from operations. At
August 31, 1996, the Company's cash and cash equivalents were $125,751 and its
current ratio was 1.32 to 1.
The Company's capital investments have been primarily for warehouse
equipment, office equipment and furnishings for the office and showroom, and
molds and tooling for use in the manufacture of the Company's products. The
Company has also used capital for cash advances on character licenses and
product licenses.
Net cash provided by operating activities was $344,283 for the year ended
December 31, 1995, primarily due to net income of $337,185. Net cash used in
investing activities in 1995 was $84,179, reflecting certain capital
expenditures, while net cash used in financing activities was $211,800,
reflecting distributions of previously taxed income to the shareholders (from a
time when the Company was an S corporation for income tax purposes).
Net cash used in operating activities for the eight months ended August 31,
1996 was $160,755, primarily due to increases in accounts receivable and
inventories. Net cash provided by financing activities during this period was
$270,000, reflecting the $313,000 Bridge Loan outstanding at such date.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds from this Offering, together with
a revolving line of credit from LaSalle National Bank, and cash from operations,
will be sufficient to fund the Company's operations for at least eighteen to
twenty-four months following the consummation of this Offering. See "Use of
Proceeds."
EXCHANGE RATES
The Company sells substantially all of its products in U.S. dollars and
pays for substantially all of the manufacturing costs in U.S. dollars. Exchange
rate fluctuations have not had a significant impact on the Company's operating
results.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective for fiscal years beginning after December 15, 1995, Statement of
Financial Standards Number 121, Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to be Disposed of ("Statement 121") was adopted
by the Financial Accounting Standards Board (FASB). The adoption by the Company
of Statement 121 is not expected to have a materially adverse effect on the
Company's financial condition or results of operations.
In December, 1995, FASB issued Statement of Financial Accounting Standards
Number 123, "Accounting for Stock-Based Compensation." This standard encourages
a new method of recognizing stock-based compensation expense using an option
pricing model measurement of the estimated fair value of employee stock options.
Alternatively, companies may choose to retain the current approach set forth in
Accounting Principles Board Opinion Number 25, "Accounting for Stock Issued to
Employees," and provide expanded footnote disclosure as to what the effects of
utilizing the option pricing model measurement would have been. Statement 123 is
effective for fiscal years beginning in 1996. The Company does not plan to use
the option pricing model measurement of Statement 123 and will provide the
required footnote disclosure.
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<PAGE> 19
BUSINESS
The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Risk Factors -- Forward Looking
Statements."
GENERAL
The Company develops, markets and distributes a variety of games and toys
for children and adults. The Company's principal products include (i) card
games, puzzles and board games; (ii) skill and action games for children; (iii)
games, puzzles, and toys featuring highly-recognized entertainment properties
and characters licensed by the Company from third parties; and (iv) spring and
summer toys for children. The Company is seeking to expand its business through
(a) the acquisition and development of new products; (b) the acquisition of
additional licenses for the use of highly-recognized properties and characters
in connection with game or toy products; (c) promotion of existing and new
products; (d) continued expansion into international markets; and (e) the
acquisition of other game or toy businesses should the opportunities for such
acquisitions become available.
The Company was originally incorporated in the State of Indiana as Third
Quarter, Inc. In August, 1996, the Company was reincorporated in the State of
Nevada by establishing a new Nevada corporation and merging the Indiana
corporation into the Nevada corporation. In connection with the merger, the name
of the Company was changed to Fundex Games, Ltd. In addition, the Company
accomplished a 1,000 for 1 stock split of the Company's Common Stock effective
as of the date of the merger. The Company effectd an additonal 1.15 to 1 stock
split in August, 1996. References in the Prospectus to the "Company" includes
the Indiana corporation and the Nevada corporation, unless otherwise specified.
INDUSTRY BACKGROUND
The toy industry is a large and growing business. Based on published
data by Toy Manufactures of America, Inc., toy sales in the United States
increased to approximately $20.0 billion in 1995 from approximately $18.7
billion in 1994, representing a 7% increase without adjustment for inflation.
Certain industry segments such as traditional card and board games have
experienced strong growth. During the last five years, consolidation of toy and
game manufacturers has created an opportunity for those few remaining
independent companies such as the Company to increase their market share for
several reasons. These reasons include: (i) similar competing products were
consolidated creating less competition within product lines; (ii) the
consolidated companies have high minimum sales requirements and have withdrawn
products previously sold by their constituent companies prior to consolidation,
thereby reducing competition for certain of the Company's products; (iii) the
consolidated companies cannot review or accept all good toy and game ideas
submitted by inventors, enabling the Company to be in position to acquire new
toys and games from inventors regularly; and (iv) retailers are reluctant to
allocate all of their shelf space to only one or two suppliers, making
additional shelf space available to the Company.
Over the last ten years, U.S. companies have expanded their international
presence and the Company believes that opportunities exist for toy sales and/or
licensing of products to existing companies in the overseas market. The Company
has and will continue to explore this growing market.
PRODUCTS
The Company has a broad and well established line of games and toys and is
developing additional games for children, family and adults. The following is a
description of the Company's major product lines.
Phase 10.
Phase 10 Card Game is an established card game for ages 8 to adult. Phase
10 is currently the number 2 selling card game in the U.S. and the world, with
over 5,000,000 units sold. Phase 10 Card Game and its sister products, Phase 10
Dice, Phase 10 UPSETS and Take Five, comprise the Company's principal product
line. The products retail from $3.99 to $19.99. Phase 10 is sold by a very broad
base of retailers and is available at over 20,000 retail locations. Card games
such as Phase 10 and Mattel's Uno typically have very long product cycles
lasting decades and a very broad demographic base of players. These games are
not normally sensitive to economic volatility.
The Big Comfy CouchTM.
The Company has entered into exclusive license agreements with Hollywood
Ventures Corporation to market games, puzzles and an inflatable couch utilizing
properties and characters associated with the television show "The Big Comfy
CouchTM." The Big Comfy CouchTM is a children's series which features the clown
Loonette and her doll Molly. The Big Comfy CouchTM won the Gemini Award
(Canada's Emmy) for
16
<PAGE> 20
best children's series. The Big Comfy CouchTM is aired on 155 public
broadcasting stations in the United States, and nationally in Canada on YTV,
Canada's children's broadcaster.
Basic Board Games
The Company markets a comprehensive line of traditional board games such as
chess and checkers. These products retail in the $2.99 to $9.99 range. Although
this is a large business dominated by two major competitors, the Company has
shown a profit in its first full year of production. The Company expects that
margins will improve in this category as volume increases.
Wooden Games.
The Company markets a line of wooden games such as Chinese checkers, chess
and mancala. The mancala game has been placed with several major customers.
These products retail in the $6.99 to $19.99 range.
Mini Games.
The Company markets a line of small magnetic and wooden games. This product
line has been profitable for several years and is carried by a diverse account
base. These products retail in the $.99 to $6.99 range.
New Products.
The Company introduced several new products in 1996 that it believes will
strengthen and broaden its product mix. The game A to Z is a family parlor game
that retails for $19.99. The A to Z game will be advertised on radio and
promoted with contests and giveaways.
The Company also has introduced its first items in the Children's "Skill
and Action Game" category. The skill and action category targets boys and girls
in the key age group of 6-11 years old. The Disc Shooter Arcade Game utilizes
safe soft foam discs with an action packed target which retails for $19.99. The
Company also introduced the Tug of War game that is anticipated to sell for
$9.99 retail. The retail prices for these items are lower than comparable items
presently on the market.
Other Products.
The Company is developing and plans to market various other games designed
for young children and the family/adult market. The Company is also pursuing
several other licensed character properties for games and puzzles.
PRODUCT DEVELOPMENT AND DESIGN
The Company's products are generally acquired by the Company from others or
developed for the Company by unaffiliated third parties. The Company employs an
individual to review and refine new game and puzzle concepts submitted from
unaffiliated third parties. If the Company accepts and develops a third party's
concept for a new game, it generally pays a royalty to the inventor on games
sold and which were developed from such concept, often with a commitment to
manufacture and sell a minimum number of such items. Royalties paid to the
inventors range from 1% to 6% of the wholesale sales price for each unit sold by
the Company. The Company occasionally pays advance royalties to the inventor on
products where a significant amount of development has been done by the
inventor. The Company believes that utilizing third party inventors gives it a
wide range of available new products and eliminates operating costs associated
with maintaining full time inventors. The Company has a close relationship with
several inventors.
Safety testing of the Company's products are conducted by independent third
party contractors to meet safety regulations imposed by federal and state
governmental agencies. The Company, in conjunction with these contractors,
determines the appropriate warning labels (such as choking hazard and age
restrictions) to be placed on its products.
MARKETING, DISTRIBUTION AND SALES
The Company distributes all its products through its own employees and
independent sales representatives. Purchasers of the Company's products include
retail chain stores, drug chains, super markets, toy specialty stores and
wholesalers. The Company's five largest customers accounted for 50.7% of the
Company's sales during the fiscal year 1995. Other than purchase orders, the
Company does not have written agreements with its customers. Typically,
products are sold to customers on an open account basis, FOB Indianapolis, with
payment terms varying from 30 to 90 days. The Company also sells products to
customers FOB Hong Kong. The Company does not sell products on consignment
basis.
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<PAGE> 21
The Company employs on a full-time basis a sales and marketing staff of two
people in addition to the President and Executive Vice President who both
participate in sales and marketing. The sales staff make on-site visits to
customers for the purpose of soliciting orders for products. The Company also
markets products at major and regional toy trade shows.
The Company directly, or through its salespersons, takes written orders for
its products from customers and ships the orders from its facility in
Indianapolis. Orders placed on FOB Hong Kong basis are shipped directly from the
manufacturers. Cancellations are generally made in writing and the Company takes
appropriate steps to notify its manufacturers or suppliers of such
cancellations. The Company generally does not accept returns, although
consistent with industry practices, it makes exceptions on a case by case basis.
The Company is a member of Toy Manufacturers of America which, among other
things, provides credit verification services. The Company uses this service in
setting credit terms with its creditors.
LICENSE AGREEMENTS AND INTELLECTUAL PROPERTY
Carl E. Voigt, III and Carl E. Voigt, IV (the "Voigts") obtained the
exclusive rights to manufacture, market and distribute the card game "Phase 10"
(and all enhancements) pursuant to an agreement dated December 18, 1986 among
the Voigts, Kenneth Johnson and K & K International. The agreement is for a term
of ten years, and automatically renews for successive five year terms unless
terminated by the Voigts. The Voigts assigned such rights to the Company with
respect to the United States only effective in 1991, and transferred all foreign
rights to the Company as of August 31, 1996. In connection with the assignment
of foreign rights to the Company, the Voigts assigned to the Company all of
their rights under various sub-license agreements. Pursuant to the sub-license
agreements, certain rights to market and sell Phase 10 products were assigned to
entities with respect to individual territories, including Spain, Italy, Canada,
Sweden, Germany, Australia and New Zealand.
The Company has entered into an exclusive agreement with Hollywood Ventures
Corporation ("HVC") for certain properties and characters associated with The
Big Comfy CouchTM for use on board games, paperboard puzzles and wooden puzzles.
The shipment of these products began in the third quarter of 1996. Under the
terms of the license, the Company has the exclusive rights for the above
products through December 31, 1997. The Company has a right to renew the
agreement for 2 additional years provided the Company generates sales which
produce royalties to HVC of at least $150,000. The Company has agreed to pay HVC
royalties in the amount of eight percent (8%) of the sales of the products and
has guaranteed a minimum of $45,000 in royalties during the initial term of the
license. To date the Company has paid $25,000 in advance royalties to HVC. This
license applies to the United States and Canada.
The Company has entered into an additional exclusive agreement with HVC for
the use of The Big Comfy CouchTM name and logo on an inflatable couch to be
functional as furniture for children. The shipment of this product should begin
in the fourth quarter of 1996. Under the terms of the license, the Company has
exclusive rights for such product through December 31, 1998. The Company has a
right to renew the agreement for two additional years provided the Company
generates sales which produce royalties to HVC of at least $200,000. The Company
has agreed to pay HVC royalties in the amount of eight percent (8%) of the sales
of such product and has guaranteed a minimum of $40,000 in royalties during the
initial term of the license. To date, the Company has paid $10,000 in advance
royalties to HVC. This license applies to the United States and Canada.
Because the Company obtains many of its products through licenses, it
relies on trademark and other protection obtained by its licensors. The license
agreements for such products, including the license relating to Phase 10, permit
the Company to utilize the trademarks and other proprietary rights owned by the
licensor.
The Company owns trademarks on its games Roundabout(R), Tyrannorace(R), and
Take Five(R) and has a trademark pending for UpsetsTM. The Company has applied
for a patent on a certain game playing apparatus to be used in connection with
its "10 in 1" games, which patent application is pending. The Company
recognizes, however, that patents are not totally effective in prohibiting
competitors from producing similar products that could compete with those of the
Company. Therefore, the Company does not rely heavily upon patent protection to
maintain its competitive provision, but instead relies to a greater extent on
trademark and copyright protection.
The Company has applied for trademark protection on the name "Fundex Games"
and its related logo. The trademark applications are pending.
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<PAGE> 22
One of the Company's strategies is to use character licenses created by
others, where appropriate, on its games and puzzles. The Company is currently in
negotiations with respect to various licenses, although the Company has no
agreements or understanding in respect of any such license.
BACKLOG
The Company generally ships products on a timely basis as requested by the
customer. Most large customers purchase products on a replenishment basis at
regular intervals (i.e., daily, weekly, monthly). Many orders request at once
delivery and these orders are shipped within 48 hours. The Company considers
backlog to be written orders received but not yet shipped by the Company. The
Company's backlog at August 31, 1996 was approximately $1,200,000. The Company's
backlog is generally low by industry standards since many customers operate on a
replenishment basis with frequent orders. Because customer orders may be
cancelled at any time without penalty, the Company's backlog may not accurately
indicate sales for any future period.
MANUFACTURING
The Company's products are currently manufactured for the Company by
unaffiliated third parties located in the United States, China, Taiwan, and
Indonesia. Approximately 60% of the Company's products are manufactured within
the United States. The manufacturers are chosen based on their ability to
manufacture the product to meet delivery requirements, quality, reliability and
price. The use of third party manufacturers not only enables the Company to
avoid incurring fixed operating costs associated with manufacturing, but also
affords the Company greater flexibility on the manufacturing process and
materials used in the products since the Company is not restricted by the
capabilities of expensive purchased equipment. All manufacturing services are
paid for by open account with the manufacturer. The Company believes that
alternative sources of supply are available for each of the products. While the
Company has not experienced any significant delay in the delivery of its
products from its manufacturers, delivery schedules are beyond the control of
the Company and could in the future adversely affect the Company's sales.
The Company, at its Indianapolis facility, assembles point of purchase
displays for its customers. Although the Company does not conduct the actual
manufacturing of its products, it does participate in the design of the
prototype product, production tooling and molds, printing plates and dies and
seeks to insure quality control by actively reviewing the production processes
and testing goods produced by its manufacturers.
The principal raw materials used in the manufacture of the Company's
products are printed paper and paperboard, plastics, and wood. The Company
believes there are adequate sources of supply for such raw materials, and
although the Company does not manufacture its own products, the molds, films,
printing plates, and dies used in manufacturing the Company's products are
transferable if the Company employs different manufacturers.
ADVERTISING
The Company generally budgets approximately 3% of its gross sales for the
advertising of its products, most of which is done in conjunction with retailers
in the form of cooperative advertising. The Company, through cooperative
advertising, grants rebates or credits to customers who agree to advertise the
Company's products. The advertising usually takes the form of newspaper flyers
and catalogues. The Company also advertises its products in trade and consumer
magazines. Although the Company has not used television advertising to date, it
plans to use television advertising in 1997 for at least three of its products,
including products from the Phase 10 line.
COMPETITION
The toy industry is highly competitive and sensitive to changing consumer
preferences and demands. Competition is based primarily on price, quality and
play value. In recent years, the toy industry has experienced rapid
consolidation driven, in part, by the desire of industry competitors to offer a
range of products across a broader variety of categories. The Company competes
against many companies with products that are better known than those
distributed by the Company. Some of the Company's competitors are substantially
larger and more diversified and have substantially greater financial and
marketing resources than the Company, as well as greater name recognition, and
the ability to develop and market products similar to, and more competitively
priced than, those distributed by the Company. The Company competes with, among
others, Mattel, Inc., Hasbro, Inc. and its Milton Bradley and Parker Bros.
Divisions, and Pressman, Inc.
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<PAGE> 23
PRODUCTS LIABILITY
The Company has products liability insurance coverage for its operations in
the aggregate amount of $6,000,000. This amount of coverage has been acceptable
to its customers. The Company has not been the subject of any products liability
claim or litigation.
GOVERNMENT REGULATION
The Company's products are subject to the Consumer Product Safety Act
("CPSA") and the regulations promulgated thereunder. The CPSA enables the
Consumer Product Safety Commission ("CPSC") to exclude from the market consumer
products that fail to comply with applicable safety regulations or otherwise
create a substantial risk of injury. The CPSC may also require the repurchase by
the manufacturer of articles that are banned. Some states, local and foreign
governmental authorities have similar laws.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Sales of games and puzzles are seasonal, with a majority of retail sales
occurring from September to December. Shipments of games and puzzles are
greatest during the third and fourth quarters. The Company's business is
seasonal, with approximately 60% of the Company's sales being generated during
the third and fourth quarters. Generally, the first quarter is the lowest period
of shipping in the industry and therefore has the lowest profits due to fixed
operating costs incurred during this period. Many of the Company's product lines
have low retail prices, and such product lines have somewhat less seasonality
than high priced toy products.
EMPLOYEES
As of September 1, 1996 the Company employed 8 full time and 5 part time
employees, including 3 executive officers. All of the Company's employees are
located in the United States. The Company believes that its relations with its
employees are good. None of the Company's employees are represented by a union.
PROPERTIES
The Company leases approximately 16,000 square feet of space at 3750 West
16th Street, Indianapolis, Indiana which is currently used for the Company's
executive offices and for warehousing and distribution. The current rent for
this building is $3,500 per month. The lease on this building expires on
December 31, 1996. Negotiations are taking place to extend the term of the
lease. The Company anticipates that it will renew the lease at a higher rental.
However, if the lease is not renewed, the Company is confident that it will be
able to obtain other space, perhaps at a higher rental, on an expedited basis.
The Company believes that the failure to renew the lease will not result in a
material disruption of its business. The Company also leases approximately 1000
square feet of showroom and office space at the Toy Center South, 200 Fifth
Avenue, Room 516, New York, New York at a total current rental of $2,040 per
month. The showroom is used to exhibit for the International Toy Fair in
February of each year, and is used as an office for the balance of the year. The
showroom lease expires April 30, 2006. The Company believes it will need to seek
additional warehousing and distribution space in the upcoming year as a result
of the anticipated increased sales volume. The Company may also need a larger
New York showroom as the number of products and product lines grow.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
President, Chairman of the Board, Chief
Carl E. (Chip) Voigt, IV.................. 36 Executive Officer
Executive Vice President, Secretary and
Carl E. (Pete) Voigt, III................. 59 Director
Richard K. Bowden......................... 43 Treasurer, Chief Financial Officer
William H. Prophater(1)................... 51 Director
Dennis J. Weidenaar(1)(2)................. 59 Director
Sheldon Drobny(2)......................... 50 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Carl E. (Chip) Voigt, IV, is the President, Chief Executive Officer and
Chairman of the Board of the Company. Mr. Voigt has been engaged in the toy and
game industry for over 12 years. He was one of the founders of the Company and
has been engaged as President and Chief Executive Officer of the Company since
inception. Prior to his activities on behalf of the Company, Mr. Voigt spent
four years as a manufacturer's representative in the toy and game industry. Mr.
Voigt received a Bachelor of Science degree in Industrial Management from Purdue
University.
Carl E. (Pete) Voigt, III, has been engaged in the game and toy business
for 37 years. He was one of the founders of the Company and has been engaged as
its Executive Vice President since inception. Mr. Voigt was a manufacturer's
representative in the toy and game industry from 1974 until 1988, and
participated in the development and implementation of the sales and marketing
plan for the card game Uno, the best selling card game in the world. Prior to
that time, Mr. Voigt was a salesman or buyer in the toy and game business.
William H. Prophater has been a director of the Company since July 1996.
Mr. Prophater has been executive vice-president of Style-Line, Inc. since 1992.
From 1990 to 1991, Mr. Prophater was vice president and general merchandise
manager of Ames Department Stores. Prior to that time, Mr. Prophater was senior
vice president and general merchandise manager of Gold Circle Stores. Mr.
Prophater received a BS-BA degree in management from Creighton University.
Dennis J. Weidenaar has been a director of the Company since August 1996.
Mr. Weidenaar is the Dean of the Krannert Graduate School of Management and
School of Management at Purdue University. Mr. Weidenaar serves on the boards of
directors of Lafayette Life Insurance Company and The Washington Campus and on
the advisory board of St. Elizabeth Hospital. He has also served as a consultant
in economic education for TRW, Inc., B.F. Goodrich, Panhandle Eastern Pipeline
Company, Borg-Warner Company and R.R. Donnelly Company. Mr. Weidenaar received
an A.B. degree in economics from Calvin College, an M.A. in economics from the
University of Chicago, and a Ph.D. in economics from Purdue University.
Richard K. Bowden has been Treasurer and Chief Financial Officer of the Company
since August, 1996. From 1982 until August 1996, Mr. Bowden was Controller of
O.W.D. Incorporated, a producer of disposable plastic products for the grocery
industry. He was also appointed Vice President of O.W.D. in 1985, and Executive
Vice President in 1987. Mr. Bowden is a Certified Public Accountant and a
Certified Practitioner in Inventory Management. Mr. Bowden received a B.S.
degree in accounting from Loyola College and an M.B.A. from the Amos Tuck School
of Business Administration.
Sheldon Drobny has been a director of the Company since September, 1996.
Mr. Drobny is a principal in the accounting firm of Adler, Drobny & Fischer,
LLC. Mr. Drobny is a Certified Public Accountant. Prior to joining Adler, Drobny
& Fischer, LLC, Mr. Drobny was with the Internal Revenue Service. Mr. Drobny
received a B.S. degree in accounting from Roosevelt University.
The Company intends to establish a Board of Directors of seven persons. At
the time of the closing of the Offering, the Board will have 2 vacancies.
Pursuant to the Underwriting Agreement, for a period of 3 years from the date of
this Prospectus, a Representative of the Underwriters is entitled to nominate
one person to the Board of Directors. The Board of Directors intends to appoint
the Representative's nominee to the Board of Directors within 60 days of the
closing of the Offering. Within 60 days of the closing of the Offering, the
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<PAGE> 25
Board of Directors intends to appoint an additional director who is neither an
officer nor employee of the Company.
The Company's By-Laws provide that the authorized number of directors of
the Company must be no less than four (4) and no more than nine (9). The number
of authorized directors may be set from time to time by either the Board of
Directors or the affirmative vote of a majority of the Company's shareholders.
All directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors, if any. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
COMPENSATION OF DIRECTORS
Non-employee Directors receive $1,000 for each meeting of the Board of
Directors or committee meeting that they attend, plus reimbursement of
reasonable expenses incurred in attending meetings. Directors who are employees
of the Company serve as directors without compensation. Non-Employee Directors
are entitled to participate in the 1996 Stock Option Plan for Non-Employee
Directors.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's 1996 Stock Option Plan for Non-Employee Directors (the
"Director Plan"), adopted by the Board of Directors and shareholders in
October, 1996, provides for certain automatic grants of options to the
Company's non-employee Directors in consideration for their services performed
as directors of the Company. A total of 50,000 shares of Common Stock has been
authorized for issuance under the Director Plan. Each non-employee Director will
automatically receive on the commencement of service as a Director and on each
anniversary thereof on which such director remains a director of the Company
options to purchase 2,000 shares of the Common Stock. The exercise price of all
options granted under the Director Plan will be equal to the fair market value
of such shares on the date of grant. No option grant under the Director Plan may
be exercised before the expiration of the fiscal year for which it was granted,
provided that any option granted under the Plan shall become immediately
exercisable upon the retirement of the Director because of age, death or
disability. All such options expire, to the extent unexercised, ten years after
the date of grant, unless terminated sooner under the provisions of the Director
Plan.
BOARD COMMITTEES
The Compensation Committee consists of Messrs. Prophater and Weidenaar. The
function of the Compensation Committee is to make recommendations to the Board
with respect to compensation of management employees, including grants of
options pursuant to the Stock Option Plan and other benefit plans. The
Compensation Committee will always consist solely of outside directors.
The Audit Committee consists of Messrs. Weidenaar and Drobny. The Audit
Committee reviews the performance of the Company's independent auditors, their
fees and services and the scope of their audit as well as the needs for internal
auditing procedures and the adequacy of internal controls.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
during 1995 to the Chief Executive Officer and to each of the Company's
executive officers whose compensation exceeded $100,000 on an annual basis.
The Company does not maintain a bonus plan for the compensation of
executive officers, although the Board of Directors has the authority to provide
discretionary bonuses.
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<PAGE> 26
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYMENTS
------------------------------- ------------------------- ---------------------------
(B) (C) (D) (E) (F) (G) (H) (I)
(A) OTHER ANNUAL RESTRICTED ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS PLAN PAYMENT COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS(#) ($) ($)
- --------------------------- ----- -------- -------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl E. (Chip) Voigt,
IV(1).................... 1995 128,950 -- -- -- -- 30,000 --
President and
Chief Executive Officer 1994 133,375 -- -- -- -- 30,000 --
Carl E. (Pete) Voigt,
III(1)................... 1995 128,950 -- -- -- -- 30,000 --
Executive Vice President
and Secretary 1994 133,375 -- -- -- -- 30,000 --
</TABLE>
- ---------------
(1) Because the Company was an S Corporation, all of its income was taxed to its
shareholders. The Company distributed a portion of its previously taxed
income to its shareholders periodically. During the years 1994 and 1995, the
officers named above received S distributions of $79,212 and $271,800
respectively.
1996 EMPLOYEE STOCK OPTION PLAN
The Company's Board of Directors and stockholders adopted the 1996 Employee
Stock Option Plan (the "Stock Option Plan") in October of 1996. The purpose of
the Stock Option Plan is to attract and retain qualified personnel, to provide
additional incentives to employees, and to promote the success of the Company's
business. Subject to adjustments resulting from changes in capitalization, no
more than 250,000 shares of Common Stock may be issued pursuant to the exercise
of options granted under the Plan. The Plan provides for administration by the
Board of Directors, which authority may be delegated to the Compensation
Committee or another committee consisting of outside directors.
Subject to the provisions of the Plan, the Board of Directors has the sole
discretion to determine to whom among those eligible, and the time or times at
which, options will be granted, the number of shares to be subject to each
option and the manner in and price at which options may be exercised. Options
are designated at the time of grant as either "Incentive Stock Options" intended
to qualify under Section 422 of the Internal Revenue Code or "Non-qualified
Options" which do not so qualify.
The Board of Directors is authorized to grant Incentive Stock Options from
time to time to such employees of the Company as the Board of Directors, in its
sole discretion, may determine. Employees of the Company and independent
contractors providing services to or for the benefit of the Company are eligible
to receive Non-qualified Stock Options under the Plan.
The exercise price of each option is determined by the Board of Directors,
but may not, in the case of Incentive Stock Options, be less than 100% of the
fair market value of the shares of Common Stock covered by the option on the
date the option is granted. In the case of Non-qualified Options, the option
price per share may be less than, equal to or greater than the fair market value
of the shares of Common Stock covered by the option on the date the option is
granted, but not less than 85% of the fair market value of the Common Stock on
the date of grant. If an Incentive Stock Option is to be granted to an employee
who owns more than 10% of the Company's Common Stock, then the exercise price
may not be less than 110% of the fair market value of the common stock covered
by the Incentive Stock Option on the date the option is granted.
The Board of Directors has the discretion to fix the term of each option
granted under the Plan; provided, however, that the maximum length of term of
each Incentive Stock Option is 10 years, subject to earlier termination as
provided in the Plan (or five years in the case of Incentive Stock Options
granted to an employee who owns more than 10% of the Company's Common Stock).
Options generally terminate thirty days after termination of the optionee's
employment unless such termination is caused by the permanent disability or
death of the optionee. The Stock Option Plan may be amended at any time by the
Board of Directors, although certain amendments would require stockholder
approval.
LIMITATIONS ON OFFICERS' AND DIRECTORS' LIABILITY AND INDEMNIFICATION
Nevada law permits a corporation through its articles of incorporation (the
"Articles") to exonerate its directors from certain personal liability to the
corporation or its stockholders from monetary damages for breach of fiduciary
duty as a director other than (i) for acts or omissions which involve
intentional misconduct, fraud or knowing violation of law or (ii) in connection
with the payment of distributions to
23
<PAGE> 27
stockholders. The Company's Articles provide that its directors and officers are
relieved from personal liability to the full extent of the law.
The Company's Articles also authorize the Company to indemnify directors
and officers to the full extent of the law. Nevada law provides that a
corporation may indemnify officers and directors for actions taken by them in
connection with the Company if the person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interest of
the corporation. Nevada law permits payment of expenses to officers and
directors in defending a proceeding prior to the final disposition provided the
officer or director undertakes to repay the amount if it is ultimately
determined he is not entitled to be indemnified.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted at that date to reflect the sale of Common Stock offered hereby, the
number of shares of Common Stock beneficially owned (i) by each director of the
Company, (ii) by each executive officer of the Company identified in the Summary
Compensation Table, (iii) by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, and
(iv) by all directors and executive officers as a group. Unless otherwise
indicated, each of the following persons has sole voting and investment power
with respect to the shares of Common Stock set forth opposite their respective
names.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED SHARES OF
PRIOR TO BENEFICIALLY OWNED
OFFERING(2) AFTER OFFERING
------------------ ---------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT(2)
- ------------------------------------------------------- -------- ------- -------- ----------
<S> <C> <C> <C> <C>
Carl E. (Chip) Voigt, IV............................... 575,000 46.9% 575,000 25.8%
Carl E. (Pete) Voigt, III.............................. 575,000 46.9% 575,000 25.8%
William A. Prophater(3)................................ -- * -- *
Sheldon Drobny(4)(5)................................... -- * -- *
Richard E. Bowden...................................... -- * -- *
Dennis J. Weidenaar(6)................................. -- * -- *
Toy Paradise Partnership(4) 75,000 6.1% 75,000 3.4%
All directors, executive officers and other 5% owners
as a group(7)........................................ 1,225,000 100% 1,225,000 55%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock
(1) The address of each of the executive officer and directors, except where
otherwise noted in the footnotes, is c/o Fundex Games, Ltd. 3750 W. 16th
Street, Indianapolis, IN 46222.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally include voting or
investment power with respect to securities.
(3) The address of Mr. William A. Prophater is Chelsea House, 435 W. State St.,
P.O. Box 2706, Columbus, OH 43216.
(4) Mr. Sheldon Drobny is a general partner in Toy Paradise Partnership. Mr.
Drobny owns 19.4% of such partnership. The shares owned by Toy Paradise
Partnership are not included in the number of shares beneficially owned by
Mr. Drobny.
(5) The address of Toy Paradise Partnership and Mr. Sheldon Drobny is 95 Revere
Drive, Suite A , Northbrook, IL 60062.
(6) The address of Mr. Dennis J. Weidenaar is Krannert School of Management,
Purdue University, 1310 Krannert Building, West Lafayette, IN 47907.
(7) Includes 75,000 shares owned by Toy Paradise Partnership which are also
deemed to be beneficially owned by Mr. Drobny.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement dated December 18, 1986, the Voigts, officers and
directors of the Company, obtained from K&K International and Kenneth Johnson
the rights to market the game commonly known as "Phase 10". In connection with
the formation of the Company, the Voigts assigned all their rights under such
agreement to the Company with respect to the United States market. The Voigts
retained the right to market any and all of the products identified in the
agreement in any market existing throughout the world other than the United
States. Effective August 31, 1996, the Voigts assigned all of their remaining
rights in the Agreement to the Company. See "Business -- License Agreement and
Intellectual Property."
24
<PAGE> 28
On December 4, 1995, the Company entered into a joint venture agreement
with Toy Paradise Partnership ("TPP") for purposes of developing and exploiting
certain games. The venture was known as Toy Stratagem, LLC. Pursuant to the
joint venture agreement, the Company and TPP each owned a 50% interest in the
joint venture. Pursuant to an agreement dated August 27, 1996, TPP agreed to
transfer its interest in TPP to the Company in exchange for 75,000 shares of
Common Stock and 75,000 warrants to acquire common stock at a price equal to
120% of the initial Offering price. In the event the Company does not complete a
public offering prior to August 28, 1997, the Warrant exercise price will be
$9.60. Sheldon Drobny, a director of the Company, is a general partner in TPP,
owning a 19.4% interest in such partnership.
On July 31, 1996, the Company obtained certain financing (the "Bridge
Loan") in the amount of $500,000. The Bridge Loan was arranged for the Company
by Paradigm Venture Investors, LLC, an affiliate of Sheldon Drobny, a director
of the Company. Mr. Drobny loaned the sum of $62,334 to the Company as part of
the Bridge Loan. Certain affiliates of Mr. Drobny, as well as certain unrelated
parties, also loaned funds to the Company as part of the Bridge Loan. Each loan
comprising the Bridge Loan is evidenced by a Secured Debenture, each of which is
secured by a Security Agreement pursuant to which all of the Company's assets
are pledged as collateral for the Bridge Loan. The terms of the Bridge Loan
provide for interest to accrue at the rate of 10% per year, and require
repayment of the entire Bridge Loan from the proceeds of this Offering.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue up to 8,000,000 shares of Common Stock,
$.001 par value, and 1,000,000 shares of Preferred Stock, $1.00 par value. There
are 1,225,000 shares of Common Stock outstanding at the date of this Prospectus.
No shares of Preferred Stock are issued or outstanding. At the date of this
Prospectus, there were 3 holders of record of the Company's Common Stock.
COMMON STOCK
Subject to the rights of holders of Preferred Stock, holders of Common
Stock are entitled to share ratably in dividends as are declared by the Board of
Directors of the Company out of funds legally available for the payment of
dividends. In the event of any liquidation, dissolution or winding-up of the
Company, subject to the rights of holders of Preferred Stock, the holders of
Common Stock will be entitled to receive a pro rata share of the net assets of
the Company remaining after payment or provision for payment of the debts and
other liabilities of the Company.
Holders of Common Stock are entitled to one vote per share in all matters
to be voted upon by stockholders. Cumulative voting for the election of
directors, and all other matters brought before stockholders meetings, whether
annual or special, is not permitted. Holders of Common Stock have no preemptive
or subscription rights and the Common Stock is not subject to redemption or
assessment.
All of the outstanding shares of Common Stock are, and the Common Stock to
be sold pursuant to this Offering upon issuance and sale, will be fully paid and
non-assessable. Holders of Common Stock of the Company are not liable for
further calls or assessments.
PREFERRED STOCK
Pursuant to its Articles, the Company is authorized to issue "blank check"
preferred stock which may be issued from time to time in one or more series by
the Company's Board of Directors, with such designations, relative rights,
priorities, preferences, qualifications, limitations and restrictions as the
Board of Directors determines. The rights, preferences, limitations and
restrictions of different series of preferred stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and other matters. The
issuance of preferred stock, while providing flexibility for corporate
purposes, could adversely affect the voting power of the holders of Common
Stock and, under certain circumstances, make it more difficult for a third
party to gain control of the Company, discourage bids for the Company's Common
Stock at a premium or otherwise adversely affect the market price of the Common
Stock.
WARRANTS
REPRESENTATIVE'S WARRANTS
In connection with this Offering, the Company has authorized the issuance
of up to 100,000 Representative's Warrants and has reserved 100,000 shares of
Common Stock and 100,000 Warrants for issuance upon
25
<PAGE> 29
exercise of the Representative's Warrants and 100,000 shares of Common Stock
issuable upon exercise of the Warrants underlying the Representative's Warrants.
Each Representative's Warrant will entitle the holder to acquire, at an exercise
price of $ per share, one share of Common Stock and a Warrant to acquire
one share of Common Stock at an exercise price equal to $ per share. The
other terms of the Representative's Warrants are substantially similar to the
Warrants, except that the Representative's Warrants (and the Warrants included
therein) will not be publicly tradeable and will not be redeemable by the
Company. The Representative's Warrants will be exercisable at any time from the
first anniversary of the date of this Prospectus until the fifth anniversary of
the date of this Prospectus.
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Reference is made to the actual text of the Warrant Agreement between the
Company and National Securities Corporation (the "Warrant Agent"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part, for a more complete description of the Warrants. See
"Additional Information."
EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an initial exercise price of
$ per share at any time during the period commencing one (1) year from the
date of this Prospectus and terminating five (5) years from the date of the
Prospectus, subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the Warrant
Agent, with the subscription form thereon properly completed and executed,
together with payment of the exercise price. No fractional shares will be issued
upon exercise of the Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company,
in order to enable warrantholders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of Common Stock that might have been purchased upon the
exercise of the Warrant.
REDEMPTION PROVISIONS. Commencing eighteen (18) months after the date of
this Prospectus, the Warrants are subject to redemption at $0.01 per Warrant on
thirty (30) days' prior written notice to the Warrantholders if the average
closing bid price of the Common Stock as reported on the AMEX equals or exceeds
$ per share of Common Stock (subject to adjustment for stock dividends,
stock splits, combinations or reclassifications of the Common Stock), for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
In the event the Company exercises the right to redeem the Warrants, such
Warrants will be exercisable until the close of business on the business day
immediately preceding the date for redemption fixed in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to be
exercisable and the holder will be entitled only to the redemption price.
TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five (5) years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
WARRANTHOLDER NOT A STOCKHOLDER. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
MODIFICATION OF WARRANTS. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days' prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the
26
<PAGE> 30
warrantholders. No other modifications may be made to the Warrants without the
consent of two-thirds of the warrantholders.
A significant amount of the Securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Representative. Although it has no obligation to do so, the Representative
currently intends to make a market in the Company's Securities and may otherwise
effect transactions in such Securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the Securities described in the Prospectus. Such market-making activity may
be discontinued at any time. The price and liquidity of the Common Stock and the
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. See "Underwriting".
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
The Warrants are separately transferable immediately upon issuance.
Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket in, or may move to,
jurisdictions in which the shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants, and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.
OTHER WARRANTS
The Company has granted certain warrants to Toy Paradise Partnership to
purchase an aggregate of 75,000 shares of Common Stock at an exercise price per
share equal to 120% of the initial public offering price. See "Certain
Relationships and Related Transactions."
TRANSFER AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company.
NEVADA ANTI-TAKEOVER LAW
The Company will be governed by the provisions of Sections 78.411-78.444 of
the Nevada Business Corporation Act. In general, the Nevada statutes prohibit a
public Nevada corporation with at least 200 stockholders from engaging in a
"business combination" with an "interested shareholder" for a period of three
years after the person become an interested shareholder, unless the business
combination is approved in a prescribed manner. "Business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested shareholder. An "interested shareholder" is a person who is the
beneficial owner, directly or indirectly, of 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and at any
time within three years prior to the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the corporation's voting stock.
Additionally, at the end of the three year period, any such business combination
must be approved by a supermajority vote of the stockholders, unless certain
specified fair price conditions are met.
Nevada's "Control Share Acquisition Statute" found in Sections
78.378-78.379 of the Nevada Business Corporation Act prohibits an acquiror,
under certain circumstances, from voting shares for a target corporation's
stock, after exceeding certain threshold ownership percentages, unless the
acquiror obtains the approval of the target corporation's shareholders. This
statute only applies to Nevada corporations with at least 200 shareholders, at
least 100 of which are Nevada residents, and only if such corporation is doing
business directly or indirectly in Nevada. The Company may not meet the
requirements for this statute to apply. However, if the statute did apply and an
acquiror met the threshold ownership percentages, then pursuant to such statutes
and the Company's Articles, the acquiror would be deprived of the right to vote
until two-thirds of the disinterested stockholders restored that right. If the
stockholders failed to restore the voting rights, then the corporation, if so
provided in its Articles or By-laws, could call an
27
<PAGE> 31
acquiror's shares for redemption. The Company's Articles permit such redemption.
The statute also provides that the stockholders who do not vote in favor of
restoring voting rights may demand payment for the "fair value" of their shares.
OTHER ANTI-TAKE OVER PROVISIONS
The anti-takeover provisions described above, together with the ability of
the Board of Directors to issue Preferred Stock may have the effect of delaying
or deterring a change in the control of the management of the Company. See "Risk
Factors -- Effect of Anti-Takeover Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock or
Warrants of the Company. Future sales of substantial amounts of Common Stock or
Warrants in the public market could adversely affect market prices prevailing
from time to time. Sales of substantial amounts of Common Stock or Warrants of
the Company in the public market after various restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this Offering, the Company will have 2,225,000 shares of
Common Stock outstanding (2,375,000 shares if the Representative's overallotment
option is exercised in full), and 1,000,000 Warrants outstanding (1,150,000
Warrants if the Representative's over allotment option is exercised in full).
All of the 1,000,000 shares of Common Stock sold in this Offering (plus any
shares sold as a result of the exercise of the Representative's overallotment
option) by the Company, and subject to certain conditions commencing one year
after the date of this Prospectus, up to 1,000,000 shares of Common Stock
issuable upon exercise of the Warrants, and, commencing approximately one year
after the date of this Prospectus, up to 100,000 shares of Common Stock issuable
upon exercise of the Representative's Warrants, will be freely transferable
without further restriction or registration under the Act, except that any
shares purchased by an "affiliate" of the Company (as defined under the Act)
will be subject to the resale limitations of Rule 144.
The 1,225,000 shares which were issued and outstanding prior to this
Offering are deemed "restricted securities" within the meaning of Rule 144
promulgated under the Act. Such restricted securities were purchased prior to
this Offering in transactions not involving a public offering and may only be
sold pursuant to a registration statement under the Act, in compliance with the
exemption provisions of Rule 144, or pursuant to another exemption under the
Act. These shares of Common Stock will, however, be subject to the Lock-Up
Agreements.
Holders of restricted securities must comply with the requirements of Rule
144 in order to sell their shares in the open market. In general, under Rule 144
as currently in effect, any affiliate of the Company and any person (or persons
whose sales are aggregated) who has beneficially owned his or her restricted
shares for at least two years, would be entitled to sell in the open market,
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Company's Common Stock
or (ii) the average weekly trading volume period reported on the NASDAQ System
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain limitations on manner of sale, notice, requirements, and
availability of current public information about the Company. Non-affiliates who
have held their restricted shares for three years are entitled to sell their
shares under Rule 144(k) without regard to any of the above limitations,
provided they have not been affiliates for the three months preceding such sale.
The Commission has recently proposed regulations reducing the initial Rule
144 holding period to one year and the Rule 144(k) holding period to two years.
There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications would have a material effect on the
timing of eligibility for resale of shares of the Company's Common Stock.
The Company has reserved 300,000 shares of Common Stock for issuance under
the 1996 Stock Option Plan. The Company intends, immediately after the sale of
the Securities offered hereby, to register a total of 300,000 shares of Common
Stock reserved for issuance under the 1996 Stock Option Plan.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock.
28
<PAGE> 32
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the underwriters named below, for whom National Securities
Corporation is acting as the Representative (the "Representative") has agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective number of shares of Common Stock and Warrants set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF WARRANTS
UNDERWRITERS TO BE PURCHASED TO BE PURCHASED
- ------------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
National Securities Corporation..............................
--------- -------- -
..............................................
--------- -------- -
Total...................................................
========= =========
</TABLE>
The Underwriting Agreement provides that the Underwriters will be obligated
to purchase, subject to the terms and conditions set forth therein, all of the
shares of Common Stock and Warrants being sold pursuant to the Underwriting
Agreement if any of the shares of Common Stock or Warrants are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the Securities to the public at the initial public offering
prices set forth on the cover page of this Prospectus and to certain dealers at
such prices less a concession not in excess of $ per share of Common
Stock and $ per Warrant, and that the Underwriters and such dealers
may reallow a discount not in excess of $ per share of Common Stock
and $ per Warrant to other dealers. After the public Offering, the
public Offering price and concessions and discounts to dealers may be changed.
Under the terms of the Underwriting Agreement, the Company has agreed to
indemnify the Underwriter against certain liabilities, including liabilities
under the federal securities laws, or to contribute to payments which the
Underwriter may be required to make in respect thereof. The Company has been
advised that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, and subject to the terms
and conditions set forth in the Underwriting Agreement, to purchase, at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus, up to 150,000 additional shares of Common Stock and 150,000
Warrants. The Underwriters may exercise such option only to cover
over-allotments in the sale of the shares of Common Stock offered hereby. To the
extent that the Underwriters exercise such option, each Underwriter may be
committed, subject to certain conditions, to purchase a number of additional
Securities proportionate to such Underwriters' initial commitment pursuant to
the Underwriting Agreement.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission of 5% of the
aggregate exercise price of such Warrants. However, no compensation will be
paid to the Representative in connection with the exercise of the Warrants if
(a) the market price of the Common Stock is lower than the exercise price, (b)
the Warrants are held in a discretionary account, or (c) the Warrants are
exercised in an unsolicited transaction where the holder of the Warrant has not
stated in writing that the transaction was solicited and has not designated in
writing the Representative as soliciting agent. Unless granted an exemption by
the Commission from Rule 10b-6 under the Exchange Act, the Representative and
any soliciting broker-dealers will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities for the periods prescribed by exemption (xi) to Rule 10b-6
before the solicitation activity or the termination (by waiver or otherwise) of
any right that the Representative and any soliciting broker-dealer may have to
receive a fee for the exercise of the Warrants following such solicitation. As
a result, the Representative and any soliciting broker-dealers may be unable to
continue to provide a market for the Common Stock or Warrants during certain
periods while the Warrants are exercisable. If the Representative has engaged
in any of the activities prohibited by Rule 10b-6 during the periods described
above, the Representative has undertaken to waive unconditionally its rights to
receive a commission on the exercise of such Warrants.
The Company has agreed to sell to the Representative, for an aggregate of
$10.00, warrants to purchase 100,000 shares of Common Stock and/or 100,000
Warrants (the "Representative's Warrants"). The Representative's Warrants are
initially exercisable at a price equal to $ per share of Common Stock and
$ per Warrant for a period of four years, commencing one year from the
date of this Prospectus, and are restricted from sale, transfer, assignment or
hypothecation for one year, except to officers of the Representative. The
exercise price and the number of shares of Common Stock and Warrants may, under
certain circumstances, be subject to adjustment pursuant to anti-dilution
provisions of the Representative's Warrants. The holders of the Representative's
Warrants will have piggyback and demand registration rights with respect to the
Securities issuable upon exercise of the Warrants.
The Company has agreed to pay the Underwriters a nonaccountable expense
allowance equal to 3% of the gross proceeds from the sale of the shares of
Common Stock and Warrants, of which $25,000 has been paid.
29
<PAGE> 33
The Underwriting Agreement provides that, for a period of 13 months from
the date of this Prospectus, none of the current shareholders, executive
officers or directors will offer, sell or otherwise dispose of any Securities
without the consent of the Representative.
The Company has also agreed, for a period of three years from the date of
this Prospectus, at the option of the Representative, to nominate a designee of
the Representative for election to the Company's Board of Directors, or at the
Representative's option, to designate one person to be an observer at all Board
meetings.
Prior to the Offering, there existed no public market for the Common Stock
or the Warrants. The initial public offering price of the Securities and the
exercise price and terms of the Warrants have been determined by negotiation
between the Company and the Representative. Among the factors considered in
determining the initial public Offering price, in addition to prevailing market
and general economic conditions, were the history of, and prospects for, the
industry in which the Company principally competes, the historical results of
operations of the Company, the ability of the Company's management, the
Company's earnings prospects and other relevant factors. Therefore, the public
offering price of the Securities does not necessarily bear any relationship to
established valuation criteria. There can be no assurance that the price at
which the Common Stock or Warrants will sell in the public market after this
Offering will not be lower than the price at which the Securities were sold by
the Underwriter.
Mr. Carl E. Voigt, III and Mr. Carl E. Voigt, IV have granted the
Representative an irrevocable preferential right for a period of three years to
purchase for its account or to sell for the account of either of Messrs. Voigt
any Securities of the Company which either of them may seek to sell in the open
market.
National Securities Corporation intends, but is not obligated, to make a
market in the Common Stock and Warrants of the Company upon completion of the
Offering. The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not propose to be a complete statement of the
terms and conditions thereof. Copies of the Underwriting Agreement are on file
at the offices of the Representative, the Company and the Securities and
Exchange Commission. See "Additional Information".
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C., Chicago, Illinois. Camhy Karlinsky & Stein LLP has acted as
counsel for the Underwriter in connection with certain legal matters relating to
this Offering.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement on Form SB-2 under the Securities Act
with respect to the Securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain of which are omitted in accordance with the rules
of the Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to such Registration Statement and
the exhibits filed therewith. Statements made in this Prospectus as to the
contents of any contract, agreement or other documents are not necessarily
complete, and with respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th floor, New York, New York. Copies
of such material may be obtained at prescribed rates from the Commission's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
30
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Balance Sheet at December 31, 1995 (audited)
and August 31, 1996 (unaudited)..................................................... F-3
Statements of Income for the years ended
December 31, 1994 and 1995 (audited) and
the eight months ended August 31, 1995 and 1996 (unaudited)......................... F-5
Statements of Stockholders' Equity
for the years ended December 31, 1994 and 1995 (audited)
and the eight months ended August 31, 1996 (unaudited).............................. F-6
Statements of Cash Flows for the years ended
December 31, 1994 and 1995 (audited)
and the eight months ended August 31, 1995 and 1996 (unaudited)..................... F-7
Notes to Financial Statements......................................................... F-9
</TABLE>
F-1
<PAGE> 35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Fundex Games, Ltd.
We have audited the accompanying balance sheet of Fundex Games, Ltd. as of
December 31, 1995, and the related statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fundex Games, Ltd. at December
31, 1995, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Chicago, Illinois
September 4, 1996
F-2
<PAGE> 36
FUNDEX GAMES, LTD.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, August 31,
1995 1996
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 69,636 $ 125,751
Accounts receivable - trade, less allowance for doubtful
accounts of $17,500 in 1995 and 1996 421,695 1,108,206
Due from stockholders 5,300 6,000
Inventories (Note 2) 587,114 920,577
Prepaid expenses, including deferred tax asset of
$19,100 at August 31, 1996 (Notes 3, 4 and 5) 46,660 77,719
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,130,405 2,238,253
- ------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Machinery and equipment 115,125 149,560
Tools and dies - 23,169
Leasehold improvements 39,302 40,505
- ------------------------------------------------------------------------------------------------------------
154,427 213,234
Less accumulated depreciation and amortization 50,865 70,286
- ------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 103,562 142,948
- ------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred offering costs (Note 12) - 86,226
Cost in excess of assets acquired (Note 10) - 382,787
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS - 469,013
- ------------------------------------------------------------------------------------------------------------
$ 1,233,967 $ 2,850,214
============================================================================================================
</TABLE>
F-3
<PAGE> 37
FUNDEX GAMES, LTD.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, August 31,
1995 1996
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 9) $ 40,000 $ 353,000
Accounts payable 331,041 702,780
Distribution payable to stockholders (Note 13) - 196,000
Accrued liabilities
Commissions 69,668 140,754
Royalties and licenses (Notes 3 and 4) 43,828 24,002
Pension (Note 11) 68,792 129,873
Other 36,805 148,766
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 590,134 1,695,175
DEFERRED RENT (Note 6) - 14,828
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 590,134 1,710,003
- ------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 4, 6, 8 and 11)
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.001 par value; 8,000,000 shares
authorized; 1,150,000 and 1,225,000 issued and outstanding
in 1995 and 1996 1,150 1,225
Paid-in capital 60,100 1,138,986
Retained earnings 582,583 -
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 643,833 1,140,211
- ------------------------------------------------------------------------------------------------------------
$ 1,233,967 $ 2,850,214
============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 38
FUNDEX GAMES, LTD.
STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Eight
Months Months
Year Ended Year Ended Ended Ended
December 31, December 31, August 31, August 31,
1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES (Note 14) $ 3,802,001 $ 4,600,819 $ 2,633,721 $ 3,518,701
COST OF SALES 2,474,809 3,218,443 1,803,156 2,394,024
- ------------------------------------------------------------------------------------------------------------
Gross profit 1,327,192 1,382,376 830,565 1,124,677
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 3) 967,840 1,043,673 567,496 810,140
- ------------------------------------------------------------------------------------------------------------
Operating income 359,352 338,703 263,069 314,537
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Royalty income 11,171 8,062 7,833 874
Rent income (Note 6) - - - 18,000
Interest income - 20 - 103
Interest expense (11,600) (9,600) (6,400) (6,400)
Equity loss in joint venture
(Note 10) - - - (6,411)
- ------------------------------------------------------------------------------------------------------------
(429) (1,518) 1,433 6,166
- ------------------------------------------------------------------------------------------------------------
Income before tax benefit 358,923 337,185 264,502 320,703
TAX BENEFIT (Note 5) - - - 19,100
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 358,923 $ 337,185 $ 264,502 $ 339,803
============================================================================================================
PRO FORMA
Historical income before
taxes on income $ 358,923 $ 337,185 $ 264,502 $ 320,703
Pro forma taxes on income
(Note 5) 140,800 132,100 103,700 126,000
- ------------------------------------------------------------------------------------------------------------
Pro Forma Net Income $ 218,123 $ 205,085 $ 160,802 $ 194,703
============================================================================================================
Pro Forma Net Income Per Share $ 0.18 $ 0.17 $ 0.13 $ 0.16
============================================================================================================
Weighted Average Common Stock 1,225,000 1,225,000 1,225,000 1,225,000
============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 39
FUNDEX GAMES, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-In Retained
Shares Amount Capital Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 1,150,000 $ 1,150 $ 100 $ 237,487 $ 238,737
Distribution to stockholders - - - (79,212) (79,212)
Net income, for the year ended 1994 - - - 358,923 358,923
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 1,150,000 1,150 100 517,198 518,448
Distribution to stockholders - - - (271,800) (271,800)
Capital contributions - - 60,000 - 60,000
Net income, for the year ended 1995 - - - 337,185 337,185
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 1,150,000 1,150 60,100 582,583 643,833
Period ended August 31, 1996 (Unaudited)
Distribution to stockholders - - - (238,300) (238,300)
Net income, for the eight months ended August 31, 1996 - - - 339,803 339,803
Reclassification of previously undistributed S earnings
to paid-in capital - - 684,086 (684,086) -
Issuance of 75,000 shares and 75,000 warrants to acquire
joint venture (Note 10) 75,000 75 394,800 - 394,875
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, August 31, 1996 (Unaudited) 1,225,000 $ 1,225 $ 1,138,986 $ - $ 1,140,211
=================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 40
FUNDEX GAMES, LTD.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Eight
Months Months
Year Ended Year Ended Ended Ended
December 31, December 31, August 31, August 31,
1994 1995 1995 1996
- -------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 358,923 $ 337,185 $ 264,502 $ 339,803
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation 14,865 23,315 13,771 19,421
Loss on joint venture - - - 6,411
Deferred tax asset - - - (19,100)
Deferred rent - - - 14,828
Changes in assets and liabilities
(Increase) decrease in
accounts receivable (370,607) 114,490 (140,888) (686,511)
Increase in inventories (113,978) (219,405) (202,555) (333,463)
(Increase) decrease in prepaid
expenses and other assets (58,132) 24,997 13,048 (98,185)
Increase in accounts payable 105,846 52,448 125,579 371,739
Increase (decrease) in
accrued liabilities 151,651 11,253 (53,855) 224,302
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 88,568 344,283 19,602 (160,755)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in joint venture - - - (19,000)
Capital expenditures (35,938) (84,179) (17,957) (35,638)
Cash acquired in acquisition - - - 1,508
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (35,938) (84,179) (17,957) (53,130)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable - - - 313,000
Advances to stockholder (1,000) - - (700)
Repayment of stockholder loans (27,787) - - -
Capital contribution - 60,000 60,000 -
Distribution to stockholders (79,212) (271,800) (66,200) (42,300)
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities $ (107,999) $ (211,800) $ (6,200) $ 270,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 41
FUNDEX GAMES, LTD.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Eight
Months Months
Year Ended Year Ended Ended Ended
December 31, December 31, August 31, August 31,
1994 1995 1995 1996
- -------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH (55,369) 48,304 (4,555) 56,115
CASH, at beginning of period 76,701 21,332 21,332 69,636
- -------------------------------------------------------------------------------------------------------------
CASH, at end of period $ 21,332 $ 69,636 $ 16,777 $ 125,751
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for interest $ 9,200 $ 7,200 $ 7,200 $ 4,800
=============================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Distribution payable to stockholders $ - $ - $ - $ 196,000
=============================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Fundex acquired the remaining 50% of a
joint venture in August 1996 for
75,000 shares of common stock and
75,000 warrants
Fair values of assets acquired $ - $ - $ - $ 12,088
Cost in excess of fair value - - - 382,787
- -------------------------------------------------------------------------------------------------------------
Total consideration $ - $ - $ - $ 394,875
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 42
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF
ACCOUNTING
POLICIES
BUSINESS Fundex Games, Ltd. (the "Company")
(formerly Third Quarter Corporation) develops,
manufactures (through subcontractors),
markets and sells games and toys nationwide
through discount retailers, specialty toy
retailers, toy wholesalers, drug and grocery
retailers and certain catalog and specialty
accounts from its Indianapolis, Indiana
facility. The Company's principal products
include card games, children's board games,
skill and action games, family games, puzzles
and spring and summer toys. The Company's
products are manufactured to the Company's
specifications by manufacturers based in the
United States, Taiwan, Indonesia and China.
INTERIM FINANCIAL The financial information at August 31,
STATEMENTS 1996 and for the eight months ended August
31, 1995 and 1996 is unaudited. In the
opinion of management, such information
contains all adjustments, consisting only of
normal recurring accruals, necessary for a
fair presentation of the results of
operations for such periods. Results for the
eight months ended August 31, 1996 are not
necessarily indicative of the results to be
expected for the year ending December 31,
1996.
ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
financial statements. Actual results could
differ from those estimates.
CASH AND The Company considers all highly liquid
CASH EQUIVALENTS investments with a maturity of three months
or less to be cash equivalents.
CONCENTRATION Financial instruments that potentially
OF CREDIT RISK subject the Company to significant
concentrations of credit risk consist
principally of trade accounts receivable.
The Company primarily provides credit, in the
normal course of business, to its customers.
The Company performs ongoing credit
evaluations of its customers and maintains
allowances for potential credit losses, if
necessary.
F-9
<PAGE> 43
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
INVENTORIES Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
MACHINERY AND Machinery and equipment are carried at cost. Depreciation
EQUIPMENT is computed using the straight-line method over the
following estimated useful lives:
Years
-----
Furniture and fixtures 7
Machinery and equipment 3-5
Tools and dies 3
Leasehold improvements are amortized over the lesser of the
lease term or the useful life of the property.
INCOME TAXES The Company, with the consent of its shareholders, elected
under the Internal Revenue Code to be an S corporation until
August 28, 1996. In lieu of corporation income taxes, the
shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income
taxes has been included in the financial statements prior to
August 28, 1996. As of August 28, 1996 the Company became a
C corporation. At that time a deferred tax asset was
recorded for existing temporary differences and the
remaining undistributed S corporation earnings were
reclassified to additional paid-in capital. The Company
recognizes deferred tax assets for the expected future tax
consequences of temporary differences between the tax basis
and financial reporting basis of certain assets based upon
currently enacted tax rates expected to be in effect when
such amounts are realized.
Pro forma adjustments are presented to reflect a provision
for income taxes based upon pro forma income before taxes as
if the Company had not been an S corporation for all periods
presented (Note 5).
NET INCOME PER Pro forma net income per share is based on the weighted
SHARE average number of shares of common stock and common
stock equivalents outstanding during each year after
giving effect to the 1,000-to-1 stock split with the
Company's reincorporation in Nevada and the 15% stock
dividend effected in August 1996 described in Note 7.
F-10
<PAGE> 44
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
Common stock equivalents, pursuant to Securities and
Exchange Commission Staff Accounting Bulletins, are
common and common stock equivalents issued (or stock
option and warrant grants) at prices below the
anticipated public offering price during the
twelve-month period prior to the proposed initial
public offering. They have been included in the
calculation as if they were outstanding for all
periods.
Historical net income per share is not presented
because such data is not meaningful.
RECENT ACCOUNTING Effective for fiscal years beginning after December 15,
PRONOUNCEMENTS 1995, Statement of Financial Accounting Standards
Number 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("Statement 121") was adopted by the
Financial Accounting Standards Board ("FASB"). The
adoption by the Company of Statement 121 is not
expected to have a materially adverse effect on the
Company's financial condition or results of operations.
In December 1995, FASB issued Statement of Financial
Accounting Standards Number 123, "Accounting for
Stock-Based Compensation." This standard encourages a
new method of recognizing stock-based compensation
expense using an option pricing model measurement of
the estimated fair value of employee stock options.
Alternatively, companies may choose to retain the
current approach set forth in Accounting Principles
Board Opinion Number 25, "Accounting for Stock Issued
to Employees," and provide expanded footnote disclosure
as to what the effects of utilizing the option pricing
model measurement would have been. Statement 123 is
effective for fiscal years beginning in 1996. The
Company does not plan to use the option pricing model
measurement of Statement 123 and will provide the
required footnote disclosure.
F-11
<PAGE> 45
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
2. INVENTORIES Inventories consist of the following:
December 31, August 31,
1995 1996
--------------------------------------------------
Raw materials $ 315,877 $ 466,249
Finished goods 271,237 454,328
--------------------------------------------------
$ 587,114 $ 920,577
==================================================
3. ROYALTIES The Company's products are generally acquired
by the Company from others or developed for the Company
by unaffiliated third parties. If the Company accepts
and develops a third party's concept for a new game, it
generally pays a royalty to the inventor on games sold
which were developed from the concept, often with a
commitment to manufacture and sell a minimum number.
Royalties paid to the inventors range from 1% to 6% of
the wholesale sales price for each unit sold by the
Company. Royalty expense was $145,405 and $148,126 for
the years ended December 31, 1994 and 1995,
respectively, and $81,650 and $112,580 for the eight
months ended August 31, 1995 and 1996, respectively.
The Company may pay advance royalties to an inventor on
products where a significant amount of development has
been done by the inventor. At December 31, 1995 and
August 31, 1996 advance royalties were $41,527 and
$28,279, respectively.
4. LICENSE AGREEMENTS The two principal stockholders of the Company own the
exclusive worldwide rights to manufacture, market and
distribute the card game Phase 10, a component of the
Company's principal product line. The stockholders
have assigned such rights to the Company with respect
to the United States only.
F-12
<PAGE> 46
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- -------------------------------------------------------------------------------
On August 31, 1996, the principal stockholders
contributed the worldwide rights to manufacture,
market and distribute Phase 10 to the Company. The
rights have been valued at carryover basis from the
stockholders.
During 1996 the Company entered into an exclusive
agreement with Hollywood Ventures Corporation ("HVC")
for certain properties and characters associated with
"The Big Comfy Couch" for use on board games,
paperboard puzzles and wooden puzzles. Shipment of
these products began in July 1996. Under the terms of
the license, the Company has the exclusive rights for
the above products through December 31, 1997.
The Company has the right to renew the agreement for
two additional years provided the Company meets certain
minimum royalty requirements. The Company has agreed
to pay the licensor royalties in the amount of 8% of
the sales of the products and has guaranteed a minimum
of $150,000 in royalties during the initial license
term. The Company has made a $25,000 advance payment to
the licensor and this amount is included in prepaid
expenses net of $6,685 for royalties due in the
accompanying balance sheet at August 31, 1996.
The Company has entered into an additional exclusive
agreement with HVC for the use of The Big Comfy Couch
name and logo on an inflatable couch to be functional
as furniture for children. Shipments of this product
should begin in the fourth quarter of 1996. Under the
terms of this license the Company has exclusive rights
for such product through December 31, 1998. The
Company has the right to renew the agreement for two
additional years provided the Company generates sales
which produce royalties to HVC of at least $200,000.
The Company has agreed to pay HVC royalties in the
amount of 8% of sales and has guaranteed a minimum of
$40,000 in royalties. This license applies to the
United States and Canada. The Company has made a
$10,000 advance payment to the licensor and this
amount is included in prepaid expenses in the
accompanying balance sheet at August 31, 1996.
F-13
<PAGE> 47
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
5. TAXES ON INCOME With the consent of its stockholders, the Company
elected to be taxed as an S corporation pursuant to the
Internal Revenue Code through August 28, 1996. Under
this arrangement, the stockholders will include the
taxable income of the Company in their individual tax
returns.
The pro forma provision for income taxes represents the
estimated income taxes that would have been reported
had the Company been subject to income taxes and is
comprised of the following:
<TABLE>
<CAPTION>
Eight Eight
months Months
Year ended Year ended ended Ended
December 31, December 31, August 31, August 31,
1994 1995 1995 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current
Federal $ 118,500 $ 109,300 $ 82,700 $ 104,500
State 30,300 28,000 21,000 27,400
------------------------------------------------------------------------
148,800 137,300 103,700 131,900
------------------------------------------------------------------------
Deferred (8,000) (5,200) - (5,900)
------------------------------------------------------------------------
Pro forma taxes
on income $ 140,800 $ 132,100 $ 103,700 $ 126,000
------------------------------------------------------------------------
</TABLE>
The pro forma provision for income taxes differs from
the amounts computed by applying federal statutory
rates to the pro forma income before taxes due to the
following:
<TABLE>
<CAPTION>
Eight Eight
months Months
Year ended Year Ended ended Ended
December 31, December 31, August 31, August 31,
1994 1995 1995 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Provision for federal
income taxes at
the statutory rate $ 122,000 $ 114,600 $ 90,000 $ 109,000
State income taxes
(net of federal
benefit) 18,800 17,500 13,700 17,000
----------------------------------------------------------------------------------
$ 140,800 $ 132,100 $ 103,700 $ 126,000
==================================================================================
</TABLE>
F-14
<PAGE> 48
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
As of August 28, 1996, the Company became a C Corporation.
At that time a deferred tax asset of $19,100 was recorded
for existing temporary differences.
The components of the deferred income tax asset at August
31, 1996 are as follows:
<TABLE>
------------------------------------------------------
<S> <C>
Allowance for doubtful accounts $ 7,000
Inventory adjustments 6,200
Other 5,900
------------------------------------------------------
$ 19,100
======================================================
</TABLE>
Deferred income taxes arise from temporary differences
between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
6. LEASES The Company leases its industrial and office facilities in
Indianapolis, Indiana under an operating lease that expires
December 31, 1996. In addition beginning January 1, 1996,
the Company leased a showroom and office space in New York,
New York under an operating lease that expires April 30,
2006. Rental payments under this lease did not begin until
July 1, 1996. Generally accepted accounting principles
require total minimum rental payments to be recognized as
rent expense on a straight-line basis over the term of the
lease. Accordingly, total rental expense under these leases
was $24,303 and $36,316 for the years ended December 31,
1994 and 1995, respectively and $22,744 and $48,250 for the
eight months ended August 31, 1995 and 1996, respectively.
The excess of such charges over amounts required to be paid
under the lease agreement is carried as a noncurrent
liability on the Company's balance sheet.
F-15
<PAGE> 49
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
Minimum future rental payments under these leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
--------------------------------------------
<S> <C>
1996 $ 39,756
1997 24,480
1998 24,480
1999 24,480
2000 35,700
Thereafter 190,400
--------------------------------------------
$ 339,296
============================================
</TABLE>
During 1996 the Company sublet its New York showroom for a
one-month period for $18,000.
7. STOCK SPLIT AND In August 1996, the Company was reincorporated in the State
DIVIDEND of Nevada by establishing a new Nevada corporation and
merging the Indiana corporation into the Nevada corporation.
In connection with the merger, the name of the Company was
changed from Third Quarter Corporation to Fundex Games, Ltd.
In addition, the Company accomplished a 1,000-for-1 stock
split of the Company's common stock effective as of the date
of the merger. Also, in August the Company effected a 15%
stock dividend. All share and per share data has been
restated to reflect the stock split and dividend.
8. STOCK OPTION The Company's board of directors and stockholders
PLANS adopted the 1996 Employee Stock Option Plan and the
1996 Stock Plan for Non-Employee Directors (the
"Plans") in September 1996. The Plans permit the gran-
ting of awards to employees, directors and independent
contractors in the form of stock options. Options are
designated at the time of grant as Incentive Stock
Options intended to qualify under Section 422 of the
Internal Revenue Code or Non-Qualified Options
which do not qualify. A total of 300,000 shares of the
Company's common stock have been reserved pursuant to
the Plans.
F-16
<PAGE> 50
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
9. NOTES PAYABLE (a) In July 1996, the Company obtained a credit
facility from an outside group of investors to
provide up to $500,000 in bridge financing, at an
interest rate of 10% per annum. The repayment
terms of the debt are either when the Company's
proposed public offering goes effective or
one-half in July 1997 and the balance in July
1998. As of August 31, 1996, $313,000 of the
$500,000 had been drawn down.
(b) In 1992, the Company borrowed $40,000 from an
individual, to be repaid on April 15, 1993. The
note has been renewed annually on April 15. The
Company is paying interest of 2% of the principal
per month. The Company intends to repay the note
with the proceeds from the offering (Note 12).
10. INVESTMENT IN In December 1995, the Company entered into a joint
JOINT VENTURE venture with a partnership for the development,
design and sale of new products. The venture, which
was 50% owned by the Company, did not commence
operations until 1996. Through August 27, 1996, the
joint venture was in the development stage and did not
have any revenue. The Company's share of the venture's
operations was $6,411 and is included in the caption
"other income (expense)" for the eight months ended
August 31, 1996.
On August 28, 1996, the Company purchased the remaining
50% of the joint venture. The consideration paid was
75,000 shares of the Company's stock and 75,000
warrants to purchase stock at 120% of the proposed
public offering price (Note 12). The value assigned to
the stock and the warrants was 65% of the proposed
public offering price ($5.20 and $.065, respectively).
The cost in excess of the tangible assets acquired
($382,787) will be amortized over 60 months.
F-17
<PAGE> 51
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
11. RETIREMENT PLAN In 1995, the Company established a contributory salary
reduction simplified pension plan pursuant to Section
408(k) of the Internal Revenue Code covering all its
employees. Employer contributions to the plan are
discretionary. Also, in 1994, the Company established a
Money Purchase Plan and Trust. This plan provides for
contributions by the Company equal to 10% of eligible
wages.
The amounts charged against operations were $68,792,
$45,861 and $61,081 for the year ended December 31, 1995
and the eight months ended August 31, 1995 and 1996,
respectively.
12. PROPOSED PUBLIC In July 1996, the Company signed a letter of intent
OFFERING for an initial public offering of its common stock.
The offering is expected to be effective in November
1996. Fees, costs and expenses related to the proposed
public offering are capitalized and will be charged
against the proceeds therefrom. If the proposed
offering is not consummated, the deferred costs will be
charged to expense.
13. DISTRIBUTION The Company intends to distribute to the current
PAYABLE TO stockholders, prior to the date of this Prospectus, an
STOCKHOLDERS amount equal to 60% of the Company's 1996 net income
allocable to the S corporation period. The Company has
recorded a distribution payable of $196,000 at
August 31, 1996.
F-18
<PAGE> 52
FUNDEX GAMES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT AUGUST 31, 1996 AND FOR THE EIGHT MONTHS ENDED
AUGUST 31, 1995 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
14. CUSTOMER During the year ended December 31, 1994,
AND PRODUCT sales to three customers accounted for
CONCENTRATION 22%, 12% and 11% of revenues. During the
year ended December 31, 1995, sales to two
customers accounted for 19% and 14% of
revenues. During the eight months ended
August 31, 1995 and 1996, sales to one
customer accounted for 18% and 25%,
respectively, of revenues.
The Company derived 50% and 45% of net sales
for the years ended December 31, 1994 and
1995, respectively, and 42% and 40% of net
sales for the eight months ended August 31,
1995 and 1996, respectively, from its Phase
10 product line.
F-19
<PAGE> 53
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
No person is authorized in
connection with any Offering made
hereby to give any information or to
make any representation not
contained herein and,
1,000,000 SHARES OF COMMON STOCK
if given or made, such information
or representation
AND
must not be relied upon as having
been authorized
1,000,000 REDEEMABLE COMMON
by the Company or the Underwriters.
This Prospectus does not constitute
an offer to sell or a solicitaSTOCK
tion of an offer to buy any security
other than the
PURCHASE WARRANTS
Securities offered hereby, nor does
it constitute an offer to sell or a
solicitation of an offer to buy any
of the securities offered hereby to
any person in any jurisdiction in
which it is unlawful to make such an
offer or solicitation. Neither the
delivery of this Prospectus nor any
sale made hereunder shall under
[LOGO]
any circumstances create any
implication that there has been no
change in the affairs of the Company
since the date of this Prospectus or
that the information contained
herein is correct as of any date
subsequent to the date of this
Prospectus.
- --------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 2
Risk Factors........................... 5
</TABLE>
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Use of Proceeds........................ 9
Dividend Policy........................ 10
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Dilution............................... 10
Capitalization......................... 11
</TABLE>
, 1996
<TABLE>
<S> <C>
Selected Financial Data................ 11
Management's Discussion and Analysis of
</TABLE>
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Financial Condition and Results of
Operations........................... 13
Business............................... 16
Management............................. 21
Certain Relationships and Related
Transactions......................... 24
Principal Shareholders................. 24
</TABLE>
NATIONAL SECURITIES CORPORATION
<TABLE>
<S> <C>
Description of Securities.............. 25
Shares Eligible for Future Sale........ 28
Underwriting........................... 29
Legal Matters.......................... 30
Experts................................ 30
Additional Information................. 30
Financial Statements................... F-1
------------------
</TABLE>
Until , 1996 (25 days after the
date of this Prospectus), all
dealers effecting transactions in
the Securities, whether or not
participating in this Offering, may
be required to deliver a Prospectus.
This in addition to the obligation
of dealers to deliver a Prospectus
when acting as Underwriters and with
respect to their unsold allotments
or subscriptions.
<PAGE> 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Eleven of the Company's Articles of Incorporation limits the
liability of the Company's directors and officers. It provides that a director
or officer of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director or
officer, except for liability (i) for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (ii) for the
payment of dividends in violation of Section 78.300 of the Nevada General
Corporation Law.
The Company's Articles of Incorporation limit the personal liability of
directors to the fullest extent permitted by Nevada law. Nevada law provides
that directors or officers of a corporation will not be personally liable for
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law or (ii) unlawful payments of dividends. Such
limitation of liability does not apply to liabilities arising under the federal
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission. In addition, the Company's Articles of
Incorporation provides that the Company shall to the fullest extent permitted by
Nevada law, indemnify any and all persons whom it shall have the power to
indemnify under Nevada law from and against any and all expenses, liabilities or
other matters referred to or covered by Nevada law. This indemnification is in
addition to any other rights of indemnification to which such persons may be
entitled under the Company's by-laws, any agreement or notice of shareholders or
disinterested directors.
The Company's By-laws provide that the Company shall indemnify its
directors, and officers, employees and other agents for certain expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
by any such person in any action or proceeding, including any action by or in
the right of the Company, arising out of such person's services as a director,
officer, employee or agent of the Company if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Company or any other company or enterprise to which such person
provides services at the request of the Company. The Company's By-laws also
permit it to secure insurance on behalf of any director, officer, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the By-laws would permit indemnification.
At present there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification. The Company
believes that the indemnification provisions in its Article of Incorporation and
By-laws are necessary to attract and retain qualified persons as directors and
officers. The Company does not have any separate indemnification agreements with
its directors or officers.
The Company's By-laws further provide that the Board of Directors retains
discretion, in each instance, to decide whether indemnification is appropriate.
The indemnification provided thereunder shall not be deemed exclusive of any
other rights to indemnification.
The above discussion of the Company's Articles of Incorporation, its
By-laws and Nevada law is not intended to be exhaustive and is qualified in its
entirety by such Articles, By-laws and statute.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions and the Representative's non-accountable expense
allowance) expected to be incurred in connection with the Offering described in
this Registration Statement. All amounts are estimated except the SEC
Registration Fee and the NASD Fee.
S-1
<PAGE> 55
<TABLE>
<S> <C>
SEC Registration Fee.................................. $ 7,662.74
NASD Fee.............................................. 3,028.70
American Stock Exchange Listing Fee................... 32,500.00
Printing and Engraving Costs.......................... 50,000.00
Accounting Fees and Expenses.......................... 75,000.00
Legal Fees and Expenses............................... 150,000.00
Blue Sky Fees and Expenses............................ 20,000.00
Transfer Agent and Registrar Fees and Expenses........ 7,500.00
Miscellaneous......................................... 49,808.56
Total................................................. $395,500.00
</TABLE>
All of the listed expenses of this Offering will be paid by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On August 30, 1996 the Company issued 75,000 shares of Common Stock and
warrants to purchase 75,000 shares of Common Stock to Toy Paradise Partnership,
an Illinois general partnership. The shares were issued in exchange for a fifty
percent (50%) interest in Toy Stragem, LLC, a joint venture in which the Company
owned the remaining fifty percent (50%) interest. The transaction was
accomplished without an underwriter. The Company relied upon the exemption of
Section 4(2) of the Securities Act for such transaction. tem 27.
ITEM 27. EXHIBITS.
See Exhibit Index which is incorporated herein by reference.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the provisions
described in Item 24, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on the plan
of dissolution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the Offering of the securities at that time to
be the initial bona fide Offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
The undersigned Registrant hereby undertakes that:
S-2
<PAGE> 56
For purposes of determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declares it effective.
For purposes of determining any liability under the Securities Act, the
Registrant will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in this
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
The Registrant will provide to the underwriters at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
S-3
<PAGE> 57
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in Washington, D.C., on
October 7, 1996.
FUNDEX GAMES, LTD.
By: /s/ Carl E. Voigt, IV
-------------------------------
Carl E. Voigt, IV
President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the following
capacities on October 7, 1996.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carl E. Voigt, IV and Carl E. Voigt, III,
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ Carl E. Voigt, IV President
- --------------------------------------------- (Principal Executive Officer)
Carl E. Voigt, IV
/s/ Carl E. Voigt, III Executive Vice President
- ---------------------------------------------
Carl E. Voigt, III
/s/ Richard K. Bowden (Principal Financial and Accounting Officer)
- ---------------------------------------------
Richard K. Bowden
/s/ William H. Prophater Director
- ---------------------------------------------
William H. Prophater
/s/ Dennis J. Weidenaar Director
- ---------------------------------------------
Dennis J. Weidenaar
/s/ Sheldon Drobny Director
- ---------------------------------------------
Sheldon Drobny
</TABLE>
S-4
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
---------- ---------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement........................................
2.1 Plan of Merger........................................................
3.1 Articles of Incorporation.............................................
3.2 By-Laws of the Company................................................
4.1 Form of Common Stock Certificate......................................
4.2 Form of Representatives' Warrant Agreement between the Company and
National Securities Corporation, as representative of the several
Underwriters (the "Representatives"), including Form of
Representatives' Warrant..............................................
4.3 Form of Warrant Agreement between the Company, the Representative and
American Stock Transfer and Trust Company, including form of Warrant
Certificate...........................................................
4.4 Warrant Agreement by and between the Company and Toy Paradise
Partnership, including Form of Warrant Certificate....................
5.1 Opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein,
P.C.*.................................................................
10.1 Lease dated 11/21/95 by and between 200 Fifth Avenue Associates and
the Company...........................................................
10.2 Lease dated 3/1/94 by and between the Company and Patrick & Corinne
Breese, Chester & Veda Gray...........................................
10.3 License Agreement dated 11/1/95 by and between the Company and
Hollywood Ventures Corporation........................................
10.4 License Agreement dated 6/1/96 by and between the Company and
Hollywood Ventures Corporation........................................
10.5 Agreement dated 12/18/86 between Carl E. Voigt, III, Carl E. Voigt,
IV, Kenneth Johnson and K&K International, and Addendum thereto.......
10.6 Assignment of Intellectual Property Rights dated 8/1/96 among Carl E.
Voigt, III, Carl E. Voigt, IV, and the Company........................
10.7 Assignment of Intellectual Property Rights dated 9/1/96 among Carl E.
Voigt, III, Carl E. Voigt, IV, and the Company........................
10.8 Agreement dated May 21, 1993 between the Company and Random Games,
Inc...................................................................
10.9 Agreement dated August 27, 1996 by and between the Company, Chip
Voigt, Pete Voigt, and Toy Paradise Partnership.......................
10.10 Security Agreement dated July 31, 1996 between the Company and
Paradigm Venture Investors, LLC as agent..............................
10.11 Form of Secured Debenture between the Company and each Holder of the
Debenture.............................................................
10.12 Fundex Games, Ltd. 1996 Employee Stock Option Plan....................
10.13 Fundex Games, Ltd. 1996 Stock Option Plan for Non-Employee
Directors.............................................................
10.14 Simplified Employee Pension Plan dated as of 2/8/95...................
10.15 Money Purchase Pension Plan and Trust dated as of 12/28/94............
23.1 Consent of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
(included as part of Exhibit 5.1)*....................................
23.2 Consent of BDO Seidman, LLP...........................................
24.1 Power of Attorney (included on page S-4 of the Registration Statement
of Form SB-2).........................................................
</TABLE>
- ------------------
*To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
9/30/96
1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 REDEEMABLE WARRANTS
FUNDEX GAMES, LTD.
UNDERWRITING AGREEMENT
Indianapolis, Indiana
October ___, 1996
National Securities Corporation
As Representative of the Several Underwriters
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Fundex Games, Ltd., a Nevada corporation (the "Company"),
hereby agrees with National Securities Corporation ("National") and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 11), for whom National is acting as representative (in such
capacity, National shall hereinafter be referred to as "you" or the
"Representative") with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective amount of
shares (the "Shares") set forth in said Schedule A of the Company's common
stock, par value $.001 per share (the "Common Stock"), and redeemable common
stock purchase warrants (the "Redeemable Warrants"), each to purchase one share
of Common Stock, set forth in Schedule A hereto. The aggregate 1,000,000
Shares and 1,000,000 Redeemable Warrants will be separately tradeable upon
issuance and are hereinafter referred to as the "Firm Securities." Each
Redeemable Warrant is exercisable commencing on _________, 1997 until
_________, 2001, unless previously redeemed by the Company, at an initial
exercise price of $_______ per share of Common Stock. The Redeemable Warrants
may be redeemed by the Company at a redemption price of $.05 per Redeemable
Warrant at any time after _________, 1997 on thirty (30) days' prior written
notice, provided that the closing sale price of the Common Stock equals or
exceeds $_________ per share (subject to
<PAGE> 2
adjustment under certain circumstances), for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the
fifth trading day prior to the notice of redemption, all in accordance with the
terms and conditions of the Warrant Agreement (herein defined).
Upon your request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriters, acting
severally and not jointly, up to an additional 150,000 shares of Common Stock
and/or 150,000 Redeemable Warrants for the purpose of covering over-allotments,
if any. Such 150,000 shares of Common Stock and 150,000 Redeemable Warrants
are hereinafter collectively to as the "Option Securities." The Company also
proposes to issue and sell to you warrants (the "Representative's Warrants")
pursuant to the Representative's Warrant Agreement (the "Representative's
Warrant Agreement") for the purchase of an additional 100,000 shares of Common
Stock and/or 100,000 Redeemable Warrants. The shares of Common Stock and
Redeemable Warrants issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Securities." The Firm
Securities, the Option Securities, the Representative's Warrants and the
Representative's Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, each of the Underwriters
as of the date hereof, and as of the Closing Date and the Option Closing Date,
if any, as follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement,
and an amendment or amendments thereto, on Form SB-2 (No.333-_______________),
including any related preliminary prospectus (the "Preliminary Prospectus"),
for the registration of the Firm Securities, the Option Securities and the
Representative's Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
Regulations (as defined below) of the Commission under the Act. The Company
will not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration
Statement," and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the
2
<PAGE> 3
Regulations, is hereinafter called the "Prospectus." For purposes ____________
hereof, "Regulations" mean the rules and regulations adopted by the Commission
under either the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or the Prospectus and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement have been instituted, or, to the Company's knowledge, are threatened.
Each of the Preliminary Prospectus, the Registration Statement and the
Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and Regulations, and none of the
Preliminary Prospectus, the Registration Statement or the Prospectus at the
time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that this representation and warranty does
not apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriters by or on
behalf of the Underwriters expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date (as defined in
Section 2(c) hereof) and each Option Closing Date (as defined in Section 2(b)
hereof), if any, and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriters or a
dealer, the Registration Statement and the Prospectus, as amended or
supplemented as required, will contain all statements which are required to be
stated therein in accordance with the Act and the Regulations, and will conform
in all material respects to the requirements of the Act and the Regulations;
neither the Registration Statement nor the Prospectus, nor any amendment or
csupplement thereto, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information furnished to the Company in writing by
or on behalf of any Underwriter expressly for use in the Registration Statement
or the Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries have
been duly organized and are validly existing as corporations in good standing
under the laws of the respective states of their incorporation. The Company
does not own or control, directly or indirectly, any corporation, partnership,
trust, joint venture or other business
3
<PAGE> 4
entity other than the subsidiaries listed in Exhibit 21 of the
Registration Statement. Each of the Company and its subsidiaries is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material and
adverse effect on the condition, financial or otherwise, or the business
affairs, operations, properties, or results of operations of the Company and
its subsidiaries, taken as a whole (the "Business"). Each of the Company and
its subsidiaries has all requisite power and authority (corporate and other),
and has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; the Company
and each of its subsidiaries have been doing business in compliance in all
material respects with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and foreign
laws, rules and regulations; and neither the Company nor any of its
subsidiaries have received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the Business. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Securities" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any
4
<PAGE> 5
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements and the options or
other rights granted and exercised thereunder as set forth in the Prospectus
conforms in all material respects with the requirements of the Act. All issued
and outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and the holders thereof have no
rights of rescission with respect thereto and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company.
(f) The Securities are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and will
conform in all material respects to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities will be in due and proper form. Upon
the issuance and delivery pursuant to the terms hereof of the Securities to be
sold by the Company hereunder, the Underwriters or the Representative, as the
case may be, will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest,
defect, or other restriction or equity of any kind whatsoever. No stockholder
of the Company has any right which has not been waived in writing to require
the Company to register the sale of any shares owned by such stockholder under
the Act in the public offering contemplated by this Agreement. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Shares, the Option
Shares and the Representative's Warrants to be sold by the Company as
contemplated herein.
(g) The financial statements of the Company, together
with the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective
periods to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Regulations,
consistently applied throughout the periods involved. There has been no
material adverse change or development involving a material prospective change
in the Business, whether or not arising in the ordinary course of business
since the date of
5
<PAGE> 6
the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and its subsidiaries taken as a
whole conform in all material respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. Financial information set forth
in the Prospectus under the headings "Prospectus Summary - Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in
the Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) The Company (i) has paid all federal, state,
local, franchise, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(i) No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Underwriters in connection with (i) the
issuance by the Company of the Securities, (ii) the purchase by the
Underwriters of the Firm Securities and the Option Securities from the Company
and the purchase by the Representative of the Representative's Warrants from
the Company, (iii) the consummation by the Company of any of its obligations
under this Agreement, or (iv) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.
(j) There is no action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
businesses of, the Company which (i) questions the validity of the capital
stock of the Company, this Agreement or the Representative's Warrant Agreement,
or of any action taken or to be taken by the Company pursuant to or in
connection with this Agreement or the Representative's Warrant Agreement, (ii)
is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the business,
affairs, position, stockholders' equity, operation, properties, or results of
operations of the Company and its subsidiaries taken as a whole.
6
<PAGE> 7
(k) The Company has the corporate power and authority
to authorize, issue, deliver, and sell the Securities and to enter into this
Agreement, the Warrant Agreement, and the Representative's Warrant Agreement,
and to consummate the transactions provided for in such agreements; and this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement
have each been duly and properly authorized, executed, and delivered by the
Company. Each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its respective terms (except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law), and none of the issue and sale of the Securities, execution by the
Company, delivery or performance of this Agreement, the Warrant Agreement, and
the Representative's Warrant Agreement, the consummation by the Company of the
transactions contemplated herein and therein, or the conduct of the Company's
businesses as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant
to the terms of (i) the articles of incorporation or by-laws of the Company, as
amended and restated, (ii) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a
party or by which it is or may be bound or to which its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or (iii)
any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company of any of their activities or properties.
(l) No consent, approval, authorization or order of,
and no filing with, any court, regulatory body, government agency or other
body, domestic or foreign, is required for the issuance of the Securities
pursuant to the Prospectus and the Registration Statement, the performance of
this Agreement, the Warrant Agreement, the Representative's Warrant Agreement,
and the transactions contemplated hereby and thereby, including without
limitation, any waiver of any preemptive, first refusal or other rights that
any entity or person may have for the issue and/or sale of any of the
Securities, except such as have been or may be obtained under the Act or may be
7
<PAGE> 8
required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Firm Securities, the Option
Securities, and the Representative's Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement to which the Company is a party or by
which it may be bound or to which its assets, properties or businesses may be
subject have been duly and validly authorized, executed and delivered by the
Company and constitute the legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, and except as rights
to indemnity or contribution may be limited by applicable law). The
descriptions in the Registration Statement of such agreements, contracts and
other documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by Form SB-2, and there
are no contracts or other documents which are required by the Act to be
described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and except
as described in or specifically contemplated by the Prospectus (i) the Company
has not incurred any material liabilities or obligations, indirect, direct or
contingent, or entered into any material verbal or written agreement or other
transaction which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company; (ii) the
Company has not sustained any material loss or interference with its business
or properties from fire, flood, windstorm, accident or other calamity, whether
or not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock, and the
Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Firm Securities, the Option Securities
and the Representative's Warrants hereunder and upon the exercise of options
and warrants described in the Registration Statement) of, or indebtedness
material to, the Company (other than in the ordinary course of business); (v)
the Company has not issued any securities or incurred any liability or
obligation, primary or contingent, for borrowed money; and (vi) there has not
been any material adverse change in the condition (financial or otherwise),
business, properties, results of operations, or prospects of the Company and
its subsidiaries.
8
<PAGE> 9
(o) No default exists in the due performance and
observance of any term, covenant or condition of any material license,
contract, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected, except for such defaults, if any, which individually and in the
aggregate would not have a material adverse effect on the Business.
(p) To the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or to its knowledge threatened against or involving the
Company. No representation question exists respecting the employees of the
Company. No collective bargaining agreement, or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists or to its knowledge is imminent.
(q) Except as described in the Prospectus, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan
(or any trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code, which
could subject the Company to any tax penalty on prohibited 8 transactions and
which has not adequately been corrected. Each ERISA Plan is in compliance with
all material reporting, disclosure and other requirements of the Code and ERISA
as they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA Plan
which is intended to comply with Code Section 401(a), stating that such ERISA
Plan and the attendant trust are qualified thereunder. The Company has never
completely or partially withdrawn from a "multiemployer plan."
9
<PAGE> 10
(r) None of the Company, nor any of its employees,
directors, stockholders, or affiliates (within the meaning of the Regulations)
of any of the foregoing has taken or will take directly or indirectly, any
action designed to or which has constituted or which might be expected to cause
or result in unlawful stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.
(s) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, free and clear
of all liens, charges, claims, encumbrances, pledges, security interests, or
other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable.
(t) BDO Seidman, LLP ("BDO Seidman"), whose report is
filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the
Regulations.
(u) The Company has caused to be duly executed
legally binding and enforceable agreements pursuant to which all persons or
entities, other than David Ross who has entered into a modified agreement as
described in the Prospectus, that directly or beneficially own Common Stock, as
of the effective date of the Registration Statement, have agreed not to,
directly or indirectly, offer, offer to sell, sell, grant any option for the
sale of, transfer, assign, pledge, hypothecate or otherwise encumber or dispose
of any shares of Common Stock or securities convertible into Common Stock,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Regulations or otherwise) or dispose of any interest therein for a period from
the date of the Prospectus until thirteen (13) months following the date that
the Registration Statement becomes effective, without the prior written consent
of National (the "Lock-up Agreements"). The Company will cause the Transfer
Agent (as defined herein) to place "stop transfer" orders on the Company's stock
ledgers in order to effect the Lock-up Agreements.
(v) There are no claims, payments, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company or any of its officers, directors,
stockholders, employees or affiliates that may affect the Underwriters'
compensation as determined by the Commission and the National Association of 9
Securities Dealers, Inc. (the "NASD").
10
<PAGE> 11
(w) The Securities have been approved for quotation
on the American Stock Exchange.
(x) Neither the Company nor any of its officers,
employees, agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which might subject the Company or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign). The Company's internal accounting controls
are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(y) Except as set forth in the Prospectus, no
officer, director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Regulations) of any of the foregoing persons or entities has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficiary
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus there
are no existing agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, principal shareholder (as such
term is used in the Prospectus) of the Company, or any affiliate or associate
of any of the foregoing persons or entities which are required to be disclosed
in the Prospectus.
(z) The Company is not, and does not intend to
conduct its business in a manner in which it would become an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(aa) Any certificate signed by any officer of the
Company and delivered to the Underwriters or to the Underwriters' Counsel (as
defined in Section 4(d) herein) shall be deemed a representation and warranty
by the Company to the Underwriters as to the matters covered thereby.
11
<PAGE> 12
(ab) The minute books of the Company have been made
available to the Underwriters and contain a complete summary of all meetings
and actions of the directors and stockholders of the Company, since the time of
its incorporation, and reflect all transactions referred to in such minutes 10
accurately in all material respects.
(ac) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Shares in this offering other than the Prospectus,
the Registration Statement and the other materials permitted by the Act.
Except as described in the Prospectus, no holders of any securities of the
Company or of any options, warrants or other convertible or exchangeable
securities of the Company have the right to include any securities issued by
the Company as part of the Registration Statement or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ad) Each of the Company and its subsidiaries
maintains insurance by insurers of recognized financial responsibility of the
types and in the amounts as the Company believes are prudent and adequate for
the business in which it is engaged, including, but not limited to, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full
force and effect. The Company has delivered to the Underwriter's Counsel full
summaries of these insurance policies. The Company has no reason to believe
that it will not be able to renew existing insurance coverage with respect to
the Company as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business, in either
case, at a cost that would not have a material adverse effect on the financial
condition, operations, business, assets or properties of the Company. The
Company has not failed to file any material claims, has no material disputes
with its insurance company regarding any claims submitted under its insurance
policies, and has complied in material respects with all material provisions
contained in its insurance policies.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
and each Underwriter, severally and not jointly agrees to purchase from the
Company, at a price equal to $_______________ per Share and $_____________ per
Redeemable Warrant, that number of Firm Securities set forth in Schedule A
opposite the name of such Underwriter, subject to such adjustment as the
Representative in its discretion shall make to eliminate any sales or purchases
of
12
<PAGE> 13
fractional shares, plus any additional numbers of Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
the Underwriters, severally and not jointly, to purchase all or any part of an
11 additional 150,000 shares of Common Stock at a price of $__________ per
share of Common Stock and/or an additional 150,000 Redeemable Warrants at a
price of $__________ per Redeemable Warrant. The option granted hereby will
expire 45 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the Regulations, or
(ii) the date of this Agreement if the Company has elected to rely upon Rule
430A under the Regulations, and may be exercised in whole or in part from time
to time (but not on more than two (2) occasions) only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment
and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Representative,
but shall not be later than three full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter defined,
unless otherwise agreed upon by the Representative and the Company. Nothing
herein contained shall obligate the Underwriters to exercise the over-allotment
option described above. No Option Securities shall be delivered unless the
Firm Securities shall be simultaneously delivered or shall theretofore have
been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of
National, at 1001 Fourth Avenue, Suite 2200, Seattle, Washington, or at such
other place as shall be agreed upon by the Representative and the Company.
Such delivery and payment shall be made at 9:00 a.m. (New York time) on
______________, 1996, or at such other time and date as shall be agreed upon by
the Representative and the Company, but no more than four (4) business days
after the date hereof (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Securities shall be
made at the above mentioned office of National or at such other place as shall
be agreed upon by the Representative and the Company on each Option Closing
Date as specified in the notice from the Representative to the Company.
Delivery of the certificates for the Firm Securities and the Option Securities,
if any, shall be made to the Underwriters against payment by the Underwriters,
of the purchase price for the Firm Securities and the
13
<PAGE> 14
Option Securities, if any, to the order of the Company. In the event
such option is exercised, each of the Underwriters, acting severally and not
jointly, shall purchase that proportion of the total number of Option
Securities then being purchased which the number of Firm Securities set forth
in Schedule A hereto opposite the name of such Underwriter bears to the total
number of Firm Securities, subject in each case to such adjustments as the
Representative in their discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Firm Securities and the
Option Securities, if any, shall be in definitive, fully registered form, shall
bear no restrictive legends and shall be in such denominations and registered
in such names as the Underwriters may request in writing at least three (3)
business days prior to Closing Date or the relevant Option Closing Date, as the
case may be. The 12 certificates for the Firm Securities and the Option
Securities, if any, shall be made available to the Representative at such
office or such other place as the Representative may designate for inspection,
checking and packaging no later than 9:30 a.m. on the last business day prior
to Closing Date or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and
sell to the Representative Representative's Warrants at a purchase price of
$0.0001 per warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of 100,000 shares of Common Stock and/or 100,000
Redeemable Warrants. The Representative's Warrants shall expire five (5) years
after the effective date of the Registration Statement and shall be exercisable
for a period of four (4) years commencing one (1) year from the effective date
of the Registration Statement at a price equaling one hundred twenty percent
(120%) of the initial public offering price of the Shares. The
Representative's Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4.2 to the Registration Statement.
Payment for the Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Shares and the Redeemable
Warrants. As soon after the Registration Statement becomes effective as the
Representative deems advisable, the Underwriters shall make a public offering
of the Shares and the Redeemable Warrants (other than to residents of or in any
jurisdiction in which qualification of the Shares and the Redeemable Warrants
is required and has not become effective) at the price and upon the other terms
set forth in the Prospectus. The Representative may from time to time increase
or decrease the public offering price after distribution of the Shares and the
Redeemable Warrants has been completed to such extent as the Representative, in
its sole discretion, deems advisable. The Underwriters may enter into one or
more agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
14
<PAGE> 15
4. Covenants of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
effective as promptly as practicable and will not at any time, whether beore or
aftr the Registration Statement or supplement to Prospectus or file any
document under the Act or Exchange Act before termination of the offering of
the Shares by the Underwriters of which the Representative shallnot previously
have been advised and furnished with a copy, or to which the Representative
shall have objected or which is not in compliance with the Act, the Exchange
Act or the Regulations.
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Representative and confirm the
notice in writing, (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act will be
relied upon, 13 when the Prospectus has been filed in accordance with said Rule
430A and when any post-effective amendment to the Registration Statement
becomes effective, (ii) of the issuance by the Commission of any stop order or
of the initiation, or the threatening, of any proceeding, suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of proceedings for that
purpose, (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any of
the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose, (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will use its best efforts to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) in accordance with the
requirements of the Act.
(d) The Company will give the Representative notice of
its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration
15
<PAGE> 16
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the Regulations), and will
furnish the Representative with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the
Representative or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Representative may
reasonably designate to permit the continuance of sales and dealings therein
for as long as may be necessary to complete the distribution, and shall make
such applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or become subject to service of process in
any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Securities in accordance
with the provisions hereof and the Prospectus, or any amendments or supplements
thereto. If at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or Underwriters'
Counsel, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend or supplement the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
16
<PAGE> 17
(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day after
the end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of such
fiscal quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations,
which statement need not be audited unless required by the Act, covering a
period of at least 12 consecutive months after the effective date of the
Registration Statement.
(h) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by independent public
accountants) and will make available to its stockholders unaudited quarterly
reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such
quarterly reports to its stockholders, statements of income of
the Company for each quarter in the form furnished to the
Company's stockholders;
(ii) concurrently with furnishing such annual
reports to its stockholders, a balance sheet of the Company as
at the end of the preceding fiscal year, together with
statements of operations, stockholders' equity, and cash flows
of the Company for such fiscal year, accompanied by a copy of
the report thereon of independent certified public
accountants;
(iii) as soon as they are available, copies of
all reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of
all reports and financial statements furnished to or filed
with the Commission, the Nasdaq SmallCap Market or any
securities exchange;
(v) every press release and every material
news item or article of interest to the financial community in
respect of the Company or its affairs which was released or
prepared by or on behalf of the Company; and
17
<PAGE> 18
(vi) any additional information of a public
nature concerning the Company (and any future subsidiaries) or
its businesses which the Representative may reasonably
request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent (the
"Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a registrar (which may be the same entity as the transfer agent)
for the Common Stock and the Representative's Warrants.
(j) The Company will furnish to the Representative or
on the Representative's order, without charge, at such place as the
Representative may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre- effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Representative may reasonably request.
(k) On or before the effective date of the
Registration Statement, the Company shall provide the Representative with true
copies of duly executed Lock-up Agreements. On or before the Closing Date, the
Company shall deliver instructions to the Transfer Agent authorizing it to
place appropriate stop transfer orders on the Company's ledgers.
(l) The Company shall use its best efforts to cause
its officers, directors, stockholders or affiliates (within the meaning of the
Regulations) not to take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
unlawful stabilization or manipulation of the price of any securities of the
Company.
(m) The Company shall apply the net proceeds from the
conditions, set forth under "Use of Proceeds" in the Prospectus, sale
16 of the Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus.
18
<PAGE> 19
(n) The Company shall timely file all such reports,
forms or other documents as may be required (including, but not limited to, a
Form SR as may be required pursuant to Rule 463 under the Act) from time to
time, under the Act, the Exchange Act, and the Regulations, and all such
reports, forms and documents filed will comply as to form and substance with
the applicable requirements under the Act, the Exchange Act, and the
Regulations.
(o) The Company shall cause the Securities to be
quoted on the Nasdaq SmallCap Market, and for a period of two (2) years from
the date hereof shall use its best efforts to maintain the quotation of the
Securities to the extent outstanding.
(p) For a period of two (2) years from the Closing
Date, the Company shall furnish to the Representative, at the Company's sole
expense, monthly consolidated transfer sheets relating to the Common Stock and
Redeemable Warrants.
(q) For a period of five (5) years after the
effective date of the Registration Statement the Company shall, at the
Company's sole expense, take all necessary and appropriate actions to further
qualify the Company's securities in all jurisdictions of the United States in
order to permit secondary sales of such securities pursuant to the Blue Sky
laws of those jurisdictions which do not require the Company to qualify as a
foreign corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of
the Registration Statement, has filed a Form 8-A with the Commission providing
for the registration of the Common Stock and Redeemable Warrants under the
Exchange Act and (ii) as soon as practicable, will use its best efforts to take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and Moody's OTC Manual and to continue such inclusion
for a period of not less than five (5) years.
(s) The Company agrees that for a period of thirteen
(13) months following the effective date of the Registration Statement it will
not, without the prior written consent of National, offer, issue, sell,
contract to sell, grant any option for the sale of or otherwise dispose of any
Common Stock, or securities convertible into Common Stock, except for the
issuance of the Option Securities, the Representative's Warrants, and shares of
Common Stock issued upon the exercise of currently outstanding warrants or
options, or options and warrants granted in the ordinary course of business
consistent with prior practice.
(t) Until the completion of the distribution of the
Securities, the Company shall not without the prior written consent of National
or Underwriters' Counsel, issue, directly or indirectly any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering
19
<PAGE> 20
contemplated hereby, other than 17 trade releases issued in the
ordinary course of the Company's business consistent with past practices with
respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5)
years from the date hereof, and (ii) the sale to the public of the
Representative's Securities, the Company will not take any action or actions
which may prevent or disqualify the Company's use of an appropriate form for
the registration under the Act of the Representative's Securities.
(v) The Company agrees that it shall use its best
efforts, which shall include, but shall not be limited to, the solicitation of
proxies, to elect one (1) designee of National to the Company's Board of
Directors for a period of three (3) years following the Closing, provided that
such designee is reasonably acceptable to the Company and that such director
may be excluded from consideration of certain confidential matters which, in
the good faith judgment of a majority of the other directors, such director's
presence would not be appropriate.
(w) The Company agrees that within forty-five (45)
days after the Closing it shall retain a public relations firm which is
reasonably acceptable to National. The Company shall keep such public
relations firm, or any replacement, for a period of two (2) years from the
Closing. Any replacement public relations firm shall be retained only with the
consent of National, which shall not be unreasonably withheld.
(x) The Company agrees that any and all future
transactions between the Company and its officers, directors, principal
stockholders and the affiliates of the foregoing persons will be on terms no
less favorable to the Company than could reasonably be obtained in arm's length
transactions with independent third parties, and that any such transactions
also be approved by a majority of the Company's outside independent directors
disinterested in the transaction.
(y) The Company shall prepare and deliver, at the
Company's sole expense, to National within the one hundred and twenty (120) day
period after the later of the effective date of the Registration Statement or
the latest Option Closing Date, as the case may be, one bound volume containing
all correspondence with regulatory officials, agreements, documents and all
other materials in connection with the offering as requested by the
Underwriters' Counsel.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the
Closing Date and each Option Closing Date (to the extent not previously paid)
all expenses and
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<PAGE> 21
fees (other than fees of Underwriters' Counsel, except as provided in
(iv) below) incident to the performance of the obligations of the Company under
this Agreement, the Warrant Agreement, and the Representative's Warrant
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing, filing, delivery 18
and mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the duplication, mailing (including the payment of postage with
respect thereto) and delivery of this Agreement, the Warrant Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreements, the Powers of
Attorney, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments
thereof or supplements thereto supplied to the Underwriters and such dealers as
the Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the certificates representing the
Securities, (iv) the qualification of the Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of word processing
and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and reasonable
disbursements and fees of counsel in connection therewith, (v) advertising
costs and expenses, including but not limited to the costs and expenses
incurred by the Company and the Representative in connection with the "road
show," information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) experts, (vii) fees
and expenses of the transfer agent and registrar, (viii) the fees payable to
the Commission and the NASD, (ix) issue and transfer taxes, if any and (x) the
fees and expenses incurred in connection with the listing of the Common Stock
on the Nasdaq National Market and any other market or exchange.
(b) If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 6, Section 10(a) or
Section 11, the Company shall reimburse and indemnify the Representative for
all of its actual out-of-pocket expenses on an accountable basis, including the
fees and disbursements of Underwriters' Counsel, less any amounts already paid
pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to
the expenses payable pursuant to subsection (a) of this Section 5, it will pay
to the Representative on the Closing Date by certified or bank cashier's check
or, at the election of the Representative, by deduction from the proceeds of
the offering contemplated herein a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received by the Company from the sale
of the Firm Securities, $25,000.00 of which has been paid to date. In the
event the Representative elects to exercise the
21
<PAGE> 22
over-allotment option described in Section 2(b) hereof, the Company
further agrees to pay to the Representative on the Option Closing Date (by
certified or bank cashier's check or, at the Representative's election, by
deduction from the proceeds of the offering) a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Option Securities.
(d) Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they 19 had been made on and as of the Closing Date or each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date or Option
Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; and the performance by the Company on and as
of the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder and to the following further conditions:
(e) The Registration Statement shall have become effective
not later than 5:00 p.m., New York City time, on the date prior to the date of
this Agreement or such later date and time as shall be consented to in writing
by the Representative, and, at Closing Date and each Option Closing Date, if
any, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Underwriters' Counsel. If
the Company has elected to rely upon Rule 430A of the Regulations, the price of
the Shares and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Regulations within the prescribed time period, and prior to Closing Date the
Company shall have provided evidence satisfactory to the Representative of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Regulations.
(f) The Representative shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein
not misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's reasonable opinion, is
material, or omits to state a fact which, in the Representative's reasonable
opinion, is material and is required to be stated therein or
22
<PAGE> 23
is necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) On or prior to the Closing Date, the Underwriters
shall have received from Underwriters' Counsel such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Representative may request and Underwriters' Counsel shall have received from
the Company such papers and information as they request to enable them to pass
upon such matters.
(h) At Closing Date, the Underwriters shall have
received the favorable opinion of Much Shelist Freed Denenberg Ament Bell &
Rubinstein, P.C. ("Much, Shelist"), counsel to the Company, dated the Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized
and is validly existing as a corporation in good
standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires
such qualification or licensing, and (C) to the best of
such counsel's knowledge, has all requisite corporate
power and authority and has obtained any and all
necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental or regulatory officials and bodies
(including, without limitation, those having
jurisdiction over environmental or similar matters), to
own or lease its properties and conduct its business as
described in the Prospectus.
(ii) except as described in the Prospectus, and
to the best of such counsel's knowledge after reasonable
investigation, the Company does not own an interest in
any corporation, limited liability company, partnership,
joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued
and outstanding capitalization as set forth in the
Prospectus, and any amendment or supplement thereto,
under "Capitalization" and "Description of Securities,"
and to the knowledge of such counsel, the Company is not
a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities,
except for this
23
<PAGE> 24
Agreement, the Warrant Agreement, the Representative's
Warrant Agreement, and as described in the Prospectus.
The Securities and all other securities issued or
issuable by the Company conform in all material respects
to the statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued
and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and
nonassessable; the holders thereof are not subject to
personal liability by reason of being such holders; and
none of such securities were issued in violation of the
preemptive rights of any holders of any security of the
Company. The Securities to be sold by the Company
hereunder, under the Warrant Agreement, and under the
Representative's Warrant Agreement are not and will not
be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with their
terms, will be validly issued, fully paid and
nonassessable and will conform in all material respects
to the description thereof contained in the Prospectus;
the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to
be taken for the authorization, issue and sale of the
Securities has been duly and validly taken; and the
certificates representing the Securities are in due and
proper form. The Representative's Warrants and the
Redeemable Warrants constitute valid and binding
obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and
type of securities of the Company called for thereby
(except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or
contribution may be limited by applicable law). Upon
the issuance and delivery pursuant to this Agreement of
the Securities to be sold by the Company, the Company
will convey, against payment therefor as provided
herein, to the Underwriters and the Representative,
respectively, good and marketable title to the
Securities free and clear of all liens and other
encumbrances;
(iv) the Registration Statement is effective
under the Act, and, if applicable, filing of all pricing
information has been timely made in the appropriate form
under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement
or Prospectus or any part of any thereof or suspending
the
24
<PAGE> 25
effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under
the Act;
(v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any
amendments or supplements thereto (other than the
financial statements and other financial and statistical
data included therein as to which no opinion need be
rendered) comply as to form in all material respects
with the requirements of the Act and the Regulations.
Such counsel shall state that such counsel has
participated in conferences with officers and other
representatives of the Company and the Representative
and representatives of the independent public
accountants for the Company, at which conferences the
contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and any amendments or
supplements thereto were discussed, and, although such
counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or
fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus,
and any amendments or supplements thereto, on the basis
of the foregoing, no facts have come to the attention of
such counsel which lead them to believe that either
the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became
effective or the Preliminary Prospectus or Prospectus or
amendment or supplement thereto as of the date of such
opinion contained any untrue statement of a material
fact or omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading (it being understood that such
counsel need express no opinion with respect to the
financial statements and schedules and other financial
and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus,
and any amendments or supplements thereto);
(vi) to the best of such counsel's knowledge
after reasonable investigation, (A) there are no
agreements, contracts or other documents required by the
Act to be described in the Registration Statement and
the Prospectus and filed as exhibits to the Registration
Statement other than those described in the Registration
Statement and the Prospectus and filed as exhibits
thereto; (B) the descriptions in the Registration
Statement and the
25
<PAGE> 26
Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a
party or by which it is bound are accurate in all
material respects and fairly represent the information
required to be shown by Form SB-2; (C) there is not
pending or threatened against the Company any action,
arbitration, suit, proceeding, litigation, governmental
or other proceeding (including, without limitation,
those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened
against the Company which (x) is required to be
disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all
material respects), (y) questions the validity of the
capital stock of the Company or this Agreement, the
Warrant Agreement, or the Representative's Warrant
Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with any of the
foregoing; and (D) there is no action, suit or
proceeding pending or threatened against the Company
before any court or arbitrator or governmental body,
agency or official in which there is a reasonable
possibility of an adverse decision which may result in a
material adverse change in the financial condition,
business, affairs, stockholders' equity, operations,
properties, business or results of operations of the
Company, which could adversely affect the present or
prospective ability of the Company to perform its
obligations under this Agreement, the Warrant Agreement,
or the Representative's Warrant Agreement, or which in
any manner draws into question the validity or
enforceability of this Agreement, the Warrant Agreement
or the Representative's Warrant Agreement;
(vii) the Company has the corporate power
and authority to enter into each of this Agreement, the
Warrant Agreement, and the Representative's Warrant
Agreement and to consummate the transactions provided
for therein; and each of this Agreement, the Warrant
Agreement, and the Representative's Warrant Agreement
has been duly authorized, executed and delivered by the
Company. Each of this Agreement, the Warrant Agreement,
and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding
obligation of the Company enforceable against the
Company in accordance with its terms (except as the
enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other laws of general
26
<PAGE> 27
application relating to or affecting enforcement of
creditors' rights and the application of equitable
principles in any action, legal or equitable, and except
as rights to indemnity or contribution may be limited by
applicable law), and none of the Company's execution,
delivery or performance of this Agreement, the Warrant
Agreement, and the Representative's Warrant Agreement,
the consummation by the Company of the transactions
contemplated herein or therein, or the conduct of the
Company's business as described in the Registration
Statement, the Prospectus, and any amendments or
supplements thereto conflicts with or results in any
breach or violation of any of the terms or provisions
of, or constitutes a default under, or result in the
creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the articles of
incorporation or by-laws of the Company, as amended, (B)
any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement,
note, loan or credit agreement or any other agreement or
instrument known to such counsel to which the Company is
a party or by which it counsel to which the Company is a
party or by which it is bound, or (C) any federal, state
or local statute, rule or regulation applicable to the
Company or any judgment, decree or order known to such
counsel of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or
body (including, without limitation, those having
jurisdiction over environmental or similar matters),
domestic or foreign, having jursidiction over the
Company or any of its activities or properties;
(viii) no consent, approval, authorization
or order, and no filing with, any court, regulatory
body, government agency or other body (other than
such as may be required under Blue Sky laws, as to which
no opinion need be rendered or under federal securities
laws, as to which no opinion need be rendered pursuant
to this subsection (viii) is required in connection with
the issuance of the Securities pursuant to the
Prospectus, and the Registration Statement, the
performance of this Agreement, the Warrant Agreement,
and the Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby;
(ix) to the best of such counsel's knowledge
after reasonable investigation, the properties and
business of the Company conform
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in all material respects to the description thereof
contained in the Registration Statement and the
Prospectus;
(x) to the best knowledge of such counsel, and
except as disclosed in Registration Statement and the
Prospectus, the Company is not in breach of, or in
default under, any term or provision of any license,
contract, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement,
stockholders' agreement, note, loan or credit agreement
or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which
the Company is bound or to which the property or assets
(tangible or intangible) of the Company is subject; and
the Company is not in violation of any term or provision
of its articles of incorporation or by-laws, as amended,
and to the best of such counsel's knowledge after
reasonable investigation, not in violation of any
franchise, license, permit, judgment, decree, order,
statute, rule or regulation;
(xi) the statements in the Prospectus under
"Dividend Policy," "Description of Securities," and
"Shares Eligible for Future Sale" have been reviewed by
such counsel, and insofar as they refer to statements of
law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all
material respects;
(xii) the Common Stock has been accepted for
quotation on the American Stock Exchange;
(xiii) to the best of such counsel's
knowledge and based upon a review of the outstanding
securities and the contracts furnished to such counsel
by the Company, no person, corporation, trust,
partnership, association or other entity has the right
to include and/or register any securities of the Company
in the Registration Statement, require the Company to
file any registration statement or, if filed, to include
any security in such registration statement;
(xiv) assuming due execution by the parties
thereto other than the Company, each Lock-up Agreement
is a legal, valid and binding obligation of the party
thereto, enforceable against the party and any
subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or
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other laws of general application relating to or
affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws, rules and
regulations of the United States and the laws, rules and regulations of the
State of Nevada, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel if requested. The opinion of such counsel
shall state that knowledge shall not include the knowledge of a director or
officer of the Company who is affiliated with such firm in his or her capacity
as an officer or director of the Company. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Much Shelist, counsel to the Company,
dated the Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by Much Shelist in its opinion delivered on
the Closing Date.
(e) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(f) Prior to each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as
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<PAGE> 30
of which the financial condition of the Company is set forth in the
Registration Statement and Prospectus which is adverse to the Company; (iii)
the Company shall not be in default under any provision of any instrument
relating to any outstanding indebtedness which default has not been waived;
(iv) the Company shall not have issued any securities (other than the
Securities) or declared or paid any dividend or made any distribution in
respect of its capital stock of any class and there has not been any change in
the capital stock, or any material increase in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been
pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its respective properties or businesses before or
by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; and (vii) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing
Date, if any, the Underwriters shall have received a certificate of the Company
signed on behalf of the Company by the principal executive officer of the
Company, dated the Closing Date or Option Closing Date, as the case may be, to
the effect that such executive has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if
made on and as of the Closing Date or the Option Closing
Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be
performed or satisfied at or prior to such Closing Date
or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statement or any part thereof has
been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of each
of such person's knowledge after due inquiry, are
contemplated or threatened under the Act;
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(iii) The Registration Statement and the
Prospectus and, if any, each amendment and each
supplement thereto, contain all statements and
information required by the Act to be included therein,
and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state
any material fact required to be stated therein or
necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any
supplement, as of their respective dates, thereto
included any untrue statement of a material fact or
omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made,
not misleading; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement
and the Prospectus, (a) the Company has not incurred up
to and including the Closing Date or the Option Closing
Date, as the case may be, other than in the ordinary
course of its business, any material liabilities or
obligations, direct or contingent; (b) the Company has
not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has
not entered into any transactions not in the ordinary
course of business; (d) there has not been any change in
the capital stock or material increase in long-term debt
or any increase in the short-term borrowings (other than
any increase in the short-term borrowings in the
ordinary course of business) of the Company, (e) the
Company has not sustained any loss or damage to its
property or assets, whether or not insured, (f) there is
no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company
or any affiliated party of any of the foregoing which is
required to be set forth in an amended or supplemented
Prospectus which has not been set forth, and (g) there
has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable
to the Underwriters.
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(i) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
28 to the Underwriters and Underwriters' Counsel, from BDO Seidman:
(i) confirming that they are independent
certified public accountants with respect to the Company
within the meaning of the Act and the applicable Rules
and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the
Company included in the Registration Statement comply as
to form in all material respects with the applicable
accounting requirements of the Act and the Regulations
thereunder and that the Representative may rely upon the
opinion of BDO Seidman with respect to the financial
statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited
review which included a reading of the latest available
unaudited interim financial statements of the Company
(with an indication of the date of the latest available
unaudited interim financial statements), a reading of
the latest available minutes of the stockholders and
board of directors and the various committees of the
board of directors of the Company, consultations with
officers and other employees of the Company responsible
for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the
unaudited financial statements and supporting schedules
of the Company included in the Registration Statement,
if any, do not comply as to form in all material
respects with the applicable accounting requirements of
the Act and the Regulations or are not fairly presented
in conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements of the
Company included in the Registration Statement, or (B)
at a specified date not more than five (5) days prior to
the effective date of the Registration Statement, there
has been any change in the capital stock or material
increase in long-term debt of the Company, or any
material decrease in the stockholders' equity or net
current assets or net assets of the Company as compared
with amounts shown in the _____________,
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<PAGE> 33
1996 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by
the Registration Statement, or, if there was any change
or decrease, setting forth the amount of such change or
decrease.
(iv) stating that they have compared specific
dollar amounts, numbers of shares, percentages of
revenues and earnings, statements and other financial
information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts,
numbers, percentages, statements and information may
be derived from the general accounting records,
including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel,
with the results obtained from the application of
specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an
examination in accordance with generally accepted
auditing standards) set forth in the letter and found
them to be in agreement; and
(iv) statements as to such other material
matters incident to the transaction contemplated hereby
as the Representative may reasonably request.
(j) At the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received from BDO Seidman a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iv) of Subsection (i) of this
Section 6 with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (iv).
(k) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall
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<PAGE> 34
have been issued on either the Closing Date or the Option Closing Date,
if any, and no proceedings for that purpose shall have been instituted or shall
be contemplated.
(m) On or before the Closing Date, the Company shall have
executed and delivered to the Representative, (i) the Representative's Warrant
Agreement, substantially in the form filed as Exhibit 4(b), to the Registration
Statement, in final form and substance satisfactory to the Representative, and
(ii) the Representative's Warrants in such denominations and to such designees
as shall have been provided to the Company.
(n) On or before Closing Date, the Common Stock shall have
been duly approved for quotation on American Stock Exchange.
(o) On or before Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements in final form and
substance satisfactory to Underwriters' Counsel.
(p) If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant
Option Closing Date, as the case may be, is not so fulfilled, the
Representative may terminate this Agreement or, if the Representative so elect,
they may waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each of the Underwriters (for purposes of this Section 7 "Underwriters" shall
include the officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and
all loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented); or (B) in any application or other document or communication (in
this Section 7 collectively called "application") executed by or on
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<PAGE> 35
behalf of the Company or based upon written information furnished by
or on behalf of the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, The Nasdaq Stock Market, Inc. or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be; or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but
not jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company, within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to any Underwriter by such Underwriter or the
Representative expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any such application, provided that such written information or
omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the transactions
effected by the Underwriters in connection with this Offering. The Company
acknowledges that the statements with respect to the public offering of the
Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters or the Representative for inclusion in the
Prospectus.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to
be made against one or more indemnifying parties under this Section 7, notify
each party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise or which it may
have under this Section 7, except to the extent that it has
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<PAGE> 36
been prejudiced in any material respect by such failure). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the reasonable fees and
expenses of one additional counsel shall be borne by the indemnifying parties.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this Section 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that the express provisions of this Section 7 provide for indemnification
in such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause
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(i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses other than underwriting
discounts and commissions) bear to the total underwriting discounts received by
the Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subdivision (d) the Underwriters shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Securities purchased
by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from
whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subparagraph (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date
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and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the respective indemnity and
contribution agreements contained in Section 7 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, any controlling person of either the
Underwriter or the Company, and shall survive termination of this Agreement or
the issuance and delivery of the Securities to the Underwriters and the
Representative, as the case may be.
9. Effective Date.
(a) This Agreement shall become effective at 5:00
p.m., New York City time, on the date hereof. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, if
between the date of this Agreement and the Closing Date or the Option Closing
Date, as the case may be, (i) if any domestic or international event or act or
occurrence has materially disrupted, or in the Representative's reasonable
opinion will in the immediate future materially disrupt the financial markets;
or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) if trading on the New York Stock Exchange, the American
Stock Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have
become involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency
shall have been declared in the United States; or (v) if a banking moratorium
has been declared by a state or federal authority; or (vi) if the Company shall
have sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have been such a material adverse
change in the prospects or conditions of the Company, or such material adverse
change in the general market, political or economic conditions, in the United
States or elsewhere as in the Representative's
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judgment would make it inadvisable to proceed with the offering, sale
and/or delivery of the Securities.
(b) If this Agreement is terminated by the
Representative in accordance with any of the provisions of Section 6, Section
10(a) or Section 11, the Company shall promptly reimburse and indemnify the
Underwriters pursuant to Section 5(b) hereof. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant to
Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth. If, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities to be purchased on such date, this
Agreement shall terminate without liability on the part of any nondefaulting
Underwriters.
No action taken pursuant to this Section shall relieve
any defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result
in a termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required
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changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at
the Closing Date or any Option Closing Date, as applicable, to sell and deliver
the number of Securities which it is obligated to sell hereunder on such date,
then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be in writing and shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriters shall be directed to the
Representative, c/o National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, with a copy,
which shall not constitute notice, to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attention: Alan I. Annex, Esq.
Notices to the Company shall be directed to the Company at Fundex Games, Ltd.,
3750 W. 16th Street, Indianaplois, Indiana 46222, with a copy, which shall not
constitute notice, to Much Shelist Freed Denenberg, Ament Bell & Rubinstein,
P.C., 200 N. LaSalle Street, Chicago, Illinois 60601- 1095, Attn: Steven
Schwartz.
14. Parties. This Agreement shall inure solely to the
benefit of and shall be binding upon the Underwriters, the Company and the
controlling persons, directors and officers referred to in Section 7 hereof and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which taken together shall be deemed to be one and the same
instrument.
40
<PAGE> 41
17. Entire Agreement; Amendments. This Agreement, the
Warrant Agreement, and the Representative's Warrant Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representative and the Company.
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
FUNDEX GAMES, LTD.
By:__________________________________
Name: Carl E. Voigt, IV
Title: President
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By: ________________________________
Name: Steven A. Rothstein
Title: Chairman
For itself and as Representative of the Underwriters named in Schedule
A hereto.
41
<PAGE> 42
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF WARRANTS
NAME OF UNDERWRITERS STOCK TO BE PURCHASE TO BE PURCHASED
-------------------- -------------------- ---------------
<S> <C> <C>
National Securities Corporation
TOTAL 1,000,000 1,000,000
</TABLE>
SCH. A-1
<PAGE> 1
EXHIBIT 2.1
Plan of Merger ("PLAN")
between
Third Quarter, Inc., an Indiana
corporation (the "MERGED CORPORATION"),
and
Fundex Games, Ltd., a Nevada
corporation (the "SURVIVING CORPORATION")
(both of said corporations are sometimes referred to
jointly as the "CONSTITUENT CORPORATIONS")
ARTICLE I
1.1 The respective Boards of Directors of the Constituent Corporations
deem it advisable for (a) Third Quarter, Inc. to merge with and into Fundex
Games, Ltd. and (b) Fundex Games, Ltd. to be the Surviving Corporation.
1.2 The principal business address of Third Quarter, Inc. is 3750 W. 16th
Street, Indianapolis, Indiana 46222. Third Quarter, Inc. is a corporation
duly organized and governed under the laws of the State of Indiana.
1.3 The principal business address of Fundex Games, Ltd. Is 502 E. John
Street, Carson City, Nevada 89706. Fundex Games, Ltd. is a corporation duly
organized and governed under the laws of the State of Nevada.
1.4 Third Quarter, Inc. is authorized to issue One Hundred Thousand
(100,000) shares of Common Stock, no par value per share, of which One Thousand
(1,000) are issued and outstanding.
1.5 Fundex Games, Ltd., is authorized to issue Nine Million (9,000,000)
shares, consisting of Eight Million (8,000,000) shares of Common Stock, $0.001
par value per share, and One Million (1,000,000) shares of Preferred Stock,
$1.00 par value per share, of which One (1) share of Common Stock is issued and
outstanding. No shares of Preferred Stock are issued and outstanding.
ARTICLE II
At the Effective Time of the Merger (as defined in Article VII below):
2.1 In accordance with the applicable provisions of the Indiana Business
Corporation Law, as amended ("BCL"), the Nevada General Corporation Law, as
amended ("GCL"), and the Nevada Revised Statutes, as amended ("NRS"), Third
Quarter, Inc. shall be merged with and into Fundex Games, Ltd., which shall be
the Surviving Corporation (such merger shall sometimes be called the "MERGER").
2.2 The separate existence of the Merged Corporation shall cease, and the
Surviving Corporation shall have all the rights, privileges, immunities and
powers and be subject to all the duties and liabilities of a corporation
organized under the NRS.
<PAGE> 2
2.3 The Surviving Corporation shall thereupon and thereafter possess all
the rights, privileges, immunities, and franchises as of a public or private
nature, of each of the Constituent Corporations; and all property, real,
personal, and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other causes in action, and all and every
other interest, of or belonging to or due to each of the Constituent
Corporations, shall be taken and deemed to be transferred to and vested in or
shall continue to be vested in the Surviving Corporation without further act or
deed; and the title to any real estate, or any interest therein, vested in any
of the Constituent Corporations shall not revert or be in any way impaired by
reason of the Merger.
2.4 The Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of each of the Constituent
Corporations; and any claim existing or action or proceeding pending by or
against any of the Constituent Corporations may be prosecuted to judgment as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in its place, and neither the rights of creditors nor any liens upon the
property of any of the Constituent Corporations shall be impaired by the
Merger.
ARTICLE III
3.1 The Articles of Incorporation of the Surviving Corporation as existing
and constituted immediately prior to the Effective Time of the Merger shall
continue to be and constitute the Articles of Incorporation of the Surviving
Corporation.
3.2 The By-Laws of the Surviving Corporation as existing and constituted
immediately prior to the Effective Time of the Merger shall continue to be and
constitute the By-Laws of the Surviving Corporation.
3.3 The Board of Directors of the Surviving Corporation immediately prior
to the Effective Time of the Merger shall continue to be and constitute the
Board of Directors of the Surviving Corporation.
3.4 The Officers of the Surviving Corporation immediately prior to the
Effective Time of the Merger shall continue to be and constitute the Officers
of the Surviving Corporation.
ARTICLE IV
The mode of carrying the Merger into effect is as follows:
Each issued and outstanding share of Common Stock, no par
value per share, of the Merging Corporation shall be converted
into One Thousand (1,000) shares of Common Stock, $0.001 par value
per share, of the Surviving Corporation; the singular issued and
outstanding share of Common Stock, $0.001 par value per share, of
the Surviving Corporation owned by the Merging Corporation shall
be canceled.
2
<PAGE> 3
ARTICLE V
The Surviving Corporation shall pay all expenses of carrying this Plan
into effect and of accomplishing the Merger.
ARTICLE VI
If at any time the Surviving Corporation shall consider or be advised that
any further assignment or assurance in law is necessary or desirable to vest in
the Surviving Corporation the title to any property or rights of the Merging
Corporation, the proper officers and directors of the Merging Corporation shall
execute and make all such proper assignments and assurances in law and do all
things necessary or proper to thus vest such property or rights in the
Surviving Corporation, and otherwise to carry out the purposes of this Plan.
ARTICLE VII
The Merger shall be effected by the filing of (i) Articles of Merger/Share
Exchange with the Indiana Secretary of State, and (ii) Articles of Merger with
the Nevada Secretary of State, after satisfaction of the requirements of the
BCL, the CGL and the NRS. The Effective Time of the Merger shall be August 27,
1996.
3
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
FUNDEX GAMES, LTD.
I, the person hereinafter named as incorporator, for the purpose of
establishing a corporation, under the provisions and subject to the
requirements of Title 7, Chapter 78 of the Nevada Revised Statutes, and the
acts amendatory thereof, and hereinafter sometimes referred to as the General
Corporation Law of the State of Nevada, do hereby adopt and make the following
Articles of Incorporation:
FIRST. The name of the corporation (hereinafter called the corporation)
is: Fundex Games, Ltd.
SECOND. The name of the corporation's resident agent in the State of
Nevada is CSC Services of Nevada, Inc., and the street address of the said
resident agent where process may be served on the corporation is 502 East John
Street, Carson City, Nevada 89706. The mailing address and the street address
of the said resident agent are identical.
THIRD.
SECTION 3.1 - SHARES. The total number of shares of all classes of stock
which the corporation is authorized to issue is Nine Million (9,000,000)
shares, consisting of Eight Million (8,000,000) shares of Common Stock, $0.001
par value per share ("COMMON STOCK"), and One Million (1,000,000) shares of
Preferred Stock, $1.00 par value per share ("PREFERRED STOCK").
SECTION 3.2 - COMMON STOCK. The Common Stock shall have the rights,
privileges and limitations of common stock generally under the laws of the
State of Nevada. Each share of Common Stock shall be entitled to one vote on
each matter coming before the stockholders, including, but not limited to, the
right to vote for directors.
SECTION 3.3 - PREFERRED STOCK. The Board of Directors shall have authority
by resolution to issue the shares of Preferred Stock from time to time on such
terms as it may determine and to divide the Preferred Stock into one or more
series and, in connection with the creation of any such series and before the
issuance of any shares of such series, to determine and fix by the resolution
or resolutions providing for the issuance of shares thereof:
<PAGE> 2
(a) The distinctive designation of such series, the number of shares
constituting such series, which number may increased or decreased (but not
below the number of shares then outstanding) from time to time by action of
the Board of Directors, and the stated value thereof if different than the
par value thereof;
(b) The dividend rate on the shares constituting such series, the times of
payment of dividends on the shares of such series, whether dividends shall be
cumulative, and, if so, from what date or dates, and the relative rights of
priority, if any, which such dividends will bear to the dividends payable on
any shares of stock of any other class or any other series of this class;
(c) Whether the shares of such series shall be convertible into, or
exchangeable for, any other shares of stock of the corporation or any other
securities and, if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustments thereof, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(d) Whether the shares of such series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at
different redemption dates;
(e) Whether the shares of such series shall be entitled to the benefit of
a retirement or sinking fund for the redemption or purchase of shares of such
series, and, if so entitled, the terms and amount of such fund and the
provisions relative to the operation thereof;
(f) The rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of such series;
(g) Whether the shares of such series shall have voting rights, including,
without limitation, the authority to confer voting rights as to specified
matters or issues such as mergers, consolidations or sale of assets, or voting
rights to be exercised either together with holders of Common Stock as a single
class, or independently as a separate class; and
(h) Any other powers, designations, preferences and relative,
participating, optional, or other special rights of such series, and the
qualifications, limitations or restrictions thereof, to the
-2-
<PAGE> 3
full extent now or hereafter permitted by the General Corporation Law of the
State of Nevada.
The powers, designations, preferences and relative, participating,
optional and other special rights of each series of Preferred Stock, and the
qualification, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. All shares of any
one series of Preferred Stock shall be identical in all respects with all other
shares of such series, except that shares of any one series issued at different
times may differ as to the dates from which dividends
thereon shall be cumulative.
FOURTH. The governing board of the corporation shall be styled as a "BOARD
OF DIRECTORS", and any member of said Board shall be styled as a "DIRECTOR".
The number of members constituting the first Board of Directors is two (2); and
the names and the street addresses of said members are as follows:
<TABLE>
<S> <C>
NAME ADDRESS
----------------- ---------------------------------
Carl E. Voigt III 3750 W. 16th Street
Indianapolis, Indiana 46222
Carl E. Voigt IV 3750 W. 16th Street
Indianapolis, Indiana 46222
</TABLE>
FIFTH. The name and the street address of the incorporator signing these
Articles of Incorporation is as follows:
<TABLE>
<S> <C>
NAME ADDRESS
---------------- ---------------------------------
Carl E. Voigt IV 3750 W. 16th Street
Indianapolis, Indiana 46222
</TABLE>
SIXTH. The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the General Corporation
Law of the State of Nevada, as the same may be amended and supplemented.
SEVENTH. The corporation shall, to the fullest extent permitted by the
provisions of the General Corporation Law of the State of Nevada, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said Law from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said Law,
and the aforesaid indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding
-3-
<PAGE> 4
such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
IN WITNESS WHEREOF, I do hereby execute these Articles of Incorporation on
July 15, 1996.
/s/ Carl E. Voigt, IV
----------------------------
Carl E. Voigt, IV
<TABLE>
<S> <C>
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
</TABLE>
On this 15th day of July, 1996, personally appeared before me, a Notary
Public in and for the State and County aforesaid, Carl E. Voigt, IV, known to
me to be the person described in and who executed the foregoing Articles of
Incorporation, and who acknowledged to me that he executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year first above written.
----------------------------
Notary Public
(NOTARIAL SEAL)
-4-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
FUNDEX GAMES, LTD.
ARTICLE I
OFFICES
SECTION 1.1. RESIDENT AGENT OFFICES. The name of the corporation's resident
agent in the State of Nevada is CSC Services of Nevada, Inc., and the street
address of the said resident agent where process may be served on the
Corporation is 502 East John Street, Carson City, Nevada 89706.
SECTION 1.2. OTHER OFFICES. The corporation may also have offices at such other
places both within and without the State of Nevada as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. PLACE OF MEETING. All meetings of stockholders shall be held at
such place, either within or without the State of Nevada, as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held
on the 3rd Tuesday in April each year if not a legal holiday, and if a legal
holiday then on the next secular day following, at 10:00 o'clock a.m., or the
annual meeting of stockholders may be held at such date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.3. VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
1
<PAGE> 2
SECTION 2.4. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation of the corporation, (the "Articles of Incorporation"), may be
called by the Chairman of the Board, the President or by the Board of Directors
or by written order of a majority of the directors or may be called by the
Chairman of the Board, the President or the Secretary at the request in writing
of stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purposes of the proposed meeting, and any notice of special meeting
shall state the purposes thereof. In addition to notice of any specific
matters to be considered by the stockholders at any special meeting, there may
also be included in such notice a reference to the fact that other matters may
be considered at the meeting. Business transacted at all special meetings
shall be confined to the matters stated in the notice, and, if the notice so
specifies, such other business as may come before the meeting. The officers or
directors shall fix the time and any place, either within or without the State
of Nevada, as the place for holding such meeting.
SECTION 2.5. NOTICE OF MEETING. Written notice of the annual and each special
meeting of stockholders, stating the date, time, place and purpose or purposes
thereof, shall be given to each stockholder entitled to vote, not less than 10
nor more than 60 days before the meeting. The President, a Vice President, the
Secretary, an assistant Secretary or any other person designated by the Board
of Directors shall sign and deliver such written notice. The written
certificate of the individual signing a notice of meeting, setting forth the
substance of the notice or having a copy thereof attached, the date the notice
was mailed or personally delivered to the stockholders and the addresses to
which the notice was mailed, shall be prima facie evidence of the manner and
fact of giving such notice.
SECTION 2.6. QUORUM. At any meeting, the holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum of stockholders for the
transaction of business except when stockholders are required to vote by class,
in which event a majority of the issued and outstanding shares of the
appropriate class shall be present in person or by proxy, and except as
otherwise provided by statute or by the Articles of Incorporation.
Notwithstanding any other provision of the Articles of Incorporation or these
by-laws, the holders of a majority of the shares of capital stock entitled to
vote thereat, present in person or represented by proxy, whether or not a
quorum is present, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified.
SECTION 2.7. VOTING. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Articles of Incorporation or of these
by-laws, a different vote is required, in which case such express provision
shall govern and control
2
<PAGE> 3
the decision of such question. Every stockholder having the right to vote shall
be entitled to vote in person, or by proxy appointed by an instrument in
writing subscribed by such stockholder, and filed with the Secretary of the
corporation before, or at the time of, the meeting. Provided, however, no such
proxy shall be valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which it is to continue in force,
which in no case shall exceed seven years from the date of its execution. If
such instrument shall designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or,
if an even number attend and a majority do not agree on any particular issue,
each proxy so attending shall be entitled to exercise such powers in respect of
the same portion of the shares as he is of the proxies representing such
shares. Unless required by statute or determined by the Chairman of the meeting
to be advisable, the vote on any question need not be by written ballot.
SECTION 2.8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these by-laws, whenever the vote of stockholders
at any annual or special meeting of the stockholders is required or permitted
to be taken for or in connection with any corporate action, the meeting and
vote of stockholders may be dispensed with by consent in writing setting forth
such action being taken, and shall be signed by the holders of outstanding
stock having not less than a minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. The written consent must be filed with the
minutes of the proceedings of the stockholders.
SECTION 2.9. VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the name of
another corporation, domestic or foreign, may be voted by such officer, agent
or proxy as the by-laws of such corporation may prescribe, or in the absence of
such provision, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by the executor
or administrator of such deceased person, either in person or by proxy. Shares
standing in the name of a guardian, conservator or trustee may be voted by such
fiduciary, either in person or by proxy, but no such fiduciary shall be
entitled to vote shares held in such fiduciary capacity without a transfer of
such shares into the name of such fiduciary. Shares standing in the name of a
receiver may be voted by such receiver. A stockholder whose shares are pledged
shall be entitled to vote such shares, unless in the transfer by the pledgor on
the books of the corporation, he has expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent the stock
and vote thereon.
SECTION 2.10. TREASURY STOCK. The corporation shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.11. FIXING RECORD DATE. The Board of Directors may fix in advance a
date, not exceeding 60 nor less than 10 days preceding the date of any meeting
of stockholders, or the date for payment of any dividend or distribution, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date
3
<PAGE> 4
in connection with obtaining a consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of and to vote at any such meeting and any adjournment
thereof, or to receive payment of such dividend or distribution, or to receive
such allotment of rights, or to exercise such rights, or to give such consent,
as the case may be, notwithstanding any transfer of any stock on the books of
the corporation after any such record date fixed as aforesaid.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. POWERS. The business and affairs of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not prohibited by
statute or by the Articles of Incorporation or by these by-laws.
SECTION 3.2. NUMBER, ELECTION AND TERM. The directors shall be elected at the
annual meeting of stockholders, except as provided in Section 3.3, and each
director elected shall hold office until his successor shall be elected and
shall qualify. The total number of directors shall not be fewer than four (4)
nor more than nine (9), which number may be increased or decreased by the
affirmative vote of a majority of the directors or by the holders of a majority
in interest of the shareholders at an annual meeting or at a meeting called for
that purpose. By a like vote, the additional directors may be elected at such
meeting. Directors need not be residents of Nevada or stockholders of the
corporation.
SECTION 3.3. VACANCIES, ADDITIONAL DIRECTORS AND REMOVAL FROM OFFICE. If any
vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or if any new directorship is created by an increase in the
authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
director or a director to fill the newly created directorship, as the case may
be; and a director so chosen shall hold office until the next annual meeting of
stockholders and until his successor shall be duly elected and shall qualify,
unless such director is sooner displaced. Any director may be removed either
for or without cause at any special meeting of stockholders duly called and
held for such purpose by the vote of stockholders representing net less than
two-thirds of the voting power of the stock entitled to vote at such meeting.
SECTION 3.4. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held each year, without other notice than this by-law, at the place
of, and immediately following, the annual meeting of stockholders; and other
regular meetings of the Board of Directors shall be held during each year, at
such time and place as the Board of Directors may from time to time provide by
resolution, either within or without the State of Nevada, without other notice
than such resolution.
4
<PAGE> 5
SECTION 3.5. SPECIAL MEETINGS. A special meeting of the Board of Directors may
be called by the Chairman of the Board or by the President and shall be called
by the Secretary on the written request of any two directors. The Chairman of
the Board or President so calling, or the directors so requesting, any such
meeting shall fix the time and any place, either within or without the State of
Nevada, as the place for holding such meeting.
SECTION 3.6. NOTICE OF SPECIAL MEETINGS. Written notice of special meetings of
the Board of Directors shall be given to each director at least 48 hours prior
to the time of such meeting. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting solely for the purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting, except that notice shall be
given of any proposed amendment to the by-laws if it is to be adopted at any
special meeting or with respect to any other matter where notice is required by
statute.
SECTION 3.7. QUORUM. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of
Directors, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute, by the Articles of
Incorporation or by these by-laws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these by-laws, any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof
as provided in Article IV of these by-laws, may be taken without a meeting, if
a written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
SECTION 3.9. MEETING BY TELEPHONE. Any action required or permitted to be taken
by the Board of Directors or any committee thereof may be taken by means of a
meeting by conference telephone network or similar communications method so
long as all persons participating in the meeting can hear each other. Any
person participating in such meeting shall be deemed to be present in person at
such meeting.
SECTION 3.10. COMPENSATION. Except as otherwise provided in this Section 3.10,
directors, as such, shall not be entitled to any compensation for their
services unless voted by the stockholders; provided, however, by resolution of
the Board of Directors, there may be allowed (a) to "OUTSIDE" directors, as
that term is defined in Section 4.2 of these by-laws, a stated salary and/or a
fixed sum for each regular or special meeting of the Board of Directors or any
meeting of a committee of directors attended, and (b) to all directors,
expenses of attendance, if any, for each regular or special meeting of the
Board of Directors or any meeting of a committee of
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directors attended. No provision of these by-laws shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 4.1. AUDIT COMMITTEE. The Audit Committee of the Board of Directors
(the "Audit Committee") shall consist solely of directors, one or more, each of
whom shall be an "OUTSIDE" director of the corporation, to be designated
annually by the Board of Directors at its first regular meeting held pursuant
to Section 3.4 of these by-laws after the annual meeting of stockholders or as
soon thereafter as conveniently possible. The term "outside" director, as used
in this Section 4.1, shall mean a director of the corporation who is
independent of management, not an officer, employee, consultant, agent or
affiliate (except as a director) of the corporation and who is free of any
relationship that, in the opinion of the Board of Directors, would interfere
with the designated director's exercise of independent judgment as a member of
the Audit Committee. The Audit Committee shall have and may exercise all of the
powers of the Board of Directors during the period between meetings of the
Board of Directors, except as may be prohibited by law, with respect to (i) the
selection and recommendation for employment by the corporation, subject to
approval by the Board of Directors and the stockholders, of a firm of certified
public accountants whose duty it shall be to audit the books and accounts of
the corporation and its subsidiaries for the fiscal year in which they are
appointed and who shall report to the Audit Committee, provided, that in
selecting and recommending for employment any firm of certified public
accountants, the Audit Committee shall make a thorough investigation to insure
the "independence" of such accountants as defined in the applicable rules and
regulations of the Securities and Exchange Commission; (ii) instructing the
certified public accountants to expand the scope and extent of the annual
audits of the corporation into areas of any concern to the Audit Committee,
which may be beyond that necessary for the certified public accountants to
report on the financial statements of the corporation, and, at its discretion,
directing other special investigations to insure the objectivity of the
financial reporting of the corporation; (iii) reviewing the reports submitted
by the certified public accountants, conferring with the auditors and reporting
thereon to the Board of Directors with such recommendations as the Audit
Committee may deem appropriate; (iv) meeting with the corporation's principal
accounting and financial officers, the certified public accountants and
auditors, and other officers or department managers of the corporation as the
Audit Committee shall deem necessary in order to determine the adequacy of the
corporation's accounting principles and financial and operating policies,
controls and practices, its public financial reporting policies and practices,
and the results of the corporation's annual audit; (v) conducting inquiries
into any of the foregoing, the underlying and related facts, including such
matters as the conduct of the personnel of the corporation, the integrity of
the records of the corporation, the adequacy of the procedures and the legal
and financial consequences of such facts; and (vi) retaining and deploying such
professional assistance, including outside counsel and auditors and any others,
as the Audit Committee shall deem necessary or appropriate, in connection with
the exercise of its powers on such terms as the Audit Committee shall deem
necessary or appropriate to protect the interests of the stockholders of the
corporation.
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SECTION 4.2. OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more additional special or
standing committees other than the Audit Committee, each such additional
committee to consist of one or more of the directors of the corporation. Each
such committee shall have and may exercise such of the powers of the Board of
Directors in the management of the business and affairs of the corporation as
may be provided in such resolution, except as delegated by these by-laws or by
the Board of Directors to another standing or special committee or as may be
prohibited by law.
SECTION 4.3. COMMITTEE OPERATIONS. A majority of a committee shall constitute a
quorum for the transaction of any committee business. Such committee or
committees shall have such name or names and such limitations of authority as
provided in these by-laws or as may be determined from time to time by
resolution adopted by the Board of Directors. The corporation shall pay all
expenses of committee operations. The Board of Directors may designate one or
more appropriate directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of any members of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another appropriate member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member.
SECTION 4.4. MINUTES. Each committee of directors shall keep regular minutes of
its proceedings and report the same to the Board of Directors when required.
The Secretary or any Assistant Secretary of the corporation shall (i) serve as
the Secretary of the Audit Committee and any other special or standing
committee of the Board of Directors of the corporation, (ii) keep regular
minutes of standing or special committee proceedings, (iii) make available to
the Board of Directors, as required, copies of all resolutions adopted or
minutes or reports of other actions recommended or taken by any such standing
or special committee and (iv) otherwise as requested keep the members of the
Board of Directors apprised of the actions taken by such standing or special
committees.
SECTION 4.5. COMPENSATION. Members of special or standing committees who are
"outside" directors, as that term is defined elsewhere in this Article, may be
allowed compensation for serving as a member of any such committee and all
members may be compensated for expenses of attending committee meetings, if the
stockholders or Board of Directors shall so determine in accordance with
Section 3.10.
ARTICLE V
NOTICES
SECTION 5.1. METHODS OF GIVING NOTICE. Whenever under the provisions of the
statutes, the Articles of Incorporation or these by-laws, notice is required to
be given to any director, member of any committee or stockholder, such notice
shall be in writing and delivered personally or
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mailed, postage prepaid, to such director, member or stockholder; provided that
in the case of a director or a member of any committee such notice may be given
orally, by telephone, by telegram or by facsimile. If mailed, notice to a
director, member of a committee or stockholder shall be deemed to be given when
deposited in the United States mail, in a sealed envelope, with first class
postage thereon prepaid, addressed, in the case of a stockholder, to the
stockholder at the stockholder's address as it appears on the records of the
corporation or, in the case of a director or a member of a committee, to such
person at his business address. If sent by telegraph, notice to a director or
member of a committee shall be deemed to be given when the telegram, so
addressed, is delivered to the telegraph company. If sent by facsimile, notice
to a director or member of a committee shall be deemed to be given when the
transmission from the transmitting facsimile machine has been completed.
SECTION 5.2. WRITTEN WAIVER. Whenever any notice is required to be given under
the provisions of the statutes, the Articles of Incorporation or these by-laws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.1. OFFICERS AND OFFICIAL POSITIONS. The executive officers of the
corporation shall be the Chairman of the Board, President, Secretary and
Treasurer. The Board of Directors shall elect and, when applicable, appoint all
the executive officers of the corporation. The Board of Directors and the
Chairman of the Board may appoint such other officers and agents, including but
not limited to one or more Vice Presidents (any one or more of which may be
designated Executive Vice President or Senior Vice President), Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as they deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as prescribed by the Board of Directors or
Chairman of the Board. Any two or more offices may be held by the same person.
No officer shall execute, acknowledge, verify or countersign any
instrument on behalf of the corporation in more than one capacity, if such
instrument is required by law, by these by-laws or by any act of the
corporation to be executed, acknowledged, verified or countersigned by two or
more officers. The Chairman of the Board shall be elected from among the
directors. With the foregoing exception, none of the other officers need be a
director, and none of the officers need be a stockholder of the corporation.
SECTION 6.2. ELECTION AND TERM OF OFFICE. The executive officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each executive officer shall hold office
until his successor shall have been chosen and shall have qualified or until
his death or the effective date of his resignation or removal, or until he
shall cease to be a director in the case of the Chairman of the Board.
SECTION 6.3. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interests of the corporation shall be served
thereby, but such removal shall be without
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prejudice to the contractual rights, if any, of the person so removed. Any
executive officer or other officer or agent may resign at any time by giving
written notice to the corporation. Any such resignation shall take effect at
the date of the receipt of such notice or at any later time specified therein,
and unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 6.4. VACANCIES. Any vacancy occurring in any executive office of the
corporation by death, resignation, removal or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 6.5. SALARIES. The salaries of all executive officers of the
corporation shall be fixed by the Board of Directors or pursuant to the
direction of the Board of Directors; and no executive officer shall be
prevented from receiving such salary by reason of his also being a director.
Compensation of officers and agents not appointed by the Board of Directors
shall be established by the Chairman of the Board and President, but subject to
review by the Board of Directors.
SECTION 6.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the Board of Directors and of the stockholders of the
corporation. In the Chairman's absence, such duties shall be attended to by the
President. The Chairman of the Board shall hold the position of chief executive
officer of the corporation and shall perform such duties as usually pertain to
the position of chief executive officer and such duties as may be prescribed by
the Board of Directors. The Chairman of the Board shall formulate and submit
to the Board of Directors matters of general policy for the corporation and
shall perform such other duties as usually appertain to the office or as may be
prescribed by the Board of Directors. He shall have the power to appoint and
remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. He may sign with the President or any
other officer of the corporation thereunto authorized by the Board of Directors
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors, and any deeds, bonds,
mortgages, contracts, checks, notes, drafts or other instruments which the
Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof has been expressly delegated or reserved by these
by-laws or by the Board of Directors to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed.
SECTION 6.7. PRESIDENT. The President, subject to the control of the Board of
Directors, and the Chairman of the Board, shall in general supervise and control
the business and affairs of the corporation. He shall have the power to appoint
and remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. The President shall keep the Board of
Directors and the Chairman of the Board fully informed as they or any of them
shall request and shall consult them concerning the business of the corporation.
He may sign with the Chairman of the Board or any other officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of capital stock of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors, and any deeds, bonds,
mortgages, contracts, checks, notes, drafts or other instruments which the Board
of Directors has authorized to be executed, except in cases where the signing
and execution thereof has been expressly delegated by these by-laws or by the
Board of Directors
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to some other officer or agent of the corporation, or shall be required by law
to be otherwise executed. In general he shall perform all other duties normally
incident to the office of the President, except any duties expressly delegated
to other persons by these by-laws or the Board of Directors and such other
duties as may be prescribed by the stockholders, Chairman of the Board or the
Board of Directors, from time to time.
SECTION 6.8. VICE PRESIDENTS. In the absence of the President, or in the event
of his inability or refusal to act, the Executive Vice President (or in the
event there shall be no Vice President or more than one Vice President
designated Executive Vice President, any Vice President designated by the
Board) shall perform the duties and exercise the powers of the President. Any
Vice President authorized by resolution of the Board of Directors to do so, may
sign with any other officer of the corporation thereunto authorized by the
Board of Directors, certificates for shares of capital stock of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors. The Vice Presidents shall perform such other duties as
from time to time may be assigned to them by the Chairman of the Board, the
President or the Board of Directors.
SECTION 6.9. SECRETARY. The Secretary shall (a) keep the minutes of the
meetings of the stockholders, the Board of Directors and committees of
directors; (b) see that all notices are duly given in accordance with
provisions of these by-laws and as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, and see that the seal of
the corporation or a facsimile thereof is affixed to all certificates for
shares prior to the issuance thereof and to all documents, the execution of
which on behalf of the corporation under its seal is duly authorized in
accordance with the provisions of these by-laws; (d) keep or cause to be kept a
register of the post office address of each stockholder which shall be
furnished by such stockholder; (e) have general charge of the stock transfer
books of the corporation; and (f) in general, perform all duties normally
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the President, the Board
of Directors or the Executive Committee.
SECTION 6.10. TREASURER. The Treasurer shall (a) have charge and custody of and
be responsible for all funds and securities of the corporation; receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 7.3 of these by-laws; (b) prepare, or cause to
be prepared, for submission at each regular meeting of the Board of Directors,
at each annual meeting of stockholders, and at such other times as may be
required by the Board of Directors, the Chairman of the Board as the President,
a statement of financial condition of the corporation in such detail as may be
required; and (c) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Chairman of the Board, the President as the Board of Directors. If
required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sums and with such surety or sureties
as the Board of Directors shall determine.
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SECTION 6.11. ASSISTANT SECRETARIES OR TREASURERS. The Assistant Secretaries
and Assistant Treasurers shall, in general, perform such duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
Chairman of the Board, the President as the Board of Directors. The Assistant
Secretaries or Assistant Treasurers shall, in the absence of the Secretary or
Treasurer, respectively, perform all functions and duties which such absent
officers may delegate, but such delegation shall not relieve the absent officer
from the responsibilities and liabilities of his office. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine.
ARTICLE VII
CONTRACTS, CHECKS, DEPOSITS
SECTION 7.1. CONTRACTS. Subject to the provisions of Section 6.1., the Board of
Directors may authorize any officer, officers, agent or agents, to enter into
any contract or execute and deliver an instrument in the name of and on behalf
of the corporation, and such authority may be general or confined to specific
instances.
SECTION 7.2. CHECKS, ETC. All checks, demands, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation, shall be signed by such officer or officers or such agent
or agents of the corporation, and in such manner, as shall be determined by the
Board of Directors.
SECTION 7.3. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Chairman of the Board, the
President or the Treasurer may be empowered by the Board of Directors to select
or as the Board of Directors may select.
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ARTICLE VIII
CERTIFICATE OF STOCK
SECTION 8.1. ISSUANCE. Each stockholder of this corporation shall be entitled
to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificates shall
be in such form as may be determined by the Board of Directors, shall be issued
in numerical order and shall be entered in the books of the corporation as they
are issued. They shall exhibit the holder's name and the number of shares and
shall be signed by the Chairman of the Board and the President or such other
officers as may from time to time be authorized by resolution of the Board of
Directors. Any of or all the signatures on the certificate may be a facsimile.
The seal of the corporation shall be impressed, by original or by facsimile,
printed or engraved, on all such certificates. In case any officer who has
signed or whose facsimile signature has been placed upon any such certificate
shall have ceased to be such officer before such certificate is issued, such
certificate may nevertheless be issued by the corporation with the same effect
as if such officer had not ceased to be such officer at the date of its issue.
If the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designation, preferences and relative,
participating, option or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class of stock;
provided that except as otherwise provided by statute, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish to each stockholder who so requests
the designations, preferences and relative, participating, option or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights. All certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in the case of a
lost, stolen, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and with such indemnity, if any, to the corporation as
the Board of Directors may prescribe.
SECTION 8.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may
direct that a new certificate or certificates be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate or certificates alleged to have
been lost, stolen or destroyed, or both.
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SECTION 8.3. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the transfer agent.
SECTION 8.4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by laws of the State of Nevada.
ARTICLE IX
DIVIDENDS
SECTION 9.1. DECLARATION. Dividends upon the capital stock of the corporation,
subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of capital
stock, subject to the provisions of the Articles of Incorporation.
SECTION 9.2. RESERVE. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the Board of Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
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ARTICLE X
INDEMNIFICATION
SECTION 10.1. THIRD PARTY ACTIONS. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 10.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
SECTION 10.3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
10.1 and 10.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 10.4. DETERMINATION OF CONDUCT. Any indemnification under Section 10.1
or 10.2 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is
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proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 10.1 and 10.2. Such determination shall be made
(1) by the Board of Directors or the Executive Committee by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
SECTION 10.5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation
in advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation as authorized in this Article X.
SECTION 10.6. INDEMNITY NOT EXCLUSIVE. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any other by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 10.7. THE CORPORATION. For purposes of this Article X, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the
provisions of this Article X (including, without limitation the provisions of
Section 10.4) with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
SECTION 10.8. INSURANCE INDEMNIFICATION. The corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article X.
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SECTION 10.9. EXPANDED INDEMNIFICATION. If the Nevada General Corporation Law
is amended at any time or from time to time so as to expand the circumstances
under which, the extent to which, or the persons for which, the corporation may
make indemnification, this corporation may make such indemnification to the
extent of such expansion.
ARTICLE XI
AMENDMENT
SECTION 11.1. DIRECTOR AMENDMENT. These by-laws may be altered, amended or
repealed at any regular meeting of the Board of Directors without prior notice,
or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting.
SECTION 11.2. SHAREHOLDER AMENDMENT. These by-laws may be amended altered, or
repealed, in whole or in part, upon the affirmative vote of the holders of not
less than two-thirds (2/3) of the outstanding voting shares of the corporation.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. SEAL. The corporate seal shall have inscribed thereon the name of
the corporation, and the words "Corporate Seal, Nevada". The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
SECTION 12.2. BOOKS. The books of the corporation may be kept within or without
the State of Nevada (subject to any provisions contained in the statutes) at
such place or places as may be designated from time to time by the Board of
Directors or the Executive Committee.
SECTION 12.3. FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SECTION 12.4. REDEMPTION OF CONTROL SHARES. The corporation, in accordance
with Section 78.3792 of the General Corporation Law of the State of Nevada may
call for redemption of not less than all of the control shares (as defined in
Section 78.3784 of the Nevada General Corporation Law) upon the terms and
conditions set out in the General Corporation Law of the State of Nevada.
16
<PAGE> 1
EXHIBIT 4.1
(LOGO)
AUTHORIZED CAPITAL____________________ SHARES____________________ PAR VALUE
THIS CERTIFIES THAT_____________________________________________IS THE OWNER OF
__________________________________________________FULLY PAID AND NON-ASSESSABLE
SHARES OF THE CAPITAL STOCK OF_________________________________________________
TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED
BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE CORPORATION,
THIS_______________________________DAY OF___________________________A.D. 19_____
___________________________________ _______________________________________
SECRETARY PRESIDENT
<PAGE> 2
(LOGO)
FOR VALUE RECEIVED,_______ HEREBY SELL, ASSIGN AND TRANSFER
UNTO____________________________________________________________________________
__________________________________________________________________________SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
________________________________________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN
NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED________________________________ 19_______
IN PRESENCE OF
_____________________________________ ________________________________________
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
<PAGE> 3
(LOGO)
(RESERVE THIS SPACE TO PASTE BACK CANCELLED STOCK CERTIFICATE)
<TABLE>
<CAPTION>
IF NOT AN ORIGINAL ISSUE SHOW DETAILS OF TRANSFER BELOW
----------------------------------------------------------
ORIGINAL CERTIFICATE NO. OF ORIG. NO. OF SHRS.
NO. DATE SHARES TRANSF'D
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CERTIFICATE NO.______ FOR__________ SHARES TRANSFERRED FROM
DATED______________________________ 19____ ______________________________________________________________________________
ISSUED TO_________________________________ ______________________________________________________________________________
__________________________________________ ______________________________________________________________________________
__________________________________________ IF THIS CERTIFICATE IS SURRENDERED FOR TRANSFER SHOW DETAILS
------------------------------------------------------------
__________________________________________ NO. OF NEW NO. OF SHARES
NEW CERTIFICATE ISSUED TO CERTIFICATE TRANSFERRED
----------- -------------
RECEIVED THIS CERTIFICATE__________ 19____ ______________________________________________________________________________
__________________________________________ ______________________________________________________________________________
SURRENDERED THIS CERTIFICATE_______ 19____ ______________________________________________________________________________
__________________________________________ ______________________________________________________________________________
</TABLE>
<PAGE> 1
EXHIBIT 4.2
FUNDEX GAMES, LTD.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF OCTOBER ___, 1996
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT dated as of October __,
1996, between FUNDEX GAMES, LTD., a Nevada corporation (the "Company"), and
NATIONAL SECURITIES CORPORATION and its assignees or designees (each
hereinafter referred to variously as a "Holder" or "Representative").
W I T N E S S E T H :
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof and entered into between the Company and the Representative, to act as
the representative of the several underwriters listed therein (the
"Underwriters") in connection with the Company's proposed public offering of
1,000,000 shares of Common Stock (as hereinafter defined) at a public offering
price of $________ per share and 1,000,000 redeemable warrants (the "Redeemable
Warrants") to purchase one (1) share of Common Stock at an exercise price of
$____, per share [150% of the initial public offering price per share of Common
Stock] (the "Public Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company
proposes to issue warrants (the "Representative's Warrants") to the
Representative to purchase up to an aggregate of 100,000 shares of Common Stock
of the Company and/or 100,000 Redeemable Warrants.
WHEREAS, the Representative's Warrants to be issued pursuant
to this Agreement will be issued on the Closing Date (as such term is defined
in the Underwriting Agreement) by the Company to the Representative in
consideration for, and as part of the Underwriters' compensation in connection
with, the Representative acting as the representative pursuant to the
Underwriting Agreement.
2
<PAGE> 3
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate of one hundred dollar
($100), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Grant. The Representative is hereby
collectively granted the right to purchase, at any time from September _ , 1997
(one year from the Closing Date until 5:30 p.m., New York time, on September
__, 2001 (5 years from the Closing Date), at which time the Representative's
Warrants expire, up to an aggregate of 100,000 shares of Common Stock, $0.01
par value per share (the "Common Stock"), and/or 100,000 Redeemable Warrants at
the Exercise Price (as defined in Section 8 hereof). One Redeemable Warrant is
exercisable to purchase one additional share of Common Stock at an initial
exercise of $____ [150% of the initial public offering price per share] from
September __, 1997 [one year from the Effective Date of the Registration
Statement] until 5:30 p.m. New York time on September __, 2001 [5 years from
the Effective Date of the Registration Statement], at which time the Redeemable
Warrants shall expire. Except as set forth herein, the shares of Common Stock
and the Redeemable Warrants issuable upon exercise of the Representative's
Warrants are in all respects identical to the shares of Common Stock and the
Redeemable Warrants being purchased by the Underwriters for resale to the
public pursuant to the terms and provisions of the Underwriting Agreement. The
shares of Common Stock and the Redeemable Warrants issuable upon exercise of
the Representative's Warrants are sometimes hereinafter referred to
collectively as the "Securities."
2. Representative's Warrant Certificates. The
Representative's warrant certificates (the "Warrant Certificates") delivered
and to be delivered pursuant to this Agreement shall be in the form set forth
in Exhibit A, attached hereto and made a part hereof,
3
<PAGE> 4
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Registration of Warrant. The Representative's Warrants
shall be numbered and shall be registered on the books of the Company when
issued.
4. Exercise of Representative's Warrant.
The Representative's Warrants initially are exercisable
at an aggregate Exercise Price (subject to adjustment as provided in Section 11
hereof) per share of Common Stock and Redeemable Warrant as set forth in
Section 8 hereof payable by certified or official bank check in New York
Clearing House funds. Upon surrender of a Representative's Warrant Certificate
with the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price for the Securities purchased at the Company's
principal offices in Indianapolis, Indiana, the registered holder of a
Representative's Warrant Certificate ("Holder" or "Holders") shall be entitled
to receive a certificate or certificates for the shares of Common Stock and/or
Redeemable Warrants so purchased. The purchase rights represented by each
Representative's Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of Common
Stock and/or Redeemable Warrants underlying the Representative's Warrants).
Representative's Warrants may be exercised to purchase all or part of the
shares of Common Stock together with an equal or unequal number of the
Redeemable Warrants represented thereby. If the Company redeems all of the
Redeemable Warrants sold in the Public Offering, then thereafter the
Representative's Warrants may not be exercised to purchase any Redeemable
Warrants unless such exercise is accompanied by the simultaneous exercise of
all such Redeemable Warrants being purchased. In the case of the purchase of
less than all of the shares of Common Stock and/or Redeemable Warrants
purchasable under any Representative's
4
<PAGE> 5
Warrant Certificate, the Company shall cancel said Representative's
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Representative's Warrant Certificate of like tenor for the balance of the
shares of Common Stock and/or Redeemable Warrants purchasable thereunder.
5. Issuance of Certificates. Upon the exercise of the
Representative's Warrant, the issuance of certificates for shares of
Common Stock and/or Redeemable Warrants or other securities, properties or
rights underlying such Representative's Warrant shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 7 and 9 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall cannot be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the Holder and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Representative's Warrant Certificates and the certificates
representing the shares of Common Stock and/or Redeemable Warrants or other
securities, property or rights issued upon exercise of the Representative's
Warrant shall be executed on behalf of the Company by the manual or facsimile
signature of the then present President or any Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the then present Secretary or any Assistant Secretary of
the
5
<PAGE> 6
Company. Representative's Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
6. Transfer of Representative's Warrant. The Representative's
Warrant shall be transferable only on the books of the Company maintained at
its principal office, where its principal office may then be located, upon
delivery thereof accompanied by a Form of Assignment (the form of which is
included in Exhibit A hereto) duly endorsed by the Holder or by its duly
authorized attorney or representative accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver the new Representative's
Warrant to the person entitled thereto.
7. Restriction On Transfer of Representative's Warrant.
The Holder of a Representative's Warrant Certificate, by its acceptance
thereof, covenants and agrees that the Representative's Warrant is being
acquired as an investment and not with a view to the distribution thereof, and
that the Representative's Warrant may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for one year from
the date hereof, except to officers or partners of the Underwriters, or by
operation of law.
8. Exercise Price.
8.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 11 hereof, the initial exercise price of each
Representative's Warrant shall be $____ per share of Common Stock [120% of the
initial public offering price per share of Common Stock] and $.12 per
Redeemable Warrant. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Section 11 hereof. Any transfer of
a Representative's Warrant shall constitute an automatic transfer and
assignment of the registration rights set
6
<PAGE> 7
forth in Section 9 hereof with respect to the Securities or other
securities, properties or rights underlying the Representative's Warrants.
8.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context or unless otherwise specified.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933.
Each Representative's Warrant Certificate and each certificate representing
shares of Common Stock and/or Redeemable Warrants and any of the other
securities issuable upon exercise of the Representative's Warrant
(collectively, the "Warrant Shares") shall bear the following legend unless (i)
such Representative's Warrant or Warrant Shares are distributed to the public
or sold to the underwriters for distribution to the public pursuant to Section
9 hereof or otherwise pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company has
received an opinion of counsel, in form and substance reasonably satisfactory
to counsel for the Company, that such legend is unnecessary for any such
certificate:
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii)
TO THE EXTENT APPLICABLE, RULE 144
7
<PAGE> 8
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S
WARRANT REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN
ACCORDANCE WITH THE REPRESENTATIVE'S WARRANT AGREEMENT
REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time
commencing after the effective date of the Registration Statement relating to
the Public Offering and expiring five (5) years thereafter, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger, or the offering of debt, or pursuant to Form S-4 or
Form S-8 it will give written notice by registered mail, at least twenty (20)
days prior to the filing of each such registration statement, to the Holders of
the Representative's Warrants and/or the Warrant Shares of its intention to do
so. If any of the Holders of the Representative's Warrants and/or Warrant
Shares notify the Company within ten (10) days after mailing of
any such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford such Holders of the
Representative's Warrants and/or
8
<PAGE> 9
Warrant Shares the opportunity to have any such Representative's
Warrants and/or Warrant Shares registered under such registration statement.
In the event that the managing underwriter for said offering advises the
Company in writing that in its opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without causing a diminution in the offering price or otherwise
adversely affecting the offering, the Company include in such registration (a)
first, the securities the Company proposes to sell, (b) second, the securities
held by the entities, if any, that made the demand for registration, (c) third,
the Representative's Warrants and/or Warrant Shares requested to be included in
such registration which in the opinion of such underwriter can be sold, pro
rata among all proposed selling shareholders.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of
any such securities shall have been made) to elect not to file any such
proposed registration statement or to withdraw the same after the filing but
prior to the effective date thereof.
9.3 Demand Registration.
(a) At any time commencing one (1) year after
the effective date of the Registration Statement relating to the Public
Offering (the "Registration Statement") and expiring five (5) years from the
effective date of the Registration Statement, the Holders of the
Representative's Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of the Representative's Warrants and/or Warrant Shares
shall have the right (which right is in addition to the registration rights
under Section 9.2 hereof), exercisable by written notice to the Company, to
have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and
9
<PAGE> 10
such other documents, including a prospectus, as may be necessary in
the opinion of both counsel for the Company and counsel for the Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale by such Holders and any other Holders of the Representative's
Warrant and/or Warrant Shares who notify the Company within fifteen (15) days
after the Company mails notice of such request pursuant to Section 9.3(b)
hereof (collectively, the "Requesting Holders") of their respective Warrant
Shares for the earlier of (i) nine (9) consecutive months, or (ii) until the
sale of all of the Warrant Shares requested to be registered by the Requesting
Holders.
(b) The Company covenants and agrees to give
written notice of any registration request under this Section 9.3 by any Holder
or Holders representing a Majority of the Representative's Warrants and/or
Warrant Shares to all other registered Holders of the Representative's Warrants
and the Warrant Shares within ten (10) days from the date of the receipt of any
such registration request.
(c) Intentionally omitted.
(d) Notwithstanding anything to the contrary
contained herein, if the Company shall not have filed a registration statement
for the Warrant Shares within the time period specified in Section 9.4(a)
hereof pursuant to the written notice specified in Section 9.3(a) of the
Holders of a Majority of the Representative's Warrants and/or Warrant Shares,
the Company, at its option, may repurchase (i) any and all Warrant Shares at
the higher of the Market Price (as defined in Section 9.3(e)) per share of
Common Stock or per Redeemable Warrant, as the case may be, on (x) the date of
the notice sent pursuant to Section 9.3(a) or (y) the expiration of the period
specified in Section 9.4(a) and (ii) any and all Representative's Warrants
at the Market Price of the Common Stock and Redeemable Warrants purchasable
upon exercise thereof less the aggregate exercise price payable upon such
exercise. Such
10
<PAGE> 11
repurchase shall be in immediately available funds and shall close
within two (2) days after the expiration of the period specified in Section
9.4(a).
(e) Definition of Market Price. As used herein,
the phrase "Market Price" at any date shall be deemed to be the last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities
exchange on which the shares of Common Stock and/or Redeemable Warrants is
listed or admitted to trading, or, if the shares of Common Stock and/or
Redeemable Warrants is not listed or admitted to trading on any national
securities exchange, the average closing sale price as furnished by the NASD
through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if
Nasdaq is no longer reporting such information, or if the shares of Common
Stock and/or Redeemable Warrants or Common Stock is not quoted on Nasdaq, as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
9.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Sections 9.2
or 9.3 hereof, the Company covenants and agrees as follows:
(a) In connection with any registration under
Section 9.3 hereof, the Company shall use its best efforts to file a
registration statement within one hundred and twenty (120) days of receipt
of any demand therefor, and to have any registration statements declared
effective at the earliest possible time, and shall furnish each Holder desiring
to sell Warrant Shares such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding
fees and expenses of a single counsel for all Holders up to a $25,000
maximum and any underwriting or selling
11
<PAGE> 12
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 9.2 and 9.3(a) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses.
(c) The Company will use its commercially
reasonable efforts to take all necessary action which may be required in
qualifying or registering the Warrant Shares included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of
the Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect and subject to
the same procedures as are provided by the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be
sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all
loss, claim, damage or expense or liability (including all expenses reasonably
12
<PAGE> 13
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriters have agreed
to indemnify the Company.
(f) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Representative's Warrant
prior to the initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion
of any securities other than the Warrant Shares to be included in any
registration statement filed pursuant to Section 9.3 hereof, without the prior
written consent of National Securities Corporation or as otherwise required by
the terms of any existing registration rights granted prior to the date of this
Agreement by the Company to the holders of any of the Company's securities.
(h) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting agreement), and
(ii) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
a letter dated the date of the closing under the underwriting agreement) signed
by the independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and
13
<PAGE> 14
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable
after the effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement (which
need not be audited) complying with Section 11(a) of the Act and covering a
period of at least 12 consecutive months beginning after the effective date of
the registration statement.
(j) In connection with any registration under
Section 9.3 hereof, the Company shall enter into an underwriting agreement with
the managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Shares requested to be included in such underwriting,
which may be the Representative. Such agreement shall be satisfactory in form
and substance to the Company, each Holder and such managing underwriters, and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used
by the managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Shares and may, at
their option, require that any or all the representations, warranties and
covenants of the Company to or for the benefit of such underwriters shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
14
<PAGE> 15
(k) For purposes of this Agreement, the term
"Majority" in reference to the Representative's Warrants or Warrant Shares,
shall mean in excess of fifty percent (50%) of the then outstanding Warrant
Shares (calculated as provided in the following sentence) that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act. For purposes of the preceding sentence, the Holder of a Representative's
Warrant shall be deemed the holder of the aggregate number of Warrant Shares
that acquirable upon exercise thereof.
10. Obligations of Holders. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Section 9 hereof that each of the selling Holders shall:
(a) Furnish to the Company such information
regarding themselves, the Warrant Shares held by them, the intended method of
sale or other disposition of such securities, the identity of and compensation
to be paid to any underwriters proposed to be employed in connection with such
sale or other disposition, and such other information as may reasonably be
required to effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a
prospectus relating to the Warrant Shares covered by a registration statement
is required to be delivered under the Act, of the happening of any event with
respect to such selling Holder as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
15
<PAGE> 16
11. Adjustments to Exercise Price and Number of Securities.
The Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise of the Representative's Warrant shall be subject to
adjustment from time to time only upon the happening of the following events:
11.1 Stock Dividend, Subdivision and Combination. In
case the Company shall (i) declare a dividend or make a distribution on its
outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect at the time of
the record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price by a
fraction, the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
11.2 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 11,
the number of Warrant Shares issuable upon the exercise at the adjusted
Exercise Price of each Representative's Warrant shall be adjusted to the
nearest number of whole shares of Common Stock by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares issuable upon exercise of the Representative's Warrant
immediately prior to such adjustment and dividing the product so obtained by
the adjusted Exercise Price.
16
<PAGE> 17
11.3 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the Company as
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value.
11.4 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder
a supplemental warrant agreement providing that the Holder of each
Representative's Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Representative's Warrant) to
receive, upon exercise of such Representative's Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger by a holder of the number of shares of Common Stock for
which such Representative's Warrant might have been exercised immediately
prior to such consolidation, merger, sale or transfer. Such supplemental
warrant agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 11. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.
11.5 No Adjustment of Exercise Price in Certain
Cases. No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the
Representative's Warrant or the Warrant Shares;
17
<PAGE> 18
(b) Upon the issuance or sale of Common Stock (or
any other security convertible, exercisable, or exchangeable into
shares of Common Stock) upon the direct or indirect conversion, exercise, or
exchange of any options, rights, warrants, or other securities or indebtedness
of the Company outstanding as of the date of this Agreement or granted pursuant
to any stock option plan of the Company in existence as of the date of this
Agreement, pursuant to the terms thereof; or
(c) If the amount of said adjustment shall be
less than two cents ($.02) per share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least two cents ($.02) per Representative's Warrant.
12. Exchange and Replacement of Representative's Warrant
Certificates. Each Representative's Warrant Certificate is exchangeable,
without expense, upon the surrender thereof by the registered Holder at the
principal executive office of the Company for a new Representative's Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of Warrant Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Representative's Warrant Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Representative's Warrant, if mutilated,
the Company will make and deliver a new Warrant Certificate of like tenor, in
lieu thereof.
18
<PAGE> 19
13. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Representative's Warrant, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights.
14. Reservation and Listing of Securities. The Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issuance upon the exercise of the
Representative's Warrant and the Redeemable Warrants issuable upon exercise
thereof, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. Every transfer
agent ("Transfer Agent") for the Common Stock and other securities of the
Company issuable upon the exercise of the Representative's Warrant will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares of Common Stock and other securities as shall be requisite
for such purpose. The Company will keep a copy of this Agreement on file with
every Transfer Agent for the Common Stock and other securities of the Company
issuable upon the exercise of the Representative's Warrant. The Company will
supply every such Transfer Agent with duly executed stock and other
certificates, as appropriate, for such purpose. The Company covenants and
agrees that, upon exercise of the Representative's Warrant and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Representative's Warrant shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Representative's Warrant
19
<PAGE> 20
to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock issued to the public in connection herewith
may then be listed and/or quoted on Nasdaq SmallCap Market.
15. Notices to Representative's Warrant Holders. Nothing
contained in this Agreement shall be construed as conferring upon the
Holders the right to vote or to consent or to receive notice as a stockholder
in respect to any meeting of stockholders for the election of directors or any
other matter, or as having any rights whatsoever as a stockholder of the
Company. If, however, at any time prior to the expiration of the
representative's Warrants and their exercise, any of the following events shall
occur:
(a) the Company shall take a record of the holders
of its shares of Common Stock for the purpose of entitling them to receive a
dividend or distributin paybable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of the Company
or securities convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed; then in any one or more of said events, the Company shall
give written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or
20
<PAGE> 21
exchangable securities or subscription rights, or entitled to vote on
such proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
16. Redeemable Warrants.
The form of the certificate representing the Redeemable
Warrants (and the form of election to purchase shares of Common Stock upon the
exercise of the Redeemable Warrants and the form of assignment printed on the
reverse thereof) shall be substantially as set forth in Exhibit "A" to the
Warrant Agreement dated as of the date hereof by and among the Company, the
Representative and American Stock Transfer & Trust Company, as warrant agent
(the "Redeemable Warrant Agreement"). Each Redeemable Warrant issuable upon
exercise of the Representative's Warrants shall evidence the right to initially
purchase a fully paid and non-assessable share of Common Stock at an initial
purchase price of $____ [150% of the initial public offering price per share of
Common Stock] from _________, 1997 [one year from the Effective Date of the
Registration Statement] until 5:30 p.m. New York time on September 2001 [5
years from the Effective Date of the Registration Statement] at which time the
Redeemable Warrants, unless the exercise period has been extended, shall
expire. The exercise price of the Redeemable Warrants and the number of
shares of Common Stock issuable upon the exercise of the Redeemable Warrants
are subject to adjustment, whether or not the Representative's Warrants have
been exercised and the Redeemable Warrants have been issued, in the manner and
upon the occurrence of the events set forth in Section 8 of the
21
<PAGE> 22
Redeemable Warrant Agreement, which is hereby incorporated by reference
and made a part hereof as if set forth in its entirety herein. The Company
covenants to, and agrees with, the Holder(s) that without the prior written
consent of the Holder(s), which will not be unreasonably withheld, the
Redeemable Warrant Agreement will not be modified, amended, canceled, altered
or superseded, and that the Company will send to each Holder, irrespective of
whether or not the Representative's Warrants have been exercised, any and all
notices required by the Redeemable Warrant Agreement to be sent to holders of
the Redeemable Warrants.
17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) if to the registered Holder of the
Representative's Warrant, to the address of such Holder as shown on the books
of the Company; or
(b) if to the Company, to the address set forth
in Section 4 hereof or to such other address as the Company may designate by
notice to the Holders.
18. Supplements; Amendments; Entire Agreement. This
Agreement (including the Underwriting Agreement to the extent portions thereof
are referred to herein) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought. The Company and the Representative
may from time to time supplement or amend this Agreement without the approval
of any holders of Representative's Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company
22
<PAGE> 23
and the Representative may deem necessary or desirable and which the Company
and the Representative deem shall not adversely affect the interests of
the Holders of Representative's Warrant Certificates.
19. Successors. All of the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
20. Survival of Representations and Warranties.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties
to this Agreement herein shall survive.
21. Governing Law. This Agreement and each Representative's
Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be construed
in accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
22. Severability. If any provision of this Agreement shall
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision of this Agreement.
23. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
24. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the
Representative's Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for
23
<PAGE> 24
the sole and exclusive benefit of the Company and the Representative and any
other Holder(s) of the Representative's Warrant Certificates or Warrant Shares.
25. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
24
<PAGE> 25
IN WITNESS OF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
ATTEST: FUNDEX GAMES, LTD.
_____________________________________
Secretary
By: ____________________________
Name: Carl E. Voigt, IV
___________________________
Title: President
___________________________
NATIONAL SECURITIES CORPORATION
By:_______________________________
Name: Steven A. Rothstein
____________________________
Title: Chairman
____________________________
25
<PAGE> 26
EXHIBIT A
[FORM OF REPRESENTATIVE'S WARRANT CERTIFICATE]
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, OCTOBER ___, 2001
Representative's Warrant No. _____
____ Shares of Common Stock and/or ____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________, or
registered assigns, is the registered holder of Warrants to purchase
initially, at any time from September ___, 1997 until 5:30 p.m., New York time
on September ___, 2001 ("Expiration Date"), up to ____ shares of Common Stock
and/or ____ Redeemable Warrants at the initial exercise price, subject to
adjustment in certain events, of $____ [120% of initial offering price per
share] per share of Common Stock and $___ per Redeemable Warrant (the "Exercise
Price") upon surrender of this Representative's Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of September ___, 1996 between the Company and National Securities
Corporation (the "Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Representative's Warrant evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Representative's Warrant evidenced by this Warrant
Certificate are part of a duly authorized issue of Representative's Warrants
issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights,
<PAGE> 27
obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Representative's Warrant.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the
Representative's Warrant; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Representative's Warrant shall be issued to the
transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided herein and in the Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with such
transfer.
Upon the exercise of less than all of the Representative's
Warrant evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new Warrant Certificate representing such numbered unexercised
Representative's Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
This Warrant Certificate does not entitle any holder thereof
to any of the rights of a shareholder of the Company.
Exhibit A-2
<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1996.
ATTEST: FUNDEX GAMES, LTD.
_____________________________________
Secretary
By: _________________
Name: _________________
Title:_________________
Exhibit A-3
<PAGE> 29
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by
this Warrant Certificate, to purchase ____ shares of Common Stock and/or ____
Redeemable Warrants and herewith tenders in payment for such securities a
certified or official bank check payable in New York Clearing House Funds to
the order of Fundex Games, Ltd. (the "Company") in the amount of $_____, all
in accordance with the terms of Section 4 of the Representative's Warrant
Agreement dated as of ________ __, 1996 between the Company and National
Securities Corporation. The undersigned requests that a certificate for such
securities be registered in the name of _____________________________ , whose
address is
_____________________________________________________________________________
and that such certificate be delivered to _________________, whose
address is _______________________________________________, and if said
number of shares shall not be all the shares purchasable hereunder, that a new
Warrant Certificate for the balance of the shares purchasable under the within
Warrant Certificate be registered in the name of the undersigned warrantholder
or his assignee as below indicated and delivered to the address stated below.
Dated:
Signature:
(Signature must conform
in all respects to name
of holder as specified on
the face of the Warrant
Certificate.)
Address:
(Insert Social Security or
Other Identifying Number of Holder)
Signature Guaranteed:
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities
Exchange Act Rule 17Ad-15.) FORM OF ASSIGNMENT
Exhibit A-4
<PAGE> 30
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER
DESIRES TO TRANSFER THE WARRANT CERTIFICATE.)
FOR VALUE RECEIVED , __________________ hereby sells, assigns and transfers
unto [NAME OF TRANSFEREE] this Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
__________________________ Attorney, to transfer the within Warrant Certificate
on the books of the within-named Company, with full power of substitution.
Dated:
Signature:
(Signature must conform
in all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
Address:
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed: _______________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
Exhibit A-5
<PAGE> 1
EXHIBIT 4.3
FUNDEX GAMES, LTD.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
AND
NATIONAL SECURITIES CORPORATION
_______________________
WARRANT AGREEMENT
DATED AS OF OCTOBER ____, 1996
<PAGE> 2
AGREEMENT, dated this ___ day of _______, 1996, among FUNDEX
GAMES, LTD., a Nevada corporation (the "Company"), AMERICAN STOCK TRANSFER &
TRUST COMPANY, a New York corporation, as Warrant Agent (the "Warrant Agent"),
and NATIONAL SECURITIES CORPORATION, its successors and assigns ("National" or
the "Representative").
W I T N E S S E T H:
WHEREAS, in connection with (i) the Company's offering to the
public of 1,000,000 shares of Common Stock (as defined in Section 1), and
1,000,000 redeemable common stock purchase warrants (the "Warrants"), each
warrant entitling the holder thereof to purchase one additional share of Common
Stock; (ii) the over-allotment option granted to the underwriter to purchase up
to an additional 150,000 shares of Common Stock and 150,000 Warrants (the
"Over-allotment Option"); and (iii) the sale to National of warrants (the
"Representative's Warrants") to purchase up to 100,000 shares of Common Stock
and/or 100,000 Warrants, the Company will issue up to 1,250,000 Warrants; and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in
connection with the issuance, registration, transfer, exchange and redemption
of the Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
National, the holders of certificates representing the Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933,
as amended.
(b) "AMEX" shall mean the American Stock
Exchange.
<PAGE> 3
(c) "Common Stock" shall mean the authorized
stock of the Company of any class, whether now or hereafter authorized, which
has the right to participate in the voting and in the distribution of earnings
and assets of the Company without limit as to amount or percentage which at the
date hereof consists of 1,225,000 shares of Common Stock, par value $.001 per
share.
(d) "Commission" shall mean the Securities
and Exchange Commission.
(e) "Corporate Office" shall mean the office of
the Warrant Agent (or its successor) at which at any particular time its
business in New York, New York, shall be administered, which office is located
on the date hereof c/o American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York 10005.
(f) "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
(g) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Exercise Price (as hereinafter
defined) in good funds.
(h) "Exercise Price" [150% of the initial public
offering price per share] shall mean, subject to modification and adjustment as
provided in Section 8, $______ per share and further subject to the Company's
right, in its sole discretion, to decrease the Exercise Price for a period of
not less than 30 days on not less than 30 days' prior written notice to the
Registered Holders and National.
(i) "Initial Warrant Exercise Date" shall mean
______ [the date 12 months after the date of Prospectus].
(j) "Initial Warrant Redemption Date" shall mean
_____ [the date 18 months after the date of the Prospectus].
(k) "Redemption Date" shall mean the date (which
may not occur before the Initial Warrant Redemption Date) fixed for the
redemption of the Warrants in accordance with the terms hereof.
<PAGE> 4
(l) "Redemption Price" shall mean the price at
which the Company may, at its option, redeem the Warrants, in accordance with
the terms hereof, which price shall be $0.01 per Warrant, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof.
(m) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(n) "Representative's Warrant Agreement" shall
mean the agreement dated as of __________, 1996 between the Company and
National relating to and governing the terms and provisions of the
Representative's Warrants.
(o) "Transfer Agent" shall mean American
Stock Transfer & Trust Company, or its authorized successor.
(p) "Underwriting Agreement" shall mean the
underwriting agreement dated _________, 1996 between the Company and the
several underwriters listed therein relating to the purchase for resale to the
public of 1,000,000 shares of Common Stock and 1,000,000 Warrants.
(q) "Warrant Certificate" shall mean a
certificate representing each of the Warrants substantially in the form annexed
hereto as Exhibit A.
(r) "Warrant Expiration Date" shall mean, unless
the Warrants are redeemed as provided in Section 9 hereof prior to such date,
5:00 p.m. (New York time), on ___________ [5 years from the date of the
Prospectus], or the Redemption Date as defined herein, whichever date is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:00 p.m. (New York time)
on the next following day which, in the State of New York, is not a holiday or
a day on which banks are authorized to close. Upon five business days' prior
written notice to the Registered Holders, the Company shall have the right to
extend the Warrant Expiration Date.
<PAGE> 5
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Exercise Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock upon the exercise
thereof in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's
Warrants as provided therein, Warrant Certificates representing all or a
portion of 100,000 Warrants to purchase up to an aggregate of 100,000 shares of
Common Stock (subject to modification and adjustment as provided in Section 8
hereof and in the Representative's Warrant Agreement), shall be countersigned,
issued and delivered by the Warrant Agent upon written order of the Company
signed by its Chairman of the Board, Chief Executive Officer, President or a
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary.
(d) From time to time, up to the Warrant
Expiration Date or the Redemption Date, whichever date is earlier, the Warrant
Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. Except as provided herein, no Warrant Certificates shall be issued
except (i) Warrant Certificates initially issued hereunder and those issued on
or after the Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants held by the exercising Registered Holder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7, (iv) Warrant Certificates issued pursuant
to the Representative's Warrant Agreement, and (v) at the option of the
Company, Warrant Certificates in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Exercise Price, the
number of shares of Common Stock purchasable upon exercise of the Warrants or
the Redemption Price therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be
substantially in the form annexed hereto as Exhibit A (the provisions of which
are hereby incorporated herein)
<PAGE> 6
and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer, exchange or
in lieu of mutilated, lost, stolen or destroyed Warrant Certificates) and
issued in registered form. Warrants shall be numbered serially with the letter
"W" on the Warrants.
(b) Warrant Certificates shall be executed on
behalf of the Company by its Chairman of the Board, Chief Executive Officer,
President or any Vice President and by its Treasurer or an Assistant Treasurer
or its Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. In any case any officer of the Company who shall have
signed any of the Warrant Certificates shall cease to be such officer of the
Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company. After countersignature by the Warrant Agent, Warrant Certificates
shall be delivered by the Warrant Agent to the Registered Holder promptly and
without further action by the Company, except as otherwise provided by Section
4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole
number multiples thereof may be exercised by the Registered Holder thereof
commencing at any time on or after the Initial Warrant Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the conditions
set forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder, upon
exercise thereof, as of the close of business on the Exercise Date. If
Warrants in denominations other than whole number multiples thereof shall be
exercised at one time by the same Registered Holder, the number of full shares
of Common Stock which shall be issuable upon exercise thereof shall be computed
on the basis of the aggregate number of full shares of Common Stock
<PAGE> 7
issuable upon such exercise. As soon as practicable on or after the
Exercise Date and in any event within five business days after such date, if
one or more Warrants have been exercised, the Warrant Agent on behalf of the
Company shall cause to be issued to the person or persons entitled to receive
the same a Common Stock certificate or certificates for the shares of Common
Stock deliverable upon such exercise, and the Warrant Agent shall deliver the
same to the person or persons entitled thereto. Upon the exercise of any one
or more Warrants, the Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon such
exercise and, subject to subsection (b) below, shall cause all payments of an
amount in cash or by check made payable to the order of the Company, equal to
the Exercise Price, to be deposited promptly in the Company's bank account.
(b) The Company shall engage National as a
Warrant solicitation agent, and, at any time upon the exercise of any Warrants
after one year from the date hereof, the Company shall instruct the Warrant
Agent to, and the Warrant Agent shall, on a daily basis, within two business
days after such exercise, notify National of the exercise of any such Warrants
and shall, on a weekly basis (subject to collection of funds constituting the
tendered Exercise Price, but in no event later than five business days after
the last day of the calendar week in which such funds were tendered), remit to
National an amount equal to five percent (5%) of the Exercise Price of such
Warrants then being exercised unless National shall have notified the Warrant
Agent that the payment of such amount with respect to such Warrant is violative
of the General Rules and Regulations promulgated under the Exchange Act, or the
rules and regulations of the Nasdaq or applicable state securities or "blue
sky" laws, or the Warrants are those underlying the Representative's Warrants
in which event, the Warrant Agent shall have to pay such amount to the Company;
provided, that, the Warrant Agent shall not be obligated to pay any amounts
pursuant to this Section 4(b) during any week that such amounts payable are
less than $1,000 and the Warrant Agent's obligation to make such payments shall
be suspended until the amount payable aggregates $1,000, and provided further,
that, in any event, any such payment (regardless of amount) shall be made not
less frequently than monthly. Notwithstanding the foregoing, National shall be
entitled to receive the commission contemplated by this Section 4(b) as Warrant
solicitation agent only if: (i) National has provided actual services in
connection with the solicitation of the exercise of a Warrant by a Registered
Holder and (ii) the Registered Holder exercising a Warrant affirmatively
designates in writing on the exercise form on the reverse side of the Warrant
Certificate that the exercise of such Registered Holder's Warrant was solicited
by National.
(c) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised
in such multiples as are required to permit the issuance by the Company of one
or more whole shares. If one or more Warrants shall be presented for exercise
in full at the same time by the
<PAGE> 8
same Registered Holder, the number of whole shares which shall be issuable upon
such exercise thereof shall be computed on the basis of the aggregate
number of shares purchasable on exercise of the Warrants presented. If any
fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed or admitted to
unlisted trading privileges on one or move national securities exchanges and/or
is quoted through the Nasdaq Stock Market, the current market value of a share
of Common Stock shall be the closing sale price of the Common Stock at the end
of the regular trading session on the last business day prior to the date of
exercise of the Warrants on whichever of such exchanges or stock market had the
highest daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted
to unlisted trading privileges on any national securities exchange and is not
quoted through the Nasdaq Stock Market, but is traded in the over-the-counter
market, the current market value of a share of Common Stock shall be the
average of the last reported bid and asked prices of the Common Stock reported
by the National Quotation Bureau, Inc. (or any successor) on the last business
day prior to the date of exercise of the Warrants; or
(3) If neither clause (1) nor clause (2)
immediately above is applicable, the current market value of a share of Common
Stock shall be an amount, not less than the book value thereof as of the end of
the most recently completed fiscal quarter of the Company ending prior to the
date of exercise, determined by the Board of Directors of the Company
exercising good faith and using customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all
times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon exercise of Warrants, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, at the time of
delivery thereof, be duly and validly issued and fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, and that upon issuance such shares shall be
listed on each securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.
<PAGE> 9
(b) The Company covenants that if any securities
to be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will file a registration statement under the
federal securities laws or a post-effective amendment, use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding and deliver a prospectus
which complies with Section 10(a)(3) of the Act, to the Registered Holder
exercising the Warrant (except, if in the opinion of counsel to the Company,
such registration is not required under the federal securities law or if the
Company receives a letter from the staff of the Commission stating that it
would not take any enforcement action if such registration is not effected).
The Company will use its best efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws with respect to any such
securities. However, Warrants may not be exercised by, or shares of Common
Stock issued to, any Registered Holder in any state in which such exercise
would be unlawful.
(c) The Company shall pay all documentary, stamp
or similar taxes and other governmental charges that may be imposed with
respect to the issuance of Warrants, or the issuance or delivery of any shares
of Common Stock upon exercise of the Warrants; provided, however, that if
shares of Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for
other Warrant Certificates representing an equal aggregate number of Warrants
of the same class or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent at its
Corporate Office, and, upon satisfaction of the terms and provisions hereof,
the Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
<PAGE> 10
(b) The Warrant Agent shall keep, at its office,
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the
Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for
exercise or for exchange shall be promptly canceled by the Warrant Agent and
thereafter retained by the Warrant Agent until termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership of and
the loss, theft, destruction or mutilation of any Warrant Certificate and (in
the case of loss, theft or destruction) of indemnity satisfactory to them, and
(in case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to the
Company and/or the Warrant Agent that a new Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
<PAGE> 11
SECTION 8. Adjustment of Exercise Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event
the Company shall, at any time or from time to time after the date hereof and
during the term of the Warrants, issue or sell any shares of Common Stock
for a consideration per share less than the Exercise Price or issue any shares
of Common Stock as a stock dividend to the holders of Common Stock, or
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then, and thereafter upon each further
Change of Shares, the Exercise Price for the Warrants (whether or not the same
shall be issued and outstanding) in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a cent
to the nearest cent) determined by dividing (i) the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of
Shares, multiplied by the Exercise Price in effect immediately prior to such
Change of Shares and (b) the consideration, if any, received by the Company
upon such sale, issuance, subdivision or combination, by (ii) the total number
of shares of Common Stock outstanding immediately after such Change of Shares;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in
accordance with this Section 8(a), the following provisions shall be
applicable:
(A) In case of the issuance or sale of
shares of Common Stock (or of other securities deemed hereunder to involve the
issuance or sale of shares of Common Stock) for a consideration part or all of
which shall be cash, the amount of the cash portion of the consideration
therefor deemed to have been received by the Company shall be (i) the
subscription price, if shares of Common Stock are offered by the Company for
subscription, or (ii) the public offering price (before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or
any expenses incurred in connection therewith), if such securities are sold to
underwriters or dealers for public offering without a subscription offering, or
(iii) the gross amount of cash actually received by the Company for such
securities, in any other case.
(B) In case of the issuance or sale
(otherwise than as a dividend or other distribution on any stock of the
Company, and otherwise than on the
<PAGE> 12
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares of
Common Stock) for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash deemed to have
been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company, using
customary valuation methods and on the basis of prevailing market values for
similar property or services.
(C) Shares of Common Stock issuable by way
of dividend or other distribution on any stock of the Company shall be deemed
to have been issued immediately after the opening of business on the day
following the record date for the determination of shareholders entitled to
receive such dividend or other distribution and shall be deemed to have been
issued without consideration.
(D) The reclassification of securities of
the Company other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance of such shares
of Common Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security holders
entitled to receive such shares, and the value of the consideration allocable
to such shares of Common Stock shall be determined as provided in subsection
(B) of this Section 8(a).
(E) The number of shares of Common Stock at
any one time outstanding shall be deemed to include the aggregate maximum
number of shares issuable (subject to readjustment upon the actual issuance
thereof) upon the exercise of options, rights or warrants and upon the
conversion or exchange of convertible or exchangeable securities.
(b) Upon each adjustment of the Exercise Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by
multiplying the number of shares of Common Stock purchasable immediately prior
to such adjustment by the Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after
the date hereof issue options, rights or warrants to subscribe for shares of
Common Stock, or issue any securities convertible into or exchangeable for
shares of Common Stock, for a consideration per share (determined as
provided in Sections 8(a) and 8(b) and as provided below) less than the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way or dividend
<PAGE> 13
or other distribution), the Exercise Price for the Warrants (whether or
not the same shall be issued and outstanding) in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares
of Common Stock, as the case may be, issuable or that may become issuable under
such options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were
issued, for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Exercise Price
then in effect shall forthwith be readjusted and thereafter be the price that
it would have been had adjustment been made on the basis of the issuance only
of the shares actually issued plus the shares remaining issuable upon the
exercise of those options, rights or warrants as to which the exercise rights
shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares
of Common Stock issuable or that may become issuable upon conversion or
exchange of any convertible or exchangeable securities (assuming conversion or
exchange in full even if not then currently convertible or exchangeable in
full) shall be deemed to be issued and outstanding at the time of issuance of
such securities, for a consideration equal to the consideration received by the
Company for such securities, plus the minimum consideration, if any, receivable
by the Company upon the conversion or exchange thereof; provided, however, that
upon the termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding pursuant
to this subsection (B) (and for the purposes of subsection (E) of Section 8(a)
hereof) shall be reduced by the number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Exercise Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon conversion or
<PAGE> 14
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price
per share provided for in any of the options, rights or warrants referred to
in subsection (A) of this Section 8(c), or in the price per share or ratio at
which the securities referred to in subsection (B) of this Section 8(c) are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a
result of subdivision or combination)) or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant
Agent a statement signed by its Chief Executive Officer, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary evidencing such provision. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Sections 8(a) and (b). The
above provisions of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
<PAGE> 15
(e) Irrespective of any adjustments or changes
in the Exercise Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Exercise
Price per share and the number of shares purchasable thereunder as the Exercise
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Exercise Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Exercise Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Registered Holder at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an
officer of the Warrant Agent or the Secretary or an Assistant Secretary of the
Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated herein.
(g) No adjustment of the Exercise Price shall be
made as a result of or in connection with (A) the issuance or sale of shares
of Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof and on the terms described in the final prospectus relating to the
public offering contemplated by the Underwriting Agreement; (B) the issuance or
sale of shares of Common Stock if the amount of said adjustment shall be less
than $.10, provided, however, that in such case, any adjustment that would
otherwise be required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment that shall
amount, together with any adjustment so carried forward, to at least $.10; (C)
the issuance or sale of shares of Common Stock upon the exercise of any
"incentive stock options" (as such term is defined in the Internal Revenue Code
of 1986, as amended) or non-qualified stock options under the Company's
existing stock option plans described in the final prospectus relating to the
public offering contemplated by the Underwriting Agreement provided the
exercise price of such options was not less than ten percent (10%) of the
Market Price on the date of grant; (D) the issuance or sale of shares of Common
Stock in an underwritten public offering on behalf of the Company at a discount
to the Market Price of not more than seven
<PAGE> 16
percent (7%) per share; or (E) the issuance or sale of shares of Common Stock
for a bona fide business purpose of the Company in an arm's length transaction
with an unaffiliated party involving a strategic alliance, joint venture or
licensing arrangement provided (i) the number of shares so issued or sold do
not exceed, individually or in the aggregate at any time during the term of
Warrants, more than twenty percent (20%) of the then outstanding shares of
Common Stock; and (ii) such shares are issued or sold in exchange for
consideration valued by the Company's Board of Directors at not less than ten
percent (10%) of the Market Price on the date of issuance and/or sale. In
addition, Registered Holders shall not be entitled to cash dividends paid by
the Company prior to the exercise of any Warrant or Warrants held by them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on 30 days' prior written notice, redeem all the
Warrants at one cent ($0.01) per Warrant, provided, however, that before any
such call for redemption of Warrants can take place, the average closing bid
price for the Common Stock as reported by the AMEX, if the Common Stock is then
traded on the AMEX (or the average closing sale price, if the Common Stock is
then traded on the Nasdaq National Market) shall have equaled or exceeded
$_____ per share [___% of the initial public offering price per share of Common
Stock] (the "Minimum Price") for any twenty (20) trading days within a period
of thirty (30) consecutive trading days ending on the fifth trading day prior
to the date on which the notice contemplated by (b) and (c) below is given. In
the event that at any time, or from time to time, the Exercise Price is
adjusted pursuant to Section 8, and if National gives its prior written consent
to the giving of the notice of redemption and the proposed redemption, then the
Minimum Price shall be adjusted by a correspondence percentage (e.g., if the
Exercise Price is increased by 50% the Minimum Price shall be increased by 50%,
and if the Exercise Price is decreased by 50% the Minimum Price shall be
decreased by 50%).
(b) In case the Company shall exercise its right
to redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provide herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the
Warrants of the notice of redemption, the Company shall deliver or cause to be
delivered to National a similar notice telephonically and confirmed in writing
and if National is engaged as a Warrant solicitation agent, the Company shall
also deliver to cause to be delivered to National a list of the Registered
Holders (including their
<PAGE> 17
respective addresses and number of Warrants beneficially owned) to whom such
notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i)
the redemption price, (ii) the Redemption Date, which shall in no event be less
than thirty (30) days after the date of mailing of such notice, (iii) the place
where the Warrant Certificate shall be delivered and the redemption price shall
be paid, (iv) that National shall receive the commission contemplated by
Section 4(b) hereof, and (v) that the right to exercise the Warrant shall
terminate at 5:00 p.m. (New York time) on the business day immediately
preceding the date fixed for redemption. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was
not mailed or (b) whose notice was defective. An affidavit of the Warrant
Agent or the Secretary or Assistant Secretary of the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall
terminate at 5:00 p.m. (New York time) on the business day immediately
preceding the Redemption Date. The redemption price payable to the Registered
Holders shall be mailed to such persons at their addresses of record.
(e) If National acts as the Warrant solicitation
agent for the Company, the Company shall indemnify National and each person,
if any, who controls National within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from the
registration statement or prospectus referred to in Section 5(b) hereof to the
same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify National contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption
Date, the Company shall furnish to National, as Warrant solicitation agent, (i)
an opinion of counsel to the Company, dated such date and addressed to
National, and (ii) a "cold comfort" letter dated such date addressed to
National, signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case
of such accountants' letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
<PAGE> 18
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and
in a ministerial capacity for the Company and National, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be
under any duty or responsibility to any holder of Warrant Certificates to make
or cause to be made any adjustment of the Exercise Price or the Redemption
Price provided in this Agreement, or to determine whether any fact exists which
may require any such adjustments, or with respect to the nature or extent of
any such adjustments, when made, or with respect to the method employed in
making the same. It shall not (i) be liable for any recital or statement of
fact contained herein or for any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed by
it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence, bad
faith or willful misconduct.
(c) The Warrant Agent may at any time consult
with counsel satisfactory to it (who may be counsel for the Company or for
National) and shall incur no liability or responsibility for any action taken,
suffered or omitted by it in good faith in accordance with the opinion or
advice of such counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, Chief Financial Officer, President or any Vice President (unless other
evidence in respect thereof is herein specifically prescribed). The Warrant
Agent shall not be liable for any action taken, suffered or omitted by it in
accordance with such notice, statement, instruction, request, direction, order
or demand reasonably believed by it to be genuine.
(e) The Warrant Agent may resign its duties and
be discharged from all further duties and liabilities hereunder (except
liabilities relating to any period prior to such resignation or resulting as a
result of the Warrant Agent's own negligence,
<PAGE> 19
bad faith or willful misconduct), after giving 30 days' prior written notice to
the Company. At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of resignation
to be mailed to the Registered Holder of each Warrant Certificate at the
Company's expense. Upon such resignation, or any inability of the Warrant
Agent to act as such hereunder, the Company shall appoint in writing a new
warrant agent. If the Company shall fail to make such appointment within a
period of 15 days after it has been notified in writing of such resignation by
the resigning Warrant Agent, then the Registered Holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed
by the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the
Company, such new warrant agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or deed; but if
for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
(f) Any corporation into which the Warrant Agent
or any new warrant agent may be converted or merged, any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant agent
shall be a party, or any corporation succeeding to the corporate trust or stock
transfer business of the Warrant Agent or any new warrant agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holders of each Warrant
Certificate.
(g) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as
though it were not Warrant Agent. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
<PAGE> 20
(h) The Warrant Agent shall retain for a period
of two years from the date of exercise any Warrant Certificate received by it
upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Warrant Certificates; provided, however, that
this Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or to increase the Exercise Price therefor or
to accelerate of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing
such Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of
National, other than to cure any ambiguity or to correct any provision which is
inconsistent with any other provision of this Agreement or to make any such
change that is necessary or desirable and which shall not adversely affect the
interests of National and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at Fundex Games, Ltd., 3750 W. 16th Street,
Indianapolis, Indiana 46222, Attention: President, or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at 40 Wall Street, New York, New York 10005, or to such
other address as may have been furnished to the Company in writing by the
Warrant Agent. Copies of any notice delivered pursuant to this Agreement shall
also be delivered to National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154-1100, Attention: General Counsel, or at such
other address as may have been furnished to the Company and the Warrant Agent
in writing.
<PAGE> 21
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the state of New York without giving effect to
conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, National, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer
upon any other person any right, remedy or claim, in equity or at law, or to
impose upon any other person any duty, liability or obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
<PAGE> 22
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the first date first above written.
FUNDEX GAMES, LTD.
By:
---------------------------
Name: Carl E. Voigt, IV
---------------------------
Title: President
---------------------------
AMERICAN STOCK TRANSFER &
TRUST COMPANY,
as Warrant Agent
By:
---------------------------
NATIONAL SECURITIES
CORPORATION, INC.
By:
---------------------------
Name: Steven A. Rothstein
---------------------------
Title: Chairman
---------------------------
<PAGE> 23
EXHIBIT A
No. W _______ VOID AFTER OCTOBER ___, 2001
_________________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
FUNDEX GAMES, LTD.
CUSIP # __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or its registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
par value $.01 per share, of Fundex Games, Ltd. (the "Company"), at any time
between September __, 1996 [the date of the Prospectus] (the "Initial Warrant
Exercise Date"), and the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $_____ per share [150% of the
initial public offering price per share], subject to adjustment (the "Exercise
Price"), in lawful money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
October ___ 1996, by and between the Company, National Securities Corporation
("National") and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
<PAGE> 24
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional interests will be issued. In the
case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York
time) on the date which is five (5) years after the Initial Warrant Exercise
Date. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company
has covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment for
registration of transfer of this Warrant Certificate at such office and payment
of any tax or other charge imposed in connection therewith or incident thereto,
a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
<PAGE> 25
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$0.01 per Warrant, at any time commencing after _______________ [the date 18
months from the date of the Prospectus], provided that the average closing bid
price for the Common Stock as reported by the AMEX, if the Common Stock is then
traded on the AMEX (or the average closing sale price, if the Common Stock is
then traded on the Nasdaq National Market), shall have equaled or exceeded
$_____ per share for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth trading day prior to the
Notice of Redemption, as defined below (subject to adjustment in the event of
any stock splits or other similar events as provided in the Warrant Agreement).
Notice of redemption (the "Notice of Redemption") shall be given not later than
the thirtieth day before the date fixed for redemption as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$0.01 per Warrant upon surrender of this Warrant Certificate.
Upon certain circumstances, National may be entitled to
receive an aggregate of five percent (5%) of the Exercise Price of the Warrants
represented hereby, if it is engaged as a Warrant solicitation agent by the
Company.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated:
[SEAL] FUNDEX GAMES, LTD.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
By:
----------------------------
, Secretary
COUNTERSIGNED:
,
- ----------------------------
as Warrant Agent
By:
Authorized Officer
<PAGE> 27
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________________
________________________________________
________________________________________
(please print or type name and address)
and be delivered to
__________________________________________
__________________________________________
__________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
<PAGE> 28
Dated: ___________________ ____________________________________________
____________________________________________
____________________________________________
Address
____________________________________________
Social Security or Taxpayer Identification
Number
____________________________________________
Signature Guaranteed
____________________________________________
<PAGE> 29
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
_______________________________________
(please print or type name and address)
______________________________________ of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
__________________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: _____________________
__________________________________
Signature Guaranteed
__________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND
MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.4
--------------------------------------------------------------------
FUNDEX GAMES, LTD.
WARRANT AGREEMENT
--------------------------------------------------------------------
<PAGE> 2
FUNDEX GAMES, LTD.
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is dated as of August 31,
1996, and is entered into by and among FUNDEX GAMES, LTD., a Nevada corporation
("Fundex"), and Toy Paradise Partnership, an Illinois general partnership (the
"Partnership").
1. DEFINITIONS.
1.1 Definitions. For purposes of this Agreement, the
following terms shall have the following meanings.
"Act" means the Securities Act of 1933, as amended.
"Business" means the business, properties, assets, liabilities
or condition of Fundex.
"Common Stock" means the Company's Common Stock, no par value.
"IPO" means the Company's initial registered public offering
of equity securities.
"IPO Closing Date" means the closing date of the IPO.
"IPO Price" means the price per Share issued to the public in
connection with the IPO.
"Material Adverse Event" means any change, event, action,
condition or effect which, individually or in the aggregate, (a) impairs the
validity or enforceability of this Agreement or any documents, instruments or
agreements executed in connection with this Agreement; (b) subjects any officer
or director of Fundex to criminal liability; or (c) materially and adversely
affects the business, assets, operations, prospects or financial condition of
Fundex or the ability of Fundex to perform its obligations under this Agreement
and any documents, instruments or agreements executed in connection with this
Agreement.
"Merger or Sale" shall have the meaning given to that term in
Section 11.3 (a).
2
<PAGE> 3
"Shares" means the shares of Common stock that can be acquired
upon exercise of the Warrants.
"Termination Date" means the date on which the Warrants are no
longer exercisable, which date shall be December 31, 2001 (or sooner as
provided in this Agreement and the Warrants, including, without limitation, in
connection with a Merger or Sale).
"Transfer Agent" means the Company's registrar and transfer
agreement, if any, for the Warrants.
"Warrant" means a warrant issuable upon exercise of the
Warrant.
"Warrant Exercise Price" has the meaning given to that term
in Section 2.3.
2. SALE AND ISSUANCE OF WARRANTS.
2.1 Warrants. Fundex has authorized the issuance and
sale, pursuant to the terms of this Agreement, to the Partnership of
Seventy-Five Thousand (75,000) warrants ("Warrants"), each Warrant entitling
the holder upon exercise thereof to acquire one share of common stock, with no
par value ("Common Stock"), of Fundex. The Warrants shall be substantially in
the form of Exhibit A attached hereto. The Warrants and the shares of Common
Stock issuable upon exercise of the Warrants are sometimes referred to
collectively herein as the "Securities."
2.2 Sale and Issuance. Subject to the terms and
conditions hereof, Fundex hereby agrees to sell to the Partnership, and the
Partnership hereby agree to purchase the Warrants.
2.3 Exercise Price; Amount. The price per Share at which
Shares shall be purchasable upon the exercise of Warrants (the "Warrant
Exercise Price") is one hundred twenty percent (120%) multiplied by the IPO
Price per Share; provided, however, that if there is no IPO on or before August
27, 1997, the exercise price per Share for the total number of Warrants issued
shall be equal to $9.60 per Share. Each holder shall be entitled to receive
one (1) Share for each Warrant exercised.
2.4 Term. (a) Subject to the terms of this Agreement,
with respect to the Warrants, the Partnership shall have the right, at any time
during the period commencing at 9:00 a.m. on December 1, 1997 to and including
5:00 p.m, Chicago Time, on the Termination Date to purchase from the Company up
to the number of fully
3
<PAGE> 4
paid and nonassessable Shares to which the Partnership may at the time be
entitled to purchase pursuant to this Agreement.
(b) The right of the Partnership to purchase Warrants shall be
conditioned upon the surrender by the Partnership to the Company, at its
principal office, of the certificate evidencing the Warrants to be exercised,
together with the purchase form, duly filled in and signed, with signatures 99
guaranteed if required by the Company or its Transfer Agent, and upon payment
to the Company of the Exercise Price for the number of Shares in respect of
which such Warrants are then exercised.
Notwithstanding the foregoing, the Company shall not be obligated to deliver
any shares pursuant to the exercise of a Warrant, and the Partnership shall not
have the right to exercise any Warrant, if in the Company's opinion the
delivery of Shares upon exercise of such Warrant would not comply with any
applicable federal or state securities laws. Without limiting the foregoing,
Warrants may not be exercised by, or securities issued to, any Partnership in
any state in which such exercise would be unlawful.
3. CLOSING AND DELIVERIES.
3.1 Closing. The initial closing of the sale and
purchase of the Warrants under this Agreement shall take place at such time and
place as the Partnership may determine (the "Closing") and the date of such
Closing will be referred to as the "Closing Date."
3.2 Deliveries of Payment and Certificates. At the
Closing and subject to the terms and conditions hereof, Fundex shall deliver to
the Partnership the Warrants to be purchased by the Partnership, dated the date
of the Closing and registered in that Partnership's name, paid by check made
payable to the order of Fundex or by wire transfer to the account of Fundex as
instructed by Fundex at least one (1) business day before the Closing.
4. REPRESENTATIONS AND WARRANTIES OF FUNDEX. Fundex hereby
represents and warrants to the Partnership as follows:
4.1 Organization and Standing; Articles and Bylaws;
Subsidiaries. Fundex is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Nevada. Fundex has full corporate
power and authority to own and operate its properties and assets, and to carry
on its business as currently conducted. Fundex is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its activities and properties makes such
qualification necessary, except where the failure to be so qualified would not
4
<PAGE> 5
constitute a Material Adverse Event. Effective as of August 28, 1996, Third
Quarter, Inc. was merged with and into Fundex, Inc., and each act required to
be taken by or on the part of such companies to effectuate such merger has been
duly and properly taken on. Fundex does not own any equity interest in or have
any investment in any other business.
4.2 Capitalization. The authorized capital stock of
Fundex, immediately before the Closing consists of 8,000,000 shares of Common
Stock, with a par value of .001 per share, 1,225,000 shares of which are issued
and outstanding. There are no options and warrants outstanding. All issued
and outstanding shares of the Fundex's capital stock, and all Securities
issuable pursuant hereto and outstanding immediately after the Closing,
have been duly authorized and, when issued and sold for the consideration set
forth in this Agreement, shall be validly issued, fully paid and nonassessable,
and issued in material compliance with all applicable state and federal laws
concerning the issuance of securities. The holders of the outstanding capital
stock of the Fundex do not have any pre-emptive rights or similar rights with
respect to the Securities.
4.3 Authorization. All corporate action on the part of
Fundex, their respective officers, directors and shareholders that is necessary
for the authorization, sale and issuance of the Warrants pursuant hereto and
for the performance of Fundex's obligations hereunder has been taken or shall
be taken prior to the Closing. This Agreement is a valid and binding
obligation of Fundex enforceable against Fundex in accordance with its terms,
subject to general principles of equity, laws of general application regarding
bankruptcy, insolvency, relief of debtors' and creditors' rights generally, and
limitations of public policy.
4.4 Material Contracts and Agreements. All contracts or
agreements to which Fundex is a party are valid, binding, and in full force and
effect in all material respects and without any material breach by any party
thereto which would constitute a Material Adverse Event.
4.5 Operating Rights. Fundex has all governmental
licenses, franchises, permits, approvals, certificates, consents,
authorizations, rights and privileges (except that no covenant, representation
or warranty is made pursuant to this Section with respect to the Intellectual
Property rights that are the subject of Section 4.8 hereof) (collectively
"Licenses") that are necessary to the operation of the Business, the lack of
which would constitute a Material Adverse Event. Such Licenses are in full
force and effect, Fundex has not received or given any notice of a violation
(nor is it aware of any basis therefor) in respect of any such Licenses, and no
proceeding is pending or threatened seeking the revocation or limitation of any
of such Licenses.
5
<PAGE> 6
4.6 Conflicting Agreements. No shareholder, director,
officer, or employee of Fundex is a party to or bound by any agreement,
contract or commitment, or subject to any restrictions in connection with any
previous or current employment of any such person, that could materially and
adversely affect, or in the future shall materially and adversely affect, the
Business.
4.7 Title to Properties and Assets; No Other Security
Interests in the Collateral; No Other Security Interest in Material Assets.
Fundex has good and marketable title to its properties and assets, real and
personal, tangible and intangible (except that no covenant, representation or
warranty is made in this Section as to the intellectual property rights which
are the subject of Section 4.8 hereof) and, good title to all its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance,
security interests, use restrictions, assessments or charge, other than (i)
purchase money security interests created in the ordinary course of business,
(ii) taxes which have not yet become delinquent, (iii) liens in respect of
pledges or deposits under workers' compensation laws or similar legislation or
(iv) liens imposed by law and incurred in the ordinary course of business
for obligations not yet due to carriers, warehousemen, laborers, materialmen
and the like (item (i) through (iv) referred to as "Ordinary Encumbrances").
Fundex has not granted and shall not grant any security interest in, or any
other lien or encumbrance on, any of the Collateral. Fundex shall not grant
any other security interest in, or any other lien or encumbrance (other than
Ordinary Encumbrances) on any assets of Fundex other than the Collateral.
4.8 Patents, Trademarks, etc. Fundex does not own or
have rights to use all licenses, trademarks, trademark applications, patents,
patent applications, service marks, trade names, brand names, inventions,
technology, trade secrets, processes, formulae and copyrights, that are
necessary for the operation of the Business (collectively, "Intellectual
Property") with no infringement of or conflict with the rights of others.
There are no contracts to which Fundex is a party that adversely affect the
rights of Fundex to own, use, license or transfer any of Fundex's material
Intellectual Property. Fundex knows of any claims of third parties to any
ownership interest or lien with respect to any of the Intellectual Property.
Fundex is aware of any facts that would lead it to conclude that any of the
Intellectual Property are invalid. No patent is infringed by the activities of
Fundex or by the manufacture, use or sale of any product, device, instrument or
other material made and used according to the Intellectual Property. Fundex is
not aware of any pending or threatened actions, suits, proceedings or claim by
others challenging the validity or scope of the Intellectual Property. Fundex
is not aware of any infringement on the part of any third party of the
Intellectual Property.
4.9 Compliance With Other Instruments. Fundex is not in
breach or violation of any provision of its Articles of Incorporation or its
By-Laws, each as
6
<PAGE> 7
amended through the date hereof, or any provision of any contract or
agreement to which Fundex is a party or by which the assets of Fundex are
bound, or any judgment, decree, order, statute, rule, or regulation applicable
to Fundex, except for such breaches or violations that would not constitute a
Material Adverse Event.
4.10 Litigation, etc. There are no actions, proceedings,
investigations, orders, judgments or decrees pending or, to Fundex's knowledge,
threatened, against Fundex that question the validity of this Agreement or any
action taken or to be taken in connection herewith or that, either individually
or in the aggregate, would constitute a Material Adverse Event.
4.11 Insurance. Fundex has in force insurance, with
insurers which Fundex believes (without having made any special investigation)
are financially sound and reputable, with respect to its properties and
business in amounts that Fundex believes are customary for companies similarly
situated (including without limitation, its stage of development), against loss
or damage of the kinds customarily insured against by such corporations.
4.12 Governmental Consents, etc. No consent, approval, or
authorization of, or designation, declaration, or filing with, any governmental
authority, is required on the part of Fundex in connection with the valid
execution and delivery of this Agreement, or the offer, sale, or issuance of
the Warrants.
4.13 Full Disclosure. This Agreement and the Exhibits
hereto, when taken together as a whole, do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading. There are no facts
which individually or in the aggregate constitute a Material Adverse Event that
are not set forth in this Agreement (including Exhibits and Schedules hereto).
5. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP. The
Partnership, hereby represents and warrants to Fundex as follows:
5.1 Power. Such Partnership has (i) taken all acts and
satisfied all conditions required by law and its charter documents (if the
Partnership is other than an individual) to authorize the execution and
delivery of this Agreement and to consummate the transactions contemplated
herein, (ii) all requisite legal power and authority to enter into this
Agreement, to purchase the Securities hereunder, and to carry out and perform
its obligations under the terms of this Agreement, and (iii) not been organized
for the purpose of acquiring the Securities (if the Partnership is other than
an individual).
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<PAGE> 8
5.2 Due Execution. This Agreement has been duly executed
and delivered by such Partnership, and this Agreement will be a valid and
binding obligation of the Partnership, legally enforceable as to the
Partnership in accordance with its terms, subject to general principles of
equity, laws of general application regarding bankruptcy, relief of debtors and
creditors' rights generally, and limitations of public policy.
5.3 Investment Representations; Accredited Partnership
Representation.
(a) Such Partnership is acquiring the Warrants,
and upon exercise of the Warrants, will acquire the Securities issuable upon
such exercises, for itself, not as nominee or agent, for investment and not for
103 resale in connection with any distribution or public offering thereof
within the meaning of the Act.
(b) Such Partnership understands (i) that the
Securities have not been registered under the Act or applicable state
securities laws by reason of specific exemptions therefrom which depend upon,
among other things, the bona fide nature of its investment intent as expressed
herein, and (ii) that it may therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
and qualified under the Act and applicable state securities laws or is exempt
from such registration or qualification requirements. Each certificate
representing any Securities, and any other security issued in respect of any of
the Securities, will be endorsed with the following or a substantially similar
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS COVERING SUCH SECURITIES, OR FUNDEX GAMES, LTD. RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO
FUNDEX GAMES, LTD., STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
and any and all other legends required by law or which Fundex, acting upon the
advice of its counsel, deems necessary or appropriate unless the conditions
specified in this Agreement are satisfied. Such Partnership is aware of the
provisions of Rule 144
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<PAGE> 9
promulgated under the Act, which, among other things, permit limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions.
(c) Such Partnership has been furnished with such
materials and has been given access to such information relating to Fundex as
it or its qualified representative has requested, has been afforded the
opportunity to ask questions regarding Fundex and the Securities, all as it has
found necessary to make an informed investment decision.
(d) Such Partnership is a Partnership in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
(e) Such Partnership understands that no public
market now exists for any of the securities issued by Fundex.
(f) Such Partners of the Partnership either are
(a) "accredited Investors" as defined in Regulation D under the Act; such
Partners of the Partnership are (i) a natural person who individual net worth,
or joint net worth with that person's spouse, as of the date of this Agreement
exceeds $1,000,000, (ii) a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year,
(iii) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase of the
Warrants is directed by a sophisticated person as described in SEC Rule
506(b)(2)(ii), or (iv) a person or entity otherwise within the definition of an
"accredited Investor" under SEC Rule 501(a); or (b) if not an accredited
Investor, is not a citizen or resident of the United States or any territory
thereof.
5.4 Transfer of Securities. Such Partnership agrees that
it will not sell, transfer, pledge, assign, hypothecate, or otherwise dispose
of (each, a "Transfer") any Securities until the Partnership has notified
Fundex of the proposed Transfer, provided such additional information regarding
the Transfer as Fundex reasonably requests, and if Fundex so requests has at
the Partnership's expense provided Fundex with an opinion of counsel (which
counsel must be reasonably satisfactory to Fundex) to the Partnership, in form
and substance satisfactory to Fundex, that the proposed Transfer complies with
all applicable federal and state securities laws. Fundex shall have no
obligation to transfer any Securities unless the Partnership has complied with
the foregoing provisions, and any such attempted Transfer shall be null and
void.
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<PAGE> 10
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of the Partnership at the
Closing. The obligation of any Partnership to purchase the Warrants at the
Closing is subject to the fulfillment to the Partnership's reasonable
satisfaction, at or before the Closing, of all the following conditions, any of
which may be waived by such party in writing:
(a) Representations and Warranties True;
Performance of Obligations. The representations and warranties made by Fundex
in Section 4 shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of said
date, and Fundex shall have performed in all material respects all covenants,
obligations and conditions herein required to be performed or observed by it on
or before the Closing.
(b) Consents, Permits, and Waivers. Fundex shall
have obtained and shall have in effect any and all consents, permits, and
waivers that are necessary for consummation of the transactions contemplated by
this 105 Agreement to be effected at the Closing.
(c) No Stop Order. No stop order or other order
enjoining the sale of the Warrants shall have been issued, and no proceedings
for such purpose shall be pending or, to the knowledge of Fundex, threatened by
the Securities and Exchange Commission or any commissioner of corporations or
similar officer of any other state having jurisdiction over this transaction.
(d) Other Agreements. The Security Agreement
shall have been executed by all parties thereto.
6.2 Conditions to Obligations of Fundex. Fundex's
obligation to issue and sell the Securities at the Closing is subject to the
fulfillment to the Fundex's reasonable satisfaction, on or before the Closing,
of the following conditions, any of which may be waived by Fundex in writing:
(a) Representations and Warranties True. The
representations and warranties made by the Partnership in Section 5 shall be
true and correct in all material respects at the Closing Date with the same
force and effect as if they had been made on and as of said date.
(b) Performance of Obligations. The Partnership
shall have performed in all material respect all covenants, obligations and
conditions herein required to be performed by it on or before the Closing.
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<PAGE> 11
7. EXERCISE OF WARRANTS; FORM OF WARRANTS.
7.1 Payment of Exercise Price. Payment of the aggregate
Exercise Price shall be made in cash or by check, or any combination thereof.
7.2 Issuance of Certificate. Upon such surrender of the
Warrants and payment of such Exercise Price, the Company shall issue and cause
to be delivered to the Partnership and in the Partnership's name, a certificate
or certificates for the number of full Shares so purchased upon the exercise of
the Warrant, together with cash, as provided herein, in respect of any
fractional Share otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a holder of record of such
securities as of the date of surrender of the Warrants and payment of the
Exercise Price, as aforesaid, notwithstanding that the certificate or
certificates representing such securities shall not actually have been
delivered. The Warrants shall be exercisable, at the election of the
Partnership, either in full or from time to time in part and, in the event that
a certificate evidencing the Warrants is exercised in respect of less than all
of the Shares specified therein at any time prior to the Termination Date, a
new certificate evidencing the remaining portion of the Warrants will 106 be
issued by the Company.
7.3 Registration. The Warrants shall be numbered and
shall be registered on the books of the Company when issued.
7.4 Certificates. The Warrants may be divided or
combined, upon request to the Company by the Partnership, into a certificate or
certificates representing the right to purchase the same aggregate number of
Shares. Unless the context indicates otherwise, the term "Partnership" shall
include any transferee or transferees of the Warrants.
7.5 Form of Warrants. The text of the Warrants shall be
substantially as set forth in Exhibit A attached hereto, respectively. The
number of Shares issuable upon exercise of the Warrants is subject to
adjustment upon the occurrence of certain events, all as hereinafter provided.
The Warrants shall be executed on behalf of the Company by its President or by
a Vice President and attested to by its Secretary or an Assistant Secretary. A
Warrant bearing the signature of an individual who was at any time the proper
officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
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<PAGE> 12
7.6 Exchange of Warrant Certificate. Any Warrant
certificate may be exchanged for another certificate or certificates entitling
the Partnership to purchase a like aggregate number of Shares as the
certificate or certificates surrendered then entitled such Partnership to
purchase. Any holder of a Warrant desiring to exchange a Warrant certificate
shall make such request in writing delivered to the Company, and shall
surrender, properly endorsed, with signatures guaranteed if required by the
Company, the certificate evidencing the Warrant to be so exchanged. Thereupon,
the Company shall execute and deliver to the person entitled thereto a new
Warrant certificate as so requested.
8. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Warrants or the securities comprising the
Shares; provided, however, the company shall not be required to pay any tax
which may be payable in respect of any transfer of the Warrants or the
securities comprising the Shares.
9. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrants shall
be mutilated, lost, stolen or destroyed, the Company shall, at the request of
the Partnership, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant and a bond of
indemnity, if requested, also satisfactory in form and amount, at the
applicant's cost. Applicants for such substitute Warrant certificate shall
also comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.
10. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrants remain outstanding, out of its authorized and
unissued Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants.
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<PAGE> 13
11. ADJUSTMENT OF NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Exercise Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
11.1 Adjustments. The number of Shares purchasable upon
the exercise of the Warrants shall be subject to adjustment as follows:
(a) Stock Splits; Stock Dividends. In case the
Company shall (i) pay a dividend in Common Stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Stock, or (iv) issue by reclassification of
its Common Stock other securities of the Company, then the number of Shares
purchasable upon exercise of the Warrants immediately prior thereto shall be
adjusted so that the Partnership shall be entitled to receive upon exercise of
the Warrant the kind and number of Shares or other securities of the Company
which he, she or it would have owned or would have been entitled to receive
immediately after the happening of any of the events described above, had the
Warrants been exercised immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
subsection shall become effective immediately after the effective date of such
event, retroactive to the record date, if any, for such event.
(b) Corresponding Adjustment of Exercise Price.
Whenever the number of Shares purchasable upon the exercise of a Warrant is
adjusted, as herein provided, the Exercise Price payable upon exercise of the
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
Shares purchasable upon the exercise of the Warrant immediately prior to such
108 adjustment, and the denominator of which shall be the number of Shares so
purchasable immediately thereafter.
(c) Notice of Adjustment. Whenever the number of
Shares purchasable upon the exercise of a Warrant is adjusted as herein
provided, the Company shall cause to be mailed to the Partnership or holder of
record within a reasonable time thereafter notice of such adjustment setting
forth the number of Shares purchasable upon the exercise of the Warrant after
such adjustment, a brief statement of the facts requiring such adjustment and
the computation by which such adjustment was made.
11.2 No Adjustment for Dividends. Except as provided in
subsection 11.1(a), no adjustment in respect of any dividends or distributions
out of earnings shall be made during the term of the Warrants or upon the
exercise of the Warrants.
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<PAGE> 14
11.3 Preservation of Purchase Rights upon
Reclassification, Consolidation, etc.
(a) Subject to paragraph (b) of this Section, in
case of any consolidation of the Company with or merger of the Company into
another corporation where the Company will not be the surviving corporation, or
in case of any sale or conveyance to another corporation of the property,
assets or business of the Company as an entirety or substantially as an
entirety (any such event referred to as a "Merger or Sale"), the Company or
such successor or purchasing corporation, as the case may be, shall agree that
the Partnership shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase, upon exercise of
the Warrants, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such Merger or Sale had the Warrants been exercised immediately prior to
such action. Any such agreements referred to in this subsection shall provide
for adjustments, which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section. The provisions of this
subsection shall similarly apply to successive Mergers or Sales.
(b) Notwithstanding the foregoing provisions, if
the surviving, successor or purchasing corporation does not agree to the
provisions set forth in paragraph (a) above, or if the Board of Directors of
the Company determines that the Warrants should not be outstanding following
consummation of such Merger or Sale, then the Company shall deliver a notice to
each Partnership at least twenty (20) days before the consummation of such
Merger or Sale, the Partnership may exercise the Warrants at any time before
the consummation of such Merger or Sale (and such exercise may be made
contingent upon the consummation of such Merger or Sale), and any Warrants that
have not been exercised before consummation of such Merger or Sale shall
terminate and expire, and shall no longer be outstanding.
11.4 Independent Public Accountants. The Company may
retain a firm of independent public accountants of recognized national standing
(which may be any such firm regularly employed by the Company) to make any
computation required under this Section, and a certificate signed by such firm
shall be conclusive evidence of the correctness of any computation made under
this Section.
11.5 Statement on Warrant Certificates. Irrespective of
any adjustments in the number of securities issuable upon exercise of the
Warrants, Warrant certificates theretofore or thereafter issued may continue to
express the same number of securities as are stated in the similar Warrant
certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole discretion (which shall
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<PAGE> 15
be conclusive), make any change in the form of Warrant certificate that it may
deem appropriate and that does not affect the substance thereof; and any
Warrant certificate thereafter issued, whether upon registration of transfer
of, or in exchange or substitution for, an outstanding Warrant certificate, may
be in the form so changed.
12. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Shares on the
exercise of the Warrants. If any fraction of a Share would, except for the
provisions of this Section, be issuable on the exercise of the Warrants (or
specified portion thereof), the Company shall pay an amount in cash equal to
the amount of such fractional interest.
13. NO RIGHTS AS SHAREHOLDER; NOTICES TO PARTNERSHIP.
Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Partnership or his, her or its transferees any
rights as a shareholder of the Company, including the right to vote, receive
dividends, consent or receive notices as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or any
other matter.
14. RESTRICTIONS ON TRANSFER.
The Partnership agrees that prior to making any sale, transfer,
pledge, assignment, hypothecation, or other disposition (each, a "Transfer") of
the Warrants or Shares, the Partnership shall give written notice to the
Company describing the manner in which any such proposed Transfer is to be made
and providing such additional information regarding the Transfer as the Company
reasonably requests. If the Company so requests, the Partnership shall at its
expense provide the Company with an opinion of counsel (which counsel must be
reasonably satisfactory to the Company) to the holder, in form and substance
satisfactory to the Company, that the proposed Transfer complies with 110
applicable federal and state securities laws. The Company shall have no
obligation to Transfer any Securities unless the holder thereof has complied
with the foregoing provisions, and any such attempted Transfer shall be null
and void.
15. LOCK-UP AGREEMENT.
In consideration for the Company agreeing to its obligations
hereunder, the Partnership agrees, in connection with the IPO and upon the
request of the Company or the underwriters managing the offering, not to sell,
make short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any shares of Common Stock (other than those, if any, included in
the registration), whether now owned or hereafter acquired, without the prior
written consent of the Company or such underwriters, as the
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<PAGE> 16
case may be, for such period of time following the effective date of such
registration as the Company or the underwriters may specify (such period
not to exceed 365 days). The Partnership agrees to execute and deliver such
documentation as may be reasonably required by the underwriters in connection
with this Section. This restriction shall not apply to a registration relating
solely to employee benefit plans on Form S-8 or similar successor forms, or
registration relating solely to a Rule 145 transaction on Form S-4 or similar
or successor form.
16. MISCELLANEOUS.
16.1 APPLICABLE LAW. THIS AGREEMENT BY AND CONSTRUED
SHALL BE GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
GIVING EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES THEREOF.
16.2 Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company, the Partnership and the holders of Shares, any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be for
the sole and exclusive benefit of the company, the Partnership and the holders
of Shares.
16.3 Amendment. Except as provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought. Any
provisions hereof may be amended, waived, discharged or terminated, either
retroactively or prospectively, upon the written consent of the Company and the
persons holding (or having the right to acquire by virtue of holding Warrants)
at least fifty-one percent (51%) of the Shares which have been (or may be)
issued upon exercise of the Warrants. The Partnership acknowledges that by
operation of this Section, the Partnership will, subject to the limitations
contained in this Section, have the right and power to diminish or eliminate
certain rights of the Partnership under this Agreement, either prospectively or
retroactively.
16.4 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof, and no party shall be liable or bound to any other
in any manner by any representations, warranties, covenants, and agreements
except as specifically set forth herein and therein. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided herein.
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<PAGE> 17
16.5 Severability. Any invalidity, illegality, or
limitation of the enforceability with respect to any party of any one or more
of the provisions of this Agreement, or any part thereof, whether arising by
reason of the law of any such party's domicile or otherwise, shall in no way
affect or impair the validity, legality, or enforceability of this Agreement
with respect to all other parties. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
16.6 Information Confidential. Each party acknowledges
that the information received by it pursuant hereto may be confidential and for
its use only, and it will not use such confidential information in violation of
the Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents
of such information, and its attorneys) or use such information to the
detriment of the Company, except in connection with the exercise of rights
under this Agreement, where the Company has made such information available to
the public generally or such party is required to disclose such information by
an applicable law or a rule or regulation thereunder, including without
limitation, securities and anti-fraud laws, rules and regulations.
16.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
16.8 Survival. The representations, warranties,
covenants, and agreements made herein shall survive any investigation made by
Fundex or the Partnership and the Closing of the transactions contemplated
hereby. All statements as to factual matters contained in any certificate or
other instrument delivered at the Closing by or on behalf of Fundex pursuant
hereto shall be deemed to be representations and warranties made by Fundex
hereunder solely as of the date of such certificate or instrument.
16.9 Successors and Assigns. This Agreement shall inure
to the benefit of, and be binding upon, the successors, assigns, heirs,
executors, and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by the Partnership and its successors and
assigns; provided, however, that prior to the receipt by Fundex of adequate
written notice of the Transfer of any Securities specifying the full name and
address of the transferee, Fundex may deem and treat the person listed as the
holder of such securities in its records as the absolute owner and holder of
such securities for all purposes.
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<PAGE> 18
16.10 Delays or Omissions. No delay or omission to exercise
any right, power, or remedy accruing upon any breach, default or noncompliance
under this Agreement shall impair any such right, power, or remedy, nor shall
it be construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring. Any waiver, permit, consent, or approval
of any kind or character of any breach, default or noncompliance under this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing.
16.11 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given (i) on the date of delivery if delivered personally or by Federal Express
or another national overnight delivery service, (ii) upon transmission by
facsimile transmission, or (iii) two (2) days after mailing if mailed by first
class mail, to the following addresses:
If to Fundex: Fundex Games, Ltd.
3750 W. 16th Street
Indianapolis, IN 46222
Attn: Mr. Chip Voigt
and if to the Partnership, to the addresses set forth under Partnership's name
on Exhibit A hereto or such other address or with such copies to such
additional addresses as the party has provided to all other parties by notice
duly given.
16.2 Finder's Fees.
(a) Fundex Representation and Indemnity. Fundex
(i) represents and warrants it has retained no finder or broker in connection
with the transactions contemplated by this Agreement, and (ii) hereby agrees to
indemnify and to hold the Partnership and the other parties hereto harmless
from and against any liability for any commission or compensation in the nature
of a finder's fee to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
it, or any of its employees or representatives, is responsible.
(b) Partnership Representations and Indemnities.
The Partnership, (i) represents and warrants for itself that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) hereby agrees to indemnify and to hold Fundex and the other
parties hereto harmless from and against any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against
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<PAGE> 19
such liability or asserted liability) for which it, or any of its employees or
representatives, is responsible.
16.13 Expenses and Fees. Fundex shall pay its own expenses,
including without limitation attorneys fees and costs, incurred in negotiating,
preparing or otherwise relating to this Agreement or the other agreements and
documents contemplated hereby.
16.14 Titles and Subtitles. The titles of the Sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
16.15 Information Confidential. The Partnership acknowledges
that the information received by it concerning Fundex pursuant hereto is
confidential and for its use only, and it will not use such confidential
information or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents
of such information, and its attorneys) or use such information to the
detriment of Fundex, except (i) where Fundex has previously made such
information available to the public generally or (ii) such party is required to
disclose such information by an applicable law or a rule or regulation
thereunder, including without limitation, securities and antifraud laws, rules
and regulations.
16.16 Further Assurances. The parties hereto shall use good
faith reasonable efforts to do and perform or cause to be done and performed
all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments or documents as any other party may
reasonably request in order to carry out the intent and purpose of this
Agreement and the consummation of the transactions contemplated hereby and
thereby. Neither Fundex nor any Partnership shall undertake intentionally any
course of action inconsistent with satisfaction of the requirements applicable
to it set forth in this Agreement, and each shall use its best efforts promptly
to take all such acts and measures as may be appropriate to enable it to
perform as early as practicable the obligations herein and therein required to
be performed by them.
16.17 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
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<PAGE> 20
IN WITNESS WHEREOF, this Warrant Agreement has been signed and entered
into as of the date first set forth above.
FUNDEX GAMES, LTD.
By: /s/ Carl E. Voigt, IV
_____________________________
Its: President
_____________________________
TOY PARADISE PARTNERSHIP
By: /s/ Sheldon Drobny
_____________________________
Its: General Partner
_____________________________
<PAGE> 21
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES AND
MAY NOT BE SOLD, EXCHANGED, PLEDGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER
(A "TRANSFER") EXCEPT IN COMPLIANCE WITH THE AGREEMENT PURSUANT TO WHICH THEY
WERE ISSUED AND UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS COVERING SUCH SECURITIES OR FUNDEX
GAMES, LTD. RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO THE COMPANY, STATING THAT SUCH TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND COMPLIES WITH
APPLICABLE STATE SECURITIES LAWS. TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS ALSO RESTRICTED BY THE PROVISIONS OF THE AGREEMENT PURSUANT
TO WHICH THE SECURITIES WERE ISSUED AND MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.
FUNDEX GAMES, LTD.
WARRANTS
This certifies that, for value received,___________________
___________________, the registered holder hereof or assigns (the
"Warrantholder"), is entitled to purchase from Fundex Games, Inc. (the
"Company"), a Nevada corporation, at any time during the period commencing at
9:00 a.m., Chicago time, on December 1, 1997 and before 5:00 p.m., Chicago
time, on December 31, 2001, the number of shares of Common Stock of the Company
(the "Shares"), as calculated pursuant to the Warrant Agreement of even date
herewith (the "Warrant Agreement") between the Company and certain warrant
holders, including the Warrantholder.
This Warrant is subject to the provisions of the Warrant Agreement.
Capitalized terms not defined herein have the meanings given to them in the
Warrant Agreement.
The exercise price to acquire a Share is equal to the Warrant Exercise
Price. The number of Shares purchasable upon exercise of these Warrants shall
be subject to adjustment from time to time as set forth in the Warrant
Agreement.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee if required by the Company) and
simultaneous payment of the Warrant Exercise Price at the principal office of
the Company. Payment of such price shall be made at the option of the
Warrantholder in cash or by check.
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant Certificate in
respect of the Shares as to which the Warrants evidenced hereby shall not have
been exercised.
<PAGE> 22
These Warrants may be exchanged at the office of the Company by surrender of
this Warrant Certificate properly endorsed for one or more new Warrants of the
same aggregate number of Shares as here evidenced by the Warrant or Warrants
exchanged. No fractional Shares will be issued upon the exercise of rights to
purchase hereunder, but the Company shall pay the cash value of any fraction
upon the exercise of one or more Warrants. These Warrants are transferable at
the office of the Company in the manner and subject to the limitations set
forth in the Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
FUNDEX GAMES, LTD.
By:_____________________________
________________________
________________________
Dated:___________________
ATTEST:
__________________________
Secretary
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<PAGE> 23
FUNDEX GAMES, LTD.
PURCHASE FORM
Fundex Games
3750 W. 16th Street
Indianapolis, Indiana 46222
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, __________ shares of Common Stock (the "Shares") provided for
therein and requests that certificates for the Shares be issued in the name of
(please print or type name, address and social security number):
and, if such number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate for the balance of the Shares
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Warrantholder or the undersigned's assignee as below indicated
and delivered to the address stated below.
Dated:____________________________________
Name of Warrantholder
or Assignee:______________________________
(Please Print)
Address: _______________________________________
_______________________________________
Signature:________________________________
Note: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless the Warrants have been assigned.
Signature Guaranteed:_____________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE> 24
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, and transfers unto (name and
address of assignee must be printed or typewritten)
the within Warrants, hereby irrevocably constituting and appointing
_____________________, attorney to transfer said Warrants on the books of the
Company, with full power of substitution in the premises.
Dated:____________________________
__________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the names as they
appear upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed:____________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE> 1
EXHIBIT 10.1
LEASE made as of the 21st day of November, 1996, between 200 FIFTH AVENUE
ASSOCIATES, having an office c/o Helmsley-Spear, Inc., THE TOY CENTER, 200
Fifth Avenue, New York, New York 10010, hereinafter referred to as "Lessor" or
"Landlord", and
THIRD QUARTER CORPORATION
AN INDIANA CORPORATION
HEREINAFTER REFERRED TO AS "LESSEE" OR "TENANT"
WITNESSETH: Lessor hereby leases to Lessee and Lessee hereby hires from
Lessor ROOM 516 (said space is hereinafter called the "premises") in the
building known as THE TOY CENTER South Located at Block 825, Lot 31, with a
mailing address of THE TOY CENTER, 200 Fifth Avenue (the "building") in the
County of New York, City of New York, 10010, for a term of ten (10) years and
four (4) months, to commence on the 1st day of January, 1996, and to expire on
the 30th day of April 2006, or until such term shall sooner end as in Article
12 and elsewhere herein provided, both dates inclusive, at a fixed annual
rental (subject to Article 23 and 41) at the annual rate of
AS MORE PARTICULARLY DESCRIBED IN ARTICLE 42 HEREOF
payable in equal monthly installments in advance on the first day of each
month, except that the first installment of rent due under this lease shall be
paid by Lessee upon its execution of this lease, unless this lease be a
renewal.
Lessor and Lessee covenant and agree:
PURPOSE
1. Lessee shall use and occupy the premises only for office and wholesale
showrooms in the transaction of its business of toys and games, and for no
other purpose.
RENT AND ADDITIONAL RENT
2. Lessee agrees to pay rent as herein provided at the office of Lessor or
such other place as Lessor may designate, payable in United States legal tender
by cash, or by good and sufficient check drawn on a New York City Clearing
House Bank, and without any set off or deduction whatsoever. Any sum other
than fixed rent payable hereunder shall be deemed additional rent and due on
demand.
ASSIGNMENT
3. Neither Lessee nor Lessee's legal representatives or successors in
interest by operation of law or otherwise, shall assign, mortgage or otherwise
encumber this lease, or sublet or permit all or part of the premises to be used
by others, without the prior written consent of Lessor in each instance. The
transfer of a majority of the issued and outstanding capital stock of any
corporate lessee or sublessee of the lease or a majority of the total interest
in any partnership lessee or sublessee, however accomplished, and whether in a
single
<PAGE> 2
transaction or in a series of related or unrelated transactions shall be deemed
an assignment of this lease or of such sublease. The merger or consolidation
of a corporate lessee or sublessee where the net worth of the resulting or
surviving corporation is less than the net worth of the lessee or sublessee
immediately prior to such merger or consolidation shall be deemed an assignment
of this lease or of such sublease. If without Lessor's written consent this
lease is assigned, or the premises are sublet or occupied by anyone other than
Lessee, Lessor may accept the rent from such assignee, subtenant or occupant
and apply the net amount thereof to the rent herein reserved, but no such
assignment, subletting, occupancy or acceptance of rent shall be deemed a
waiver of this covenant. Consent by Lessor to an assignment or subletting
shall not relieve Lessee from the obligation to obtain Lessor's written consent
to any further assignment, subletting, occupancy or acceptance of rent shall be
deemed a waiver of this covenant. Consent by Lessor to an assignment or
subletting shall not relieve Lessee from the obligation to obtain Lessor's
written consent to any further assignment or subletting. In no event shall any
permitted sublessee assign or encumber its sublease or further sublet all or
any portion of its sublet space, or otherwise suffer or permit the sublet space
or any part thereof to be used or occupied by others, without Lessor's prior
written consent in each instance. A modification, amendment or extension of a
sublease shall be deemed a sublease.
DEFAULT
4. Lessor may terminate this lease on three (3) days' notice: (a) if rent
or additional rent is not paid within three (3) days after written notice from
Lessor; or (b) if Lessee shall have failed to cure a default in the performance
of any covenant of this lease (except the payment of ren)t, or any rule or
regulation hereinafter set forth, within five (5) days after written notice
thereof from Lessor, or if default cannot be completely cured in such time, if
Lessee shall not promptly proceed to cure such default within said five (5)
days, or shall not complete the curing of such default with due diligence; or
(c) when and to the extent permitted by law, if a petition in bankruptcy shall
be filed by or against Lessee or if Lessee shall make a general assignment for
the benefit of creditors, or receive the benefit of any insolvency or
reorganization act; or (d) if a receiver or trustee is appointed for any
portion of Lessee's property and such appointment is not vacated within twenty
(20) days; or (e) if any execution or attachment shall be issued under which
the premises shall be taken or occupied or attempted to be taken or occupied by
anyone other than Lessee; or (f) if the premises become and remain vacant or
deserted for a period of ten (10) days; or (g) if Lessee shall default beyond
any grace period under any other lease between Lessee and Lessor; or (h) if
Lessee shall fail to move into or take possession of the premises within
fifteen (15) days after commencement of the term of this lease.
At the expiration of the three (3) day notice period, this lease and any
rights of renewal or extension thereof shall terminate as completely as if that
were the date originally fixed for the expiration of the term of this lease,
but Lessee shall remain liable as hereinafter provided.
RELETTING, ETC.
5. If Lessor shall re-enter the premises on the default of Lessee, by
summary proceedings or otherwise: (a) Lessor may re-let the premises or any
part thereof as Lessee's agent, in the name of Lessor, or otherwise, for a term
shorter or longer than the balance of the term of this lease, and may grant
concessions or free rent; (b) Lessee shall pay Lessor any
2
<PAGE> 3
deficiency between the rent hereby reserved and the net amount of any rents
collected by Lessor for the remaining term of this lease, through such
re-letting. Such deficiency shall become due and payable monthly, as it is
determined. Lessor shall have no obligation to re-let the premises, and its
failure or refusal to do so, or failure to collect rent on re-letting, shall
not affect Lessee's ability hereunder. In computing the net amount of rents
collected through such re-letting, Lessor may deduct all expenses incurred in
obtaining possession or re-letting the premises, including legal expenses,
attorneys' fees, brokerage fees, the cost of restoring the premises to good
order, and the cost of all alterations and decorations deemed necessary by
Lessor to effect re-letting. In no event shall Lessee be entitled to a credit
or repayment for rerental income which exceeds the sums payable by Lessee
hereunder or which covers a period after the original term of this Lease; (c)
Lessee hereby expressly waives any right of redemption granted by any present
or future law. "Re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. In the event of a breach or
threatened breach of any of the covenants or provisions hereof, Lessor shall
have the right of injunction. Mention herein of any particular remedy shall not
preclude Lessor from any other available remedy; (d) Lessor shall recover as
liquidated damages, in addition to accrued rent and other charges, if Lessor's
re-entry is the result of Lessee's bankruptcy, insolvency or reorganization,
the full rental for the maximum period allowed by any act relating to
bankruptcy, insolvency or reorganization.
If Lessor re-enters the premises for any cause, or if Lessee abandons or
vacates the premises, and after the expiration of this lease, any property left
in the premises by Lessee shall be deemed to have been abandoned by Lessee, and
Lessor shall have the right to retain or dispose of such property in any manner
without any obligation to account therefor to Lessee. If Lessee shall at any
time default hereunder, and if Lessor shall institute an action or summary
proceedings against Lessee based upon such default, then Lessee will reimburse
Lessor for the expense of reasonable attorneys' fees and disbursements thereby
incurred by Lessor.
LESSOR MAY CURE DEFAULTS
6. If Lessee shall default in performing any covenant or condition of this
lease, Lessor may perform the same for the account of Lessee, and Lessee shall
reimburse Lessor for any expense incurred therefor, which obligation shall
survive the expiration or sooner termination of the term of this lease.
ALTERATIONS
7. Lessee shall make no decoration, alteration, addition or improvement in
the premises, without the prior written consent of Lessor, and then only by
contractors or mechanics and in such manner and with such materials as shall be
approved by Lessor. All alterations, additions or improvements to the
premises, including window and central air conditioning equipment and duct
work, except movable office furniture and equipment installed at the expense of
the Lessee, shall, unless Lessor elects otherwise in writing, become the
property of Lessor upon the installation thereof, and shall be surrendered with
the premises at the expiration of this lease. Any such alterations, additions
and improvements which Lessor shall designate, shall be removed by Lessee and
any damage repaired, at Lessee's expense, prior to the expiration of this
lease.
3
<PAGE> 4
LIENS
8. Prior to commencement of its work in the demised premises, Lessee shall
obtain and deliver to Lessor a written letter of authorization, in form
satisfactory to Lessor's counsel, signed by architects, engineers and designers
to become involved in such work, which shall confirm that any of their drawings
or plans are to be removed from any filing with governmental authorities, on
request of Lessor, in the event that said architect, engineer, surveyor or
designer thereafter no longer is providing services with respect to the demised
premises. With respect to contractors, subcontractors, materialmen and
laborers, and architects, engineers and designers, for all work to be furnished
to Lessee at the premises, Lessee agrees to obtain and deliver to Lessor
written and unconditional waiver of mechanics liens upon the premises or the
building, after payments to the contractors, etc., subject to any then
applicable provisions of the Lien Law. Notwithstanding the foregoing, Lessee
at its expense shall cause any lien filed against the premises or the building,
for work or materials claimed to have been furnished to Lessee, to be
discharged of record within ten (10) days after notice thereof.
REPAIRS
9. Lessee shall take good care of the premises and the fixtures and
appurtenances therein, and shall make all repairs necessary to keep them in
good working order and condition, including structural repair when those are
necessitated by the act, omission or negligence of Lessee or its agents,
employees or invitees. During the term of this Lease, Lessee may have the use
of any air-conditioning equipment located in the premises, and Lessee, at its
own cost and expense, shall maintain and repair such equipment and shall
reimburse Lessor, in accordance with Article 41 of this lease, for electricity
consumed by the equipment. The exterior walls of the building, the windows and
the portions of all window sills outside same are not part of the premises
demised by this lease, and Lessor hereby reserves all rights to such parts of
the building.
DESTRUCTION
10. If the premises shall be partially damaged by fire or other casualty,
the damage shall be repaired at the expense of Lessor but without prejudice to
the rights of subrogation, if any, of Lessor's insurer. Lessor shall not be
required to repair or restore any of Lessee's property or any alteration or
leasehold improvement made by or for Lessee at Lessee's expense. The rent
shall abate in proportion to the portion of the premises not usable by Lessee.
Lessor shall not be liable to Lessee for any delay in restoring the premises.
Lessee's sole remedy being the right to an abatement of rent, as above
provided. If the premises are rendered wholly untenantable by fire or other
casualty and if Lessor shall decide not to restore the premises, or if the
building shall be so damaged that Lessor shall decide to demolish it or to
rebuild it (whether or not the premises have been damaged), Lessor may within
ninety (90) days after such fire or other cause give notice to Lessee of its
election that the term of this lease shall automatically expire no less than
ten (10) days after such notice is given. Notwithstanding the foregoing, each
party shall look first to any insurance in its favor before making any claim
against the other party for recovery for loss or damage resulting from fire or
other casualty, and to the extent that such insurance is in force and
collectible and to the extent
4
<PAGE> 5
permitted by law, Lessor and Lessee each hereby releases and waives all right
of recovery against the other or any one claiming through or under each of them
by way of subrogation or otherwise. The foregoing release and waiver shall be
in force only if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance and also,
provided that such a policy can be obtained without additional premiums.
Lessee hereby expressly waives the provisions of Section 227 of the Real
Property Law and agrees that the foregoing provisions of this Article shall
govern and control in lieu thereof.
END OF TERM
11. Lessee shall surrender the premises to Lessor at the expiration or
sooner termination of this lease in good order and condition, except for
reasonable wear and tear and damage by fire or other casualty, and Lessee shall
remove all of its property. Lessee agrees it shall indemnify and save Lessor
harmless against all costs, claims, loss or liability resulting from delay by
Lessee in so surrendering the premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay. Accordingly, the
parties recognize and agree that other damage to Lessor resulting from any
failure by Lessee timely to surrender the premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Lessee therefore agrees that if possession
of the premises is not surrendered to Lessor within one (1) day after the date
of the expiration or sooner termination of the term of this lease, then Lessee
will pay Lessor as liquidated damages for each month and for each portion of
any month during which Lessee holds over in the premises after expiration or
termination of the term of this lease, a sum equal to three times the average
rent and additional rent which was payable per month under this lease during
the last six months of the term thereof. The aforesaid obligations shall
survive the expiration or sooner termination of the term of this lease. At any
time during the term of this lease, Lessor may exhibit the premises to
prospective purchasers or mortgagees of Lessor's interest therein, and may
place upon the premises the usual "For Sale" notices. During the last year of
the term of this lease, Lessor may exhibit the premises to prospective tenants
and may place and keep upon the premises the usual "To Let" notice.
SUBORDINATION AND ESTOPPEL
12. Lessee has been informed and understands that Lessor is the Lessee
under a lease of the land and entire building of which the premises form a part
(hereinafter called the "Master Lease"). This lease is and shall be subject
and subordinate to the Master Lease and all other ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the real
property of which the premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This Article shall be
self-operative and no further instrument of subordination shall be necessary.
In confirmation of such subordination, Lessee shall execute promptly any
certificate that Lessor may request. Lessee hereby appoints Lessor as Lessee's
irrevocable attorney-in-fact to execute any document of subordination on behalf
of Lessee. In the event that the Master Lease or any ether ground or underling
lease is terminated, or any mortgage foreclosed, this lease shall not terminate
or be terminable by Lessee unless Lessee was specifically named in any
termination or foreclosure judgment or final order. In the event that the
Master Lease or any other ground or underlying lease is terminated as
aforesaid, or if the interests of Lessor under this lease are
5
<PAGE> 6
transferred by reason of or assigned in lieu of foreclosure or other
proceedings for enforcement of any mortgage, or if the holder of any mortgage
acquires a lease in substitution therefor, then the Lessee will, at the option
to be exercised in writing by the lessor under the Master Lease or such
purchaser, assignee or lessee, as the case may be, (i) attorn to it and will
perform for its benefit all the terms, covenants and conditions of this lease
on the Lessee's part to be performed with the same force and effect as if said
lessor or such purchaser, assignee or lessee, were the landlord originally
named in this lease, or (ii) enter into a new lease with said lessor or such
purchaser, assignee or lessee, as landlord, for the remaining term of this
lease and otherwise on the same terms, conditions and rentals as herein
provided. If the current term of the Master Lease shall expire prior to the
date set forth herein for the expiration of this lease, then, unless Lessor, at
its sole option, shall have elected to extend or renew the term of the Master
Lease the term of this lease shall expire on the date of expiration of the
Master Lease, notwithstanding the later expiration date hereinabove set forth.
If the Master Lease is renewed, then the term of this lease shall expire as
hereinabove set forth. From time to time, Lessee, on at least ten (10) days'
prior written request by Lessor will deliver to Lessor a statement in writing
certifying that this lease is unmodified and in full force and effect (or if
there shall have been modifications, that the same is in full force and effect
as modified and stating the modifications) and the dates to which the rent and
other charges have been paid and stating whether or not the Lessor is in
default in performance of any covenant, agreement, or condition contained in
this lease and, if so, specifying each such default of which Lessee may have
knowledge.
CONDEMNATION
13. If the whole or any substantial part of the premises shall be
condemned by eminent domain or acquired by private purchase in lieu thereof,
for any public or quasi-public purpose, this lease shall terminate on the date
of the vesting of title through such proceeding or purchase, and Lessee shall
have no claim against Lessor for the value of any unexpired portion of the term
of this lease, nor shall Lessee be entitled to any part of the condemnation
award or private purchase price. If less than a substantial part of the
premises is condemned, this lease shall not terminate, but rent shall abate in
proportion to the portion of the premises condemned.
REQUIREMENTS OF LAW
14. (a) Lessee at its expense shall comply with all laws, orders, and
regulations of any governmental authority having or asserting jurisdiction
over the premises, which shall impose any violation, order or duty upon
Lessor or Lessee with respect to the premises or the use or occupancy
thereof, including, without limitation, compliance in the premises with New
York City Local Law No. 5 or any similar or successor law. The foregoing
shall not require Lessee to do structural work.
(b) Lessee shall require every person engaged by him to clean any
window in the premises from the outside, to use the equipment and safety
devices required by Section 202 of the Labor Law and the rules of any
governmental authority having or asserting jurisdiction.
(c) Lessee at its expense shall comply with all requirements of the
New York Board of Fire Underwriters, or any other similar body affecting
the premises and shall
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<PAGE> 7
not use the premises in a manner which shall increase the rate of fire
insurance of Lessor or of any other tenant, over that in effect prior to
this lease. If Lessee's use of the premises increases the fire insurance
rate, Lessee shall reimburse Lessor for all such increased costs. That
the premises are being used for the purposes set forth in Article 1
hereof shall not relieve Lessee from the foregoing duties, obligations
and expenses.
CERTIFICATE OF OCCUPANCY
15. Lessee will at no time use or occupy the premises in violation of the
certificate of occupancy issued for the building. The statement in this lease
of the nature of the business to be conducted by Lessee shall not be deemed to
constitute a representation or guaranty by Lessor that such use is lawful or
permissible in the premises under the certificate of occupancy for the
building.
POSSESSION
16. If Lessor shall be unable to give possession of the premises on the
commencement date of the term because of the retention of possession of any
occupant thereof, alteration or construction work, or for any other reason
except as hereinafter provided, Lessor shall not be subject to any liability
for such failure. In such event, this lease shall stay in full force and
effect, without extension of its term. However, the rent hereunder shall not
commence until the premises are available for occupancy by Lessee. If delay in
possession is due to work, changes or decorations being made by or for Lessee,
or is otherwise caused by Lessee, there shall be no rent abatement and the rent
shall commence on the date specified in this lease. If permission is given to
Lessee to occupy the demised premises or other premises prior to the date
specified as the commencement of the term, such occupancy shall be deemed to be
pursuant to the terms of this lease, except that the parties shall separately
agree as to the obligation of Lessee to pay rent for such occupancy. The
provisions of this Article are intended to constitute an "express provision to
the contrary" within the meaning of Section 223(a), New York Real Property Law.
QUIET ENJOYMENT
17. Lessor covenants that if Lessee pays the rent and performs all of
Lessee's other obligations under this lease, Lessee may peaceably and quietly
enjoy the demised premises, subject to the terms, covenants and conditions of
this lease and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
RIGHT OF ENTRY
18. Lessee shall permit Lessor to erect and maintain pipes and conduits in
and through the premises. Lessor or its agents shall have the right to enter
or pass through the premises at all times, by master key, by reasonable force
or otherwise, to examine the same, and to make such repairs, alterations or
additions as it may deem necessary or desirable to the premises or the building
and to take all material into and upon the premises that may be required
therefor. Such entry and work shall not constitute an eviction of Lessee in
whole or in
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<PAGE> 8
part, shall not be ground for any abatement of rent, and shall impose no
liability on Lessor by reason of inconvenience or injury to Lessee's business.
Lessor shall have the right at any time, without the same constituting an
actual or constructive eviction, and without incurring any liability to Lessee,
to change the arrangement and/or location of entrances or passageways, windows,
corridors, elevators, stairs, toilets, or other public parts of the building,
and to change the name or number by which the building is known.
VAULT SPACE
19. Anything confined in any plan or blueprint to the contrary
notwithstanding, no vault or other space not within the building property line
is demised hereunder. Any use of such space by Lessee shall be deemed to be
pursuant to a license, revocable at will by Lessor, without diminution of the
rent payable hereunder. If Lessee shall use such vault space, any fees, taxes
or charges made by any governmental authority for such space shall be paid by
Lessee.
INDEMNITY
20. Lessee shall indemnify, defend and save Lessor harmless from and
against any liability or expense arising from the use or occupation of the
premises by Lessee, or anyone on the premises with Lessee's permission, or from
any branch of this lease.
LESSOR'S LIABILITY
21. This lease and the obligations of Lessee hereunder shall in no way be
affected because Lessor is unable to fulfill any of its obligations or to
supply any service, by reason of strike or other cause not within Lessor's
control. Lessor shall have the right, without incurring any liability to
Lessee, to stop any service because of accident or emergency, or for repairs,
alterations or improvements, necessary or desirable in the judgment of Lessor
until such repairs, alterations or improvements shall have been completed.
Lessor shall not be liable to Lessee or anyone else, for any loss or damage to
person, property or business, unless due to the negligence of Lessor; nor shall
Lessor be liable for any latent defect in the premises or the building. Lessee
agrees to look solely to Lessor's estate and interest in the land and building,
or the lease of the building or of the land and building, and the demised
premises, for the satisfaction of any right or remedy of Lessee for the
collection of a judgment (or other judicial process) requiring the payment of
money by Lessor, in the event of any liability by Lessor, and no other property
or assets of Lessor shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Lessee's remedies under or with respect to
this lease, the relationship of landlord and tenant hereunder, or Lessee's use
and occupancy of the demised premises or any other liability of Lessor to
Lessee (except for negligence).
CONDITION OF PREMISES
22. Lessee acknowledges that Lessor has made no representation or promise,
except as herein expressly set forth. Lessee agrees to accept the premises
"as is", except for any work which Lessor has expressly agreed in writing to
perform.
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<PAGE> 9
COST OF LIVING ADJUSTMENTS
23. The fixed annual rent reserved in this lease and payable hereunder
shall be adjusted, as of the times and in the manner set forth in this Article:
(a) DEFINITIONS: For the purposes of this Article, the following
definitions shall apply:
(i) The term "Base Year" shall mean the full calendar year
during which the term of this lease commences.
(ii) The term "Price Index" shall mean the "Consumer Price
Index" published by the Bureau of Labor Statistics of the U.S.
Department of Labor, All Items, New York, N.Y.-Northeastern, N.J.,
all urban consumers (presently denominated "CPI-U"), or a successor
or substitute index appropriately adjusted.
(iii) The term "Price Index for the Base Year" shall mean the
average of the monthly All Items Price Indexes for each of the 12
months of the Base Year.
(b) Effective as of each January and July subsequent to the Base
Year, there shall be made a cost of living adjustment of the fixed annual
rental rate payable hereunder. The July adjustment shall be based on the
percentage difference between the Price Index for the preceding month of
June and the Price Index for the Base Year. The January adjustment shall
be based on such percentage difference between the Price Index for the
preceding month of December and the Price Index for the Base Year.
(i) In the event the Price Index for June in any calendar year
during the term of this lease reflects an increase over the Price
Index for the Base Year, then the fixed annual rent herein provided
to be paid as of the July 1st following such month of June
(unchanged by any adjustment under this Article) shall be
multiplied by the percentage difference between the Price Index for
June and the Price Index for the Base Year, and the resulting sum
shall be added to such fixed annual rent, effective as of such July
1st. Said adjusted fixed annual rent shall thereafter be payable
hereunder, in equal monthly installments, until it is readjusted
pursuant to the terms of this lease.
(ii) In the event the Price Index for December in any calendar
year during the term of this lease reflects an increase over the
Price Index for the Base Year, then the fixed annual rent herein
provided to be paid as of the January 1st following such month of
December (unchanged by any adjustment under this Article) shall be
multiplied by the percentage difference between the Price Index for
December and the Price Index for the Base Year, and the resulting
sum shall be added to such fixed annual rent effective as of such
January 1st. Said adjusted fixed annual rent shall thereafter be
payable hereunder, in equal monthly installments, until it is
readjusted pursuant to the terms of this lease.
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<PAGE> 10
The following illustrates the intentions of the parties hereto as to
the computation of the aforementioned cost of living adjustment in the
annual rent payable hereunder:
Assuming that said fixed annual rent is $10,000, that the
Price Index for the Base Year was 102.0 and that the Price Index
for the month of June in a calendar year following the Base Year
was 105.0, then the percentage increase thus reflected, i.e.,
2.941% (3.0/102.0) would be multiplied by $10,000, and said fixed
annual rent would be increased by $294.10 effective as of July 1st
of said calendar year.
In the event that the Price Index ceases to use 1982-84 = 100 as the
basis of calculation, or if a substantial change is made in the terms or
number of items contained in the Price Index, then the Price Index shall
be adjusted to the figure that would have been arrived at had the manner
of computing the Price Index in effect at the date of this lease not been
altered. In the event such Price Index (or a successor or substitute
index) is not available, a reliable governmental or other non-partisan
publication evaluating the information theretofore used in determining
the Price Index shall be used.
No adjustments or recomputations, retroactive or otherwise, shall be
made due to any revision which may later be made in the first published
figure of the Price index for any month.
(c) Lessor will cause statements of the cost of living adjustment
provided for in subdivision (b) to be prepared in reasonable detail and
delivered to Lessee.
(d) In no event shall the fixed annual rent originally provided to
be paid under this lease (exclusive of the adjustments under this
Article) be reduced by virtue of this Article.
(e) Any delay or failure of Lessor, beyond July or January of any
year, in computing or billing for the rent adjustments hereinabove
provided, shall not constitute a waiver of or in any way impair the
continuing obligation of Lessee to pay such rent adjustments hereunder.
(f) Notwithstanding any expiration or termination of this lease
prior to the lease expiration date (except in the case of a cancellation
by mutual agreement) Lessee's obligation to pay rent as adjusted under
this Article shall continue and shall cover all periods up to the lease
expiration date, and shall survive any expiration or termination of this
lease.
TAX ESCALATION
24. Lessee shall pay to Lessor, as additional rent, tax escalation in
accordance with this Article:
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<PAGE> 11
(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 1,020 square feet.
(b) Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "base tax year" as hereinafter set forth for the
determination of real estate tax escalation, shall mean the New
York City real estate tax year commencing July 1, 1996 and ending
June 30, 1997.
(ii) The term "The Percentage", for purposes of computing tax
escalation, shall mean decimal one six nine percent (.16%). The
Percentage has been computed on the basis of a fraction, the
numerator of which is the rentable square foot area of the
presently demised premises and the denominator or which is the
total rentable square foot area of the office and commercial space
in the building project. The parties acknowledge and agree that
the total rentable square foot area of the office and commercial
space in the building project shall be deemed to be 602,419 sq. ft.
(iii) the term "the building project" shall mean the aggregate
combined parcel of land on a portion of which are the improvements
of which the demised premises form a part, with all the
improvements thereon, said improvements being a part of the block
and lot for tax purposes which are applicable to the aforesaid
land.
(iv) The term "comparative year" shall mean the twelve (12)
months following the base tax year, and each subsequent period of
twelve (12) months (or such other period of twelve (12) months
occurring during the term of this lease as hereafter may be duly
adopted as the fiscal year for real estate tax purposes by the City
of New York).
(v) The term "real estate taxes" shall mean the total of all
taxes and special or other assessments levied, assessed or imposed
at any time by any governmental authority upon or against the
building project, and also any tax or assessment levied, assessed
or imposed at any time by any governmental authority in connection
with the receipt of income or rents from said building project to
the extent that same shall be in lieu of all or a portion of any of
the aforesaid taxes or assessments, or additions or increases
thereof, upon or against said building project. If, due to a
future change in the method of taxation or in the taxing authority,
or for any other reason, a franchise, income, transit, profit or
other tax or governmental imposition, however designated, shall be
levied against Lessor in substitution in whole or in part for the
real estate taxes, or in lieu of additions to or increases of said
real estate taxes, then such franchise, income, transit, profit or
other tax or governmental imposition shall be deemed to be included
within the definition of "real estate taxes" for the purposes
hereof. As to special assessments which are payable over a period
of time extending beyond the term of this lease, only a pro rata
portion thereof, covering
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<PAGE> 12
the portion of the term of this lease unexpired at the time of the
imposition of such assessment, shall be included in "real estate
taxes". If, by law, any assessment may be paid in installments,
then, for the purposes hereof (a) such assessment shall be deemed
to have been payable in the maximum number of installments
permitted by law and (b) there shall be included in real estate
taxes, for each comparative year in which such installments may be
paid, the installments of such assessment so becoming payable
during such comparative year, together with interest payable during
such comparative year.
(vi) Where a "transition assessment" is imposed by the City of
New York for any tax (fiscal) year, then the phrases "assessed
value" and "assessments" shall mean the transition assessment for
that tax (fiscal) year.
(vii) The phrase "real estate taxes payable during the base
tax year" shall mean that amount obtained by multiplying the
assessed value of the land and buildings of the building project
for the base tax year by the tax rate for the base tax year for
each $100 of such assessed value.
(c) 1. In the event that the real estate taxes payable for any
comparative year shall exceed the amount of the real estate taxes
payable during the base tax year, Lessee shall pay to Lessor, as
additional rent for such comparative year, an amount equal to the
percentage of the excess. Before or after the start of each
comparative year, Lessor shall furnish to Lessee a statement of the
real estate taxes payable for such comparative year, and a
statement of the real estate taxes payable during the base tax
year. If the real estate taxes payable for such comparative year
exceed the real estate taxes payable during the base tax year,
additional rent for such comparative year, in an amount equal to
The Percentage of the excess shall be due from Lessee to Lessor,
and such additional rent shall be payable by Lessee to Lessor
within ten (10) days after receipt of the aforesaid statement. The
benefit of any discount for any earlier payment or prepayment of
real estate taxes shall accrue solely to the benefit of Lessor, and
such discount shall not be subtracted from the real estate taxes
payable for any comparative year.
2. Should the real estate taxes payable during the base tax
year be reduced by final determination of legal proceedings,
settlement or otherwise, then, the real estate taxes payable during
the base tax year shall be correspondingly revised, the additional
rent theretofore paid or payable hereunder for all comparative years
shall be recomputed on the basis of such reduction, and Lessee shall
pay to Lessor as additional rent, within ten (10) days after being
billed therefor, any deficiency between the amount of such
additional rent as theretofore computed and the amount thereof due
as the result of such recomputations. Should the real estate taxes
payable during the base tax year be increased by such final
determination of legal proceedings, settlement or otherwise, then
appropriate recomputation and adjustment also shall be made.
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<PAGE> 13
3. If, after Lessee shall have made a payment of additional
rent under this subdivision (c), Lessor shall receive a refund of
any portion of the real estate taxes payable for any comparative
year after the base tax year on which such payment of additional
rent shall have been based, as a result of a reduction of such real
estate taxes by final determination of legal proceedings,
settlement or otherwise, Lessor shall within ten (10) days after
receiving the refund pay to Lessee The Percentage of the refund
less The Percentage of expenses (including attorneys' and
appraisers' fees) incurred by Lessor in connection with any such
application or proceeding. If, prior to the payment of taxes for
any comparative year, Lessor shall have obtained a reduction of
that comparative year's assessed valuation of the building project,
and therefore of said taxes, then the term "real estate taxes" for
that comparative year shall be deemed to include the amount of
Lessor's expenses in obtaining such reduction in assessed
valuation, including attorneys' and appraisers' fees.
4. The statements of the real estate taxes to be furnished by
Lessor as provided above shall be certified by Lessor and shall
constitute a final determination as between Lessor and Lessee of
the real estate taxes for the periods represented thereby, unless
Lessee within thirty (30) days after they are furnished shall give
a written notice to Lessor that it disputes their accuracy or their
appropriateness, which notice shall specify the particular respects
in which the statement is inaccurate or inappropriate. If Lessee
shall so dispute said statement then, pending the resolution of
such dispute, Lessee shall pay the additional rent to Lessor in
accordance with the statement furnished by Lessor.
5. In no event shall the fixed annual rent under this lease
(exclusive of the additional rents under this Article) be reduced
by virtue of this Article.
6. If the commencement date of the term of this lease is not
the first day of the first comparative year, then the additional
rent due hereunder for such first comparative year shall be a
proportionate share of said additional rent for the entire
comparative year, said proportionate share to be based upon the
length of time that the base term will be in existence during such
first comparative year. Upon the date of any expiration or
termination of this lease (except termination because of Lessee's
default) whether the same be the date hereinabove set forth for the
expiration of the term or any prior or subsequent date, a
proportionate share of said additional rent for the comparative
year during which such expiration or termination occurs shall
immediately become due and payable by Lessee to Lessor, if it was
not theretofore already billed and paid. The said proportionate
share shall be based upon the length of time that this lease shall
have been in existence during such comparative year. Lessor shall
promptly cause statements of said additional rent for that
comparative year to be prepared and furnished to Lessee. Lessor and
Lessee shall thereupon make appropriate adjustments of amounts then
owing.
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<PAGE> 14
7. Lessor's and Lessee's obligations to make the adjustments
referred to in subdivision (6) above shall survive any expiration
or termination of this lease.
8. Any delay or failure of Lessor in billing any tax
escalation hereinabove provided shall not constitute a waiver of or
in any way impair the continuing obligation of Lessee to pay such
tax escalation hereunder.
SERVICES
25. Lessee acknowledges that it has been advised that the cleaning
contractor for the building may be the Lessor or a division or affiliate of
Lessor. Lessee agrees to employ Lessor or its division or affiliate, or such
other contractor as Lessor may from time to time designate, for any waxing,
polishing and other maintenance work of the demised premises and of the
Lessee's furniture, fixtures and equipment, provided that the prices charged by
said contractor are comparable to the prices charged by other contractors for
the same work. Lessee agrees that it shall not employ any other cleaning and
maintenance contractor, nor any individual, firm or organization for such
purpose without Lessor's prior written consent. If Lessor and Lessee cannot
agree on whether the prices being charged by Lessor or the contractor
designated by the Lessor are comparable to those charged by other contractors,
Lessor and Lessee shall each obtain two bona fide bids for such work from
reputable contractors, and the average of the four bids thus obtained shall be
the standard of comparison.
JURY WAIVER
26. Lessor and Lessee hereby waive trial by jury in any action, proceeding
or counterclaim involving any matter whosoever arising out of or in any way
connected with this lease, the relationship of landlord and tenant, Lessee's
use or occupancy of the premises (except for personal injury or property
damage) or involving the right to any statutory relief or remedy. Lessee will
not interpose any counterclaim of any nature in any summary proceeding.
NO WAIVER, ETC.
27. No act or omission of Lessor or its agents shall constitute an actual
or constructive eviction, unless Lessor shall have first received written
notice of Lessee's claim and shall have had a reasonable opportunity to meet
such claim. In the event that any payment herein provided for by Lessee to
Lessor shall become overdue for a period in excess of ten (10) days, then at
Lessor's option a "late charge" for such period and for each additional period
of twenty (20) days or any part thereof shall become immediately due and owing
to Lessor, as additional rent by reason of the failure of Lessee to make prompt
payment, at the following rates: for individual and partnership Lessees, said
late charge shall be computed at the maximum legal rate of interest; for
corporate or governmental entity Lessees the late charge shall be computed at
two percent (2%) per month unless there is an applicable maximum legal rate of
interest which then shall be used. No act or omission of Lessor or its agents
shall constitute an acceptance of a surrender of the premises, except a writing
signed by Lessor. The delivery of keys to Lessor or its agents shall not
constitute a termination of this lease or a surrender of the premises.
Acceptance by Lessor of less than the rent herein provided shall at
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<PAGE> 15
Lessor's option be deemed on account of earliest rent remaining unpaid. No
endorsement on any check, or letter accompanying rent, shall be deemed an
accord and satisfaction, and such check may be cashed without prejudice to
Lessor. No waiver of any provision of this lease shall be effective, unless
such waiver be in writing signed by Lessor. This lease contains the entire
agreement between the parties, and no modification thereof shall be binding
unless in writing and signed by the party concerned. Lessee shall comply with
the rules and regulations printed in this lease, and any reasonable
modifications thereof or additions thereto. Lessor shall not be liable to
Lessee for the violation of such rules and regulations by any other tenant.
Failure of Lessor to enforce any provision of this lease, or any rule or
regulation, shall not be construed as the waiver of any subsequent violation of
a provision of this lease or any rule or regulation. This lease shall not be
affected by nor shall Lessor in any way be liable for the closing, darkening
or bricking up of windows in the premises, for any reason, including as the
result of construction on any property of which the premises are not a part or
by Lessor's own acts.
OCCUPANCY AND USE BY LESSEE
28. (A) Lessee acknowledges that its continued occupancy of the
demised premises, and the regular conduct of its business therein,
are of utmost importance to the Lessor in the renewal of other
leases in the building, in the renting of vacant space in the
building, in the providing of electricity, air conditioning, steam
and other services to the tenants in the building, and in the
maintenance of the character and quality of the tenants in the
building. Lessee therefore covenants and agrees that it will occupy
the entire demised premises, and will conduct its business therein
in the regular and usual manner, throughout the term of this lease.
Lessee acknowledges that Lessor is executing this lease in reliance
upon these covenants, and that these covenants are a material
element of consideration inducing the Lessor to execute this lease.
Lessee further agrees that if it vacates the demised premises or
fails to so conduct its business therein, at any time during the
term of this lease, without the prior written consent of the Lessor,
than all rent and additional rent reserved in this lease from the
date of such breach to the expiration date of this lease shall
become immediately due and payable to Lessor.
(B) The parties recognize and agree that the damage to Lessor
resulting from any breach of the covenants in subdivision (A)
hereof will be extremely substantial, will be far greater than the
rent payable for the balance of the term of this lease, and will be
impossible of accurate measurement. The parties therefore agree
that in the event of a breach or threatened breach of the said
covenants, in addition to all of Lessor's other rights and
remedies, at law or in equity or otherwise, Lessor shall have the
right of injunction to preserve Lessee's occupancy and use. The
words "become vacant or deserted" as used elsewhere in this lease
shall include Lessee's failure to occupy or use as by this Article
required.
(C) If Lessee breaches either of the covenants in subdivision
(A) above, and this lease be terminated because of such default,
then, in addition to Lessor's rights of re-entry, restoration,
preparation for and rerental, and anything
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<PAGE> 16
elsewhere in this lease to the contrary notwithstanding, Lessor
shall retain its right to judgment on and collection of Lessee's
aforesaid obligation to make a single payment to Lessor of a sum
equal to the total of all rent and an additional rent reserved for
the remainder of the original term of this lease, subject to future
credit or repayment to Lessee in the event of any rerenting of the
premises by Lessor, after first deducting from rerental income all
expenses incurred by Lessor in reducing to judgment or otherwise
collecting Lessee's aforesaid obligation, and in obtaining
possession of, restoring, preparing for and re-letting the
premises. In no event shall Lessee be entitled to a credit or
repayment for rerental income which exceeds the sums payable by
Lessee hereunder or which covers a period after the original term
of this lease.
NOTICES
29. Any bill, notice or demand from Lessor to Lessee, may be delivered
personally at the premises or sent by registered or certified mail. Such bill,
notice or demand shall be deemed to have been given at the time of delivery or
mailing. Any notice from Lessee to Lessor must be sent by registered or
certified mail to the last address designated in writing by Lessor.
WATER
30. Lessee shall pay the amount of Lessor's cost for all water used by
Lessee for any purpose other than ordinary lavatory uses, and any sewer rent or
tax based thereon. Lessor may install a water meter to measure Lessee's water
consumption for all purposes and Lessee agrees to pay for the installation and
maintenance thereof and for water consumed as shown on said meter. If water is
made available to Lessee in the building or the demised premises though a meter
which also supplies other premises, or without a meter, then Lessee shall pay
to Lessor a reasonable amount per month for water.
SPRINKLER SYSTEM
31. If there shall be a "sprinkler system" in the demised premises for any
period during this lease, Lessee shall pay a reasonable amount per month, for
sprinkler supervisory service. If such sprinkler system is damaged by any act
or omission of lessee or its agents, employees, licensees or visitors, Lessee
shall restore the system to good working condition at its own expense. If the
New York Board of Fire Underwriters, the New York Fire Insurance Exchange, the
Insurance Services Office or any governmental authority requires the
installation or any alteration to a sprinkler system by reason of Lessee's
occupancy or use of the premises, including any alternation necessary to obtain
the full allowance for a sprinkler system in the fire insurance rate of Lessor,
or for any other reason, Lessee shall make such installation or alteration
promptly, and at its own expense.
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HEAT, ELEVATOR, ETC.
32. Lessor shall provide elevator service during all usual business hours
including Saturdays until 1 P.M., except on Sundays, State holidays, Federal
holidays or Building Service Employees Union Contract holidays. Lessor shall
furnish heat to the premises during the same hours on the same days in the cold
season in each year. Lessor shall cause the premises to be kept clean in
accordance with Lessor's customary standards for the building, provided they
are kept in order by Lessee. Lessor, its cleaning contractor and their
employees shall have after-hours access to the demised premises and the use of
Lessee's light, power and water in the demised premises as may be reasonably
required for the purpose of cleaning the demised premises. Lessor may remove
Lessee's extraordinary refuse from the building and Lessee shall pay the cost
thereof. If the elevators in the building are manually operated, Lessor may
convert to automatic elevators at any time, without in any way affecting
Lessee's obligations hereunder.
SECURITY DEPOSIT
33. Lessee has deposited with Lessor the sum of $ none as security for
the performance by Lessee of the terms of this lease. Lessor may use any part
of the security to satisfy any default of Lessee and any expenses arising from
such default, including but not limited to any damages or rent deficiency
before or after re-entry by Lessor. Lessee shall, upon demand, deposit with
Lessor the full amount so used, in order that Lessor shall have the full
security deposit on hand at all times during the term of this lease. If Lessee
shall comply fully with the terms of this lease, the security shall be returned
to Lessee after the date fixed as the end of the lease. In the event of a sale
or lease of the building containing the premises, Lessor may transfer the
security to the purchaser or lessee, and Lessor shall thereupon be released
from all liability for the return of the security. This provision shall apply
to every transfer or assignment of the security to a new Lessor. Lessee shall
have no legal power to assign or encumber the security herein described.
ELECTRICITY
34. Terms and conditions with respect to electricity rent inclusion, or
with respect to sub-metering, as the case may be, and general conditions with
respect to either, are set forth in Article 41 in the Rider annexed to and made
part of this lease.
RENT CONTROL
35. In the event the fixed annual rent or additional rent or any part
thereof provided to be paid by Lessee under the provisions of this lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant
to law, or the orders, rules, code or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Lessor, at its option, may at any time thereafter terminate this
lease, by not less than thirty (30) days' written notice to Lessee, on a date
set forth in said notice, in which event this lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date
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<PAGE> 18
were the date originally fixed herein for the termination of the demised term.
Lessor shall not have the right so to terminate this lease if Lessee within
such period of thirty (30) days shall in writing lawfully agree that the
rentals herein reserved are a reasonable rental and agree to continue to pay
said rentals, and if such agreement by Lessee shall then be legally enforceable
by Lessor.
SHORING
36. Lessee shall permit any person authorized to make an excavation on
land adjacent to the building containing the premises to do any work within the
premises necessary to preserve the wall of the building from injury or damage,
and Lessee shall have no claim against Lessor for damages or abatement of rent
by reason thereof.
EFFECT OF CONVEYANCE, ETC.
37. If the building containing the premises shall be sold, transferred or
leased. or the lease thereof transferred or sold, Lessor shall be relieved of
all future obligations and liabilities hereunder and the purchaser, transferee
or lessee of the building shall be deemed to have assumed and agreed to perform
all such obligations and liabilities of Lessor hereunder. In the event of such
sale, transfer or lease, Lessor shall also be relieved of all existing
obligations and liabilities hereunder, provided that the purchaser, transferee
or lessee of the building assumes in writing such obligations and liabilities.
RIGHTS OF SUCCESSORS AND ASSIGNS
38. This lease shall bind and inure to the benefit of the heirs,
executors, administrators, successors, and, except as otherwise provided
herein, the assigns of the parties hereto. If any provision of any Article of
this lease or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of that Article, or the
application of such provision to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby,
and each provision of said Article and of this lease be valid and be enforced
to the fullest extent permitted by law.
CAPTIONS
39. The captions herein are inserted only for convenience, and are in no
way to be construed as a part of this lease or as a limitation of the scope of
any provision of this lease.
LEASE SUBMISSION
40. Lessor and Lessee agree that this lease is submitted to Lessee on the
understanding that it shall not be considered an offer and shall not bind
Lessor in any way unless and until (i) Lessee has duly executed and delivered
duplicate originals thereof to Lessor and (ii) Lessor has executed and
delivered one of said originals to Lessee.
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<PAGE> 19
SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF
IN WITNESS WHEREOF, Lessor and Lessee have executed this lease as of the
day and year first above written.
200 FIFTH AVENUE ASSOCIATES,
By: Helmsley-Spear, Inc., Agent
<TABLE>
<S> <C> <C>
_________________________________ By: /s/ Thomas S. Arbuckle (L.S.)
--------------------------------
Witness for Lessor Thomas S. Arbuckle,
Vice President
_________________________________ Third Quarter Corporation (L.S.)
Witness for Lessee
By: /s/ Carl E. Voigt, IV
--------------------------------
Carl E. Voigt, IV
</TABLE> President
ACKNOWLEDGEMENTS
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<PAGE> 20
GUARANTY
For Value Received and in consideration of the letting of the premises
within mentioned to the within named lessee, the undersigned do hereby covenant
and agree, to and with the Lessor and the Lessor's legal representatives, that
if default shall at any time be made by the said Lessee in the payment of the
rent and the performance of the covenants contained in the within lease, on the
Lessee's part to be paid and performed, that the undersigned will well and
truly pay the said rent, or any arrears thereof, that may remain due unto said
Lessor, and also pay all damages that may arise in consequence of the
non-performance of said covenants, or either of them, without requiring notice
of any such default from the Lessor. The undersigned hereby waives all right
to trial by jury in any action or proceeding hereinafter instituted by the
Lessor, to which the undersigned may be a party.
IN WITNESS WHEREOF, the undersigned has set hand and seal this ____ day of
___________________ 19__.
<TABLE>
<S> <C>
_________________________________ ____________________________ (L.S.)
_________________________________ ____________________________ (L.S.)
</TABLE>
20
<PAGE> 21
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
200 FIFTH AVENUE ASSOCIATES, LESSOR
AND THIRD QUARTER CORPORATION, LESSEE
ELECTRICITY
41. Lessee agrees that Lessor may furnish electricity to Lessee on a
"submetering" basis or on a "rent inclusion" basis.
(A) SUBMETERING: If and so long as Lessor provides electricity to the
demised premises on a submetering basis, Lessee covenants and agrees to
purchase the same from Lessor or Lessor's designated agent at charges, terms
and rates set, from to time, during the term of this lease by Lessor but not
more than those specified in the service classification in effect on January 1,
1970 pursuant to which Lessor then purchased electric current from the public
utility corporation serving the part of the city where the building is located;
provided, however, said charges shall be increased in the same percentage as
any percentage increase in the billing to Lessor for electricity for the entire
building, by reason of increase in Lessor's electric rates or service
classifications, subsequent to January 1, 1970, and so as to reflect any
increase in Lessor's electric charges, fuel adjustment, or by taxes or charges
of any kind imposed on Lessor's electricity purchases, or for any other such
reason, subsequent to said date. Any such percentage increase in Lessor's
billing for electricity due to changes in rates or service classifications
shall be computed by the application of the average consumption (energy and
demand) of electricity for the entire building for the twelve (12) full months
immediately prior to the rate and/or service classification change, or any
changed methods of or rules on billing for same, on a consistent basis to the
new rate and/or service classification and to the service classification in
effect on January 1, 1970. If the average consumption of electricity for the
entire building for said prior twelve (12) months cannot reasonably be applied
and used with respect to changed methods of or rules on billing, then the
percentage increase shall be computed by the use of the average consumption
(energy and demand) for the entire building for the first three (3) months
after such change, projected to a full twelve (12) months; and that same
consumption, so projected, shall be applied to the service classification in
effect on January 1, 1970. Where more than one meter measures the service of
Lessee in the building, the service rendered through each meter may be computed
and billed separately in accordance with the rates herein. Bills therefore
shall be rendered at such times as Lessor may elect and the amount, as computed
from a meter, shall be deemed to be, and be paid as, additional rent. In the
event that such bills are not paid within five (5) days after the same are
rendered, Lessor may, without further notice, discontinue the service of
electric current to the demised premises without releasing Lessee from any
liability under this lease and without Lessor or Lessor's agent incurring any
liability for any damage or loss sustained by Lessee by such discontinuance of
service. If any tax is imposed upon Lessor's receipt from the sale or resale of
electrical energy or gas or telephone service to Lessee by any Federal, State
or Municipal Authority, Lessee covenants and agrees that where permitted by
law, Lessee's pro rata share of such taxes shall be passed on to, and included
in the bill of, and paid by, Lessee to Lessor.
(B) RENT INCLUSION: If and so long as Lessor provides electricity to the
demised premises on a rent inclusion basis, Lessee agrees that the fixed annual
rent shall be increased by the amount of the Electricity Rent Inclusion Factor
("ERIF"), as hereinafter defined. Lessee acknowledges and agrees (i) that the
fixed annual rent hereinabove set forth in this lease does not yet, but is to
include an ERIF of $2.75 per rentable square foot to compensate Lessor for
electrical wiring and other installations necessary for, and for its obtaining
and making available to Lessee the redistribution of,
1
<PAGE> 22
electric current as an additional service; and (ii) that said ERIF, which shall
be subject to periodic adjustments as hereinafter provided, has been partially
based upon an estimate of the Lessee's connected electrical load, which shall
be deemed to be the demand (KW), and hours of use thereof, which shall be
deemed to be the energy (KWH), for ordinary lighting and light office equipment
and the operation of the usual small business machines, including Xerox or
other copying machines (such lighting and equipment are hereinafter called
"Ordinary Equipment") during ordinary business hours ("ordinary business hours"
shall be deemed to mean 50 hours per week), with Lessor providing an average
connected load of 4-1/2 watts of electricity for all purposes per rentable
square foot. Any installation and use of equipment other than Ordinary,
Equipment and/or any connected load and/or any energy usage by Lessee in excess
of the foregoing shall result in adjustment of the ERIF as hereinafter
provided. For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 1,020 square feet.
If the cost to Lessor of electricity shall have been, or shall be,
increased or decreased subsequent to November 1, 1990 (whether such change
occurs prior to or during the term of this lease), by change in Lessor's
electric rates or service classifications, or by any increase, subsequent to
the last such electric rate or service classification change, in fuel
adjustments or charges of any kind, or by taxes, imposed on Lessor's
electricity purchases, or for any other such reason, then the ERIF, which is a
portion of the fixed annual rent, shall be changed in the same percentage as
any such change in cost due to changes in electric rates or service
classifications, and, also, Lessee's payment of obligation, for electricity
redistribution, shall change from time to time so as to reflect any such
increase in fuel adjustments or charges, and taxes. Any such percentage change
in Lessor's cost due to changes in electric rates or service classifications
shall be computed by the application of the average consumption (energy' and
demand) of electricity for the entire building for the twelve (12) full months
immediately prior to the rate and/or service classification change, or any
changed methods of or rules on billing for same, on a consistent basis to the
new rate and/or service classification and to the immediately prior existing
rate and/or service classification. If the average consumption of electricity
for the entire building for said prior twelve (12) months cannot reasonably be
applied and used with respect to changed methods of or rules on billing, then
the percentage increase shall be computed by the use of the average consumption
(energy and demand) for the entire building for the first three (3) months
after such change, projected to a full twelve (12) months, so as to reflect the
different seasons; and that same consumption, so projected, shall be applied to
the rate and/or service classification which existed immediately prior to the
change. The parties agree that a reputable, independent electrical consultant
selected by Lessor ("Lessor's electrical consultant"), shall determine the
percentage change for the changes in the ERIF due to Lessor's changed costs,
and that Lessor's electrical consultant may from time to time make surveys in
the demised premises of the electrical equipment and fixtures and the use of
current. (i) If any such survey shall reflect a connected load in the demised
premises in excess of 4-1/2 watts of electricity for all purposes per rentable
square foot and/or energy usage in excess of ordinary business hours (each such
excess is hereinafter called "excess electricity") then the connected load
and/or the hours of use portion(s) of the then existing ERIF shall each be
increased by an amount which is equal to a fraction of the then existing ERIF,
the numerator of which is the excess electricity (i.e., excess connected load
and/or excess usage) and the denominator of which is the connected load and/or
the energy usage which was the basis for the computation of the then existing
ERIF. Such fractions shall be determined by Lessor's electrical consultant. The
fixed annual rent shall be appropriately adjusted, effective as of the date of
any such change in connected load and/or usage, as disclosed by said survey.
(ii) If such survey shall disclose installation and use of other than Ordinary
Equipment, then effective as of the date of said survey, there shall be added
to the ERIF portion of the fixed annual rent (computed and fixed as
hereinbefore described) an additional amount equal to what would be paid under
the SC-4 Rate I Service Classification in effect on November 1, 1990 (and not
the time-of-
2
<PAGE> 23
day rate schedule) for such load and usage of electricity, with the connected
electrical load deemed to be the demand (KW) and the hours of use thereof
deemed to be the energy (KWH), as hereinbefore provided (which addition to the
ERIF shall be increased or decreased by all electricity cost changes of Lessor,
as hereinabove provided, from November 1, 1990 through the date of billing).
In no event. whether because of surveys of for any other reason, is the
originally specified $2.75 per rentable square foot ERIF portion of the fixed
annual rent (plus any net increase thereof, but not decrease, by virtue of all
electric rate or service classification changes subsequent to November 1, 1990)
to be reduced.
(C) GENERAL CONDITIONS: The determinations by Lessor's electrical
consultant shall be binding and conclusive on Lessor and on Lessee from and
after the delivery of copies of such determinations to Lessor and Lessee,
unless, within fifteen (15) days after delivery thereof Lessee disputes such
determination. If Lessee so disputes the determination, it shall, at its own
expense, obtain from a reputable, independent electrical consultant its own
determinations in accordance with the provisions or this Article. Lessee's
consultant and Lessor's consultant then shall seek to agree. If they cannot
agree within thirty (30) days they shall choose a third reputable electrical
consultant, whose cost shall be shared equally by the parties, to make similar
determinations which shall be controlling. (If they cannot agree on such third
consultant within ten (10) days, then either party may apply to the Supreme
Court of New York for such appointment.) However, pending such controlling
determinations, Lessee shall pay to Lessor the amount of additional rent or
ERIF in accordance with the determinations of Lessors electrical consultant. If
the controlling determinations differ from Lessor's electrical consultant, then
the parties shall promptly make adjustment for any deficiency owed by Lessee or
overage paid by Lessee.
At the option of Lessor, Lessee agrees to purchase from Lessor or its
agents all lamps and bulbs used in the demised premises and to pay for the cost
of installation thereof. Lessor shall not be liable to Lessee for any loss or
damage or expense which Lessee may sustain or incur if either the quantity or
character of electric service is changed or is no longer available or suitable
for Lessee's requirements. Lessee covenants and agrees that at all times its
use of electric current shall never exceed the capacity of existing feeders to
the building or the risers or wiring installation. Lessee agrees not to connect
any additional electrical equipment to the building electric distribution
system, other than lamps, typewriters and other small office machines which
consume comparable amounts of electricity, without Lessor's prior written
consent, which consent shall not be unreasonably withheld. Any riser or risers
to supply Lessee's electrical requirements, upon written request of Lessee,
will be installed by Lessor, at the sole cost and expense of Lessee, if, in
Lessor's sole judgment, the same are necessary and will not cause permanent
damage or injury, to the building or demised premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants or
occupants. In addition to the installation of such riser or risers, Lessor will
also at the sole cost and expense of Lessee, install all other equipment proper
and necessary, in connection therewith subject to the aforesaid terms and
conditions. The parties acknowledge that they understand that it is anticipated
that electric rates, charges, etc. may be changed by virtue of time-of-day
rates or other methods of billing, and that the references in the foregoing two
paragraphs to changes in methods of or rules on billing are intended to include
any such changes. Supplementing Article 35 hereof, if all or part of the
submetering additional rent or the ERIF payable in accordance with Subdivision
(A) or (B) of this Article becomes uncollectible or reduced or refunded by
virtue of any law, order or regulation, the parties agree that, at Lessor's
option, in lieu of submetering additional rent or ERIF, and in consideration of
Lessee's use of the building's electrical distribution system and receipt of
3
<PAGE> 24
redistributed electricity and payment by Lessor of consultants' fees and other
redistribution costs, the fixed annual rental rate(s) to be paid under this
Lease shall be increased by an "alternative charge" which shall be a sum equal
to $2.75 per year per rentable sq. ft. of the demised premises, changed in the
same percentage as any changes in the cost to Lessor for electricity for the
entire building subsequent to November 1, 1990, because of electric rate or
service classification changes, such percentage change to be computed as in
Subdivision (B) provided. Anything hereinabove to the contrary,
notwithstanding, in no event is the ERIF or any "alternative charge" to be less
than an amount equal to the total of Lessor's payment to the public utility for
the electricity consumed by Lessee (and any taxes thereon or on redistribution
of same) plus 5% thereof for transmission line loss, plus 15% thereof for other
redistribution costs. The Lessor reserves the right, at any time upon thirty
(30) days' written notice, to change its furnishing of electricity to Lessee
from a rent inclusion basis to a submetering basis, or vice versa. The Lessor
reserves the right to terminate the furnishing of electricity on a
rent-inclusion, submetering, or any other basis at any time, upon thirty (30)
days' written notice to the Lessee, in which event the Lessee may make
application directly to the public utility for the Lessee's entire separate
supply of electric current and Lessor shall permit its wires and conduits, to
the extent available and safely capable, to be used for such purpose, but only
to the extent of Lessee's then authorized load. Any meters, risers or other
equipment or connections necessary to furnish electricity on a submetering
basis or to enable Lessee to obtain electric current directly from such utility
shall be installed at Lessee's sole cost and expense. Only rigid conduit or
electricity metal tubing (EMT) will be allowed. The Lessor, upon the expiration
of the aforesaid thirty (30) days' written notice to the Lessee may discontinue
furnishing the electric current but this lease shall otherwise remain in full
force and effect. If Lessee was provided electricity on a rent inclusion basis
when it was so discontinued, then commencing when Lessee receives such direct
service and as long as Lessee shall continue to receive such service, the fixed
annual rental rate payable under this lease shall be reduced by the amount of
the ERIF which was payable immediately prior to such discontinuance of
electricity on a rent inclusion basis.
42. Lessee shall pay to Lessor fixed rentals at the following annual rates:
(a) From January 1, 1996, through December 31, 1999, the annual
rent shall be $24,480 payable in equal monthly installments of $2,040
except January, February, March, April, May, and June 1996; and
(b) From January 1, 2000, through April 30, 2006, the annual rent
shall be $35,700 payable in equal monthly installments of $2,975.
43. Lessee acknowledges that the fixed annual rental rates, hereinabove set
forth, are intended to create an average rental rate over the term of the
lease of $31,356.77. Lessee therefore agrees that if, for any reason
whatever, including termination because of default, condemnation or
casualty, or cancellation by mutual agreement, the term of this lease is
ended prior to April 30, 2006, then and in such event, in addition to any
other liability to Lessor from Lessee, and remedies of Lessor under this
lease and under the law, Lessee shall be obligated forthwith to pay to
Lessor, as additional rent, a sum equal to the difference between the
average rental rate of $31,356.77 a year (as adjusted under Article 23)
and the fixed annual rents (as adjusted under Article 23) theretofore paid
by Lessee to Lessor.
4
<PAGE> 25
RULES AND REGULATIONS REFERRED
TO IN THIS LEASE
1. No animals, birds, bicycles or vehicles shall be brought into or kept
in the premises. The premises shall not be used for manufacturing or commercial
repairing or for sale or display of merchandise or as a lodging place, or for
any immoral or illegal purpose, nor shall the premises be used for a public
stenographer or typist, barber or beauty shop; telephone, secretarial or
messenger service; employment, travel or tourist agency, school or classroom,
commercial document reproduction; or for any business other than specifically
provided for in the tenant's lease. Lessee shall not cause or permit in the
premises any disturbing noises which may interfere with occupants of this or
neighboring buildings, any cooking or objectionable odors, or any nuisance of
any kind, or any inflammable or explosive fluid, chemical or substance.
Canvassing, soliciting and peddling in the building are prohibited, and each
Lessee shall cooperate so as to prevent the same.
2. The toilet rooms and other water apparatus shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rags, ink, chemicals or any unsuitable substances shall be thrown therein.
Lessee shall not throw anything out of doors, windows or skylights, or into
hallways, stairways or elevators, nor place food or objects on outside window
sills. Lessee shall not obstruct or cover the hails, stairways and elevators,
or use them for any purpose other than ingress and egress to or from Lessee's
premises, nor shall skylights, windows, doors and transoms that reflect or
admit light into the building be covered or obstructed in any way.
3. Lessee shall not place a load upon any floor of the premises in excess
of the load per square foot which such floor was designed to carry and which is
allowed by law. Lessor reserves the right to prescribe the weight and position
of all safes in the premises. Business machines and mechanical equipment shall
be placed and maintained by Lessee, at Lessee's expense, only with Lessor's
consent and in settings approved by Lessor to control weigh,.vibration, noise
and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the
elevators of the building is prohibited. If the premises are on the ground
floor of the building the tenant thereof at its expense shall keep the
sidewalks and curb in front of the premises clean and free from ice, snow, dirt
and rubbish.
4. Lessee shall not move any heavy or bulky materials into or out of the
building without Lessor's prior written consent, and then only during such
hours and in such manner as Lessor shall approve. If any material or equipment
requires special handling, Lessee shall employ only persons holding a Master
Rigger's License to do such work, and all such work shall comply with all legal
requirements. Lessor reserves the right to inspect all freight to be brought
into the building, and to exclude any freight which violates any rule,
regulation or other provision of this lease.
5. No sign, advertisement, notice or thing shall be inscribed, painted or
affixed on any part of the building, without the prior written consent of
Lessor. Lessor may remove anything installed in violation of this provision,
and Lessee shall pay the cost of such removal. Interior signs on doors and
directories shall be inscribed or affixed by Lessor at Lessee's expense. Lessor
shall control the color, size, style and location of all signs, advertisements
and notices. No advertising of any kind by Lessee shall refer to the building,
unless first approved in writing by Lessor.
6. No article shall be fastened to, or holes drilled or nails or screws
driven into, the ceilings, walls, doors or other portions of the premises, nor
shall any part of the premises be painted, papered or otherwise covered, or in
any way marked or broken, without the prior written consent of Lessor.
5
<PAGE> 26
7. No existing locks shall be changed, nor shall any additional locks or
bolts of any kind be placed upon any door or window by Lessee, without the
prior written consent of Lessor. At the termination of this lease, Lessee shall
deliver to Lessor all keys for any portion of the premises or building. Before
leaving the premises at any time, Lessee shall close all windows and close and
lock all doors.
8. No Lessee shall purchase or obtain for use in the premises any spring
water, ice, towels, food, boothlacking, barbering or other such service
furnished by any company or person not approved by Lessor. Any necessary
exterminating work in the premises shall be done at Lessee's expense, at such
times, in such manner and by such company as Lessor shall require. Lessor
reserves the right to exclude from the building, from 6:00 p.m. to 8:00 a.m.,
and at all hours on Sunday and legal holidays, all persons who do not present a
pass to the building signed by Lessor. Lessor will furnish passes to all
persons reasonably designated by Lessee. Lessee shall be responsible for the
acts of all persons to whom passes are issued at Lessee's request.
9. Whenever Lessee shall submit to Lessor any plan, agreement or other
document for Lessor's consent or approval, Lessee agrees to pay Lessor as
additional rent, on demand, an administrative fee equal to the sum of the
reasonable fees of any architect, engineer or attorney employed by Lessor to
review said plan, agreement or document and Lessor's administrative costs for
same.
10. The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to produce space heating, is prohibited.
In case of any conflict or inconsistency between provisions of this lease
and any of the rules and regulations as originally or as hereafter adopted, the
provisions of this lease shall control.
6
<PAGE> 1
EXHIBIT 10.2
LEASE
(SHORT FORM)
This Lease is entered into by PATRICK & CORINNE BREESE, CHESTER & VEDA GRAY
("Landlord") and THIRD QUARTER, INC. ("Tenant"). Landlord and Tenant, in
consideration of the mutual promises and covenants contained herein, now agree
as follows:
1. LEASED PREMISES. The leased premises ("Property") is described as
follows:
9125 square feet located in a part of the building at 3750 West 16th
Street, in Indianapolis, Indiana
2. TERM. The term of this Lease shall begin on January 1, 1995, at 12:01
o'clock a.m. and shall end on December 31, 1996, at 11:59 o'clock p.m.
3. RENT. Tenant shall pay Landlord the sum of Twenty-Seven Thousand Five
Hundred Sixteen Dollars ($27,516.00) per year, payable monthly in advance,
in the amount of Twenty-Two Hundred Ninety-Three and no/100 Dollars
($2,293.00) per month on the first day of each month as rent for the
Property. Tenant agrees to pay said rent to Landlord at Landlord's place
of business which is:
c/o Pat Breese at 20 South Second Street, Zionsville, IN 46077.
4. DEPOSIT. On the date of execution of this Lease, the Tenant shall pay
the Landlord a damage deposit in the amount of Previously Paid Dollars
($2,025.25), which deposit shall be returned to Tenant within thirty (30)
days after the termination of this Lease if the Property is in
satisfactory condition and free from damage, normal wear and tear
excepted.
5. USE. The Property shall only be used for assembly and distribution of
toys. Tenant agrees not to use Property in any manner or for any purpose
which would be in violation of any Federal, State or Local law, or is
immoral.
6. ASSIGNMENT. Tenant agrees that this Lease may not be assigned or
sub-leased to any other person or legal entity.
7. WASTE. Tenant agrees that no waste will be committed on this Property or
damage done to this Property. Tenant agrees to keep the Property in good
repair and not to make any alterations to the Property.
8. LIABILITY. Tenant agrees that the Landlord shall not be responsible to
the Tenant, or any members of the Tenant's family, for any injury or
damage to any person or property that may occur on or about the Property
during the term of this Lease.
9. UTILITIES. Tenant agrees to pay for all utilities connected to the
Property such as sewer, cable television, telephone, steam, gas or
electricity. This shall apply only to tenant's pro rata share.
10. TERMINATION. Tenant agrees that if he breaches any of the terms of this
Lease then the Landlord may, at its option, in addition to any other
remedy or right it has at law or in equity, re-enter the Property, without
demand or notice, and resume possession by an action in law or equity or
by force or otherwise and without being liable in trespass or for any
damages and without terminating this Lease; and Landlord shall also be
entitled to recover its reasonable attorney fee, court costs and other
expenses associated with enforcing Landlord's rights caused by Tenant's
breach of this Lease. Landlord may remove all persons and property from
the Property and such property may be removed and stored at the cost of
Tenant.
11. MODIFICATION. Landlord and Tenant agree that this Lease may not be
modified unless there is a written consent to do so executed by Landlord
and Tenant.
12. SPECIAL PROVISIONS. Effective October 1, 1995, above Lessee shall assume
the rental of the entire building at the additional rent of $1,100.00 per
month for the termination of the Third Quarter lease.
This Lease is executed at Indianapolis, Indiana on the 31st day of December,
1994.
This Agreement may be executed simultaneously or in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this document may be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered, if
requested.
<TABLE>
<S> <C>
LANDLORD TENANT: THIRD QUARTER, INC.
/s/ Patrick A. Breese, /s/ Corinne S. Breese /s/ Chip Voigt
/s/ Veda J. Gray, /s/ Chester L. Gray
</TABLE>
Approved by and restricted to use by members of the Metropolitan Indianapolis
Board of REALTORS. This is a legally binding contract. If not understood seek
legal advice. MIBOR 1992 (Form No. 240-01/92)
<PAGE> 1
EXHIBIT 10.3
LICENSE AGREEMENT
This "Agreement" is entered into as of November 1, 1995, by and between
Hollywood Ventures Corporation ("HVC"), a California corporation, 9255 Sunset
Boulevard, Suite 405, Los Angeles, California 90069 and ("Licensor") and Third
Quarter Corporation d/b/a Fundex, an Indiana corporation ("Licensee"), 3570
West 16th Street, Indianapolis, Indiana 46222.
WHEREAS, Licensor is the owner of certain rights in the property described
and/or illustrated in Schedule A ("Property") including, but not limited to the
Trademarks listed in Schedule B ("Trademarks");
WHEREAS, Licensee desires to use the Property and/or the Trademarks on or
in connection with the products identified in Schedule C ("Licensed Products")
in the countries identified in Schedule D ("Territory"); and
WHEREAS, Licensor is willing to grant Licensee the right to use the
Property and/or the Trademarks on such Licensed Products.
NOW, THEREFORE, in consideration of their mutual promises, covenants and
conditions contained herein, it is agreed as follows:
1. OWNERSHIPS OF RIGHTS. Licensor is the exclusive owner of the right to
license the Property and Trademarks for use in association with the Licensed
Products in the Territory pursuant to a grant of rights by the owners, Nestor
Productions, Inc. and Big Comfy Corp. With the exception of the rights
expressly licensed hereunder to Licensee, all other rights relating thereto are
expressly reserved by Licensor, Nestor Productions, Inc. and Big Comfy Corp.
2. GRANT OF LICENSE. Licensor grants to Licensee an exclusive,
non-transferable, non-assignable license, without the right to grant
sub-licenses, to use the Property and/or the Trademarks solely on or in
connection with the manufacture, sale, offering for sale, advertising,
promotion and distribution of the Licensed Products and solely within the
Territory and, for this purpose only, to affix the Trademarks on or to
packaging, displays, sales, advertising and promotional materials sold, used or
distributed in connection with the Licensed Products ("Promotional and
Packaging Material"). The foregoing notwithstanding, Licensee shall not
directly nor indirectly through any affiliate company in which Licensee or any
of its controlling shareholders, officers or directors own an interest
individually or in the aggregate in excess of ten percent (10%), sell any
Licensed Products directly to consumers, including but not limited to direct
response sales, direct sales and personal appearance sales. Licensee's sales
shall be to bona fide retailers or through bona fide wholesalers which shall
sell the Licensed Products only to retailers. Notwithstanding the foregoing,
Licensee shall have the right to engage a third party to manufacture the
Licensed Products.
3. TERM AND OPTIONS. (a) This Agreement shall commence and be effective
on November 1, 1995 ("Effective Date") provided this Agreement has been
executed by both parties and Licensor has received the fully executed Agreement
and the Advance. Thereafter, this Agreement shall continue for an "Initial
Term" terminating on December 31, 1997, unless terminated prior thereto
pursuant to this Agreement. An Advance of twenty-five thousand dollars
($25,000.00) is payable upon execution of this Agreement as a non-refundable
Advance against Royalties ("Advance").
(b) If Licensee is in full compliance with this Agreement during the then
Initial Term and Licensee's sales during the Term will have resulted in Royalty
payments remitted to
<PAGE> 2
Licensor of at least one hundred and fifty thousand dollars ($150,000.00),
Licensor agrees to grant to Licensee the option ("Option") to extend the Term
for additional two (2) years provided that Licensee gives Licensor at least
ninety (90) days prior written notice of its intention to exercise such Option.
4. ROYALTY PROVISIONS. (a) Licensee agrees to pay Licensor a "Royalty" of
eight percent (8%) based upon Net Sales of the Licensed Products.
(b) "Net Sales" shall mean gross sales less actual quantity discounts and
returns actually credited. No deduction shall be made for cash or other
discounts, commissions or uncollectible accounts nor for any costs incurred in
the manufacture, sale, distribution or exploitation of the Licensed Products. A
Royalty shall also be paid by Licensee based on Licensee's usual Net Sales
price on all unbilled Licensed Products distributed by Licensee or any of its
affiliated companies. Licensee has discretion to set pricing; however, all
pricing shall be established by Licensee in a commercially reasonable manner
and all Licensed Products shall be sold by Licensee at competitive prices not
substantially more nor substantially less than the price customarily charged by
Licensee for similar products to unaffiliated businesses.
(c) For the Initial Term, Licensee agrees to pay Licensor a "Guaranteed
Minimum Royalty" of no less than forty-five thousand dollars ($45,00000), of
which no less than one-quarter (1/4) of the Guaranteed Minimum Royalty shall be
paid to Licensor at the end of each six (6) month period of the Initial Term.
If upon expiration of the first six (6) month period and for each and every six
(6) month period thereafter (or upon termination of this Agreement in the event
such occurs less than six (6) months following the last Guaranteed Minimum
Royalty payment period) the total Royalties paid by Licensee to Licensor are
less than the Guaranteed Minimum Royalty for said six (6) month period,
Licensee shall immediately pay any such deficiency of the Guaranteed Minimum
Royalty to Licensor. Advances previously remitted to Licensor from Licensee for
any such six (6) month period shall be applied as a credit toward the current
Guaranteed Minimum Royalty.
5. STATEMENTS AND PAYMENTS. (a) Licensee shall provide Licensor within
thirty (30) days after the end of each calendar quarter ("Royalty Period") a
complete and accurate statement of its Net Sales for that quarter, said
statement to be certified as accurate by Licensee. Such statements, which shall
be in conformance with the requirements of Licensor, must be submitted whether
or not any Licensed Products have been shipped or Royalties have been earned.
(b) Acceptance by Licensor of any statement furnished or Royalty paid
shall not preclude Licensor from questioning its correctness and in the event
of inconsistencies or mistakes, they shall be immediately rectified by
Licensee.
(c) All payments shall be remitted in United States currency payable to
the order of Hollywood Ventures Corporation and mailed to the HVC address
stated in the preamble or as may be revised hereafter.
(d) Time is of the essence with respect to all payments and interest at
the rate of one and one-half percent (1 1/2%) per month shall accrue on any
amount due Licensor calculated from the date on which payment was due.
(e) Any and all Royalty payments, whether denoted as Advances, as
Guaranteed Minimum Royalty payments or otherwise, shall be non-refundable.
6. AUDIT. Licensee shall keep accurate books of account covering all
transactions relating to this Agreement. Licensor and/or its representatives
shall have the right, at reasonable hours of the day upon reasonable notice, to
examine such books and all other documents and material in the possession,
custody or control of Licensee with respect to this
2
<PAGE> 3
Agreement and to make copies and summaries thereof no more than two (2) times
per twelve (12) month period. In the event an Audit reveals an underpayment,
Licensee shall immediately remit payment in the amount of the underpayment plus
interest calculated at the rate of one and one-half percent (1 1/2%) per month
from the date such payments were due. In the event such underpayment is greater
than $1,000.00 or five percent (5%) of the reported royalty, whichever is
greater, for any Royalty Period, Licensee shall reimburse Licensor for the cost
and expense of such Audit. All books of account and records of Licensee
relating to this Agreement shall be retained for at least three years after
termination of this Agreement.
7. QUALITY, NOTICES, APPROVALS AND SAMPLES. (a) The quality and style of
the Licensed Products and all Promotional and Packaging Material relating to
the Licensed Products shall be at least as high as the best quality of similar
goods presently sold or distributed by Licensee in the Territory.
(b) All Promotional and Packaging Material and all Licensed Products on
which the Products and/or Trademarks are used shall contain the following legal
notices:
c 1995 Big Comfy Corp.
TM and designate trademark and copyrights of Big Comfy Corp. and are used
under license by (name of Licensee).
All Rights Reserved.
(c) Before commencing the design of the Licensed Products or Promotional
and Packaging Material which have not been previously approved, Licensee shall
submit for Licensor's written approval copies of all preliminary artwork.
Licensor shall have ten (10) business days to respond to submittals. If
Licensor fails to respond within such ten (10) business day period, such
failure to respond shall be deemed to constitute approval of the preliminary
artwork.
(d) Prior to the use of any Promotional and Packaging Material and/or the
sale and distribution of the Licensed Products, Licensee shall submit at its
cost, but for Licensor's approval, three (3) complete sets of samples of all
Licensed Products intended to be sold and distributed and three (3) complete
sets of samples of all Promotional and Packaging Material intended to be used,
none of which may be used, sold, or distributed until receipt of written
approval of said samples from Licensor. Licensor shall have ten (10) business
days to respond to submittals. If Licensor fails to respond within such ten
(10) business day period, such failure to respond shall be deemed to constitute
approval of the samples.
(e) Upon commencement of distribution of the Licensed Products, Licensee
shall submit, at its own expense, an additional twenty-four (24) sets of the
above referenced samples.
(f) Thereafter, from time to time, Licensor may require Licensee to submit
at its own cost up to an additional five (5) sets of samples of Licensed
Products and/or Promotional and Packaging Material to monitor the quality for
continued approval.
(g) Licensor shall have the absolute right to inspect the facilities where
any Licensed Products are being manufactured and/or packaged from time to time
without notice.
(h) In the event the above quality standards are not maintained throughout
the Term, Licensor has the right to require Licensee to immediately discontinue
manufacturing, selling and distributing Licensed Products which do not meet
such quality standard.
8. ARTWORK. The form and content of all work relating to the Property and
Trademarks must be approved by Licensor prior to use. Licensor will provide to
Licensee upon request, at Licensee's expense, artwork which Licensee reasonably
requests. All artwork
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<PAGE> 4
relating to the Property and Trademarks, regardless of who created or
contributed to the works, shall be the sole and exclusive property of Licensor.
9. GOODWILL. Licensee recognizes the value of the goodwill associated with
the Property and Trademarks and acknowledges that each have acquired secondary
meaning. Licensee agrees, during the Term(s) and thereafter, never to attack
the rights of Licensor in such or the validity of this license. Licensee agrees
that its use of the Property and/or Trademarks inures to the benefit of
Licensor and that Licensee shall not acquire any rights in the Property or
Trademarks.
10. TRADEMARK AND COPYRIGHT. (a) Licensor may obtain, at its own expense
and in its name, appropriate copyright and trademark protection for the
Property and/or Trademarks and Licensee agrees to cooperate with Licensor in
all such matters.
(b) Licensee agrees that it shall not at any time apply for any
registration of any copyright, trademark or any other designation which would
affect the ownership of the Property and/or Trademarks nor file any document
with any governmental authority to take any action which would affect the
ownership thereof; however, Licensee shall register as a registered
user/licensee, at Licensee's expense, in any country where registration of the
licensee of a trademark or copyright is required.
(c) Licensee agrees that it shall not at any time use or authorize the use
of any trademark, trade name or other designation identical with or
substantially similar to the Trademarks.
(d) Licensee agrees to assist Licensor in the enforcement of Licensor's
rights in the Property and/or Trademarks. With respect to any such claims and
suits, Licensor shall employ counsel of its own choosing and at its own expense
to direct the litigation and any settlement thereof. Licensor shall be entitled
to receive and retain all amounts awarded as damages, profits or otherwise in
connection with such claims.
11. INDEMNIFICATION. Licensee agrees to defend, indemnify and hold
Licensor harmless against any claims, demands, causes of action and judgment
arising out of Licensees manufacture, sale, offering for sale, distribution,
promotion and/or advertising of Licensed Products. Licensor agrees to defend,
indemnify and hold Licensee harmless against any claims, demands, causes of
action and judgment arising out of any claim by a third party alleging a
violation of said claimant's copyrights or trademarks, provided and to the
extent that Licensee's utilization of the Licensed Products is in compliance
with the rights granted to Licensee herein.
12. INSURANCE. Licensee shall, throughout the Term, obtain and maintain at
its own expense standard product liability insurance, the form of which must be
acceptable to Licensor, naming Licensor as an additional named insured. Such
policy shall provide protection against all claims, demands and causes of
action arising out of any defects or failure to perform, alleged or otherwise,
of the Licensed Products or any use thereof. The amount of coverage shall be a
minimum of $1,000,000 for each claim and $3,000,000 in the aggregate with a
deductible not to exceed $5,000 for each single occurrence for bodily injury
and/or property damage. The policy shall provide for thirty (30) days notice to
Licensor from the insurer in the event of any modification or termination of
such coverage. Licensee shall furnish Licensor a certificate of insurance
evidencing same within thirty (30) days after execution of this Agreement but
in any event, prior to any manufacture and distribution of the Licensed
Products.
13. EXPLOITATION BY LICENSEE. (a) Licensee shall commence manufacture,
distribution, and sale of the Licensed Products in commercially reasonable
quantities within six (6) months after the Effective Date and, thereafter,
shall continue to distribute and sell all of the Licensed Products throughout
the Territory on a continuous basis in a commercially reasonable
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<PAGE> 5
manner. Licensee shall spend a minimum of $15,000 during the Term on trade
promotion and point-of-sales materials according to a budget to be mutually
approved by Licensee and Licensor. Licensee shall provide a co-op advertising
fund to its clients in an amount no less than three percent (3%) of Net Sales.
Licensee shall additionally produce new and original sales materials no less
frequently than every twelve (12) months. Licensee shall also consult with
Licensor concerning possible updating of the Licensed Product line on an annual
basis. Any such updating and revisions shall be subject to the approval
criteria stated elsewhere in this Agreement.
(b) Any Property (Character), Trademark or Licensed Product which is not
diligently exploited at any time following the expiration of the initial twelve
(12) months after the Effective Date shall be deemed abandoned by Licensee, and
in such event the license for such Property, Trademark or Licensed Product
shall terminate and revert back to Licensor automatically. In the event of a
dispute, Licensee shall have the burden of establishing that Licensee was
diligently exploiting the Property, Trademark or Licensed Product as required
herein.
14. PREMIUMS, PROMOTIONS AND SECONDS. (a) Licensor shall have the sole
right to license third parties to utilize any of the Licensed Products in
connection with premium, giveaway or promotional arrangements. For purposes of
this Agreement a "premium" is a product or a product combined with a service
which is sold or supplied in association with the promotion of another product
or service, or offered in association with the sales promotion activities of
retailers, wholesalers or manufacturers in association with incentive programs.
(b) Licensee shall not sell, distribute or use or permit any third party
to sell, distribute or use any Licensed Products which are damaged, defective,
seconds or otherwise fail to meet the specifications and/or quality control or
notice requirements of this Agreement.
15. TERMINATION. The following are in addition to the termination rights
provided elsewhere in this Agreement:
(a) Immediate Right of Termination. Licensor shall have the right to
immediately terminate this Agreement on written notice should Licensee:
(i) Make, sell, offer for sale, use or distribute any Licensed
Product or Promotional or Packaging Material without having the
prior written approval of Licensor or continues to make, sell,
offer for sale, use or distribute such after receipt of notice from
Licensor withdrawing approval of same due to subsequent
non-compliance;
(ii) Fail, after receipt of written notice from Licensor to
immediately discontinue the distribution of sale of Licensed
Products or the use of any Promotional or Packaging Material which
does not contain the appropriate legal legend;
(iii) Subject to any voluntary or involuntary order of any
government agency involving the recall of any of the Licensed
Products;
(iv) Or its controlling shareholders, officers, directors or
employees take any actions in connection with the manufacture,
sale, distribution or advertising of the Licensed Products or the
Promotional and Packaging Material which damages or reflects
adversely upon Licensor, the Property and/or Trademarks;
(v) Breach any of the provisions of this Agreement relating to
the unauthorized assertion of rights in the Property or Trademarks;
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<PAGE> 6
(vi) Fail to make timely payment of Royalties when due or fail
to make timely submission of Royalty statements when due two or
more times during a twelve-month period or fail to pay the
Guaranteed Minimum Royalty; or
(vii) Breach any provision of this Agreement prohibiting
Licensee from directly or indirectly assigning, transferring,
sublicensing or other encumbering of this Agreement or any of its
rights or obligations hereunder.
(b) Right to Terminate on Notice. A party may terminate this
Agreement on thirty (30) days written notice to the other party, under
any of the following circumstances, provided that during the thirty (30)
day period, the defaulting party fails to cure the breach;
(i) Should Licensee fail to commence sale and distribution of
the Licensed Products in all countries in the Territory;
(ii) Should Licensee, after commencing to sell and distribute
Licensed Products, fail to continue to sell and distribute such in
commercially acceptable quantities in all countries in the
Territory for two consecutive Royalty Periods;
(iii) Should Licensee violate any of its obligations under
this Agreement;
(iv) Should Licensee file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, make an assignment for the
benefit of creditors, an arrangement pursuant to any bankruptcy
law, or if Licensee discontinues its business or if a receiver is
appointed for Licensee which is not discharged within thirty (30)
days thereafter;
(v) Should the other party commit a material breach of any
other provision of this Agreement which is not cured within thirty
(30) days after receiving notice from the non-breaching party; or
(vi) Should any Licensed Products be sold by Licensee at
prices which are clearly not competitive prices as such are
customarily charged by Licensee for similar products to
unaffiliated businesses.
16. EFFECT OF TERMINATION. (a) If this Agreement is terminated under
paragraph 15(a), no Licensed Products may be sold or distributed or any
Promotional or Packaging Material used without the prior expressed approval of
Licensor.
(b) Upon termination of this Agreement, notwithstanding anything to the
contrary herein, all Royalties on shipments made shall become immediately due
and payable.
(c) If this Agreement is terminated under provision other than paragraph
15(a), Licensed Products which are on hand or in process at the time the notice
of termination is received or at the time of the expiration of the Agreement, as
the case may be, may continue to be sold or distributed for a sixty (60) day
period, provided that all Royalties with respect to that period are paid and
that Licensor may itself use or license the use of the Property and/or
Trademarks in any manner.
(d) After termination of this Agreement, all rights hereunder shall revert
to Licensor who may license others to use the Property and/or Trademarks in any
way whatsoever. Thereafter, Licensee shall refrain from any further use of the
Property and/or Trademarks and turn over to Licensor all molds and other
materials which reproduce the Licensed Products or shall give Licensor
satisfactory evidence of their destruction, at Licensor's sole option. Licensee
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<PAGE> 7
shall be responsible for any damages caused by the unauthorized use of such
molds or reproduction materials which are not turned over or destroyed.
(e) Licensee acknowledges that its failure to cease the manufacture, sale
or distribution of Licensed Products or any class or category thereof at the
time of termination or expiration will result in immediate and irreparable harm
to Licensor and to the rights of any subsequent licensee. Licensee acknowledges
that there is no adequate remedy at law for failure to cease the manufacture,
sale, or distribution and Licensee agrees that in the event of such failure,
Licensor shall be entitled to equitable relief by way of injunctive relief and
such other relief as any court with jurisdiction may deem proper.
(f) Within thirty (30) days after termination or expiration of this
Agreement, Licensee shall provide Licensor with a statement indicating the
number and description of the Licensed Products which it had on hand or in the
process of manufacturing as of the expiration or termination. Licensor shall
have the option of conducting a physical inventory to ascertain or verify such.
In the event Licensee refuses to permit Licensor to conduct such physical
inventory, Licensee shall forfeit its rights hereunder to dispose of such
inventory.
17. FAN MAIL. Licensee agrees to include on its packaging of appropriate
Licensed Products, as determined by Licensor, the following message in
prominent position:
Write to your friends on "The Big Comfy Couch" at:
P.O. Box 15338, Beverly Hills, California 90209-1338.
18. PURCHASE OF LICENSED PRODUCTS. Licensor shall have the right to
purchase some or all of the Licensed Products from time to time, at such times
and in such quantities as Licensor desires.
(a) If Licensor desires to purchase Licensed Products for resale
through direct response, direct sales, personal appearances or other
means (other than to retailers or wholesalers to retailers), Licensee
agrees to sell such Licensed Products upon the most favorable terms and
at the lowest wholesale price offered by Licensee to any of its
customers, regardless of quantity requirements, less twenty-five percent
(25%).
(b) If Licensor desires to purchase Licensed Products for
promotional purposes only (not for resale), Licensee agrees to sell such
Licensed Products at Licensee's cost plus ten percent (10%), with the
royalty owing to Licensor being waived for these purposes only.
19. NOTICES. All notices or payments required to be sent to either party
shall be in writing at the last known addresses of the parties. Any notice of
breach, default or termination shall be sent by certified mail, return receipt
requested.
20. MISCELLANEOUS. (a) This Agreement does not create a partnership or
joint venture and Licensee shall have no power to obligate or bind Licensor
whatsoever.
(b) This Agreement shall be governed by the law of the State of California
and any claims arising hereunder shall, at Licensor's election, be maintained
in Los Angeles, California.
(c) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver of a subsequent breach or default.
(d) In the event that any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect, such shall not affect any other
provision and this Agreement shall
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<PAGE> 8
be interpreted and construed as if such provision, to the extent invalid,
illegal or unenforceable, had never been part of the Agreement.
(e) This Agreement represents the entire understanding between the parties
with respect to the subject matter and supersedes all previous representations,
understandings or agreements, written or oral, and cannot be modified except by
written instrument.
IN WITNESS WHEREOF, the parties execute this Agreement for the purposes
stated above.
<TABLE> <CAPTION>
<S> <C>
HOLLYWOOD VENTURES CORPORATION
By: /S/ Richard Goldsmith
---------------------------------------
(a duly authorized officer)
Name and Title: /S/ President
--------------------------
(print)
Date: /S/ December 7, 1995
------------------------------------
THIRD QUARTER CORPORATION
By: /S/ Carl E. Voigt, IV
---------------------------------------
(a duly authorized officer)
Name and Title: /S/ President
--------------------------
(print)
Date: /S/ December 7, 1995
-------------------------------------
</TABLE>
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<PAGE> 9
SCHEDULE A
The PROPERTY is/are the following specific CHARACTERS associated with the
television series "The Big Comfy Couch": LOONETTE, MOLLY, MAJOR BEDHEAD,
GRANNY GARBANZO, AUNTIE MACASSER, DAD FOLEY, MOM FOLEY, ANDY FOLEY, FUZZY
DUSTBUNNY, WUZZY DUSTBUNNY, and SNICKLEFRITZ.
Note: All character names shall at all times be followed by the phrase:
from "The Big Comfy Couch"
SCHEDULE B
LIST OF TRADEMARKS: The Big Comfy Couch name and logo.
SCHEDULE C
LIST OF LICENSED PRODUCTS: Wooden inlay puzzles, paperboard inlay
puzzles, paperboard boxed puzzles, floor puzzles, and board games. In addition
to the general reservation of rights not expressly granted, Licensor expressly
reserves the right to license the above referenced products with electronics.
SCHEDULE D
LICENSED TERRITORY: The United States and Canada and their respective
territories and possessions.
<TABLE> <CAPTION>
<S> <C>
HOLLYWOOD VENTURES CORPORATION
By: /S/ Richard Goldsmith
-------------------------------------
THIRD QUARTER CORPORATION
By: /S/ Carl E. Voigt, IV
-------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.4
LICENSE AGREEMENT
This "Agreement" is entered into as of June I, 1996, by and between
Hollywood Ventures Corporation, a California corporation, 9255 Sunset
Boulevard, Suite 405, Los Angeles, California 90069 ("Licensor") and Third
Quarter Corporation d/b/a Fundex, an Indiana corporation ("Licensee"), 3750
West t6th Street, Indianapolis, Indiana 46222.
WHEREAS, Licensor is the owner of certain rights in the property described
and/or illustrated in Schedule A ("Property") including, but not limited to the
Trademarks listed in Schedule B ("Trademarks");
WHEREAS, Licensee desires to use the Property and/or the Trademarks on or
in connection with the products identified in Schedule C ("Licensed Products")
in the countries identified m Schedule D ("Territory"); and
WHEREAS, Licensor is willing to grant Licensee the right to use the
Property and/or the Trademarks on such Licensed Products.
NOW, THEREFORE, in consideration of their mutual promises, covenants and
conditions contained herein, it is agreed as follows:
1. OWNERSHIPS OF RIGHTS. Licensor is the exclusive owner of the fight to
license the Property and Trademarks for use in association with the Licensed
Products in the Territory pursuant to a grant of rights by the owners, Nestor
Productions, Inc. and Big Comfy Corp, (the "Owners"). With the exception of the
rights expressly licensed hereunder to Licensee, all other fights relating
thereto are expressly reserved by Licensor, Nestor Productions, Inc. and Big
Comfy Corp.
2. GRANT OF LICENSE. Licensor grants to Licensee an exclusive,
non-transferable, non-assignable license, without the right to grant
sub-licenses, to use the Property and/or the Trademarks solely on or in
connection with the manufacture, sale, offering for sale, advertising,
promotion and distribution of the Licensed Products and solely within the
Territory and, for this purpose only, to affix the Trademarks on or to
packaging, displays, sales, advertising and promotional materials sold, used or
distributed in connection with the Licensed Products ("Promotional and
Packaging Material"). The foregoing notwithstanding, Licensee shall not
directly nor indirectly through any affiliate company in which Licensee or any
of its controlling shareholders, officers or directors own an interest
individually or in the aggregate in excess often percent (10%), sell any
Licensed Products directly to consumers, including but not limited to direct
response sales, direct sales and personal appearance sales. Licensee's sales
shall be to bona fide retailers or through bona fide wholesalers which shall
sell the Licensed Products only to retailers.
3. TERM AND OPTIONS. (a) This Agreement shall commence and be effective on
June 1, 1996 ("Effective Date") provided this Agreement has been executed by
both parties and Licensor has received the fully executed Agreement and the
Advance. Thereafter, this Agreement shall continue for an "Initial Term"
terminating on December 31, 1998, unless terminated prior thereto pursuant to
this Agreement. An Advance of ten thousand dollars ($10,000) is payable upon
execution of this Agreement as a non-refundable Advance against Royalties
("Advance").
<PAGE> 2
(b) If Licensee is in full compliance with this Agreement during the then
Initial Term and Licensee's sales during the Term will have resulted in Royalty
payments remitted to Licensor of at least $200,000, Licensor agrees to grant to
Licensee the option ("Option") to extend the Term for additional two (2) years
provided that Licensee gives Licensor at least ninety (90) days prior written
notice of its intention to exercise such Option.
(c) In the event of the termination or expiration of this Agreement,
Licensor shall have the sole option to grant Licensee an extension option
("Extension Option") to extend the Term of this Agreement for a period up to
July 1, 2001, at Licensor's sole option.
4. ROYALTY PROVISIONS. (a) Licensee agrees to pay Licensor a Royalty of
eight percent (8%) based upon Net Sales of the Licensed Products sold in the
Territory or, if Licensed Products are sold on terms F.O.B. a shipping point
outside of the Territory, a Royalty of ten percent (10%) based upon Net Sales
of the Licensed Products (the "Royalty").
(b) "Net Sales" shall mean gross sales less actual quantity discounts and
returns actually credited. No deduction shall be made for cash or other
discounts, commissions or uncollectible accounts nor for any costs incurred in
the manufacture, sale, distribution or exploitation of the Licensed Products. A
Royalty shall also be paid by Licensee based on Licensee's usual Net Sales
price on all unbilled Licensed Products distributed by Licensee or any of its
affiliated companies. Licensee has discretion to set pricing; however, all
pricing shall be established by Licensee in a commercially reasonable manner
and all Licensed Products shall be sold by Licensee at competitive prices not
substantially more nor substantially less than the price customarily charged by
Licensee for similar products to unaffiliated businesses. Royalties accruing
during any Sell-Off Period shall not be applied against the Advance or the
Guaranteed Minimum Royalty.
(c) For the Initial Term, Licensee agrees to pay Licensor a "Guaranteed
Minimum Royalty" of no less than forty thousand dollars ($40,000), of which no
less than one-half (1/2) of the Guaranteed Minimum Royalty shall be paid to
Licensor at the end of each twelve (12) month period of the Initial Term. If
upon expiration of the first twelve (12) month period and for each and every
twelve (12) month period thereafter (or upon termination of this Agreement in
the event such occurs less than twelve (12) months following the last
Guaranteed Minimum Royalty payment period) the total Royalties paid by Licensee
to Licensor are less than the Guaranteed Minimum Royalty for said twelve (12)
month period, Licensee shall immediately pay any such deficiency of the
Guaranteed Minimum Royalty to Licensor. Advances previously remitted to
Licensor from Licensee for any such twelve (12) month period shall be applied
as a credit toward the current Guaranteed Minimum Royalty.
5. STATEMENTS AND PAYMENTS. (a) Licensee shall provide Licensor within
thirty (30) days after the end of each calendar quarter ("Royalty Period") a
complete and accurate statement of its Net Sales for that quarter, said
statement to be certified as accurate by an officer of Licensee, and
corresponding Royalties owing to the Licensor. Such statements, which shall be
in conformance with the requirements of Licensor (including, but not limited
to, reporting separately by Licensed Product sku by size, licensed character
utilized, etc.), must be submitted whether or not any Licensed Products have
been shipped or Royalties have been earned.
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<PAGE> 3
(b) Acceptance by Licensor of any statement furnished or Royalty paid
shall not preclude Licensor from questioning its correctness and in the event
of inconsistencies or mistakes, they shall be immediately rectified by
Licensee.
(c) All payments shall be remitted in United States currency payable to
the order of Hollywood Ventures Corporation and mailed to the HVC address
stated in the preamble or as may be revised hereafter. Any conversion of
foreign currency to United States currency shall be at an exchange rate no less
than offered by Chase Manhattan Bank in New York, New York, on the date of
conversion.
(d) Time is of the essence with respect to all payments and interest at
the rate of one and one-half percent (1 1/2%) per month shall accrue on any
amount due Licensor calculated from the date on which payment was due.
(e) Any and all Royalty payments, whether denoted as Advances, as
Guaranteed Minimum Royalty payments or otherwise, shall be non-refundable,
6. AUDIT. Licensee shall keep accurate books of account covering all
transactions relating to this Agreement. Licensor and/or its representatives
shall have the right, at reasonable hours of the day upon reasonable notice, to
examine such books and all other documents and material in the possession,
custody or control of Licensee with respect to this Agreement and to make
copies and summaries thereof no more than two (2) times per twelve (12) month
period. In the event an Audit reveals an underpayment, Licensee shall
immediately remit payment in the amount of the underpayment plus interest
calculated at the rate of one and one-half percent (1 1/2%) per month from the
date such payments were due. In the event such underpayment is greater than
$1,000.00 or five percent (5%) of the reported royalty, whichever is greater,
for any Royalty Period, Licensee shall reimburse Licensor for the cost and
expense of such Audit. All books of account and records of Licensee relating to
this Agreement shall be retained for at least three years after termination of
this Agreement.
7. QUALITY, NOTICES, APPROVALS AND SAMPLES;. (a) The quality and style of
the Licensed Products and all Promotional and Packaging Material relating to
the Licensed Products shall be at least as high as the best quality of similar
goods presently sold or distributed by Licensee in the Territory. Each Licensed
Product shall comply with all applicable laws, regulations and established
industry standards. Licensor shall at all times have the right to inspect the
manufacturing facilities of the Licensed Products upon five (5) days notice to
Licensee, and all such facilities shall comply with all applicable laws,
regulations and industry standards.
(b) All Promotional and Packaging Material and all Licensed Products on
which the Products and/or Trademarks are used shall contain the name and
address (at least city and state) of Licensee as well as the following legal
notices, both of which shall be permanently affixed:
c 1996 Big Comfy Corp.
TM and c designate trademark and copyrights of Big Comfy Corp.
and are used under license by (name of Licensee).
All Rights Reserved.
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<PAGE> 4
(c) Before commencing the design of the Licensed Products or Promotional
and Packaging Material which have not been previously approved, Licensee shall
submit for Licensor's written approval copies of all preliminary artwork.
Licensor shall have ten (10) business days to respond to submittals.
(d) Prior to the use of any Promotional and Packaging Material and/or the
sale and distribution of the Licensed Products, Licensee shall submit at its
cost, but for Licensor's approval, three (3) complete sets of samples of all
Licensed Products intended to be sold and distributed and three (3) complete
sets of samples of all Promotional and Packaging Material intended to be used,
none of which may be used, sold, or distributed until receipt of written
approval of said samples from Licensor.
(e) Upon commencement of distribution of the Licensed Products, Licensee
shall submit, at its own expense, an additional twenty-four (24) sets of the
above referenced samples.
(f) Thereafter, from time to time, Licensor may require Licensee to submit
at its own cost up to an additional five (5) sets of samples of Licensed
Products and/or Promotional and Packaging Material to monitor the quality for
continued approval.
(g) Licensor shall have the absolute right to inspect the facilities where
any Licensed Products are being manufactured and/or packaged from time to time
without notice.
(h) In the event the above quality standards are not maintained throughout
the Term, Licensor has the right to require Licensee to immediately discontinue
manufacturing, selling and distributing Licensed Products which do not meet
such quality standard.
(i) Approval or disapproval of Licensed Products shall lie solely in
Licensor's discretion, and any Licensed Product not so approved in writing
shall be deemed unlicensed and shall not be manufactured or sold by Licensee.
Any modification of a Licensed Product, including, but not limited to, change
of materials, color, design or size, must be submitted in advance for
Licensor's written approval. Approval of a Licensed Product which uses
particular artwork does not imply approval of such artwork for use with a
different Licensed Product.
8. ARTWORK. The form and content of all work relating to the Property and
Trademarks must be approved by Licensor prior to use. Licensor will provide to
Licensee upon request, at Licensee's expense, artwork which Licensee reasonably
requests. All artwork relating to the Property and Trademarks, regardless of
who created or contributed to the works, shall be the sole and exclusive
property of Licensor. All Licensed Products not meeting the standard of
approved samples shall be destroyed by Licensee. All Licensed Products not
meeting the standard of approved samples shall be .destroyed by Licensee.
Licensee shall pay Licensor, within thirty (30) days of receiving an invoice
therefor, for artwork done by Licensor or third parties under contract to
Licensor in the development and creation of the Licensed Products, display,
packaging or promotional material.
9. GOODWILL. Licensee recognizes the value of the good will associated
with the Property, and Trademarks and acknowledges that each have acquired
secondary meaning. Licensee agrees, during the Term(s) and thereafter, never to
attack the rights of Licensor in such or the validity of this license. Licensee
agrees that its use of the Property and/or Trademarks inures to the benefit of
Licensor and that Licensee shall not acquire any rights in
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<PAGE> 5
the Property or Trademarks.
10. TRADEMARK AND COPYRIGHT. (a) Licensor may obtain, at its own expense
and in its name, appropriate copyright and trademark protection for the
Property and/or Trademarks and Licensee agrees to cooperate with Licensor in
all such matters.
(b) Licensee agrees that it shall not at any time apply for any
registration of any copyright, trademark or any other designation which would
affect the ownership of the Property and/or Trademarks nor file any document
with any governmental authority to take any action which would affect the
ownership thereof; however, Licensee shall register as a registered
user/licensee, at Licensee's expense, in any country where registration of the
Licensee of a trademark or copyright is required.
(c) Licensee agrees that it shall not at any time use or authorize the use
of any trademark, trade name or other designation identical with or
substantially similar to the Trademarks. Licensee agrees not to associate the
Property and/or Trademarks with other properties, trademarks, personalities, or
characters without Licensor's written permission.
(d) Licensee agrees to assist Licensor in the enforcement of Licensor's
rights in the Property and/or Trademarks With respect to any such claims and
suits, Licensor shall employ counsel of its own choosing to direct the
litigation and any settlement thereof'. Licensor shall be entitled to receive
and retain all amounts awarded as damages, profits or otherwise in connection
with such claims.
11. INDEMNIFICATION. Licensee agrees to defend, indemnify and hold
Licensor, and its parent company, their officers, agents and employees, and the
Owners harmless against any and all liability, claims, demands, suits, loss,
damages, causes of action and judgment, out-of-pocket costs and expenses,
including reasonable attorney's fees, arising out of Licensee's manufacture,
sale, offering for sale, distribution, promotion and/or advertising of the
Licensed Products.
12. INSURANCE. Licensee shall, throughout the Term, obtain and maintain
at its own expense standard product liability insurance, the form of which must
be acceptable to Licensor, naming Licensor named as an additional insured. Such
policy shall provide protection against all claims, demands and causes of
action arising out of any defects or failure to perform, alleged or otherwise,
of the Licensed Products or any use thereof. The amount of coverage shall be a
minimum of $1,000,000 for each claim and $3,000,000 in the aggregate with a
deductible not to exceed $5,000 for each single occurrence for bodily injury
and/or property damage. The policy shall provide for thirty (30) days notice to
Licensor from the insurer in the event of any modification or termination of
such coverage. Licensee shall furnish Licensor a certificate of insurance
evidencing same within thirty (30) days after execution of this Agreement but
in any event, prior to any manufacture and distribution of the Licensed
Products.
13. EXPLOITATION BY LICENSEE. (a) Licensee shall commence manufacture,
distribution, and sale of the Licensed Products in commercially reasonable
quantities within six (6) months after the Effective Date and, thereafter, shall
continue to distribute and sell all of the Licensed Products throughout the
Territory on a continuous basis in a commercially reasonable manner. Licensee
shall place at least one full- color print trade advertisement of the entire
Licensed Product line every six (6) months, which advertisement shall be placed
in the highest-circulation trade publication. Licensee shall additionally
produce new and original sales
5
<PAGE> 6
materials no less frequently than every twelve (12) months. Licensee shall also
consult with Licensor concerning possible updating of the Licensed Product line
on an annual basis. Any such updating and revisions shall be subject to the
approval criteria stated elsewhere in this Agreement.
(b) Any Property (Character), Trademark or Licensed Product which is not
diligently exploited at any time following the expiration of the initial twelve
(12) months after the Effective Date shall be deemed abandoned by Licensee, and
in such event the license for such Property, Trademark or Licensed Product
shall terminate and revert back to Licensor automatically. In the event of a
dispute, Licensee shall have the burden of establishing that Licensee was
diligently exploiting the Property, Trademark or Licensed Product as required
herein.
(e) Any charges, fees or royalties payable for music rights, rights to
fabrications, rights for voices, or any other rights not covered specifically
by this Agreement shall be additional to the Royalty and covered by separate
agreement
14. PREMIUMS, PROMOTIONS AND SECONDS. (a) Licensor shall have the sole
right to license third parties to utilize any of the Licensed Products in
connection with premium, giveaway, purchase-with-purchase promotions,
fund-raisers, sweepstakes or promotional arrangements. For purposes of this
Agreement a "premium" is a product or a product combined with a service which
is sold or supplied in association with the promotion of another product or
service, or offered in association with the sales promotion activities of
retailers, wholesalers or manufacturers in association with incentive programs.
(b) Licensee shall not sell, distribute or use or permit any third party
to sell, distribute or use any Licensed Products which are damaged, defective,
seconds, irregulars or otherwise fail to meet the specifications and/or quality
control or notice requirements of this Agreement. All Licensed Products not
meeting the standard of approved samples shall be destroyed by Licensee.
15. TERMINATION. The following are in addition to the termination rights
provided elsewhere in this Agreement;
(a) Immediate Right of Termination. Licensor shall have the right to
immediately terminate this Agreement on written notice should Licensee:
(i) Make, sell, offer for sale, use or distribute any Licensed
Product or Promotional or Packaging Material without having the
prior written approval of Licensor or continues to make, sell,
offer for sale, use or distribute such after receipt of notice from
Licensor withdrawing approval of same due to subsequent
non-compliance;
(ii) Fail, after receipt of written notice from Licensor to
immediately discontinue the distribution of sale of Licensed
Products or the use of any Promotional or Packaging Material which
does not contain the appropriate legal legend;
(iii) Subject to any voluntary or involuntary order of any
government agency involving the recall of any of the Licensed
Products;
6
<PAGE> 7
(iv) Or its controlling shareholders, officers, directors or
employees take any actions in connection with the manufacture,
sale, distribution or advertising of the Licensed Products or the
Promotional and Packaging Material which damages or reflects
adversely upon Licensor, the Property and/or Trademarks;
(v) Breach any of the provisions of this Agreement relating to
the unauthorized assertion of rights in the Property or Trademarks;
(vi) Fail to make timely payment of Royalties when due or fail
to make timely submission of Royalty statements when due two or
more times during a twelve-month period or fail to pay the
Guaranteed Minimum Royalty; or
(vii) Breach any provision of this Agreement prohibiting
Licensee from directly or indirectly assigning, transferring,
sublicensing or other encumbering of this Agreement or any of its
rights or obligations hereunder.
(b) Right to Terminate on Notice. A party may terminate this
Agreement on thirty (30) days written notice to the other party, under
any of the following circumstances, provided that during the thirty (30)
day period, the defaulting party fails to cure the breach;
(i) Should Licensee fail to commence sale and distribution of
the Licensed Products in all countries in the Territory;
(ii) Should Licensee, after commencing to sell and distribute
Licensed Products, fail to continue to sell and distribute such in
commercially acceptable quantifies in all countries in the
Territory for two consecutive Royalty Periods;
(iii) Should Licensee violate any of its obligations under
this Agreement;
(iv) Should Licensee file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, make an assignment for the
benefit of creditors, an arrangement pursuant to any bankruptcy
law, or if Licensee discontinues its business or if a receiver is
appointed for Licensee which is not discharged within thirty (30)
days thereafter; or
(v) Should the other party commit a material breach of any
other provision of this Agreement which is not cured within thirty
(30) days after receiving notice from the non-breaching party.
(vi) Should any Licensed Products be sold by Licensee at
prices which are clearly not competitive prices as such are
customarily charged by Licensee for similar products to
unaffiliated businesses.
16. EFFECT OF TERMINATION. (a) If this Agreement is terminated under
paragraph 15(a), no Licensed Products may be sold or distributed or any
Promotional or Packaging Material used without the prior expressed approval of
Licensor.
7
<PAGE> 8
(b) Upon termination of this Agreement, notwithstanding anything to the
contrary herein, all Royalties on shipments made shall become immediately due
and payable.
(c) If this Agreement is terminated under provision other than paragraph
15(a), Licensed Products which are on hand or in process at the time the notice
of termination is received or at the time of the expiration of the Agreement,
as the case may be, may continue to be sold or distributed for a sixty (60) day
period ("Sell-Off Period"), provided that all Royalties with respect to that
period are paid and that Licensor may itself use or license the use of the
Property and/or Trademarks in any manner and that Licensee provide Licensor an
inventory of Licensed Products it intends to sell or distribute during such
period.
(d) After termination of this Agreement, all rights hereunder shall revert
to Licensor who may license others to use the Property and/or Trademarks in any
way whatsoever. Thereafter, Licensee shall refrain from any further use of the
Property and/or Trademarks and turn over to Licensor all molds and other
materials which reproduce the Licensed Products or shall give Licensor
satisfactory evidence of their destruction, at Licensor's sole option. Licensee
shall be responsible for any damages caused by the unauthorized use of such
molds or reproduction materials which are not turned over or destroyed.
(e) Licensee acknowledges that its failure to cease the manufacture, sale
or distribution of Licensed Products or any class or category thereof at the
time of termination or expiration will result in immediate and irreparable harm
to Licensor and to the rights of any subsequent licensee. Licensee acknowledges
that there is no adequate remedy at law for failure to cease the manufacture,
sale, or distribution and Licensee agrees that in the event of such failure,
Licensor shall be entitled to equitable relief by way of injunctive relief and
such other relief as any court with jurisdiction may deem proper.
(f) Within thirty (30) days after termination or expiration of this
Agreement, Licensee shall provide Licensor with a statement indicating the
number and description of the Licensed Products which it had on hand or in the
process of manufacturing as of the expiration or termination. Licensor shall
have the option of conducting a physical inventory to ascertain or verify such.
In the event Licensee refuses to permit Licensor to conduct such physical
inventory, Licensee shall forfeit its fights hereunder to dispose of such
inventory.
17. FAN MAIL. Licensee agrees to include on its packaging of appropriate
Licensed Products, as determined by Licensor, the following message in
prominent position:
Write to your friends on "The Big Comfy Couch" at:
P O. Box 15338, Beverly Hills, California 90209-1338.
18. PURCHASE OF LICENSED PRODUCTS. Licensor shall have the right to
purchase some or all of the Licensed Products from time to time, at such times
and in such quantities as Licensor desires.
(a) If Licensor desires to purchase Licensed Products for
promotional purposes only (not for resale), Licensee agrees to sell such
Licensed Products at Licensee's cost plus ten percent (10%), with the
royalty owing to Licensor being waived for these purposes only.
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<PAGE> 9
(b) If Licensor or a third party secured by Licensor desires to
purchase Licensed Products for resale through premium sales, direct
response, direct sales, personal appearances or other means (other than
to retailers or wholesalers to retailers), Licensee agrees to sell such
Licensed Products upon the most favorable terms and at the lowest
wholesale price offered by Licensee to any of its customers, regardless
of quantity requirements, including a Royalty to Licensor of eleven
percent (11%) and an additional sales commission of five percent (5%)
payable at the time the Royalty is due to Licensor.
(c) If Licensor or a third party designated by Licensor desires to
purchase Licensed Products for sales to public television stations only
for their resale to the general public for fundraising purposes, Licensee
agrees to sell such Licensed Products upon the most favorable terms and
at the lowest wholesale price offered by Licensee to any of its
customers, regardless of quantity requirements, including the Royalty
owing to Licensor.
19. NOTICES. All notices or payments required to be sent to either party
shall be in writing at the last known addresses of the parties. Any notice of
breach, default or termination shall be sent by certified mail, return receipt
requested.
20. MISCELLANEOUS; (a) This Agreement does not create a partnership or
joint venture and Licensee shall have no power to obligate or bind Licensor
whatsoever.
(b) This Agreement shall be governed by the law of the State of California
and any claims arising hereunder shall, at Licensor's election, be maintained
in Los Angeles, California.
(c) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver of a subsequent breach or default.
(d) In the event that any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect, such shall not affect any other
provision and this Agreement shall be interpreted and construed as if such
provision, to the extent invalid, illegal or unenforceable, had never been part
of the Agreement.
(e) Licensee's rights hereunder may not be assigned, disposed of, or
transferred, voluntarily or involuntarily, to anyone else without Licensor's
written approval. Without limitation to the previous sentence, a merger of
Licensee into another company or the transfer of a controlling interest in
Licensee shall be deemed a disposal of Licensee's rights hereunder, which, to
be effective, would require Licensor's written approval.
(f) Headings of paragraphs herein are for convenience of reference only
and are without substantive significance.
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<PAGE> 10
(g) This Agreement represents the entire understanding between the parties
with respect to the subject matter and supersedes all previous representations,
understandings or agreements, written or oral, and cannot be modified except by
written instrument.
IN WITNESS WHEREOF, the parties execute this Agreement for the purposes
stated above.
AGREED AND ACCEPTED
HOLLYWOOD VENTURES CORPORATION
By: /s/ Richard Goldsmith
----------------------------------------------
(a duly authorized officer)
Name and Title: Richard Goldsmith, President & CEO
----------------------------------
(print)
Date: July 24, 1996
---------------------------------------------
AGREED AND ACCEPTED
THIRD QUARTER CORPORATION
By: /s/ Chip Voigt
------------------------------------------------
(a duly authorized officer)
Name and Title: Chip Voigt, President
------------------------------------
(print)
Date: July 23, 1996
----------------------------------------------
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<PAGE> 11
SCHEDULE A
The PROPERTY is/are the following associated with the television series
"The Big Comfy Couch": THE BIG COMFY COUCH (excluding the fabrication design).
Note: All character names shall at all times be followed by the phrase:
from "The Big Comfy Couch"
SCHEDULE B
LIST OF TRADEMARKS: The Big Comfy Couch name and logo.
SCHEDULE C
LIST OF LICENSED PRODUCTS: An inflatable couch in a size and manner to be
functional as furniture for children to sit on which and in association with
which the Property and/or Trademarks are used. In addition to the general
reservation of rights not expressly granted, Licensor expressly reserves the
right to license the above referenced products with electronics and,
notwithstanding the foregoing, to license other inflatable couches for uses
including, but not limited to, flotation devices.
SCHEDULE D
LICENSED TERRITORY: The United States and Canada and their respective
territories and possessions.
HOLLYWOOD VENTURES CORPORATION
By: /s/ Richard Goldsmith, President & CEO
_______________________________________
THIRD QUARTER CORPORATION
By: /s/ Chip Voigt
_______________________________________
<PAGE> 1
EXHIBIT 10.5
AGREEMENT
This Agreement made this 18th day of December, 1986, K & K International,
a Michigan Corporation, herein called K & K and Kenneth Johnson, herein called
Johnson (K & K and Johnson collectively herein called Inventor) and Carl E.
Voigt, III and Carl E. Voigt, IV, called Voigts.
WHEREAS, "Inventor" has developed and begun to market two playing card
games, commonly known as Phase 10 and Caught-Cha and collectively referred to
herein as "the product"; and,
WHEREAS, Voigts are experienced in the development and exploitation of
markets for similar kinds of products; and
WHEREAS, Inventor is desirous of using Voigts' experience and expertise in
increasing the sales volume for the product; and,
WHEREAS, Voigts are desirous of assuming responsibility for all of the
manufacturing and marketing of the product, under such terms and conditions
that follow, and except as may specifically be excluded hereafter.
NOW THEREFORE, it is agreed as fo1lows:
1. Inventor shall retain K-Mart as its exclusive customer. Accordingly,
Inventor shall continue to be responsible for calling upon and servicing the
needs of K-Mart as they relate to the product and arranging for shipping all of
the product that is needed to fulfill the orders of K-Mart and absorbing all
expenses related thereto. Voigts shall manufacture the product sold to K-Mart
and, shall supply the same to K-Mart at the direction of Inventor. Voigts shall
bill all shipping charges directly to Inventor. All gross proceeds arising from
the sale of the product to K-Mart shall be paid by K-Mart to Inventor and
Voigts jointly and forwarded to Bank One, Lafayette, Indiana, for deposit into
account number 1-650011-8, said funds to then be distributed by said bank,
twelve percent (12%) thereof to go to Inventor as his commission, the remainder
to Voigts. The parties shall execute and deliver to said bank and K-Mart joint
written directions to fulfill the terms of this paragraph.
<PAGE> 2
2. Except as otherwise provided in paragraph 1 above, Inventor hereby
grants to Voigts the exclusive right to represent, market or sell the product
throughout the entire world.
3. Voigts shall, at their cost, provide for the manufacture and shipping
of all of the product sold by them, or by such other people or entities
authorized by them. Voigts shall further be responsible for all record keeping
and billing service related to such sale of the product.
4. Voigts shall, during the term of this contract or any extension
thereof, exercise their judgment and best efforts in development and commercial
exploitation of the product. Inventor recognizes that Voigts are and will
continue to be engaged in other business pursuits, some of which involve the
manufacture and/or sale of other game products. Voigts shall not, therefore, be
obligated to devote their entire efforts to the manufacture and sale of the
product but are obligated to devote such amount as may be reasonably required
to develope and service a broader market for the product than now exists. In
the event Voigts, in their discretion, determine that the further marketing of
the product will not be commercially feasible or profitable for Voigts, Voigts
may terminate this Agreement upon sixty (60) days written notice to Inventor.
5. Voigts, in the exercise of their sales, marketing and product
development skills are encouraged by Inventor to improve and modify, for
greater sales, the package design, size and shape, color selection and art
work.
6. Inventor shall cooperate with the efforts of Voigts with regard to the
promotion and marketing of the product. Inventor shall, upon reasonable request
of Voigts, participate in such promotions, public relations, presentations,
sales call, productions, seminars, advertisements and the like as are deemed
necessary and appropriate by Voigts, for the purpose of promoting the product.
All travel expenses of Inventor incurred at the request of Voigts shall be paid
by Voigts.
7. The initial term of this contract shall be ten (10) years from the date
hereof. This contract shall automatically renew for successive five (5) year
terms unless otherwise terminated by Voigts by written notice to Inventor no
less than ninety (90) days prior to end of the then current term hereof or
unless otherwise terminated in accordance with other provisions of this
Agreement.
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<PAGE> 3
8. Inventor grants to Voigts the right to use, copy or reproduce, without
cost to Voigts except for the direct cost of copying or reproduction, all
materials which have been developed and are presently being used in the
manufacturing process for the product, specifically including but not limited
to the plates, films, separations, mechanicals, photography, dies, die drawings
and art work.
9. In consideration for the exclusive rights granted to Voigts hereunder
and the further covenants and promises made to Voigts herein, specifically
including paragraph 11 hereof, Voigts shall pay to Inventor the sum of Sixty
Thousand Dollars ($60,000.00), payable on or before January 5, 1987. In
addition, Voigts shall pay to Inventor a royalty equal to six (6%) percent of
all gross revenue received by Voigts as a result of the sale of the product,
including that sold to K-Mart. Quarterly, beginning no later than sixty (60)
days after the date of receipt by Voigts of the first revenues from the sale of
the product, Voigts shall provide to Inventor an accounting of all sales of the
product and revenues received. Gross revenue is defined as gross selling price
less returns, freight, advertising, promotional allowances and other customary
allowances given to the customer in the toy business. Royalty payments for any
order shall be paid, within thirty (30) days after receipt by Voigts of payment
for said order. Inventor and its accountant or other representative shall have
the right, upon reasonable notice and during business hours, to examine the
books of account and records covering the sales and revenues relating to the
product in such a manner as to not unduly disrupt the normal business
activities of Voigts. Such an audit may take place no more frequently than once
per calendar year and shall be at the expense of Inventor.
10. Inventor warrants that the product and the marketing thereof does not
infringe upon any presently existing patent, copyright or trademark. Inventor
shall, to the extent the same has not already been accomplished, take all
actions necessary to provide maximum protection for the product available under
the patent, copyright or trademark laws. Inventor agrees to indemnify and hold
harmless Voigts, their affiliates, successors and assigns from any and all
liabilities, obligations, losses, damage, penalties, claims, action suits,
costs, expenses and disbursements, including reasonable attorneys fees and
expenses, resulting from any infringement or alleged infringement of the
product upon any existing patent, copyright, trademark or other proprietary
right.
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<PAGE> 4
11. Inventor grants to Voigts a right of first refusal to manufacture and
market any new game related items developed by Inventor from the date of this
Agreement through the termination thereof, all under the same terms and
conditions contained herein and relating to the product.
12. Voigts shall have the right, in furtherance of their rights and
obligations contained in this Agreement to use Inventor's name, logo, trademark
and any and all names, logos or trademarks which are a part of the product,
either directly or indirectly.
13. Voigts acknowledge that Inventor is and shall remain the owner of the
product and that the rights of Voigts with respect to the product are only
those granted by this Agreement.
14. Inventor shall promptly forward to Voigts all inquiries with respect
to the product received from any person or entity except K-Mart or its
employees. Inventor shall further provide to Voigts a list of all customers or
customers contacts made by Inventor to the date hereof with reference to the
product.
15. If at any time during the term of this Agreement or any extension
thereof, Inventor discontinues calling upon, servicing and providing all of
either playing card game to K-Mart, Voigts shall have the right to assume
responsibility for the further development of a market for said playing card
game with K-Mart, the manufacture of the playing card game to suit the needs of
K-Mart, the shipping of the playing card game, the maintenance of all necessary
records and the billing and collecting of the price of said playing card game.
Under such conditions all expenses of manufacture, shipping and billing shall
be the responsibility of Voigts and all gross proceeds from the sale of the
playing card game to K-Mart shall be payable to Voigts and shall be the sole
and only property of Voigts. Voigts shall pay to Inventor a royalty as setforth
in paragraph 9 above based upon gross revenue from K-Mart as a result of the
sale of the playing card game.
16. In the event either party violates the terms of this Agreement, the
other party shall notify the defaulting party of its default, in writing. If
such default has not been cured within thirty (30) days from the date of
receipt of said notice, the non-defaulting party shall have the right to cancel
this Agreement and to exercise any other right it may have at law or equity.
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<PAGE> 5
17. Neither this Agreement, nor any right or obligation thereunder, shall
be assigned by Voigts without the prior written consent of Inventor, which
consent shall not be unreasonably withheld. Notwithstanding this provision,
Voigts may assign this Agreement to any entity which they, considered together,
have at least a fifty-one (51%) percent ownership interest.
18. Inventor may not assign all or any part of this Agreement or the
rights or obligations thereunder without the prior written consent of Voigts,
which consent shall not be unreasonably withheld. It is understood and agreed
by the parties, that Inventor shall at all times continue to have the full
responsibility for calling on and securing the K-Mart account and if and when
Inventor chooses to discontinue that responsibility, said responsibility may
not be assigned to any third party but the provisions of paragraph 15 shall
govern.
19. Voigts shall have the right of first refusal to purchase from Inventor
all right, title and interest in and to either or both playing card games. In
the event Inventor receives a bona fide, written, arms length offer to purchase
either such game, Inventor shall give Voigts written notice of said offer.
Voigts shall have sixty (60) days from the receipt of said notice to agree to
purchase said game upon the same terms and conditions as contained in said
offer. If they do not exercise said right, Inventor may then, within the next
sixty (60) days conclude a sale pursuant to the terms of said offer. Any such
sale shall not effect the rights of Voigts hereunder and any purchase shall be
bound by the terms hereof. If said sale is not concluded within said sixty (60)
days period, the right of first refusal shall again be effective.
20. The terms and conditions of this contract shall be governed by the
laws of the State of Indiana.
21. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceabillity without
rendering invalild or unenforceable the remaining terms and provisions of this
Agreement or effecting the validity or enforceabililty of any of the terms or
provisions of this Agreement in any other jurisdiction.
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<PAGE> 6
22. All notices and communications required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered personally or sent by certified mail return receipt requested,
post prepaid, to the parties at the following addresses or to such other
address as either party shall hereafter specify by notice, in writing, to the
other party:
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
<TABLE>
<S> <C>
K & K INTERNATIONAL
/s/ Carl E. Voigt, III /s/ Kenneth Johnson
__________________________________ By:__________________________________
Carl E. Voigt, III
/s/ Carl E. Voigt, III /s/ Kenneth Johnson
__________________________________ ____________________________________
Carl E. Voigt, IV Kenneth Johnson
</TABLE>
6
<PAGE> 7
ADDENDUM TO AGREEMENT
This Addendum to Agreement by and between K & K International, a Michigan
corporation and Kenneth Johnson, herein collectively called "Inventor", and
Carl E. Voigt, III and Carl E. Voigt, IV, herein collectively called "Voigts".
WHEREAS, Inventor and Voigts entered into an Agreement dated 18th day of
December, 1986, wherein Voigts obtained exclusive worldwide rights to
manufacture and market certain products created by Inventor; and
WHEREAS, the parties have agreed to a modification of such Agreement.
NOW THEREFORE, in consideration of the mutual covenants of the parties it
is agreed as follows:
1. Voigts agree that the total royalties and commissions paid pursuant to
the terms of paragraph 9 of the original Agreement shall equal or exceed,
during each calendar year of the Agreement, the sum of Thirty Thousand Dollars
($30,000.00).
2. In the event, during any calendar year of this Agreement, the total
payments of royalties and commissions does not equal or exceed Thirty Thousand
Dollars ($30,000.00), Voigts, in their sole discretion, may:
a. Pay to Inventor, on or before February 1 of the year following
the calendar year in question, a sum equal to Thirty Thousand Dollars
($30,000.00) less the total amount of commissions and royalties paid
during said preceding calendar year; or
<PAGE> 8
b. Elect, in writing, on or before February 1 of the year following
the calendar year in question, to terminate the original Agreement of
December 18, 1986. In the event Voigts choose this option, Voigts shall
have no further rights or obligations under said Agreement.
In all further respects the parties ratify and confirm the terms of the
original Agreement dated December 18, 1986.
K & K INTERNATIONAL
<TABLE>
<S> <C>
/s/ Kenneth Johnson By: /s/ Kenneth Johnson
- ------------------------------------- -------------------------------------
Kenneth Johnson
/s/ Carl E. Voigt, III /s/ Carl E. Voigt, IV
- ------------------------------------- -----------------------------------------
Carl E. Voigt, III Carl E. Voigt, IV
</TABLE>
2
<PAGE> 1
EXHIBIT 10.6
ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS
This Assignment of Intellectual Property Rights (this "ASSIGNMENT") is
made as of August 1, 1996 among Carl E. Voigt, III, Carl E.Voigt, IV
(collectively the "ASSIGNORS") and Third Quarter Corporation, an Indiana
corporation (the "COMPANY").
RECITALS
A. The Assignors are shareholders and executive officers of the Company,
and have a direct interest in the Company's economic profitability.
B. Pursuant to that certain agreement dated December 18, 1986, among the
Assignors, K&K International, a Michigan corporation (K&K) and Kenneth Johnson
("JOHNSON") the Assignors obtained the rights to market two-playing game
commonly known as "PHASE 10" and "Caught-Cha" (the "AGREEMENT"). An executed
copy of the Agreement, without exhibits is set forth on attached and
incorporated SCHEDULE "1" to this Assignment.
C. Pursuant to Section 17 of the Agreement, the Assignors had the right to
assign all or any portion of the rights existing under the Agreement to any
entity in which they collectively owned at least 51%. The Company constitutes
such an entity.
D. In consideration of the Assignors' desire to enhance the profitability
of the Company, and in consideration of the Company agreeing to issue 50,000
shares of its common, no par value stock to each of the Assignors (for a total
issuance of 100,000 shares), the Assignors assigned the rights (except for
certain rights related to hand-held electronic games) to market the "Phase 10"
and "Caught-Cha" playing card game in the United States, pursuant to an oral
agreement reached on November 1, 1991.
E. The parties now desire to memorialize their prior oral understanding in
this written assignment.
CLAUSES
1. ASSIGNMENT OF EXCLUSIVE RIGHTS. Through this instrument, the Assignors
sell, grant, convey and assign to the Company, exclusively for the United
States market, in and for all languages (including but not limited to computer
and human languages whether now existing or subsequently developed) all of the
Assignors' rights, titles and interests in or under the Agreement, including
all rights of the Assignors under all United States, Federal, State or other
"Governmental Authority" (as defined in Section 3 below), copyright, trademark,
trade secret, trade name, service mark, service name, patent, and all other
intellectual property or industrial property laws or rights of any type or
nature concerning the Agreement or the products identified in the Agreement.
The foregoing assignment of rights by the Assignors to the Company is all
inclusive and is without reservation of any right, title, interest or use in
the United States market, whether now existing or subsequently arising. The
parties specifically agree that the Assignors have retained all rights under
the Agreement to market any and all of the products identified in the Agreement
in any market existing throughout the world other than the United States.
Notwithstanding the foregoing, the assignment of rights hereunder shall
not include the rights to manufacture, market and sell hand-held electronic
games based on the Phase 10 Card Game and Phase 10 Dice Game.
<PAGE> 2
2. FURTHER INSTRUMENTS. The parties shall execute, acknowledge and deliver
to the Company, within five (5) days of the Company's request for the same,
such further instruments and documents as the Company may request from time to
time to facilitate registration of any filings or record the transfers made in
this Agreement in any public office, or otherwise to give notice or evidence of
the Company's exclusive rights to exploit the products identified in the
Agreement, to exercise all the rights arising under the Agreement anywhere in
the United States.
3. GOVERNMENTAL AUTHORITY DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings: (i) the term "United States"
shall mean the United States of America, and all geographical territories and
subdivisions of the United States of America; (ii) the term "Other Nations"
shall mean each country, principality or other independent territory and each
subdivision thereof, which is not a part of the United-States; (iii) the term
"Supra-National Authority" shall mean the European Union, the United Nations,
the World Court, the Commonwealth, the North Atlantic Treaty Organization, the
General Agreement or Tariffs and Trade, the North American Free Trade Agreement
and all other multinational authorities or treaties which have or may have from
time to time jurisdiction over any of the parties to or any performance under
this Assignment; and (iv) the term "Governmental Authority" shall mean any
subdivision, agency, branch, court, administrative body, legislative body,
judicial body, alternative dispute resolution authority or other governmental
institution of (A) the United States, (B) any state, municipality, county,
parish, subdivision or territory of the United States, (C) all other Nations,
(D) any state, territory, county, province, municipality, parish or other
subdivision of any Other Nations, and (E) all Supra-National Authorities.
4. BINDING EFFECT. This Assignment is binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Assignors and their
successors and assigns. This Assignment supersedes any prior understandings,
written agreements or oral arrangements between the parties which concerns the
subject matter of this Assignment. This Assignment constitutes the complete
understanding among the parties, and no alteration or modification of any this
Assignment's provisions will be valid unless made in a written instrument which
all the parties sign.
5. APPLICABLE LAW. The laws of the State of Indiana (other than those
pertaining to conflicts of law) shall govern all aspects of this Assignment,
irrespective of the fact that one or more of the parties now is or may become a
resident of a different state.
<TABLE>
<S> <C>
/s/ Carl E. Voigt, III Third Quarter Corporation,
- ----------------------- an Indiana Corporation
Carl E. Voigt, III
/s/ Carl E. Voigt, IV By: /s/ Carl E. Voigt, IV
- ---------------------- -------------------------------
Carl E. Voigt, IV President
</TABLE>
2
<PAGE> 1
EXHIBIT 10.7
ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS
This Assignment of Intellectual Property Rights (this "ASSIGNMENT") is
made as of September 1, 1996 among Carl E. Voigt, III, Carl E.Voigt, IV
(collectively the "ASSIGNORS") and Fundex Games, Ltd. (formerly Third Quarter
Corporation) a Nevada corporation (the "COMPANY").
RECITALS
A. The Assignors are shareholders and executive officers of the Company,
and have a direct interest in the Company's economic profitability.
B. Pursuant to that certain agreement dated December 18, 1986, among the
Assignors, K&K International, a Michigan corporation (K&K) and Kenneth Johnson
("JOHNSON") the Assignors obtained the rights to market two-playing game
commonly known as "Phase 10" and "Caught-Cha" (the "AGREEMENT"). An executed
copy of the Agreement, without exhibits is set forth on attached and
incorporated SCHEDULE "1" to this Assignment.
C. Pursuant to Section 17 of the Agreement, the Assignors had the right to
assign all or any portion of the rights existing under the Agreement to any
entity in which they collectively owned at least 51%. The Company constitutes
such an entity.
D. The Assignors previously assigned to the Company all of their rights
under the Agreement with respect to the United States market, except for
certain rights with respect to hand-held electronic games (the "ELECTRONIC
GAMES".
E. The Assignors previoulsy assigned to Phase 10 Associates, Inc.
("Associates"), a company owned 100% by Assignors, all of their rights under
the Agreement with respect to the European market and with respect to the
Electronic Games in the United States and Canada. Associates was liquidated and
in connection with the liquidation, Associates transferred all of such rights
back to Assignors.
F. The Assignors are now willing to assign to the Company all of their
remaining rights under the Agreement.
CLAUSES
1. ASSIGNMENT OF EXCLUSIVE RIGHTS. Through this instrument, the Assignors
sell, grant, convey and assign to the Company, exclusively for all markets
other than the United States market (the "Territory"), in and for all
languages (including but not limited to computer and human languages whether
now existing or subsequently developed) all of the Assignors' rights, titles
and interests in or under the Agreement, including all rights of the Assignors
under all United States, Federal, State or other "Governmental Authority" (as
defined in Section 3 below), copyright, trademark, trade secret, trade name,
service mark, service name, patent, and all other intellectual property or
industrial property laws or rights of any type or nature (collectively the
"Rights") concerning the Agreement or the products identified in the
Agreement. The foregoing assignment of rights by the Assignors to the Company
is all inclusive and is without reservation of any right, title, interest or
use in the Territory, whether now existing or subsequently arising. In
addition, Assignors sell, grant and assign to the Company, in and for all
languages (including but not limited to human and computer languages whether
now existing or subsequently developed) all of Assignor's rights with respect
to the manufacture, marketing and sale of hand-held Electronic Games based on
the Phase 10 Card Games and Phase 10 Dice Game.
<PAGE> 2
2. FURTHER INSTRUMENTS. The parties shall execute, acknowledge and deliver
to the Company, within five (5) days of the Company's request for the same,
such further instruments and documents as the Company may request from time to
time to facilitate registration of any filings or record the transfers made in
this Agreement in any public office, or otherwise to give notice or evidence of
the Company's exclusive rights to exploit the products identified in the
Agreement, to exercise all the rights arising under the Agreement anywhere
other than in the United States.
3. GOVERNMENTAL AUTHORITY DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings: (i) the term "United States"
shall mean the United States of America, and all geographical territories and
subdivisions of the United States of America; (ii) the term "Other Nations"
shall mean each country, principality or other independent territory and each
subdivision thereof, which is not a part of the United States; (iii) the term
"Supra-National Authority" shall mean the European Union, the United Nations,
the World Court, the Commonwealth, the North Atlantic Treaty Organization, the
General Agreement or Tariffs and Trade, the North American Free Trade Agreement
and all other multinational authorities or treaties which have or may have from
time to time jurisdiction over any of the parties to or any performance under
this Assignment; and (iv) the term "Governmental Authority" shall mean any
subdivision, agency, branch, court, administrative body, legislative body,
judicial body, alternative dispute resolution authority or other governmental
institution of (A) the United States, (B) any state, municipality, county,
parish, subdivision or territory of the United States, (C) all other Nations,
(D) any state, territory, county, province, municipality, parish or other
subdivision of any Other Nations, and (E) all Supra-National Authorities.
4. BINDING EFFECT. This Assignment is binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Assignors and their
successors and assigns. This Assignment supersedes any prior understandings,
written agreements or oral arrangements between the parties which concerns the
subject matter of this Assignment. This Assignment constitutes the complete
understanding among the parties, and no alteration or modification of any this
Assignment's provisions will be valid unless made in a written instrument which
all the parties sign.
5. APPLICABLE LAW. The laws of the State of Indiana (other than those
pertaining to conflicts of law) shall govern all aspects of this Assignment,
irrespective of the fact that one or more of the parties now is or may become a
resident of a different state.
<TABLE>
<S> <C>
/s/ Carl E. Voigt, III Fundex Games, Ltd.
- ----------------------- a Nevada Corporation
Carl E. Voigt, III
/s/ Carl E. Voigt, IV By: /s/ Carl E. Voigt, IV
- ---------------------- -----------------------------
Carl E. Voigt, IV President
</TABLE>
2
<PAGE> 1
EXHIBIT 10.8
AGREEMENT
AGREEMENT made this 21st day of May, 1993, by and between Random Games,
Inc., a Michigan corporation, doing business as Random Games & Toys, with its
principal place of business at 416 West Huron Street, Ann Arbor, Michigan 48103
acting as the agent of Garrett J. Donner and Michael S. Steer, two individuals
(hereinafter collectively referred to as LICENSOR), and Third Quarter
Corporation (Fundex Games) an Indiana corporation with an office at 3750 W.
16th Street, Indianapolis, Indiana 46222 (hereinafter "LICENSEE").
WITNESSETH:
WHEREAS, LICENSOR warrants and represents that it (or its principal) is
the copyright proprietor and/or patent rights owner or agent of the patent
rights owner and has the authority to sell, grant, convey, or Otherwise
exchange the manufacturing and/or marketing rights to an original product known
as "Phase 10 Dice" (hereinafter "Product"), and described in Exhibit "A",
attached, samples of which have been supplied to LICENSEE, and
WHEREAS, LICENSOR desires to have this Product manufactured, promoted,
marketed, and merchandised by an experienced manufacturer, and
WHEREAS, LICENSEE is in the business of manufacturing and marketing and
desires to manufacture and market the Product,
NOW, THEREFORE, in consideration of the premises set forth above and
promises set forth below, LICENSEE and LICENSOR agree as follows:
1. LICENSOR hereby grants to LICENSEE the exclusive right to manufacture
and/or market the Product and any accessories or other versions of the Product
throughout the World, and in addition, grants LICENSEE the exclusive right to
make, use and sell the subject matter of all patents and patent applications
whether pending or subsequently filed on the Product, and to sublicense such
rights. LICENSOR represents and warrants that it has not granted and shall not
grant the rights to the Product for these territories to any other party during
the term of this Agreement and that LICENSOR owns and controls all rights to
the Product throughout the territories covered by this Agreement. LICENSOR also
represents and warrants that the Product is its own original creative work and
that no adverse claim exists with respect to the Product. All rights not
specifically granted to LICENSEE remain with LICENSOR.
2. LICENSEE agrees to devote its best efforts to preparing the Product for
production, display, and offering for sale no later than the 1994 New York Toy
Fair and to use reasonable efforts to manufacture, promote, and sell the
Product. LICENSEE will provide two dozen production samples of each different
version of the Product to LICENSOR as soon as possible after the first
production run.
3. Any and all trademarks, whether registered or not, used by LICENSEE in
association with the manufacture, advertising, and distribution of the Product
shall remain the property of LICENSEE and their use and the goodwill founded
thereon shall inure to the benefit of LICENSEE and not LICENSOR.
1
<PAGE> 2
4. LICENSEE agrees to pay LICENSOR an advance royalty payment of Two
Thousand Five Hundred Dollars ($2,500.00), within ten (10) days of the
execution of this agreement. This advance royalty payment shall be
non-refundable, and shall be credited and set off against the royalties earned
hereunder.
5. LICENSEE agrees to pay LICENSOR a royalty of five percent (5%) of the
net wholesale selling price of all units of any versions of the Product shipped
during each calendar quarter. LICENSEE shall make royalty payments on or before
the 25th day of the month following said quarter on all net shipments made
during the quarter. Such royalty payments shall be accompanied by a statement
setting forth the gross sales, returns, and credits (including cash and trade
discounts, trade allowances and customer allowances). Net wholesale selling
price is defined as LICENSEE's billed price, less cash and trade discounts and
trade allowances and bona fide returns and customer allowances, not to exceed,
in the aggregate, Eight Percent (8%). No cost incurred in the manufacture,
sale, distribution or exploitation of the Product, its improvements, or
accessories, shall be deducted from any royalties payable to LICENSOR.
6. In the case of sales by Letter of Credit (L.C.) LICENSOR shall receive
a royalty of six Percent (6%) of the L..C. selling price for sales of all items
Freight on Board (F.O.B.) from their country of origin. There shall be no
discounts from this price.
7. In the case of premium or advertising specialty sales of the Product,
LICENSEE agrees to pay LICENSOR a royalty of three percent (3%) of the net
wholesale selling price of all units of the Product shipped as a premium or
advertising specialty. The premium or advertising specialty markets are the
markets in which Products may be sold and used for the purpose of increasing
the sale of another item or promoting or publicizing any product or service.
8. As soon as possible LICENSEE shall apply to register claims to
copyright the various versions of the Product. All applications for
registration of claims to copyright shall identify LICENSOR or its designee as
the copyright claimant. At LICENSEE's request, LICENSOR shall execute
assignments in favor of LICENSEE of any and all copyrights relating to the
Product without further consideration. LICENSEE warrants that it will affix
copyright notices on the Product as will protect the Product and LICENSOR
acknowledges and accepts that said copyright notice may be in the name of
LICENSEE, but only as LICENSOR's licensee and not as a copyright owner.
9. Outside of North America, LICENSEE shall have the right to sublicense
the Product for production and sale upon any terms and conditions which it
wishes to grant and establish; provided, however that in the event that
LICENSES does so grant sublicenses on the Product, then and in the event,
LICENSEE shall pay to LICENSOR Fifty Percent (50%) of all monies received by it
from such sublicense or grant or Two and one half Percent (2.5%) of the
sublicensee's net sales, whichever is greater. Such royalty shall be due to
LICENSOR within twenty-five (25) days after the close of the calendar quarter
in which the royalty payments are received by LICENSEE.
10. LICENSOR shall have the right to review any sublicensing agreement
with respect to the Product.
2
<PAGE> 3
11. If at the time of the termination of this Agreement there is
outstanding any unexpired sublicense granted hereunder by LICENSEE, LICENSOR
agrees upon request to continue such sublicense throughout the unexpired
portion of its term.
12. LICENSOR shall have the right through its representative, to examine
the books of accounts and sales of LICENSEE at reasonable times, during normal
business hours, to determine the correctness of royalty payments.
13. LICENSOR agrees to indemnify and hold harmless LICENSEE, its officers,
agents, and employees from and against any lawsuit, claim, or demand (and
reasonable attorney's fees related thereto) arising out of the authorized use
of the Product under this Agreement, provided that LICENSOR is given prompt
notice of such claim, and provided that such claims arise out of a breach of
one or more of the warranties made by LICENSOR in Paragraph 1 of this
Agreement. LICENSEE shall be entitled to place all royalties accrued into an
escrow fund from the date of such claim until such time that the claim is
settled or otherwise disposed of. If the judgement or settlement of such claim
should be against LICENSOR, LICENSOR will be liable for all amounts up to the
amount of royalties accrued in escrow. Any excess in such escrow account shall
be paid to LICENSOR. However, LICENSOR shall have no further liability under
such claim. If LICENSOR and LICENSEE are represented by separate counsel, then
each shall bear the cost of its own attorney's fees and costs. In the case of
such a demand, claim or lawsuit, LICENSEE shall have the final decision
concerning disposal of inventory and works in progress.
14. LICENSEE agrees to indemnify and hold harmless LICENSOR, its officers,
agents, and employees from and against any lawsuit, claim, or demand (and
reasonable attorney's fees related thereto) arising out of the breach of any
warranty of LICENSEE herein or the failure of LICENSEE fully to perform any of
its obligations herein set forth, or arising out of any defects or alleged
defects in the Product. This indemnity shall survive termination of this
agreement.
15. LICENSEE shall maintain at its own expense in full force and effect at
all times during which the Product is being sold by LICENSEE at least a One
Million Dollar products liability insurance policy with respect to the Product.
LICENSOR shall be named as an additional insured with LICENSEE on such
policy and such policy shall provide for at least ten days' prior written
notice to LICENSOR of the cancellation or any substantial modification of the
policy. This insurance may be obtained for LICENSOR by LICENSEE in conjunction
with a policy which covers products other than the Product. LICENSEE shall,
from time to time upon reasonable request by LICENSOR, promptly furnish or
cause to be furnished to LICENSOR evidence in form and substance satisfactory
to LICENSOR of the maintenance of the insurance required above, including, but
not limited to, copies of policies, certificates of insurance (with applicable
riders and endorsements) and proof of premium payments.
16. In the case of any infringement or unfair use of the Product by a
third party, the parties shall cooperate with each other in preventing or
stopping such infringement or unfair use.
17. If either party breaches any of its obligations under this Agreement,
the other party shall have the right, without prejudice to any other rights
which it may have, to terminate
3
<PAGE> 4
this Agreement by giving thirty (30) days' notice to the breaching party, and
this notice will automatically become effective unless the breaching party
completely remedies the breach within the thirty-day period.
18. This Agreement shall continue in effect until it is terminated
pursuant to paragraph 17, or the end of one (1) year beyond the date of the
last sale (as per LICENSEE's invoice date) made by LICENSEE of any one of the
versions of the Product under this contract.
19. This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between the parties.
20. The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver or deprive or
limit that party of the right thereafter to insist upon strict adherence to
that term in the particular instance or that term or any other term of this
Agreement in any instance.
21. No change, modification, or waiver of any of the provisions hereof
shall be valid unless made in writing and signed by both parties.
22. It is understood and agreed that, in the event of an act of
government, war conditions, fire, flood, or other natural disaster, or labor or
manufacturing problems which prevent the performance by LICENSEE of the
provisions of this Agreement, such nonperformance by LICENSEE will not be
considered a breach of this Agreement, and such nonperformance will be excused
while, but no longer than, the conditions described herein prevail.
23. If any provision of this Agreement is for any reason declared to be
invalid, the validity of the remaining provisions shall not be affected
thereby.
24. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
25. This Agreement shall be interpreted in accordance with and governed by
the laws of the State of Michigan.
26. All notices, consents and the like required to be given hereunder
shall be invalid unless in writing and sent by registered or certified mail to
the addresses of the parties set forth below, or the such changed addresses as
they shall in writing request:
Random Games & Toys
416 West Huron
Ann Arbor, MI 48103
Third Quarter Corporation (Fundex Games)
3750 W. 16th Street
Indianapolis, IN 46222
4
<PAGE> 5
27. Any controversy or claim arising out of or relating to this Agreement
or the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules, then obtaining, of the American Arbitration
Association before a single arbitrator and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. Such arbitration shall be
a condition precedent to any suit or action on this contract. Arbitration under
this agreement shall he held in the state of Michigan.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement.
<TABLE>
<S> <C>
LICENSEE: LICENSOR:
Third Quarter Corporation Random Games & Toys
By: s/s Chip Voigt By: s/s Michael S. Steer
------------------------------------ --------------------------------------
Title: President Title: Vice President
--------------------------------- -----------------------------------
Fed. ID # 38-2047524
--------------------------------
By: /s/ Garrett J. Donner
--------------------------------------
Garrett J. Donner
Soc. Sec. ###-##-####
--------------------------------
By: /s/ Michael S. Steer
--------------------------------------
Michael S. Steer
Soc. Sec. ###-##-####
--------------------------------
</TABLE>
5
<PAGE> 6
EXHIBIT "A"
PHASE 10 DICE 03-29-93
(C) 1993 by Garrett J. Donner and Michael S. Steer
NUMBER OF PLAYERS: One or more.
EQUIPMENT: 10 special PHASE 10 DICE and one scorepad.
0BJECT: To win the game by being first to get through the 10 Phases, and with
the highest overall score.
THE PHASE 10 DICE: Six of the dice contain all the high numbers. Each of these
dice is numbered 5, 6, 7, 8, 9, 10 in the various four colors. The other four
dice contain all the low numbers and the Wild (W) faces. Each of these dice is
numbered 1, 2, 3, 4, W, W in the various four colors.
PLAY: To see who plays first, each player rolls one of the dice numbered 5 to
10. The player with the highest roll plays first, and so on, down to the player
with the lowest roll, who plays last. Each player takes a separate column on
the scorepad. The player with first turn uses the left-most column, the next
player uses the next column, and so on, so that turns pass in order from one
player's column to the next. Each player's name is written at the top of the
player's column. When each player has had a turn, the first player begins the
next turn, and so on.
In a turn, the player starts by rolling all ten dice. The player may then set
aside any dice the player wishes to keep. The player makes a second roll with
the remaining dice. The player may' set aside some of these dice, adding them
to those already set aside. The player may also take back some of the. dice
previously set aside. Then the player may make a third and final roll with any
dice the player wishes to roll. The player then takes the score, if any, and
ends the turn.
SCOREPAD TERMS: Sets, runs, and all one color are explained as follows:
SETS: A set is made by several dice with all the same number. For example,
three 10's make a set of three. One or more Wild (W) dice may be used in place
of natural numbers. For example, 10, W, W make a set of three 10's.
RUNS: A run is made by several dice with all consecutive numbers. For example,
7, 8, 9, 10 make a run of four. One or more Wild (W) dice may be used in place
of natural numbers. For example, 6, W, W, 9 make a run of four.
ALL ONE COLOR: The dice needed must all be the same color. A Wild (W) of a
different color may not be used in completing this score. For example, 2, 4, W,
5, 8, 9, 10 all orange make 7 all one color.
<PAGE> 7
THE PHASES: In a player's scoring column are ten scoring spaces. Each one of
these is a Phase. For example, the first one (Phase 1) is labeled "2 sets of
3", meaning that the player must, in the turn, end up with three of one number
and three of another number, or two sets of three of the same number.
Throughout play the player must always do the ten Phases in order, starting
with Phase 1 and working up through Phase 10. If a player fails to make a Phase
in a turn (which will almost always happen to all players at some point), then
the player ends the turn without taking a score. The player will have to try
and complete that Phase again next turn.
SCORING: At the end of the turn, the player scores points for the Phase the
player is working on, only if the player makes that Phase. The score is the
total of all the dice used to make that Phase. Dice not needed for the Phase
are not scored. Also any Wilds (W's) used in the Phase score zero points each.
For example, the player is in Phase 1 and ends up with 8, 8, 8 and 10, W, W.
The player's score is 8, 8, 8, 10, or 34. The player enters 34 in the space for
"2 sets of 3". STRATEGY HINT: If a player completes a Phase in one or two
rolls, the player may want to keep rolling the rest of the turn, to try to
replace any Wilds (W's) in the Phase with natural numbers, since natural
numbers score their value instead of zero.
Note that as each Phase is completed, the score is totaled, so that the player
always knows his/her total score in the game, as of that particular Phase.
FIVE PHASE BONUS: After Phase 5, the game is half over. If the player's total
at this point is over 220 (22) or more), then the player is awarded a bonus of
40 points, which is then added to the score.
FIRST FINISH BONUS: The first player to finish the game gets to add 40 points
to his/her score. Other players may qualify for this 40 point bonus too, but
only if they are already in Phase 10, successfully complete this Phase, and
also did not start the game ahead of the player who was first to finish Phase
10.
ENDING THE GAME: The first player to complete Phase I0 causes the end of normal
game play. At this point, each of the remaining players gets one last try at
completing all their remaining Phases. For example, player B has just completed
Phase 10, while player A is still on Phase 7. Now, player A gets a normal turn
of three rolls to complete Phase 7. If unsuccessful, player A is done, and
player A's current total score becomes player A's final score. If successful,
however, player A adds the Phase 7 score to his/her score, and gets another
turn, to try and make Phase 8, and so on, until player A finally fails to make
the next Phase, or finishes Phase 10.
WINNER: When each player's score is final, the player with highest Grand Total
is the winner.
SOLITAIRE PLAY: You can play solitaire, and see how high a score you can get.
All rules remain the same except you must keep track of each time you fail to
make a Phase. At the end of the game, you must subtract 5 points off your final
score for each failure to make the Phase. Also, to get your 40 point First
Finish Bonus, you must make Phase 10 on your first try.
HIGHEST POSSIBLE SC0RE: The highest possible score is 649. Please write the
company if you make a score over 600 (requires signature of at least one adult
witness, other than player).
2
<PAGE> 1
EXHIBIT 10.9
REORGANIZATION AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into this 27th day of August
1996, between Third Quarter, Inc. ("Third Quarter"), Chip Voigt, Pete Voigt
(Chip Voigt and Pete Voigt collectively referred to as "Voigt") and Toy
Paradise Partnership, an Illinois General Partnership ("Paradise").
WHEREAS, Third Quarter and Paradise jointly formed an Illinois Limited
Liability Company, Toy Stratagem, L.L.C. ("Stratagem"), in which each were
members and each had a 50% ownership interest and a 50% profit sharing
interest.
WHEREAS, the parties are desirous of forming a new corporation by the name
of Fundex Games, Ltd. ("Fundex").
WHEREAS, the parties are desirous of transferring their respective
interest in Stratagem to Fundex.
WHEREAS, the parties anticipate causing an initial public offering (the
"IPO") of shares of common stock of Fundex (the "Common Stock").
For good and valuable consideration the parties hereby agree to cause the
following to occur:
1. Third Quarter, Inc. shall be reorganized pursuant to the provisions of
and qualifying under the provisions of IRC Section 368(a)(1)(F), under the name
"Fundex Games, Ltd.," to be domiciled as a Nevada Corporation (the
"Reorganization").
2. In connection with the Reorganization, Paradise shall transfer its
interest in Stratagem to Fundex.
3. In connection with the Reorganization, Voigt are relinquishing their
shares in Third Quarter, Inc., in exchange for 1,000,000 shares of Fundex
Common Stock.
4. Solely in exchange for the transfer of its interest in Stratagem, Toy
Paradise shall receive 75,000 shares of Common Stock and 75,000 warrants (the
"Warrants"), each Warrant entitling the holder thereof to acquire one (1) share
of Common Stock at an exercise price equal to 120% of the initial public
offering price ("IPO Price") of the Common Stock; provided, however, that if
the IPO does not occur within twelve months from the date hereof, then the
Warrants shall have an exercise price of $9.60.
5. In connection with the Reorganization, Paradise and Voigt shall be in
control of Fundex, collectively holding 100% of Fundex's outstanding common
stock; the above transactions shall be consummated in a manner so as to
facilitate compliance with IRC Section 351 for both parties.
<PAGE> 2
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Illinois as it applies to agreements between Illinois
residents to be entered into and performed entirely within Illinois.
6.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given (i)
on the date of delivery if delivered personally, (ii) one (1) business day
after transmission by telex or facsimile transmission, or (iii) two (2) days
after mailing if mailed by first class mail, to the following addresses:
<TABLE>
<S> <C> <C>
If to Third Quarter: If to Toy Paradise: If to Chip Voigt or Pete Voigt:
- -------------------- ------------------- -------------------------------
Third Quarter, Inc. Toy Paradise Partnership Chip Voigt
P.O. Box 22128 c/o Sheldon Drobny 95 P.O. Box 22128
Indianapolis, IN Revere Drive, Suite A Indianapolis, IN
46222 Northbrook, IL 60062-1585 46222
</TABLE>
6.3 Binding Effect. This Agreement shall be binding upon both parties and
upon the heirs, legal representatives, successors and assigns of each of them.
6.4 Benefit. This Agreement shall inure to the benefit of the parties
hereto and their permitted successors and assigns.
6.5 Word Forms. In this Agreement, the singular includes the plural and
the masculine includes the feminine and neuter.
6.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties regarding the matter at hand. All prior representations,
agreements and understandings, written or oral, have been merged and superseded
hereby.
6.7 Modifications. No alteration or attempted modification of any of the
provisions hereof shall be binding unless in writing and signed by all parties
hereto.
6.8 Invalid Provisions. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not, in any way, be
affected or impaired thereby, unless it is readily apparent that the purpose of
this Agreement is defeated thereby.
6.9 Authorized Signatories. The parties hereto and the individuals
executing this document on their behalf, covenant that the signatories to this
Agreement are duly authorized and empowered to so execute and bind their
respective entity.
2
<PAGE> 3
The parties hereby agree to be bound and to comply with all of the
foregoing terms and conditions.
DATED: /s/ August 27, 1996
<TABLE>
<S> <C>
Third Quarter, Inc. Toy Paradise Partnership:
By: /s/ Chip Voigt By: /s/ Sheldon Drobny
------------------ ----------------------
President General Partner
Chip Voigt: Pete Voigt:
/s/ Chip Voigt /s/ Pete Voigt
- ---------------------- -------------------------
</TABLE>
3
<PAGE> 1
EXHIBIT 10.10
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of the 31st day of July,
1996 by FUNDEX GAMES, INC. (f/k/a Third Quarter, Inc.), a Nevada corporation,
with its principal place of business at 3750 W. 16th Street, Indianapolis,
Indiana 46222 ("Debtor"), in favor of PARADIGM VENTURE INVESTORS, LLC, an
Illinois limited liability company ("Paradigm"), with an address at 95 Revere
Drive, Suite A, Northbrook, Illinois 60062, as agent (in such capacity,
"Agent") for the parties listed on the signature pages hereto (collectively,
the "Secured Parties" and each individually a "Secured Party").
1. DEFINITIONS.
As used in this Agreement,
"Agent" means Paradigm, in its capacity as agent for and on
behalf of the Secured Parties.
"Agreement" means this Security Agreement, as it may be
amended, modified or supplemented from time to time.
"Business Day" means a day other than Saturday or Sunday on
which banks are open for business in Chicago, Illinois.
"Collateral" means all personal property and interests in
personal property now owned or hereafter acquired by Debtor in or upon which a
security interest, lien or mortgage has been, or is now or hereafter, granted
to Agent, on behalf of the Secured Parties by Debtor, whether under this
Agreement or under any of the other Security Documents.
"Debentures" means the Secured Debentures of even date
herewith by Debtor issued in favor of the Secured Parties, with an aggregate
principal amount of Five Hundred Thirty Thousand Dollars ($500,000), as such
Debentures may be amended, modified or supplemented from time to time.
"Default" means the occurrence or existence of any of the
events listed in Section 4 of this Agreement.
"Obligations" means all of Debtor's liabilities, obligations
and indebtedness to the Secured Parties of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired, or owing, whether primary,
secondary, direct, contingent, fixed or otherwise (including, without
limitation, obligations of performance) and whether arising or existing under
written agreement, oral agreement or by operation of law, including, without
limitation, all Debtor's indebtedness and obligations to the Secured Parties
under (i) this Agreement, (ii) the Debentures or (iii) the other Security
Documents. The term
<PAGE> 2
includes, without limitation, all interest, charges, expenses, fees,
reasonable attorneys' fees and disbursements and any other sum chargeable under
this Agreement, the Debentures, and the other Security Documents.
"Security Documents" means, collectively, this Agreement, the
Debentures and all other agreements, instruments and documents now or hereafter
executed and/or delivered by Debtor to the Secured Parties or the Agent, on
behalf of the Secured Parties, in order to evidence or secure the Obligations,
as each may be amended, modified or supplemented from time to time.
The foregoing definitions shall be equally applicable to both
the singular and plural forms of the defined terms. Terms used in this
Agreement and not defined herein or in the Debentures shall have the meanings
given such terms in the Code, as defined in Section 2.1 below.
2. SECURITY INTEREST.
2.1 Grant of Security Interest. To secure payment and
performance of the Obligations, Debtor hereby grants to the Agent a right of
setoff against and a continuing security interest in and to all of Debtor's now
existing or owned and hereafter arising or acquired: (a) accounts (including,
without limitation, all accounts receivable), chattel paper, claims, contract
rights, leases and rental income thereunder, leasehold interests, letters of
credit, instruments and documents ("Accounts"), and all goods sold, leased or
otherwise disposed of by Debtor which have given rise to Accounts and which
have been returned to or repossessed or stopped in transit by Debtor; (b) all
patents, copyrights and trademarks, and all applications for and
registrations of the foregoing, all franchise rights, tradenames, goodwill,
beneficial interests, rights to tax refunds and all other general intangibles
of any kind or nature whatsoever ("General Intangibles"); (c) all inventory and
goods of the Debtor, wherever located, whether in transit, held by others for
the Debtor's account, covered by warehouse receipts, purchase orders or
contracts, or in the possession of any carriers, forwarding agents, truckers,
warehousemen, vendors or other persons, including, without limitation, all raw
materials, work-in-process, finished merchandise, supplies, goods, incidentals,
office supplies, packaging materials and all materials used or consumed in
Debtor's business ("Inventory"); (d) goods (other than Inventory), including
all returned, reconsigned and repossessed goods, machinery, equipment,
vehicles, appliances, furniture, furnishings and fixtures ("Equipment"); (e)
monies, reserves, deposits, certificates of deposit and deposit accounts and
interest or dividends thereon, guaranties, securities, cash, cash equivalents
and other property whether or not in the possession or under the control of
Agent, any Secured Party or their respective bailee;
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<PAGE> 3
(f) all books, records, computer records, ledger cards, programs and other
computer materials, customer and supplier lists, invoices, orders and other
property and general intangibles at any time evidencing or relating to the
contents thereof ("Records"); (g) all accessions to any of the foregoing and
all substitutions, renewals, improvements and replacements of and additions
thereto; (h) all other property of Debtor, real and personal; and (i) all
products and proceeds of the foregoing (whether such proceeds are in the form
of cash, cash equivalents, proceeds of insurance policies, Accounts, General
Intangibles, Inventory, Equipment, Records or otherwise). Debtor further
assigns to Agent Debtor's right of stoppage in transit and Debtor's right to
reclaim goods from customers and Account Debtors (as hereinafter defined) under
Section 2-702 of the Illinois Uniform Commercial Code, as amended (the "Code").
Debtor, Agent and the Secured Parties hereby acknowledge their mutual intention
that the security interest granted herein will attach to Collateral when Debtor
executes and delivers this Agreement or, in the case of any Collateral acquired
by Debtor after the execution and delivery hereof, upon Debtor first acquiring
rights therein. Debtor hereby acknowledges and agrees, subject hereto, that
Debtor has rights in the Collateral and that value has been given.
2.2 Preservation of Collateral and Perfection of Security
Interests Therein. Until all of the Obligations of Debtor shall have been
indefeasibly paid and satisfied in cash, Agent shall be entitled to retain its
security interests in and to all existing Collateral, and all proceeds and
products thereof. Debtor agrees that it shall execute and deliver to Agent,
concurrently with the execution of this Agreement, and at any time or times
hereafter at the request of Agent, all financing statements or other documents
(and pay the cost of filing or recording the same in all public offices deemed
necessary by Agent) as Agent may request, in a form satisfactory to Agent, to
perfect and keep perfected the security interests in the Collateral or to
otherwise protect and preserve the Collateral and Agent's security interests
therein. Should Debtor fail to do so, Agent is authorized to sign any such
financing statements as Debtor's agent. Debtor further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
2.3 Loss of Value of Collateral. Debtor agrees to notify
Agent promptly of any material loss or depreciation in the value of the
Collateral, other than loss or depreciation occurring in the ordinary course
of Debtor's business.
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<PAGE> 4
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Recordkeeping. Debtor covenants with Agent that
Debtor shall at all times hereafter keep accurate and complete records of its
finances, in accordance with sound accounting practices and generally accepted
accounting principles, all of which records shall be available for inspection
during Debtor's usual business hours at the request of any of Agent's officers,
employees or agents.
3.2 Asset Warranties. Debtor represents and warrants to
Agent and each Secured Party that the Collateral is located on one of the
premises listed on Schedule A attached hereto and made a part hereof and is not
in transit. None of the Collateral will be removed from such locations without
prior written notice to Agent, except for use or sale in the ordinary course of
business. The Collateral is not subject to any lien, encumbrance, mortgage or
security interest whatsoever except for the security interests granted to
Agent. Debtor shall not permit any lien, encumbrance, mortgage or security
interest whatsoever to attach to any of the Collateral, except in favor of
Agent.
3.3 Verification of Accounts. After the occurrence of a
Default hereunder, Agent shall have the right, at any time or times thereafter,
in Agent's name, in the name of a nominee of Agent or in Debtor's name, to
verify the validity, amount or any other matter relating to any Accounts, by
mail, telephone, telegraph or otherwise.
3.4 Appointment of Agent as Debtor's Attorney-in-Fact.
Debtor hereby irrevocably designates, makes, constitutes and appoints Agent
(and all persons designated by Agent in writing to Debtor) as Debtor's true and
lawful attorney-in- fact, and authorizes Agent, in Debtor's or Agent's name, to
do the following: (a) at any time, (i) endorse Debtor's name upon any items of
payment or proceeds thereof and deposit the same in Agent's account on account
of the Obligations; (ii) endorse Debtor's name upon any chattel paper,
document, instrument, invoice, or similar document or agreement relating to any
Account of Debtor or any goods pertaining thereto; (iii) sign Debtor's name on
any verification of Accounts of Debtor and notices thereof to any person or
entity obligated on or under an Account or, if appropriate, General Intangibles
(an "Account Debtor"), as provided in Section 3.3 hereof; (iv) take control in
any manner of any item of payment on or proceeds of any Account of Debtor and
apply such item of payment or proceeds to the Obligations; and (v) have access
to any lock box into which any of Debtor's mail is deposited, and open and
process all mail addressed to Debtor and deposited therein; and (b) at any time
after the occurrence of a Default, (i) demand payment of Accounts of Debtor;
(ii) enforce payment of accounts of Debtor by legal proceedings or otherwise;
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<PAGE> 5
(iii) exercise all of Debtor's rights and remedies with respect to proceedings
brought to collect any Account; (iv) sell or assign any Account of Debtor upon
such terms, for such amount and at such time or times as Agent deems advisable;
(v) settle, adjust, compromise, extend or renew any Account of Debtor; (vi)
discharge and release any Account of Debtor; (vii) prepare, file and sign
Debtor's name on any proof of claim in bankruptcy or other similar document
against any Account Debtor; (viii) have access to any postal box of Debtor and
notify the post office authorities to change the address for delivery of
Debtor's mail to an address designated by Agent; and (ix) do all other acts and
things which are necessary, in Agent's discretion, to fulfill Debtor's
Obligations under this Agreement. Agent shall not exercise its rights arising
as a result hereof until after the occurrence of a Default hereunder.
3.5 Notice to Account Debtors. Following the occurrence
of a Default under this Agreement, Agent may, in its sole discretion, at any
time or times, without prior notice to Debtor, notify any or all Account
Debtors that the Accounts of Debtor have been assigned to Agent, that Agent has
a security interest therein, and that all payments upon such Accounts be made
directly to Agent or as otherwise specified by Agent.
3.6 Safekeeping of Assets and Asset Covenants. Agent
shall not be responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to all or any part of the Collateral; (c) any diminution in the
value of all or any part of the Collateral; or (d) any act or default of any
carrier, warehouseman, processor, bailee, forwarding agency or any other person
with respect to all or any part of the Collateral. All risk of loss, damage,
destruction or diminution in value of all or any part of the Collateral of
Debtor shall be borne by Debtor.
3.7 Insurance. Debtor shall insure the Collateral at all
times against all hazards specified by Agent, including, without limitation,
fire, theft and risks covered by extended coverage insurance, and such
policies shall be payable to Agent as its interest may appear. Such policies
of insurance shall be satisfactory to Agent as to form, amount and insurer. If
requested by Agent, Debtor shall furnish certificates, policies or endorsements
to Agent as proof of such insurance, and if Debtor fails to do so, Agent is
authorized but not required to obtain such insurance at Debtor's expense. All
policies shall provide for at least thirty (30) days prior written notice to
Agent of cancellation or non-renewal. Agent may act as attorney-in-fact for
Debtor in making, adjusting and settling any claims under any such insurance
policies. Debtor hereby assigns to Agent all of its right, title and interest
to any insurance policies insuring the Collateral, including, without
limitation, all rights to receive the proceeds of insurance, and directs all
insurers to pay
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<PAGE> 6
all such proceeds directly to Agent and authorizes Agent to endorse Debtor's
name on any instrument for such payment.
3.8 Transfer of Collateral. Debtor shall not sell,
lease, transfer, assign or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Agent in each instance,
except Inventory sold to buyers in the ordinary course of business.
3.9 Damage to Collateral. Debtor shall immediately
notify Agent in writing of any destruction of, or any substantial damage to,
any of the Collateral.
3.10 Change of Place of Business. Debtor shall
immediately notify Agent in writing of any change in any of its place of
business or the opening of any new place of business.
3.11 Payment of Taxes. Debtor shall pay when due all
taxes, license fees and assessments relating to the Collateral, unless such
items are being contested in good faith by appropriate procedures and Debtor
has established appropriate (in Secured party's opinion) reserves therefor.
3.12 Maintenance. Debtor shall keep the Collateral in
good condition and repair, reasonable wear and tear excepted. Debtor shall be
liable to Agent for any expenditures by Agent or any Secured Party for the
maintenance and preservation of the Collateral, including, without limitation,
taxes, levies, insurance and repairs, and for the repossession, holding,
preparation for sale, and the sale or other disposition, of the Collateral
(including, without limitation, attorneys' and accountants' fees and expenses),
as well as all damages for breach of warranty, misrepresentation, or breach of
covenant by Debtor, and all such liabilities shall be included in the
definition of Obligations herein, shall be secured by the security interest
granted herein, and shall be payable upon demand.
3.13 Inspection. Debtor shall at all times during normal
business hours allow Agent or its agents to examine and inspect the Collateral
wherever located as well as Debtor's books and records, and to make extracts
and copies of them, it being understood that Agent shall use reasonable efforts
in the normal course of its operations to keep confidential all such
information that (a) is not in the public domain, and (b) is not required to be
disclosed by any court, agency or authority of competent jurisdiction,
provided, however, that the requirement to keep such information confidential
shall not apply to the extent necessary in order for Agent to foreclose on or
otherwise deal with the Collateral in the Secured Parties' best interests upon
the occurrence of a Default.
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<PAGE> 7
3.14 Segregation of Collateral. All inventory or Debtor's
premises, for equipment of other parties at any time located on Debtor's
processing or otherwise, shall be segregated from the Collateral and shall be
clearly marked as being the inventory or equipment of such other party.
3.15 Mergers, Etc. Debtor shall not become a party to any
consolidation, merger, liquidation or dissolution or organize, purchase, assume
or acquire any subsidiary or joint venture or partnership interest or interest
in any other business entity, without the prior written consent of Agent.
3.16 Distributions to Shareholders. Except for monthly
payments to the shareholders of Seven Thousand Four Hundred Dollars ($7,400)
for the payment of interest, Debtor shall not declare or pay any dividend or
return any capital to any of its stockholders on account of any of its capital
stock; advance or loan any sum to any of its stockholders, directors or
officers in an aggregate amount; pay any management or consulting fees to any
affiliated entity; redeem, repurchase or otherwise acquire any of its
outstanding capital stock; or guarantee any obligations of any director of
officer.
3.17 Change of Name. Debtor shall notify Agent of any
intended change of Debtor's name, and will notify Agent when such change
becomes effective.
3.18 Organization. Debtor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Debtor is duly qualified and in good standing in each state in which
the failure to so qualify would have a material adverse effect on its business.
Effective August 28, 1996, Third Quarter, Inc. was merged with and into Fundex,
Inc., and each act required to be taken by or on the part of such companies to
effectuate such merger has been duly and properly taken.
3.19 Authority. Debtor has full corporate right and power
to enter into and perform its obligations under this Agreement and the
other Security Documents. The execution, delivery and performance of this
Agreement and the other Security Documents has been duly authorized by all
necessary corporate action of Debtor, and this Agreement and the other Security
Documents constitute valid and binding obligations of Debtor enforceable
against Debtor in accordance with their respective terms, subject to applicable
bankruptcy, reorganization, insolvency or similar laws affecting the
enforcement of creditor's rights generally.
3.20 No Conflicts. The execution, delivery and
performance by Debtor of this Agreement and each of the other
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<PAGE> 8
Security Documents do not and shall not: (a) contravene or constitute a default
(or an event that, with due notice or the lapse of time, or both, would
constitute a default) under or result in any breach of, or cause or permit the
acceleration of the maturity of any debt or obligation pursuant to, Debtor's
Articles of Incorporation or any document, commitment or other agreement to
which Debtor is a party or by which any of Debtor's property is bound; or (b)
violate any statute or law or any judgment, decree, order, regulation or rule
of any court or governmental authority applicable to Debtor.
3.21 Actions or Proceedings. There are no actions or
proceedings which are pending or threatened against Debtor which might result
in any material and adverse change in its financial condition or materially
affect the Collateral pledged hereunder.
3.22 Violation of Law. Debtor is not in violation of any
applicable federal, state, municipal or county statue, regulation or ordinance
which may materially and adversely affect its business, property, assets,
operations or conditions, financial or otherwise. Debtor agrees that, so long
as any Obligations shall remain unpaid or outstanding, Debtor shall comply with
all applicable laws, rules, regulations, and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments, and governmental charges imposed upon Debtor or upon
Debtor's property.
3.23 Indebtedness. Debtor hereby agrees that it shall
not, without the prior written consent of Agent, borrow from, become indebted
to any person, proprietorship, partnership, trust, corporation, bank, insurance
company or other financial institution or business entity other than the
Secured Parties.
3.24 Issuance of Stock. Debtor shall not issue any
capital stock, warrants or options therefor, or securities convertible or
exchangeable into its capital stock if such issuance might hinder its ability
to pay the Obligations or otherwise perform pursuant to this Agreement or any
other Security Document, without the prior written consent of Agent.
3.25 Consents. All authorizations, consents, approvals,
registrations, exemptions and licenses required to be obtained by Debtor or
which are necessary for the borrowing contemplated by the Debentures and the
Security Documents and the execution and delivery by Debtor of the Debentures
and the Security Documents to which Debtor is a party, and the performance by
Debtor of each of Debtor's obligations hereunder and thereunder, if any, have
been obtained and are in full force and effect.
3.26 Use of Proceeds. Debtor will use the proceeds of
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<PAGE> 9
the Debentures to finance the costs and expenses of completing an initial
public offering and for working capital purposes.
3.27 Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of Debtor to Agent
for purposes of or in connection with the Debentures or any transaction
contemplated hereby is, and all other factual information hereafter furnished
by or on behalf of Debtor to Agent will be, true and accurate in every material
respect on the date as of which such information is dated or certified, and
Debtor has not omitted and will not omit any material fact necessary to prevent
such information from being false or misleading. Debtor has disclosed to Agent
in writing all facts which might materially and adversely affect the credit,
financial condition, affairs or prospects of Debtor, or Debtor's ability to
perform Debtor's obligations under the Debentures.
3.28 Liens. Debtor shall not, without the prior written
consent of Agent, create, incur, assume or suffer to exist any lien, security
interest, encumbrance or other claim of any nature whatsoever on any of its
assets, including, without limitation, the Collateral, other than the security
interest granted in favor of Agent.
3.29 Financial Information. As soon as practicable, but
in no event later than the tenth (10th) day after the last day of each month in
which Obligations remain unpaid, Debtor shall deliver, or cause to be
delivered, to Agent financial statements fairly and accurately presenting the
financial status of Debtor, including, without limitation, Balance Sheets,
Statements of Changes in Financial Condition, and Income Statements
(collectively, the "Statements"), in form and substance acceptable to Agent. To
the best of Debtor's knowledge, Debtor is in compliance with the requirements
of all applicable laws, rules, regulations, and orders of all federal and state
governmental authorities and agencies.
4. DEFAULTS; RIGHTS AND REMEDIES OF AGENT.
4.1 Defaults. Each of the following occurrences shall
constitute a "Default" under this Agreement:
(a) Debtor's failure to pay when due any of the payment
obligations under this Agreement or under the Debentures.
(b) Debtor's failure or neglect to perform, keep or
observe any of the covenants, conditions, promises or agreements,
other than payment obligations, under this Agreement or any other
Security Document.
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<PAGE> 10
(c) The occurrence of any default by Debtor, or Debtor's
failure or neglect to perform, keep or observe any of the covenants,
conditions, promises or agreements contained in one or more of the
Security Documents.
(d) Any representation or warranty made or deemed made by
Debtor to Agent or the Secured Parties herein or in any of the other
Security Documents or in any written statement or certificate at any
time given pursuant to any of the Security Documents is false or
misleading in any material respect on the date made.
(e) Debtor uses any amounts received from Agent or any
Secured Party for any purpose other than its reasonable working
capital needs and to finance the costs and expenses of completing an
initial public offering.
(f) A judgment or order shall be rendered against Debtor.
(g) A notice of lien, levy, or assessment is filed or
recorded with respect to all or a material part of the assets of
Debtor or the Collateral by the United States, or any department,
agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency or any taxes or debts owing
at any time or times hereafter to any one or more of them become a
lien upon all or a material part of the Collateral.
(h) All or any part of the Collateral is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or
comes within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors.
(i) A proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership
law or statute is filed against Debtor, which proceeding is either
consented to by Debtor or not dismissed, vacated or stayed within
thirty (30) days after the filing thereof, or a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statue is filed by Debtor,
or Debtor makes an assignment for the benefit of creditors, or Debtor
takes any corporate action to authorize any of the foregoing.
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<PAGE> 11
(j) Debtor voluntarily or involuntarily dissolves or is
dissolved.
(k) Debtor becomes insolvent or fails generally to pay
its debts as they become due.
(l) Debtor is enjoined, restrained, or in any way
prevented by the order of any court or any administrative or
regulatory agency from conducting all or any material part of its
business affairs.
(m) A breach by Debtor shall occur under any material
agreement, document or instrument (other than an agreement, document
or instrument evidencing the lending of money), whether heretofore,
now or hereafter existing between Debtor and any other person, and
such breach shall continue beyond any applicable cure period contained
in such agreement, document or instrument.
(n) A breach by Debtor shall occur under any agreement,
document or instrument evidencing the lending or borrowing of money
whether theretofore, now or hereafter existing between Debtor and any
other person, and the effect thereof would be to permit the
acceleration of the indebtedness thereunder.
(o) There shall occur any loss, theft, substantial damage
or destruction of any item or items of Collateral (a "Loss") if the
amount of such Loss with respect to which an insurer has not admitted
liability within a reasonable time (as determined by Agent) after the
occurrence of such Loss.
(p) A material and adverse change shall occur in the
operations or financial condition of Debtor.
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<PAGE> 12
4.2 Rights and Remedies.
(a) Rights and Remedies Generally. Upon the occurrence
of a Default described in clause (i) of Section 4.1, all of the Obligations of
Debtor shall immediately and automatically, without notice of any kind, be
immediately due and payable; and upon the occurrence of any other Default, any
or all of the Obligations may, at the option of the Agent, and without
presentment, demand, protest or notice of any kind (all of which are hereby
expressly waived), be declared, and thereupon shall become, immediately due and
payable. In addition, upon the occurrence of a Default, Agent shall have, in
addition to any other rights and remedies contained in this Agreement, the
Debentures or in any of the other Security Documents, all of the rights and
remedies of a secured party under the Uniform Commercial Code, as then in
effect in Illinois, or other applicable laws, all of which rights and remedies
shall be cumulative, and non-exclusive, to the extent permitted by law. In
addition to all such rights and remedies, the sale, lease or other disposition
of the Collateral, or any part thereof, by Agent after Default may be for cash,
credit or any combination thereof, and Agent may purchase all or any part of
the Collateral at public or, if permitted by law, private sale, and in lieu of
actual payment of such purchase price, may set-off the amount of such purchase
price against the Obligations then owing. Any sales of such Collateral may be
adjourned from time to time with or without notice. Agent may, in its sole
discretion, cause the Collateral to remain on the premises of Debtor, at
Debtor's expense, pending sale or other disposition of such Collateral. At
such times, Agent shall have the right to repair, process, preserve, protect
and maintain the Collateral and make such replacements thereof and additions
thereto as Agent may deem advisable. Agent shall have the right to conduct
such sales on the premises of Debtor, at Debtor's expense, or elsewhere, on
such occasion or occasions as Agent may see fit.
(b) Entry Upon Premises and Access to Information. Upon
the occurrence of a Default described in clause (i) of Section 4.1, and ten
(10) days after the occurrence of any other Default, Agent shall have the right
to enter upon (to the exclusion of Debtor) the premises of Debtor where the
Collateral is located (or is believed to be located) without any obligation to
pay rent to Debtor, or any other place or places where such Collateral is
believed to be located and kept, and remove such Collateral therefrom to the
premises of Agent or any agent of Agent, for such time as Agent may desire, in
order effectively to collect or liquidate such Collateral or to retain such
Collateral in satisfaction of the Obligations, and/or Agent may require Debtor
to assemble such Collateral and make it available to Agent at a place or places
to be designated by Agent. Upon the occurrence of a Default described in
clause (i) of Section 4.1,
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and ten (10) days after the occurrence of any other Default and the receipt
by Agent that Debtor intends in good faith cure such Default to the
satisfaction of Agent, Agent shall have the right to obtain access to Debtor's
data processing equipment, computer hardware and software relating to the
Collateral and to use all of the foregoing and the information contained
therein in any manner Agent deems appropriate; and Agent shall have the right
to notify post office authorities to change the address for delivery of
Debtor's mail to an address designated by Agent and to receive, open and
process all mail addressed to Debtor.
(c) Sale or Other Disposition of Collateral by Agent.
Any notice required to be given by Agent of a sale, lease or other disposition
or other intended action by Agent, with respect to any of the Collateral, which
is deposited in the United States mails, postage prepaid and duly addressed to
Debtor at the address specified below, at least ten (10) days prior to such
proposed action shall constitute fair and reasonable notice to Debtor of
any such action. The net proceeds realized by Agent upon any such sale or
other disposition, after deduction for the expense of retaking, holding,
preparing for sale, selling or the like and the reasonable attorneys' and
paralegals' fees and legal expenses incurred by Agent or any Secured Party in
connection therewith, shall be applied as provided herein toward satisfaction
of the Obligations. Agent shall account to Debtor for any surplus realized
upon such sale or other disposition, and Debtor shall remain liable for any
deficiency. The commencement of any action, legal or equitable, or the
rendering of any judgment or decree for any deficiency shall not affect Agent's
or any Secured Party's security interest in the Collateral until the
Obligations are fully paid. Agent shall have the right to commence, continue
or defend proceedings in any court of competent jurisdiction in the name of
Agent, the "Receiver" (as hereinafter defined) or Debtor for the purpose of
exercising any of the rights, powers and remedies set out in this Section 4.2,
including, without limitation, the institution of proceedings for the
appointment of a Receiver. Debtor agrees that Agent has no obligation to
preserve rights to the Collateral against any other Person. Agent is hereby
granted a license or other right to use, without charge, Debtor's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
tradestyles, trademarks, service marks and advertising matter, or any property
of a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale and selling any such Collateral, and Debtor's rights
under all licenses and all franchise agreements shall inure to Agent's benefit
until the Obligations are paid.
(d) Appointment of Receiver. Upon the occurrence of a
Default described in clause (i) of Section 4.1 and ten (10) days after the
occurrence of any other Default, Agent shall have the right to appoint any
Person to be an agent or any Person to be a
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<PAGE> 14
receiver, manager or receiver and manager (the "Receiver") of the Collateral
and to remove any Receiver so appointed and to appoint another if Agent so
desires; it being agreed that any Receiver appointed pursuant to the provisions
of this Agreement will have all of the powers of Agent hereunder, and in
addition, will have the power to carry on the business of Debtor. The Receiver
will be deemed to be the agent of Debtor for the purpose of establishing
liability for the acts or omissions of the Receiver and Agent will not be
liable for such acts or omissions and, without restricting the generality of
the foregoing, Debtor hereby irrevocably authorizes Agent to give instructions
to the Receiver relating to the performance of its duties as set forth herein.
(e) Waiver of Demand. Demand, presentment, protest and
notice of nonpayment are hereby waived by Debtor. Debtor also waives the
benefit of all valuation, appraisal and exemption laws.
(f) Waiver of Notice. UPON THE OCCURRENCE OF A DEFAULT,
DEBTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE
EXERCISE BY AGENT OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE
OR HEARING.
(g) Advice of Counsel. Debtor acknowledges that it has
been advised by its counsel with respect to this transaction and this
Agreement, including without limitation any waivers contained herein.
5. AGENCY PROVISIONS
5.1 Appointment of Agent.
(a) Each Secured Party hereby appoints the Agent as its agent
hereunder and hereby authorizes the Agent to take such action on its behalf and
to exercise such rights, remedies and privileges hereunder as directed by those
Secured Parties holding more than fifty-one percent (51%) or more of the
Debentures then outstanding (the "Required Creditors"), all at the cost and
expense of Debtor. Subject to the terms and conditions hereof, the Agent
shall, on behalf of the Secured Parties, exercise such rights and remedies of
the Secured Parties under the Security Documents and take such other actions as
may be reasonably incidental thereto as and to the extent the Required
Creditors shall from time to time direct the Agent. Nothing herein
shall be deemed to constitute the Agent as a trustee or fiduciary for any
Secured Party or impose on the Agent any obligations other than those for which
express provision is made herein. The Agent shall not have any duties or
responsibilities except as expressly set forth herein and no implied covenants,
functions or responsibilities shall be read into this Agreement as to the
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<PAGE> 15
Agent. Except as required by the specific terms of this Agreement, the Agent
shall not have any duty to exercise any right, power, remedy or privilege
granted to it hereby or to take any affirmative action or exercise any
discretion hereunder unless directed to do so by the Required Creditors (and
the Agent shall be fully protected in acting or refraining from acting pursuant
to such directions, each Secured Party hereby agreeing that such directions
shall be binding upon all of the Secured Parties); provided that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement, the Debentures, any Security
Document or applicable law. Further, the Agent shall not be authorized to
amend, modify, supplement, alter or waive any provision of or give any consent
under any of the Security Documents without the prior written consent of the
Required Creditors. The Agent shall promptly notify and transmit to each of
the Secured Parties, all information, notices, documentation or instruments it
may receive from time to time pursuant to the Security Documents.
(b) The Agent hereby accepts the appointment as agent on behalf of
the Secured Parties and agrees to act in accordance with the terms and
conditions of this Agreement. The Agent may perform any of its duties
hereunder by or through agents, affiliates or employees, and shall be entitled
to retain counsel and to act in reliance on the advice of such counsel
concerning all matters pertaining to the agencies created hereby and its duties
hereunder, and shall not be liable for any action taken or omitted to be taken
by it in good faith in accordance with the advice of counsel selected by it.
5.2 Indemnification.
(a) Each Secured Party hereby agrees, jointly and severally, to
indemnify, defend and hold harmless the Agent and its respective officers,
directors, affiliates, employees and agents from and against any and all
losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, costs and expenses (including, without limitation,
reasonable fees and expenses of attorneys, accountants and experts), reasonably
incurred or suffered by the Agent, in its capacity as such, as a result of any
action taken or omitted to be taken by the Agent in such capacity, or otherwise
incurred or suffered by, made upon, or assessed against the Agent in such
capacity, relating to or arising out of this Agreement, the Debenture, any
other Security Documents (collectively, "Agent Claims"); provided, however,
that (i) no Secured Party shall be required to indemnify or hold harmless the
Agent from and against any claims (collectively, "Nonindemnifiable Agent
Claims") resulting from or attributable to the Agent's gross negligence, bad
faith or willful misconduct. The Obligations of each Secured Party and of the
Agent under this Section 5.2 shall survive the
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<PAGE> 16
termination of this Agreement and the discharge of the Obligations for the
applicable statute of limitations period with respect to claims against the
Agent.
(b) Each Secured Party hereby agrees, jointly and severally, to
reimburse the Agent promptly following such Agent's demand for any
out-of-pocket expenses (including, without limitation, attorneys' fees and
expenses) incurred by the Agent hereunder or under any other Collateral
Document which is not promptly reimbursed by Debtor. The Agent need not take
any action which in the sole and exclusive judgment of the Agent would result
in or present a material risk of incurring liability unless it receives
concurrence of the Required Creditors and indemnification hereunder to the
satisfaction of the Agent therefor. If any indemnity furnished is insufficient
or becomes impaired, the Agent may call for an additional indemnity.
5.3 Exculpation. The Agent shall be entitled to rely upon advice of
counsel concerning legal matters, and upon this Agreement, the Debenture, any
other Security Documents or any schedule, certificate, statement, report,
notice or other writing which it believes in good faith to be genuine or to
have been presented by a proper person. Neither the Agent, nor any of its
directors, officers, affiliates, employees or agents shall be (i) responsible
for any recitals, representations or warranties contained in, or for the
execution, validity, genuineness, effectiveness or enforceability of this
Agreement, the Debentures or any other Security Document, (ii) responsible for
the validity, genuineness, effectiveness, enforceability, existence or value of
any collateral security, (iii) under any duty to inquire into or pass upon any
of the foregoing matters, or to make any inquiry concerning the
performance by Debtor or any other obligor of its obligations under this
Agreement, the Debentures or any other Security Document (including, without
limitation, any Event of Default), or (iv) in any event, be liable as such for
any action taken or omitted by it or them, except for liability resulting from
its gross negligence, bad faith or willful misconduct. The Agent shall not
incur any liability acting in accordance with the direction of the Required
Creditors or the Secured Parties, as applicable, or acting upon any notice,
consent, certificate or other instrument, communication, conversation or
writing or telephonic instruction or notices to the extent authorized or
believed to be genuine and signed or sent by an authorized person. The Agent
shall not be deemed to have knowledge of any Event of Default or any comparable
event unless it has received actual notice thereof. The Agent shall not be
liable to any Secured Party for the acts or omissions of its agents (other than
acts or omissions resulting from such agents' gross negligence, bad faith or
willful misconduct) that the Agent has selected with reasonable care.
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<PAGE> 17
5.4 No Diminishment of Rights. The rights and remedies herein of the
Secured Parties against Debtor shall not be deemed to be diminished,
restricted, amended, modified, altered, waived, delayed, impaired, superseded
or in any way affected by this Article 5. Debtor further agrees that this
Article 5 is solely for the benefit of Agent and shall not give Debtor, its
successors and assignees, or any other Person, any rights in addition to those
already granted or possessed, in respect of Agent or any Secured Party.
6. MISCELLANEOUS.
6.1 Waiver. Agent's failure, at any time or times
hereafter, to require strict performance by Debtor of any provision of this
Agreement shall not waive, affect or diminish any right of Agent thereafter to
demand strict compliance and performance therewith. Any suspension or waiver
by Agent of a Default under this Agreement or a default under any of the other
Security Documents shall not suspend, waive or affect any other Default under
this Agreement or any other default under any of the other Security Documents,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of Debtor contained in this Agreement or any of
the other Security Documents, and no Default under this Agreement or default
under any of the other Security Documents, shall be deemed to have been
suspended or waived by Agent unless such suspension or waiver is in writing
signed by an officer of Agent, and directed to Debtor specifying such
suspension or waiver.
6.2 Costs and Attorneys' Fees. If at any time or times
hereafter Agent employs counsel in connection with protecting or perfecting
Agent's security interest in the Collateral or in connection with any matters
contemplated by or arising out of this Agreement, whether (a) to commence,
defend, or intervene in any litigation or to file a petition, complaint,
answer, motion or other pleading, (b) to take any other action in or with
respect to any suit or proceeding (bankruptcy or otherwise), (c) to consult
with officers of Agent to advise Agent with respect to this Agreement or the
other Security Documents or the Collateral, (d) to protect, collect, lease,
sell, take possession of, or liquidate any of the Collateral, or (e) to attempt
to enforce or to enforce any security interest in any of the Collateral, to
attempt to enforce or to enforce any rights of Agent to collect any of the
Obligations, then in any of such events, all of the reasonable attorneys' fees
arising from such services, and any expenses, costs and charges relating
thereto, including without limitation all reasonable fees of the paralegals and
other staff employed by such attorneys, together with interest at the rate
prescribed in the Debentures and shall be part of the
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<PAGE> 18
Obligations, payable on demand and secured by the Collateral. Such interest
shall accrue at the times, and in the manner, provided for in the Debentures.
6.3 Expenditures by Agent. If Debtor shall fail to pay
taxes, insurance, assessments, costs or expenses which Debtor is, under any of
the terms hereof or of any of the other Security Documents, required to pay, or
fails to keep the Collateral free from other security interests, liens or
encumbrances, except as permitted herein, Agent may, in its sole discretion,
after notice to Debtor, make expenditures for any or all of such purposes, and
the amount so expended, together with interest thereon at the rate prescribed
in the Debentures and shall be part of the Obligations, payable on demand and
secured by the Collateral.
6.4 Custody and Preservation of Collateral. Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral in its possession if it takes such action for that
purpose as Debtor shall request in writing, but failure by Agent to comply with
any such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by Agent to preserve or protect any right with respect to
such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Debtor, shall of itself be
deemed a failure to exercise reasonable care in the custody or preservation of
such Collateral.
6.5 Assignability; Parties. This Agreement may not be
assigned by Debtor without the prior written consent of Agent. Whenever in
this Agreement there is reference made to any of the parties hereto, such
reference shall be deemed to include, wherever applicable, a reference to the
successors and permitted assigns of Debtor and the successors and assigns of
Agent.
6.6 Applicable Law; Severability. THIS AGREEMENT SHALL
BE CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL
LAWS (AS OPPOSED TO CONFLICT OF LAWS PRINCIPLES) AND DECISIONS OF THE STATE OF
ILLINOIS. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement.
6.7 Application of Payments. Notwithstanding any
contrary provision contained in this Agreement or in any of the other Security
Documents, Debtor irrevocably waives the right to
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<PAGE> 19
direct the application of any and all payments at any time or times hereafter
received by Agent from Debtor or with respect to any of the Collateral, and
Debtor does hereby irrevocably agree that Agent shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter, whether with respect to the Collateral or otherwise,
against the Obligations in such manner as Agent may deem advisable,
notwithstanding any entry by Agent upon any of its books and records.
6.8 Marshalling; Payments Set Aside. Agent shall be
under no obligation to marshall any assets in favor of Debtor or any other
Person or against or in payment of any or all of the Obligations. To the
extent that Debtor makes a payment or payments to Agent or Agent enforces its
security interests or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state, federal or foreign law, common law or equitable
cause, then to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
6.9 Section Titles. The section and subsection titles
contained in this Agreement shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties.
6.10 Continuing Effect. This Agreement, Agent's security
interests in the Collateral of Debtor, and all of the other Security Documents
shall continue in full force and effect so long as any Obligations of Debtor
shall be owed to Agent.
6.11 Notices. Except as otherwise expressly provided
herein, any notice required or desired to be served, given or delivered
hereunder shall be in writing, and shall be deemed to have been validly served,
given or delivered upon the earlier of (a) personal delivery to the address set
forth below (b) delivery by facsimile or similar means of delivery and (c) in
the case of mailed notice, three (3) days after deposit in the United States
mails, with proper postage for certified mail, return receipt requested,
prepaid, or in the case of notice by Federal Express or other reputable
overnight courier service, one (1) Business Day after delivery to such courier
service, addressed to the party to be notified as follows:
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<PAGE> 20
(i) If to Agent or any Secured Party at:
Paradigm Venture Investors, LLC
95 Revere Drive
Suite A
Northbrook, Illinois 60062
Attention: Mr. Sheldon Drobny
Telephone Number: (847) 291-4200
Facsimile Number: (847) 291-9567
with a copy to:
Holleb & Coff
55 E. Monroe Street, Suite 4100
Chicago, Illinois 60603
Attention: Steven H. Shapiro, Esq.
Telephone Number: (312) 807-4600
Facsimile Number: (312) 807-3900
(ii) If to Debtor at:
Fundex Games, Ltd.
3750 W. 16th Street
Indianapolis, Indiana 46222
Attention: Mr. Chip Voigt
Telephone No: (317) 263-9869
Facsimile No: (317) 263-0036
or to such other address as each party designates to the other in the manner
herein prescribed.
6.12 Equitable Relief. Debtor recognizes that, in the
event Debtor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Agent; therefore, Debtor agrees that Agent, if Agent so requests,
shall be entitled to temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages.
6.13 Entire Agreement. This Agreement, together with the
Security Documents executed in connection herewith, constitutes the entire
Agreement among the parties with respect to the subject matter hereof, and
supersedes all prior written or oral understandings with respect thereto. This
Agreement may be amended only by mutual agreement of the parties evidenced in
writing and signed by the party to be charged therewith.
6.14 Indemnity. Debtor agrees to defend, protect,
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<PAGE> 21
indemnify and hold harmless Agent and each and all of its respective officers,
directors, employees, attorneys and agents ("Indemnified Parties") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, the fees and
disbursements of counsel for the Indemnified Parties in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnified Parties shall be designated by a party thereto), which may be
imposed on, incurred by, or asserted against any Indemnified Party (whether
direct, indirect or consequential and whether based on any federal, state,
local or foreign laws or other statutory regulations, including without
limitation securities, environmental and commercial laws and regulations, under
common law or at equitable cause, or on contract or otherwise) in any manner
relating to or arising out of this Agreement or the other Security Documents,
or any act, event or transaction related or attendant thereto (including any
liability under federal, state, local or foreign environmental laws or
regulations); provided, that Debtor shall not have any obligation to any
Indemnified Party hereunder with respect to matters caused by or resulting from
the willful misconduct or gross negligence of such Indemnified Party. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, Debtor shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all matters incurred by the Indemnified Parties. Any
liability, obligation, loss, damage, penalty, cost or expense incurred by the
Indemnified Parties shall be paid to the Indemnified Parties on demand,
together with interest thereon at the rate prescribed for in the Debentures
from the date incurred by the Indemnified Parties until paid by Debtor, and
such amounts shall be added to the Obligations and be secured by the
Collateral. The provisions of and undertakings and indemnifications set out in
this Section 614 shall survive the satisfaction and payment of the Obligations.
6.15 Representations and Warranties. Notwithstanding
anything to the contrary contained herein, each representation or warranty
contained in this Agreement or any of the other Security Documents shall
survive the execution and delivery of this Agreement and the other Security
Documents and the repayment of the Obligations.
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<PAGE> 22
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
FUNDEX GAMES, LTD. (f/k/a THIRD QUARTER, INC.
By: /s/ Carl E. Voigt, IV
__________________________________
Its: President
________________________________
PARADIGM VENTURE INVESTORS, LLC
By: /s/ Sheldon Drobny
__________________________________
Its: Manager
________________________________
P.C. GOLDSTICK REVOCABLE TRUST
By:__________________________________
Its: ________________________________
_____________________________________
Richard Golden
_____________________________________
Dennis Goby
_____________________________________
Stacy L. Rosenberg
_____________________________________
Gregg Rosenberg
_____________________________________
Steve Levy
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<PAGE> 23
HARBOUR COURT LP I
By:__________________________________
Its: ________________________________
_____________________________________
Sharon D. Gonsky
_____________________________________
Buzz Simons
_____________________________________
Jay B. Gale & Elayne Gale, joint tenants
_____________________________________
Jerome Schachter
_____________________________________
Sheldon Drobny
_____________________________________
Aaron Fischer
_____________________________________
Stewart Shiman
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<PAGE> 1
EXHIBIT 10.11
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS COVERING SUCH SECURITIES, OR FUNDEX GAMES,
LTD. RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO FUNDEX GAMES, LTD., STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
FUNDEX GAMES, LTD.
(f/k/a THIRD QUARTER, INC.)
1996 10% SECURED DEBENTURE
$______.00 Chicago, Illinois
October __, 1996
FOR VALUE RECEIVED, the undersigned, FUNDEX GAMES, LTD., formerly
known as Third Quarter, Inc., a Nevada corporation (the "Company"), hereby
promises to pay to Aaron Fischer or his registered assigns ("Holder"), the
principal sum of _____________________________________________________
($______) on the Maturity Date, as defined in Section 2 below.
1. Subject to Security Agreement. This Debenture is issued
pursuant to, and is subject to the provisions of, the Security Agreement of
even date herewith (as amended, supplemented and modified from time to time,
the "Security Agreement") between the Holder and the Company.
2. Maturity. This Debenture shall be due and payable in two (2)
equal installments of _________________________________________________________
_______ ($_________) on each of July 31, 1997 and July 31, 1998; provided,
however, that this Debenture shall be due and payable upon the earliest to
occur of the following events (the "Maturity Date"): (i) two Business Days (as
defined in the Security Agreement) after the closing (such closing referred to
as the "IPO Closing") of the Company's initial registered public offering of
equity securities (the "IPO"); (ii) July 31, 1998; (iii) upon a Default (as
defined in the Security Agreement) and (iv) the closing of a merger,
consolidation, or other reorganization in which the Company is not the
surviving corporation, or a sale of all or substantially all of the Company's
assets or a sale of fifty percent (50%) or more of the issued and outstanding
shares of capital stock of the Company (collectively a "Merger or Sale"). For
purposes of this Section, the Company shall be deemed not to be the surviving
corporation if the shareholders of the Company immediately before the closing
of such transaction do not hold, immediately after the transaction and by
virtue of securities issued as a result of the transaction, fifty-one percent
(51%) or more of the voting power or beneficial ownership of the
<PAGE> 2
surviving corporation's equity securities (or the equity securities of the
parent of the surviving corporation).
3. Interest. (a) The unpaid principal amount of this Debenture
from time to time outstanding under this Debenture shall bear interest (and the
Company agrees to pay such interest) from the date of disbursement hereof until
paid in full at the rate of ten percent (10%) per annum. Accrued interest
hereunder shall be payable quarterly on the last Business Day of each of March,
June, September and December, commencing with the first such date after the
date hereof and on the Maturity Date. After the Maturity Date, accrued
interest shall be payable on demand. Interest, fees, costs and expenses
required to be paid under this Debenture that are not paid when due shall be
added to the principal amount hereof and shall become part of the principal
amount and shall thereupon bear interest as provided herein.
(b) Notwithstanding the foregoing, upon the occurrence and during
the continuance of any Default (as defined in the Security Agreement), the
principal amount of this Debenture shall bear interest (and the Company agrees
to pay such interest) from the date of such Default until such Default is cured
or waived by the Holder in writing, at a rate per annum equal to twelve percent
(12%) per annum.
(c) Interest accrued pursuant to this Section 3 shall be computed
for the actual number of days elapsed on the basis of a three hundred sixty
(360) day year.
4. Payments. Payments of both principal and interest shall be
made at the principal executive office of the Holder, or such other place as
the Holder hereof shall designate to the Company in writing, in lawful money of
the United States of America.
5. Registration, Transfer and Exchange of Debentures. The
Company will keep at its principal office a register in which it will provide
for the registration and registration of transfer of Debentures, at its own
expense. If any Debenture is surrendered at said office or at the place of
payment named in the Debenture for registration of transfer or exchange
(accompanied in the case of registration of transfer by a written instrument of
transfer in form satisfactory to the Company duly executed by or on behalf of
the Holder), the Company, at its expense, will deliver in exchange one or more
new Debentures in denominations of $10,000 or larger multiple of $1,000, as
requested by the Holder for the aggregate unpaid principal amount. Any
Debenture or Debentures issued in a transfer or exchange shall carry the same
rights to interest (unpaid and to accrue) carried by the Debenture or
Debentures so transferred or exchanged so that there will not be any increase
or decrease in total interest payable on the Debenture of Debentures
surrendered. The Holder agrees that prior to making any sale, transfer,
pledge, assignment, hypothecation or other disposition (each, a "Transfer") of
the Debenture. If the Company so requests, the Holder shall at its expense
provide the Company with an opinion of counsel (which counsel must be
reasonably satisfactory to the Company) to the Holder, in form and substance
satisfactory to the Company, that the proposed Transfer complies with
applicable federal and state securities laws. The Company shall have no
obligation to Transfer any Debentures unless the Holder thereof has complied
with the foregoing provisions, and any such attempted Transfer shall be null
and void.
2
<PAGE> 3
6. Registered Owner. Prior to due presentation for registration
of transfer, the Company may treat the person in whose name any Debenture is
registered as the owner and holder of such Debenture for the purpose of
receiving payment of principal of, and interest on, such Debenture and for all
other purposes whatsoever, and the Company shall not be affected by notice to
the contrary.
7. Prepayment.
7.1 Optional Prepayment. The Company, at its option and
without any premium, may prepay in whole or in part the principal amount of any
Debenture at 100% of the face value of the Debenture at any time; provided,
however, that if the Company prepays a Debenture in part, it shall prepay the
same percentage of each outstanding Debenture. The Company shall at the time
of any such prepayment pay to the Holder all interest accrued and unpaid to the
date of prepayment.
7.2 Notice of Prepayment. At least twenty (20) but not
more than sixty (60) days prior to the date fixed for any prepayment (the
"Prepayment Date"), notice shall be given to the Holders of the Debentures of
the election of the Company to prepay all or a specified portion of the
principal amount of the Debentures (the "Prepayment Notice"). The Prepayment
Notice shall specify the place at which payment may be obtained and shall call
upon the Holder to surrender the Debenture to the Company in the manner and at
the place designated. On the Prepayment Date, the Holder shall surrender the
Debenture to the Company in the manner and the place designated in the
Prepayment Notice, and thereupon prepayment shall be made to the Holder and the
Debenture shall be canceled. In the event that less than all of the principal
amount of a Debenture is prepaid, upon surrender of the Debenture to the
Company, the Company shall execute and deliver to the Holder a new Debenture or
Debentures in principal amount equal to the unpaid principal amount of the
Debenture.
8. Security Interest. The Company's obligations under this
Debenture are secured by a security interest in Collateral pursuant to the
Security Agreement. Upon a Default, Agent (as defined in the Security
Agreement) has certain rights to take possession of, and take certain actions
with respect to, the Collateral (including, without limitation, to sell the
Collateral) in order to satisfy the Company's obligations under the Debentures.
9. Default Limitations on Proceedings by Debenture Holders.
9.1 Defaults. The events constituting a Default
hereunder, and the Holder's rights and remedies upon a Default, are set forth
in the Security Agreement.
9.2 Limitation on Proceedings by Debenture Holders. No
Holder of any Debenture shall have any right, by virtue of or by availing of
any provision of the Security Agreement, to take any action, or to institute
any suit, action or proceeding in equity or at law upon or under or with
respect to the Security Agreement, or for the appointment of a receiver or
trustee, or for any other remedy hereunder or under the Security Agreement,
with respect to the Collateral (as defined in the Security Agreement) unless
such Holder previously shall have given to the Agent written notice of Default
and of the continuance thereof, as herein before provided, and unless
3
<PAGE> 4
Holders comprising fifty-one percent (51%) or more of the principal amount of
the Debentures then outstanding shall have made written request upon Agent
to institute such action, suit or proceeding in its own name as Agent
hereunder and shall have offered to Agent such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and Agent for sixty (60) days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to take any
such action or institute any such suit, action or proceeding.
10. Miscellaneous.
10.1 Amendments. Any provision hereof may be amended only
with the written consent of the Company and the Agent. Any waiver by a party
of any provisions of this Debenture must be signed by the party against whom
enforcement is sought.
10.2 GOVERNING LAW. THIS DEBENTURE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
10.3 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
duly given (i) on the date of delivery if delivered personally, (ii) one (1)
business day after transmission by telex or facsimile transmission, or (iii)
two (2) days after mailing if mailed by first class mail, to the following
addresses:
If to the Company: Fundex Games, Ltd.
3750 W. 16th Street
Indianapolis, IN 46222
Attn: Mr. Chip Voigt
and if to the Holder, to the address of Holder as set forth on the Company's
records, or such other address as the Holder has provided to the Company by
notice duly given.
10.4 Payment of Interest. It is the intention of the
Holder and the Company to comply with the laws of the State of Illinois; and
notwithstanding any provision to the contrary contained herein or in the
Security Documents (as defined in the Security Agreement), the Company shall
not be required to pay, and the Holder shall not be permitted to collect, any
amount in excess of the maximum amount of interest permitted by applicable law
("Excess Interest"). If any Excess Interest is provided for or determined to
have been provided for by a court of competent jurisdiction in this Debenture
or in any Security Document, then in such event (i) the provisions of this
Section shall govern and control; (ii) the Company shall not be obligated to
pay any Excess Interest; (iii) any Excess Interest that the Holder may have
received hereunder shall be, at the Holder's sole option, (A) applied as a
credit against either the outstanding principal balance of this Debenture or
accrued and unpaid interest hereon, (B) refunded to the payor thereof, or (C)
any combination of the foregoing; (iv) the interest rate(s) provided for herein
shall be automatically reduced to the maximum rate allowed under applicable
law, and this Debenture and the other Security Documents shall be deemed to
have been, and shall be, reformed and modified to reflect such reduction; and
(v) the Company shall not have any action
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<PAGE> 5
against the Holder for any damages arising out of the payment or collection of
any Excess Interest. Notwithstanding the foregoing, if any interest payment or
other charge or fee payable hereunder or under any of the Security
Documents exceeds the maximum amount then permitted by applicable law, then to
the extent permitted by applicable law, the Company shall be obligated to pay
such permitted maximum amount and the Company shall continue to pay such
maximum amount until all such interest payments and other charges and fees
otherwise due hereunder or under any of the Security Documents are paid in
full.
10.5 Payment of Expenses. In addition to and not in
limitation of the foregoing and the provisions of the Security Agreement, the
undersigned further agrees, subject only to any limitation imposed by
applicable law, to pay all expenses, costs, fees and disbursements, including
attorneys' fees and costs and expenses, incurred by the Holder of this
Debenture in endeavoring to collect any amounts payable hereunder which are not
paid when due, whether by acceleration or otherwise.
10.6 Waivers. All parties hereto, whether as makers,
endorsers, or otherwise, severally waive presentment for payment, demand,
protest and notice of dishonor.
10.7 Binding Nature. This Debenture is binding upon the
undersigned and its successors and assigns and shall inure to the benefit of
the Holder and its successors and assigns.
IN WITNESS WHEREOF, this Debenture is executed as of the first date
written above.
FUNDEX GAMES, LTD. (f/k/a THIRD QUARTER, INC.)
By: /s/ Carl E. Voigt, IV
_____________________________________
President
_____________________________________
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<PAGE> 1
EXHIBIT 10.12
FUNDEX GAMES, LTD.
1996 EMPLOYEE STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1996 Employee Stock Option
Plan (the "PLAN") are to attract and retain the best available personnel, to
provide additional incentive to the Employees of the Company and its
Subsidiaries, to promote the success of the Company's business and to enable
the Employees to share in the growth and prosperity of the Company by providing
them with an opportunity to purchase stock in the Company.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written stock option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "AFFILIATE" shall mean any entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is
under common control with, the Company.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References in the Plan to any section of the Code
shall be deemed to include any amendment or successor provisions to such
section and any regulations issued under such section.
(f) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean Fundex Games, Ltd., a Nevada corporation.
(f) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed.
(g) "CONTINUOUS EMPLOYMENT" OR "CONTINUOUS STATUS AS AN EMPLOYEE"
shall mean the absence of any interruption or termination of employment
or service as an Employee by or to the Company or any Parent or
Subsidiary of the Company which now exists or is hereafter organized or
acquired by or acquires the Company. Continuous Employment shall not be
considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Board or in the case of transfers
between locations of the Company or between the Company, its Parent, or
any of its Subsidiaries or its successors.
(h) "DISABILITY" shall mean the inability of the Optionee to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or has lasted or can be expected to last for a continuous
period of not less than 12 months. In determining the Disability of an
Optionee, the Board may require the Optionee to furnish proof of the
existence of Disability and may .select a physician to examine the
Optionee. The final determination as to the Disability of the Optionee
shall be made by the Board.
<PAGE> 2
(i) "DISINTERESTED PERSON" shall mean an administrator of the Plan
who, during the one year prior to service as an administrator of the
Plan, has not been granted or awarded and, during such service, is not
granted or awarded stock, stock options or stock appreciation rights
pursuant to the Plan or any other plan of the Company or any of its
Affiliates entitling the participants therein to acquire stock, stock
options or stock appreciation rights of the Company or any Affiliates,
except for any plan under which the award of stock, stock options or
stock appreciation rights is not subject to the discretion of any person
or persons. The term "DISINTERESTED PERSON" shall be interpreted in a
manner consistent with the meaning of such term under Rule 16b-3
promulgated by the Securities and Exchange Commission under the Exchange
Act.
(j) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company, its Parent, any of its Subsidiaries
or its successors. A person shall not be deemed to be employed by the
Company merely because such person is a member of the Board of Directors
of the Company or a consultant to the Company.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
(l) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code.
(m) "NONSTATUTORY STOCK OPTION" shall mean an Option which is not an
Incentive Stock Option.
(n) "OPTION" shall mean a stock option granted pursuant to the Plan
evidencing the grant of a right to an Employee pursuant to the Plan to
purchase a specified number of Shares at a specified exercise price.
(o) "OPTION AGREEMENT" shall mean a written agreement substantially
in one of the forms attached hereto as Exhibit A, or such other form or
forms as the Board (subject to the terms and conditions of this Plan) may
from time to time approve, evidencing and reflecting the terms of an
Option.
(p) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(q) "OPTIONEE" shall mean an Employee who is granted an Option.
(r) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Sections 424 (e) and (g) of the Code.
(s) "PLAN" shall mean this 1995 Stock Option Plan.
(t) "SHARE" or "SHARES" shall mean shares of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(u) "STOCK PURCHASE AGREEMENT" shall mean an agreement substantially
in the form attached hereto as Exhibit B, or such other form or forms as
the Board (subject to the terms and conditions of this Plan) may from
time to time approve,
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<PAGE> 3
which is to be executed as a condition of purchasing Optioned Stock upon
exercise of an Option.
(v) "SUBSIDIARY" shall mean a subsidiary corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.
(w) "TERMINATION FOR CAUSE" shall mean termination of employment as
a result of (i) any act or acts by the Optionee constituting a felony
under any federal, state or local law; (ii) the Optionee's willful and
continued failure to perform the duties assigned to him or her as an
Employee, (iii) any material breach by the Optionee of any agreement with
the Company concerning his or her employment or other understanding
concerning the terms and conditions of employment by the Company; (iv)
dishonesty, gross negligence or malfeasance by the Optionee in the
performance of his or her duties as an Employee or any conduct by the
Optionee which involves a material conflict of interest with any business
of the Company or Affiliate; or (v) the Optionee's taking or knowingly
omitting to take any other action or actions in the performance of
Optionee's duties as an Employee without informing appropriate members of
management to whom such Optionee reports, which action or actions, in the
determination of the Board, have caused or substantially contributed to
the material deterioration in the business or financial condition of the
Company or any Affiliate, taken as a whole.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
pursuant to the exercise of Options under the Plan is 250,000 Shares. The
Shares may be authorized, but unissued or reacquired Shares.
If an Option should expire or become unexercisable for any reason without
having been exercised in full or if the Company repurchases Shares from the
Optionee pursuant to the terms of a Stock Purchase Agreement, the unpurchased
or repurchased Shares, respectively, which were subject thereto shall, unless
the Plan shall have been terminated, return to the Plan and become available
for other Options under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. Members of
the Board who are eligible for Options or have been granted Options may vote on
any matters affecting the administration of the Plan or the grant of any
Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option to himself or herself, but any such member may be counted
in determining the existence of a quorum at any meeting of the Board or
Committee during which action is taken with respect to the granting of Options
to him or her.
The Board may at any time appoint a Committee consisting of not less than
two persons to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe. Members of the Committee shall
serve for such period of time as the Board may determine. From time to time the
Board may increase the size of the Committee and appoint additional members
thereto, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan. In the event the
Company has a class of equity securities registered under Section 12 of the
Exchange Act and unless the Board
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determines otherwise, from the effective date of such registration until six
months after the termination of such registration, all grants of Options to
persons subject to the provisions of Section 16(b) of the Exchange Act during
any and all periods of time when all members of the Board do not qualify as
Disinterested Persons shall be made by, or only in accordance with the
recommendations of, a Committee of two or more persons having full authority to
act in the matter and all of whom are Disinterested Persons.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the Board
shall have the authority, in its discretion: (i) to grant Incentive Stock
Options and Nonstatutory Stock Options; (ii) to determine, upon review of
relevant information and in accordance with Section 7 of the Plan, the fair
market value per Share; (iii) to determine the terms and conditions of vesting
of Options, the exercise price of the Options and the consideration to be paid
for shares upon the exercise of Options (which exercise price and consideration
shall be determined in accordance with Section 7 of the Plan); (iv) to
determine the Employees to whom, and the time or times at which, Options shall
be granted, and the number of Shares to be subject to each Option; (v) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vi)
to determine the terms and provisions of each Option Agreement and each Stock
Purchase Agreement (each of which need not be identical with the terms of other
Options and Stock Purchase Agreements) and, with the consent of the holder
thereof, to modify or amend each Option and Stock Purchase Agreement; (vii) to
determine whether a stock repurchase agreement or other agreement will be
required to be executed by any Employee as a condition to the exercise of an
Option, and to determine the terms and provisions of any such agreement (which
need not be identical with the terms of any other such agreement) and, with the
consent of the Optionee, to amend any such agreement; (viii) to interpret the
Plan, the Option Agreements, the Stock Purchase Agreements or any agreement
entered into with respect to the grant or exercise of Options; (ix) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the Board
or to take such other actions as may be necessary or appropriate with respect
to the Company's rights pursuant to Options or agreements relating to the grant
or exercise thereof; and (x) to make such other determinations and establish
such other procedures as it deems necessary or advisable for the administration
of the Plan.
(c) EFFECT OF THE BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionee's and
any other holders of Options.
5. ELIGIBILITY. Options may be granted only to Employees (including
employees of the Company who are also directors of the Company). An Employee
who has been granted an Option may, if such Employee is otherwise eligible, be
granted additional Options.
6. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective as of
the date of the adoption of the Plan by the Company's Board of Directors
subject to the approval by the Company's shareholders within 12 months before
or after the date the Plan Is adopted; provided, however, that Options may be
granted pursuant to the Plan prior to such shareholder approval subject to
subsequent approval of the Plan by such shareholders. The Plan shall continue
in effect for a term of ten years unless sooner terminated in accordance with
the terms and provisions of the Plan.
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<PAGE> 5
7. OPTION PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The exercise price per Share for the Shares to be
issued pursuant to the exercise of a Nonstatutory Stock Option shall be not
less than 85% of the "fair market value" per Share, as described below. The
exercise price per Share for the Shares to be issued pursuant to the exercise
of an Incentive Option shall be the fair market value per Share. However, with
respect to both Incentive Stock Options and Nonstatutory Stock Options, the
exercise price shall be 110% of the fair market value per Share on the date of
grant in the case of any Optionee who, at the time the Option is granted, owns
stock (as determined under Section 424(d) of the Code) possessing more than 10%
of the total combined voting power of all classes of stock of the Company or
its Parent or Subsidiaries.
(b) FAIR MARKET VALUE. The fair market value per Share on the date of
grant shall be determined by the Board in its sole discretion, exercised in
good faith; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the average of the
closing bid and asked prices of the Common Stock on the date of grant, as
reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotations
("NASDAQ") System), or, in the event the Common Stock is listed on a stock
exchange or on the NASDAQ Stock Market, the fair market value per Share shall
be the closing price on the exchange or on the NASDAQ Stock Market as of the
date of grant of the Option, as reported in THE WALL STREET JOURNAL.
(c) PAYMENT OF CONSIDERATION. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
be determined by the Board in its discretion on the date of grant and may
consist of cash, check, promissory notes or other forms of legally permitted
consideration if authorized by the Board in connection with the grant of an
Option.
8. OPTIONS.
(a) TERMS AND PROVISIONS OF OPTIONS. As provided in Section 4 of this Plan
and subject to any limitations specified herein, the Board shall have the
authority to determine the terms and provisions of any Option granted under the
Plan or any agreement required to be executed in connection with the grant or
exercise of an Option. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement. Options granted under the Plan are
conditioned upon the Company obtaining any required permit or order from
appropriate governmental agencies, authorizing the Company to issue such
Options and Shares issuable upon exercise thereof.
(b) NUMBER OF SHARES. Each Option Agreement shall state the number of
Shares to which it pertains and whether such Option is intended to constitute
an Incentive Stock Option or a Nonstatutory Stock Option. The maximum number of
Shares which may be awarded as Options under the Plan during any calendar year
to any Optionee is 50,000 Shares. If an Option held by an Employee is canceled,
the canceled Option shall continue to be counted against the maximum number of
Shares for which Options may be granted to such Employee and any replacement
Option granted to such Employee shall also count against such limit.
(c) TERM OF OPTION. The term of each Option may be up to ten years
from the date of grant thereof, as determined by the Board upon the grant of
the Option and
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specified in the Option Agreement, except that the term of an Incentive Stock
Option granted to an Employee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent of the total combined
voting power of all classes of stock of the Company or its Parent or
Subsidiaries, shall not exceed five years from the date of grant thereof.
(d) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
Any option shall vest and become exercisable at such times,
in such installments and under such conditions as may be
determined by the Board, specified in the Option Agreement
and as shall be permissible under the terms of the Plan,
including performance criteria with respect to the Company
and/or the Optionee, provided that each Option shall vest and
become exercisable at the rate of not less than 20% per year
over five years from the date such Option is granted. An
Option may be exercised in accordance with the provisions of
this Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the
term of the Option. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company at its
principal business office in accordance with the terms of the
Option Agreement by the person entitled to exercise the
Option and full payment for the Shares with respect to which
the Option is exercised has been received by the Company,
accompanied by an executed Stock Purchase Agreement
(including the attachments thereto) substantially in the form
of Exhibit B hereto and as may be modified by the Board from
time to time, and any other agreements required by the terms
of the Plan and/or the Option Agreement. Full payment may
consist of such consideration and method of payment allowable
under Section 7 of the Plan. Until the Option is properly
exercised in accordance with the terms of this Section 8(d),
no right to vote or to receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned
Stock. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the
Option is exercised, except as provided in Section 10 of the
Plan.
As soon as practicable after any proper exercise of an
Option in accordance with the provisions of the Plan, the
Company shall, without transfer or issue tax to the Optionee,
deliver to the Optionee at the principal executive office of
the Company or such other place as shall be mutually agreed
upon between the Company and the Optionee, a certificate or
certificates representing the Shares for which the Option
shall have been exercised. The time of issuance and delivery
of the certificate(s) representing the Shares for which the
Option shall have been exercised may be postponed by the
Company for such period as may be required by the Company,
with reasonable diligence, to comply with any applicable
listing requirements of any national or regional securities
exchange or any
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law or regulation applicable to the issuance or delivery of
such Shares. No Option may be exercised unless the Plan has
been duly approved by the shareholders of the Company in
accordance with applicable law. Notwithstanding anything to
the contrary herein, the terms of a Stock Purchase Agreement
required to be executed and delivered in connection with the
exercise of an Option may require the certificate or
certificates representing the Shares purchased upon the
exercise of an Option to be delivered and deposited with the
Company as security for the Optionee's faithful performance
of the terms and conditions of his or her Stock Purchase
Agreement.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is
exercised.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE. If an
Optionee ceases to serve as an Employee for any reason other
than death or Disability, and thereby terminates his or her
Continuous Status As An Employee, to the extent that such
Optionee was entitled to exercise the Option at the date of
such termination, such Optionee shall have the right to
exercise the Option at any time within 30 days subsequent to
the last day of such Optionee's Continuous Status As An
Employee (unless at the time of grant of such Option the
Board specified a longer period, not to exceed 90 days),
PROVIDED, however, that no Option shall be exercisable after
the expiration of the term set forth in the Option Agreement.
To the extent that such Optionee was not entitled to exercise
the Option at the date of the terminating event, or if such
Optionee does not exercise such Option (which such Optionee
was entitled to exercise) within the time specified herein,
the Option shall terminate. In the event that an Optionee's
Continuous Status As An Employee terminates due to death or
Disability, to the extent that such Optionee was entitled to
exercise the Option at the date of such termination, the
Option may be exercised any time within 180 days subsequent
to the death or Disability of the Optionee (unless at the
time of grant of such Option the Board specified a longer
period, not to exceed one year), PROVIDED, however, that no
Option shall be exercisable after the expiration of the
Option term set forth in the Option Agreement. To the extent
that such Optionee was not entitled to exercise such Option
at the date of his or her termination due to death or
Disability or if such Option is not exercised (to the extent
it could be exercised) within the time specified herein, the
Option shall terminate.
(e) LIMIT ON VALUE OF OPTIONED STOCK. To the extent that the aggregate
fair market value (determined at the time an Incentive Stock Option is granted)
of the Shares with respect to which Incentive Stock Options are exercisable for
the first time by an Optionee during any calendar year under all incentive
stock option plans of the Company, its Parent or its Subsidiaries, if any,
exceeds $100,000, the Options in excess of such limit shall be treated as
Nonstatutory Stock Options.
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(f) EXPIRATION OF OPTION. Notwithstanding any provision in the Plan,
including but not limited to the provisions set forth in this Section 8, an
Option may not be exercised, under any circumstances, after the expiration of
its term.
9. NONTRANSFERABILITY OF OPTIONS. Options granted under this Plan may not
be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in
any manner, either voluntarily or involuntarily by operation of law, other than
by will or by the laws of descent or distribution or as a transfer between
spouses incident to a "divorce" within the meaning of Section 1041(a) of the
Code, and any such attempt may result, at the discretion of the Board, in the
termination of such Options. During the lifetime of the Optionee, his or her
Option may be exercised only by such Optionee or his or her legal guardian.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the shareholders of the Company, the
number of Shares covered by each outstanding Option, and the number of Shares
which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or repurchase of Shares from an
Optionee upon termination of employment or service, as well as the exercise
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, combination,
recapitalization or reclassification of the Common Stock, or the payment of a
stock dividend (but only on the Common Stock) or any other increase or decrease
in the number of issued shares of Common Stock effected without receipt of
consideration by the Company (other than stock bonuses to Employees or
directors); provided, however, that the conversion of any convertible
securities of the Company shall not be deemed to have been effected without the
receipt of consideration. Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to the Plan or an Option.
(b) In the event of a proposed dissolution or liquidation of the Company
or the sale of all or substantially all of the assets of the Company (other
than in the ordinary course of business), or the merger, consolidation or
reorganization of the Company with or into another corporation as a result of
which the Company is not the surviving corporation or as a result of which the
outstanding Shares are exchanged for or converted into cash or property or
securities not of the Company, the Board shall (i) make provision for the
assumption of all outstanding Options by the successor corporation or a Parent
or a Subsidiary thereof, or (ii) declare that outstanding Options shall
terminate as of a date fixed by the Board which is at least thirty (30) days
after the notice thereof to the Optionee (unless such thirty (30) day period is
waived by the Optionee) and shall give each Optionee the right to exercise his
or her Option as to all or any part of the shares underlying such Option to the
extent then exercisable, provided such exercise does not violate Section
8(d)(ii) of the Plan.
(c) No fractional shares of Common Stock shall be issuable on account of
any action described in this Section, and the aggregate number of shares into
which Shares then covered by the Option, when changed as the result of such
action, shall be reduced to the largest number of whole shares resulting from
such action, unless the Board, in its sole
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discretion, shall determine to issue scrip certificates in respect to any
fractional shares, which scrip certificates, in such event, shall be in a form
and have such terms and conditions as the Board in its discretion shall
prescribe.
11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option, PROVIDED, however, that if the Board determines that such grant
shall be as of some future date, the date of grant shall be such future date.
Notice of the determination shall be given to each Employee to whom an Option
is so granted within a reasonable time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable and shall
make any amendments which may be required so that Options intended to be
Incentive Stock Options shall at all times continue to be Incentive Stock
Options for the purpose of the Code, except that, without approval of the
holders of a majority of the shares of the Company's capital stock represented
or present and entitled to vote at a valid meeting of the Company's
shareholders at which action is taken on an amendment or revision, no such
amendment or revision shall:
(i) Increase the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 10 of the Plan;
(ii) Materially change the designation of the
class of Employees eligible to be granted Options;
(iii) Remove the administration of the Plan from
the Board except to a Committee;
(iv) Materially increase the benefits accruing to
participants under the Plan; or
(v) Extend the term of the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. Except as otherwise provided in
Section 10, any amendment or termination of the Plan shall not affect Options
already granted and such Options shall remain in full force and effect as if
this Plan had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Company, which agreement must be in writing and
signed by the Optionee and the Company.
13. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, applicable state securities laws, the rules
and regulations promulgated thereunder, and the requirements of any
9
<PAGE> 10
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Board may require the
person exercising such Option to execute an agreement with, and/or may require
the person exercising such Option to make any representation and warranty to,
the Company as may in the judgment of counsel to the Company be required under
applicable law or regulation, including but not limited to a representation and
warranty that the Shares are being purchased only for investment and without
any present intention to sell or to distribute such Shares if, in the opinion
of counsel for the Company, such a representation is appropriate under any of
the aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available, such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The Company, during the term of this Plan, shall use its best efforts to
seek to obtain from appropriate regulatory agencies any requisite authorization
in order to issue and to sell such number of Shares as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or to sell such Shares as to which
such requisite authority shall not have been obtained.
15. STOCK OPTION AND STOCK PURCHASE AGREEMENTS. Options shall be evidenced
by written Option Agreements in such form or forms as the Board shall approve
from time to time. Upon the exercise of an Option, the Optionee shall sign and
deliver to the Company a Stock Purchase Agreement in such form or forms as the
Board shall approve from time to time.
16. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon
shareholder approval as provided in Section 17 of the Plan. The Plan shall
continue in effect for a term of ten years unless sooner terminated under
Section 12 of the Plan.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within 12 months before or after
the date the Plan is adopted by the Board. If such shareholder approval is
obtained at a duly held shareholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the shares of the Company
represented or present and entitled to vote thereon. All Options granted prior
to shareholder approval of the Plan are subject to such approval, and if such
approval is not obtained within 12 months before or after the date the Plan is
adopted by the Board all such Options shall expire and shall be of no further
force or effect.
18. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) The Company shall pay all original issue and transfer taxes (but not
income taxes, if any) with respect to the grant of Options and/or the issue and
transfer of
10
<PAGE> 11
Shares pursuant to the exercise thereof, and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations which, in
the opinion of counsel for the Company, shall be applicable thereto.
(b) The grant of Options hereunder and the issuance of Shares pursuant to
the exercise thereof is conditioned upon the Company's reservation of the right
to withhold, in accordance with any applicable law, from any compensation or
other amounts payable to the Optionee, any taxes required to be withheld under
federal, state or local law as a result of the grant or exercise of such Option
or the sale of the Shares issued upon exercise thereof. To the extent that
compensation or other amounts, if any, payable to the Optionee are insufficient
to pay any taxes required to be so withheld, the Company may, in its sole
discretion, require the Optionee, as a condition of the exercise of an Option,
to pay in cash to the Company an amount sufficient to cover such tax liability
or otherwise to make adequate provision for the Company's satisfaction of its
withholding obligations under federal, state and local law.
19. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Options intended to
be Incentive Stock Options granted hereunder do not qualify as incentive stock
options within the meaning of Section 422 of the Code.
20. INFORMATION TO OPTIONEE. The Company shall provide without charge at
least annually to each Optionee during the period his or her Option is
outstanding a balance sheet and income statement of the Company. In the event
that the Company provides annual reports or periodic reports to its
shareholders during the period in which an Optionee's Option is outstanding,
the Company shall provide to each Optionee a copy of each such report.
21. INDEMNIFICATION. No member of the Committee or of the Board shall be
liable for any act or action taken, whether of commission or omission, except
in circumstances involving actual bad faith, or for any act or action taken,
whether of commission or omission, by any other member or by any officer,
agent, or Employee. In addition to such other rights of indemnification they
may have as members of the Board, or as members of the Committee, the Committee
shall be indemnified by the Company against reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken, by commission or omission, in connection with the Plan or any Option
taken thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged
in such action, suit or proceeding that such Committee or Board member is
liable for actual bad faith in the performance of his or her duties; provided
that within 60 days after institution of any such action, suit or proceeding, a
Committee or Board member shall in writing offer the Company the opportunity,
at its own expense, to handle and defend the same.
22. NOTICES. Any notice to be given to the Company pursuant to the
provisions of this Plan shall be given in writing, addressed to the Company in
care of its Secretary at its principal office, and any notice to be given to an
employee to whom an Option is granted
11
<PAGE> 12
hereunder shall be delivered personally or addressed to him or her at the
address given beneath his or her signature on his Option Agreement or Stock
Purchase Agreement or at such other address as such Optionee or his or her
transferee (upon the transfer of the Optioned Stock) may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
registered or certified, and deposited, postage and registry or certification
fee prepaid, in a post office or branch post office regularly maintained by the
United States Postal Service. It shall be the obligation of each Optionee and
each transferee holding Shares purchased upon exercise of an Option to provide
the Secretary of the Company, by letter mailed as provided hereinabove, with
written notice of his or her direct mailing address.
23. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment or service of any Employee.
Nothing contained in this Plan shall be deemed to give any Employee the right
to be retained in the employ or service of the Company, its Parent, Subsidiary
or a successor corporation, or to interfere with the right of the Company or
any such corporations to discharge or to retire any Employee at any time with
or without cause and with or without notice. No Employee shall have any right
to or interest in Options authorized hereunder prior to the grant thereof to
such Employee, and upon such grant he or she shall have only such rights and
interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company's Articles of Incorporation, as the same may be
amended from time to time.
24. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement is filed
pursuant to the Federal Securities Act of 1933, as amended, with respect to the
Options and Shares issuable under this Plan, each document or certificate
representing such Options or Shares shall be endorsed thereon with a legend
substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE,
TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY
BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) ADDITIONAL LEGENDS. Each document or certificate representing the
Options or Shares issuable under the Plan shall also contain legends as may be
required under applicable blue sky laws or by any Stock Purchase Agreement or
other agreement the execution of which is a condition to the exercise of an
Option under this Plan.
25. AVAILABILITY OF PLAN. A copy of this Plan shall be delivered to the
Secretary of the Company and shall be shown by him or her to any eligible
person making reasonable inquiry concerning it.
12
<PAGE> 13
26. INVALID PROVISIONS. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though
the invalid or unenforceable provision was not contained herein.
27. SEVERABILITY. In the event that any provision of the Plan is found to
be invalid or otherwise unenforceable under any applicable law, such invalidity
or unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid
or unenforceable provision was not contained herein.
28. APPLICABLE LAW. To the extent that federal laws do not otherwise
control, this Plan shall be governed by and construed in accordance with the
laws of the State of Nevada without regard to the conflict of laws principles
thereof.
(END OF PLAN)
13
<PAGE> 14
EXHIBIT A-1
FUNDEX GAMES, LTD.
INCENTIVE STOCK OPTION AGREEMENT
Fundex Games, Ltd., a Nevada corporation (the "COMPANY"), hereby grants to
_________________________ (the "OPTIONEE") an option to purchase a total of
_____ shares of Common Stock (the "SHARES") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1996 Stock Option Plan (the "PLAN") applicable to incentive stock
options which terms and provisions are hereby incorporated by reference herein.
Unless otherwise defined or the context herein otherwise requires, the
capitalized terms used herein shall have the same meanings ascribed to them in
the Plan.
1 NATURE OF THE OPTION. This Option is intended to be an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "CODE").
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of
___________________, and it may not be exercised later than
_______________________.
3. OPTION EXERCISE PRICE. The Option exercise price is $_________ per
Share, which price is not less than the fair market value thereof on the date
this Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. This Option shall vest and be exercisable,
cumulatively (Specify vesting schedule, e.g., in five annual installments
commencing on the first anniversary of the date of grant and continuing to vest
as to one additional installment on every annual anniversary thereafter as long
as the Optionee remains an Employee.)
(b) METHOD OF EXERCISE. This Option shall be exercisable by written notice
which shall state the election to exercise this Option, the number of Shares in
respect to which this Option is being exercised, such other representations and
agreements as to the Optionee's investment intent with respect to such Shares
as may be required by the Company hereunder or pursuant to the provisions of
the Plan. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company or
such other person as may be designated by the Company. The written notice shall
be accompanied by payment of the exercise price and by an executed Stock
Purchase Agreement if required by the Company. Payment of the exercise price
shall be by cash or by check or by such other method of payment as is
authorized by the Board in accordance with the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as set forth in
the Plan, the Stock Purchase Agreement and/or as required under applicable law.
This Option may not be exercised for a fraction of a share.
<PAGE> 15
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require the Optionee
to make such representations and warranties to the Company as may be required
by any applicable law or regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No rights as a
shareholder shall exist with respect to the Shares subject to the Option as a
result of the grant of the Option. Such rights shall exist only after issuance
of a stock certificate in accordance with Section 8 (d) (i) of the Plan
following the exercise of the Option as provided in this Agreement and the
Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares for investment for his own account, not
is a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship with
the Company or one of its directors, officers or controlling persons and by
reason of his business or financial experience, has, and could be reasonably
assumed to have, the capacity to evaluate the merits and risks of purchasing
Common Stock of the Company and to make an informed investment decision with
respect thereto and to protect Optionee's interests in connection with the
acquisition of this Option and the Shares.
6. TERMINATION OF STATUS AS AN EMPLOYEE.
(a) If the Optionee's Continuous Employment terminates for any reason
other than death or Disability, the Optionee shall have the right to exercise
the Option at any time within 30 days after the date of such termination to the
extent that the Optionee was entitled to exercise the Option at the date of
such termination (subject to any earlier termination of the Option as provided
by its terms).
(b) If the Optionee's Continuous Employment terminates due to the death or
Disability of the Optionee, the Option may be exercised at any time within 180
days after the date of such termination, in the case of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, or, in the case of Disability, by the Optionee
(subject to any earlier termination of the Option as provided by its terms).
(c) Notwithstanding the foregoing regarding the exercise of the Option
after the termination of Continuous Employment, the Option shall not be
exercisable after the expiration of its term, as set forth in Section 2 herein,
the Option may be exercised only to the extent the Optionee was entitled to
exercise it on the date Optionee's Continuous Employment with the Company
terminated. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or to the extent the Option is not exercised
within the time specified herein, the Option shall terminate.
7. WITHHOLDING. The Company reserves the right to withhold, in accordance
with any applicable laws, from any compensation or other consideration payable
to the
2
<PAGE> 16
Optionee, any taxes required to be withheld by federal, state or local law as a
result of the grant or exercise of this Option or the sale or other disposition
of the Shares issued upon exercise of this Option; and, if such compensation or
consideration is insufficient, the Company may require Optionee to pay to the
Company an amount sufficient to cover such withholding tax liability.
8. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner,
either voluntarily or involuntarily by operation of law or otherwise, other
than by will or by the laws of descent or distribution or a transfer between
spouses incident to a "divorce" within the meaning of Section 1041(a) of the
Code, and may be exercised during the lifetime of the Optionee only by such
Optionee or his or her legal guardian. Subject to the foregoing and the terms
of the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. CONTINUATION OF EMPLOYMENT. Neither the Plan, this Option, nor any
Option granted thereunder shall (a) confer upon the Optionee any right
whatsoever to continue in the employment of the Company or any of its
subsidiaries or (b) limit or restrict in any respect the rights of the Company,
which rights are hereby expressly reserved, to terminate the Optionee's
employment and compensation at any time for any reason whatsoever, with or
without cause, in the Company's sole discretion and with or without notice.
10. THE PLAN. This Option is subject to, and the Company and the Optionee
agree to be bound by, all the terms and conditions of the Company's Plan as
such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without
his consent, of this Option or any rights hereunder. Pursuant to the Plan, the
Board is authorized to adopt rules and regulations not inconsistent with the
Plan as it shall deem appropriate and proper. A copy of the Plan in its present
form is available for inspection at the Company's principal office during
business hours by the Optionee or the persons entitled to exercise this Option.
11. ENTIRE AGREEMENT. The terms of this Agreement and the Plan constitute
the entire agreement between the Company and the Optionee with respect to the
subject matter hereof and supersede any and all previous agreements between the
Company and the Optionee.
<TABLE>
<S> <C>
FUNDEX GAMES, LTD., Inc., a Nevada
corporation
Date: ___________________________ By: ___________________________________
Title: ________________________________
</TABLE>
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto, and represents that he has read and is familiar with the
terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Board upon any questions arising under
the Plan.
3
<PAGE> 17
Date:____________________________ _______________________________________
Signature of Optionee
_______________________________________
Address
_______________________________________
City State Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE HOLDER OF
THIS OPTION AND THE COMPANY UPON EXERCISE OF THIS OPTION, A COPY OF WHICH
AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY.
4
<PAGE> 18
EXHIBIT A-2
FUNDEX GAMES, LTD.
NONSTATUTORY STOCK OPTION AGREEMENT
FUNDEX GAMES, LTD., a Nevada corporation (the "COMPANY"), hereby grants to
_________________________ (the "OPTIONEE") an option to purchase a total of
______ shares of Common Stock (the "SHARES") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1996 Stock Option Plan (the "PLAN") applicable to nonstatutory stock
options which terms and provisions are hereby incorporated by reference herein.
Unless otherwise defined or the context herein otherwise requires, capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1. NATURE OF THE OPTION. This Option is intended to be a nonstatutory
stock option and is NOT intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), or to otherwise qualify for any special tax benefits to the Optionee.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of
________________________, and it may not be exercised later than
____________________.
3. OPTION EXERCISE PRICE. The Option exercise price is $___________ per
Share, which price is not less than 85% of the fair market value thereof on the
date this Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. This Option shall vest and be exercisable,
cumulatively (Specify vesting schedule, e.g., in five annual installments
commencing on the first anniversary of the date of grant and continuing
to vest as to one additional installment on every annual anniversary
thereafter as long as the Optionee remains an Employee.)
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise this Option, the number
of Shares in respect to which this Option is being exercised, such other
representations and agreements as to the Optionee's investment intent
with respect to such Shares as may be required by the Company hereunder
or pursuant to the provisions of the Plan. Such written notice shall be
signed by the Optionee and shall be delivered in person or by certified
mail to the Secretary of the Company or such other person as may be
designated by the Company. The written notice shall be accompanied by
payment of the exercise price and by an executed Stock Purchase Agreement
if required by the Company. Payment of the exercise price shall be by
cash or by check or by such other method of payment as is authorized by
the Board in accordance with the Plan. The certificate or certificates
for the Shares as to which the Option shall be exercised shall be
registered in the name of the
<PAGE> 19
Optionee and shall be legended as set forth in the Plan, the Stock
Purchase Agreement and/or as required under applicable law. This Option
may not be exercised for a fraction of a Share.
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if
the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other
laws or regulations. As a condition to the exercise of this Option, the
Company may require the Optionee to make such representations and
warranties to the Company as may be required by any applicable law or
regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No rights as
a shareholder shall exist with respect to the Shares subject to the
Option as a result of the grant of the Option. Such rights shall exist
only after issuance of a stock certificate in accordance with Section 8
(d) (i) of the Plan following the exercise of the Option as provided in
this Agreement and the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale
in connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship
with the Company or one of its directors, officers or controlling persons
and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to evaluate the merits and risks
of purchasing Common stock of the Company and to make an informed
investment decision with respect thereto and to protect Optionee's
interests in connection with the acquisition of this Option and the
Shares.
6. TERMINATION OF STATUS AS AN EMPLOYEE.
(b) If the Optionee's Continuous Employment terminates due to the
death or Disability of the Optionee, the Option may be exercised at any
time within 180 days after the date of such termination, in the case of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, or, in the case of
Disability, by the Optionee (subject to any earlier termination of the
Option as provided by its terms).
(c) Notwithstanding the foregoing regarding the exercise of the Option
after the termination of Continuous Employment, the Option shall not be
exercisable after the expiration of its term, as set forth in Section 2
herein, and the Option may be exercised only to the extent the Optionee
was entitled to exercise it on the date Optionee's Continuous Employment
with the Company terminated. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or to the
extent the Option is not exercised within
2
<PAGE> 20
the time specified herein, the Option shall terminate.
7. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner,
either voluntarily or involuntarily by operation of law or otherwise, other
than by will or by the laws of descent or distribution or a transfer between
spouses incident to a "divorce" within the meaning of Section 1041(a) of the
Code, and may be exercised during the lifetime of the Optionee only by such
Optionee or his or her legal guardian. Subject to the foregoing and the terms
of the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. CONTINUATION OF EMPLOYMENT. Neither this Option, the Plan nor any
Option granted thereunder shall (a) confer upon the Optionee any right
whatsoever to continue in the employment of the Company or any of its
Subsidiaries or (b) limit or restrict in any respect the rights of the Company,
which rights are hereby expressly reserved, to terminate the Optionee's
employment and compensation at any time for any reason whatsoever, with or
without cause, in the Company's sole discretion and with or without notice.
9. WITHHOLDING. The Company reserves the right to withhold, in accordance
with any applicable laws, from any consideration or other amounts payable to
the Optionee any taxes required to be withheld by federal, state or local law
as a result of the grant or exercise of this Option or the sale or other
disposition of the Shares issued upon exercise of this Option.
10. THE PLAN. This Option is subject to, and the Company and the Optionee
agree to be bound by, all of the terms and conditions of the Company's Plan as
such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without
his consent, of this Option or any rights hereunder. Pursuant to the Plan, the
Board is authorized to adopt rules and regulations not inconsistent with the
Plan as it shall deem appropriate and proper. A copy of the Plan in its present
form is available for inspection at the Company's principal office during
business hours by the Optionee or the persons entitled to exercise this Option.
11. ENTIRE AGREEMENT. The terms of this Agreement and the Plan constitute
the entire agreement between the Company and the Optionee with respect to the
subject matter hereof and supersede any and all previous agreements between the
Company and the Optionee.
<TABLE>
<S> <C>
FUNDEX GAMES, LTD., a Nevada corporation
Date: __________________________ By: _____________________________________
Title: __________________________________
</TABLE>
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this
Agreement. The Optionee hereby agrees to accept as binding,
3
<PAGE> 21
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Date:__________________________ ________________________________________
Signature of Optionee
________________________________________
Address
________________________________________
City State Zip Code
4
<PAGE> 22
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RFLATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE HOLDER OF
THIS OPTION AND THE COMPANY UPON EXERCISE OF THIS OPTION, A COPY OF WHICH
AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY.
5
<PAGE> 1
EXHIBIT 10.13
FUNDEX GAMES, LTD.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. The purpose of this 1996 Stock Option Plan for Non-Employee
Directors ("PLAN") of FUNDEX GAMES, LTD., (the COMPANY"), a Nevada corporation,
is to encourage stock ownership by nonemployee directors ("DIRECTORS" or a
"DIRECTOR") by providing them a means to acquire a proprietary interest in the
Company, thereby advancing the interests of the Company by encouraging and
enabling the acquisition of its stock by Directors whose judgment and ability
are relied upon by the Company for the attainment of its long term growth and
development. Accordingly, the Plan is intended to promote a close identity of
interests among the Company, the Directors and its shareholders, as well as to
provide a means to attract and retain well-qualified Directors.
2. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective as of
the date of the adoption of the Plan by the Company's Board of Directors,
subject to the approval of the Company's shareholders within 12 months before
or after the date the Plan is adopted; provided, however, that Options may be
granted pursuant to the Plan prior to such shareholder approval subject to
subsequent approval of the Plan by such shareholders. The Plan shall remain in
effect for ten years from such date (___________, 1996), or until earlier
termination by the Board of Directors of the Company (the "BOARD"), whichever
occurs first.
3. STOCK SUBJECT TO THE PLAN. There are authorized for issuance or
delivery upon the exercise of options to be granted from time to time under the
Plan an aggregate of 50,000 shares of the Company's common stock, $.001 par
value ("COMMON STOCK"), subject to adjustment as provided hereinafter in
Section 8. Such shares may be, as a whole or in part, authorized but unissued
shares, whether now or hereafter authorized, or issued shares which have been
reacquired by the Company. If any option issued under this Plan shall expire,
terminate or be cancelled for any reason without having been exercised in full,
the shares of Common Stock which have not been purchased thereunder shall again
become available for the purposes of this Plan.
4. PLAN ADMINISTRATION:
(a) The Plan shall be administered by the Compensation Committee
(the "COMMITTEE"), which shall consist of at least two Directors
appointed by the Board.
(b) The Committee shall have full and final authority to interpret
the Plan, adopt, amend and rescind rules and regulations relating to the
Plan, and make all other determinations and take all other actions
necessary and advisable for the administration of the Plan.
(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be
conclusive. No member of the Committee shall be liable for any action
taken or decision made in good faith relating to this Plan or any grant
hereunder.
(d) An administrator of the Plan (the "ADMINISTRATOR") may from time
to time be appointed by the Committee. If appointed, the Administrator
shall be responsible for the general administration of the Plan under the
policy guidance of the Committee. The Administrator shall be in the
employ of the Company, and shall be compensated for services and expenses
by the Company according to its normal employment policies
<PAGE> 2
without special or additional compensation, other than reimbursement of
expenses, if any, for his or her services as the Administrator.
5. TERMS AND CONDITIONS OF "FORMULA" STOCK OPTION AWARDS. Each Director
shall receive a non-qualified stock option in accordance with the terms and
conditions of this Section 5 and Section 6.
(a) INITIAL GRANTS UPON APPOINTMENT TO THE BOARD OF DIRECTORS. Each
person who is first elected or appointed to serve as a Director following
the effective date of this Plan shall be granted a non-qualified stock
option as of the first business day following the Director's election or
appointment to purchase 2,000 shares of Common Stock at an exercise price
equal to the then Fair Market Value (as defined in Section 5(d)) per
share of Common Stock.
(b) SUBSEQUENT GRANTS DURING TENURE AS A DIRECTOR. Each Director
shall be granted, as of the first business day of each fiscal year of the
Company beginning after the effective date of this Plan, a non-qualified
stock option to purchase 2,000 shares of Common Stock at an exercise
price equal to the then Fair Market Value (as defined in Section 5(d))
per share of Common Stock.
(c) CONDITIONS TO GRANTS. Options awarded pursuant to this Section 5
shall be subject to such additional terms as set forth in a non-qualified
stock option agreement as approved by the Committee and incorporated
herein by reference.
(d) FAIR MARKET VALUE. "Fair Market Value" with regard to any date
means the closing price at which a share of Common Stock shall have been
sold on that date as reported by the NASDAQ Stock Market (or, if
applicable, as reported by a national securities exchange selected by the
Committee on which the shares of Common Stock are then actively traded)
and published in The Wall Street Journal. If at the time of the
determination of Fair Market Value shares of Common Stock are not
actively traded on any market described above, Fair Market Value means
the fair market value of a share of Common Stock as determined by the
Committee taking into account such facts and circumstances deemed to be
material by the Committee to the value of the Common Stock in the hands
of the Director.
6. GENERAL TERMS AND CONDITIONS OF OPTIONS. Options awarded under
Section 5 shall be subject to the following additional terms and conditions.
(a) TERM AND EXERCISE OF OPTION. Options may be exercised only by
written notice to the Company. Payment for all shares of Common Stock
purchased pursuant to exercise of an option shall be made (i) in cash;
(ii) by delivery to the Company of a number of shares of Common Stock
which have been beneficially owned by the Director for at least six (6)
months prior to the date of exercise having an aggregate Fair Market
Value of not less than the product of the exercise price multiplied by
the number of shares the participant intends to purchase upon exercise of
the option on the date of delivery; or (iii) in a cashless exercise
through a broker. Payment shall be made at the time that the option or
any part thereof is exercised, and no shares shall be issued or delivered
upon exercise of an option until full payment has been made by the
participant. No option granted under the Plan may be exercised before the
expiration of the fiscal year for which it was granted; provided,
however, that any option granted under the Plan shall become immediately
exercisable upon the retirement of the Director because of age, death or
disability. No option granted under the Plan shall be exercisable after
the expiration of ten (10) years from the date upon which it is granted.
Each option shall be subject to termination before its date of expiration
as provided in Section 6(b).
<PAGE> 3
(b) DEATH OF DIRECTOR. Any option granted to a Director and
outstanding on the date of his or her death may be exercised by the
administrator of such Director's estate, the executor under his or her
will, or the person or persons to whom the option shall have been validly
transferred by such executor or administrator pursuant to the will or
laws of intestate succession, but not beyond the first to occur of (i)
the first anniversary of the Director's death, or (ii) the specified
expiration date of the option; provided, however, that an option that is
not exercised prior to the first anniversary of the Director's death
shall be deemed exercised on the first anniversary of the date of death
to the extent the then aggregate Fair Market Value of the shares subject
to the option exceeds the aggregate Option Exercise Price and payment of
such exercise price shall be effected by withholding a number of shares
of Common Stock otherwise issuable pursuant to the option the Fair Market
Value of which on such anniversary is equal to the exercise price. If the
Fair Market Value of the Stock on the first anniversary of the Director's
death equals or is less than the option exercise price, then the option
shall be deemed to have expired unexercised.
7. CHANGES IN CAPITALIZATION. If the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities, or if additional shares of other property (other than
ordinary cash dividends) are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, dividend, stock split, reverse stock split,
spin-off, split-off or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment shall
be made in (i) the maximum number and kind of shares reserved for issuance
under the Plan, (ii) the number and kind of shares or other securities subject
to then outstanding options under the Plan, and (iii) the price for each share
subject to any then outstanding options under the Plan. No fractional shares
will be issued under the Plan on account of any such adjustments. Any
adjustment pursuant to this Section 7 shall provide for the elimination without
payment therefor of any fractional shares. No such adjustment shall be made
with respect to the Company's reincorporation as a Nevada corporation in
connection with its initial public offering.
8. LIMITATION OF RIGHTS:
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option, nor any other action taken pursuant to the Plan,
shall constitute evidence of any agreement or understanding, express or
implied, that the Company will retain a Director as a director for any
period of time, or at any particular rate of compensation.
(b) NO SHAREHOLDERS RIGHTS FOR OPTIONS. The holder of an option
granted under the Plan shall have no rights as a shareholder with respect
to the shares covered by his or her options until the date of the
issuance to such holder of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
(c) NO RIGHT TO PARTICIPATE AS AN EMPLOYEE DIRECTOR. A Director's
right to participate in the Plan shall automatically terminate if and
when a Director becomes an employee of the Company.
9. TRANSFERABILITY:
(a) Options are not transferable other than by will or the laws of
intestate succession. No transfer by will or by the laws of intestate
succession shall be effective to bind the Company unless the Committee
shall have been furnished with a copy of the
<PAGE> 4
deceased participant's will or such other evidence as the Committee may
deem necessary to establish the validity of the transfer.
(b) Only a Director, or in the event of disability, his or her
guardian, or in the event of death, his or her legal representative or
beneficiary, may exercise options and receive deliveries of shares.
(c) A Director or his transferee upon his death may not transfer any
Option or any of the Common Stock acquired pursuant to the exercise of an
Option until six months from the date of grant of the Option.
10. AMENDMENT, MODIFICATION AND TERMINATION. The Board at any time may
terminate and in any respect amend or modify the Plan; provided, however, that
no such action by the Board, without approval of the Company's shareholders,
may (i) increase the total number of shares of Common Stock available under the
Plan in the aggregate (except as otherwise provided in Section 7 above), (ii)
extend the period during which any option may be exercised, (iii) extend the
term of the Plan, (iv) change any option exercise price or (v) alter the class
of persons eligible to receive options. No amendment, modification or
termination of the Plan shall in any manner adversely affect the rights of any
Director with respect to an option previously granted. Notwithstanding any
other provision of this Plan, the provisions of Section 5 may not be amended
more than once every six months, other than to conform it with changes in the
Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act of 1974, or any rules under either of the foregoing.
11. NOTICE. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Corporate Secretary of the
Company and shall become effective when it is received.
12. RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS. Each option is
subject to the condition that if at any time the Committee, in its discretion,
shall determine that the listing, registration or qualification of the shares
covered by such option upon any securities exchange or under any state or
federal law is necessary or desirable as a condition of or in connection with
the granting of such option or the purchase or delivery of shares thereunder,
the delivery of any or all shares pursuant to such option may be withheld
unless and until such listing, registration or qualification shall have been
effected. If a registration statement is not in effect under the Securities Act
of 1933 or any applicable state securities laws with respect to the shares of
Common Stock purchasable or otherwise deliverable under options then
outstanding, the Committee may require, as a condition of exercise of any
option or as a condition to any other delivery of Common Stock pursuant to an
option, that the Director represent, in writing, that the shares received
pursuant to the option are being acquired for investment and not with a view to
distribution and agree that the shares will not be disposed of except pursuant
to an effective registration statement, unless the Company shall have received
an opinion of counsel that such disposition is exempt from such requirement
under the Securities Act of 1933 and any applicable state securities laws. The
Company may include on certificates representing shares issued pursuant to an
option such legends referring to the foregoing representations or restrictions
or any other applicable restrictions on resale as the Company, in its
discretion, shall deem appropriate.
<PAGE> 1
EXHIBIT 10.14
PAINEWEBBER INCORPORATED PROTOTYPE SIMPLIFIED EMPLOYEE PENSION PLAN WITH CASH
OR DEFERRED ARRANGEMENT ADOPTION AGREEMENT (SEP 003)
The Employer named below, by execution of this Adoption Agreement and
Application, establishes a Simplified Employee Pension Plan with Cash or
Deferred Arrangement and hereby certifies the following information:
1. NAME OF EMPLOYER: THIRD QUARTER CORPORATION
2. EMPLOYER'S BUSINESS ADDRESS: 3750 W 16TH ST, P.0. BOX 22128
INDIANAPOLIS, IN 46222
3. THE PLAN YEAR shall be (select one):
[ X ] the calendar year
[ ] the Employer's taxable year which ends ______________________.
4. EFFECTIVE DATE OF PLAN OR AMENDMENT (For new Plans, the effective date of
the Plan. For existing Plans, the effective date of the amendment adopting
the PaineWebber Prototype): 10-1-94
----------------
(Month/Day/Year)
5. EMPLOYER'S TAX IDENTIFICATION NUMBER: 35-1846155
6. ELIGIBILITY REQUIREMENTS:
Subject to the following age and service requirements and exclusions, the
Plan shall cover each Employee (including all employees of controlled
groups as described in section 414(b) of the Internal Revenue Code, groups
under common control as described in section 414(c) of the Code, and
affiliated service groups as described in section 414(m) of the Code, and
each employee required to be aggregated under section 414(o) of the Code.
The Plan may not be used by an Employer who has any leased employees
within the meaning of section 414(n) of the Code. Other restrictions on
the use of the Plan are contained in Section 9.7 of the Plan Document.
(A) AGE AND SERVICE. (If no election is made, the age requirement
will be age 21 and the service requirement will be employment in 3
out of the last 5 years.) The Plan shall cover each Employee who:
[ X ] has attained the age of 18 (not to exceed
21 years); and
[ X ] has performed service for the Employer during
at least 1 (not to exceed three) of the immediately
preceding 5 years.
(B) EXCLUDED EMPLOYEES. The following Employees of the Employer
shall be excluded from participation if checked:
[ X ] Each Employee covered by a collective
bargaining agreement that meets the requirements of Section
2.4(c) of the Plan.
(C) SERVICE WITH PREDECESSOR EMPLOYER. If the Employer elects,
Employees who were previously employed by a sole proprietorship,
partnership or corporation which engaged in, in whole or in part, the
same (or substantially similar) trade or business as the Employer,
may have their service with such Predecessor Employer counted toward
the Plan's service requirement. (If no election is made, service
with a Predecessor Employer shall not be counted.)
[ ] Service with a Predecessor Employer shall be
counted toward the Plan's service requirement.
7. EMPLOYER CONTRIBUTIONS:
GENERAL. The amount of Employer Contributions to be made to the Plan
shall be determined by the Employer, on an annual basis, in accordance
with Articles III and X of the Plan.
(a) [ ] Check here if the Employer elects to have contributions to
the Plan integrated with Social Security (see Section 3.2 of the
Plan). This provision is not available to Employers who maintain an
integrated pension, profit sharing, stock bonus or annuity plan at
any time during the Plan Year. If the box is not checked,
contributions will not be integrated with Social Security.
(b) Salary Reduction Contributions and other similar contributions
described in the second paragraph of Section 1.3 of the Plan:
[ X ] Will be counted as part of compensation.
[ ] Will not be counted as part of compensation.
CODA-SEP -- Page 1
<PAGE> 2
If no election is made, such amounts will not be counted as
Compensation.
8. SALARY REDUCTION CONTRIBUTIONS. Salary Reduction Contributions to the
Simplified Employee Pension Plan shall be made in accordance with the
following procedures:
(a) Subject to Section 5.1 of the Plan, elections to the amount of
a Participant's Salary Reduction Contributions shall be made as
follows (check those that apply):
[ ] In whole percentages of a Participant's
Compensation in each pay period, which percentage shall not
exceed _______% (enter a percentage between 1% and 15%) of the
Participant's Compensation in the pay period.
[ ] In whole dollar amounts of the Participant's
Compensation in each payroll period, in which the dollar
amounts shall not exceed $________ per pay period.
[ ] In whole dollar amounts of the Participant's
Compensation in each payroll period which amount per pay period
shall equal the maximum dollar amount permitted under Section
402(g) of the Code divided by the number of pay periods in the
year.
[ ] Salary Reduction Contributions will also be
withheld from special pay, such as bonuses.
(b) Salary Reduction Contributions shall be effective as of the
__________ pay period following the receipt by the Employer of the
Participant's election.
(c) Elections to change or discontinue Salary Reduction
Contributions will be effective as of the _________ pay period
following the receipt by the Employer of the Participant's election.
(d) A Participant may change his election as to his Salary.
Reduction Contributions no more than _________ times during any Plan
Year.
Note: Salary Reduction Contributions are treated as Employer
Contributions (not Compensation) for purposes of applying Section
8(a) of this Adoption Agreement (see Section 5.1 of the Plan).
9. TOP HEAVY CONTRIBUTIONS. (Check one of the boxes below. If no box is
checked, and the Plan is top-heavy in any year, the minimum top-heavy
contribution must be made in this plan).
In the event the Plan is top-heavy (as defined in Article X of the Plan)
in any year:
[ ] The minimum top-heavy contribution will be made in this Plan.
[ ] The minimum top-heavy contribution will be made in the following
Plan:
_____________________________________________________________________
(Enter name of Plan under which the minimum top-heavy contribution
will be made.)
10. The Plan Administrator is the Employer. Duties of the Plan Administrator
are described in Article VII of the Plan.
The Employer named below adopts the PaineWebber Simplified Employee
Pension Plan and agrees to all terms and conditions of the Plan. The
Employer certifies that it has conferred with and acted upon the advice of
its legal counsel in adopting this Plan.
Important: The Employer should notify PaineWebber that this Plan has been
adopted. If this is not done, the Employer may not receive information
regarding this prototype that is sent to other adopters.
<TABLE>
<S> <C>
Employer: THIRD QUARTER CORPORATION Received by:
------------------------------- ------------------------
(Nature of Company or Business) (Branch Manager)
By: /s/ Care E. Voigt, IV Date:
------------------------------------ -------------------------------
(Signature of Authorized Officer,
Partner. or Sole Proprietor)
Date: /s/ 2/8/95
-----------------------------------
</TABLE>
CODA-SEP -- Page 2
<PAGE> 1
EXHIBIT 10.15
PROTOTYPE MONEY PURCHASE ADOPTION AGREEMENT - STANDARD - 002
The undersigned employer(s) THIRD QUARTER CORPORATION hereinafter referred to
as the "Employer," hereby adopts the THIRD QUARTER CORP. Standard Prototype
Money Purchase Pension Plan and Trust.
1. EMPLOYER TAX IDENTIFICATION NUMBER: 35-1846155
2. The EFFECTIVE DATE of the Plan shall be: January 1, 1994
3. The EFFECTIVE DATE of this amendment: ____________________
4. The ANNIVERSARY DATE of the Plan shall be: December 31, 1994
5. The ENTRY DATE(S) of the Plan:
5.1 January 1, 1994 shall be the first Entry Date.
5.2 July 1, 1994 shall be the second Entry Date.
(The Entry Date(s) may not postpone entry into the Plan later than the
earlier of (a) the first day of the Plan Year beginning after the date
on which an Employee satisfies the requirements of Section 6 below, or
(b) the date six months after the date such requirements were
satisfied.)
6. ELIGIBILITY REQUIREMENTS -- Each Employee will be eligible to participate
in the Plan in accordance with Section 5 of this Adoption Agreement,
except the following:
6.1 X Employees who have not attained the age of 21 (cannot exceed 21)
---
6.2 X Employees who have not completed 1 Year(s) of Service (cannot
---
exceed 1 year unless the Plan provides nonforfeitable right to
100% of the Participant's account balance derived from Employer
contributions after not more than 2 Years of Service in which case up
to 2 years is permissible. If the Year(s) of Service selected is or
includes a fractional year, an Employee will not be required to
complete any specified Hours of Service to receive credit for such
fractions year).
6.3 X Employees included in a unit of Employees covered by a collective
---
bargaining agreement between the Employer and Employee
Representatives, if retirement benefits were the subject of good faith
bargaining. For this purpose, the term "Employee Representatives" does
not include any organization more than half of whose members are
employees who are owners, officers, or executives of the Employer.
6.4 X Employees who are nonresident aliens and who receive no earned
---
income from the Employer which constitutes income from sources within
the United States.
The term "Employee" shall include all Employees of this Employer and any
other employer aggregated with this Employer under Internal Revenue Code
Section 414(b), (c) or (m) and individuals required to be considered
Employees of any such Employer under Code Section 414(n) or under
regulations under Code Section 414(o).
<PAGE> 2
7. COMPENSATION shall mean all of each Participant's:
7.1 X W-2 earnings.
----
7.2 ____ Compensation (as that term is defined in Section 415(c)(3) of
the Code).
Which is actually paid to the Participant during:
7.3 X The Plan Year.
----
7.4 ____ The taxable year ending with or within the Plan Year.
7.5 ____ The Limitation Year ending with or within the Plan Year.
COMPENSATION:
7.6 ____ Shall include
7.7 ____ Shall not include
Employer contributions made pursuant to a salary reduction agreement
which are not includible in the gross income of the employee under
sections I25, 402(a)(8), 402(h) or 403(b) or the Code.
8. NORMAL RETIREMENT AGE shall mean:
The later of age 62 (not to exceed age 65) or the ____ (not to
exceed 5th) anniversary of the first day of the first Plan Year in
which the Participant commenced participation in the Plan.
9. VESTING -- If a Participant terminates prior to Normal Retirement Age he
shall receive a percentage of his Accrued Benefit according to the vesting
schedule checked below:
9.1 ____ One Hundred Percent schedule - 100% at all times.
9.2 X Twenty Percent Schedule - (20%) after the second Covered Year of
----
Service and 20% for each additional Covered Year or Service.
9.3 ____ Variable Schedule - Based on Covered Years of Service after Year:
1. ____ 3. ____ (at least 40%) 5. ____ (at least 80%)
2. ____ (at least 20%) 4. ____ (At least 60%) 6. 100%
----
9.4 ____ Three Year Vesting Schedule - 100% after three (3) Covered Years
of Service.
Notwithstanding the above, the Accrued Benefit shall become full vested
at Normal Retirement Age.
10. CONTRIBUTIONS -- Employer contributions will be calculated based on
Compensation of those Participants who are New or active Participants who
have not incurred a Break in Service.
10.1 X The Employer hereby agrees to contribute to the Plan an
----
amount equal to 10 percent (not to exceed 25%) of Compensation.
<PAGE> 3
10.2 The Employer hereby agrees to contribute an amount equal to
_____ % ( Base Contribution Percentage, not less 8%) of each
Participant's Compensation as defined in Section 5.8(D) (d) of the
Plan) for the Plan Year up to the Integration Level plus _____ %
(not less than 3%) and nor to exceed the Base Contribution
Percentage by more than the lesser of: (1) the Base Contribution
Percentage, or (2) the Money Purchase Maximum Disparity Rate) of
such Participant's Excess Compensation as defined in Section 12.
The above excess percentage rate shall not exceed the rates
applicable to the Employer for old age insurance under the Social
Security Act for such Plan Year of Compensation. Both the taxable
wage base and old age insurance tax rate are those in effect on the
first day of the Plan Year. Such amount will be allocated directly
to such Participant's Account in the same manner as calculating the
contribution and no allowance shall be made under Section 11 of the
Adoption Agreement.
10.3 _____ Forfeitures of Employer Contributions shall be applied
to reduce the Employer's Contribution.
10.4 _____ Forfeitures of Employer Contributions shall be added to
the Employer's Contribution in the year of forfeiture and allocated
therewith.
11. ALLOCATION OF CONTRIBUTIONS -- The Employer contribution to the Plan will
be allocated among Participant Accounts:
11.1 ALLOCATED BASED ON COMPENSATION -- In the ratio which each
Participant's Compensation bears to the Compensation paid to all
Participants.
11.2 X ALLOCATION UNDER PERMITTED DISPARITY RULES -- Employer
contributions for the Plan Year plus any forfeiture will be
allocated to Participant's accounts as follows:
If the Plan is Top Heavy for the Plan (as defined in Section 8 of
the Plan document) begin at step (1); otherwise, begin at step (3).
(1) Contributions and forfeitures will be allocable to each
Participant's account in the ratio that each Participant's total
Compensation bears to all Participant's total Compensation, but not
in excess of 3% of each Participant's Compensation.
(2) Any contributions and forfeitures remaining after the
allocation in (1) above will be allocated to each Participant's
account in the ratio that each Participant's Compensation for the
Plan Year in excess of the Integration Level bears to the Excess
Compensation of all Participants, but no in excess of 3%.
(3) Any contributions and forfeitures (remaining after the
allocation in (2) above in the case of a Top Heavy Plan) will be
allocated to each Participant's account in the ratio that the sum
of each Participant's total Compensation and Compensation in excess
of the Integration Level bears to the sum of all Participant's
total Compensation and Compensation in excess of the Integration
Level, but not in excess of the Money Purchase Maximum Disparity
Rate.
(4) Any remaining Employer contributions or forfeitures will be
allocated to each participant's account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
<PAGE> 4
12. EXCESS COMPENSATION -- Shall mean compensation in excess:
<TABLE>
<S> <C> <C>
12.1 X of the Taxable Wage Base in effect as of the beginning of the Plan Year.
---
12.2 of $____________ (a dollar amount less than the Taxable Wage Base).
---
12.3 of ______% of the Taxable Wage Base (not to exceed 100%).
---
</TABLE>
13. INDIVIDUAL INVESTMENT ACCOUNTS
13.1 Will not be used.
---
13.2 X Will be used as follows:
---
Each Participant will have a separate Individual Investment Account which
will contain the amount allocated to the Participant Account. Each
Participant will have the power to direct the investment with respect to
his Individual Investment Account subject to such rules as the
Administrator and the Trustee may deem necessary. Gains and losses of
the Account shall accrue to such Account only.
14. LIMITATION YEAR shall mean each 12 consecutive month period ending on
12/31.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
15. LIMITATION IN BENEFITS -- If the Employer maintains or has ever,
maintained, in addition to this Plan, one or more plans which are either
qualified defined benefit plans or qualified defined contribution plans
other than paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreements 001, 002, 005, 009
in which any Participant in this Plan is (or was) a participant or could
possibly become a participant, the Employer must complete this Section.
The Employer must also complete this Section if it maintains a welfare
benefit fund, as defined in Code Section 419(e), or an individual medical
account, as defined in Code Section 415(1)(2) under which amounts are
treated as annual additions with respect to any Participant in this Plan.
If any Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
15.1 ____ The provisions of Section 5 5 (B) of the Plan will apply
as if the other plan were a master or prototype plan.
15.2 ____ The total Annual Additions will be limited to the
maximum permissible amount and excess amounts will be reduced in a
manner that precludes Employer discretion, as follows:
-------------------------------------------------------------------
-------------------------------------------------------------------
<PAGE> 5
15.3 If the Participant is or has ever been a Participant in
---
a defined benefit plan maintained by the Employer, the benefits
under the plans will be limited as follows (this method must
preclude Employer discretion):
------------------------------------------------------------------
------------------------------------------------------------------
16. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN -- If the Employer maintains one
or more defined benefit plan in which a Participant participates in
addition to this Plan and does not maintain any other defined contribution
plans in which a Participant participates, the minimum benefit requirement
applicable to Top Heavy Plans shall be met under this Plan.
If the minimum benefit requirement is met under this Plan, the additional
minimum benefit:
16.1 Shall be provided.
---
16.2 X Shall not be provided.
---
17. YEAR OF SERVICE shall mean:
17.1 X 1000 Hours of service.
---
17.2 Hours of Service (less than 1000 Hours of Service).
---
18. PREDECESSOR EMPLOYER -- Service with the following Predecessor
Employer(s):
--------------------------------------------------------------
--------------------------------------------------------------
shall be counted for purposes or:
18.1 Eligibility Years of Service.
---
18.2 Vesting (Covered Years or Service).
---
19. ADMINISTRATOR shall mean:
19.1 X The Employer.
---
19.2 Individuals specified in item 23 below.
---
20. OTHER BENEFITS
20.1 Early Retirement Benefit (fully vested): Subject to the
---
Joint and Survivor Annuity requirements, any Participant may retire
and receive the entire amount in his Participant Account provided he
has attained age and has at least Covered Years
of Service. -------- -------
21. ACTUARIAL EQUIVALENT -- For purposes of establishing present value to
compute the top heavy ratio, benefit payments shall be discounted only for
mortality and interest based on the following:
21.1 Pre-Retirement Interest Rate %.
--- ----
21.2 Post-Retirement Mortality Table with % interest.
--- ---- ----
<PAGE> 6
22. PARTICIPATING AFFILIATES -- Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of trades or
businesses. or an affiliated service group within the meaning of section
414 of the Code) must adopt this Plan as a Participating Affiliate.
[Attach additional signature pages if there is more than one Participating
Affiliate.]
Participating Affiliate Name Employer I.D.
----------- -------------
Address Taxable Year
-------------------------------- -------------
By Title Date
--------------------------- ------------ --------------
23. ADMINISTRATOR -- If Option 19.2 is elected the following named
individuals shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgment of acceptance of appointment as Administrator
Administrator(s) Name(s): Signature(s):
------------------------------------- -------------------------------
------------------------------------- -------------------------------
24. APPOINTMENT OF TRUSTEE OR CUSTODIAN (Select 24.1 or 24.2)
Incorporated businesses must name a Trustee. Unincorporated businesses
covering one or more Self Employed Individuals may appoint a Custodian or
a Trustee.
24.1 Trustee -
------
Trustee Name: Signature(s):
-------------------- ------------------------
-------------------- ------------------------
24.2 X Custodian -
---
-----------------------------------------------------------------------
Signature of Authorized Individual Accepting Appointment
25. ADOPTION AGREEMENT USAGE -- This Adoption Agreement is only to be used
with basic Defined Contribution Plan document 02.
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of the
Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees as defined in Code Section
419A(d)(3), or an individual medical account. as defined in Section
415(1)(2) of the code) in addition to this Plan other than paired plans:
Plan #01 -Adoption Agreement 001
Plan #02 - Adoption Agreements 003, 004, 007, 009, 010
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the
<PAGE> 7
Employer who adopts or maintains multiple plans other than the paired
plans identified above wishes to obtain reliance that its plans are
qualified, application for a determination letter should be made to the
appropriate Key District Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement may
result in the disqualification of this Plan.
26. SPONSORING ORGANIZATION -- The Sponsoring organization or its authorized
representative identified below will inform the adopting employer of any
amendments made to the Plan or of the discontinuance or abandonment of the
Plan.
The organization sponsoring this Plan is PaineWebber, Incorporated.
The authorized representative of the sponsoring organization is
PaineWebber, Incorporated, Retirement Plans Department, 1200 Harbor Blvd.
4th Floor, Weehawken, New Jersey 07087. (20l) 902-3000.
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or
tax advisor who has determined that it is suitable and has been properly
completed and adopted.
ADOPTION FOR THE EMPLOYER
<TABLE>
<S> <C> <C>
/S/ 12/28/94 /S/ Carl E. Voigt, IV /S/ President
- ------------------------- ---------------------- --------------
Date of Execution Signature Title
ACCEPTANCE BY PAINEWEBBER
- ------------------------- ---------------------- --------------
Date of Execution Signature Title
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Fundex Games, Ltd.
Indianapolis, Indiana
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 4, 1996, relating
to the financial statements of Fundex Games, Ltd. which is contained in that
Prospectus.
We also consent to the reference to us under the captions "Experts" and
"Selected Financial Data" in the Prospectus.
/s/BDO Seidman, LLP
-------------------
Chicago, Illinois BDO Seidman, LLP
October 7, 1996
