<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 30, 1999
TOYMAX INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE
----------------------------------------------
(State or other jurisdiction of incorporation)
0-23215 11-3391335
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
125 E. BETHPAGE ROAD, PLAINVIEW, NEW YORK 11803
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-9898
NOT APPLICABLE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 30, 1999, Sun Master Investment Limited (the "Company"), a
company incorporated under the laws of the Hong Kong Special Administrative
Region of the People's Republic of China and a wholly-owned subsidiary of Toymax
International, Inc. ("Toymax"), acquired certain assets, consisting of the
Funnoodle product line of Kidpower, Inc. (the "Seller"), pursuant to an asset
purchase agreement (the "Purchase Agreement"), dated October 25, 1999, by and
among Toymax, Seller, James O'Rourke ("O'Rourke"), the majority shareholder of
the Seller, and Funnoodle, Inc. ("Funnoodle"), a Delaware corporation and a
wholly owned subsidiary of Toymax, which was assigned to the Company pursuant to
an assignment and assumption of contract (the "Assignment"), dated November 30,
1999, by and among the Company, Toymax, Funnoodle, Seller and O'Rourke.
The Funnoodle product line is a highly recognized consumer brand of
pool and backyard water recreational products and a leader in those categories.
The full product line includes the original Funnoodle(R) water toys, floating
pool mats, lawn sprinkler toys, and exercise mats. The consideration for the
acquisition was approximately $8,700,000 paid in cash to the Seller (the
"Initial Payment") not including the assumption of certain commitments of the
Seller in an amount of approximately $500,000 plus up to $7,000,000 payable to
the Seller after the closing if certain contingencies occur. The funding for
the acquisition was out of the working capital of Toymax.
In connection with the acquisition, the Company entered into a
management services agreement (the "Management Agreement"), dated November 30,
1999, with Seller. Pursuant to the Management Agreement, Seller will manage the
day to day operations with respect to the Funnoodle product line. The term of
the Management Agreement is through November 15, 2002 and the management fee
payable to the Seller is seven percent (7%) of the cost of all finished goods
with respect to the Funnoodle product line.
The Company hereby incorporates by reference herein the matters
announced in the Company's press release dated December 3, 1999 (such press
release is filed as Exhibit 99.1 hereto).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Such information will be filed by amendment to this Form 8-K
within sixty days from the date hereof.
(b) Pro-forma financial information.
Such information will be filed by amendment to this Form 8-K
within sixty days from the date hereof.
-2-
<PAGE>
(c) Exhibits.
The following documents are being filed herewith by the
Company as exhibits to this Current Report on Form 8-K:
2.1 Asset Purchase Agreement, dated October 25, 1999,
among Toymax International, Inc., Funnoodle, Inc.,
Kidpower, Inc., James O'Rourke.
2.2 Assignment and Assumption of Contract dated November
30, 1999 among Toymax International, Inc., Sun Master
Investment Limited, Funnoodle, Inc., Kidpower, Inc.,
James O'Rourke.
10.1 Management Agreement, made as of November 30, 1999,
between Sun Master Investment Limited and Kidpower,
Inc.
99.1 Press release of the Company dated December 3, 1999.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TOYMAX INTERNATIONAL, INC.
--------------------------
(Registrant)
Date: December 15, 1999 By: /s/ William A. Johnson, Jr.
----------------------------------------
William A. Johnson, Jr.
Chief Financial Officer and Treasurer
-4-
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 25, 1999, by and among
Toymax International, Inc., a Delaware corporation ("TOYMAX"), Funnoodle, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Toymax (the "BUYER"),
and Kidpower, Inc., a Tennessee corporation (the "SELLER"), and James P.
O'Rourke ("O'ROURKE").
WHEREAS, the Seller and O'Rourke are generally engaged in the toy
business, including creating, designing, manufacturing and selling toys and
related entertainment, sports and leisure products; and
WHEREAS, the Buyer and Toymax are generally engaged in the toy
business, including creating, designing, manufacturing and selling toys and
related entertainment, sports and leisure products; and
WHEREAS, the Seller desires to sell and assign, and the Buyer desires
to purchase, all of the Assets (as defined herein) owned by the Seller and used,
held for use or useful in connection with the Funnoodle product line of the
Seller (the "FUNNOODLE PRODUCT LINE"), which shall include but not be limited to
the following: (i) those products set forth on EXHIBIT A attached hereto, and
all predecessors thereof, all extensions thereof and additions thereto; and (ii)
except for the "Finger Blaster," all products, all predecessors thereof, all
extensions thereof and additions thereto either marketed or distributed by the
Seller at any time prior to the Closing Date under the "Funnoodle" trademark,
upon and subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. (a) In addition to the terms defined elsewhere
in this Agreement, the following terms, when used in this Agreement, shall have
the meanings indicated below:
"Affiliate" of any person shall mean any other person directly or
indirectly through one or more intermediary persons, controlling, controlled by
or under common control with such person.
"Agreement" or "this Agreement" shall mean, and the words "herein,"
"hereof" and "hereunder" and words of similar import shall refer to, this
agreement as it from time to time may be amended.
The term "audit" or "audited" when used in regard to financial
statements shall mean an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
<PAGE>
"Certificate of Incorporation" shall mean, in the case of any
corporation, the certificate of incorporation, articles of incorporation or
charter of a corporation, howsoever denominated under the laws of the
jurisdiction of its incorporation.
"Change in Control" means any of the following: (a) the shareholders of
Toymax approve the liquidation of all or substantially all the consolidated
assets of Toymax and its Subsidiaries, other than a liquidation of a Toymax
Subsidiary into Toymax or another Toymax Subsidiary (unless the transaction is
subsequently abandoned); (b) the shareholders of Toymax approve a sale, lease,
exchange, or other transfer to any person other than Toymax or a Toymax
Subsidiary (in a single transaction or related series of transactions) of all or
substantially all the consolidated assets of Toymax and its Subsidiaries,
excluding the creation (but not the foreclosure) of a lien, mortgage, or
security interest (unless the transaction is subsequently abandoned); (c) the
shareholders of Toymax approve a merger, consolidation, reorganization, tender
offer, exchange offer, or share exchange in which Toymax is not the surviving
corporation or becomes a majority-owned subsidiary of a person other than a
Toymax Subsidiary (unless the transaction is subsequently abandoned); or (d) the
occurrence of any event, transaction, or arrangement that results in any person
or group becoming a beneficial owner of (i) a majority of the outstanding equity
securities of Toymax or any Toymax Subsidiary that contributed more than 50% of
Toymax's consolidated revenues for its last fiscal year, (ii) securities of
Toymax representing greater than 50% of the combined voting power of all the
outstanding securities of Toymax that are entitled to vote generally in the
election of its directors, or (iii) with respect to any Subsidiary that
contributed more than 50% of Toymax's consolidated revenues for its last fiscal
year, securities of that Subsidiary representing a majority of the combined
voting power of all the outstanding securities of that Subsidiary that are
entitled to vote generally in the election of its directors, unless in each case
the beneficial owner is Toymax, a Toymax Subsidiary, an employee benefit plan
sponsored by Toymax, a person or group who is a record or beneficial owner of
30% or more of the outstanding shares of Toymax's common stock on the effective
date of this Agreement, or a person who becomes a beneficial owner of 30% or
more of the outstanding shares of Toymax's common stock solely by becoming a
trustee of an inter vivos trust created by a person who is the record or
beneficial owner of 30% or more of the outstanding shares of Toymax's common
stock on the effective date of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contract" shall mean any contract, agreement, indenture, note, bond,
lease, conditional sale contract, mortgage, license, franchise, instrument,
commitment or other binding arrangement, whether written or oral, and all
modifications and amendments thereto and substitutions thereof.
The term "control," with respect to any person, shall mean the power to
direct the management and policies of such person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.
"Cost of Goods Sold" shall mean, with respect to the Funnoodle Product
Line, the sum of the cost of finished goods, packaging, warehousing, freight and
similar costs and expenses typically associated with determining cost of goods
sold, provided, however, that with respect to
-2-
<PAGE>
products manufactured by an Affiliate, cost of goods sold shall not be
calculated on terms less favorable than those offered by a Third Party who is
ready, willing and able.
"Debt" shall mean (i) money borrowed by the Seller from any person;
(ii) any indebtedness of the Seller arising under leases required to be
capitalized under GAAP or evidenced by a note, bond, debenture or similar
instrument; (iii) any indebtedness of the Seller arising under purchase money
obligations or representing the deferred purchase price of property and services
(other than current trade payables incurred in the ordinary course of business),
(iv) any Liability of any person secured by a Lien on any of the Assets and (v)
any Liability of the Seller under any guaranty, letter of credit (or
reimbursement obligations with respect thereto), performance credit or other
agreement having the effect of assuring a creditor against loss.
"Environmental Laws" shall mean any and all Laws (including common
law), Orders, Permits, agreements or any other requirement or restriction
promulgated, imposed, enacted or issued by any federal, state, local and foreign
Governmental Bodies relating to human health or the environment, including the
emission, discharge or Release of pollutants, contaminants, Hazardous Substances
or wastes into the environment (which includes, without limitation, ambient air,
surface water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"GAAP" shall mean generally accepted accounting principles as set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States.
"Hazardous Materials" shall mean any waste or other substance that is
listed, defined, designated, or classified as hazardous, radioactive or toxic,
or as a pollutant or a contaminant under or pursuant to any Environmental Law,
including, without limitation, petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
"Hazardous Substances" shall mean any and all dangerous, toxic,
radioactive, caustic or otherwise hazardous material, pollutant, contaminant,
chemical, waste or substance defined, listed or described as any of such in or
governed by any Environmental Law, including but not limited to
urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos-containing
materials, radon, explosives, known carcinogens, petroleum and its derivatives,
petroleum products, lead-based paint, flammable materials, radioactive
materials, controlled or toxic substances, any pollutant or contaminant, or any
substance which might cause any injury to human health or safety or to the
environment or might subject the owner or operator of real property to any
Regulatory Actions or Claims (as defined in Section 3.12 hereof).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
The term "knowledge" shall mean: (a) with respect to any individual,
actual knowledge; and (b) with respect to any corporation, the actual knowledge
of the directors and the executive officers of such corporation. The term
"knows" shall have a correlative meaning.
-3-
<PAGE>
"Liability" shall mean any direct or indirect indebtedness, liability,
assessment, claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, actual or potential, contingent or otherwise
(including any liability under any guaranties, letters of credit, performance
credits or with respect to insurance loss accruals).
"Lien" shall mean any mortgage, lien (including mechanics,
warehousemen, laborers and landlords' liens), claim, pledge, charge, security
interest, preemptive right, right of first refusal, option, judgment, title
defect, covenant, restriction, easement or encumbrance of any kind.
"Management Services Agreement" shall mean that certain agreement
described in Section 6.2(e)(v) hereof.
"Management Fee" shall mean, with respect to the Management Services
Agreement, an amount equal to seven percent (7%) of: (a) the ex-factory invoices
of Nomaco under the Manufacturing Agreement, as more fully described on Schedule
A to the Manufacturing Agreement; and (b) the ex-factory net cost of finished
goods of all manufacturers of the Funnoodle Product Line other than Nomaco, it
being understood that the ex-factory net cost of finished goods of all
manufacturers of the Funnoodle Product Line other than Nomaco shall include only
the cost of materials, packaging, direct labor, and direct factory overhead of
such non-Nomaco manufacturer of the Funnoodle Product Line.
"Manufacturing Agreement" shall mean that certain agreement described
in Section 6.3(d)(viii) hereof.
"Net Sales" shall mean, with respect to the Funnoodle Product Line, an
amount equal to gross sales and other revenues from Third Parties, minus the
following amounts to the extent reasonable, actually allowed and taken;
discounts, allowances, markdowns and returns.
"Nomaco" shall mean Nomaco, Inc., a North Carolina corporation.
The term "person" shall mean an individual, corporation, partnership,
joint venture, limited liability company, association, trust, unincorporated
organization or other entity, including a government or political subdivision or
an agency or instrumentality thereof.
"Regulatory Actions" shall mean any Claim, demand, action, suit,
summons, citation, directive, investigation, litigation, inquiry, enforcement
action, Lien, encumbrance, restriction, settlement, remediation, response,
clean-up or closure arrangement or other remedial obligation or proceeding
brought or instigated by any Governmental Body in connection with any
Environmental Law, including, without limitation, the listing of the real
property of the Seller on any list of contaminated or potentially contaminated
sites or potential or verified Hazardous Material sites under any Environmental
Law, or any civil, criminal and/or administrative proceedings, whether or not
seeking costs, damages, penalties or expenses.
"Release" shall mean the intentional or unintentional, spilling,
leaking, pumping, pouring, disposing, discharging or disturbance of, or
emitting, depositing, injecting, leaching, dumping, escaping, or any other
release or threatened release to or from, however defined, any Hazardous
Substance in violation of any Environmental Law.
"Subsidiary" shall mean any person of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons
-4-
<PAGE>
performing similar functions are owned directly or indirectly through one or
more intermediaries, or both, by any other person.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean (i) (A) any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, transfer gains, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles, environmental or
windfall profits tax, alternative or add-on minimum tax, customs, duty or other
tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever
(including but not limited to taxes assessed to real property and water and
sewer rents relating thereto), together with (B) any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Body (domestic
or foreign) (a "Tax Authority") responsible for the imposition of any such tax
and interest on such penalties, additions to tax, fines or additional amounts,
in each case, with respect to the Seller, the Funnoodle Product Line or the
Assets (or the transfer thereof); (ii) any liability for the payment of any
amount of the type described in the immediately preceding clause (i) as a result
of the Seller being a member of an affiliated or combined group with any other
person at any time on or prior to the Closing Date and (iii) any liability of
the Seller for the payment of any amounts of the type described in the
immediately preceding clause (i) as a result of a contractual obligation to
indemnify any other person.
"Tax Return" shall mean any return or report (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to any Tax Authority.
"Third Party" means any entity or other person other than Toymax and
Affilates of Toymax.
"Transaction Documents" shall mean, collectively, this Agreement, and
each of the other agreements and instruments to be executed and delivered by all
or some of the parties hereto in connection with the consummation of the
transactions contemplated hereby.
(b) INTERPRETATION. Unless the context otherwise requires, the
terms defined in Article I shall be applicable to both the singular and plural
forms of any of the terms defined herein. All accounting terms defined in
Article I, and those accounting terms used in this Agreement not defined in
Article I except as otherwise expressly provided herein, shall have the meanings
customarily given thereto in accordance with GAAP. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The use of the neuter gender herein shall be
deemed to include the masculine and feminine genders wherever necessary or
appropriate, the use of the masculine gender shall be deemed to include the
neuter and feminine genders and the use of the feminine gender shall be deemed
to include the neuter and masculine genders wherever necessary or appropriate.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
-5-
<PAGE>
ARTICLE II
SALE AND PURCHASE
SECTION 2.1 ASSETS TO BE SOLD AND PURCHASED.
(a) The Seller shall sell, assign, transfer, convey and
deliver to the Buyer, free and clear of all Liens (other than Permitted Liens
(as defined in Section 3.9(a) hereof), and the Buyer shall purchase from the
Seller, all of the property, assets and rights owned by the Seller and used,
held for use or useful in connection with the Funnoodle Product Line, but
specifically excluding the Excluded Assets (as defined in Section 2.1(b))
(collectively, the "Assets"), including the following and as set forth on
SCHEDULE 2.1(A) hereof:
(i) all of the Seller's rights, title and interest in
and to the machinery, equipment, tools, supplies, spare parts and other tangible
personal property listed on SCHEDULE 2.1(A) (the "EQUIPMENT"), on the Closing
Date;
(ii) all inventory, and rights to all inventory,
including parts, designs, artwork, patterns, fittings, molds, jigs, fixtures,
raw materials, supplies, packaging, samples, work-in-process and inventories of
finished goods relating to the Funnoodle Product Line, whether in possession of
the Seller or any supplier, manufacturer or contractor of the Seller (the
"INVENTORY"), excluding those items set forth on SCHEDULE 2.1(A)(II) hereof;
(iii) all of the Seller's right, title and interest
in, to and under all patents, patent applications, trade names, trademarks,
copyrights, copyright applications, servicemarks, trademark and servicemark
registrations and applications, domain names, logos and other intangible
property relating to the Funnoodle Product Line (including, without limitation,
all of the Seller's right to use the name "Funnoodle" and any derivations
thereof), whether or not used in the Funnoodle Product Line;
(iv) all of the Seller's rights in, to and under
trade secrets (including but not limited to, all results of research and
development), inventions (whether or not patented), formulae and specifications
and technical know-how relating to the Funnoodle Product Line, whether currently
being used or under development, including engineering and other drawings, data,
design and specifications, product literature and related materials, in each
case which are owned or licensed by the Seller as of the Closing Date (together
with the intellectual property described in Section 2.1(a)(iii), the
"INTELLECTUAL PROPERTY RIGHTS") and all of the Seller's books, records and
computer data (in a form which is readable by the Buyer) relating thereto;
(v) all of the Seller's rights in, to and under the
goodwill of the Funnoodle Product Line;
(vi) all of the Seller's right, title and interest
in, to and under all Contracts, open sales orders, order backlog and all prepaid
expenses, claims and other prepayments relating to the Funnoodle Product Line,
including security deposits, prepaid supplies, prepaid mold and prototype costs,
deferred charges and other retentions held by third parties, whether capitalized
or expensed and wherever located;
-6-
<PAGE>
(vii) all customer lists, credit policies and credit
information with respect to all customers of, and all cost and pricing data
(including all historical information, if any) for, or with respect to the
Funnoodle Product Line;
(viii) all supplier lists, product specifications,
bills of materials, production routings and all other production information
relating to the Funnoodle Product Line for the past five (5) years;
(ix) all existing business plans, advertising and
promotional plans, product development plans, forecasts, market research
reports, competitor information, and reference catalogs relating to the
Funnoodle Product Line;
(x) all of the Seller's rights under all governmental
licenses, certificates, permits, franchises, similar authorizations and
approvals of the Seller relating directly and solely to the Funnoodle Product
Line (the "PERMITS"), relating to or necessary to the lawful conduct of the
Funnoodle Product Line as of the Closing Date (including all rights of the
Seller to obtain renewals and extensions thereof, together with all causes of
action in favor of the Seller heretofore accrued or hereafter accruing with
respect thereto), in each case to the extent such Permits are transferable;
(xi) all transferable warranties and guarantees
pertaining to the Assets; and
(xii) true and correct copies of all books and
records relating to the Funnoodle Product Line and the Assets (whether kept or
maintained by the Seller or any third party) including, without limitation,
records with respect to costs, Inventory and Equipment; materials, catalogues,
correspondence, mailing lists, art work, films, negatives, photographs, sales
materials and records; purchasing materials and records; media materials and
plates; sales order files; ledgers and other books of account of the Seller;
other records required to continue the Funnoodle Product Line as heretofore and
now being conducted by the Seller; and all computer printouts, databases and
related items in a form which is readable by the Buyer and used in the Funnoodle
Product Line.
(b) The Assets shall exclude all assets, property and rights
not listed in SCHEDULE 2.1(A), including, without limitation, the following
assets and properties (the "EXCLUDED ASSETS"):
(i) all of the Seller's right, title and interest in
and to the Transaction Documents;
(ii) all cash and cash equivalents ("CASH") belonging
to the Seller in hand or on deposit;
(iii) all accounts receivable of the Seller, whether
or not related to the Funnoodle Product Line;
(iv) all assets and properties of the Seller used,
held for use or useful in connection with its business other than in the
Funnoodle Product Line;
-7-
<PAGE>
(v) all items included on SCHEDULE 2.1(A)(II) hereof;
(vi) all claims, rights and choses in action of the
Seller, including those related to Funnoodle Product Line;
(vii) all of the Seller's right, title and interest
in and to all products and product concepts not included in the Funnoodle
Product Line, including those products which are not Protected Products (as
defined in Section 5.7(a)(ii) hereof); and
(viii) all rights of Seller under its insurance
policies and the proceeds payable thereunder relating to the Funnoodle Product
Line.
(c) The Buyer and the Seller acknowledge and agree that the
Buyer is purchasing only the Funnoodle Product Line from the Seller, and that
the Seller presently intends to continue to conduct its business activities,
other than the Funnoodle Product Line, as previously conducted.
SECTION 2.2 LIABILITIES OF THE SELLER. Neither the Buyer nor Toymax or
any of their Affiliates shall assume or be bound by or otherwise be responsible
for any duties, responsibilities, obligations or Liabilities of the Seller of
any kind or nature, known, unknown, contingent or otherwise, including, but not
limited to, any Liabilities of the Seller arising out of the Seller's ownership
and operation of the Funnoodle Product Line. All such duties, responsibilities,
obligations or Liabilities shall be retained by the Seller (the "RETAINED
LIABILITIES"). Notwithstanding the preceding sentence, the Buyer and Toymax each
hereby expressly assume and shall be bound by and otherwise responsible for: (i)
any duties, responsibilities, obligations and Liabilities of the Seller arising
following the Closing under all Contracts set forth on SCHEDULE 3.10 hereto; and
(ii) product liability Claims arising on and after the Closing Date with respect
to "occurrences" (as defined in the insurance policies of each of the Seller,
the Buyer and Toymax) that occur on and after the Closing Date (the "ASSUMED
LIABILITIES").
SECTION 2.3 PURCHASE PRICE. Subject to the adjustments provided for in
Section 2.4 and 2.5 hereof, the purchase price for the Assets shall be up to
Fifteen Million Dollars ($15,000,000) (the "PURCHASE PRICE") payable as follows:
(a) At the Closing, the Buyer shall deliver to the Seller, by
wire transfer of immediately available funds, an amount equal to Eight Million
Dollars ($8,000,000) (the "CASH PORTION"); and
(b) In addition to the Cash Portion, the Seller shall be
entitled to receive a contingent purchase price payment (the "CONTINGENT
PAYMENT") for each year ended October 31, 2000, 2001 and 2002 (each such year, a
"CALCULATION YEAR").
(c) In addition to the Cash Portion and the Contingent
Payment, the Seller shall be entitled to receive a contingent purchase price
payment (the "ADDITIONAL PAYMENT") for each Calculation Year.
-8-
<PAGE>
(d) At Closing, the Buyer shall deliver to the Seller, by wire
transfer in immediately available funds, an amount equal to the value of the
Inventory in connection with the Funnoodle Product Line as of the Closing Date
as agreed to between the parties hereto.
(e) At Closing the Buyer shall deliver to the Seller, by wire
transfer in immediately available funds, an amount equal to the value of any
tooling and prepaid assets as set forth on Schedule 2.3 or as agreed to by
Toymax in writing.
SECTION 2.4 PAYMENT OF THE CONTINGENT PAYMENT
(a) Subject to the adjustments set forth in the second
sentence of this Section 2.4(a) and Section 2.4(b), the Contingent Payments
shall be paid in the following amounts: (i) Two Million Dollars ($2,000,000) for
the year ending October 31, 2000 ("CY2000"); (ii) One Million Five Hundred
Thousand Dollars ($1,500,000) for the year ending October 31, 2001 ("CY2001");
and (iii) One Million Five Hundred Thousand Dollars ($1,500,000) for the year
ending October 31, 2002 ("CY2002"). Notwithstanding the preceding sentence, if
following the Closing the contribution of the Funnoodle Product Line for a
Calculation Year (the "CONTRIBUTION AMOUNT"), shall be less than Three Million
Dollars ($3,000,000) then the Contingent Payment payable for such Calculation
Year shall be reduced on a dollar for dollar basis by the amount by which Three
Million Dollars ($3,000,000) exceeds the Contribution Amount. For purposes
hereof, the Contribution Amount shall be determined by subtracting from the Net
Sales of the Funnoodle Product Line, the related Cost of Goods Sold, sales
commissions (not to exceed three percent (3%) and advertising expenses (not to
exceed two percent (2%), and the Management Fee).
(b) The Buyer shall, within forty-five (45) days of the
completion of each Calculation Year, make a good faith estimate of the
Contribution Amount for such Calculation Year. Following the making of such good
faith estimate of the Contribution Amount by the Buyer, the Buyer shall deliver
to the Seller, on or before a date which is forty-five (45) days from the
completion of each Calculation Year (or if the forty-fifth (45th) day shall fall
on a weekend, holiday or day which is not otherwise a banking day, the next
business day), the calculation of the good faith estimate of the Contribution
Amount and an amount equal to ninety percent (90%) of the Contingent Payment due
for such Calculation Year, if any, based upon such good faith estimate of the
Contribution Amount by the Buyer.
(c) Thereafter, within ninety (90) days of the completion of
each Calculation Year (or if the ninetieth (90th) day shall fall on a weekend,
holiday or day which is not otherwise a banking day, the next business day), the
Buyer shall finally determine the Contribution Amount for such Calculation Year,
which determination shall be made or attested to by the Buyer's independent
accounting firm (the "BUYER'S INDEPENDENT ACCOUNTANTS"). In addition to the
foregoing and within such ninety (90) day period, (or if the ninetieth (90th)
day shall fall on a weekend, holiday or day which is not otherwise a banking
day, the next business day), the Buyer shall deliver to the Seller: (i) the
final calculation of the Contribution Amount for such Calculation Year; (ii) a
statement of the Contingent Payment due for such Calculation Year, if any (such
statement, a "CONTINGENT PAYMENT STATEMENT"); and (iii) the remaining ten
percent (10%) of the unpaid Contingent Payment due for such Calculation Year, if
any, or such greater or lesser amount if the final calculation of the
Contribution Amount indicates that based upon the
-9-
<PAGE>
Buyer's initial good faith estimate of the Contribution Amount pursuant to
Section 2.4(b) hereof, the Buyer's payment of the Contingent Payment pursuant to
Section 2.4(b) was less than or in excess of, as the case may be, ninety percent
(90%) of the total Contingent Payment owed for such Calculation Year. Payment of
the Contingent Payment shall be made by the Seller by wire transfer of
immediately available funds.
(d) Within five (5) days of the date of any such request by
the Seller, the Buyer shall make available for inspection and copying by the
Seller or its designee, during normal business hours, all books and records
related to the calculation and verification of the Contribution Amount. If the
Seller does not deliver to the Buyer written objections to the calculation of
the Contribution Amount for the Calculation Year in question as stated on the
Contingent Payment Statement (the "NOTICE OF OBJECTION") within eighteen (18)
months of the end of the Calculation Year, the Seller shall be deemed to have
accepted such calculation.
(e) If the Seller objects to the calculation of the
Contribution Amount for the Calculation Year in question or the Contingent
Payment Statement in accordance with Section 2.4(b) above, it shall specify in
the Notice of Objection the grounds of such objection. Thereupon, the parties
shall meet and exchange information in an attempt to agree upon the calculation
of the Contribution Amount for the Calculation Year in question and the
Contingent Payment Statement. If the Seller and the Buyer have not agreed upon
the same within sixty (60) days following the delivery of the Notice of
Objection, the parties will submit the controversy to final and binding
arbitration by a nationally recognized accounting firm mutually agreed upon
(which firm has not performed services for either the Buyer or the Seller within
the preceding three (3) years), which determination shall be conclusive for all
purposes. Said arbitrator shall rule only upon the accounting methodology,
principles and practices to be applied in computing the Contribution Amount, and
shall not otherwise interpret the Agreement. The final calculation of the
Contribution Amount and the Contingent Payment for such Calculation Year shall
be prepared based upon the arbitrator's ruling. The fees and expenses of the
arbitration shall be borne equally by the parties hereto except that: (i) if the
actual Contribution Amount is equal to an amount which is greater than one
hundred five percent (105%) of the initial Contribution Amount calculated by the
Buyer pursuant to Sections 2.4(b) and (c) hereof, then the Buyer shall be
responsible for the fees and expenses of the arbitration; and (ii) if the
arbitrator finds there to be no difference between the actual Contribution
Amount and the initial Contribution Amount calculated by the Buyer pursuant to
Sections 2.4(b) and (c) hereof, or if the arbitrator finds the actual
Contribution Amount to be less than such initial Contribution Amount, then the
fees and expenses of the arbitration shall be paid pursuant to the ruling of the
arbitrator, or if no such ruling is made, such fees shall be paid by the Seller.
Upon determination of the final calculation of the Contribution Amount and the
Contingent Payment for such Calculation Year by arbitration, the Buyer shall pay
to the Seller an amount by wire transfer of immediately available funds equal to
the Contingent Payment, as finally determined, less any payment on account
thereof previously made. The parties hereto agree that if the Seller objects to
the calculation of the Contribution Amount, and such objection results,
following a ruling by the arbitrator in favor of the Seller, in the Buyer making
an additional Contingent Payment based upon the actual Contribution Amount, that
the fact that such additional Contingent Payment is made by the Buyer beyond the
forty-five (45) and ninety (90) day periods specified in Sections 2.4(b) and (c)
hereof, that such delay will not be considered a breach by the Buyer of this
Agreement.
-10-
<PAGE>
(f) If a Change in Control becomes effective on or before
October 31, 2002, Fifty Percent (50%) of any amounts potentially due to the
Seller under this Section 2.4 shall become fixed (not subject to the second
sentence of Section 2.4(a)) and payable to the Seller at the times otherwise
prescribed by this Section 2.4 and the balance of any amounts potentially due to
Seller under Section 2.4(a) shall remain subject to Section 2.4(a) and the
adjustments therein; provided that with respect to such Calculation Year, the
Buyer has not previously paid the Contingent Payment or determined that a
Contingent Payment was not due. By way of example, if a Change of Control occurs
on November 1, 2001, the Contingent Payment for CY2002 shall equal the sum of
(i) Seven Hundred Fifty Thousand Dollars ($750,000) (fixed by this Section
2.4(f)); and (ii) Seven Hundred Fifty Thousand Dollars ($750,000), provided,
however, that such amount shall be reduced on a dollar for dollar basis if the
Contribution Amount for CY2002 is less than Three Million Dollars ($3,000,000).
SECTION 2.5 PAYMENT OF THE ADDITIONAL PAYMENT
(a) Subject to the adjustments set forth in the second
sentence of this Section 2.5(a) and Section 2.5(b), the Additional Payments
shall be paid in the following amounts: (i) the Additional Payment for CY2000,
an amount equal to fifty percent (50%) of the Contribution Amount in excess of
Three Million Dollars ($3,000,000) up to a maximum Additional Payment of One
Million Dollars ($1,000,000); (ii) the Additional Payment for CY2001, an amount
equal to fifty percent (50%) of the Contribution Amount in excess of Three
Million Dollars ($3,000,000) up to a maximum Additional Payment of Five Hundred
Thousand Dollars ($500,000); and (iii) the Additional Payment for CY2002, an
amount equal to fifty percent (50%) of the Contribution Amount in excess of
Three Million Dollars ($3,000,000) up to a maximum Additional Payment of Five
Hundred Thousand Dollars ($500,000). The Contribution Amount shall be as
determined pursuant to Section 2.4.
(b) The Buyer shall, within forty-five (45) days of the
completion of each Calculation Year, make a good faith estimate of the
Contribution Amount for such Calculation Year. Following the making of such good
faith estimate of the Contribution Amount by the Buyer, the Buyer shall deliver
to the Seller, on or before a date which is forty-five (45) days from the
completion of each Calculation Year (or if the forty-fifth (45th) day shall fall
on a weekend, holiday or day which is not otherwise a banking day, the next
business day), the calculation of the good faith estimate of the Contribution
Amount and an amount equal to ninety percent (90%) of the Additional Payment due
for such Calculation Year, if any, based upon such good faith estimate of the
Contribution Amount by the Buyer.
(c) Thereafter, within ninety (90) days of the completion of
each Calculation Year (or if the ninetieth (90th) day shall fall on a weekend,
holiday or day which is not otherwise a banking day, the next business day), the
Buyer shall finally determine the Contribution Amount for such Calculation Year,
which determination shall be made or attested to by the Buyer's Independent
Accountants. In addition to the foregoing and within such ninety (90) day
period, (or if the ninetieth (90th) day shall fall on a weekend, holiday or day
which is not otherwise a banking day, the next business day), the Buyer shall
deliver to the Seller: (i) the final calculation of the Contribution Amount for
such Calculation Year; (ii) a statement of the Additional Payment due for such
Calculation Year, if any (such statement, an "ADDITIONAL PAYMENT STATEMENT");
and (iii) the remaining ten percent (10%) of the unpaid Additional Payment due
for
-11-
<PAGE>
such Calculation Year, if any, or such greater or lesser amount if the final
calculation of the Contribution Amount indicates that based upon the Buyer's
initial good faith estimate of the Contribution Amount pursuant to Section
2.5(b) hereof, the Buyer's payment of the Additional Payment pursuant to Section
2.5(b) was less than or in excess of, as the case may be, ninety percent (90%)
of the total Additional Payment owed for such Calculation Year. Payment of the
Additional Payment shall be made by the Seller by wire transfer of immediately
available funds.
(d) Within five (5) days of the date of any such request by
the Seller, the Buyer shall make available for inspection and copying by the
Seller or its designee, during normal business hours, all books and records
related to the calculation and verification of the Contribution Amount. If the
Seller does not deliver to the Buyer written objections to the calculation of
the Contribution Amount for the Calculation Year in question as stated on the
Additional Payment Statement (the "ADDITIONAL PAYMENT NOTICE OF OBJECTION")
within eighteen (18) months after receipt of the same, the Seller shall be
deemed to have accepted such calculation.
(e) If the Seller objects to the calculation of the
Contribution Amount for the Calculation Year in question or the Additional
Payment Statement in accordance with Section 2.5(b) above, it shall specify in
the Additional Payment Notice of Objection the grounds of such objection.
Thereupon, the parties shall meet and exchange information in an attempt to
agree upon the calculation of the Contribution Amount for the Calculation Year
in question and the Additional Payment Statement. If the Seller and the Buyer
have not agreed upon the same within sixty (60) days following the delivery of
the Additional Payment Notice of Objection, the parties will submit the
controversy to final and binding arbitration by a nationally recognized
accounting firm mutually agreed upon (which firm has not performed services for
either the Buyer or the Seller within the preceding three (3) years), which
determination shall be conclusive for all purposes. Said arbitrator shall rule
only upon the accounting methodology, principles and practices to be applied in
computing the Contribution Amount, and shall not otherwise interpret the
Agreement. The final calculation of the Contribution Amount and the Additional
Payment for such Calculation Year shall be prepared based upon the arbitrator's
ruling. The fees and expenses of the arbitration shall be borne equally by the
parties hereto except that: (i) if the actual Contribution Amount is equal to an
amount which is greater than one hundred five percent (105%) of the initial
Contribution Amount calculated by the Buyer pursuant to Sections 2.5(b) and (c)
hereof, then the Buyer shall be responsible for the fees and expenses of the
arbitration; and (ii) if the arbitrator finds there to be no difference between
the actual Contribution Amount and the initial Contribution Amount calculated by
the Buyer pursuant to Sections 2.5(b) and (c) hereof, or if the arbitrator finds
the actual Contribution Amount to be less than such initial Contribution Amount,
then the fees and expenses of the arbitration shall be paid pursuant to the
ruling of the arbitrator, or if no such ruling is made, such fees shall be paid
by the Seller. Upon determination of the final calculation of the Contribution
Amount and the Additional Payment for such Calculation Year by arbitration, the
Buyer shall pay to the Seller an amount by wire transfer of immediately
available funds equal to the Additional Payment, as finally determined, less any
payment on account thereof previously made. The parties hereto agree that if the
Seller objects to the calculation of the Contribution Amount, and such objection
results, following a ruling by the arbitrator in favor of the Seller, in the
Buyer making an additional Additional Payment based upon the actual Contribution
Amount, that the fact that such additional Additional Payment is made by the
Buyer beyond the forty-five
-12-
<PAGE>
(45) and ninety (90) day periods specified in Sections 2.5(b) and (c) hereof,
that such delay will not be considered a breach by the Buyer of this Agreement.
(f) If a Change in Control becomes effective on or before
October 31, 2002, Fifty Percent (50%) of any amounts potentially due to the
Seller under this Section 2.5 shall become fixed (not subject to the second
sentence of Section 2.5(a)) and payable to the Seller at the times otherwise
prescribed by this Section 2.5; provided that with respect to such Calculation
Year, the Buyer has not previously paid the Additional Payment or determined
that an Additional Payment was not due. By way of example, if a Change of
Control occurs on November 1, 2001, the Additional Payment for CY2002 shall
equal the sum of (i) Two Hundred Fifty Thousand Dollars ($250,000) (fixed by
this Section 2.5(f)); and (ii) an amount equal to fifty percent (50%) of the
Contribution Amount in excess of Three Million Dollars ($3,000,000) up to Two
Hundred Fifty Thousand Dollars ($250,000).
SECTION 2.6 ADJUSTMENTS TO THE PURCHASE PRICE. Prorations of customary
items relating to the Assets (e.g., utilities, personal property taxes) will be
made as of the close of business on the business day immediately prior to the
Closing Date, with the Seller liable to the extent such items relate to any time
period up to and including the Closing Date and the Buyer liable to the extent
such items relate to periods subsequent to the Closing Date.
SECTION 2.7 ALLOCATION OF THE PURCHASE PRICE. The Purchase Price shall
be allocated among the Assets in the manner set forth on SCHEDULE 2.7 for all
purposes, and each of the parties shall make all appropriate Tax and other
filings on a basis consistent with such allocation. The parties shall exchange
drafts of any information returns required by Section 1060 of the Code, and all
similar state statutes, ten (10) days prior to filing any such return.
SECTION 2.8 CLOSING. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Assets and the consummation of the other
transactions contemplated hereby (the "CLOSING") shall take place at 10:00 a.m.,
local time, at the offices of Baer Marks & Upham LLP, 805 Third Avenue, New
York, New York 10022, the earlier of (i) November 15, 1999, and (ii) the fifth
business day following the satisfaction or waiver of all of the conditions
specified in Article VI (the "CLOSING DATE") but shall not occur later than
December 1, 1999, time being of the essence.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE SELLER AND O'ROURKE
In order to induce Toymax and the Buyer to enter into this Agreement
and to consummate the transactions contemplated hereby, the Seller and O'Rourke,
jointly and severally, hereby make the representations and warranties set forth
below to Toymax and the Buyer.
SECTION 3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has full
power, capacity and authority to execute and deliver this Agreement and each
other Transaction Document to which it is a party and to consummate the
transactions contemplated hereby and thereby (the "CONTEMPLATED TRANSACTIONS").
The execution, delivery and performance and the
-13-
<PAGE>
consummation of the Contemplated Transactions to which the Seller is a party
have been duly and validly authorized by the Seller, and no other acts on the
part of the Seller (or any other person) are necessary or required to authorize
the execution, delivery and performance by the Seller of each Transaction
Document or the consummation of the Contemplated Transactions to which the
Seller is a party. This Agreement and the other Transaction Documents to which
the Seller is a party have been duly and validly executed and delivered by the
Seller, and (assuming the valid execution and delivery thereof by the other
parties thereto) constitute the legal, valid and binding agreements of the
Seller, enforceable against the Seller in accordance with their respective
terms, except as such obligations and their enforceability may be limited by
applicable bankruptcy and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefor may be brought (whether at law or in equity).
SECTION 3.2 NO CONFLICTS; CONSENTS. The execution, delivery and
performance by the Seller of this Agreement and each other Transaction Document
to which it is a party and the consummation of the Contemplated Transactions to
which the Seller is a party do not: (i) violate any provision of the Certificate
of Incorporation or By-laws (or comparable instruments) of the Seller; (ii)
require the Seller or any other Affiliate of the Seller to obtain any consent,
approval or action of or waiver from, or make any filing with, or give any
notice to, any Governmental Body or any other person, except as set forth on
SCHEDULE 3.2 (the "SELLER REQUIRED Consents"); (iii) if the Seller Required
Consents are obtained prior to Closing, violate, conflict with or result in a
breach or default under (with or without the giving of notice or the passage of
time or both), or permit the suspension or termination of, any Contract to which
the Seller is a party or by which the Seller or any of the Assets may be bound
or subject, or result in the creation of any Lien upon the Assets; (iv) if the
Seller Required Consents are obtained prior to Closing, violate any Law or Order
of any Governmental Body against, or binding upon, the Seller or upon the Assets
or the Funnoodle Product Line; or (v) if the Seller Required Consents are
obtained prior to Closing, violate or result in the revocation or suspension of
any Permit.
SECTION 3.3 CORPORATE EXISTENCE AND POWER. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite power, authority and all
Permits required to own and/or operate the Assets and to carry on the business
of the Funnoodle Product Line as now conducted. The Seller is duly qualified to
conduct business as a foreign corporation and is in good standing in each state
of the United States where the character of the properties owned or leased by
the Seller or the nature of its activities makes such qualification necessary.
SECTION 3.4 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Seller has
heretofore delivered or made available to the Buyer a true and complete copy of
the Certificate of Incorporation (certified as of a recent date by the Seller's
jurisdiction of incorporation) and By-laws or comparable instruments, of the
Seller as in effect on the date hereof.
SECTION 3.5 FINANCIAL INFORMATION. (a) The Seller has previously
furnished to the Buyer true, complete and correct copies of (i) the unaudited
pro forma income statements of the Funnoodle Product Line of the Seller (the
"FUNNOODLE PROFORMA STATEMENTS"), which have been derived from the financial
statements of the Seller at and for the years ended December 31, 1998 and 1997
(the "ANNUAL STATEMENTS"), which have been audited by Deloitte & Touche LLP,
-14-
<PAGE>
independent accountants for the Seller (the "SELLER'S INDEPENDENT ACCOUNTANTS"),
and (ii) the unaudited financial statement of the Funnoodle Product Line of the
Seller at and for the six (6) month period ending June 30, 1999 (the "INTERIM
STATEMENT"). Each delivered Funnoodle Proforma Statements have been prepared in
all material respects in accordance with GAAP consistently applied, and present
fairly and accurately the financial position of the Funnoodle Product Line of
the Seller as of its date and the earnings and cash flow of the Funnoodle
Product Line of the Seller for the periods then ended. Each delivered balance
sheet fully sets forth all the Assets and Liabilities of the Seller relating the
to Funnoodle Product Line existing as of its date which, under GAAP, should be
set forth therein, and each delivered statement of earnings sets forth the items
of income and expense of the Funnoodle Product Line of the Seller which should
be set forth therein in accordance with GAAP.
(b) All financial, business and accounting books, ledgers,
accounts and official and other records relating to the Funnoodle Product Line
have been properly and accurately kept and completed, and there are no material
inaccuracies or discrepancies contained or reflected therein. Other than as set
forth on SCHEDULE 3.5(B), to the knowledge of each of the Seller and O'Rourke,
there are no records, systems, Contracts, data or information of the Seller
relating directly to the Funnoodle Product Line, recorded, stored, maintained,
operated or otherwise held by any means which are not under the Seller's
exclusive ownership and direct control.
SECTION 3.6 LIABILITIES. Other than as set forth on SCHEDULE 3.6
hereto, the Seller does not have any material direct or contingent liabilities,
commitments or obligations, including, but not limited to, any guaranty or any
unrealized or anticipated losses from any commitments of the Seller, in each
case relating to the Funnoodle Product Line, and there is no basis for assertion
against the Seller of any such liability, commitment or obligation.
SECTION 3.7 INVENTORY. SCHEDULE 3.7 sets forth a true and complete list
of Inventory by category as of the date hereof (including an aging schedule
showing all items over sixty (60) days old). All Inventory consists of items
which are good and merchantable and of a quantity and quality usable or saleable
in the ordinary course of business consistent with past practices. Since
December 31, 1998, the Seller has continued to replenish its Inventories in a
customary manner consistent with past practice and prudent business judgment. As
of the Closing Date, no items of Inventory listed on SCHEDULE 3.7 are or will be
pledged as collateral or held by the Seller on consignment from any other
person. The Inventory is valued at the lower of cost or market, net realizable
value on the "first in, first out" method, consistent with past practices, and
were so valued on December 31, 1998 and June 30, 1999, respectively. In the
Seller's reasonable commercial judgment, the quantities of each item of
Inventory are not excessive, but are reasonable in the present circumstances of
the Seller. The Inventory obsolescence policies of the Seller are appropriate
for the nature of the products sold and the marketing methods used by the
Seller, the reserve for Inventory obsolescence taken by the Seller fairly
reflects the amount of obsolete Inventory as of the date thereof.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES. (a) Since June 30, 1999, except
as disclosed in SCHEDULE 3.8, the Seller has conducted the business of the
Funnoodle Product Line in the ordinary course consistent with past practices and
there has not been:
-15-
<PAGE>
(i) Any material adverse change in the Assets or any
material adverse change in the condition (financial or otherwise), results of
operations or prospects of, the Assets or the Funnoodle Product Line
(collectively, the "CONDITION OF THE FUNNOODLE PRODUCT LINE") or any event,
occurrence or circumstance that could reasonably be expected to cause such a
material adverse change;
(ii) Any transaction or Contract (except for the
Manufacturing Agreement) with respect to the purchase, acquisition, lease,
disposition or transfer of all or any part of any Assets or to any capital
expenditure relating to the Funnoodle Product Line (in each case, other than in
the ordinary course of business in accordance with past practice);
(iii) Any changes in the Certificate of Incorporation
or By-laws of the Seller;
(iv) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the Funnoodle Product Line, the Assets or the Seller;
(v) Any change in any method of accounting or
accounting practice by the Seller;
(vi) Any increase in the commission or other direct
or indirect remuneration paid, payable or to become payable to any sales
representative of the Seller, or any alteration in the benefits payable or
provided to any thereof;
(vii) Any material adverse change, or any event,
occurrence or circumstance that could reasonably be expected to cause a material
adverse change, in the relationship of the Seller with its customers, suppliers
or vendors relating to the Funnoodle Produce Line;
(viii) Except for any changes made in the ordinary
course of business, any change in any of the Seller's business policies related
to the Funnoodle Product Line, including advertising, marketing, pricing,
purchasing, personnel, returns or budget policies;
(ix) Except in the ordinary course of business,
consistent with past practice, or as disclosed in SCHEDULE 3.10, any payment,
directly or indirectly, of any Liabilities of the Seller relating to the
Funnoodle Product Line before the same became due in accordance with its terms;
(x) Any agreement or arrangement whether written or
oral to do any of the foregoing.
(b) Except as set forth in SCHEDULE 3.8, no Liabilities of the
Seller relating to the Funnoodle Product Line are past due.
SECTION 3.9 THE ASSETS. (a) The Seller has good and valid title to (or
valid leasehold interest in) all Equipment, free and clear of all Liens except
liens which do not materially interfere with the use thereof or impair the
business of the Funnoodle Product Line
-16-
<PAGE>
and which are set forth on SCHEDULE 3.9(A) ("PERMITTED Liens"). The Equipment
constituting a part of the Assets (whether owned or leased) has been
well-maintained in accordance with industry standards, is in good condition and
repair (subject to normal wear and tear) and is, in the aggregate, adequate in
quantity and quality for the operation of the Funnoodle Product Line as
presently conducted.
(b) The Seller is in possession of and has good and valid
title to the Assets free and clear of any Liens other than Permitted Liens set
forth on Schedule 3.9(b). All of the tangible Assets are in good condition and
repair, normal wear and tear excepted, and are suitable for the uses for which
they are currently used.
(c) SCHEDULE 3.9(C) contains a list and description of all
tangible Assets with a book value (before depreciation) of five thousand dollars
($5,000) or more. The Assets constitute all of the assets that are owned by the
Seller, other than working capital, which are necessary to operate the Funnoodle
Product Line. Assuming all the Seller Required Consents are obtained (including,
without limitation, the consent and/or agreement of Nomaco, as evidenced by a
copy of the Manufacturing Agreement executed by Nomaco), the consummation of the
Contemplated Transactions hereby will enable the Buyer to conduct the Funnoodle
Product Line substantially as it has been conducted since inception.
SECTION 3.10 CONTRACTS. (a) SCHEDULE 3.10 sets forth an accurate and
complete list of all Contracts to which the Seller is a party or by which it or
the Assets are bound or subject, in each case relating to the Funnoodle Product
Line, except for those Contracts with persons who are not Affiliates of the
Seller relating solely to the purchase or sale of property or services by the
Seller in the ordinary course of business which: (i) require the Seller to make
or receive payments not in excess of five thousand dollars ($5,000); and (ii)
have a remaining term of less than twelve (12) months on the date of this
Agreement or are terminable by the Seller without penalty during such period.
True and correct copies of all written Contracts listed on such Schedule and
summaries of the material provisions of all oral Contracts so listed have been
delivered to the Buyer.
(b) All Contracts listed on SCHEDULE 3.10 are valid,
subsisting, in full force and effect and binding upon the Seller and, to the
knowledge of the Seller, the other parties thereto in all material respects in
accordance with their respective terms subject only to bankruptcy, insolvency or
similar laws affecting the rights of creditors generally and to general
equitable principles. The Seller is not in default (or alleged default) under
any such Contract nor, to the knowledge of each of the Seller and O'Rourke, is
any other party thereto in default thereunder and there is no condition that
with notice or the lapse of time or both would constitute a default by the
Seller (or give rise to a termination right) nor, to the knowledge of each of
the Seller and O'Rourke, does any condition exist that with notice or the lapse
of time or both would constitute a default by any other party thereto (or give
rise to a termination right) under any such Contract. To the knowledge of each
of the Seller and O'Rourke, none of the other parties to any such Contract
intends to terminate or materially alter the provisions thereof by reason of the
Contemplated Transactions or otherwise. Except as set forth on SCHEDULE 3.2, no
approval or consent of any person is required in order for the Contracts
required to be disclosed on SCHEDULE 3.10 to continue in full force and effect
after the Closing.
-17-
<PAGE>
(c) Except as set forth on SCHEDULE 3.10, all purchase
commitments for products, materials, supplies, raw materials or other items to
which the Seller is a party are not in excess of the customary requirements of
the Funnoodle Product Line or, to the knowledge of each of the Seller and
O'Rourke, are at prices in excess of current market prices for similar items.
(d) Except as set forth on SCHEDULE 3.10, all open sales
orders and price quotations for products of the Funnoodle Product Line are at
values given by the Seller in the ordinary course of business and consistent
with past practice.
SECTION 3.11 INTANGIBLE PROPERTY. SCHEDULE 3.11 sets forth all
Intellectual Property Rights. Copies of all registrations and applications with
respect to such Intellectual Property Rights filed with or issued by any
Governmental Body have been previously delivered to the Buyer. The Contemplated
Transactions will not have an adverse effect on the right, title and interest of
the Buyer in and to the Intellectual Property Rights. Except as set forth on
SCHEDULE 3.11: (i) none of the Intellectual Property Rights have been assigned,
transferred or licensed to or from any third person; (ii) the Seller has not
received any written notice of invalidity, infringement or misappropriation from
any third party with respect to any Intellectual Property Rights; (iii) to the
knowledge of each of the Seller and O'Rourke, the Seller has not interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
intellectual property or other rights of any third parties; and (iv) to the
knowledge of each of the Seller and O'Rourke, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property Rights of the Seller.
SECTION 3.12 CLAIMS AND PROCEEDINGS. Except as set forth on Schedule
3.12, there are no outstanding Orders of any Governmental Body against or
involving the Seller, the Assets or the Funnoodle Product Line. Except as set
forth on SCHEDULE 3.12, there are no actions, suits, claims or counterclaims,
examinations, audits or legal, administrative, governmental, arbitral or other
proceedings or investigations (collectively, "CLAIMS") (whether or not the
defense thereof or Liabilities in respect thereof are covered by insurance),
pending or, to the knowledge of the Seller and O'Rourke, threatened on the date
hereof, against or involving the Seller, the Assets or the Funnoodle Product
Line. SCHEDULE 3.12 also indicates those Claims the defense thereof or
Liabilities in respect thereof are covered by insurance. Except as set forth on
SCHEDULE 3.12, there have been no Claims served upon the Seller and, to the
knowledge of each of the Seller and O'Rourke, there are no such Claims pending
or threatened, other than Claims that, individually or in the aggregate, could
not reasonably be expected to have a material adverse effect on the Condition of
the Funnoodle Product Line. Except as set forth on SCHEDULE 3.12, to the
knowledge of each of the Seller and O'Rourke, on the date hereof, there is no
fact, event or circumstance that is reasonably likely to give rise to any Claim.
All notices required to have been given to any insurance company listed as
insuring against any Claim have been timely and duly given and, except as set
forth on SCHEDULE 3.12, no insurance company has asserted that any Claim is not
covered by the applicable policy relating to such Claim. The Seller is not a
party to any Claim that has created any Lien on the Assets.
-18-
<PAGE>
SECTION 3.13 TAXES. (a) Except as set forth in SCHEDULE 3.13:
(i) the Seller has timely filed or, if not yet due, will
timely file all Tax Returns required to be filed by it for all taxable periods
ending on or before the Closing Date and all such Tax Returns are or, if not yet
filed, will be, upon filing, true, correct and complete;
(ii) the Seller has paid, or if payment is not yet due, will
on or before the Tax due date, pay to the appropriate Tax Authority, all Taxes
of the Seller for all taxable periods ending on or before the Closing Date;
(iii) the accruals for Taxes of the Seller currently payable
as well as for deferred Taxes shown on the financial statements of the Seller as
of December 31, 1998 or the date of any financial statements delivered prior to
the Closing (A) adequately provide for all contingent Tax Liabilities of the
Seller as of the date thereof, and (B) accurately reflect, as of the date
thereof, all unpaid Taxes of the Seller whether or not disputed;
(iv) no extension of time has been requested or granted for
the Seller to file any Tax Return that has not yet been filed or to pay any Tax
that has not yet been paid and the Seller has not granted a power of attorney
that remains outstanding with regard to any Tax matter;
(v) the Seller has not received notice of a determination by a
Tax Authority that Taxes are owed by the Seller (such determination to be
referred to as a "TAX DEFICIENCY") and, to the knowledge of each of the Seller
and O'Rourke, no Tax Deficiency is proposed or threatened;
(vi) all Tax Deficiencies have been paid or finally settled
and all amounts determined by settlement to be owed have been paid;
(vii) there are no Tax Liens pending against the Seller or any
of the Assets;
(viii) there are no presently outstanding waivers or
extensions or requests for waiver or extension of the time within which a Tax
Deficiency may be asserted or assessed;
(ix) no issue has been raised in any examination,
investigation, audit, suit, action, claim or proceeding relating to Taxes (a
"TAX AUDIT") which, by application of similar principles to any past, present or
future period, would result in a Tax Deficiency for such period;
(x) there are no pending or, to the knowledge of each of the
Seller and O'Rourke, threatened Tax Audits of the Seller;
(xi) there are no transfer or other taxes imposed by any state
on the Seller or the Buyer by virtue of the Contemplated Transactions; and
(xii) no claim has been made by any Tax Authority that the
Seller is subject to Tax in a jurisdiction in which the Seller is not then
paying Tax of the type asserted.
-19-
<PAGE>
(b) Each reference to a provision of the Code in this Section
3.13 shall be treated for state and local Tax purposes as a reference to
analogous or similar provisions of state and local law. Except as set forth in
SCHEDULE 3.13, the Seller has collected and remitted to the appropriate Tax
Authority all sales and use or similar Taxes required to be collected on or
prior to the Closing Date and has been furnished properly completed exemption
certificates for all exempt transactions. The Seller has maintained and has in
its possession all records, supporting documents and exemption certificates
required by applicable sales and use Tax statutes and regulations to be retained
in connection with the collection and remittance of sales and use Taxes for all
periods up to and including the Closing Date. With respect to sales made by the
Seller prior to the Closing Date for which sales and use Taxes are not yet due
as of the Closing Date, all applicable sales and use Taxes payable with respect
to such sales have been collected or billed by the Seller.
(c) The representation and warranties in this Section 3.13
shall not be relied upon by the Buyer and its Affiliates for any purpose other
than establishing that there are no Tax Liens pending against the Seller or any
of the Assets and there is no transferee liability with respect to Taxes in
connection with the purchase of the Funnoodle Product Line.
SECTION 3.14 EMPLOYEE-RELATED MATTERS. Except as set forth in SCHEDULE
3.14, in each case with respect to the Funnoodle Product Line: (i) the Seller is
not a party to any Contract with any labor organization or other representative
of its employees; (ii) there have been no Claims served upon the Seller with
respect to any unfair labor practice charge or complaint, and to the knowledge
of each of the Seller and O'Rourke, there are no such Claims pending or
threatened against the Seller; (iii) the Seller has not experienced any labor
strike, slowdown, work stoppage or similar labor controversy within the past
five (5) years, and to the knowledge of each of the Seller and O'Rourke, no such
labor strike, slow down, work stoppage or similar labor controversy is
threatened; (iv) no representation question has been raised respecting any of
the Seller's employees working within the past five (5) years, nor, to the
knowledge of each of the Seller and O'Rourke, are there any organizing
activities or campaigns being conducted to solicit authorization from the
Seller's employees to be represented by any labor organization and no such
activity or campaign is threatened; (v) there have been no Claims served upon
the Seller with respect to any matter brought before any Governmental Body
brought by or on behalf of any employee, prospective employee, former employee,
retiree, labor organization, other representative of employees or any
Governmental Body, and to the knowledge of each of the Seller and O'Rourke,
there are no such Claims pending or threatened against the Seller; (vi) the
Seller is not a party to, or otherwise bound by, any Order relating to its
employees or employment practices; (vii) except with respect to ongoing disputes
of a routine nature involving immaterial amounts, the Seller has paid in full to
all of its employees all wages, salaries, commissions, bonuses, benefits and
other compensation due and payable to such employees; and (viii) the Seller is
in material compliance with all applicable Laws affecting employment and
employment practices.
SECTION 3.15 INSURANCE. SCHEDULE 3.15 sets forth a list of all
insurance policies, fidelity and surety bonds and fiduciary liability policies
(the "INSURANCE POLICIES") covering the Assets, the Funnoodle Product Line,
operations, employees, officers and directors of the Seller and true and
complete copies of all such Insurance Policies have been delivered to the Buyer.
SCHEDULE 3.15 also sets forth (a) with respect to each Insurance Policy, the
applicable deductible
-20-
<PAGE>
amounts and any material limitations on coverage, (b) any letter of credit
relating to any such Insurance Policy and all inspections and reports delivered
to the Seller by any insurer with respect to such Insurance Policies, copies of
which have been delivered to the Buyer, and (c) a true and complete list of
Claims made in respect of each Insurance Policy during the three years prior to
the date hereof. True and correct copies of all loss runs with respect to such
period have been delivered to the Buyer. There are no Claims by the Seller
pending under any of such Insurance Policies, as to which coverage has been
questioned, denied or disputed by the underwriters of such Insurance Policies or
any requirement by any insurer to perform work which has not been satisfied. All
premiums payable on or before the Closing Date under all Insurance Policies have
been paid and the Seller is otherwise in compliance in all respects with the
terms and conditions of all such Insurance Policies. All Insurance Policies are
in full force and effect. In the reasonable commercial judgment of the Seller
and O'Rourke, each Insurance Policy is adequate for the business conducted by
the Seller. The Seller does not know of any threatened termination of, premium
increase with respect to, or uncompleted requirements under any Insurance
Policy. No premiums are or will be payable under Insurance Policies after the
Closing in respect of insurance provided solely for periods prior to the Closing
Date. Claims under all such Insurance Policies are payable on an "occurrence
basis."
SECTION 3.16 COMPLIANCE WITH LAWS. The Funnoodle Product Line of the
Seller is not in violation of any order, judgment, injunction, award, citation,
decree, consent decree or writ (collectively, "Orders"), or any law, statute,
code, ordinance, rule, regulation or other requirement, including any
Environmental Laws (collectively, "LAWS"), of any government, municipality or
political subdivision thereof, whether federal, state, local or foreign, or any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, or any court, arbitrator,
administrative tribunal or public utility (collectively, "GOVERNMENTAL BODIES"),
the violation of which would have a material adverse effect on the Assets or the
Funnoodle Product Line. The representation and warranty contained in this
Section 3.16 shall be qualified to the knowledge of each of the Seller and
O'Rourke from and after the first anniversary hereof, as of the Closing.
SECTION 3.17 PERMITS. The Seller has obtained all Permits, and has made
all required registrations and filings with, any Governmental Body that are
necessary for the ownership of the Assets and the conduct of the Funnoodle
Product Line. All Permits required to be obtained or maintained by the Seller
and which are included in the Assets to be purchased hereunder are listed on
SCHEDULE 3.17(A), and all Permits required to be obtained or maintained by the
Seller and which are not included in the Assets to be purchased hereunder are
listed on SCHEDULE 3.17(B). All such Permits are in full force and effect; no
violations are or have been recorded, nor have any notices or violations thereof
been received, in respect of any Permit; and no proceeding is pending or, to the
knowledge of each of the Seller and O'Rourke, threatened to revoke or limit any
Permit; and the consummation of the Contemplated Transactions will not (or with
the giving of notice or the passage of time or both will not) cause any Permit
to be revoked or limited. The representation and warranty contained in this
Section 3.17 shall be qualified to the knowledge of each of the Seller and
O'Rourke from and after the first anniversary hereof, as of the Closing.
SECTION 3.18 ENVIRONMENTAL MATTERS. The representation and warranties
in this Section 3.18 shall relate exclusively to the Funnoodle Product Line and
shall not be relied upon
-21-
<PAGE>
by Buyer and Toymax for any purpose other than establishing that there is no
transferee liability to the Buyer or its Affiliates with respect to
Environmental Matters in accordance with the purchase of the Funnoodle Product
Line. Except as referenced in SCHEDULE 3.18:
(a) there has been, directly or indirectly, no use,
manufacture, generation, refining, storage, transport, disposal or treatment of
Hazardous Substances by the Seller (or, to the knowledge of each of the Seller
and O'Rourke, any predecessor-in-interest), or any Release at, on or under any
real property of the Seller by the Seller or, to the knowledge of each of the
Seller and O'Rourke, by any other person, in violation of any Environmental Law
or which would require remedial action under any Environmental Law; the Seller
has not contaminated the soil, ground water or surface water; to the knowledge
of each of the Seller and O'Rourke, none of the soil, ground water or surface
water of such real property is or has been contaminated by any Release;
(b) no portion of any real property of the Seller has ever
been used as a petroleum storage, refining, storage or distribution facility or
terminal, a gasoline service station or automobile repair shop by the Seller or
any tenant or licensee of the Seller thereat or, to the knowledge of each of the
Seller and O'Rourke, by any former owner, lessee or operator;
(c) as to the ownership or operation of the Assets or the
Funnoodle Product Line, the Seller has not created, suffered or permitted, and
have not received any written notice of (i) any alleged violation with respect
to any Environmental Law; or (ii) any prior, pending or threatened Regulatory
Action or other Claim involving any such party or any present or former owner,
lessee or operator of any real property of the Seller;
(d) (i) there are no incinerators, septic tanks, underground
or aboveground tanks or cesspools, pipes or pipelines for the storage or
transportation of Hazardous Materials, including without limitation, heating
oil, fuel oil, gasoline and/or other petroleum products, whether such tanks,
pipelines or pipes are in operation, closed or abandoned (the "TANKS") located
on at or under any real property of the Seller, (ii) all sewage from such real
property is discharged into a public sanitary sewer system, and (iii) there has
been no Release by the Seller, or to the knowledge of each of the Seller and
O'Rourke, by any other party, into the atmosphere, any adjoining or adjacent
body of water, or adjoining or adjacent property in violation of Environmental
Law. The Seller has delivered to the Buyer copies of all environmental reports
and all other written materials held or controlled by the Seller regarding the
environmental matters set forth in this Section 3.18. Notwithstanding the
foregoing, if the real property of the Seller contains any such Tanks, the
Seller represents that the Seller is in compliance in all material respects with
all registration and other requirements of Environmental Law (including U.S.C.
Section 6991, "Regulation of Underground Storage Tanks") regulating the
existence, usage and removal thereof;
(e) the real property of the Seller and all improvements
thereon are presently, and, have been at all times in the past, in full
compliance with all applicable Environmental Laws. All Permits required by any
Environmental Laws in connection with the Seller, the real property of the
Seller and the Funnoodle Product Line have been obtained, are in full force and
effect and have not been violated;
-22-
<PAGE>
(f) no Claim has been served upon the Seller, and there is no
pending or threatened Claim, including without limitation Regulatory Actions, or
Environmental Liability, or, any existing condition or basis which may give rise
to any such Claim or Environmental Liability, or which, may otherwise result in
the imposition of a Lien or forfeiture of the real property of the Seller, or
otherwise prohibit, restrict or materially interfere with its use as presently
conducted;
(g) the Seller has not received any notice of any
environmental testing, cleanup, removal or work, repairs, construction or
expenditures with respect to any part of its real property or activities
conducted at its real property; and
(h) the Seller has not received written documentation stating
or indicating that any part of its real property is wetlands or in a flood
plain.
SECTION 3.19 FINDERS; FEES. Except as set forth in SCHEDULE 3.19, there
is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of the Seller who might be
entitled to any fee or commission from the Seller in connection with the
consummation of the Contemplated Transactions. All fees and commissions
described in SCHEDULE 3.19 shall be paid by the Seller.
SECTION 3.20 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth
on Schedule 3.20, there is no Law, Order or Contract binding upon the Seller
which has had or could reasonably be expected to have the effect of prohibiting
or adversely affecting, in each case with respect to the Funnoodle Product Line:
(i) competition by the Seller; (ii) any business practice of the Seller; (iii)
any acquisition of property by the Seller; or (iv) the Condition of the
Funnoodle Product Line.
SECTION 3.21 SUPPLIERS AND CUSTOMERS; SUPPLIES. SCHEDULE 3.21 lists for
the fiscal year ended December 31, 1998, the ten (10) largest suppliers and
customers (by dollar amount) of the Funnoodle Product Line of the Seller (the
"LARGEST SUPPLIERS AND CUSTOMERS"). SCHEDULE 3.21 identifies those suppliers of
significant goods or services with respect to which alternative sources of
supply are not readily available. Except as indicated on SCHEDULE 3.21, all
supplies and services necessary for the conduct of the business of the Funnoodle
Product Line of the Seller, as presently conducted, may be obtained from
alternate sources and no facts, circumstances or conditions exist which create a
reasonable basis for believing that the Buyer will be unable to continue to
procure the supplies and services necessary to conduct the business conducted by
the Funnoodle Product Line of the Seller. All such supply and service agreements
relating to the Funnoodle Product Line with its suppliers are at arm's length.
Except as and to the extent set forth on SCHEDULE 3.21, there has not occurred
any material adverse change in the relationship of the Seller with the Largest
Suppliers and Customers since December 31, 1998 and to the knowledge of each of
the Seller and O'Rourke, there are no facts or circumstances (including, without
limitation, the Contemplated Transactions) that could reasonably be expected to
have a material adverse effect on the Seller's relationship with the Largest
Suppliers and Customers. Except as and to the extent set forth on SCHEDULE 3.21,
since December 31, 1998 (i) none of the Largest Suppliers and Customers has
cancelled or terminated, or threatened to cancel, or otherwise terminate, its
relationship with the Seller or (ii) none of the Largest
-23-
<PAGE>
Suppliers and Customers have threatened to decrease or limit materially its
relationship with the Seller.
SECTION 3.22 YEAR 2000 COMPLIANCE. The Seller has conducted a thorough
evaluation and review of its information systems, PC/LAN systems, software,
facilities, machinery and equipment (collectively, "COMPUTER RELATED SYSTEMS"),
and has made inquiries as to the Computer Related Systems of its primary
manufacturer for the Funnoodle Product Line, Nomaco, Inc. ("NOMACO"). On the
basis of this review and inquiry, respectively: (i) the Seller has concluded
that the incremental cost to the Seller of becoming Year 2000 Compliant will not
have a material adverse effect on the Condition of the Funnoodle Product Line;
and (ii) to the knowledge of each of the Seller and O'Rourke, Nomaco is Year
2000 Compliant. The Seller has adequate plans and processes in place sufficient
for all of its Computer Related Systems to become Year 2000 Compliant prior to
such time that a failure to be Year 2000 Compliant might reasonably be expected
to have a material adverse effect upon the Condition of the Funnoodle Product
Line. For purposes of this Agreement, "YEAR 2000 COMPLIANT" means that Computer
Related Systems (a) will process all dates in and after the Year 2000 in a
correct and consistent manner in all applicable operations including, but not
limited to input, output, comparisons (branching) and arithmetic operations
(such as the difference between two dates), (b) calculates and handles leap year
dates correctly, and (c) will otherwise generally manipulate data and generate
output and reports in a fault free manner during and after the Year 2000.
SECTION 3.23 PRODUCT WARRANTIES, PRODUCT RETURN POLICIES AND SERVICE
WARRANTIES. Except as listed on SCHEDULE 3.23, the Seller does not utilize any
product warranties, guarantees, product return policies, service warranties or
service policies in connection with the Funnoodle Product Line. SCHEDULE 3.23
also sets forth all pending and suspected Claims and, to the knowledge of each
of the Seller and O'Rourke, threatened Claims, seeking return, replacement
and/or repair of products pursuant to warranties extended by the Seller prior to
Closing relating to the Funnoodle Product Line.
SECTION 3.24 PRODUCT LIABILITY. No Claims have been served and, to the
knowledge of each of the Seller and O'Rourke, there are no pending or threatened
Claims nor are there any facts or circumstances that could reasonably be
expected to result in a Claim, against the Seller for injury to any person or
property of employees or any third parties suffered as a result of the
ownership, possession or use of any product manufactured, fabricated, assembled,
sold, leased or distributed by the Seller, including Claims arising out of the
defective or unsafe nature of the Seller's products, which could, individually
or in the aggregate, have a material adverse effect on the Condition of the
Funnoodle Product Line, in each case with respect to the Funnoodle Product Line.
SECTION 3.25 DISCLOSURE. Neither this Agreement, the Schedules hereto,
nor any of the Annual Statements, the Interim Statement or certificates
furnished or to be furnished to the Buyer by or on behalf of the Seller pursuant
to this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading.
SECTION 3.26 RELATED PARTIES. Except as set forth on SCHEDULE 3.26,
none of the Seller, nor any current or former (within the past five (5) years)
director or officer of the Seller
-24-
<PAGE>
(individually, a "RELATED PARTY" and collectively the "RELATED PARTIES") or any
Affiliates of any of the Seller or any Related Party: (a) owns, directly or
indirectly, any interest in any person which is a competitor of the Funnoodle
Product Line of the Seller, or of a supplier or customer of the Funnoodle
Product Line of the Seller; (b) except for the real property housing the
business of the Funnoodle Product Line, owns, directly or indirectly, in whole
or in part, any property, asset or right, real, personal or mixed, tangible or
intangible (including, but not limited to, any of the Intellectual Property
Rights) which is utilized in the operation of the business of the Funnoodle
Product Line and not included in the Assets; or (c) has an interest in or is,
directly or indirectly, a party to any contract, agreement, lease or arrangement
pertaining or relating to the Funnoodle Product Line, except for employment,
consulting or other personal services agreements that may be in effect and which
are listed on SCHEDULE 3.26 hereto.
SECTION 3.27 SOLVENCY. The Seller is solvent on the date hereof and has
not been rendered insolvent as a result of the Contemplated Transactions.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF THE BUYER AND TOYMAX
In order to induce the Seller and O'Rourke to enter into this Agreement
and to consummate the transactions contemplated hereby, the Buyer and Toymax,
jointly and severally, hereby make the representations and warranties set forth
below.
SECTION 4.1 AUTHORITY RELATIVE TO THIS AGREEMENT. The Buyer has full
power, capacity and authority to execute and deliver this Agreement and each
other Transaction Document to which it is a party and to consummate the
Contemplated Transactions. The execution, delivery and performance of each
Transaction Document and the consummation of the Contemplated Transactions to
which the Buyer is a party have been duly and validly authorized and approved by
the board of directors of the Buyer and no other corporate proceedings on the
part of the Buyer are necessary or required to authorize the execution, delivery
and performance by the Buyer of each Transaction Document or the consummation of
the Contemplated Transactions to which it is a party. This Agreement and the
other Transaction Documents to which the Buyer is a party have been duly and
validly executed and delivered by the Buyer, and (assuming the valid execution
and delivery thereof by the other parties thereto) constitute the legal, valid
and binding agreements of the Buyer, enforceable against the Buyer in accordance
with their respective terms, except as such obligations and their enforceability
may be limited by applicable bankruptcy and other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought (whether at law or in equity).
SECTION 4.2 NO CONFLICTS; CONSENTS. The execution, delivery and
performance by the Buyer of this Agreement and each other Transaction Document
to which it is a party and the consummation of the Contemplated Transactions to
which they are a party do not (i) violate any provision of the Certificate of
Incorporation or By-laws of the Buyer; (ii) require the Buyer to obtain any
consent, approval or action of or waiver from, or make any filing with, or give
any
-25-
<PAGE>
notice to, any Governmental Body or any other person, except as set forth in
SCHEDULE 4.2 (the "BUYER REQUIRED CONSENTS"); (iii) if the Buyer Required
Consents are obtained prior to the Closing, violate, conflict with or result in
the breach or default under (with or without the giving of notice or the passage
of time or both), or permit the suspension or termination of, any material
Contract to which the Buyer is a party or by which the Buyer or its assets may
be bound or subject; or (iv) if Buyer Required Consents are obtained prior to
the Closing, violate any Law or Order of any Governmental Body against, or
binding upon, the Buyer or upon its assets or business.
SECTION 4.3 CORPORATE EXISTENCE AND POWER. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and has all requisite corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
SECTION 4.4 FINDERS; FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Buyer who might be entitled to any fee or commission from the
Buyer in connection with the consummation of the Contemplated Transactions.
SECTION 4.5 SECURITIES MATTERS. As of the Closing Date, Toymax has made
in a timely manner all filings (the "FILINGS") with the Securities and Exchange
Commission (the "COMMISSION") which it is required to make under the Securities
Act of 1933, as amended, and/or under the Securities Exchange Act 1934, as
amended (collectively, the "ACTS") commencing with its initial public offering
in December 1997. At the time filed, each Filing complied as to form in all
material respects with the applicable requirements of the Acts and the rules and
regulations of the Commission thereunder and, at the time made, no Filing
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
SECTION 4.6 ABILITY TO PERFORM. The Buyer and Toymax are each solvent
and possess adequate financing to perform all of the Buyer's obligations under
this Agreement and the Transaction Documents to which they are respectively a
party. There is no fact, matter or state of facts that exists as of the Closing
Date (or that would so exist but for the giving of notice and/or the passage of
time) that would in any material way render the Buyer and/or Toymax unable to
perform any and/or all of their respective obligations under this Agreement and
the Transaction Documents to which they are respectively a party.
SECTION 4.7 DISCLOSURE. Neither this Agreement, the Schedules hereto
nor any of the Transaction Documents contains any untrue statement of a material
fact with respect to the Buyer or Toymax or omits to state a material fact
necessary in order to make the statements contained herein or therein with
respect to the Buyer or Toymax not misleading. Neither the Buyer nor Toymax has
any knowledge of any events, transactions or other facts which, either
individually or in the aggregate, may give rise to circumstances or conditions
which would have a material adverse effect on the general affairs or the
condition of business of the Buyer or Toymax.
-26-
<PAGE>
SECTION 4.8 YEAR 2000 COMPLIANCE. The Buyer and Toymax have conducted a
thorough evaluation and review of its Computer Related Systems. On the basis of
this review and inquiry, respectively each of the Buyer and Toymax have
concluded that the incremental cost to the Buyer and Toymax, respectively, of
becoming Year 2000 Compliant will not have a material adverse effect on the
condition of the business of the Buyer or Toymax. Each of the Buyer and Toymax
have adequate plans and processes in place sufficient for all of its Computer
Related Systems to become Year 2000 Compliant prior to such time that a failure
to be Year 2000 Compliant might reasonably be expected to have a material
adverse effect upon the condition of the business of the Buyer or Toymax.
SECTION 4.9 CLAIMS AND PROCEEDINGS. Except as set forth in the Filings,
there are no material Claims (whether or not the defense thereof or Liabilities
in respect thereof are covered by insurance), pending or, to the knowledge of
the Buyer or Toymax, threatened on the date hereof, against or involving Toymax,
the Buyer, or their respective assets or businesses. Except as set forth in the
Filings, at the Closing there will be no such material Claims pending other than
Claims that, individually or in the aggregate, could not reasonably be expected
to have a material adverse effect on the Condition of the Buyer and Toymax.
SECTION 4.10 ENVIRONMENTAL MATTERS. Except as set forth in the Filings:
(a) there has been, directly or indirectly, no use,
manufacture, generation, refining, storage, transport, disposal or treatment of
Hazardous Substances by Toymax or the Buyer (or, to the knowledge of each of
Toymax and the Buyer, any predecessor-in-interest), or any Release at, on or
under any real property of the Buyer or Toymax by the Buyer or Toymax or, to the
knowledge of each of the Buyer and Toymax, by any other person, in violation of
any Environmental Law or which would require remedial action under any
Environmental Law; each of the Buyer or Toymax has not contaminated the soil,
ground water or surface water; to the knowledge of each of the Buyer and Toymax,
none of the soil, ground water or surface water of such real property is or has
been contaminated by any Release;
(b) to the knowledge of each of Toymax and the Buyer, no
portion of any real property of the Buyer or Toymax has ever been used as a
petroleum storage, refining, storage or distribution facility or terminal, a
gasoline service station or automobile repair shop by the Buyer or Toymax or any
tenant or licensee of either the Buyer or Toymax thereat or by any former owner,
lessee or operator;
(c) each of the Buyer and Toymax has not created, suffered or
permitted, and have not received any written notice of (i) any alleged violation
with respect to any Environmental Law; or (ii) any prior, pending or threatened
Regulatory Action or other Claim involving any such party or any present or
former owner, lessee or operator of any real property of the Buyer or Toymax;
(d) (i) to the knowledge of each of Toymax and the Buyer,
there are no Tanks located on at or under any real property of the Buyer or
Toymax, (ii) to the knowledge of each of Toymax and the Buyer, all sewage from
such real property is discharged into a public sanitary sewer system, and (iii)
to the knowledge of each of Toymax and the Buyer, there has been no Release by
the Buyer or Toymax, or to the knowledge of each of the Buyer and Toymax, by any
-27-
<PAGE>
other party, into the atmosphere, any adjoining or adjacent body of water, or
adjoining or adjacent property in violation of Environmental Law.
(e) to the knowledge of each of Toymax and the Buyer, the real
property of the Buyer and Toymax and all improvements thereon are presently,
and, have been at all times in the past, in full compliance with all applicable
Environmental Laws. All Permits required by any Environmental Laws in connection
with the Buyer and Toymax, the real property of the Buyer or Toymax have been
obtained, are in full force and effect and have not been violated;
(f) no Claim has been served upon the Buyer or Toymax, and
there is no pending or threatened Claim, including without limitation Regulatory
Actions, or Environmental Liability, or, any existing condition or basis which
may give rise to any such Claim or Environmental Liability, or which, may
otherwise result in the imposition of a Lien or forfeiture of the real property
of the Buyer or Toymax, or otherwise prohibit, restrict or materially interfere
with its use as presently conducted;
(g) each of the Buyer and Toymax has not received any notice
of any environmental testing, cleanup, removal or work, repairs, construction or
expenditures with respect to any part of its real property or activities
conducted at its real property; and
(h) each of the Buyer and Toymax has not received written
documentation stating or indicating that any part of its real property is
wetlands or in a flood plain.
SECTION 4.11 COMPLIANCE WITH LAWS. To the knowledge of each of the
Buyer and Toymax, each of the Buyer and Toymax is not in violation of any Order,
or any Laws of any Governmental Bodies, the violation of which would have a
material adverse effect on the business of either the Buyer or Toymax,
respectively.
SECTION 4.12 ABSENCE OF CERTAIN CHANGES. Since June 30, 1999, each of
the Buyer and Toymax have conducted its respective business in the ordinary
course consistent with past practices and there has not been any material
adverse change in such business or any material adverse change in the condition
(financial or otherwise), results of operations or prospects of such business or
any event, occurrence or circumstance that could reasonably be expected to cause
such a material adverse change.
ARTICLE V
COVENANTS AND AGREEMENTS
SECTION 5.1 Conduct of Business. (a) From the date hereof through the
Closing Date, the Seller agrees:
(i) To conduct its operations (the "BUSINESS") in connection
with the Funnoodle Product Line according to the ordinary and usual course of
the business consistent with past practice, to preserve in all material respects
intact its present business organization and structure, to use reasonable
efforts to keep available the services of its key officers and employees, to
preserve and maintain in all material respects the Assets and the good will of
the
-28-
<PAGE>
Business and to preserve in all material respects its relationships with
customers and suppliers, and others having business dealings with the Seller.
(ii) To maintain in the ordinary course of the Business,
consistent with past practice and in accordance with the Seller's business plan
for the fiscal year ending December 31, 1999, all material Contracts, all
Equipment, the Inventory (subject to normal adjustments in the ordinary course
of business) and other tangible Assets in their present repair, order and
condition, subject to ordinary wear and tear.
(iii) Not to enter into any Contract of a type required to be
disclosed on any Schedule hereto.
(iv) Not to undertake (nor permit to be undertaken) any of the
actions specified in Section 3.8 hereof.
(v) To pay all Taxes and other charges required with respect
to the Assets that are due and payable before the Closing Date and comply in all
material respects with all Laws, including all Environmental Laws.
(vi) To maintain insurance coverage in the amounts and types
as are currently in existence and more specifically described on SCHEDULE 3.15
annexed hereto and made a part hereof.
(vii) To comply in all material respects with its obligations
under the Contracts to which it is a party, and send to the Buyer copies of all
notices of default delivered pursuant to any of the Contracts, promptly upon
receipt thereof.
(viii) On or prior to the Closing Date, Seller shall, at its
sole cost and expense, cause all Liens, other than Permitted Liens, to be
discharged, removed and/or released of record.
(ix) To conduct its business in such a manner so that the
representations and warranties of the Seller contained herein shall continue to
be true and correct on and as of the Closing Date as if made on and as of the
Closing Date.
(x) To consult with the Buyer prior to any renewal, amendment,
extension or termination of, waiver of any material right under, or any failure
to renew, any material Contract and will not take any such action if the Buyer
object thereto in writing before the Seller takes that action.
(xi) Not to directly or indirectly and shall direct and cause
their respective officers, directors, employees, agents, and representatives not
to (i) initiate, solicit, intentionally encourage or facilitate, engage in
discussions or engage in negotiations with any person (other than the Buyer or
any of its Affiliates) with respect to the acquisition of the Funnoodle Product
Line (an "ACQUISITION PROPOSAL"); (ii) provide information to any person (other
than the Buyer or any of its Representatives) in connection with an Acquisition
Proposal; (iii) enter into any transaction with any person (other than the
Buyers or any of its Affiliates) with respect to an Acquisition Proposal; or
(iv) agree to do any of the foregoing. If the Seller or Representative
-29-
<PAGE>
thereof receives any offer or proposal to enter into discussions or negotiations
relating to any of the above, the Seller will immediately notify the Buyer in
writing that such offer or proposal was received by the Seller.
(b) From the date hereof through the Closing Date, the Buyer
agrees:
(i) To promptly notify the Seller of any event,
circumstance or development that would result in the representations and
warranties under this Agreement not to be true in all material respects if such
representations and warranties had been made on such date.
(ii) To conduct its business in such a manner so that
their respective representations and warranties contained herein shall continue
to be true and correct on and as of the Closing Date as if made on and as of the
Closing Date.
(iii) To use its best efforts to sustain and preserve
in all material respects its goodwill and business organization and all its
advantageous business relationships with lenders, customers, suppliers, and
licensors.
SECTION 5.2 FILINGS AND AUTHORIZATIONS. (a) The parties hereto shall
cooperate and use their respective best efforts to make, or cause to be made,
all registrations, filings, applications and submissions, to give all notices
and to obtain all governmental or other third party consents, transfers,
approvals, Orders and waivers necessary or desirable for the consummation of the
Contemplated Transactions in accordance with the terms of this Agreement and
shall furnish copies thereof to each other party prior to such filing and shall
not make any such registration, filing, application or submission to which the
Buyer or the Seller, as the case may be, reasonably object in writing. All such
filings shall comply in form and content in all material respects with
applicable Law. The parties hereto also agree to furnish each other with copies
of such filings and any correspondence received from any Governmental Body in
connection therewith. The Buyer and the Seller shall each bear their own
respective costs with respect to the matters set forth in this Section 5.2.
(b) The Seller and the Buyer shall file a "Notification and
Report Form For Certain Mergers and Acquisitions" (the "NOTIFICATION AND REPORT
FORM"), under the HSR Act within five (5) business days of the date hereof and
to supply promptly any additional information and documentary material that may
be requested pursuant to the HSR Act. The parties hereto shall not take any
action that will have the effect of delaying, impairing or impeding the receipt
of any required approvals. The parties hereto shall each bear their respective
costs and expenses of counsel in connection with the preparation and filing of a
"Notification and Report Form." Toymax and the Buyer agree that any and all
filing fees relating to HSR Act matters shall be borne entirely by Toymax and
the Buyer.
SECTION 5.3 EFFORTS TO CONSUMMATE. Subject to the terms and conditions
herein, each of the Seller and the Buyer, without payment or further
consideration, shall use its good faith efforts to take or cause to be taken all
action and to do or cause to be done all things necessary, proper or advisable
to consummate and make effective, as soon as reasonably practicable, the
Contemplated Transactions, including, but not limited to, the obtaining of all
the
-30-
<PAGE>
Seller Required Consents and the Buyer Required Consents, respectively, and
Permits or consents of any third party, whether private or governmental,
required in connection with such party's performance of such transactions and
each party hereto shall cooperate with the other in all of the foregoing.
SECTION 5.4 NOTICES OF CERTAIN EVENTS. Prior to the Closing Date, the
Seller, O'Rourke, the Buyer and Toymax shall promptly notify the other of:
(a) any notice or other communication from any person alleging
that the consent, approval, authorization or waiver of such person is or may be
required in connection with the Contemplated Transactions;
(b) any material adverse change in the Condition of the
Funnoodle Product Line or the condition of the Seller, O'Rourke, or Toymax;
(c) any notice or other communication from any Governmental
Body in connection with the Contemplated Transactions; and
(d) any event, condition or circumstance occurring from the
date hereof through the Closing Date that would constitute a violation or breach
of any representation or warranty, whether made as of the date hereof or as of
the Closing Date, or that would constitute a violation or breach of any covenant
of any party contained in this Agreement.
SECTION 5.5 PUBLIC ANNOUNCEMENTS. The Seller and the Buyer will consult
with each other before issuing any press release or otherwise making any public
statement with respect to the Contemplated Transactions, and no party hereto
will issue any such press release or make any such public statement without the
prior approval of the Buyer or the Seller, as the case may be, except as may be
required by applicable Law in which event the other party shall have the right
to review and comment upon (but not approve) any such press release or public
statement prior to its issuance.
SECTION 5.6 CONFIDENTIALITY. (a) Each party hereto shall hold in strict
confidence, and shall use its best efforts to cause all of its respective
directors, officers, Affiliates, employees, attorneys, accountants and other
agents (the "REPRESENTATIVES") to hold in strict confidence, unless compelled to
disclose by judicial or administrative process, or by other requirements of Law,
all information concerning any other party which it has obtained from such party
prior to, on, or after the date hereof in connection with the Contemplated
Transactions, and each party shall not use or disclose to others, or permit the
use of or disclosure of, any such information so obtained, and will not release
or disclose such information to any other person, except its Representatives who
need to know such information in connection with this Agreement and who shall be
advised of the provisions of this Section 5.6. The foregoing provision shall not
apply to any such information to the extent (i) known by any party prior to the
date such information was provided to such party in connection with the
Contemplated Transactions, (ii) made known to any party from a third party not
in breach of any confidentiality requirement or (iii) made public through no
fault of such party or any of its Representatives.
-31-
<PAGE>
(b) The provisions of this Section 5.6 are in no way intended
to limit the terms and provisions of that certain letter of intent entered into
by the parties hereto dated February 19, 1999.
SECTION 5.7 NON-COMPETITION; NON-SOLICITATION. (a) The Seller and
O'Rourke acknowledge that in order to assure the Buyer that the Buyer will
retain the value of the Assets, the Seller and O'Rourke agree that:
(i) for a period commencing on the Closing Date and
expiring on the first to occur of (A) a breach by Toymax or the Buyer of any of
their material obligations to the Seller or O'Rourke under any of the
Transaction Documents, which breach is not cured within sixty (60) days after
notice thereof from the Seller and O'Rourke, or (B) the date which is the later
of five (5) years from the Closing Date or two (2) years from the date the
Management Services Agreement is terminated (such period shall be referred to as
the "FIRST COVENANT PERIOD"), they will not compete with the Buyer and its
Subsidiaries and Affiliates at the time in question, in connection with the
following products: exercise and play mats, foam swim toys, foam pool toys and
foam floats (the "FIRST PROTECTED PRODUCTS"); and
(ii) for a period commencing on the Closing Date and
expiring on the first to occur of (A) a breach by Toymax or the Buyer of any of
their material obligations to the Seller or O'Rourke under any of the
Transaction Documents, which breach is not cured within sixty (60) days after
notice thereof from the Seller and O'Rourke, or (B) the date which is the later
of three (3) years from the Closing Date or one (1) year from the date the
Management Services Agreement is terminated (such period shall be referred to as
the "SECOND COVENANT PERIOD"), they will not compete with the Buyer and its
Subsidiaries and Affiliates at the time in question, in connection with the
following products: toy sprinklers, water slides and all other non-foam swim
toys, non-foam pool toys and floats (the "SECOND PROTECTED PRODUCTS") (the First
Protected Products and the Second Protected Products collectively, the
"PROTECTED PRODUCTS") it being understood and agreed that water guns, tub, sand,
bubble and novelty (non-swim and non-pool) water toys shall not be considered
Protected Products.
For purposes of this Section 5.7, the term compete shall include acting
or participating, directly or indirectly, as a partner, officer, employee,
consultant or otherwise, own or operate any business or Person, or otherwise
become or be interested in, or associate with or render assistance to any Person
(other than the Buyer), engaged in the business of marketing or selling any of
the Protected Products. The foregoing provisions shall not, however, prohibit
the making of passive investments of five percent (5%) or less of the stock of
any company listed on a national securities exchange or traded in the
over-the-counter market;
(b) Each of the Seller and O'Rourke and their respective
Affiliates agree that, after giving effect to the purchase of the Assets at the
Closing, it or he will not directly or indirectly, during the First Covenant
Period and Second Covenant Period, as the case may be, for its or his own
benefit or for the benefit of any other Person:
(A) influence or attempt to influence any
Person (other than employees of the Seller providing consulting services to
Buyer at the time of Closing) to either terminate or modify such Person's
employment or other professional relationship with the Buyer
-32-
<PAGE>
and/or its Affiliates, or employ, consult or otherwise retain, directly or
indirectly, any Person who is (or during the twelve (12) months prior thereto
was) employed as an employee by the Buyer or its Affiliates;
(B) influence or attempt to influence a
supplier or customer of the Buyer or its Affiliates, or any other Person with
whom the Buyer or its Affiliates shall have dealt, to terminate or modify any
written or oral agreement or course of dealing with the Buyer or its Affiliates,
or to otherwise interfere with the Buyer's relationships with such parties in
any way; or
(C) influence or attempt to influence a
supplier or customer of the Buyer or its Affiliates, or any other Person with
whom the Buyer or its Affiliates shall have dealt, for the purpose of offering
or selling any of the Protected Products.
(c) Except as may be required in the business of the Buyer
after the Closing, the Seller and O'Rourke shall not at any time, directly or
indirectly, use or purport to authorize any Person to use any name, mark, logo,
trade dress or other identifying words or images which are the same as or
similar to those used currently or in the past by the Seller uniquely in
connection with the Funnoodle Product Line, whether or not such use would be in
a business competitive with that of the Buyer or any of its Subsidiaries or
Affiliates. As used herein, the phrase "competitive business" means any business
competitive with the type of business engaged in by the Seller, the Buyer or any
of their Subsidiaries or Affiliates at the date hereof.
SECTION 5.8 CONTINUING OBLIGATIONS. The restrictions set forth in
Sections 5.4 and 5.5 are considered by the parties hereto to be reasonable for
the purposes of protecting the value of the business of the Funnoodle Product
Line and the goodwill purchased by the Buyer. The Buyer, the Seller and O'Rourke
acknowledge that the Buyer would be irreparably harmed and that monetary damages
would not provide an adequate remedy to the Buyer in the event the covenants
contained in Sections 5.4 and 5.5 were not complied with in accordance with
their terms. Accordingly, the Seller and O'Rourke agree that any breach or
threatened breach by any of them of any provision of Sections 5.4 or 5.5 shall
entitle the Buyer to injunctive and other equitable relief to secure the
enforcement of these provisions, in addition to any other remedies (including
damages) which may be available to the Buyer. If the Seller and O'Rourke breach
the covenant set forth in Section 5.5 which shall be asserted in writing by
Buyer to Seller within twenty (20) days following Buyer's discovery of such
breach thereof, the running of the non-compete and non-solicitation periods
described therein shall be tolled from the date of such notice and shall
continue for so long as such breach continues. It is the desire and intent of
the parties that the provisions of Sections 5.4 and 5.5 be enforced to the
fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought. If any provisions of Sections 5.4
and 5.5 relating to the time period, scope of activities or geographic area of
restrictions is declared by a court of competent jurisdiction to exceed the
maximum permissible time period, scope of activities or geographic area, as the
case may be, the time period, scope of activities or geographic area shall be
reduced to the maximum which such court deems enforceable. If any provisions of
Section 5.4 or 5.5 other than those described in the preceding sentence are
adjudicated to be invalid or unenforceable, the invalid or unenforceable
provisions shall be deemed amended (with respect only to the jurisdiction in
which such adjudication is made) in such manner as to render them enforceable
and to effectuate as nearly as
-33-
<PAGE>
possible the original intentions and agreement of the parties. In addition, if
any party brings an action to enforce Sections 5.4 or 5.5 hereof or to obtain
damages for a breach thereof, such party shall not be required to post bond, and
the prevailing party in such action shall be entitled to recover from the
non-prevailing party all attorney's fees and expenses incurred by the prevailing
party in such action.
SECTION 5.9 EXPENSES. (a) Except as otherwise specifically provided in
this Agreement, the Buyer, O'Rourke and the Seller shall bear their respective
expenses, in each case, incurred in connection with the preparation, execution
and performance of the Transaction Documents and the Contemplated Transactions,
including, without limitation, all fees and expenses of their respective
Representatives.
(b) The Seller shall bear the cost of all transfer, assignment
and similar fees (collectively, "TRANSFER Fees") incurred in connection with the
transfer or assignment of all licenses granted to the Seller pursuant to all
licensing Contracts (such licenses collectively, the "TRANSFERRED LICENSES").
The Seller shall deliver to the Buyer the relevant executed Seller Required
Consent as conclusive evidence of such transfer with proper evidence of payment
of the Transfer Fee therefor.
SECTION 5.10 FURTHER ASSURANCES. The parties hereto shall at any time
during the period beginning upon the execution of this Agreement through the
Closing Date and thereafter from time to time, take or cause to be taken such
actions, or execute, acknowledge and deliver, or cause to be executed,
acknowledged or delivered, all such further documents, instruments or
assurances, as may be necessary, desirable or proper to carry out the intent and
accomplish the purposes of this Agreement. Without limiting the generality of
the foregoing, the Seller shall, at its sole cost and expense, (i) cooperate
with the Buyer in assisting the Buyer in reading all computer data which is a
part of the Assets, or (ii) put the same in a format which is readable by the
Seller. Except as otherwise provided herein, the Seller and the Buyer will each,
respectively, bear their own costs and expenses incurred in compliance with the
first sentence of this Section 5.10.
SECTION 5.11 ACCESS. During the period beginning upon the execution of
this Agreement through the Closing Date and from time to time, each party hereto
shall permit the other parties and their Representatives to have access during
regular business hours and upon reasonable notice, to inspect and copy
agreements, records, books and other documents that are included in or relate to
the Assets or the Funnoodle Product Line and identified with reasonable
particularity, wherever located, for the purposes of (i) preparing Tax Returns
and financial statements and responding to Tax audits, and (ii) prosecuting or
defending any Claim which arises out of or relates to the Funnoodle Product Line
or the Assets. Each party shall cooperate fully with the other party in
connection with the foregoing. If, after the Closing, any party determines to
destroy any agreements, records, books or documents referred to above, it will
give to the other party at least two months' prior written notice thereof, and
such other party shall have the right during such two-month period upon
reasonable notice and during regular business hours to take possession of any
such agreements, records, books or documents.
SECTION 5.12 PRODUCT LIABILITY INSURANCE. (a) Prior to Closing, the
Seller shall, at its sole cost and expense, obtain and maintain in effect an
insurance policy insuring against
-34-
<PAGE>
product liability "occurrences" (as defined in the Insurance Policies) that
occur before the Closing Date in the amount of $5,000,000, which policy shall on
and after the Closing Date show the Buyer and Toymax as named insureds; and
certify that no alteration, modification or termination of such coverage shall
be effective without at least thirty (30) days' prior notice to the Buyer and
Toymax.
(b) On the Closing Date, the Buyer shall, at its sole cost and
expense, obtain and maintain in effect a an insurance policy insuring against
product liability "occurrences" (as defined in the Insurance Policies) that
occur on or after the Closing Date in the amount of $5,000,000, which policy
shall: (i) be effective on the Closing Date; (ii) remain in effect for a period
of five (5) years after the Closing Date or to provide the substantial
equivalent; (iii) show the Seller and O'Rourke as a named insured; and (iv)
certify that no alteration, modification or termination of such coverage shall
be effective without at least thirty (30) days' prior notice to the Seller.
SECTION 5.13 OBTAINING CONSENTS TO ASSIGNMENTS. The Seller shall use
commercially reasonable efforts to obtain all the Seller Required Consents as
shall be necessary to convey and assign to and vest in the Buyer all of its
right, title and interest in and to the Assets, including, without limitation,
any Claim, right or benefit arising thereunder or resulting therefrom, as soon
as practicable. To the extent that rights under any Contract, Permit or other
Asset to be assigned to the Buyer hereunder may not be assigned without the
consent of another person, and such consent has not been obtained by the Closing
Date, neither this Agreement nor any document executed by the parties hereto in
connection with the Contemplated Transactions shall constitute an agreement to
assign the same if any attempted assignment would constitute a breach thereof or
would be unlawful, and the Seller shall use commercially reasonable efforts to
obtain any such Seller Required Consents as promptly as possible after the
Closing Date. If the Seller Required Consents shall not be obtained or if any
attempted assignment would be ineffective or would impair the Buyer's rights
under the instrument in question so that the Buyer would not in effect acquire
the benefit of all such rights, the Seller, to the maximum extent permitted by
Law and the instrument, shall act as the Buyer's agent in order to obtain for it
the benefits thereunder and shall cooperate, to the maximum extent permitted by
Law and the instrument, with the Buyer in any other reasonable arrangement
designed to provide such benefits to the Buyer at no additional cost to the
Seller for a period not to exceed twelve (12) months after the Closing Date.
With respect to any supply Contract or arrangement pursuant to which the Seller
currently obtains parts, supplies or other materials for use in the Funnoodle
Product Line that, in spite of the Seller's commercially reasonable efforts, is
not assigned to the Buyer by the Closing Date, the Seller shall allow the Buyer
to purchase such parts, supplies or other materials subject to such Contract or
arrangement (a) from the Seller at the Seller's cost; or (b) through the Seller,
for the Funnoodle Product Line, until twelve (12) months after the Closing; and
the Seller will resell to the Buyer and the Buyer will buy from the Seller all
such materials and supplies at the price paid for same by the Seller.
SECTION 5.14 SELLER NOT TO USE NAME. From and after the Closing Date,
the Seller will not use, directly or indirectly, the name "Funnoodle" or any
combination or derivation thereof, except as may be contemplated pursuant to the
terms and provisions of the Management Services Agreement.
-35-
<PAGE>
SECTION 5.15 GUARANTEE OF THE BUYER'S OBLIGATIONS. Without limiting
such other rights as the Seller may have, Toymax hereby guarantees, as more
particularly set forth in the Guaranty Agreement, substantially in the form of
EXHIBIT 5.13 attached hereto (the "GUARANTY AGREEMENT"), for the benefit of the
Seller and O'Rourke, the obligations and liabilities of the Buyer under this
Agreement, under any other document executed by the Buyer relating hereto or
delivered to the Seller in connection with the Contemplated Transactions, or
under any statement, certificate, or other instrument delivered by or on behalf
of the Buyer pursuant hereto or thereto or delivered to the Seller in connection
with the Contemplated Transactions.
SECTION 5.16 PREPARATION OF AUDITED FINANCIAL STATEMENTS. In connection
with the preparation by the Seller's Independent Accountants, at the request and
expense of the Buyer, of audited Annual Statements of the Funnoodle Product Line
for the fiscal year ended December 31, 1998 or such other statements that will
satisfy the SEC filing requirements of Toymax and unaudited Interim Statements
of the Funnoodle Product Line for the six months ended June 30, 1999 (such
audited Annual Statements and Interim Statements, the "AUDITED STATEMENTS"), the
Seller shall: (i) from time to time, permit the Buyer and the Buyer's
Independent Accountants to have such access as is deemed necessary by the Buyer
and the Buyer's Independent Accountants, during regular business hours and upon
reasonable notice, to inspect and copy agreements, records, books and other
documents that are included in or relate to the Assets or the Funnoodle Product
Line and identified with reasonable particularity, wherever located, for the
purposes of preparing such Audited Statements; and (ii) cause management of the
Seller to execute and deliver to the Buyer's Independent Accountants such
management representation letters as are customarily delivered in connection
with year-end audits of financial statements.
SECTION 5.17 BULK TRANSFER LAWS. The Buyer hereby waives compliance by
the Seller with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Assets to the Buyer in
consideration for the Seller's indemnification of the Buyer in accordance with
Section 7.2 hereof.
ARTICLE VI
CLOSING DELIVERIES
SECTION 6.1 CLOSING. The obligations of the Buyer, the Seller, Toymax
and O'Rourke to consummate the Contemplated Transactions are subject to the
satisfaction of the following conditions:
(a) NO INJUNCTION. No provision of any applicable Law and no
Order shall prohibit the consummation of the Contemplated Transactions.
(b) NO PROCEEDING OR LITIGATION. No Claim instituted by any
person (other than the Buyer, the Seller or their respective Affiliates), shall
have been commenced or pending against the Seller, the Buyer, O'Rourke, Toymax,
or any of their respective Affiliates, officers or directors, which Claim seeks
to restrain, prevent, change or delay in any respect the Contemplated
Transactions or seeks to challenge any of the terms or provisions of this
Agreement or seeks damages in connection with any of such transactions.
-36-
<PAGE>
(c) MERGER CONTROL. Any waiting period (and any extension
thereof) under the HSR Act applicable to the purchase of the Assets contemplated
hereby shall have expired or shall have been terminated.
(d) NO ORDER. No United States or state governmental authority
or other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; PROVIDED, HOWEVER, that the
parties hereto shall use all reasonable efforts to have any such order or
injunction vacated.
SECTION 6.2 DELIVERIES OF THE BUYER. All obligations of the Seller and
O'Rourke hereunder are subject, at the option of the Seller, to the delivery or
fulfillment, prior to or at the Closing, of each of the following further
conditions:
(a) PERFORMANCE. The Buyer and Toymax shall have performed and
complied with all agreements, obligations and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Buyer and Toymax contained in this Agreement and in any
certificate or other writing delivered by the Buyer or Toymax pursuant hereto
shall be true in all respects at and as of the Closing Date as if made at and as
of such time.
(c) PURCHASE PRICE. The Buyer shall have delivered to the
Seller the Cash Portion, including any amount attributable to the Inventory, the
tooling and the prepaid assets by wire transfer of immediately available funds
pursuant to subsections 2.3(d) and (e) of this Agreement.
(d) THE BUYER REQUIRED CONSENTS. All the Buyer Required
Consents shall have been obtained and copies thereof are being delivered to the
Seller.
(e) DOCUMENTATION. The Buyer shall deliver to the Seller the
following:
(i) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of the Buyer certifying, among other things,
that attached or appended to such certificate: (A) is a true and correct copy of
its Certificate of Incorporation and all amendments thereto, if any, as of the
date thereof; (B) is a true and correct copy of its by-laws as of the date
thereof; (C) is a true copy of all resolutions of its board of directors
authorizing the execution, delivery and performance of this Agreement and each
other Transaction Document to be delivered by the Buyer pursuant hereto; and (D)
are the names and signatures of its duly elected or appointed officers who are
authorized to execute and deliver the Transaction Documents and any certificate,
document or other instrument in connection herewith.
(ii) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Toymax, certifying, among other things, that
attached or appended to such certificate: (A) is a true and correct copy of its
Certificate of Incorporation and all amendments
-37-
<PAGE>
thereto, if any, as of the date thereof; (B) is a true and correct copy of its
by-laws as of the date thereof; (C) is a true copy of all resolutions of its
board of directors authorizing the execution, delivery and performance of this
Agreement and each other Transaction Document to be delivered by Toymax pursuant
hereto; and (D) are the names and signatures of its duly elected or appointed
officers who are authorized to execute and deliver the Transaction Documents and
any certificate, document or other instrument in connection herewith.
(iii) Evidence of the good standing and corporate
existence of the Buyer and Parent issued by the Secretary of State of the State
of Delaware.
(iv) A signed opinion of the Buyer's counsel, Baer
Marks & Upham LLP, dated the Closing Date and addressed to the Seller,
substantially in the form annexed as EXHIBIT 6.2A hereto.
(v) An executed copy of the Management Services
Agreement between the Buyer and the Seller, in the form annexed hereto as
EXHIBIT 6.2B.
(vi) The executed Guaranty Agreement.
(vii) An executed copy of the Assignment and
Assumption Agreement substantially in the form annexed hereto as EXHIBIT 6.2C.
(viii) A certificate of the insurance carrier of the
Buyer and Toymax evidencing the inclusion of the Seller as an additional named
insured on the insurance policies of the Buyer and Toymax with respect to the
Funnoodle Product Line.
(ix) An executed license agreement between the Buyer
and the Seller in connection with "MegaSplash" wherein such terms and conditions
shall be customary to the toy industry and shall specifically include a $150,000
advance against royalties and a royalty rate of 5% of sales.
SECTION 6.3 DELIVERIES OF THE SELLER. All obligations of the Buyer and
Toymax hereunder are subject, at the option of each of the Buyer and Toymax, to
the fulfillment, prior to or at the Closing, of each of the following further
conditions:
(a) PERFORMANCE. Each of the Seller and O'Rourke shall have
performed and complied with all agreements, obligations and covenants required
by this Agreement to be performed or complied with by them at or prior to the
Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of the Seller and O'Rourke contained in this Agreement and in
any certificate or other writing delivered by the Seller of O'Rourke pursuant
hereto shall be true in all respects at and as of the Closing Date as if made at
and as of such time.
(c) THE SELLER REQUIRED CONSENTS. All the Seller Required
Consents (including, without limitation, all Transferred Licenses) shall have
been obtained in form and substance reasonably satisfactory to the Buyer, and
copies thereof are being delivered to the Buyer.
-38-
<PAGE>
(d) The Seller is delivering to the Buyer the following:
(i) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of the Seller certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy of
its Certificate of Incorporation and all amendments thereto, if any, as of the
date thereof certified by the Secretary of State of its state of incorporation;
(B) is a true and correct copy of its by-laws as of the date thereof; (C) is a
true and correct copy of all corporate actions taken by it, including
resolutions of its board of directors and shareholders authorizing the
execution, delivery and performance of this Agreement and each other Transaction
Document to be delivered by the Seller pursuant hereto; and (D) are the names
and signatures of its duly elected or appointed officers who are authorized to
execute and deliver the Transaction Documents and any certificate, document or
other instrument in connection herewith.
(ii) Evidence of the good standing and corporate
existence of the Seller issued by the Secretary of State of its state of
incorporation and evidence that the Seller is qualified to transact business as
a foreign corporation and is in good standing in each state of the United States
and in each other jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary.
(iii) A signed opinion of counsel for the Seller and
O'Rourke, McManimon & Scotland LLC or other law firm acceptable to the Buyer,
dated the Closing Date, addressed to the Buyer, substantially in the form
annexed as Exhibit 6.3A hereto.
(iv) Copies of all Permits.
(v) Possession and control of the Assets.
(vi) An executed copy of a Bill of Sale and
Assignment substantially in a form annexed hereto as EXHIBIT 6.3B.
(vii) Executed copy of the Management Services
Agreement.
(viii) An executed copy of the Manufacturing
Agreement in the form attached hereto as EXHIBIT 6.3C and satisfactory to the
Buyer, from Nomaco.
(ix) All customer lists, a list of all open purchase
orders, open sales orders, Inventory and work-in-process held by Nomaco under a
purchase order of the Seller and a list of all vendors relating to the Funnoodle
Product Line.
(x) An executed copy of an Assignment of Trademarks,
substantially in the form annexed hereto as EXHIBIT 6.3D.
(xi) An executed copy of an Assignment of Patents,
substantially in the form annexed hereto as EXHIBIT 6.3E.
(xii) An executed copy of a letter satisfactory to
the Buyer, from all vendors, suppliers, customers, manufacturers or other third
parties (other than Nomaco) retained
-39-
<PAGE>
by the Seller in connection with the Funnoodle Product Line: (i) who hold, in
trust for the Seller, molds or other fittings used to manufacture the Funnoodle
Product Line which are owned by the Seller, confirming that such molds and other
fittings are owned by the Seller and are being held in trust for Seller's sole
and exclusive benefit; and (ii) confirming, to the extent applicable, that such
companies will manufacture the Funnoodle Product Line, or any portion thereof,
at presently agreed upon prices. Such confirmation letters, if any, shall have
attached thereto the mold trust certificates evidencing ownership in the Seller
of all molds used by such companies in the manufacture of Funnoodle Product
Line.
(xiii) A certificate of the insurance carrier of the
Seller evidencing the inclusion of each of the Buyer and Toymax as an additional
named insured on the insurance policies of the Seller.
(xiv) An executed Confidentiality and Non-Competition
Agreement between the Seller, the Buyer and Thomas Hoffman Brown substantially
in the form annexed hereto as EXHIBIT 6.3F.
(e) Corporate Examinations and Investigations. The Buyer shall
have conducted its examination and investigation of the Seller pursuant to
Section 5.11 to its reasonable satisfaction within 10 days from the date of this
Agreement with respect to customer and supplier contact and within 15 days from
the date of this Agreement with respect to accounting due diligence.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. (a)
Notwithstanding any right of the Buyer and Toymax fully to investigate the
affairs of the Seller and notwithstanding any knowledge of facts determined or
determinable by the Buyer and Toymax pursuant to such investigation or right of
investigation, the Buyer and Toymax have the right to rely fully upon the
representations, warranties, covenants and agreements of the Seller and O'Rourke
contained in this Agreement, or listed or disclosed on any Schedule hereto or in
any instrument delivered in connection with or pursuant to any of the foregoing.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder.
Notwithstanding the foregoing, all representations and warranties of the Seller
and O'Rourke contained in this Agreement, on any Schedule hereto or in any
instrument delivered in connection with or pursuant to this Agreement (other
than the representations and warranties as to title in Section 3.9 and the
representations and warranties in Sections 3.13, 3.14, 3.18, 3.22 and 3.23,
which shall terminate and expire upon expiration of the applicable statute of
limitations) shall terminate and expire twenty-four months (24) after the
Closing Date; provided, however, that the liability of the Seller and O'Rourke
shall not terminate as to any specific claim or claims of the type referred to
in Section 7.2 hereof, whether or not fixed as to Liability or liquidated as to
amount, with respect to which the Seller and O'Rourke have been given specific
written notice on or prior to the date on which such Liabilities would otherwise
terminate pursuant to the terms of this Section 7.1(a) or which arise or result
from or are related to a Claim for fraud and provided, further, that the
termination of any representation and warranty shall not
-40-
<PAGE>
affect the ability of the Buyer and Toymax to seek indemnification under clause
(iii) of Section 7.2 below.
(b) All representations and warranties of the Buyer and Toymax
as set forth in Article IV hereof shall terminate and expire twenty-four (24)
months after the Closing Date; provided, however, that the liability of the
Buyer and Toymax shall not terminate as to any specific claim or claims of the
type referred to in Section 7.3 hereof, whether or not fixed as to Liability or
liquidated as to amount, with respect to which the Buyer and Toymax have been
given specific written notice on or prior to the date on which such Liability
would otherwise terminate pursuant to the terms of this Section 7.1(b).
SECTION 7.2 OBLIGATION OF THE SELLER TO INDEMNIFY. The Seller and
O'Rourke agree to indemnify, defend and hold harmless the Buyer and Toymax (and
their respective directors, officers, employees, Affiliates, successors and
assigns), from and against all Claims, losses, Liabilities, Regulatory Actions,
damages, deficiencies, judgments, settlements, costs of investigation or other
expenses (including Taxes, interest, penalties and reasonable attorneys' fees
and reasonable fees of other experts and disbursements and expenses incurred in
enforcing this indemnification) actually suffered or actually incurred
(collectively, the "LOSSES") by the Buyer, Toymax or any of the foregoing
persons in any action or proceeding between the Buyer, Toymax (or any other
indemnified person) or the Seller and O'Rourke, or between the Buyer, Toymax (or
any other indemnified person) and any third party or otherwise, arising out of:
(i) any breach of the representations and warranties of the Seller and O'Rourke
contained in this Agreement or in the Schedules or any other Transaction
Document; (ii) any breach of the covenants and agreements of the Seller
contained in this Agreement or in the Schedules or any other Transaction
Document; (iii) any Excluded Assets or any Retained Liabilities; (iv)
non-compliance with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Assets to the Buyer, or (v)
product liability Claims arising before the Closing Date with respect to
"occurrences" (as defined in the Insurance Policies) that occur before the
Closing Date.
SECTION 7.3 OBLIGATION OF THE BUYER AND TOYMAX TO INDEMNIFY. The Buyer
and Toymax agree to indemnify, defend and hold harmless the Seller and O'Rourke
(and any director, officer, employee, Affiliate or successors and permitted
assigns of the Seller) from and against any Losses suffered or incurred by the
Seller or O'Rourke or any of the foregoing persons arising out of (i) any breach
of the representations and warranties of the Buyer and Toymax or of the
covenants and agreements of the Buyer and Toymax contained in this Agreement or
in the Schedules or any other Transaction Document; (ii) the Assumed
Liabilities; (iii) the operations of the business of the Funnoodle Product Line
from and after the Closing Date; or (iv) product liability claims arising on and
after the Closing Date with respect to "occurrences" (as defined in the
Insurance Policies) that occur on and after the Closing Date.
SECTION 7.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS. (a)
Promptly after receipt by any party hereto (the "INDEMNITEE") of notice of any
demand, claim or circumstance or Tax Audit which would or might give rise to a
claim by, or the commencement (or threatened commencement) of any action,
proceeding or investigation that may result in a Loss (an "ASSERTED LIABILITY"),
the Indemnitee shall give prompt written notice thereof (the "CLAIMS NOTICE") to
the party or parties obligated to provide indemnification pursuant to
-41-
<PAGE>
Sections 7.2 or 7.3 (collectively, the "INDEMNIFYING PARTY"). The Claims Notice
shall describe the Asserted Liability in reasonable detail and shall indicate
the amount (estimated, if necessary, and to the extent feasible) of the Loss
that has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at its own
expense and with its own counsel, any Asserted Liability unless (i) the Asserted
Liability seeks an Order, injunction or other equitable or declaratory relief
against the Indemnitee or (ii) the Indemnitee shall have reasonably concluded
that (x) there is a conflict of interest between the Indemnitee and the
Indemnifying Party in the conduct of such defense or (y) the Indemnitee shall
have one or more defenses not available to the Indemnifying Party. If the
Indemnifying Party elects to defend such Asserted Liability, it shall within ten
(10) days (or sooner, if the nature of the Asserted Liability so requires)
notify the Indemnitee of its intent to do so, and the Indemnitee shall
cooperate, at the expense of the Indemnifying Party, in the defense of such
Asserted Liability. If the Indemnifying Party elects not to defend the Asserted
Liability, is not permitted to defend the Asserted Liability by reason of the
first sentence of this Section 7.4(b), fails to notify the Indemnitee of its
election as herein provided or contests its obligation to indemnify under this
Agreement with respect to such Asserted Liability, the Indemnitee may pay,
compromise or defend such Asserted Liability at the sole cost and expense of the
Indemnifying Party, provided the Indemnitee has notified the Indemnifying Party
of the claim and has consulted with the Indemnifying Party concerning the
defense thereof. Notwithstanding the foregoing, neither the Indemnifying Party
nor the Indemnitee may settle or compromise any claim over the reasonable
written objection of the other; provided that the Indemnitee may settle or
compromise any claim as to which the Indemnifying Party has failed to notify the
Indemnitee of its election under this Section 7.4(b) or as to which the
Indemnifying Party is contesting its indemnification obligations hereunder. In
any event, the Indemnitee and the Indemnifying Party may participate, at their
own expense, in the defense of any Asserted Liability. If the Indemnifying Party
chooses to defend any Asserted Liability, the Indemnitee shall make available to
the Indemnifying Party any books, records or other documents within its control
that are necessary or appropriate for such defense. Any Losses of any Indemnitee
for which an Indemnifying Party is liable for indemnification hereunder shall be
paid upon written demand therefor.
SECTION 7.5 LIMITS ON INDEMNIFICATION. (a) The Seller and O'Rourke
shall not be liable to the Buyer for any Loss arising hereunder until the
aggregate amount of all such Losses exceeds Fifty Thousand Dollars ($50,000) in
the aggregate (the "Threshold Amount"), at which time only those Losses in
excess of the Threshold Amount shall be subject to the Seller's and O'Rourke's
indemnification obligations.
(b) Notwithstanding any provision of the Agreement to the
contrary, the maximum liability of the Seller and O'Rourke to the Buyer in
connection with this Agreement shall equal the lesser of: (i) the amount of the
Purchase Price paid to Seller or (ii) Eight Million Five Hundred Thousand
Dollars ($8,500,000.00).
(c) Notwithstanding any other provision of this Agreement, and
in addition to any other rights and remedies available to the Buyer and Toymax,
the Seller and O'Rourke acknowledge and agree that the Buyer and Toymax shall
have the right of set-off and reduction against any other amounts owed to the
Seller by the Buyer or any of its Affiliates, in respect of
-42-
<PAGE>
all Losses with respect to which the Buyer and Toymax is entitled to
indemnification under this Article VII. To the extent that, at the time the
payment of a Contingent Payment or an Additional Payment is due and there are
outstanding Claims pending against the Seller and O'Rourke for indemnification,
the aggregate amount of such Claims shall not be paid with respect to such
Contingent Payment or Additional Payment, until any and all such Claims are
settled or paid to the Buyer and Toymax. The Buyer and Toymax agree to notify
the Seller of any such set-off by the Buyer; provided that the failure to give
such notice shall not affect the validity thereof. If it is determined that any
portion of a Contingent Payment or an Additional Payment withheld pursuant to
this Section 7.5 should have been paid to the Seller, the Buyer shall pay to the
Seller an amount by wire transfer of immediately available funds equal to such
amount wrongfully withheld plus interest which shall accrue at an annual
compounded rate equal to the general prime rate in effect on the applicable date
as reflected in the Wall Street Journal calculated from the date such payment
should have been made until the date such payment is actually made.
SECTION 7.6 EXCLUSIVE REMEDY. Except as provided in Article VII and
except for any Claims for fraud (for which the indemnification provisions of
this Article VII shall not constitute the sole and exclusive remedy of any party
hereto in respect of this Agreement and the Contemplated Transactions, each
party hereto being entitled to seek any other remedy to which such party is
entitled, whether at law or in equity), the parties agree that the
indemnification provisions of this Article VII shall constitute the sole and
exclusive remedy of any party hereto in respect of this Agreement and the
Contemplated Transactions.
ARTICLE VIII
SPECIFIC PERFORMANCE; TERMINATION
SECTION 8.1 SPECIFIC PERFORMANCE; WAIVER OF CERTAIN DAMAGES. The Seller
and O'Rourke acknowledge and agree that, if Seller fails to proceed with the
Closing in any circumstance other than those described in clauses (a), (b), (d)
or (e) of Section 8.2 below, the Buyer will not have adequate remedies at Law
with respect to such breach. In such event, and in addition to the Buyer's right
to terminate this Agreement, the Buyer shall be entitled, without the necessity
or obligation of posting a bond or other security, to seek injunctive relief, to
commence a suit in equity to obtain specific performance of Seller's obligations
under this Agreement, or to sue each of the Seller and O'Rourke for damages, in
each case without first terminating this Agreement. Each of the Seller and
O'Rourke specifically affirms the appropriateness of such injunctive or other
equitable relief or damages in any such action. The Buyer acknowledges and
agrees that, if the Buyer fails to proceed with the Closing under any
circumstance other than those described in clauses (a), (c), (d), or (e) of
Section 8.2 below, Seller and the Shareholders will not have adequate remedies
at Law with respect to such breach. In such event, and in addition to Seller's
and O'Rourke's right to terminate this Agreement, Seller and O'Rourke shall be
entitled, without the necessity or obligation of posting a bond or other
security, to seek injunctive relief, to commence a suit in equity to obtain
specific performance of the Buyer's and Toymax's obligations under this
Agreement, or to sue the Buyer and Toymax for damages, in each case without
first terminating this Agreement. Each of the Buyer and Toymax specifically
affirms the appropriateness of such injunctive or other equitable relief or
damages in any such action.
-43-
<PAGE>
The parties acknowledge that, because of the unique nature of the
undertakings contemplated by this Agreement, it is difficult or impossible to
determine with precision the amount of damages that would or might be incurred
by either party as a result of certain breaches of or defaults under this
Agreement. Accordingly, in no event is any party liable for or obligated in any
manner to pay special, indirect, punitive, incidental, or consequential damages
of any nature incurred by the other party.
SECTION 8.2 TERMINATION. This Agreement may be terminated and the
Contemplated Transactions may be abandoned at any time prior to the Closing:
(a) By mutual written consent of the Seller, O'Rourke, the
Buyers and Toymax;
(b) By the Seller if: (i) there has been a misrepresentation
or a breach of warranty on the part of the Buyer or Toymax in the
representations and warranties contained herein and such misrepresentation or
breach of warranty, if curable, is not cured within thirty days after written
notice thereof from the Seller; or (ii) the Buyer or Toymax has committed a
breach of any material covenant imposed upon it hereunder and fails to cure such
breach within thirty days after written notice thereof from the Seller;
(c) By the Buyer, if (i) there has been a misrepresentation or
a breach of warranty on the part of the Seller or O'Rourke in the
representations and warranties contained herein and such misrepresentation or
breach of warranty, if curable, is not cured within thirty days after written
notice thereof from the Buyer; or (ii) the Seller or O'Rourke has committed a
breach of any material covenant imposed upon it hereunder and fails to cure such
breach within thirty days after written notice thereof from the Buyer;
(d) By the Seller or by the Buyers, if any condition under
Sections 6.1, 6.2 or 6.3 become incapable of fulfillment through no fault of the
party seeking termination and were not waived in writing by the party seeking
termination; and
(e) By either the Seller or Buyers if the Closing shall not
have occurred on or prior to December 1, 1999, time being of the essence.
SECTION 8.3 EFFECT OF TERMINATION; RIGHT TO PROCEED. Subject to the
provisions of Section 8.1 hereof, in the event that this Agreement shall be
terminated pursuant to Section 8.2(a), (b), (c), (d), or (e), all further
obligations of the parties under this Agreement shall terminate without further
liability of any party hereunder except that (i) the agreements contained in
Sections 5.6 and 5.7 shall survive the termination hereof, and (ii) termination
shall not preclude any party from seeking relief against any other party for
breach of this Agreement. In the event that a condition precedent to its
obligation is not met, nothing contained herein shall be deemed to require any
party to terminate this Agreement, rather than to waive such condition precedent
and proceed with the Contemplated Transactions. Likewise, the provisions of
Articles III, IV and IX, as well as Sections 5.8, 5.9, 5.11, 7.1, 7.2, 7.3, 7.4,
7.5, 7.6, 8.1, 8.2 and 8.3 shall survive the Closing.
-44-
<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NOTICES. (a) Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid return receipt requested) as follows:
If to the Buyer or Toymax, one copy to:
Toymax International, Inc.
125 East Bethpage Road
Plainview, New York
Telecopier: (516) 391-9147
Attn: Sanford B. Frank, Esq.
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5810
Attn: Joel M. Handel, Esq.
If to the Seller or O'Rourke, one copy to:
Kidpower, Inc.
8005 Church Street East
Brentwood, Tennessee 37027
Telecopier: (615) 371-1846
Attn: James P. O'Rourke, President
with a copy to:
McManimon & Scotland LLC
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier: (973) 622-7333
Attn: Jeffrey Kramer, Esq.
(b) Each such notice or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in Section 9.1(a) (with confirmation of transmission) or (ii)
if given by any other means, when delivered at the address specified in Section
9.1(a). Any party by notice given in accordance with this Section 9.1 to the
other party may designate another address (or telecopier number) or person for
receipt of notices hereunder. Notices by a party may be given by counsel to such
party.
-45-
<PAGE>
SECTION 9.2 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits hereto) and the collateral agreements executed in connection with
the consummation of the Contemplated Transactions contain the entire agreement
among the parties with respect to the subject matter hereof and related
transactions and supersede all prior agreements, written or oral, with respect
thereto.
SECTION 9.3 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, cancelled,
renewed or extended only by a written instrument signed by the parties hereto.
The provisions hereof may be waived in writing by the parties hereto. Any such
waiver shall be effective only to the extent specifically set forth in such
writing. No failure or delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof. Nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
other or further exercise thereof or the exercise of any other such right, power
or privilege. Except as otherwise provided herein, the rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity.
SECTION 9.4 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws rules thereof.
SECTION 9.5 CONSENT TO JURISDICTION. Each of the parties hereto
irrevocably and voluntarily submits to personal jurisdiction in the State of New
York and in the Federal and state courts in such state located in the Eastern
District of New York and the appellate courts therefrom in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of such action or proceeding may be heard and determined in
any such court. The parties hereto agree that any action or proceeding
instituted by any of them against any other party with respect to this Agreement
will be instituted exclusively in the state courts located in, and in the United
States District Court for, the Eastern District of New York. The Seller and the
Buyer irrevocably and unconditionally waive and agree not to plead, to the
fullest extent permitted by law, any objection that they may now or hereafter
have to the laying of venue or the convenience of the forum of any action or
proceeding with respect to this Agreement in any such courts.
SECTION 9.6 BINDING EFFECT; NO ASSIGNMENT. This Agreement and all of
its provisions, rights and obligations shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, heirs and
legal representatives. This Agreement may not be assigned (including by
operation of Law) by a party hereto without the express written consent of the
Buyer (in the case of assignment by the Seller) or the Seller (in the case of
assignment by the Buyer) and any purported assignment, unless so consented to,
shall be void and without effect. Except that Seller shall be able to assign its
rights but not its obligations hereunder without the consent of the Buyer
SECTION 9.7 EXHIBITS. All Exhibits and Schedules attached hereto are
hereby incorporated by reference into, and made a part of, this Agreement.
-46-
<PAGE>
SECTION 9.8 SEVERABILITY. If any provision of this Agreement for any
reason shall be held to be illegal, invalid or unenforceable, such illegality
shall not affect any other provision of this Agreement, this Agreement shall be
amended so as to enforce the illegal, invalid or unenforceable provision to the
maximum extent permitted by applicable law, and the parties shall cooperate in
good faith to further modify this Agreement so as to preserve to the maximum
extent possible the intended benefits to be received by the parties.
SECTION 9.9 COUNTERPARTS. The Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
SECTION 9.10 THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein express or implied is intended or shall be
construed to confer upon or give to any person other than the parties hereto and
their permitted successors or assigns, any rights or remedies under or by reason
of this Agreement or the Contemplated Transactions.
SECTION 9.11 TITLE AND RISK OF LOSS. Legal title, equitable title and
risk of loss with respect to the Assets and rights to be transferred hereunder
shall not pass to the Buyer until the Assets are transferred at the Closing
hereunder.
-47-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Asset
Purchase Agreement as of the date set forth above.
FUNNOODLE, INC.
By:
----------------------
Name:
Title:
KIDPOWER, INC.
By:
----------------------
Name:
Title:
TOYMAX INTERNATIONAL, INC.
By:
----------------------
Name:
Title:
With respect to Article
III, Sections 5.4, 5.5, 5.6
and 5.7 and Articles VII
and VIII only:
---------------------------
James P. O'Rourke
-48-
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
FUNNOODLE, INC.,
TOYMAX INTERNATIONAL, INC.
AND
KIDPOWER, INC.
AND
JAMES P. O'ROURKE
OCTOBER 25, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Article I DEFINITIONS...................................................1
SECTION 1.1 Definitions..........................................1
Article II SALE AND PURCHASE.............................................6
SECTION 2.1 Assets to be Sold and Purchased......................6
SECTION 2.2 Liabilities of the Seller............................8
SECTION 2.3 Purchase Price.......................................8
SECTION 2.4 Payment of the Contingent Payment....................9
SECTION 2.5 Payment of the Additional Payment...................11
SECTION 2.6 Adjustments to the Purchase Price...................13
SECTION 2.7 Allocation of the Purchase Price....................13
SECTION 2.8 Closing.............................................13
Article III REPRESENTATIONS AND WARRANTIES OF THE SELLER AND
O'ROURKE.....................................................13
SECTION 3.1 Authority Relative to this Agreement................13
SECTION 3.2 No Conflicts; Consents..............................14
SECTION 3.3 Corporate Existence and Power.......................14
SECTION 3.4 Charter Documents and Corporate Records.............14
SECTION 3.5 Financial Information...............................14
SECTION 3.6 Liabilities.........................................15
SECTION 3.7 Inventory...........................................15
SECTION 3.8 Absence of Certain Changes..........................15
SECTION 3.9 The Assets..........................................16
SECTION 3.10 Contracts...........................................17
SECTION 3.11 Intangible Property.................................18
SECTION 3.12 Claims and Proceedings..............................18
SECTION 3.13 Taxes...............................................19
SECTION 3.14 Employee-Related Matters............................20
SECTION 3.15 Insurance...........................................20
SECTION 3.16 Compliance with Laws................................21
SECTION 3.17 Permits.............................................21
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 3.18 Environmental Matters...............................21
SECTION 3.19 Finders; Fees.......................................23
SECTION 3.20 Restrictions on Business Activities.................23
SECTION 3.21 Suppliers and Customers; Supplies...................23
SECTION 3.22 Year 2000 Compliance................................24
SECTION 3.23 Product Warranties, Product Return Policies and
Service Warranties..................................24
SECTION 3.24 Product Liability...................................24
SECTION 3.25 Disclosure..........................................24
SECTION 3.26 Related Parties.....................................24
SECTION 3.27 Solvency............................................25
Article IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND TOYMAX.......25
SECTION 4.1 Authority Relative to this Agreement................25
SECTION 4.2 No Conflicts; Consents..............................25
SECTION 4.3 Corporate Existence and Power.......................26
SECTION 4.4 Finders; Fees.......................................26
SECTION 4.5 Securities Matters..................................26
SECTION 4.6 Ability to Perform..................................26
SECTION 4.7 Disclosure..........................................26
SECTION 4.8 Year 2000 Compliance................................26
SECTION 4.9 Claims and Proceedings..............................27
SECTION 4.10 Environmental Matters...............................27
SECTION 4.11 Compliance with Laws................................28
SECTION 4.12 Absence of Certain Changes..........................28
Article V COVENANTS AND AGREEMENTS.....................................28
SECTION 5.1 Conduct of Business.................................28
SECTION 5.2 Filings and Authorizations..........................30
SECTION 5.3 Efforts to Consummate...............................30
SECTION 5.4 Notices of Certain Events...........................31
SECTION 5.5 Public Announcements................................31
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 5.6 Confidentiality.....................................31
SECTION 5.7 Non-Competition; Non-Solicitation...................31
SECTION 5.8 Continuing Obligations..............................33
SECTION 5.9 Expenses............................................34
SECTION 5.10 Further Assurances..................................34
SECTION 5.11 Access..............................................34
SECTION 5.12 Product Liability Insurance.........................34
SECTION 5.13 Obtaining Consents to Assignments...................35
SECTION 5.14 Seller Not to Use Name..............................35
SECTION 5.15 Guarantee of the Buyer's Obligations................35
SECTION 5.16 Preparation of Audited Financial Statements.........36
SECTION 5.17 Bulk Transfer Laws..................................36
Article VI CLOSING DELIVERIES...........................................36
SECTION 6.1 Closing.............................................36
SECTION 6.2 Deliveries of the Buyer.............................37
SECTION 6.3 Deliveries of the Seller............................38
Article VII INDEMNIFICATION..............................................40
SECTION 7.1 Survival of Representations and Warranties..........40
SECTION 7.2 Obligation of the Seller to Indemnify...............41
SECTION 7.3 Obligation of the Buyer and Toymax to Indemnify.....41
SECTION 7.4 Notice and Opportunity to Defend Third Party
Claims..............................................41
SECTION 7.5 Limits on Indemnification...........................42
SECTION 7.6 Exclusive Remedy....................................43
Article VIII SPECIFIC PERFORMANCE; TERMINATION............................43
SECTION 8.1 Specific Performance; Waiver of Certain Damages.....43
SECTION 8.2 Termination.........................................44
SECTION 8.3 Effect of Termination; Right to Proceed.............44
Article IX MISCELLANEOUS................................................44
SECTION 9.1 Notices.............................................44
SECTION 9.2 Entire Agreement....................................45
-iii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 9.3 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies..................45
SECTION 9.4 Governing Law.......................................46
SECTION 9.5 Consent to Jurisdiction.............................46
SECTION 9.6 Binding Effect; No Assignment.......................46
SECTION 9.7 Exhibits............................................46
SECTION 9.8 Severability........................................46
SECTION 9.9 Counterparts........................................46
SECTION 9.10 Third Parties.......................................47
SECTION 9.11 Title and Risk of Loss..............................47
LIST OF SCHEDULES
Schedule 2.1(a) Assets
Schedule 2.1(a)(ii) Excluded Inventory
Schedule 2.3 Tooling and Prepaid Assets
Schedule 2.7 Allocation of Purchase Price
Schedule 3.2 Seller Required Consents
Schedule 3.5(b) Records/Information Under the Control of Others
Schedule 3.6 Undisclosed Liabilities
Schedule 3.7 Inventory
Schedule 3.8 Conduct of Business
Schedule 3.9(a) Permitted Liens (Equipment)
Schedule 3.9(b) Permitted Liens (Assets)
Schedule 3.9(c) Certain Tangible Assets and Values
Schedule 3.10 Contracts
Schedule 3.11 Intellectual Property Rights
Schedule 3.12 Claims and Proceedings
Schedule 3.13 Taxes
Schedule 3.14 Employee Related Matters
Schedule 3.15 Insurance Policies
Schedule 3.17(a) Included Permits
Schedule 3.17(b) Excluded Permits
Schedule 3.18 Environmental Matters
Schedule 3.19 Finders; Fees
Schedule 3.20 Restrictions on Business Activities
Schedule 3.21 Major Suppliers and Customers; Supplies
Schedule 3.23 Product Warranties; Return Policies
Schedule 3.26 Related Parties
-iv-
<PAGE>
Schedule 4.2 Buyer Required Consents
LIST OF EXHIBITS
Exhibit A Products of the Funnoodle Product Line
Exhibit 5.13 Guaranty Agreement
Exhibit 6.2A Opinion of Buyer's Counsel
Exhibit 6.2B Management Services Agreement
Exhibit 6.2C Assumption Agreement
Exhibit 6.3A Opinion of Seller's Counsel
Exhibit 6.3B Bill of Sale and Assignment
Exhibit 6.3C Manufacturing Agreement
Exhibit 6.3D Assignment of Trademarks
Exhibit 6.3E Assignment of Patents
Exhibit 6.3F Thomas Hoffman Brown Confidentiality and
Non-Competition Agreement
-v-
<PAGE>
EXHIBIT 2.2
ASSIGNMENT AND ASSUMPTION OF CONTRACT
THIS ASSIGNMENT AND ASSUMPTION OF CONTRACT, is entered into as
of November 30, 1999, by and between FUNNOODLE, INC. ("Assignor"), a Delaware
corporation; SUN MASTER INVESTMENT LIMITED ("Assignee"), a company incorporated
under the laws of the Hong Kong Special Administrative Region of the Peoples'
Republic of China; TOYMAX INTERNATIONAL, INC. ("Toymax"), a Delaware
corporation; KIDPOWER, INC., a Tennessee corporation ("Kidpower"); and JAMES P.
O'ROURKE ("O'Rourke").
W I T N E S S E T H:
WHEREAS, Assignor entered into a certain Asset Purchase
Agreement (the "Purchase Agreement" and terms used herein as defined terms which
are not otherwise defined herein having the same meaning set forth in the
Purchase Agreement) dated October 25, 1999, among Assignor, a wholly owned
subsidiary of Toymax, Toymax, Kidpower, and O'Rourke, majority shareholder of
Kidpower, wherein Assignor agreed to purchase the Funnoodle Product Line from
Kidpower; and
WHEREAS, Assignor desires to assign all its rights, title and
interests in, to and under the Purchase Agreement to Assignee, a wholly owned
subsidiary of Toymax, and Assignee wishes to accept such assignment and to
assume all of the obligations and liabilities of Assignor under the Purchase
Agreement;
NOW, THEREFORE, for good and valuable consideration, the
receipt, adequacy and sufficiency of which is hereby acknowledged by both
Assignor and Assignee, the parties hereto hereby agree as follows:
1. Assignor hereby assigns to Assignee all of Assignor's
right, title and interest in and to the Purchase Agreement. Assignee hereby
accepts the assignment by Assignor of all of the Assignor's right, title and
interest in, to and under the Purchase Agreement and Assignee hereby assumes and
agrees to pay, perform or otherwise discharge when due all of the obligations
and liabilities of Assignor under the Purchase Agreement heretofore or hereafter
arising. As between Assignor and Assignee, Assignor shall have no further
obligations or liabilities of any kind whatsoever under or in respect to the
Purchase Agreement.
2. The foregoing assignment and assumption shall be effective
as of the date hereof.
3. None of the obligations or liabilities of Toymax pursuant
to the Purchase Agreement are diminished, altered or modified as a result of
this Agreement.
4. Toymax, Kidpower and O'Rourke hereby consent to this
assignment and assumption agreement.
<PAGE>
5. In connection with the Purchase Agreement and the
Transaction Documents (as such term is defined in the Purchase Agreement),
Assignee irrevocably and voluntarily submits to personal jurisdiction in the
State of New York and in the Federal and state courts in such state located in
the Eastern District of New York and the appellate courts therefrom in any
action or proceeding arising out of or relating to this Agreement, the Purchase
Agreement or the Transaction Documents, and agrees that all claims in respect of
such action or proceeding may be heard and determined in any such court.
Assignee hereby appoints Sanford Frank, Esq., with an address at 125 East
Bethpage Road, Plainview, New York 11803, as its agent for service of process.
The parties hereto agree that any action or proceeding instituted by any of them
against any other party with respect to this Agreement will be instituted
exclusively in the state courts located in, and in the United States District
Court for, the Eastern District of New York. Assignee irrevocably and
unconditionally waives and agrees not to plead, to the fullest extent permitted
by law, any objection that it may now or hereafter have to the laying of venue
or the convenience of the forum of any action or proceeding with respect to this
Agreement, the Purchase Agreement, or the Transaction Documents in any such
courts.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
FUNNOODLE, INC. SUN MASTER INVESTMENT LIMITED
By: By:
---------------------- ----------------------
Name: Steve Lebensfeld Name: Steve Lebensfeld
Title: President Title: Agent
TOYMAX INTERNATIONAL, INC.
By:
----------------------
Name: Steve Lebensfeld
Title: President
KIDPOWER, INC.
By:
----------------------
Name: James P. O'Rourke
Title: President
- ----------------------
JAMES P. O'ROURKE
3
<PAGE>
EXHIBIT 10.1
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT (the "AGREEMENT") dated as of
November 30, 1999 by and among SUN MASTER INVESTMENT LIMITED (the "COMPANY"), a
company incorporated under the laws of the Hong Kong Special Administrative
Region of the Peoples' Republic of China, and Kidpower, Inc., a Tennessee
corporation (the "Manager").
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Purchase Agreement (the
"PURCHASE AGREEMENT") dated as of October 25, 1999 by and between Funnoodle,
Inc., a Delaware corporation ("FUNNOODLE"), the Manager, Toymax International,
Inc., a Delaware corporation ("TOYMAX"), and James P. O'Rourke ("O'ROURKE") and
a subsequent Assignment of Contract, dated November 30, 1999, by and among the
Company; Funnoodle, Toymax, Kidpower and O'Rourke (the "ASSIGNMENT") of all of
Funnoodle's rights and obligations under the Purchase Agreement, the Company has
purchased from the Manager certain of the properties and assets of the Funnoodle
product line (the "FUNNOODLE PRODUCT Line") of the Manager (the
"TRANSACTION")(Capitalized terms not otherwise defined herein shall have the
meaning given thereto in the Purchase Agreement): and
WHEREAS, the Company wishes to engage the Manager to provide
managerial services to the Company with respect to the products of the Funnoodle
Product Line of the Company (the "PRODUCTS") to be sold in North America, and
the Manager wishes to accept such engagement;
NOW THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the parties hereto agree
as follows:
SECTION 1. ENGAGEMENT. (a) The Company hereby engages the
Manager to provide managerial and other advisory services to the Company, and
the Manager hereby accepts such engagement, all on the terms and subject to the
conditions set forth in this Agreement.
(b) For as long as this Agreement shall remain in
effect, the Company agrees to continue the Funnoodle Product Line in
substantially the same manner as it was conducted prior to the Transaction, and
to cooperate with the Manager and to provide such support and assistance as is
reasonably required to enable the Manager to perform its duties hereunder.
SECTION 2. TERM OF THE AGREEMENT. Subject to the provisions of
Section 9 hereof, the initial period of the Manager's engagement under this
Agreement shall be from the date of this Agreement through November 15, 2002, as
may be extended as hereinafter provided (the "Term"). If the Company provides
the Manager with a written request for renewal ("RENEWAL NOTICE") at least six
(6) months before the last day of such initial period, and on the last day of
each successive consecutive twelve month period following such initial period
(each such last day hereinafter called a "RENEWAL DATE"), and Manager fails to
reject such renewal in writing within thirty (30) days receipt of the Renewal
Notice, this Agreement shall be renewed for an additional consecutive twelve
month period, on the terms and conditions set forth herein. The Term of this
Agreement shall end on the Renewal Date with respect to which the Company
<PAGE>
does not provide such request for renewal to the Manager or with respect to
which the Manager expressly rejects the Renewal Notice.
SECTION 3. SERVICES.
(a) During the Term, the Manager agrees to provide, on a
timely basis, such services, for, on behalf of, and at the direction of, the
Company, related to the conduct and management of the business of the Funnoodle
Product Line as are consistent with the Manager's prior practice in its capacity
as proprietor of the Funnoodle Product Line prior to the Transaction, including
but not limited to sales, marketing, customer support, sales order processing,
product development and testing, purchase order processing, production
scheduling, quality control, warehousing, distribution, routing, expediting and
shipping (the "SERVICES"). In furtherance and not in limitation of the Services
set forth in the previous sentence, the Manager shall:
(i) coordinate the operations of the Funnoodle
Product Line consistent with the practices of the Manager prior to the
Transaction as proprietor of the Funnoodle Product Line, including the
fulfillment of all purchase orders received from the Company relating to the
Products, process and coordinate the production and shipping schedules of the
manufacturers of the Funnoodle Product Line;
(ii) serve as liaison with customers and, at the
Company's direction and with the Company's cooperation, request that all
customers of the Funnoodle Product Line place purchase orders for Products
directly with the Company, and to the extent Funnoodle Product Line purchase
orders are received by the Manager, to promptly deliver such purchase orders to
the Company for initial processing;
(iii) arrange for the manufacture of the Products
based upon purchase orders placed with the Manager by the Company, and serve as
a liaison with such manufacturers and other vendors of the Funnoodle Product
Line;
(iv) engage quality control staff from its personnel
to inspect the production line and the finished Products to ensure that the
quality of the Products are in material compliance with the specifications of
the Funnoodle Product Line;
(v) provide the Company with all original shipping
documents, to the extent in the Manager's possession, from the manufacturers
and/or shipping companies and all warehouse receipts or certificates;
(vi) maintain, with the Company, a separate bank
account for the benefit of the Company in which shall be deposited all accounts
receivable of the Funnoodle Product Line (the "BANK ACCOUNT");
(vii) at the Company's direction and with the
Company's cooperation, request that all customers remit payment against all
invoices for Products shipped to the Company in payment for such Products, and
to the extent accounts receivable are received by the Manager, to hold such
accounts receivable in trust and for the benefit of the Company, and to promptly
deposit same in the Bank Account;
2
<PAGE>
(viii) provide the Company with sales services
(including serving as liaison with sales representatives), marketing services
(including the coordination of advertising for the Funnoodle Product Line) and
product development services;
(ix) provide to the Company such daily, weekly,
monthly and annual reports relating to the Funnoodle Product Line and the
performance of the Funnoodle Product Line and the Manager as the Company shall
reasonably require.
(x) train a General Manager, Sales Manager and
Product Manager to be appointed by the Company;
(xi) designate individuals responsible for carrying
out the Services to be provided hereunder and, if necessary, employ or engage
such personnel at its sole cost and expense, as may be necessary for the
performance of all Services required to be performed by it hereunder.
(b) In addition to the Services described in Section 3(a)
hereof, the Manager and the Company agree that for the period commencing on
the date hereof through May 31, 2000, or such earlier date determined by the
Company in its discretion (the "TRANSITION PERIOD"), the Manager shall:
(i) notwithstanding Section 3(a)(i) hereof, process
and execute all purchase orders received by it directly from customers;
PROVIDED, HOWEVER, that the execution of all purchase orders (A) from the
customers listed on Schedule A attached hereto, or (B) in excess of $1,000.00
(or such other amount as the Company may advise the Manager of in writing from
time to time), shall require the prior written approval of the Company;
(ii) prepare and deliver to customers (with copies
thereof to the Company) invoices for Products shipped; and
(iii) take all actions which may be reasonably
requested by the Company, at the Company's direction and expense, and provided
that such action does not adversely affect the Manager's relationship (as
determined in the Manager's sole direction) with such customer, to collect, for
the benefit of the Company, the accounts receivable created by the invoices
generated pursuant to Section 3(b)(ii) hereof.
(c) The Company shall have the option to perform, at any time
and at its sole and absolute expense without any reduction in the Management Fee
payable to the Manager hereunder, any activity listed in Sections 3(a) and (b)
hereof.
(d) During the Term, the Manager shall not perform or
otherwise be responsible for the taking of any actions relating to any
corporate, finance, insurance or legal matter relating to the Company or the
Funnoodle Product Line (the "EXCLUDED RESPONSIBILITIES").
(e) The Manager shall devote such time and effort in the
provision of the Services hereunder as is consistent with the Manager's past
practice prior to the Transaction as proprietor of the Funnoodle Product Line.
3
<PAGE>
SECTION 4. OVERSEAS MANUFACTURING.
(a) If the Manager recommends that the manufacturing of
Products be conducted in the Far East, the Manager shall first offer the
opportunity to conduct such manufacturing (as well as any other Service required
to be performed hereunder) to Tai Nam Industrial Company Limited ("TAI NAM") and
Jauntiway Investments Limited ("JAUNTIWAY"), each of Hong Kong. Such offer to
Tai Nam and Jauntiway shall remain open for fifteen (15) days (the "OFFER
PERIOD"). In the event that Tai Nam and Jauntiway: (i) fail to respond to the
Manager prior to the expiration of the Offer Period; (ii) decline such
opportunity; (iii) notify the Manager that they cannot perform the manufacturing
or Services offered by the Manager within the timetable established by the
Manager; or (iv) offers to perform such manufacturing or Services on terms and
conditions that the Manager deems to be unacceptable, then such offer shall
lapse and the Manager shall be entitled to contract with such other parties as
the Manager, in its discretion, shall determine, for such manufacturing or other
Services.
(b) If the Manager determines that the manufacturing of any of
its products be conducted in the Far East, the Manager shall offer the
opportunity to Tai Nam Industrial Company Limited ("TAI NAM") and Jauntiway
Investments Limited ("JAUNTIWAY"), each of Hong Kong, to make an offer to
perform such manufacturing (as well as any other service required to be
performed hereunder).
(c) Except as otherwise provided herein, any fees imposed upon
or costs or expenses incurred by the Manager under Section 4(a) shall be the
sole and absolute responsibility of the Company, and the Manager shall have no
liability therefor.
SECTION 5. OFFICE SPACE AND SERVICES. During the Term, the Manager
shall provide its own office space and other facilities as well as such office
services which are necessary for the furnishing of the Services hereunder, all
at its sole cost and expense.
SECTION 6. MANAGEMENT FEE; EXPENSES.
(a) In consideration of the Services to be provided by the
Manager hereunder, the Company shall pay to the Manager a fee equal to seven
percent (7%) of: (a) the ex-factory invoices of Nomaco, Inc. ("Nomaco") under
that certain Manufacturing Agreement, dated October __, 1999, between the
Company and Nomaco; and (b) the ex-factory net cost of finished goods of all
manufacturers of the Funnoodle Product Line other than Nomaco, it being
understood that the ex-factory net cost of finished goods of all manufacturers
of the Funnoodle Product Line other than Nomaco shall include only the cost of
materials, packaging, direct labor, and direct factory overhead of such
non-Nomaco manufacturer of the Funnoodle Product Line.
(b) During the Term, the Company shall pay or reimburse the
Manager for all reasonable out-of-pocket expenses actually incurred or paid by
the Manager in the performance of its duties hereunder upon presentation of
expense statements and/or such other supporting information as the Company may
reasonably require of the Manager; PROVIDED, HOWEVER, that the Manager shall not
incur any expense for which it will seek reimbursement in excess of $1,000.00,
unless such expense is approved by the Company in writing prior to the
incurrence thereof, in which case the Company shall advance to the Manager the
full amount of
4
<PAGE>
such expense. Notwithstanding the foregoing, the Manager shall not be reimbursed
for any employee payroll or benefit costs of the Manager, and such expenses
shall be the responsibility of the Manager.
(c) The following costs and expenses, which is not intended to
be an exhaustive list, shall be the exclusive responsibility of the Company, and
in the event the Manager is billed for such costs and expenses, the Company
shall promptly remit payment therefor:
(i) costs and expenses related to the Excluded
Activities;
(ii) sales commissions;
(iii) chargebacks and expenses relating to defective
products;
(iv) costs and expenses relating to toy shows in
respect of promotion of the products;
(v) tooling costs;
(vi) costs and expenses relating to outside
development and engineering;
(vii) license and royalty expenses;
(viii) electronic data interchange (EDI) costs;
(ix) warehousing costs;
(x) costs and expenses of patents, copyrights and
trademarks in respect of the products;
(xi) bank charges and interest;
(xii) costs and expenses of advertising;
(xiii) reasonable travel expenses;
(xiv) reasonable costs and expenses of agents
retained by the Manager to perform quality control functions for Products
manufactured pursuant to Section 4 hereof;
(xv) shipping costs for Products manufactured
pursuant to Section 4 hereof;
(xvi) costs and expenses of training the General
Manager, Sales Manager and Product Manager; and
5
<PAGE>
(xvii) costs and expenses related to activities for
which the Company assumes responsibility.
(d) The Management Fee and all expenses eligible for
reimbursement shall be paid by the Company to the Manager on the first business
day of each month.
SECTION 7. CONTROL OF MANAGER. The parties acknowledge that the Company
has entered into this Agreement relying on the continued personal efforts of
O'Rourke in the Manager. During the Term of this Agreement, the Manager, or its
assignee, will cause O'Rourke or such other individuals or entities as may be
acceptable to the Company, to oversee the performance of the Services to be
provided hereunder.
SECTION 8. COMPLIANCE WITH LAWS. The Manager shall take reasonable
steps and make recommendations to the Company ensure compliance with all
federal, state and local laws, regulations, ordinances or other requirements
imposed on the business of the Funnoodle Product Line, to the extent the
performance of the Services is applicable thereto.
SECTION 9. TERMINATION. Except for a breach of Section 7 hereof wherein
this Agreement shall terminate upon such breach, the engagement hereunder of the
Manager may be terminated prior to the expiration of the Term by delivering
written notice to the Manager ninety (90) days prior to such termination;
provided, however, that if such written notice of termination is delivered to
the Manager on or after June 1st of any year during the Term then the date of
such termination shall be May 31st of the following year.
SECTION 10. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding
anything in this Agreement to the contrary, upon termination of the Manager's
engagement hereunder, the Company shall have no payment or other obligations
hereunder to the Manager, except for the payment of any Management Fee and
unreimbursed expenses accrued but unpaid as of the date of termination, which
amounts shall be paid to the Manager within thirty (30) days of the such date of
termination.
SECTION 11. INDEPENDENT CONTRACTOR. The Company and the Manager
acknowledge that the Manager is providing the Services hereunder as an
independent contractor, retaining control over and responsibility for its own
operations and personnel. Except as otherwise set forth herein, the Manager does
not have, nor shall it represent itself as having, any right, power or authority
to create any contract or obligation on behalf of, or in the name of, the
Company. The Manager shall file all tax returns and reports required to be filed
by it or any of its employees or agents on the basis that the Manager is an
independent contractor, rather than an employee. Manager agrees to covenant that
it will withhold payroll taxes for all people it considers to be employees.
6
<PAGE>
SECTION 12. CONFIDENTIALITY.
(a) The Company and the Manager each acknowledge and agree
that in connection with the Services to be provided hereunder by the Manager,
each party has made, or will at its sole and absolute discretion, may make
available to the other and their respective Representatives (as hereinafter
defined) certain Confidential Material (as defined in Section 12(c) hereof)
concerning the business, operations, practices, processes and equipment of the
Company, including but not limited to the Funnoodle Product Line by the Company.
Each party further acknowledges that such Confidential Material constitutes
valuable, special and unique assets of the disclosing party developed at great
expense which are the exclusive property of the disclosing party. As a condition
to and in consideration of such Confidential Material being furnished to each
party and its present or respective directors, officers, employees, managers,
consultants or advisors, (collectively, the "Representatives"), each party
hereby agrees to use all Confidential Material solely in connection with the
services to be provided hereunder, and that such Confidential Material shall be
kept strictly confidential and shall not be disclosed in any manner whatsoever.
Accordingly, each party shall not, at any time, either during or subsequent to
the term of this Agreement, use, reveal, report, publish, transfer or otherwise
disclose to any person, corporation or other entity, any of the Confidential
Material; PROVIDED, HOWEVER, that each party may make any disclosure of such
information to: (i) which the disclosing party gives its prior written consent;
(ii) the extent required by applicable law (upon the receipt of advice from
counsel that disclosure must be made in order for a violation of law not to
occur) copyrights, trademark and service mark rights, equities, goodwill, titles
and other rights of each party, and all; or (iii) Each party's Representatives
who need to know the Confidential Material for the purpose of providing the
services hereunder and who agree to keep the Confidential Material confidential
and to be bound to this provision to the same extent as if they were parties
hereto (it shall be understood and agreed that each party's Representatives
shall be informed by each party of the confidential nature of the Confidential
Material and shall be directed by each party to treat the Confidential Material
confidentially). Each party further agrees, at its sole expense, to take those
measures reasonably required to restrain its Representatives from prohibited or
unauthorized disclosure or use of the Confidential Material.
(b) Each party agrees that, at any time upon the request of
the other for any reason, each party will and will cause its Representatives to
promptly deliver to the Company all documents (and copies thereof) furnished to
each party or its Representatives by or on behalf of the other pursuant to this
Agreement. In the event of such a decision or request all other Confidential
Material possessed by each party or their respective Representatives shall be
destroyed and no copies thereof shall be retained and, upon request, the each
party shall certify in writing to the other that such action has been taken.
Notwithstanding the return or destruction of the Confidential Material or the
termination of this Agreement, each party and their respective Representatives
will continue to be bound by their obligations hereunder.
(c) For purposes of this agreement, the term "Confidential
Material" shall include but not be limited to: (i) all technology, know-how,
inventions, trade secrets, plans, financial and marketing plans, patent
applications, data, reports, interpretations, forecasts, audit reports, the
identity of customers and suppliers, agreements, contracts, instruments,
documents and any other information concerning the disclosing party, its
subsidiaries and affiliates which (A) is furnished to the other party or its
affiliates or Representatives, now or in the future, by or
7
<PAGE>
on behalf of the disclosing party, and (B) is not available to the public; and
(ii) all notes, analyses, compilations, studies, interpretations or other
documents prepared by the disclosing party or any of its affiliates or
Representatives which contain, reflect or are based upon, in whole or in part,
the Confidential Material furnished to the other party or its affiliates or
Representatives; except that Confidential Material shall not include information
which becomes generally available to the public other than as a result of an
unauthorized disclosure by the other party or its affiliates or Representatives.
(d) The Manager agrees, for itself and its Representatives,
that all products developed by the Manager or its Representatives for inclusion
in the Funnoodle Product Line pursuant to the Services to be provided hereunder,
including, but not limited to, all Confidential Material related thereto, shall
be deemed produced or developed by the Manager in connection with its duties
hereunder and as such shall remain the property of the Company, and the Manager,
for itself and its Representatives, agrees and acknowledges that the Company
owns all the rights to such products and Confidential Material. The Manager
agrees, and agrees to cause all of its Representatives, to execute such
documents or instruments as may be necessary or desirable to transfer or create
ownership of such products and Confidential Material in the Company.
(e) Each party acknowledges and agrees that money damages
would not be a sufficient remedy for any breach of this Section 12 by the other
party and that each party shall be entitled to specific performance and
injunctive or other equitable relief as remedies for any such breach. Such
remedies shall not be deemed to be the exclusive remedies but shall be in
addition to all other remedies available at law or in equity to each party.
8
<PAGE>
SECTION 13. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid return receipt requested) as follows:
If to the Company, one copy to:
SUN MASTER INVESTMENT LTD.
c/o Toymax International, Inc.
125 East Bethpage Road
Plainview, New York
Telecopier: (516) 391-9147
Attn: Sanford Frank, Esq.
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5810
Attn: Joel M. Handel, Esq.
If to the Manager, one copy to:
Kidpower, Inc.
8005 Church Street East
Brentwood, Tennessee 37027
Telecopier: (615) 371-1846
Attn: James P. O'Rourke, President
with a copy to:
McManimon & Scotland LLC
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier: (973) 622-7333
Attn: Jeffrey Kramer, Esq.
Each such notice or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 13 (with confirmation of transmission) or (ii) if
given by any other means, when delivered at the address specified in this
Section 13. Any party by notice given in accordance with this Section 13 to the
other party may designate another address (or telecopier number) or person for
receipt of notices hereunder. Notices by a party may be given by counsel to such
party.
SECTION 14. INDEMNIFICATION.
(a) The Manager hereby agrees to indemnify and hold harmless
the Company, its respective officers, directors, partners, agents and
representatives from and against
9
<PAGE>
any and all claims, liabilities, losses, damages, penalties, costs and expenses,
including without limitation, reasonable attorneys' fees and costs suffered or
paid, indirectly or directly, by the Company in any action or proceeding between
the Company and the Manager, or between the Company and any third party or
otherwise, arising out of the performance of the Manager or its officers,
directors, partners, employees, agents or representatives under this Agreement,
where attributable to the willful misconduct or gross negligence of the Manager
or to the Manager's breach of the terms of this Agreement. Notwithstanding any
provision in this Agreement to the contrary, the maximum amount of liability of
the Manager to the Company in connection with this Management Agreement and the
Purchase Agreement shall equal the lesser of: (i) the Purchase Price paid to the
Manager by the Company pursuant to the Purchase Agreement, or (ii) Eight Million
Five Hundred Thousand Dollars ($8,500,000).
(b) The Company hereby agrees to indemnify and hold harmless
the Manager, its respective officers, directors, partners, agents and
representatives from and against any and all claims, liabilities, losses,
damages, penalties, costs and expenses, including without limitation, reasonable
attorneys' fees and costs suffered or paid, indirectly or directly, by the
Manager in any action or proceeding between the Manager and the Company, or
between the Manager and any third party or otherwise, arising out of the
performance of the Manager or its officers, directors, partners, employees,
agents or representatives under this Agreement, except where attributable to the
willful misconduct or gross negligence of the Manager or to the Manager's breach
of the terms of this Agreement.
SECTION 15. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
related transactions and supersedes all prior agreements, written or oral, with
respect thereto.
SECTION 16. SEVERABILITY. Should any provision of this Agreement be
held, by a court of competent jurisdiction, to be invalid or unenforceable, such
invalidity or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each individual provision hereof shall be
enforceable and valid to the fullest extent permitted by law
SECTION 17. BINDING EFFECT; NO ASSIGNMENT. This Agreement and all of
its provisions, rights and obligations shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, heirs and
legal representatives. This Agreement may not be assigned (including by
operation of law) by any party without the express written consent of the other
party, provided, however, that the consent of such other party shall not be
unreasonably withheld or delayed. Any purported assignment, unless consented to
in writing by the other party or such consent is unreasonably withheld, shall be
void and without effect
SECTION 18. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws rules thereof.
SECTION 19. CONSENT TO JURISDICTION. Each of the parties hereto
irrevocably and voluntarily submits to personal jurisdiction in the State of New
York and in the
10
<PAGE>
Federal and state courts in such state located in the Eastern District of New
York and the appellate courts therefrom in any action or proceeding arising out
of or relating to this Agreement and agrees that all claims in respect of such
action or proceeding may be heard and determined in any such court. The parties
hereto agree that any action or proceeding instituted by any of them against any
other party with respect to this Agreement will be instituted exclusively in the
state courts located in, and in the United States District Court for, the
Eastern District of New York. The Company and the Manager irrevocably and
unconditionally waive and agree not to plead, to the fullest extent permitted by
law, any objection that they may now or hereafter have to the laying of venue or
the convenience of the forum of any action or proceeding with respect to this
Agreement in any such courts.
SECTION 20. AMENDMENT; WAIVER. This Agreement and the provisions
contained herein may be amended or waived if, and only if, such amendment or
waiver is in writing and signed, in the case of any amendment, by the Manager
and the Company or, in the case of a waiver, by the party against whom the
waiver is to be effective. Any such waiver shall be effective only to the extent
specifically set forth in such writing. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
SECTION 21. HEADERS. The headings of the sections of this Agreement
have been included for convenience only and shall have no substantive effect.
SECTION 22. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against the
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Management Services Agreement as of the date set forth above.
SUN MASTER INVESTMENT, LTD.
By:
-----------------------
Name: Steven Lebensfeld
Title: Agent
KIDPOWER, INC.
By:
-----------------------
Name:
Title:
12
<PAGE>
EXHIBIT 99.1
TOYMAX INTERNATIONAL COMPLETES ACQUISITION OF FUNNOODLE SPRING PRODUCT LINE
PLAINVIEW, N.Y., Dec. 3 /PRNewswire/ - Toymax International, Inc. (Nasdaq: TMAX
- - NEWS), reported today that the previously announced acquisition of the
Funnoodle product line from KidPower, Inc. has been completed on schedule.
Funnoodle(TM) is a highly recognized consumer brand of pool and backyard water
recreational products and a leader in those categories. The full product line
includes the original Funnoodle, floating pool mats, lawn sprinkler toys, and
exercise mats. Sales of the Funnoodle product line were over $15 million in
1998. The acquisition is expected to be modestly accretive to Toymax earnings in
the fourth quarter of fiscal 2000.
Commenting on the synergies of the acquisition, Toymax President Steven
Lebensfeld noted, "The Funnoodle line offers a great fit with both our existing
spring/summer product lines and our retail distribution channels. Additionally,
this acquisition provides us with new opportunities to leverage Toymax's assets
in order to broaden our product offerings and expand into new retail channels."
Lebensfeld continued, "We will be working closely with KidPower to ensure a
smooth transition as we integrate Funnoodle into our Toymax Enterprises Group,
headed by Barry Shapiro. We are enthusiastic about the opportunity to build upon
the strength of such a successful consumer product line, and look forward to
bringing our in depth knowledge of creating and marketing innovative products to
the Funnoodle business." About Toymax
Toymax (WWW.TOYMAX.COM) is a children's consumer products company that creates,
designs and markets innovative and technologically advanced toys and leisure
products. Toymax products promote fun and creative play and are available under
several brands: Toymax(R) toys, such as R.A.D.(TM) Robot, Mighty Mo's(TM)
vehicles, the award-winning Laser Challenge(TM) and Creepy Crawlers(R) brands
and a new line of educational hand-held and tabletop electronics under the
Jumpstart(TM) brand licensed from Knowledge Adventure Inc., and the Math
Blaster(TM) brand licensed from Davidson & Associates, Inc.; Go Fly A Kite(R)
kites, windsocks and banners; Candy Planet(TM) candy products; and Monogram(R)
gift, novelty and souvenir products. Toymax is headquartered in Plainview, N.Y.
and its products are available at retailers worldwide.
The statements made in this press release contain certain forward-looking
statements. The Company cautions readers that all forward-looking statements are
necessarily speculative and accordingly undue reliance should not be placed on
any such forward-looking statements, which only speak as of the date made.
Actual results may vary materially from those anticipated by the Company for a
variety of reasons, including, without limitation, changing consumer demand for
its products, a reliance on new product introductions, seasonal and quarterly
fluctuations, and the failure to successfully integrate recent acquisitions. The
risks highlighted herein should not be assumed to be the only things that could
affect the future performance of the Company. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Readers are referred to the documents
<PAGE>
filed by the Company with the Securities and Exchange Commission, specifically,
the most recent reports filed under the Securities Exchange Act of 1934 and the
registration statement filed pursuant to the Securities Act of 1933, which
identify important risk factors.
SOURCE: TOYMAX INTERNATIONAL, INC.
2
