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Exhibit 2.1
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
This FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT, dated as of April 5, 2000,
by and among Toymax International, Inc., a Delaware corporation ("TOYMAX"),
Funnoodle (HK) Limited, formerly named Sun Master Investment Limited, a company
incorporated under the laws of the Hong Kong Special Administrative Region of
the Peoples Republic of China, a wholly-owned subsidiary of Toymax ("FUNNOODLE
(HK)"), and Kidpower, Inc., a Tennessee corporation ("KIDPOWER"), and James P.
O'Rourke ("O'ROURKE").
WHEREAS, Toymax, Funnoodle, Inc., a Delaware corporation and wholly-owned
subsidiary of Toymax, the Kidpower and O'Rourke entered into an Asset Purchase
Agreement, dated October 25, 1999 (the "ASSET PURCHASE AGREEMENT") pursuant to
which Funnoodle, Inc. agreed to purchase the Funnoodle product line from
Kidpower; and
WHEREAS, Funnoodle, Inc. assigned its rights under the Asset Purchase
Agreement to Funnoodle (HK) pursuant to an Assignment and Assumption Agreement,
dated November 30, 1999 (the "ASSIGNMENT"); and
WHEREAS, pursuant to the Asset Purchase Agreement and the Assignment,
Funnoodle (HK) purchased the Funnoodle product line from Kidpower on November
30, 1999; and
WHEREAS, in connection with the purchase and sale of the Funnoodle product
line, Funnoodle (HK) and Kidpower entered into a Management Services Agreement,
dated November 30, 1999 ("MANAGEMENT SERVICES AGREEMENT"), pursuant to which
Kidpower agreed to provide certain management services with respect to the
Funnoodle product line; and
WHEREAS, Kidpower has advanced funds on behalf of Funnoodle (HK) and
Funnoodle (HK) desires that Kidpower continues to advance funds for the business
of the Funnoodle product line; and
WHEREAS, the parties desire to reach an agreement whereby Kidpower agrees to
provide limited amounts of working capital to fund the Funnoodle business on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and of the mutual agreements
and covenants hereinafter set forth, the parties hereto agree as follows:
Section 1.0. COLLECTION OF REVENUES; PAYMENT OF EXPENSES; ADVANCES BY
KIDPOWER. (a) Kidpower invoices customers of Funnoodle (HK) and collects
revenues on behalf of Funnoodle
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(HK). Such collections are held in trust on behalf of Funnoodle (HK) under the
terms of the Management Services Agreement. Funnoodle (HK) hereby authorizes
Kidpower to retain and apply such collections to: (i) pay Funnoodle (HK)
vendors, at the times and in the amounts Kidpower determines with the advice and
consent of Funnoodle (HK); (ii) pay Kidpower's fees and expenses under the
Management Services Agreement with notice to Funnoodle (HK); (iii) repay
Advances (as hereinafter defined) by Kidpower with notice to Funnoodle (HK); and
(iv) pay or reimburse Kidpower's factoring fees (the "FACTORING FEES") incurred
pursuant to that Factoring Agreement ("FACTORING AGREEMENT") dated December 9,
1999, between Kidpower and CIT Group/Commercial Services, Inc., for the period
beginning on December 1, 1999 and ending on the first of the following to occur:
(x) the date that is sixty-five (65) days following the date of written notice
to Kidpower from Funnoodle (HK) that Funnoodle (HK) is terminating the Servicing
Agreement; or (y) the date of termination of the Factoring Agreement.
Notwithstanding anything contained herein to the contrary, Funnoodle (HK) shall
not be liable to Kidpower for any Factoring Fees in excess of $100,000 for
period from December 1, 1999 to November 30, 2000.
(b) Kidpower agrees to advance funds ("ADVANCES") on behalf of Funnoodle
(HK), to pay Funnoodle (HK) vendors at the times and in the amounts
Kidpower determines with the advice and consent of Funnoodle (HK). The
maximum amount of the Advances by Kidpower hereunder outstanding at any
time shall not exceed $1,000,000 together with interest accrued thereon.
Advances shall bear interest at the rate of 8% per annum on the
outstanding balance thereof, computed daily, from the date of the
Advance to the date repaid, whether by set-off or otherwise. Kidpower
shall not be obligated to Advance any funds on behalf of Funnoodle (HK)
after May 15, 2000.
(c) Kidpower shall maintain complete books and records showing the Advances,
copies of which shall be provided to Funnoodle (HK) on a continuing
basis, and Funnoodle (HK) shall be entitled to inspect such books and
records related thereto upon one business day's prior notice.
Section 2.0. SECURITY INTEREST. In order to secure the payment and
performance of the Advances, Funnoodle (HK) hereby grants to Kidpower a
continuing security interest in and general lien upon its right, title
and interest in (i) Funnoodle (HK)'s accounts receivable, and (ii) all
property of Funnoodle (HK) now or hereafter in the actual or
constructive possession of Kidpower (collectively, the "Collateral"). If
Funnoodle (HK) has granted any security interest(s) to Kidpower in any
or all of the Collateral prior to the date of this Agreement, this
Agreement shall be deemed to be a reaffirmation of the previously
granted security interest(s) and an amendment and restatement of any
previously executed Security Agreement(s). It is the intention of
Funnoodle (HK) and Kidpower that all existing security interests will
remain continuously perfected.
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(A) DELIVERY OF DOCUMENTS; POWER OF ATTORNEY. Upon the demand of Kidpower,
Funnoodle (HK) will (i) immediately give, execute, deliver, pledge,
endorse, file, and/or record any notice, statement, financing statement,
instrument, document, chattel paper, agreement, or other papers that may
be necessary or desirable, or that Kidpower may reasonably request, in
order to create, preserve, perfect, or validate any security interest
granted pursuant hereto or intended to be granted hereunder or to enable
Kidpower to exercise or enforce its rights hereunder or with respect to
such security interest; and (ii) keep, stamp, or otherwise mark any and
all documents, instruments, chattel paper, and its books and records
relating to the Collateral in such manner as Kidpower may reasonably
require. Funnoodle (HK) hereby irrevocably appoints Kidpower (and any of
its attorneys, officers, employees, or agents) as its true and lawful
attorney-in-fact, said appointment being coupled with an interest, with
full power of substitution, in the name of the Funnoodle (HK), for the
sole use and benefit of Kidpower in its sole discretion to exercise, to
the extent permitted by law, in its name or in the name of the Funnoodle
(HK) or otherwise, the powers set forth herein, whether or not any of
the Advances are due (i) to endorse the name of Funnoodle (HK) upon any
instruments of payment, freight, or express bill, bill of lading,
storage, or warehouse receipt relating to the Collateral and to demand,
collect, receive payment of, settle, or adjust all or any of the
Collateral; (ii) to correspond and negotiate directly with insurance
carriers; and (iii) to sign and file one or more financing statements
naming Funnoodle (HK) as debtor and Kidpower as secured party to execute
any notice, statement, instruments, agreement, or other paper that
Kidpower may require to create, preserve, perfect, or validate any
security interest granted pursuant hereto or to enable Kidpower to
exercise or enforce its rights hereunder or with respect to such
security interest. Neither Kidpower nor its attorneys, officers,
employees, or agents shall be liable for act, omissions, any error in
judgment, or mistake in fact in its/their capacity as attorney-in-fact.
This power, being coupled with an interest is irrevocable until the
Advances have been fully satisfied. At Kidpower's sole option, and
without Funnoodle (HK)'s consent, Kidpower may file a carbon,
photographic, or other reproduction of this Agreement or any financing
statement executed pursuant hereto as a financing statement in any
jurisdiction so permitting. Kidpower is expressly authorized to file
financing statements without Funnoodle (HK)'s signature.
(B) KIDPOWER'S RIGHTS IN COLLATERAL; CUSTODY OF COLLATERAL. With respect to
the Collateral, or any part thereof, the right is expressly granted to
Kidpower exercisable by Kidpower at any time, at its sole discretion,
(i) to transfer or register in the name of itself or its nominee any of
the Collateral, and whether or not so transferred or registered, to
receive the
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income and dividends thereon, and to hold the same as a part of the
Collateral and or apply the same to the Advances; (ii) to exchange any
of the Collateral for other property upon the reorganization,
recapitalization, or other readjustment and in connection therewith, to
deposit the Collateral or any part thereof with any nominee or
depository upon such terms as Kidpower may determine in its sole
discretion; and (iii) extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the
Collateral, or refrain from exercising any right against any Collateral.
With respect to the Collateral, or any part thereof, which at any time
may come into the possession, custody, or under the control of Kidpower
or any of its Affiliates, agents or correspondents, Funnoodle (HK)
hereby acknowledges and agrees that Kidpower's sole duty with respect to
the custody, safekeeping and physical preservation of such Collateral,
whether pursuant to Section 9-207 of the Uniform Commercial Code or
otherwise, shall be to deal with it in the same manner as it deals with
similar property for its own account. Neither Kidpower, nor any of its
directors, officers, employees, Affiliates, agents or correspondents
shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so.
(C) DISPOSITION OF COLLATERAL. Funnoodle (HK) shall not sell, offer to sell,
otherwise assign, or permit the involuntary transfer of, or disposition
of the Collateral or any interest therein, without the prior written
consent of Kidpower.
(D) ASSIGNMENT OF ACCOUNTS. With respect to Accounts that are Collateral,
Funnoodle (HK) shall, upon request, immediately give to Kidpower, in a
form acceptable to Kidpower, assignments of all Accounts.
Section 3.0. RIGHT OF SET-OFF. In addition to any other remedies available
to Kidpower, Kidpower is specifically authorized hereby to set-off against and
apply to the then unpaid balance of the Advances and any other amounts due
Kidpower hereunder, any items or funds of Funnoodle (HK) held by Kidpower, any
and all deposits or any other property of Funnoodle (HK) now or hereafter
maintained by Funnoodle (HK) for its or their own account with Kidpower. For
such purposes, Kidpower shall have, and Funnoodle (HK) hereby grants to
Kidpower, a first lien on and security interest in such deposits, property,
funds, and accounts, and the proceeds thereof. Any Advances outstanding, and any
other amounts due Kidpower hereunder, shall be due and payable on the earlier of
the termination of this Agreement, or May 15, 2000. To the extent not repaid by
setoff or otherwise, Funnoodle (HK) agrees to pay, and Toymax guarantees the
payment of, any Advances outstanding, and any other amounts due Kidpower
hereunder.
Section 4.0. COOPERATION IN FUNNOODLE (HK) FINANCING. Kidpower shall provide
its reasonable cooperation to Funnoodle (HK), at no out-of-pocket cost to
Kidpower, in
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connection with Funnoodle (HK)'s attempts to secure alternative financing for
the Funnoodle business, including entering into a Receivables Servicing
Agreement with The CIT Group or any of its affiliates (collectively, "CIT") in
substantially the form attached hereto as Exhibit A (the "Servicing Agreement").
Kidpower shall not, however, be obligated to take any actions (except entering
into the Servicing Agreement) which, in Kidpower's reasonable judgment, would
cause Kidpower any risk or liability. Kidpower agrees that its right of set-off
hereunder shall terminate, and to release its security interest in any and all
Funnoodle (HK) assets, upon the occurrence of any of the following: (i) the
payment in full of any and all Advances and the release by Funnoodle (HK) of
Kidpower from its obligation to make any further advances hereunder; (ii)
Funnoodle (HK) securing a factoring arrangement with CIT and the agreement by
and between Kidpower, Funnoodle (HK) and CIT that up to the first One Million
Dollars ($1,000,000) of proceeds (the "Proceeds") from such factoring
arrangement shall be paid directly to Kidpower to be credited as payment of the
Advances, in form and substance agreed to by the parties, with the excess, if
any, held for, and applied to the benefit of, Funnoodle (HK) (such balance held
from time-to-time for the benefit of Funnoodle (HK) referred to as the "Proceeds
Balance"); or (iii) Funnoodle (HK) providing adequate alternative security to
Kidpower, which shall be determined in Kidpower's sole discretion, to ensure
that Kidpower's then outstanding Advances (if not paid in full) shall be paid.
In the event that Kidpower has been repaid all of its Advances and Kidpower
holds a Proceeds Balance, Kidpower shall pay interest to Funnoodle (HK) at the
rate of 8% per annum on such balance, computed daily, from the date of the
Proceeds Balance to the date returned to, or applied for the benefit of,
Funnoodle (HK).
Section 5.0. ACCELERATION OF KIDPOWER'S CONTINGENT PAYMENT. The contingent
payments provided for in Sections 2.4 and 2.5 of the Asset Purchase Agreement
shall be accelerated in the manner set forth herein.
(A) Funnoodle (HK) shall, within thirty (30) days of July 31, 2000 make a
good faith estimate of the Contribution Amount for the portion of such
Calculation Year ending July 31,2000. For this purpose, the good faith
estimate shall be based on revenues collected, corresponding costs of
goods sold and related direct expenses. Following the making of such
good faith estimate of the Contribution Amount by Funnoodle (HK) for
such period, Funnoodle (HK) shall deliver to Kidpower, on September 1,
the calculation of the good faith estimate of such Contribution Amount
and an amount equal to ninety percent (90%) of the Contingent Payment
due for such portion of the Calculation Year, if any, based upon such
good faith estimate of the Contribution Amount by the Buyer, but in no
event shall such payment exceed $1,000,000 (the "September Accelerated
Payment"). Kidpower may reduce the September Accelerated Payment by 2.3%
to discount the payment from its December 15 regular due date to the
September 1 accelerated due date.
(B) Funnoodle (HK) shall, within thirty (30) days of August 31, 2000 make a
good faith estimate of the Contribution Amount for the portion of such
Calculation Year ending August 31, 2000. For this purpose, the good
faith estimate shall be based on revenues collected, corresponding costs
of goods sold and related direct expenses. Following the making of such
good faith estimate of the Contribution Amount by Funnoodle (HK) for
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such period, Funnoodle (HK) shall deliver to Kidpower, on October 1, the
calculation of the good faith estimate of such Contribution Amount and
an amount equal to ninety percent (90%) of the Contingent Payment due
for such portion of the Calculation Year, if any, based upon such good
faith estimate of the Contribution Amount by the Buyer, but in no event
shall such payment exceed $1,000,000 (the "October Accelerated
Payment"). Kidpower may reduce the October Accelerated Payment by 1.65%
to discount the payment from its December 15 regular due date to the
October 1 accelerated due date.
(C) Funnoodle (HK) shall otherwise compute the Contingent Payment in
accordance with Sections 2.4 and 2.5 of the Asset Purchase Agreement,
except that Funnoodle (HK) shall credit any September Accelerated
Payment and October Accelerated Payment made by it against any payment
otherwise due by it on the date 45 days after the end of the related
Calculation Year.
This Section 5.0 shall survive the termination of this Agreement.
Section 6.0 KIDPOWER LEGAL FEES. Funnoodle (HK) hereby agrees to promptly
reimburse Kidpower for legal fees incurred with respect to this Agreement and
the transactions contemplated thereby in an amount not to exceed $5,000.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to
Asset Purchase Agreement as of the date set forth above.
FUNNOODLE (HK) LIMITED.
By: /s/William Johnson, Jr.
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Name: William Johnson, Jr.
Title: Chief Financial Officer
KIDPOWER, INC.
By: /s/ John D. Taylor, Jr.
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Name: John D. Taylor, Jr.
Title: Executive Vice President
TOYMAX INTERNATIONAL, INC.
By: /s/ William Johnson, Jr.
-------------------------------
Name: William Johnson, Jr.
Title: Chief Financial Officer
JAMES P. O'ROURKE
BY: /S/ JAMES P. O'ROURKE
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