<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
Futech Interactive Products Futech Toys & Games, Inc.
(Delaware), Inc. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada
Delaware (STATE OR OTHER JURISDICTION OF INCORPORATION OR
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
ORGANIZATION)
3944
3944 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
APPLIED FOR
APPLIED FOR (I.R.S. EMPLOYER IDENTIFICATION NO.)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
Futech Toys & Games, Inc.
Futech Interactive Products, Inc. c/o Fundex Games, Ltd.
2999 North 44th Street, Suite 225 2257 Directors Row
Phoenix, Arizona 85018-7247 Indianapolis, Indiana 46241
(602) 808-8765 (317) 248-1080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
------------------------
FREDERICK B. GRETSCH, SR.
Secretary
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
P. ROBERT MOYA, ESQ.
QUARLES & BRADY
ONE EAST CAMELBACK ROAD, SUITE 400
PHOENIX, ARIZONA 85012-1649
TELEPHONE: (602) 230-5500
FACSIMILE: (602) 230-5598
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G. check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Futech Interactive Products
(Delaware) Inc. Common Stock,
$.0001 par value................ 6,500,000 shares (2) $14,269,669(2) $3,967(3)
Futech Interactive Products
(Delaware) Inc. Promissory
Notes........................... $2,600,000
Futech Interactive Products
(Delaware) Inc. Conditional
Rights.......................... (4)
Futech Toys & Games, Inc.
Promissory Notes................ $4,250,000
Guarantee or Promissory Notes of
Futech Toys & Games, Inc. by
Futech Interactive Products
(Delaware) Inc.................. (4)
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</TABLE>
(1) The specified maximum amounts of each class of securities being registered
is estimated based on the number of outstanding shares of each of the
merging companies and the terms of the Merger Agreement.
(2) Estimated solely for purposes of calculating the registration fee, in
accordance with Rule 457(f), based on the market value as of June 4, 1999,
of the Janex stock to be canceled in the mergers (i.e., $.23 per share) and
one third of the par value or stated value of the Futech stock to be
canceled in the mergers, which had an accumulated deficit as of March 31,
1999, and book value of the other securities to be canceled in the mergers,
all of which did not have a market value as of March 31, 1999.
(3) Calculated pursuant to Rule 457 (at the statutory rate of .000278 of the
maximum aggregate offering price) and paid with this filing of the
Registration Statement.
(4) The Conditional Rights consist of the promise of Futech Interactive Products
(Delaware) Inc. to issue additional stock to the former Trudy stockholders
or to exchange their stock received in the mergers for unsecured debentures
in the future under certain circumstances. Futech Interactive Products
(Delaware) Inc. is also registering under this Registration Statement its
Guarantee and all other obligations that it may have with respect to the
promissory notes to be issued by Futech Toys & Games, Inc. No separate
consideration will be received for the Conditional Rights, the Guarantee, or
any other obligations.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Subject to Completion, dated June 7, 1999
FUTECH INTERACTIVE PRODUCTS (DELAWARE) INC.
FUTECH INTERACTIVE PRODUCTS, INC.
JANEX INTERNATIONAL, INC.
TRUDY CORPORATION
FUNDEX GAMES, LTD.
DAMERT COMPANY
PROSPECTUS/PROXY STATEMENT
This prospectus/proxy statement, together with the related prospectus/proxy
statement supplement for each of the merging companies identified below,
constitutes the prospectus of Futech Interactive Products (Delaware) Inc. ("New
Futech") and Futech Toys & Games, Inc., ("New Sub") in connection with the offer
and issuance of their securities pursuant to the Merger Agreement dated as of
June 7, 1999, by and among Janex International, Inc., Futech Interactive
Products, Inc., Trudy Corporation, Fundex Games, Ltd., DaMert Company, New
Futech and New Sub. Under the Merger Agreement, first Futech and then Janex,
Trudy, and DaMert will merge with and into New Futech, which will survive the
mergers, and Fundex will merge into New Sub, which will survive as a
wholly-owned subsidiary of New Futech. Each share of outstanding stock of any of
the merging companies immediately prior to the mergers (other than dissenting
shares) will be converted into the right to receive a combination of cash,
shares of New Futech stock and promissory notes of New Futech or New Sub, each
in specified amounts for each merging company. See "DESCRIPTION OF THE MERGERS
AND THE MERGER AGREEMENT" beginning at page 14. Outstanding options for shares
of Futech, Janex, Trudy and Fundex will also be converted into options for
shares of common stock of New Futech, and employment agreements with key
executives (including affiliates of the merging companies) will provide for
additional options for New Futech common stock. Excluding any additional shares
that may be issued to Trudy stockholders if a public market develops for New
Futech stock at an initial price of less than $7.50 per share and assuming no
outstanding options or warrants are exercised prior to the mergers, a minimum
aggregate of 5,867,628 shares and a maximum aggregate of 5,955,297 shares of New
Futech common stock, a minimum aggregate of $1,018,330 and a maximum aggregate
of up to $2,116,830 in cash and a minimum aggregate of $5,751,500 and a maximum
aggregate of $6,850,000 in promissory notes of New Futech or New Sub, will be
issued to the stockholders of Janex, Futech, Trudy, Fundex and DaMert in the
mergers. In addition, certain outstanding indebtedness in the amount of
$10,000,000 is expected to be exchanged for 2,222,222 shares of New Futech
preferred stock shortly after the mergers. Former stockholders of Fundex may
exchange their New Futech common stock for the license rights in the "Phase 10"
family of games and former stockholders of Trudy may become entitled to receive
additional shares of New Futech common stock or to exchange the New Futech
shares or debentures in the future under certain circumstances.
This prospectus/proxy statement and the related prospectus/proxy statement
supplement for the applicable merging company also are being furnished to you
and the other stockholders of each merging company in connection with the
solicitation of proxies by your board of directors for use at the Special
Meeting of Stockholders at which your directors will ask you to consider and
vote upon a proposal to approve and adopt the Merger Agreement.
The mergers cannot be consummated unless: (a) stockholders of Futech,
Janex, Trudy, Fundex and DaMert, voting separately at their respective meetings
of stockholders, each approve the mergers, and (b) other conditions included in
the Merger Agreement are either satisfied or waived. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT."
This prospectus/proxy statement and the related prospectus/proxy statement
supplement are first being mailed to stockholders of Futech, Janex, Trudy,
Fundex and DaMert on or about , 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY
STATEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT SUPPLEMENT. THE PROPOSED
MERGERS ARE COMPLEX TRANSACTIONS. WE STRONGLY URGE YOU TO READ AND CONSIDER
CAREFULLY THIS PROSPECTUS/PROXY STATEMENT AND THE RELATED PROSPECTUS/PROXY
STATEMENT SUPPLEMENT IN THEIR ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO
UNDER "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus/proxy statement or the accompanying prospectus/proxy statement
supplement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus/proxy statement is , 1999.
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS/PROXY STATEMENT AND THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT SUPPLEMENT. NEITHER NEW FUTECH NOR ANY OF THE MERGING COMPANIES HAS
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEW FUTECH AND NEW SUB ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS PROXY/ STATEMENT AND THE
ACCOMPANYING PROSPECTUS/PROXY STATEMENT SUPPLEMENT IS ACCURATE ONLY AS OF THE
DATE ON THE FRONT OF THESE DOCUMENTS. THE BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PROSPECTS OF NEW FUTECH OR OF ANY OF THE MERGING COMPANIES MAY
HAVE CHANGED SINCE THAT DATE.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY..................................................... 1
Brief Description of Parties.............................. 1
New Futech's Business Strategy............................ 2
Summary Description of Merger and Merger Agreement........ 3
Conditions to the Mergers................................. 4
Dissenters' Rights; Comparison of Stockholders' Rights.... 4
Procedures for Exchange of Certificates................... 4
Phase 10 Rights of Fundex Stockholders; Conditional Rights
of Trudy Stockholders.................................. 5
Other Interests of Certain Persons in the Mergers;
Conflicts of Interest.................................. 5
Certain Federal Income Tax Consequences................... 5
Comparative Market Price and Dividend Information......... 5
Comparative Historical and Pro Forma Per Share Data....... 6
Restrictions on Resales by Affiliates of the Merging
Companies.............................................. 7
RISK FACTORS................................................ 8
DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT......... 14
Effective Time and Consequences........................... 14
Basic Terms of Merger Agreement........................... 14
Exchange of Shares........................................ 17
Background of the Mergers................................. 17
Special Arrangements Relating to New Sub and "Phase 10"
Assets................................................. 20
Employment Agreements with Affiliates..................... 21
Other Aspects of the Merger Agreement; Certain Covenants
of the Merging Companies............................... 21
Indemnification by New Futech and by Certain
Stockholders........................................... 23
Regulatory Matters........................................ 23
Conditions to Closing..................................... 23
Dissenters' Rights........................................ 24
Termination of the Merger Agreement....................... 24
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA FINANCIAL DATA.......................... 25
NEW FUTECH'S BUSINESS....................................... 33
Company Overview.......................................... 33
Competitive Advantages.................................... 34
Business Strategy......................................... 34
Sales Strategy............................................ 35
Marketing Strategy........................................ 36
Public Relations Strategy................................. 36
Growth Strategy........................................... 36
Overview of Operating Units and Their Industries.......... 39
Licensing Technology and Other Rights to Other
Companies.............................................. 44
Recent Acquisitions....................................... 45
Reasons for Mergers....................................... 46
Specific Reasons for Previous Acquisitions and Proposed
Mergers................................................ 46
Integration of Merging Companies' Facilities.............. 48
Integration of Management of Managing Companies........... 48
Strategy for Future Acquisitions.......................... 49
Product Design............................................ 49
Proprietary Product Lines................................. 50
Strategy for Licensing Characters......................... 54
Proprietary Technology and Patented Technology............ 55
Manufacturing............................................. 56
Customer Base............................................. 56
Markets................................................... 56
Competition............................................... 57
Research and Development.................................. 58
Distribution and Logistics................................ 58
Employees................................................. 58
Properties................................................ 58
Government Regulations.................................... 59
Legal Proceedings......................................... 59
NEW FUTECH'S MANAGEMENT..................................... 60
Directors and Executive Officers.......................... 60
Management Team........................................... 61
Employment Agreements..................................... 62
Executive Compensation.................................... 63
Compensation of Directors................................. 64
1999 Stock Option Plan.................................... 66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 69
NEW FUTECH'S STOCKHOLDERS................................... 72
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DESCRIPTION OF NEW FUTECH CAPITAL STOCK..................... 74
EXPERTS..................................................... 74
LEGAL MATTERS............................................... 74
WHERE YOU CAN FIND MORE INFORMATION......................... 75
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDICES
Appendix A -- Merger Agreement............................ A-1
Appendix B -- Certificate of Futech Interactive Products
(Delaware) Inc. ....................................... B-1
</TABLE>
iii
<PAGE> 6
SUMMARY
This summary should be read in conjunction with the more detailed
information appearing elsewhere in this prospectus/proxy statement and the
related prospectus/proxy statement supplement for each of the merging companies.
BRIEF DESCRIPTION OF PARTIES
NEW FUTECH. New Futech is a newly-organized Delaware corporation that has
been formed to be the surviving parent corporation under the Merger Agreement.
New Futech has had no operations prior to the date of this prospectus/proxy
statement. Under the Merger Agreement, first Futech and then Janex, Trudy and
DaMert will merge with and into New Futech, which will survive the mergers. As a
part of the mergers, New Futech will change its name to "Futech Interactive
Products, Inc." New Futech's address is:
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
NEW SUB. New Sub is a newly-organized Nevada corporation that has been
formed to be the surviving subsidiary corporation of New Futech under the Merger
Agreement. New Sub has had no operations prior to the date of this
prospectus/proxy statement. Under the Merger Agreement, Fundex will merge with
and into New Sub, which will survive that merger as a wholly-owed subsidiary of
New Futech. The stock of New Sub will be pledged to the former stockholders of
Fundex to secure the promissory notes of New Sub issued to them in connection
with the mergers. In addition, the former stockholders of Fundex who do not
elect the All Cash Alternative will receive a conditional option to purchase New
Sub's license to market the "Phase 10" family of games in 2002 in exchange for
the New Futech stock they receive in the mergers (but not the cash or promissory
notes), exercisable only if either (a) the promissory notes of New Sub are not
paid when done or (b) the stock has not achieved targeted liquidity and a
valuation of at least $7.50 per share ($4,500,000 in the aggregate, if no
stockholders elect the All Cash Alternative) within three years after the
completion of the mergers. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT." New Sub's address is:
Futech Toys & Games, Inc.
c/o Fundex Games, Ltd.
2257 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
FUTECH. Futech designs, publishes, hires subcontractors to manufacture and
markets interactive, educational, promotional and entertainment products (i.e.,
books, game boards with sound capabilities and specialty post cards) targeted
primarily towards children. Futech's patented technology utilizes specialized
conductive ink to print interactive touch points. These touch points trigger
speech, music and sound effects. Futech also distributes proprietary products,
as well as those of third party publishers, to warehouse clubs, mass market
retailers, national book chains, specialty and independent retailers and major
toy chains. Futech's address is:
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
1
<PAGE> 7
JANEX. Janex was incorporated in Colorado in 1986. Janex designs, hires
subcontractors to manufacture and markets children's toys, banks, flashlights
and battery operated toothbrushes marketed under the brand name Janex. Janex
incorporates licensed characters into many of its products, and sells its
products to United States mass merchant retailers, toy specialty stores and
department stores. Janex's address is:
Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
TRUDY. Trudy Corporation was initially organized as a Connecticut
corporation under the name "Norwest Manufacturing Corporation" in 1979. Trudy,
which does business under the name Soundprints, publishes juvenile story books
and audio-cassettes which are sold in conjunction with contract manufactured
educational toys to the retail and mail order markets. Trudy's address is:
Trudy Corporation
353 Main Avenue
Norwalk, CT 06851-1552
(203) 846-2274
FUNDEX. Fundex Games, Ltd. was originally incorporated in the State of
Indiana as "Third Quarter, Inc." in 1991. Fundex develops, markets, and
distributes a variety of games and toys for both children and adults, including:
- card games, puzzles and board games, including the Phase 10 card game and
its sister products;
- skill and action games for children;
- games, puzzles and toys featuring characters licensed from third parties;
and
- spring and summer toys for children, including jump ropes, water toys and
water games.
Fundex's address is:
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
DAMERT. DaMert Company was founded in 1973 and incorporated in 1979.
DaMert creates and produces toy and gift products targeted primarily to children
ages 6-12 with nature and science themes. Presently, the product base includes
over 200 toys, gifts and puzzles selling through catalogs, museums, department
stores, specialty stores and toy stores nationwide. DaMert's address is:
DaMert Company
1609 Fourth Street
Berkeley, California 94710
(510) 524-7400
NEW FUTECH'S BUSINESS STRATEGY
Through the mergers, New Futech will become a diversified children's
product company that designs, develops and distributes proprietary children's
products such as
2
<PAGE> 8
books, games, toys and stationary. Many of New Futech's products will
incorporate its proprietary interactive technologies, which we expect to provide
significant competitive advantages when combined with the synergy of the five
merging companies.
We expect to operate using an entrepreneurial style of management with five
separate business operating units. Each unit will have a vice president
responsible for its performance, including day-to-day operations, products and
sales. Corporate management and staff will be responsible for support and
coordination of the five business units.
New Futech's objective is to become a significant designer, developer and
distributor of affordable children's products. While the mergers are a major
step toward achieving this objective, New Futech intends to expand product
lines, enhance product brand awareness, enhance operational efficiencies, expand
distribution, strengthen and accelerate research and development, penetrate
international markets, raise additional capital, capitalize on proprietary brand
names and pursue additional, big name licenses, enhance gross profit margins,
enter supplementary education channels of distribution, and take advantage of
expected public relations opportunities.
New Futech will begin with a diversified base of established retail
customers (representing over 26,000 retail locations) that we believe will allow
us to significantly expand sales, especially the distribution of our proprietary
products. With our experienced management team, we believe the mergers will
provide the opportunity to sustain profitable growth into the future.
SUMMARY DESCRIPTION OF MERGER AND MERGER AGREEMENT
Under the Merger Agreement, first Futech and then Janex, Trudy, and DaMert
will merge with and into New Futech, which will survive the mergers, and Fundex
will merge into New Sub, which will survive as a wholly-owned subsidiary of New
Futech. Each share of outstanding stock of any of the merging companies
immediately prior to the mergers (other than dissenting shares) will be
converted into the right to receive a combination of cash, shares of New Futech
stock, and promissory notes of New Futech or New Sub, each in specified amounts
for each merging company. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT." Outstanding options for shares of Futech, Janex Trudy and Fundex
will also be converted into options for shares of common stock of New Futech,
and employment agreements with key executives (including affiliates of the
merging companies) will provide for additional options for New Futech Common
Stock. Assuming no outstanding options or warrants are exercised prior to the
mergers, a minimum aggregate of 5,865,297 and a maximum aggregate of up to
5,955,297 shares of New Futech common stock, a minimum aggregate of $1,018,330
and a maximum aggregate of up to $2,116,830 in cash and a minimum aggregate of
$5,751,500 a maximum aggregate up to $6,850,000 in promissory notes of New
Futech or New Sub will be issued to the shareholders of Janex, Futech, Trudy,
Fundex and DaMert in the mergers, not counting conversions of outstanding
options or new options granted in connection with employment agreements. Certain
outstanding indebtedness in the amount of $10,000,000 is expected to be
exchanged for 2,222,222 shares of New Futech preferred stock shortly after the
mergers. In addition, unless the New Futech stock becomes publicly traded at a
value of at least $7.50 per share by the fifth anniversary of the closing, Trudy
shareholders will receive additional shares or a right to exchange their shares
for five year debentures under certain circumstances. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT."
3
<PAGE> 9
Fundex will merge with and into New Sub, which will survive that merger as
a wholly-owed subsidiary of New Futech. The stock and assets of New Sub will be
pledged to the former stockholders of Fundex to secure the promissory notes
issued to them in connection with the mergers. In addition, the former
stockholders of Fundex will receive a conditional option to purchase New Sub's
license to market the "Phase 10" family of games in 2002 in exchange for the New
Futech stock they receive in the mergers (but not the cash or promissory notes),
exercisable only if the promissory notes have not been repaid or the New Futech
stock received by the former Fundex stockholders in the mergers has not achieved
targeted liquidity and a valuation of at least $7.50 per share (an aggregate of
$4,500,000 if no Fundex stockholders elect the All Cash Alternative in the
mergers) within three years after the completion of the mergers. See
"DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT."
CONDITIONS TO THE MERGERS
The mergers cannot occur unless each class of outstanding voting stock of
each of the merging companies, by the affirmative vote of a majority of the
outstanding shares, votes to approve the mergers. Futech has the right to
terminate the Merger Agreement if holders who are otherwise entitled to receive
5% or more of the aggregate merger consideration to stockholders of all of the
merging companies combined (based on an assumed value of $7.50 per share of New
Futech common stock) exercise their dissenters' rights with respect to the
mergers. The mergers are also subject to a number of conditions of the type that
are customary in business combination transactions. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT."
DISSENTERS' RIGHTS; COMPARISON OF STOCKHOLDER RIGHTS
Each stockholder of each of the merging companies will have the right to
dissent from the mergers and receive the fair value of his or her stock instead
of receiving the merger consideration described in the Merger Agreement. The
particular requirements applicable to the stockholders of each merging company
who may wish to dissent are described in the prospectus/proxy statement
supplement for that merging company. The prospectus/proxy statement supplement
also compares the rights of stockholders of the merging company under its
articles or certificate of incorporation, bylaws and applicable state law with
the rights of stockholders of New Futech under its certificate of incorporation,
bylaws and Delaware law. Copies of the supplements provided to the stockholders
of any merging company will be provided without charge upon request to New
Futech by any stockholder of another merging company.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the effective time of the mergers, the exchange agent under
the Merger Agreement will mail to each record holder of an outstanding share of
stock of any of the merging companies, other than stockholders who perfect their
dissenters' rights under applicable law, a form of letter of transmittal and
instructions for use in surrendering their old stock certificates for
certificates representing shares of New Futech stock, promissory notes and cash.
Until surrendered as contemplated in the merger agreements, and except for
stockholders who dissent, after the mergers the old stock certificates will
represent only the right to receive the applicable consideration under the
Merger Agreement, without interest. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Exchange of Shares."
4
<PAGE> 10
PHASE 10 RIGHTS OF FUNDEX STOCKHOLDERS; CONDITIONAL RIGHTS OF TRUDY STOCKHOLDERS
If the mergers occur, the former stockholders of Fundex will receive, in
addition to the cash, promissory notes of New Sub and stock of New Futech
described herein, the right, during a 60 day period beginning three years after
the mergers occur, to exchange all of the New Futech stock they received in the
mergers (but not stock received pursuant to stock options) for the "Phase 10"
license rights acquired by New Sub from Fundex in the mergers. Also, New Sub has
pledged its assets (subordinated to certain indebtedness) and New Futech has
pledged all of the stock of New Sub to secure payment of the one year promissory
notes issued to the former Fundex stockholders and has made certain other
promises related to the capitalization and operation of the Phase 10 assets. See
"CERTAIN TRANSACTIONS." Unless the New Futech becomes publicly traded at a value
of at least $7.50 per share by the fifth anniversary of the mergers, Trudy
stockholders will receive additional shares or a right to exchange their shares
for five year debentures. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT."
OTHER INTERESTS OF CERTAIN PERSONS IN THE MERGERS; CONFLICTS OF INTEREST
Some of the current officers and directors of the merging companies will
become officers, directors and employees of New Futech after the merger, and
some of them or their affiliates will receive employment contracts or other long
term service contracts with New Futech. In addition, New Futech has promised to
repay certain indebtedness of the merging companies to those persons and has
promised to secure the release of their outstanding personal guarantees and
collateral pledges with respect to outstanding obligations of certain of the
merging companies. See "CERTAIN TRANSACTIONS." These agreements could create a
conflict of interest for the affected officers and directors of the merging
companies. The board of directors of each merging company was aware of these
conflicts and considered them and other matters in determining that they should
recommend approval of the mergers. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Background of the Mergers" and "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The mergers are intended to be "tax free reorganizations" so that no gain
or loss will be recognized by either the merging companies or their stockholders
with respect to the portion of the merger consideration that consists of common
stock of New Futech, except that a gain or loss will be recognized by the
minority shareholders of Janex in connection with its merger into New Futech.
Gain or loss also will be recognized by the other stockholders with respect to
the portion of the merger consideration to them that consists of cash (including
cash in lieu of fractional shares), or promissory notes, or certain other
property of New Futech or New Sub. However, no request has been or will be made
for a ruling from the Internal Revenue Service. We urge the stockholders of each
of the merging companies to consult their own tax advisors regarding all tax
consequences of the mergers. See "THE MERGERS AND RELATED
TRANSACTIONS -- Certain Federal Tax Matters" in the prospectus/proxy statement
supplement applicable to each merging company.
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
There is no public trading market for the securities of New Futech or of
Futech, Fundex or DaMert. For purposes of the merger negotiations, the parties
valued New
5
<PAGE> 11
Futech stock at about $7.50 per share, though no appraisal or other independent
valuation was obtained. Janex common stock is traded on the OTC Bulletin Board
under the symbol "JANX." Janex Preferred Stock is not traded. There is no
established public trading market for Trudy common stock, although it is traded
sporadically on the OTC Bulletin Board under the symbol "TRDY." The following
table sets forth the high and low bid prices per share for the Janex common
stock for each fiscal quarter from January 1, 1997, through May 29, 1999, as
reported by the National Association of Securities Dealers and the OTC Bulletin
Board and as adjusted to reflect the conversion of shares of Janex stock not
held by Futech into shares of common stock of New Futech in the mergers. The
historical quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and do not necessarily represent actual transactions. On
June 4, 1999 (the business day before the Merger Agreement was signed), the
closing price of the Janex common stock was $0.23 per share.
<TABLE>
<CAPTION>
PRICE PER
NEW FUTECH
SHARE RECEIVED IN
HISTORICAL PRICES MERGERS
------------------ ------------------
JANEX COMMON STOCK HIGH LOW HIGH LOW
- ------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
1st Quarter..................... $1.44 $ .56 $43.20 $16.80
2nd Quarter..................... .75 .31 22.50 9.30
3rd Quarter..................... .67 .05 20.10 1.50
4th Quarter..................... .55 .13 16.50 3.90
Year Ended December 31, 1998
1st Quarter..................... 0.50 0.19 15.00 5.70
2nd Quarter..................... 0.48 0.19 14.40 5.70
3rd Quarter..................... 0.24 0.07 7.20 2.10
4th Quarter..................... 0.39 0.12 11.70 3.60
Year Ending December 31, 1999
1st Quarter..................... 0.35 0.17 10.50 5.10
2nd Quarter (through May 29,
1999)........................ 0.27 0.20 8.10 6.00
</TABLE>
As of March 31, 1999, there were approximately 781 and one stockholder(s)
of record of Janex common and preferred stock, respectively, as shown on the
records of its transfer agent. On the same date, there were 61 record holders of
Fundex common stock, 126 record holders of Futech common stock, three record
holders of Futech preferred stock, one record holder of DaMert common stock and
1,484 holders of Trudy common stock.
None of the merging companies has paid dividends on its common stock and
none of them anticipates paying dividends in the foreseeable future.
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
New Futech is a newly organized corporation with no historical operations.
For information about the pro forma net income and book value per share of New
Futech and the historical and equivalent pro forma per share data of each of the
merging companies, see "COMPARATIVE PER SHARE DATA."
6
<PAGE> 12
RESTRICTIONS ON RESALES BY AFFILIATES OF THE MERGING COMPANIES
In connection with the mergers, we expect each affiliate of any of the
merging companies will not be permitted to sell shares of New Futech Common
Stock received in the mergers except in compliance with Rule 145 or otherwise in
compliance with the Securities Act.
7
<PAGE> 13
RISK FACTORS
In addition to the other information included in this prospectus/proxy
statement and in the prospectus/proxy statement supplement applicable to you,
you should carefully consider the risks described below in determining whether
to approve the Merger Agreement.
NEW FUTECH WILL INITIALLY DEPEND HEAVILY ON BORROWINGS.
Based on the most recently available balance sheets of each of the merging
companies and the terms of the Merger Agreement (including the required payments
of cash and promissory notes to stockholders of the merging companies), after
the mergers New Futech's consolidated current assets will be about $15,000,000,
its consolidated current liabilities will be about $38,000,000, its total
consolidated liabilities will be about $52,700,000, and its consolidated
tangible net worth will be about $2,900,000. Thus, about 95% of New Futech's
total consolidated capital will be from borrowings. Of this amount, $3,500,000
is under loan agreements that are currently in default and will need to be
replaced or renegotiated shortly after the mergers. The high level of borrowing
poses substantial risks to New Futech and its stockholders, which may include:
- New Futech may be unable to obtain necessary funding or to replace
existing loan agreements that are in default;
- New Futech will incur additional borrowing costs if interest rates rise;
and
- New Futech will be more vulnerable to competition, downturns in its
business and general economic factors.
Also, New Futech may not be able to further expand or replace current
sources of borrowing with ones equally or more favorable to New Futech, which
may limit its ability to expand or may force it to discontinue some of its
operations.
NEW FUTECH WILL NEED ADDITIONAL EQUITY WITHIN THE NEXT SEVERAL MONTHS.
Our high initial debt and the capital needed to grow its business as
planned will require it to raise additional capital in the public or private
debt or equity markets soon after the mergers. If we are unable to obtain the
needed capital, we may be required to sell some or all of our assets, and we may
be unable to continue as a going concern.
THE MERGERS AND OTHER RECENT GROWTH PLACE NEW DEMANDS ON NEW FUTECH'S
MANAGEMENT.
Substantial risks are presented by the merger of the five companies and by
the recent acquisitions and other structural changes by several of those
companies. These risks include:
- potential losses or inefficiencies from integrating new people and
operations;
- extra costs of making technical, operational and administrative changes;
- extra efforts required for creating and preserving relationships with new
suppliers and customers;
- potential losses from management's focus on other challenges; and
- higher costs from reliance on outside sources for working capital.
8
<PAGE> 14
We cannot be certain we will be successful in managing these risks and
minimizing these additional costs. Indeed, Janex's revenues and operating
results declined significantly in the first quarter following Futech's
acquisition of a controlling interest in Janex, partly for these reasons.
NEW FUTECH AND THE MERGING COMPANIES HAVE NO COMBINED OPERATING HISTORY.
Although this prospectus/proxy statement includes certain pro forma
operating and balance sheet information for the combined enterprise after the
mergers occur, all of the merging companies are still operating more or less
independently. Stockholders should not assume its historical operations would
have matched that information had the mergers occurred at the beginning of 1998,
or that its future operations will do so. Combining the operations could
increase costs or reduce revenues or both.
NEW FUTECH COULD LOSE KEY PERSONNEL.
New Futech's success for the foreseeable future will depend upon the
efforts of all of its executive officers, many of whom are entrepreneurs who
have little experience working cooperatively within a management structure and
who have not had occasion to work cooperatively with each other in the past.
Strains from these new relationships, as well as normal attrition, could cause
the loss of key personnel, which could lead to less effective management and
unfavorable operating results. New Futech will not maintain key person life
insurance on the lives of any of its executive officers, and it might be unable
to prevent key people from leaving to work in other enterprises, even
competitive ones.
NEW FUTECH COULD LOSE KEY RELATIONSHIPS WITH THIRD PARTIES.
New Futech is highly dependent upon preserving mutually beneficial
relationships with a variety of third parties, including:
- contract manufacturers for each of its product lines, some of whom would
be difficult or impossible to replace on short notice;
- large retail chains that purchase substantial portions of some product
lines;
- key licensing relationships with inventors, authors, publishers and
others; and
- key relationships with banks and other sources of debt and equity
financing.
Although the mergers may reduce these risks somewhat compared with the
individual merging companies by increasing the number of product lines and
distribution channels, the disruption of any of these key relationships for any
reason would materially and adversely affect our financial condition and results
of operations.
NEW FUTECH'S INTERACTIVE TALKING PAGES TECHNOLOGY USES A SPECIALIZED
MANUFACTURING PROCESS.
The manufacturing process of New Futech's interactive talking Pages
technology utilizes a specialized process and specialized equipment to print and
cure conductive ink and dielectric material to the structure of the pages in the
book or gameboard. A major printing company in Hong Kong and China is currently
the Company's sole manufacturer to perform the printing and binding process for
books that incorporate this technology. If Futech is forced to use another
printer, New Futech could experience serious delays and/or possible cost over-
runs during the transition.
9
<PAGE> 15
NEW FUTECH COULD BE HARMED BY UNKNOWN OR UNDISCLOSED LIABILITIES OR OTHER
PROBLEMS OF THE MERGING COMPANIES.
As the surviving corporations in the mergers, New Futech and New Sub will
be responsible for all liabilities and obligations of all of the merging
companies, whether or not they were known or disclosed to the other parties
prior to the mergers, and they may have no recourse or only limited recourse
against the former stockholders of a merging company with unanticipated
liabilities or other problems.
NEW FUTECH COULD OWE ADDITIONAL STOCK OR NOTES IN THE MERGERS OR COULD LOSE THE
RIGHTS TO THE PHASE 10 LICENSE OR OTHER ASSETS.
If New Sub fails to pay the promissory notes issued to the former
shareholders of Fundex when due, they could foreclose on the stock of New Sub
and effectively take back the business of Fundex and any profits from Janex's
toy business. Also, unless either (a) Futech or another party offers to buy for
at least $7.50 per share the Futech stock acquired in the mergers by those
Fundex stockholders who do not elect the All Cash Alternative or (b) by the
third anniversary of the mergers the New Futech stock develops an active trading
market at an average price of $7.50 per share, those former Fundex stockholders
will have the right to exchange their New Futech stock for the license rights to
the "Phase 10" family of games. Similarly, the former Trudy stockholders will
receive additional New Futech common stock if and to the extent New Futech's
initial public trading price is less than $7.50 per share, and they also will
have the right to exchange their New Futech stock for promissory notes if the
New Futech stock is not publicly traded within five years after the mergers.
Thus, if New Futech's business or stock price performs more poorly than the
parties hope and expect, or if New Futech is unable to create a public market
for its stock, New Futech could lose a valuable portion of its toys and games
operations, or it could be required to issue additional stock or promissory
notes. We cannot accurately predict these matters.
FUTURE ACQUISITIONS MAY CREATE TRANSITIONAL CHALLENGES.
New Futech's business strategy includes further growth through strategic
acquisitions, though we have not yet committed to any further business
combinations or acquisitions. This business strategy depends upon the
availability of suitable merger or acquisition candidates at reasonable
valuations, upon New Futech's ability to obtain capital for those transactions
and upon New Futech's ability to quickly resolve transitional challenges. These
transitional challenges include:
- integration of product lines, sales forces and contract manufacturers;
- decisions regarding divestitures and other charges;
- extra costs associated with employee turnover or layoffs;
- risks of disruption in production or delivery cycles; and
- loss of sales momentum, among others.
We have only limited experience in managing these challenges, and we cannot
assure you that we will be able to do so successfully.
NEW FUTECH'S INTERNATIONAL OPERATIONS POSE SPECIAL POLITICAL AND ECONOMIC RISKS.
Some of New Futech's manufacturing and product sourcing operations are
based in China and elsewhere in the Pacific Rim. See "DESCRIPTION OF NEW
FUTECH'S
10
<PAGE> 16
BUSINESS." These international operations present New Futech with special risks,
including those associated with:
- new regulatory requirements;
- foreign currency fluctuations;
- trade or foreign currency exchange restrictions;
- potential political or economic instability; and
- cultural differences.
We cannot assure you that we will be successful in managing all of these
risks.
NEW FUTECH'S PRODUCTS COULD BECOME OBSOLETE OR COULD LOSE FAVOR WITH CONSUMERS.
Consumer tastes and preferences can change rapidly in our markets, and
competing products or new technologies for responding to consumer needs and
wishes can be introduced at any time. Our success will depend upon our ability
to deliver products which consumers desire at acceptable prices. The success of
our products depends upon a number of factors, including:
- creating or obtaining the successful product ideas;
- completing an attractive and appropriate product design in a timely and
efficient fashion;
- arranging for the manufacture and assembly of the products in a timely
and efficient manner;
- designing and implementing effective sales and marketing strategies; and
- delivering the product on time, on budget, and in high quality.
We cannot assure you that we will succeed in designing and producing
products which consumers desire at the times they want those products and at
prices they are willing to pay. If we do not consistently succeed in these
respects, that failure will have adverse effects on our results of operations
and financial condition.
MARKET DEMAND FOR NEW FUTECH'S PRODUCTS MAY DECLINE.
The demand for New Futech's products depends upon economic and competitive
conditions and consumer preferences in the markets and product lines in which it
competes or may compete in the future. A portion of the merging companies'
product lines have experienced recent sales declines, are always subject to
sales fluctuations, and we cannot be sure there will not be further declines, or
declines for other of our product lines, in the future.
NEW FUTECH'S PRODUCTS ARE IN HIGHLY COMPETITIVE MARKETS.
Many companies compete with New Futech with respect to one or more of its
products, and some of those companies have greater financial and other resources
than we do. Our anticipated product lines are also in highly competitive
industries. Raw material and contract manufacturing costs fluctuate and we
cannot always match cost increases with increases in the prices of our products.
To compete successfully, our products must excel in terms of technology, design,
quality, price competitiveness, durability and safety, and
11
<PAGE> 17
they must reach the consumer quickly and through convenient and efficient
distribution channels. We cannot assure you that we will be able to meet each of
these requirements better than our competitors.
OUR GEOGRAPHICALLY DISBURSED OPERATIONS PRESENT MANAGEMENT AND LOGISTICAL
CHALLENGES.
We will initially have operations in California, Wisconsin, Indiana,
Illinois, New Jersey and Connecticut, as well as in China through its Hong Kong
subsidiaries. Most of our vendor manufacturers for its products are in Asia. Our
expected substantial number of diverse and geographically disbursed operations
may make it more difficult to quickly identify both opportunities and
operational difficulties and to respond to them appropriately. They also create
logistical difficulties in assuring the timely and efficient delivery of raw
materials and components to the manufacturing locations and finished products to
our customers.
OUR REVENUES AND FINANCIAL RESULTS VARY FROM QUARTER TO QUARTER.
Most of our products are often purchased as gifts, so a substantial portion
of our production must occur in advance of, and a substantial portion of our
sales generally occur during, the holiday selling seasons. This and other
factors are likely to cause our operating results to vary significantly from
quarter to quarter.
NEW FUTECH MUST CONTEND WITH THE YEAR 2000 ISSUE.
The Year 2000 issue concerns the potential exposure related to the
erroneous generation of business and financial information resulting from the
fact that certain computer systems and programs use two digits, rather than
four, to define the applicable year of business transactions and other matters
involving time or date functions. These programs may process data incorrectly or
stop processing data altogether. We rely heavily on vendor supplied technology
and recognize the potential business risks if either our systems or those of our
suppliers, customers, shippers, sales agents or others experience substantial
disruptions.
STOCKHOLDERS WILL NOT RECEIVE DIVIDENDS FOR THE FORESEEABLE FUTURE.
Our highly leveraged financial structure, together with the substantial
capital requirements we will need to expand our current product lines and
distribution channels and to make strategic acquisitions, make it unlikely that
dividends will be paid on our common stock for the foreseeable future.
STOCKHOLDERS MAY BE UNABLE TO TRADE THE NEW FUTECH STOCK.
There is currently no public market for our common stock and other
securities that stockholders will receive in the mergers. Although we have
promised to use our best efforts to obtain a listing of the common stock on a
nationally recognized exchange or market at the earliest practical opportunity,
it cannot predict whether our common stock will trade actively. The promissory
notes that we will issue in the mergers will not trade on any market.
THERE HAS BEEN NO INDEPENDENT VALUATION OF THE NEW FUTECH STOCK.
None of the companies participating in the mergers engaged an independent
financial advisor to provide an estimate of value of any of the merging
companies or of New Futech
12
<PAGE> 18
or an opinion concerning the fairness of the merger consideration to be received
by the stockholders. Even if an active trading market develops for the New
Futech common stock, we have no independent basis for any prediction about the
price levels at which it might be expected to trade.
NEW FUTECH'S CHARTER PROVISIONS MAY DISCOURAGE TAKE-OVER OFFERS.
Our directors are elected for three year terms and can be removed from
office during their terms only for "cause." In addition, as a Delaware
corporation, we are subject to certain restrictions on "business combinations"
with "interested stockholders." These provisions may tend to discourage
take-over offers that are not supported by our current management, even if those
offers may be in the best interests of the stockholders.
NEW FUTECH HAS AN UNRESOLVED DISPUTE ARISING FROM A PRIOR ACQUISITION.
We have an unresolved dispute with Gary R. "Joe" Billings arising from
Futech's acquisition of XYZ in 1998 and termination of his contract for cause.
New Futech could be required to pay Mr. Billings alleged damages of $1,150,000
plus costs and attorneys' fees, resulting from an alleged wrongful termination.
New Futech admits it owes Mr. Billings certain other amounts in connection with
the acquisition. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus/proxy statement and each related prospectus/proxy statement
supplement contains or incorporates by reference forward-looking statements. The
factors identified above in this section are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, New Futech or any of the merging companies.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, we caution that,
while such assumptions or bases are believed to be reasonable and are made in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. We cannot promise that statements of
expectation or belief will be achieved or accomplished. The words "believe,"
"expect," and "anticipate" and similar expressions identify forward-looking
statements throughout these materials.
13
<PAGE> 19
DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT
EFFECTIVE TIME AND CONSEQUENCES
Provided that all conditions to the consummation of the mergers contained
in the Merger Agreement have been satisfied or waived, the mergers will become
effective at 11:59 p.m. on the date that the certificate of merger or other
appropriate documents are filed with the applicable government officer or
agencies in the states in which each of the merging companies is incorporated
(the "Effective Time"). It is anticipated that the Effective Time will occur on
the date of closing of the Merger Agreement ("Closing"). Assuming the
stockholders of each of the merging companies have approved the mergers at their
respective stockholders' meetings, the Closing is expected to take place on or
about September 6, 1999 ("Closing Date"), although no assurance can be given in
this regard and the parties have the discretion to agree upon a different date.
As of the Effective Time, (a) first Futech and then Trudy, Janex and DaMert
will merge with and into New Futech, with New Futech continuing in existence as
the surviving corporation and changing its name to "Futech Interactive Products,
Inc." and (b) Fundex will merge with and into New Sub, which will be the
surviving corporation and a wholly-owned subsidiary of New Futech. New Futech
will possess all the properties, assets and rights of Futech, Trudy, Janex and
DaMert and will similarly become liable for all debts, liabilities and other
obligations of Futech, Trudy, Janex and DaMert. Similarly, New Sub will possess
all the properties, assets and rights of Fundex and will similarly become liable
for all debts, liabilities and other obligations of Fundex. The Board of
Directors and the executive officers of New Futech and New Sub will be the
persons described under the heading "NEW FUTECH'S MANAGEMENT." Some executive
officers of the merging companies will become employees of the surviving
corporation under revised job titles. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." The Certificate of Incorporation and Bylaws of New Futech that
are attached as Appendix B will be the Certificate of Incorporation and Bylaws
of New Futech without any amendment except the name change mentioned above.
BASIC TERMS OF MERGER AGREEMENT
CONVERSION OF OUTSTANDING STOCK INTO CASH, STOCK AND PROMISSORY NOTES OF NEW
FUTECH OR NEW SUB
At the Effective Time of the Mergers, and on the terms described in the
Merger Agreement, all of the issued and outstanding shares of common stock of
each of the merging companies (other than any shares held by another merging
company or by New Futech or New Sub, all of which shall be canceled, and
dissenting shares (see "Dissenters' Rights")), will be converted into the right
to receive the consideration described in the table below.
However, the Merger Agreement provides that the holders of up to
approximately 29% of the outstanding stock of Fundex (i.e. all Fundex
stockholders except Carl E. Voigt, III and Carl E. Voigt, IV, who have agreed
not to receive this right) may elect instead to receive cash at the rate of
$2.84 per Fundex share (the "All Cash Alternative"). In that case the remaining
Fundex stockholders will receive:
- a one year promissory note in an aggregate amount equal to $4,500,000
minus the amount paid to stockholders who elect the All Cash Alternative;
plus
- approximately .3693 shares of New Futech common stock per Fundex share;
plus
14
<PAGE> 20
- their pro rata proportion (shared among all Fundex stockholders who do
not elect the All Cash Alternative) of .184635 shares of New Futech for
each of the Fundex shares as to which the All Cash Alternative is
selected.
In addition, if at the time the New Futech common stock is first traded and
listed on a U.S. registered securities exchange, its average closing price over
a specified 15 day period is less than $7.50 per share, the former Trudy
stockholders will receive additional shares of New Futech common stock in an
amount sufficient to cause the value of all such stock issued to them to equal
$3,000,000. If by the fifth anniversary of the closing the New Futech common
stock is still not publicly traded as described above, each former Trudy
stockholder will have the right to exchange New Futech stock for unsecured five
year debentures bearing interest at prime and with a principal amount equal to
$7.50 per share exchanged.
An aggregate of $10,000,000 of Futech indebtedness to three of its
stockholders will become indebtedness of New Futech after the mergers that will
thereafter be exchanged for 2,222,222 shares of New Futech Series A convertible
preferred stock with substantially similar terms and conditions as the Futech
preferred stock except that the new preferred stock will bear a dividend equal
to 10% of the related investment amount per annum.
The table below does not include options issued in connection with
employment agreements or options issued in exchange for outstanding options of
the merging companies. It assumes that no currently outstanding options or
warrants are exercised prior to the mergers except that it assumes that all
outstanding options for Trudy common stock will be exercised prior to or in
connection with the mergers. If any outstanding options for Trudy common stock
are not exercised, the portion of the merger consideration allocable to those
shares will be reserved by New Futech pending their later exercise. The
consideration payable with respect to outstanding shares will not be affected.
Options and warrants for common stock of Futech or Janex will be converted into
options for New Futech stock in the ratio of one New Futech share for every 30
Janex or Futech shares.
The table has been adjusted to reflect the fact that approximately 79% of
the stock of Janex is owned by Futech, so 607,728 shares (the applicable
proportion) of the stock of New Futech that otherwise would be issued to
stockholders of Janex is included in the valuation of Futech and therefore is
being issued directly to stockholders of Futech as though they owned the Janex
stock directly. This does not effect the per share consideration to be received
by Janex stockholders.
15
<PAGE> 21
The table below also assumes that options for 52.63 shares of DaMert common
stock will be exercised immediately before the mergers and 42.10 shares of
DaMert common stock will be issued in exchange for outstanding stock
appreciation rights. A total of $200,000 in cash and 21,333 shares of New Futech
common stock will be paid by New Futech to the business broker for DaMert.
<TABLE>
<CAPTION>
APPROXIMATE PER SHARE
AGGREGATE CONSIDERATION CONSIDERATION
--------------------------------------- ----------------------------
COMMON COMMON
MERGING COMPANY CASH NOTES SHARES CASH NOTES SHARES
- --------------- ---------- ---------- ------------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Futech............... $ 0 $ 0 4,121,920 $ 0 $ 0 .0391
Janex................ 0 0 162,230 0 0 .0333
Fundex(1)............ 250,000 4,250,000 600,000 .1539 2.6157 .3693
Trudy(2)............. 456,330 0 400,000 .0012 0 .0011
DaMert(3)............ 312,000 2,600,000 671,147 285.00 2,375.00 613.07
---------- ---------- ---------
Totals............... $1,018,330 $6,850,000 5,955,297
</TABLE>
- -------------------------
(1) The notes to the former Fundex stockholders, which will be due one year
after closing and bear interest at the rate of 10% per annum until due, will
be issued by New Sub and secured by a subordinated pledge of its assets and
a pledge of the New Sub stock. The notes will also be fully and
unconditionally guaranteed by New Futech. The notes will also be fully and
unconditionally guaranteed by New Futech. The amounts shown assume that no
Fundex stockholders elect the All Cash Alternative described above. If
stockholders elect the All Cash Alternative with respect to approximately
29% of Fundex's outstanding shares (the maximum possible amount under the
Merger Agreement), they would receive $1,348,500 in cash. The remaining
Fundex stockholders would receive an aggregate of $3,151,500 in Notes of New
Sub (approximately $2.7404 per remaining Fundex share) and an aggregate of
512,331 common shares of New Futech (approximately .4455 New Futech shares
per Fundex share). Substantial penalties will apply should New Futech
default on its payment obligations on the promissory notes.
(2) The amounts shown in the "Aggregate Consideration" columns assume that all
outstanding options for Trudy common stock are exercised prior to or in
connection with the mergers. If any options are not exercised prior to the
mergers the aggregate merger consideration will be proportionately reduced,
but the consideration per outstanding Trudy share will not be affected.
Trudy stockholders may in the future receive additional shares of New Futech
common stock, or may obtain the right to exchange their New Futech common
stock for a five-year debenture, all as described above.
(3) The notes of New Futech that are issued to the DaMert stockholders will be
secured by a lien on the DaMert assets that is subordinated to DaMert's
existing or refinanced bank debt. The Notes are payable, without interest,
$520,000 within 30 days after the closing and the remaining $2,080,000
within seven months after the closing. Substantial penalties will apply
should New Futech default on its payment obligations on the promissory
notes, including the issuance of additional New Futech stock.
16
<PAGE> 22
EXCHANGE OF SHARES
At or before the Effective Time, New Futech will deposit with American
Securities Transfer & Trust, Inc. (or another bank or trust company selected by
Futech), in its capacity as exchange agent under the Merger Agreement (the
"Agent"), the cash, promissory notes, options and stock of New Futech payable
pursuant to the terms of the Merger Agreement.
Promptly after the Effective Time, the Agent will mail to each record
holder of an outstanding certificate or certificates, which immediately prior to
the Effective Time represented outstanding shares of any of the merging
companies (the "Certificates"), a form letter of transmittal (the "Transmittal
Form") and instructions for use in effecting the surrender of Certificates in
exchange for the corresponding portion of the merger consideration. Stockholders
should not surrender their Certificates with their proxy cards. Upon surrender
to the Agent of a Certificate, together with the Transmittal Form duly executed
and any other required documents, the holder of the Certificate will be entitled
to receive in exchange therefor the corresponding portion of the merger
consideration and such Certificate will then be canceled. No interest will be
paid or accrued on the merger consideration payable upon the surrender of the
Certificate. If payment is to be made to a person other than the person in whose
name the Certificate surrendered is registered, it will be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Agent that such tax has been paid or is not
applicable. Until so surrendered, each Certificate (other than Certificates
representing Dissenting Shares) shall represent for all purposes solely the
right to receive the corresponding portion of the merger consideration, without
any interest thereon. Any funds remaining with the Agent six months following
the Effective Time shall be delivered to New Futech, after which time former
stockholders of and of the merging companies, subject to applicable law, shall
look only to New Futech for payment of their claims for the merger consideration
for their shares, without interest.
After the close of business on the day prior to the Effective Time, there
no stock transfers will be permitted on the stock transfer books of any of the
merging companies. If, after the Effective Time, Certificates are presented to
the surviving corporation, they will be canceled and exchanged as provided
above.
BACKGROUND OF THE MERGERS
APRIL, 1998
Mr. Vincent W. Goett, Chairman and CEO of Futech, telephoned Les Friedland,
President of Janex, to express interest in Janex and a possible merger of the
two companies.
AUGUST, 1998
Mr. Goett arranged for Janex's executives and counsel to visit Futech's
Phoenix, Arizona offices. During the meeting, the possibilities of a merger
between the two companies were discussed as well as a review of the products and
financial condition of Janex. At the end of the meeting, a tentative agreement
was reached resulting in a proposed term sheet drafted by Futech's counsel.
Subsequent to the visit, negotiations continued regarding Futech's acquisition
of shares and debt from certain stockholders of
17
<PAGE> 23
Janex holding a majority of Janex's common stock. The negotiations culminated in
a Letter of Intent between Futech and those Janex stockholders dated August 24,
1998. Beginning August 30, 1998 and lasting for approximately a week, members of
Futech management and counsel visited the offices of Janex to perform due
diligence procedures.
SEPTEMBER, 1998
On September 3, 1998, Mr. Goett telephoned Chip Voigt, President of Fundex,
to express interest in working together on the development, marketing and
production of certain game products utilizing Futech's proprietary technology
and exploring additional business synergies between the companies. On September
11, 1998, Mr. Goett arranged for Fundex executives to visit the Futech offices
in Phoenix. During the meeting, they toured the Futech facilities and discussed
Futech's proprietary technologies, Fundex' proprietary products, Fundex's
distribution facility, Fundex's sales network, and the possibilities for a
merger between the two companies.
On September 30, 1998, the Stock Purchase and Sale Agreement between
certain majority Janex stockholders and Futech was signed. Pursuant to that
agreement, Futech acquired a controlling interest in Janex on December 11, 1998.
NOVEMBER, 1998
In early November, 1998, Mr. Goett, having become aware of Trudy's interest
in acquisition candidates, placed a telephone call to William W. Burnham,
Trudy's CEO. Trudy's CFO, William Carney, returned the call to Mr. Goett. After
reviewing Futech's recent history and acquisition strategy, Mr. Goett expressed
interest in learning more about Trudy. A confidentiality agreement between the
two companies was signed on November 11, 1998. On November 16 and 17, 1998 at an
annual strategic planning retreat, Trudy management decided to continue merger
negotiations with Futech. On November 23 and 24, 1999, a meeting was held at
Futech's Phoenix offices with Futech management and Trudy management and
principal advisor. Basic terms of an agreement for Futech to acquire Trudy were
agreed to at these meetings.
DECEMBER, 1998
On December 11, 1998, details of the terms pursuant to which Futech would
acquire Trudy were discussed at a special Trudy Board of Directors meeting. The
terms were unanimously approved. On December 18, 1998, a Letter of Intent was
signed by both Trudy and Futech.
On December 11, 1998, the basic terms of a merger of Futech with and into
Janex were approved by the Board of Directors of Janex, subject to approval of
the stockholders of both companies. The parties later agreed to revise their
agreement to include all of the merging companies.
JANUARY, 1999
On January 7, 1999, Fundex's President, Chip Voigt, and Fundex's counsel
met with Mr. Goett and Mr. Melvin J. Sauder, Futech's President, to further
discuss the structure of a possible merger of Futech and Janex.
On January 16, 1999, DaMert's consultant was informed by a Futech
consultant that Futech was a prospective strategic buyer for DaMert. Futech's
consultant introduced
18
<PAGE> 24
DaMert to Mr. Goett, in a January 25, 1999 meeting, where Mr. Goett was provided
a detailed written information book about DaMert.
FEBRUARY, 1999
Mr. Sauder visited the DaMert booth at the New York Toy Fair in early
February, 1999. On February 18, 1999, Mr. Goett discussed Futech's serious
interest in a business combination that would include DaMert. Shortly
thereafter, DaMert sent product samples and financial information to Mr. Goett.
MARCH, 1999
On March 1, 1999, Trudy's Board of Directors held a special meeting to
review the proposed merger with Futech and, after discussion and consideration,
approved and authorized the execution of a merger agreement. Each of Trudy and
Futech signed and delivered this original merger agreement on March 3, 1999,
subject to the approval of the stockholders of both companies. The parties later
agreed to reverse their merger agreement to include all of the merging
companies.
Over the two months beginning with the January 7, 1999, lengthy
negotiations continued between Fundex and Futech. The negotiations culminated in
a letter of intent between Futech and Fundex dated March 5, 1999. Since that
time, both parties continued to engage in extensive discussions to negotiate the
final terms of the Merger Agreement and have conducted extensive due diligence
with regard to each other's business.
DaMert's Chairman, Fred DaMert, along with an advisor, visited Futech in
Phoenix on March 4, 1999 and engaged in detailed negotiations with Mr. Goett and
other Futech executives. At this time, basic terms of an acquisition of DaMert
by Futech or its affiliate were agreed upon, subject to stockholder approval.
Fred DaMert and Gail DaMert, DaMert's CEO, visited Futech's offices the
following week. A letter of intent was signed on March 24, 1999. Thereafter
ensued a period of due diligence, strategic planning, structural decisions,
personnel assignments and merger documentation.
APRIL, 1999
During the months of April and May, all five companies involved in the
mergers continued due diligence procedures on all the companies involved in the
mergers and continued negotiations toward mutually acceptable terms for the
mergers. The parties determined, for a variety of reasons, that creating New
Futech and New Sub for the purposes of effecting the mergers, was desirable.
MAY, 1999
On May 24, 1999, the principals from all five companies involved in the
mergers met at the Futech offices in Phoenix, Arizona to negotiate remaining
issues in anticipation of signing the Merger Agreement.
During the week of May 24, 1999, the respective Boards of Directors of
Futech, Janex, Trudy and DaMert approved the mergers and Merger Agreement.
JUNE, 1999
On June 7, 1999, Fundex's Board of Directors approved the mergers and
Merger Agreement and thereupon the Merger Agreement was signed and delivered by
all of the
19
<PAGE> 25
merging companies, subject to approval of their respective stockholders and the
other conditions specified in the Merger Agreement.
REASONS FOR MERGERS
For a complete discussion on the reasons for the mergers, see "Reasons for
the Mergers" and "Specific Reasons for Previous Acquisitions and Proposed Merger
Partners" beginning on page 45 of the prospectus/proxy statement.
SPECIAL ARRANGEMENTS RELATING TO NEW SUB AND "PHASE 10" ASSETS
While the other merging companies combine directly with New Futech, Fundex
will merge with and into New Sub, which also is expected to manage Janex's
operations after the mergers.
The one-year promissory notes issued by New Sub to the Fundex stockholders
who do not elect the All Cash Alternative in the mergers will be fully and
unconditionally guaranteed by New Futech and secured by a subordinated pledge of
New Sub's assets and by a pledge of all of the issued and outstanding stock of
New Sub. Since New Sub will manage the operations of Janex after the mergers,
any profits from those operations will also effectively secure the promissory
notes. In addition, Fundex and Futech are parties to a loan and license
agreement permitting Fundex (and New Sub) to borrow up to $1,500,000 from
Futech. Up to $750,000 of those loans may be forfeited as a penalty if New
Futech defaults on its notes to the former Fundex stockholders and as a result
they foreclose on the stock of New Sub.
In addition to receiving collateral for their promissory notes, the
stockholders of Fundex who do not elect the All Cash Alternative will receive a
limited form of price protection for the New Futech stock that they receive in
the mergers. For a 60 day period beginning on the third anniversary of the
mergers, and assuming that the conditions described in the next paragraph have
not occurred, the Fundex shareholders acting together can elect to exchange the
shares of New Futech common stock that they receive in the mergers for all of
New Sub's license rights in the "Phase 10" family of games currently being sold
by Fundex. The Merger Agreement requires New Futech to preserve those license
rights and to cause the Phase 10 licenses to be free of any liens by the second
anniversary of the mergers unless this right has been previously terminated as
described in the next paragraph.
The right of the former Fundex stockholders to reacquire the Phase 10
licenses will expire early, and therefore cannot be exercised, if the promissory
notes issued in the mergers to the Fundex stockholders are repaid in accordance
with their terms and thereafter either of the following two conditions is
satisfied at any time before the former Fundex stockholders require the Phase 10
licenses:
- after the expiration of any lockup agreement with underwriters that
applies to the former Fundex stockholders, the average daily closing
price of New Futech common stock on its principle trading market for any
15 consecutive trading days equals or exceeds $7.50 per share (after
adjustment for any stock splits, stock dividends or similar transactions)
and a trading volume of at least 40,000 shares per trading day; or
- New Futech offers to buy, or presents a bona fide third party offer to
buy, all of the New Futech stock owned by the former Fundex stockholders
(after adjustment for any stock splits, stock dividends or similar
transactions) at a price of at least $7.50
20
<PAGE> 26
per share, with a closing date not more than 60 days after the offer is
made, whether or not the offer is accepted.
The Merger Agreement provides that Carl E. ("Chip") Voigt, IV, who is
currently the CEO of Fundex, will be a director and vice president of the
toys/games division of New Futech as well as a director and president of New
Sub. Carl E. ("Pete") Voigt, III will be the vice president of New Sub. In
connection with these positions each of them will receive three year employment
contracts providing for a base salary of $150,000 per year and options for
33,333 shares of New Futech stock (vesting in three annual installments) with an
exercise price of $4.50 per share.
EMPLOYMENT AGREEMENTS WITH AFFILIATES
The employment agreements with Carl E. Voigt, III and Carl E. Voigt, IV,
are described in the preceding paragraph.
Fred DaMert and Gail Patton DaMert, who are currently the owners and
principal executives of DaMert, will be employed by New Futech after the
mergers. Each will receive a three year employment agreement providing for a
base salary of $120,000 per year, without stock options.
William W. Burnham, who is presently one of the principal stockholders and
executive officers of Trudy, will be employed as the Vice President -- Specialty
Items of New Futech. Mr. Burnham will also be a director of New Futech and will
receive a three year employment agreement providing for a base salary of
$100,000 per year and stock options for a total of 20,000 shares of New Futech
stock, vesting in equal, annual installments and with an exercise price of $7.50
per share. His employment contract includes a one-time signing bonus of $10,000.
See "NEW FUTECH'S MANAGEMENT" for a description of the employment
agreements of New Futech's other executive officers.
OTHER ASPECTS OF THE MERGER AGREEMENT; CERTAIN COVENANTS OF THE MERGING
COMPANIES
Each merging company has agreed that, during the period prior to the
Effective Time (except as expressly permitted by the Merger Agreement), it will
use its best efforts to preserve its present relationships with employees,
customers and others with which it has business relationships, will not take
actions other than in the ordinary course of business which would or might have
a material adverse effect upon its financial condition, and will not pay or
incur benefits to stockholders, officers or directors other than as is
consistent with past activities and practices.
In addition, each merging company has agreed that, during the period prior
to the Effective Time, it will not (except as expressly permitted by all of the
merging companies in writing):
- change its Articles or Certificate of Incorporation or Bylaws;
- change the number of shares of stock issued and outstanding (other than
to cause its equity securities, including options and equity
participation interests, to conform to the capitalization described in
Section 3.02 of the merging company's Disclosure Schedule);
- merge or consolidate with or into any other corporation or other entity;
21
<PAGE> 27
- declare or pay any dividend or repurchase or otherwise acquire any shares
of stock; or
- increase the compensation payable to or to become payable to any
shareholder, director, officer, employee or agent, or to pay any bonus,
severance payment or other compensation to any shareholder, director,
officer, employee or agent, or enter into any agreement of any type which
is not terminable by the merging company on no more than 30 days notice.
Fred DaMert and Gail Patton DaMert have, as part of the Merger Agreement,
satisfied certain bonus, change of control and stock appreciation right
obligations of DaMert that would otherwise be due in connection with the
mergers. However, stock appreciation rights equal to 4% of the aggregate
consideration received by the DaMert stockholders in the mergers will continue
to be outstanding and will be exchanged for 42.10 shares of DaMert common stock
prior to and in connection with the mergers.
In the Merger Agreement, New Futech promises to obtain releases of
affiliates of the merging companies from certain personal guarantees of
business-related loans, as described in the following table. New Futech may be
required to refinance the related loans in order to obtain the required
releases.
<TABLE>
<CAPTION>
APPROXIMATE
GUARANTOR LENDER LOAN DESCRIPTION LOAN BALANCE
- --------- ------ ---------------- ------------
<S> <C> <C> <C>
Fred DaMert & Gail Patton Wells Fargo Bank Line of Credit Facility $2,824,000
DaMert
Carl E. Voigt IV & Carl E. Norwest Business Credit Revolving Credit Facility 2,500,000
Voigt III, and spouses
Carl E. Voigt IV & Carl E. Liberty Bidco Term Loan 1,000,000
Voigt III, and spouses Investment Corporation
Les Friedland, Dan Lesnick & Tinton Falls State Bank Line of Credit Facility 257,000
Howard Moore
William W. Burnham First Union Bank Revolving Credit Agreement 795,000
William W. Burnham First Union Bank Term Note 195,650
</TABLE>
New Futech has also agreed, as part of the Merger Agreement, to repay
certain loans owing by Trudy to William W. Burnham and two of his family members
in the aggregate amount (including accrued interest through January 31, 1999) of
$800,000. Interest will continue to accrue on the portion of the debt owing to
the two family members ($172,253 as of April 30, 1999). Beginning on the closing
date of the mergers, interest will accrue on the outstanding balance at the rate
of 4% per annum. At the closing, New Futech will repay 25% of the outstanding
balance, and thereafter will repay three equal amounts of principal plus all
accrued interest at six month intervals.
New Futech has also agreed, as a part of the Merger Agreement, to repay
certain promissory notes owing by Futech to certain former stockholders of
Janex. The promissory notes, which were issued on September 30, 1998, in
connection with Futech's purchase of certain Janex securities, have an aggregate
outstanding principal amount of $750,000.
New Futech has also agreed to assume repayment of loans owing by DaMert to
Fred DaMert in the aggregate principal amount of $128,849.
The Merger Agreement also contains numerous representations and warranties
on the part of each merging company and certain of controlling shareholders that
are customary in merger transactions.
22
<PAGE> 28
INDEMNIFICATION BY NEW FUTECH AND BY CERTAIN STOCKHOLDERS
The Merger Agreement provides that New Futech will indemnify each merging
company and its officers, directors and employees against liabilities and
expenses reasonably incurred by them in connections with claims by their
stockholders with respect to the mergers or related matters.
In addition, each merging company and the stockholders identified below
have agreed to indemnify New Futech and its officers, directors and controlling
persons against liabilities or expenses they incur in connection with a material
breach of the representations, warranties and covenants of that merging company
and those stockholders, respectively, in the Merger Agreement. This indemnity
will expire 18 months after the Closing. It applies only if the amounts involved
exceed $100,000 and is subject to the maximum amount of $2,000,000 with respect
to matters that the merging company and its stockholders are not aware of at the
time of Closing, specified in the following table:
<TABLE>
<CAPTION>
THRESHOLD MAXIMUM
COMPANY STOCKHOLDERS AMOUNT INDEMNIFICATION
- ------- ------------ --------- ---------------
<S> <C> <C> <C>
Futech Vincent W. Goett $100,000 $2,000,000
Janex None 100,000 2,000,000
Trudy William W. Burnham 100,000 2,000,000
Fundex Carl E. (Chip) Voigt IV 100,000 2,000,000
Carl E. (Pete) Voigt III
DaMert Fred DaMert 100,000 2,000,000
Gail Patton DaMert
</TABLE>
REGULATORY MATTERS
The mergers are not subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, or any other regulatory approvals.
CONDITIONS TO CLOSING
The obligation of each of the merging companies to consummate the mergers
is subject to the satisfaction of certain conditions, which the other parties
may waive in whole or in part, including the following (among others):
- The Merger Agreement must have been approved by the stockholders of each
merging company.
- No court or governmental authority can have done anything that restricts
or prohibits the mergers and related transactions.
- No court or administrative action or investigation can be pending
challenging or seeking material damages in connection with the mergers or
related transactions, or seeking to limit New Futech's full rights of
ownership or operation which is reasonably likely to have a material
adverse effect on any party to the Merger Agreement.
- The representations and warranties of each merging company and its
signing shareholders in the Merger Agreement must be true in all material
respects on the Effective Time with the same force and effect as though
made on and as of the Effective Time, and the merging company and its
signing stockholders must have
23
<PAGE> 29
complied in all material respects with their agreements and covenants
under the Merger Agreement.
- Any material consents and assignments, and all filings required to be
made by any merging company in connection with the Merger Agreement must
have been obtained and made.
- There must have been no material adverse change in the operations, assets
and financial condition of any merging company, its assets must have been
maintained, and it must have conducted its business diligently and
substantially in the same manner (with no material contracts or
commitments outside the ordinary course of business) since the date of
the Merger Agreement.
- New Futech must have entered into/executed and delivered to the other
parties thereto employment agreements as described under "Employment
Agreements with Affiliates," above.
DISSENTERS' RIGHTS
Stockholders who do not vote in favor of the mergers and who comply with
the requirements of the state laws applicable to the company in which they own
stock will be able to exercise dissenters' rights and, if the mergers actually
occur, will receive the fair value of their shares in cash rather than the
merger consideration described in the Merger Agreement. The requirements that
apply to the stockholders of each merging company are set forth in the
prospectus/proxy statement supplement for that merging company.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by mutual consent of each merging
company and its signing Shareholders. In addition, the Merger Agreement may be
terminated by New Futech if dissenters' rights are exercised by stockholders who
would otherwise be entitled to receive 5% or more of the total merger
consideration to be received by stockholders in all of the merging companies
combined, valuing the New Futech common stock at $7.50 per share.
24
<PAGE> 30
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data of the Company presents
the unaudited pro forma consolidated statements of operations for the year ended
December 31, 1998, and for the three months ended March 31, 1999, and the
unaudited pro forma consolidated balance sheet as of March 31, 1999.
The unaudited pro forma combined consolidated statement of operations for
the year ended December 31, 1998, has been adjusted to give effect to the
following transactions as if such transactions had occurred January 1, 1998: 1)
the Company's acquisition of substantially all of the assets of Gick Publishing,
Inc., completed on March 31, 1998; 2) the Company's acquisition of substantially
all of the assets of XYZ Group, Inc., completed April 29, 1998; 3) the Company's
acquisition of 52% of the outstanding stock and certain shareholder loans of
Janex, completed December 11, 1998; 4) the proposed transactions described in
this prospectus/proxy statement and related supplements, including the pending
mergers with Janex, Fundex, Trudy and DaMert.
In addition, the unaudited pro forma as adjusted consolidated statement of
operations for the year ended December 31, 1998, gives effect to the conversion
of certain acquired shareholder notes of Janex into common and preferred stock
of Janex as if such conversion had occurred on January 1, 1998.
The unaudited pro forma combined consolidated statements of operations for
the three months ended March 31, 1999 has been adjusted to give effect to the
following transactions as if such transactions had occurred January 1, 1999: 1)
the pending acquisition of all the outstanding stock of Fundex; 2) the pending
acquisition of all the outstanding stock of Soundprints, and 3) the pending
acquisition of DaMert.
The unaudited pro forma combined consolidated balance sheet at March 31,
1999 gives effect to the pending acquisitions of Fundex, Soundprints, and DaMert
as if they had occurred on March 31, 1999.
The pro forma adjustments represent, in the opinion of management, all
adjustments necessary to present fairly the Company's pro forma results of
operations and financial position and are based upon available information and
certain assumptions considered reasonable under the circumstances. The unaudited
pro forma consolidated financial data presented herein does not purport to
present what the Company's financial position or results of operations would
actually have been have the events leading to the pro forma adjustments in fact
occurred on the date or at the beginning of the periods indicated or to project
the Company's financial position or results of operations for any future date or
period.
The Unaudited Pro Forma Consolidated Financial Data should be read in
conjunction with the consolidated financial statements of the Company and the
notes there to and management's discussions thereof elsewhere in this
prospectus.
25
<PAGE> 31
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL JANEX XYZ GICK FUNDEX TRUDY DAMERT
COMPANY INT'L GROUP PUBLISHING GAMES CORP. CORP. COMBINED
---------- ------ ------- ---------- ------ ------ ------ --------
IN THOUSANDS (EXCEPT PER SHARE DATA) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 6,033 $3,056 $ 4,812 $1,016 $8,577 $3,617 $6,837 $33,948
Technology licensing fee........... 2,000 0 0 0 0 0 0 2,000
Cost of goods sold................. 4,296 1,957 5,378 825 5,694 2,108 4,292 24,550
------- ------ ------- ------ ------ ------ ------ --------
Gross profit..................... 3,737 1,099 (566) 191 2,883 1,509 2,545 11,398
Selling, general & administrative... 5,869 1,258 1,091 307 2,465 2,012 2,482 15,484
Research and development........... 230 0 0 0 0 86 547 863
Depreciation and amortization...... 1,343 314 61 27 231 63 182 2,221
------- ------ ------- ------ ------ ------ ------ --------
Operating Income (Loss).......... (3,705) (473) (1,718) (143) 187 (652) (666) (7,170)
Interest Expense................... (1,945) (210) (217) (28) (246) (125) (212) (2,983)
Other, net......................... (144) 4 0 0 56 17 (1) (68)
------- ------ ------- ------ ------ ------ ------ --------
Net loss before taxes.............. $(5,794) $ (679) $(1,935) $ (171) $ (3) $ (760) $(879) $(10,221)
======= ====== ======= ====== ====== ====== ====== ========
Weighted average common shares
outstanding...................... 80,277 10,261 0 0 1,625 324,598 1
Janex acquisitions shares issued...
XYZ acquisition shares issued......
Gick acquisition shares issued.....
Fundex acquisition shares issued...
Trudy acquisition shares issued....
DaMert acquisition shares issued...
Loss per share(5).................. $ (0.07) $(0.07) n/a n/a $(0.00) $(0.00) $(879) $
<CAPTION>
PRO FORMA TOTAL
ADJ. PRO FORMA
--------- ---------
IN THOUSANDS (EXCEPT PER SHARE DATA) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.......................... $ 33,948
Technology licensing fee........... 2,000
Cost of goods sold................. 24,550
-------- ------- --------
Gross profit..................... 11,398
Selling, general & administrative... 15,484
Research and development........... 863
Depreciation and amortization...... 1,738 (1) 3,959
-------- ------- --------
Operating Income (Loss).......... (8,908)
Interest Expense................... (516) (2),(3) (3,499)
Other, net......................... (68)
-------- ------- --------
Net loss before taxes.............. $(12,475)
======== ======= ========
Weighted average common shares
outstanding...................... (413,118) (4) 3,644
Janex acquisitions shares issued... 162 (4) 162
XYZ acquisition shares issued...... 478 (4) 478
Gick acquisition shares issued..... (4) 0
Fundex acquisition shares issued... 600 (4) 600
Trudy acquisition shares issued.... 400 (4) 400
DaMert acquisition shares issued... 693 (4) 693
--------
5,977
========
Loss per share(5).................. $ (2.09)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
26
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(1) Represents the Company's estimate of amortization of goodwill and other
acquired intangibles.
(2) Represents the additional interest expense on the additional borrowings
incurred by the Company to consummate these acquisitions.
(3) Represents the elimination of interest expense on certain loans to Janex by
its former shareholders which were acquired by the Company and converted to
equity.
(4) The number of shares outstanding have been adjusted to reflect the 1-for-30
exchange ratio in the mergers.
(5) Loss per share has been determined in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Common share equivalents
have been excluded from the calculation of loss per share for all columns
presented, as their effect is anti-dilutive.
27
<PAGE> 33
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
IN THOUSANDS (EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA TOTAL
HISTORICAL FUNDEX TRUDY DAMERT COMBINED ADJUSTMENTS PRO FORMA
---------- ------ ------ -------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales.......................... $ 2,518 $ 935 $ 386 $ 1,257 $ 5,096 $ 5,096
Cost of goods sold................. 2,044 633 241 737 3,655 3,655
------- ------ ------ -------- ------- -------- -------
Gross profit..................... 474 302 145 520 1,441 1,441
SG&A............................... 1,867 262 403 87 2,619 2,619
Research and development........... 0 0 29 231 260 260
Depreciation and amortization...... 700 77 22 426 1,225 297(1) 1,522
Operating loss................... (2,093) (37) (309) (224) (2,663) (2,960)
Interest Expense................... (679) (72) (25) (776) (134)(2) (910)
------- ------ ------ -------- ------- -------- -------
Other income (expense) net......... $ (1) $ $ 2 $ (1) $ $ $
------- ------ ------ -------- ------- -------- -------
Net loss......................... $(2,773) $ (109) $ (332) $ (224) $(3,438) $(3,870)
======= ====== ====== ======== ======= ======== =======
Weighted average shares
outstanding...................... 87,339 1,625 331,222 1,000 (417,542)(3) 3,644
Janex acquisitions -- shares
issued........................... 162(3) 162
XYZ acquisition -- shares issued... 478(3) 478
Gick acquisition -- shares
issued........................... 0 0
Fundex acquisition -- shares
issued........................... 600(3) 600
Trudy acquisition -- shares
issued........................... 400(3) 400
DaMert acquisition -- shares
issued........................... 693(3) 693
5,977
Loss per share(4).................. $ (0.03) $(0.07) $(0.00) $(224.00) $ (0.65)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
28
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(1) Represents the Company's preliminary estimate of amortization of goodwill
and other acquired intangibles.
(2) Represents the additional interest expense on the additional borrowings
incurred by the Company to consummate these acquisitions.
(3) The number of shares outstanding have been adjusted to reflect the 1-for-30
exchange ratio in the mergers.
(4) Loss per share has been determined in accordance with statement of financial
Accounting Standards No. 128, "Earnings Per Share." Common share equivalents
have been excluded from the calculation of loss per share for all columns
presented, as their effect is anti-dilutive.
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<PAGE> 35
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA TOTAL PRO
HISTORICAL FUNDEX TRUDY DAMERT COMBINED ADJUSTMENTS FORMA
---------- ------ ------ ------ -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash......................... $ 184 $ 5 $ 1 $ 0 $ 190 $ $ 190
Accounts receivable.......... 1,942 842 246 888 3,918 3,918
Inventory.................... 5,151 2,019 1,658 1,311 10,139 10,139
Prepaid and other............ 306 132 199 143 780 780
-------- ------ ------ ------ -------- ------- --------
Total current assets......... 7,583 2,998 2,104 2,342 15,027 15,027
Property and equipment....... 1,079 297 114 474 1,964 1,964
Intangible assets............ 16,163 498 390 0 17,051 18,977(1) 36,028
Due from company CEO......... 1,596 0 0 0 1,596 1,596
Other assets................. 90 584 319 23 1,016 1,016
-------- ------ ------ ------ -------- ------- --------
Total assets................. $ 26,511 $4,377 $2,927 $2,839 $ 36,654 $18,977 $ 55,631
======== ====== ====== ====== ======== ======= ========
Accounts payable............. $ 5,541 $ 725 $ 309 $ 198 $ 6,773 $ $ 6,773
Accrued expenses............. 2,121 303 154 131 2,709 2,709
Notes payable -- current..... 24,895 97 1,408 2,245 28,645 28,645
-------- ------ ------ ------ -------- ------- --------
Total current liabilities.... 32,557 1,125 1,871 2,574 38,127 38,127
Long-term debt............... 6,545 2,129 290 133 9,097 5,477(2) 14,574
Stockholders' equity......... (12,591) 1,123 766 132 (10,570) 13,500(3) 2,930
-------- ------ ------ ------ -------- ------- --------
$ 26,511 $4,377 $2,927 $2,839 $ 36,654 $18,977 $ 55,631
======== ====== ====== ====== ======== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
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<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(1) Represents the Company's preliminary estimates of the adjustment needed to
record the tangible and intangible assets acquired at fair value.
(2) Represents the additional borrowings incurred by the Company to consummate
these acquisitions.
(3) Represents elimination of the equity accounts of the acquired companies and
the issuance of the Company's common stock to consummate these acquisitions.
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<PAGE> 37
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of DaMert,
Fundex, Futech, Janex and Trudy and combined pro forma per share data of New
Futech, and equivalent pro forma per share data of DaMert, Fundex, Futech, Janex
and Trudy, all on an unaudited pro forma basis after giving effect to the merger
on the purchase basis of accounting, assuming there are no exercises of
dissenters' rights. This data should be read in conjunction with the pro forma
financial information and the separate historical audited financial statements
of DaMert, Fundex, Futech, Janex and Trudy and notes thereto included elsewhere
in this prospectus/proxy statement. The pro forma financial data are not
necessarily indicative of the operating results that would have been achieved
had the mergers been consummated as of the beginning of the periods indicated
nor are such data necessarily indicative of future financial conditions or
results of operations. None of the merging companies paid dividends on their
outstanding capital stock during the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL 1998 ENDED 3/31/99
----------- -------------
<S> <C> <C>
DAMERT
Historical net income (loss) per common share, fully
diluted................................................... $ (878.89) $(224.00)
Equivalent pro forma combined income (loss) per common
share..................................................... (1,446.99) (448.88)
Historical book value per common share...................... 355.32 132.00
Equivalent pro forma combined book value per common share... 554.44 339.85
FUNDEX
Historical net income (loss) per common share, fully
diluted................................................... (0.002) (0.067)
Equivalent pro forma combined income (loss) per common
share..................................................... (0.77) (0.24)
Historical book value per common share...................... 0.76 0.69
Equivalent pro forma combined book value per common share... 0.30 0.18
FUTECH
Historical net income (loss) per common share, fully
diluted................................................... (0.07) (0.03)
Equivalent pro forma combined income (loss) per common
share..................................................... (0.09) (0.03)
Historical book value per common share...................... (0.14) (0.16)
Equivalent pro forma combined book value per common share... 0.04 0.02
JANEX
Historical net income (loss) per common share, fully
diluted................................................... (0.07) (0.01)
Equivalent pro forma combined income (loss) per common
share..................................................... (0.09) (0.03)
Historical book value per common share...................... (0.09) (0.10)
Equivalent pro forma combined book value per common share... 0.03 0.02
TRUDY
Historical net income (loss) per common share, fully
diluted................................................... (0.002) (0.001)
Equivalent pro forma combined income (loss) per common
share..................................................... (0.003) (0.001)
Historical book value per common share...................... 0.002 0.002
Equivalent pro forma combined book value per common share... 0.001 0.001
NEW FUTECH
Historical net income (loss) per common share, fully
diluted................................................... n/a n/a
Pro forma combined income (loss) per common share........... (2.09) (0.65)
Historical book value per common share...................... n/a n/a
Pro forma combined book value per common share.............. 0.80 0.49
</TABLE>
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NEW FUTECH'S BUSINESS
COMPANY OVERVIEW
Following the mergers New Futech will be a diversified children's products
company that designs, develops and distributes proprietary children's products
such as books, games, toys and stationery. New Futech expects to incorporate
Futech's patented Talking Pages(TM) technology and other interactive
technologies into strategically selected products in each product line,
providing significant competitive advantages through its unique interactive
features.
Subsequent to the integration of the companies included in the mergers, New
Futech expects to operate using an entrepreneurial style with five separate
business operating units:
- publishing;
- toys and games;
- futechinteractive.com;
- stationery and novelties; and
- specialty and educational products.
Through these operating units, New Futech expects to, among other things:
- develop and distribute interactive products with patented technology to
be strategically included in each of the Company's product lines (i.e.
publishing, toys, games, stationery, entertainment, etc.);
- develop, publish and distribute children's books (i.e. story books,
nature books, and self-help/child development books, etc.);
- develop and distribute toys and games (i.e. board games, family games,
card games, science games, etc.);
- develop and distribute patented, mailable foam-core post cards and other
foam-core hobby and craft items (i.e. foam-core picture frames) and
specialty products;
- develop new generations of interactive products including books and games
to be played with family and friends through the Internet;
- continue to develop futechinteractive.com, an interactive web site which,
among other things, sells products directly to consumers using state of
the art commerce technology and provides purchasing capability and
information about products to retail customers;
- act as a distributor for approximately 65 major publishing companies; and
- license its patented interactive technology to book and toy manufacturers
on a non-exclusive basis.
Due to its experienced sales force and more than twenty years of experience
in the distribution field, New Futech has established nationwide distribution
into every major retail channel. The company distributes to over 26,000 retail
stores including major retailers such as Wal-Mart, K-Mart, Toys R Us, and
Target. New Futech is EDI integrated with major accounts and can respond to
orders within forty-eight hours of the placement of orders. Each of the major
distribution centers can easily be expanded within
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<PAGE> 39
sixty days to accommodate new distribution opportunities as they are presented
in the future.
COMPETITIVE ADVANTAGES
New Futech expects to benefit from the synergy created through the mergers
and believe competitive advantages will be created by:
- merging the benefits of its patented interactive technology, "Futech
Interactive inside", with its well-established, well-recognized brand
names such as Talking Pages, Soundprints, Little Tiger Press, and Joy
Berry (in the publishing industry) and Fundex and DaMert (in the toys and
games industry);
- enhancing our research and development of new technologies;
- developing and launching of successful new proprietary products;
- continuing to foster the small business mentality of each operating unit
through an entrepreneurial style of doing business;
- taking advantage of new clout with major retailers resulting from merging
five companies and an extensive combined list of proprietary products;
- improving price competitiveness and reducing production costs through
shifting manufacturing to overseas and also by taking advantage of the
greater economies of scale created through merging the manufacturing of
the products of five separate companies;
- increasing product and brand awareness through working closely with major
licensors to create new and successful products utilizing well-recognized
licensed characters;
- increasing revenue through the distribution of each operating unit's
products into the sales and distribution venues of the other merging
companies; and
- improving the focus of the business units on strategic and long-term
planning.
BUSINESS STRATEGY
Subsequent to the mergers, we expect to operate five separate business
operating units; publishing, toys and games, futechinteractive.com, stationery
and novelties, and specialty and educational products. Each business operating
unit will have a New Futech vice president responsible for the budget,
performance and day-to-day operations of the business unit. Each operating unit
will be responsible for product development for the unit and will maintain
separate sales forces and sales representative groups to sell their products.
However, coordinated sales efforts between operating units are expected to occur
for certain major retail customers. Sales people from each operating unit are
expected to be encouraged to cross-sell products from other operating units into
their customers' stores if the specific products are not previously sold in the
same stores.
Our corporate management and staff will be responsible for support and
coordination of the five operating units. Corporate support functions will
include accounting and finance (including the raising of necessary capital),
business analysis, coordination of contract manufacturing, product research and
development (overall direction, new technology, overall image and coordination,
final approvals), marketing (including corporate advertising, graphics support,
image, research), human resources, information services, and general management
direction and coordination.
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Subsequent to the mergers, Futech Interactive Products, Inc. will be the
surviving corporate name to be used in operations. Futech Interactive will be
the technology inside interactive products ("Futech Interactive inside"). The
established goodwill of the names of the merging companies will be retained
through using their names as product brand names as follows:
- The Soundprints, Little Tiger Press and Gold Star Publishing names will
continue to be used as publishing imprints, but each will be designated
as A Futech Interactive Company to create an umbrella corporate image.
Talking Pages will continue to be used for the interactive publishing
products with the same designation;
- The Fundex name will be used as the brand name for mass market toys and
games. DaMert will be used as the brand name associated with specialty
and science related toys and games. In the same way as the publishing
imprints, they will also each be designated in the branding as A Futech
Interactive Company;
- The Gick name has not been used by Futech since 1998. This line of
products was changed to Brite Ideas, and will continue to be Brite Ideas,
a Futech Interactive Company;
- The Janex name is expected to be phased out during 1999. The product line
name Malibu Fun Stuff will be used for their swimming, bath and beach
products (including the Wet Pets line of products). A new name is
currently being developed for the product line which includes electric
toothbrushes, clocks and flashlights. Both lines will carry the A Futech
Interactive Company descriptor; and
- Futech Interactive Products, Inc. will be used as the corporate name.
Futech Interactive will also be used as "Futech Interactive inside",
representing the technology inside each of our interactive products.
SALES STRATEGY
The Company will consist of five business operating units plus corporate
offices. As in the managing of the business units, the overall corporate sales
strategy is to manage the sales of each business unit through the business unit
itself and to coordinate company-wide synergistic sales opportunities at the
corporate level. Each business unit operates in separate and unique industry
environments and requires different types and mixes of employees and sales
representative groups to be successful. The sales groups for the respective
business units currently are as follows:
Publishing -- Ten employees and 42 sales representative groups representing
168 individual commissioned representatives.
Toys and Games -- Six employees and 26 sales representative groups
representing approximately 150 individual commissioned representatives.
Futechinteractive.com -- No sales group is expected to be required for this
business unit.
Stationery & Novelties -- Two employees and 20 sales representative groups
representing 115 individual commissioned representatives.
Specialty and Educational Products -- Two employees, and is in the process
of developing a representative group base and telemarketing staff.
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<PAGE> 41
MARKETING STRATEGY
We intend to implement a major advertising and marketing initiative to
promote greater market recognition of our technology, trade names and products.
For the balance of 1999 and 2000, we expect to spend at least $1,400,000 in
promotion and advertising to achieve our short and long-term advertising and
marketing objectives. We plan to achieve our promotion and advertising goals by:
- increasing product brand awareness through product reviews, articles and
media coverage;
- creating a fund to purchase shelf space with major retailers and increase
its exposure in the mass market;
- creating and strategically placing trade advertisements in industry trade
magazines to promote our products to a broad base of retailers including
mass market and specialty retailers;
- mailing our interactive corporate brochures to major Fortune 500
companies, leading media products companies and advertising agencies; and
- attending a variety of trade shows to promote our image and product brand
awareness.
PUBLIC RELATIONS STRATEGY
Futech has hired Phase Two Strategies, a major national public relations
firm, to plan and implement our comprehensive, synergistic public relations
strategy. Phase Two is initially focusing its efforts on introducing New Futech
and its products to the media through press releases, media pitches, direct
mailings and follow-up phone calls in a concerted effort to garner editorials
and other positive attention from the media. Phase Two is planning an author
tour for Joy Berry during the summer and fall of 1999 in an effort to garner
attention for New Futech through the established connections, recognizable name,
and the press's interest in her child development books and videos.
GROWTH STRATEGY
Our objective is to become a significant designer, developer and
distributor of affordable proprietary children's products such as books, games,
toys and stationery. We also intend to apply our technology to strategically
create unique, interactive advertising specialty and promotional materials. We
plan to achieve this strategy through the following initiatives:
- Expand Proprietary Product Lines -- We plan to capitalize on our existing
products and its unique technology by expanding its product lines,
increasing our licensed products and seeking new applications for our
technology. During 1999, we expect to introduce more than 200 new books,
games, toys and stationery products (for more detailed information about
these products, see "Proprietary Product Lines" in this section).
Utilizing newly acquired licenses, additional products are already in
initial development and we expect them to be launched in late 1999 and
early 2000.
- Enhance Product Brand Awareness -- We expect to spend at least $1,400,000
during 1999 and 2000 to enhance product brand awareness (for more
detailed information, see "Marketing Strategy" in this section). In
addition, we have hired Phase Two Strategies, a major national public
relations firm, to plan and implement a comprehensive, synergistic public
relations strategy (for more detailed informa-
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<PAGE> 42
tion, see "Public Relations Strategy" in this section). These strategies
should allow the Company to differentiate its products and technology
from the competition, attract new customers and strategic partners,
generate increased consumer sales and position the Company as the
industry innovator and category leader.
- Enhance Operational Efficiencies -- We intend to enhance the operating
efficiencies of the merged businesses. We intend to eliminate duplication
of efforts and non-essential personnel, improve manufacturing
productivity, increase distribution, refine logistics and enhance
customer service. More specifically, we intend to:
- consolidate many of the financial and administrative functions of the
merged businesses in Phoenix, Arizona;
- utilize the East and West coast facilities to save shipping time and
money in fulfilling large mass market orders;
- attempt to increase the average order size to our customers by
offering a broader selection of product lines which will allow us to
apply its fixed transaction and processing costs to a larger order;
- utilize its conductive ink/printed circuitry technology to reduce
costs and increase margins on certain existing product lines; and
- relocate additional domestic production capabilities to off shore
facilities to reduce manufacturing costs.
- Expand Distribution -- We plan to increase revenue by expanding the
distribution of our products. Strategies to achieve these goals include:
- marketing our new line of electronic books to mass market retailers
and national book chains;
- expanding the distribution of our post card and electronic post card
line to mass market retailers, national drug chains and supermarkets;
- increasing the distribution and licensing of our trade publishing
titles from Soundprints, Little Tiger Press and Gold Star Publishing
into the mass market, mass market books, supplementary education and
mail order channels of distribution; and
- increasing the product categories and title selections purchased from
publishers and distributed to the warehouse club market and increasing
this distribution to additional classes of trade.
- Strengthen and Accelerate Research and Development -- From Futech's
initial patent issued in 1992, we intend to continue developing our
technology in electronic audio/visual response interaction utilizing the
application of special printed circuitry and electronic components.
Through this process, Futech has discovered new innovations and
applications which have been patented, thereby increasing its scope of
product design. We intend to conduct substantially all of our research
and development efforts at our soon to be consolidated research and
development facility in Berkeley, California. Our research and
development initiatives are to:
- continue to refine and enhance our patented technology, creating new
cutting edge technologies;
- accelerate the research and development of related applications of the
current technology;
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<PAGE> 43
- acquire other synergistic intellectual properties to expand the
capabilities of our patented technology for enhanced distribution
direct to consumers' homes and schools electronically through the
Internet; and
- develop new products for use on the Internet.
- Penetrate International Markets -- We intend to expand the distribution
of our products in international markets. We will have exclusive
distribution of certain product lines in Canada through a publishers
representative. We will also utilize a United Kingdom-based publishing
company with whom Futech has an agreement to distribute certain New
Futech titles in the European market. We intend to concentrate initially
on expansion into English speaking countries such as Canada and the
United Kingdom while pursuing the translations of its printed publishing
products in the future. Through the merger with Trudy (Soundprints) and
DaMert, with their international publishing and toy distribution
experience, we will be able to better take advantage of potential
international publishing and distribution opportunities. DaMert already
distributes its products in 48 countries.
Futech recently signed a European distribution agreement for it's Brite
Ideas product line with H&H HandelsGesmbH, an Austrian distributor of
stationery products. This distribution agreement provides the opportunity
to expand the Brite Ideas product line to approximately 60 new European
and Asian countries.
Additionally, we are in discussions for distribution or licensing
agreements with several foreign game and toy manufacturing and
distribution companies. These companies range from major international
toys and games manufacturing companies to foreign publishing companies.
Some discussions are based on potential technology licensing agreements
to allow for the production of new toys and games products
internationally. Others are conducted along the lines of potential
distribution of foreign translations of existing publishing products.
- Raise Additional Capital -- To expand our business, we expect to raise
additional capital in the public or private debt or equity markets soon
after the mergers. Vincent W. Goett, our CEO, is currently talking to
additional potential investors as well as investment bankers to raise
additional capital.
- Capitalize on Proprietary Brand Names and Pursue Additional "Big Name"
Licenses -- We were focused on establishing and supporting brand names
and product formats that can be leveraged across multiple distribution
channels. We believe many of our existing brands are well recognized,
including Talking Pages, Talking Pages Plus, Talking Pages Deluxe, Kinda
Like a Card, Better Than a Letter, Little Tiger Press, Soundprints, Gold
Star Publishing, Phase 10, Fundex Games, DaMert Company, Brite Ideas,
Malibu Fun Stuff, Wet Pets, Musical Mail, and Look, Listen & Learn. We
also intend to continue to pursue additional big name licenses to further
improve consumer awareness (for more information on licensing, see
"Strategy for Licensing Characters" discussion in this section).
- Enhance Gross Profit Margin -- Proprietary products provide us with much
higher margins than third party distribution products. As we sell more
proprietary products as a percentage of overall sales, we will further
enhance gross profit margin.
- Enter Supplementary Education Channels of Distribution -- With the
addition of Soundprints and Gold Star Publishing book titles and DaMert
Company science and nature products and games, we hope to be able to
enter the supplementary
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<PAGE> 44
education channels of distribution. Products sold in these channels of
distribution are generally sold at higher gross profit margins and with
less seasonal volume fluctuations than products sold in the general
retail market.
With the federal initiative to reduce classroom sizes through an
augmentation of certified teaching professionals, significant increases
in government and state funds are being allocated to local school boards.
The purchasing decisions for library and classroom teaching materials are
being made at the teacher level as opposed to the state level. This has
stimulated double digit increases in supplementary instructional material
spending over the past three years.
- Take Advantage of Public Relations Opportunities -- We expect to create
exciting public relations events to enhance company, product and brand
awareness. To assist in these efforts, we have hired Phase Two
Strategies, a major national public relations firm, to plan and implement
a comprehensive, synergistic public relations strategy (for more detailed
information, see "Public Relations Strategy" discussion in this section).
Among the opportunities expected are:
- the introduction of our first interactive board game, in conjunction
with NASCAR and five of its best drivers;
- announcements of additional licensing agreements for interactive
publishing and interactive games;
- publicity resulting from Joy Berry's author tour and potential
television deal;
- the introduction of oKID.com, futechinteractive.com and
superstarkidsclub.com;
- the announcement of the merger agreements; and
- announcements relating to Generation 2000 Futech technology.
OVERVIEW OF OPERATING UNITS AND THEIR INDUSTRIES
PUBLISHING
The main office, sales, operations and distribution for the publishing
business operating unit are located in Waukesha, Wisconsin. Additional
distribution to the mass market will be for the East, through the Norwalk,
Connecticut facility, and for the West, through the Berkeley, California
facility. Our officer responsible for this business unit is William E. Hermes,
Vice President -- Publishing. Within publishing, New Futech will focus on
interactive publishing, children's trade publishing and book distribution for
third party publishers.
- INTERACTIVE PUBLISHING. Interactive publishing consists of books and
games containing sound, promotional publishing and specialty products.
Interactive sound technology did not appear until the early 1980's. Early
stage products used electronics more suited for motion than
interactivity. Books containing sound first appeared on the market in the
early 1980's in the form of a piano keyboard attached to a hard cover
book featuring easy-to-play, familiar children's songs. These books were
generally low-tech products featuring a single-sound computer chip and a
low-quality speaker. With the introduction of low cost microchips and
microprocessors, the cost for incorporating speech technology, sound
effects and music into products dropped dramatically in the mid-1980's.
Improved technology allowed story books to be enhanced by an electronic
sound pad.
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New Futech expects to publish interactive electronic books and a
series of electronic fold out play boards that incorporate its patented
conductive ink technology. These products contain up to 42 touch points
or switches that are embedded in the surface of the play boards, covers
and pages of the books. When a touch point is pushed, it triggers a
switch and a microchip delivers an audible message. Depending on the
format, the audible message consists of speech, music and/or sound
effects. The ability to embed sound within a book significantly enhances
the story line, facilitates the educational process, draws the reader
into the pages and enriches the reading experience.
We expect to publish four formats of electronic books under the
brand names of Look, Listen & Learn, Talking Pages, Talking Pages Plus
and Talking Pages Deluxe. These formats will feature entertainment,
educational and religious titles and will retail for $5 to $15. We
believe this price range compares favorably with similar electronic
publishing products which typically retail between $10 and $20. Depending
on the format, the books contain anywhere from 10 to 250 musical sounds,
voices or sound effects, as well as various interactive play options. We
intend to sell these books to major mass market retailers, national book
chains and independent retailers in the United States and
internationally. Futech is also developing numerous new Interactive
Publishing product formats incorporating various licensed characters.
In 1999, Futech brought its own interactive publishing products to
market for the first time. The first interactive publishing products (six
titles of Talking Pages interactive books) were placed in retail stores
during the second quarter and met with favorable consumer response.
Initial shipments have sold well, with a one-third sell-through of the
products placed in retail stores during the first week. An additional
one-third of the products sold during the second week. These preliminary
results have exceeded our expectations. In addition to the excellent
consumer response, initial retailer response has also been outstanding.
The majority of the Company's 1999 interactive publishing product
introductions will arrive in retail stores in July and August in
preparation for the 1999 holiday selling season. Orders have already been
received on these products from many major mass retailers, including
Target, Kmart, Sam's Clubs, Costco and Meijer Stores.
- CHILDREN'S TRADE PUBLISHING. The trade publishing industry is diverse.
Thousands of publishers release a wide variety of consumer books into the
market, including hard cover best sellers, paperback best sellers, trade
paperbacks, audio books, children's books, computer books, religious
books, gardening books, travel books, gift books, novelty books,
electronic books and others. The dominant players in the area of consumer
books are Simon & Schuster, Inc., McGraw-Hill Companies, Inc., Harcourt
Brace, Golden Books Family Entertainment, Random House, Inc., Penguin
Putnam, Inc., Scholastic, Inc., Andrews & McMeel Publishing,
HarperCollins, Avon Books, Inc., and Houghton Mifflin Company, and
others.
Futech has a publishing agreement with Magi Publications, a United
Kingdom publisher. The agreement allows Futech to publish and distribute
several children's picture book formats in the United States under the
brand name Little Tiger Press, which is an established brand name that
has been marketed in the United States since 1996. Magi has been
operating since 1988 producing an extensive list of new titles each year
and has an excellent catalog of back list titles. New Futech will
continue to publish and import titles from Magi's United Kingdom-based
authors
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and illustrators. In addition, New Futech will work with Magi to publish
and distribute additional titles from the European and Australian markets
and develop new formats of Magi books. Futech has licensed certain of
Little Tiger Press' United States paperback rights through various book
clubs such as Scholastic, Inc., Troll Communications, LLC and
Book-of-the-Month Club for United States specialty distribution.
Futech has also entered a joint venture (Gold Star Publishing, LLC)
with renowned author Joy Berry to develop, produce and distribute
children's self-improvement products (i.e. Earning an Allowance, Self
Esteem, Discipline, Handling Emergencies, etc.). During 1999, Gold Star
is publishing 80 new books, kits and videos which are expected to be
available during the third quarter. Previously, Joy Berry has sold more
than 80 million books through various direct mail and book club catalogs.
Through the joint venture, Futech has exclusive distribution rights to
all new Gold Star products plus approximately 250 of Joy Berry's 280
previously published titles.
- BOOK DISTRIBUTION FOR THIRD PARTY PUBLISHERS. Futech currently acts as a
non-exclusive distributor for approximately 65 major publishing houses
such as Random House, Inc., Simon & Schuster, Inc., Scholastic Inc.,
Bantam Doubleday Dell, Avon Books, HarperCollins Publishers and others
through its distribution facility in Waukesha, Wisconsin. The largest
demand for distribution services originates from the warehouse club
segment of the retail market (i.e. Sam's Clubs, Costco, BJ's). These
customers require various customized services such as collating and
shrink wrapping custom packages along with direct shipments to each
individual store. During 1999, Futech has been named the exclusive book
distributor for two major retail store chains, Imaginarium and Coles
Department Stores.
We plan to dramatically increase our book distribution business. AMS
(Advance Marketing Services) is the current overall market leader for
book distribution to warehouse clubs (with more than $400 million annual
sales to warehouse clubs). Futech has previously focused on children's
books, but has begun diversifying into other book segments such as audio
books. we plan to continue this diversification into hard and soft cover
best sellers, paperbacks, computer books, cook books, gardening books,
self-help and religious books.
We also plan to take advantage of the warehouse clubs' desire to
diversify their supplier base to a second supplier. In order to grow this
business, We must improve its service through lower prices, offering more
extensive programs, improving its inventory management systems, improving
its retail customer reporting systems, offering volume discounts on its
proprietary lines tied to increased volume from book distribution, and
concentrating on services and products not currently addressed by AMS.
TOYS AND GAMES
The main office for the toys and games business operating unit along with
sales, operations and distribution for the mass market will be located in
Indianapolis, Indiana. Sales, operations and distribution for the specialty
market will be located in Berkeley, California. Additional distribution to the
mass market will be for the East, through the Norwalk, Connecticut facility, and
for the West, through the Berkeley, California facility. The New Futech officer
responsible for this business unit will be Carl (Chip) E. Voigt, IV, Vice
President -- Toys and Games. We expect to utilize the Fundex brand name for
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mass market toys and games, the DaMert Company brand name for specialty toys and
games, and the Malibu Fun Stuff brand name for swimming pool, bath, and bathroom
toys and games. The Janex line of products will continue to use the Janex brand
name for the short-term, but is expected to be changed to a new brand name by
the end of 1999.
Toys, games and interactive games encompass many product categories
including: conventional board games, electronic board games and book and toy
packages. The market for interactive toys and games has grown in recent years
due to parents' interest in combining entertainment with educating their
children. We expect to establish a competitive advantage by designing products
which provide high quality play processes, interactive capabilities, educational
experiences and superior value to the consumer at competitive prices. The
interactive board game products are expected to be sold at retail for $15 to
$30. We believe this price point compares favorably with similar electronic game
and toy products which typically retail between $30 and $100.
Examples of interactive games that Futech is developing are three NASCAR
board games called Racing Legends NASCAR Real Life Racing, which feature board
games with sounds. These products include collectible diecast race cars of
drivers Dale Earnhardt, Jeff Gordon, Rusty Wallace, Dale Jarrett, or Dale
Earnhardt, Jr. As the child plays along by pressing a dice icon on the board
game's surface they move the race cars around the track. The track is divided
into spaces which feature sound effects and play options that determine the
outcome of the game. Sound effects include straight away and curve racing
sounds, screeching tires, crashes, and even pit stop sounds with wrenches and
air guns. The first racer to circle the track the pre-determined number of laps
and cross the finish line wins.
FUTECHINTERACTIVE.COM
The main office for the futechinteractive.com business operating unit will
be located in Phoenix, Arizona. Distribution for futechinteractive.com will be
located in Norwalk, Connecticut. The officer responsible for this business unit
is Vincent W. Goett, Chief Executive Officer.
We intend to focus on and make substantial investments into the Internet
and continue Futech's web site development activities. Futech launched its
interactive Internet web site, www.futechinteractive.com in March, 1999.
Following close behind, Futech introduced its commerce addition to the web site
on April 30, 1999. Consumer visitors to the web site can now order from a
selection of hundreds of products, order replacement batteries, play interactive
online games and learn general information about the Company. The web site also
provides email links to key personnel, current press releases, a map of Futech
locations, catalog order forms, listings of current Futech job opportunities, in
a general interactive environment that makes visiting the site fun. Previous
online customers can conveniently return and track their orders directly from
the web site. Customer contact forms are available to provide easy communication
with Futech representatives.
An Arizona based commerce solution company provides the purchasing
capabilities including online credit card processing, shipping options and order
tracking. A web site marketing company is diligently working to improve Futech's
listing on web based search engines such as Yahoo. We anticipate a gradually
increasing number of web site hits and orders as a result of this marketing
effort. Custom music has also been written to add to the unique experience of
visiting the Futech web site.
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The creation of the Futech web site has required the use of the most
up-to-date, high end graphic design software and programming. Web site tracking
capabilities allow us to know how many people visit the site, which web browser
they use, and what time they visited.
During 1999, we expect to launch a change to its commerce store name.
oKID.com, The Online Kid Site, is expected to debut and include many new
features. A virtual town, the oKID Town, is expected to allow web site visitors
to explore the web site in a unique, yet familiar fashion. Each section of the
site will be created utilizing information from our products. Most sections are
expected to promote sales of our products and provide interactive learning
experiences for kids. A major location in the oKID town is expected to be the
Town Mall. At the mall, virtual stores are expected to be created for each type
of New Futech product (i.e. toy store, book store, card store, etc.). We expect
to sell store front space to other vendors of children's related products. The
oKID Town is expected to include among other things, an on-line arcade, a space
station, a religious center, a zoo, a kids' club, a race track, a harbor, a
school house, a construction site and a post office. Free e-mail will be made
available for teachers. Chat rooms are expected to allow visitors to discuss a
number of educational subjects. Children are expected to be able to find e-mail
pen pals. Integrated search engines are expected to allow visitors to quickly
find any product or page in the site. The site is also expected to have search
capabilities for a visitor to find product recommendations by age, gender,
product type, or combinations of any of these. Additionally, the web site is
expected to recognize previous customers and their orders, thus allowing it to
recommend additional products. Gift wrapping is expected to be an option for
store customers as well as the ability to send friends personalized messages on
Brite Ideas foam cards.
oKID.com is expected to be hosted at our corporate office on two Alpha
servers connected to the Internet backbone by multiple T-1 lines. These servers
and lines are expected to deliver extremely fast connections and download times
as well as facilitate our increased web site customization.
A significant portion of our future game development is expected to include
Internet game play. We anticipate the oKID web site will not only be an
excellent online resource, but an exciting jump into the new millennium for
consumers, teachers, students and investors.
STATIONERY AND NOVELTIES
The main office, sales, operations and distribution for the stationery and
novelties business operating unit will be located in Waukesha, Wisconsin.
Additional distribution to the mass market will be for the East, through the
Norwalk, Connecticut facility, and for the West, through the Berkeley,
California facility. The officer responsible for this business unit will be R.
Bradford Turner, Vice President -- Stationery and Novelties. One of our
short-term strategic acquisition goals is to acquire a company or companies that
will provide us with additional brands and lines of products, operations
management depth, a separate distribution facility and extensive distribution
channels for the Stationery and Novelties business operating unit.
Among the stationery products, we expect to distribute over 150 foam-based
post cards to approximately 3,900 stores, including 2,500 independent, specialty
retailers and to chains such as Michael's Stores, Inc., FabriCenter of America
and Linens' N Things. The post cards are currently being tested at Eckerd Drugs
and an expanded test is expected soon. The post cards are marketed under the
Better Than A Letter and Kinda Like A
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Card brand names. We intend to utilize our sound technology and produces and
markets a complete line of interactive post cards called Musical Mail.
Another soon to be released line, which will utilize Futech's innovative
sound technology, is Fan Mail. Fan Mail is a line of electronic post cards
featuring such drivers as Jeff Gordon, Dale Earnhardt, Rusty Wallace, Dale
Jarrett and Dale Earnhardt, Jr. Each card features a variety of photos of
driver's race cars, and such captured moments as winning big races. Race fans
can purchase a card specific to a particular racer that is authentically
autographed. These cards contain actual commentary with driver and race
statistics. This product line will be sold at actual racing events. This line
also could potentially feature a collection of famous movie stars all printed in
black and white. Press the printed icon on the card's surface and the recipient
would hear a famous quote or song by the featured star.
SPECIALTY AND EDUCATIONAL PRODUCTS
The main offices, sales, operations and distribution facility for the
specialty and educational products business operating unit will be located in
Norwalk, Connecticut. The officer responsible for this business unit is William
W. Burnham, Vice President -- Specialty and Educational Products.
The specialty and educational products operating unit includes direct mail
distribution, educational channels of distribution, specialty advertising and
other premium incentive channels of distribution of products from all other
operating business units. It also is expected to include the production of
variations of New Futech products from other operating units to meet the needs
of the described channels of distribution. One example of such a product
variation is the Aditude corporate advertising version of the Brite Ideas
mailable foam-core post cards.
We expect to utilize our conductive ink and sound technology to produce
interactive brochures, interactive mailable foam core advertisements and other
interactive promotional materials using the brand name, Aditude. Advertising for
the next generation. These innovative products will offer a company a unique way
to promote its advertising message by stimulating three of the five human
senses; sight, sound and touch. We expect to market these new products to
Fortune 500 companies and advertising agencies nationwide. They can be custom
designed with full-color art, music, speech and sound effects of the client's
choice and can be custom cut in about any shape and size. They are U. S. Post
Office approved for direct mailing or can be handed out at events and expos. The
recipient simply presses a printed icon on the card's surface to activate up to
one minute of promotional messages. The disposable unit is expected to include
enough battery power for up to 45 minutes of continuous play.
LICENSING TECHNOLOGY AND OTHER RIGHTS TO OTHER COMPANIES
We expect to license certain applications of our patented technology to
other companies while reserving all applications for its own products and
formats. On August 14, 1996, Futech entered into a joint venture with Golden
Books Family Entertainment, Inc., the world's largest publisher of children's
books. In January, 1998, Futech transformed its agreement with Golden into a
five-year, non-exclusive licensing agreement and received a $2 million up-front,
non-refundable guarantee for the non-exclusive use of the technology. Golden
Books recently filed for bankruptcy protection for reorganizational purposes.
We also expect to license certain United States paperback publishing rights
of its books to various book clubs (i.e. Scholastic, Inc., Troll Communications,
LLC and Book-
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of-the-Month Club) for specialty distribution. When these companies license the
paperback rights, we will provide them with films which will allow them to
produce their own low cost paperback editions. A substantial royalty guarantee
to New Futech will be included in the contract, and an advance on the guarantee
will be paid by these companies to New Futech for the rights to produce the
books. These companies distribute these special editions to students and schools
throughout the United States. They distribute flyers/order blanks directly to
children so the product can be ordered via mail order. They also participate in
school book fairs at which they set up book displays at schools for a one week
period and sell directly to students and teachers. Sales of these editions often
average 100,000 copies or more.
We also expect to license certain foreign publishing rights of our books to
various foreign publishers. Procedures similar to those discussed above for book
clubs (i.e. contracts and guarantees) are involved with this type of licensing.
Trudy brings extensive experience in foreign publishing licenses to New Futech
through its licensing of Soundprints products abroad.
RECENT ACQUISITIONS
In addition to the proposed merger agreements with Janex, Trudy, Fundex and
DaMert, Futech has completed several additional acquisition and joint venture
agreements during 1998 and 1999:
- on March 31, 1998, Futech purchased the net assets of Gick, a distributor
of foam-based post cards, stationery, specialty crafts and hobby items,
based in Irvine, California, for an asset purchase price of $2.2 million
plus assuming $1.0 million in liabilities;
- on May 1, 1998, Futech purchased the net assets of XYZ Distributors, a
Midwest distributor of children's books, adult books, audio books,
activity games and related educational products, for an asset purchase
price of $10.2 million plus assuming $10.4 million in liabilities;
- on February 1, 1999, Futech entered into a joint venture with renowned
author Joy Berry and her company, Responsible Kids, LLC, purchasing 49%
of Gold Star Publishing, LLC, to develop and publish children's
self-improvement products. The price of the stock was a commitment from
Futech to contribute $500,000 in working capital to Gold Star Publishing,
LLC and in addition, assume a $200,000 line of credit from Responsible
Kids, LLC.; and
- Futech has agreed in principle to significantly expand the
co-publishing/distribution agreement with Magi Publications (London,
England), an agreement originally reached between XYZ and Magi. The terms
of the new agreement are in negotiation. However, we expect that the
agreement will grant New Futech exclusive North American publishing
rights for all Little Tiger Press titles, substantially increased gross
profit margins on Little Tiger Press titles, and shared future increased
market value of the Little Tiger imprint. We also expect New Futech to
maintain a right of first refusal in the case of sale of the Little Tiger
Press imprint.
REASONS FOR MERGERS
Most of the industries represented in the mergers, (i.e. publishing, toys
and games, and stationery and novelties) have experienced tremendous
consolidation. Smaller
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companies find it very difficult to compete with the larger conglomerates,
especially for product placement in the mass retail market. Simply stated, the
reason for the mergers is to provide the merging companies the opportunity to
better compete in their industries.
Through the mergers, New Futech expects to provide several advantages to
the merging companies that they would otherwise not enjoy on their own:
- necessary financial resources through the ability to raise public
capital;
- mass and diverse product presentation to allow the opportunity to sell to
the mass retail market;
- current New Futech patented technology to be incorporated into existing
and future product lines;
- new technology provided through ongoing research and development not
available to small, individual companies;
- access to popular key licenses to be incorporated into existing and
future product lines;
- access to more experienced and deeper management; and
- broader company strength (through a broader product base and expected
improved financial strength) to withstand potential aggression from large
competitors designed to eliminate smaller competition.
SPECIFIC REASONS FOR PREVIOUS ACQUISITIONS AND PROPOSED MERGERS
UNIVERSAL OPPORTUNITIES IN ALL ACQUISITIONS AND MERGERS:
- expand product lines;
- integrate Futech technology into existing proprietary products;
- improve profitability through reduced costs and enhanced operational
efficiencies; and
- expand domestic and international distribution coverage in the
publishing, toys, games, and stationery and industries.
SPECIFIC TO XYZ:
- long-standing exclusive distribution arrangement with New Futech;
- excellent facilities for centralized distribution of books from the
Midwest;
- experienced management within the publishing distribution industry;
- experience with book production in the Orient;
- complete sales management and rep. groups within retail book industry;
and
- experience with New Futech technology in the publishing industry.
SPECIFIC TO GICK:
- experience within the gift and novelty industries;
- sales and representative groups in specialty retail industry; and
- exclusive patents on mailable foam core products.
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SPECIFIC TO GOLD STAR PUBLISHING:
- mass market exclusive for the works of renowned children's author Joy
Berry;
- existing educational library of over 250 titles . . . 80 million copies
sold via direct mail and book clubs;
- partners through Joy Berry's television contract with Glen Larson Kids'
Entertainment;
- Super Star Kids Club web site; and
- media exposure opportunities through Joy Berry's Fall 1999 author tour.
SPECIFIC TO FUNDEX:
- facility for centralized distribution of toys and games from the Midwest;
- experienced management within the toys and games industry;
- successful designer of award-winning games;
- experience with toys and games production in Asia;
- complete sales management and representative network within the retail
toys and games industry; and
- with the country's number three selling card game (Phase 10), enabling
nationwide toys and games distribution.
SPECIFIC TO JANEX:
- good relationship with Toys-R-Us;
- extensive experience, success and name recognition with licensed products
and within the licensing industry; and
- experience in Letter of Credit/FOB Hong Kong business.
SPECIFIC TO TRUDY:
- experienced management within the publishing industry;
- strong publishing back-list including twelve Parents' Choice award
winning titles;
- East coast distribution facility;
- East coast fulfillment center for mail order and commerce;
- experience in licensing of educational opportunities such as Smithsonian
and The Nature Conservancy; and
- experience in premium, supplemental education and other specialty
industries.
SPECIFIC TO DAMERT:
- West coast distribution facility;
- West coast fulfillment center for mail order and commerce;
- experienced management within the specialty toy retail industry; and
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- product development team and facility to consolidate with existing New
Futech's research and development equipment for future New Futech
technological advances.
INTEGRATION OF MERGING COMPANIES' FACILITIES
Subsequent to the mergers, we will be divided into five business operating
units: publishing, toys and games, futechinteractive.com, stationery and
novelties, and specialty and educational products operated utilizing six
facilities:
- the corporate offices will be located in the Futech facility in Phoenix,
Arizona and will include the Internet services business operating unit;
- the publishing operating unit and stationery and novelties operating unit
and major distribution facility for both units will be located in the
Futech facility in Waukesha, Wisconsin;
- the sales office will continue to be located in Chicago, Illinois;
- the toys and games operating unit and major distribution warehouse for
mass market toys and games will be located in the Fundex facility in
Indianapolis, Indiana;
- Internet distribution, direct mail catalog distribution, East coast mass
retail distribution for publishing, toys and games and stationery and
novelties, the specialty and educational products operating unit, along
with New Futech's publisher and related editorial and graphics staff will
be located in the Trudy facility in Norwalk, Connecticut; and
- the major distribution warehouse for the specialty channel of
distribution for toys and games and the West coast mass retail
distribution for publishing, toys and games and stationery and novelties
will be located in the DaMert facility in Berkeley, California, along
with all research and development equipment and personnel.
INTEGRATION OF MANAGEMENT OF MERGING COMPANIES
Integration of the management from each of the companies involved in the
mergers are as follows:
- Futech management will become the management of the surviving parent
company and will continue intact with the exception of William Hermes,
currently Futech's Vice President of Sales and Brad Turner, currently
Futech's Vice President of Marketing. Mr. Hermes will become Vice
President of Publishing and will be responsible for the publishing
operating unit. Mr. Turner will become Vice President of Stationery and
Novelties and will be responsible for the stationery and novelties
operating unit.
- Fundex President, Carl E.(Chip) Voigt, IV, will become Vice President of
Toys and Games and will be responsible for the toys and games operating
unit. The remainder of Fundex management will become responsible for the
mass market portion of the toys and games division, including the
products previously in the Janex product line.
- DaMert Chairman, Frederick A. DaMert, will become the Vice President of
Research and Development and will be responsible for the development of
New
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Futech technologies. DaMert CEO, Gail DaMert, will become Vice President
of Business Integration and Analysis and will be responsible for the
operations of the Berkeley, California facility, the specialty stores
channel of distribution of the toys and games division and will add
responsibilities related to business analysis and integration of
acquisitions.
- Trudy President, William W. Burnham, will become Vice President of
Specialty and Educational Products and will be responsible for the
specialty and educational products operating unit, the operations of the
Connecticut facility, and assist with New Futech business strategy and
acquisitions. Trudy Vice President, Elisabeth Prial, will become New
Futech's Publisher and will be responsible for the development and
marketing of all New Futech publishing products.
- Janex Vice President and Chief Operating Officer, Daniel Lesnick, will
devote his time to developing licensing opportunities for all the New
Futech operating units and assist as needed in the future development of
the Janex product line and in the contracting of overseas manufacturing.
STRATEGY FOR FUTURE ACQUISITIONS
New Futech will continue to evaluate acquisition prospects subsequent to
the mergers. With the advent of the mergers, the anticipated breadth of New
Futech's product line will have been clearly defined (see "Business Strategy"
discussion in this section). The strategy for future acquisitions is to provide
additional depth to the five previously defined operating units such as
additional brands and lines of products within the toys and games unit,
additional imprints within the publishing unit, additional educational products
within both the toys and games and/or publishing unit, additional stationery
brands and lines of products within the stationery and novelties unit,
additional operations management depth, distribution facilities and distribution
channels as needed in the stationery and novelties unit.
PRODUCT DESIGN
We expect to conduct our own engineering, research and development, while
it continually refines and enhances existing technology. We will have the
combined talents of the merging companies, which will provide product
development expertise in proprietary publishing (both trade and interactive
books), toys and games and stationery and novelty items. We expect to employ a
talented team of approximately 15 capable and inventive product designers. This
design team takes products from inception to manufacturing, including
prototyping, coordinating the required production materials, illustrating,
scripting, editing, mold design and technology development for the products. The
team also acts as a support service to manufacturers of our products. Combined
with a team of outside creative partners of artists, editors, inventors, and
excellent resources and talents available through licensing partners, we expect
to demonstrate its commitment to innovative new products through our product
development and proprietary technology.
Some of the product lines in the New Futech family of products are based on
licensing agreements allowing for the use of popular characters, such as Disney
or other popular sports and pop culture figures such as NASCAR Racing drivers
and WCW professional wrestlers. Within these product lines, we will continually
look for new characters to license. A popular culture character can be used to
extend the life of an existing product or create a new book, product or game.
When new licenses are acquired, the licensors specify exactly which products
into which the licensed characters can be
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incorporated and the territory in which the products can be sold. Our
proprietary technology and diverse product lines will give us an additional
advantage when negotiating new licensing agreements.
New products are initially selected based on what we believe will be
successful. However, in order to avoid the expense of producing product that may
not sell, we will utilize varying forms of market research and consumer testing.
Feedback from this testing is also used in developing packaging and retail
pricing strategies.
Although we have a product design staff, we also expect to work in
conjunction with outside inventors and product designers throughout the United
States. Generally, outside concepts for new toys and games are reviewed and
refined internally and a decision is then made whether to accept and develop the
new game, toy or educational product. If the new idea is accepted a royalty will
be paid to the inventor ranging from 1% to 10% and a commitment to sell a
minimum number of items is usually set.
We plan to broaden the application of Futech's patented interactive
conductive ink technology to new types of interactive books, interactive board
games and interactive puzzles. New product designs will focus initially on newly
available licenses plus integrating existing proprietary books, toys and games
from the merging companies with Futech's proprietary technology to create a
broad and deep range of interactive books, toys, games and educational products.
PROPRIETY PRODUCT LINES
We expect to benefit from an extensive consolidated list of new products,
many already existing, more expected to be developed quickly. We anticipate that
our product lines will bring increased clout with the major mass-market
retailers who generally prefer working with larger vendors offering extensive
lists of proprietary products. We expect to be able to offer large retailers
like Wal-Mart, K-Mart and Costco, a product line that includes books, toys and
games, stationery and crafts, along with new and exciting interactive products.
Below is a summary of our anticipated 1999 product lines. Many of these products
have projected release dates in the second and third quarter to coincide with
the holiday selling season.
PUBLISHING
Interactive publishing for kids
- Talking Pages Picture Books, four-color, twelve page interactive story
books with illustrations, published in four titles.
- Talking Pages Prayer Books, four-color, twelve page interactive prayer
books with illustrations, published in two titles.
- Talking Pages Plus Books, four-color, twelve page learning books with
multi-game playing capabilities, published in two titles.
- Talking Pages Deluxe Books, four-color, twelve page non-fiction
interactive learning books, published in two titles.
- Look, Listen and Learn, gate-fold style interactive educational play
boards, published in four titles.
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- NASCAR Stats and Standings, 4-color, 24 page book and a collectible
diecast race car featuring popular NASCAR drivers such as Jeff Gordon,
Dale Earnhardt, Rusty Wallace and Dale Jarrett.
- NASCAR Track Sounds, electronic books featuring full-color photography,
speech and sound effects of current season racing moments from a variety
of racing legends with the same drivers as above plus Dale Earnhardt, Jr.
- Talking Pages Plus Bible Stories, similar to the Talking Pages Prayer
book line, but featuring eight different religious stories (i.e. Creation
Story, Easter Story, Christmas Story, Moses, Gideon, Jonah and the Whale,
Noah's Ark, David and Goliath).
- Additional licensed books are expected to be available in the fourth
quarter of 1999 and first quarter of 2000. These books are very early in
development, but will be based on the significant newly acquired
licenses.
- Utilizing existing publishing products from New Futech's proprietary
imprints (Soundprints, Little Tiger Press and Gold Star Publishing),
additional interactive products are expected to be added in early 2000.
Little Tiger Press picture books for kids
- Nine new hardcover picture books (Another Fine Mess, How to Be a Happy
Hippo, Little Bunny Bopkin, Little Tiger's Big Surprise, Love is a
Handful of Honey, Nine Naughty Kittys, One, Two, Three, Oops!, Selfish
Crocodile, and Smudge).
- Four new anthologies (Bible Stories for the Young, Counting Leopard's
Spots, Not-So-Grizzly Bear Stories, and The Fox and the Rooster).
- Two new cloth books (Bedtime Little Tiger and Where's Smudge's Ball).
- Four new seasonal titles (Hurry Santa!, Laura's Christmas Star, Little
Bear's Christmas, and Shhh!).
- Three new board and flap books (Little Tiger Goes to School, I Don't Want
to Take a Bath, and I Don't Want to Go to Bed).
- Three new paperback books (I Don't Want to Take a Bath, and I Don't Want
to Go to Bed, and Dora's Eggs).
- Over fifty backlist titles.
Gold Star Publishing (Joy Berry's) books for kids
- Six new board books in the Teach Me About Series for kids under four
years old (Potty Training, Bathtime, Bedtime, Mealtime, Crying,
Separation).
- Six new kits in the Teach Me About Series (same titles as above)
including board books, activity charts and diplomas.
- Six new paperback books in the A Fun and Easy Way series for kids six to
twelve (Clean Your Room, Be a Good Pet Owner, Earn Your Allowance, Be
Good, Do Homework and Schoolwork, Get Good Grades).
- Six new paperback books in the Good Manners series for kids six to twelve
(When Eating, When in Public, When Talking, When Telephoning, When
Entertaining, When Visiting).
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- Ten new paperback books in the Good Answers to Tough Questions series for
parents and children of all ages (About Dependence and Separation, About
Change and Moving, About Divorce, About Stepfamilies, About Weight
Problems, About Substance Abuse, About Physical Disabilities, About
Traumatic Experiences, About Disasters, About Death).
- Three new paperback books in the Bee Safe Series for children of all ages
(Bee Careful, Bee Prepared, Bee a Lifesaver).
- Six new paperback books in the Six Simplified Steps series for parents
and children of all ages (Successful Parent, Relationships, Discipline,
Self-Esteem, Good Kids, Happy Kids).
- Three new paperback books in the Sensational Seasons and Holidays series
for all children (Experiencing October, November and December).
- Six new paperback books in the Get Over It series for adolescents
(Criticism and Rejection, Fear, Bad Habits, Rude People, Stress, Tough
Situations).
- Six new paperback books in the Go For It series for adolescents (Be a
Winner, Be Liked, Be a Star, Great Future, Be Happy, Be Beautiful).
- Six new paperback books in the Work It series for adolescents (Goals,
Creativity, Intelligence, Control, Organization, Assertiveness).
- Four new paperback books in the Let's Talk About series for kids six to
twelve (Feeling Disappointed, Feeling Frustrated, Feeling Jealous, Being
Good).
Soundprints
- Smithsonian Institution Series -- via an exclusive license from the
Smithsonian Institution. These products include realistic wildlife plush
toys, storybooks and audio cassettes, and are also available in
educational kits.
- Four new board book titles (New Baby Giraffe, Panda's Busy Day, Orang
Utan's Playtime, Rhinoceros's Bathtime).
- One new title in the Backyard series (Coyote at Pinon Place).
- One new title in the Oceanic series (Survival in the Sea).
- One new title in the Odyssey series (Run With Me, Nike!).
- 60 title backlist in four different series (Oceanic, Backyard, Odyssey,
Wild Heritage).
- The Nature Conservancy Series -- via an exclusive license from The Nature
Conservancy. The first four titles in the habitat series were introduced
in the spring of 1997. These products also include realistic wildlife
plush toys, storybooks and audio cassettes, and are also available in
educational kits.
- Two new titles (Along the Luangwa, Mountain Mists); and
- 10 title backlist.
- Make Friends Around the World Series (a picture book and doll series
about children from foreign lands).
- Two new titles (The Legend of the Kite for China, Eva's Summer Vacation
for the Czech Republic).
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- Two previously published titles.
TOYS AND GAMES
For the mass market utilizing the Fundex brand
- NASCAR interactive board games. Three NASCAR board games called Racing
Legends NASCAR Real Life Racing feature board games with sounds. These
products include collectible diecast race cars of drivers Dale Earnhardt,
Jeff Gordon, Rusty Wallace, Dale Jarrett, or Dale Earnhardt, Jr. As the
child plays along by pressing a dice icon on the board game's surface
they move the race cars around the track. The track is divided into
spaces which feature sound effects and play options that determine the
outcome of the game. Sound effects include straight away and curve racing
sounds, screeching tires, crashes, and even pit stop sounds with wrenches
and air guns. The first racer to circle the track the pre-determined
number of laps and cross the finish line wins.
- Phase 10. A card game for ages eight to adult. Phase 10 is currently the
second best-selling card game in the United States and the world, with
over 6 million units sold. Sister products are Phase 10 Dice, Phase 10
UPSETS and Take Five.
- Wooden Games. These include competitively priced and quality made wood
versions of several classic games such as labyrinths, chess, checkers,
Chinese checkers and mancala.
- Basic Board and Mini Games. A comprehensive line of traditional board
games such as chess and checkers that retails in the $2.99 to $9.99 price
range.
For the mass market utilizing the Malibu Fun Stuff brand
- A line of swimming, bath and beach toys that include Wee Wet Pets, Wet
Pet Babies, and Water Wings.
For the mass market utilizing the Janex brand
- Most of the Janex products incorporate licensed fantasy characters. The
product line currently includes the following: battery operated Power
Toothbrush and Stand, battery operated Power Flashlight, Action/Talking
Alarm Clock, and Role Play Gear.
For the mass market, book trade market or specialty toy market: books plus audio
and plush toys
- Soundprints titles (for detailed information about Soundprints titles,
see the publishing product section).
For the specialty toy market
- Puzzles/Brainteasers. This product line includes the cardboard Triazzle
Puzzle Collection and the plastic 3D Slide Puzzle Collection. Triazzle
Puzzles are manufactured under a long-term exclusive agreement with the
inventor.
- Glow-in-the-Dark. A line of items using "Glow-in-the-Dark" plastics and
inks including stickers, balls and mobiles.
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- Great Gizmos and Rainbows. A line of science related toys that are
educational and fun.
- Activity Kits. A series of "All about . . ." activity planners that
teaches children about topics from Animation to Rainbows to Planets and
Stars.
- Discovery Kits. A series of compact kits to teach kids more about the
world around them. Topics include Constellations, Bird Watching and
Geology.
- Out-of-this-World Games. A line of family games incorporating lights and
sound, including Alien Autopsy and Impact Zone, winner of the 1998 T.O.Y.
award (toy of the year award).
STATIONERY AND NOVELTIES (UTILIZING THE BRITE IDEAS BRAND)
- Patented mailable foam-core post cards:
- 12 products in the Musical Mail (interactive) line;
- 36 products in the Better Than a Letter line; and
- 55 products in the Kinda Like a Card line.
- Crafts and novelties:
- 48 products in the Little Bits line;
- 12 products in the Bigger Bits line;
- 6 products in the Banners line;
- 6 products in the Little Bits Frame Kits line;
- 4 products in the Little Bits of Cheer line;
- 12 products in the Make a Memory do-it-yourself frame line.
STRATEGY FOR LICENSING CHARACTERS
One of our long-term strategies in product development is to create a
balance between licensed and non-licensed products. Through the merger with
Janex, Futech gained a new level of experience and access into the licensing
industry. Janex's long-standing relationships with most key domestic licensors
provides the us opportunity to better fulfill this strategy quickly.
Our strategy involves four levels to the licensing balance:
- The first level includes licenses familiar to all consumers. Futech
currently has a license and distribution agreement with Action
Performance and sub-licenses through Action Performance with NASCAR, Jeff
Gordon, Dale Earnhardt, Rusty Wallace, Dale Jarrett and Dale Earnhardt,
Jr. to produce interactive books, interactive games, Fan Mail, book and
car packages, and various other toy products such as toothbrushes and
clocks. Futech has also agreed to terms for additional licenses and
distribution agreements with three significant licensors for additional
interactive books and post cards (definitive agreements for all three are
currently in negotiation). In addition, Futech currently has licensing
and distribution agreements for various toy products with The Walt Disney
Company for Hercules, Warner Brothers Corporation for Looney Tunes,
Children's Television Workshop for Sesame Street, Leisure Concepts for
World Championship Wrestling, Inc. for
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WCW characters, The Lyons Group for Barney, Saban Merchandising, Inc. for
Power Rangers in Space, LLC for Lionel Trains, New Line Cinema
Productions, Inc. for Lost in Space, Turner Home Entertainment, Inc. for
Jonny Quest, and MCA/Universal Merchandising, Inc. for Lost World. Trudy
also has licensing and distribution agreements with the Smithsonian
Institution and The Nature Conservancy for Soundprints books, audio
cassettes and plush toys. We intend to continue to pursue additional
licensing and strategic agreements for publishing, toys, games,
stationery and its electronic products.
- The second level includes potential license agreements with other
publishers and manufacturers to develop joint venture products. We are
currently working with a major game manufacturer and a major publisher to
determine how our interactive book technology can be successfully applied
through joint venture products to some of their most successful licenses.
We have also initiated discussions with a religious publisher to develop
religious books exclusively for the religious markets.
- The third level includes our exclusive imprints and licenses. Futech has
a long-term agreement with Magi Publishers of London, England to
exclusively publish and distribute products using the Little Tigers Press
imprint and license. Futech has also exclusively licensed best-selling
author Joy Berry through its Gold Star Publishing joint venture. Through
this agreement, Futech has exclusive rights to Ms. Berry's two
hundred-fifty book library of self-help books for kids which have sold
eighty million books through direct to consumer venues.
- The fourth level includes our non-licensed, New Futech branded
proprietary products using branding such as Phase 10, Soundprints,
Talking Pages, Wet Pets, Gold Star Publishing and Brite Ideas. By
maintaining proprietary products not associated to third party licenses,
we expect to be able to balance against the risks of being dependent on
other companies.
PROPRIETARY TECHNOLOGY AND PATENTED TECHNOLOGY
The Company's proprietary technology relates to printed audible signals,
visual circuitry and associated electrical components such as switches,
batteries, speakers and liquid crystal displays (LCD). This technology is
applied to produce books and play boards that emit speech, music and sound
effects or other visual signals activated by pressing switches embedded in the
surface of the product. Upon pressing a designated point on the page or surface
of the product a microchip is activated and a speech, music, or sound effect
response is emitted. In certain products light emitting diodes (LEDs) or liquid
crystal diodes (LCDs) provide visual enhancement.
The Company holds six United States patents and four foreign patents
relating to its conductive ink technology. This technology is applicable to a
variety of products and industries including electronic publishing, promotional
publishing, interactive advertising, electronic greeting cards and other
sound-based consumer products. Futech has acquired four additional patents to
strengthen its current technology position. Futech was also recently granted a
patent for a game board apparatus for selectively providing sensory game
enhancement.
MANUFACTURING
Futech subcontracts with third parties to manufacture of its own electronic
books, including Talking Pages and Talking Pages Plus, in conjunction with one
of the largest commercial printers in China. Trudy's and Futech's trade books
are manufactured by a
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variety of printers located in Belgium, Italy, Singapore and China. Futech has a
variety of electronic products and learning games that are manufactured by
companies throughout Asia. Our specialty products, including promotions and
specialty post cards, will be manufactured domestically. The sound module for
Futech's electronic greeting cards are manufactured in China. Plush toys are
manufactured in China, Bangladesh, and Sri Lanka.
CUSTOMER BASE
We expect to have a diversified base of well established retail customers.
The merged companies have distributed a wide variety of products to the mass
market to over 26,000 retail locations and list most of the country's largest
retailers as their customers. Current customers include some of the most
recognized names in retailing such as Toys 'R' Us, Walmart, Kmart, Target, Baby
Superstores, Inc., Kohl's Corporation, Sam's Club, Costco Wholesale Corporation,
BJ's Wholesale Corporation, Walden, Barnes & Noble, B. Daltons, Borders Group,
Inc., Waldenbooks, Michael's, TJ Max, QVC, Inc., Nordstroms, Inc., Safeway Inc.,
Eckerd Corporation, Rite-Aid Corporation, Scholastic, The Nature Company,
Galyans, The Museum Company and others. We believe these long-standing
relationships will allow the Company to significantly expand the distribution of
its proprietary products.
MARKETS
Given the numerous applications of its interactive, patented technology, we
believe we are well positioned to be a competitive force in a variety of
markets. These markets include interactive games, interactive publishing, trade
publishing, promotional publishing, book distribution, games, toys, stationery,
novelties, mail order, Internet, advertising and promotion and supplementary
education to libraries and classrooms. Specifically, there has been an explosion
of super bookstore construction led by Borders and Barnes and Noble. This has
led to increased book sales category growth. In addition, on line ordering of
books through eCommerce sites such as barnesandnoble.com and amazon.com is
growing rapidly such that this distribution channel is now up to a 7% share of
all book sales. Accordingly, our interactive web site will offer consumers and
retail customers an attractive alternative for purchasing direct along with new
technology games to play on the Internet.
With the federal initiative to reduce classroom sizes through an
augmentation of certified teaching professionals, significant increases in
government and state funds are being allocated to local school boards. The
purchasing decisions for library and classroom teaching materials are being made
at the teacher level as opposed to the state level. This has stimulated double
digit increases in supplementary instructional material spending over the past
three years.
COMPETITION
We expect to operate in highly competitive markets. Some of our competitors
are significantly larger than us and have substantially greater resources
available for developing and marketing their products.
In interactive publishing, one major publisher, Publications International,
Inc., currently has a much larger share of the market than we expect to
initially have, partly because we have just begun to deliver these products to
the market. We believe that we will be able to gain significant market share
over the next few years.
In trade publishing, our competition includes thousands of publishers
including Simon & Schuster, Inc., McGraw-Hill Companies, Inc., Harcourt Brace,
Golden Books Family
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Entertainment, Random House, Inc., Penguin Putnam, Inc., Scholastic, Inc.,
Andrews & McMeel Publishing, HarperCollins, Avon Books, Inc., and Houghton
Mifflin. Subsequent to the mergers, New Futech will attempt to gain additional
market share through its three strong trade publishing imprints (Little Tiger,
Soundprints, Gold Star Publishing). We are not aware of any significant direct
competitors with its licensed, plush toys packaged with an educational book and
audio cassette (Soundprints line) or its kids self-help products (Gold Star
Publishing line).
The book distribution market to warehouse clubs is currently controlled by
one distributor, Advanced Marketing Services (AMS), which has over 95% of total
sales. In 1990, there were ten warehouse club chains in the country and eight
book distributors servicing those chains. Due to consolidations and
acquisitions, there are only three major chains remaining (Costco, Sam's Club
and B.J.'s). As a result of the mergers, we will be able to compliment the scope
of its distributed books and will have additional distribution facilities to
improve our customer service. We also hope to benefit from the warehouse clubs'
desire to maintain an alternative supplier to AMS.
The toys and games market is highly competitive and includes numerous small
manufacturers, but is dominated by two industry giants controlling approximately
50% of the market, Hasbro, Inc. and Mattel, Inc. The industry is sensitive to
changing consumer preferences and demands. Competition is based primarily on
price, quality and play value. In recent years, the industry has experienced
rapid consolidation, driven by the desire of industry leaders to offer a range
of products across a broader variety of categories.
The key competitors in specialty toys can be identified for each product
category as follows:
- puzzles/brainteasers: Binary Arts, Bedazzled
- Glow-in-the-Dark: Great Explorations, Illuminations
- Activity Kits: Creativity for Kids, Curiosity Kits
- Science Toys: Wild Planet
- Rainbows: White Eagle, Lightrix
- Games: University Games, Briarpatch.
All of these competitors are small in size, relative to the toy
manufacturers in other segments of the business.
There are no major competitors in the Brite Ideas (foam-core post cards)
line of products. However, Hallmark Cards and Gibson Greetings are fiercely
competitive in the stationery line as a whole.
RESEARCH AND DEVELOPMENT
Futech is in the process of consolidating its research and development
resources into its facility in Berkeley, California. In addition, Futech
maintains a liaison with individual inventors and companies involved in the
development of related technologies that are utilized to enhance and expand
Futech's products.
DISTRIBUTION AND LOGISTICS
We expect to operate state-of-the-art distribution facilities in the East,
Midwest and West. We will be EDI (electronic data interface) integrated to
receive orders and invoice
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its major customers. In addition, we will have a custom bar-code-based inventory
management system and computerized shipping system in its warehouse. High speed
packing machines, labeling machines and conveyors allow for quick processing of
customers' orders, allowing us to respond to orders within forty-eight hours of
the placement of orders. A computerized rate shopper allows us to determine the
most economical and fastest way to ship products to its customers, thereby
controlling its overall freight expenses and providing exceptional service. All
of the major distribution centers can easily be expanded within thirty to sixty
days to accommodate major new distribution opportunities as they are presented
in the future. With the addition of its West and East coast distribution
facilities, we will be able to service our East and West coast customers in the
mass retail market in two days instead of the previous five days.
EMPLOYEES
No New Futech employee is a member of a union. We consider our relations
with its employees to be good. Initially, we expect to employ approximately the
following number of full-time employees in its locations:
- corporate office and futechinteractive.com operating unit, Phoenix,
Arizona-17 employees;
- publishing and stationery and novelties operating units and distribution
centers, Waukesha, WI -- 42 employees;
- toys and games operating unit, mass market sales and distribution center,
Indianapolis, IN -- 21 employees;
- specialty toys and games distribution, West coast distribution center,
and research and development facility, Berkeley, CA -- 27 employees;
- specialty and educational products operating unit, East coast, direct
mail and eCommerce distribution center, Norwalk, CT -- 21 employees; and
- sales office, Highland Park, IL -- 1 employee.
The merging companies employed a total of 129 employees as of May 1, 1999.
PROPERTIES
Our facilities will be comprised as listed below. We believe that these
facilities are adequate for our current requirements and that suitable
additional space is readily available if needed.
- corporate office and futechinteractive.com operating unit: 9,628 sq. ft.
at 2999 North 44th Street, Suite 225, Phoenix, AZ. Lease expires on
February 1, 2003;
- publishing and stationery operating units and distribution centers:
58,000 sq. ft. of warehouse and office space at N16 W23390 Stoneridge
Drive, Waukesha, Wisconsin. The lease expires June 30, 2002;
- toys and games operating unit, mass market sales and distribution center:
32,000 sq. ft. at 2237 Directors Row, Indianapolis, IN. The lease expires
in five years with a renewal option for three additional years;
- specialty toys and games distribution, West coast distribution center,
and research and development facility: 32,000 sq. ft. of office and
warehouse space at 1609 Fourth Street, Berkeley, CA. It is divided into
24,000 sq. ft. of warehouse and 8,000
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sq. ft. of office space. The lease expires December 1, 2001 and provides
for one six-year extension option at a fair market rental rate for a
similar industrial gross lease;
- specialty and educational products operating unit, East coast, direct
mail and commerce distribution center: 27,000 sq. ft. of office and
warehouse space at 353 Main Avenue, Norwalk, CT. The lease expires
December 31, 2004;
- sales office: 650 sq. ft. of office space at 580 Roger Williams Avenue,
Suite 21, Highland Park, IL. The lease expires June 30, 2002;
- toys and games showroom and office space: 1,000 sq. ft. at Toy Center
South, 200 Fifth Avenue, Room 516, New York, NY. The showroom is used to
exhibit products for the International Toy Fair in February each year and
is used as an office for the balance of the year. A larger space will be
needed as the number of products and product lines continue to grow. The
lease expires April 30, 2006;
- previous office space: 1,000 sq. ft. in Laguna Hills, CA is currently
sub-leased. The lease expires June 30, 2000; and
- previous office space: 4,662 sq. ft. at 21700 Oxnard Street, Woodland
Hills, CA is currently sub-leased to a third party for the balance of the
lease. The lease expires December 31, 2000.
GOVERNMENT REGULATIONS
We endeavor to comply with all applicable regulations through a program of
quality inspections and product testing. We expect to maintain product liability
insurance in the amount of $2,000,000.
LEGAL PROCEEDINGS
Futech is involved in one material legal proceeding as a defendant in Gary
Roy, a/k/a Joe, Billings v. Futech Interactive Products, Inc. This action was
initiated on November 20, 1998 in Waukesha County Circuit Court of Wisconsin.
Mr. Billings, a Director of Futech, alleges Futech wrongfully terminated his
employment and failed to perform according to the terms of the Agreement for
Purchase and Sale of Assets of XYZ. Mr. Billings claims damages resulting from
the wrongful termination equal approximately $1,150,000 plus costs and
attorneys' fees. This suit was dismissed pending arbitration. Futech admits it
owes Mr. Billings certain other amounts in connection with the acquisition of
XYZ. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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NEW FUTECH'S MANAGEMENT
The following table sets forth information regarding the executive officers
and directors of New Futech following the completion of the mergers:
DIRECTORS AND EXECUTIVE OFFICERS
The following table describes the person who will initially be directors
and executive officers of New Futech following the mergers:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Vincent W. Goett..................... 35 Chairman of the Board, Chief Executive
Officer, President and Director
Joseph K. Petter..................... 56 Chief Operating Officer
Frederick B. Gretsch, Sr............. 53 Chief Financial Officer, Treasurer and
Secretary
Carl E. (Chip) Voigt, IV............. 38 Vice President, Games/Toys and Director
William W. Burnham................... 56 Vice President, Specialty Items and
Director
Roderick L. Turner................... 66 Director
Gary A. Oman......................... 50 Director
Robert J. Rosepink................... 48 Director
F. Keith Withycombe.................. 54 Director
</TABLE>
VINCENT W. GOETT. Mr. Goett has served as Chairman and Chief Executive
Officer and Director of Futech since March 1995. Mr. Goett has served as
Chairman of the Board, Chief Executive Officer, President and Director of Janex
since December 11, 1998. Mr. Goett joined Futech as its Chief Operating Officer
on January 5, 1995. From August 1991 to January 1995, Mr. Goett owned and
operated Paradise International, an investment business engaged in acquisition
and joint venture activities. From September 1985 to August 1991, Mr. Goett was
President of Westplex, Inc. which effected major investments in commercial real
estate. Mr. Goett attended Arizona State University. Mr. Goett is the son-in-law
of Roderick L. Turner, a director of Futech, and brother-in-law of R. Bradford
Turner, who is Vice President, Stationary/Novelties of Futech.
JOSEPH K. PETTER. Mr. Petter has served as Chief Operating Officer of
Futech since February 1997. Mr. Petter has served as Chief Operating Officer of
Janex since December 11, 1998. Mr. Petter joined Futech as Vice President of
Operations in March 1996. Prior to joining Futech, from July 1989 to December
1995, Mr. Petter was a Division Vice President of ADVO, Inc., a direct mail
marketing company. From 1970 to 1989, Mr. Petter was a Group or Senior Manager
with several different operating companies of the Dun & Bradstreet Corporation.
Mr. Petter completed the Executive Management Program from the University of
Chicago and received his B.S. in Industrial Engineering from the Illinois
Institute of Technology.
FREDERICK B. GRETSCH, SR. Mr. Gretsch has served as Chief Financial
Officer, Secretary and Treasurer of Futech since September 1997. Mr. Gretsch has
been Chief Financial Officer, Treasurer, Secretary and Director of Janex since
December 11, 1998. He has served in various financial and marketing positions
throughout his career. Prior to joining Futech, from May 1996 to December 1996,
Mr. Gretsch was Treasurer of Vail Resorts, Inc., a ski resort company and from
November 1995 to May 1996, he was Treasurer of Cable Systems International, a
copper wire and cable manufacturing company. From February 1992 to February
1995, Mr. Gretsch was Director of Treasury Operations at
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General Dynamics Corporation, a defense contractor. From June 1975 to December
1991, he was Vice President at Citicorp/Citibank, a major bank holding company.
From October 1968 to June 1975, Mr. Gretsch was manager of Sales Accounting and
Administrator of Finance at RCA, a diversified corporation. Mr. Gretsch received
his Masters degree in Business Administration from Columbia University and his
B.A. in Economics from Georgetown University.
CARL E. (CHIP) VOIGT, IV. Mr. Voigt is the President and Chief Executive
Officer of Fundex Games, Ltd., and he has held those positions since he
co-founded Fundex in 1991. Mr. Voigt has been engaged in the toy and game
industry for over 15 years. Prior to his activities on behalf of Fundex, Mr.
Voigt spent four years as a manufacture's representative in the toy and game
industry. Mr. Voigt received a Bachelor of Science degree in Industrial
Management from Purdue University.
WILLIAM W. BURNHAM. Mr. Burnham has been President of Trudy Corporation
since 1979, prior to which he served in marketing and sales positions for
Pepsico and Vlasic Foods. Mr. Burnham received a B.S. from Trinity College and
an M.B.A. from Columbia University.
RODERICK L. TURNER. Mr. Turner has served as Director of Futech since July
1995. Mr. Turner retired as Senior Executive Vice President of Colgate
Palmolive, Inc. in 1992 with 30 years of service in various executive management
positions within Colgate. Since 1992, Mr. Turner has been engaged in
entrepreneurial interests along with the management of his personal investments.
Mr. Turner is the father-in-law-of Vincent Goett, an officer and director of
Futech, and father of R. Bradford Turner, an officer of Futech. Mr. Turner
received his BA in Business from Cornell University.
GARY A. OMAN. Mr. Oman has served as a Director of Futech since January
1996. Mr. Oman has been a Vice President of Coldwell Banker Success Realty since
1991. From 1973 to 1991, Mr. Oman was a real estate investment consultant and
entrepreneur. Prior to his business interests in real estate investments, Mr.
Oman was in the education profession. Mr. Oman attended Mankato State College
where he studied Educational Administration.
ROBERT J. ROSEPINK. Mr. Rosepink has served as a Director of Futech since
January 1998. Mr. Rosepink has been a partner of Rosepink & Estes, a law firm
specializing in estate planning, probate and trust law since 1988. Mr. Rosepink
was a partner at the law firm of Snell & Wilmer in Phoenix, Arizona from 1985 to
1988 and an associate and shareholder at the law firm of Fennemore, Craig, von
Ammon, Udall & Powers in Phoenix, Arizona from 1975 to 1985. Mr. Rosepink
received his J.D. degree, with honors, from George Washington University.
F. KEITH WITHYCOMBE. Mr. Withycombe has served as a Director of Futech
since November, 1998. Mr. Withycombe was President and Chief Operating Officer
of Evans Withycombe Residential, Inc. from 1994 to 1996, and President of Evans
Withycombe Inc. from 1981 to 1994. Mr. Withycombe received a B.S. in Engineering
from the United States Air Force Academy and a M.S. in Engineering from Arizona
State University.
MANAGEMENT TEAM
- MELVIN J. SAUDER, SENIOR EXECUTIVE VICE PRESIDENT. Mr. Sauder joined
Futech in June, 1998 as Corporate Controller. In September, 1998 he was
promoted to Senior Executive Vice President, directly responsible for all
sales and marketing functions of the company. He was promoted to
President in December, 1998. Over the past decade, he has served as
President of subsidiaries of two different Fortune 100
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companies, Fuji Photo Film USA and AmeriSource Health, Inc. Most
recently, Mr. Sauder served as CEO and President of Enhance Products
Marketing, Inc., a Midwest family/children's book and video distributor
and rack jobber. Mr. Sauder graduated from Ohio State University with a
Bachelor of Science degree in Business Administration. Mr. Sauder is a
CPA and has served in various public and private accounting positions.
- WILLIAM E. HERMES, VICE PRESIDENT -- PUBLISHING. Mr. Hermes joined
Futech in October, 1998. Prior to joining Futech, Mr. Hermes was Vice
President of Sales with Kidsbooks, Inc. in Chicago. Mr. Hermes was Vice
President of Sales and part owner of XYZ Distributors, and prior to that
was Manager of National Accounts with Sight & Sound, Inc. Mr. Hermes
worked as Military Sales Manager with Western Publishing and also worked
in packaged good sales with Kraft Foods. Mr. Hermes graduated in 1982
from the University of Wisconsin.
- R. BRADFORD TURNER, VICE PRESIDENT -- STATIONERY AND NOVELTIES. Mr.
Turner joined Futech in October, 1998. Prior to joining the Company, Mr.
Turner served as Group Marketing Manager for the Kellogg's Company,
responsible for regional promotions, media and advertising for their
Latin American operations. Previously, Mr. Turner served as Regional
Account Director for the Leo Burnett Advertising Agency, and in various
account management positions in Young & Rubicam and Foote, Cone and
Belding. Mr. Turner has a Bachelor of Arts from Tulane University.
- ELISABETH T. PRIAL, VICE PRESIDENT -- PUBLISHER. Mrs. Prial joined Trudy
in 1991 and was appointed Vice President of Sales for Trudy Corporation
in 1994. In 1996, Mrs. Prial became Publisher of Trudy. Prior to joining
Trudy, she worked in juvenile publishing with Warner Books, Putnam
Publishing, Bantam Books, and others. Mrs. Prial attended the Fashion
Institute of Technology in New York.
- FREDERICK A. DAMERT, VICE PRESIDENT -- RESEARCH AND DEVELOPMENT. Mr.
DaMert was the founder and Chairman of the Board of DaMert Company. He
owned and operated the DaMert for 26 years, and was responsible for
creating and sourcing toy and gift products. Mr. DaMert attended San
Francisco State University.
- GAIL PATTON DAMERT, PH. D. VICE PRESIDENT -- BUSINESS INTEGRATION AND
ANALYSIS. Mrs. DaMert became a member of the DaMert Board of Directors in
1983. In 1989, she joined DaMert as the Director of Finance. In 1994, she
became DaMert's Chief Executive Officer. Prior to 1989, Mrs. DaMert was a
systems engineering manager at Lockheed Missiles and Space Company. She
holds a B. A. Degree in Mathematics and Astronomy from Smith College, and
a Ph. D. in Astronomy from State University of New York at Stony Brook.
EMPLOYMENT AGREEMENTS
VINCENT W. GOETT, the Chairman of the Board, President and Chief Executive
Officer of Futech, entered into an employment agreement with Futech dated
December 31, 1997. Under the agreement, Mr. Goett is entitled to an annual base
salary of not less than $200,000 in the first year of the agreement and $350,000
in the second year of the agreement, plus a bonus at Futech's discretion. In
addition, Futech agreed to grant Mr. Goett options to purchase a total of 7
million shares of Futech's common stock at an exercise price of $0.10 per share,
exercisable as follows: 2 million on December 31, 1998; 2 million on December
31, 1999; 1 million on December 31, 2000; 1 million on
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December 31, 2001; and the remaining 1 million on December 31, 2002. The
agreement terminates on December 31, 2002, unless earlier terminated, and is
renewable for additional one year periods. His agreement will remain in full
force and will be assumed by New Futech in the mergers.
JOSEPH K. PETTER, Chief Operating Officer of Futech, entered into an
employment agreement with Futech dated February 1, 1997. Under the agreement,
Mr. Petter is entitled to $125,000 per year for the first year and $175,000 for
the second through fifth years of employment. The agreement terminates January,
2002. Mr. Petter also entered into a confidentiality agreement with Futech dated
March 4, 1996. His agreement will remain in full force and will be assumed by
New Futech in the mergers.
FREDERICK B. GRETSCH, SR., Chief Financial Officer, Secretary and Treasurer
of Futech, entered into an employment agreement with Futech dated September 2,
1997. Under the agreement, Mr. Gretsch is entitled to an annual base salary of
not less than $125,000. The agreement terminates on December 31, 2000. Mr.
Gretsch also entered into a confidentiality agreement with Futech in connection
with his employment. His agreement will remain in full force and will be assumed
by New Futech in the mergers.
WILLIAM E. HERMES, Executive Vice President -- Sales, entered into an
employment agreement with Futech dated April 1, 1999. Under the agreement, Mr.
Hermes is entitled to an annual salary of not less than $125,000. The agreement
terminates on April 1, 2002. Mr. Hermes also entered into a confidentiality
agreement with Futech in connection with his employment. His agreement will
remain in full force and will be assumed by New Futech in the mergers.
The Merger Agreement provides that Carl E. Voigt, IV, who is currently the
CEO of Fundex, will be a director and vice president of the toys/games division
of New Futech as well as a director and president of New Sub. Carl E. Voigt, III
will be the vice president of New Sub. In connection with these positions each
of them will receive three year employment contracts providing for a base salary
of $150,000 per year and options for 33,333 shares of New Futech stock (vesting
in three annual installments) with an exercise price of $4.50 per share.
FRED DAMERT AND GAIL PATTON DAMERT, who are currently the owners and
principal executives of DaMert, will be employed as Vice President -- Research
and Development and Vice President -- Business Integration and Analysis,
respectively, of New Futech after the mergers. The each will receive a three
year employment agreement providing for a base salary of $120,000 per year,
without stock options.
WILLIAM BURNHAM, who is presently one of the principal stockholders and
executive officers of Trudy, will be employed as the Vice President -- Specialty
Items of New Futech. Mr. Burnham will also be a director of New Futech. Mr.
Burnham will receive a three year employment agreement providing for a base
salary of $100,000 per year and stock options for a total of 20,000 shares of
New Futech stock, vesting in equal, annual installments and with an exercise
price of $7.50 per share.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the year
ended December 31, 1998, the compensation awarded to, earned by, or paid to
Futech's Chief Executive Officer and the other Futech executive officers who
were serving as executive officers at December 31, 1998, and whose aggregate
compensation exceeded $100,000. This table does not include information about
1998 compensation of executive officers of the other
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<PAGE> 69
merging companies. New Futech's employment agreements with its executive
officers, including those with executive officers of the other merging
companies, are described under the heading "Employment Agreements," above. The
stock option awards shown in the table have been adjusted for the conversion
ratio into New Futech stock options resulting from the mergers.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
--------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS/SARS(#)(1) COMPENSATION
- --------------------------- --------- -------- --------------------- ------------
<S> <C> <C> <C> <C>
Vincent W. Goett........... $200,000 -- 1,398,333(2) $920,000
Chief Executive Officer
Joseph K. Petter........... $176,042 -- 83,333 --
Chief Operating Officer
Frederick B. Gretsch,
Sr....................... $129,594 -- 116,667 --
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
- -------------------------
(1) Consists entirely of stock options. The amounts shown has been adjusted for
the 1-for-30 exchange ratio in the mergers.
(2) Of the amount shown, 331,667 are owned by Mr. Goett and his spouse and the
remainder are owed by Palmilla Management Trust, which they control.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
NUMBER
OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OF
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME (#) FISCAL YEAR ($/SH) DATE PRESENT VALUE(2)
---- ------------ ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Vincent W. Goett........ 41,667 2.43% 1.50 1/3/04 12,500
240,000 14.01% 1.50 3/31/04 72,000
50,000 2.92% 1.50 5/5/04 15,000
33,333 1.95% 1.50 6/24/04 10,000
200,000 11.67% 1.50 8/10/04 60,000
700,000 40.86% 1.50 12/3/08 210,000
133,333 7.78% 1.50 12/15/04 40,000
Frederick Gretsch....... 83,333 4.86% 4.50 1/29/08 25,000
33,333 1.95% 4.50 6/29/08 10,000
Joseph K. Petter........ 83,333 4.86% 4.50 1/29/08 25,000
</TABLE>
- -------------------------
(1) The number of options and the exercise price have been adjusted to reflect
the assumed reverse-split ratio of 1:30.
(2) The fair value for these options/warrants was estimated at the date of grant
using the minimum value pricing model assuming a risk-free interest rate of
5.38%; dividend yield of 0%; and a weighted average expected life of five
years.
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS
As compensation for their services, non-employee directors are granted
options each year to purchase 833.33 shares of common stock of New Futech at a
price of $1.50 per
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<PAGE> 70
share. Additionally, directors are reimbursed for out-of-pocket expenses that
are incurred in connection with their duties associated with our business.
OTHER ARRANGEMENTS
In December 1998, as consideration for a personal guarantee of a line of
credit with a bank, the following directors received warrants to purchase common
stock of New Futech.
F. Keith Withycombe received warrants to purchase the equivalent of 700,000
shares of New Futech at an exercise price of $1.50 per share. These warrants are
exercisable starting in December 1998 and expire in December 2008. The present
value of the warrants at the time of issuance was $210,000.
Robert J. Rosepink received warrants to purchase the equivalent of 133,333
shares of New Futech at an exercise price of $1.50 per share. These
warrants are exercisable starting in December 1998 and expire in December 2008.
The present value of the warrants at the time of issuance was $40,000.
Vincent W. Goett received warrants to purchase the equivalent of 700,000
shares of New Futech at an exercise price of $1.50 per share. These warrants are
exercisable starting in December 1998 and expire in December 2008. The present
value of the warrants at the time of issuance was $210,000.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
During 1997, Futech granted Vincent W. Goett 333,333 options to purchase
common stock at an exercise price of $1.50 per share, expiring in 2009.
Vincent W. Goett, the Chairman of the Board, President and Chief Executive
Officer of Futech, entered into an employment agreement with Futech dated
December 31, 1997. Under the agreement, Mr. Goett is entitled to an annual base
salary of not less than $200,000 in the first year of the agreement and $350,000
in subsequent years of the agreement, plus a bonus at our discretion. In
addition, Futech agreed to grant Mr. Goett options to purchase 233,333 shares of
New Futech's Common Stock at an exercise price of $3.00 per share, which options
are exercisable as follows: 66,667 on December 31, 1998; 66,667 on December 31,
1999; 33,333 on December 31, 2000; 33,333 on December 31, 2001; and the
remaining 33,333 on December 31, 2002. The agreement terminates on December 31,
2002, unless earlier terminated, and is renewable for additional one-year
periods. As a result of the mergers these options will cover an aggregate of
233,333 New Futech shares at an exercise price of $3.00 per share.
Joseph K. Petter, Chief Operating Officer of Futech, entered into an
employment agreement with Futech dated February 1, 1997. Under the agreement,
Mr. Petter will receive $125,000 per year for the first year and $175,000 for
the second through fifth years of employment. The agreement terminates in
January, 2002. Mr. Petter also entered into a confidentiality agreement with
Futech dated March 4, 1996.
Frederick B. Gretsch, Sr., Chief Financial Officer, Secretary and Treasurer
of Futech, entered into an employment agreement with Futech dated September 2,
1997. Under the agreement, he is entitled to an annual base salary of not less
than $125,000. The agreement terminates on December 31, 2000. Mr. Gretsch also
entered into a confidentiality agreement with Futech in connection with his
employment.
Board Compensation Committee Report on Executive Compensation. In the
absence of a separate compensation committee, the Futech Board of Directors
reviewed the
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<PAGE> 71
compensation payable to the persons mentioned below. The Board believed that the
salary payable and stock options awarded to the President and Chief Executive
Officer reflected his contributions to us, demonstrated by his vision and
leadership with respect to our financing and acquisitions strategies. The Board
felt that the salary payable and stock options awarded to the Chief Operating
Officer appropriately compensated him for overseeing all of our manufacturing
operations, both domestic and international. The Board demonstrated that the
salary payable and stock options awarded to the Chief Financial Officer,
Treasurer, and Secretary reflected his contributions to our progress in
improving its financial position and instituting more extensive financial
controls consistent with the company's growth.
1999 STOCK OPTION PLAN
The 1999 Stock Option Plan (the "1999 Plan") will be adopted by the Board
of Directors of New Futech and approved by New Futech's stockholders. A total of
1,000,000 shares of New Futech Common Stock will be reserved for issuance under
the 1999 Plan. The 1999 Plan will survive the merger.
Purposes. The purpose of the 1999 Plan is to attract and retain the best
available directors and employees of the Company or any parent or subsidiary or
affiliate of New Futech which now exists or hereafter is organized or acquired
by or acquires New Futech, as well as appropriate third parties who can provide
valuable services to New Futech, to provide additional incentive to such persons
and to promote the success of the business of the Company.
Administration. The 1999 Plan is administered by the Board of Directors or
a Committee of the Board of Directors appointed by the Board and constituted so
as to permit the 1999 Plan to comply with Rule 16b-3. The administering body is
referred to herein as the "Committee." The Committee determines the persons to
whom stock options will be granted, the terms of such grants and the number of
shares subject to options. The 1998 Plan provides for the grant of options which
qualify as "Incentive Stock Options" (sometimes referred to herein as "ISOs")
under Section 422 of the Code and non-statutory stock options which do not
specifically qualify for favorable income tax treatment under the Code
(sometimes referred to herein as "NSOs").
Eligibility and Participation. Any employee of New Futech or any of its
subsidiaries is eligible to receive options under the 1999 Plan. Non-employee
directors are eligible to receive only NSOs under the 1999 Plan while employee
directors are eligible for both ISOs and NSOs. In addition, any other individual
whose participation the Committee determines is in the best interests of the
Company is eligible to receive only NSOs under the 1999 Plan. The Committee has
complete discretion to determine which eligible individuals are to receive
option grants. In general, the only consideration received by New Futech for the
grant of an award will be past services or the expectation of future services,
or both. The 1999 Plan does not confer on any participant in the 1999 Plan (a
"Participant") any right with respect to continued employment or other services
to New Futech and will not interfere in any manner with the right of New Futech
to terminate a Participant's employment or other services
Stock Subject to the 1999 Plan. The aggregate number of shares which may
be issued pursuant to the exercise of options granted under the 1999 Plan is
1,000,000 shares of New Futech's Common Stock, subject to adjustments in certain
circumstances, including reorganizations, recapitalizations, stock splits,
reverse stock splits, stock dividends and the like. If any outstanding option
grant under the 1999 Plan for any reason expires or
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<PAGE> 72
is terminated, the shares of Common Stock allocable to the unexercised portion
of the option grant shall again be available for options under the 1999 Plan as
if no options had been granted with respect to those shares.
Limitations on Awards. No grants are required to be made during any
calendar year. No ISO may be exercised more than ten years from the date of
grant (five years in the case of a grant to a Participant owning more than 10%
or more of the total combined voting power of all classes of stock of the
Company or any ISO Group member), immediately after the date the Participant
ceases to perform services for the Company or any ISO Group member (for reasons
other than death or disability), one year after the date the Participant ceases
to perform services for the Company or any ISO Group member if cessation is due
to death or disability, or the date the Participant ceases to perform services
for the Company or any ISO Group member if cessation is for cause. No NSO may be
exercised more than ten years from the date of grant, one year after the date
the Participant ceases to perform services for the Company or any Affiliated
Group member (for reasons other than death, disability, retirement or cause),
two years after the date the Participant cease to perform services for the
Company or any Affiliated Group member if cessation is due to death, disability
or retirement, or the date the Participant ceases to perform services for the
Company or any Affiliated Group member if cessation is for cause.
Pricing and Payment of Options. The per share exercise price of each stock
option granted under the 1999 Plan will be established by the Committee at the
time of grant. Subject to the provisions of the Internal Revenue Code of 1986,
as amended, grants to Participants may be either ISOs or NSOs. In the case of an
ISO, the per share exercise price may be no less than 100% of the fair market
value of a share of Common Stock on the date of grant (110% in the case of a
Participant who owns, directly or indirectly, 10% or more of the outstanding
voting power of all classes of stock of the Company). The per share exercise
price of a Non-qualified Stock Option may be any amount determined in good faith
by the Committee. With respect to ISOs, the aggregate fair market value of the
Common Stock for which one or more options granted to a Participant may become
exercisable during any one calendar year may not exceed $1,000,000. The fair
market value of the Common Stock equals the closing price on the date in
question on the principal exchange or other market on which the stock is then
traded.
Under the 1999 Plan, the purchase price of an option is payable upon
exercise: (i) in cash; (ii) by check; (iii) to the extent permitted by the
particular option grant, by transferring to the Company shares of Common Stock
of the Company at their fair market value as of the option exercise date
(provided that the Participant held the shares of stock for at least six
months); or (iv) through a sale and remittance procedure by which a Participant
delivers concurrent written instructions to a Company-designated brokerage firm
to sell immediately the purchased Common Stock and remit to the Company
sufficient funds to pay for the options exercised and by which the certificates
for the purchased Common Stock are delivered directly to the brokerage firm. The
Company may also extend and maintain, or arrange for the extension and
maintenance of, credit to a Participant to finance the purchase of shares
pursuant to the exercise of options, on such terms as may be approved by the
Board of Directors or the Committee, subject to applicable regulations of the
Federal Reserve Board and any other applicable laws or regulations in effect at
the time such credit is extended.
The Committee may require, as a condition to exercise of an option, that
the Participant pay to the Company, in cash or in shares of the Common Stock of
the
67
<PAGE> 73
Company, the entire amount of taxes which the Company is required to withhold by
reason of such exercise, in such amount as the Committee or the Board of
Directors may determine. Alternatively, the Participant may elect, subject to
rules adopted by the Committee or the Board of Directors, or New Futech may
require that New Futech withhold from the shares to be issued that number of
shares having a fair market value equal to the amount which the New Futech is
required to withhold.
Exercise. As described above, the Committee has the authority to determine
the vesting and exercise provisions of all grants under the 1999 Plan. In
general under the 1999 Plan, no option shall be exercisable during the lifetime
of a Participant by any person other than the Participant, his or her guardian
or legal representative.
Accelerating Events. The options granted under the 1999 Plan become fully
exercisable if New Futech is dissolved or liquidated, subject to certain
reorganizations, mergers, or consolidations, is acquired or subject to a hostile
takeover attempt, undergoes a change in control or if there is an announcement
or proxy solicitation relating to such events.
Termination or Amendment of the 1999 Plan. The Board of Directors may
amend or modify the 1999 Plan at any time; provided, that stockholder approval
shall be obtained for any action for which stockholders approval is required in
order to comply with Rule 16b-3, the Code, or other applicable laws or
regulatory requirements within such time periods prescribed. The 1999 Plan will
terminate on January 29, 2008, unless sooner terminated by the Board of
Directors.
Option Grants. No options have been granted under the 1999 Plan.
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<PAGE> 74
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 17, 1997, Futech entered into an Agreement for Purchase and Sale
of Assets with XYZ, pursuant to which Futech has purchased substantially all of
the assets of XYZ at the closing on May 1, 1998. Mr. Billings, a Director of
Futech, was the sole shareholder of XYZ. The agreement requires Futech to pay
the following consideration: (i) $1 million in cash; (ii) $4 million in a
12-month, no interest note; (iii) $2,867,334 in cash or in shares of common
stock at $.20 a share ($6.00 for New Futech shares); and (iv) an additional
$1,000,000 to be added to the total amount, if the $4,000,000 is not paid by
April 30, 1999. This additional $1,000,000 is now due and both the $4,000,000
and the additional $1,000,000 bear interest at 10%. Futech has previously paid
$1 million in cash. As the sole shareholder of XYZ, a subchapter S corporation,
Mr. Billings received the cash and shares of common stock constituting the
purchase price for XYZ.
Pursuant to the Agreement for Purchase and Sale of Assets with XYZ, Futech
assumed a $7 million line of credit from Republic Acceptance Corporation made by
XYZ. The line of credit generally bears interest at prime plus 2.5%. Mr.
Billings personally guaranteed the loan. Additionally, the loan is secured with
the inventory and accounts receivable of XYZ.
On January 1, 1997, Futech entered into an agreement which allows the chief
executive officer to borrow funds from time to time. The outstanding balance
bears interest at prime plus 1% and is due on December 31, 2001 on the amounts
outstanding. There is an option to renew the agreement for an additional 3
years. As of December 31, 1998 the balance due to Futech was $1,440,270.
In April 1997, Roderick L. Turner, a director and stockholder loaned Futech
$350,000, with interest at 10%, due July 2, 1999. In lieu of payment, Mr. Turner
could receive 840,000 common shares at $0.50 per share. On March 1, 1999, the
lender and Futech agreed to amend the loan agreement, whereby the loan plus
interest (totaling $417,083.33) was converted to 2,780,555.533 shares of common
stock at $0.15 per share (92,685 shares or $4.50 per share for New Futech
shares). In connection with the original loan, Futech paid Mr. Goett $35,000 and
issued 1,000,000 shares of common stock (33,333 in New Futech shares) as a loan
origination fee.
On October 29, 1997 Roderick L. Turner and Vincent W. Goett loaned Futech
$245,000, with interest at 10%, due December 31, 1997. This loan was repaid
January 14, 1998. In connection with this loan, Futech issued Mr. Goett 500,000
shares of common stock (16,667 in New Futech shares) as a loan origination fee.
At various times in 1997, Mr. Turner and Mr. Goett loaned Futech
$3,000,000, with interest at 10%, due in 1998 and 1999. In connection with the
loans, Futech paid Mr. Goett $300,000 and issued 7,000,000 shares of common
stock (233,333 in New Futech shares) as a loan origination fee.
On January 2, 1998, Mr. Turner and Mr. Goett loaned Futech $2,500,000, with
interest at 10% due April 30, 1998. In connection with this loan, Futech paid
Mr. Goett $250,000 and issued 2,500,000 shares of common stock (83,333 in New
Futech shares) as a loan origination fee. Later in the year the loan fee and
stock were re-characterized as a loan and stock options.
On March 31, 1999, Mr. Goett personally guaranteed $3.6 million of a $4
million line of credit newly established with Republic Bank. In connection with
this guarantee, Futech paid Mr. Goett $360,000 and issued 7,200,000 shares of
common stock (240,000 in New
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<PAGE> 75
Futech shares) as a loan origination fee. Later in the year, the loan fee and
stock were re-characterized as a loan and stock options.
On May 5, 1998, Mr. Turner and Mr. Goett loaned Futech $1,500,000 with
interest at 10% due May 5, 2000. At the same time, Mr. Turner and Mr. Goett
signed a subordination agreement with Republic Bank to subordinate all of their
debt to Republic. In connection with the loan and the subordination fee, Futech
paid Mr. Goett $500,000 and issued 3,000,000 shares of common stock (100,000 in
New Futech shares) as a loan origination fee. Later in the year, the loan fee
and stock were re-characterized as a loan and stock options.
On June 1, 1998, Futech entered a Patent Licensing and Purchase Agreement
with Grand Slam Investments, L.L.C., which is controlled by Vincent W. Goett.
Under the agreement, Grand Slam grants Futech exclusive, world-wide rights to
use two patents owned by Grand Slam. Under the agreement, Futech will make 12
monthly royalty payments of $10,000 beginning June 1, 1998. On June 30, 1999,
Futech will purchase the patents for $1,500,000. Alternatively, Futech had the
right to purchase the patents at an earlier date of December 30, 1998 for a
reduced cost of $1,000,000. This agreement was amended on December 9, 1998
whereby Futech agreed to pay $650,000 on December 9, 1998 and $850,000 on or
before June 1, 1999. Additionally the monthly royalty payments of $10,000 were
suspended as of December 31, 1998.
On June 24, 1998, Mr. Turner and Mr. Goett loaned Futech $1,000,000, with
interest at 10%, due December 24, 1998. In connection with the loan, Futech paid
Mr. Goett $100,000 and issued 2,000,000 shares of common stock (66,667 in New
Futech shares) as a loan origination fee. Later in the year, the loan fee and
stock were re-characterized as a loan and stock options.
On August 3, 1998, Mr. Turner loaned Futech $300,000, with no interest, due
upon receipt of the $2,000,000 listed below. No repayment was made and on March
1, 1999, the lender and Futech agreed to amend the loan agreement, whereby
interest was added to the loan at 10% per annum. Additionally, on March 1, 1999,
the loan plus interest (totaling $314,604.37) was converted to 2,097,342.47
shares of common stock 69,911 and $4.50 per share in New Futech shares
respectively as $0.15 per share.
On August 10, 1998, Vincent and Melissa Goett loaned Futech $2,000,000,
with interest at 10%, due on September 1, 1999. In connection with the loan,
Futech paid Mr. Goett $200,000 and issued 8,000,000 shares of common stock
(266,667 in New Futech shares) as a loan origination fee. Later in the year, the
loan fee and stock were re-characterized as a loan and stock options.
On December 3, 1998, F. Keith Withycombe, a director, and Vincent W. Goett
personally guaranteed a $7 million line of credit newly established with Bank of
America. In return for their personal guarantees, Mr. Withycombe and Mr. Goett
each received warrants for 21,000,000 common stock shares (700,000 in New Futech
shares) exercisable at $0.05 per share ($1.50 per share in New Futech shares).
In connection with this transaction, Robert J. Rosepink, a director, received
warrants for 4,000,000 shares of common stock (133,333 in New Futech shares)
exercisable at $0.05 per share ($1.50 per share in New Futech shares).
Additionally, as part of this agreement, Mr. Goett may take a loan advance of
$300,000.
On December 15, 1998, Mr. Turner and Mr. Goett agreed to extend the due
date of their combined $8,000,000 loans, and Vince and Melissa Goett agreed to
extend the due date of the $2,000,000 loan to December 15, 1999. In connection
with this extension,
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<PAGE> 76
Mr. Turner and the Goetts received options for a combined 8,000,000 shares of
common stock (266,667 in New Futech shares) exercisable at $0.05 per share
($1.50 per share in New Futech shares).
On June 7, 1999, Fundex and Futech entered into a loan and licensing
agreement pursuant to which (a) Futech agreed to loan Fundex $250,000 upon
signing the Merger Agreement, an initial $500,000 prior to the closing of the
merger, and an additional $750,000 loan or other financial assistance as
required pending the mergers, and (b) a nonexclusive license to use Futech's
game board technology pending the mergers in exchange for a royalty equal to 50%
of net operating profits on the associated products. The debt must be repaid
with interest at the rate of 10% per annum two years after the date of the
agreement. If New Futech defaults on the promissory notes issued to the Fundex
stockholders and as a result they foreclose on the stock of New Sub, $750,000 of
the balance due under these loans will be forfeited by New Futech as a penalty.
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<PAGE> 77
NEW FUTECH STOCKHOLDERS
PRO FORMA SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the stock ownership as of a recent date for each of
the merging companies is included in the prospectus/proxy statement supplement
for the particular merging company. The following table sets forth pro forma
information with respect to the beneficial ownership of New Futech's common
stock by each of New Futech's directors, by the executive officers named in the
summary Compensation Table, by the executive officers and directors of New
Futech as a group and by each person known to New Futech that will be the
beneficial owner of more than five percent of the outstanding common stock upon
completion of the mergers, based on their stock ownership in the respective
merging companies as of May 1, 1999. The percentages assume that none of the
eligible Fundex stockholders elects the All Cash Alternative and that no
additional shares are issued to the Trudy stockholders as described above in
"DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO
MERGER(1)(2)
-------------------
IDENTITY OF STOCKHOLDER OR GROUP NUMBER PERCENT
- -------------------------------- --------- -------
<S> <C> <C>
Vincent W. and Melissa Turner Goett(3)...................... 2,734,297 34.6%
Debra McTaggart(4).......................................... 508,576 8.5%
Roderick L. Turner(5)....................................... 703,886 11.5%
Gary A. Oman(6)............................................. 95,854 1.6%
Robert J. Rosepink(7)....................................... 220,146 3.6%
Joseph K. Petter(8)......................................... 47,924 0.8%
Gary R. "Joe" Billings(9)................................... 477,889 7.4%
Frederick B. Gretsch, Sr.(10)............................... 38,889 0.6%
F. Keith Withycombe(11)..................................... 1,000,000 14.3%
DaMert Trust UDT 9/28/98(12)................................ 613,070 10.3%
Carl E. Voigt IV(13)........................................ 231,264 3.9%
William W. Burnham(14)...................................... 133,157 2.2%
All Directors and Executive Officers as a Group (9
persons).................................................. 5,225,706 55.9%
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon exercise of stock options which are
currently exercisable or which become exercisable within 60 days of the
date of the table are deemed beneficially owned by the optionee. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
(2) Includes shares issuable upon the exercise of options which are currently
exercisable or become exercisable within 60 days of May 1, 1999 as
applicable for each of the following individuals: Vincent W. & Melissa
Turner Goett, Roderick L. Turner, Robert J. Rosepink, Joseph K. Petter,
Frederick B. Gretsch, Sr., F. Keith Withycombe and Patricia A. Withycombe
(H&W).
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<PAGE> 78
(3) 700,000 share options are currently exercisable by Vincent W. Goett,
331,666 options are currently exercisable jointly by Vincent and Melissa
Goett and 33,333 warrants as well as 866,667 warrants are currently
exercisable by Palmilla Management Trust (Goett Family Trust). 71,600
shares are owned of record by Vincent Goett; 61,667 shares are owned of
record by Mr. Goett's spouse, Melissa Goett; 520,475 shares are owned of
record jointly by Vincent and Melissa Goett; and 10,000 are owned of record
by three minor children of the Goetts. 333 shares are owned by purchase of
Janex stock from broker.
(4) 133,333 shares are owned of record by Newtech Consulting, Inc., which is
controlled by Stephen McTaggart; 183,412 shares are owned of record by Mr.
McTaggart's spouse, Debra McTaggart; 100,000 shares owned of record by
Pacific Ranch, LP, which is controlled by Debra McTaggart; and 4,000 shares
are owned of record by the six minor children of the McTaggarts.
(5) Roderick L. Turner is the father-in-law of Vincent W. Goett. 30,000 are in
a family trust controlled by Mr. Turner. 240,857 shares are owned
individually, 45,459 shares are owned by Terry C. Turner, Mr. Turner's
wife. 125,000 options are currently exercisable by Mr. Turner. Mr. Turner
has also converted two separate loans with Futech to shares yet-to-be
received for a total of 162,597 additional shares.
(6) Indicated shares are owned of record by The Oman Family Trust, of which
Gary Oman and his wife, Sherri Oman, are trustees.
(7) 16,667 shares are owned of record by Robert J. Rosepink. Mr. Rosepink
currently has 200,000 warrants that are exercisable.
(8) 10,000 shares are held in Joseph K. Petter's Individual Retirement Account,
and 6,667 shares are held by Mr. Petter individually. Mr. Petter currently
has 27,778 option that are exercisable.
(9) Mr. Gary R. "Joe" Billings is due 477,889 shares or cash of $2,867,334 upon
the merger being completed for the sale of XYZ.
(10) Mr. Frederick B. Gretsch, Sr. currently has 38,889 options that are
exercisable.
(11) Mr. F. Keith Withycombe & Patricia A. Withycombe (H&W) currently have
1,000,000 warrants that are exercisable.
(12) Indicated shares are owned of record by the DaMert Trust UDT September 28,
1998, of which Frederick A. DaMert and his wife Gail Patton DaMert, are
trustees.
(13) All shares are owned of record by Carl E. Voigt, IV.
(14) All shares are owned of record by William W. Burnham.
73
<PAGE> 79
DESCRIPTION OF NEW FUTECH CAPITAL STOCK
The following description of New Futech's capital stock is a summary only
and is subject to, and qualified in its entirety by, reference to New Futech's
Certificate of Incorporation and Bylaws, copies of which are included as an
exhibit to this prospectus/proxy statement, and by reference to Delaware law
under which New Futech is incorporated.
COMMON STOCK
The current authorized capital of New Futech consists of 45,000,000 shares
of common stock, par value $.0001 per share. As of May 31, 1999, there were no
shares of common stock issued and outstanding. In connection with the mergers,
New Futech is obligated to issue a minimum aggregate of 5,867,628 and a maximum
aggregate of 5,955,297 shares of New Futech common stock to Trudy, Janex,
Fundex, DaMert and Futech stockholders. There are also 1,000,000 shares of New
Futech common stock reserved for issuance pursuant to New Futech's 1999 Stock
Option Plan pursuant to which no shares have been granted.
Each share of New Futech's common stock is entitled to one vote. The
directors of New Futech are elected to serve a three-year term on a staggard
board. Pursuant to its Certificate of Incorporation, New Futech's board of
directors may amend the bylaws. New Futech's bylaws provide for removal of a
director, with cause, by the affirmative vote of a majority of all shares
entitled to vote at an election of directors.
Holders of capital stock of New Futech do not have preemptive or other
subscription rights to purchase or subscribe for unissued stock or other
securities of New Futech.
PREFERRED STOCK
The current authorized capital of New Futech consists of 5,000,000 shares
of preferred stock, having a par value of one-tenth of one cent ($.001) per
share. In addition, New Futech expects to issue 2,222,222 shares of preferred
stock in exchange for $10,000,000 principal amount of its outstanding debt. Each
share of New Futech preferred stock is entitled to one vote.
EXPERTS
The annual financial statements of Futech and Janex, included herein, and
the financial statements of Trudy as of and for the fiscal year ended March 31,
1999, have been audited by Ernst & Young, LLP, independent public accountants,
as set forth in their report elsewhere in this prospectus/proxy statement. The
annual financial statements of Fundex, included herein, as of and for the fiscal
year ended March 31, 1999, have been audited by BDO Seidman LLP, independent
public accountants, as set forth in their report elsewhere in the
prospectus/proxy statement. The annual financial statements of DaMert, included
herein as of and for the fiscal year ended March 31, 1999, have been audited by
Armarino & McKenna LLP, independent public accountants, as set forth elsewhere
in the prospectus/proxy statement.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for New Futech by Quarles & Brady LLP, Phoenix, Arizona. Certain legal
matters in connection with the mergers will be passed upon for Futech by Quarles
& Brady LLP, Phoenix, Arizona.
74
<PAGE> 80
WHERE YOU CAN FIND MORE INFORMATION
New Futech has filed Registration Statements on Form S-4 and Form 8-A with
the SEC. These registration statements contain some information that is not
included in this prospectus/proxy statement or in any prospectus/proxy statement
supplements provided to the stockholders of each of the merging companies. New
Futech will also file annual, quarterly and special reports, proxy statements
and other information with the SEC. Similarly, Janex and Trudy each file annual,
quarterly and special reports, proxy statements and other information with the
SEC. These SEC filings are available to the public over the Internet at the
SEC's web site at http.//www.sec.gov. You may also read and copy any document
filed by New Futech or any of the merging companies at the SEC's public
reference rooms in Washington, D.C., New York, and Chicago. You can call the SEC
at 1-800-732-0330 for further information about the public reference rooms.
The SEC allows New Futech and the merging companies to "incorporate by
reference" some of the information we file with them, which means we are assumed
to have disclosed important information to you when we refer you to documents
that are on file with the SEC. The information we have incorporated by reference
is an important part of this prospectus/proxy statement and the related
prospectus/proxy statement supplement, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future documents we file with
the SEC under Sections 13(a), 13(c), l4 or 15(d) of the Securities Exchange Act
of 1934 until the mergers occur.
- Annual Reports on Form 10-KSB of Janex and Trudy for the fiscal year
ended December 31, 1998, and of Trudy for the fiscal year ended March 31,
1999.
- Quarterly Reports on Form 10-QSB of Janex for the quarter ended March 31,
1999 and of Trudy for the quarters ended June 30, 1998, September 30,
1998 and December 31, 1998.
- Current Reports on Form 8-K of Janex dated February 25, 1999 and of Trudy
dated December 18, 1998 and April 12, 1999.
You may request a copy of these documents at no cost by writing to us at
the following address:
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Attn: Frederick B. Gretsch, Sr.
Telephone: 602-808-8765
Although we are already sending to you the prospectus/proxy statement
supplement that relates specifically to your company, we will also send you the
prospectus/proxy statement supplement for any or all of the other merging
companies, without charge, upon request to us at the address stated above.
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. Neither New Futech nor any of the merging
companies has authorized anyone else to provide you with additional or different
information. New Futech and New Sub are not making an offer of any securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus/proxy statement or any prospectus/proxy statement
supplement is accurate as of any date other than the date on the front of these
documents.
75
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
<TABLE>
<S> <C>
Futech Interactive Products, Inc.
Report of Ernst & Young LLP, Independent Auditors......... F-3
Financial Statements......................................
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................... F-4
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1999
(audited).............................................. F-5
Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1998 and the three months ended
March 31, 1999 (unaudited)............................. F-6
Statements of Cash Flows for the years ended December 31,
1997 and 1998, and the three months ended March 31,
1998 (unaudited) and March 31, 1999 (unaudited)........ F-7
Notes to the Financial Statements......................... F-9
Janex International, Inc.
Report of Ernst & Young LLP, Independent Auditors......... F-27
Report of BDO Seidman, LLP, Independent Auditors.......... F-28
Financial Statements......................................
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................... F-29
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1999
(unaudited)............................................ F-30
Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1998 and the three months ended
March 31, 1999 (unaudited)............................. F-31
Statements of Cash Flows for the years ended December 31,
1997 and 1998, and the three months ended March 31,
1998 (unaudited) and March 31, 1999 (unaudited)........ F-32
Notes to the Financial Statements......................... F-33
Trudy Corporation
Financial Preliminary Statement...........................
Financial Statements......................................
Balance Sheets as of March 31, 1998 and March 31, 1999
(unaudited)............................................ F-48
Statements of Operations for the years ended March 31,
1998 and 1999 (unaudited).............................. F-47
Statements of Cash Flows for the years ended March 31,
1998 and March 31, 1999 (unaudited).................... F-49
</TABLE>
F-1
<PAGE> 82
<TABLE>
<S> <C>
Fundex Games, Ltd.
Report of BDO Seidman, LLP, Independent Auditors..........
Financial Statements......................................
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................... F-51
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1999
(unaudited)............................................ F-52
Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1998 and the three months ended
March 31, 1999 (unaudited)............................. F-53
Statements of Cash Flows for the years ended December 31,
1997 and 1998, and the three months ended March 31,
1998 (unaudited) and March 31, 1999 (unaudited)........ F-54
Notes to the Financial Statements......................... F-55
DaMert Company
Report of Armanino McKenna, LLP, Independent Auditors..... F-63
Financial Statements......................................
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................... F-64
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1999
(unaudited)............................................ F-66
Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1998 and the three months ended
March 31, 1999 (unaudited)............................. F-67
Statements of Cash Flows for the years ended December 31,
1997 and 1998, and the three months ended March 31,
1998 (unaudited) and March 31, 1999 (unaudited)........ F-68
Notes to the Financial Statements......................... F-69
</TABLE>
F-2
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Futech Interactive Products, Inc.
We have audited the accompanying consolidated balance sheets of Futech
Interactive Products, Inc. and subsidiary as of December 31, 1997 and 1998, and
the related consolidated statements of operations, shareholders' deficit, and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Futech Interactive Products, Inc. and subsidiary at December 31, 1997 and 1998,
and the consolidated results of its operations and its cash flows for the each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company's recurring losses and net capital deficiency raise substantial doubt
about its ability to continue as a going concern. Additionally, the majority of
the Company's debt is due within one year. Management's plans as to those
matters are also described in Note 1. The 1998 consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Phoenix, Arizona
March 5, 1999, except for
Note 17 as to which the date
is May 13, 1999
F-3
<PAGE> 84
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
--------------------------- MARCH 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 5,701 $ 186,743 184,044
Accounts receivable, less allowance
for doubtful accounts of $0,
$768,470, and $673,927 at December
31, 1997, 1998, and March 31,
1999, respectively................ -- 2,315,960 1,687,865
Inventory, less allowance of $0,
$196,270, $211,270 at December 31,
1997, 1998, and March 31, 1999,
respectively...................... -- 4,118,483 5,151,336
Prepaid expenses and other........... 271,178 438,268 559,296
------------ ------------ ------------
Total current assets................... 276,879 7,059,454 7,582,541
Property and equipment, net............ 241,334 1,075,189 1,078,422
Intangible assets, net................. -- 16,598,320 16,163,122
Due from Company chief executive
officer.............................. -- 1,440,270 1,595,803
Investment in Gold Star Publishing
LLC.................................. 49,323
Other assets........................... -- 41,598 41,598
------------ ------------ ------------
Total assets................. $ 518,213 $ 26,214,831 26,510,809
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................... $ 495,171 $ 6,117,307 $ 5,541,107
Accrued expenses..................... 552,924 2,281,160 2,121,114
Due to Company's chief executive
officer........................... 204,717 -- --
Notes payable, including related
parties........................... 5,651,668 26,439,186 24,894,684
------------ ------------ ------------
Total current liabilities.............. 6,904,480 34,837,653 32,556,905
Notes payable, less current portion.... 2,245,571 2,450,000 6,545,000
Advance from Joint Venture............. 2,000,000 -- --
Shareholders' deficit:
Preferred stock, no par value:
Authorized shares -- 100,000,000
Issued and outstanding
shares -- 0, 3,750,000, and
3,750,000 at December 31, 1997,
1998, and March 31, 1999,
respectively.................... -- 750,000 750,000
Common stock, no par value:
Authorized shares -- 235,000,000
Issued and outstanding shares --
80,242,457, 80,278,457 and
87,339,078 at December 31, 1997,
1998, and March 31, 1999,
respectively.................... 19,736,236 20,909,236 21,968,081
Common stock issuable................ -- 2,867,334 2,867,334
Unearned compensation................ (1,550,000) (987,059) (847,957)
Accumulated deficit.................. (28,818,074) (34,612,333) (37,328,554)
------------ ------------ ------------
Total shareholders'
deficit................... (10,631,838) (11,072,822) (12,591,096)
------------ ------------ ------------
Total liabilities and
shareholders' deficit..... $ 518,213 $ 26,214,831 $ 26,510,809
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 85
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDING
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1997 1998 1998 1999
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net product sales........... $ -- $ 6,032,910 -- 2,518,276
Technology fee.............. -- 2,000,000 2,000,000 --
------------ ----------- ---------- ----------
Total revenues.............. -- 8,032,910 2,000,000 2,518,276
Cost of sales............... -- 4,295,578 -- 2,065,621
------------ ----------- ---------- ----------
Gross profit................ -- 3,737,332 2,000,000 452,655
Operating expenses:
Selling, general and
administrative......... 4,038,905 5,869,146 566,226 2,186,252
Royalty Expense........... 5,355
Research and
development............ 6,732,875 229,480 76,831 --
Depreciation and
amortization of
intangibles............ 55,491 1,343,197 107,551 255,506
Loss on Joint Venture..... 1,393,778 -- -- --
------------ ----------- ---------- ----------
Income (Loss) from
operations................ (12,221,049) (3,704,491) 1,249,392 (1,994,458)
Other expense:
Loan origination fees and
related amortization... 1,985,000 241,250 272,500 154,787
Interest.................. 221,134 1,704,444 109,385 676,732
Other, net................ -- 144,074 (6,448) (108,464)
------------ ----------- ---------- ----------
2,206,134 2,089,768 375,437 723,055
------------ ----------- ---------- ----------
Net profit (loss)........... $(14,427,183) $(5,794,259) 873,955 (2,717,514)
============ =========== ========== ==========
Net loss per common share,
basic and diluted......... $ (0.23) $ (0.07) 0.01 (0.03)
============ =========== ========== ==========
Weighted average number of
shares outstanding........ 63,824,659 80,277,175 80,257,857 82,631,997
============ =========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 86
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK COMMON
------------------------ -------------------- STOCK DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT ISSUABLE COMPENSATION DEFICIT
---------- ----------- --------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... 47,721,744 $ 8,855,813 -- $ -- $ -- $ -- $ (9,118,795)
Sales of common stock, net
of expenses of
$48,425................. 2,209,000 483,825 -- -- -- -- --
Conversion of notes
payable to shareholders
into common stock....... 8,906,211 1,941,454 -- -- -- -- --
Common stock issued for
services................ 317,302 104,710 -- -- -- -- --
Net loss.................. -- -- -- -- -- -- (5,272,096)
---------- ----------- --------- -------- ---------- ----------- ------------
Balance at December 31,
1996...................... 59,154,257 11,385,802 -- -- -- -- (14,390,891)
Conversion of notes
payable to common
stock................... 500,000 153,384 -- -- -- -- --
Sales of common stock..... 863,200 215,800 -- -- -- -- --
Compensatory stock
options................. -- 3,050,000 -- -- -- (1,050,000) --
Common stock issued for
services................ 225,000 56,250 -- -- -- -- --
Common stock issued in
connection with
acquisitions............ 9,000,000 2,250,000 -- -- -- -- --
Common stock issued for
loan fees............... 8,500,000 2,125,000 -- -- -- -- --
Common stock issued for
loan guarantee.......... 2,000,000 500,000 -- -- -- (500,000) --
Net loss.................. -- -- -- -- -- -- (14,427,183)
---------- ----------- --------- -------- ---------- ----------- ------------
Balance at December 31,
1997...................... 80,242,457 19,736,236 -- -- -- (1,550,000) (28,818,074)
Conversion of notes payable
to common stock........... 36,000 18,000 -- -- -- -- --
Common stock issuable in
connection with
acquisition............... -- -- -- -- 2,867,334 -- --
Preferred stock issued in
connection with
acquisition............... -- -- 3,750,000 750,000 -- -- --
Compensatory stock
options/warrants.......... -- 1,155,000 -- -- -- -- --
Amortization of unearned
compensation.............. -- -- -- -- -- 562,941 --
Net loss.................... -- -- -- -- -- -- (5,794,259)
---------- ----------- --------- -------- ---------- ----------- ------------
Balance at December 31,
1998...................... 80,278,457 $20,909,236 3,750,000 $750,000 $2,867,334 $ (987,059) $(34,612,333)
Conversion of notes payable
to common stock........... 7,060,621 1,058,845
Amortization of unearned
compensation.............. 139,102
Unaudited Net Loss.......... (2,716,221)
---------- ----------- --------- -------- ---------- ----------- ------------
Balance at December 31,
1998...................... 87,339,078 $21,968,081 3,750,000 $750,000 $2,867,334 $ (847,957) $(37,328,554)
========== =========== ========= ======== ========== =========== ============
<CAPTION>
TOTAL
SHAREHOLDERS'
DEFICIT
-------------
<S> <C>
Balance at December 31,
1995...................... $ (262,982)
Sales of common stock, net
of expenses of
$48,425................. 483,825
Conversion of notes
payable to shareholders
into common stock....... 1,941,454
Common stock issued for
services................ 104,710
Net loss.................. (5,272,096)
------------
Balance at December 31,
1996...................... (3,005,089)
Conversion of notes
payable to common
stock................... 153,384
Sales of common stock..... 215,800
Compensatory stock
options................. 2,000,000
Common stock issued for
services................ 56,250
Common stock issued in
connection with
acquisitions............ 2,250,000
Common stock issued for
loan fees............... 2,125,000
Common stock issued for
loan guarantee.......... --
Net loss.................. (14,427,183)
------------
Balance at December 31,
1997...................... (10,631,838)
Conversion of notes payable
to common stock........... 18,000
Common stock issuable in
connection with
acquisition............... 2,867,334
Preferred stock issued in
connection with
acquisition............... 750,000
Compensatory stock
options/warrants.......... 1,155,000
Amortization of unearned
compensation.............. 562,941
Net loss.................... (5,794,259)
------------
Balance at December 31,
1998...................... $(11,072,822)
Conversion of notes payable
to common stock........... 1,050,845
Amortization of unearned
compensation.............. 139,102
Unaudited Net Loss.......... (2,716,221)
------------
Balance at December 31,
1998...................... $(12,591,096)
============
</TABLE>
See accompanying notes.
F-6
<PAGE> 87
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- --------------------------
1997 1998 1998 1999
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................... $(14,427,183) $(5,794,259) 873,955 (2,717,514)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation............. 55,491 449,232 24,217 146,748
Amortization............. -- 1,707,735 135,834 581,305
Provision (credit) for
doubtful accounts..... -- -- -- (94,542)
Loss on Joint Venture.... 1,393,778 -- -- --
Equity-based expenses.... 6,431,250 -- -- --
Acquisition of patent.... 1,620,000 -- -- --
Provision for
uncollectible
accounts.............. -- 686,665 20,688 722,637
Provision for obsolete
inventory............. -- 196,270 (46,160) (1,032,853)
Write-off of advance on
discontinued
acquisition........... -- 225,000 -- --
Changes in operating assets
and liabilities, net of
effects of businesses
acquired:
Accounts receivable... -- 1,855,399 -- --
Inventories........... -- (1,235,252) -- --
Prepaid expenses and
other............... (46,178) (348,598) -- (121,028)
Accounts payable...... (69,147) 212,657 (58,797) (576,200)
Accrued expenses and
other............... 369,307 (396,005) (133,122) (158,754)
------------ ----------- -------- ----------
Net cash used in operating
activities............... (4,672,682) (2,441,156) 816,615 (3,250,201)
INVESTING ACTIVITIES
Purchases of property and
equipment, net........... (152,921) (723,168) (28,586) (149,982)
Purchases of businesses.... -- (3,020,000) -- --
Advances for
acquisitions............. (225,000) -- (200,000) --
Product Development Cost... -- -- -- (7,004)
</TABLE>
F-7
<PAGE> 88
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- --------------------------
1997 1998 1998 1999
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Investment in Joint
Venture.................. -- -- -- (49,323)
------------ ----------- -------- ----------
Net cash used in investing
activities............... (377,921) (3,743,168) (228,586) (206,309)
------------ ----------- -------- ----------
FINANCING ACTIVITIES
Net proceeds (payments) on
notes payable............ 5,826,502 8,010,353 (141,579) 3,609,344
Net change in borrowings
from Company president... (1,056,590) (1,644,987) (210,771) (155,533)
Proceeds from stock
sales.................... 215,800 -- -- --
Advance from Joint
Venture.................. -- -- -- --
------------ ----------- -------- ----------
Net cash provided by
financing activities..... 4,985,712 6,365,366 (352,350) 3,453,811
------------ ----------- -------- ----------
Net increase (decrease) in
cash and cash
equivalents.............. (64,891) 181,042 235,679 (2,609)
Cash and cash equivalents
at beginning of year..... 70,592 5,701 5,701 186,743
------------ ----------- -------- ----------
Cash and cash equivalents
at end of year........... $ 5,701 $ 186,743 241,380 184,044
============ =========== ======== ==========
Supplemental non-cash flow
information:
Debt converted to shares
of common stock....... $ -- $ 18,000 18,000 1,058,845
Increase in loan fees
through issuance of
common stock
options/warrants...... $ -- $ 1,155,000
</TABLE>
See accompanying notes.
F-8
<PAGE> 89
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Futech Interactive Products, Inc. and subsidiary ("Futech" or "the
Company") own proprietary technology which the Company believes will enable cost
effective production of printed materials containing printed circuitry. The
Company also develops, manufacturers (through subcontractors), markets and sells
toys and functional children's products and also distributes books to large
retailers and wholesale clubs. The Company previously operated under the name of
Futech Educational Products, Inc. and on January 29, 1998, changed its name.
The consolidated financial statements include the accounts of the Company
and its subsidiary. All intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain reclassifications have been made to the 1996 and 1997 consolidated
financial statements to conform to the December 31, 1998 and the March 31, 1999
presentation.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has incurred
operating losses to date and has negative net worth and negative working capital
at March 31, 1999. To date, the Company has been funded through debt and equity
infusions from certain principal shareholders. The inability of the Company to
attract additional capital and ultimately, to achieve profitability, could
result in discontinuation of the Company's business.
The Company's ultimate ability to continue as a going concern depends on
the market acceptance of products utilizing its proprietary technology, and the
achievement of operating profits and positive cash flow. Management believes
that its completed and pending acquisitions and the planned proceeds from
supplemental shareholder loans and advances, as needed, will be sufficient to
allow the Company to continue in operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-9
<PAGE> 90
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers' financial
condition and requires no collateral from its customers. Receivables from two
customers comprise the majority of the Company's receivables, as follows:
<TABLE>
<S> <C> <C>
Sam's Club.......................................... $ 744,518 24.1%
Costco Wholesale.................................... 447,315 14.5
---------- ----
$1,191,833 38.6%
========== ====
</TABLE>
For the year ended December 31, 1998, Costco Wholesale represented 29
percent of net sales. No other customer represented greater than 10 percent of
net product sales.
INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following at March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Finished goods......................... $3,122,439 $3,833,231
Work-in-process........................ 996,044 1,318,105
---------- ----------
$4,118,483 $5,151,336
</TABLE>
The Company has entered into an exclusive distributorship agreement with
Magi Publications to distribute books in the United States. The books are
initially received on a consignment basis. Upon receipt, a deposit of $1.00 per
book is paid to the manufacturer. These deposits are included as inventory in
the accompanying consolidated balance sheets.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
principally by the straight-line method over the estimated useful lives of the
assets which range from three to seven years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 31, 1999, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, and long-term debt. The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair value based on the liquidity of these financial instruments or based on
their short-term nature. The carrying value of long-term debt approximates fair
market value based on the market interest rates available to the Company for
debt of similar risk and maturities.
F-10
<PAGE> 91
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets resulting from business acquisitions, consist of cost in
excess of net assets of subsidiaries acquired (goodwill), trademarks, patents,
assembled workforce costs, loan fees and product development costs. All
intangibles are being amortized on a straight-line basis. Goodwill, trademarks
and patents are being amortized over a 15 year period. Assembled workforce costs
are being amortized over twelve months. Loan fees are amortized over the life of
the related loan, from one to two years. Product development costs are being
amortized over the life of the related product, from two to five years.
ADVERTISING
The Company expenses advertising as incurred. Advertising expense for the
years ended December 31, 1997, 1998 and March 31, 199 was not material.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product, with appropriate
allowances made for estimated returns and uncollectible accounts.
INCOME TAXES
Income taxes have been accounted for under the asset and liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes" (Statement 109).
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25, to
the extent that the exercise price of the Company's employee stock options
equals management's estimate of the fair value of the underlying stock on the
date of grant, no compensation expense is recognized.
Deferred expense on stock and options issued to officers and directors for
services or other consideration to be received in the future are offset against
equity and are amortized to expense over the period of benefit.
F-11
<PAGE> 92
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted FASB's SFAS No. 130, "Reporting
Comprehensive Income" (Statement 130). Statement 130 establishes new rules for
the reporting and display of comprehensive loss and its components, and
accordingly, the adoption of this statement had no impact on the Company's net
loss or shareholders' equity. Comprehensive loss is the same as net loss as
there are no necessary adjustments reported in shareholders' equity.
LOSS PER SHARE COMPUTATION
The Company determines loss per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," (Statement
128). Under Statement 128, the Company presents basic and diluted earnings per
share. Basic earnings per share is computed using the weighted average number of
common shares. Diluted earnings per share is computed using the weighted average
number of common share equivalents during the period. Potential dilutive common
share equivalents include employee stock options using the treasury stock method
and dilutive convertible securities using the if-converted method. Common share
equivalents have been excluded from the calculation of loss per share for all
periods presented, as their effect is anti-dilutive.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (Statement
131). Statement 131 established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers (see Note 15).
3. ACQUISITIONS
On March 31, 1998, the Company acquired substantially all of the assets of
Gick Publishing, Inc. ("Gick"), for cash consideration of $2,020,000 plus the
assumption of certain liabilities totaling $940,452. Gick manufactures and sells
foam-based greeting cards and products.
The Gick acquisition was funded, in part, through a bank loan of $4,000,000
obtained on March 31, 1998. The loan bears interest at prime plus 2.5 percent
and is due on demand. The Company's chief executive officer ("Goett") has
guaranteed the loan personally up to $3,600,000.
On May 1, 1998, the Company acquired substantially all of the assets of XYZ
Group Inc. ("XYZ"), a wholesaler and distributor of books and various book
products including children's electronic toys and book and toy combination
products, for consideration of $10,200,000, including a $4,000,000 note payable
to the former owner and $2,867,334 payable either in cash or with 14,336,670
shares of the Company's common stock. The
F-12
<PAGE> 93
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
note payable is due April 29, 1999 and bears interest at 10 percent.
Consideration of $2,332,666 was contingent based on XYZ's future performance.
However, these contingencies were not met.
On December 11, 1998, the Company acquired approximately 73 percent of the
outstanding common stock and 100 percent of the outstanding preferred stock of
Janex International, Inc., ("Janex") a developer, marketer and seller of toys
and children's products, for consideration of $1,500,000, consisting of a
$750,000 note payable and $750,000 payable with 3,750,000 shares of the
Company's preferred stock. The note payable bears interest at 10 percent and is
payable 30 days after the merger of Futech into Janex. Janex is a publicly
traded New Jersey based Nasdaq "pink sheet" company which trades under the
symbol "JANX."
The Company's Series A preferred stock is convertible into common stock on
a one-for-one basis, has voting rights, and has no par value. The preferred
stock is senior to the Company's common stock and the holder of the shares is
entitled to one vote per share.
All of these transactions were accounted for using the purchase method of
accounting. For all acquisitions, the acquired tangible and identifiable
intangible assets and liabilities have been recorded at their estimated fair
values at the dates of acquisition with any excess purchase price reflected as
goodwill, which is being amortized over the life of the underlying assets.
Purchase accounting values for all acquisitions are assigned on a preliminary
basis and are subject to adjustment when final information as to the fair values
of the net assets acquired is available. The operations of the acquired
businesses are included in the statements of operations from the date of
acquisition.
A summary of the purchase price allocations for these acquisitions is as
follows:
<TABLE>
<CAPTION>
GICK XYZ JANEX
---------- ------------ -----------
<S> <C> <C> <C>
Tangible assets acquired...... $ 869,254 $ 7,475,105 $ 1,263,959
Goodwill...................... -- 6,603,311 3,140,803
Trademarks.................... -- 3,900,000 --
Patents....................... 2,071,198 -- --
Other intangibles............. 20,000 290,000 179,774
Less: common stock issuable... -- (2,867,334) --
Less: preferred stock
issued...................... -- -- (750,000)
Less: notes issued............ -- (4,000,000) (750,000)
Less: liabilities assumed..... (940,452) (10,401,082) (3,084,536)
---------- ------------ -----------
Cash purchase price........... $2,020,000 $ 1,000,000 $ --
========== ============ ===========
</TABLE>
F-13
<PAGE> 94
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
The following table sets forth the unaudited pro forma results of
operations for each year in which acquisitions occurred and for the immediately
preceding year as if the acquisitions were consummated at the beginning of the
immediately preceding year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1997 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Total revenues............................. $ 29,027,979 $15,885,780
Net loss................................... (20,599,550) (9,288,731)
Net loss per common share, basic and
diluted.................................. $ (0.32) $ (0.12)
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Molds.............................. $ -- $1,837,827 $1,837,827
Machinery and equipment............ 46,955 371,926 383,402
Office furniture and equipment..... 311,268 791,492 893,795
Vehicles........................... 30,000 49,575 49,575
Leasehold improvements............. 20,369 58,705 68,907
-------- ---------- ----------
408,592 3,109,525 3,233,506
Accumulated depreciation and
amortization..................... 167,258 2,008,336 2,155,084
-------- ---------- ----------
$241,334 $1,101,189 $1,078,422
======== ========== ==========
</TABLE>
F-14
<PAGE> 95
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
---- ----------- -----------
<S> <C> <C> <C>
Goodwill............................. $-- $ 9,744,114 $ 9,744,114
Trademarks........................... -- 3,900,000 3,900,000
Patents.............................. -- 2,128,108 2,128,108
Loan fees............................ -- 1,245,000 1,384,103
Product development costs............ -- 130,402 137,406
Assembled workforce.................. -- 290,000 290,000
-- ----------- -----------
-- 17,437,624 17,583,731
Less amortization.................... -- 839,304 1,420,609
-- ----------- -----------
$-- $16,598,320 $16,163,122
== =========== ===========
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Accrued interest....................... $ 89,595 $ 577,417 $ 739,482
Accrued salaries and benefits.......... 346,991 431,207 431,207
Accrued royalties...................... -- 175,773 203,429
Accrued commissions.................... -- 154,063 72,045
Accrued returns and allowances......... -- 483,122 435,986
Other.................................. 116,338 448,578 238,965
-------- ---------- ----------
$552,924 $2,270,160 $2,121,114
======== ========== ==========
</TABLE>
F-15
<PAGE> 96
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
7. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Notes payable to shareholders, due
December 15, 1999, interest from
prime + 0.5 percent (8.25 percent
at March 31, 1999) to 10
percent........................... $3,350,000 $10,650,000 $10,650,000
$4.0 million line of credit with a
bank, interest at prime rate + 2.5
percent (10.25 percent at March
31, 1999). $3.6 million is
personally guaranteed by the
Company's CEO..................... -- 4,000,000 4,000,000
$7.0 million line of credit with a
bank, interest at prime + 2.5
percent (10.25 percent at March
31, 1999), secured by inventory
and accounts receivable of XYZ,
and guaranteed by the former owner
of XYZ............................ -- 3,456,446 2,945,532
$7.0 million line of credit with a
bank, due December 1, 2000,
interest at prime + 1.0 percent
(8.75 percent at March 31, 1999),
personally guaranteed by the
Company's CEO and a
director/warrant holder........... -- 2,450,000 6,545,000
Note payable to Newtech............. 1,300,000 1,000,000 1,000,000
Note payable to Golden Books, due
June 1, 1999, interest at prime
plus 1 percent (8.75 percent at
March 31, 1999)................... 1,000,000 1,000,000 1,000,000
Note payable for purchase of patent
due June 1, 1999.................. 1,620,000 850,000 857,510
Note payable to former owner of
XYZ............................... -- 4,000,000 4,000,000
Notes payable, due April 1999 to
June 1999, interest at 10 percent,
convertible into common stock at
$0.50 per share................... 332,571 363,148 41,091
Note payable to shareholders, repaid
in 1998........................... 270,000 -- --
</TABLE>
F-16
<PAGE> 97
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Notes payable to shareholders in
connection with the acquisition of
Janex............................. $ -- $ 750,000 $ 750,000
$400,000 line of credit with a bank,
due July 1, 1999, interest at
prime rate plus .25 percent (8.00
percent at December 31, 1998),
secured by all assets of Janex and
personally guaranteed by two
shareholders...................... -- 257,000 257,000
Other............................... 24,668 112,592 43,551
---------- ----------- -----------
7,897,239 28,889,186 31,439,684
Less current portion................ 5,651,668 26,439,186 24,894,684
---------- ----------- -----------
Notes payable, noncurrent........... $2,245,571 $ 2,450,000 $ 6,545,000
========== =========== ===========
</TABLE>
Future maturities of notes payable are as follows at March 31, 1999:
<TABLE>
<S> <C>
1999................................................ $24,894,684
2000................................................ 6,545,000
-----------
$31,439,684
===========
</TABLE>
The Company's $4,000,000 revolving line of credit contains covenants
including restrictions on levels of indebtedness and the restriction of dividend
payments.
On March 1, 1999, the conversion price on Futech's convertible debt was
reduced from $0.50/share to $0.15/share, and holders of debt totaling $327,408
converted their debt into 2,182,723 shares of common stock. Additional loans
totaling $731,684 were converted into 4,877,898 shares of common stock at a
conversion rate of $0.15/share.
Cash paid for interest for the years ended December 31, 1996, 1997, 1998
and March 31, 1999 was approximately $296,000, $188,000, $837,000 and $677,000,
respectively.
8. LOAN FEES
In December 1998, as consideration for a guarantee of a $7,000,000 line of
credit with a bank, Goett and an outside party who became a director, received
warrants to purchase 42,000,000 shares of common stock at $0.05 per share. A
separate shareholder/director received warrants to purchase 4,000,000 shares of
common stock at $0.05 per share as the facilitator of this fund raising effort.
These warrants had a fair value of $920,000 on the date of issuance and will be
amortized over the life of the related loan agreement.
As consideration for certain loans and loan commitments made in 1997, Goett
and certain other shareholders received loan origination fees of $335,000 in
cash and 8,000,000
F-17
<PAGE> 98
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
shares of common stock, which had a fair value of $2,000,000 on the date of
issuance. In 1997, Goett received an additional 500,000 shares of stock valued
at $125,000 as compensation for loan fees. These fees were charged to expense as
incurred, as the related loans are due on demand.
During 1998, Goett and another shareholder/director provided loans to the
Company totaling $7,000,000 with all amounts due on December 15, 1998. As part
of the loan agreements, the company issued options to purchase 12,500,000 shares
of common stock at prices ranging from $0.05 to $0.15 per share.
In December 1998, Goett and the shareholder/director agreed to extend the
due date on these loans to December 15, 1999. In exchange for this agreement,
the Company granted options to purchase 8,000,000 shares of common stock at
$0.05 per share.
During 1998, Goett gave his personal guarantee for $3,600,000 of a
$4,000,000 line of credit. At the same time, Goett and another
shareholder/director agreed to subordinate certain other shareholder debt to the
bank.
In exchange for the personal guarantees and the subordination agreement
discussed above, the Company granted options to purchase 10,200,000 shares of
common stock at $0.05. The fair value of options/warrants given for loan fees,
guarantees, and subordination has been determined using the minimum value method
and capitalized as loan fees. Loan fees are amortized to expense over the life
of the related loans.
9. LEASE COMMITMENTS
The Company leases operating facilities and certain equipment under
noncancelable operating leases. Rent expense was $78,293, $117,354, and $512,918
during the years ended December 31, 1996, 1997, and 1998, respectively. Future
minimum payments under noncancelable operating leases with initial terms of one
year or more consisted of the following at March 31, 1999:
<TABLE>
<S> <C>
1999................................................. $ 459,058
2000................................................. 485,106
2001................................................. 247,418
2002................................................. 126,431
----------
Total minimum lease payments......................... $1,318,013
==========
</TABLE>
10. RELATED PARTY TRANSACTIONS
Through August 1996, Goett was entitled to receive a bonus based on the
successful completion of any revenue-producing joint venture, licensing
agreement, distribution agreement, or any debt or equity infusion attributed to
his direct efforts, as part of his employment agreement dated March 20, 1995.
During the year ended December 31, 1996, Goett earned bonuses under his
employment agreement of $154,350. Of these bonuses, $105,925 was charged to
expense and $48,425 was netted against proceeds.
F-18
<PAGE> 99
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
Goett provides working capital advances to the Company which are generally
collateralized by a second lien on the Company's assets. These advances are net
of periodic draws taken by Goett. These advances do not bear interest. At
December 31, 1997 the net amount due to Goett was $204,717 and is reflected as
due to Company's chief executive officer in the balance sheet. There was no such
amount outstanding at December 31, 1998 or March 31, 1999.
In 1997, the Company entered an agreement which allows the chief executive
officer to borrow funds from time to time. The outstanding balance bears
interest at prime plus 1 percent (8.75 percent at March 31, 1998) and is due on
December 31, 2001. As of December 31, 1998 and March 31, 1999, the balance due
to the Company was $1,440,270 and $1,595,803, respectively.
11. NEWTECH CONSULTING
In August 1996, the Company entered into an agreement with Newtech
Consulting, Inc. ("Newtech"), an entity owned by Goett and the former owner of
the Company, whereby monthly payments are made to fund research and development
efforts. Under the terms of the arrangement, the Company paid $25,000 per month
for the first right to purchase intellectual property rights to the technologies
developed by Newtech. Such payments were charged to research and development
expense as incurred. In 1997, concurrent with Futech's purchase of Newtech
assets, this agreement was terminated and replaced by a consulting agreement
with the same party. Under the new agreement the Company incurs $25,000 per
month through December 2000 for contracted research and development efforts and
retains the same intellectual property rights as under the previous agreement.
This agreement was verbally cancelled in October 1998.
In October 1997, the Company acquired certain intellectual property from
Newtech for consideration of a $2,000,000 note payable and 3,000,000 shares of
common stock valued at $750,000. The fair value of the consideration given,
$2,750,000, was charged to research and development expense, as the underlying
technologies have not been commercialized, and the recoverability of the amount
paid is uncertain.
In December 1997, Goett sold his 50 percent interest back to Newtech. As
partial consideration for his ownership interest, Newtech gave Goett 50 percent
of the Futech note receivable. Goett redeemed this note back to the Company to
offset prior borrowings. As a result, only $1,000,000 of the original Newtech
note is outstanding as of December 31, 1997 and 1998.
In December 1997, the Company entered into an agreement to purchase the
assets of Newtech. As consideration for the assets acquired, Futech issued a
note payable of $300,000 and 6,000,000 shares of common stock valued at
$1,500,000. The note was paid in February 1998.
12. STOCK-BASED COMPENSATION
As part of his employment agreement dated December 31, 1997, Goett received
options to purchase seven million shares at $0.10 per share. The options vest 20
percent
F-19
<PAGE> 100
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
per year over five years. The difference between the option price and the fair
market value of the Company's stock on the date of grant has been recorded as
$1,050,000 of unearned compensation and will be amortized to expense over the
vesting period.
On September 26, 1997, Goett received an option to purchase 10,000,000
shares of common stock at $0.05 per share as compensation for services rendered
to the Company. The options were fully vested upon issuance. The Company
recognized a charge of $2,000,000 in 1997 for the difference between the
exercise price of the shares under option and the fair value of the Company's
stock, as determined based on contemporaneous third-party transactions.
On January 29, 1998, the Board of Directors approved the 1998 Stock Option
Plan (Plan) under which 7.2 million shares of the Company's common stock have
been reserved. As of December 31, 1998, the Plan had not been implemented,
however, the Company expects full implementation by 2000.
The Company has issued nonqualified options and warrants outside of the
Plan. A summary of the Company's stock option and warrant activity, and related
information for the years ended December 31, 1997 and 1998 and March 31, 1999
follows:
<TABLE>
<CAPTION>
OPTIONS/ WEIGHTED-AVERAGE
WARRANTS EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding, at December 31, 1996........ -- $ --
Granted.................................. 17,750,000 .08
Exercised................................ -- --
Forfeited................................ -- --
----------- ----
Outstanding, at December 31, 1997........ 17,750,000 .08
Granted.................................. 86,150,000 .07
Exercised................................ -- --
Forfeited................................ -- --
----------- ----
Outstanding, at December 31, 1998........ 103,900,000 .07
Granted.................................. 15,850,000 .05
Exercised................................ -- --
Forfeited................................ -- --
Outstanding, at March 31, 1999........... 119,750,000 $.07
=========== ====
Exercisable at March 31, 1999............ 73,833,334
===========
Weighted-average fair value of options/
warrants granted during 1998........... $.01
====
</TABLE>
F-20
<PAGE> 101
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
Exercise prices for options/warrants outstanding as of March 31, 1999
ranged from $.05 to $.25. The weighted-average remaining contractual life of
those options is 8.98 years.
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options and warrants under the fair value method of that Statement. The fair
value for these options/warrants was estimated at the date of grant using the
minimum value pricing model assuming a risk-free interest rate of 5.38 percent;
dividend yield of 0 percent; and a weighted-average expected life of five years
for the years ended December 31, 1997 and 1998.
Option/warrant valuation models require the input of highly subjective
assumptions. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
No options were issued prior to January 1, 1997. All option grants are
nonqualified. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the applicable vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- MARCH 31
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Net loss....................... $(14,427,183) $(5,794,259) $(2,717,514)
Pro forma expense for stock
options under SFAS No. 123... (2,102,500) -- --
Actual expense for stock
options under APB No. 25..... 2,000,000 -- --
------------ ----------- -----------
Pro forma net loss............. $(14,529,683) $(5,794,259) $(2,717,514)
============ =========== ===========
</TABLE>
The fair value of all employee stock options issued in 1998 and accounted
for using APB 25 was $0.
13. INVESTMENT IN JOINT VENTURE
In August 1996, Futech entered into a joint venture agreement with Golden
Books ("the Joint Venture"), whereby each party owned 50 percent of the Joint
Venture. The Company's contribution to the Joint Venture consisted of its
printing-related equipment which had a net book value of $643,778 and its
technology and represented its equity interest in the Joint Venture. Under the
Joint Venture the Company was to receive a royalty payment for a percentage of
the Joint Venture's sale of products to incorporate the Company's technologies
and share equally with Golden Books on the operating results of the Joint
Venture, as defined. The Joint Venture had no operating activities during 1996
other than to advance the Company $2,250,000 against future royalty payments.
The
F-21
<PAGE> 102
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
Company has recorded this amount as deferred revenue in Advance from Joint
Venture in the accompanying balance sheets.
During 1997, the Company terminated the Joint Venture. Pursuant to the
termination agreement, the Company is obligated to pay a one-time termination
fee of $1,000,000 (including repayment of $250,000 previously advanced). The
termination fee was charged to expense in 1997, and the related note payable was
guaranteed by Goett. In exchange for this guarantee, Goett received 2,000,000
shares of common stock which had a fair value of $500,000 on the date of
issuance. The value of such shares will be amortized to expense over the note
term. The Company also agreed to assume the cost of certain patent infringement
litigation brought by the Joint Venture against a competitor.
Effective January 1, 1998, the Company entered into a technology and
licensing agreement with Golden Books whereby the remaining $2,000,000 Advance
from Joint Venture was converted into a nonrefundable technology payment from
Golden. This $2,000,000 advance was recognized as revenue in 1998.
14. COMMITMENTS AND CONTINGENCIES
In 1998, the former owner of XYZ filed a lawsuit in Wisconsin against the
Company, alleging the breach of an employment agreement. The parties have agreed
to arbitration in Arizona, and the lawsuit was dismissed. Although the outcome
of this matter cannot be determined at this time, management does not believe it
will be material to the operations, financial position, or cash flows of the
Company.
On December 22, 1998, Premier Publishing, Inc. filed a complaint in
Wisconsin against the Company alleging, among other things, conversion and
breach of contract. Discovery is currently ongoing. The outcome of this matter
cannot be determined at this time.
The Company is a party to other litigation in the ordinary course of
business. Management, after taking into account the opinion of counsel, believes
the ultimate outcome of such matters will not have a material adverse effect on
the Company's financial position.
In December 1997, Goett personally settled a lawsuit against the Company
and certain of its shareholders regarding certain patent rights. The Company
originally agreed to pay Goett $10,000 per month from July 1, 1998 through June
30, 1999 and an additional payment of $1,500,000 on June 30, 1999 to acquire the
rights to the patents and to reimburse Goett for the cost of the settlement. On
December 9, 1998, the agreement was revised to omit the $10,000 per month
payment in exchange for an advance payment on the $1,500,000, and to change the
due date to June 1, 1999. The balance owing at March 31, 1999 is $857,510
15. SEGMENT INFORMATION
Prior to its acquisition of Janex in December 1998, the Company had no
reportable segments. Subsequent to the Janex acquisition, the Company began
monitoring operating
F-22
<PAGE> 103
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
results for two segments. The distribution segment operates in the United States
and includes the former businesses of Gick and XYZ. The Janex segment operates
primarily in Hong Kong and includes the former Janex business.
The operating results of the Janex segment and the long-lived assets held
overseas are not material as of or for the year ended December 31, 1998 and the
quarter ended March 31, 1999.
16. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........... $4,000,000 $ 7,000,000
Other...................................... 4,000,000 4,000,000
---------- -----------
8,000,000 11,000,000
Less valuation reserve..................... 8,000,000 11,000,000
---------- -----------
Net deferred tax assets...................... $ -- $ --
========== ===========
</TABLE>
The valuation allowance increased by $3,000,000 at December 31, 1998 due to
the losses incurred. The Company has fully reserved for its deferred tax assets
due to the uncertainty of recovery from future operations. The Company has no
income tax expense or benefit and therefore tax expense differs from the federal
statutory rate by the amount of such rate. The reason for such difference is an
increase in valuation reserves provided for deferred tax assets.
At December 31, 1998 the Company has net operating loss carryforwards for
federal income tax purposes of $18,000,000 which begin to expire in 2015, to the
extent not previously utilized. These losses are limited for tax purposes under
both the separate return limitation year rules and Internal Revenue Code section
382 which limit the annual utilization of net operating losses.
17. INVESTMENT IN GOLD STAR PUBLISHING, LLC
On February 5, 1999, the Company filed Articles of Organization to form
Gold Star Publishing, LLC ("Gold Star" or "the LLC") (dba SuperStar Kids' Club),
a limited liability company. Under the terms of the operating agreement, the
Company will own 49 percent of Gold Star and will manage the financial and
business functions of the LLC while the other member will manage the creative
functions. The Company has committed to provide $500,000 to Gold Star as
contribution to the company as needed and to loan to
F-23
<PAGE> 104
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
Gold Star any additional funds needed for its first 21 months of operations. The
Company is contingently liable for $200,000 of the LLC's debt. The LLC creates
and publishes children's books which will be sold in the mass market and via the
SuperStar Kids' Club Internet web site.
18. PENDING MERGER
On March 4, 1999, the Company signed a letter of intent to acquire all the
outstanding stock of Fundex Games, Ltd. ("Fundex"), for consideration of
$9,000,000, of which $4,500,000 is payable in the Company's preferred stock. The
acquisition will be accounted for as a purchase. Fundex develops, markets, and
sells games and toys nationwide. Closing of the transaction is contingent upon a
number of conditions. Fundex is a privately held Indianapolis, Indiana based
company.
On February 26, 1999, the Company entered into a definitive agreement to
acquire all the outstanding stock of Trudy Corporation d/b/a Soundprints
("Soundprints") for consideration of $3,500,000, of which $3,000,000 is payable
in the Company's preferred stock, plus the guarantee of certain debt to existing
Soundprints shareholders. The acquisition will be accounted for as a purchase.
Soundprints designs, manufacturers, and markets plush stuffed animals and
publishes children's books and audio cassettes. Trudy Corporation is a publicly
traded Norwalk, Connecticut based, Nasdaq "pink sheeted" company which trades
under the symbol "TRDY."
On March 24, 1999, the Company signed a letter of intent to acquire all the
outstanding stock of DaMert Company for consideration of $8,000,000, of which
$6,000,000 is payable in the Company's preferred stock. The acquisition will be
accounted for as a purchase. DaMert produces, distributes, and sells products to
toy gift stores and catalog retailers. DaMert is a privately held, Berkley,
California based company.
19. YEAR 2000 (UNAUDITED)
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. The Year 2000 issue affects Futech's internal
systems, including information technology (IT) and non-IT systems. Futech is
assessing the readiness of its systems for handling the Year 2000. Although the
assessment is still underway, management currently believes that all material
systems will be compliant by the Year 2000 and that the cost to address the
issues is not material. Nevertheless, Futech is creating contingency plans for
certain internal systems.
The company has not instituted any procedures to obtain certification from
its major vendors or customers that their systems are Year 2000 compliant. Such
a survey would include vendors who provide systems related services, e.g.,
banking, credit card processing, shipping, security, HVAC, etc. along with
third-party factories providing book and toy products. The cost of such a
survey, in both time and money, would be substantial. However, the Company does
not believe that the failure of any vendor to be Year 2000 compliant will have a
material impact on the Company.
F-24
<PAGE> 105
FUTECH INTERACTIVE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
20. SUBSEQUENT EVENTS
In accordance with its Agreement for Purchase and Sale of Assets with XYZ,
on May 1, 1999, Futech recorded an additional liability of $1,000,000 in the
form of a contractual penalty. Additionally, interest of $400,000 was recorded
on May 1, 1999 and the company also began to accrue interest on the total
$5,000,000 liability on 10% per annum.
On May 13, 1999, one of the Company's lenders agreed to extend the maturity
date of two lines of credit totaling $11.0 million to December 31, 1999. In
connection with this agreement, the company must repay $25,000 per month from
June 1999 to December 1999.
F-25
<PAGE> 106
JANEX INTERNATIONAL, INC.
FINANCIAL STATEMENTS
F-26
<PAGE> 107
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Janex International, Inc.
We have audited the accompanying consolidated balance sheet of Janex
International, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Janex International, Inc. at December 31, 1998 and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company's recurring losses and net capital deficiency raise substantial doubt
about its ability to continue as a going concern. Management's plans as to those
matters are also described in Note 1. The 1998 consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
April 7, 1999
F-27
<PAGE> 108
REPORT OF BDO SEIDMAN, LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Janex International, Inc.
Eatontown, New Jersey
We have audited the accompanying consolidated balance sheet of Janex
International, Inc. as of December 31, 1997, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Janex
International, Inc. as of December 31, 1997, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations, including a net loss of $3,174,851 for the year ended
December 31, 1997, and has negative working capital of $1,782,770 and a net
stockholders' deficit of $2,049,126 at December 31, 1997. The Company has also
been slow and delinquent in paying its accounts payables and other obligations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. There is no assurance that the Company will be able to realize
its recorded assets and liquidate its liabilities in the normal course of
business. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
--------------------------------------
Woodbridge, NJ
March 30, 1998
F-28
<PAGE> 109
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 164,672 $ 62,412 $ 17,733
Certificate of deposit........................ 100,000 --
Accounts receivable, less allowance for
doubtful accounts of $10,439, $26,000 and
$26,000 at December 31, 1997, 1998, and
March 31, 1999 respectively................ 225,826 162,710 201,058
Inventories................................... 173,107 131,098 35,033
Prepaid royalties............................. 61,626 59,934 141,934
Other current assets.......................... 19,925 25,257 22,805
------------ ------------ ------------
Total current assets............................ 745,156 441,411 418,563
Property and equipment, net..................... 395,165 258,103 212,417
Intangible assets, net.......................... 448,815 405,625 402,072
Other assets.................................... 119,664 -- --
============ ============ ============
Total assets.......................... $ 1,708,800 $ 1,105,139 $ 1,033,052
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Advance from parent........................... $ -- $ 621,080 $ 1,226,799
Accounts payable.............................. 685,725 602,715 366,569
Accrued expenses.............................. 1,373,899 1,203,277 969,835
Notes payable -- other........................ 468,302 257,000 257,000
------------ ------------ ------------
Total current liabilities............. 2,527,926 2,684,072 2,820,203
Notes payable to related parties................ 1,230,000 -- --
Shareholders' deficit:
Class A convertible preferred stock, no par
value:
Authorized shares -- 5,000,000 Issued and
outstanding shares -- none and 5,000,000
and 5,000,000 at December 31, 1997, 1998,
and March 31, 1999 respectively.......... -- 569,022 569,022
Common stock, no par value:
Authorized shares -- 20,000,000 Issued and
outstanding shares -- 7,989,028, 18,098,750
and 18,098,750 at December 31, 1997, 1998,
March 31, 1999 respectively................ 11,618,816 12,803,327 12,803,327
Additional paid-in capital.................... 554,517 554,517 554,517
Accumulated deficit........................... (14,222,459) (15,505,799) (15,714,017)
------------ ------------ ------------
Total shareholders' deficit........... (2,049,126) (1,578,933) (1,787,151)
------------ ------------ ------------
Total liabilities and shareholders'
deficit............................ $ 1,708,800 $ 1,105,139 $ 1,033,052
============ ============ ============
</TABLE>
See accompanying notes.
F-29
<PAGE> 110
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998 1999
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net sales..................... $ 5,596,979 $ 3,117,599 $1,608,557 $ 222,346
Cost of sales................. 3,354,114 1,633,627 769,735 187,037
Royalty expense............... 651,422 380,969 54,859 5,355
----------- ----------- ---------- -----------
Gross profit.................. 1,591,443 1,103,003 783,963 29,954
Operating expenses:
Selling, general and
administrative........... 2,208,106 1,755,882 424,536 154,928
Depreciation and
amortization............. 551,951 376,283 75,244 73,408
Write-off of goodwill and
intangible assets........ 1,643,386 -- -- --
----------- ----------- ---------- -----------
Income/(Loss) from
operations.................. (2,812,000) (1,029,162) 284,183 (198,382)
Other income (expense):
Interest income............. 21,461 8,833 157 --
Interest expense............ (389,401) (260,533) (57,325) (5,520)
Other income (expense)...... 8,637 3,268 1,375 409
----------- ----------- ---------- -----------
Net loss before income
taxes....................... (3,171,303) (1,277,594) 228,390 (203,493)
Provision for income taxes.... (3,548) (5,746) (5,083) (4,725)
----------- ----------- ---------- -----------
Net loss...................... $(3,174,851) $(1,283,340) $ 223,307 $ (208,218)
=========== =========== ========== ===========
Basic and diluted net loss per
common share................ $ (0.55) $ (0.13) $ 0.02 $ (0.01)
=========== =========== ========== ===========
Weighted average number of
shares outstanding.......... 5,745,439 10,261,070 9,005,267 18,098,750
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 111
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A CONVERTIBLE TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL SHAREHOLDERS'
------------------------ -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
---------- ----------- --------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 5,296,721 11,268,816 -- -- 554,517 (11,047,608) 775,725
Issuance of common stock.......... 2,692,307 350,000 -- -- -- -- 350,000
Net loss.......................... -- -- -- -- -- (3,174,851) (3,174,851)
---------- ----------- --------- -------- -------- ------------ -----------
Balance at December 31, 1997........ 7,989,028 11,618,816 -- -- 554,517 (14,222,459) (2,049,126)
Sale of common stock.............. 1,923,077 250,000 -- -- -- -- 250,000
Common stock issued for
services....................... 175,000 22,750 -- -- -- -- 22,750
Stock issued upon conversion of
notes payable.................. 8,011,645 911,761 5,000,000 569,022 -- -- 1,480,783
Net loss.......................... -- -- -- -- -- (1,283,340) (1,283,340)
---------- ----------- --------- -------- -------- ------------ -----------
Balance at December 31, 1998........ 18,098,750 $12,803,327 5,000,000 $569,022 $554,517 $(15,505,799) $(1,578,933)
UNAUDITED Net loss................ -- -- -- -- -- (208,218) (208,218)
---------- ----------- --------- -------- -------- ------------ -----------
UNAUDITED Balance at March 31,
1999.............................. 18,098,750 $12,803,327 5,000,000 $569,022 $554,517 $(15,714,017) $(1,787,151)
========== =========== ========= ======== ======== ============ ===========
</TABLE>
See accompanying notes.
F-31
<PAGE> 112
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998 1999
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(3,174,851) $(1,283,340) $ 223,307 $(208,218)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation............................. 272,088 218,659 42,623 45,686
Amortization of intangible assets........ 1,921,291 157,624 32,621 27,722
Amortization of loan fees................ 214,292 116,863 20,273 --
Provision (credit) for doubtful
accounts............................... (192,195) 22,561 14,341 --
Write-off of inventory................... -- 299,000
Unrealized foreign exchange losses....... -- 3,268
Issuance of common stock for services.... -- 22,750
Changes in operating assets and
liabilities:
Accounts receivable.................... 196,848 40,555 (158,250) (38,348)
Inventories............................ 396,530 (256,991) 19,942 96,065
Prepaid expenses and other............. 289,160 (4,107) (131,275) (79,548)
Accounts payable....................... (123,583) (83,010) 168,692 (236,146)
Accrued expenses and other............. 523,600 80,161 (332,788) (233,442)
----------- ----------- --------- ---------
Net cash provided by (used in) operating
activities............................... 323,180 (666,007) (100,514) (626,229)
INVESTING ACTIVITIES
Purchases of property and equipment........ (190,898) (81,567) (6,483) --
Product development costs.................. (106,084) (114,464) (19,998) (24,168)
Decrease in certificate of deposit......... 400,000 100,000 -- --
----------- ----------- --------- ---------
Net cash provided by (used in) investing
activities............................... 103,018 (96,031) (26,481) (24,168)
FINANCING ACTIVITIES
Advances from parent....................... -- 621,080 -- 605,718
Proceeds from line of credit............... -- 257,000 (96,415) --
Net payments on notes payable.............. (712,167) (219,189) (11,004) --
Proceeds (payments) from loans
payable -- agent......................... (200,975) (249,113)
Issuance of stockholder notes payable...... 115,000 --
Proceeds from issuance of common stock..... 350,000 250,000 250,000 --
----------- ----------- --------- ---------
Net cash provided by (used in) financing
Activities............................... (448,142) 659,778 142,581 605,718
----------- ----------- --------- ---------
Net decrease in cash and cash
equivalents.............................. (21,944) (102,260) 15,586 (44,679)
Cash and cash equivalents at beginning of
year..................................... 186,616 164,672 164,672 62,412
----------- ----------- --------- ---------
Cash and cash equivalents at end of year... $ 164,672 $ 62,412 $ 180,258 $ 17,733
=========== =========== ========= =========
</TABLE>
See accompanying notes.
F-32
<PAGE> 113
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Janex International, Inc. and subsidiaries (the Company) are in the
business of developing, marketing and selling toys and functional children's
products which are manufactured by subcontractors. The Company sells its
products primarily to U.S.-based retailers and their Hong Kong subsidiaries.
On December 11, 1998, approximately 79 percent of the Company's outstanding
stock was acquired by Futech Interactive Products, Inc. ("Futech"). See Note 7.
Because the minority interest exceeds 20 percent, the Company did not establish
a new basis of accounting upon the acquisition.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All inter-company accounts and transactions
have been eliminated in consolidation. All balance sheet accounts of the
Company's foreign subsidiaries are translated at the current exchange rate at
balance sheet date, while income statement items are translated at the average
currency exchange rates for each period presented. The resulting translation
adjustments, if significant (in December 31, 1996, 1997 and 1998, and March 31,
1999, the adjustment was not significant), are recorded as comprehensive income.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain reclassifications have been made to 1997 consolidated financial
statements to conform to the 1998 and March 31, 1999 presentation.
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has incurred significant operating
losses in the past three years and has negative net worth and negative working
capital at December 31, 1998. These factors raise significant doubt as to the
Company's ability to continue as a going concern.
The Company's ultimate ability to continue as a going concern depends on
the market acceptance of products, and the achievement of operating profits and
positive cash flow. The Company will also require additional financial resources
from its new parent or other sources to provide near term operating cash to
enable the Company to execute its plans to move toward profitability. Management
believes that the financial resources of its new parent company, in addition to
sales to be generated from new product lines that are being developed, will be
sufficient to allow the Company to continue in operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-33
<PAGE> 114
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on various methods which approximate the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
principally by the straight-line method over the estimated useful lives of the
assets which range from two to five years for molds, machinery and equipment,
and furniture and fixtures. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the lease term.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 31, 1999, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and long-term debt. The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair value based on the liquidity of these financial instruments or based on
their short-term nature. The carrying value of long-term debt approximates fair
market value based on the market interest rates available to the Company for
debt of similar risk and maturities.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and product development costs.
Costs of business acquisitions in excess of net asset of subsidiaries
acquired (goodwill) are amortized on a straight-line basis over a ten year
period. The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less then the carrying amounts of those assets. This methodology
includes intangible assets acquired. Goodwill relating to specific intangible
assets is included in the related impairment measurements to the extent it is
identified with such assets.
Product development costs consist of product design and development
(through subcontractors) for the various toys and children's products the
Company sells. The designs are stated at the lower of cost or net realizable
value and amortized on a straight-line basis over a one to five year period.
Management reviews goodwill and other intangible assets periodically for
possible impairment. This policy includes recognizing write-downs if it is
probable that measurable undiscounted future cash flows and/or the aggregate net
cash flows of an asset, as measured by current revenues and costs (exclusive of
depreciation) over the asset's remaining depreciable life, are not sufficient to
recover the net book value of an asset. During 1997, the Company wrote off
goodwill, licensing relationships and trademarks from
F-34
<PAGE> 115
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
certain previous acquisitions totaling $1,643,386, because they were considered
to have no future value.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company transacts business on a credit basis with its customers. The
Company routinely assesses the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable credit risk exposure is
limited. The Company does not require collateral to support customer
receivables. However, foreign receivable are generally secured by a letter of
credit. The Company maintains allowance for potential credit losses and such
losses have been within management's expectations.
The Company's two largest customers totaled approximately 43 percent, 53
percent and 52 percent of net sales in 1996, 1997 and 1998 (see Note 13). The
loss of any of these major customers could have a material adverse effect on the
results of the Company's operations.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product to the
customer, with appropriate allowances made for estimated returns and
uncollectible accounts.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) 109 "Accounting for Income Taxes." The statement
employs an asset and liability approach for financial accounting and reporting
of deferred income taxes. Generally, SFAS 109 allows for recognition of deferred
tax assets in the current period for the future benefit of net operating loss
carry forward and items for which expenses have been recognized for financial
statement purposes but will be deductible in future periods. A valuation
allowance is recognized, if the weight of available evidence is more likely than
not that some portion or all of the deferred tax assets will not be realized.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25, to
the extent that the exercise price of the Company's employee stock options
equals management's estimate of the fair value of the underlying stock on the
date of grant, no compensation expense is recognized.
Deferred expense on stock and options issued to officers and directors for
services or other consideration to be received in the future are offset against
equity and are amortized to expense over the period of benefit.
F-35
<PAGE> 116
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
LOSS PER SHARE
Loss per share is calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," (Statement 128).
Basic earnings per share is computed using the weighted average number of common
shares. Diluted earnings per share is computed using the weighted average number
of common share equivalents during the period. Common share equivalents include
employee stock options using the treasury method and dilutive convertible
securities using the if-converted method. Common share equivalents have been
excluded from the calculation of loss per share for all periods presented, as
their effect is anti-dilutive.
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME (Statement 130). Statement 130 establishes new rules for
the reporting and display of comprehensive loss and its components.
Comprehensive loss for the Company is the same as net loss for all periods
presented.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Effective January 1, 1998, the Company adopted the SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (Statement
131). Statement 131 established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers (see Note 13).
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Work in progress...................... $135,364 $ -- --
Finished goods........................ 37,743 131,098 35,033
-------- -------- ------
$173,107 $131,098 35,033
======== ======== ======
</TABLE>
F-36
<PAGE> 117
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Molds............................. $1,756,229 1,837,826 1,837,826
Machinery and equipment........... 146,593 146,593 146,593
Leasehold improvements............ 3,866 3,866 3,866
---------- ---------- ---------
$1,906,688 $1,988,285 1,988,285
---------- ---------- ---------
Less accumulated depreciation and
amortization.................... 1,511,523 1,730,182 1,775,868
---------- ---------- ---------
$ 395,165 $ 258,103 212,417
========== ========== =========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ----------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Goodwill......................... $ 422,220 $ 422,220 $ 422,220
Product development costs........ 1,009,165 1,047,290 1,071,459
---------- ---------- ----------
1,431,385 1,469,510 1,493,679
Less amortization................ 982,570 1,063,885 1,091,607
---------- ---------- ----------
$ 448,815 $ 405,625 $ 402,072
========== ========== ==========
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Allowance for returns and
allowances....................... $ 334,763 $ 334,763 $334,763
Accrued royalties.................. 588,608 182,628 210,468
Accrued commissions................ 80,721 154,063 163,894
Accrued interest................... 137,341 1,770 3,540
Other accrued expenses............. 232,466 530,053 257,170
---------- ---------- --------
$1,373,899 1,203,277 $969,835
========== ========== ========
</TABLE>
F-37
<PAGE> 118
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
7. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Revolving Credit Agreement,
converted to equity in 1998...... $ 615,000 $ -- $ --
Promissory notes to two
shareholders, converted to equity
in 1998.......................... 500,000 -- --
Commission loan to shareholder,
converted to equity in 1998...... 115,000 -- --
---------- ---------- --------
$1,230,000 $ -- $ --
========== ========== ========
</TABLE>
On December 11, 1998, Futech purchased 5,219,046 shares of common stock and
shareholder loans (including interest of $250,784) of $1,480,783 from certain of
the Company's majority stockholders. Subsequently, the shareholder loans were
converted into 8,011,645 shares of common stock and 5,000,000 shares of
preferred stock. After such conversion, Futech owns approximately 79 percent of
the Company's outstanding stock.
Until December 1998, the Company had the ability to borrow up to $900,000
under a Revolving Credit Agreement (the "Agreement") with a significant
shareholder of the Company that expires on October 19, 1999. The Agreement bears
interest at 9.5 percent payable quarterly. The Agreement is secured by all of
the assets of Janex Corporation, and the guarantee of the Company. As additional
consideration, on April 19, 1996, the Company granted the Lender warrants to
purchase up to 900,000 shares of the Company's common stock, exercisable at a
price of $1.45 per share through April 19, 2000. The warrants are immediately
exercisable. The Company has used $150,000 under the Agreement as security to
issue a stand-by letter of credit in connection with the loan payable to the
Company's Hong Kong agent. This agreement ended and all warrants were canceled
on December 11, 1998.
In connection with the acquisition of Janex Corporation in 1995, the
Company issued promissory notes to two stockholders totaling $1,000,000, payable
in semi-annual installments over a three-year period. On June 28, 1996, the note
holders agreed to extend the payment date for all remaining payments to February
1, 1998, subject to payment of interest at the rate of 9.5 percent per annum,
retroactive to January 1, 1996. On August 4, 1997, the note holders agreed to
further extend the payment date to February 1, 1999. Quarterly interest payments
commenced on September 1, 1996. In connection with the extension of the notes,
the Company entered into a warrant agreement with each of the note holders,
providing for the issuance of up to 282,994 warrants to one of them and up to
167,994 warrants to the other, to acquire a total of 450,998 shares of the
Company's common stock, exercisable at a price of $1.45 per share through June
28, 2000. The
F-38
<PAGE> 119
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
warrants vest in six-month increments over the term of the loan, and if the loan
is paid off early, certain of the warrants will be void. The agreement ended and
all warrants were canceled on December 11, 1998.
The Company charged to operations $180,477, $214,292 and $116,863 of
imputed interest expense from the issuance of stock purchase warrants noted
above for the years ended December 31, 1996, 1997 and 1998, respectively.
8. NOTES PAYABLE -- OTHER
The Company may borrow up to $400,000 under a line of credit agreement with
a bank. Borrowings under the line bear interest at the bank's prime rate plus
0.25 percent (8.0 percent at March 31, 1999). The line is secured by all of the
Company's assets and is personally guaranteed by two shareholders. Borrowings
under the line are due July 1, 1999. Borrowing capacity of $143,000 is available
at March 31, 1999.
Through 1998, the Company had the ability to borrow up to $450,000 from its
Hong Kong agent for the payment of product development and tooling costs. Any
loans are to be repaid from collections of certain customer invoices at the rate
of 5 percent of the invoice amount, with interest at two percent above the Hong
Kong prime rate. All borrowings under this arrangement were repaid in 1998. Any
borrowings are secured by certain tooling, as well as an irrevocable stand-by
letter of credit for $150,000.
Pursuant to a supplementary agency agreement, the Company had the ability
to borrow an additional $200,000 from its Agent provided that the Company issues
to the Agent an irrevocable stand-by letter of credit for $100,000. Any advance
under this facility is to be repaid within 60 days from the date of advance with
interest at 2 percent above the Hong Kong prime rate. As of December 31, 1997
and 1998, the Company had no borrowing under this credit facility.
The Company had borrowed $340,000 under a private unsecured loan. At
December 31, 1997, the balance outstanding against this facility was $219,189,
which bore interest at prime plus 2 percent. This loan was repaid in 1998.
9. INCOME TAXES
The income tax provision, all of which is current, consists of the
following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1998
------- ------
<S> <C> <C>
Current:
Federal........................................... $ -- $ --
State............................................. 3,548 5,746
Foreign........................................... -- --
------- ------
$ 3,548 $5,746
======= ======
</TABLE>
F-39
<PAGE> 120
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
The Company's net deferred tax asset and deferred tax asset valuation
allowance are comprised of the following temporary differences and carry
forwards:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Net operating loss carry-forward.............. $3,405,971 $3,600,000
Other, net.................................... (218,384) --
---------- ----------
Net deferred tax assets....................... 3,187,587 3,600,000
Less: Valuation allowance..................... (3,187,587) (3,600,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
Because of the Company's recurring losses, the net deferred tax assets have
a 100 percent valuation allowance at December 31, 1997 and 1998.
The income tax provision differs from the amount computed by applying the
U.S. Federal income tax rate (34 percent) because of the effect of foreign
losses not deductible in the U.S. return and the tax effect of unrecognized net
operating loss deductions.
At December 31, 1997 and 1998, the Company had federal net operating loss
(NOL) carryforwards of approximately $9,273,000 and $10,000,000, respectively.
The Company also had state net operating loss (NOL) carryforwards. NOL
carryforwards may be available to offset future taxable income. If not used, the
federal and state NOL carryforwards will expire through 2018 and 2003,
respectively. Federal tax rules impose limitations on the use of NOL
carryforwards from a change in ownership. The losses before taxes related to the
foreign subsidiaries for the years ended December 31, 1997 and 1998 were
$883,494 and $839,248, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company maintains a noncancelable operating lease on its former
facility. Effective April 1, 1997, the Company entered into an agreement to
sublease a portion of the former facility to a third party for the balance of
the lease. Effective May 1, 1998, the entire facility was subleased to a
different third party. The Company also leased other facilities under a
noncancelable operating lease, which expired on March 31, 1998. The monthly
rental income derived from the sublease was slightly less than rent expense. The
difference was not material.
Future minimum payments under these noncancelable operating leases with
initial terms of one year or more consisted of the following at March 31, 1998:
<TABLE>
<S> <C>
1999............................................... $ 76,500
2000............................................... 102,000
--------
Total minimum lease payments....................... $204,000
========
</TABLE>
F-40
<PAGE> 121
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
Net rental expense was approximately $77,000, $68,000 and $37,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, the Company has commitments for minimum guaranteed
royalties under licensing agreements as follows:
<TABLE>
<S> <C>
1999............................................... $268,959
2000............................................... 35,000
--------
Total minimum lease payments....................... $303,959
========
</TABLE>
Total royalty expense was approximately $1,002,000, $651,000 and $381,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
During the year ended December 31, 1996, holders of certain warrants
threatened to sue the Company, claiming that the Company was obligated to
register the stock underlying the warrants and to use its best efforts to
maintain the registration statement effective during the period the warrants are
exercisable, and that the Company had failed to meet these obligations. On March
26, 1996, the Company entered into a Settlement Agreement and Specific Release
with the warrant holder under which the Company issued additional warrants to
purchase 100,000 shares of the Company's common stock, at a price of $.64 per
share, in exchange for a release from any and all prior claims relating to
violations of the warrant agreement and failure to update the registration
statement. These warrants expire on March 26, 2001. As a result of the foregoing
transaction, during the year ended December 31, 1996, the Company recorded a
charge to operations of $84,125, which represents management's estimate of the
fair value of the 100,000 common stock purchase warrants.
F-41
<PAGE> 122
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
11. STOCK-BASED COMPENSATION
A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding, December 31, 1996............ 2,345,236 $ 1.47
Granted................................. -- --
Exercised............................... -- --
Forfeited............................... (499,000) (1.54)
---------- ------
Outstanding, December 31, 1997............ 1,846,236 (1.45)
Granted................................. -- --
Exercised............................... -- --
Forfeited............................... (1,801,236) (1.45)
---------- ------
Outstanding, December 31, 1998............ 45,000 $ 1.67
========== ======
Granted................................. -- --
Exercised............................... -- --
Forfeited............................... -- --
---------- ------
45,000 $ 1.67
==========
Exercisable at end of year................ 45,000
==========
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 range from
$1.25 to $2.13 per share. The weighted-average remaining contractual life of
those options is 1.9 years.
The fair value of options and warrants is estimated on the date of grants
utilizing the Black-Scholes option pricing model with the following weighted
average assumptions for years ended December 31, 1996, 1997, and 1998: expected
life of 4.4 years, expected volatility of 22.5 percent, risk-free interest rate
of 6 percent and a 0 percent dividend yield.
Option valuation models require the input of highly subjective assumptions.
Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the applicable vesting period. The pro
forma effect of SFAS No. 123 was not material for any year presented.
F-42
<PAGE> 123
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
12. COMMON STOCK
The Company has the following shares reserved for future issuance at
December 31, 1998:
<TABLE>
<S> <C>
Warrants at $7.50 per share, expiring May 9, 1999......... 1,725,000
Warrants at $0.64 per share, expiring March 26, 2001...... 100,000
Stock Options............................................. 45,000
---------
1,870,000
=========
</TABLE>
All warrants outstanding are fully exercisable.
In October 1996, the Company issued 150,000 shares of common stock to the
former owners of an acquired company in exchange for cancellation of certain
earn-out provisions. The common stock was valued at $1.00 per share, which was
management's estimate of the fair value at the time. Accordingly, $150,000 was
recorded as compensation expense.
The Company currently has 1,725,000 Public Warrants issued and outstanding,
which were issued in connection with the 1991 Public Offering. Each such warrant
entitles the holder to acquire one share of Common Stock at a price of $7.50 per
share. The expiration date of the Public Warrants was extended from May 9, 1996
to May 9, 1999.
On August 27, 1997, the Company issued 2,307,692 shares of common stock at
fair market value for a total purchase price of $300,000 in a private placement
with two shareholders of the Company.
On October 4, 1997, the Company issued 384,615 shares of common stock at
fair market value for a total purchase price of $50,000 in a private placement.
On January 14, 1998, the Company issued 1,346,153 shares of common stock at
fair market value for a total purchase price of $175,000 in a private placement
with two shareholder of the Company.
13. SEGMENT INFORMATION
The Company operates exclusively in the children's products industry. For
geographical reporting, revenues are attributed to the geographic location from
which goods are shipped. Intercompany sales are recorded at cost.
In 1996, customer A and customer B represented 21 percent and 22 percent of
the Company's net sales, respectively. In 1997, customer A and customer B
represented 39 percent and 14 percent of the Company's net sales, respectively.
In 1998, customer A and customer B represented 47 percent and 5 percent of the
Company's net sales, respectively. Sales to these customers were made by the
Hong Kong segment.
F-43
<PAGE> 124
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
A summary of the Company's operations by geographical area for the years
ended December 31, 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED HONG AND
STATES KONG ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1997
Net sales:
Customers.......... $ 856,975 $4,740,004 $ -- $ 5,596,979
Intercompany....... 1,844,086 22,621 (1,866,707) --
----------- ---------- ----------- -----------
Total revenue........ 2,701,061 4,762,625 (1,866,707) 5,596,979
Operating income
(loss)............. (3,767,147) 955,147 -- (2,812,000)
Interest expense..... (350,405) (38,996) -- (389,401)
Depreciation and
amortization....... (214,368) (337,583) -- (551,951)
Total assets......... 7,848,088 676,523 (6,815,811) $ 1,708,800
1998
Net sales:
Customers.......... $ 65,683 $3,051,916 $ -- $ 3,117,599
Intercompany....... 1,222,267 6,685 (1,228,952) --
----------- ---------- ----------- -----------
Total revenue........ 1,287,950 3,058,601 (1,228,952) 3,117,599
Operating loss....... (82,950) (946,212) -- (1,029,162)
Interest expense..... (234,976) (25,557) -- (260,533)
Depreciation and
amortization....... (123,702) (252,581) -- (376,283)
Total assets......... 3,055,804 801,894 (2,752,559) $ 1,105,139
</TABLE>
F-44
<PAGE> 125
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
A summary of the Company's operations by geographical area for the three
months ended March 31, 1998, and 1999 were as follows:
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED HONG AND
STATES KONG ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1998
Net sales:
Customers............ $ 15,679 $1,592,878 -- $1,608,557
Intercompany......... 1,952 (1,952) --
--------- ---------- -------- ----------
Total revenue........ 15,679 1,594,830 (1,952) 1,608,557
Operating income
(loss)............. (391,413) 675,596 -- 284,183
Interest expense..... (49,085) (8,240) -- (57,325)
Depreciation and
amortization....... (27,052) (48,192) -- (75,244)
1999
Net sales:
Customers............ $ 119,354 $ 102,992 $ -- $ 222,346
Intercompany......... -- -- -- --
--------- ---------- -------- ----------
Total revenue........ 119,354 102,992 222,346
Operating loss....... (156,504) (41,878) -- (198,382)
Interest expense..... (5,319) (201) -- (5,520)
Depreciation and
Amortization....... (24,887) (48,521) -- (73,408)
</TABLE>
14. RELATED PARTY TRANSACTIONS
The Company pays sales commissions at the rate of 4 percent of net sales to
a company owned by a former stockholder and current director, relating to
customers located in New York, New Jersey, Connecticut and Pennsylvania.
Commissions on such sales of approximately $3,025,000, $2,450,000 and $1,625,000
amounted to $113,675, $98,166 and $65,154 for the years ended December 31, 1996,
1997 and 1998, respectively, which are included in selling, general and
administrative expenses. Accrued commissions included in accrued expenses and
accounts payable, on such sales amounted to $68,262 and $134,754 as of December
31, 1997 and 1998, respectively. The Company also rented showroom space from
this major stockholder for which the Company paid $26,000 during 1997. No such
expense was incurred in 1998. In addition, the Company utilized the services of
a public warehouse facility in Baltimore, Maryland that is owned by the father
of a former stockholder for a fee based on the amount of goods received and
shipped. Fees amounted
F-45
<PAGE> 126
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND FOR MARCH 31, 1999 (UNAUDITED) -- (CONTINUED)
to $62,852 and $20,911 for the years ended December 31, 1996 and 1997. No such
fees were incurred in 1998 or 1999.
15. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
As previously reported in the Company's Current Report on Form 8-K dated
February 25, 1999, the Company engaged Ernst & Young, LLP as its independent
auditor for the fiscal year ending December 31, 1998, to replace the firm of BDO
Seidman, LLP. Ernst & Young, LLP is the independent auditor used by the
Company's majority shareholder. The decision to change auditors was made in the
ordinary course of business.
The reports of BDO Seidman, LLP on the Company's financial statements for
1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles, except as discussed in the following paragraph.
As indicated in the reports of BDO Seidman, LLP on the Company's financial
statements for the past two fiscal years, there are factors that raise
substantial doubt about the Company's ability to continue as a going concern.
The independent auditor's report indicates there is no assurance the Company
will be able to realize its recorded assets and liquidate its liabilities in the
normal course of business. Although Management discusses, in a footnote, its
plans in regard to these matters, the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1996 and 1997, and in the
subsequent interim period, there were no disagreements with BDO Seidman, LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of BDO Seidman, LLP would have caused BDO Seidman, LLP to make
reference to the matter in their report.
The Company has agreed to indemnify and hold harmless BDO Seidman, LLP for
any and all liabilities, costs or expenses of any nature whatsoever incurred by
BDO Seidman, LLP in defending itself in a lawsuit brought because of the
re-issuance of BDO Seidman, LLP's report on its audit of the Company's 1997
financial statements. A copy of this indemnification agreement is attached as
Exhibit 10.26.
F-46
<PAGE> 127
TRUDY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------
MARCH 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales......................................... $ 4,977,599 $ 3,390,884
Operating costs and expenses (exclusive of
depreciation)
Cost of sales................................... 2,780,401 1,792,782
Selling, general and administrative............. 2,118,322 2,128,721
------------ ------------
4,898,723 3,921,502
------------ ------------
Income (loss) from operations..................... 78,876 (530,619)
------------ ------------
Other income (expense)
Other income.................................... 35,904 3,313
Interest expense, net........................... (102,099) (115,151)
Depreciation.................................... (17,449) (75,255)
------------ ------------
(83,644) (187,093)
------------ ------------
Loss from operations before benefit for income
taxes........................................... (4,768) (717,712)
------------ ------------
Income tax benefit................................ 152,000 --
------------ ------------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle....................................... 147,232 (717,712)
Extraordinary item (net of income taxes of
$40,000)........................................ 56,320 --
------------ ------------
Net income (loss)................................. $ 203,552 $ (717,712)
Deficit -- beginning of period.................... (2,753,417) (2,549,865)
------------ ------------
Deficit -- end of period.......................... $ (2,549,865) $ (3,267,577)
============ ============
Basic net (loss) income per share:
Income before extraordinary item................ $ 0.000454 $ (0.002211)
Extraordinary item.............................. 0.000174 --
------------ ------------
Basic net (loss) income per share............... $ 0.000627 $ (0.002211)
============ ============
Weighted average number of shares outstanding..... 324,598,187 324,598,187
============ ============
</TABLE>
F-47
<PAGE> 128
TRUDY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1999
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash equivalents............................ $ -- $ 624
Accounts Receivable, less allowance for doubtful
accounts of $31,361 and $50,044 at March 31, 1998
and March 31, 1999, respectively.................. 321,898 246,049
Inventory, less allowance of $50,000 at March 31,
1998 and March 31, 1999, respectively............. 1,574,901 1,657,939
Prepaid expenses and other........................... 105,730 140,107
Deferred income taxes................................ 59,000 59,000
---------- ----------
Total current assets......................... 2,061,529 2,103,719
Property and equipment, net............................ 129,769 114,185
Pre-publication costs and royalty advances............. 379,546 390,234
Deferred income taxes.................................. 319,000 319,000
---------- ----------
Total assets................................. $2,889,844 $2,927,138
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Checks drawn in excess of cash balances.............. 23,517 --
Accounts payable & accrued expenses.................. 295,176 374,937
Notes payable, including related parties and accrued
interest.......................................... 336,962 1,495,903
---------- ----------
Total current liabilities.................... 655,655 1,870,840
Notes payable, less current portion.................... 750,615 290,436
Shareholders' deficit:
Common stock, par value $.0001:
Authorized shares -- 850,000,000
Issued and outstanding shares 331,222,249 at
March 31, 1998 and 1999, respectively........ 33,123 33,123
Capital in excess of par value....................... 4,000,316 4,000,316
Accumulated deficit.................................. (2,549,865) (3,267,577)
---------- ----------
Total shareholders' deficit:................. 1,483,574 765,862
---------- ----------
Total liabilities and shareholders'
deficit................................... $2,889,844 $2,927,138
========== ==========
</TABLE>
F-48
<PAGE> 129
TRUDY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE YEAR ENDED
--------------------------------
(UNAUDITED)
MARCH 31, 1998 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................ $ 203,552 $(717,712)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Extraordinary item............................. (56,320) --
Depreciation................................... 17,449 75,255
Amortization................................... 107,137 155,185
(Gain)/loss on disposal of property, plant and
equipment................................... (300) --
Provision (credit) for doubtful accounts....... 45,157 33,596
Deferred income taxes.......................... (162,000) --
Changes in operating assets and liabilities
Accounts receivable............................ (193,358) 42,253
Inventories.................................... (170,311) (83,038)
Prepaid expenses and other..................... (16,116) (34,377)
Prepaid income taxes........................... (20,124) --
Accounts payable and accrued expenses.......... (50,532) 56,244
--------- ---------
Net Cash used in operating activities............ (295,766) (472,593)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment............... (81,679) (59,672)
Pre-publication and royalty advances........... (135,500) (165,873)
Proceeds from sale of equipment................ 300 --
--------- ---------
Net Cash used in operating activities............ (216,879) (225,544)
--------- ---------
Cash flows from financing activities
Net proceeds (payments) on notes payable....... 502,411 698,762
Proceeds from exercise of stock options........ 7,295 --
--------- ---------
Net cash provided by financing activities........ 509,706 698,762
--------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... (2,939) 624
Cash and cash equivalents at beginning of
period......................................... 2,939 --
--------- ---------
Cash and cash equivalents at end of period....... $ -- $ 624
========= =========
</TABLE>
F-49
<PAGE> 130
FUNDEX
FINANCIAL STATEMENTS
F-50
<PAGE> 131
FUNDEX GAMES LTD.
COMPARATIVE BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(UNAUDITED AS OF MARCH 31, 1999)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 MARCH 31
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash................................................ $ 130,348 $ 41,214 $ 5,651
Accounts receivable -- trade, less allowance for
doubtful accounts of $70,000, $138,000 and 34,127
for December 31, 1997, 1998 and March 31, 1999.... 1,313,920 1,690,571 842,392
Income tax receivable (Note 5)...................... 20,000 -- --
Inventories (Note 2)................................ 2,447,204 1,907,939 2,018,710
Prepaid expenses (Notes 3 and 4).................... 254,021 212,111 284,381
---------- ---------- ----------
Total Current Assets......................... 4,165,493 3,851,835 3,151,134
---------- ---------- ----------
Property and Equipment
Machinery, equipment and tooling.................... 445,743 540,628 556,682
Furniture and fixtures.............................. 31,261 45,046 48,786
Leasehold improvements.............................. 47,746 47,746 47,746
---------- ---------- ----------
524,750 633,420 653,214
Less accumulated depreciation and amortization...... 177,608 316,466 356,531
---------- ---------- ----------
Net Property and Equipment............................ 347,142 316,954 296,683
---------- ---------- ----------
Other Assets
Loan costs (Note 1)................................. -- 334,846 313,210
Patent/Trademarks Costs............................. -- -- 11,763
Intangible game rights (Note 9)..................... 280,706 204,146 185,006
Prepaid trade credits (Note 1)...................... -- 571,591 571,591
---------- ---------- ----------
Total Other Assets........................... 280,706 1,110,583 1,081,570
---------- ---------- ----------
Total Assets................................. $4,793,341 $5,279,372 $4,529,387
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 8)....... $ -- $ 49,717 $ 88,326
Accounts payable.................................... 1,226,744 538,180 746,939
Distribution payable to stockholders................ 9,008 9,008 9,008
Accrued liabilities
Commissions....................................... 156,010 65,581 93,603
Royalties and licenses (Notes 3 and 4)............ 75,791 104,981 --
Pension (Note 10)................................. 173,472 247,759 143,227
Other............................................. 293,531 300,579 165,376
---------- ---------- ----------
Total Current Liabilities.................... 1,934,556 1,315,805 1,246,479
Deferred Rent (Note 6)................................ 23,616 29,304 30,726
Long-Term Debt, less current maturities (Note 8)...... 1,600,000 2,702,021 2,128,872
---------- ---------- ----------
Total Liabilities............................ 3,558,172 4,047,130 3,406,077
---------- ---------- ----------
Commitments (Notes 4, 6, 7 and 10)
Stockholders' Equity
Preferred stock, $1 par value; 1,000,000 shares
authorized; none issued or outstanding............ -- -- --
Common stock, $.001 par value; 8,000,000 shares
authorized; 1,624,824 issued and outstanding on
December 31, 1997, 1998, and March 31, 1999....... 1,625 1,625 1,625
Paid-in capital..................................... 2,019,901 2,019,901 2,019,901
Accumulated deficit................................. (786,357) (789,284) (898,216)
---------- ---------- ----------
Total Stockholders' Equity................... 1,235,169 1,232,242 1,123,310
---------- ---------- ----------
Total Liabilities and Stockholder's Equity... $4,793,341 $5,279,372 $4,529,387
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 132
FUNDEX GAMES, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1998
(UNAUDITED FOR THE THREE MONTHS ENDING MARCH 31, 1998 AND 1999)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 MARCH 31 MARCH 31
1997 1998 1998 1999
----------- ----------- ---------- ---------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
Net Sales (Note 12)........... $7,797,681 $8,576,702 1,117,470 $ 935,019
Cost of Sales................. 5,098,750 5,693,644 818,697 619,685
----------- ---------- ---------- ---------
Gross profit.................. 2,698,931 2,883,058 298,773 315,334
Selling, General and
Administrative Expenses
(Note 3).................... 3,810,056 2,695,853 413,088 357,565
----------- ---------- ---------- ---------
Operating income (loss)....... (1,111,125) 187,205 (114,315) (42,231)
----------- ---------- ---------- ---------
Other Income (Expense)
Royalty income.............. 28,009 51,816 9,276 10,000
Interest income............. 5,343 3,947 2,189 0
Interest expense............ (86,419) (245,895) (40,386) (76,701)
----------- ---------- ---------- ---------
(53,067) (190,132) (28,921) (66,701)
----------- ---------- ---------- ---------
Net Loss...................... $(1,164,192) $ (2,927) $ (143,236) $(108,932)
=========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE> 133
FUNDEX GAMES, LTD.
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1997.................... 1,225,000 $1,225 $ 454,900 $ 377,835 $ 833,960
Net loss, for the year
ended 1997.............. -- -- -- (1,164,192) (1,164,192)
Conversion of bridge loan
(Note 11)............... 122,910 123 437,077 -- 437,200
Issuance of 207,100 shares
and 103,550 warrants in
private placement (Note
11)..................... 207,100 207 767,645 -- 767,852
Exercise of 69,814
warrants (Note 11)...... 69,814 70 360,279 -- 360,349
--------- ------ ---------- ----------- -----------
Balance, December 31,
1997.................... 1,624,824 1,625 2,019,901 (786,357) 1,235,169
Net loss, for the year
ended 1998.............. -- -- -- (2,927) (2,927)
--------- ------ ---------- ----------- -----------
Balance, December 31,
1998.................... 1,624,824 1,625 2,019,901 (789,284) 1,232,242
Unaudited Net loss, for
the three months ended
1999.................... -- -- -- (108,932) (108,932)
--------- ------ ---------- ----------- -----------
Unaudited Balance, March
31, 1999................ 1,624,824 $1,625 $2,019,901 $ (898,216) $ 1,123,310
========= ====== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE> 134
FUNDEX GAMES LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(UNAUDITED FOR THE THREE MONTH PERIOD ENDING MARCH 31, 1998 AND 1999)
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
DECEMBER 31 DECEMBER 31 1998 1999
1997 1998 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss......................... $(1,164,192) $ (2,927) $(143,236) $(108,932)
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and
amortization................ 179,894 230,512 46,616 77,144
Deferred rent................. 5,688 5,688 1,422 1,422
Changes in assets and
liabilities
Increase in accounts
receivable............... (246,388) (376,651) 458,583 848,179
Decrease (increase) in
inventories.............. (1,548,583) 539,265 572,781 (110,772)
Decrease (increase) in
prepaid expenses and
other assets............. (145,036) 61,910 (13,421) 79,828
Increase in prepaid trade
credits.................. -- (571,591) (546,505) (12,713)
(Decrease) increase in
accounts payable......... 214,415 (688,564) (294,951) (66,816)
Increase in accrued
liabilities.............. 267,970 20,096 (86,673) (193,217)
----------- ----------- --------- ---------
Net cash used in operating
activities....................... (2,436,232) (782,262) 21,459 514,123
----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............. (201,433) (108,670) (9,959) (19,795)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from note payable....... -- 1,000,000 -- --
Deferred loan costs.............. -- (349,940) -- 4,650
Repayment of note payable........ (40,000) -- -- --
Repayment of line of credit...... -- (1,600,000) -- --
Distribution to stockholders..... (61,092) -- -- --
Net proceeds from line of
credit........................ 1,600,000 1,751,738 -- (534,540)
Net proceeds from private
placement..................... 767,852 -- -- --
Net proceeds from exercise of
warrants...................... 360,349 -- -- --
----------- ----------- --------- ---------
Net cash provided by financing
activities....................... 2,627,109 801,798 -- (529,890)
----------- ----------- --------- ---------
Net Decrease in cash............... (89,134) (10,556) 11,500 (35,562)
Cash, at beginning of year......... 130,348 140,904 130,347 41,214
----------- ----------- --------- ---------
Cash, at end of year............... $ 41,214 $ 130,348 $ 141,847 $ 5,652
=========== =========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for interest........... $ 253,251 $ 64,229 $ 40,386 $ 76,601
=========== =========== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Conversion of bridge loan to
equity........................ $ -- $ 437,200 $ -- $ --
=========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE> 135
FUNDEX
NOTES TO FINANCIAL
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED)
1. SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Fundex Games, Ltd. (the "Company") develops, manufactures (through
subcontractors), markets and sells games and toys nationwide through discount
retailers, specialty toy retailers, toy wholesalers, drug and grocery retailers
and certain catalog and specialty accounts from its Indianapolis, Indiana
facility. The Company's principal products include card games, children's board
games, skill and action games, family games, puzzles and spring and summer toys.
The Company's products are manufactured to the Company's specifications by
manufacturers based in the United States, Taiwan, Philippines and China.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
The Company primarily provides credit, in the normal course of business, to its
customers. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses, if necessary.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
PREPAID TRADE CREDITS
Prepaid trade credits represent the estimated fair value of trade credits
received in exchange for inventory. The trade credits, together with specified
cash payments, can be redeemed for a variety of services. The credits expire on
December 31, 2003.
ADVERTISING
The Company generally expenses production costs of print and television
advertisements as of the first date the advertisement runs. Advertising expenses
included in selling, general and administrative expenses were $269,117 and
$1,672,368 for December 31, 1998 and 1997, respectively. Advertising expenses
included in selling, general and administrative
F-55
<PAGE> 136
FUNDEX
NOTES TO FINANCIAL -- (CONTINUED)
expenses were $15,325 and $4,032 for March 31, 1999 and 1998, respectively. As
of December 31, 1997, advertising costs of $41,488 were included in prepaid
expenses.
MACHINERY AND EQUIPMENT
Machinery and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures................................ 3-5
Machinery, equipment and tooling...................... 3-7
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
INCOME TAXES
As of January 1, 1997, the Company switched from an S corporation to a C
corporation. The Company recognizes deferred tax assets for the expected future
tax consequences of temporary differences between the tax basis and financial
reporting basis of certain assets based upon currently enacted tax rates
expected to be in effect when such amounts are realized.
DEFERRED LOAN COSTS
Deferred loan costs represent the costs incurred in obtaining the mezzanine
financing and the credit facility. These costs are being amortized by use of the
interest method over the life of the debt.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Raw Materials.................. $ 763,144 $ 828,179 $1,004,075
Finished goods................. 1,255,566 1,079,760 1,443,129
---------- ---------- ----------
$2,018,710 $1,907,939 $2,447,204
</TABLE>
3. ROYALTIES
The Company's products are generally acquired by the Company from others or
developed for the Company by unaffiliated third parties. If the Company accepts
and develops a third party's concept for a new game, it generally pays a royalty
to the inventor on games sold which were developed from the concept, often with
a commitment to manufacture and sell a minimum number. Royalties paid to the
inventors range from 1% to 6% of the wholesale sales price for each unit sold by
the Company. Royalty expense was $363,778 and $330,678 for the years ended
December 31, 1998, and 1997, respectively. Royalty expense was $47,872 for the
three months ended March 31, 1999. The Company
F-56
<PAGE> 137
FUNDEX
NOTES TO FINANCIAL -- (CONTINUED)
may pay advance royalties to an inventor on products where a significant amount
of development has been done by the inventor. At December 31, 1998 and 1997
advance royalties were $177,684 and $193,434, respectively. At March 31, 1999
advanced royalties were $190,646.
4. LICENSE AGREEMENTS
During 1996, the Company entered into an exclusive agreement with Hollywood
Ventures Corporation ("HVC") for certain properties and characters associated
with "The Big Comfy Couch" for use on board games, paperboard puzzles and wooden
puzzles. Shipment of these products began in July 1996. Under the renewal terms
of the license, the Company has the exclusive rights for the above products
through December 31, 1999. The Company has agreed to pay the licensor royalties
in the amount of 8% of the sales of the products and has guaranteed a minimum of
$45,000 in royalties during the license term. The Company has incurred more than
the guaranteed minimum. See Note 3.
The Company has entered into an additional exclusive agreement with HVC for
the use of "The Big Comfy Couch" name and logo on an inflatable couch to be
functional as furniture for children. Shipments of this product began in the
fourth quarter of 1996. Under the terms of this license the Company had
exclusive rights for such product through December 31, 1999. The Company has the
right to renew the agreement for one additional year provided the Company
generates sales which produce royalties to HVC of at least $200,000. The Company
has agreed to pay HVC royalties in the amount of 8% of sales and has guaranteed
a minimum of $40,000 in royalties. This license applies to the United States and
Canada. The Company has incurred more than the guaranteed minimum. See Note 3.
5. TAXES ON INCOME
As of January 1, 1997, the Company switched from an S corporation to a C
corporation.
The Company has approximately $1,000,000 of net operating loss
carryforwards (expiring in 2012), which can be utilized to offset future taxable
income. The deferred tax asset of $340,000 has been fully offset by a valuation
allowance because realization is not considered likely at this time.
6. LEASES
The Company leases its industrial and office facilities in Indianapolis,
Indiana under an operating lease that expires March 31, 2002. In addition,
beginning January 1, 1996, the Company leased a showroom and office space in New
York, New York under an operating lease that expires April 30, 2006. Rental
payments under this lease did not begin until July 1, 1996. Generally accepted
accounting principles require total minimum rental payments to be recognized as
rent expense on a straight-line basis over the term of the lease. Accordingly,
total rental expense under these leases was $192,851 and $155,718 for the years
ended December 31, 1998 and 1997, respectively. The excess of such charges over
amounts required to be paid under the lease agreement is carried as a noncurrent
liability on the Company's balance sheet.
F-57
<PAGE> 138
FUNDEX
NOTES TO FINANCIAL -- (CONTINUED)
The Company leases various equipment under operating leases. The leases
expire through December 2003. Total rental expense under these leases was
$42,577 and $31,447 for the years ended December 31, 1998 and 1997,
respectively. Total rental expense under these leases was $11,881 for the three
month period ended March 31, 1999.
Minimum future rental payments as of March 31, 1999 under all of these
leases are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
- ------------
<S> <C>
1999............................................... $166,377
2000............................................... 233,156
2001............................................... 214,080
2002............................................... 83,588
2003............................................... 41,362
Thereafter......................................... 83,300
--------
Total.............................................. $821,863
========
</TABLE>
7. STOCK OPTION PLANS
The Company's Board of Directors and stockholders adopted the 1996 Employee
Stock Option Plan and the 1996 Stock Plan for Non-Employee Directors (the
"Plans") in September 1996. The Plans permit the granting of awards to
employees, directors and independent contractors in the form of stock options.
Options are designated at the time of grant as Incentive Stock Options intended
to qualify under Section 422 of the Internal Revenue Code or Non-Qualified
Options which do not qualify. A total of 300,000 shares of the Company's common
stock have been reserved pursuant to the Plans.
The Company granted 76,000 and 53,000 options during 1998 and 1997 under
the Employee Stock Option Plan at an exercise price of $3.00 and $4.00 per
share, respectively. These options vest ratably over five or 10 years and are
exercisable from 2002 through 2008. No compensation cost was recognized as the
exercise price exceeded the fair value at the grant date.
The Company also granted 6,000 options during 1998 and 1997 under the Stock
Plan for nonemployee directors at an exercise price of $4.00 per share. These
options vest ratably over 10 years and are exercisable through 2008 and 2007,
respectively. No compensation cost was recognized as the exercise price exceeded
the fair value at the grant date.
The Company accounts for options under APB Opinion No. 25, under which no
compensation cost is recognized when exercise price equals or exceeds the fair
value at the grant date.
The weighted-average, grant date fair value of stock options granted to
employees during the year and the weighted-average significant assumptions used
to determine those fair values, using a modified Black-Sholes option pricing
model, and the pro forma effect
F-58
<PAGE> 139
FUNDEX
NOTES TO FINANCIAL -- (CONTINUED)
on earnings of the fair value accounting for stock options under Statement of
Financial Accounting Standards No. 123, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Weighted average fair value per options
Granted....................................... $ 0.81 $ 1.52
Significant assumptions (weighted Average)
Risk-free interest rate at grant date......... 4.57% 6.03%
Expected stock price volatility............... -- --
Expected dividend payout...................... -- --
Expected option life (years).................. 7.6 8.3
Net loss
As reported................................... (2,927) (1,164,192)
Pro forma..................................... (69,267) (1,253,762)
</TABLE>
8. NOTES PAYABLE
(a) In July 1996, the Company obtained a credit facility from an outside
group of investors to provide up to $500,000 in bridge financing, at an interest
rate of 10% per annum. As of December 31, 1996, $413,000 of the $500,000 had
been drawn down. These bridge notes were converted into common stock during
1997. See Note 11.
(b) In January 1997, the Company obtained a commitment for a $2,500,000
credit facility from a bank with interest at LIBOR plus three points. The
facility matured in May 1998. The line was repaid in October 1998 with the new
credit facility discussed in Note 8(d).
(c) In August 1998, the Company obtained mezzanine financing in the amount
of $1,000,000 due in July 2003 with interest-only payments for 12 months at
prime plus 3 1/2%. Thereafter, interest and principal payments will be made in
equal monthly installments to amortize the principal over the term of the note.
The note includes certain financial covenants and is collateralized by
substantially all the assets of the Company. In conjunction with the note, the
Company signed a revenue participation agreement with the holder of the note
which calls for payment of 1.25% of net sales for the term of the note or until
repaid. During 1998, the Company incurred approximately $53,000 of additional
interest under this participation agreement.
This note is subordinate to the Company's main credit facility.
(d) In October 1998, the Company replaced and repaid the credit facility
discussed in Note 8(b) with a $2,500,000 revolving credit facility with interest
at prime plus 1%. The facility matures in October 2001, with interest payments
only until maturity. The borrowing availability will be based on 80% of eligible
accounts receivable, 40% of eligible parts inventory and 60% of eligible
finished goods inventory less the reserve for accrued cooperative advertising.
The facility is secured by substantially all the assets of the Company and
personal guarantees of the principal stockholders. The facility also calls for
certain minimum financial statement covenants to be met. As of December 31,
1998, $1,751,738 has been drawn down on the line.
F-59
<PAGE> 140
FUNDEX
NOTES TO FINANCIAL -- (CONTINUED)
The aggregate amount of long-term debt maturing in each of the next five
years is as follows: 1999 -- $49,717; 2000 -- $161,596; 2001 -- $1,933,828;
2002 -- $205,184; and 2003 -- $401,413.
9. INVESTMENT IN JOINT VENTURE
In December 1995, the Company entered into a joint venture with a
partnership for the development, design and sale of new products. The venture,
which was 50% owned by the Company, did not commence operations until 1996. On
August 28, 1996, the Company purchased the remaining 50% of the joint venture,
which consisted primarily of tooling costs, and the rights to four fully
developed games. The consideration paid was 75,000 shares of the Company's stock
and 75,000 warrants to purchase stock at 120% of the proposed public offering
price. The value assigned to the stock and the warrants was 65% of the proposed
1996 public offering price ($5.20 and $.065, respectively). The proposed
offering was not consummated. The cost in excess of the tangible assets acquired
($382,787) was assigned to intangible game rights and is being amortized over 60
months.
10. RETIREMENT PLAN
The Company established a contributory salary reduction simplified pension
plan pursuant to Section 408(k) of the Internal Revenue Code covering all its
employees. Employer contributions to the plan are discretionary. Also, the
Company established a money purchase plan and trust. This plan provides for
contributions by the Company equal to 10% of eligible wages.
The amounts charged against operations were $74,287 and $91,397 for the
years ended December 31, 1998 and 1997, respectively.
Subsequent to year end, the Company terminated both plans and determined
that the final distribution under these plans is approximately $48,000.
Therefore, the Company will recognize approximately $200,000 in income in 1999
as a reversal of the accrued liability recorded at December 31, 1998.
In April 1999, the Company established a Simple IRA plan pursuant to
Section 408(p) of the Internal Revenue Code covering all full-time employees.
Employer contributions to the plan are set at a matching of employee's
contribution, up to a maximum of 3%.
11. EQUITY TRANSACTIONS
(a) In April 1997, the Company completed the private placement of 207,100
shares of the Company's $.001 par value common stock at a price of $4.20 per
share. Each share had two detachable warrants to purchase additional shares.
103,550 warrants were exercisable on or before May 15, 1997 at an exercise price
of $5.50. An additional 103,550 warrants were exercisable on or before December
31, 1997 at an exercise price of $6.30, but only if the May 15 warrants were
exercised. Proceeds to the Company, after deducting selling commissions of
$52,200 and offering expenses of $25,000, were $767,851. During 1997, 53,000
warrants were exercised and 50,550 warrants expired.
F-60
<PAGE> 141
FUNDEX
NOTES TO FINANCIAL -- (CONTINUED)
(b) In connection with the private placement, the holders of the bridge
loans outstanding (Note 8(a)) converted their loans into common stock. The
conversion price was $3.36 per share. In addition, each bond holder received a
$4.20 warrant, which expires five years from the exchange date. The bond holders
also received two warrants -- 61,455 $5.50 warrants, which expired May 15, 1997,
and 61,455 $6.30 warrants, which expired December 31, 1997 and were only
exercisable if the May 15, 1997 warrants were exercised. During 1997, 16,814
warrants were exercised and 106,096 warrants expired.
12. CUSTOMER AND PRODUCT CONCENTRATION
During the year ended December 31, 1998, sales to one customer accounted
for and Product 18% of revenues. During the year ended December 31, 1997, sales
to three customers accounted for 20%, 13% and 13% of revenues, respectively.
During the quarter ended March 31, 1999, sales to one customer accounted for 55%
of revenues.
The Company derived 34% and 35% of net sales for the years ended December
31, 1998 and 1997, respectively, from its "Phase 10" product line. The Company
derived 70% and 57% of net sales for the years ended March 31, 1999 and 1998,
respectively, from its "Phase 10" product line.
13. YEAR 2000 ISSUE (UNAUDITED)
Like other companies, Fundex Games, Ltd. could be adversely affected if the
(Unaudited) computer systems we, our suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment, elevators, etc. At this time, because of
the complexities involved in the issue, management cannot provide assurances
that the Year 2000 issue will not have an impact on the Company's operations.
F-61
<PAGE> 142
DAMERT COMPANY
FINANCIAL STATEMENTS
F-62
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
DaMert Company
Berkeley, California
We have audited the accompanying balance sheets of DaMert Company as of
December 31, 1998 and 1997, and the related statements of income, stockholder's
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DaMert Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARMANINO MCKENNA LLP
February 19, 1999
(except for Note 9, as to which
the date is April 21, 1999)
F-63
<PAGE> 144
DAMERT COMPANY
BALANCE SHEET -- ASSETS
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ ----------
<S> <C> <C> <C>
ASSETS
-----------
Current assets Cash......................... $ 350 $ 52,334 $ 349
Accounts receivable (net of allowance for
doubtful accounts of $22,000 in 1998 and
$40,000 in 1997).......................... 1,765,871 952,590 888,210
Inventory, net of reserve................... 1,215,106 1,452,955 1,311,412
Prepaid expenses and other current assets... 168,638 144,901 143,178
---------- ---------- ----------
Current assets.............................. 3,149,965 2,602,780 2,343,149
---------- ---------- ----------
Property and equipment Office equipment..... 382,151 341,114 341,114
Vehicles.................................... 42,345 -- --
Molds....................................... 553,157 698,785 732,178
Equipment................................... 50,586 56,053 56,053
---------- ---------- ----------
1,028,239 1,095,952 1,129,345
Less accumulated depreciation............... (542,840) (618,257) (655,757)
---------- ---------- ----------
485,399 477,695 473,588
---------- ---------- ----------
Other assets Deposits....................... 22,080 22,080 22,080
---------- ---------- ----------
Total assets...................... $3,657,444 $3,102,555 $2,838,817
========== ========== ==========
</TABLE>
F-64
<PAGE> 145
DAMERT COMPANY
BALANCE SHEET -- LIABILITIES
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ ----------
<S> <C> <C> <C>
LIABILITIES AND EQUITY
-----------------------------------
Current liabilities
Accounts payable............................ $ 145,918 $ 124,804 $ 198,024
Accrued expenses............................ 158,488 100,928 132,053
Line of credit.............................. 1,908,895 1,863,205 1,924,594
Current portion of notes payable............ 20,065 520,065 320,065
Other....................................... 1,271 -- --
---------- ---------- ----------
Current liabilities......................... 2,234,637 2,609,002 2,574,736
---------- ---------- ----------
Long-term liabilities
Notes payable, net of current portion....... 26,753 9,386 4,370
Notes payable -- stockholder................ 128,849 128,849 128,849
Long-term liabilities....................... 155,602 138,235 133,219
---------- ---------- ----------
Total liabilities................. 2,390,239 2,747,237 2,707,955
---------- ---------- ----------
Stockholders' equity
Common stock (5,000 shares authorized, 1,000
shares issued and outstanding, no stated
value).................................... 10,000 10,000 10,000
Retained earnings........................... 1,257,205 345,318 120,862
---------- ---------- ----------
1,267,205 355,318 130,862
---------- ---------- ----------
Total liabilities and equity...... $3,657,444 $3,102,555 $2,838,817
========== ========== ==========
</TABLE>
F-65
<PAGE> 146
DAMERT COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
DECEMBER 31, 1997 DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
-------------------- -------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales..................... $8,876,462 100.0% $6,837,280 100.0% $1,163,084 100.0% $1,256,848 100.0%
Cost of sales............. 5,328,453 60.0% 4,291,854 62.8% 696,072 59.8% 736,611 58.6%
---------- ----- ---------- ----- ---------- ----- ---------- -----
Gross profit.............. 3,548,009 40.0% 2,545,426 37.2% 467,012 40.2% 520,237 41.4%
---------- ----- ---------- ----- ---------- ----- ---------- -----
Operating expenses
Product development....... 488,638 5.5% 546,706 8.0% 138,261 11.9% 86,822 6.9%
Marketing................. 1,320,380 14.9% 998,802 14.6% 283,889 24.4% 230,800 18.4%
General and
administrative.......... 1,647,803 18.6% 1,878,005 27.5% 464,787 40.0% 426,271 33.9%
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total operating
expenses................ 3,456,821 38.9% 3,423,513 50.1% 886,937 76.3% 743,893 59.2%
---------- ----- ---------- ----- ---------- ----- ---------- -----
Income (loss) before
taxes................... 91,188 1.0% (878,087) (12.8)% (419,925) (36.1)% (223,656) (17.8)%
Provision for income
taxes................... 1,431 0.0% 800 0.0% 800 0.1% 800 0.1%
---------- ----- ---------- ----- ---------- ----- ---------- -----
Net income (loss)......... $ 89,757 1.0% $ (878,887) (12.9)% $ (420,725) (36.2)% $ (224,456) (17.9)%
========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
F-66
<PAGE> 147
DAMERT COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NO PAR VALUE
--------------------------
NUMBER OF
SHARES ISSUED RETAINED
AND OUTSTANDING DOLLARS EARNINGS
--------------- ------- ----------
<S> <C> <C> <C>
Balance, December 31, 1996.............. 1,000 $10,000 $1,352,448
Net income.............................. -- -- 89,757
Stockholder distributions............... -- -- (185,000)
----- ------- ----------
Balance, December 31, 1997.............. 1,000 10,000 1,257,205
Net loss................................ -- -- (878,887)
Stockholder distributions............... -- -- (33,000)
----- ------- ----------
Balance, December 31, 1998.............. 1,000 10,000 345,318
Unaudited Net loss...................... -- -- (224,456)
----- ------- ----------
Unaudited Balance, March 31, 1998....... 1,000 $10,000 $ 120,862
===== ======= ==========
</TABLE>
F-67
<PAGE> 148
DAMERT COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998 1999
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................... $ 89,757 $(878,887) $(420,725) $(224,456)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities
Depreciation........................ 135,970 182,083 31,500 37,500
Loss on disposal of property and
equipment......................... -- 16,866
Deferred taxes...................... 831 -- -- --
Changes in assets and liabilities
Accounts receivable................. (662,842) 813,281 929,469 64,380
Inventory........................... (24,005) (237,849) 33,094 141,543
Prepaid expenses and other current
assets............................ (38,098) 23,737 (30,386) 1,723
Accounts payable.................... (23,790) (21,114) (16,106) 73,220
Accrued expenses.................... (140,486) (57,560) (4,592) 31,125
Other............................... (1,667) (1,271) (1,271) 0
---------- --------- --------- ---------
Net cash used in operating
activities........................ (664,330) (160,714) 520,983 125,035
---------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and
equipment......................... (189,618) (191,245) (48,428) (33,393)
---------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) borrowing
on line of credit................. 1,051,402 (45,690) (434,138) 61,389
Borrowing on term loan.............. -- 502,698
Repayment of term loan.............. (20,065) (20,065) (4,199) (205,016)
Stockholder distributions........... (185,000) (33,000) (33,000) 0
---------- --------- --------- ---------
Net cash provided by financing
activities........................ 846,337 403,943 (471,337) (143,627)
---------- --------- --------- ---------
Increase (decrease) in cash......... (7,611) 51,984 1,218 (51,985)
Cash at beginning of period......... 7,961 350 350 52,334
---------- --------- --------- ---------
Cash at end of period............... $ 350 $ 52,334 $ 1,568 $ 349
========== ========= ========= =========
</TABLE>
F-68
<PAGE> 149
DAMERT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR MARCH 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
DaMert Company (the Company) is engaged in the business of producing,
distributing, and selling products to toy gift stores and catalog retailers
throughout the United States, Canada and Europe.
INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined by
using the average cost method. Inventory consists primarily of finished goods
for sale. The Company maintains a reserve for future obsolete or excess
inventory. The balance of the reserve was $44,849, $38,453 and $38,684 at
December 31, 1998, 1997 and March 31, 1999, respectively.
DEPRECIATION
Depreciation is computed on individual assets over their estimated useful
lives by the straight-line method. Lives range from 3 to 7 years for all assets.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repair
are charged to expense as incurred. For the years ended December 31, 1998 and
1997, and for the three month periods ending March 31, 1999 and 1998
depreciation expense was $182,083, $135,970, $37,500 and $31,500, respectively.
INCOME TAXES
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the shareholders of an S corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in the financial statements. The Company
is subject to minimum state taxes, which have been provided for.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain amounts and disclosures. Actual results could
differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform to the December 31, 1998 and March 31, 1999 presentations.
F-69
<PAGE> 150
DAMERT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR 2000 ISSUE
Like other organizations and individuals around the world, the Company
could be adversely affected if the computer systems it uses and those used by
significant third parties (e.g., vendors, customers, third party administrators)
do not properly process and calculate date-related information and data. This is
commonly known as the "Year 2000 issue." Management is assessing its computer
systems and business processes and intends to initiate actions to address the
Year 2000 needs identified. Management is also assessing the actions being taken
by significant third parties that interface with the Company. At this time,
management is not able to determine the impact, including the costs of
remediation of the Year 2000 issue on the Company.
2. PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan that was revised as of January
1, 1996. The plan covers all eligible employees. Employees may defer a portion
of their salary under the plan. The Company makes a non-elective matching
contribution of 10% of the employee's salary deferral. Employees are immediately
vested in the balance of their matching account. The employer may also make
discretionary contributions at the discretion of the Board of Directors. There
were no discretionary contributions for the years 1998 and 1997 or for the three
month period ending March 31, 1999.
3. LINE OF CREDIT
The Company has a $2,500,000 revolving credit line expiring May 15, 1999,
secured by the Company's accounts receivable and inventory. Interest rates in
1999, 1998, and 1997 were prime plus three-fourths of a percent (8.50% at March
31, 1998). The outstanding balances at December 31, 1998 and 1997 and for the
three month period ending March 31, 1999 were $1,863,205, $1,908,895, and
$1,924,594 respectively. At December 31, 1998, the Company was not in compliance
with certain financial covenants required by the credit agreement (see Note 9).
F-70
<PAGE> 151
DAMERT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
12-31-97 12-31-98 3-31-99
-------- --------- ---------
<S> <C> <C> <C>
Notes payable to stockholder in
monthly payments of interest only
at 9%, unsecured.................. $128,849 $ 128,849 $ 128,849
Note payable to bank at prime plus
3.75% (11.5% at December 31,
1998), due December 15, 1998 (past
due; see Note 9).................. -- 500,000 300,000
Equipment notes payable in monthly
installments of $1,672, plus
interest at 9%, secured by
equipment......................... 46,818 29,451 24,435
-------- --------- ---------
175,667 658,300 453,284
Less current maturity of long-term
debt.............................. (20,065) (520,065) (320,065)
-------- --------- ---------
$155,602 $ 138,235 $ 133,219
======== ========= =========
</TABLE>
The anticipated principal payments required on the Company's long-term debt
during the next three fiscal years are: 1999 -- $520,065; 2000 -- $9,386; and
thereafter -- $128,849. Interest expense incurred was $211,746 in 1998 and
$180,152 in 1997.
5. OPERATING LEASES
The Company leased its facilities beginning December 1, 1995. The lease
term is for six years with one six-year extension option. Base monthly rent for
the initial six-year term was fixed at $23,295. Rent for the option period shall
be set at the then fair market rental rate for a similar industrial gross lease.
In addition to the base rent, the Company is liable for its share of any
increase in operating expenses over the base year operating expenses. During the
years ended December 31, 1998 and 1997, total rent expense was $288,653 and
$283,071, respectively. Future minimum payments on the Company's facilities
lease are $279,540 for 1999, $279,540 for 2000 and $256,245 for 2001.
6. COMMITMENTS
The Company has a master licensing agreement with a major designer of one
of the Company's product lines, which expires on December 31, 2001. The Company
also has a separate international licensing agreement with the designer, which
includes a guaranteed royalty of $24,000 annually through 2001.
7. STOCK COMPENSATION PLANS
On February 29, 1996, the Company granted an option to one employee to
purchase 52.63 shares of common stock in the Company for $1. The option expires
on March 3, 2024. The option is exercisable only with the consent of the
Company, or upon the sale of
F-71
<PAGE> 152
DAMERT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
at least 50% or a public offering of the Company's stock. There were no stock
options granted, exercised, forfeited or expired in 1998 or 1997.
The Company has granted stock appreciation rights ("SARs") to certain
employees. The SARs earn a proportionate share of the increase in the value of
the Company, payable in cash upon the sale of at least 50% or a public offering
of the Company's stock, or the termination of employment. Under the agreements,
the value of the Company is defined as the net book value of the Company unless
and until a sale or public offering establishes a different value. The
employees' interests in the SARs vest 20% annually over 5 years. In 1998, the
Company's net losses reduced the net book value of the Company so as to reduce
the liability for the SARs to $0 and resulted in the recognition of a $26,128
offset to compensation expense. The compensation expense recognized for the SARs
was $3,673 in 1997. Because this liability may ultimately be settled based on
the value of the Company in a sale or stock offering rather than book value, the
liability for the SARs and the related compensation expense is an estimate that
is subject to material change in the near term.
8. YEAR 2000 ISSUE
Like other organizations and individuals around the world, the Company
could be adversely affected if the computer systems it uses and those used by
significant third parties (e.g., vendors, customers, third party administrators)
do not properly process and calculate date-related information and data. This is
commonly known as the "Year 2000 issue." Management is assessing its computer
systems and business processes and intends to initiate actions to address the
Year 2000 needs identified. Management is also assessing the actions being taken
by significant third parties that interface with the Company. At this time,
management is not able to determine the impact, including the costs of
remediation of the Year 2000 issue on the Company.
9. SUBSEQUENT EVENT
In 1998, the Company sustained a substantial net loss. This net loss caused
the Company to be in violation of its credit agreements with its bank, due to
the Company's inability to meet certain financial ratio and net income
covenants. As of December 31, 1998, the Company had made all interest payments
but had not made the $500,000 principal payment that was due December 15, 1998.
Under the provisions of the credit agreements, these covenant violations and
failure to make a principal payment when due give the bank the right to declare
all outstanding balances immediately due and payable. As a result of these
circumstances, on March 24, 1999 the Company agreed in principal to be acquired
by Futech Interactive Products, Inc. and the bank agreed to waive the
enforcement of its default rights until June 30, 1999. This may not be
sufficient extension to allow the merger to close. DaMert will have to
renegotiate the extension and they cannot be certain it will be approved.
F-72
<PAGE> 153
APPENDIX A
JANEX INTERNATIONAL, INC. FUNDEX GAMES, LTD.
GLOBAL MERGER AGREEMENT
1999
FUTECH INTERACTIVE PRODUCTS, INC.
DAMERT COMPANY TRUDY CORPORATION
<PAGE> 154
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I
THE MERGERS
The Mergers................................................. 1.1
The Merger of Futech into New Futech...................... 1.1.1
The Merger Into New Futech................................ 1.1.2
The Merger Into New Sub................................... 1.1.3
Agreement is Conditional on Merger of All Merging
Companies.............................................. 1.1.4
Effective Time.............................................. 1.2
Effect of the Mergers....................................... 1.3
Certificate of Incorporation; Bylaws........................ 1.4
Directors and Officers...................................... 1.5
Consideration for the Merger, Conversion of Securities...... 1.6
Shares of Dissenting Holders................................ 1.7
Exchange of Securities and Payment of Merger
Consideration............................................. 1.8
Exchange Agent............................................ 1.8.1
Exchange Procedures....................................... 1.8.2
No Further Ownership Rights in Stock of Merging
Companies.............................................. 1.8.3
Termination of Exchange Fund.............................. 1.8.4
Delivery to a Public Official............................. 1.8.5
Proxy Statements; Registration Statement.................... 1.9
Meetings of Stockholders.................................... 1.10
Vote Required............................................... 1.11
Appropriate Action; Consents; Filings....................... 1.12
Shareholders' Agreement to Vote............................. 1.13
ARTICLE II
ADDITIONAL AGREEMENTS
Notification of Certain Matters............................. 2.1
Public Announcements........................................ 2.2
Access to Customer Files and Other Records.................. 2.3
Due Diligence Investigation; Confidentiality................ 2.4
Employment Agreements....................................... 2.5
Interim Events.............................................. 2.6
401(K) Plan................................................. 2.7
Employment Agreements....................................... 2.8
</TABLE>
i
<PAGE> 155
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
Indemnification............................................. 2.9
Revisions of Loans.......................................... 2.10
Expenses and Costs of Mergers............................... 2.11
Restrictive Covenants....................................... 2.12
Other Agreements for Particular Parties..................... 2.13
Other Discussions........................................... 2.14
Best Efforts to Register Stock.............................. 2.15
ARTICLE III
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
OF
EACH MERGING COMPANY
AND
ITS SHAREHOLDERS
Due Incorporation........................................... 3.1
Capitalization.............................................. 3.2
Subsidiaries................................................ 3.3
Financial Information....................................... 3.4
Taxes....................................................... 3.5
Material Changes............................................ 3.6
Title to Assets; Liens...................................... 3.7
Litigation.................................................. 3.8
Compliance with Laws........................................ 3.9
Insurance................................................... 3.10
Licenses.................................................... 3.11
Hazardous Materials......................................... 3.12
Judgments Against the Merging Company and/or Business....... 3.13
Complete Sale............................................... 3.14
Assets in Good Condition.................................... 3.15
Disclosure Materials........................................ 3.16
Defaults.................................................... 3.17
Material Contracts.......................................... 3.18
Outstanding Liabilities..................................... 3.19
Inventory................................................... 3.20
Receivables................................................. 3.21
Employees................................................... 3.22
No Conflicts................................................ 3.23
Violations of Law........................................... 3.24
</TABLE>
ii
<PAGE> 156
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
Condition and Sufficiency of Assets......................... 3.25
Bank Accounts............................................... 3.26
Environmental Matters....................................... 3.27
Intellectual Property....................................... 3.28
Customers and Suppliers..................................... 3.29
Changes to the Merging Company's Documents.................. 3.30
Stockholders Agreements and Other Agreements................ 3.31
Certain Payments............................................ 3.32
Filings Complete............................................ 3.33
Products.................................................... 3.34
Patents..................................................... 3.35
Indemnification; Survival................................... 3.36
ARTICLE IV
CONDITIONS OF MERGER
Conditions to Obligation of Each Party to Effect the
Merger.................................................... 4.1
Stockholder Approval...................................... 4.1.1
No Order.................................................. 4.1.2
No Challenge.............................................. 4.1.3
Representations; Warranties and Covenants................. 4.1.4
Consents Obtained......................................... 4.1.5
No Material Adverse Change................................ 4.1.6
Opinions of Counsel....................................... 4.1.7
Assignments............................................... 4.1.8
Maintenance of Assets..................................... 4.1.9
Ordinary Course of Business............................... 4.1.10
Special Conditions for Particular Parties................... 4.2
ARTICLE V
TERMINATION, AMENDMENT AND WAIVER
Termination................................................. 5.1
Effect of Termination....................................... 5.2
Amendment................................................... 5.3
Waiver...................................................... 5.4
</TABLE>
iii
<PAGE> 157
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE VI
GENERAL PROVISIONS
Tax Treatment............................................... 6.1
Further Assurances.......................................... 6.2
Severability................................................ 6.3
Entire Agreement............................................ 6.4
Assignment.................................................. 6.5
Parties in Interest......................................... 6.6
Successors and Assigns...................................... 6.7
Governing Law............................................... 6.8
Modification................................................ 6.9
Attorney's Fees............................................. 6.10
Counterparts................................................ 6.11
Notices..................................................... 6.12
Paragraph Titles and Headings............................... 6.13
Brokerage, Finder's or Financial Advisor's Commissions...... 6.14
Miscellaneous............................................... 6.15
LIST OF EXHIBITS
List of Directors and Officers of New Futech and New Sub.... 1.5
Merger Consideration and Conversion of Stock Options........ 1.6
Form of Promissory Notes Constituting Merger
Consideration.......................................... 1.6-A
Fundex Stock Options and Conversion to Shares of New
Futech................................................. 1.6-B
Votes Required for Merger Approval.......................... 1.11
Terms of Employment Agreements.............................. 2.8.1
Job Description for William Burnham....................... 2.8.1-1
Form for Employment Agreements.............................. 2.8.2
Provisions Regarding Shareholder Loans and Guarantees....... 2.10
Other Agreements for Particular Parties..................... 2.13
Disclosure Schedules........................................ 3
Disclosure Schedule of DaMert Company..................... 3-A
DaMert Disclosure Regarding Employees.................. 3A-3.22
DaMert Disclosure Regarding Bank Accounts.............. 3A-3.26
DaMert Disclosure Regarding Customers and Suppliers.... 3A-3.29
DaMert Disclosure Regarding Patents.................... 3A-3.35
</TABLE>
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<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
Disclosure Schedule of Fundex Games, Ltd.................. 3-B
Fundex Disclosure Regarding Capitalization............. 3B-3.2
Fundex Disclosure Regarding Outstanding Liabilities.... 3B-3.19
Fundex Disclosure Regarding Employees.................. 3B-3.22
Fundex Disclosure Regarding No Conflicts............... 3B-3.23
Fundex Disclosure Regarding Patents.................... 3B-3.35
Disclosure Schedule of Futech Interactive Products,
Inc.................................................... 3-C
Futech Disclosure Regarding Stock Options, Warrants,
etc................................................... 3C-3.2
Futech Disclosure Regarding Litigation................. 3C-3.8
Futech Disclosure Regarding Outstanding Liabilities.... 3C-3.19
Futech Disclosure Regarding Changes to Futech
Documents............................................. 3C-3.30
Futech Disclosure Regarding Patents.................... 3C-3.35
Disclosure Schedule of Janex International, Inc........... 3-D
Janex Disclosure Regarding Outstanding Liabilities..... 3D-3.19
Janex Disclosure Regarding Employees................... 3D-3.22
Disclosure Schedule of Trudy Corporation.................. 3-E
Allowed Excess Liabilities.................................. 3.36
Form of Legal Opinion....................................... 4.1.7
Conditions for Particular Merging Companies................. 4.2
Surviving Provisions of Letters of Intent................... 6.5
Mailing List for Notices.................................... 6.13
Brokerage Fees Payable...................................... 6.14
</TABLE>
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MERGER AGREEMENT
THIS MERGER AGREEMENT, dated as of June 4, 1999 (the "Agreement"), is among
Futech Interactive Products, Inc., an Arizona corporation ("FUTECH"), Trudy
Corporation, a Delaware corporation ("TRUDY"), Fundex Games, Ltd., a Nevada
corporation ("FUNDEX"), DaMert Company, a California corporation ("DAMERT"),
Janex International, Inc., a Colorado corporation ("JANEX"), Futech Interactive
Products (Delaware) Inc., a newly formed Delaware corporation ("FUTECH
DELAWARE"), Futech Toys & Games, Inc., a newly formed Nevada corporation ("NEW
SUB") (collectively, the "MERGING COMPANIES"), and those shareholders of Futech,
Trudy, Fundex, DaMert and Janex identified on the signature pages of this
Agreement (the "SHAREHOLDERS"). This Agreement terminates and supersedes the
Agreement and Plan of Merger, dated February 26, 1999, between Futech and Trudy.
This Agreement does not terminate or supersede the letter agreement, dated March
3, 1999, on "Soundprints" letterhead, relating to, among other things, Futech's
obligation to provide Trudy with certain working capital.
Upon the terms and subject to the conditions of this Agreement (a) Futech
will merge into Futech Delaware, (b) then Trudy, DaMert and Janex will each
merge simultaneously with and into Futech Delaware, which will be the surviving
corporation, and (c) then Fundex will merge with and into New Sub, which will be
the surviving corporation and a wholly-owned subsidiary of Futech Delaware. The
parties intend that said Mergers (the "MERGERS") will qualify as reorganizations
under Section 368 of the Internal Revenue Code of 1986 as amended (the "CODE").
By executing this Agreement, each of the Merging Companies and their
respective Shareholders represent and warrant to the other Merging Companies and
Shareholders that:
(i) the board of directors of the Merging Company has determined that the
Mergers are fair to the Merging Company and its stockholders,
including any stockholders that are not parties to this Agreement, and
(ii) the board of directors of the Merging Company has approved and adopted
this Agreement and the transactions contemplated by it, and recommends
approval and adoption of this Agreement by its stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements in this Agreement, and intending to be legally bound by this
Agreement, the Merging Companies and Shareholders agree as follows:
ARTICLE I
The Mergers
1.1 THE MERGERS.
1.1.1 The Merger of Futech Into New Futech. Upon the terms and
subject to the conditions set forth in this Agreement, and in accordance
with applicable law, immediately prior to the Effective Time (as defined in
Section 1.2), Futech will merge with and into Futech Delaware. As a result
of this merger, the separate corporate existence of Futech will cease and
Futech Delaware will continue as the surviving corporation of the Merger.
1.1.2 The Merger into New Futech. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with applicable
law, at the
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Effective Time (as defined in Section 1.2) each of Trudy, DaMert and Janex
will merge with and into Futech Delaware. As a result of this Merger, the
separate corporate existence of each of Trudy, DaMert and Janex will cease
and Futech Delaware will continue as the surviving corporation ("NEW
FUTECH") of the Merger.
1.1.2 The Merger into New Sub. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with applicable
law, at the Effective Time Fundex will merge with and into New Sub. As a
result of this Merger, the separate corporate existence of Fundex will
cease and New Sub will continue as the surviving corporation of this
Merger.
1.1.3 Agreement is Conditional on Merger of All Merging
Companies. The obligations of each Merging Company under this Agreement
are conditional upon all of the Merging Companies being included in the
Mergers.
1.2 EFFECTIVE TIME. As promptly as practicable after the satisfaction or,
if permissible, waiver of the conditions set forth in Article IV below, the
Merging Companies and Shareholders will cause the Mergers to be consummated by
filing articles of merger or other appropriate documents with the applicable
government offices or agencies in such form as required by, and executed in
accordance with the relevant provisions of, applicable law (11:59 p.m. on the
date of effectiveness of the last such filing being the "EFFECTIVE TIME").
Immediately prior to the filings, the closing of the Mergers (the "CLOSING")
will be held at the offices of Futech, at 2999 North 44th Street, Suite 225,
Phoenix, Arizona 85018-7247.
1.3 EFFECT OF THE MERGERS. At the Effective Time, the effect of each
Merger will be as provided in the provisions of applicable law. Without limiting
the generality of the foregoing, and subject to it, at the Effective Time,
except as otherwise provided in this Agreement:
(i) all the property, rights, privileges, powers and franchises of
Trudy, Futech, Futech Delaware, DaMert and Janex will vest in New
Futech, and all debts, liabilities and duties of Trudy, Futech,
Futech Delaware, DaMert and Janex will become the debts,
liabilities and duties of New Futech; and
(ii) all the property rights, privileges, powers and franchises of
Fundex will vest in New Sub, and all debts, liabilities and duties
of Fundex will become the debts, liabilities and duties of New
Sub.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS. At the Effective Time, the
Certificate of Incorporation and the Bylaws of Futech Delaware, as in effect
immediately prior to the Effective Time, will be the Certificate of
Incorporation and the Bylaws of New Futech, except that the Certificate of
Incorporation and Bylaws will be revised to change the name of New Futech to
"Futech Interactive Products, Inc." The Articles of Incorporation and Bylaws of
New Sub will not be affected by the Mergers.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors and
officers of New Futech and of New Sub will be the persons listed on EXHIBIT 1.5,
each to hold office in accordance with the charter documents of New Futech and
New Sub, respectively, until their successors are duly elected or appointed and
qualified.
1.6 CONSIDERATION FOR THE MERGER, CONVERSION OF SECURITIES. At the
Effective Time, by virtue of the Mergers and without any action on the part of
the Merging Companies, the Shareholders or the holders of any of the following
securities, except as provided in Section 1.7 below, each of the issued and
outstanding shares of capital stock of each of the
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Merging Companies (other than shares owned by any of the Merging Companies or by
New Futech or by New Sub, which shares will be canceled, retired and will cease
to exist without the delivery of any consideration) will be converted into the
right to receive that amount of cash, promissory notes of New Futech, or shares
of common stock of New Futech specified in or determined in accordance with
EXHIBIT 1.6 (collectively, the "MERGER CONSIDERATION"). Approximately 70% of the
stock of Janex is owned by Futech, and the shares of New Futech that would
otherwise be issued to shareholders of Janex will be issued directly to
shareholders of Futech as though they owned the Janex stock directly. The
options to acquire capital stock of any of the Merging Companies issued and
outstanding at the Effective Time will be converted into options to acquire
common stock of New Futech to and only to the extent and as specified in or
determined in accordance with EXHIBIT 1.6.
As of the Effective Time, and except as otherwise provided in Section 1.7
below, the outstanding securities of the Merging Companies will no longer be
outstanding and will automatically be canceled, retired and will cease to exist,
and each holder of a certificate representing any shares of any Merging Company
will cease to have any rights with respect to those shares, except the right to
receive the consideration issuable for those shares upon the surrender of such
certificate in accordance with Section 1.8, without interest.
The Merging Companies and the Shareholders have agreed upon values of the
stock of New Futech for purposes of determining the number of shares to be
issued under this Agreement as consideration for the Mergers, and also as
consideration under the Employment Agreements described in this Agreement. No
representation or warranty has been made by Futech, Futech Delaware, or New
Futech, or any other person or entity, as to the value of the New Futech stock
to be issued pursuant to this Agreement, and the parties to acquire said stock
take full risk and responsibility as to said value, other than as expressly
provided for in this Agreement.
Wherever New Futech stock is to be issued, New Futech may in its discretion
pay cash in lieu of issuing fractional shares, based upon a value of $7.50 per
share. Also, New Futech may in its discretion pay cash in lieu of all or a
portion of any amounts due under any Promissory Notes described on EXHIBIT 1.6.
All New Futech stock issued pursuant to this Agreement, including any stock
issued pursuant to the Employment Agreements referred to herein, shall be
registered with the Securities Exchange Commission, subject to all restrictions
required by law, if any, to be placed on said stock and subject to all
restrictions placed upon said stock by the underwriter(s) of the stock. All such
stock shall be eligible to participate, on the same terms and in the same
proportions as granted to other shareholders of New Futech, in any "piggy-back"
or other registration rights which may be made available, between the Closing
and one year thereafter, to any shareholder of New Futech.
1.7 SHARES OF DISSENTING HOLDERS. Any issued and outstanding shares of
any Merging Company held by persons who object to the Mergers and comply with
all provisions of applicable law concerning the right of such holders to dissent
from a Merger and demand appraisal of their shares ("DISSENTING HOLDERS") will
be deemed to be converted, as of the Effective Time, into the right to receive
the amount of cash, promissory notes and common stock of New Futech calculated
in accordance with EXHIBIT 1.6. The consideration to be received by such
Dissenting Holders will be held back and not issued by New Futech until such
time, and in any event not prior to the Effective Time, that such Dissenting
Holder has either withdrawn his demand for appraisal or lost his right of
appraisal, pursuant to the applicable law. After the Dissenting Holder has
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withdrawn his demand for appraisal, or lost his right of appraisal, and upon
surrender, in the manner provided by Section 1.8.2, of the certificate or
certificates that formerly evidenced the shares of stock of a Merging Company
owned by the Dissenting Holder, such Dissenting Holder will be entitled to
receive from New Futech the consideration calculated in accordance with EXHIBIT
1.6, without interest.
If any Dissenting Holders are entitled to receive payment of the fair value
of such shares held by them in accordance with applicable law, then New Futech
will make such payment in full satisfaction of the Dissenting Holders' rights to
receive the consideration calculated in accordance with EXHIBIT 1.6 and New
Futech will have no obligation to issue the consideration calculated in
accordance with EXHIBIT 1.6 that was to be received by any Dissenting Holder who
received payment of the fair value of such shares held by such Dissenting
Holders.
Prior to the Effective Time, each Merging Company will give to New Futech
and each other Merging Company notice of any demands by Dissenting Holders.
Futech, prior to the Effective Time, and New Futech after the Effective Time,
will have the right to participate in all negotiations and proceedings with
respect to any such demands. A Merging Company will not, except with the prior
written consent of Futech, prior to the Effective Time, and New Futech after the
Effective Time, voluntarily make any payment with respect to, or settle or offer
to settle, any such demand for payment.
Futech shall be entitled to terminate this Agreement in its entirety, at
the election of Futech's Board of Directors, if dissenter's rights are exercised
by shareholders who would receive five percent (5%) or more of total
consideration referred to on EXHIBIT 1.6.
1.8 EXCHANGE OF SECURITIES AND PAYMENT OF MERGER CONSIDERATION.
1.8.1 Exchange Agent. As soon as necessary and practicable to permit
the Exchange Agent to perform its obligations under this Agreement, but in
no event later than the Closing Date, Futech, Futech Delaware and/or New
Futech will deposit with American Securities Transfer & Trust, Inc. or such
other bank or trust company selected by Futech (the "EXCHANGE AGENT"), for
the benefit of the Shareholders of the Merging Companies, for exchange in
accordance with this Agreement, cash, promissory notes and common stock of
New Futech, in amounts equal to the Merger Consideration calculated in
accordance with EXHIBIT 1.6.
1.8.2 Exchange Procedures. As soon as reasonably practicable after
the Closing Date, the Exchange Agent will mail to each holder of record on
the Effective Date a certificate or certificates which immediately prior to
the Closing Date represented outstanding shares of any of the Merging
Companies (the "OLD CERTIFICATES") whose shares were converted into the
right to receive a share of the Merger Consideration pursuant to Section
1.6:
(i) a letter of transmittal to be executed by the holder (which
will specify that delivery of the Old Certificates will be
effected, and risk of loss and title to the Old Certificates
will pass, only upon delivery of the Old Certificates to the
Exchange Agent, and which will be in such form and have such
other provisions as New Futech may reasonably specify); and
(ii) instructions for surrender of the Old Certificates in exchange
for the applicable share of the Merger Consideration.
Upon surrender to the Exchange Agent of an Old Certificate for
cancellation, together with such letter of transmittal, duly executed by
the holder, the holder of
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such Old Certificate will be entitled to receive the portion of the Merger
Consideration which such holder has the right to receive pursuant to
Section 1.6, and the Old Certificate so surrendered will be canceled. If a
transfer of ownership of capital stock has not been registered in the
transfer records of the Merging Company, then the portion of the Merger
Consideration payable in respect of that capital stock may be issued to a
transferee if the Old Certificate representing that capital stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid.
In the case of any lost, mislaid, stolen or destroyed Old Certificate,
the holder may be required, as a condition precedent to the delivery to
such holder of the portion of the Merger Consideration applicable thereto,
to deliver to New Futech an affidavit and personal indemnity (or a bond in
a reasonably sufficient amount) with reference to the circumstances of such
loss or destruction as New Futech may reasonably request.
Until surrendered as contemplated by this Section 1.8, each Old
Certificate will be deemed at any time after the Closing Date to represent
only the right to receive upon such surrender the applicable portion of the
Merger Consideration as contemplated by this Section 1.8.
1.8.3 No Further Ownership Rights in Stock of Merging Companies. The
payments and deliveries made under this Agreement upon surrender for
exchange of equity securities of the Merging Companies in accordance with
the terms of this Agreement will be deemed to have been issued in full
satisfaction of all rights pertaining to such equity securities of the
Merging Companies after the Closing Date. If, after the Closing Date, Old
Certificates are presented to the Surviving Corporation or its transfer
agent for any reason, such Old Certificates will be canceled and exchanged
as provided in this Agreement.
1.8.4 Termination of Exchange Fund. Any portion of the Merger
Consideration which remains undistributed to holders of Old Certificates at
the end of six months after the Closing Date will be delivered to New
Futech upon demand by New Futech, and any holders of Old Certificates who
have not complied with this Section 1.8 will then look only to New Futech
for payment of their claim for the corresponding portion of the Merger
Consideration.
1.8.5 Delivery to a Public Official. None of the parties to this
Agreement will be liable to any holder of equity securities of the Merging
Companies for any portion of the Merger Consideration otherwise due under
this Agreement that is delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 PROXY STATEMENTS; REGISTRATION STATEMENT. As promptly as practicable
after the execution of this Agreement, the Merging Companies will prepare and
file with the SEC preliminary proxy materials which will constitute the Proxy
Statements of those Merging Companies that have securities registered under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the
Registration Statement with respect to the common stock of New Futech to be
issued in connection with the Mergers. Each Merging Company which does not have
securities registered under the Exchange Act will prepare appropriate notices,
disclosure materials and proxies for special stockholder meetings of its
shareholders.
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As promptly as practicable after comments, if any, are received from the
SEC on the materials filed with the SEC and the furnishing by the Merging
Companies of all required information, the Merging Companies will file with the
SEC a combined Proxy Statement or Proxy Statements and Registration Statement on
Form S-4 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and Form 8-A promulgated under the Exchange Act (or on such
other form as will be appropriate), relating to the approval, as and if
required, of the Merger by the stockholders of the Merging Companies, and will
use all reasonable efforts to cause the Registration Statements to become
effective as soon as practicable.
Subject to the applicable fiduciary duties of directors of the Merging
Companies, as determined by such directors after consultation with independent
legal counsel, the Proxy Statements will include the recommendation of the Board
of Directors of each of the Merging Companies in favor of the Merger.
1.10 MEETINGS OF STOCKHOLDERS. Promptly after the S-4 becomes effective,
but subject to Section 1.9 above, each of the Merging Companies will take all
action necessary in accordance with applicable law and its Articles or
Certificate of Incorporation and Bylaws to convene a meeting of their respective
stockholders to consider the Mergers. Each of the Merging Companies will consult
with each other and will use all reasonable efforts to hold the stockholders'
meetings on the same day. Subject to the applicable fiduciary duties of
directors, as determined by such directors after consultation with independent
legal counsel, each of the Merging Companies will use its best efforts to
solicit from its stockholders proxies in favor of the Mergers and will take all
other action necessary or advisable to secure the vote or consent of
stockholders required by applicable law to approve the Mergers.
1.11 VOTE REQUIRED. Each of the Merging Companies and its Shareholders
represents and warrants that Exhibit 1.11 accurately describes the only vote or
votes of the holders of any class or series of stock of that Merging Company
that is necessary to approve the Mergers.
1.12 APPROPRIATE ACTION; CONSENTS; FILINGS. Each Merging Company and its
Shareholders will use all reasonable efforts to:
(i) take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable under
applicable law to consummate and make effective the transactions
contemplated by this Agreement;
(ii) obtain all consents, licenses, permits, waivers, approvals,
authorizations or orders required under law (including, without
limitation, all foreign and domestic federal, state and local
governmental and regulatory rulings and approvals and from parties
to contracts) required in connection with the authorization,
execution and delivery of this Agreement and the consummation by
them of the transactions contemplated by this Agreement, including,
without limitation, the Mergers; and
(iii) make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Mergers
required under (A) the Securities Act and the Exchange Act and the
rules and regulations thereunder, and any other applicable federal
or state securities laws, (B) the Hart-Scott-Rodino Act (if
applicable), and (C) any other applicable law.
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The Merging Companies and the Shareholders will cooperate with each other
in connection with the making of all such filings, including providing copies of
all such documents upon request to the non-filing parties and their advisors
prior to filing and, if requested, to accept all reasonable additions, deletions
or changes suggested in connection with such filings. Each Merging Company and
its Shareholders will furnish all information required for any application or
other filing to be made pursuant to the rules and regulations of any applicable
law (including all information required to be included in the Proxy Statements
and the Registration Statement) in connection with the transactions contemplated
by this Agreement. If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, then the
proper officers and directors of each party to this Agreement will use all
reasonable efforts to take all such necessary action.
1.13 SHAREHOLDERS' AGREEMENT TO VOTE. Each of the Shareholders hereby
agrees to vote said Shareholder's shares of stock in the Merging Companies in
favor of the Mergers as set out in this Agreement.
ARTICLE II
ADDITIONAL AGREEMENTS
2.1 NOTIFICATION OF CERTAIN MATTERS. Each Merging Company and its
Shareholders will give prompt notice to the other parties to this Agreement, of:
(i) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any
representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect; and
(ii) the failure of the Merging Company to comply with or satisfy any
material covenant, condition or agreement to be complied with or
satisfied by it under this Agreement.
2.2 PUBLIC ANNOUNCEMENTS. Each Merging Company will consult with the
other Merging Companies before issuing any press release or otherwise making any
public statements with respect to the Mergers, except as may be required by law.
2.3 ACCESS TO CUSTOMER FILES AND OTHER RECORDS. For a period of seven
years following the Closing, where there is a legitimate purpose not injurious
to New Futech, or if there is an audit by any taxing authority, other
governmental inquiry, or litigation or prospective litigation to which any
Shareholder is or may become a party, the affected Shareholders will be granted
access, at reasonable times and after reasonable notice, to all customer files
and other records transferred to New Futech pursuant to this Agreement.
2.4 DUE DILIGENCE INVESTIGATION. Each Merging Company will have the
period of time up to and through the date of this Agreement (the "DUE DILIGENCE
PERIOD") in which to conduct any due diligence investigations of the other
Merging Companies, including UCC-1 searches, which it may deem necessary or
appropriate to ascertain the financial viability and value of the other Merging
Companies. Throughout the Due Diligence Period, each Merging Company, and its
agents, will have the right to inspect:
(i) all books, records and computer systems maintained by the other
Merging Companies, in order to authenticate and audit all
financial information provided to it;
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(ii) all equipment and machinery used in the operations of the other
Merging Companies to verify that it is in an acceptable state of
repair;
(iii) all material agreements to which the other Merging Companies are
parties; and
(iv) all facilities and physical operations of the other Merging
Companies, including facilities warehousing inventory.
Each Merging Company will be given access to the other parties' federal and
state income tax returns, sales tax returns, financial statements (internal and
those issued to third parties), personal property tax returns, and all other
governmental filings, for the three previous years for the purpose of conducting
due diligence investigations.
Each Merging Company and its respective representatives will further have
the authority to communicate with the creditors, debtors, suppliers, agents and
employees of the other Merging Companies. Each Merging Company agrees to aid the
others in the investigations and evaluations of the operations and financial
condition of the other Merging Companies and their assets, and to provide
whatever information and documents any Merging Company reasonably deems
necessary or appropriate to the making of an informed decision regarding the
Mergers, provided such information or documents are available or can be obtained
without unreasonable efforts or expense.
2.5 CONFIDENTIALITY. Between the date of this Agreement and the Closing,
the parties to this Agreement will maintain in confidence, and will cause their
directors, officers, employees, agents, and advisors to maintain in confidence,
and not use to the detriment of the other parties to this Agreement, any
written, oral, or other information obtained in confidence from the other
parties in connection with this Agreement or the transactions contemplated
hereby, unless: (i) such information is already known to such other party or to
others not bound by a duty of confidentiality, or such information becomes
publicly available through no fault of such party, (ii) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated by this Agreement, or (iii) the furnishing or use of such
information is required by or necessary or appropriate in connection with legal
proceedings.
If the Mergers are not consummated, then each party hereto will return or
destroy as much of such written information as the other parties hereto may
reasonable request.
2.6 INTERIM EVENTS. Each Merging Company agrees that it will take no
action prior to the Closing, other than in the ordinary course of its business,
which would or might have a material adverse effect upon its financial
condition, and no benefits will be paid or incurred to shareholders, officers,
or directors between the date hereof and the Closing other than as is consistent
with past activities and practices or is disclosed on the Merging Company's
Disclosure Schedule (see EXHIBIT 3). Each Merging Company will use its best
efforts to preserve for New Futech the present relationships of the Merging
Company with its employees, customers and others having business relations with
it. Each Merging Company will not allow its trade payables to go unpaid, except
in the ordinary course of its business.
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Prior to the Closing, and except as otherwise consented to or approved by
all of the Merging Companies in writing, which consent will not be unreasonably
withheld, no Merging Company will:
(i) change its Articles or Certificate of Incorporation or Bylaws;
(ii) change the number of shares of stock issued and outstanding
(other than to cause its equity securities, including options and
equity participation interests, to conform to the capitalization
described in the Merging Company's Disclosure Schedule (see
Section 3.2 below);
(iii) merge or consolidate with or into any other corporation or other
entity;
(iv) declare or pay any dividend or repurchase or otherwise acquire
any shares of stock; or
(v) except in the ordinary course of business and consistent with
past practice, increase the compensation payable to or to become
payable to any shareholder, director, officer, employee or agent,
or to pay any bonus, severance payment or other compensation to
any shareholder, director, officer, employee or agent, or enter
into any agreement of any type which is not terminable by the
Merging Company on no more than 30 days notice.
2.7 401(K) PLAN. New Futech will take all actions necessary immediately
after the Closing of the Merger either: (i) to roll over each Merging Company's
401(k) Plan or similar employee benefit plans, if any, into its 401(k) Plan; or
(ii) to continue the Merging Company's 401(k) Plan as a separate and distinct
plan with no amendments or alterations adverse to the interests of the employees
covered by such Plan.
2.8 EMPLOYMENT AGREEMENTS. At the Closing, and subject to the
consummation of the Mergers, New Futech (and New Sub, as the case may be) will
execute and deliver Employment Agreements with the persons and on the terms
described on EXHIBIT 2.8.1. The Employment Agreements will be in the form of
EXHIBIT 2.8.2, except as modified as called for on EXHIBIT 2.8.1.
2.9 INDEMNIFICATION. New Futech will indemnify and hold harmless each
Merging Company, and its directors, officers and employees from and against any
liability, obligation, loss, cost and expense, including attorneys' fees,
reasonably incurred by any of them in connection with any claim, arbitration,
mediation or litigation made or commenced against any of them by a shareholder
of that Merging Company in respect of the Mergers, except for claims of breach
of this Agreement by the indemnified party.
2.10 REVISION OF LOANS. The amount and terms of certain loans between New
Futech as successor to the Merging Companies and certain Shareholders will be
revised as stated in EXHIBIT 2.10. The revised loans will be evidenced by
promissory notes and related loan agreements reflecting the revised terms.
New Futech will obtain releases of the personal guaranties of certain
Shareholders, and assume debts owing by certain of the Merging Companies to
certain of the Shareholders, as specified in EXHIBIT 2.10.
2.11 EXPENSES AND COSTS OF MERGERS. Futech and New Futech will pay and be
responsible for all costs and expenses (including, without limitation, legal,
accounting, auditing, stock transfer agent, cash and securities disbursing
agent, SEC fees and due diligence) of all of the Merging Companies regarding the
Mergers. Such obligation will be limited to costs and expenses approved in
writing by Futech or New Futech.
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2.12 RESTRICTIVE COVENANTS.
2.12.1 The Shareholders shall not, except as representatives of and
as directed by New Futech, without the prior written consent of New Futech,
which consent may be withheld for any or no reason, for a period of two (2)
years following the Closing, directly or indirectly, own, manage, operate,
control, be employed by, participate in, render services to, make loans to,
or be connected in any manner with the ownership, management, operation, or
control of any business located anywhere in the world, in any business
competitive with the business of New Futech (which shall be deemed to
include all business operations designing, developing, manufacturing,
publishing, marketing and/or distributing books, greeting cards, games
and/or toys, or parts or components thereof); provided, however, that these
restrictions when applied to Carl E. Voigt, IV and Carl E. Voigt, III shall
be limited to games and/or toys business operations; and provided further
however that these restrictions when applied to Fred or Gail DaMert shall
be limited to the games and toys business being conducted by DaMert as of
the date of this Agreement.
In the event of any actual or threatened breach of the provisions of
this Section, New Futech and/or New Sub shall be entitled to seek an
injunction restraining the actual or threatened breach, and/or any other
available remedies for such breach or threatened breach, including pursuing
a recovery for damages.
2.12.2 The Shareholders shall not at any time, without the prior
written consent of New Futech, which consent may be withheld for any or no
reason, disclose, in any fashion other than as required in the day to day
affairs of New Futech and/or New Sub, to any person or entity: (i) the
names of customers of New Futech and/or New Sub or the business, or the
names of other persons or entities having business dealings with New Futech
and/or New Sub or the Business, or (ii) any of the business methods or
confidential information of New Futech and/or New Sub or the business,
including but not limited to their customer lists, prospective customers,
customers purchasing habits, customer contact personnel, marketing and
servicing techniques, financial matters, sales and marketing systems and
methods, marketing development and business expansion plans and
projections, personnel training and development programs, customer and
supplier relationships, and trade secrets. The obligation of
confidentiality shall not apply to any information which: (i) is in
possession of the individual Shareholder prior to the receipt thereof from
the other Merging Companies and/or New Futech; (ii) is available or becomes
available to the public through no fault of the Shareholder; or (iii) is
received by the Shareholder from a third party having the right to disclose
it.
2.12.3 The Shareholders shall not, at any time within two (2) years
after the Closing, without the prior written consent of New Futech, which
consent may be withheld for any reason or no reason, directly or indirectly
induce, encourage or solicit or assist any person who was or is employed
(whether as an employee or as an independent contractor) by a Merging
Company during the two years preceding the Closing, to leave the employ of
New Futech.
2.12.4 The parties acknowledge and agree that the restrictions
contained herein, including but not limited to the time period and
geographical area restrictions, are fair and reasonable and necessary for
the successful operation of New Futech's business, that violation of any of
them would cause irreparable injury, and that the restrictions contained
herein are not unreasonably restrictive of any party's ability to earn a
living. If the scope of any restriction in this Section is too broad to
permit enforcement of
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such restriction to its fullest extent, then such restriction shall be
enforced to the maximum extent permitted by law, and all parties hereto
consent and agree that such scope shall be modified judicially or by
arbitration in any proceeding brought to enforce such restriction. The
parties hereto acknowledge and agree that remedies at law for any breach or
violation of the provisions of this Section would alone be inadequate, and
agree and consent that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity of proof
of actual damage, and such remedies shall be in addition to other remedies
and rights the parties may have at law or in equity. The parties agree that
no party shall be required to give notice or post any bond in connection
with applying for or obtaining any such injunctive relief.
2.12.5 The parties acknowledge and agree that the covenants in this
Section shall be construed as an agreement independent of any other
provision of this Agreement, so that the existence of any claim or cause of
action by a Shareholder against Futech, New Futech, or New Sub, whether
predicated on this Section or otherwise, shall not constitute a defense to
the enforcement of this Section.
2.12.6 If New Futech defaults under its obligations to pay the Fundex
shareholders as provided for on EXHIBIT 1.6, and the Fundex shareholders as
a result thereof repossess the stock of New Sub, then the restrictive
covenant provisions appearing in Sections 2.12.1 and 2.12.3 shall terminate
as to the Fundex Shareholders as of the date of repossession.
2.13 OTHER AGREEMENTS FOR PARTICULAR PARTIES. Certain additional
agreements with particular parties are described on EXHIBIT 2.13.
2.14 OTHER DISCUSSIONS. In consideration of the substantial expenditures
of time, effort and expense to be undertaken by the Merging Companies in
connection with their due diligence reviews, the Shareholders and the Merging
Companies agree that they shall not, between the date this Agreement is signed
and the earlier to occur of the Closing and August 30, 1999: (i) actively seek
or otherwise initiate discussions with any other prospective acquirer of the
stock, assets or business of the Merging Company; or (ii) assist or participate
in any due diligence in connection with any such transaction. Additionally,
during such period of time, the Merging Company shall not actively seek or
otherwise initiate discussions with any other company governing the purchase by
the Merging Company of the capital stock or assets of such other company or
concerning a merger, share exchange, consolidation or similar transaction
involving the Merging Company and such other company.
2.15 BEST EFFORTS TO REGISTER STOCK. After the Closing, New Futech will
use its best efforts to register the New Futech common stock with the SEC on
Form 8-A and list the common stock on a national securities exchange.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
OF EACH MERGING COMPANY AND ITS SHAREHOLDERS
The following representations, warranties and indemnities are being made,
as of the date hereof and as of the date of the Closing, by each Merging
Company, and the Merging Company's Shareholders (only those shareholders
included in the defined term "Shareholders"), to the other Merging Companies and
their shareholders (not including just those shareholders included in the
defined term "Shareholders"); provided, however, that,
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notwithstanding whether any representation or warranty is made only to the
knowledge of a Merging Company, all representations and warranties of any
Shareholder, unless otherwise specifically identified below, are made only to
the best knowledge of the Shareholder (the representation and warranty of the
Shareholder is to the knowledge of the Shareholder as to the facts presented in
the representation and warranty, and is not as to just the knowledge of the
Merging Company as to those facts). These representations, warranties and
indemnities are subject to any limitations and qualifications or other
disclosures contained in the corresponding sections of the Disclosure Schedule
of the particular Merging Company and its Shareholders, attached hereto as
EXHIBITS 3. A breach of a representation or warranty of a Shareholder of a
Merging Company will be deemed also to be a breach of that representation or
warranty by the Merging Company.
3.1 DUE INCORPORATION. Each Merging Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation. Each Merging Company is duly licensed or qualified to do
business and is in good standing in each state where the property owned or held
under lease is such as to require it to be so licensed or qualified, except
those states where the failure to be so licensed or qualified would not have a
material adverse effect on its financial condition or operations or its
business. To the knowledge of the Merging Company and its Shareholders, the
Merging Company has the corporate power and authority to own and operate its
properties and carry on its business as now conducted.
True, correct and complete copies of the corporate formation documents for
the Merging Company, and all minutes, resolutions and consents, have been or
will be delivered to the Surviving Corporation. To the knowledge of the Merging
Company and its Shareholders, the minute book(s) of the Merging Company
correctly record all resolutions of the directors and shareholders of the
Merging Company, and its stock records correctly reflect the ownership of its
stock.
3.2 CAPITALIZATION. Each of the Merging Companies has authorized, issued
and outstanding equity securities only as shown on Section 3.2 of its Disclosure
Schedule. Other than as set forth in Section 3.2 of the Disclosure Schedule for
a specific Merging Company, there are no other rights, subscriptions, options,
warrants, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from the Merging Company any shares of its capital stock, or
securities or obligations of any kind convertible into or exchangeable for any
shares of its capital stock. To the knowledge of each Merging Company and its
Shareholders, all issued shares of the Merging Company have been duly
authorized, and the issued and outstanding shares of stock are fully paid,
non-assessable (except with respect to any Merging Company that does business in
Wisconsin, as provided in Wisconsin Statutes sec.180.0622(2), as judicially
interpreted), and were not issued in violation of the terms of any agreement or
other understanding, and were issued in compliance with all applicable federal
and state securities or "blue sky" laws and regulations.
3.3 SUBSIDIARIES. Except as set forth in Section 3.3 of its Disclosure
Schedule, no Merging Company owns or has any agreement, whether written or oral,
regarding rights or contracts to acquire any equity securities or other
securities of any company, or any direct or indirect equity or ownership
interest in any other entity.
3.4 FINANCIAL INFORMATION. Each Merging Company has furnished the other
parties to this Agreement with true, correct and complete copies of the Merging
Company's financial statements and other books and records. To the knowledge of
the Merging Company and its Shareholders, the Merging Company's year-end
financial statements were
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prepared in accordance with its books and records and in accordance with
generally accepted accounting principles consistently applied, and present
fairly the financial condition of the Merging Company as of their respective
dates and the results of operations and changes in financial positions for the
periods then ended. The financial statements do not contain any material items
of special or non-recurring income or other income not earned in the ordinary
course of business, except as expressly specified therein.
To the knowledge of the Merging Company and its Shareholders, at the
Closing, all of the books and records of the Merging Company will be in its
possession, other than the capital stock books and stock transfer records which
may be in the possession of the Merging Company's transfer agent and registrar.
3.5 TAXES. To the knowledge of the Merging Company and its Shareholders,
except as may be disclosed in Section 3.5 of the Merging Company's Disclosure
Schedule, all federal and state income, excise, franchise, payroll, property,
sales, and other tax returns required to be filed by or with respect to the
Merging Company (except returns not yet due) including returns of the
Shareholders in the case of any Merging Company that is or was qualified as an S
corporation (for the period of such qualification) have been filed, are complete
and accurately reflect in all material respects all matters therein required to
be reflected, and all taxes shown on such returns to be due, and any assessments
received by either the Merging Company or its Shareholders with respect thereto,
have been paid in full.
3.6 MATERIAL CHANGES. To the knowledge of the Merging Company and its
Shareholders, except as may be disclosed in Section 3.6 of the Merging Company's
Disclosure Schedule, from the date of the most recent financial statements
provided to the other parties to this Agreement, and through the date hereof,
the business of the Merging Company has been conducted only in the ordinary
course, there have not been any material adverse changes in the financial
condition and operations of said business, and there has been no damage,
destruction or other occurrence (whether or not insured against) to tangible
property which materially adversely affects the financial condition or
operations of said business.
3.7 TITLE TO ASSETS; LIENS. To the knowledge of the Merging Company and
its Shareholders, the Merging Company owns all assets it purports to own,
including all assets reflected in its financial statements. Except as may be set
forth in Section 3.7 of its Disclosure Schedule, all assets of the Merging
Company are free and clear of all restrictions, claims, liens, encumbrances or
rights of others, other than those imposed under its Articles or Certificate of
Incorporation or Bylaws, and other than as set forth in the Merging Company's
financial statements, and other than for debts incurred or amended in the
ordinary course of business, including debts to fund Futech acquisitions, since
the date of the most recent financial statements provided by the Merging
Company. The stock of the Merging Companies owned by the Shareholders is free
and clear of any and all liens, claims or encumbrances, except for pledges of
stock securing only the debts of the Merging Companies.
3.8 LITIGATION. To the knowledge of the Merging Company and its
Shareholders, and except as disclosed in Section 3.8 of the Merging Company's
Disclosure Schedule, there is no litigation, proceeding, or investigation
pending against the Merging Company and no reasonable grounds to believe there
is any basis for the commencement of any litigation, proceeding or investigation
against it.
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3.9 COMPLIANCE WITH LAWS. To the knowledge of the Merging Company and its
Shareholders, the Merging Company is in substantial compliance with all laws
applicable to it or its business including, without limitation, laws prohibiting
discrimination or harassment, regulating working conditions or governing
employment relations and employee benefits. The Merging Company and its
Shareholders are not aware of any investigation or allegations of any person
with respect to any alleged violation of any provision of any federal, state or
local law, regulation, ordinance, order or administrative ruling, relating to
the Merging Company or its business, except as may be set forth in Section 3.9
of its Disclosure Schedule.
3.10 INSURANCE. Each Merging Company carries commercially reasonable
insurance against personal injury and property damage to third persons and in
respect of its products and services, and other insurance, including any and all
workman's compensation insurance required by law. Neither the Merging Company
nor its Shareholders have received any notice that the Merging Company is in
default with respect to any provision contained in any insurance policy, and
they are not aware of any such default. The Merging Company has made copies of
all of its insurance policies available to New Futech.
3.11 LICENSES. To the knowledge of the Merging Company and its
Shareholders, the Merging Company has any and all material licenses and permits
necessary and/or appropriate to operate its business in the manner in which the
business is currently operated.
3.12 HAZARDOUS MATERIALS. To the knowledge of the Merging Company and its
Shareholders, the business of the Merging Company has never dealt in any manner
with any hazardous or toxic materials or waste.
3.13 JUDGMENTS AGAINST THE MERGING COMPANY AND/OR ITS BUSINESS. Neither
the Merging Company nor its business is under any governmental investigation, no
such investigation has been threatened, and there are no outstanding judgments
against the Merging Company, its business or its assets.
3.14 COMPLETE SALE. All material assets used by the Merging Company in
the operation of its business are reflected in the financial statements of the
Merging Company that have been provided to the other parties to this Agreement.
3.15 ASSETS IN GOOD CONDITION. Except as may be stated in Section 3.15 of
the Disclosure Schedule for the Merging Company, each material asset of the
Merging Company which is a tangible asset is in good working order and
condition, reasonable wear and tear excepted.
3.16 DISCLOSURE MATERIALS. To the knowledge of the Merging Company and
its Shareholders, all of the information disclosed by the Merging Company to any
of the other parties to this Agreement, as a whole, does not contain any
statement that, as of the date hereof, is false or misleading, and does not omit
to state any material fact (i) necessary to make the statements made, in light
of the circumstances under which they were made, not false or misleading, or
(ii) necessary to provide the other parties to this Agreement with complete and
accurate information as to the assets and financial condition of the business of
the Merging Company.
3.17 DEFAULTS. To the knowledge of the Merging Company and its
Shareholders, except as may be described in Section 3.17 of the Merging
Company's Disclosure Schedule, there are no defaults or events that, with the
giving of notice or the passage of
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time, would constitute defaults under any material document under which the
Merging Company is obligated.
3.18 MATERIAL CONTRACTS. Except as disclosed in Section 3.18 of its
Disclosure Schedule, the Merging Company is not a party to or bound by any
agreement not made in the ordinary course of its business which is material to
its financial condition or operations.
3.19 OUTSTANDING LIABILITIES. To the knowledge of the Merging Company and
its Shareholders, there are no liabilities of the Merging Company other than as
are shown on its most recent balance sheet provided to the other Merging
Companies, and other than (i) matters disclosed in Section 3.19 of its
Disclosure Schedule, and (ii) liabilities arising after the balance sheet date
in the normal course of business out of purchases and sale of goods. There are
no liabilities relating to the Merging Company's business which are more than
ninety (90) days past due, except as otherwise stated in Section 3.19 of its
Disclosure Schedule.
3.20 INVENTORY. Except as disclosed in Section 3.20 of its Disclosure
Schedule, the inventory held by the Merging Company is useable and in good
condition, with not more than 3% thereof (plus any inventory reserve set up on
the financial statements of the Merging Company) being obsolete, and all of the
inventory is owned by the Merging Company, none of it being held on consignment.
3.21 RECEIVABLES. All accounts receivable of the Merging Company arose in
the regular course of business, and, to the best knowledge of the Merging
Company and its Shareholders, represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business
and are collectable, subject to the Merging Company's customary bad debt
reserves, and subject to no defenses or counterclaims.
3.22 EMPLOYEES. All employee benefits for the Merging Company's employees
are described in Section 3.22 of its Disclosure Schedule. To the knowledge of
the Merging Company and its Shareholders, and except as may be described in
Section 3.22 of the Merging Company's Disclosure Schedule, the Merging Company
is in compliance with all terms of all of its employee benefit plans.
Prior to the Closing, each Merging Company will provide to the other
Merging Companies a complete and accurate list of the following information for
each employee, including each employee on leave of absence or layoff status:
name, job title, current compensation, vacation and sick pay accrued, and
services credited for purposes of vesting and eligibility to participate in any
of the Merging Company's employee benefit plans.
Except as may be disclosed in Section 3.22 of the Disclosure Schedule for a
Merging Company, and except as described in Section 2.8 above, all employment
agreements, consulting agreements and related types of agreements between the
Merging Company and its Shareholders shall automatically terminate as of the
Closing, without compensation being due for services rendered thereunder after
the Closing.
3.23 NO CONFLICTS. To the knowledge of the Merging Company and its
Shareholders, the execution, delivery and performance of this Agreement and the
other documents and instruments to be executed and delivered pursuant hereto,
and the consummation of the transactions contemplated herein or therein:
(i) Will not violate or conflict with any applicable material, federal,
state, foreign, local or other law, ordinance, rule, regulation, or
governmental requirement or restriction of any kind, including any
rules, regulations, and orders promulgated
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thereunder, and any final orders, decrees, consents, or judgments of
any regulatory agency or court;
(ii) Will not require any authorization, consent, approval, exemption or
other action by or notice to any government entity (including, without
limitation, under any "plant closing" or similar law); the Merging
Company is not required to give any notice or to obtain any consent
from any person or entity which is party to a material contract or
agreement with the Merging Company or from any governmental agency in
connection with the execution and delivery of this Agreement or the
consummation of the Mergers, other than the approval of the Board of
Directors and stockholders of the Merging Company pursuant to the
applicable law, as required by applicable federal and state securities
laws and as set forth in Section 3.23 of its Disclosure Schedule;
(iii) Will not violate or conflict with, or constitute a default (or event
which, with notice or lapse of time, or both, would constitute a
default) under, and will not result in the termination of, or
accelerate the performance required by, or result in the creation of
any lien, claim or encumbrance upon any of the Merging Company's
assets under its Articles or Certificate of Incorporation or Bylaws,
or any material contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which the
Merging Company is a party or by which the Merging Company or any of
the Merging Company's assets may be bound or affected, other than
those material contracts and agreements which require the consent of
the other party thereto as set forth in Section 3.23 of its
Disclosure Schedule; and
(iv) Will not give any governmental body the right to revoke, withdraw,
suspend, cancel, terminate or modify any governmental authorization
held by the Merging Company or that otherwise relates to its business,
except with respect to immaterial circumstances.
3.24 VIOLATIONS OF LAW.
(a) To the knowledge of the Merging Company and its Shareholders, none of
the present or past operations of the Merging Company's business, the
products of the business, or the Merging Company's assets violate or
conflict, in any material respect, with any permits, any law (including
environmental laws, other than as set forth in Section 3.24 of its
Disclosure Schedule), governmental specification, authorization, or
requirement, or any decree, judgment, order or similar restriction. To
the knowledge of the Merging Company and its Shareholders, the Merging
Company is not the subject of an inspection or inquiry regarding
violations or alleged violations of any law by any state, federal or
local agency.
(b) To the knowledge of the Merging Company and its Shareholders, there are
no pending administrative or judicial proceedings, threatened
proceedings, orders, notice of violations, inspection reports, and
similar occurrences, if any, relating to the conduct of its business or
the Merging Company's assets.
(c) The Merging Company has not been the subject of an Occupational and
Safety Health Administration inspection or found by any agency to be in
violation of any state or federal occupational safety or health law in
the conduct of its business.
3.25 CONDITION AND SUFFICIENCY OF ASSETS. To the knowledge of the Merging
Company and its Shareholders, and except as may be stated in Section 3.25 of the
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Merging Company's Disclosure Schedule, all material assets of the Merging
Company are in good operating condition and repair, and are adequate for the
uses to which they are being put, and none of such items is in need of
maintenance or repairs, except for ordinary, routine maintenance and repairs
that are not material in nature. To the knowledge of the Merging Company and its
Shareholders, the assets are sufficient for the continued conduct of the Merging
Company's business after the Closing in substantially the same manner as
conducted prior to the Closing.
3.26 BANK ACCOUNTS. The Merging Company has disclosed, or will disclose
prior to the Closing, to the other Merging Companies the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which the Merging Company maintains a safe deposit box, lock box
or checking, savings, custodial or other account of any nature, the type and
number of each such account and the signatories therefor, a description of any
compensating balance arrangements, and the names of all individuals authorized
to draw thereon, make withdrawals therefrom or otherwise have access thereto.
3.27 ENVIRONMENTAL MATTERS. For purposes of this Section:
(i) "Environmental Law" means all federal, state, local, foreign, and
other applicable jurisdiction laws relating to the environment or the
use, disposal, existence, or release of any Hazardous Materials,
including but not limited to any and all laws concerning, affecting,
controlling, or in any way relating to, whether in whole or in part,
noise levels, ground vibrations, air pollutants, water pollutants,
process waste water, or Hazardous Materials;
(ii) "Environmental Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or
property;
(iii) "Hazardous Materials" means: (A) any waste, hazardous waste,
pollutant, contaminant, or hazardous or toxic substance regulated by
law; (B) asbestos; (C) formaldehyde; (D) polychlorinated biphenyls;
(E) radioactive materials; (F) waste oil and other petroleum
products; and (G) any other substance which constitutes a nuisance
or hazard to the environment or the public health, safety, or
welfare.
3.27.1 Other than as set forth in Section 3.27 of its Disclosure
Schedule, to the knowledge of the Merging Company and its Shareholders, the
Merging Company is, and at all times has been, in full compliance with, and
has not been and is not in violation of or liable under, any Environmental
Law. The Merging Company has no basis to expect, nor has the Merging
Company or (to the knowledge of the Merging Company or its Shareholders)
any other person for whose conduct the Merging Company is or may be held to
be responsible received, any actual or threatened order, notice, or other
communication from (i) any governmental body or private citizen acting in
the public interest, or (ii) the current or prior owner or operator of any
of the Merging Company's properties or assets, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual
or threatened obligation to undertake or bear the cost of any
environmental, health and safety liabilities with respect to any of the
Merging Company's properties or assets (whether real, personal, or mixed)
in which the Merging Company has had an interest, or with respect to any of
the Merging Company' properties at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used or
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processed by the Merging Company, or (to the knowledge of the Merging
Company or its Shareholders) any other person for whose conduct the Merging
Company is or may be held responsible, or from which Hazardous materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
3.27.2 The Merging Company has delivered to the other Merging
Companies complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by the Merging Company or its
Shareholders pertaining to Hazardous Materials or hazardous activities in,
on, or under the Merging Company's properties or concerning compliance by
the Merging Company or any other person for whose conduct it is or may be
held responsible, with Environmental Laws.
3.28 INTELLECTUAL PROPERTY.
(a) The Merging Company has provided the other Merging Companies with a
true correct and complete list of (i) all patents held by the Merging
Company and all re-examinations, re-issues, divisions, continuations,
continuations in part and extensions thereof and all pending patent
applications by the Merging Company, including for each such patent the
serial or patent number, country, filing and expiration date and title,
(ii) all registered trademarks of the Merging Company and pending
trademark registrations by the Merging Company, including for each such
trademark, the registration number, country, filing and expiration
date, mark and class, (iii) all registered copyrights of the Merging
Company and copyright applications by the Merging Company, including
the service marks, trade names and brand names of the Merging Company,
used in its business (whether or not registered) (all of the foregoing
collectively referred to as the "Intellectual Property"). To the
knowledge of the Merging Company and its Shareholders, all such
patents, trademarks and copyrights are properly registered, any
applications therefor have been properly made, and all annuity,
maintenance, renewal and other fees in connection with any of the
foregoing are current.
(b) The Merging Company has provided the other Merging Companies with a
list of all material licenses, contracts, commitments (including
without limitation, confidentiality agreements) to which the Merging
Company is a party or otherwise subject relating to the Intellectual
Property, including, without limitation, computer software (except for
standard licensing agreements or provisions from the seller or licensor
of such software). During the preceding three (3) fiscal years and the
current fiscal year to date, no claim or allegation of infringement has
been made by or against the Merging Company, whether relating to any
item of Intellectual Property or otherwise, no claim or allegation of
misappropriation or misuse of any item of Intellectual Property has
been made by or against the Merging Company, and no claim or allegation
has been asserted against the Merging Company with respect to the
ownership or use of any of the Intellectual Property by the Merging
Company or challenging or questioning the validity or effectiveness of
any such license, contract or commitment, and there does not exist to
the knowledge of any Shareholder or of the Merging Company any valid
basis for any such claim or allegation.
(c) To the knowledge of the Merging Company and its Shareholders, the
Merging Company has good and valid title to, or otherwise possesses
rights to use, the Intellectual Property.
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3.29 CUSTOMERS AND SUPPLIERS. The Merging Company has provided the other
Merging Companies with a list of its five (5) largest customers in terms of
dollar volume of sales for the three (3) preceding fiscal years and for the
current fiscal year, showing the approximate total dollar amount of sales to
each such customer during each such fiscal year. The Merging Company has
provided the other Merging Companies with a list of the five (5) largest
suppliers in terms of dollar volume of purchases for the last fiscal year and
for the current fiscal year showing the approximate total dollar amount of
purchases from each supplier during each such fiscal year. Except as may be
disclosed in Section 3.29 of its Disclosure Schedule, since January 1, 1997, the
Merging Company has not received any notice from and has not otherwise been
informed or made aware that any such five (5) largest customers or five (5)
largest suppliers will be terminating or curtailing its business with the
Merging Company in a manner that would have a material adverse effect on the
Merging Company.
3.30 CHANGES TO THE MERGING COMPANY'S DOCUMENTS. Except as may be
described in Section 3.30 of its Disclosure Schedule, or disclosed in EXHIBIT
1.6, none of the following has occurred within the last twelve months prior to
the date of this Agreement with respect to the Merging Company: (i) any change
in the Articles or Certificate of Incorporation or Bylaws; (ii) any change in
the number of shares of stock issued and outstanding, other than upon exercise
of stock options; (iii) the merger or consolidation of the Merging Company with
or into any other corporation or other entity: (iv) declaration or payment by
the Merging Company of any dividend or any repurchase by the Merging Company of
any shares of its stock; or (v) except in the ordinary course of business and
consistent with the Merging Company's past practice, any increase in the
compensation payable by the Merging Company to any shareholder, director,
officer, employee or agent, or payment of any bonus, severance payment or other
compensation to any shareholder, director, officer, employee or agent, or the
entering into of any agreement of any type which is not terminable by the
Merging Company on no more than 30 days notice.
3.31 STOCKHOLDERS AGREEMENTS AND OTHER AGREEMENTS. To the knowledge of
the Merging Company and its Shareholders, there are no stockholder agreements or
similar arrangements restricting voting rights or the transferability of any
interest in the Merging Company relating to the capital stock of the Merging
Company, or otherwise relating to the Merging Company. This representation and
warranty does not include any pledge by a Shareholder or other stockholder of
capital stock of the Merging Company, the terms of which may restrict
transferability of such capital stock. Furthermore, there are no employment
agreements, consulting agreements or similar type agreements relating to the
Merging Company which are not terminable by the Merging Company on not more than
90 days notice.
3.32 CERTAIN PAYMENTS. To the knowledge of the Merging Company and its
Shareholders, neither the Merging Company nor any shareholder, director,
officer, agent or employee of the Merging Company, or any other person
associated with or acting for or on behalf of the Merging Company, has directly
or indirectly: (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, or (iii) to obtain special concessions or for special concessions
already obtained, for or in respect of the Merging Company, or (iv) in violation
of any law; or (b) established or maintained any fund or asset that has not been
recorded in the books and records of the Merging Company.
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3.33 FILINGS COMPLETE. Each Merging Company will cooperate with the other
Merging Companies with respect to all filings that any of the Merging Companies
make in connection with the Mergers and all matters connected therewith.
3.34 PRODUCTS. To the knowledge of the Merging Company and its
Shareholders, except as disclosed Schedule 3.34 for the Merging Company, the
products offered currently or in the past by the Merging Company for sale meet
all material product and/or process specifications which they purport or are
required to meet, and satisfy in all material respects all applicable laws where
the products are currently being sold or have been sold within the last five
years, except where the Merging Company has chosen not to sell products because
the products would violate a law of that place.
3.35 PATENTS. All patents and patent applications or licenses of the
Merging Company are described in Section 3.35 of the Disclosure Schedule.
3.36 INDEMNIFICATION; SURVIVAL. Each Merging Company and its
Shareholders, jointly and severally, hereby agree to indemnify New Futech and
its officers, directors and controlling persons and defend and hold them free
and harmless from and against any liability, obligation, loss, cost and expense,
including attorney's fees, incurred by them in connection with any material
breach by the Merging Company of any of its representations, warranties or
covenants, contained in this Agreement. For this purpose, any breach or
combination of breaches will be considered material only if they exceed in the
aggregate the amount set forth in EXHIBIT 3.36 as to any Merging Company.
The representations and warranties in this Section, and elsewhere in this
Agreement, and all indemnification provisions in this Agreement, will survive
the Closing for a period of 18 months thereafter, after which they will expire
except as to any claims asserted on or before that date. The rights of New
Futech and the other parties to this Agreement based upon the representations
and warranties of the Merging Company will not be affected by any investigation
conducted with respect thereto, or any knowledge acquired, or capable of being
acquired, at any time, whether before or after the execution of this Agreement,
with respect to the accuracy or inaccuracy of or compliance with, any such
representation or warranty.
Disclosures made anywhere in this Agreement or its Exhibits shall be deemed
to be disclosures for all purposes of this Agreement.
ARTICLE IV
CONDITIONS OF MERGER
4.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to effect the Mergers will be subject to
the satisfaction at or prior to the Effective Time of the following conditions,
provided that the failure of Conditions 4.1.4 through 4.1.10 hereof with respect
to any particular Merging Company and its Shareholders will not act as a
condition to the obligations of that Merging Company, or its Shareholders.
4.1.1 Stockholder Approval. This Agreement and the Merger to which
the Merging Company is a party will have been approved and adopted by the
requisite vote of the stockholders of each Merging Company.
4.1.2 No Order. No federal or state governmental or regulatory
authority or other agency or commission, or federal or state court of
competent jurisdiction, will have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation,
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executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which in effect restricts, prevents or prohibits
the consummation of the transactions contemplated by this Agreement.
4.1.3 No Challenge. There will not be pending any action, proceeding
or investigation before any court or administrative agency or by any
government agency or any other person: (i) challenging or seeking material
damages in connection with the Mergers or the conversion of any Merging
Company's equity securities into New Futech's stock, promissory notes and
cash pursuant to the Mergers, or (ii) seeking to restrain, prohibit or
limit the exercise of full rights of ownership or operation by New Futech
or its subsidiaries of all or any portion of the business or assets of any
Merging Company, which in either case is reasonably likely to have a
material adverse effect on any party to this Agreement.
4.1.4 Representations, Warranties and Covenants. The representations
and warranties of each Merging Company and its Shareholders contained in
this Agreement will be true and correct in all material respects on and as
of the Effective Time, with the same force and effect as though made on and
as of the Effective Time. Each Merging Company and its Shareholders will
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
or them on or prior to the Effective Time. Each Merging Company and its
Shareholders will have delivered to New Futech and to the other parties to
this Agreement at the Closing a certificate, dated the Effective Time, to
the foregoing effect.
4.1.5 Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made by any Merging Company or its Shareholders for the
authorization, execution and delivery of this Agreement and the
consummation by them of the transactions contemplated hereby will have been
obtained and made.
4.1.6 No Material Adverse Change. The operations, assets and
financial condition of each Merging Company have not suffered a material
adverse change between the date of this Agreement and the date of Closing.
4.1.7 Opinions of Counsel. Each Merging Company will have received
an opinion of outside counsel for each of the other Merging Companies,
dated the Closing, substantially to the effect set forth in EXHIBIT 4.1.7.
Each Merging Company agrees to provide such an opinion letter.
4.1.8 Assignments. The assignment of all material permits, licenses
and contracts, required to be assigned and necessary to continue the
operations of its business will have been made by each Merging Company.
4.1.9 Maintenance of Assets. Each Merging Company will have
maintained its assets in the same condition as of the date of this
Agreement (subject only to ordinary wear and tear).
4.1.10 Ordinary Course of Business. Each Merging Company will have
conducted its business diligently and substantially in the same manner as
prior to the execution of this Agreement and will not have entered into any
material contract, commitment or transaction not in the usual and ordinary
course or business.
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4.2 SPECIAL CONDITIONS FOR PARTICULAR PARTIES. The obligations of each
Merging Company will be subject to the satisfaction at or prior to the Effective
Time of the conditions set out with respect to that Merging Company on EXHIBIT
4.2.
ARTICLE V
TERMINATION, AMENDMENT AND WAIVER
5.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of any Merging Company, by mutual
consent of each Merging Company and its Shareholders.
5.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 5.1, this Agreement will forthwith become void and
all rights and obligations of any party hereto will cease.
5.3 AMENDMENT. This Agreement may be amended by the Merging Companies and
the Shareholders by action taken by or on behalf of their respective Boards of
Directors, and by such shareholders, at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of any
Merging Company, no amendment may be made which would reduce the amount or
change the type of consideration into which each share of that Merging Company
will be converted pursuant to this Agreement upon consummation of the Mergers.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
5.4 WAIVER. At any time prior to the Effective Time, any party hereto
may: (i) extend the time for the performance of any of the obligations or other
duties of the other parties hereto, and (ii) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver will be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE VI
GENERAL PROVISIONS
6.1 TAX TREATMENT. The transactions contemplated hereby are intended to
qualify as tax-free reorganizations under the provisions of Section 368 of the
Code. Each Merging Company and its Shareholders acknowledges, however, that they
have each been represented by their own tax advisors in connection with this
transaction, that no Merging Company has made any representation or warranty to
any other with respect to the treatment of such transaction or the effect
thereof under applicable tax laws, regulations or interpretations. Each party
agrees to use commercially reasonable efforts to obtain tax-free treatment of
the Mergers to the extent such treatment is available under applicable tax laws.
6.2 FURTHER ASSURANCES. From time to time, at any other party's request
and without further consideration, each party will execute and deliver to the
other such documents and take such action as the other party may reasonably
request in order to consummate more effectively the transactions contemplated
hereby.
6.3 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, then all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as
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the economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
6.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties, or any of them with respect to the subject matter
hereof and, except as otherwise expressly provided herein, is not intended to
confer upon any other person any rights or remedies hereunder. Notwithstanding
the foregoing, the terms of certain letters of intent survive the execution of
this Agreement to and only to the extent described on EXHIBIT 6.5.
6.5 ASSIGNMENT. This Agreement may not be assigned by operation of law or
otherwise.
6.6 PARTIES IN INTEREST. This Agreement will be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or will confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
6.7 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
6.8 GOVERNING LAW. This Agreement will be governed by, construed and
enforced in accordance with the laws of the State of Arizona, without giving
effect to the conflicts of laws rules thereof. The courts of the State of
Arizona will have the sole and exclusive jurisdiction and venue in any case or
controversy arising under this Agreement or by reason of this Agreement. The
parties agree that any litigation or arbitration arising from the interpretation
or enforcement of this Agreement will be only in either Maricopa County Superior
Court or in the United States Federal District Court for the District of
Arizona, and shall be only in the United States Federal District Court for the
District of Arizona if such venue is available. Solely for this purpose each
party to this Agreement (and each person who will become a party) hereby
expressly and irrevocably consents to the jurisdiction and venue of such courts.
6.9 MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
6.10 ATTORNEY'S FEES. Should any party to this Agreement or the
stockholders of any Merging Company institute any action or proceeding to
enforce this Agreement or any provision hereof, or for damages by reason of any
alleged breach of this Agreement, or of any provision hereof, or for a
declaration of rights hereunder, then the prevailing party(s) of such action or
proceeding will be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorneys' fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
6.11 COUNTERPARTS. This Agreement may be executed by the parties in one
or more counterparts, and any number of counterparts signed in the aggregate by
the parties will constitute a single instrument. The parties authorize and agree
to accept facsimile
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signatures in counterparts to this Agreement, and that said facsimile signatures
will for all purposes be binding upon the parties as if the same were original
signatures.
6.12 NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") will be in writing and will be delivered in person or
mailed by certified mail, return receipt requested, in the United States Mail,
postage pre-paid, addressed as specified in EXHIBIT 6.13 hereto or at such other
address as a person may from time to time designate by Notice hereunder. Notice
will be effective upon delivery in person, or if mailed, at midnight on the
third business day after the date of mailing.
6.13 PARAGRAPH TITLES AND HEADINGS. The titles and headings of sections
of this Agreement are for the convenience of reference only, and are not
intended to define, limit, or describe the scope or intent of any provision of
this Agreement, and will not affect the construction of any provision of this
Agreement.
6.14 BROKERAGE, FINDER'S OR FINANCIAL ADVISOR'S COMMISSIONS. The parties
each represent and warrant that all negotiations relevant to this Agreement have
been carried out by them directly, without the intervention of any person, other
than as specified on EXHIBIT 6.14. Any other brokerage, finder's or financial
advisor's fee that should arise from this transaction will be paid by the party
who contracted with such person. That party will indemnify and hold harmless the
other party against and in respect to any claim for such fee relative to this
Agreement, or to the transaction contemplated hereby.
6.15 MISCELLANEOUS. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party will not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. No waiver
of any provision of this Agreement will be effective unless made in writing. The
parties do not intend to confer any benefit upon any person, firm, or
corporation other than the parties hereto. No representation or warranty herein
may be relied upon by any person not a party to this Agreement.
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IN WITNESS WHEREOF, each of the Merging Companies have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized, and each of the Shareholders have executed
this Agreement on their own behalf.
<TABLE>
<S> <C>
FUTECH: Futech Interactive Products, Inc., an Arizona
corporation
By
--------------------------------------------------
Vincent W. Goett, CEO
FUTECH Futech Interactive Products (Delaware), Inc., a
DELAWARE: Delaware corporation
By
--------------------------------------------------
Vincent W. Goett, CEO
NEW SUB: Futech Toys & Games, Inc., a Nevada corporation
By
--------------------------------------------------
Carl E. Voigt, IV, President
FUNDEX: Fundex Games, Ltd., a Nevada corporation
By
--------------------------------------------------
Carl E. Voigt, IV, President and CEO
JANEX: Janex International, Inc., a Colorado corporation
By
--------------------------------------------------
Vincent W. Goett, President
</TABLE>
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<TABLE>
<S> <C>
TRUDY: Trudy Corporation, a Delaware corporation
By
-----------------------------------------------
William W. Burnham, Chairman and CEO
DaMERT: DaMert Company, a California corporation
By
--------------------------------------------------
Frederick A. DaMert, Chairman
SHAREHOLDERS:
</TABLE>
<TABLE>
<S> <C>
DaMert:
---------------------------------------------------
Frederick A. DaMert, Trustee of the DaMert Trust,
UTD September 28, 1998
---------------------------------------------------
Gail Patton DaMert, Trustee of the DaMert Trust,
UTD September 28, 1998
Fundex:
---------------------------------------------------
Carl E. Voigt, IV
---------------------------------------------------
Carl E. Voigt, III
Futech:
---------------------------------------------------
Vincent W. Goett
Trudy:
---------------------------------------------------
William W. Burnham
</TABLE>
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AGREEMENT OF CERTAIN SHAREHOLDERS
TO VOTE FOR THE MERGER
The undersigned shareholders of the Merging Companies hereby agree to vote
their shares of the Merging Companies in favor of the Mergers. The signatures
appearing below bind the undersigned shareholders only to the obligation
appearing in the preceding sentence, and not to the entire Agreement appearing
above or any provision contained therein.
<TABLE>
<S> <C>
Trudy:
---------------------------------------------------
Alice B. Burnham
---------------------------------------------------
Elisabeth T. Prial
</TABLE>
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MERGER AGREEMENT
EXHIBITS
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<PAGE> 187
EXHIBIT 1.5
TO
MERGER AGREEMENT
(LIST OF DIRECTORS AND OFFICERS OF NEW FUTECH AND NEW SUB)
<TABLE>
<S> <C> <C> <C>
I. New Futech:
A. Directors: Vincent W. Goett
Roderick L. Turner
Carl E. Voigt, IV
William W. Burnham
Robert J. Rosepink
Gary A. Oman
F. Keith Withycombe
B. Officers:
CEO: Vincent W. Goett
President: Vincent W. Goett
Vice-President of the Toys/ Carl E. Voigt, IV
Games Division:
Secretary: Frederick B. Gretsch, Sr.
Treasurer: Frederick B. Gretsch, Sr.
II. New Sub:
A. Directors: Vincent W. Goett
Frederick B. Gretsch, Sr.
Carl E. Voigt, IV
B. Officers:
President: Carl E. Voigt, IV
Vice President: Carl E. Voigt, III
Secretary: Frederick B. Gretsch, Sr.
Treasurer: Frederick B. Gretsch, Sr.
</TABLE>
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EXHIBIT 1.6
TO
MERGER AGREEMENT
(MERGER CONSIDERATION AND CONVERSION OF STOCK OPTIONS)
The references appearing below on this Exhibit in the form "[1]" correlate
to the similar references appearing in the form of the Promissory Note attached
as EXHIBIT 1.6A.
A. DAMERT.
1. $312,000 cash (plus $200,000 cash paid to CorDev Corporation (Bob
Oliver) under Section A of EXHIBIT 6.14). $12,000 of the $312,000 goes to Greg
McVey.
2. $2,600,000 Promissory Note (referred to in this Section as the "NOTE")
in the form of EXHIBIT 1.6-A. $100,000 of the $2,600,000 goes to Greg McVey.
[1]$2,600,000.00.
[2]The date of the Closing.
[3]Frederick A. DaMert and Gail Patton DaMert, as trustees, and their
successors in trust, under the DaMert Trust, UTD September 28, 1998.
[4]Two Million Six Hundred Thousand Dollars ($2,600,000)
[5]Zero percent (0%)
[6]1609 Fourth Street, Berkeley, California 94710 [or addresses provided
by individual shareholders]
[7] The text after the words "as follows," is as follows:
(a) $520,000 within thirty (30) days after the Closing (the
"Closing") of the merger of DaMert Company into Maker; and
(b) $2,080,000 within seven (7) months after the "Closing."
[8]Shall read as follows:
7. SECURITY. As security for Maker's performance under this Note,
Maker hereby grants Payee a security interest in the assets of Maker
which were acquired by Maker from DaMert Company in the merger of
DaMert Company into Maker, which assets are identified on Exhibit
"A" attached hereto and hereby made a part hereof. In the event of
default by Maker hereunder, Payee shall have all rights with
respect to such collateral as are available to a secured party
under the Uniform Commercial Code in the State of Arizona, as the
same may from time to time be changed.
Until the Note is fully paid, Maker agrees not to encumber the
assets identified on Exhibit "A" (other than refinancing of
existing debt (including any available but unused credit and
including any ability to borrow against a borrowing base), which
will be allowed, but only on terms not less favorable to Maker than
the terms of the refinanced debt (except that the interest rate may
increase to then-existing market rates)). The holder of this Note
shall subordinate this debt to the debts described in this
paragraph.
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A list of the assets of DaMert as of the Closing will be attached
to the Note as Exhibit "A" thereto.
The following is added at the end of Section 4 of the Note:
If the principal, or any other amount due under this Note, or under
any other agreement between Maker and Payee pertaining to the
indebtedness evidenced hereby, shall not be paid within ten (10)
days after due, then: (i) the whole sum of principal shall become
due and shall thereafter bear interest at the annual rate of 10%,
and (ii) New Futech shall issue to the Payee 10,000 shares of New
Futech's common stock for each six-month period, or portion
thereof, for which said payment amount and all interest accrued
thereon shall remain unpaid in full.
3. 671,147 shares of New Futech common stock of which 25,813 shares goes to
Greg McVey.
B. FUNDEX.
1. Fundex shareholders will be granted the option to accept cash at the
Closing in lieu of the consideration described in Section 2 below (the
"CASH OPTION"). The Fundex shareholders electing the Cash Option will be
entitled to receive $2.84 per Fundex share surrendered pursuant to this
Agreement. Carl E. Voigt, IV and Carl E. Voigt, III by their signatures
to this Agreement, irrevocably agree not to elect the Cash Option. Any
Fundex shareholder electing the Cash Option shall forfeit any other
rights to which such shareholder would otherwise be entitled pursuant to
the Merger Agreement.
2. The consideration to be paid to the shareholders of Fundex not electing
the Cash Option is a promissory note (referred to in this Section as the
"NOTE") in the form of EXHIBIT 1.6-A, with the terms summarized below,
and the New Futech common stock as described in Section 3 below.
[1]$4,500,000.00 minus the total consideration paid in connection with
the Cash Option pursuant to Section 1 above.
[2]The date of the Closing.
[3]Carl E. Voigt, IV, in trust for the Fundex shareholders [or at New
Futech's election, New Futech may have as many Notes as there are
Fundex shareholders, with each of said Notes being payable directly
to a Fundex shareholder, in the amount of the share of the debt
payable to said shareholder]. The shareholders of Fundex will
authorize such a trust arrangement, or individual notes will be
issued to each shareholder.
[4]Four Million Five Hundred Thousand Dollars ($4,500,000.00) minus the
total consideration paid in connection with the Cash Option pursuant
to Section 1 above.
[5]Ten percent (10%)
[6]2237 Directors Row, Indianapolis, Indiana 46241 [or addresses
provided by individual shareholders]
[7]in full on or before the date which is one year after the date of
this Note, but with interest only payable on a calendar quarter basis
by the tenth day
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after the end of each calendar quarter, commencing with the first
calendar quarter after the date of this Note.
[8]Shall read as follows:
7. SECURITY. As security for Maker's performance under this Note,
Maker hereby grants Payee a security interest in all capital stock
of [New Sub], a Nevada corporation, now owned or hereafter
acquired, which corporation is a 100% owned subsidiary of Maker. In
the event of default by Maker hereunder, Payee shall have all
rights with respect to such collateral as are available to a
secured party under the Uniform Commercial Code in the State of
Arizona, as the same may from time to time be changed. The stock
shall be held in escrow by Mitchell Roth, legal counsel for Payee,
endorsed in blank, until this Note is paid in full.
Until the Note is fully paid, the undersigned guarantor agrees not
to encumber its stock of New Sub.
Payment under the Note, and New Sub's obligations regarding liens
against Phase 10 as set out on Exhibit 2.13 below, will be secured
by the guarantee and pledge of assets of New Sub, with language
added at the end of the Note as follows:
The faithful and timely performance by Maker under the Note
appearing above is hereby guaranteed by the undersigned. The
undersigned further agrees that any action may be bought and
prosecuted by Payee against the undersigned guarantor whether
or not any action is brought against Maker, and whether or not
Maker or any other parties are joined in such action. The
undersigned guarantor specifically agrees to be liable to
Payee for the obligations of Maker as set out above, even if
Payee or any successor-in-interest releases any or all rights
of any sort against the Maker. The undersigned guarantor
hereby consents to any such release, which release shall be
without effect on the undersigned guarantor's liability for
said obligations. The undersigned guarantor waives any right
to require Payee to proceed against Maker or pursue any other
remedy in Payee's power. The undersigned guarantor waives any
defense arising by reason of any disability or other defense
of Maker by reason of the cessation from any cause whatsoever
(other than performance in full) of the liability of Maker
under the Note appearing above. The prevailing party in any
litigation, arbitration or other proceeding arising out of
this guarantee shall be entitled to reimbursement from the
other party for all reasonable costs and expenses incurred in
such proceeding, including reasonable attorney's fees.
The undersigned hereby grants Payee a security interest in all
of the undersigned's assets, now owned or hereafter acquired,
as security for: (i) the guarantee appearing immediately
above; and (ii) the undersigned's obligations set out in
Exhibit 2.13, Section B of that certain Merger Agreement,
dated [the date of this Merger Agreement]. The security
interest created in (i) above shall continue until the Note is
fully paid. The security interest in (ii) above shall continue
until, and only until: (i) Phase 10 is collaterally assigned,
free and clear of all
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liabilities, to the Fundex shareholders as security for the
obligations of New Sub and/or New Futech under Exhibit 2.13 of
the Merger Agreement described above; or (ii) the Phase 10
Option terminates as called for in the Merger Agreement. In
the event of default by the undersigned under the obligations
secured as described above, Payee shall have all rights with
respect to such collateral as are available to a secured party
under the Uniform Commercial Code in the State of Arizona, as
the same may from time to time be changed. Financing
statements will be filed evidencing the liens described above
in such jurisdictions as reasonably determined by the Fundex
shareholders.
Until the obligations secured as described above are fully
performed, the undersigned guarantor agrees: (i) not to
encumber its assets after the date of this guaranty (other
than refinancing of existing debt (including any available but
unused credit and including any ability to borrow against a
borrowing base), which will be allowed, but only on terms not
less favorable to the undersigned guarantor than the terms of
the refinanced debt (except that the interest rate may
increase to then-existing market rates)); and (ii) not to pay
any dividends to its shareholder (Futech Interactive Products,
Inc.).
DATED the date first hereinabove written:
[New Sub], Inc., a Nevada corporation
By
-------------------------------------------------------------------------
Carl E. Voigt, IV, President
New Futech agrees to retain New Sub as a separate subsidiary of New
Futech at least as long as the security interest created above
survives.
The following replaces Section 4 of the Note:
4. DEFAULT. The occurrence of any one of the following events
shall constitute a default ("EVENT OF DEFAULT") under this Note:
(a) If Maker, after 10 days written notice, fails to pay the
principal or interest due under this Note, or under any other
agreement between Maker and Payee pertaining to the
indebtedness evidenced hereby.
(b) If Maker fails to perform, keep or observe any term, provision,
condition, warranty or representation contained in this Note,
which is required to be performed, kept or observed by Maker,
if such failure continues for 20 days after written notice
thereof is received by Maker.
(c) The occurrence of a default or an Event of Default under any
agreement, instrument or document heretofore, now or any time
hereafter delivered by or on behalf of Maker to Payee;
(d) The occurrence of a default or an Event of Default under any
instrument or document heretofore, now or at any time delivered
to Payee by any guarantor of Maker's liabilities hereunder;
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(e) If any of Maker's or New Futech's assets are attached, seized,
subjected to a writ of distress, warrant, or levied upon or
become subject to any lien or come within the possession of any
receiver, trustee, custodian or assignee for benefit of
creditors;
(f) If Maker or New Futech becomes insolvent or generally fails to
pay or admits in writing its inability to pay debts as they
become due, if a petition under any section or chapter of the
Bankruptcy reform Act of 1978 or any similar law or regulation
is filed by or against Maker or New Futech, if Maker or New
Futech shall make as assignment for benefit of creditors, if
any case or proceeding is filed by or against Maker or New
Futech for its dissolution or liquidation, or upon the death or
incapacity of Vincent Goett.
If a liability pursuant to this Note is not paid at the due date,
then the unpaid amount of liabilities shall bear interest after the
due date until paid at a rate equal to 18%.
Upon the occurrence of an Event of Default, without notice by Payee
to or demand by Payee of Maker: (i) all the principle and interest
under this Note shall be due and payable forthwith; and (ii) Payee
may exercise any one or more of the rights and remedies accruing to
a secured party under the Uniform Commercial Code in the State of
Arizona.
All Payee's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Payee of any partial payment made
hereunder after the time when any liabilities become due and
payable will not establish a custom, or waive any rights of Payee
to enforce prompt payment thereof. Any waiver of an Event of
Default hereunder shall not suspend, waive, or effect any other
Event of Default hereunder, Maker and every endorser waive
presentment, demand and protest and notice of presentment, protest,
default, non-payment, maturity, release, compromise, settlement,
extension or renewal of this Note, and ratify and confirm whatever
Payee may do in this regard. Other than set forth in this Note,
Maker further waives any and all notice or demand to which Payee
might be entitled with respect to this Note by virtue of any
applicable statute or law.
3. Those Fundex shareholders not electing the Cash Option will receive
their prorata share of New Futech shares of common stock equal to
600,000 shares minus .184635 for each share of Fundex common stock
exchanged for cash pursuant to the Cash Option in Section 1 above.
4. Fundex has issued stock options to certain employees and directors of
Fundex pursuant to Fundex's 1996 Stock Option Plan. The total options
issued under the Plan as of the Closing will be as identified on EXHIBIT
1.6-B. As soon as practicable after the Closing, all such options will
be converted to options to acquire New Futech common stock as described
on EXHIBIT 1.6-B.
C. FUTECH.
1. 4,121,920 (including 607,728 in respect of the Janex stock owned by
Futech) shares of New Futech common stock for Futech common stock, plus
the number of shares otherwise issuable pursuant to options or warrants
as described in Section 2 appearing immediately below that are exercised
prior to the Closing.
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2. Futech has issued stock options and warrants to certain employees and
directors of Futech, and certain others. As soon as practicable after
the Closing, all such options and warrants will be converted to rights
to acquire 6,933,066 shares of New Futech common stock, at prices
ranging from $1.50 to $4.50, minus the amount issued in respect of
options or warrants exercised prior to the Closing. Options and warrants
outstanding at the time of the Closing shall be appropriately adjusted
for a 30 to 1 ratio of Futech shares to New Futech shares.
D. JANEX.
1. 162,230 shares of New Futech common stock will be issued for the Janex
common stock, which reflects the cancellation of shares of Janex owned
by Futech, plus the number of shares otherwise issuable pursuant to
options or warrants as described in Section 2 appearing immediately
below that are exercised prior to the Closing.
2. Janex has issued stock options and warrants to certain employees of
Janex and another party. As soon as practicable after the Closing, all
such options and warrants will be converted to rights to acquire 4,833
shares of New Futech common stock, minus the amount issued in respect of
options or warrants exercised prior to the Closing. Options and warrants
outstanding at the time of the Closing shall be appropriately adjusted
for a 30 to 1 ratio of Janex shares to New Futech shares.
E. TRUDY.
1. $456,330.00 cash (plus $43,670.00 cash paid to James P. McGough under
Section E of EXHIBIT 6.14).
2. 400,000 shares (modifiable under EXHIBIT 2.13) of New Futech common
stock.
3. At the Effective Time, each outstanding and unexercised Trudy stock
option shall cease to represent a right to acquire shares of Trudy stock
and shall be converted automatically into an option to purchase, for
each share of Trudy common stock covered by such option, that number of
shares of New Futech common stock and cash into which each share of
Trudy common stock is converted pursuant to subparagraphs 1 and 2
appearing immediately above. Said number of shares and said cash are
part of the shares and cash to be received described in Section 1.6
above, and do not increase the number of shares or cash involved in the
Merger. The shares allocated to the option rights shall be held by New
Futech and issued to the party exercising the option only after the
option is exercised. The cash allocated to the option rights shall be
payable to the party exercising the option only after the option is
exercised. Appropriate adjustments shall be made by New Futech, if
required, to the terms of any such option to accomplish the foregoing.
The duration and other terms of the new option shall be the same as the
original option except that all references to Trudy shall be deemed to
be references to New Futech.
4. Trudy has advised the Merging Companies and the Merging Companies agree
that Trudy will provide options, stock grants or other equity
participation to certain directors, officers, agents and employees of
Trudy at or prior to the Closing of the Merger, covering an aggregate of
31,350,000 shares of Trudy common stock and options for 14,680,000
shares (see EXHIBIT 3-E, SECTION 3.2).
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EXHIBIT 1.6-A
TO
MERGER AGREEMENT
(FORM OF PROMISSORY NOTES CONSTITUTING MERGER CONSIDERATION)
PROMISSORY NOTE
$[1] As of [2]
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Futech Interactive
Products, Inc., a Delaware corporation ("Maker") to the order of [3]
(collectively "Payee").
1. PAYMENT. For value received, Maker promises to pay to Payee or Payee's
order, without offset, the principal sum of [4], together with interest
calculated at [5] per annum, as hereinafter set forth. Principal and interest
are payable in lawful money of the United States of America at [6], or at such
other address as the holder hereof may from time to time designate in writing,
as follows:
[7]
All payments made hereunder shall be applied to interest and principal in that
order.
2. PREPAYMENT. Maker has the privilege, at any time, to prepay the whole
or any part of the unpaid balance hereof without penalty or forfeiture.
3. INTEREST. All interest payable pursuant to this Note shall be computed
on the basis of a 365-day year. In no event shall the aggregate of the interest
herein provided to be paid over the contractual term of the loan exceed the
highest rate to which a borrower and lender may agree in writing under the laws
of the State of Arizona.
4. DEFAULT. If the principal or interest due under this Note, or under
any mortgage, deed of trust, security agreement, or other agreement between
Maker and Payee pertaining to the indebtedness evidenced hereby shall not be
paid within 10 days after the date upon which such payment is due, or if Maker
fails to comply with all of the other terms and conditions of this Note or any
instrument securing this Note, and such failure (other than a payment
obligation) shall continue for 20 days after written notice thereof is received
by Maker, then the entire principal and interest sum due hereunder shall, at the
option of Payee, become immediately due and payable without further notice.
5. COLLECTION COSTS. Maker agrees to reimburse Payee for all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
in the enforcement or collection of this Note or any judgment obtained hereon.
6. WAIVER, CONSENT, ETC. Maker and each endorser hereof severally waive
diligence, demand, presentment for payment and protest, and consent to the
extension of time of payment of this Note without notice.
7. SECURITY. [8].
8. MISCELLANEOUS. The provisions of this Note shall be binding upon Maker
and Maker's personal representatives, successors and assigns, and shall inure to
the benefit of Payee and Payee's successors and assigns. This Note shall be
governed by and construed and enforced in accordance with the laws of the State
of Arizona. The courts of the State of Arizona shall have the sole and exclusive
jurisdiction and venue in any case or
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<PAGE> 195
controversy arising under this Note or by reason of this Note. The parties agree
that any litigation or arbitration arising from the interpretation or
enforcement of this Note shall be only in either Maricopa County Superior Court
or in the United States Federal District Court for the District of Arizona, and
for this purpose each party to this Note (and each person who shall become a
party) hereby expressly and irrevocably consents to the jurisdiction and venue
of such courts. This Note shall be construed according to its fair meaning and
neither for nor against the drafting party. Time is of the essence of this Note
and each and every term and provision hereof.
DATED the date first hereinabove written.
Futech Interactive Products, Inc., a
Delaware corporation
By
------------------------------------
Vincent W. Goett, CEO
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<PAGE> 196
EXHIBIT 1.6-B
TO
MERGER AGREEMENT
(FUNDEX STOCK OPTIONS AND CONVERSION TO SHARES OF NEW FUTECH )
See Exhibit 3B-3.2
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<PAGE> 197
EXHIBIT 1.11
TO
MERGER AGREEMENT
(VOTES REQUIRED FOR MERGER APPROVAL)
A. DAMERT.
Majority.
B. FUNDEX.
Majority.
C. FUTECH.
Majority.
D. JANEX.
Majority.
E. TRUDY.
Majority.
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<PAGE> 198
EXHIBIT 2.8.1
TO
MERGER AGREEMENT
(TERMS OF EMPLOYMENT AGREEMENTS)
I. The references appearing below on this Exhibit to Sections correlate to
the Sections in the form of the Employment Agreement attached as EXHIBIT 2.8.2.
A. DAMERT.
1. Frederick A. DaMert
[1] The date of the Closing.
[2] New Futech
[3] Frederick A. DaMert
[4] Vice-President of Research and Development
[5] three (3) years
[6] $120,000.00
[7] Subparagraph 4(d) is to be deleted.
[8] Subparagraph 4(d) is to be deleted.
[9] $0.
[10] 20 days.
[11] the lesser of the remaining term of this Agreement or one year.
[12] Futech Interactive Products, Inc., a Delaware corporation, 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018-7247.
[13] Frederick A. DaMert, 1609 Fourth Street, Berkeley, California
94710.
[14] Insure that all current proprietary technology is fully developed
and to seek out or create new proprietary technology that can be
shared by the divisions of Futech. To coordinate corporate
technology information by making sure that all current and new
innovations are clearly communicated to the appropriate product
development and marketing teams of Futech. To create product
concepts and opportunities for all divisions of Futech including
innovations for E-commerce.
The scope of the activities restricted in the non-compete
provisions in subparagraph 8(b) of the form shall be limited to the
toys and games business being conducted by DaMert as of the date of
the Agreement.
The employee shall be based at Employer's operating unit in
Berkeley, California, or at such other location as Employer and
Employee mutually agree to relocate in order to fulfill Employee's
obligations under the Employment Agreement.
No less than 120 days notice of termination without cause will be
given to the employee.
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2. Gail Patton DaMert
[1] The date of the Closing.
[2] New Futech
[3] Gail Patton DaMert
[4] Vice-President of Integration and Business Analysis
[5] three (3) years
[6] $120,000.00
[7] Subparagraph 4(d) is to be deleted.
[8] Subparagraph 4(d) is to be deleted.
[9] $0.
[10] 20 days.
[11] the lesser of the remaining term of this Agreement or one year.
[12] Futech Interactive Products, Inc., a Delaware corporation, 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018-7247.
[13] Gail Patton DaMert, 1609 Fourth Street, Berkeley, California 94710.
[14]Intentionally Omitted.
The scope of the activities restricted in the non-compete provisions in
subparagraph 8(b) of the form shall be limited to the toys and games
business being conducted by DaMert as of the date of the Agreement.
The employee shall be based at Employer's operating unit in Berkeley,
California, or at such other location as Employer and Employee mutually
agree to relocate in order to fulfill Employee's obligations under the
Employment Agreement.
No less than 120 days notice of termination without cause will be given
to the employee.
B. FUNDEX.
See II below.
C. FUTECH.
All employment agreements of Futech pass through and survive as obligations
of New Futech, notwithstanding Section 3.22 of the Merger Agreement.
D. JANEX.
No new Employment Agreements as a result of the merger. All employment
agreements of Futech pass through and survive as obligations of New Futech,
notwithstanding Section 3.22 of the Merger Agreement.
E. TRUDY.
1. William W. Burnham
[1] The date of the Closing.
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<PAGE> 200
[2] New Futech
[3] William W. Burnham
[4] Vice-President -- Specialty.
[5] three (3) years
[6] $100,000.00
[7] 6,667
[8] $7.50
[9] $10,000
[10] 20 days.
[11]the greater of the remaining term of this Agreement or one year.
[12]Futech Interactive Products, Inc., a Delaware corporation, 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018-7247.
[13] William W. Burnham, 353 Main Avenue, Norwalk, Connecticut
06851-1552
[14] See EXHIBIT 2.8.1-1.
II. The references appearing below on this Exhibit to Sections correlate
to the Sections in the form of the Employment Agreement attached as EXHIBIT
2.8.3.
B. FUNDEX.
1. Carl E. Voigt, IV
[1] The date of the Closing.
[2] Carl E. Voigt, IV
[3]President of [New Sub]. [and also Vice President of the Toys/Games
Division of New Futech]
[4]Participation in any benefit programs adopted from time to time by
Employer or Futech Interactive Products, Inc., for the benefit of
its senior executive employees (which benefits shall be similar to
those offered by Futech Interactive Products., Inc.). Employee shall
receive such other fringe benefits as may be granted to Employee
from time to time by Employer or Futech Interactive Products to its
senior executives.
Vincent W. Goett shall during the term of this Employment Agreement vote
his shares in New Futech for Carl E. Voigt, IV being a member of the
Board of Directors of New Futech.
2. Carl E. Voigt, III
[1] The date of the Closing.
[2] Carl E. Voigt, III
[3] Vice President of [New Sub]
[4]Participation in any benefit programs adopted from time to time by
Employer or Futech for the benefit of its employees (which benefits
shall be similar to those offered by Futech).
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EXHIBIT 2.8.2
TO
MERGER AGREEMENT
(FORM FOR EMPLOYMENT AGREEMENTS)
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") effective as of [1] is by and between [2]
("Employer"), and [3] ("Employee").
A. Employer is engaged in the business of designing, manufacturing,
distributing and marketing books, greeting cards, electronic devices, games and
toys.
B. Employer desires to hire the services of Employee, and Employee is
willing to provide those services to Employer, on the terms and conditions
hereinafter set forth.
In consideration of the recitals and mutual agreements hereinafter set
forth, the parties agree as follows:
1. Employment. Employer hires Employee on a full-time basis, in
accordance with the terms and conditions set forth herein, and Employee
agrees to accept such full-time employment in accordance with said terms
and conditions. Employee's title shall be "[4]." Employee's title and
duties may be changed from time to time in the discretion of Employer's
Board of Directors (the "Board"), President or Chief Executive Officer.
Employee agrees to devote Employee's full time, skill, knowledge and
attention to the business of Employer and the performance of Employee's
duties under this Agreement.
2. Term. The term of employment under this Agreement shall commence
on [1] (the "Effective Date") and shall continue thereafter for a period of
[5], unless earlier terminated as set forth in Section 7 below.
3. Duties. Employee shall be responsible for all of the duties
associated with Employee's position with Employer, including without
limitation those identified on Exhibit "A" attached hereto and hereby made
a part hereof, and such other duties as may be determined by Employer.
4. Compensation.
(a) Base Salary. Employer agrees to pay Employee a base salary,
before deducting all applicable withholdings, at the rate of not less
than $[6]per year, which shall be payable in accordance with Employer's
standard payroll policies, which policies may be revised from time to
time.
(b) Deductions. Employer shall deduct from the payments made to
Employee hereunder any federal, state or local withholding or other
taxes or charges which Employer is required to deduct under applicable
law, and all amounts payable to Employee under this Agreement are stated
before any such deductions. Employer shall have the right to rely upon
written opinion of counsel if any questions arise as to any deductions.
(c) Bonus. From time to time, Employee may be eligible for a bonus
at Employer's sole discretion.
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<PAGE> 202
(d) Stock Options. If Employee has been continuously employed by
Employer between the date of this Agreement and the date which is twelve
months thereafter, and has not been in default under the terms of this
Agreement, then Employee shall as of the date which is twelve months
after the date of this Agreement have the right to purchase up to [7]
shares of Employer's common stock.
If Employee has been continuously employed by Employer between the
date of this Agreement and the date which is twenty-four months
thereafter, and has not been in default under the terms of this
Agreement, then Employee shall as of the date which is twenty-four
months after the date of this Agreement have the right to purchase up to
[7] shares of Employer's common stock.
If Employee has been continuously employed by Employer between the
date of this Agreement and the date which is thirty-six months
thereafter, and has not been in default under the terms of this
Agreement, then Employee shall as of the date which is thirty-six months
after the date of this Agreement have the right to purchase up to [7]
shares of Employer's common stock.
The purchase price of common stock purchased under the three
preceding paragraphs shall be $ [8] per share, payable in full in cash
at the time the option is exercised. The options may be exercised only
by written notice given to Employer, or Employer's successors and
assigns. The options shall expire on the date which is ten (10) years
after the date of this Agreement, if not exercised by that date.
Employer's common stock shall be subject to all of the terms and
restrictions of said stock, and Employer shall no obligation under this
Agreement to register Employer's stock or to make registered stock
available to Employee under this Agreement. No representation, warranty
or guaranty is made by Employer as to the value of the stock to be
issued pursuant to this subparagraph, and Employee takes full risk and
responsibility as to said value.
Employee hereby makes the representations and warranties set out in
Exhibit "B" attached hereto and hereby made part hereof. On said Exhibit
"B" Employee is referred to as the "Subscriber," Employer is referred as
the Corporation, and the shares of stock to be acquired by Employee
under this Section are referred to as the "Shares." Employee
acknowledges and understands the meaning and legal consequences of the
representations and warranties contained herein and agrees to indemnify
and defend and hold harmless the other parties hereto, and Employer's
directors, officers, agents, employees, and attorneys, from and against
any and all claims, loss, damage, liability, cost or expense, including
attorneys' fees and court costs, due to or arising out of or connected
directly or indirectly with or to any breach of any such representation
or warranty made by Employee. Employee's representations and warranties
appearing herein are made as of the date hereof and as of the date of
issuance of stock pursuant to this subparagraph (d). Employee's
acceptance of stock under this Section 4 shall constitute Employee's
confirmation of the representations and warranties appearing herein as
of the date of the acceptance.
Employee shall be entitled to have Employer issue Employee stock
under this Section 4 not more than twice in any calendar year.
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<PAGE> 203
Notwithstanding the foregoing provisions which require Employee to
be employed by Employer for the stock options to vest, if Employer
terminates Employee's employment in violation of this Agreement, or if
there is a material change in Employee's duties to be performed by
Employee for Employer under this Agreement and those changes are
unacceptable to Employee and Employee as a result thereof terminates
employment with Employer, then so long as Employee has not been in
default under the terms of this Agreement, the stock options described
above which have not yet vested shall immediately vest.
(e) Signing Bonus. Employer shall pay Employee a one-time bonus in
the amount of $ [9] within sixty days after completion of the merger of
Trudy Corporation into Employer.
5. Benefits.
(a) Insurance. In addition to the compensation described above,
while Employee is employed hereunder, Employer shall pay for and provide
Employee with life, health and disability insurance consistent with what
is provided from time to time to Employer's other executive employees
during the term of this Agreement.
(b) Expense Reimbursement. In addition to the compensation and
benefits provided above, Employer shall, upon receipt of appropriate
documentation, reimburse Employee each month for Employee's reasonable
travel, lodging and other ordinary and necessary business expenses
consistent with Employer's policies as in effect from time to time.
(c) Retirement. Employee shall be entitled to participate in any
retirement savings or benefits plan offered by Employer to its
employees, as revised by Employer from time to time.
6. Vacation. Employee shall be entitled to up to [10] days of
vacation with full pay per full calendar year, in addition to such holidays
as Employer may approve for its employees.
7. Termination. Employer may terminate Employee's employment prior
to the expiration of the initial term of employment or any extension
thereof, in the manner provided in Section 7(a). Additionally, if
Employee's employment is terminated by Employer without Cause (as defined
below), Employee shall be entitled to compensation as provided in Section
7(d).
(a) For Cause. Employer may terminate this Agreement for Cause,
with a written notice to Employee stating the facts constituting such
Cause, provided that Employee shall have 10 days following such notice
to cure any conduct or act, if curable, alleged to provide grounds for
termination for Cause hereunder. In the event of termination for Cause,
Employer shall be obligated to pay the Employee only the salary due
Employee through the date of termination pursuant to Section 4(a).
"Cause" shall include material neglect of duties; willful failure to
abide by material instructions or policies from, or set by, Employer in
good faith; conviction of a felony, or conviction of another offense or
pleading guilty or nolo contendere to a crime involving moral turpitude
which may have an adverse impact on Employer's reputation or standing in
the community; Employee's material breach of this Agreement; Employee's
breach of any other material
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obligation to Employer; or upon the bankruptcy, receivership,
dissolution or cessation of business of Employer.
(b) Disability. If during the term of this Agreement, Employee
fails to perform Employee's duties hereunder because of physical or
mental illness or other incapacity for 30 consecutive days, or for 45
days during any 120-day period, then Employer shall have the right to
terminate this Agreement without further obligation hereunder, except
for any amounts payable pursuant to disability or workers' compensation
insurance plans generally applicable to Employer's employees. Employer
shall provide Employee with notice of commencement of the disability
period, which period cannot commence more than 14 days prior to the date
of the notice. If there is any dispute as to whether Employee is or was
physically or mentally disabled under this Agreement, whether Employee's
disability has ceased or whether Employee is able to resume Employee's
duties, such question shall be submitted to a licensed physician agreed
upon by Employer and Employee. Employee shall submit to such
examinations and provide information as such physician may request, and
the determination of such physician as to Employee's physical or mental
condition shall be binding and conclusive on the parties. Employer
agrees to pay the cost of any such physician's services, tests and
examinations.
(c) Death. If the Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal
representatives or estate shall be entitled to receive the base salary
due to Employee through the last day of the calendar month in which
Employee's death occurs and any other death benefits generally
applicable to Employer's employees.
(d) Termination Without Cause; Severance Pay. Employer may
terminate this Agreement without Cause with a written notice to
Employee. If Employer terminates this Agreement before the end of the
term of the Agreement for any reason other than those described in
Sections 7(a), 7(b) or 7(c) above, then Employer shall pay to Employee,
as the same shall become due, Employee's base salary, less applicable
withholdings (the "Severance Pay"), for [11].
(e) Termination by Employee; Severance Pay. If Employee terminates
this Agreement prior to the end of the term hereof, Employee shall give
written notice to Employer at least 30 days prior to termination.
Employee shall not be entitled to the Severance Pay: (i) if Employee
terminates this Agreement for any reason other than for Employer's
material breach of this Agreement; or (ii) if Employee's employment is
terminated for the reasons described in Sections 7(a), 7(b) or 7(c).
8. Confidential Information; Exclusivity of Employee's Services.
(a) Confidential Information. Employee acknowledges that Employee
may receive, or contribute to the production of, Confidential
Information. For purposes of this Agreement, Employee agrees that
"Confidential Information" shall mean information or material
proprietary to Employer or designated as Confidential Information by
Employer or its clients or customers and not generally known by
non-Employer personnel, which Employee develops or of, or to, which
Employee may obtain knowledge or access through, or as a result of,
Employee's relationship with Employer (including information conceived,
originated, discovered or developed in whole or in part by Employee).
Confidential Information
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includes, but is not limited to, the following types of information and
other information of a similar nature (whether or not reduced to
writing) related to Employer's business: discoveries, inventions, ideas,
concepts, research, development, processes, procedures, "know-how",
formulae, marketing techniques and materials, marketing and development
plans, business plans, customer names, employee names and other
information related to customers, price lists, pricing policies,
financial information, employee compensation, and computer programs and
systems. Confidential Information also includes any information
described above which Employer obtains from another party and which
Employer treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by Employer. Employee
acknowledges that the Confidential Information derives independent
economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use. Information
publicly known without breach of this Agreement that is generally
employed by the trade at or after the time Employee first learns of such
information, or generic information or knowledge which Employee would
have learned in the course of similar employment or work elsewhere in
the trade, shall not be deemed part of the Confidential Information.
Employee further agrees:
(i) To furnish Employer on demand, at any time during or after
employment, a complete list of the names and addresses of all
present, former and potential customers and other contacts
gained while an Employee of Employer in Employee's possession,
whether or not in the possession or within the knowledge of
Employer.
(ii) That all notes, memoranda, documentation and records in any
way incorporating or reflecting any Confidential Information
shall belong exclusively to Employer, and Employee agrees to
turn over all copies of such materials in Employee's control
to Employer upon request or upon termination of Employee's
employment with Employer.
(iii) That while employed by Employer and thereafter Employee will
hold in confidence and not directly or indirectly reveal,
report, publish, disclose or transfer any of the Confidential
Information to any person or entity, or utilize any of the
Confidential Information for any purpose, except in the
course of Employee's work for Employer.
(iv) That any idea in whole or in part conceived of or made by
Employee during the term of his employment, consulting, or
similar relationship with Employer which relates directly or
indirectly to Employer's current or planned lines of business
and is made through the use of any of the Confidential
Information of Employer or any of Employer's equipment,
facilities, trade secrets or time, or which results from any
work performed by Employee for Employer, shall belong
exclusively to Employer and shall be deemed a part of the
Confidential Information for purposes of this Agreement.
Employee hereby assigns and agrees to assign to Employer all
rights in and to such Confidential Information whether for
purposes of obtaining patent or copyright protection or
otherwise. Employee shall acknowledge and deliver to
Employer, without charge to Employer (but at its expense)
such written instruments and do such other acts, including
giving testimony in
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support of Employee's authorship or inventorship, as the case
may be, necessary (in the opinion of Employer) to obtain
patents or copyrights or to otherwise protect or vest in
Employer the entire right and title in and to the
Confidential Information.
(b) Exclusivity of Employee's Services. During Employee's
employment by Employer and for a period of two years thereafter [but
with regard to the two years thereafter, this Section 8(b) shall apply
only if this Agreement is terminated for Cause pursuant to Section 7(a)
or due to Employee resigning or otherwise terminating Employee's
employment before the end of the term of this Agreement], Employee
agrees that Employee shall not, except as an owner of less than two
percent of a publicly-traded corporation's stock, enter into or engage,
directly or indirectly, whether on Employee's own account or as a
shareholder, partner, joint venturer, employee, consultant, advisor,
and/or agent, of any person, firm, corporation, or other entity other
than Employer, in any or all of the following activities:
(i) Engaging in the business of designing, manufacturing,
distributing and marketing books, greeting cards, electronic
devices, games and/or toys in the United States of America or
anywhere else in the entire world.
(ii) Soliciting the past or existing joint venturers, partners,
customers, clients, suppliers, or business patronage of
Employer or any of its predecessors, affiliates or
subsidiaries.
(iii) Soliciting the employment of any employees of Employer or any
of its affiliates or subsidiaries.
(iv) Promoting or assisting, financially or otherwise, any person,
firm, association, corporation, or other entity engaged in
the business of designing, manufacturing, distributing and
marketing books, greeting cards, electronic devices, games
and/or toys in the United States of America or anywhere else
in the entire world.
(v) Using any Confidential Information [as defined in Section
8(a)] for the purpose of, or which results in, direct
competition with Employer or any of its affiliates or
subsidiaries.
(c) Injunctions. Employer and Employee agree that the restrictions
contained in this Section 8 are reasonable, but it is recognized that
damages in the event of the breach of any of the restrictions may be
difficult or impossible to ascertain; and, therefore, Employee agrees
that, in addition to and without limiting any other right or remedy
Employer may have, Employer shall have the right to an injunction
against Employee issued by a court of competent jurisdiction enjoining
any such breach without showing or proving any actual damage to
Employer.
(d) Employee Acknowledgements. Employee also agrees, acknowledges,
covenants, represents and warrants as follows:
(i) That Employee has read and fully understands the foregoing
restrictions and that he has been advised to consult with a
competent attorney regarding the uses and enforceability of
restrictive covenants;
(ii) That Employee is aware that there may be defenses to the
enforceability of the foregoing restrictive covenants based
on time or territory
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considerations, and that Employee knowingly, consciously,
intentionally and entirely voluntarily, irrevocably waives
any and all such defenses and will not assert the same in any
action or other proceeding brought by Employer for the
purpose of enforcing the restrictive covenants or in any
other action or proceeding involving Employee and Employer;
(iii) That Employee is fully and completely aware that, and further
understands that, the foregoing restrictive covenants are an
essential part of the consideration for Employer entering
into this Agreement and has entered into this Agreement in
full reliance on these acknowledgments, covenants,
representations and warranties; and
(iv) That the existence of any claim or cause of action by
Employee against Employer, if any, whether predicated upon
this Agreement or otherwise, shall not constitute a defense
to the enforcement by Employer of the foregoing restrictive
covenants which shall be litigated separately, except when
Employee's employment is terminated pursuant to Section 7(a)
herein and a court of competent jurisdiction determines
subsequently that Employee was not terminated for Cause.
(e) Reformation. If any of the provisions of this Section 8 should
ever be deemed by a court of competent jurisdiction to exceed the
temporal, geographic or occupational limitations permitted by applicable
laws, those provisions shall be and are hereby reformed to the maximum
temporal, geographic, and/or occupational limitations permitted by law.
(f) Survival. The obligations described in Sections 8(a), (c), (d)
and (e), above, shall survive any termination of this Agreement or any
termination of the employment relationship created hereunder.
9. Inventions and Creations.
(a) Employee agrees that all inventions, discoveries, developments,
improvements, ideas, distinctive marks, symbols or phrases,
copyrightable creations, works of authorship, mask works and
other contributions including but not limited to software,
advertising, design, art work, manuals and writings
(collectively referred to as "Creations"), whether or not
protected by statute, which have been, or are in the future
conceived, created, made, developed or acquired by Employee,
either individually or jointly, while Employee is retained by
Employer and relate in any manner to Employee's work for
Employer, the research or business of Employer or fields into
which the business of Employer may extend, belong to and are
the property of Employer.
(b) Employee agrees and warrants that the Creations will be
Employee's original work and will not improperly or illegally
incorporate any material created by or belonging to others.
(c) Employee hereby sells, assigns and transfers to Employer
exclusively and irrevocably, without further compensation, all
ownership, title and rights in and to all of the Creations.
Employee further agrees to promptly and fully disclose the
Creations to Employer in writing, if requested by Employer, and
to deliver promptly to Employer whenever reasonably requested
and also upon completion of this Agreement, any
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and all originals and copies of manuscripts, programs,
writings, pictorial materials, drafts and notes of the
Creations, regardless of the media in which they might exist.
Employee agrees to execute and deliver any and all lawful
applications, assignments and other documents which Employer
requests for protecting the Creations in the United States or
any other country. Employer shall have the full and sole power
to prosecute such applications and to take all other actions
concerning the Creations, and Employee agrees to cooperate
fully, at the expense of Employer, in the preparation and
prosecution of all such applications and any legal actions and
proceedings concerning the Creations.
(d) Without diminishing in any way the rights granted to Employer
above, if a Creation is described in a patent, copyright or
trademark application, or is disclosed to a third party by
Employee within two years after Employee's employment with
Employer is terminated, Employee agrees that it is to be
presumed that the Creation was conceived, created, made,
developed or acquired by Employee during the period of his
employment with Employer, unless Employee can prove otherwise
by clear and convincing evidence.
10. Governing Law and Venue. Arizona law shall govern the
construction and enforcement of this Agreement and the parties agree that
any claim or cause of action pertaining to this Agreement shall lie only in
courts of competent jurisdiction located in Maricopa County, Arizona.
11. Construction. The language in all parts of this Agreement shall
in all cases be construed as a whole according to its fair meaning and not
strictly for nor against any party. The parties agree that each party has
reviewed this Agreement and that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not
apply in the interpretation of this Agreement or any amendment or any
exhibits thereof.
12. Nondelegability of Employee's Rights; Employer Assignment
Rights. The obligations, rights and benefits of Employee hereunder are
personal and may not be delegated, assigned or transferred in any manner
whatsoever, nor are such obligations, rights or benefits subject to
involuntary alienation, assignment or transfer. Upon reasonable notice to
Employee, Employer may transfer Employee to an affiliate of Employer, which
affiliate shall assume the obligations of Employer under this Agreement.
This Agreement shall be assigned automatically to any entity merging with
or acquiring Employer or its business.
13. Severability. If any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or
unenforceable for any reason, this Agreement shall remain in full force and
effect, and either (a) the invalid or unenforceable provision shall be
modified to the minimum extent necessary to make it valid and enforceable
or (b) if such a modification is not possible, this Agreement shall be
interpreted as if such invalid or unenforceable provision were not a part
hereof.
14. Attorneys' Fees. Except as otherwise provided herein, if any
party hereto institutes an action or other proceeding to enforce any rights
arising out of this Agreement, the party prevailing in such action or other
proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by
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the court and not by a jury and to be included in any judgment entered in
such proceeding.
15. Consideration. It is expressly understood and agreed that this
document sets forth the entire consideration for this Agreement, and that
said consideration for this Agreement is contractual and not a mere
recital.
16. Gender and Number. All terms used in one number or gender shall
be construed to include any other number or gender as the context may
require.
17. Counterparts. This Agreement may be executed in any number of
counterparts, all such counterparts shall be deemed to constitute one and
the same instrument, and each of said counterparts shall be deemed an
original hereof.
18. Section Headings. The section headings used in this Agreement
are inserted for convenience only and shall not affect the meaning or
construction of this Agreement.
19. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, sent by
telefacsimile with a copy by first-class U.S. mail, or sent by a
nationally-recognized overnight courier service, addressed to the parties
as follows:
<TABLE>
<C> <S>
If to Employer: [12]
If to Employee: [13]
</TABLE>
or to such other address and/or telefacsimile number as any party may
provide to the other in accordance with this Section.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof
(i.e., Employee's employment by Employer) and supersedes all prior or
contemporaneous offers, understandings or agreements in regard thereto.
21. Modification of Agreement. No modification or addition to this
Agreement shall be valid unless in writing, specifically referring to this
Agreement and signed by all parties hereto.
22. Waiver. No waiver of any rights under this Agreement shall be
valid unless in writing and signed by the party to be charged with such
waiver. No waiver of any term or condition contained in this Agreement
shall be deemed or construed as a further or continuing waiver of such term
or condition, unless the waiver specifically provides otherwise.
23. Contracts. Notwithstanding any provisions to the contrary in
this Agreement, Employee shall not enter into any contracts or agreements,
written or oral, for or on behalf of Employer without Employer's prior
written consent.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first hereinabove written.
<TABLE>
<C> <S>
EMPLOYER: [2]
By: /s/
--------------------------------------------------
Its
--------------------------------------------------
EMPLOYEE [3]
</TABLE>
List of Exhibits:
<TABLE>
<S> <C> <C>
Job Description.................... "A"
Subscriber Representations and
Warranties....................... "B"
</TABLE>
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EXHIBIT "A"
JOB DESCRIPTION
[14]
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EXHIBIT "B"
SUBSCRIBER REPRESENTATIONS AND WARRANTIES
Subscriber hereby represents, warrants and acknowledges to the Corporation
as follows:
1. The Shares will be acquired by Subscriber for Subscriber's own account
and not with the view to, or for resale in connection with, any distribution,
public offering or transfer thereof within the meaning of the Securities Act of
1933, as amended (the "1933 Act"), and Subscriber is not, directly or
indirectly, participating in an underwriting of any such distribution, offering,
or transfer.
2. Subscriber understands that the Shares have not been registered under
the 1933 Act by reason of issuance in transactions exempt from the registration
and prospectus delivery requirements of the 1933 Act pursuant to Section 4(2)
thereof.
3. Subscriber understands that the Shares have not been registered under
the 1933 Act or any state securities laws, that they are "restricted securities"
in the hands of Subscriber with the meaning of the Act, and that any future sale
of the Shares will be regulated by the Act and applicable state securities laws.
Subscriber understands that the Shares may not be sold, transferred or otherwise
disposed of without registration under the 1933 Act or an exemption therefrom,
and that in the absence of an effective registration statement covering the
Shares, or an available exemption from registration under the 1933 Act, the
Shares must be held indefinitely.
4. Subscriber will not sell or otherwise transfer or dispose of any of the
Shares: (A) except in strict compliance with (1) the provisions of the Agreement
to which this Exhibit is attached, and (2) the restrictions on transfer
described herein, and (B) unless such securities are (X) registered under the
1933 Act, and any applicable state securities laws, or (Y) Subscriber represents
that such securities may be sold in reliance on an exemption from such
registration requirements.
5. No federal or state agency, including the Securities and Exchange
Commission or the securities regulatory agency of any state, has approved or
disapproved the Shares, passed upon or endorsed the merits of the Shares, or
made any finding or determination as to the fairness of the Shares for private
investment.
6. The investment in the Shares is being made in reliance on specific
exemptions from the registration requirements of federal and state securities
laws, and the Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements and understandings set
forth herein in order to establish such exemptions.
7. Subscriber agrees to deliver to the Corporation, if requested by the
Corporation, an investment letter in customary form.
8. Based on personal knowledge and experience in financial and business
matters in general, Subscriber understands the nature of this investment, is
fully aware of and familiar with the business operations of the Corporation, and
is able to evaluate the merits and risks of an investments in the Shares.
9. Subscriber has been given the opportunity to ask questions about the
Corporation and has been granted access to all information, financial and
otherwise, with respect to the Corporation which has been requested, has
examined such information, and is satisfied with respect to the same.
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10. Subscriber has been encouraged to rely upon the advice of Subscriber's
legal counsel and accountants or other financial advisors with respect to the
tax and other considerations relating to the acquisition of the Shares.
11. Subscriber, in determining to acquire the Shares, has relied solely
upon: (A) the advice of Subscriber's legal counsel and accountants or other
financial advisers with respect to the tax, economic and other consequences
involved in acquiring the Shares, and (B) Subscriber's own independent
evaluation of the business, operations and prospects of the Corporation and the
merits and risks of the acquisition of the Shares.
12. Subscriber has been advised and understands that this investment is,
by its nature, very speculative.
13. Subscriber has sufficient income and net worth such that Subscriber
does not contemplate being required to dispose of any portion of the investment
in the Shares to satisfy any existing or expected undertaking or indebtedness.
Subscriber is able to bear the economic risks of an investment in the Shares,
including, without limiting the generality of the foregoing, the risk of losing
all or any part of the investment and probable inability to sell or transfer the
Shares for an indefinite period of time.
14. Subscriber is an "accredited investor" within the meaning of Rule 501
of Regulation D promulgated by the Securities and Exchange Commission, as
presently in effect.
15. The investment in the Shares has been privately proposed to Subscriber
without the use of general solicitation or advertising.
16. Subscriber understands that the certificates representing the Shares
may bear restrictive legends as to the restricted nature of such securities and
may bear a legend substantially in the following form, and agrees to will hold
the Shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY
BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
THE SAME IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE
COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF,
EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE COMPANY (WHICH
MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY).
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EXHIBIT 2.8.3
TO
MERGER AGREEMENT
(FORM FOR EMPLOYMENT AGREEMENTS)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into effective
[1] , by and between [2] ("EMPLOYEE") and [New Sub], a Nevada
corporation ("EMPLOYER") and Futech Interactive Products, Inc., a Delaware
corporation (with its successors, "FUTECH")
R E C I T A L S:
A. Employee has been employed by Fundex Games, Ltd., a Nevada corporation
("FUNDEX"), which manufactures and distributes children's games and toys (the
"BUSINESS").
B. On even date herewith, Employer, a wholly owned subsidiary of Futech,
has acquired all the stock of Fundex pursuant to the terms of that certain
Merger Agreement by and between Fundex and Futech (and others) (the "MERGER
AGREEMENT").
C. Employer desires to employ Employee, and Employee desires to accept
employment, upon the terms and conditions set forth in this Agreement.
D. Futech desires to guarantee Employer's performance of this Agreement as
an enducement to Employee to execute this Agreement on the terms and conditions
set forth herein.
T E R M S:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. Employer hereby hires and employs Employee for the
position of " [3] " of Employer, or such other additional title with
Futech as the Chairman of Futech shall reasonably determine. Employee shall be
vested with such powers and responsibilities, and shall perform such functions
and duties, as Employer shall from time to time prescribe.
Employee will devote on an exclusive basis Employee's full time, energy and
skill to the performance of Employee's duties for Employer and for the benefit
of Employer and/or Futech. Employee shall at all times faithfully,
industriously, and to the best of Employee's ability, experience and talent,
perform Employee's duties under this Agreement. Employee will exercise due
diligence and care in the performance of Employee's duties to Employer under
this Agreement.
Employee will be based at Employer's operating unit in Indianapolis,
Indiana, or such other location as Employer and Employee reasonably agree to so
relocate in order to fulfill Employee's obligations hereunder.
2. EMPLOYMENT PERIOD. The period of employment shall commence on the date
of this Agreement, and end on the date which is three (3) years thereafter
("EXPIRATION DATE"), unless sooner terminated in accordance with the provisions
of this Agreement. The
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period of time commencing on Employee's first day of employment with Employer,
and ending on the effective date of the termination of employment of Employee
under this Agreement, is sometimes referred to herein as the "Employment
Period."
3. COMPENSATION. As compensation for services rendered by Employee under
this Agreement, Employer shall pay Employee as follows, and Employee agrees that
said payments shall be in full payment for Employee's services and promises to
Employer (specifically including the covenant not to compete as set out in
Section 8 below and the proprietary information provisions in Section 9 below):
(a) Base Salary. Employee shall receive compensation installments
based on an annual salary of One Hundred Fifty Thousand Dollars
($150,000.00) ("BASE SALARY"). Employee's Base Salary shall be payable in a
manner and on the timetable which Employer's payroll is customarily
handled, but no less often than semi-monthly installments.
(b) Common Stock Option. If Employee has been continuously employed
by Employer between the date of this Agreement and the date which is one
year thereafter, or is terminated by Employer during that period without
Cause (as hereinafter defined) and has not been in material default under
the terms of this Agreement, then Employee shall as of the date which is
one year after the date of this Agreement have the right to purchase up to
11,111 shares of Futech's common stock.
If Employee has been continuously employed by Employer between the
date of this Agreement and the date which is two years thereafter, or is
terminated by Employer during that period without Cause, and has not been
in material default under the terms of this Agreement, then Employee shall
as of the date which is two years after the date of this Agreement have the
right to purchase up to an additional 11,111 shares of Futech's common
stock.
If Employee has been continuously employed by Employer between the
date of this Agreement and the date which is three years thereafter, or is
terminated by Employer during that period without Cause, and has not been
in material default under the terms of this Agreement, then Employee shall
as of the date which is three years after the date of this Agreement have
the right to purchase up to 11,111 shares of Futech's common stock.
The purchase price of common stock purchased under the three preceding
paragraphs shall be $4.50 per share, payable in full in cash at the time
the option is exercised. The options may be exercised only by written
notice given to Employer, or Employer's successors and assigns. The options
shall expire on the date which is ten (10) years after the date of this
Agreement, if not exercised by that date.
The common stock purchased pursuant to this Section shall be subject
to all of the terms and restrictions of said stock, which shall be
commensurate with the restrictions restricting other Futech common stock.
No representation, warranty or guaranty is made by Employer as to the value
of the stock to be issued pursuant to this subparagraph, and Employee takes
full risk and responsibility as to said value.
Employee hereby makes the representations and warranties set out in
Exhibit "A" attached hereto and hereby made part hereof. On said Exhibit
"A" Employee is referred to as the "Subscriber," Futech is referred as the
Corporation, and the shares of stock to be acquired by Employee under this
Section are referred to as the
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"Shares." Employee acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and
agrees to indemnify and defend and hold harmless the other parties hereto,
and Employer's directors, officers, agents, employees, and attorneys, from
and against any and all claims, loss, damage, liability, cost or expense,
including attorneys' fees and court costs, due to or arising out of or
connected directly or indirectly with or to any breach of any such
representation or warranty made by Employee. Employee's representations and
warranties appearing herein are made as of the date hereof and as of the
date of issuance of stock pursuant to this subparagraph (b). Employee's
acceptance of stock under this Section 3 shall constitute Employee's
confirmation of the representations and warranties appearing herein as of
the date of the acceptance.
Employee shall be entitled to have Futech issue Employee stock under
this Section 3 not more than twice in any calendar year.
Notwithstanding the foregoing provisions which require Employee to be
employed by Employer for the stock options to vest, if Employer terminates
Employee's employment in violation of this Agreement, or if there is a
material change in Employee's duties to be performed by Employee for
Employer under this Agreement and those changes are unacceptable to
Employee and Employee as a result thereof terminates employment with
Employer, then so long as Employee has not been in default under the terms
of this Agreement, the stock options described above which have not yet
vested shall immediately vest.
(c) Vacation and Fringe Benefit Programs. During the term of this
Agreement, Employee shall be entitled to the following:
(i) Twenty days of vacation per full year worked, to be taken in
accordance with the policies and directives of Employer.
(ii) [4]Employee shall receive such other fringe benefits as may be
granted to Employee from time to time by Employer or Futech.
Employee's participation in such employee benefits of Employer
or Futech shall be based upon Employee's tenure classification
under rules established by Employer from time to time, and
Employee shall be credited towards his tenure for the time
employed by Fundex.
(iii) Employee shall be entitled to be reimbursed by Employer for
all reasonable and necessary expenses incurred by Employee in
carrying out his duties under this Agreement in accordance
with Employer's standard policy regarding such
reimbursements, including, without limitation, car phone,
airfare, hotel, meals and other reasonable travel expenses.
(d) Payroll Taxes. Employee's compensation and other benefits shall
be subject to all payroll and withholding deductions as may be required by
law.
(e) Permitted Activities. Notwithstanding anything to the contrary
herein contained, Employee (i) may make passive investments and hold
positions as director, trustee, or similar capacity in other entities
insofar as such positions and investments do not conflict with this
Agreement, Employee's full-time duties and loyalties to Employer and its
affiliates or any of Employer's written policies; and (ii) may hold
positions in charitable and other organizations so long as they are not
inappropriate in light of or conflict with his duties hereunder
(collectively, the "PERMITTED ACTIVITIES").
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4. DEATH OR DISABILITY. If during the Employment Period Employee
shall become "disabled", and as a result thereof become unable to continue
the proper performance of Employee's duties hereunder on a full-time basis,
then Employee's employment hereunder shall thereupon at the option of
Employer automatically terminate. This Agreement shall automatically
terminate upon the death of Employee. For purposes of this Agreement,
disability shall mean the failure by Employee on account of a medical
disability to substantially perform employee's duties of employment and
achieve expected customary results for a period of 90 consecutive days and
the finding by Employer in the exercise of its reasonable discretion,
confirmed by written opinion of a medical doctor after a detailed exam,
that Employee will not be able to substantially perform Employee's duties
for at least a period of an additional 90 days during the term of this
Agreement.
5. TERMINATION BY EMPLOYER.
(a) Termination for Cause. Employer may terminate this Agreement at
any time for "Cause". The existence of Cause shall be reasonably determined
by Employer. Any termination for Cause shall be, at Employer's election,
immediate. The term "Cause" as used herein shall include, but not be
limited to, the following meanings:
(i) The failure of Employee to timely discharge or perform
Employee's material duties and obligations under this
Agreement with due diligence and care for a period of thirty
(30) days after written notice of such failure is given to
Employee by Employer; provided, however, that said thirty
(30) day period shall not apply to violations of Sections 8
or 9 below;
(ii) The refusal of Employee to implement or adhere to material
policies or directives of Employer, which are known to
Employee, for a period of thirty (30) days after written
notice of such is given to Employee by Employer;
(iii) Conviction of a felony under state or federal law, or the
conviction of a lesser offense involving moral terpitude
which may have an adverse impact on Employer's reputation or
standing in the community;
(iv) Conduct which is a material violation of Employee's common
law duty of loyalty to Employer and/or Futech;
(v) Fraudulent conduct in connection with the business affairs of
Employer regardless of whether said conduct is designed to
defraud Employer or others. Fraudulent conduct shall not
include negligence, recklessness, bad judgment or any
unintentional acts of Employee;
(vi) Conduct which is a material violation of any provision of
this Agreement for a period of thirty (30) days after which
notice to Employee of such violation is given Employee by
Employer;
(vii) The taking by the Employee of actions (excluding Permitted
Activities) in conflict with any interest of the Employer,
Futech or their subsidiaries or affiliates, provided that
Employee shall have ten (10) days after written notice
thereof to cure such breach;
(viii) A material breach by Employee of any representation,
warranty, covenant or agreement contained in this Agreement;
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(ix) Employee's knowing breach or default of any of the
representations contained in that certain "Merger Agreement"
of even date herewith (the "MERGER AGREEMENT"), by and among
Carl E. Voigt, III, Carl E. Voigt, IV, Futech, Fundex Games,
Ltd., and others, relating to, among other things, certain of
the capital stock of Fundex Games, Ltd., which breach or
default has a material adverse effect on the business of
Fundex;
(x) If Employee intentionally materially misrepresents any
statement to Employer or Futech; or
(xi) If Employee terminates this Agreement.
6. TERMINATION BY EMPLOYEE. Employee shall have the right to terminate
this Agreement at any time after at least ninety (90) days prior written notice
given to Employer. Employee agrees to provide Employer with ninety (90) days
prior written notice of any such termination.
7. EFFECT OF TERMINATION.
(a) Proper Termination. Upon proper termination of this Agreement by
Employer or Employee, any amounts payable between the parties for periods
prior to termination shall remain payable, and the covenant not to compete
set forth in Section 8 below, and the proprietary information provisions of
Section 9 below, shall survive any said termination and shall continue to
bind Employee for the period of time stated therein.
(b) Termination Without Cause. Upon the occurrence of a termination
by Employer without Cause or "Constructive Termination" by Employer, this
Agreement shall terminate upon the date of such termination without Cause
and the Employee shall (i) be paid, within 10 days thereafter, any unpaid
portion of the Base Salary as then in effect, through the Expiration Date;
(ii) receive (within 120 days after the end of the relevant fiscal year of
Futech) any bonus payments, prorated to such date of termination, Employee
would be entitled to but for such termination without Cause, and (iii) be
entitled to vesting of all options to purchase common stock of Futech
granted to Employee, and such options shall become immediately exercisable
as set forth in Section 3 herein. Upon such termination without Cause or
Constructive Termination, the restrictions in Section 8 and Section 9 (with
respect only to Fundex) below shall automatically terminate and shall be of
no further force or effect (this provision shall not effect any
restrictions appearing in the Merger Agreement). For purposes of this
Agreement, Constructive Termination shall mean:
(i) a material change in Employee's title, authorities or duties
as set forth in Section 1 of this Agreement;
(ii) Employer's continuing breach of the terms of this Agreement
for a period of 30 days after its receipt of written notice of
such breach from Employee specifying the alleged breach;
(iii) Goett shall no longer be Chairman and/or Chief Executive
Officer of Futech at any time prior to the earlier to occur
of one year after the date of this Agreement or the date of
any secondary public offering by Futech or its successor;
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(iv) a default by Futech in the payment of any installment of the
Promissory Note executed in accordance with Section B of
EXHIBIT 1.6 of the Merger Agreement; or
(v) a material default by Futech in any representation, warranty
or covenant made by Futech in the Merger Agreement, after
written notice of such default from Employee to Futech
specifying the alleged breach and 30 days to cure such breach.
8. RESTRICTIVE COVENANTS. Employee acknowledges that Employee will have
access to confidential information about Employer and Futech, and that Employee
will have access to other "proprietary information" (as defined in Section 9
below) acquired by Employer or Futech at the expense of Employer or Futech for
use in the business of Employer and/or Futech. Accordingly, by execution of this
Agreement:
(a) Employee agrees that commencing the date of this Agreement, and
continuing for one (1) year following Employee's termination of
employment with Employer pursuant to Section 6 or for Cause,
Employee shall not violate the provisions of subparagraph 8(b)
below. Employee agrees that the one-year period referred to in the
preceding sentence shall be extended by the number of days included
in any period of time during which Employee is or was engaged in
activities constituting a breach of subparagraph 8(b).
(b) During the time period specified in subparagraph (a) above,
Employee shall not:
(i) Directly or indirectly induce, encourage or assist any other
individual who was employed by Employer or Futech during
Employee's employment with Employer, or during the one (1)
year period referred to in subparagraph (a) above, to leave
the employ of Employer or Futech. If Employee has any control
over, or responsibility with respect to, the hiring of
employees, agents or consultants at any other facility or with
any other employer, Employee shall use reasonable efforts to
preclude the hiring or retention by such other employer or
facility of any individual who was employed by Employer or
Futech during Employee's employment period with Employer or
Futech or during the one (1) year period referred to in
subparagraph (a) above.
(ii) Directly or indirectly solicit (or take other actions which
could reasonably have the same effect as such solicitation)
any individual or entity who is or was a customer of Employer
or Futech during Employee's employment with Employer or Futech
to obtain services from Employee or any other individual or
entity, if such services are similar to, or the same as, the
services provided to such individual or entity by Employer or
Futech during Employee's employment with Employer or Futech,
and the services and/or goods solicited are in the toys and/or
games business.
(iii) Directly or indirectly own, manage, operate, control, be
employer by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any
business offering services in competition with those of
Employer or Futech and located anywhere in the world.
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(c) Employee agrees, prior to employment, to provide a copy of this
Section 8 to each and every other employer or facility at which
Employee is retained or employed during the period specified in
subparagraph 8(a) above.
(d) Employee expressly agrees and acknowledges that these restrictive
covenants are necessary for Employer's and Futech's protection
because of the nature and scope of Employer's and Futech's
business, the highly technological-intensive nature of Employer's
business, and Employee's position with and services rendered for
Employer and/or Futech, Employee expressly agrees and acknowledges
that this covenant not to compete is reasonable as to time, scope
of activities restricted, and geographical area, does not place any
unreasonable burden upon Employee, and does not prevent Employee
from earning a living. Employee and Employer agree that the general
public will not be harmed as a result of enforcement of this
covenant not to compete.
(e) If the scope of any restriction in this Section is too broad to
permit enforcement of such restriction to its fullest extent, then
such restriction shall be enforced to the maximum extent permitted
by law, and the parties hereto consent and agree that such scope
may be modified judicially or by arbitration in any proceeding
brought to enforce such restriction. Further, Employee acknowledges
that any breach of this covenant not to compete would result in
irreparable damage to Employer and/or Futech. Employee acknowledges
and agrees that remedies at law for any breach or violation of the
provisions of this Section would alone be inadequate, and agrees
and consents that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity
of proof of actual damage, and such remedies shall be in addition
to other remedies and right Employer may have at law or in equity.
Employee agrees that neither Employer nor Futech shall not be
required to give notice or post any bond in connection with
applying for or obtaining any such injunctive relief.
(f) Subject to Section 7 herein, Employee agrees that the covenants in
this Section 8 shall be construed as an agreement independent of
any other provision of this Agreement so that the existence of any
claim or cause of action by Employee against Employer or Futech,
whether predicated on this Section or otherwise, shall not
constitute a defense to the enforcement of this Section.
(h) Employee acknowledges that Employee has had the opportunity to have
Employee's personal legal counsel review these restrictive
covenants, and all of the other provisions in this Agreement.
(i) Employee acknowledges that Employee understands and hereby agrees
to each and every term and condition of these restrictive
covenants.
9. PROPRIETARY INFORMATION. It is understood and agreed that, in the
course of Employee's employment hereunder and through Employee's activities for
and on behalf of Employer or Futech, Employee will receive, deal with and have
access to Employer's and/or Futech's "proprietary information," defined below,
and that Employee holds and is to hold said proprietary information in trust and
confidence for Employer and Futech. Employee agrees that Employee shall not,
during the term of this Agreement or thereafter, in any fashion, form or manner,
directly or indirectly, retain, make copies of, divulge, disclose or communicate
to any person, in any manner whatsoever, or authorize anyone
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else to take such actions, except when necessary or required in the normal
course of Employee's employment hereunder and for the benefit of Employer or
Futech, or with the express written consent of Employer and Futech, any of
Employer's or Futech's proprietary information or any information of any kind,
nature or description whatsoever concerning any matters affecting or relating to
Employer's or Futech's business.
For purposes of this Agreement, "proprietary information" means and
includes the following: the identity of customers or potential customers of
Employer or Futech; any written, typed or printed lists or other materials
identifying the customers of Employer or Futech; any information supplied by
customers of Employer or Futech; any and all data or information involving the
techniques, programs, methods or contacts employed by Employer or Futech in the
conduct of its business; any lists, documents, manuals, records, forms, or other
materials used by Employer or Futech in the conduct of its/their business; any
descriptive materials describing the methods and procedures employed by Employer
or Futech in the conduct of its business; any other secret or confidential
information concerning Employer's or Futech's business or affairs. The terms
"list," "document," or their equivalent, as used in this paragraph, are not
limited to a physical writing or compilation but also include any and all
information whatsoever regarding the subject matter of the "list" or "document"
whether or not such compilation has been reduced to writing. For purposes of
this Agreement, proprietary information shall not include information that (i)
becomes generally available to the public, other than as a result of disclosure
by Employee or his agents, representatives; (ii) becomes available on a non-
confidential basis from a source other than a member of Employer, Futech or
their affiliates or agents, provided such source lawfully obtains such
information and is not bound by a confidentiality agreement with any member of
Employer or Futech; or (iii) is required to be disclosed by law.
The parties hereby stipulate as between themselves that this requirement of
confidentiality is vital to the effective and successful operation of Employer's
and Futech's business, and that any breach of the terms of this Section 9 shall
be a material breach of this Agreement. In the event of Employee's actual or
threatened breach of this Section 9, Employer and/or Futech shall be entitled,
in addition to any and all available remedies for such breach or threatened
breach, to the recovery of damages from Employee and to injunctive relief.
If during the term of Employee's employment with Employer Employee develops
or discovers any innovative technique, method, or process relating to the
Business, or receives any patents relating to the Business, then such
techniques, methods, processes and patents shall be the property of Employer.
Upon termination of this Agreement for any reason, Employee shall
immediately turn over to Employer any proprietary information. Employee shall
have no right to retain any copies of any material qualifying as proprietary
information for any reason whatsoever after termination of Employee's employment
hereunder without the express prior written consent of Employer.
Subject to Section 7 herein, Employee agrees that the covenants in this
Section 9 shall be construed as an agreement independent of any other provision
of this Agreement so that the existence of any claim or cause of action by
Employee against Employer or Futech, whether predicated on this Section or
otherwise, shall not constitute a defense to the enforcement of this Section.
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10. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the parties
with respect to employment or with respect to the compensation of Employee by
Employer, other than as called for in the Agreement described in subparagraph
5(b)(ix) above.
11. SUCCESSORS; BENEFIT. This Agreement is personal in its nature and
Employee shall not, without the consent of Employer, assign, transfer or
delegate this Agreement or any rights or obligations hereunder. The rights and
obligations of Employer hereunder shall inure to the benefit of and shall be
binding upon the successors and assigns of Employer.
12. GOVERNING LAW. This Agreement and the legal relations thus created
between the parties hereto shall be governed by and construed and enforced under
and in accordance with the laws of the State of Arizona.
13. JURISDICTION. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction in any case or controversy arising under this
Agreement or by reason of this Agreement. The parties agree that any litigation
or arbitration arising from the interpretation or enforcement of this Agreement
shall be in the United States Federal Court for the District of Arizona, if
available, and if not available, then in the Maricopa County Superior Court, and
for this purpose each party to this Agreement (and each person who shall become
a party) hereby expressly and irrevocably consents to the jurisdiction of such
courts.
14. ENTIRE AGREEMENT; MODIFICATION. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope. Except as
otherwise expressly set forth in this Agreement, or in the Agreement described
in subparagraph 5(b)(ix) above, this Agreement contains all the terms and
conditions agreed to by the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, if any, with respect
thereto. This Agreement may not be amended or modified except by an agreement in
writing duly executed by Employee, Employer and Futech. The parties do not
intend to confer any benefit hereunder on any person or firm other than the
parties hereto. No representation or warranty herein may be relied upon by any
person not a party to this Agreement.
15. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of, or failure to
insist upon strict compliance with, any right or power hereunder at any one or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
16. ATTORNEY'S FEES. Employee and Employer agree that in any arbitration
or legal proceeding arising out of this Agreement the prevailing party shall be
entitled to its reasonable attorney's fees and costs of litigation, determined
by the judge and not the jury in which the action is brought, in addition to any
other relief granted.
17. SEVERABILITY. In the event that any court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken. All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Further, any court order striking any portion of this Agreement shall
modify the stricken terms as narrowly as possible to give as much effect as
possible to the intentions of the parties under this Agreement.
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18. NOTICES. Any notice or other communication given under the terms of
this Agreement ("Notice") shall be in writing and shall be delivered in person
or mailed by certified mail, return receipt requested, in the United States
mail, postage pre-paid, addressed as follows:
If to Employer: [New Sub]
Attention: Frederick B. Gretsch, Sr.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
and
Futech Interactive Products, Inc.
Attention: Vincent W. Goett
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
If to Employee: [2]
2237 Directors Row
Indianapolis, Indiana 46241
Copy to: Much Shelist Freed Denenberg Ament &
Rubenstein, P.C.
200 North LaSalle Street, Suite 2100
Chicago, Illinois 60601
Attention: Mitchell S. Roth
Phone: (312)346-3100
Fax: (312)621-1750
or at such other address as a party may from time to time designate by Notice
hereunder. Notice shall be effective upon delivery in person, or if mailed, at
midnight on the third business day after the date of mailing.
19. MISCELLANEOUS. The parties agree to do such further acts and things
and execute and deliver such additional agreements and instruments as either
party may reasonably require to consummate, evidence, or confirm any agreement
contained herein in the manner contemplated hereby. This Agreement shall be
construed according to its fair meaning, and neither for nor against the
drafting party. The titles and headings of sections of this Agreement are for
the convenience of reference only, are not intended to define, limit, or
describe the scope or intent of any provision of this Agreement, and shall not
affect the construction of any provision of this Agreement.
20. INDEMNIFICATION. Employer and Futech agree to indemnify the Employee
(and his successors, assigns, estate, administrators, executors, and legal
representatives) and to advance monies to such persons to pay expenses relating
to indemnifiable events, in each case to the fullest extent permitted by the
laws of the State of Arizona and Employee shall be entitled to the protection of
any insurance policies Employer or Futech may elect to maintain generally for
the benefit of their directors and officers, against all costs, charges and
expenses whatsoever incurred or sustained by Employee or his successors,
assigns, estate, administrators, executors and legal representatives in
connection with any action, suit or proceeding to which any such persons may be
made a party by reason of the Employee being or having been a director or
officer of the Employer, Futech or any of their subsidiaries and affiliates;
provided, however, that the provisions of this Section 20 shall not apply to
liabilities indemnified against by Employee in that certain Merger
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Agreement, by and among Futech, Trudy Corporation, Futech Interactive Products,
Inc., an Arizona corporation, DaMert Company, Janex International, Inc., Fundex
Games, Ltd., Employer, and certain individuals (subject to the limitations on
liability set out in Exhibit 3.36 of the Merger Agreement).
DATED the date first hereinabove written.
EMPLOYER: [New Sub],
a Nevada corporation
By:
----------------------------------
Vincent W. Goett, CEO
EMPLOYEE:
-------------------------------------------------
[2]
ACCEPTED AND AGREED TO
as of the date first hereinabove written,
by:
Futech Interactive Products, Inc., a Delaware corporation
By
- -----------------------------------------------
Vincent W. Goett, C.E.O.
List of Exhibits:
Representations and Warranties
Regarding Stock................."A"
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EXHIBIT "A"
SUBSCRIBER REPRESENTATIONS AND WARRANTIES
Subscriber hereby represents, warrants and acknowledges to the Corporation
as follows:
1. The Shares will be acquired by Subscriber for Subscriber's own account and
not with the view to, or for resale in connection with, any distribution,
public offering or transfer thereof within the meaning of the Securities Act
of 1933, as amended (the "1933 Act"), and Subscriber is not, directly or
indirectly, participating in an underwriting of any such distribution,
offering, or transfer.
2. Subscriber understands that the Shares have not been registered under the
1933 Act by reason of issuance in transactions exempt from the registration
and prospectus delivery requirements of the 1933 Act pursuant to Section
4(2) thereof.
3. Subscriber understands that the Shares have not been registered under the
1933 Act or any state securities laws, that they are "restricted securities"
in the hands of Subscriber with the meaning of the Act, and that any future
sale of the Shares will be regulated by the Act and applicable state
securities laws. Subscriber understands that the Shares may not be sold,
transferred or otherwise disposed of without registration under the 1933 Act
or an exemption therefrom, and that in the absence of an effective
registration statement covering the Shares, or an available exemption from
registration under the 1933 Act, the Shares must be held indefinitely.
4. Subscriber will not sell or otherwise transfer or dispose of any of the
Shares: (A) except in strict compliance with (1) the provisions of the
Agreement to which this Exhibit is attached, and (2) the restrictions on
transfer described herein, and (B) unless such securities are (X) registered
under the 1933 Act, and any applicable state securities laws, or (Y)
Subscriber represents that such securities may be sold in reliance on an
exemption from such registration requirements.
5. No federal or state agency, including the Securities and Exchange Commission
or the securities regulatory agency of any state, has approved or
disapproved the Shares, passed upon or endorsed the merits of the Shares, or
made any finding or determination as to the fairness of the Shares for
private investment.
6. The investment in the Shares is being made in reliance on specific
exemptions from the registration requirements of federal and state
securities laws, and the Corporation is relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgments and
understandings set forth herein in order to establish such exemptions.
7. Subscriber agrees to deliver to the Corporation, if requested by the
Corporation, an investment letter in customary form.
8. Based on personal knowledge and experience in financial and business matters
in general, Subscriber understands the nature of this investment, is fully
aware of and familiar with the business operations of the Corporation, and
is able to evaluate the merits and risks of an investments in the Shares.
9. Subscriber has been given the opportunity to ask questions about the
Corporation and has been granted access to all information, financial and
otherwise, with respect to the Corporation which has been requested, has
examined such information, and is satisfied with respect to the same.
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10. Subscriber has been encouraged to rely upon the advice of Subscriber's
legal counsel and accountants or other financial advisors with respect to
the tax and other considerations relating to the acquisition of the Shares.
11. Subscriber, in determining to acquire the Shares, has relied solely upon:
(A) the advice of Subscriber's legal counsel and accountants or other
financial advisers with respect to the tax, economic and other consequences
involved in acquiring the Shares, and (B) Subscriber's own independent
evaluation of the business, operations and prospects of the Corporation and
the merits and risks of the acquisition of the Shares.
12. Subscriber has been advised and understands that this investment is, by its
nature, very speculative.
13. Subscriber has sufficient income and net worth such that Subscriber does
not contemplate being required to dispose of any portion of the investment
in the Shares to satisfy any existing or expected undertaking or
indebtedness. Subscriber is able to bear the economic risks of an
investment in the Shares, including, without limiting the generality of the
foregoing, the risk of losing all or any part of the investment and
probable inability to sell or transfer the Shares for an indefinite period
of time.
14. Subscriber is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated by the Securities and Exchange Commission, as
presently in effect.
15. The investment in the Shares has been privately proposed to Subscriber
without the use of general solicitation or advertising.
16. Subscriber understands that the certificates representing the Shares may
bear restrictive legends as to the restricted nature of such securities and
may bear a legend substantially in the following form, and agrees to will
hold the Shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR
INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE
HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE
COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY).
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EXHIBIT 2.10
TO
MERGER AGREEMENT
(PROVISIONS REGARDING SHAREHOLDER LOANS AND GUARANTEES)
A. DAMERT.
New Futech will, by the Closing, do the following:
(i) Obtain releases of Frederick A. DaMert and Gail Patton DaMert of their
personal guarantees of their following DaMert Company's obligations:
(1) loans from Wells Fargo Bank with aggregate current balances of
approximately $2,824,000; and (2) all obligations under that certain
real property lease dated July 27, 1995 for the premises located at
1609 fourth street, Berkeley, California.
(ii) Arrange for the pay-off of all the debt obligations of DaMert Company
to Wells Fargo Bank, consisting of a credit facility of $2,500,000,
an additional loan of $300,000, and a term equipment loan with an
approximate current balance of $24,000; and
(iii) Assume repayment of the loans owing by DaMert to Frederick A. DaMert
in the aggregate principal amount of $128,849.
B. FUNDEX.
New Futech will, by the Closing, obtain releases of Carl E. Voigt, IV and
Carl E. Voigt, III, and their spouses, of their personal guarantees of the
following Fundex debts: (i) $2,500,000.00 revolving credit line of Fundex with
Norwest Business Credit, Inc.; and (ii) $1,000,000.00 term loan of Fundex with
Liberty Bidco Investment Corporation ("Bidco"). New Futech will, by the Closing,
also obtain releases of the shares of stock of Fundex which are pledged to Bidco
as collateral for the $1,000,000.00 term loan.
C. FUTECH.
Not Applicable.
D. JANEX.
Within 30 days after the Closing, New Futech is to obtain releases of Les
Friedland, Dan Lesnick, and Howard W. Moore from their personal obligations or
guarantees of the Janex line of credit with Tinton Falls State Bank, up to a
maximum amount of $300,000.00.
E. TRUDY.
At the Closing, New Futech will assume repayment of the loans owing by
Trudy to William W. Burnham and two of his family members. The aggregate
principal and interest owing as of January 31, 1999 on all of said debts is
agreed by the parties to be the sum of $800,000.00. Interest will accrue only on
the debt owing to the family members ($172,253.00 balance at April 30, 1999)
between April 30, 1999 through the Closing. No interest will accrue on the debts
owing to William W. Burnham between February 1, 1999 through the Closing. After
the Closing, interest will accrue on all of said debts at and only at four
percent (4%) per annum. At the Closing, twenty five percent (25%) of the
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principal balance due as of the Closing, plus interest accrued to the date of
Closing (on the debt to the family members only), shall be repayable on said
debts, and twenty five percent (25%), plus interest accrued to the date of each
payment (at four percent (4%) per annum) from the date of Closing (regardless of
what interest rate was agreed upon by Trudy and the lender), shall be payable on
each of three consecutive six (6) month anniversaries after the Closing. Trudy
will cause William W. Burnham to forever forgive and discharge the debts owing
to him to the extent necessary to obtain the balances due as described above,
and William W. Burnham hereby agrees to so forgive and discharge said debts to
said extent.
Within thirty (30) days after the Closing, New Futech will obtain releases
of William W. Burnham of his personal guaranty of the following Trudy debts: (i)
Trudy's revolving credit agreement with First Union, with an outstanding balance
as of April 30, 1999 of $795,000.00; and (ii) Trudy's four year Term Note with
First Union, with an outstanding balance as of April 30, 1999 of $195,650.00.
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EXHIBIT 2.13
TO
MERGER AGREEMENT
(OTHER AGREEMENTS FOR PARTICULAR PARTIES)
A. DAMERT.
New Futech will assume the obligations of DaMert to deliver cash,
promissory notes and stock to Greg McVey, president of DaMert, in accordance
with DaMert's Special Executive Incentive Compensation Plan, in the amount of 4%
of the DaMert net consideration after paying broker for the Merger under Section
1.6.
B. FUNDEX.
1. Phase 10 Option.
Fundex owns all rights to a product identified as "Phase 10." For a short
time period after three years have elapsed after the Closing, if certain stock
price performance criterion have not been satisfied, all as set out below, then
the Fundex shareholders, acting jointly but not severally, will have an option
(the "Phase 10 Option"), on the terms set out herein, to exchange all of the
stock in New Futech that they acquired pursuant to the Mergers for all ownership
rights to Phase 10. This provision does not prevent Fundex shareholders from
selling their stock, but requires them to own and exchange the same amount of
stock they would have had if the stock had not been sold.
New Futech and New Sub will maintain Phase 10 free and clear of any liens,
claims or encumbrances not existing as of the Closing, so long as the Phase 10
Option is exercisable. New Futech and New Sub will obtain releases of any liens
against Phase 10 (even those existing as of the Closing), upon the earlier of
the following, unless prior to that time the Phase 10 Option is terminated as
provided for in the paragraph appearing immediately below: (i) twenty-four
months after the Closing, or (ii) a refinancing by New Futech of the Fundex
credit facility. If the Phase 10 Option is exercised, New Futech and New Sub
will deliver Phase 10 as called for in this provision free and clear of all
liens.
See Exhibit 1.6 for provisions creating security for the obligations of New
Futech and New Sub regarding Phase 10.
The Phase 10 Option must be exercised, if at all, within and during the 60
day period after the expiration of three (3) years after the Closing. The Phase
10 Option shall terminate if either or both of the following occur and the
Promissory Note payable to the Fundex shareholders (described in Section B of
EXHIBIT 1.6 above) is paid in full:
(a) After the expiration of any lockup period specified in the
underwriting agreement for any public stock offering prohibiting the
Fundex shareholders from selling the New Futech stock acquired in
the Mergers, for any 15 consecutive trading day period the average
daily closing price, on a principle national public market on which
such stock is traded, of the stock of New Futech acquired by the
Fundex shareholders in the Mergers is such that said stock is valued
at not less than $7.50 per share, and the average number of shares
traded daily during said 15 days was at least 40,000; or
(b) New Futech offers to buy, or presents a party who offers to buy, the
stock acquired by the Fundex shareholders pursuant to the Mergers,
at a purchase
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price of at least $7.50 per share, and with a closing date of not
more than 60 days after the offer is made (if the offer is accepted,
the closing must actually occur within said time, or fail to occur
through the fault of the sellers), whether or not said offer is
accepted; provided, however, that said offer may not be made until
at least twelve months after the Closing.
If the Phase 10 Option is exercised, then the Employment Agreements for
Carl E. Voigt, IV and Carl E. Voigt, III shall thereupon automatically
terminate, which terminations will be terminations for "Cause" and will
be governed by the terms of the Employment Agreements; provided,
however, that the non-compete provisions of the Employment Agreements
shall thereafter not restrict Carl E. Voigt, IV and/or Carl E. Voigt,
III from using the Phase 10 product, even if that use competes with New
Futech.
Futech will use its best efforts to obtain a valuation of the Phase 10
Option prior the Closing, at Futech's cost. If the result of the
valuation is such that the value of the New Futech shares to be issued
in the Merger to the Fundex shareholders is less than the value which
would be necessary to qualify the Merger as a tax-free transaction, then
the parties agree to negotiate in good faith to adjust the consideration
payable to the Fundex shareholders in the Merger so that the Merger
qualifies as a tax free transaction.
2. Fundex Key Employees. Jim Money, George Propsom, Eric Voigt and
Barrett Powers will be considered for stock options of New Futech as part of New
Futech's employee stock option plan, if any.
3. Election to Board of Directors. At the Closing, subject to the
applicable fiduciary duties, New Futech's Chairman and Chief Executive Officer
shall recommend the election of Carl E. Voigt, IV to the Board of Directors of
New Futech and use his best efforts to assure New Futech's management will
recommend the reelection of Carl E. Voigt, IV to the Board, at the appropriate
times, so long as Carl E. Voigt, IV is party to an employment agreement with New
Sub.
4. Termination of Representations and Warranties. If New Futech defaults
under its obligations to pay the Fundex shareholders the Promissory Note as
called for on EXHIBIT 1.6 above, and the Fundex shareholders as a result thereof
repossess the stock of New Sub as allowed on EXHIBIT 1.6 above, then the
representations and warranties of Fundex and the Fundex Shareholders in this
Agreement shall, effective at the time of the repossession, terminate; provided,
however, that New Futech's failure to make payments due under said Note as a
result of a violation of representations and/or warranties by Fundex or the
Fundex Shareholders shall not cause a termination of the representations and
warranties of Fundex or its Shareholders.
5. Shareholder Voting. Notwithstanding anything in this Agreement to the
contrary, if Futech is in default under that certain License Agreement, dated of
even date with this Agreement, between Futech and Fundex, then each of the
Fundex Shareholders may vote such Shareholder's shares of stock in Fundex not in
favor of the Mergers as set out in this Agreement.
Notwithstanding anything in this Agreement to the contrary, the Fundex
Shareholders will not vote on the Merger until: (i) an appraisal of the Phase 10
Option has been completed; and (ii) the parties have taken such action as is
necessary to assure that the Merger qualifies as a tax free reorganization for
Fundex and the Fundex shareholders under Section 368(a) of the Internal Revenue
Code.
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C. FUTECH.
None.
D. JANEX.
None.
E. TRUDY.
1. Guarantee of Value of Futech Stock.
(a) If as of the Effective Time New Futech common stock has become
"Public" (meaning for purposes of this Agreement that said stock is
then publicly traded and listed on a U.S. registered securities
exchange, such as the NASDAQ National Market System), then effective
at the Closing the Trudy shareholders will instead of receiving in
the Merger 400,000 shares of New Futech common stock (as described
on EXHIBIT 1.6) they will receive shares of New Futech common stock
in the aggregate amount of the greater of 400,000 shares or that
number of shares necessary to equal a $3,000,000 value, determined
using the average of the closing trading prices of the New Futech
common stock as of the fifteen days immediately prior to the
Closing.
(b) If as of the Effective Time New Futech common stock has not become
Public, but does become Public within five years after the Effective
Time, then the closing trading price of the New Futech common stock
shall be determined for the day after New Futech becomes Public and
for each of the fourteen days thereafter, and the average of those
fifteen numbers (hereinafter the "Opening Public Value") shall be
calculated. If and only if the Opening Public Value is less than
$7.50 per share, then additional New Futech common stock will be
issued to the Trudy shareholders in the number of shares necessary
so that New Futech common stock worth $3,000,000 (valued at the
Opening Public Value) has been issued to the Trudy shareholders
pursuant to this Agreement.
The provisions of this subparagraph (b) assume that: (i) there will
be no stock splits or reverse splits of New Futech stock between the
Closing date and the date New Futech becomes Public; and (ii) the
issuance of the additional stock is exempt from federal and state
securities registration requirements or can be registered by New
Futech. If a stock split or reverse stock split occurs between the
Closing date and the date New Futech becomes Public, then the $7.50
value used in this subparagraph shall be changed as necessary so
that each share of New Futech common stock originally acquired in
the Merger at the Closing, if held until New Futech goes Public, is
guarantied a value of at least $7.50 when New Futech becomes Public.
New Futech agrees to use its best efforts to register the shares
covered by this subparagraph under applicable securities laws, if
necessary.
(c) If the New Futech common stock has not become Public within five
years after the Effective Time, then the Trudy shareholders will
have the right at any time after said five year period but prior to
the date which is six months thereafter, to exchange New Futech
common shares, acquired pursuant to
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Section 1.6 of this Agreement and still held, for a New Futech
debenture with a principal amount equal to the aggregate principal
amount of New Futech common shares surrendered at a value of $7.50
per New Futech common share. The debenture would be payable in full
within five (5) years after the origination date of the debenture,
with interest at the publicly announced prime rate of interest of
Bank One, Arizona, N.A., as such rate may from time to time change.
At Futech's election, Futech may instead of issuing any said
debenture pay any person entitled to such a debenture cash in the
amount at which the debenture would be issued to such person.
The provisions of this subparagraph (c) assume that: (i) there will
be no stock splits or reverse splits of New Futech stock between the
Closing date and the date a debenture is issued under this
provision; and (ii) the issuance of such debentures is exempt from
federal and state securities registration requirements or can be
registered by New Futech. If a stock split or reverse stock split
occurs between the Closing date and the date a debenture is issued,
then the $7.50 value used in this subparagraph shall be changed as
necessary so that each share of New Futech common stock originally
acquired in this Merger at the Closing, if replaced with a debenture
under this subparagraph, is guarantied a value of at least $7.50
when the debenture is issued. New Futech agrees to use its best
efforts to register the debentures covered by this subparagraph
under applicable securities laws, if necessary.
2. Enforcement. The Merging Companies acknowledge and agree that the
provisions of Section 1 immediately above are for the benefit of the Trudy
shareholders and the holders as they may exist from time to time of the New
Futech stock acquired by said shareholders pursuant to the Merger, and that such
Trudy shareholders and such holders have legally enforceable rights against New
Futech in respect thereof. It shall be the burden of the shareholder to trace
his/her stock as being stock acquired by a Trudy shareholder pursuant to the
Merger.
3. Board Position. At the Effective Time, subject to the applicable
fiduciary duties, New Futech's Chairman and Chief Executive Officer shall
recommend the election of William W. Burnham to the Board of Directors of New
Futech and use his best efforts to assure New Futech's management will recommend
the reelection of William W. Burnham to the Board, at the appropriate times, so
long as Willaim W. Burnham is party to an employment agreement with New Futech.
4. Trudy Key Employees. Bill Carney will be considered for stock options
of New Futech as part of New Futech's employee stock option plan, if any.
5. Environmental Indemnification. Effective automatically at the Closing,
without the necessity of any additional documents, William W. Burnham
("Burnham") agrees as follows:
Burnham is, directly or indirectly, an owner of real property located
at 353 Main Avenue, Norwalk, Connecticut (the "PROPERTY"), which property
is currently leased by Trudy. There are, have been, or may have been
potential hazardous liability problems with the Property. The Merging
Companies are not willing to assume any potential hazardous waste liability
that currently exists.
Burnham is owed money by Trudy, which debts are compromised as called
for in EXHIBIT 2.10.
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Burnham hereby agrees to indemnify, defend and hold harmless New
Futech, and New Futech's officers, directors, attorneys, and agents, from
and against any and all claims of any type, including attorneys' fees and
costs, arising out or relating to any claim relating to hazardous waste
associated with the Property relating to all periods of time prior to the
Closing of the Merger.
Burnham releases and forever discharges New Futech from the debts
owing to Burnham by Trudy, to and only to the extent called for in EXHIBIT
2.10.
New Futech may offset any amount owing to it under this provision or
any other provision of this Agreement against any amount owing by New
Futech to Burnham; provided, however, that if the liability to be offset
relates to items other than the environmental indemnification, then prior
to such offset: (i) New Futech and Burnham shall mutually agree as to the
amount of the liability; and (ii) New Futech will give Burnham thirty days
after written notice to eliminate the liability.
6. Deterioration of Financial Condition. The Merging Companies agree: (i)
that any continued deterioration in the operations, assets and financial
condition of Trudy between the date of the Merger Agreement and the Closing
shall not constitute a failure by Trudy to fulfill the condition to Closing set
forth in Section 4.1.6 of the Merger Agreement; and (ii) the entering by Trudy
into any loan or financing arrangement, contract, commitment or transaction
between the date of the Merger Agreement and the Closing shall not constitute a
failure by Trudy to fulfill the condition to Closing set forth in Section 4.1.10
of the Merger Agreement, so long as Futech is given advance notice where
practical and prompt notice otherwise.
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EXHIBIT 3-A
TO
MERGER AGREEMENT
(DISCLOSURE SCHEDULE OF DAMERT COMPANY)
The paragraph numbering below corresponds to the paragraph numbering in
Article III of the Merger Agreement.
3.1 DUE INCORPORATION.
No exceptions.
3.2 CAPITALIZATION.
Common Shares Authorized: 5,000 shares, no par value.
Common Shares Issued and Outstanding: 1,000
Series A Preferred Authorized: Not Applicable.
Series A Preferred Issued and Outstanding: Not Applicable.
The following summarizes stock options, warrants, subscriptions, conversion
rights and similar rights:
One stock option for the purchase of 52.63 shares of common stock,
exercisable for a total price of $1.00, is issued to Lynne McDonald. Fred
and/or Gail DaMert will cause the option to be exercised simultaneously
with the Closing of the Merger, and the stock issued in connection with
such exercise shall receive its share of the consideration to be paid to
the DaMert shareholders in the Merger.
Stock appreciation rights entitling holders to payment equivalent to the
increase in value of units designed to be equal to 7% of the aggregate of
DaMert's outstanding stock and those units. Fred and/or Gail DaMert have
bought out three percentage points of these rights prior to the Closing,
leaving 4% to be assumed by New Futech as described in Section A of EXHIBIT
2.13.
3.3 SUBSIDIARIES.
None
3.4 FINANCIAL INFORMATION.
No exceptions.
3.5 TAXES.
The 1998 federal and state income tax returns of the shareholder of the
corporation are currently on extension.
3.6 MATERIAL CHANGES.
See 3.30 below.
3.7 TITLE TO ASSETS; LIENS.
The liens of Wells Fargo Bank.
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3.8 LITIGATION.
(1) DaMert has received a written claim of infringement with regard to a
product name and the use of a slogan including the word "rainbow" in
connection with the packaging and advertising of certain of its toy
products. DaMert disputes that it is infringing upon the property
rights of the claimant.
(2) The Defendant in an action by DaMert for collection of an unpaid
invoice ($4,672) has filed a cross-complaint against DaMert, alleging
$3,000 in damages on account of the action of DaMert in shipping goods
prematurely to the Cross-Complainant. DaMert disputes the validity of
the cross-complaint.
3.9 COMPLIANCE WITH LAWS.
No exceptions.
3.10 INSURANCE.
No exceptions.
3.11 LICENSES.
No exceptions.
3.12 HAZARDOUS MATERIALS.
DaMert used hazardous materials, specifically polyester resins and
solvents, from 1973 until April 1989 to produce optical prisms and tabletop
sculptures. In April of 1989 it ceased manufacturing and moved from that
location. The company has not used hazardous materials since.
3.13 JUDGMENTS AGAINST THE MERGING COMPANY AND/OR ITS BUSINESS.
None.
3.14 COMPLETE SALE.
No exceptions.
3.15 ASSETS IN GOOD CONDITION.
DaMert's local area network of PC's will require software upgrades and some
hardware replacement in order to be Year 2000 compliant. Outdated workstations
need to be replaced to conform to Y2K compliance (estimated $30,000 to $40,000
expense).
3.16 DISCLOSURE MATERIALS.
No exceptions.
3.17 DEFAULTS.
DaMert is not in compliance with certain covenants in the credit agreement
with Wells Fargo Bank related to promissory notes in the original principal
amounts of $2,500,000 and $400,000.
3.18 MATERIAL CONTRACTS.
(i) July 27, 1995 office lease for the property located at 1609 Fourth
St., Berkeley, CA.
(ii) June 1, 1997 License Agreement with L.J. Liff & Associates Limited.
(iii) January 28, 1999 distribution agreement with Equity Toys.
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(iv) November 1, 1994 Master License Agreement with Dan Gilbert, Inc., and
related product license agreements
(v) April 21, 1998 Licensing Agreement with Brian W. Walker and Rodney A.
Dahl
(vi) 1995 License Agreement with John A.L. Osborn.
(vii) April 14, 1997 and April 11, 1997 License Agreements with Relinda
Recio dba X Libris.
(viii) October 4, 1995 License Agreement with Nico Smith.
(ix) November 17, 1998 Licensing and Distribution Agreement with Crystal
Lines (International) Pty, Ld.
3.19 OUTSTANDING LIABILITIES.
See 3.30 and 3.22.
3.20 INVENTORY.
$15,649 of obsolete inventory on books. $12,183 of inventory of fantasy
characters whose license has expired. $16,465 of inventory in good condition not
presented in 1998 catalog. $15,299 of inventory in good condition but old
packaging. Total inventory value of $1,262,556.
3.21 RECEIVABLES.
DaMert estimates it will have approximately $63,000 in uncollectible
accounts receivable, thereby exceeding its $50,000 reserve.
3.22 EMPLOYEES.
See Exhibit 3A-3.22.
DaMert has entered into an employment agreement with Julie Nunn, Director
of Product Development, which will survive the Closing.
3.23 NO CONFLICTS.
The following material agreements of DaMert require consent or notice in
connection with the Mergers:
(i) July 27, 1995 office lease for 1609 Fourth Street, Berkeley,
California between the Merging Company and Cedar/Fourth Street
Partners (notice to Lessor required);
(ii) June 1, 1997 License Agreement between DaMert and L.J. Liff &
Associates Limited (consent for merger required, which consent
shall not be unreasonably withheld by the Licensor).
(iii) December 15, 1998 loan agreement with Wells Fargo Bank (consent
required).
(iv) November 1, 1994 Master License Agreement with Dan Gilbert, Inc.,
and related product license agreements.
(v) November 17, 1998 Licensing and Distribution Agreement with Crystal
Lines (International) Pty, Ltd (notice required).
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3.24 VIOLATIONS OF LAW.
None.
3.25 CONDITION AND SUFFICIENCY OF ASSETS.
See 3.15 above.
3.26 BANK ACCOUNTS.
See Exhibit 3A-3.26.
3.27 ENVIRONMENTAL MATTERS.
None.
3.28 INTELLECTUAL PROPERTY.
See Exhibit 3A-3.28.
3.29 CUSTOMERS AND SUPPLIERS.
No exceptions. See Exhibit 3A-3.29
3.30 CHANGES TO THE MERGING COMPANY'S DOCUMENTS.
DaMert has entered into compensation agreements not in the ordinary course
of business with Julie Nunn, Director of Product Development; Tom Santilena,
Controller; William Hanlon, Senior Product Developer; and Lawrence Waide, former
Director of Operations. In each case, compensation is payable following or as a
result of a change in control of DaMert. Any amounts payable to said persons
under said arrangements as a result of the Merger shall be paid from the
compensation otherwise payable to Fred and/or Gail DaMert under Section 1.6 of
the Merger Agreement.
3.31 STOCKHOLDERS AGREEMENTS AND OTHER AGREEMENTS.
The employment agreement of Julie Nunn can be terminated within one year of
a change in control only with payment of 4 months severance.
3.32 CERTAIN PAYMENTS.
No exceptions.
3.33 FILINGS COMPLETE.
No exceptions.
3.34 PRODUCTS.
No exceptions.
3.35 PATENTS.
See 3.28
3.36 INDEMNIFICATION; SURVIVAL.
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EXHIBIT 3-B
TO
MERGER AGREEMENT
(DISCLOSURE SCHEDULE OF FUNDEX GAMES, LTD.)
The paragraph numbering below corresponds to the paragraph numbering in
Article III of the Merger Agreement.
3.1 DUE INCORPORATION.
No exceptions.
3.2 CAPITALIZATION.
Common Shares Authorized: 8,000,000 shares, $.0001 par value.
Common Shares Issued and Outstanding: 1,624,824
Series A Preferred Authorized: Not Applicable.
Series A Preferred Issued and Outstanding: Not Applicable.
The following summarizes stock options, warrants, subscriptions, conversion
rights and similar rights:
See Exhibit 3B-3.2
3.3 SUBSIDIARIES.
None
3.4 FINANCIAL INFORMATION.
No exceptions.
3.5 TAXES.
(i) Form 5500 not filed for tax years 1994-1998
(ii) Company currently under audit for income tax year ending 12/31/96
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3.6 MATERIAL CHANGES.
No exceptions.
3.7 TITLE TO ASSETS; LIENS.
No exceptions.
3.8 LITIGATION.
None
3.9 COMPLIANCE WITH LAWS.
No exceptions.
3.10 INSURANCE.
No exceptions.
3.11 LICENSES.
No exceptions.
3.12 HAZARDOUS MATERIALS.
No exceptions.
3.13 JUDGMENTS AGAINST THE MERGING COMPANY AND/OR ITS BUSINESS.
None.
3.14 COMPLETE SALE.
No exceptions.
3.15 ASSETS IN GOOD CONDITION.
No exceptions.
3.16 DISCLOSURE MATERIALS.
No exceptions.
3.17 DEFAULTS.
None.
3.18 MATERIAL CONTRACTS.
None.
3.19 OUTSTANDING LIABILITIES.
See Exhibit 3B-3.19.
3.20 INVENTORY.
No exceptions.
3.21 RECEIVABLES.
No exceptions.
3.22 EMPLOYEES.
See Exhibit 3B-3.22.
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3.23 NO CONFLICTS.
See Exhibit 3B-3.23.
3.24 VIOLATIONS OF LAW.
None.
3.25 CONDITION AND SUFFICIENCY OF ASSETS.
No exceptions.
3.26 BANK ACCOUNTS.
No exceptions.
3.27 ENVIRONMENTAL MATTERS.
None.
3.28 INTELLECTUAL PROPERTY.
No exceptions.
3.29 CUSTOMERS AND SUPPLIERS.
No exceptions.
3.30 CHANGES TO THE MERGING COMPANY'S DOCUMENTS.
No changes.
3.31 STOCKHOLDERS AGREEMENTS AND OTHER AGREEMENTS.
None.
3.32 CERTAIN PAYMENTS.
No exceptions.
3.33 FILINGS COMPLETE.
No exceptions.
3.34 PRODUCTS.
No exceptions.
3.35 PATENTS.
See Exhibit 3B-3.35.
3.36 INDEMNIFICATION; SURVIVAL.
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LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of the 7th day of June, 1999, by
and between Futech Interactive Products, Inc., an Arizona corporation ("Futech")
and Fundex Games, Ltd., a Nevada corporation ("Fundex").
R E C I T A L S:
A. Futech is willing to loan funds to Fundex, on and subject to the terms
of this Agreement.
B. Futech is willing to grant Fundex the right to use certain technology,
on and subject to the terms of this Agreement.
C. Futech and Fundex, and others, have entered into or may in the future
enter into a Merger Agreement (the "Merger Agreement") for, among other things,
the merger of Futech into a Delaware corporation ("New Futech") and the merger
of Fundex into a wholly owned subsidiary ("New Sub") of New Futech (said mergers
are collectively referred to hereinafter as the "Merger"). This Agreement is
intended to apply to New Futech and New Sub after the Merger.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties agree as follows:
T E R M S:
1. LOAN BY FUTECH TO FUNDEX. Futech will loan funds to Fundex, or provide
letters of credit, to be used by Fundex for product development and working
capital, in the total amount of $1,500,00.00, as follows: (i) $250,000.00 upon
execution of this Agreement and execution of the Merger Agreement by all parties
thereto; (ii) $500,000.00 prior to the Fundex shareholder meeting to be called
to approve the SEC-approved S-4 for the Merger; and (iii) the remainder as
needed by Fundex as determined by the parties from time to time. The debt (loan
or use of letter(s) of credit) will accrue interest at ten percent (10%) per
annum from the date(s) advances are made until repaid in full.
The debt will be repaid in full, without offset of any type, with interest
two years after the date of this Agreement. If the Merger closes, New Futech
defaults under its obligations to pay the Fundex shareholders amounts due under
the Promissory Note (the "Note") as called for in Section 1.6 of the Merger
Agreement, and the Fundex shareholders as a result thereof repossess the stock
of New Sub, then $750,000.00 of the balance due under the debt will be forfeited
by New Futech as a penalty.
2. LICENSES OF RIGHTS TO FUNDEX.
(a) Futech hereby grants to Fundex the non-exclusive, non-assignable right
to apply Futech's game board technology in connection with the development,
marketing, distribution and sale of: (i) the Fundex products identified as
incorporating Futech technology in the Fundex Games 1999 Product Catalog; and
(ii) other future products as may be agreed by Futech in a written document(s)
signed after the date of this Agreement by the CEO of Futech.
Futech retains all ownership rights in connection with its technology. All
intellectual property rights, including all patent, trademark, and tradename
rights, including but not limited to the names and related trademarks "Track
Sounds" and "Sound Zone," created
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in the development of products (including but not limited to sound games, sound
puzzles, and other sound products) incorporating the Futech technology, shall be
and remain the property of Futech, and Fundex agrees to, at the request of
Futech, execute (without consideration being paid) such documents as are
necessary and/or appropriate to confirm ownership of said rights in Futech
and/or to transfer ownership rights to Futech.
(b) The term of this license will commence when Fundex commenced applying
Futech technology to products, and will continue thereafter until December 31,
2000.
(c) Fundex shall pay Futech a royalty (referred to in this Agreement as the
"Royalty" or "Royalties") equal to one-half of the Net Operating Profits of
Fundex from the sale of products incorporating Futech technology. The term "Net
Operating Profits" shall mean net sales (gross sales less discounts actually
given and return actually made); less cost of goods sold (landed to
Indianapolis); less commissions paid to third parties of not more than 7%; less
royalties paid to third parties; less 3.5% of net sales for a freight allowance;
less 17% of net sales for an overhead allowance.
Royalties will be payable on a calendar quarter basis, by the thirtieth day
following the calendar quarter to which the Royalties relate. Any unpaid
Royalties shall bear interest at eighteen percent (18%) per annum from the due
date until paid in full.
3. REPORTS, BOOKS AND RECORDS, SAMPLES.
(a) At least quarterly on a calendar quarter basis, Fundex shall make
written reports to Futech in form and with detail as shall reasonably be
requested by Futech, certified to be accurate by an authorized agent of Fundex,
setting forth the sales and other detail relating to the gross sales for the
period to which the Royalties relate. Said reports shall be furnished even if
there are no sales during the calendar quarter. The failure or refusal of Fundex
to timely furnish any such report, or the payment due as shown in the report,
shall be deemed a substantial and material breach of this Agreement. The receipt
and acceptance by Futech of any of the reports furnished pursuant to this
Agreement, or of any payments made herein (or the cashing of any checks paid
hereunder) shall not preclude Futech from questioning the accuracy of any such
report at any time (within the two year period described below), and in the
event that any inconsistencies or mistakes are discovered in any such report or
payment, they shall immediately be rectified and the appropriate payment made by
Fundex, together with interest on the overdue payments at the per annum rate of
one (1) percentage point above the prime rate of interest published by the Wall
Street Journal, as such rate may from time to time change. Royalty statements
and reports shall become incontestable if not contested within two (2) years
after receipt thereof by Futech.
(b) Fundex shall keep at its principal place of business, such books and
records and other documents relating to its sales during the term of this
Agreement as may be necessary or proper to enable the amounts payable to Futech
hereunder to be conveniently ascertained.
(c) Futech shall have the right, from time to time during the term of this
Agreement, and for a period of two years thereafter (with respect to any
then-contestable statement), but not more than once annually, upon thirty (30)
days prior written notice, during regular office hours, to cause a certified
public accountant(s) on behalf of Futech to audit or otherwise review the books
and records of Fundex. Fundex shall cooperate with such audit or review, and
provide requested information relating to Fundex sales and expenses. The auditor
shall be entitled to inspect all accounts and records of Fundex and to take
extracts therefrom or copies thereof to the extent necessary to verify the
Royalty
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reports and payments required under the terms of this Agreement. The duration of
any audit under this provision shall not exceed thirty (30) days.
(d) Fundex will provide Futech with one hundred (100) free samples of each
product incorporating Futech technology sold by or for Fundex, within thirty
(30) days after the product first becomes available for sale.
4. PRODUCT LIABILITY; INSURANCE.
(a) Fundex agrees to indemnify and defend and save harmless Futech from
every claim, demand, expense, and cost, including reasonable attorneys' fees,
which may arise by reason of the use by Fundex of the Futech technology, and any
injury or damage of any kind or nature to any person or property caused by or
resulting from or arising out of a defect in design, workmanship, or material of
any product manufactured, marketed and/or sold by Fundex using Futech technology
(hereinafter the "Licensed Products"); provided, however, that the foregoing
shall not apply to any such claim, etc. arising out of, relating to or caused by
the Futech technology, to and only to the extent so related or caused (this
provision shall not limit Fundex's indemnification for liability for products
defectively manufactured by or for Fundex, unless the liability results from
defects inherent in the Futech technology and the defective product was
manufactured substantially in accordance with Futech instructions).
(b) Fundex shall obtain at its own expense and maintain during the term of
this Agreement, and for a period of seven (7) years thereafter, general
liability insurance and product liability insurance with at least coverage of
$1,000,000 per occurrence and $3,000,000 in the aggregate.
All insurance must be provided by a recognized insurance company having a
Best's Rating of no less than AA. As proof of such insurance, a fully paid
certificate of insurance naming Futech as an additional insured shall be
submitted to Futech's office as and when requested by Futech, within thirty (30)
days after written request is made therefor. Futech shall be entitled throughout
the term of this Agreement, to a copy of the prevailing policies of insurance.
The policies of insurance must be non-cancelable except after thirty (30) days
prior written notice to Futech.
5. STANDARDS, QUALITY CONTROL. Fundex shall maintain high standards of
quality, style, appearance and service with respect to all Licensed Products
made and/or sold, and all related advertising and promotional material
including, without limitation, the quality of physical material utilized. All
Licensed Products will be manufactured, sold, and distributed in accordance with
all applicable federal, state, local and foreign laws and regulations.
6. TRADEMARK USAGE; MARKING. Any Licensed Product incorporating,
embodying, or comprising Futech technology shall display in a plainly visible
manner Futech's trademark, in a manner agreed upon beforehand by the parties.
Fundex shall mark all Licensed Products with such appropriate patent and
trademark marking and other proprietary legends as reasonably requested by
Futech.
Unless otherwise agreed in writing by Futech, all Licensed Products shall
be clearly marked with type in readable size with the words "Technology Provided
by Futech Interactive Products, Inc.," and immediately thereafter shall appear
the then-current address and phone number of Futech provided by Futech to
Fundex. No portion of the statement appearing within the quotation marks in the
preceding sentence shall be in larger type in or any way any more prominent than
any other part thereof.
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7. CONFIDENTIALITY.
(a) Fundex acknowledges that Futech's confidential information is unique
and valuable and was developed or otherwise acquired by Futech at great expense,
and that any unauthorized disclosure or use of Futech's confidential information
may cause Futech irreparable injury loss for which damages would be an
inadequate remedy. Fundex agrees to hold such confidential information in
strictest confidence, to use all efforts reasonable under the circumstances to
maintain the scerecy thereof, and not to make use thereof other than in
accordance with this Agreement, and not to make use of or to release or disclose
confidential information to any third party without Futech's prior written
consent.
(b) Futech acknowledges that various information regarding the business
plans and product concepts of Fundex may comprise confidential information.
Futech agrees to hold Fundex's confidential information in strictest confidence,
not to make use thereof other than in accordance with this Agreement, to use all
efforts reasonable under the circumstances to maintain the secrecy thereof, and
not to make use of or to release or disclose Fundex's confidential information
to any third party without Fundex's prior written consent.
(c) The parties acknowledge that any violation of this Section shall
constitute a material breach of this Agreement resulting in irreparable injury
to the non-breaching party, and agree that, in addition to any and all other
rights available to the non-breaching party by law or by this Agreement, the
non-breaching party shall have the right to seek to have an injunction entered
against the breaching party to enjoin any further violations of this Agreement.
8. WARRANTIES OF FUTECH. Futech hereby represents and warrants as
follows:
(a) Futech is the owner of all right, title and interest in and to the
Futech technology licensed hereby, and has the right to so license said
technology.
(b) these are no outstanding licenses or other agreements that relate to or
restrict the use of the Futech technology which are inconsistent with the
licenses granted in this Agreement.
(c) Futech has no knowledge of and has received no notice of any adversely
held patent, patent right, trademark, service mark, trade name, trade secret,
copyright, franchise or other proprietary right of any other person or notice of
any claim of any other person, nor has Futech made a claim against any person,
relating to any of the Futech technology licensed hereby, and Futech has no
knowledge of any basis for any such charge or claim.
9. WARRANTIES OF FUNDEX. Fundex hereby represents and warrants as
follows:
(a) Fundex shall use the Futech technology only in a manner designed to
enhance the public image of the Futech technology; and
(b) Fundex shall not use the Futech technology in connection with any
products or services without the prior written authorization of Futech. Failure
by Futech to act with respect to any use of its technology shall not constitute
a waiver of Futech's right to prevent further use of the technology, or
constitute a waiver of Futech's right to require written approval of Futech for
future uses of the technology.
(c) Fundex agrees to submit to Futech for its prior written approval,
samples of promotional materials and advertising to be used by Fundex in
connection with the Licensed Products.
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10. INDEMNITIES.
(a) The parties hereto shall each indemnify and hold the other harmless
from and against any and all claims, liabilities, loss, expense (including
reasonable attorneys' fees) or damages arising out of any breach of this
Agreement, including without limitation any representation, warranty, covenant
or agreement of such party set forth in this Agreement, provided that the
indemnified party shall, with reasonable promptness, notify the indemnifying
party of any such claim, demand, or suit and shall fully cooperate in the
defense thereof.
(b) Fundex shall defend, indemnify and hold Futech, and its subsidiaries,
and associated and affiliated companies, harmless from and against any
liabilities (including reasonable attorneys' fees and costs) of any kind or
nature whatsoever which may be sustained or suffered by Futech: (i) in
connection with the Licensed Products or the packaging, distribution, promotion,
sale or exploitation of the Licensed Products, including but not limited to any
actual or alleged defect in the License Products, or their packaging, whether
latent or patent, including failure of said Licensed Products or their
packaging, distribution, promotion, sale or exploitation to meet any federal,
state or local laws or standards; (ii) based upon or arising out of any actual
or alleged unauthorized use by Fundex or its subsidiaries of any patent, trade
secret, process, idea, method or device, or any copyright or trademark; or (iii)
any other actual or alleged unauthorized action of Fundex. The foregoing
indemnification shall not however apply to any such liability arising out of,
relating to or caused by the Futech technology, to and only to the extent so
related or caused (this provision shall not limit Fundex's indemnification for
liability for products defectively manufactured by or for Fundex, unless the
liability results from defects inherent in the Futech technology and the
defective product was manufactured substantially in accordance with Futech
instructions).
(c) Futech shall defend, indemnify and hold Fundex, and its subsidiaries
harmless from and against any liabilities (including reasonable attorneys' fees
and costs) of any kind or nature whatsoever (including but not limited to
liabilities from infringement) which may be sustained or suffered by Fundex
arising out of, relating to or caused by the Futech technology, to and only to
the extent so related or caused (this indemnification shall not apply to
liability for products defectively manufactured by or for Fundex, unless the
liability results from defects inherent in the Futech technology and the
defective product was manufactured substantially in accordance with Futech
instructions).
(d) The indemnifying party shall have the right to designate counsel to
defend against such claims and suits; however, at the indemnified party's
option, the indemnified party shall have the right to participate in the defense
with its own counsel at its own expense. In no event shall any such claims or
suits affecting the rights of a party be settled without the prior written
consent of that party.
11. ASSIGNMENT/SUB-LICENSING; SUCCESSORS. This Agreement and the rights
and obligations created hereunder may not be sublicensed, assigned, encumbered
or pledged as security for any obligation of Fundex, without the prior written
consent of Futech, which consent may be withheld for any reason or no reason.
This Agreement shall be binding upon New Futech and New Sub after the Merger.
12. TERMINATION.
(a) If a party commits a material breach of any provision of this
Agreement, and said breach continues for a period of ten (10) days for monetary
breaches, and thirty (30) days for non-monetary breaches, after written notice
to the defaulting party specifying the
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nature of the breach, then, by written notice to the defaulting party, the
non-defaulting party may terminate this Agreement. Such termination shall be
without prejudice to any other legal remedy available to the non-defaulting
party.
(b) Futech shall have the right, by written notice to Fundex, to terminate
this Agreement upon thirty (30) days prior written notice to Fundex, upon or
after an adjudication that Fundex is bankrupt or insolvent, or the filing by
Fundex of a petition in bankruptcy, or a petition or answer seeking
reorganization, readjustment, or rearrangement of its business or affairs, under
any law or governmental regulations relating to bankruptcy or insolvency.
(c) Upon termination of this Agreement, all rights granted Fundex hereunder
shall cease; provided, however, that the right of Fundex to continue the use of
the technology in connection with Licensed Products and sell the products on
hand or in the process of manufacture shall continue until all such products are
sold, but in no event beyond six months after termination, provided Royalties
due thereon will be paid to Futech as provided for in this Agreement. No
termination hereunder shall effect the obligations of the parties (including
without limitation the obligation to pay Royalties) arising prior to the date of
termination.
(d) Upon termination of this Agreement, Fundex shall return to Futech all
technical information, materials, samples, formulas, drawings, and know-how in
tangible form furnished by Futech, and all other such information, materials,
etc. in possession or control of Fundex relating to the Futech technology, and
shall (subject to subparagraph (c) above) forthwith discontinue the use of the
Futech technology. Upon such termination, Futech shall have the right of first
refusal to purchase any or all of the tooling and related equipment of Fundex
used in connection with the Futech technology.
13. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be delivered in person or
mailed by certified mail, return receipt requested, in the United States Mail,
postage pre-paid, addressed as follows:
<TABLE>
<S> <C>
If to Futech: Futech Interactive Products, Inc.
2999 North 44(th) Street, Suite
225
Phoenix, Arizona 85018-7247
If to Fundex: Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
</TABLE>
or at such other address as a party may from time to time designate by Notice
hereunder. Notice shall be effective upon delivery in person, or if mailed, at
midnight on the third business day after the dateof mailing.
14. FURTHER ASSURANCES. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm the
Agreement contained herein in the manner contemplated hereby.
15. CONSTRUCTION. This Agreement shall be construed according to its fair
meaning, and neither for nor against the drafting party, and shall be construed
in accordance with the laws of the State of Arizona. Title and headings of
sections of this Agreement are for the convenience of reference only, are not
intended to define, limit, or describe the scope or intent of any provision of
this Agreement, and shall not affect the construction of any provision of this
Agreement.
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16. MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
17. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.
18. ATTORNEY'S FEES. In the event of any litigation or other proceeding
concerning this Agreement, the prevailing party shall be entitled to recover its
costs, reasonable attorney's fees, and other reasonable expenses.
19. TIME. Time is of the essence of each and every provision of this
Agreement.
20. CONTINGENCY. This Agreement and all obligations in this Agreement are
contingent on execution and delivery by all parties thereto of the Merger
Agreement.
DATED the date first hereinabove written.
FUNDEX: Fundex Games, Ltd., a Nevada
corporation
By
------------------------------------
Carl E. Voigt, IV, President and
CEO
FUTECH: Futech Interactive Products, Inc., an
Arizona corporation
By
------------------------------------
Vincent W. Goett, Chairman and CEO
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EXHIBIT 3-C
TO
MERGER AGREEMENT
(DISCLOSURE SCHEDULE OF FUTECH INTERACTIVE PRODUCTS, INC.)
The paragraph numbering below corresponds to the paragraph numbering in
Article III of the Merger Agreement.
3.1 DUE INCORPORATION.
No exceptions.
3.2 CAPITALIZATION.
Common Shares Authorized: 235,000,000 shares, no par value.
Common Shares Issued and Outstanding: 87,339,078
Series A Preferred Authorized: 100,000,000 shares, no par value
Series A Preferred Issued and Outstanding: 3,750,000
The following summarizes stock options, warrants, subscriptions, conversion
rights and similar rights:
See EXHIBIT 3C-3.2.
3.3 SUBSIDIARIES.
Janex International, Inc.
Gold Star Publishing, LLC.
3.4 FINANCIAL INFORMATION.
No exceptions.
3.5 TAXES.
No exceptions.
3.6 MATERIAL CHANGES.
Futech has a dispute with Toys R Us over a $70,000 chargeback made by Toys
R Us on product ordered with an unreasonable ship date.
3.7 TITLE TO ASSETS; LIENS.
No exceptions.
3.8 LITIGATION.
On May 1, 1998, Futech acquired substantially all of the assets of XYZ
Group Inc. ("XYZ"), a wholesaler and distributor of books and various book
products including children's electronic toys and book and toy combination
products for consideration of $10,200,000, including a $4,000,000 note payable
to the former owner and $2,867,334 payable either in cash or with 14,336,670
shares of Futech's common stock. The $2,867,334 has not been paid and the
certificates for common stock has not been issued. The note payable accrues
interest at 10% per annum, and was due May 1, 1999. According to the agreement,
an additional $1,000,000 is due as of May 1, 1999, and $100,000 interest is
added to the total due. Additional consideration of $2,332,666 was contingent on
XYZ's sales performance. Futech's position is that the contingencies were not
met.
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<PAGE> 249
See EXHIBIT 3C-3.8.
3.9 COMPLIANCE WITH LAWS.
No exceptions.
3.10 INSURANCE.
No exceptions.
3.11 LICENSES.
No exceptions.
3.12 HAZARDOUS MATERIALS.
No exceptions.
3.13 JUDGMENTS AGAINST THE MERGING COMPANY AND/OR ITS BUSINESS.
None.
3.14 COMPLETE SALE.
No exceptions.
3.15 ASSETS IN GOOD CONDITION.
No exceptions.
3.16 DISCLOSURE MATERIALS.
No exceptions.
3.17 DEFAULTS.
None.
3.18 MATERIAL CONTRACTS.
None.
3.19 OUTSTANDING LIABILITIES.
See EXHIBIT 3C-3.19.
3.20 INVENTORY.
No exceptions.
3.21 RECEIVABLES.
No exceptions.
3.22 EMPLOYEES.
See EXHIBIT 3C-3.22.
3.23 NO CONFLICTS.
None.
3.24 VIOLATIONS OF LAW.
None.
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<PAGE> 250
3.25 CONDITION AND SUFFICIENCY OF ASSETS.
No exceptions.
3.26 BANK ACCOUNTS.
No exceptions.
3.27 ENVIRONMENTAL MATTERS.
None.
3.28 INTELLECTUAL PROPERTY.
No exceptions.
3.29 CUSTOMERS AND SUPPLIERS.
No exceptions.
3.30 CHANGES TO THE MERGING COMPANY'S DOCUMENTS.
See EXHIBIT 3C-3.30.
3.31 STOCKHOLDERS AGREEMENTS AND OTHER AGREEMENTS.
None.
3.32 CERTAIN PAYMENTS.
No exceptions.
3.33 FILINGS COMPLETE.
No exceptions.
3.34 PRODUCTS.
No exceptions.
3.35 PATENTS.
See EXHIBIT 3C-3.35.
3.36 INDEMNIFICATION; SURVIVAL.
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<PAGE> 251
EXHIBIT 3-D
TO
MERGER AGREEMENT
(DISCLOSURE SCHEDULE OF JANEX INTERNATIONAL, INC.)
The paragraph numbering below corresponds to the paragraph numbering in
Article III of the Merger Agreement.
3.1 DUE INCORPORATION.
No exceptions.
3.2 CAPITALIZATION.
Common Shares Authorized: 20,000,000 shares, no par value.
Common Shares Issued and Outstanding: 18,098,750
Series A Preferred Authorized: 5,000,000 shares, no par value
Series A Preferred Issued and Outstanding: 5,000,000
The following summarizes stock options, warrants, subscriptions, conversion
rights and similar rights: See EXHIBIT 3D-3.2.
45,000 stock options outstanding, one share per option
100,000 warrants outstanding -- $.64 exercise price
3.3 SUBSIDIARIES.
Janex Corporation, With Design In Mind, Malibu Fun Stuffed, Pro Gains
Company Limited, Malibu Fun Stuffed International Limited.
3.4 FINANCIAL INFORMATION.
No exceptions.
3.5 TAXES.
No exceptions.
3.6 MATERIAL CHANGES.
No exceptions.
3.7 TITLE TO ASSETS; LIENS.
UCC-1 favoring Howard Moore, UCC-1 favoring Tinton Falls Bank, and UCC-1
favoring the State of California.
3.8 LITIGATION.
None
3.9 COMPLIANCE WITH LAWS.
No exceptions.
3.10 INSURANCE.
No exceptions.
3.11 LICENSES.
No exceptions.
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3.12 HAZARDOUS MATERIALS.
No exceptions.
3.13 JUDGMENTS AGAINST THE MERGING COMPANY AND/OR ITS BUSINESS.
None.
3.14 COMPLETE SALE.
No exceptions.
3.15 ASSETS IN GOOD CONDITION.
No exceptions.
3.16 DISCLOSURE MATERIALS.
No exceptions.
3.17 DEFAULTS.
None.
3.18 MATERIAL CONTRACTS.
None.
3.19 OUTSTANDING LIABILITIES.
See attached Exhibit 3D-3.19.
3.20 INVENTORY.
No exceptions.
3.21 RECEIVABLES.
No exceptions.
3.22 EMPLOYEES.
See attached Exhibit 3D-3.22.
<TABLE>
<CAPTION>
EMPLOYEE JOB TITLE COMPENSATION/YEAR
- -------- ---------- -----------------
<S> <C> <C>
Daniel Lesnick................. Former COO $104,000.00
Michael Handelman.............. Former CFO $103,500.00
</TABLE>
3.23 NO CONFLICTS.
None.
3.24 VIOLATIONS OF LAW.
None.
3.25 CONDITION AND SUFFICIENCY OF ASSETS.
No exceptions.
3.26 BANK ACCOUNTS.
No exceptions.
3.27 ENVIRONMENTAL MATTERS.
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<PAGE> 253
None.
3.28 INTELLECTUAL PROPERTY.
No exceptions.
3.29 CUSTOMERS AND SUPPLIERS.
No exceptions.
3.30 CHANGES TO THE MERGING COMPANY'S DOCUMENTS.
No changes.
3.31 STOCKHOLDERS AGREEMENTS AND OTHER AGREEMENTS.
None.
3.32 CERTAIN PAYMENTS.
No exceptions.
3.33 FILINGS COMPLETE.
No exceptions.
3.34 PRODUCTS.
No exceptions.
3.35 PATENTS.
<TABLE>
<S> <C> <C>
Patent #5,434,761 To Daniel Lesnick
Squeeze Flashlight Assigned to With Design In Mind
Reassigned to Janex International,
Inc.
</TABLE>
3.36 INDEMNIFICATION; SURVIVAL.
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<PAGE> 254
EXHIBIT 3-E
TO
MERGER AGREEMENT
(DISCLOSURE SCHEDULE OF TRUDY CORPORATION)
The paragraph numbering below corresponds to the paragraph numbering in
Article III of the Merger Agreement.
3.1 DUE INCORPORATION.
No exceptions.
3.2 CAPITALIZATION.
Common Shares Authorized: 850,000,000 shares, $.0001 par value.
Common Shares Issued and Outstanding: 331,222,249
Series A Preferred Authorized: Not Applicable.
Series A Preferred Issued and Outstanding: Not Applicable.
The following summarizes stock options, warrants, subscriptions, conversion
rights and similar rights:
- Stock Options, stock grants or other equity participation rights granted
to certain directors, officers, agents and employees of Trudy
Corporation, covering an aggregate of 31,350,000 shares of common stock.
- Other stock options for 14,680,000 shares of common stock.
- There is an agreement with one director of Trudy Corporation to provide
compensation in the form of stock options or grants with a value of
$10,000.00 per year.
3.3 SUBSIDIARIES.
None
3.4 FINANCIAL INFORMATION.
No exceptions.
3.5 TAXES.
No exceptions.
3.6 MATERIAL CHANGES.
Trudy has experienced a continuing deterioration in its financial
condition. On May 13, 1999, Trudy was notified by First Union Bank of defaults
in Trudy's obligations under Trudy's debt instruments with said bank.
3.7 TITLE TO ASSETS; LIENS.
No exceptions.
3.8 LITIGATION.
No exceptions.
3.9 COMPLIANCE WITH LAWS.
No exceptions.
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<PAGE> 255
3.10 INSURANCE.
No exceptions.
3.11 LICENSES.
No exceptions.
3.12 HAZARDOUS MATERIALS.
No exceptions.
3.13 JUDGMENTS AGAINST THE MERGING COMPANY AND/OR ITS BUSINESS.
None.
3.14 COMPLETE SALE.
No exceptions.
3.15 ASSETS IN GOOD CONDITION.
No exceptions.
3.16 DISCLOSURE MATERIALS.
No exceptions.
3.17 DEFAULTS.
On May 13, 1999, Trudy was notified by First Union Bank of defaults in
Trudy's obligations under Trudy's debt instruments with said bank.
3.18 MATERIAL CONTRACTS.
Lease between Trudy and Noreast Management LLC, covering 353 Main Avenue,
Norwalk, CT 06851.
3.19 OUTSTANDING LIABILITIES.
As to Trudy, Section 3.19 is replaced with the following:
To the knowledge of Trudy, there are no liabilities of Trudy other than
as are shown on the Trudy balance sheet as of April 30, 1999, and other
than: (i) a possible contingent liability for $30,000.00 for sub-right
royalties to the Smithsonian Institute; (ii) liabilities arising after
the balance sheet date in the normal course of business out of purchases
and sale of goods; and (iii) expected borrowings after April 30, 1999
and until the time of the Merger in the amount of approximately
$375,000. There are no liabilities relating to the Business which are
more than ninety (90) days past due, other than approximately $12,657
owed to WWB for unreimbursed business expenses, $1,876 owing to Emerald
Accounting, $43,863 owing to Smithsonian for royalties, $6,000 owing to
The Nature Conservancy, and miscellaneous liabilities not material to
Trudy in the aggregate. Depending on Trudy's ability to borrow or
otherwise obtain capital until the Merger closes, other liabilities may
become past due.
3.20 INVENTORY.
No exceptions. Trudy's obsolete inventory percentage shall be 10% instead
of 3% as called for in Section 3.20 of the Agreement.
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<PAGE> 256
3.21 RECEIVABLES.
No exceptions.
3.22 EMPLOYEES.
Hourly Paid Employees
1. Medical/Dental Benefits.
Company shares 50/50 in cost for individual and family effective the
first month following 30 days of employment.
2. Vacation.
Two weeks paid per annum, available after 6 months of employment.
Accrued months are June through March. No days accrued in April or May.
Vacation is to be taken during the calendar year in which it is accrued.
a. Two weeks (10 days)
(Accrue 1 day/month from date of hire.)
(Must work 6 months before vacation can be taken or prearranged
differently at time of hire.)
b. Three weeks (15) days after five year anniversary
(Accrue 1 1/2 days/month)
c. Four weeks (20 days) after 10 years
(Accrue 2 days/month)
3. Nine Holidays with pay after one month of service.
Holiday pay is not granted if there is an unexcused absence the day
preceding or following the holiday. These holidays are generally
included though they may change by Letter Memo at the beginning of each
calendar year.
New Years Day
Good Friday
Memorial Day
Fourth of July
Labor Day
Thanksgiving
Thanksgiving Friday
Christmas
One Additional Holiday (to be determined each year)
4. Sick Days.
None
5. Bonus.
Eligibility: Over one year tenure as of December 31 for full benefit.
For employment less than one year, bonus will be prorated on length of
employment over 90 days.
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<PAGE> 257
6. Stock Options.
Eligibility: Must be employed for 2 years. Consideration for
Options: Performance, salary level, attendance and tenure.
7. 401 K Plan.
Company contribution at the rate of 50% of employee paid in amount up to
3% of one's salary. Vesting and other restrictions apply.
8. Hours.
Office: 8:30 AM to 5:00 PM with 45 minute lunch hour-Monday through
Friday.
Plant: 7:30 AM to 3:30 PM with 30 minute lunch hour at 12:30 PM Monday-
Thursday; 7:30 AM to 12:30 PM Friday
Shipping: 7:30 AM to 4:45 PM with 30 minute lunch at 12:30 PM Monday-
Thursday; 7:30 AM to 12:30 PM Friday
9. Overtime.
None unless preapproved by W.W.B.
10.Absences.
Non-emergency doctor or dentist appointments to be scheduled after
business hours or on Saturday, if possible. Otherwise, all absences must
be excused by your supervisor. There are no other authorized paid
absences.
Effective: December 2, 1998
Salaried Employees
1. Medical/Dental Benefits
Company shares 50/50 in cost for individual and family effective the
first month following 30 days of employment.
2. Vacation
Two weeks paid per annum, available after 6 months of employment.
Accrued months are June through March. No days are accrued in April or
May. Vacation is to be taken during the calendar year in which it is
accrued.
a. Two weeks (10 days)
(Accrue 1 day/month from date of hire)
Must work 6 months before vacation can be taken or prearranged
differently at time of hire.)
b. Three weeks (15 days) after five year anniversary
(Accrue 1 1/2 days/month)
c. Four weeks (20 days) after 10 years
(Accrue 2 days/month)
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<PAGE> 258
3. Nine Holidays with pay after one month of service
Holiday pay is not granted if there is an unexcused following the
holiday. These holidays are generally included though they may change by
Letter Memo at the beginning of each calendar year.
New Year's Day
Good Friday
Memorial Day
Fourth of July
Labor Day
Thanksgiving
Thanksgiving Friday
Christmas
One Additional Holiday (to be determined each year)
4. Bonus
Eligibility: Employed for one year as of December 31 for full benefit.
For employment less than one year, bonus will be prorated on length of
employment over 90 days. Bonus is predicated on anticipated Company
profits for the current year.
5. Stock Options
Eligibility: Must be employed for 2 years. Considerations for Options:
Performance, salary level, attendance and tenure.
6. 401 K Plan
Company contribution at the rate of 50% of employee paid in amount up to
3% of one's salary. Vesting and other restrictions apply.
7. Hours
Office: 8:30 AM to 5:00 PM with 45 minute lunch hour-Monday through
Friday (Hours other than above must be prearranged with supervisor)
8. Absences
Non-emergency doctor or dentist appointments to be scheduled after
business hours or on Saturday, if possible. Otherwise, all absences must
be excused by your supervisor.
Consulting Agreements with Suzanne Glazer and Judy Gittenstein, copies
of which have been supplied to Futech.
3.23 NO CONFLICTS.
1. License Agreement, dated June 17, 1997, between the Smithsonian
Institution and Soundprints, a division of Trudy Corporation.
2. Letter Agreement, dated December 5, 1994, between The Nature Conservancy
and Soundprints, a division of Trudy Corporation. Note, however, that
this Letter Agreement does not expressly require the consent or any
other action of The Nature Conservancy in respect of the Merger and is
included in this Exhibit E to advise Futech that it may be advisable for
Trudy to give notice of the proposed
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<PAGE> 259
Merger and to obtain such consent simply because the Letter Agreement is
a material agreement of Trudy.
3. Revolving Credit Agreement, dated March 30, 1998, with First Union for a
maximum amount of $1.2 million.
4. Term Note, dated March 30, 1998, with First Union in the amount of
$250,000.
5. Loan from First Union to Noreast Management LLC, covering 353 Main
Avenue and guaranteed by Trudy.
3.24 VIOLATIONS OF LAW.
At the time of the purchase by Noreast Management LLC of the building and
land at 353 Main Avenue, Norwalk, CT (the "Property"), currently leased by Trudy
from Noreast for Trudy's principal offices, the Connecticut Department of
Environmental Protection ("DEP") approved all remediation of the Property with
the exception of the northern portion of the Property. As to the northern
portion, HRP, a Connecticut state EPA license contractor, was authorized to
perform final remediation. A Plan of Remediation was to have been submitted to
the DEP by August 1998. Noreast applied to the DEP for a one year extension of
such date to August 1999.
The HRP remediation plan which will cost $27,000 is as follows:
1. Drilling a monitoring well to check for the presence of lead in water;
and
2. Remediating an abandoned oil tank by removing it from an underground
site.
The remediation under this plan is expected to be completed by August 1,
1999.
Trudy is of the view that it bears no monetary or other responsibility for
the remediation in its role as a lessee or otherwise.
3.25 CONDITION AND SUFFICIENCY OF ASSETS.
No exceptions.
3.26 BANK ACCOUNTS.
No exceptions.
3.27 ENVIRONMENTAL MATTERS.
See disclosure for Section 3.24 above.
3.28 INTELLECTUAL PROPERTY.
No exceptions.
3.29 CUSTOMERS AND SUPPLIERS.
Sales to Advance Marketing Services have decreased from $1,700,000 in 1997
to $850,000 in 1998 to $0 in 1999.
3.30 CHANGES TO THE MERGING COMPANY'S DOCUMENTS.
No changes.
3.31 STOCKHOLDERS AGREEMENTS AND OTHER AGREEMENTS.
None.
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3.32 CERTAIN PAYMENTS.
No exceptions.
3.33 FILINGS COMPLETE.
No exceptions.
3.34 PRODUCTS.
No exceptions.
3.35 PATENTS.
None.
3.36 INDEMNIFICATION; SURVIVAL.
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EXHIBIT 3.17
TO
MERGER AGREEMENT
(DEFAULTS)
A. DAMERT.
See Section 3.17 of Exhibit 3-A.
B. FUNDEX.
No Exceptions.
C. FUTECH.
No Exceptions.
D. JANEX.
No Exceptions.
E. TRUDY.
Trudy has a dispute involving royalties under sub-licensing rights, as to
which Trudy does not admit that there is or may be a default, but is disclosing
this matter in the spirit of full disclosure to the other Merging Companies. The
other party involved in this matter has been given written notice of the issue
and the issue has been, and is being, discussed with the other party with the
expectation of a successful resolution thereof.
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<PAGE> 262
EXHIBIT 3A-3.22
3.20 INVENTORY
As of 4/30/98
A. There is $10,949 of obsolete parts on the books with no further use or
market value.
B. There is $12,183 of inventory in good condition of fantasy characters
whose license has expired. We are seeking permission from the licensor
to sell these off.
C. There is $16,465 of inventory in good condition not presented in the
1998 catalog.
D. There is $15,299 of inventory in good condition presented in the 1999
catalog but in old packaging.
E. Total Inventory Value $1,262,556
Under GAAP, item A is obsolete and B if permission to sell off is not
granted. We feel there is a market for items C and D.
3.22 EMPLOYEES
VACATIONS
All full-time employees are eligible for vacation. Temporary employees and
part-time employees working less than 1000 hours per year are not eligible for
vacation.
Vacation days and portions of days thereof, are accrued from the first day
of employment and are "banked" monthly. Employees may only take as many vacation
days as are in their "Bank". Annual vacations are determined by length of
service and are accrued as follows:
<TABLE>
<CAPTION>
DAYS OF
VACATION
ACCRUED
LENGTH OF SERVICE ANNUALLY
----------------- --------
<S> <C>
1 to 5 years................................ 10 days
6 years to 10 years......................... 15 days
11 years to 15 years........................ 20 days
over 15 years and up........................ 25 days
</TABLE>
Vacation days will be accrued at a rate equal to the employees average
number of hours/day over the previous 12 months of service as defined by payroll
records. Example: employee that averages 8 hours/day will be paid 8 hours on
Vacation; employee that averages 6 hours/day will be paid 6 hours on Vacation.
Vacations may be taken at any time during the year, except that they MUST be
scheduled to avoid conflicts with other employees' vacations. DaMert Company
discourages employees from taking Vacation time during the company's busy period
of the year (September-November). Check with your supervisor for the best times
to take Vacation. Specific vacation dates must be approved by the employee's
supervisor at least 30 days prior to the anticipated vacation. Requests should
be in writing. Employees with the most seniority will have first priority as to
the dates of their vacation request. New employees cannot take Vacation during
their first 30 days of employment although their Vacation benefits accrue from
date of hire. Any requested Vacation period in excess of two consecutive weeks
requires special management
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approval. Single days off should be approved at least one week in advance of the
requested date.
A maximum of 10 additional vacation days may be carried over at the
employee's anniversary date of hire. Financial compensation in lieu of vacation
is not allowed. In the interest of maintaining their physical and mental health,
employees are encouraged to use all their vacation time annually. All vacation
earned will be paid out at the time of termination. Vacation is not earned while
an employee is on a leave of absence.
HOLIDAYS
Full-time and part-time employees working at least 1000 hours per year are
eligible for holiday pay. Employees will be paid for the amount of hours they
would be normally scheduled to work that day.
The following paid holidays will be observed in 1999:
<TABLE>
<S> <C>
Memorial Day 5/31/99
Independence Day 7/5/99
Labor Day 9/6/99
Thanksgiving 11/25-11/26
Christmas Day 12/23-12/24
New Years 12/30-12/31
New Year's Day Labor Day
Memorial Day Thanksgiving Day
Independence Day Christmas Day
</TABLE>
Employees may not elect financial compensation in lieu of taking time off
for a holiday. If an exempt employee is requested to work on a holiday, an
alternate day off will be allowed in lieu of taking the holiday. If a non-exempt
employee is requested to work on a holiday, he/she will be paid at the
applicable overtime rate.
Employees who do not report to work on the day prior to, or the day
immediately following the holiday, without prior approval, will not be paid for
the holiday. Employees on a Leave of Absence are not eligible for holiday pay.
Temporary employees, independent consultants, and similar classifications are
not eligible for holiday pay.
If a holiday falls on a weekend, the holiday will be observed on the
closest Friday or Monday, or on the customary day.
DaMert will make a reasonable accommodation to employees who wish time off
to observe religious holidays. Those employees needing such time should make
their request in writing to their department head.
Ownership, solely at its discretion, may choose to provide additional paid
Company holidays. A company "shop calendar" identifying all holidays and dates
will be published annually.
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SICK/DISABILITY LEAVE
All permanent full-time and part-time employees are eligible to accrue Sick
Leave bank hours as follows:
On January 1 of each year, each employee is given a Sick Leave bank of
time corresponding to 8 days worth of hours each employee is regularly
scheduled to work. Full-time employees, i.e., those scheduled to work 8
hours a day, will receive a bank of 64 hours. A part-time employee, who is
scheduled to work six hours a day will receive 48 hours. Sick Leave hours
must be taken in half-day (4 Hour) increments.
The purpose of the Sick Leave hours is to allow employees a reasonable
accumulation of time to be used for bonafide reasons to be away from the
job. An example would be the use of Sick Leave in the middle of the day for
a doctor appointment. Examples of such reasons are occasional illness,
medical and dental appointments, or personal business that cannot be
conducted outside working hours.
Sick Leave hours may not be used to supplement employee scheduled
vacation time or in conjunction (day before or day after) a company
scheduled Holiday.
The exception to this rule is if the employee comes to work and must
leave "sick". "Telephoned" sick leave calls the day before or after
Vacation or Holiday leave are not acceptable to receive sick leave pay.
New employees are not awarded sick time until after 30 days of
employment. At that date, the amount of hours of Sick Leave banked will be
prorated for the period of time remaining in the current 12 month cycle.
Once an employee has used up all of their Sick Leave in a given 12
month period, all Sick time off will be unpaid, unless prior arrangements
are made with their supervisor to use earned Vacation days. There is no
"borrowing" of Sick Leave days from the next 12 month cycle. There is no
payout of unused Sick Leave hours at termination.
All Sick Leave hours not used by December 31 will be rolled forward
into a Disability Bank for the employee. The Disability Bank will be
allowed to accumulate from year to year to a maximum bank of 6 calendar
weeks (30 work days). The purpose of the "Disability" time is to allow
employees wage compensation in the event of an illness or accident that
would keep them away from the job for more than 5 work days. Use of this
Disability time bank always requires a written explanation from a
physician. "Disability" days may not be used for occasional illness even if
the employee has used up their entire sick leave pool. There is no payout
of Disability hours at termination.
A maximum of 2 sick days may be taken for family illnesses. Employees
may not take Disability days for this purpose. In the event 3 or more days
are necessary for a family illness, Vacation time may be used.
Employees who are unable to report to work because of illness must
contact their department head within one hour of their scheduled start
time. Any absence of 3 days or more will require a physician's note.
Temporary employees are not granted paid sick or paid personal leave.
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FAMILY LEAVE
After the first year of continuous employment, DaMert Company will provide
unpaid leaves of absence for family care up to a total of four months in a 24
month period. Leave may be granted for the birth or adoption of an employee's
child, or to care for a parent or spouse who has a serious health condition.
Any employee taking a family care leave will receive the same benefits as
provided under the Disability Leave Policy. You must give your supervisor
written notice of your request for family leave as soon as you learn that leave
is necessary. DaMert Company may deny a request for family leave if it is
necessary to prevent undue hardship to the Company. In addition, no family leave
will be granted to care for a child when the child's other parent is taking
leave or is otherwise unemployed.
A request for family leave must be accompanied by a medical certificate
from the attending physician, which includes the date on which the medical
condition commenced, the probable duration of the condition, the estimated time
the patient will require the employee's care, and a statement that the
employee's participation in the treatment care of the patient is warranted by
the medical condition. Upon expiration of the time estimated by the doctor, the
employee must obtain another medical certificate if additional leave is
required.
DaMert Company will make reasonable efforts to return you to your prior
position, if available, or similar job for which you are qualified, at the same
salary rate held prior to the leave of absence.
Failure to notify the Company of your availability for work when it occurs,
failure to return to work when called by the Company, or your continued absence
from work because your leave must extend beyond the maximum time allowed, may be
deemed a voluntary termination of your employment with DaMert Company.
LEAVES OF ABSENCE
A leave of absence is an extended period of time absent from work without
loss of employment. Leave of absence is without pay. During the first 30 days of
a leave of absence the company continues to pay company-paid benefits; the
employee must pay premiums for dependent coverage in advance to the company.
A written request for a leave of absence, providing full explanation of the
circumstances, must be presented to the employee's immediate supervisor at least
two weeks before the start date of the leave of absence. Failure to report to
work on the first day after the expiration of the leave of absence, without
approval, will be considered a voluntary termination of employment.
PERSONAL LEAVE OF ABSENCE
DaMert Company has a policy of granting personal leaves of absence in a few
well-defined cases. A personal leave of absence may be granted by DaMert up to a
maximum of 30 days. An extension beyond 30 days may be considered in the event
of serious or extenuating circumstances. If possible, at least 6 weeks notice
must be given for such leave.
For time off in a non-pay status, an employee must submit a request for a
leave of absence in writing to their manager. Managers will forward the request
to ownership with the Manager's recommendation. The final approving authority is
an Owner. Managers at
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any level are not authorized to approve or promise an employee, in any way, that
the request has been or will be approved until concurrence has been received.
JURY DUTY
If you receive a jury summons, you must inform your supervisor immediately.
DaMert Company will pay the difference between your regular earnings and the fee
you receive for jury service.
You must report to work on days or parts of days when you are not required
to serve. If you do not return to work immediately after an approved leave for
jury duty, the Company may assume you have voluntarily quit your job.
WITNESS DUTY
You may be required by law to appear in court as a witness. If you give
reasonable advance notice to your supervisor, you will be allowed to take time
off. Regular full-time employees may be paid for up to two (2) days. All leave
thereafter will be unpaid.
MEDICAL LEAVE OF ABSENCE FOR NONOCCUPATIONAL MEDICAL DISABILITY, INCLUDING
PREGNANCY OR CHILDBIRTH OR RELATED MEDICAL CONDITION
Medical leaves up to four (4) months may be granted for any nonoccupational
medical disability, including disability because of pregnancy or childbirth or
related medical condition.
The Company reserves the right to require written proof from a licensed
doctor that your disability has started or ended before it allows you to take a
leave or return from leave. It is your responsibility to provide your supervisor
with the following information as soon as you know you need to take a leave of
absence: 1) how long you expect to be on disability leave; 2) a doctor's
certificate or other medical proof acceptable to the Company showing the
expected dates of your disability; and 3) regular updates at least every week
regarding your medical status and the date you expect to return to work.
Applications for leaves of absence for disability because of pregnancy of birth
should be submitted at least two weeks before the start date of such leave, if
possible.
MEDICAL LEAVE OF ABSENCE FOR OCCUPATIONAL DISABILITY
If you are injured at work, you may be allowed to take an unpaid leave of
absence until 1) a recognized medical professional certifies that you are
allowed to resume all of the duties of your former position; 2) you are unable
to come back to work in your position (i.e. your condition is permanent and
stationary); or 3) you resign, quit, or otherwise indicate that you are not
going to return to your job.
MILITARY LEAVE OF ABSENCE
An employee who is drafted for service in the armed forces is eligible for
military leave of absence. Upon return from service, the employee will be
eligible for re-employment and will be reinstated in the same of substantially
similar position.
An employee who is a member of the Armed Forces Reserve or the National
Guard and who is required to attend annual active duty for training or other
short-term reserve or Guard duty (i.e. forest fire fighting, police duty for
natural disaster, etc.) is eligible for a military leave of absence. Such time
off will not be considered vacation time. If the employee's military pay for the
training is less than his/her average company earnings for
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a like period DaMert Company will pay the difference to the employee for a
period not exceeding two (2) weeks.
BEREAVEMENT LEAVE OF ABSENCE
In the event of a death in your immediate family, you may have time needed
up to three working days, with pay, to handle family affairs and attend the
funeral. "Immediate family" is defined as: father, mother, sister, brother,
spouse, child, mother-in-law, father-in-law, grandparents, grandchildren,
nieces, nephews, sisters-and-brothers-in-law, and domestic partners.
If the funeral is beyond 250 miles of your home, up to 2 additional days
may be approved. These additional days will be taken from the employees
Disability Leave bank. Employees should notify their department heads as soon as
possible of their need for such leave.
VOTING
DaMert Company policy is to encourage its employees to participate in the
election of government leaders. Therefore, adequate time off is allowed from the
beginning or end of the workday to exercise this right. If the employee
otherwise will be unable to vote, he/she may wish to inquire of their Registrar
of Voters about the possibility of voting by absentee ballot.
Please be sure to schedule this time off with your supervisor to ensure
proper coverage of your work station. Registered voters may take up to a maximum
of 2 hours to vote.
LIFE THREATENING DISEASES
DaMert Company is committed to keeping your work environment healthy and
safe for all employees, and has established these rules which you should follow
if you or one of your co-workers has or contracts a life-threatening illness:
1) DaMert Company will treat all life-threatening illnesses the same as
other illnesses in terms of all our employee policies and benefits.
2) If you have or contract a life-threatening illness, you will be
allowed to keep working, as long as a) you can meet the Company's
performance standards; b) your illness does not actually endanger the
health or safety of other employees or customers; and c) you will not
make your illness worse by continuing to work.
3) You may not refuse to work because you are afraid of contracting a
non contagious life-threatening illness from a co-worker. You may not
harass or otherwise discriminate against a co-worker who has a
life-threatening illness. Employees who refuse to work with or who
harass or discriminate against any employee with a life-threatening
illness will be disciplined, up to and including discharge.
4) In this handbook, "life-threatening illness" includes cancer, Lou
Gehrig's Disease, AIDS, and other illnesses of a severely
degenerative nature.
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GROUP INSURANCE
Medical Insurance
All employees working 30 hours per week are eligible for medical insurance.
Temporary and part-time employees are not eligible on the DaMert Company plan.
Benefits begin on the first regular work day following a 30-day waiting period.
The cost for medical insurance is paid as follows:
Employees -- a minimum of 80% of the premium cost to be paid by the
Company, the balance to be paid by employees through payroll deduction.
Dependents -- 100% of the premium cost to be paid by the employee
through payroll deduction. DaMert Company does not contribute to the cost
for dependents.
This Medical Plan was selected to ensure the employees are not burdened
with extreme medical costs. This policy was developed for the benefit of all
full-time employees. You are encouraged to take sick leave for medical
appointments.
The specific coverage of DaMert Company Medical Plan are located in your
medical handbook published by the insurance carrier.
Dental Insurance
All employees working 30 hours per week are eligible for dental insurance.
Temporary and part-time employees are not eligible on DaMert Company plan.
Benefits begin on the first regular work day following a 30-day waiting period.
The cost for dental insurance is paid as follows:
<TABLE>
<CAPTION>
EMPLOYEE DEPENDENTS
-------- ----------
<S> <C> <C>
Company pays....................... 60% 0%
Employee pays...................... 40% 100%
</TABLE>
This Dental Plan was selected to ensure that employees are not burdened
with extreme dental costs. The intention of this benefit is to encourage
employees to take preventive dental care. You are encouraged to take sick leave
for dental appointments.
The specific coverage of the this dental plan are located in the dental
handbook provided by the insurance carrier.
Life Insurance
A group Life Insurance Plan has been provided to give basic protection to
all full-time employees working 30 hours per week. Temporary and part-time
employees are not eligible on the DaMert Company Group Life Insurance plan. This
Group Policy is in force on the first regular work day following a 30-day
employment period.
The total cost of this Group Insurance Plan is paid by DaMert Company.
The specific term insurance coverage of the plan is in the amount of
$10,000 for all employees. Details are in the handbook as provided by the
insurance carrier.
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401(k) Plan
The company has a 401(k) plan. The employee may make elective contributions
to the plan as prescribed by law. The company will make a 10% matching
contribution which the employee vests 100% at the time on the match.
The company has a profit sharing plan attached to the 401(k) plan. Profit
sharing is discretionary and based on the company's performance and achievement
of goals. The profit sharing contribution vest over six years as follows: 20%
after 2 years, 40% after 3 years, 60% after 4 years, 80% after 5 years and 100%
after 6 years. In the event of a major change in ownership employee profit
sharing contribution vest 100%.
OVERTIME
All overtime must have prior approval.
Hours
Office hours are from 8:00 AM to 4:30 PM. Variations from this must have
approval of a supervisor.
Compensation
The compensation package is comprised of four basic areas.
1. Base salary
2. Benefits Package
3. Individual Merit Award
4. Year End Bonus
Each area is defined as follows:
Base Salary: The base salary is determined by the salary range within
a given grade. The amount of wages given within the grade is determined the
job skill brought to that grade. It is DaMert Company's intent to
compensate each person fairly based on the employee's contribution within
there particular pay grade. Increases to base salary are changed when there
is a change in contribution or responsibility within the grade or a change
to a higher grade. Increases are not automatic and are not tied to a
particular time frame. Increases in base salary can occur at any time.
Effective January 1, the entire payroll will be increased for a Cost of
Living Allowance (C.O.L.A.). The amount of the C.O.L.A. will be at the
discretion of the owners.
Benefits Package: It is the intent of DaMert Company to provide a
comprehensive benefits package. The Benefits package will be reviewed
annually. A summary of the benefits package will be provided as soon as
possible after year end. The summary will report both governmental mandated
contributions as well as company discretionary benefits.
Individual Merit Award (I.M.A.): The I.M.A. compensation is tied to
the annual performance appraisal. During the performance appraisal process
certain goals will be established between the supervisor and employee. A
pool of dollars will be determined during the annual budget process. The
amount of I.M.A. received depends on the level of goals achieved. For
example, if the management team establishes a 3% I.M.A. pool, an employee
can earn up to 3% of their annual salary if all the goals are achieved that
were agreed upon at the performance appraisal. The first year is a
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transition year and the amount of I.M.A. received will be based on prior
years performance and time in service. The I.M.A. will be distributed as a
separate check on the first pay period in May. Remember, base salary is not
increased.
Year End Bonus: The Year End Bonus will be determined as a part of
the annual budget process. The management team establishes company goals
for the coming year. If the goals of the company are achieved the
pre-determined bonus amounts will be distributed to all employees on
payroll as of the last payroll in December. This program replaces the
annual "Christmas Bonus", which was originally a discretionary award to
employees and has evolved into a perceived entitlement. In short, if the
company achieves its goals it will share them with the employees. This is a
win win participation. The Company goals and Year End Bonus amount will be
published at the completion of the budget process.
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EXHIBIT 3A-3.26
3.26 BANK ACCOUNTS
Account #4121089916 Operating Account Wells Fargo Bank
Signatories Fred DaMert
Gail DaMert
Greg McVey
Tom Santilena
Lynne McDonald
Account #4121091425 Payroll Account Wells Fargo Bank
Signatories Fred DaMert
Gail DaMert
Tom Santilena
Wells Fargo Payroll Service
Account #4121093959 Petty Checking Wells Fargo Bank
Signatories Fred DaMert
Gail DaMert
Greg McVey
Tom Santilena
Lynne McDonald
Bill Hanlon
Don Bee
Account #114026734 401(k) Clearing Account The Mechanics Bank
Signatories Fred DaMert
Gail DaMert
Tom Santilena
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EXHIBIT 3A-3.29
3.29 CUSTOMERS AND SUPPLIERS
<TABLE>
<S> <C>
TOP FIVE CUSTOMERS AS OF 14 MAY 1999
Natural Wonders............................ $111,705
HCM Kinzel GmbH............................ 78,057
Ames....................................... 49,832
Pierre Belvedere Inc. ..................... 47,336
Discovery Channel Stores................... 37,125
1998
HCM Kinzel GmbH............................ 405,459
Natural Wonders............................ 319,338
Zany Brainy................................ 237,850
World of Science........................... 181,380
Store of Knowledge......................... 176,911
1997
Natural Wonders............................ 416,678
Store of Knowledge......................... 323,734
HCM Kinzel GmbH............................ 260,350
Sharper Image.............................. 254,994
Pierre Belvedere........................... 244,099
1996
Natural Wonders............................ 943,786
Zany Brainy................................ 341,721
Nature Company............................. 322,616
Pierre Belvedere........................... 319,396
Books-A-Million............................ 259,424
TOP FIVE SUPPLIERS AS OF 30 APRIL 1999
Lorelei Commodity.......................... 246,012
Hopstech Industries Ltd. .................. 116,473
Equity Marketing........................... 71,441
Inter. Procurement Systems................. 70,734
Cantel Manufacturing Ltd. ................. 38,186
1998
Lorelei Commodity.......................... 1,351,844
Hopstech Industries........................ 880,194
Edaron, Inc. .............................. 140,681
Valiant Printing........................... 89,491
Kling Magnetics Inc. ...................... 82,484
</TABLE>
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<TABLE>
<S> <C>
1997
Lorelei Commodity.......................... 1,211,775
Hopstech Industries........................ 728,713
Edaron, Inc. .............................. 351,498
Valiant Printing........................... 291,052
Elpete Trading Co. ........................ 119,958
1996
Hopstech Industries........................ 1,031,911
Edaron, Inc. .............................. 840,486
Valiant Printing........................... 304,232
White Eagle................................ 227,934
Elpete Trading Co. ........................ 202,208
</TABLE>
All products previously produced at Valiant Printing are now produced at
General Glory Company.
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EXHIBIT 3A-3.35
UNITED STATES PATENT [19] [11] PATENT NUMBER: DES. 316,882
HANLON, III [45] DATE OF PATENT: MAY 14, 1991
-
<TABLE>
<C> <C> <C> <S> <C>
[54] RETURN TOP
[75] Inventor: William M. Hanlon, III,
Castro Valley, Calif.
[73] Assignee: DaMert Company, San Leandro,
Calif.
[**] Term: 14 Years
[21] Appl. No.: 391,859
[22] Filed: Aug. 10, 1989
[52] U.S. Cl. ......................... D31/99
[58] Field of Search... D21/99, 100, 98, 95;
446/245, 242, 248, 249, 261, 262
[56] References Cited
U.S. PATENT DOCUMENTS
D. 61,134 7/1922 Fletcher...... D21/98
D. 139,743 12/1994 Davidson...... D21/99
D. 156,582 12/1949 Tomarun....... D21/99
D. 200,586 3/1965 Parente....... D21/98
288,265 11/1883 Shourda....... D21/98
1,419,690 6/1922 Samour........ 446/248
FOREIGN PATENT DOCUMENTS
30913 6/1917 Fed. Rep. of
Germany....... 446/248
20426 of 1898 United
Kingdom....... 446/247
Primary Examinee--Charles A. Rademaker
Attorney Agent, or Firm--Harris Zimmerman
[37] CLAIM
The ornamental design for a return top, as shown
and described.
DESCRIPTION
FIG. 1 is a top plan view of a return top
showing any new design;
FIG. 2 is a side elevational view thereof, the
side opposite being identical; and
FIG. 3 is an end elevational view thereof, the
end opposite being identical.
</TABLE>
[ILLUSTRATION OF RETURN TOP]
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INT. CL.: 28
PRIOR U.S. CLS.: 22, 23, 38, AND 50
REG. NO. 2,233,014
UNITED STATES PATENT AND TRADEMARK OFFICE REGISTERED MAR. 16, 1999
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
METROPOLIS
<TABLE>
<S> <C>
DAMERT COMPANY (CALIFORNIA CORPORATION) FIRST USE 4-10-1998; IN COMMERCE 4-10-1998.
1609 FOURTH STREET
BERKELEY, CA 94710
SN 75-366,918, FILED 10-2-1997.
FOR: THREE DIMENSIONAL ASSEMBLY PUZZLE IN THE
SHAPE OF A CITY, IN CLASS 28 (U.S. CLS. 22, 23, 38
AND 50). LAURA KOVAISKY, EXAMINING ATTORNEY
</TABLE>
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INT. CL.: 28
PRIOR U.S. CLS.: 22, 23, 38, AND 50
REG. NO. 2,234,702
UNITED STATES PATENT AND TRADEMARK OFFICE REGISTERED MAR. 23, 1999
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
KLIK-KLAK-BLOX
<TABLE>
<S> <C>
DAMERT COMPANY (CALIFORNIA CORPORATION) FIRST USE 3-3-1997; IN COMMERCE 3-3-1997.
1609 FOURTH STREET
BERKELEY, CA 94710
SN 75-136,411, FILED 7-22-1996.
FOR: MANIPULATIVE PUZZLE, IN CLASS 28 (U.S.
CLS. 22, 23, 38 AND 50). KARLA PERKINS, EXAMINING ATTORNEY
</TABLE>
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INT. CL.: 28
PRIOR U.S. CLS.: 22
REG. NO. 1,589,123
UNITED STATES PATENT AND TRADEMARK OFFICE REGISTERED MAR. 27, 1990
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
TURBO SPARKLER
<TABLE>
<S> <C>
DAMERT COMPANY (CALIFORNIA CORPORATION) FIRST USE 7-22-1989; IN COMMERCE 7-22-1989.
900 75TH AVENUE
OAKLAND, CA 94621
SER. NO. 73-818,912, FILED 8-14-1989.
FOR: TOY YO YOS, IN CLASS 28 (U.S. CL. 22). CORA ANN MOORHEAD, EXAMINING ATTORNEY
</TABLE>
A-119
<PAGE> 278
EXHIBIT 3B-3.19
SCHEDULE 3.19
FUNDEX GAMES, LTD.
O/S ACCOUNTS PAYABLE > 90 DAYS
<TABLE>
<CAPTION>
VENDOR TOTAL +90 DISPOSITION
------ ----- --- -----------
<S> <C> <C> <C>
Carl E. Voigt III............. 12,947.25 12,947.25 Due by December 31, 1999
Carl E. Voigt IV.............. 5,343.43 5,195.39 Due by December 31, 1999
KCET PBS Television........... 22,200.00 22,200.00 $2,220.00 due on first of month until
paid in full (03/01/00)
Kyce Enterprise............... 31,097.04 31,097.04 $6,000.00 due first and third week of
month until paid in full (July 1999)
Max-Key Enterprises........... 89,672.60 65,139.80 $10,000.00 due last week of month until
paid in full (November 1999)
Jack of All Games............. 43,600.20 43,600.20 $14,677.25 due 15th of month until paid
in full (July 15, 1999)
WKOP PBS Television........... 11,916.67 11,916.67 $1,083.33 due on first of month until
paid in full (04/01/00)
Meyer Fredericks.............. 13,300.65 13,300.65 $3,500.00 due 15th of month until paid
in full (July 15, 1999)
Much Shelist Rubenstein....... 64,100.04 11,579.42 $11,579.42 due on May 31, 1999
Playtoy Industries............ 1,300.20 1,300.20 Commissions due on bankrupt customer
Paine Webber.................. 49,000.00 49,000.00 Money Purchase Plan settlement -- due
June 30, 1999
344,478.08 267,276.62
</TABLE>
A-120
<PAGE> 279
EXHIBIT 3B-3.2
SCHEDULE 3.2
FUNDEX GAMES, LTD
OPTIONS AND WARRANTS
<TABLE>
<CAPTION>
CONVERSION TO NEW EXERCISE
NUMBER EXERCISE PRICE FUTECH OPTIONS PRICE
------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
DIRECTORS OPTIONS PURSUANT TO 96 OPTION PLAN
Sheldon Drobny
96............................... 2,000 $ 4.0 8,000 $.27
97............................... 2,000 4.0 8,000 .27
98............................... 2,000 3.0 8,000 .25
William Prophater
96............................... 2,000 $ 4.0 8,000 .27
97............................... 2,000 4.0 8,000 .27
98............................... 2,000 3.0 8,000 .25
Dennis Weidannor
96............................... 2,000 $ 4.0 8,000 .27
97...............................
2,000 3.0 8,000 .25
------- -------
16,000 64,000
PRIVATE PLACEMENT BRIDGE CONVERSION
Jay Gale........................... 2,380 $4.20 9,520 .28
Howard Simons...................... 270 4.20 1,160 .28
Aric & Corey Simons................ 7,150 4.20 28,600 .28
Sharon Gonsky Pension Fund......... 7,440 4.20 29,760 .28
Jerry Schacter..................... 7,440 4.20 29,760 .28
Harbour Court LP I................. 14,880 4.20 59,520 .28
P.C. Goldslick Revocable Trust..... 14,880 4.20 59,520 .28
Steve Levy......................... 14,880 4.20 59,520 .28
Richard Goulding................... 8,928 4.20 35,712 .28
Dennis Goby........................ 7,440 4.20 29,760 .28
Stacy Rosenberg.................... 3,720 4.20 14,880 .28
Sarah Schwartz..................... 3,720 4.20 14,880 .28
Paradigm Venture...................
29,762 4.20 119,048 .28
------- -------
</TABLE>
A-121
<PAGE> 280
<TABLE>
<CAPTION>
CONVERSION TO NEW EXERCISE
NUMBER EXERCISE PRICE FUTECH OPTIONS PRICE
------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
MERRIL WEBBER AS PLACEMENT AGENT -- 5 YR. WARRANTS
(ISSUED 3/97 IN PRIVATE PLACEMENT)
122,910(1) 491,640
2,458 3.36 9,832 .26
4,142 4.20 16,568 .28
1,346 5.50 5,384 .29
0 6.30 .30
------- -------
7,346 29,384
</TABLE>
- -------------------------
(1) Upon exercise of the 4.20 warrants, Merril Webber is entitled to receive
additional warrants exercisable at $4.20 per share in an amount equal to 2%
of the gross amount received upon exercise divided by $4.20 up to a maximum
of 2,458 Fundex warrants [convertible to options to purchase 9,832 shares of
Futech stock.] [NEED TO NEGOTIATE A CONVERSION PRIOR TO CLOSING AS TOO
CONFUSING TO TRACK FUTURE EXERCISE OF $4.20 WARRANTS. PROPOSE TO MERRIL
1,200 OPTIONS CONVERTIBLE TO 4,800 FUTECH OPTIONS.]
TOY PARADISE DEAL
75,000 Warrants not convertible to Futech Warrants. Need 20 days notice
prior to merger to exercise (see sec. 11.2 of Warrant)
<TABLE>
<CAPTION>
CONVERSION TO NEW EXERCISE
NUMBER EXERCISE PRICE FUTECH OPTIONS PRICE
------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Aaron Fisher............... 14,550 9.60
Sheldon Drobney............ 14,550 9.60
Randall Goulding........... 750 9.60
Reevy Rosenberg............ 7,275 9.60
Stewart Shiman............. 14,550 9.60
Gordon Ballin.............. 13,050 9.60
Bob Noto................... 3,000 9.60
Buzz Simons................ 7,275 9.60
EMPLOYEE STOCK OPTIONS VIA 96 NONSTATUTORY OPTION PLAN
1997 OPTIONS
Carl E. Voigt, IV.......... 10,000 $4.40 49,000 .28
Carl E. Voigt, III......... 10,000 4.40 40,000 .28
Richard Bowden............. [10,000expired](1)
Eric J. Voigt.............. 10,000 4.00 40,000 .27
George Propsom............. 7,000 4.00 28,000 .27
Karen Patterson............ 2,000 4.00 8,000 .27
Cristen Rabriach........... [2,000expired](2)
Tom Fultz..................
2,000 4.00 8,000 .27
------- ---------
41,000 164,000
</TABLE>
A-122
<PAGE> 281
<TABLE>
<CAPTION>
CONVERSION TO NEW EXERCISE
NUMBER EXERCISE PRICE FUTECH OPTIONS PRICE
------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
1998 OPTIONS
Carl E. Voigt, IV.......... 20,000 3.30 80,000 .26
Carl E. Voigt, III......... 20,000 3.30 80,000 .26
Jim Money.................. 10,000 3.00 40,000 .25
Eric Voigt................. 10,000 3.00 40,000 .25
George Propsom............. 10,000 3.00 40,000 .25
Karen Patterson............ 3,000 3.00 12,000 .25
Tom Fultz..................
3,000 3.00 12,000 .25
------- ---------
76,000 304,220
263,311 1,053,244
EXERCISABLE OPTIONS AND WARRANTS(2)
</TABLE>
- -------------------------
(1) Left employ prior to vesting
(2) To be converted to Futech options.
A-123
<PAGE> 282
EXHIBIT 3B-3.22
SCHEDULE 3.22
HOURLY PAID EMPLOYEES
1. Medical Benefits -- Company covers 88% of cost for individual and
family upon election by employee. Employees are eligible after 30 days
of employment.
2. Cafeteria Plan -- Employees are eligible to participate in the
cafeteria plan, which includes universal life, short-term disability,
dental and a variety of flex plans, upon 90 days of employment. The
employees cover 100% of the cost.
3. Long-term Disability -- Company covers 100% of cost after 30 days of
employment.
4. Life Insurance -- Company covers 100% of cost of $10,000 term policy
after 30 days of service.
5. Vacation -- Two weeks paid per annum, three weeks after five years of
service.
6. Holidays -- seven paid holidays upon employment. Holiday pay is not
granted if there is an unexcused absence the day preceding or following
the holiday. These holidays are generally included though they may
change by letter memo at the beginning of each calendar year: New Years
Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving,
Thanksgiving Friday, Christmas.
7. Sick Days -- Five days are earned each year and are granted on the
first day of the calendar year.
8. Bonus -- Discretionary by management.
9. Stock Options -- ?
10. Simple IRA Plan -- Employees may contribute up to 15% percent of their
salary, with a cap of $6,000 per annum, after 90 days of service.
Company will match up to 3%.
11. Hours -- Warehouse: 7:00 AM to 4:00 PM with two 15 minute breaks and 30
minutes for lunch; Office: Flexible, but must work nine hours between
7:00 AM to 5:30 PM with a 1 hour lunch.
12. Overtime -- None unless approved by supervisor.
13. Absences -- All absences must be excused by your supervisor. Personal
days are used to cover excused absences.
SALARIED EMPLOYEES
same
A-124
<PAGE> 283
EXHIBIT 3B -- 3.23
<TABLE>
<CAPTION>
NAME RELATIONSHIP ADDRESS
- ---- ------------ -------
<S> <C> <C>
Wells Fargo Business
Credit............... Line of Credit 111 East Wayne Street, Fort Wayne, IN 46801
Facility
Liberty BIDCO
Investment Corp. .... Mezzanine Note 3000 Town Center, Suite 830, Southfield, MI
48075-1177
Duke Reality
Investment, Inc. .... Warehouse Lease 281 Fortune Circle East, Suite M,
Indianapolis, IN 46241
200 Fifth Avenue
Associates........... Showroom Lease 60 East 42nd Street, 53rd Floor, New York, NY
10010
Performance
Unlimited............ License Agreement 1710 General George Patton Drive, Suite 110,
Brentwood, TN 37027
NBD Bank, N.A. ........ Equipment Lease 151 N. Delaware Street, #850, Indianapolis,
IN 46158
IKON Capital........... Copier/Fax Lease P.O. Box 9115, Macon, GA 31208-9115
Pitney Bowes Credit
Corp. ............... Postage Machine Lease P.O. Box 5151, Shelton, CT 06484-7151
Active International... Media Barter 1 Blue Hill Plaza, Pearl River, NY 10965
Management Computer
Systems.............. Computer Service 7301 N. Shadeland Ave, Suite B, Indianapolis,
IN 46250
Software Solutions..... Accounting Software c/o Management Computer Systems, 7301 N.
Shadeland Ave, Suite B, Indianapolis, IN
46250
Commercial Union
Insurance............ Property Casualty c/o Agency Associates, 4545 Northwestern Hwy,
Ins. Zionsville, IN 46067
</TABLE>
A-125
<PAGE> 284
EXHIBIT 3B-3.35
SCHEDULE 3.35
LICENSE AGREEMENTS:
- - Anjar Company -- "Kreskin's Amazing Oracle Game" license dated October 5,
1998
- - Baron Design & Development -- "Water Bopper" license dated September 9, 1997
- - George Castanis & Delaney Product Development -- "Peanut Butter and Jelly
Game" license dated November 1, 1996
- - Gordon Barlow Design -- "A-Z" license dated March 20, 1996
- - Gordon Barlow Design -- "Clowning Around" license dated August 19, 1996
- - Gordon Barlow Design -- "Comfy Couch" license dated August 19, 1996
- - Gordon Barlow Design -- "Disc Shooter Target Set" license dated March 20,
1996
- - Gordon Barlow Design -- "Giggling Ghosts" license dated August 19, 1996
- - Gordon Barlow Design -- "Limbo Splash" license dated August 19, 1996
- - Gordon Barlow Design -- "Spaghetti Train" license dated August 19, 1996
- - Gordon Barlow Design -- "5 in 1 Game" license dated September 10, 1997
- - Gordon Barlow Design -- "Telephone Game" license dated August 19, 1996
- - Gordon Barlow Design -- "Tug-of-War Game" license dated March 20, 1996
- - Gordon Barlow Design -- "Fishin' Fun" license dated May 19, 1997
- - Hollywood Ventures Corporation -- "Big Comfy Couch" license dated November 1,
1995
- - Hollywood Ventures Corporation -- "Inflatable Big Comfy Couch" license dated
June 1, 1996
- - Ken Johnson -- "Phase 10" license dated December 1, 1986, as amended
- - Lydia Freilich & Randy Lister -- "Triangle with Ball Skill Game" license
dated November 28, 1997
- - M Design -- "Piranha Game" license dated
- - Meyer/Glass Design -- "Big Shots" license dated November 1, 1996
- - Performance Unlimited -- "Beginner's Bible/Dovetales" dated November 8, 1993
- - Performance Unlimited -- "The Beginners Bible" license dated November 15,
1997
- - Random Games -- "Big Comfy Couch Hidden Treasures" license dated February 27,
1996
- - Random Games -- "Heroes of the Bible" game license dated December 13, 1993
- - Random Games -- "King of the Jungle" game license dated January 6, 1994
- - Random Games -- "Phase 10 Dice" license dated May 21, 1993
- - Random Games -- "Pocahontas Harvest" license dated December 12, 1994
- - Random Games -- "The Jungle Animals Game" dated December 13, 1993
- - Random Games -- "Tortoise and the Hare" game license dated December 13, 1993
A-126
<PAGE> 285
- - Royal Tee Inc. and Brainchild Games, Inc. license dated January 1, 1996
- - Seven Towns Ltd. -- "Penguin Panic" license dated July 1, 1998
- - Theora Design -- "Search 4" licensing agreement dated January 11, 1999
- - Yurkovic Design -- "Chairs Game" license dated November 4, 1998
PATENTS/TRADEMARKS:
- - Patent #5,873,727 Apparatus for Moving Pieces During a Game Playing Period
and an Associated Method of Playing a Game -- application filed September 9,
1997
- - Patent Pending -- Multipurpose Game Assembly -- application filed September
3, 1998
- - Trademark "Upsets" -- registration date August 19, 1997
- - Trademark "Toot 'R Ville Express" -- registration date June 30, 1998
- - Trademark "Telephone Tag" -- registration date June 30, 1998
- - Trademark "Big Shot" -- registration date November 11, 1996
- - Trademark "Limbo Splash" -- registration date January 19, 1999
- - Trademark "Piranha" -- registration date February 2, 1999
- - Trademark "Penguin Pileup" -- registration date pending
- - Trademark "Down And Out" -- registration date pending
- - Trademark "Search 4" -- registration date pending
- - Trademark "Squeezed Out" -- registration date pending
- - Trademark "Chairs" -- registration date pending
- - Trademark "Pegs & Jokers" -- registration date pending
- - Trademark "Sound Zone" -- registration date pending
- - Trademark "Child's First" -- registration date pending
A-127
<PAGE> 286
EXHIBIT 3C-3.8
14. COMMITMENTS AND CONTINGENCIES
In 1998, the former owner of XYZ filed a lawsuit in Wisconsin against the
Company, alleging the breach of an employment agreement. The parties have agreed
to arbitration in Arizona, and the lawsuit was dismissed. Although the outcome
of this matter cannot be determined at this time, management does not believe it
will be material to the operations, financial position, or cash flows of the
Company.
On December 22, 1998, Premier Publishing, Inc. filed a complaint in
Wisconsin against the Company alleging, among other things, conversion and
breach of contract. Discovery is currently ongoing. The outcome of this matter
cannot be determined at this time.
The Company is a party to other litigation in the ordinary course of
business. Management, after taking into account the opinion of counsel, believes
the ultimate outcome of such matters will not have a material adverse effect on
the Company's financial position.
In December 1997, Goett personally settled a lawsuit against the Company
and certain of its shareholders regarding certain patent rights. The Company
originally agreed to pay Goett $10,000 per month from July 1, 1998 through June
30, 1999 and an additional payment of $1,500,000 on June 30, 1999 to acquire the
rights to the patents and to reimburse Goett for the cost of the settlement. On
December 9, 1998, the agreement was revised to omit the $10,000 per month
payment in exchange for an advance payment on the $1,500,000, and to change the
due date to June 1, 1999. The balance owing at December 31, 1998 is $850,000.
A-128
<PAGE> 287
EXHIBIT 3C-3.19
3.19
The following is a listing of the liabilities relating to the companies
business which are more than ninety (90) days past due:
<TABLE>
<S> <C>
Airtouch Cellular........................................... 127.90
William Charles Bundren & Associates, P.C. ................. 38,517.51
Chase Manhatten Bank........................................ 98,850.69
Digital Industries.......................................... 1,334.00
Ernst & Young............................................... 11,237.00
James W. Gick............................................... 13,379.61
Hebert, Schenk & Johnsen.................................... 4,807.56
Knobbe, Martens, Olsen & Bear, LLP.......................... 3,544.12
Leonard, Dicker, & Schreiber................................ 2,244.87
Marvel Entertainment Group, Inc. ........................... 30,000.00
Stephen McTaggert........................................... 17,909.50
MetroTel Business Systems................................... 112.50
Quarles & Brady............................................. 157,857.48
Squire, Sanders & Dempsey................................... 43,636.75
Taylor Design............................................... 3,000.00
Virchow, Krause & Company, LLP.............................. 3,500.00
H. C. Wainwright & Company.................................. 20,000.00
----------
Total liabilities more than 90 days past due................ 450,059.49
==========
</TABLE>
(ii) LIABILITIES ARISING AFTER THE BALANCE SHEET DATE THAT ARE OUTSIDE THE
NORMAL COURSE OF BUSINESS.
The Company has an additional liability in the amount of $1,400,000.00 as
of April 29, 1999 for the following contingency in the purchase agreement
between the Company and XYZ Group Inc. for the purchase of XYZ Group Inc.:
"That if the entire $4,000,000.00 is not paid by one year after the
Closing, then: (1) interest shall be added to the amount due, calculated on
the outstanding balance at the rate of ten percent (10%) per annum from the
date of the Closing under paid in full; and (ii) $1,000,000.00 shall be
added to the amount payable, as a penalty and said $1,000,000.00 shall
accrue interest at the rate of ten percent (10%) per annum for the date
which is one year after the Closing until paid in full.
A-129
<PAGE> 288
EXHIBIT 3C--3.22
3.22 Employees
1. Medical/Dental Benefits
Company pays 100% of cost for individual and family effective the first
month following 30 days of employment. Dental insurance is also
available to employees in Wisconsin at a cost to the employee.
2. Vacation
Two weeks paid per annum, 5 days every six months available after 6
months of employment.
a. Two weeks (10 days)
(Accrue 5 days every 6 months from date of hire)
b. Three weeks (15 days) after five year anniversary
(Accrue 7 1/2 days every 6 months from date of hire)
c. Four weeks (20 days) after ten year anniversary
(Accrue 10 days every 6 months from date of hire)
3. Eight Holidays with Pay
These holidays are generally included though they may change at the
discretion of management.
New Year's Day
Good Friday
Memorial Day
Fourth of July
Labor Day
Thanksgiving
Thanksgiving Friday
Christmas
4. Stock Options
Eligibility: At the discretion of management. Consideration for
Options: Performance, salary level, and tenure.
5. 401 K Plan
Company contribution at the rate of 25% of employee paid in amount up
to 4% of one's salary. Vesting and other restriction apply.
6. Personal Days/Sick Days
Each employee has 5 fully paid personal days per year, either in time
off or payroll. All employees are entitled to 5 fully paid days per
year for major illness requiring hospitalization of 3 days or more.
A-130
<PAGE> 289
EXHIBIT 3C-3.30
(i) any changes in Articles of Certificate of incorporation or bylaws.
NONE
(ii) any change in the numbers of shares of stock issued and outstanding.
Please refer to the following schedule:
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED
---------------------------------- -------------------------------
SHARES DOLLARS ISSUABLE SHARES DOLLARS ISSUABLE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stock issuable in
connection with XYZ Company
acquisition................... 14,336,670 $2,867,334
Preferred stock issued in
connection with acquisition of
Janex shares.................. 3,750,000 $750,000
Roderick L. Turner Debt
conversion, $350,000 loan plus
accrued interest, 3/1/99...... 2,780,555 $417,083
Roderick L. Turner Debt
conversion, $300,000 loan plus
accrued interest, 3/1/99...... 2,097,342 314,601
Elizabeth D. Pickard Debt
conversion, $100,000.00 loan
plus accrued interest,
3/1/99........................ 808,416 121,262
Dyer Holdings, LLC Debt
conversion, $300,000 loan plus
accrued interest, 3/1/99...... 565,892 84,884
Nehring Family Trust Debt
conversion, $100,000.00 loan
plus accrued interest,
3/1/99........................ 808,416 121,262
</TABLE>
(iii) the merger or consolidation of the Merging Company with any or into
any other corporation or other entity.
On March 31, 1998 the Company acquired substantially all of the assets of
Gick Publishing, Inc. ("Gick"), for cash consideration of $2,020,000 plus the
assumption of certain liabilities totaling $940,452. Gick manufactures and sells
foam-based greeting cards and products.
On May 1, 1998 the Company acquired substantially all of the assets of XYZ
Group Inc. ("XYZ"), a wholesaler and distributor of books and various book
products including children's electronic toys and book and toy combination
products, for consideration of $10,200,000, including a $4,000,000 note payable
to the former owner and $2,867,334 payable either in cash or with 14,336,670
shares of the Company's common stock. The note payable is due April 29, 1999 and
bears interest at 10 percent. Consideration of 2,332,666 was contingent based on
XYZ's future performance. However, these contingencies were not met. On April
29, 1999, an additional $1,400,000.00 is due from this transaction (please see
Section 3.19(ii) for more on this liability).
On December 11, 1998 the Company acquired approximately 73 percent of the
outstanding common stock and 100 percent of the outstanding preferred stock of
Janex International, Inc., ("Janex"), a developer, marketer and seller of toys
and children's products, for consideration of $1,500,000, consisting of a
$750,000 note payable and $750,000 payable with 3,750,000 shares of the
Company's preferred stock. The note bears interest at 10 percent and is payable
30 days after the
A-131
<PAGE> 290
merger of Futech into Janex. Janex is a publicly traded New Jersey based Nasdaq
"pink sheet" company which trades under the symbol "JANX".
(iv) NONE
(v) The employment agreement between the Company and Chairman of the
Board, Vincent W. Goett has a salary for the calendar year 1999 of
$350,000. The Company has recorded and paid this obligation of only an
annualized salary of $250,000. The error has been corrected and a
payment retroactive to January 1, 1999 will be paid on the payroll of
May 28, 1999.
A-132
<PAGE> 291
EXHIBIT 3C-3.35
FUTECH MASTER PATENT STATUS CHART
U.S. PATENT APPLICATIONS
<TABLE>
<CAPTION>
Q&B FILING RELATIONAL
REF. NO. TITLE SERIAL NO. DATE DATA STATUS
-------- ----- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
370100.90156.............. Scroll Toy Not Yet Assigned Not Yet Filed -- No application prepared
or filed per client
request.
370100.90172.............. Baby Baton Not Yet Assigned Not Yet Filed -- Ask client for
instructions as to filing
01/99.
370100.90181.............. Decorative Novelty 09/025,351 02/18/98 Divisional(1) Should receive 1st Office
Articles Application of Serial Communication by 08/99.
No. 08/577,609 Status check 08/99.
370100.90245.............. Decorative Novelty Not Yet Assigned Not Yet Filed Continuation In Under client review
Articles Part(2) (1/13/99).
w/Audiovisual (CIP) of Serial No.
Enhancements and 09/025,351
Method Therefor
(musical postcard)
370100.90377.............. An Accordion-Type 09/216,612 12/18/98 CIP of Serial No. Filing Receipt (FR)
Electronic Book 08/898,056 received with PTO error;
and a Method of expected corrected FR by
Manufacture 06/99.
Therefor
370100.90393.............. Apparatus for 08/898,056 07/22/97 Continuation(3) of Amendment submitted
Presenting Visual 08/474,707 1/14/99. Check status
Material with 07/99.
Identified Sensory
Material
</TABLE>
A-133
<PAGE> 292
FUTECH MASTER PATENT STATUS CHART -- (CONTINUED)
REGISTERED U.S. PATENTS
<TABLE>
<CAPTION>
Q&B ISSUE RELATIONAL
REF. NO. TITLE PATENT NO. DATE DATA STATUS
-------- ----- ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C>
370100.90032....................... Electronic Book 5,417,575 05/23/95 CIP of Patent No. 2nd Maintenance Fee due
5,167,508 11/23/02.
370100.90041....................... Apparatus for 5,484,292 01/16/96 CIP of Serial No. 1st Maintenance Fee due
Combining Audio 07/685,278 07/16/99.
and Visual Indicia
370100.90059....................... Electronic Book 5,167,508 12/01/92 CIP of Serial No. 2nd Maintenance Fee due
396,129 06/01/00.
370100.90067....................... Method of 5,609,488 03/11/97 Divisional of Serial 1st Maintenance Fee due
Combining Audio No. 07/980,649 09/11/00.
and Visual Indicia
370100.90091....................... Game Board 5,772,208 06/30/98 -- 1st Maintenance Fee due
Incorporating 12/30/01.
Apparatus for
Selectively . . .
370100.90105....................... Model Motor 5,782,186 07/21/98 -- 1st Maintenance Fee due
Vehicle Track 01/21/02.
System. . . .
370100.90181....................... Decorative Novelty 5,735,453 04/07/98 -- 1st Maintenance Fee due
Articles 10/07/01.
370100.90385....................... Squeeze Flashlight 5,434,761 07/18/98 -- 2nd Maintenance Fee due
01/18/03.
370100.90407....................... Activated Work and 4,656,469 04/07/87 -- 3rd Maintenance Fee due
Method of Forming 04/07/99.
Same
370100.90415....................... Visual and Audible 4,703,573 11/03/87 -- 3rd Maintenance Fee due
Activated Work and 05/03/99.
Method of Forming
Same
</TABLE>
FOREIGN PATENT APPLICATIONS
<TABLE>
<CAPTION>
Q&B REFERENCE TITLE COUNTRY APPLICATION NO. FILING DATE RELATIONAL DATA
- ------------- ----- ------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
370100.90041... Apparatus for Combining Audio PCT PCT/US93/10705 11/04/93 Corresponds to U.S. Patent
and Visual Indicia No.: 5,484,292
370100.90041... Apparatus for Combining Audio Europe 94901300.7 06/24/95 PCT/US93/10705
and Visual Indicia
370100.90041... Apparatus for Combining Audio Canada 2,150,013 05/23/95 PCT/US93/10705
and Visual Indicia
370100.90041... Apparatus for Combining Audio India 1253/Del/93 11/09/93 PCT/US93/10705
and Visual Indicia
370100.90041... Apparatus for Combining Audio Japan 513158/94 06/24/95 PCT/US93/10705
and Visual Indicia
370100.90059... Electronic Book PCT PCT/US92/03056 04/14/92 US Serial No. 07/685,278
370100.90059... Electronic Book Europe 92911059.1 04/14/92 PCT/US92/03056
370100.90059... Electronic Book Canada 2,108,554 10/15/93 PCT/US92/03056
<CAPTION>
Q&B REFERENCE STATUS
- ------------- ------
<S> <C>
370100.90041.. Completed.
370100.90041.. Response to Office Action
filed 12/06/98; check status
06/99.
370100.90041.. Office Action Response Due
05/12/99.
370100.90041.. Check status 06/99.
370100.90041.. Request for Examination due
11/04/00.
370100.90059.. Completed.
370100.90059.. Response filed with EPO
12/98; check status 06/99.
370100.90059.. Annuity and Request for
Examination due 04/14/99.
Need client instructions by
02/14/99.
</TABLE>
A-134
<PAGE> 293
FUTECH MASTER PATENT STATUS CHART -- (CONTINUED)
<TABLE>
<CAPTION>
Q&B REFERENCE TITLE COUNTRY APPLICATION NO. FILING DATE RELATIONAL DATA
- ------------- ----- ------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
370100.90059... Electronic Book S. Korea 18,887/92 10/14/92 PCT/US92/03056
370100.90059... Electronic Book Japan 510057/92 04/14/92 PCT/US92/03056
370100.90059... Electronic Book India 886/Del/92 09/30/92 PCT/US92/03056
370100.90059... Electronic Book Kazakhstan Not Yet 11/15/93 PCT/US92/03056
Assigned
370100.90083... Laminated Sheet Product PCT PCT/US97/21276 11/18/97 U.S. Serial No.:
Containing 60/031,184
370100.90091... Game Board Incorporating PCT PCT/US96/17589 11/05/96 U.S. Serial No: 08/554,734
Apparatus for Selectivity
370100.90091... Game Board Incorporating Canada 2,236,891 11/05/96 PCT/US96/17589
Apparatus for Selectively
370100.90091... Game Board Incorporating Europe 96938731.5 11/05/96 PCT/US96/17589
Apparatus for Selectively
370100.90091... Game Board Incorporating India 2436/Del/96 11/06/96 U.S. Serial No.:
Apparatus for Selectively 08/554,734
370100.90105... Model Motor Vehicle Track PCT PCT/US97/23943 12/24/97 U.S. Serial No.:
System 08/775,956
370100.90181... Decorative Novelty Articles PCT PCT/US96/18098 11/08/96 U.S. Serial No.:
08/557,609
370100.90181... Decorative Novelty Articles Europe 96939659.7 11/08/96 PCT/US96/18098
<CAPTION>
Q&B REFERENCE STATUS
- ------------- ------
<S> <C>
370100.90059.. Request for Examination
filed; check status 03/99.
370100.90059.. Request for Examination due
04/14/99. Per client
instructions, will permit
ABANDONMENT on 04/14/99.
370100.90059.. Check status 01/99.
370100.90059.. Check status 01/99.
370100.90083.. National Phase filing due
5/19/99.
370100.90091.. Completed.
370100.90091.. Maintenance Fee due 11/05/99.
Request for Examination due
11/05/99.
370100.90091.. Follow up by 03/99 on request
for status sent 02/99.
370100.90091.. Check status due 03/99.
370100.90105.. National Phase filing due
07/03/99.
370100.90181.. Completed.
370100.90181.. Renewal due 11/30/99. Need
client instruction by 09/99.
</TABLE>
REGISTERED FOREIGN PATENTS
<TABLE>
<CAPTION>
Q&B REFERENCE TITLE COUNTRY PATENT NO. ISSUE DATE RELATIONAL DATA
- ------------- ----- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
370100.90059... Electronic Book Australia 664,701 03/19/96 PCT/US92/03056
<CAPTION>
Q&B REFERENCE STATUS
- ------------- ------
<S> <C>
370100.90059.. Annuity due 04/14/99.
</TABLE>
ABANDONED APPLICATION
<TABLE>
<CAPTION>
SERIAL FILING RELATIONAL
REFERENCE TITLE NO. DATE COUNTRY DATA
--------- ----- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C>
FUT04-0370....... Apparatus for Combining Audio 08/474,707 06/07/95 U.S. Parent application to
and Visual Material pending continuation
application 08/898,056
370100.90041..... Apparatus for Combining Audio 702092/1995 05/24/95 South Korea PCT/US93/10705
and Visual Indicia
370100.90041..... Apparatus for Combining Audio None. None. Brazil PCT/US93/10705
and Visual Indicia
370100.90059..... Electronic Book 9211105.0 10/14/92 China PCT/US92/03056
370100.90059..... Electronic Book 93058476/09 10/15/93 Russia PCT/US92/03056
370100.90059..... Electronic Book 9400697.2 08/09/94 Uzbekistan PCT/US92/03056
370100.90083..... Laminated Sheet Product 97/10411 11/19/97 South Africa U.S. Serial No.:
Containing 60/031,184
<CAPTION>
REFERENCE STATUS
--------- ------
<S> <C>
FUT04-0370....... File kept with Serial
No. 08/898,056.
370100.90041..... ABANDONED per client
instructions.
370100.90041..... Filing deadline missed
by prior firm.
370100.90059..... ABANDONED per client
instructions.
370100.90059..... ABANDONED per client
instructions.
370100.90059..... ABANDONED per client
instructions.
370100.90083..... ABANDONED per client
instruction.
</TABLE>
A-135
<PAGE> 294
FUTECH MASTER PATENT STATUS CHART -- (CONTINUED)
<TABLE>
<CAPTION>
SERIAL FILING RELATIONAL
REFERENCE TITLE NO. DATE COUNTRY DATA
--------- ----- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C>
370100.90083..... Printed Speaker for 60/031,184 11/19/96 U.S. PCT/US97/21276
Incorporation into a (Provisional)
Laminated Sheet Product
370100.90083..... Printed Battery for 60/031,185 11/19/96 U.S. PCT/US97/21276
Incorporation into a (Provisional)
Laminated Sheet Product
370100.90105..... Model Motor Vehicle Track 98/0027 01/05/98 South Africa U.S. Serial No.:
System 08/775,956
<CAPTION>
REFERENCE STATUS
--------- ------
<S> <C>
370100.90083..... ABANDONED after filing
PCT application.
370100.90083..... ABANDONED after filing
PCT application.
370100.90105..... ABANDONED per client
instructions.
</TABLE>
ABANDONED PATENTS
<TABLE>
<CAPTION>
PATENT ISSUE RELATIONAL
REFERENCE TITLE NO. DATE COUNTRY DATA
--------- ----- ------ ----- ------- ----------
<S> <C> <C> <C> <C> <C>
370100.90041..... Apparatus Combining Audio and 10815 02/23/96 Sri Lanka PCT/US93/10705
Visual Indicia
370100.90041..... Apparatus Combining Audio and 673,219 02/18/97 Australia PCT/US93/10705
Visual Indicia
370100.90059..... Electronic Book 178,299 06/07/95 Mexico PCT/US92/03056
370100.90059..... Electronic Book 57,656 09/01/90 Taiwan U.S. Serial No.
07/396,129
<CAPTION>
REFERENCE STATUS
--------- ------
<S> <C>
370100.90041..... ABANDONED per client
instructions.
370100.90041..... ABANDONED per client
instructions.
370100.90059..... ABANDONED per client
instructions.
370100.90059..... ABANDONED per client
instructions.
</TABLE>
A-136
<PAGE> 295
FUTECH MASTER PATENT STATUS CHART -- (CONTINUED)
[PATENT MARKING GUIDELINES TO COME]
A-137
<PAGE> 296
FUTECH MASTER PATENT STATUS CHART -- (CONTINUED)
PATENT MARKING GUIDELINES (CONTINUED)
f. In summary, assume a product is covered by U.S. Patent 1,234,567 and
several patent applications pending in the U.S. and abroad. Here, the
product should be marked as: "U.S. Patent 1,234,567. U.S. and Foreign
Patents Pending."
A-138
<PAGE> 297
FUTECH MASTER PATENT STATUS CHART -- (CONTINUED)
1. Divisional Application: As a beginning proposition, under U.S. Patent
Law, you can protect only one invention per patent. Occasionally, a Patent
Examiner will allege that an applicant is attempting to protect more than one
invention in a single patent application. In response, the applicant must select
which one of the inventions to prosecute in the patent application. Then, the
applicant can file what is known as a "divisional application" to prosecute
claims directed to the other invention.
2. Continuation In Part Application: Assuming you have a patent
application A that discloses the details of an invention, you can file a CIP
application that adds "new matter" (details of the invention not in application
A). Claims in the CIP application that depend on only the disclosure from
application A for support are granted application A's filing date; however,
claims in the CIP application that rely on material first disclosed in the CIP
application will get the later filing date of the CIP application.
3. Continuation Application: Assume you have an application A that a
Patent Examiner is not ready to allow as a patent. We have three options,
namely, abandon the application, appeal the Examiner's determination, or file a
continuation application. The continuation application permits us to continue
arguing the merits of the invention by narrowing the claims to get around the
prior art in hopes of obtaining a patent. A continuation application is like a
CIP application without any new matter. In other words, application A and its
continuation application have the same disclosure and effective filing date,
though they may have claims of different scope.
A-139
<PAGE> 298
EXHIBIT 3D-3.19
SECTION 3.19 OUTSTANDING LIABILITIES
Janex International, Inc.
Accounts Payable 90 days or over
as of 5-19-99
<TABLE>
<CAPTION>
VENDOR AMOUNT
- ------ ------
<S> <C>
Character Connections....................................... $ 2,064.00
Federal Express............................................. $ 64.70
International Business Directories.......................... $ 186.50
Lion Pride Industries, Inc. ................................ $ 1,000.00
Walt Disney Company......................................... $ 62,359.02
Warner Brothers............................................. $ 25,329.00
The Lyons Group............................................. $ 27,500.00
Leisure Concepts............................................ $ 25,000.00
Les Friedland & Assoc. ..................................... $ 87,169.81
Penn Design, Inc. .......................................... $ 1,900.00
Pitney Bowes................................................ $ 141.99
RIA Group................................................... $ 552.20
Xerox Corporation........................................... $ 29.68
-----------
TOTAL............................................. $233,296.90
</TABLE>
A-140
<PAGE> 299
EXHIBIT 3D-3.22
3.22 EMPLOYEES.
Salaried Employees:
1. Medical/Dental Benefits
Company pays 100% of cost for individual and family coverage effective
the first month following 30 days of employment.
2. Vacation
Vacation accrual begins with the first month of hire. Monthly accrual
rates are determined by the employee's anniversary date. Vacation
accrues at a rate of 6.25 hours each month of full-time service (10
days for every 12 months) up through the first year of continuous
employment. Accrual rates thereafter are as follows:
<TABLE>
<CAPTION>
HOURS ACCRUED
DURING YEAR PER MONTH YEARLY TOTAL
----------- ------------- ------------
<S> <C> <C>
2 to 5............................. 6.25 10 days
6 to 10............................ 9.38 15 days
11 to 15............................ 12.50 20 days
16 plus............................. 15.63 25 days
</TABLE>
If the employee's 5th, 10th, or 15th anniversary date falls on or
before the last working day of the month, the employee will accrue the
higher rate for that month. Vacation is not earned while an employee is
on a leave of absence. Employees may take total "available" vacation at
any time throughout the year, subject to supervisor approval. All
vacations must be scheduled in advance with the employee's supervisor.
An employee's vacation time vests when it is accrued, excepting that
vacation time accrued during the first six month period, and can be
carried over to future calendar years if not taken. This means that the
earned vacation is permanently credited to the employee.
An employee cannot take more than 15 consecutive days of vacation
(excluding Saturdays, Sundays, and Holidays) in any one calendar year
without the approval of the President. Upon termination, the employee's
accrued, but not taken vacation hours, will be added to the final
paycheck using the employee's then current, straight-time hourly rate
for conversion.
The Company reserves the right to cash out, i.e., payoff, any accrued
vacation benefits at any time on the basis of an employee's
compensation rate at the time of the cash out.
3. Holidays
Janex International, Inc. provides ten paid holidays each year. The
Company is officially closed on New Years Day, Martin Luther King Day,
President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, the day after Thanksgiving, Christmas Eve, and
Christmas Day.
4. Hours
Office: 8:00am to 5:00pm with 1 hour lunch, Monday through Friday.
A-141
<PAGE> 300
5. Absences
Non-emergency doctor or dentist appointments to be scheduled after
business hours or on Saturday, if possible, otherwise all absences must
be excused by your supervisor.
All insurance must be provided by a recognized insurance company having a
Best's Rating of no less than AA. As proof of such insurance, a fully paid
certificate of insurance naming Futech as an additional insured shall be
submitted to Futech's office as and when requested by Futech, within thirty (30)
days after written request is made therefor. Futech shall be entitled throughout
the term of this Agreement, to a copy of the prevailing policies of insurance.
The policies of insurance must be non-cancelable except after thirty (30) days
prior written notice to Futech.
A-142
<PAGE> 301
EXHIBIT 3.36
TO
MERGER AGREEMENT
(ALLOWED EXCESS LIABILITIES)
A. DAMERT.
$100,000.00; provided, however, that there shall also be a limit on the
liability of DaMert and its Shareholders under the representations and
warranties in this Agreement in the amount of $2,000,000.00 for items for which
DaMert and its Shareholders were not aware as of the time of the Closing.
B. FUNDEX.
$100,000.00; provided, however, that there shall also be a limit on the
liability of Fundex and its Shareholders under the representations and
warranties in this Agreement in the amount of $2,000,000.00 for items for which
Fundex and its Shareholders were not aware as of the time of the Closing.
C. FUTECH.
$100,000.00; provided, however, that there shall also be a limit on the
liability of Futech and its Shareholders under the representations and
warranties in this Agreement in the amount of $2,000,000.00 for items for which
Futech and its Shareholders were not aware as of the time of the Closing.
D. JANEX.
$100,000.00; provided, however, that there shall also be a limit on the
liability of Janex and its Shareholders under the representations and warranties
in this Agreement in the amount of $2,000,000.00 for items for which Janex and
its Shareholders were not aware as of the time of the Closing.
E. TRUDY.
$100,000.00; provided, however, that there shall also be a limit on the
liability of Trudy and its Shareholders under the representations and warranties
in this Agreement in the amount of $2,000,000.00 for items for which Trudy and
its Shareholders were not aware as of the time of the Closing.
A-143
<PAGE> 302
EXHIBIT 4.1.7
TO MERGER AGREEMENT
(FORM OF LEGAL OPINION)
[LETTER HEAD]
[DATE]
Futech Interactive Products, Inc.
Attention: Vincent W. Goett, CEO
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Re: Merger Transaction (the "TRANSACTION") Among Futech Interactive
Products, Inc., an Arizona corporation ("FUTECH"), Trudy Corporation,
a Delaware corporation ("TRUDY"), Fundex Games, Ltd., a Nevada
corporation ("FUNDEX"), DaMert Company, a California corporation
("DAMERT"), Janex International, Inc., a Colorado corporation
("JANEX"), Futech Interactive Products (Delaware) Inc., a newly formed
Delaware corporation ("FUTECH DELAWARE"), [New Sub], a newly formed
Nevada corporation ("NEW SUB") (collectively, the "MERGING
COMPANIES"), and those shareholders (the "SHAREHOLDERS") of Futech,
Trudy, Fundex, DaMert and Janex identified on the signature pages of
the Merger Agreement, dated May
------------, 1999 (the "MERGER AGREEMENT").
Gentlemen:
We have acted as special counsel to
------------------ (hereinafter the "CORPORATION") in connection with the
Transaction. You have requested an opinion regarding certain matters relating to
the Merger Agreement and related documents, and the Transaction. Capitalized
terms used in this letter, and not otherwise defined in this letter, shall have
the meaning given to them in the Documents (defined below). This opinion is
limited to the merger of the Corporation into Futech Interactive Products, Inc.,
a Delaware corporation [New Sub -- for Fundex], and that portion of the
Transaction relating to such merger and does not address, cover or relate to any
other merger of any company or any other portion of the Transaction
For purposes of this opinion, we have examined such questions of law and
fact as we have deemed necessary or appropriate, and have relied upon such
agreements, documents, instruments, records, certificates, opinions and other
statements of government officials and representatives of the Corporation as we
deemed applicable to the Transaction and necessary as a basis for our opinion
(collectively, the "DOCUMENTS").
As to any question of fact material to our opinion, we have relied solely
upon copies of the Corporation's Certificate or Articles of Incorporation, filed
with
- ------------- (the "Commission") on
- -------------, 19
- --, and
- -------------
- --, filed with the Commission on
- -------------, 19
- --, the Bylaws of the Corporation certified by an officer of the Corporation as
in effect on the Closing of the Transaction, a certificate of good standing of
the Corporation from the Commission, dated immediately prior to the Closing, and
representations and warranties of the Corporation contained in the Merger
Agreement and the Documents.
A-144
<PAGE> 303
Based on the foregoing, and subject to the qualifications set forth below,
we are of the opinion that:
1. The Corporation is duly organized, validly existing, and in good
standing under the laws of the State of
----------------------.
2. To the best of our knowledge, the Corporation's authorized capital is
as is disclosed in the Merger Agreement.
3. To the best of our knowledge, the Corporation has the requisite
corporate power and corporate authority: (i) to own and operate its
properties and assets; (ii) to carry out its business as such business
is currently being conducted; and (iii) to carry out the terms and
conditions applicable to it under the Merger Agreement. The execution,
delivery and performance of the Merger Agreement by the Corporation
have been duly authorized by all requisite corporate action on the
part of the Corporation and the Merger Agreement has been duly
executed and delivered by the Corporation.
4. We have no knowledge of any pending or threatened litigation or other
legal proceeding against the Corporation, other than as may be
disclosed in the Merger Agreement.
5. To our knowledge, the execution and delivery of the Merger Agreement,
and consummation of the Transaction by the Corporation, will not
conflict with or result in a violation of any applicable law or rule
affecting the Corporation.
6. To our knowledge, no consent, approval, authorization, or other action
by, or filing with, any federal, state, or local governmental
authority is required in connection with the execution and delivery by
the Corporation of the Merger Agreement and the consummation of the
Transaction by the Corporation, other than filings required by federal
and state securities laws, or, if any of the foregoing is required, it
has been obtained.
7. The execution and delivery of the Merger Agreement and consummation of
the Transaction by the Corporation will not conflict with or result in
a violation of the Corporation's Articles of Incorporation or Bylaws.
8. To the best of our knowledge, the execution and delivery of the Merger
Agreement and consummation of the Transaction by the Corporation will
not conflict with or result in a violation of any judgment, order, or
decree of any court or governmental agency to which the Corporation is
a party or by which the Corporation is bound.
9. We are not aware of any judgment, order or decree of any court or
governmental agency to which the Corporation is a party or by which
the Corporation is bound.
10. To our knowledge, the execution and delivery of the Merger Agreement,
and consummation of the Transaction by the Corporation, will not
conflict with or result in a violation of any contract, indenture,
instrument, or other agreement to which the Corporation is a party or
by which the Corporation is bound.
11. We are not aware of any reason why the Merger Agreement would not
constitute the legal, valid, and binding obligations of the
Corporation, enforceable in accordance with its terms.
A-145
<PAGE> 304
In rendering the foregoing opinions, we have assumed: (i) the genuineness
of the signatures not witnessed, the authenticity of documents submitted as
originals, and the conformity to originals of documents submitted as copies;
(ii) the legal capacity of the natural person executing the documents; (iii)
that the documents accurately describe and contain the mutual understanding of
the parties, and that there are no oral or written statements or agreements that
modify, amend, or vary, or purport to modify, amend, or vary, any of the terms
of the Documents; (iv) that the Corporation owns all of the property, assets and
rights purported to be owned by it; and (v) the Merger Agreement, related
documents and all of the Documents to which any person other than the
Corporation is a party are the legal, valid and binding obligations of such
party, enforceable against such party in accordance with their respective terms.
The opinions set forth above are subject to the following qualifications
and limitations:
(i) The enforceability of the Documents may be subject to or limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, arrangement, or other similar laws relating to or
affecting the rights of creditors generally; and
(ii) The enforceability of the Documents is subject to general principles
of equity, including principles of fair dealing, good faith and
commercial reasonableness.
(iii) Whenever this opinion with respect to the existence or absence of
facts is indicated to be based on our "knowledge" or awareness or
lack thereof, it is intended to signify that during the course of our
representation of the Corporation, this constitutes only the
information which has come to the attention of any lawyer of our firm
who has active involvement in the Transaction or who is primarily
responsible for providing a response to a particular opinion issue or
confirmation regarding a particular factual finding which would give
the firm actual knowledge or notice of the existence or absence of
such facts. Insofar as this opinion relates to factual matters, we
relied upon inquiries made of the corporation and its officers.
Although nothing has come to our attention leading us to question the
accuracy of the responses to our inquiries, we have not, except as
specifically noted in this opinion, made any independent inquiry or
investigation.
We are members of the Bar of the State of
------------------, and, except as expressly set forth herein, our opinion
is limited to matters governed by
- ------------- law including the portion of such law dealing with corporations.
The opinions expressed in this letter are based upon the law of such
jurisdiction in effect on the date hereof, and we assume no obligation to revise
or supplement this opinion should such law be changed by legislative action,
judicial decision, or otherwise.
We authorize and agree to accept facsimile signatures to this letter as if
the same were originals.
Yours Truly,
[LAW FIRM]
[LAWYER]
A-146
<PAGE> 305
EXHIBIT 4.2
TO
MERGER AGREEMENT
(CONDITIONS FOR PARTICULAR MERGING COMPANIES)
A. DAMERT.
New Futech shall have executed and delivered to Fred DaMert and Gail Patton
DaMert at the Closing Employment Agreements as described in EXHIBIT 2.8.1.
New Futech shall have obtained the releases as called for in Section A. of
EXHIBIT 2.10.
B. FUNDEX.
New Futech shall have executed and delivered to Carl E. Voigt, IV and Carl
E. Voigt, III at the Closing Employment Agreements as described in EXHIBIT
2.8.1.
New Futech shall have obtained the releases of guaranties as called for in
Section B. of EXHIBIT 2.10.
New Sub shall have executed and delivered to Carl E. Voigt, IV UCC-1
Financing Statements as called for in EXHIBIT 1.6.
C. FUTECH.
Fred DaMert, Gail Patton DaMert, Carl E. Voigt, IV, Carl E. Voigt, III, and
William W. Burnham shall have executed and delivered to New Futech at the
Closing Employment Agreements as described in EXHIBIT 2.8.1.
D. JANEX.
Not Applicable.
E. TRUDY.
New Futech shall have executed and delivered to William W. Burnham at the
Closing an Employment Agreement as described in EXHIBIT 2.8.1.
A-147
<PAGE> 306
EXHIBIT 6.5
TO
MERGER AGREEMENT
(SURVIVING PROVISIONS OF LETTERS OF INTENT)
A. DAMERT.
Those provisions of the Letter of Intent between DaMert and Futech, dated
March 24, 1999, which are specifically designated as legally binding upon the
parties shall continue to be binding upon the parties thereto.
B. FUNDEX.
Those provisions of the Letter of Intent between Fundex and Futech, dated
March 4, 1999, which are specifically designated as legally binding upon the
parties shall continue to be binding upon the parties thereto.
C. FUTECH.
Not Applicable.
D. JANEX.
Not Applicable.
E. TRUDY.
Those provisions of the Letter of Intent between Trudy and Futech, dated
December 16, 1998, which are specifically designated as legally binding upon the
parties shall continue to be binding upon the parties thereto.
A-148
<PAGE> 307
EXHIBIT 6.13
TO
MERGER AGREEMENT
(MAILING LIST FOR NOTICES)
A. DAMERT.
<TABLE>
<S> <C>
If to DaMert: DaMert Company
1609 Fourth Street
Berkeley, California 94710
Attn: Fred and Gail DaMert
with copy to: Peter Whitman
1717 Embarcadero Road
Palo Alto, California 94303
If to Fred DaMert: Fred DaMert
1609 Fourth Street
Berkeley, California 94710
If to Gail Patton DaMert: Gail Patton DaMert
1609 Fourth Street
Berkeley, California 94710
</TABLE>
B. FUNDEX.
<TABLE>
<S> <C>
If to Fundex: Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
Attn: Carl E. Voigt, IV
with copy to: Mitchell Roth
200 North LaSalle, #2100
Chicago, Illinois 60601
If to Carl E. Voigt, IV: Carl E. Voigt, IV
2237 Directors Row
Indianapolis, Indiana 46241
If to Carl E. Voigt, III: Carl E. Voigt, III
2237 Directors Row
Indianapolis, Indiana 46241
</TABLE>
C. FUTECH.
<TABLE>
<S> <C>
If to Futech: Futech Interactive Products, Inc.
2999 North 44th Street, Suite
Phoenix, Arizona 85018-7247
Attn: Vincent W. Goett
</TABLE>
A-149
<PAGE> 308
<TABLE>
<S> <C>
with copy to: Thomas R. Lofy
9445 North 37th Street
Phoenix, Arizona 85028
</TABLE>
D. JANEX.
<TABLE>
<S> <C>
If to Janex: Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite
Phoenix, Arizona 85018-7247
Attn: Vincent W. Goett
with copy to: Quarles & Brady, LLP.
Attn: Mark Briggs
One East Camelback Road, Suite 400
Phoenix, Arizona 85012
</TABLE>
E. TRUDY.
<TABLE>
<S> <C>
If to Trudy: Trudy Corporation
353 Main Avenue
Norwalk, Connecticut 06851-1552
Attn: William W. Burnham
with copy to: Charles E. Barnett
McGovern & Associates
One Lafayette Place
Greenwich, Connecticut 06830
If to Elisabeth T. Prial: Elisabeth T. Prial
353 Main Avenue
Norwalk, Connecticut 06851-1552
If to William W. Burnham: William W. Burnham
353 Main Avenue
Norwalk, Connecticut 06851-1552
If to Alice B. Burnham: Alice B. Burnham
353 Main Avenue
Norwalk, Connecticut 06851-1552
</TABLE>
A-150
<PAGE> 309
EXHIBIT 6.14
TO
MERGER AGREEMENT
(BROKERAGE FEES PAYABLE)
A. DAMERT.
DaMert has entered into an agreement with CorDev Corporation (Bob Oliver)
relating to the sale of DaMert. The amount paid will be $200,000 cash and 21,333
shares of New Futech common stock which will be paid by New Futech.
B. FUNDEX.
Not Applicable.
C. FUTECH.
Not Applicable.
D. JANEX.
Not Applicable.
E. TRUDY.
Trudy's financial advisor, James P. McGough, represents Trudy in connection
with the Mergers, and shall be compensated by Trudy paying him cash in the
amount of $43,670, and by Trudy issuing him Trudy stock, which will participate
in the Merger consideration ($16,330 of the cash and 14,314 shares of the New
Futech common stock), for services rendered with respect to the negotiation and
closing of the Mergers.
A-151
<PAGE> 310
(APPENDIX B)
CERTIFICATE OF INCORPORATION
OF
FUTECH INTERACTIVE PRODUCTS (DELAWARE) INC.
1. Name. The name of the Corporation is Futech Interactive Products
(Delaware) Inc.
2. Registered Office and Agent. The address of its registered office in
the State of Delaware is 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
3. Purpose. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
4. Authorized Stock. The total number of shares of stock which the
Corporation shall have authority to issue is Fifty Million (50,000,000) shares,
having a par value of one-tenth of one cent ($.001) per share. The authorized
shares shall be comprised of Forty-Five Million (45,000,000) shares designated
as "Common Stock" and Five Million (5,000,000) shares designated as "Preferred
Stock".
The Preferred Stock may be divided into and issued in series, and authority
is hereby expressly granted to the Board of Directors, by resolution or
resolutions adopted by the Board of Directors, to divide, from time to time, any
and all of such Preferred shares into series and to fix and determine the
relative rights and preferences of the shares of any series so established,
including (a) the rate of dividend payable thereon and whether such dividends
shall be cumulative, noncumulative or partially cumulative; (b) the extent to
which such dividends are payable on a parity with or in preference to the
dividends payable on the shares of any other class or series of stock; (c) the
amount which shall be paid to the holders thereof in the event of voluntary or
involuntary liquidation; (d) the terms and conditions on which the holders
thereof may convert the same into any other class or series of stock, if the
shares of any series are issued with the privilege of conversion; (e) the price
at and the terms and conditions on which the shares may be redeemed and the
terms or amount of any sinking fund provided for the purchase or redemption
thereof; (f) the voting rights, if any, of the holders thereof; and (g) such
other provisions as may be permitted to be fixed by the Board of Directors of
the corporation pursuant to the laws of the State of Delaware, as in effect at
the time of the creation of any such series.
5. Incorporator. The name and mailing address of the incorporator is as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- ---- ---------------
<S> <C>
Leezie Kim One East Camelback Road
Suite 400
Phoenix, Arizona 85012-1649
</TABLE>
6. Number of Directors. The number of directors of the Corporation, and
the division of directors into classes (if any), shall be fixed by, or in the
manner provided in, the Bylaws.
7. Elimination of Certain Liability of Directors. No director of the
Corporation shall be held personally liable to the Corporation or its
stockholders for monetary damages
B-1
<PAGE> 311
of any kind for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the DGCL as so amended. No amendment to or repeal of
this Section 7 shall adversely affect any right or protection of any director of
the Corporation existing at the time of such amendment or repeal for or with
respect to acts or omissions of such director prior to such amendment or repeal.
8. Amendments to Bylaws. In furtherance and not in limitation of the
powers conferred by the DGCL, the Board of Directors is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
9. Amendments to Certificate. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by the DGCL, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the DGCL, do make this Certificate,
hereby declaring and certifying that this is my act and deed and the facts
herein stated are true, and accordingly have hereunto set my hand this 7th day
of June, 1999.
/s/ LEEZIE KIM
--------------------------------------
Leezie Kim, Sole Incorporator
B-2
<PAGE> 312
BYLAWS
OF
FUTECH INTERACTIVE PRODUCTS (DELAWARE) INC.
ADOPTED
JUNE 7, 1999
<PAGE> 313
ARTICLE I
OFFICES
1.01. Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.02. Principal Business Office. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
2.01. Place of Meeting. All meetings of the stockholders for the election
of directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in duly executed
waiver of notice thereof.
2.02. Annual Meeting. Annual meetings of stockholders shall be held on
the last Tuesday of April if not a legal holiday, and if a legal holiday, then
on the next secular day following, at 10:00 a.m., or at such other date and time
as shall be designated from time to time by the Board of Directors. At such
annual meeting, the stockholders shall elect by a plurality vote, by written
ballot, a Board of Directors and shall transact such other business as may
properly be brought before the meeting.
2.03 Notice of Meeting. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
2.04 Closing of Transfer Books or Fixing Record Date. The officer who has
charge of the stock ledger of the corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the
<PAGE> 314
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
2.05. Special Meeting. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board and CEO
or President and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
2.06. Notice of Meeting. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten nor more than sixty days
before the date of the meeting, to each stockholder entitled to vote at such
meeting. The business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
2.07. Quorum. Except as otherwise provided by statute or by the
Certificate of Incorporation, the holders of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.08. Voting of Shares. When a quorum is present at any meeting, the vote
of the holders of a majority of the shares of stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the Certificate of Incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Unless otherwise provided in the Certificate of Incorporation, each
stockholder shall at every meeting of stockholders be entitled to one vote in
person or by proxy for each share of the capital stock having voting power held
by such stockholder, but no proxy shall be voted on after three years from its
date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each stockholder having
voting power shall be entitled to exercise the right of cumulative voting as
provided in the Certificate of Incorporation.
2.09. Action by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares of stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all
<PAGE> 315
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
3.01. General Powers and Number. The business of the corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these bylaws
directed or required to be exercised or done by the stockholders or by others.
The number of directors which shall constitute the whole Board shall be
nine (9), and directors shall be classified with respect to the time for which
they shall hold office by dividing them into three (3) classes, each class to
consist of three (3) directors. The directors of the first class shall hold
office for an initial term expiring at the annual meeting of stockholders in
2000, the directors of the second class for an initial term expiring at the
annual meeting of stockholders in 2001, and the directors of the third class for
an initial term expiring at the annual meeting of stockholders in 2002. At the
close of each annual meeting of this corporation, the successors to the class of
directors whose terms expire that year shall be elected by the stockholders and
shall commence to hold office for a term of three (3) years, or until their
successors have been elected and qualified, or until their prior death,
resignation or removal.
The number of directors may be increased or decreased from time to time by
amendment to this Section, adopted by the stockholders, but no decrease shall
have the effect of shortening the term of an incumbent director. In the event of
an increase in the number of directors, the stockholders or the remaining
directors shall assign the newly created directorship(s) to the appropriate
class or classes so that the three (3) classes shall continue to consist of, as
nearly as possible, an equal number of directors.
3.02. Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
3.03. Annual Meeting. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time
<PAGE> 316
and place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
3.04. Regular Meetings. Regular meetings of the Board of Directors may be
held within or without the State of Delaware without notice, at such time and at
such place as shall from time to time be determined by the Board.
3.05. Special Meetings. Special meetings of the Board may be held within
or without the State of Delaware and may be called by the Chairman of the Board
and CEO or President on forty-eight hours notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
President or Secretary in like manner and on like notice on the written request
of two directors.
3.06. Quorum. At all meetings a majority of the number of directors as
provided in Section 3.01 shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
3.07. Action By Unanimous Written Consent. Unless otherwise restricted by
the Certificate of Incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writings are
filed with the minutes of proceedings of the Board or committee.
3.08. Participation By Conference Telephone. Unless otherwise restricted
by the Certificate of Incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
3.09. Committees of Directors. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to
<PAGE> 317
the extent authorized in the resolutions providing for the issuance of shares of
stock adopted by the board of directors as provided in Section 151(a) fix any of
the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock or to
adopt a certificate of ownership and merger. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors. Each committee shall keep regular minutes of
its meetings and report the same to the Board of directors when required.
3.10. Compensation. Unless otherwise restricted by the Certificate of
Incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.11. Removal of Directors. Unless otherwise restricted by the
Certificate of Incorporation or by law, any director or the entire Board of
Directors may be removed from office by thestockholders, but only for cause and
only by the holders of a majority of shares entitled to vote at an election of
directors.
ARTICLE IV
NOTICES
4.01. Notice. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
4.02. Waiver of Notice. Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of Incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
5.01. Number. The officers of the corporation shall be chosen by the
Board of Directors and shall be a Chairman of the Board and CEO, a President, a
Vice President, a
<PAGE> 318
Secretary and a Treasurer. The Board of Directors may also choose additional
Vice Presidents, and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these bylaws otherwise provide.
5.02. Election and Term of Office. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a Chairman of the
Board and CEO, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
5.03. The Chairman of the Board and CEO. The Chairman of the Board and
CEO shall be the chief executive officer of the corporation. He or she shall
preside at all meetings of the stockholders and the Board of Directors and shall
have executive management of the business of the corporation and see that all
orders and resolutions of the Board of Directors are carried into effect. The
Chairman of the Board and CEO shall direct the affairs and policies of the
corporation, subject to any direction which may be given by the Board of
Directors. The Chairman of the Board and CEO shall have authority to designate
the duties and powers of the officers and delegate specialpowers and duties to
specified officers, so long as such designations shall not be inconsistent with
applicable laws, these bylaws, or action of the Board of Directors. The Chairman
of the Board and CEO shall have such other powers and duties as may, from time
to time, be prescribed by these bylaws or by resolution of the Board of
Directors.
5.04 The President. The President shall be the chief operating officer of
the corporation and, subject to the control of the Board of Directors and
Chairman of the Board and CEO, shall in general supervise and control all of the
day-to-day business and affairs of the corporation. In the absence of the
Chairman of the Board and CEO, the President shall preside at all meetings of
the stockholders and the Board of Directors. The President shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation. The President shall have such other powers and duties as may,
from time to time, be prescribed by these bylaws or by the Board of Directors or
Chairman of the Board and CEO.
5.05 The Vice Presidents. In the absence of the President or in the event
of his inability or refusal to act, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
5.06 The Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and shall record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose. The Secretary shall perform like duties for
the standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other
<PAGE> 319
duties as may be prescribed by the Board of Directors or President, under whose
supervision he or she shall be. The Secretary shall have custody of the
corporate seal of the corporation (if one is adopted by the Board of Directors)
and the Secretary, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it. When so affixed, the corporate seal may be
attested by the Secretary's signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature.
5.07 The Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his or her transactions as
Treasurer and of the financial condition of the corporation. If required by the
Board of Directors, the Treasurer shall give the corporation a bond (which shall
be renewed every six years) in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of the office and for the restoration to the corporation, in case of
the Treasurer's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in the
Treasurer's possession or under his or her control belonging to the corporation.
5.08 Assistant Secretaries and Assistant Treasurers. There shall be such
number of assistant secretaries and assistant treasurers as the Board of
Directors may appoint as it shall deem necessary. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election) may sign with the President or a Vice President certificates for
shares of the corporation the issuance of which shall have been authorized by a
resolution of the Board of Directors, and shall, in the absence of the Secretary
or in the event of the Secretary's inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe. The assistant secretary or assistant treasurer, in general,
shall, in the absence of the Secretary or Treasurer, as appropriate, or in the
event of their inability or refusal to act, perform the duties and exercise the
powers of the Secretary or Treasurer, as appropriate, and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
5.09. Other Assistants and Acting Officers. The Board of Directors may,
from time to time appoint such other officers and agents as it shall deem
necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
5.10. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
<PAGE> 320
ARTICLE VI
CERTIFICATE FOR SHARES OF STOCK
AND THEIR TRANSFER
6.01. Certificate for Shares. The shares of the corporation may be
represented by a certificate or may be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the chairman or vice chairman
of the Board of Directors, if any, or the President or a Vice President and the
Treasurer or an assistant treasurer, or the Secretary or an assistant secretary
of the corporation, certifying the number of shares owned by such holder in the
corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or (218)(a) or a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
6.02. Facsimile Signatures. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if that person were such officer, transfer agent or registrar at the date of
issue.
6.03. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or to give the
<PAGE> 321
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
6.04. Transfers of Shares. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.05. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as owner of
shares to receive dividends, and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the owner of shares.
The corporation shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
7.01. Indemnification of Directors and Officers. The corporation shall,
to the maximum extent and in the manner permitted by the General Corporation Law
of Delaware as the same now exists or may hereafter be amended, indemnify any
person against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was a director or officer of the corporation. For
purposes of this Section 7.01, a "director" or "officer" of the corporation
shall mean any person (i) who is or was a director or officer of the
corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorneys' fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding refereed to in this
Section 7.01 in advance of its final disposition; provided, however, that
payment of expenses incurred by a director or officer of the corporation in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by the director or officer to repay all
amounts advanced if it should ultimately be determined that the director or
officer is not entitled to be indemnified under this Section 7.01 or otherwise.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders
<PAGE> 322
or disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
7.02. Indemnification of Others. The corporation shall have the power, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware as the same now exists or may hereafter be amended, to indemnify any
person (other than directors and officers) against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incorrect in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was
an employee or agent of the corporation. For purposes of this Section 7.02, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
7.03. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
8.01. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the directors
shall think conducive to the interest of the corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
8.02. Annual Statement. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
8.03. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
<PAGE> 323
8.04. Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
8.05. Seal. The corporation may have a seal which shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. Notwithstanding the foregoing, Sections 3.01 and
3.11 and Article VII of these bylaws may not be altered, amended or repealed by
the Board of Directors. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the Certificate of Incorporation, it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
<PAGE> 324
FUTECH INTERACTIVE PRODUCTS, INC.
2999 NORTH 44TH STREET
SUITE 225
PHOENIX, ARIZONA 85018-7247
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
-------------------------
You are invited to attend a Special Meeting of Stockholders of Futech
Interactive Products, Inc., that will be held at a.m. local time on
, 1999 at . The Futech
Interactive Products, Inc. Board of Directors has called this special meeting
for the following purposes:
- To consider and vote upon a proposal to approve and adopt the Merger
Agreement dated as of June 7, 1999, by and among Futech Interactive
Products, Inc., Janex International, Inc., Trudy Corporation, Fundex
Games, Ltd., DaMert Company, and two newly formed companies that we are
referring to as "New Futech" and "New Sub." Under the Merger Agreement,
first Futech and then Janex, Trudy, and DaMert will merge with and into
New Futech, which will survive the merger, and Fundex will merge into New
Sub, which will survive as a wholly-owned subsidiary of New Futech.
Assuming that none of the currently outstanding options or warrants for
Futech common stock are exercised prior to the mergers, each share of
Futech common stock outstanding immediately prior to the mergers (other
than dissenting shares) will be converted into the right to receive
approximately .0391 shares of New Futech common stock.
- To consider and vote upon a proposal to approve the 1999 Stock Option
Plan.
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These matters are more fully described in the prospectus/proxy statement
and related prospectus/proxy statement supplement that are attached to this
Notice.
We, the board of directors of Futech, recommend that you vote FOR the
mergers and FOR approval of the 1999 Stock Option Plan.
You will be entitled to vote at the special meeting or any adjournment or
postponement of the special meeting only if you are a holder of record of Futech
common stock at the close of business on , 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Vincent W. Goett
Chairman
Phoenix, Arizona
, 1999
IMPORTANT
We cordially invite all stockholders to attend the special meeting in
person.
Whether or not you plan to attend the special meeting in person, in order
to assure your representation at the meeting, we urge you to complete, sign and
date the enclosed proxy card, which is being solicited by the board of
directors, and promptly return it in the self-addressed return envelope enclosed
for that purpose. You may revoke your proxy at any time prior to the vote at the
meeting by telling us that you want to do so.
<PAGE> 325
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
FUTECH INTERACTIVE PRODUCTS, INC.
FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
FUTECH TOYS & GAMES, INC.
PROSPECTUS/PROXY STATEMENT SUPPLEMENT
This prospectus/proxy statement supplement, and the related
prospectus/proxy statement, are being furnished to you and the other
stockholders of Futech Interactive Products, Inc. in connection with the
solicitation of proxies by the Futech board of directors for use at the Special
Meeting of Stockholders to be held at a.m. local time on ,
1999, at and at any adjournments or postponements of the special
meeting. At the special meeting, we will ask you to consider and vote upon a
proposal to approve and adopt the Merger Agreement dated as of June 7, 1999, by
and among Futech, Janex International, Inc., Trudy Corporation, Fundex Games,
Ltd., DaMert Company, and two newly formed companies (Futech Interactive
Products (Delaware), Inc. and Futech Toys & Games, Inc.) that we are referring
to as "New Futech" and "New Sub," respectively. We will also ask you to consider
and vote upon a proposal to approve the 1999 Stock Option Plan, which is
intended to continue in effect after the mergers. Under the Merger Agreement,
first Futech and then Janex, Trudy, and DaMert will merge with and into New
Futech, which will survive the mergers and Fundex will merge into New Sub, which
will survive as a wholly-owned subsidiary of New Futech. Assuming none of the
outstanding options or warrants for shares of Futech or Janex common stock are
exercised prior to the mergers, each share of Futech common stock or preferred
stock outstanding immediately prior to the mergers (other than dissenting
shares) will be converted into the right to receive approximately .0391 shares
of New Futech common stock. Outstanding shares of Janex, Trudy, Fundex and
DaMert will be converted into a combination of cash, promissory notes and common
stock of New Futech. In addition, outstanding options of each of the merging
companies will be converted into options to purchase common stock of New Futech.
This prospectus/proxy statement supplement and the related prospectus/proxy
statement, together with similar supplements that are being provided to
stockholders of Janex, Trudy, Fundex and DaMert with copies of the
prospectus/proxy statement, also constitute the prospectus of New Futech and New
Sub in connection with the offer and issuance of their securities pursuant to
the mergers. Excluding any additional shares that may be issued to Trudy
stockholders if a public market develops for New Futech stock at an initial
price of less than $7.50 per share and assuming none of the outstanding options
or warrants for shares of Futech or Janex common stock are exercised prior to
the mergers, a minimum aggregate of 5,867,628 and a maximum aggregate of
5,955,297 shares of New Futech common stock, a minimum of $1,018,330 and a
maximum of $2,116,830 in cash and a minimum aggregate of $5,751,500 and a
maximum aggregate of $6,850,000 in promissory notes of New Sub or New Futech
will be issued to the stockholders of Janex, Futech, Trudy, Fundex and DaMert in
the mergers. In addition, certain outstanding indebtedness in the amount of
$10,000,000 is expected to be exchanged for 2,222,222 shares of New Futech
preferred stock shortly after the mergers. Former stockholders of Fundex may
exchange their New Futech Stock for the license rights in the "Phase 10" family
of games and former stockholders of Trudy may become entitled to receive
additional New Futech shares or to exchange their New Futech shares for
debentures in the future, under certain circumstances. Certain loan agreements
and employment agreements, including employee options to acquire New Futech
common stock, are also part of the deal. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement" in the prospectus/proxy
statement.
We expect the New Futech common stock to trade on the OTC Bulletin Board
after the mergers, but we cannot be sure it will do so and we cannot predict
what the price might be. We do not expect a trading market to develop for any of
the other securities of New Futech.
The mergers cannot be consummated unless: (a) stockholders of Futech,
Janex, Trudy, Fundex and DaMert, voting separately at their respective meetings
of stockholders, each approve the mergers, and (b) other conditions included in
the Merger Agreement are either satisfied or waived. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT -- Conditions to Closing" in the
prospectus/proxy statement.
The record date for the special meeting is , 1999. On the
record date Futech had outstanding 87,339,078 shares of common stock and
3,750,000 shares of preferred stock. This prospectus/proxy statement supplement
and the related prospectus/proxy statement and the accompanying form of proxy
are first being mailed to stockholders of Futech on or about ,
1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY
STATEMENT SUPPLEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT. THE PROPOSED
MERGER IS A COMPLEX TRANSACTION. WE STRONGLY URGE YOU TO READ AND CONSIDER
CAREFULLY THE PROSPECTUS/PROXY STATEMENT AND THE RELATED PROSPECTUS/PROXY
STATEMENT SUPPLEMENT IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT
AND PAGE 8 OF THE PROSPECTUS/PROXY STATEMENT.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus/proxy statement supplement or the accompanying prospectus/proxy
statement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus/proxy statement supplement is June 7, 1999.
<PAGE> 326
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT. WE HAVE NOT, AND NEW FUTECH AND NEW SUB HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEW FUTECH AND NEW SUB ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF THE DATE ON THE
FRONT OF THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT ONLY. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.
WHERE YOU CAN FIND MORE INFORMATION
We will send to you, without charge, any material information that we have
or can obtain without unreasonable effort or expense concerning Futech or any
other merging company, concerning the Merger Agreement and related contracts or
concerning the proposed management and operations of New Futech. You may direct
requests for additional information regarding DaMert, Futech, Trudy, Fundex, or
Janex to Frederick B. Gretsch, Sr. at 2999 N. 44th Street, suite 225, Phoenix,
Arizona 85018-7247, (602) 808-8765.
TO OBTAIN TIMELY DELIVERY OF THESE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO
LATER THAN , 1999, FIVE BUSINESS DAYS BEFORE THE DATE OF THE FUTECH
STOCKHOLDERS MEETING.
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. We have not, and New Futech and New Sub
have not, authorized anyone else to provide you with additional or different
information. New Futech and New Sub are not making an offer of any securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus/proxy statement supplement or the
prospectus/proxy statement is accurate as of any date other than the date on the
front of these documents.
i
<PAGE> 327
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY INFORMATION -- Q&A.................................. 1
Why are the five companies proposing to merge?............ 1
What will I receive in the mergers?....................... 1
What risks should I consider?............................. 1
What stockholder vote is required to approve the
mergers?............................................... 1
What circumstances might prevent the mergers?............. 2
How will the mergers be treated for accounting
purposes?.............................................. 2
When do you expect the mergers to be completed?........... 2
What are the tax consequences of the mergers to me?....... 2
Will I have dissenters' rights?........................... 2
What do I need to do now?................................. 2
Should I send in my stock certificates now?............... 3
OTHER INFORMATION ABOUT THE MERGERS......................... 3
The Companies............................................. 3
The Special Meeting....................................... 5
The Merger Agreement...................................... 5
SPECIAL RISK FACTORS AFFECTING FUTECH....................... 6
Stockholder Matters......................................... 9
THE MERGERS AND RELATED TRANSACTIONS........................ 10
General................................................... 10
Effects of the Mergers.................................... 10
Futech's Board Recommendation............................. 11
Related Agreements; Interests of Certain Futech Affiliates
in the Mergers......................................... 11
Regulatory Matters........................................ 11
Certain Federal Tax Matters............................... 12
Accounting Treatment...................................... 13
RIGHTS OF DISSENTING SHAREHOLDERS........................... 13
NEW FUTECH AND FUTECH SHARES................................ 14
New Futech Common Stock................................... 14
Futech Capital Stock...................................... 14
Common Stock.............................................. 15
Preferred Stock........................................... 15
COMPARISON OF THE RIGHTS OF HOLDERS OF FUTECH COMMON STOCK
AND NEW FUTECH COMMON STOCK............................... 16
SELECTED HISTORICAL FUTECH FINANCIAL DATA................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION... 25
Overview.................................................. 25
Results of Operations of the Company...................... 25
</TABLE>
ii
<PAGE> 328
<TABLE>
<S> <C>
Seasonality and Quarterly Fluctuations.................... 30
Liquidity and Capital Resources........................... 30
Inflation................................................. 33
Year 2000................................................. 33
Safe Harbor Disclosure: Forward-Looking Statements and
Associated Risks....................................... 33
DESCRIPTION OF FUTECH'S BUSINESS............................ 35
General; Recent Developments.............................. 35
Business.................................................. 35
Marketing, Distribution and Customers..................... 38
Manufacturing............................................. 39
Product Design and Selection.............................. 39
Competition............................................... 39
Trade Publishing.......................................... 40
Specialty Products........................................ 40
Distribution.............................................. 40
Patents and Trademarks.................................... 41
Governmental Regulations.................................. 42
Employees................................................. 42
Properties................................................ 42
Legal Proceedings......................................... 42
FUTECH MANAGEMENT........................................... 43
Directors and Executive Officers.......................... 43
Employment Arrangements................................... 44
1999 Stock Option Plan and Executive Compensation
Matters................................................ 45
Limitation of Liability and Indemnification............... 48
FUTECH STOCKHOLDERS......................................... 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 52
APPENDICES
Appendix A -- Arizona Business Corporation Act Dissenters'
Rights.................................................... A-1
</TABLE>
iii
<PAGE> 329
SUMMARY INFORMATION -- Q&A
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the mergers contemplated thereby, you should carefully read
this entire document and the additional documents we mention. You should pay
special attention to the "RISK FACTORS" section beginning on page 8 of the
prospectus/proxy statement supplement and "SPECIAL RISK FACTORS AFFECTING
FUTECH" in this prospectus/proxy statement supplement beginning on page 6.
WHY ARE THE FIVE COMPANIES PROPOSING TO MERGE?
The five companies are proposing to merge because the directors of each
company believe the combination will provide significant benefits to
stockholders. We believe the mergers will enable us to take advantage of the
complementary strategic fit of our respective businesses by marketing through
additional channels of distribution. We also hope and believe the mergers will
improve the likelihood that stockholders will have a more liquid market should
they wish to sell their stock and that the combined companies will be able to
more efficiently access the markets for debt and equity when appropriate. To
review the background and reasons for the mergers in greater detail, see
"BACKGROUND OF THE MERGERS" in the prospectus/proxy statement.
WHAT WILL I RECEIVE IN THE MERGERS?
You and all Futech stockholders will receive common stock of New Futech in
exchange for your Futech stock. Stockholders of the other merging companies will
receive cash, promissory notes and/or common stock of New Futech. Certain
employment contracts and other agreements with affiliates of the merging
companies are also part of the deal. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT" in the prospectus/proxy statement.
WHAT RISKS SHOULD I CONSIDER?
You should review "RISK FACTORS" on pages 8 through 13 of the prospectus/
proxy statement as well as the special risk factors affecting primarily Futech
that are discussed on pages 6 through 9 of this prospectus/proxy statement
supplement.
WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGERS?
The following table shows the proportions of the outstanding shares whose
affirmative vote is required to approve of the mergers, together with the
proportion of the outstanding shares that are held by directors, executive
officers and their affiliates, all whom have indicated that they intend to vote
in favor of the mergers.
<TABLE>
<CAPTION>
SHARES OWNED BY DIRECTORS,
COMPANY VOTE REQUIRED EXECUTIVE OFFICERS AND AFFILIATES
- ------- ------------- ---------------------------------
<S> <C> <C>
DaMert Majority 100.0%
Fundex Majority 70.8%
Futech Majority 72.7%
Janex Majority 78.9%
Trudy Majority 55.7%
</TABLE>
1
<PAGE> 330
WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGERS?
New Futech has the right to terminate the Merger Agreement if stockholders
from all of the merging companies combined exercise dissenters' rights with
respect to more than 5% of the aggregate merger consideration to be issued in
the mergers. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Conditions to Closing" in the prospectus/proxy statement for a
description of the other conditions to the mergers.
HOW WILL THE MERGERS BE TREATED FOR ACCOUNTING PURPOSES?
We expect the mergers to be treated as purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
We are working to complete the mergers during the third quarter of 1999.
However, the Merger Agreement does not include any express deadline for the
mergers to proceed.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS TO ME?
We and the other merging companies have structured the Merger Agreement
with the intent and expectation that the exchange of common shares by Futech
shareholders will be tax-free for federal income tax purposes. You should review
the more detailed description of federal tax consequences that appear in
"CERTAIN FEDERAL TAX MATTERS" in this prospectus/proxy statement supplement.
State and local taxes may also become due as a result of the mergers.
The precise tax consequences of the mergers will depend on your own
situation. You should consult your tax advisor for a full understanding of the
tax consequences of the mergers to you.
WILL I HAVE DISSENTERS' RIGHTS?
Yes, provided you do not vote in favor of the mergers and meet all other
requirements of the dissenter's rights statute. See "RIGHTS OF DISSENTING
SHAREHOLDERS" in this prospectus/proxy statement supplement and the dissenters'
rights statute that is attached as Appendix 1 to this prospectus/proxy statement
supplement.
WHAT DO I NEED TO DO NOW?
Just indicate on your proxy card how you want to vote on the mergers, and
sign and mail it in the enclosed return envelope as soon as possible, so that
your shares will be represented at the stockholders meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the mergers. If you do
not vote or you abstain, it will have the same effect as a vote against the
mergers.
The stockholders meeting will take place on , at local time,
at . You may attend the stockholders meeting and vote your shares in
person, rather than signing and mailing your proxy card. In addition, you may
withdraw your proxy up to
2
<PAGE> 331
and including the day of the meeting and either change your vote or attend the
meeting and vote in person.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the mergers are completed we will send you written instructions
for exchanging your stock certificates for the New Futech stock to which you are
entitled.
OTHER INFORMATION ABOUT THE MERGERS
THE COMPANIES
NEW FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
New Futech is a newly-organized Delaware corporation that has been formed
to be the surviving parent corporation under the Merger Agreement. New Futech
has had no operations prior to the date of this prospectus/proxy statement
supplement. Under the Merger Agreement, first Futech and then Janex, Trudy and
DaMert will merge with and into New Futech, which will survive the mergers. As a
part of the mergers, New Futech will change its name to "Futech Interactive
Products, Inc."
NEW SUB
Futech Toys & Games, Inc.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
New Sub is a newly-organized Nevada corporation that has been formed to be
the surviving subsidiary corporation of New Futech under the Merger Agreement.
New Sub has had no operations prior to the date of this prospectus/proxy
statement supplement. Under the Merger Agreement, Fundex will merge with and
into New Sub, which will survive that merger as a wholly-owed subsidiary of New
Futech. All of the stock and assets of New Sub will be pledged to the former
stockholders of Fundex to secure the promissory notes of New Sub issued to them
in connection with the merger of Fundex into New Sub. In addition, the former
stockholders of Fundex who do not elect the All Cash Alternative will receive a
conditional option to purchase New Sub's license to market the "Phase 10" family
of games in 2002 in exchange for the New Futech stock they receive in the
mergers (but not the cash or promissory notes), exercisable only if the stock
has not achieved targeted liquidity and a valuation of at least $7.50 per share
($4,500,000 in the aggregate, if no stockholders elect the All Cash Alternative)
within three years after the completion of the mergers.
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JANEX
Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Janex hires subcontractors to manufacture and markets children's toys,
gumball banks, flashlights and battery operated toothbrushes marketed under the
brand name Janex. Janex incorporates licensed characters into most of its
products, and sells its products to United States mass merchant retailers, toy
specialty stores and department stores.
FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Futech designs, publishes, hires subcontractors to manufacture and markets
interactive, educational, promotional and entertainment products (i.e., books,
game boards with sound capabilities and specialty post cards) targeted primarily
towards children. Futech's patented technology utilizes specialized conductive
ink to print interactive touch points. These touch points trigger speech, music
and sound effects. Futech licensed this technology to a major entertainment and
publishing company. Futech also distributes proprietary products, as well as
those of third party publishers, to warehouse clubs, national book chains,
specialty and independent retailers and major toy chains.
TRUDY
Trudy Corporation
353 Main Avenue
Norwalk, CT 06851-1552
(203) 846-2274
Trudy Corporation was initially organized as a Connecticut corporation
under the name "Norwest Manufacturing Corporation" in 1979. Trudy, which does
business under the name Soundprints, publishes juvenile story books and
audio-cassettes which are sold in conjunction with contract manufactured
educational plush toys to the retail and mail order markets.
FUNDEX
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
Fundex Games, Ltd. was originally incorporated in the State of Indiana as
"Third Quarter, Inc." in 1991. Fundex develops, markets, and distributes a
variety of games and toys for both children and adults, including:
- card games, puzzles and board games, including the Phase 10 card game and
its sister products;
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- skill and action games for children;
- games, puzzles and toys featuring characters licensed from third parties;
and
- spring and summer toys for children, including jump ropes, water toys and
water games.
DAMERT
DaMert Company
1609 Fourth Street
Berkeley, California 94710
(510) 524-7400
DaMert Company was founded in 1973 and incorporated in 1979. DaMert Company
hires subcontractors to manufacture and markets toys, gifts and puzzles targeted
primarily to children ages 6-12 with science and nature themes. Presently, the
product base includes over 200 toys, gifts and puzzles selling through catalogs,
museums, department stores, specialty gift stores and toy stores nationwide.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Futech special meeting will be held on , at at
.
PURPOSE OF THE SPECIAL MEETING
We have called the special meeting so the Futech stockholders can vote on
whether to approve the mergers pursuant to the Merger Agreement and to vote on
whether to approve the 1999 Stock Option Plan. The directors of Futech, Janex,
Trudy, Fundex and DaMert have called for special meetings of the stockholders of
their companies so that they also can vote whether to approve the mergers.
REQUIRED VOTE
The mergers will have been approved by Futech only if the merger proposal
receives the affirmative vote of a majority of the outstanding shares of common
stock and a majority of the outstanding shares of preferred stock, voting as a
single class. Similarly, the 1999 Stock Option Plan will have been approved only
if it receives the affirmative vote of a majority of the outstanding common
stock and preferred stock, voting as a single class. On the record date, Futech
had outstanding 87,339,078 shares of common stock and 3,750,000 shares of
preferred stock. Executive officers, directors and their affiliates owning
63,470,506 shares of common stock and all of the preferred stock have indicated
that they intend to vote in favor of the mergers and the 1999 Stock Option Plan.
RECOMMENDATION OF THE FUTECH BOARD OF DIRECTORS
We have approved the Merger Agreement and recommend that the stockholders
of Futech vote "FOR" approval of the Merger Agreement and "FOR" approval of the
1999 Stock Option Plan.
THE MERGER AGREEMENT
Under the Merger Agreement, first Futech and then Janex, Trudy, and DaMert
will merge with and into New Futech, which will survive the mergers, and Fundex
will merge
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into New Sub, which will survive as a wholly-owned subsidiary of New Futech.
Under the Merger Agreement, Futech stockholders who do not exercise dissenters'
rights will receive common stock of New Futech as described in the
prospectus/proxy statement under the heading "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement." Stockholders of Fundex
and Trudy will also have certain conditional rights to receive additional stock
or to exchange their New Futech stock for promissory notes or certain other
assets under specified circumstances. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement."
THE 1999 STOCK OPTION PLAN
The 1999 Stock Option Plan provides for the issuance of stock options for
up to 1,000,000 shares of New Futech common stock to employees and others from
time to time under the terms of the plan.
SPECIAL RISK FACTORS AFFECTING FUTECH
In addition to the other information included in this prospectus/proxy
statement supplement (including the matters addressed in "INFORMATION REGARDING
FORWARD-LOOKING STATEMENTS") and the risk factors described in the
prospectus/proxy statement supplement under the heading "Risk Factors," the
factors described below should be considered carefully by shareholders of Futech
in determining whether to approve the Merger Agreement and the other
transactions being considered.
FUTECH HAS EXPERIENCED SUBSTANTIAL OPERATING LOSSES AND HIGH DEBT.
Futech generated substantially no revenues during 1996 and 1997 and has
also sustained operating losses for the past few years. Recent losses occurred
primarily because the Company incurred large expenditures for product design,
experienced write-offs of various large assets, and sustained costs associated
with a joint venture that was discontinued. In the past three years, the Company
closed down a printing plant, started and subsequently discontinued a joint
venture, purchased three companies, restarted the use of subcontractors to
manufacture the Company's products, and hired many new employees. The Company
has acquired debt and has issued stock to provide funds to continue operations.
If the Company is unable to generate operating profits and sustainable operating
cash flow in the near future, that could jeopardize its continued operations.
FUTECH'S INTERACTIVE TALKING PAGES TECHNOLOGY USES A SPECIALIZED MANUFACTURING
PROCESS.
The manufacturing process of Futech's interactive Talking Pages technology
utilizes a specialized process and specialized equipment to print and cure
conductive ink and dielectric material to the structure of the pages in the book
or gameboard. A major printing company in Hong Kong and China is currently the
Company's sole manufacturer to perform the printing and binding process for
books that incorporate this technology. If Futech is forced to use another
printer, we could experience serious delays and/or possible cost over-runs
during the transition.
FUTECH DEPENDS UPON KEY RELATIONSHIPS.
For the twelve month period ended December 31, 1998, approximately 38% of
Futech's revenues and 51% of its accounts receivable were attributable to
Futech's two
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largest customers. Similarly, 63% of Futech's 1998 revenues were from trade
publishing and distribution of books, of which 13% occurred pursuant to its
agreement with Magi Publications. Futech distributes products to warehouse clubs
such as Sam's Club, Costco and BJ's Wholesale Club, major retail outlets such as
Toys 'R' Us, Target, Kmart and Wal-Mart, regional discounters such as Kohl's,
Meijers and Shopko, and national book chains such as Waldenbooks, Borders, B.
Dalton Bookseller, Barnes & Noble, Inc., and Books-a-Million. The loss of a
particular customer or relationship, or a substantial decrease in business from
a customer, may have a material adverse affect on Futech's business, financial
condition, and operating results.
FUTECH COULD LOSE KEY PERSONNEL.
Futech's future success will depend to a significant extent on several key
individuals, including Vincent W. Goett, Joseph K. Petter and Frederick B.
Gretsch, Sr. The loss of the services of any of these individuals could have a
material adverse effect on the ability of Futech to implement its goals and a
material adverse effect on Futech in general. Futech does not maintain key man
life insurance on the lives of any of its executive officers or employees. The
success of Futech will depend, among other factors, on the successful
recruitment and retention of quality management and other personnel. See
"FUTECH'S MANAGEMENT."
FUTECH RELIES UPON ITS PATENTS AND PROPRIETARY RIGHTS.
Futech's success will depend in part on its United States and foreign
patent protection for its technology, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. Because of
the substantial length of time and expense associated with developing new
technologies, Futech places considerable importance on patent and trade secret
protection. Futech holds ten patents in the United States, two patents in a
foreign country and 17 patents pending relating to certain technologies at
various stages of development. There can be no assurance that the patent
applications relating to Futech's technologies will result in patents being
issued or that current or additional patents will afford protection against
competitors with similar technology. Futech may be required to obtain licenses
from others to develop, manufacture or market its products. There can be no
assurance that Futech will be able to obtain such licenses on commercially
reasonable terms, if at all, or that the patents underlying the licenses will be
valid and enforceable. Futech may also rely upon unpatented technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
Futech's proprietary technology or disclose such technology, or that Futech can
meaningfully protect its rights in such proprietary technology. While Futech has
taken and continues to take steps to become aware of related technical
developments, there can be no assurance that Futech will not encounter an
unfavorable patent situation. Litigation may be necessary to enforce Futech's
patents to determine the validity and scope of Futech's patents or to defend or
assert claims of infringement. Any such litigation could have a material adverse
effect upon Futech's business, financial condition and results of operations.
Futech is investigating the possibility of infringement by a variety of
competitors of one of its United States patents.
COSTS COULD INCREASE AND REVENUES COULD DECLINE.
Paper supplies, conductive ink, computer chip and other material costs
constitute a significant portion of Futech's product costs and are susceptible
to numerous factors
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beyond the control of Futech. Significant increases in these costs could have a
material adverse effect on Futech's operating results.
The success of Futech's operations depends to an extent upon a number of
factors relating to discretionary consumer spending. These factors include
economic conditions, such as employment, business conditions, interest rates,
and tax rates, as well as the continued growth of the electronic publishing,
trade publishing, promotional products and specialty product industries. There
can be no assurance that consumer spending will not be adversely affected by
general social trends and economic conditions, thereby impacting Futech's
growth, net sales, and profitability. If the demand for electronic books, trade
books, promotional publishing and specialty products were to decline, Futech's
business, financial condition and operating results could be adversely affected.
FUTECH'S RIGHTS AGAINST AFFILIATES MAY BE LIMITED.
As permitted by the Arizona Business Corporation Act, Futech has included
in its Articles of Incorporation, a provision to eliminate, to the fullest
extent permitted by the Arizona Business Corporation Act, the personal liability
of its directors or officers to Futech and its stockholders for monetary damages
for breach of their fiduciary duty as director. Arizona law does not permit the
elimination of liability (i) for the amount of a financial benefit received by a
director of officer to which the benefit received by a director or officer is
not entitled, (ii) for an intentional infliction of harm to Futech or its
shareholders, (iii) for an intentional violation of criminal law, or (iv) for a
violation of sec. 10-833 of the Arizona Business Corporation Act regarding
unlawful distributions. The effect of this provision in the Articles of
Incorporation is to eliminate the rights of Futech and its stockholders (through
stockholders' derivative suits on behalf of Futech) to recover monetary damages
against a director or officer for breach of fiduciary duty as a director thereof
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. In
addition, the Articles of Incorporation, provide that Futech shall indemnify its
officers and directors to the fullest extent permitted by the Arizona Business
Corporation Act for expenses, liabilities or other matters referred to in or
covered by such section.
CHANGE IN CONTROL PROVISIONS MAY DISCOURAGE TAKE-OVER OFFERS.
Futech's Articles of Incorporation and Bylaws and the Arizona Business
Corporation Act contain provisions that may have the effect of making it more
difficult or delaying attempts by others to obtain control of Futech, even when
those attempts may be in the best interests of the stockholders. Certain of
Futech's employment agreements with key executives could have similar effects.
FUTECH MUST CONTEND WITH THE YEAR 2000 ISSUE.
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. The Year 2000 issue affects Futech's internal
systems, including information technology (IT) and non-IT systems. Futech is
assessing the readiness of its systems for handling the Year 2000. Although the
assessment is still underway, management believes that all material systems will
be compliant by the Year 2000 and that the cost to address the issues is not
material. Nevertheless, Futech is creating contingency plans for certain
internal systems.
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The Company has not instituted any procedures to obtain certification from
its major vendors or customers that their systems are Year 2000 compliant. Such
a survey would include vendors who provide systems related services, e.g.,
communications, banking, credit card processing, shipping, security, HVAC, etc.
along with third-party factories providing book and toy products. The cost of
such a survey, in both time and money, would be substantial. However, the
Company does not believe that the failure of any vendor or customer to be Year
2000 compliant will have a material impact on the Company.
STOCKHOLDER MATTERS
Futech does not trade on any established market. Similarly, there is no
public market for the New Futech common stock. We expect the New Futech common
stock to trade on the OTC Bulletin Board/Nasdaq Stock Market soon after the
mergers, but we cannot be sure it will do so and we cannot predict what the
price might be. We do not expect a trading market to develop for the other
securities of New Futech.
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THE MERGERS AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of Futech into New Futech,
promptly followed by the substantially simultaneous merger of Janex, Trudy and
DaMert with and into New Futech and the substantially simultaneous merger of
Fundex with and into New Sub. The discussion in this prospectus/proxy statement
supplement and the related prospectus/proxy statement of the mergers and the
description of the principal terms of the Merger Agreement contained in the
prospectus/proxy statement are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to the
prospectus/proxy statement as Appendix A, and incorporated herein by reference.
EFFECTS OF THE MERGERS
GENERAL
We intend for the mergers to occur promptly following approval of the
mergers by the requisite vote of the stockholders of each of Janex, Futech,
Trudy, DaMert and Fundex and the satisfaction or waiver of all other conditions
to consummation of the mergers. The mergers will become effective at or about
the time of filing of articles of merger or other appropriate documents with the
applicable government offices or agencies. At that time (a) first Futech and
then Janex, Trudy and DaMert will merge with and into New Futech with the result
that New Futech will be the surviving corporation and (b) Fundex will merge with
and into New Sub with the result that New Sub will be the surviving corporation.
As part of the mergers New Futech will change its name to "Futech Interactive
Products, Inc." The stockholders of Futech will become stockholders of New
Futech, and their rights will be governed by the New Futech certificate of
incorporation and bylaws. See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF FUTECH
AND NEW FUTECH." See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in
the prospectus/proxy statement.
For information regarding the operation of New Futech and New Sub following
the mergers, see " NEW FUTECH BUSINESS" in the prospectus/proxy statement. For
information regarding the officers and directors of New Futech following the
mergers, see "NEW FUTECH'S MANAGEMENT" in the prospectus/proxy statement.
EXCHANGE RATIOS
Options and warrants to purchase Futech common stock that are outstanding
at the time of the mergers will be converted into options to acquire New Futech
stock in the ratio of one New Futech share for every 30 Futech shares. Assuming
none of the outstanding options or warrants are exercised prior to the mergers,
each share of Futech common stock outstanding immediately prior to the mergers
(other than dissenting shares) will be converted into the right to receive
approximately 0.391 shares of New Futech common stock.
Outstanding shares of Janex, DaMert, Fundex and Trudy will also be
converted into a combination of cash, common stock of New Futech and promissory
notes of New Futech or New Sub. Under certain circumstances the former
stockholders of Fundex will have the right to exchange their New Futech stock
for the license rights in the "Phase 10" family of games now owned by Fundex.
Under certain other circumstances the former stockholders of Trudy will have the
right to receive additional New Futech stock or to
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exchange their New Futech stock for unsecured five year debentures. In addition,
outstanding options for shares of Trudy, Futech, Janex and Fundex will be
converted into options for shares of common stock of New Futech. See
"DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement" in the prospectus/proxy statement.
FRACTIONAL SHARES
Fractional shares of New Futech common stock will not be issued in the
mergers. Instead, stockholders in any of the merging companies who would
otherwise have received an amount of New Futech stock that includes a fraction
of a share will instead receive an amount of cash equal to that fraction
multiplied by $7.50. For example, a Futech stockholder who is otherwise entitled
to receive 15.5 shares of New Futech common stock will actually receive only 15
shares, plus $3.75 in cash (i.e., 0.5 times $7.50).
FUTECH'S BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF FUTECH HAS DETERMINED THAT THE MERGERS ARE
ADVISABLE AND IN THE BEST INTERESTS OF FUTECH AND ITS STOCKHOLDERS AND HAS
RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
RELATED AGREEMENTS; INTERESTS OF CERTAIN FUTECH AFFILIATES IN THE MERGERS
GRAND SLAM
On June 1, 1998, Futech entered into a Patent Licensing and Purchase
Agreement with Grand Slam Investments, L.L.C., which is controlled by Vincent W.
Goett. Under the Agreement, Grand Slam grants Futech exclusive, world-wide
rights to use two patents owned by Grand Slam. Under the Agreement, Futech will
make twelve monthly royalty payments of $10,000 beginning June 1, 1998. On June
30, 1999, Futech will purchase the patents for $1,500,000. Alternatively, Futech
had the right to purchase the patents at an earlier date of December 30, 1998
for a reduced cost of $1,000,000. This Agreement was amended on December 9, 1998
whereby Futech agreed to pay $650,000 on December 9, 1998 and $850,000 on or
before June 1, 1999. Additionally, the monthly royalty payments of $10,000 were
suspended as of December 31, 1998.
Vincent W. Goett, Joseph K. Petter, and Frederick B. Gretsch will enter
into employment agreements with New Futech in connection with the merger. See
"DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Employment Agreement
with Affiliates' and "NEW FUTECH'S MANAGEMENT -- Employment Agreements" in the
prospectus/proxy statement.
SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" IN THIS
PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE CORRESPONDING HEADING IN THE
PROSPECTUS/ PROXY STATEMENT.
REGULATORY MATTERS
Except as disclosed in this prospectus/proxy statement supplement and the
prospectus/proxy statement, Futech and New Futech are not aware of any
governmental or regulatory approvals required for consummation of the mergers,
other than compliance with the federal securities laws and applicable securities
and "blue sky" laws of the various states.
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CERTAIN FEDERAL TAX MATTERS
In the opinion of Quarles & Brady LLP, special tax counsel to Futech and
New Futech, the Merger of Futech into New Futech, which will precede the mergers
involving Janex, Trudy, DaMert and Fundex, will be treated for federal income
tax purposes as a reorganization within the meaning of sec. 368(a) of the Code,
and Futech and New Futech will each be a party to that reorganization within the
meaning of sec. 368(b) of the Code.
In rendering its opinion, counsel has relied upon and assumed as accurate
and correct on the date hereof, and will rely on and assume as accurate and
correct as of the Effective Time of merger, the information contained in this
prospectus/proxy statement supplement and the related prospectus/proxy statement
and certain representations as to factual matters made by Futech and New Futech.
The representations relied upon include the following: (i) Futech will be merged
into New Futech whether or not the mergers involving Janex, Trudy, DaMert and
Fundex occur; and (ii) immediately after the merger of Futech into New Futech
and before the Janex, Trudy, DaMert and Fundex mergers, the Futech stockholders
will own all of the outstanding New Futech common stock and will own such stock
solely by reason of their ownership of Futech stock immediately prior to the
merger of Futech into New Futech. Any inaccuracy or change with respect to such
information or representations or actions of Futech or New Futech contrary to
such representations could adversely affect the conclusions reached in the
opinion and the tax summary set forth below.
Counsel's opinion represents its best legal judgement as to the tax
treatment of the merger, but the opinion is not binding on the Internal Revenue
Service. The parties have not and will not request a ruling from the Service in
connection with the federal income tax consequences of the merger. The following
summary of material United States federal income tax consequences of the merger
is based upon the conclusions reached in such opinion.
Based on the provisions of the Code, the applicable regulations thereunder,
judicial authority and current administrative rulings and practices as of the
date hereof, all of which are subject to change, possibly with retroactive
effect: (i) no gain or loss will be recognized by Futech or New Futech as a
result of the merger; (ii) no gain or loss will be recognized by the holders of
Futech common stock upon conversion of their shares of Futech common stock into
shares of New Futech common stock pursuant to the merger, except with respect to
cash, if any, received in lieu of fractional shares of New Futech common stock;
(iii) the tax basis of the shares of New Futech common stock into which shares
of Futech common stock are converted will be the same as the basis of the shares
of Futech common stock converted into such New Futech common stock, reduced by
any amount allocable to the fractional share interests for which cash is
received; (iv) the holding period for shares of New Futech common stock into
which shares of Futech common stock are converted will include the period that
such shares of Futech common stock were held by the holder, provided such shares
were held as capital assets of the holder at the Effective Time of merger; and
(v) the payment of cash to a holder of Futech common stock in lieu of a
fractional share interest, if any, of the New Futech common stock will result in
the recognition of gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the adjusted
tax basis of Futech common stock allocable to such fractional share interest
(such gain or loss will be capital gain or loss, provided that such stock was
held as a capital asset as of the Effective Time of merger).
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A holder of Futech common stock who receives New Futech common stock
pursuant to the merger will be required to retain records and file with such
holder's federal income tax return for the taxable year in which the merger
takes place a statement setting forth all relevant facts in respect of the
nonrecognition of gain or loss upon such exchange. The statement is required to
include (i) such holder's basis in the shares of Futech common stock surrendered
in the merger; and (ii) the value of New Futech common stock received (using
fair market value as of the Effective Time of Merger) and the amount of any cash
received in the merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A DESCRIPTION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular taxpayers in light of their personal circumstances or
to taxpayers subject to special treatment under the Code (for example, insurance
companies, financial institutions, dealers in securities, tax exempt
organizations, foreign corporations, foreign partnerships, or other foreign
entities and individuals who are not citizens or residents of the United States
and persons who acquired their New Futech common stock pursuant to the exercise
or termination of employee stock options, warrants or otherwise as
compensation).
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
THE GENERAL SUMMARY SET FORTH ABOVE IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF FUTECH COMMON
STOCK. EACH HOLDER OF FUTECH COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The mergers are intended to qualify as a purchase for accounting purposes.
Under this accounting method, the merged companies will record the combined net
assets at their fair value as of the date of the merger. The value of net assets
will be allocated between the identifiable assets acquired (including
intangibles) and liabilities assumed. Any excess of total purchase price over
the sum of the amounts assigned to identifiable assets and liabilities is
recorded as goodwill and will be amortized over its estimated economic life, but
not more that 40 years.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to sec.sec. 10-1301 through 10-1303, 10-1320 and 10-1321 of the
Arizona Business Corporation Act ("AZBCA"), copies of which are attached to this
prospectus/proxy statement supplement as Appendix I, stockholders of Futech may
dissent from, and obtain payment of the fair value of their Futech shares in the
event of the consummation of the mergers. A Futech stockholder who wishes to
assert dissenters' rights in connection with the mergers must (i) deliver to
Futech, before a vote of the stockholders of Futech is taken with respect to the
mergers, written notice of the stockholder's intent to demand payment for the
stockholder's Futech shares if the mergers are effectuated; and (ii) not vote in
favor of the merger proposal.
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If the merger proposal is approved at the Futech special meeting and if the
other conditions of the mergers are satisfied or waived, Futech will deliver a
written dissenters' notice to all Futech stockholders who have satisfied the
requirements described above to assert those rights. Futech will send the
dissenters' notice no later than ten days after the mergers are effectuated.
The dissenters' notice delivered by Futech will: (i) state that the mergers
were authorized and the effective date or proposed effective date of the
mergers; (ii) state an address at which Futech will receive payment demands and
an address at which certificates for Futech shares must be deposited; (iii)
include a form for demanding payment; and (iv) set a date by which Futech must
receive the payment demand and by which certificates for Futech shares must be
deposited at the address for such deposits in the dissenters' notice, which date
may not be less than 30 days after the date the dissenters' notice is given.
Additionally, Futech may require that when a record holder of Futech shares
dissents with respect to the shares held by any one or more beneficial owners of
Futech shares, each such beneficial owner of Futech shares must certify to
Futech that both such beneficial owner and the record holder of Futech shares
beneficially owned by such beneficial owner have asserted dissenters' rights as
to all such Futech shares. If Futech so requires, the dissenters' notice will
state this requirement. The dissenters' notice will include a copy of the AZBCA
sec.sec. 10-1301 through 10-1303, 10-1320 and 10-1321.
A Futech stockholder to whom a dissenters' notice is sent and who wishes to
exercise dissenters' rights must: (i) demand payment on the form provided and
within the time period set forth in the dissenters' notice; and (ii) deposit
certificates for Futech shares in accordance with the terms of the dissenters'
notice. A stockholder of Futech who demands payment as described above retains
all rights of a stockholder of Futech, except the right to transfer the shares,
until the effective time of the mergers and thereafter has only the right to
receive payment for the fair value of his or her Futech Shares.
A stockholder of Futech who does not demand payment and deposit
certificates as required is not entitled to payment under AZBCA sec.sec. 10-1301
through 10-1303, 10-1320 and 10-1321.
NEW FUTECH AND FUTECH SHARES
NEW FUTECH COMMON STOCK
For a description of New Futech common stock and its Series A preferred
stock, see "DESCRIPTION OF NEW FUTECH CAPITAL STOCK" in the prospectus/proxy
statement.
FUTECH CAPITAL STOCK
The following description of Futech's capital stock is a summary only and
is subject to, and qualified in its entirety by, reference to Futech's Articles
of Incorporation and Bylaws, copies of which are included as exhibits to the
prospectus/proxy statement which accompanies this prospectus/proxy statement
supplement, and by reference to Arizona Law under which Futech is incorporated.
14
<PAGE> 343
COMMON STOCK
As of May 31, 1999 there were 87,339,078 shares of Futech common stock
outstanding which were held of record by approximately 129 stockholders. Futech
has not paid any dividends on its common stock. The Merger Agreement provides
that Futech will not declare or pay any dividend without the prior written
approval of New Futech.
PREFERRED STOCK
As of May 31, 1999 there were 3,750,000 shares of Futech preferred stock
outstanding which were held of record by three stockholders. Futech has not paid
any dividends on its preferred stock. The Merger Agreement provides that Futech
will not declare or pay any dividend without the prior written approval of New
Futech. These shares will be converted into New Futech common stock at the time
of the mergers.
15
<PAGE> 344
COMPARISON OF THE RIGHTS OF HOLDERS OF FUTECH COMMON STOCK AND
NEW FUTECH COMMON STOCK
Futech is an Arizona corporation and the rights of its stockholders are
governed by the Arizona Business Corporation Act ("AZBCA") and the Articles of
Incorporation and Bylaws of Futech. New Futech is a Delaware corporation and the
rights of its stockholders are governed by the Delaware General Corporation Law
("DGCL") and the Certificate of Incorporation and Bylaws of New Futech. By the
Merger Agreement, the Futech stockholders will become New Futech stockholders
and as such, their rights will be governed by the DGCL and the New Futech
Certificate of Incorporation and Bylaws.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF ARIZONA AND DELAWARE
The corporation laws of Arizona and Delaware differ in many respects.
Although all the differences are not set forth in this prospectus/proxy
statement supplement, provisions which could materially affect the rights of
shareholders are discussed below.
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
A director of a corporation that does not A director of a corporation that does not have a
have a staggered board of directors or classified board or cumulative voting may be
cumulative voting may be removed with or without removed without or without cause with approval
cause with the approval of a majority of the of the majority of the outstanding shares
voting shares held by the voting group of entitled to vote at an election of directors. In
stockholders that elected the director. In the the case of a Delaware corporation having
case of an Arizona corporation having cumulative cumulative voting, if less than the entire board
voting, if less than the entire board is to be is to be removed, a director may not be removed
removed, a director may not be removed if the without cause if the number of shares voted
number of shares voted against such removal against such removal would be sufficient to
would be sufficient to elect the director under elect the director under cumulative voting. A
cumulative voting. Pursuant to the Articles of director of a corporation with a classified
Incorporation, Futech has a staggered board and board of directors may be removed only for
allows the removal of a director only for cause cause, unless the certificate of incorporation
and only by an affirmative vote of the holders otherwise provides. The certificate of
of a majority of the outstanding shares of the incorporation and bylaws of New Futech provide
Corporation then entitled to vote generally in for a classified board of directors, but not for
the election of directors to remove a director. cumulative voting.
Futech does not have cumulative voting.
</TABLE>
CLASSIFIED BOARD OF DIRECTORS
A classified (the term in Delaware) or staggered board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the composition of
the board of directors more difficult, and thus, a change in control of a
corporation potentially a lengthier and more difficult process.
16
<PAGE> 345
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
Arizona law permits, but does not require, Delaware law permits, but does not require, a
a staggered board of directors, by which the classified board of directors, by which the
directors can be divided into as many as three directors can be divided into as many as three
classes with staggered terms of office, with classes with staggered terms of office, with
only one class of directors standing for only one class of directors standing for
election each year. The Futech articles of election each year. The New Futech certificate
incorporation provide for a staggered board. of incorporation and bylaws provide for a
classified board, consisting of three classes
with three directors in each class.
</TABLE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
Arizona and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, a corporation to adopt a
provision in its articles of incorporation or certificate of incorporation, as
the case may be, eliminating the liability of a director to the corporation or
its stockholders for monetary damages for breach of the director's fiduciary
duty. There are nonetheless certain differences between the laws of the two
states respecting indemnification and limitation of liability.
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
The Articles of Incorporation of Futech The Certificate of Incorporation of New Futech
eliminate the liability of officers, directors, also eliminates the liability of directors to
employees and other agents to the corporation to the corporation or its stockholders for monetary
the fullest extent permissible under Arizona damages for breach of fiduciary duty as a
law. Arizona law does not permit the elimination director to the fullest extent permissible under
of monetary liability where such liability is Delaware law. Under Delaware law, such provision
based on: may not eliminate or limit director monetary
liability for:
- - financial benefit received by a director to
which the director is not entitled, - breaches of the director's duty of loyalty to
the corporation or its stockholders,
- - intentional infliction of harm on the
corporation or the stockholders, - acts or omissions not in good faith or
involving intentional misconduct or knowing
- - conduct not in good faith and the individual violations of law,
did not reasonably believe, in the case of
conduct in an official capacity with the - the payment of unlawful dividends or unlawful
corporation, acts or omissions not in the best stock repurchases or redemptions, or
interest of the corporation, and in all other
cases acts or omissions contrary to the best - transactions in which the director received an
interests of the corporation, improper personal benefit.
- - intentional violation of criminal law,
- - liability for improper distributions, loans or
guarantees.
</TABLE>
17
<PAGE> 346
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
Arizona law generally permits Such limitation of liability provisions also may
indemnification of director expenses, not limit a director's liability for violation
including attorney's fees, reasonably related of or otherwise relieve directors from the
to the defense or settlement of a derivative necessity of complying with federal or state
or third-party action, provided there is a securities laws, or affect the availability of
determination by a majority vote of a non-monetary remedies such as injunctive relief
disinterested quorum of the directors, by or rescission.
independent legal counsel or by a majority
vote of the stockholders that the person Delaware law generally permits indemnification
seeking indemnification acted in good faith of expenses, including attorney's fees, actually
and in a manner reasonably believed to be in and reasonably incurred in the defense or
the best interests of the corporation. Arizona settlement of a derivative or third-party
law requires indemnification of director action, provided there is a determination by a
expenses when the individual being indemnified majority vote of disinterested directors, by
has successfully defended any action, claim, independent legal counsel or by a majority vote
issue or on the merits or otherwise. of the stockholders that the person seeking
indemnification acted in good faith and in a
manner reasonably believed to be in or not
opposed to the best interest of the corporation.
Delaware law requires indemnification, of
expenses when the individual being indemnified
has successfully, defended any action, claim,
issue, or matter therein, on the merits or
otherwise.
Delaware law also permits a Delaware corporation
to provide indemnification in excess of that
provided by statute.
A provision of Delaware law states that the
indemnification provided by statute shall not be
deemed exclusive of any other rights under any
bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
</TABLE>
Both Arizona and Delaware law requires indemnification when the individual
has defended successfully the action on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Arizona law and Delaware law, if such director or officer
undertakes to repay such amounts and if it is ultimately determined that he or
she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
18
<PAGE> 347
INSPECTION OF SHAREHOLDER LIST
Arizona law allows any stockholder (1) who has been a holder of record of
shares or of a voting trust beneficial interest for at least six months, or (2)
will be the holder of record of shares or the holder of record of voting trust
beneficial interest for at least 5% of all of the outstanding shares of a
corporation to inspect the stockholder list, if the stockholder makes a demand
in good faith and for a proper purpose and the records requested are directly
connected with the stockholder's purpose. Delaware law allows any stockholder to
inspect the stockholder list for a purpose reasonably related to such person's
interests as a stockholder. Both Arizona and Delaware law require the
stockholder to give the corporation written notice of its demand prior to
inspection of the stockholder list.
DIVIDENDS AND REPURCHASES OF SHARES
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
Arizona law provides that dividends may be Delaware law permits a corporation to declare
declared and paid in cash or property only out and pay dividends out of surplus or if there is
of the unreserved and unrestricted earned no surplus, out of net profits for the fiscal
surplus of the corporation or out of the year as long as the amount of capital of the
unreserved and unrestricted net earnings of the corporation following the declaration and
current fiscal year and the next preceding payment of the dividend is not less than the
fiscal year taken as a single period. Arizona aggregate amount of the capital represented by
law permits a corporation to declare and pay the issued and outstanding stock of all classes
dividends unless it would be contrary to the having preference upon the distribution of
articles of incorporation or after giving it assets. In addition, Delaware law generally
effect: provides that a corporation may redeem or
repurchase its shares only if the capital of the
- - the corporation would not be able to pay its corporation is not impaired and such redemption
debts as they become due in the usual course or repurchase would not impair the capital of
of business, or the corporation.
- - the corporation's total assets would be less
than the sum of its total liabilities plus
(unless the articles of incorporation permit
otherwise) the amount that would be needed, if
the corporation were to be dissolved at the
time of the distribution, to satisfy the
preferential rights upon dissolution of
stockholders whose preferential rights are
superior to those receiving the distribution.
</TABLE>
STOCKHOLDER VOTING
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
Arizona generally requires that a majority Delaware law generally requires that a majority
of the stockholders of both acquiring and target of the stockholders of both acquiring and target
corporations approve statutory mergers. corporations approve statutory mergers.
Does not require a stockholder vote of Does not require a stockholder vote of
</TABLE>
19
<PAGE> 348
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
the surviving corporation in a merger if: the surviving corporation in a merger (unless
the corporation provides otherwise in its
- - the merger agreement does not amend the certificate of incorporation) if:
existing articles of incorporation,
- the merger agreement does not amend the
- - each stockholder of the surviving corpo- existing certificate of incorporation,
ration whose shares were outstanding
immediately before the merger will hold the - each share of the stock of the surviving
same number of shares, with identical corporation outstanding immediately before the
designations, preferences, limitations and effective date of the merger is to be
relative rights immediately after the merger, identical outstanding or treasury share of the
surviving corporation after the merger, and
- - the number of voting shares outstanding
immediately after the merger, plus the number - either no shares of common stock of the
of voting shares issuable as a result of the surviving corporation and no shares,
merger or by the exercise of rights and securities or obligations convertible into
warrants issued pursuant to the merger, will such stock are to be issued or delivered under
not exceed by more than 20% the total number the plan of merger, or the authorized unissued
of shares of the surviving corporation shares or the treasury shares of common stock
outstanding immediately before the merger, and of the surviving corporation to be issued or
delivered under the plan of merger plus those
- - the number of participating shares (shares initially issuable upon conversion of any
that entitle their holders to participate other shares, securities or obligations to be
without limitation on distributions) issued or delivered under such plan do not
outstanding immediately after the merger, plus exceed 20% of the shares of common stock of
the number of participating shares issuable as the surviving corporation outstanding
a result of the merger either by the immediately prior to the effective date of the
conversion of securities issued pursuant to merger.
the merger or by the exercise of rights and
warrants issued pursuant to the merger, will
not exceed by more than 20% the total number
of participating shares outstanding
immediately before the merger.
</TABLE>
Both Arizona and Delaware law require that a sale of all or substantially
all of the assets of a corporation be approved by a majority of the outstanding
voting shares of the corporation transferring such assets.
Both Arizona and Delaware law generally do not require class voting, except
in certain transactions involving an amendment to the Certificate of
Incorporation that adversely affects a specific class of shares or where the
class of securities designates such a right.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS UNDER DELAWARE LAW
In recent years, a number of states have adopted special laws designed to
make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation, and one or more of its significant stockholders, more
difficult. Under sec. 203 of the Delaware General Corporation Law, certain
"business combinations" with "interested
20
<PAGE> 349
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, 15% or more
of the corporation's outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner, individually or with or through certain other
persons or entities, of 15% or more of such voting stock at any time within the
pervious three years, or is an affiliate or associate of any of the foregoing.
For purposes of sec. 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value of 10% or
more of the aggregate market value of either the corporation's consolidated
assets or all of its outstanding stock; the issuance of transfer by the
corporation or a direct or indirect majority-owned subsidiary of stock of the
corporation or such subsidiary to the interested stockholder (except for certain
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock or of the corporation's voting stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by sec. 203 does
not apply if:
- prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity
becoming an interested stockholder,
- upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least 85% of the
corporation's voting stock outstanding at the time the transaction
commenced (excluding from the eighty-five percent calculation shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans that do not give employee
participants the right to decide confidentiality whether to accept a
tender or exchange offer), or
- on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent of
the outstanding voting stock not owned by the interested stockholder.
21
<PAGE> 350
Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is:
- listed on a national securities exchange,
- quoted on an interdealer quotation system of a registered national
securities association, or
- held of record by more than 2,000 stockholders.
Under certain circumstances, sec. 203 of the DGCL may made it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period.
There is no provision in the AZBCA equivalent to sec. 203 of the DGCL.
INTERESTED DIRECTOR TRANSACTIONS
Under both Arizona and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under Arizona and Delaware law. Under Arizona and Delaware law, (a)
either the stockholders or the board of directors must approve any such contract
or transaction after full disclosure of the material facts, and, in the case of
board approval, the contract or transaction must also be "fair" to the
corporation, or (b) the contract or transaction must have been fair as to the
corporation at the time it was approved. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors. Delaware law
allows interested directors to be counted for purposes of establishing a quorum,
but Arizona law does not.
APPRAISAL/DISSENTERS' RIGHTS
Under both Arizona and Delaware law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal/dissenters' rights by which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transactions. Under both Arizona and Delaware law, such fair market value is
determined exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation.
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
Dissenters' rights are not available (a) Appraisal rights are not available (a) with
with respect to the sale of all or substantially respect to the sale of all or substantially all
all of the assets of the corporation or a merger of the assets of a corporation, (b) with respect
if no vote of the stockholders is required to to a merger or consolidation by a corporation
approve the transaction under Arizona law, (b) the shares of which are either listed on a
to stockholders of shares of any class or series national securities exchange, designated as a
if the shares of the class or series are national market system security on an
redeemable securities issued by a registered interdealer quotation system by the National
investment company as defined pursuant to the Association of Securities Dealers, Inc. or are
Investment Company Act held of record by more than
</TABLE>
22
<PAGE> 351
<TABLE>
<CAPTION>
Arizona Delaware
<S> <C>
of 1940 (15 United States Code sec. 80a-1 2,000 holders if such stockholders receive only
through 80a-64), or (c) to stockholders of shares of the surviving corporation or shares of
shares which either were listed on a national any other corporation that are either listed on
securities exchange or on the national market a national securities exchange, designated as a
system of the National Association of Securities national market system security on an
Dealers Automated System or were held of record interdealer quotation system by the National
by more than 2,000 holders on the date fixed to Association of Securities Dealers, Inc. or held
determine the stockholders entitled to vote on of record by more than 2,000 holders, plus cash
the proposed corporate action. in lieu of fractional shares of such corpora-
tions, or (c) to stockholders of a corporation
surviving a merger if no vote of the
stockholders of the surviving corporation is
required to approve the merger under Delaware
law.
</TABLE>
23
<PAGE> 352
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to the
consolidated statements of income of Futech for each of the five years in the
period ended December 31, 1998, and with respect to the consolidated balance
sheets of Futech at December 31 of each of the five years ending December 31,
1998, are derived from the audited consolidated financial statements of Futech
incorporated by reference in this prospectus/proxy statement supplement, except
for selected Balance Sheet data for 1994, which is unaudited.
The data set forth below are qualified by reference to, and should be read
in conjunction with, the financial statements and the notes related thereto
included in the prospectus/proxy statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Net revenue.......... $ 8,032,910 $ -- $ 122,447 $ 228,325 $ 1,774,243
Net loss............. (5,794,259) (14,427,183) (5,272,096) (4,855,092) (2,308,412)
Net loss per share... (0.07) (0.23) (0.10) (0.14) (0.10)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ---------- -----------
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Current assets....... $ 7,059,454 $ 26,389 $ 70,592 $1,297,395 $ 641,869
Total assets......... 26,214,831 518,213 858,374 5,778,508 4,157,766
Current
liabilities........ 34,837,653 6,904,480 1,613,463 6,041,491 1,573,112
Total liabilities.... 37,287,653 11,150,051 3,863,463 6,041,491 1,788,089
Stockholders'
equity............. (11,072,822) (10,631,838) (3,005,089) (262,983) 2,369,677
</TABLE>
24
<PAGE> 353
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with Futech's
audited consolidated financial statements for the two years ended December 31,
1998 and December 31, 1997, and the unaudited financial statements for the
quarters ended March 31, 1999 and March 31, 1998 and notes thereto appearing
elsewhere in the prospectus/proxy statement supplement.
OVERVIEW
Incorporated in 1990, Futech Interactive Products, Inc. ("Futech" or the
"Company") designs, publishes, hires subcontractors to manufacture and markets
interactive, educational, promotional and entertainment products (i.e. books,
game boards, and specialty post cards) targeted primarily towards children.
Additionally, the Company licensed its technology to other companies,
manufacturers (through third parties) foam-based post cards, and distributes
third party books from major book publishers. These products are sold through
all channels of retail sales, including warehouse clubs, national book chains,
specialty and independent retailers, major toy chains, direct marketing
catalogs, and the internet.
The Company owns patented technology which utilizes specialized conductive
ink to print interactive touch points in books, games, and other print media.
These touch point trigger speech, music and sound effects. The Company uses
subcontractors to produce its own propriety products using this technology
Additionally, the Company distributes other proprietary products, as well as
books of third party publishers.
In March 1998, Futech purchased substantially all of the assets of Gick, a
manufacturer of foam-based post cards, stationary, specialty crafts and hobby
items. Shortly after the purchase, the Company disposed of the specialty crafts
and hobby portions of the business.
In May 1998, Futech purchased substantially all of the assets of XYZ Group,
Inc. ("XYZ"), a distributor of children's books and related products.
In December 1998, Futech purchased a majority interest in the stock of
Janex, a designer, developer and manufacturer (through subcontractors) of
practical toy products.
RESULTS OF OPERATIONS OF THE COMPANY
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
Total revenue for three months ended March 31, 1999, was $2,518,276, as
compared to $2,000,000 for the three months ended March 31,1998. Historically,
Futech has been a research and development company, working to refine and
improve patented technology. For 1998 there were no sales of products utilizing
this technology. Sales of proprietary product in the first three months ended
March 31, 1999 amounted to $56,872. This was our first run of the Talking Pages
series that was delivered in March. The increase in total revenue is due
primarily to the Company's acquisitions. The acquisition of XYZ resulted in
sales of $1,961,483. The acquisition of Gick resulted in sales of foam-based
post cards of $277,665. The acquisition of Janex resulted in sales of toy
products of $222,346. The revenue for the 1st quarter of 1998 was from a
technology fee of $2,000,000 that was earned as a result of the termination of a
joint venture agreement. This was a one-time fee and there were no similar
revenues in 1999.
25
<PAGE> 354
Gross profit for the three months ended March 31, 1999, was $447,300 or
17.8% of revenue, as compared to $2,000,000 or 100% of revenue for the three
months ended March 31, 1998. The decrease is entirely due to a technology fee
that had no cost of goods attached to it while the current year's sales are
related to product sales. The cost of goods percentage should improve as the
percentage of proprietary product to total sales increases.
Selling, general and administrative expenses (SG&A) for the three months
ended March 31, 1999, were $2,186,253 or 86.8% of revenue, as compared to
$602,897 or 30.1% for the three months ended March 31, 1998. The increase in
SG&A is due primarily to the acquisitions made. Salaries and wages increased by
$567,466 as the result of an increase in the number of employees. Shipping and
freight increased by $204,188 due to the increased costs of the distribution
center and sales from an initial production run from Hong Kong. Rent and related
overhead expense increased $141,894 due to the facilities acquired in the
acquisitions.
Depreciation and amortization of intangibles for the three months ended
March 31, 1999, were $255,506 or 10.1% of revenue, as compared to $107,551 or
5.4% for the three months ended March 31,1998. The increase in depreciation and
amortization of intangibles is due primarily to the acquisitions made. All of
the acquisitions were accounted for using the purchase method. As a result,
there was a significant increase of property and equipment as well as intangible
assets, such as goodwill that resulted in a corresponding increase in
depreciation and amortization.
Loan origination fees and related amortization expenses for the three
months ended March 31, 1999, were $154,787 or 6.1% of revenue, as compared to
$272,500 or 13.6% for the three months ended March 31, 1998. The reduction of
loan origination fee costs is due to the Company renegotiating its agreements
with individuals who provided financing, whereby the Company pays loan
origination fees with stock options instead of cash. The 1998 fees were paid in
cash and not amortized.
Interest expense for the three months ended March 31, 1999, were $676,732
or 26.9% of revenue, as compared to $109,385 or 5.5% for the three months ended
March 31, 1998. The increase in interest expense is due to the increase in debt
incurred by the Company to fund the acquisitions made and to finance operations.
The following two tables set forth, for the periods indicated, the actual
dollars and relative percentage that certain income and expense items bear to
net sales.
26
<PAGE> 355
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue......... 122,447 -- 8,032,910 2,000,000 2,518,276
Cost of Sales......... 1,479,772 -- 4,295,578 2,065,621
---------- ----------- ---------- --------- ----------
Gross profit.......... (1,357,325) -- 3,737,332 2,000,000 452,655
Selling, general and
administrative
expenses............ 1,001,015 4,038,905 5,869,146 566,226 2,191,607
Research and
development......... 588,870 6,732,975 229,480 76,832
Depreciation and
amortization........ 315,066 55,491 1,343,197 107,551 255,506
Loss on Joint
Venture............. -- 1,393,778 --
---------- ----------- ---------- --------- ----------
Operating Income
(loss).............. (3,262,276) (12,221,049) (3,704,491) 1,249,392 (1,994,458)
Other expense (net)... (2,009,820) (2,206,134) (2,089,768) 375,437 723,055
---------- ----------- ---------- --------- ----------
Net Income (loss)..... (5,272,096) (14,427,183) (5,794,259) 873,955 (2,717,514)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997* 1998 1998 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue......... 100.0% N/A 100.0% 100.0% 100.0%
Cost of Sales......... 1,208.5 N/A 53.5 0.0 82.2
-------- --- ----- ----- ------
Gross profit.......... (1,108.5) N/A 46.5 100.0 17.8
Selling, general and
administrative
expenses............ 817.5 N/A 73.1 30.1 86.8
Research and
development......... 480.9 N/A 2.9 3.9 0.0
Depreciation and
amortization........ 257.3 N/A 16.7 5.4 10.1
Loss on Joint
Venture............. 0.0 N/A 0.0 0.0 0.0
-------- --- ----- ----- ------
Operating Income
(loss).............. (2,664.2) N/A (46.1) 64.5 (79.2)
Other expense (net)... 1,641.4 N/A 26.0 (19.0) (28.7)
-------- --- ----- ----- ------
Net Income (loss)..... (4,305.6) N/A (72.1) 45.5 (107.9)
</TABLE>
- -------------------------
* Percentages are not applicable because there were $-0- (zero) sales in 1997.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Total revenue for the year ended December 31, 1998 was $8,032,910, as
compared to $0 (zero) for the year ended December 31, 1997. Historically, Futech
has been a research
27
<PAGE> 356
and development company, working to refine and improve patented technology. For
1997 and 1998 there were no sales of products utilizing this technology. The
increase in total revenue is due primarily to the Company's acquisitions during
1998. The acquisition of XYZ resulted in sales of third-party books of
$5,095,386. The acquisition of Gick resulted in sales of foam-based post cards
of $875,874. The acquisition of Janex, which occurred in December, resulted in
sales of toy products of $61,650. In addition, a technology fee of $2,000,000
was earned as a result of the termination of a joint venture agreement.
Gross profit for the year ended December 31, 1998, was $3,737,332 or 46.5%
of revenue, as compared to $0 (zero) for the year ended December 31, 1997. The
increase is entirely due to the gross profit generated from the product lines
that have been acquired due to the acquisitions.
Selling, general and administrative ("SG&A") expenses for the year ended
December 31, 1998, were $5,869,146, or 73.1% of revenue, as compared to
$4,038,905 for the year ended December 31, 1997. The increase in SG&A is due
primarily to an increase of salaries and wages of $953,250, resulting from an
increase in the number of employees due to the acquisitions made. Rent and
related overhead expenses increased $329,975 due to the facilities acquired in
these acquisitions. Sales commissions increased $171,241 due to the additions of
product lines as a result of the acquisitions being made. Professional fees
increased $272,023 due to the need for legal and accounting services as a result
of the acquisitions made.
Research and development ("R&D") costs for the year ended December 31,
1998, were $229,480 or 2.9% of revenue, as compared to $6,732,875 for the year
ended December 31, 1997. The reduction of R&D costs was a result of having the
major portion of the R&D work completed in the year ended December 31, 1997 and
prior.
Depreciation and amortization of intangibles expenses for the year ended
December 31, 1998, was $1,343,197 or 16.7% of revenue, as compared to $55,491
for the year ended December 31, 1997. The increase in depreciation and
amortization of intangibles is due primarily to the acquisitions made. All of
the acquisitions were accounted for using the purchase method of accounting. As
a result, there was a significant increase of property and equipment as well as
intangible assets, such as goodwill, which resulted in a corresponding increase
in depreciation and amortization.
Loss on joint venture was $0 (zero) for the year ended December 31, 1998,
as compared to $1,393,778 for the year ended December 31, 1997. During 1997, the
Company expended $1,393,778 in support of a joint venture with Golden Books
Family Entertainment, Inc. The joint venture agreement was terminated in the
fourth quarter of 1997, so there were no related expenditures in 1998.
Loan origination fees and related amortization expense for the year ended
December 31, 1998 was $241,250 or 3% of revenue, as compared to $1,985,000 for
the year ended December 31, 1997. In 1998, the Company renegotiated its
agreements with individuals who provided financing, whereby the Company pays
loan origination fees with stock options in lieu of cash.
Interest expense for the year ended December 31, 1998, was $1,704,444 or
21.2% of revenue, as compared to $221,134 for the year ended December 31, 1997.
The increase in interest expense is due to the increase in debt incurred by the
Company to fund the acquisitions made and to finance operations.
28
<PAGE> 357
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Total revenue for the year ended December 31, 1997 and 1996 was $0 and
$122,447, respectively. Sales for 1996 were insignificant because the Company
closed its production facility in Arizona during the first quarter and
transferred its manufacturing equipment to a third party entity. This entity
consisted of a Joint Venture in which Golden Books agreed to publish books using
Futech's equipment and technology. There were no sales during 1997 and Futech
did not recognize revenue from the Joint Venture until 1998.
Operating expenses for the years ended December 31, 1997, and 1996 were
$12,221,049, and $3,262.276, respectively, an increase of $8,958,773 or 2.75
times.
Selling, general and administrative ("SG&A") expenses for the years ended
December 31, 1997 and 1996 were $6,023,905 and $1,001,015 respectively, an
increase of $5,022,890 or six times. The increase in SG&A expenses is primarily
the result of an increase in salaries and wages, accounting and legal fees.
Salaries and wages for 1997 and 1996 were $2,702,180 and $375,983 respectively.
This represents an increase of $2,326,197 or 7.2 times. The increase is largely
attributed to stock based compensation paid to the CEO on September 26, 1997,
for which the Company recognized a charge of $2,000,000. This amount represents
the difference between the exercise price and the fair market value of the
Company's stock, as was determined based on contemporaneous third-party
transactions. Other increases in salaries resulted from the hiring of key
upper-management personnel during the year. Legal and accounting fees for 1997
and 1996 were $647,312 and $197,035 respectively. This increase of $450,277 or
3.3 times was the result of increased accounting, legal and due diligence
activity, as new companies were researched for acquisition. Additionally, legal
costs were incurred as the result of the termination of a joint venture with
Golden Books in the latter part of 1997.
Research and development: Research and Development ("R&D") expenses for
the years ended December 31, 1997 and 1996 were $6,732,875 and $588,870
respectively, reflecting an increase of $6,144,005 or 11 times. The increase in
R&D was primarily the result of two events: (1) the Company had costs of
approximately $2 million associated with the purchase of assets from NewTech
Consulting, Inc. for its R&D facility; (2) during 1997, Futech purchased two
patents for approximately $3.4 million, which were expensed during the year. The
Company also spent approximately $1.25 million in 1997 for its research and
development of new and existing products.
Depreciation and amortization expense: The Company's Property and
Equipment as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Machinery and equipment.................................. $ 46,955 $ 11,295
Office furniture and equipment........................... 311,268 215,521
Vehicles................................................. 30,000 30,000
Leasehold improvements................................... 20,369 0
-------- --------
408,592 256,816
Accumulated depreciation & amortization.................. 167,258 112,812
-------- --------
$214,334 $144,004
======== ========
</TABLE>
29
<PAGE> 358
Depreciation and amortization expense for 1997 and 1996 were $55,491 and
$315,066 respectively, a decrease of $295,575 or 82%. This decrease was due to
the write-off of all unamortized patent costs at the end of 1996, thereby
reducing the asset base for amortization in 1997.
Other expense: Interest expense for 1997 was $221,134, a decrease of
$134,945, or 38%, from $356,079 in 1996. During 1996, there were a number of
debt obligations that were converted to equity, thereby reducing interest
expense. Additionally, unamortized loan fees were written off at the end of
1997, resulting in an expense of $1,985,000. This represents an increase for
Loan Origination Fees and Related Amortization of $331,259 or 17% over the
charge in 1996 for $1,653,741.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Futech's business historically tends to generate greater revenues during
August through November when large retailers and wholesale clubs place orders
and make purchases for the Christmas selling season. Management anticipates the
average sales revenue for each of the months of August through November will be
twice as much as average sales revenue for other months of the year. The Company
plans for this occurrence each year by ordering greater volumes of inventory and
hiring additional temporary staff during the 3rd and 4th quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its existing lines of credit and projected cash
flows from operations will not be sufficient to fund projected order flow,
overhead, debt repayment and pending acquisitions for the fiscal year ended
December 31, 1999. The Company has experienced recurring losses from operations,
negative cash flows and decreases in working capital.
The Company's ultimate ability to continue as a going concern depends on:
(i) the market acceptance of its products, (ii) the Company generating operating
profits, (iii) its creation of sustainable positive cash flow, and (iv)
obtaining additional financial resources to provide near-term operating cash.
Management believes that there are several items that will allow the Company to
provide cash for continuing operations.
Cost cutting: After the acquisitions that were completed in 1998, Futech
closed the Gick facility and the Janex facility and laid off several employees.
These type of cost-cutting activities reduced expenses as well as reduced future
cash needs. The Company anticipates it will take other cost-cutting actions in
the future.
Expanded Markets: Management believes the combination of the companies in
this merger will allow the Company to sell its products into additional markets
of the acquired companies. Management expects this will have a positive affect
on sales of the Company.
Different Distribution Channels: The varied companies in this combination
utilize different distribution and selling methods. Futech's Management believes
this will increase the sales and subsequent cash flows from its proprietary
products.
New Products: The Company has begun to create new prototype products with
Management of the acquired companies. The new products, game boards and other
interactive products, utilize interactive technology. Management believes these
new products will produce a high level of excitement in the consumer market that
will increase the Company's sales and subsequent cash flow.
30
<PAGE> 359
Secondary Public Offering: Management is considering a follow-on public
offering after the merger. Funds provided from this offering would be used to
pay down debt, and if excess funds are available, they would be used to expand
the Company's product lines or to acquire other companies that would help to
improve the Company's sales and cash flows.
Additional Loans: The Company is also working with its existing lenders
and selected shareholders to provide funds, as needed, to supplement current
cash-flow needs.
Management believes these activities will be sufficient to support the
Company's liquidity and capital needs for the next 12 months.
The Company's cash balance decreased by $2,699 to $184,044 at March 31,
1999, as compared to $186,743 at December 31, 1998. The Company's net working
capital increased by $1,363,566 from working capital deficit of $26,337,929 at
December 31, 1998 to a working capital deficit of $24,974,363 at March 31, 1999
and the Company's current ratio decreased to 0.24:1 at March 31, 1999 as
compared to 0.21:1 at December 31, 1998.
The Company had negative cash flow from operating activities of $3,250,201
for the three months ended March 31, 1999, as compared to a positive operating
cash flow in 1998 of $816,615, as 1998 had a $2,000,000 technology fee that was
earned in the termination of a joint venture agreement. Additional negative cash
flows are the results of increased production and operations that have been
acquired since last year.
During the three months ended March 31, 1999, the company purchased
property and equipment totaling $149,982. The company also incurred additions to
product development costs of $7,068. The company also invested $49,323 in the
joint venture, Gold Star Publishing, LLC. This compares to additions to property
and equipment $28,586 and an advance of $200,000 for an acquisition for the
three months ended March 31, 1998.
The Company generated $3,453,811 from financing activities during the three
months ended March 31, 1999 compared to the use of $352,350 during the same
period in 1998. The company also increased the amount on two existing lines of
credit for a total of $4,668,189. There were also increased borrowings from the
Company CEO of $155,533. On March 1, 1999, four shareholders converted notes to
stock totaling $1,058,845. The cash used in financing activities for 1998 came
from increased borrowings from the company president of $141,579 and a repayment
of loans in the amount of $141,579.
For the year ended December 31, 1998, the Company had negative cash flow
from operating activities of $2,441,156, as compared to negative cash flow of
$4,672,682 for the year ended December 31, 1997. The decrease in negative cash
flow from operating activities is due primarily to a decrease in net operating
loss in 1998 and an increase in sales in 1998, resulting in collection of
accounts receivable. The increase in cash used in financing activities is
primarily due to cash used for acquisitions of companies.
The Company used $3,734,168 in investing activities for the year ended
December 31, 1998, compared to generating $377,921 in 1997. The cash generated
from financing activities came primarily from an increase in borrowings of
$8,010,353, offset by net disbursements of $1,644,987 to the CEO of the Company.
During 1997, the cash generated from financing activities came from an increase
in borrowings of $5,826,502, proceeds of $215,800 from the issuance of stock,
offset by net disbursements of $1,056,590 to the CEO of the Company.
The Company's capital commitments for 1999 include debt repayments, lease
commitments, development of new and existing product lines, upgrade or
replacement of
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<PAGE> 360
the Company's computer system, the purchase of an internet web server and
continuing development of the Company's internet web site.
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Notes payable to shareholders, due December 15,
1999, interest from prime + 0.5 percent (8.25
percent at March 31, 1999) to 10 percent.......... $10,650,000 $10,000,000
$4.0 million line of credit with a bank, interest at
prime rate + 2.5 percent (10.25 percent at March
31, 1999). $3.6 million is personally guaranteed
by the
Company's CEO..................................... 4,000,000 4,000,000
$7.0 million line of credit with a bank, interest at
prime + 2.5 percent (10.25 percent at March 31,
1999), secured by inventory and accounts
receivable of XYZ, and guaranteed by the former
owner of XYZ...................................... 3,456,446 2,945,532
$7.0 million line of credit with a bank, due
December 1, 2000, interest at prime + 1.0 percent
(8.75 percent at March 31, 1999), personally
guaranteed by the Company's CEO and a
director/warrant holder........................... 2,450,000 6,545,000
Note payable to Newtech............................. 1,000,000 1,000,000
Note payable to Golden Books, due June 1, 1999,
interest at prime plus 1 percent (8.75 percent at
March 31, 1999)................................... 1,000,000 1,000,000
Note payable for purchase of patent due June 1,
1999.............................................. 850,000 857,510
Note payable to former owner of XYZ................. 4,000,000 4,000,000
Notes payable, due April 1999 to June 1999, interest
at 10 percent, convertible into common stock at
$0.50 per share (see Note 17)..................... 363,148 41,091
Notes payable to shareholders in connection with the
acquisition of Janex.............................. $ 750,000 $ 750,000
$400,000 line of credit with a bank, due July 1,
1999, interest at prime rate plus .25 percent
(8.00 percent at March 31, 1999), secured by all
assets of Janex and personally guaranteed by two
shareholders...................................... 257,000 257,000
Other............................................... 112,592 43,551
----------- -----------
28,889,186 31,439,684
Less current portion................................ 26,439,186 24,894,684
----------- -----------
Notes payable, noncurrent........................... $ 2,450,000 $ 6,545,000
=========== ===========
</TABLE>
Future maturities of notes payable are as follows at March 31, 1999:
<TABLE>
<S> <C>
1999.................................................. $24,894,684
2000.................................................. 6,545,000
-----------
$31,439,684
===========
</TABLE>
32
<PAGE> 361
The Company leases operating facilities and certain equipment under
noncancelable leases. Future minimum lease payments under these leases are
$612,078 for 1999, $485,106 for 2000, $247,418 for 2001 and $126,431 for 2002.
Over the next 12 months, the Company plans to spend approximately
$3,300,000 for the development of new products, as well as for the improvement
of existing products. Some of the products to be included in this program are
interactive books and games, interactive books with proprietary themes, and to
redesign and repackage existing product lines.
The Company is dedicated to having a strong internet presence for selling
its products as well as providing other services for customers who enjoy playing
interactive games via the internet or other media. The Company plans to spend
approximately $400,000 to purchase hardware and software that will allow it to
host its own internet web site at its facilities, as well as to hire three
additional employees to design and maintain the internet web site.
INFLATION
Management believes that inflation has not had a significant impact on
Futech's costs and profits during the past two years.
YEAR 2000
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. The Year 2000 issue affects Futech's internal
systems, including information technology (IT) and non-IT systems. Futech is
assessing the readiness of its systems for handling the Year 2000. Although the
assessment is still underway, management believes that all material systems will
be compliant by the Year 2000 and that the cost to address the issues is not
material. Nevertheless, Futech is creating contingency plans for certain
internal systems.
The Company has not instituted any procedures to obtain certification from
its major vendors or customers that their systems are Year 2000 compliant. Such
a survey would include vendors who provide systems related services, e.g.,
communications, banking, credit card processing, shipping, security, HVAC, etc.
along with third-party factories providing book and toy products. The cost of
such a survey, in both time and money, would be substantial. However, the
Company does not believe that the failure of any vendor or customer to be Year
2000 compliant will have a material impact on the Company.
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus/proxy statement supplement and the prospectus/proxy
statement contains or incorporates by reference forward-looking statements. The
factors identified under "SPECIAL RISK FACTORS AFFECTING FUTECH" in this
prospectus/proxy statement supplement and "RISK FACTORS" in the prospectus/proxy
statement are important factors (but not necessarily all important factors) that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, Futech.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, Futech cautions
that, while such assumptions or bases are believed to be reasonable and are made
in good faith, assumed
33
<PAGE> 362
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material, depending
upon the circumstances. Where, in any forward-looking statement, Futech, or its
respective management, express an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," and "anticipate" and similar expressions identify
forward-looking statements. The portions of this prospectus/proxy statement
supplement which contain forward-looking statements often include
cross-references to "Risk Factors." See also the information contained under the
sections entitled "Futech's Management's Discussion and Analysis or Plan of
Operation" included elsewhere herein.
34
<PAGE> 363
DESCRIPTION OF FUTECH'S BUSINESS
GENERAL: RECENT DEVELOPMENTS
Futech Interactive Products, Inc., formerly known as Futech Educational
Products, Inc., was incorporated in Arizona in 1990. The Company's principal
place of business is located at 2999 N. 44th Street, Suite 225, Phoenix, Arizona
85018-7247. The Company's telephone number is (602) 808-8765.
Futech, founded in 1988 by Stephen McTaggart, develops electronic "talking"
books that utilize specialized conductive ink on printed pages to convey sounds,
voices, and music. In late November 1992, Futech opened a manufacturing facility
and began manufacturing its own published books under the "TOUCH ME SOUND PAGES"
name. Futech closed this facility in 1996 and currently subcontracts with third
parties to manufacture its products.
Futech co-publishes and distributes traditional paperback books pursuant to
a co-publishing/distribution agreement with Magi Publications (see "LICENSING").
Futech licenses various book clubs, including Scholastic and Troll, to
distribute some of these paperback books.
Futech distributes both Magi books and its own electronic books on an
exclusive basis. On a non-exclusive basis, Futech also distributes paperback
books published and manufactured by various third parties.
In 1998, Futech entered into agreements to purchase the following three
companies or their assets to broaden product mix and improve distribution: Gick
Publishing, Inc., XYZ Distribution, and Janex International, Inc. Gick, a
California corporation, manufactures and distributes foam-based post cards, gift
tags, picture frames, specialty crafts and hobby items. XYZ, a Wisconsin
corporation, distributes children's books, adult books, audio books, activity
games and related educational products. Janex, a Colorado corporation, designs,
develops, and manufactures functional toy products for children, including tooth
brushes, coin banks, and Wet Pets.
Futech acquired the XYZ distribution facility in Wisconsin along with
Gick's distribution center on the West Coast. Futech closed the West Coast
distribution facility and consolidated the shipping, receiving and billing of
Gick's foam-based products into its Wisconsin distribution facility.
On February 1, 1999, Futech entered into a joint venture with renowned
author Joy Berry and her company, Responsible Kids, LLC, by purchasing 49% of
Gold Star Publishing, LLC, to develop and publish children's self-improvement
products. The purchase required Futech to contribute $500,000 in working capital
to Gold Star and guarantee payment of a $200,000 line of credit from Responsible
Kids, LLC.
Futech currently operates three facilities: corporate offices in Phoenix,
Arizona; sales office in Chicago, Illinois; and general sales, distribution and
operations facilities in Waukesha, Wisconsin (near Milwaukee). Little Tiger
Press and Gold Star Publishing titles are sold and distributed through the
Wisconsin facility.
BUSINESS
BOOKS, TOYS, AND INTERACTIVE PRODUCTS
Toys, games and interactive games encompass many product categories
including: conventional board games, electronic game boards, book and toy
packages. Futech has
35
<PAGE> 364
chosen to concentrate on certain formats such as interactive game boards,
interactive puzzles, interactive books, interactive learning devices, practical
toys and combination toy/game/book packages. This area of products has grown in
recent years due to parents' interest in combining entertainment with educating
their children. Futech expects to compete by designing products which provide
high quality play processes, interactive capabilities, educational experiences
and superior value to the consumer at competitive prices. As an example of
retail prices, the interactive game board products will be sold at retail for
$15 to $30. The Company believes this price point compares favorably with
similar electronic game and toy products which typically retail between $30 and
$100. All of the products will be sold to major mass market retailers, toy
stores and independent retailers in the United States and internationally.
TRADE PUBLISHING AND INTERACTIVE PUBLISHING
Trade Publishing
The trade publishing industry features hundreds of publishers releasing a
wide variety of consumer books into the market, including hard cover best
sellers, paperback best sellers, trade paperbacks, audio books, children's
books, computer books, religious books, gardening books, travel books, gift
books, novelty books, electronic books and others.
Interactive Publishing
The interactive product industry consists of books containing sound,
promotional publishing and specialty products. Books containing sound first
appeared on the market in the early 1980's in the form of a piano keyboard
attached to a hard cover book featuring easy-to-play, familiar children's songs.
These books were generally low-tech products featuring a one-sound chip and a
low-quality speaker. With the production of low cost microchips and
microprocessors from companies such as Winbond, Electronic Speech Systems and
Texas Instruments Inc., the cost for incorporating speech technology, sound
effects and music into products dropped dramatically in the mid-1980's. Sight &
Sound helped define the interactive product industry by introducing licensed and
unlicensed products, reducing the costs of production and developing new
technologies allowing more sounds per product. Sight & Sound was acquired by
Western Publishing Company in 1990 and Western rapidly expanded Sight & Sound's
existing interactive product lines from $20 million to $125 million in three
years. These new products utilize either an ESS chip or a Texas Instrument chip
and improved technology allows the story to be enhanced by an electronic sound
pad. In 1996, Western Publishing was acquired by Golden Books.
The SMART PAGES and EXTRA SMART PAGES formats produced by Golden Books use
the same technology as Futech's TALKING PAGES and TALKING PAGES PLUS. Each of
Futech's books contains up to 42 touch points or switches that are embedded in
the covers or pages of the books. When a touch point is pushed it triggers a
switch and the microchip delivers an audible message. This allows children to
touch a picture, object or word and have the book respond to or instruct them.
Depending on the format, the audible messages consist of speech, music or sound
effects. Golden's books will contain anywhere from 100 to 150 musical sounds,
voices, or sound effects, as well as hundreds of interactive play options.
Licensing
Futech has a co-publishing/distribution agreement with Magi Publications, a
United Kingdom publisher, and will license Magi to produce co-editions for the
European market. The Little Tiger Press co-publishing/distribution agreement
grants Futech the exclusive
36
<PAGE> 365
publishing and distribution rights in the United States, Mexico and Canadian
markets for Magi's titles. Magi currently has over 50 back list titles and 14
new front list titles for 1999. Magi will create new titles using United
States-based authors and illustrators and Futech will continue to import
co-editions from Magi's European operations.
Futech licenses certain United States paperback rights to various book
clubs such as Scholastic, Troll and Book-of-the-Month Club for United States
specialty distribution. When these companies purchase the paperback rights,
Futech provides them with films which allow them to produce their own low cost
paperback editions. These companies distribute the editions to schools
throughout the United States. They distribute flyers/order blanks directly to
children so the product can be ordered via mail order. They also participate in
school book fairs in which they set up book displays at schools for a one-week
period and sell directly to the students. A substantial advance in guarantee is
paid by these companies to Futech for the rights to produce these paperback
editions. These advances and guarantees are earned by Futech through a per-book
royalty agreement with these companies. Sales of these editions often average
100,000 copies or more.
On August 14, 1996, Futech entered into a joint venture with Golden Books,
the world's largest publisher of children's books. In January 1998, Futech
transformed its agreement with Golden into a five year, non-exclusive licensing
agreement and received a $2 million up front, non-refundable guarantee for the
non-exclusive use of the technology. Golden Books recently filed bankruptcy for
reorganization purposes.
In late 1997, due to the disappointing results from the Golden Books
relationship, Futech management re-evaluated their long-term licensing strategy
and decided to compliment the licensing of its technology with developing,
manufacturing and distributing its own proprietary products. To pursue this new
complimentary strategy, the Company entered into several acquisition and joint
venture agreements beginning in 1998 (see "DESCRIPTION OF NEW FUTECH'S
BUSINESS -- Recent Acquisitions" in the prospectus/proxy statement).
Toy Products
Toys, games and interactive games encompass many product categories
including: conventional board games, electronic game boards, book and toy
packages. Futech currently produces electronic books and has chosen to
concentrate on certain product development formats such as game boards,
interactive learning devices, and functional toys. A majority of the products
are sold at retail for $5 to $15, thereby creating impulse sales to consumers.
Companies producing educational toy products at similar price points include
Random House, Children's Books, Golden Books, Tiger Electronics and V-Tech.
Futech develops and manufactures through subcontractors a series of toy and
functional products for children through its Janex operating unit which are
distributed both in the United States and internationally. These products are
designed to be practical while offering high quality and superior value to the
consumer. Current Hercules and Looney Tunes licensed products include tooth
brushes and banks. Janex proprietary products include Wet Pets, which is a line
of pool and bathtub related play products. Sales of this product line in the
first four months of 1999 were less than 4% of revenues.
Specialty Products
Futech markets a three-dimensional, mailable foam card which can be
designed in any shape, including hearts and flowers, and can feature promotional
messages with up to one minute of speech music and sound effects. These foam
cards are sold in the form of
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stationery, greeting cards, gift tags, and picture frames. These products range
in price from $1 to $7. These products constituted approximately 9% of revenues
in the 1st quarter of 1999.
MARKETING, DISTRIBUTION AND CUSTOMERS
The distribution of the paperback books published by third parties on a
non-exclusive basis is a highly competitive business. The largest demand for
distribution services is from the warehouse club segment. This includes Sam's
Club, Costco and BJ's. The warehouse clubs have become a very popular channel
from which consumers purchase books. Of the $1 billion in books sales by
warehouse clubs, $600 million are purchased directly from publishers. The
distribution market to warehouse clubs is currently controlled by two
distributors and is highly competitive. See "COMPETITION."
Futech sells its interactive products by marketing them through different
distribution channels including mass market retailers, warehouse clubs, regional
discounters, major book chains, drug chains, supermarkets and other retail
outlets throughout the United States. Futech distributes its proprietary product
lines to warehouse clubs, major retail outlets, regional discounters, national
book chains, drug store chains and supermarket chains.
Futech distributes over 150 foam-based post cards to approximately 3,900
stores, including 2,500 independent, specialty retailers and to chains. The post
cards are currently being tested and an expanded test is expected soon. The post
cards are marketed under the Better Than A Letter and Kinda Like A Card brand
names.
Currently, Futech has an assortment of wholesale catalogs to describe and
market existing products. Two options are available to consumers to facilitate
direct retail purchases. The first, a retail mail-order sales catalog, is
distributed by direct mail. Futech also has an Internet-based website,
www.futechinteractive.com, which was activated in April of 1999. Consumers can
order from a selection of hundreds of products, order replacement batteries,
play interactive online games and learn general information about the Company.
The website also provides email links to key personnel, current press releases,
a map of Futech locations, catalog order forms, listings of current Futech job
opportunities, and an interactive environment that makes visiting fun. Previous
online customers can conveniently return and track their orders directly from
the web site. Customer contact forms are also available to provide easy
communication with Futech representatives. Futech received its first order on
this site on May 20, 1999.
With the acquisition of XYZ on May 1, 1998, Futech now has a fully
operational distribution center centrally located in the Midwest to service its
U.S. and Canadian accounts. Futech currently distributes third-party publishers'
books on a non-exclusive basis domestically and proprietary and exclusive
product lines, including the electronic books, foam-core specialty products, and
the Little Tiger Press and Gold Star Publishing paperback books, domestically
and internationally.
Futech's distribution facility is well equipped and utilizes EDI
(electronic data interface or "EDI") to receive orders from its major customers.
EDI allows for instantaneous downloading and tracking of orders and paperless
invoicing. This means that orders are received the same day they are placed and
can be processed rapidly. In addition, Futech has designed and implemented a
custom bar code-based inventory management and shipping system in its warehouse.
High speed packaging machines, labeling machines, conveyors and a computerized
rate shopper to allow for quick processing of customer
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orders. Most customers require customized services such as pre-ticketing of
merchandise, collating and shrink wrapping custom packages, direct store
shipment, prepaid freight and the ability to receive returns from thousands of
individual locations.
The same distribution facility utilizes a computerized rate shopper to
determine the most economical and fastest way to ship products to its customers.
This allows Futech to control its freight expense while providing exceptional
service.
For independent and specialty accounts, a special pick and pack system has
been developed that allows for one day processing of smaller orders. This system
utilizes thousands of individual bar-coded locations to track, pull and process
individual orders. This pick and pack area is conducive to packing small orders
for individual customers and can be expanded to service customers on a direct
basis from Futech's Internet based website catalog.
MANUFACTURING
Futech subcontracts with third parties to manufacture its electronic books,
including TALKING PAGES and TALKING PAGES PLUS, by sub-contracting with
manufacturing companies throughout Asia. Futech's specialty products, including
promotions and specialty post cards, are currently manufactured domestically.
The sound modules for the electronic specialty products are manufactured in
China.
PRODUCT DESIGN AND SELECTION
Futech continually refines and enhances existing technology as required to
utilize the technology in new products. The Company's corporate facility houses
a Macintosh supported Product Development Department, which is utilized in the
design and development of its interactive products. The Product Development
Department makes samples of Futech's books for marketing. A team of design
coordinating professionals takes products from inception to manufacturing by
troubleshooting with prototypes of the products and coordinating required
materials such as illustration, script writing, story writing, plastic mold
design, extensive technology development and sound development. The team also
acts as a support service to both overseas and U.S. manufacturers in the process
of manufacturing the Company's products.
The department also features an in-house web development team. This team is
responsible for bringing the Company's presence into the next millennium with a
fully interactive E-Commerce website. The site offers customers the capability
of sampling and purchasing products online as well as playing interactive games,
ordering accessories, and troubleshooting issues. This can all be done by
touring a virtual "fun house style" world at www.futechinteractive.com which
features creative animation, music and sound effects.
Futech also maintains a liaison with individual inventors and companies
involved in the development of related technologies that are sometimes utilized
to enhance and expand Futech's products.
COMPETITION
Futech operates in highly competitive markets. Some of Futech's competitors
are significantly larger than Futech and have substantially greater resources
available for developing and marketing their products. Futech believes that its
unique patented technology, which it licenses, distribution service capability
and manufacturing its own
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products will allow Futech to successfully compete against many of these larger
competitors.
TRADE PUBLISHING
Futech's competition in the trade publishing industry includes Bantam
Doubleday Dell, Simon & Schuster, McGraw-Hill Companies, Inc., Harcourt Brace &
Company, Harlequin Enterprises Ltd., Golden Books, Dove Entertainment, Inc.,
Random House, The Putnam Publishing Group, Penguin USA, Scholastic, Andrews &
McMeel, HarperCollins, Avon, Houghton Mifflin Company, William Morrow,
North-South Books and others.
Futech's co-publishing/distribution agreement with Little Tiger Press
allows Futech to compete in the Trade Publishing market with the importation of
quality books from the United Kingdom through Magi. Futech also intends to
distribute Little Tiger Press products in Canada and Little Tiger Press has
chosen a distinctive market segment by offering high quality children's books at
a value price.
Futech has also entered a joint venture (Gold Star Publishing, LLC) with
renowned author Joy Berry to develop, produce and distribute children's
self-improvement products (i.e. Earning an Allowance, Self Esteem, Discipline,
Handling Emergencies, etc.). During 1999, Gold Star is publishing more than 75
new books, kits, videos and board books which will be available during the 2nd
and 3rd quarters. Previously, Joy Berry has sold more than 80 million books
through various direct mail and book club catalogs. Through the joint venture,
Futech has exclusive distribution rights to all new Gold Star products plus
approximately 250 of Joy Berry's previously published titles.
SPECIALTY PRODUCTS
The specialty products market is very competitive, in particular, in the
greeting cards segment. However, Futech believes its foam-core post cards are
unique due to its patented technology that combines printed circuitry, speakers
and batteries within one compact package. Futech has begun to leverage its
proprietary technology within the greeting card segment via its "Musical Mail"
line introduced in late 1998. The Company plans to launch additional products in
1999 that continue to exploit its patent and address key consumer needs. There
are no significant competitors for this specialty product given Futech holds the
patent on the manufacturing process for these cards.
Futech is also actively participating in the re-emergence of scrap booking,
an industry devoted to producing arts and crafts for home assembled projects.
The Company's line of "Little Bits" and "Make a Memory" are positioned to take
advantage of this segment, defining pre-assembled kits for mass retail as a
strategic opportunity. The Specialty Products division uses a series of
independent representative sales companies to penetrate the large number of
small card and crafts shops, as well as individual retail chain stores.
DISTRIBUTION
Futech distributes paperback books on a non-exclusive basis to warehouse
clubs. The distribution market to warehouse clubs on a non-exclusive basis is
currently controlled by two distributors, Advanced Marketing Services and
Futech. AMS is the market leader in warehouse club distribution with 97.5% of
total sales, compared with 2.5% for Futech. In 1990, there were 10 warehouse
club chains in the country and eight distributors servicing those chains. Due to
a consolidation in the club marketplace through acquisitions and bankruptcies,
there are currently only three major discount warehouse chains, including
Costco, Sam's Club, and B.J.'s, and two major distributors of children's books
to those
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chains. Warehouse club chains require shipment to individual stores, the
pre-ticketing of merchandise and the ability of the distributor to manage their
inventories and promotions. Since purchasing XYZ, Futech has been competing by
diversifying into areas other than distributing third-party children's books.
Futech competes with AMS in a number of different product categories including
hard cover best sellers, soft cover best sellers, paperbacks, trade paperbacks,
computer books, cookbooks, gardening books, self-help books, inspirational
books, religious books and audio books.
PATENTS AND TRADEMARKS
The Company's proprietary technology relates to printed audible signals,
visual circuitry and associated electrical components such as switches,
batteries, speakers and liquid crystal displays (LCD). This technology is
applied to produce books and play boards that emit speech, music and sound
effects or other visual signals activated by pressing switches embedded in the
surface of the product. Upon pressing a designated point on the page or surface
of the produce a microchip is activated and a speech, music, or sound effect
response is emitted. In certain products light emitting diodes (LEDs) or LCDs
provide visual enhancement.
The Company relies heavily upon patent and trademark protection to maintain
its competitive position. The Company recognizes that patents are not totally
effective in prohibiting competitors from producing similar products that could
compete with those of the Company. For those products that it makes sense to
patent, the Company takes the steps necessary to do so. Prior to its
incorporation, Futech applied for its first patent in 1989. Since that time,
Futech has obtained 10 U.S. patents, two foreign patents, four pending U.S.
patent applications, and 13 pending foreign patent applications.
Futech owns six U.S. patents, two foreign patents (Australia and New
Zealand), and a number of pending U.S. and foreign patent applications covering
various embodiments of an interactive electronic book. Additionally, Futech owns
a U.S. patent for an interactive electronic game board, and several
corresponding pending foreign patent applications. Additionally, Futech owns a
U.S. patent covering a model race car track system, and several corresponding
pending foreign patent applications.
The electronic book, game board, and race car track patents and patent
applications cover a variety of notable features, such as a technique for
printing conductive ink to create electronic circuits for use in the products.
Such printing techniques may also be used to make electronic components such as
switches, batteries, speakers, and light emitting devices for use in the
circuits. Such components are used to produce interactive sounds and/or visual
images in response to user activation of switches embodied in the products.
Futech also owns a U.S. patent and several pending U.S. and foreign patent
applications covering foam-core based novelty articles that may include sound
producing and/or light emitting devices. The corresponding product line includes
foam-core based stationery, postcards, gift tags, and picture frames.
Additionally, Futech owns a U.S. patent covering a novelty flashlight having a
decorative deformable body that, when squeezed, activates the light.
In order to prevent the use of Futech's products and their names, Futech
has registered the following Trademarks/Trade Names for its electronic books and
foam-core based stationery, postcards, gift tags, and picture frames: ABC
Talking Book; ABC Talking Book Adventures; Adventures Through ABC Land; Bookee;
Bookie; Bookie Mark; Look, Listen & Learn Series; The ABC Talking Book, The
Talking Book Adventures; Better Than a Letter; and Talking Pages. Futech also
has 15 Trademark/Trade Name
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applications pending for its foam-core based stationery, postcards, gift tags,
picture frames, electronic books, and interactive electronic games.
GOVERNMENT REGULATIONS
The Company is subject to the provision of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Products Safety Act. Those
laws empower the Consumer Products Safety Commission to protect children from
hazardous products. The CPSC has the authority to exclude from the market,
articles which are found to be hazardous, and can require a manufacturer to
repurchase such products under certain circumstances. Any such determination by
the CPSC is subject to court review. Similar laws exist in some states and
cities in the United States and in many jurisdictions throughout the world. The
Company endeavors to comply with all applicable regulations through a program
for quality inspections and product testing. The Company maintains product
liability insurance in the amount of $2,000,000.
EMPLOYEES
As of March 31, 1999, Futech had 60 employees. None of the employees of
Futech is a member of a union. Futech closed its West Coast distribution center
on June 30, 1998 and consolidated its shipping, receiving and billing functions
to its Midwest distribution center and 30 Gick employees were terminated. The
remaining seven West Coast employees were terminated effective December 31,
1998, with their duties transferred to the Phoenix and Wisconsin operations.
PROPERTIES
Futech leases one facility in Phoenix, Arizona with 9,628 square feet of
office space. The lease expires February 1, 2003. Through its XYZ acquisition,
Futech has assumed the lease on a facility in Pewaukee, Wisconsin with
approximately 50,000 square feet of warehouse space and 8,000 square feet of
office space. The lease expires June 30, 2002. Through its Gick acquisition,
Futech leases a facility in Laguna Hills, California with 4,643 square feet of
office space. This space has been subleased to a third party. This lease expires
June 30, 2000. Futech believes the existing facilities are adequate for its
current requirements and that suitable additional or substitute space is readily
available if needed.
LEGAL PROCEEDINGS
Futech is currently involved in one material and three immaterial legal
proceedings as a defendant. Futech is the defendant in Premier Publishing, Inc.
v. Futech Interactive Products, Inc., which was initiated on December 22, 1998
in the Waukesha County Circuit Court of Wisconsin. Premier alleges Futech failed
to pay $94,227.94 for inventory, plus costs and attorneys' fees. Joe Billings, a
Director of Futech, owns a 33% interest in Premier. Futech was the defendant in
Gary Roy, a/k/a Joe, Billings v. Futech Interactive Products, Inc., which was
initiated on November 20, 1998 in Waukesha County Circuit court of Wisconsin.
Mr. Billings, a Director of Futech, alleges Futech wrongfully terminated his
employment and failed to perform according to the terms of the Agreement for
Purchase and Sale of Assets of XYZ. Mr. Billings claims damages resulting from
the wrongful termination equal approximately $1,150,000 plus costs and
attorneys' fees. This suit was dismissed pending arbitration. New Futech admits
it owes Mr. Billings certain other amounts in connection with the acquisition.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Futech is also pursuing a
proceeding against Creative Beginnings relating to nonpayment of obligations.
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FUTECH MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Futech and their positions at May
1, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Vincent W. Goett..................... 35 Chairman of the Board, Chief Executive
Officer, President and Director
Joseph K. Petter..................... 56 Chief Operating Officer
Frederick B. Gretsch, Sr............. 53 Chief Financial Officer, Treasurer and
Secretary
Roderick L. Turner................... 66 Director
Gary A. Oman......................... 50 Director
Robert J. Rosepink................... 48 Director
Gary R. "Joe" Billings............... 42 Director
F. Keith Withycombe.................. 54 Director
</TABLE>
VINCENT W. GOETT Mr. Goett has served as Chairman and Chief Executive
Officer and Director of Futech since March 1995. He has served as Chairman of
the Board, Chief Executive Officer, President and Director of Janex since
December 11, 1998. Mr. Goett joined Futech as its Chief Operating Officer on
January 5, 1995. From August 1991 to January 1995, he owned and operated
Paradise International, an investment business engaged in acquisition and joint
venture activities. From September 1985 to August 1991, Mr. Goett was President
of Westplex, Inc. which effected major investments in commercial real estate. He
attended Arizona State University. Mr. Goett is the son-in-law of Roderick L.
Turner, a director of Futech, and brother-in-law of R. Bradford Turner, Vice
President, stationary/novelties of Futech.
JOSEPH K. PETTER Mr. Petter has served as Chief Operating Officer of the
Company since February 1997. He has served as Chief Operating Officer of Janex
since December 11, 1998. Mr. Petter joined Futech as Vice President of
Operations in March 1996. Prior to joining Futech, from July 1989 to December
1995, he was a Division Vice President of ADVO, Inc., a direct mail marketing
company. From 1970 to 1989, he was a Group or Senior Manager with several
different operating companies of the Dun & Bradstreet Corporation. Mr. Petter
completed the Executive Management Program from the University of Chicago and
received his B.S. in Industrial Engineering from the Illinois Institute of
Technology.
FREDERICK B. GRETSCH, SR. Mr. Gretsch has served as Chief Financial
Officer, Secretary and Treasurer of Futech since September 1997. He has been
Chief Financial Officer, Treasurer, Secretary and Director of Janex since
December 11, 1998. He has served in various financial and marketing positions
throughout his career. Prior to joining Futech, from May 1996 to December 1996,
he was Treasurer of Vail Resorts, Inc., a ski resort company, and from November
1995 to May 1996, Mr. Gretsch was Treasurer of Cable Systems International, a
copper wire and cable manufacturing company. From February 1992 to February
1995, he was Director of Treasury Operations at General Dynamics Corporation, a
defense contractor. From June 1975 to December 1991, he was Vice President at
Citicorp/Citibank, a major bank holding company. From October 1968 to June 1975,
Mr. Gretsch was Manager of Sales Accounting and Administrator of Financial
Analysis at RCA, a diversified corporation. Mr. Gretsch received his Masters
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degree in Business Administration from Columbia University and his B.A. in
Economics from Georgetown University.
RODERICK L. TURNER Mr. Turner has served as Director of Futech since July
1995. He retired as Senior Executive Vice President of Colgate Palmolive, Inc.
in 1992 with 30 years of service in various executive management positions
within Colgate. Since 1992, Mr. Turner has been engaged in entrepreneurial
interests along with the management of his personal investments. He is the
father-in-law of Mr. Goett, an officer and director of Futech, and father of R.
Bradford Turner. Mr. Turner received his BA in Business from Cornell University.
GARY A. OMAN Mr. Oman has served as a Director of Futech since January
1996. He has been a Vice President of Coldwell Banker Success Realty since 1991.
From 1973 to 1991, Mr. Oman was a real estate investment consultant and
entrepreneur. Prior to his business interests in real estate investments, Mr.
Oman was in the education profession. He attended Mankato State College where he
studied Educational Administration.
ROBERT J. ROSEPINK Mr. Rosepink has served as a Director of Futech since
January 1998. He has been a partner of Rosepink & Estes, a law firm specializing
in estate planning, probate and trust law since 1988. He was a partner at the
law firm of Snell & Wilmer in Phoenix, Arizona from 1985 to 1988 and an
associate and shareholder at the law firm of Fennemore, Craig, von Ammon, Udall
& Powers in Phoenix, Arizona from 1975 to 1985. Mr. Rosepink received his J.D.
degree, with honors, from George Washington University.
GARY R. "JOE" BILLINGS Mr. Billings has served as a Director of Futech
since January 1998. He also served as a consultant to Futech from August 1997 to
April 1998 and President of the Company from May to September 1998. Prior to
working with Futech, Mr. Billings founded and served as President of Premier
Publishing, Inc. beginning in October 1995 and founded and served as president
of XYZ Group, Inc. since August 1990. From June 1980 through July 1990, he was a
part owner, and Vice President of Sales and Marketing, for Sight & Sound, Inc.,
a music publisher and electronic book publisher. Mr. Billings received his
Bachelor of Arts degree in Accounting from the University of Wisconsin.
F. KEITH WITHYCOMBE Mr. Withycombe has served as a Director of Futech
since November, 1998. He was President and Chief Operating Officer of Evans
Withycombe Residential, Inc. from 1994 to 1996, and President of Evans
Withycombe, Inc. from 1981 to 1994. Mr. Withycombe received a B.S. in
Engineering from the United States Air Force Academy and a M.S. in Engineering
from Arizona State University.
EMPLOYMENT ARRANGEMENTS
Vincent W. Goett, the Chairman of the Board, President and Chief Executive
Officer of Futech, entered into an employment agreement with Futech dated
December 31, 1997. Under the agreement, Mr. Goett is entitled to an annual base
salary of not less than $200,000 in the first year of the agreement and $350,000
in subsequent years of the agreement, plus a bonus at Futech's discretion. In
addition, Futech agreed to grant Mr. Goett options to purchase 7 million shares
of Futech's Common Stock at an exercise price of $0.10 per share, which options
are exercisable as follows: 2 million on December 31, 1998; 2 million on
December 31, 1999; 1 million on December 31, 2000; 1 million on December 31,
2001; and the remaining 1 million on December 31, 2002. The agreement terminates
on December 31, 2002, unless earlier terminated, and is renewable
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for additional one-year periods. During 1999 Futech granted Mr. Goett 17 million
options to purchase common stock at an exercise price of $.05 per share,
expiring in 2009.
Joseph K. Petter, Chief Operating Officer of Futech, entered into an
employment agreement with Futech dated February 1, 1997. Under the agreement,
Mr. Petter will receive $125,000 per year for the first year and $175,000 for
the second through fifth years of employment. By verbal agreement Mr. Petter and
the company have changed Mr. Petters annual salary to $125,000 for 1999. The
agreement terminates in January 2002. Mr. Petter also entered into a
confidentiality agreement with Futech dated March 4, 1996.
Frederick B. Gretsch, Sr., Chief Financial Officer, Secretary and Treasurer
of Futech, entered into an employment agreement with Futech dated September 2,
1997. Under the agreement, he is entitled to an annual base salary of not less
than $125,000. The agreement terminates on December 31, 2000. Mr. Gretsch also
entered into a confidentiality agreement with Futech in connection with his
employment.
William E. Hermes, Executive Vice President -- Sales, entered into an
employment agreement with Futech dated April 1, 1999. Under the agreement, Mr.
Hermes is entitled to an annual salary of not less than $125,000. Additionally,
he received 2,500,000 preferred stock options exercisable at $.05 per share from
April 1, 1999 to March 1, 2009. Mr. Hermes also received 1,999,999 options for
common stock exercisable at $0.25 per share with one-third of the shares vesting
over three years on March 1, beginning in the year 2000. The agreement
terminates on April 1, 2002. Mr. Hermes also entered into a confidentiality
agreement with Futech in connection with his employment.
STOCK OPTION PLAN AND EXECUTIVE COMPENSATION MATTERS
1999 STOCK OPTION PLAN
The 1999 Stock Option Plan (the "1999 Plan") will be adopted by the Board
of Directors of Futech conditioned upon and subject to approval by Futech's
stockholders. A total of 1,000,000 shares of Common Stock will be reserved for
issuance under the 1999 Plan. The 1999 Plan will survive the merger.
Purposes
The purpose of the 1999 Plan is to attract and retain the best available
directors and employees of the Company or any parent or subsidiary or affiliate
of the Company which now exists or hereafter is organized or acquired by or
acquires the Company, as well as appropriate third parties who can provide
valuable services to the Company, to provide additional incentive to such
persons and to promote the success of the business of the Company.
Administration
The 1999 Plan is administered by the Board of Directors or a Committee of
the Board of Directors appointed by the Board and constituted so as to permit
the 1999 Plan to comply with Rule 16b-3. The administering body is referred to
herein as the "Committee." The Committee determines the persons to whom stock
options will be granted, the terms of such grants and the number of shares
subject to options. The 1999 Plan provides for the grant of options which
qualify as "Incentive Stock Options" (sometimes referred to herein as "ISOs")
under Section 422 of the Code and non-
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statutory stock options which do not specifically qualify for favorable income
tax treatment under the Code (sometimes referred to herein as "NSOs").
Eligibility and Participation
Any employee of the Company or any of its subsidiaries is eligible to
receive options under the 1999 Plan. Non-employee directors are eligible to
receive only NSOs under the 1999 Plan while employee directors are eligible for
both ISOs and NSOs. In addition, any other individual whose participation the
Committee determines is in the best interests of the Company is eligible to
receive only NSOs under the 1999 Plan. The Committee has complete discretion to
determine which eligible individuals are to receive option grants. In general,
the only consideration received by the Company for the grant of an award will be
past services or the expectation of future services, or both. The 1999 Plan does
not confer on any participant in the 1999 Plan (a "Participant") any right with
respect to continued employment or other services to the Company and will not
interfere in any manner with the right of the Company to terminate a
Participant's employment or other services.
Stock Subject to the 1999 Plan
The aggregate number of shares which may be issued pursuant to the exercise
of options granted under the 1999 Plan is 1,000,000 shares of the Company's
Common Stock, subject to adjustments in certain circumstances, including
reorganizations, recapitalizations, stock splits, reverse stock splits, stock
dividends and the like. If any outstanding option grant under the 1999 Plan for
any reason expires or is terminated, the shares of Common Stock allocable to the
unexercised portion of the option grant shall again be available for options
under the 1999 Plan as if no options had been granted with respect to those
shares.
Limitations on Awards
No grants are required to be made during any calendar year. No ISO may be
exercised more than ten years from the date of grant (five years in the case of
a grant to a Participant owning more than 10% or more of the total combined
voting power of all classes of stock of the Company or any ISO Group member),
immediately after the date the Participant ceases to perform services for the
Company or any ISO Group member (for reasons other than death or disability),
one year after the date the Participant ceases to perform services for the
Company or any ISO Group member if cessation is due to death or disability, or
the date the Participant ceases to perform services for the Company or any ISO
Group member if cessation is for cause. No NSO may be exercised more than ten
years from the date of grant, one year after the date the Participant ceases to
perform services for the Company or any Affiliated Group member (for reasons
other than death, disability, retirement or cause), two years after the date the
Participant cease to perform services for the Company or any Affiliated Group
member if cessation is due to death, disability or retirement, or the date the
Participant ceases to perform services for the Company or any Affiliated Group
member if cessation is for cause.
Pricing and Payment of Options
The per share exercise price of each stock option granted under the 1999
Plan will be established by the Committee at the time of grant. Subject to the
provisions of the Internal Revenue Code of 1986, as amended, grants to
Participants may be either ISOs or NSOs. In the case of an ISO, the per share
exercise price may be no less than 100% of the fair market value of a share of
Common Stock on the date of grant (110% in the case of a Participant who owns,
directly or indirectly, 10% or more of the outstanding voting
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power of all classes of stock of the Company). The per share exercise price of a
Non-qualified Stock Option may be any amount determined in good faith by the
Committee. With respect to ISOs, the aggregate fair market value of the Common
Stock for which one or more options granted to a Participant may become
exercisable during any one calendar year may not exceed $1,000,000. The fair
market value of the Common Stock equals the closing price on the date in
question on the principal exchange or other market on which the stock is then
traded.
Under the 1999 Plan, the purchase price of an option is payable upon
exercise: (i) in cash; (ii) by check; (iii) to the extent permitted by the
particular option grant, by transferring to the Company shares of Common Stock
of the Company at their fair market value as of the option exercise date
(provided that the Participant held the shares of stock for at least six
months); or (iv) through a sale and remittance procedure by which a Participant
delivers concurrent written instructions to a Company-designated brokerage firm
to sell immediately the purchased Common Stock and remit to the Company
sufficient funds to pay for the options exercised and by which the certificates
for the purchased Common Stock are delivered directly to the brokerage firm. The
Company may also extend and maintain, or arrange for the extension and
maintenance of, credit to a Participant to finance the purchase of shares
pursuant to the exercise of options, on such terms as may be approved by the
Board of Directors or the Committee, subject to applicable regulations of the
Federal Reserve Board and any other applicable laws or regulations in effect at
the time such credit is extended.
The Committee may require, as a condition to exercise of an option, that
the Participant pay to the Company, in cash or in shares of the Common Stock of
the Company, the entire amount of taxes which the Company is required to
withhold by reason of such exercise, in such amount as the Committee or the
Board of Directors may determine. Alternatively, the Participant may elect,
subject to rules adopted by the Committee or the Board of Directors, or the
Company may require that the Company withhold from the shares to be issued that
number of shares having a fair market value equal to the amount which the
Company is required to withhold.
Exercise
As described above, the Committee has the authority to determine the
vesting and exercise provisions of all grants under the 1999 Plan. In general
under the 1999 Plan, no option shall be exercisable during the lifetime of a
Participant by any person other than the Participant, his or her guardian or
legal representative.
Accelerating Events
The options granted under the 1999 Plan become fully exercisable if the
Company is dissolved or liquidated, subject to certain reorganizations, mergers,
or consolidations, is acquired or subject to a hostile takeover attempt,
undergoes a change in control or if there is an announcement or proxy
solicitation relating to such events.
Termination or Amendment of the 1999 Plan
The Board of Directors may amend or modify the 1999 Plan at any time;
provided, that shareholder approval shall be obtained for any action for which
shareholders approval is required in order to comply with Rule 16b-3, the Code,
or other applicable laws or regulatory requirements within such time periods
prescribed. The 1999 Plan will terminate on January 29, 2008, unless sooner
terminated by the Board of Directors.
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Option Grants
No options have been granted under the 1999 Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Arizona Revised Statutes sec. 10-851 contains an extensive indemnification
provision which permits an Arizona corporation to indemnify any person who was,
or is threatened to be named defendant or respondent ("party") in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative ("proceeding") (other than (i) a
proceeding by or in the right of the corporation in which the director was held
liable to the corporation or (ii) in connection with a proceeding charging
improper personal benefit in which the director was held liable on the basis
that personal benefit was improperly received by the director) by reason of the
fact that such person is or was a director, or while serving as a director, is
or was serving at the corporation's request as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise ("director") against the
obligation to pay a judgment, settlement, penalty or fine, or reasonable
expenses with respect to a proceeding (including obligations and expenses that
have not yet been paid by such person but that have been or may be incurred)
("liability") if such person's conduct was in good faith and such person
reasonably believed that such conduct in an official capacity with the
corporation was in the corporation's best interest or, in all other cases, that
such conduct was at least not opposed to the corporation's best interest, and,
in the case of criminal proceedings, such person had no reasonable cause to
believe that the conduct was unlawful.
Arizona Revised Statutes sec. 10-852 requires an Arizona corporation
(unless limited by its articles of incorporation) to (i) indemnify a director
who was the prevailing party in the defense of a proceeding to which the
director was a party because the director is or was a director of the
corporation against reasonable expenses incurred by the director in connection
with the proceeding and (ii) indemnify a director who is not an officer,
employee or holder of more than 5% of the outstanding shares of any class of the
corporation's stock (an "outside director") against liability and to pay an
outside director's expenses in advance of a final disposition of a proceeding,
if the director furnishes the corporation with a written affirmation of the
director's good faith belief that the director met the standard of conduct
described in sec. 10-851 and an undertaking executed personally, or on the
director's behalf, to repay the advance if it is determined that the director
did not meet the standard of conduct. Arizona Revised Statutes sec. 10-853
permits an Arizona corporation to pay expenses incurred by any other director
who is a party to a proceeding in advance of final disposition of a proceeding
if the director furnishes the corporation the written affirmation and
undertaking described above and a determination is made by Futech's board who
are not parties to the proceeding, special legal counsel or shareholders that
the facts then known would not preclude indemnification.
Arizona Revised Statutes sec. 10-854 permits a court to order
indemnification of a director who is a party to a proceeding upon the director's
application for indemnification to the court even if the director has not met
the statutory requirements if the director is fairly and reasonably entitled to
indemnification in view of all of the relevant circumstances.
Arizona Revised Statutes sec. 10-856 entitles an officer who is not a
director to the mandatory and court-ordered indemnification provided by Arizona
law to directors. In addition, an officer who is not a director and employees
and agents of an Arizona
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corporation may be indemnified to the same extent as directors and may be
further indemnified to the extent consistent with public policy.
Arizona Revised Statutes sec. 10-202 provides that a corporation in its
articles of incorporation may eliminate or limit personal liability of members
of its board of directors to the corporation or its shareholders for money
damages for any action taken or any failure to take any action as a director.
However, no such provision may eliminate or limit the liability of a director
for the amount of a financial benefit received by a director to which the
director is not entitled, an intentional infliction of harm on the corporation
or its shareholders, authorizing the unlawful distribution to shareholders, or
an intentional violation of criminal law. A provision of this type has no effect
on the availability of equitable remedies, such as injunction or rescission, for
an action or failure to take any action as a director. Futech's Articles of
Incorporation contain such a provision.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of Futech pursuant to
the foregoing provisions, or otherwise, Futech has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Futech of expenses incurred or paid by a director, officer
or controlling person of Futech in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Futech will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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FUTECH STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Futech's Common Stock as of the date of this prospectus/proxy
statement supplement with respect to (i) each person known by Futech to
beneficially own more than five percent of the outstanding shares of Futech's
common stock or preferred stock, (ii) each director of Futech, (iii) each of the
executive officers listed in the Summary Compensation Table in the
prospectus/proxy statement, and (iv) all directors and executive officers of
Futech as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO
MERGER(1)(2)
----------------------
IDENTITY OF STOCKHOLDER OR GROUP NUMBER PERCENT
- -------------------------------- ----------- -------
<S> <C> <C>
Vincent W. and Melissa Turner Goett(3)................... 77,862,263 52.2
Debra McTaggart(4)....................................... 12,622,375 13.9
R. Bradford Turner(5).................................... 6,282,695 6.9
Garry and Darilyne Goett(6).............................. 7,406,765 8.1
Roderick L. Turner(7).................................... 17,117,409 18.2
Gary A. Oman(8).......................................... 2,379,000 2.6
Robert J. Rosepink(9).................................... 6,500,000 6.7
Joseph K. Petter(10)..................................... 1,333,334 1.5
Gary R. "Joe" Billings(11)............................... 0 0.0
Frederick B. Gretsch, Sr.(12)............................ 1,166,668 1.3
F. Keith Withycombe(13).................................. 30,000,000 24.8
All Directors and Executive Officers as a Group (8
persons)............................................... 136,358,674 71.8
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting
or investment power with respect to securities. In accordance with SEC
rules, shares which may be acquired upon exercise of stock options which
are currently exercisable or which become exercisable within 60 days of
the date of the table are deemed beneficially owned by the optionee.
Except as indicated by footnote, and subject to community property laws
where applicable, the persons or entities named in the table above have
sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(2) Includes shares issuable upon the exercise of options which are currently
exercisable or become exercisable within 60 days of May 1, 1999 as
applicable for each of the following individuals:
Vincent W. & Melissa Turner Goett
Roderick L. Turner
Robert J. Rosepink
Joseph K. Petter
Frederick B. Gretsch, Sr.
F. Keith Withycombe & Patricia A. Withycombe (H&W)
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(3) 21,000,000 share options are currently exercisable by Vincent W. Goett,
9,950,000 options are currently exercisable jointly by Vincent and Melissa
Goett and 1,000,000 options as well as 26 million warrants are currently
exercisable by Palmilla Management Trust (Goett Family Trust). 2,148,011
shares are owned of record by Vincent Goett; 1,850,000 shares are owned of
record by Mr. Goett's spouse, Melissa Goett; 15,614,252 shares are owned
of record jointly by Vincent and Melissa Goett; and 300,000 are owned of
record by three minor children of the Goetts.
(4) 4,000,000 shares are owned of record by Newtech Consulting, Inc., which is
controlled by Stephen McTaggart; 5,502,375 shares are owned of record by
Mr. McTaggart's spouse, Debra McTaggart; 3,000,000 shares owned of record
by Pacific Ranch, LP, which is controlled by Debra McTaggart; and 120,000
shares are owned of record by the six minor children of the McTaggarts.
(5) R. Bradford Turner is the brother-in-law of Vincent W. Goett. He owns of
record 6,282,695 Futech shares.
(6) 5,788,227 shares are owned of record jointly by Garry Goett and his
spouse, Darilyne Goett, the parents of Vincent Goett; 36,000 shares are
owned by Garry Goett. 922,731.705 shares are owned of record by Metroplex
Properties, Inc. and 180,000 are owned by Metroplex Property, Inc.
Restated Money Purchase Pension Plan, which is controlled by Mr. Garry
Goett; 81,410.625 shares are owned of record by Olympic Management, Inc.,
which is controlled by Mr. Garry Goett; 398,395.295 shares are owned of
record by Olympic Properties, Inc., which is controlled by Mr. Garry
Goett.
(7) Roderick L. Turner is the father-in-law of Vincent W. Goett. 3,750,000
options are currently exercisable by Mr. Turner. Mr. Turner has also
converted two separate loans with Futech to shares yet-to-be received for
a total of 4,877,898.003 additional shares. 900,000 shares are in a family
trust controlled by Mr. Turner, 7,225,721 shares are owned individually,
and 1,363,790 shares are owned by Terry C. Turner, Mr. Turner's wife.
(8) Indicated shares are owned of record by The Oman Family Trust, of which
Gary Oman and his wife, Sherri Oman, are trustees.
(9) 500,000 shares are owned of record by Robert J. Rosepink. Mr. Rosepink
currently has 6,000,000 warrants that are exercisable.
(10) 300,000 shares are held in Joseph K. Petter's Individual Retirement
Account, and 200,000 shares are held by Mr. Petter individually. Mr.
Petter currently has 833,334 options that are exercisable.
(11) Mr. Gary R. "Joe" Billings is due 14,336,670 shares or cash of $2,867,334
upon the merger being completed for the sale of XYZ.
(12) Mr. Frederick B. Gretsch, Sr. currently has 1,166,668 options that are
exercisable.
(13) Mr. F. Keith Withycombe & Patricia A. Withycombe (H&W) currently have
30,000,000 warrants that are exercisable.
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<PAGE> 380
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 17, 1997, Futech entered into an Agreement for Purchase and Sale
of Assets with XYZ, pursuant to which Futech has purchased substantially all of
the assets of XYZ at the closing on May 1, 1998. Mr. Billings, a Director of
Futech, was the sole shareholder of XYZ. The agreement requires Futech to pay
the following consideration: (i) $1 million in cash; (ii) $4 million in a
12-month, no interest note; (iii) $2,867,334 in cash or in shares of common
stock at $.20 a share; and (iv) an additional $1,000,000 to be added to the
total amount, if the $4,000,000 is not paid by April 30, 1999. This additional
$1,000,000 is now due and both the $4,000,000 and the additional $1,000,000 bear
interest at 10%. Futech has paid the $1 million in cash. There is a dispute
about whether Futech had cause to terminate Mr. Billings under the related
employment agreement. As the sole shareholder of XYZ, a subchapter S
corporation, Mr. Billings received the cash and shares of common stock
constituting the purchase price for XYZ.
Pursuant to the Agreement for Purchase and Sale of Assets with XYZ, Futech
assumed a $7 million line of credit from Republic Acceptance Corporation made by
XYZ. The line of credit generally bears interest at prime plus 2.5%. Mr.
Billings personally guaranteed the loan. Additionally, the loan is secured with
the inventory and accounts receivable of XYZ.
On January 1, 1997, Futech entered an agreement which allows the chief
executive officer to borrow funds from time to time. The outstanding balance
bears interest at prime plus 1% and is due on December 31, 2001 on the amounts
outstanding. There is an option to renew the agreement for an additional 3
years. As of December 31, 1998 the balance due to the Company was $1,440,270.
In April 1997, Roderick L. Turner, a director and shareholder loaned Futech
$350,000, with interest at 10%, due July 2, 1999. In lieu of payment, Mr. Turner
could receive 840,000 common shares at $0.50 per share. On March 1, 1999, the
lender and Futech agreed to amend the loan agreement, whereby the loan plus
interest (totaling $417,083.33) was converted to 2,780,555.533 shares of common
stock at $0.15 per share. In connection with the original loan, Futech paid Mr.
Goett $35,000 and issued 1,000,000 shares of common stock as a loan origination
fee.
On October 29, 1997, Roderick L. Turner and Vincent W. Goett loaned Futech
$245,000, with interest at 10%, due December 31, 1997. This loan was repaid
January 14, 1998. In connection with this loan, Futech issued Mr. Goett 500,000
shares common stock as a loan origination fee.
On April 24 and September 2, 1997, Roderick L. Turner and Vincent W. Goett
loaned Futech $3,000,000, with interest at 10%, due in 1998 and 1999. In
connection with the loans, Futech paid Mr. Goett $300,000 and issued 7,000,000
shares of common stock as a loan origination fee.
On January 2, 1998, Roderick L. Turner and Vincent W. Goett loaned Futech
$2,500,000, with interest at 10% due April 30, 1998. In connection with this
loan, Futech paid Mr. Goett $250,000 and issued 2,500,000 shares of common stock
as a loan origination fee. Later in the year the loan fee and stock were
re-characterized as a loan and stock options.
On March 31, 1998, Vincent W. Goett personally guaranteed $3.6 million of a
$4 million line of credit newly established with Republic Bank. This loan
generally bears interest at a rate of prime plus 2.5% and is due and payable on
demand. In connection
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with this guarantee, Futech paid Mr. Goett $360,000 and issued 7,200,000 shares
of common stock as a loan origination fee. Later in the year, the loan fee and
stock were re-characterized as a loan and stock options.
On May 5, 1998, Roderick L. Turner and Vincent W. Goett loaned Futech
$1,500,000 with interest at 10% due May 5, 2000. At the same time, Mr. Turner
and Mr. Goett signed a subordination agreement with Republic Bank to subordinate
all of their debt to Republic. In connection with the loan and the subordination
fee, Futech paid Mr. Goett $500,000 and issued 3,000,000 shares of common stock
as a loan origination fee. Later in the year, the loan fee and stock were
re-characterized as a loan and stock options.
On June 1, 1998, Futech entered a Patent Licensing and Purchase Agreement
with Grand Slam Investments, L.L.C., which is controlled by Vincent W. Goett.
Under the agreement, Grand Slam grants Futech exclusive, world-wide rights to
use two patents owned by Grand Slam. Under the agreement, Futech will make 12
monthly royalty payments of $10,000 beginning June 1, 1998. On June 30, 1999,
Futech will purchase the patents for $1,500,000. Alternatively, Futech had the
right to purchase the patents at an earlier date of December 30, 1998 for a
reduced cost of $1,000,000. This agreement was amended on December 9, 1998
whereby Futech agreed to pay $650,000 on December 9, 1998 and $850,000 on or
before June 1, 1999. Additionally, the monthly royalty payments of $10,000 were
suspended as of December 31, 1998.
On June 24, 1998, Roderick L. Turner and Vincent W. Goett loaned Futech
$1,000,000, with interest at 10%, due December 24, 1998. In connection with the
loan, Futech paid Mr. Goett $100,000 and issued 2,000,000 shares of common stock
as a loan origination fee. Later in the year, the loan fee and stock were
re-characterized as a loan and stock options.
On August 3, 1998, Vincent W. Turner loaned Futech $300,000, with no
interest, due upon receipt of the $2,000,000 listed below. No repayment was made
and on March 1, 1999, the lender and Futech agreed to amend the loan agreement,
whereby interest was added to the loan at 10% per annum. Additionally, on March
1, 1999, the loan plus interest (totaling $314,604.37) was converted to
2,097,342.47 shares of common stock as $0.15 per share.
On August 10, 1998, Vincent W. and Melissa T. Goett loaned Futech
$2,000,000, with interest at 10%, due on September 1, 1999. In connection with
the loan, Futech paid Mr. Goett $200,000 and issued 8,000,000 shares of common
stock as a loan origination fee. Later in the year, the loan fee and stock were
re-characterized as a loan and stock options.
On December 3, 1998, F. Keith Withycombe, a director, Patricia A.
Withycombe, Vincent W. Goett and Melissa T. Goett personally guaranteed a $7
million line of credit newly established with Bank of America. This loan
generally bears interest at prime plus 1% and is due on December 1, 2000. In
return for their personal guarantees, Mr. Withycombe and Mr. Goett each received
warrants for 21,000,000 common stock shares exercisable at $0.05 per share. In
addition, Mr. Withycombe became a Director. As a finder's fee, Robert J.
Rosepink, a director, received warrants for 4,000,000 shares of common stock
exercisable at $0.05 per share. Additionally, as part of this agreement, Mr.
Goett may take a loan advance of $300,000.
On December 15, 1998, Roderick L. Turner and Vincent W. Goett agreed to
extend the due date of their combined $8,000,000 loans, and Vince and Melissa
Goett agreed to extend the due date of the $2,000,000 loan to December 15, 1999.
In connection with this
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extension, Mr. Turner and the Goetts received options for a combined 8,000,000
shares of common stock exercisable at $0.05 per share.
WHERE CAN YOU FIND MORE INFORMATION
You may request a copy of these documents at no cost by writing to us at
the following address:
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Attn: Frederick B. Gretsch, Sr.
Telephone: (602) 808-8765
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. We have not, and New Futech and New Sub
have not, authorized anyone else to provide you with additional or different
information. New Futech and New Sub are not making an offer of any securities in
any state where the offer is not permitted. You should not assume that the
information in the prospectus/proxy statement or any prospectus/proxy statement
supplement is accurate as of any date other than the date on the front of these
documents.
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APPENDIX 1
ARIZONA BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
10-1301. DEFINITIONS
In this article, unless the context otherwise requires:
1. "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 10-1302 and who exercises that right when
and in the manner required by article 2 of this chapter.
4. "Fair value" with respect to a dissenter's shares means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion is inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
10-1302. RIGHT TO DISSENT
A. A shareholder is entitled to dissent from and obtain payment of the
fair value of the shareholder's shares in the event of any of the following
corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party if either:
(a) Shareholder approval is required for the merger by section
10-1103 or the articles of incorporation and if the shareholder is
entitled to vote on the merger.
(b) The corporation is a subsidiary that is merged with its parent
under section 10-1104.
2. Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
3. Consummation of a sale or exchange of all or substantially all of
the property of the corporation other than in the usual and regular course
of business, if the
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shareholder is entitled to vote on the sale or exchange, including a sale
in dissolution, but not including a sale pursuant to a court order or a
sale for cash pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
4. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it
either:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any
matter or to cumulate votes other than a limitation by dilution through
issuance of shares or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under section 10-604.
5. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, the bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating the
shareholder's entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
C. This section does not apply to the holders of shares of any class or
series if the shares of the class or series are redeemable securities issued by
a registered investment company as defined pursuant to the investment company
act of 1940 (15 United States Code section 80a-1 through 80a-64).
D. Unless the articles of incorporation of the corporation provide
otherwise, this section does not apply to the holders of shares of a class or
series if the shares of the class or series were registered on a national
securities exchange, were listed on the national market systems of the national
association of securities dealers automated quotation system or were held of
record by at least two thousand shareholders on the date fixed to determine the
shareholders entitled to vote on the proposed corporate action.
10-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
A. A record shareholder may assert dissenters' rights as to fewer than all
of the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the record shareholder dissents and the record shareholder's
other shares were registered in the names of different shareholders.
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B. A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if both:
1. The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
2. The beneficial shareholder does so with respect to all shares of
which the beneficial shareholder is the beneficial shareholder or over
which the beneficial shareholder has power to direct the vote.
10-1320. NOTICE OF DISSENTERS' RIGHTS
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and shall be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under section 10-1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights.
10-1321. NOTICE OF INTENT TO DEMAND PAYMENT
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall both:
1. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares
if the proposed action is effectuated.
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for the shares under this article.
10-1322. DISSENTERS' NOTICE
A. If proposed corporate action creating dissenters' rights under section
10-1302 is authorized at a shareholders' meeting, the corporation shall deliver
a written dissenters' notice to all shareholders who satisfied the requirements
of section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after the
corporate action is taken and shall:
1. State where the payment demand must be sent and where and when
certificates for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and that requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date.
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4. Set a date by which the corporation must receive the payment
demand, which date shall be at least thirty but not more than sixty days
after the date the notice provided by subsection A of this section is
delivered.
5. Be accompanied by a copy of this article.
10-1323. DUTY TO DEMAND PAYMENT
A. A shareholder sent a dissenters' notice described in section 10-1322
shall demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to section 10-1322, subsection B, paragraph 3 and
deposit the shareholder's certificates in accordance with the terms of the
notice.
B. A shareholder who demands payment and deposits the shareholder's
certificates under subsection A of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
article.
10-1324. SHARE RESTRICTIONS
A. The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions are released under section 10-1326.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
10-1325. PAYMENT
A. Except as provided in section 10-1327, as soon as the proposed
corporate action is taken, or if such action is taken without a shareholder
vote, on receipt of a payment demand, the corporation shall pay each dissenter
who complied with section 10-1323 the amount the corporation estimates to be the
fair value of the dissenter's shares plus accrued interest.
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year and the latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value of the
shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment under
section 10-1328.
5. A copy of this article.
A-4
<PAGE> 387
10-1326. FAILURE TO TAKE ACTION
A. If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under section 10-1322 and shall repeat the payment demand
procedure.
10-1327. AFTER-ACQUIRED SHARES
A. A corporation may elect to withhold payment required by section 10-1325
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenters' right to demand payment under
section 10-1328.
10-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
A. A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due and either demand payment of the dissenter's estimate, less any payment
under section 10-1325, or reject the corporation's offer under section 10-1327
and demand payment of the fair value of the dissenter's shares and interest due,
if either:
1. The dissenter believes that the amount paid under section 10-1325
or offered under section 10-1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
2. The corporation fails to make payment under section 10-1325 within
sixty days after the date set for demanding payment.
3. The corporation, having failed to take the proposed action, does
not return the deposited certificates or does not release the transfer
restrictions imposed on uncertificated shares within sixty days after the
date set for demanding payment.
B. A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection A of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
10-1330. COURT ACTION
A. If a demand for payment under section 10-1328 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and shall petition the court to determine the fair value of the
shares and accrued
A-5
<PAGE> 388
interest. If the corporation does not commence the proceeding within the sixty
day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
B. The corporation shall commence the proceeding in the court in the
county where a corporation's principal office or, if none in this state, its
known place of business is located. If the corporation is a foreign corporation
without a known place of business in this state, it shall commence the
proceeding in the county in this state where the known place of business of the
domestic corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties shall be served with a copy of the
petition. Nonresidents may be served by certified mail or by publication as
provided by law or by the Arizona rules of civil procedure.
D. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. There is no right
to trial by jury in any proceeding brought under this section. The court may
appoint a master to have the powers and authorities as are conferred on masters
by law, by the Arizona rules of civil procedure or by the order of appointment.
The master's report is subject to exceptions to be heard before the court, both
on the law and the facts. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is entitled to judgment
either:
1. For the amount, if any, by which the court finds the fair value of
his shares plus interest exceeds the amount paid by the corporation.
2. For the fair value plus accrued interest of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 10-1327.
10-1331. COURT COSTS AND ATTORNEY FEES
A. The court in an appraisal proceeding commenced under section 10-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of any master appointed by the court. The court shall
assess the costs against the corporation, except that the court shall assess
costs against all or some of the dissenters to the extent the court finds that
the fair value does not materially exceed the amount offered by the corporation
pursuant to sections 10-1325 and 10-1327 or that the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment under section
10-1328.
B. The court may also assess the fees and expenses of attorneys and
experts for the respective parties in amounts the court finds equitable either:
1. Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of article 2 of this chapter.
2. Against the dissenter and in favor of the corporation if the court
finds that the fair value does not materially exceed the amount offered by
the corporation pursuant to sections 10-1325 and 10-1327.
3. Against either the corporation or a dissenter in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by this chapter.
A-6
<PAGE> 389
C. If the court finds that the services of an attorney for any dissenter
were of substantial benefit to other dissenters similarly situated and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
A-7
<PAGE> 390
JANEX INTERNATIONAL, INC.
C/O FUTECH INTERACTIVE PRODUCTS, INC.
2999 NORTH 44TH STREET
SUITE 225
PHOENIX, ARIZONA 85018-7247
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
-------------------------
You are invited to attend a Special Meeting of Stockholders of Janex
International, Inc. that will be held at a.m. local time on
1999 at . The Janex board of directors has called this special meeting
for the following purposes:
- To consider and vote upon a proposal to approve and adopt the Merger
Agreement dated as of June 7, 1999, by and among Janex, Futech
Interactive Products, Inc., Trudy Corporation, Fundex Games, Ltd., DaMert
Company, and two newly formed companies that we are referring to as "New
Futech" and "New Sub." Under the Merger Agreement, first Futech and then
Janex, Trudy, and DaMert will merge with and into New Futech, which will
survive the merger, and Fundex will merge into New Sub, which will
survive as a wholly-owned subsidiary of New Futech. Each share of Janex
common stock outstanding immediately prior to the mergers (other than
dissenting shares) will be converted into the right to receive
approximately 0.0333 shares of New Futech common stock. The outstanding
preferred stock of Janex, all of which is owned by Futech, will be
cancelled in the mergers but has been valued on the same basis as the
Janex common stock.
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These matters are more fully described in the prospectus/proxy statement
supplement and related prospectus/proxy statement that are attached to this
Notice.
We, the board of directors of Janex, unanimously recommend that you vote
FOR the mergers.
You will be entitled to vote at the special meeting or any adjournment or
postponement of the special meeting only if you are a holder of record of Janex
common stock at the close of business on , 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Vincent W. Goett
Chairman
Phoenix, Arizona
, 1999
IMPORTANT
We cordially invite all stockholders to attend the special meeting in
person.
Whether or not you plan to attend the special meeting in person, in order
to assure your representation at the meeting, we urge you to complete, sign and
date the enclosed proxy card, which is being solicited by the board of
directors, and promptly return it in the self-addressed return envelope enclosed
for that purpose. You may revoke your proxy at any time prior to the vote at the
meeting by telling us that you want to do so.
<PAGE> 391
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
FUTECH TOYS & GAMES, INC.
JANEX INTERNATIONAL, INC.
PROSPECTUS/PROXY STATEMENT SUPPLEMENT
This prospectus/proxy statement supplement, and the related
prospectus/proxy statement, are being furnished to you and the other
stockholders of Janex International, Inc., in connection with the solicitation
of proxies by the Janex board of directors for use at the Special Meeting of
Stockholders to be held at a.m. local time on , 1999, at
and at any adjournments or postponements of the special meeting.
At the special meeting, we will ask you to consider and vote upon a proposal to
approve and adopt the Merger Agreement dated as of June 7, 1999, by and among
Janex, Futech Interactive Products, Inc., Trudy Corporation, Fundex Games, Ltd.,
DaMert Company, and two newly formed companies (Futech Interactive Products
(Delaware), Inc. and Futech Toys & Games, Inc.) that we are referring to as "New
Futech" and "New Sub," respectively. Under the Merger Agreement, first Futech
and then Janex, Trudy, and DaMert will merge with and into New Futech, which
will survive the merger and Fundex will merge into New Sub, which will survive
as a wholly-owned subsidiary of New Futech. Each share of Janex common stock
outstanding immediately prior to the mergers (other than dissenting shares) will
be converted into the right to receive approximately 0.0333 shares of New Futech
common stock. The outstanding preferred stock of Janex, all of which is owned by
Futech, will be cancelled in the mergers but has been valued on the same basis
as the Janex common stock. Outstanding shares of Futech, Trudy, Fundex and
DaMert will be converted into a combination of cash, promissory notes and common
stock of New Futech. In addition, outstanding options of each of the merging
companies will be converted into options to purchase common stock of New Futech.
This prospectus/proxy statement supplement and the related prospectus/proxy
statement, together with similar supplements that are being provided to
stockholders of Futech, Trudy, Fundex and DaMert with copies of the
prospectus/proxy statement, also constitute the prospectus of New Futech and New
Sub in connection with the offer and issuance of their securities pursuant to
the mergers. Excluding any additional shares that may be issued to Trudy
stockholders if a public market develops for New Futech stock at an initial
price of less than $7.50 per share and assuming no outstanding options or
warrants are exercised prior to the mergers, a minimum aggregate of 5,867,628
and a maximum aggregate of 5,955,297 shares of New Futech common stock, a
minimum aggregate of $1,018,330 and a maximum aggregate of $2,116,830 in cash
and a minimum aggregate of $5,751,500 and a maximum aggregate of $6,850,000 in
promissory notes of New Sub or New Futech will be issued to the stockholders of
Janex, Futech, Trudy, Fundex and DaMert in the mergers. In addition, certain
outstanding indebtedness in the amount of $10,000,000 is expected to be
exchanged for 2,222,222 shares of New Futech preferred stock shortly after the
mergers. Former stockholders of Fundex may exchange their New Futech stock for
the license rights in the "Phase 10" family of games and former stockholders of
Trudy may become entitled to receive additional New Futech shares or to exchange
their New Futech shares for debentures in the future, under certain
circumstances. Certain loan agreements and employment agreements, including
employee options to acquire New Futech common stock, are also part of the deal.
See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement" in the prospectus/proxy statement.
We expect the New Futech common stock to trade on the OTC Bulletin Board
after the mergers, but we cannot be sure it will do so and we cannot predict
what the price might be. We do not expect a trading market to develop for any of
the other securities of New Futech. On June 4, 1999, the closing sales price of
a share of Janex common stock, as reported on the over-the-counter bulletin
board (the "OTC Bulletin Board"), was $0.23.
The mergers cannot be consummated unless: (a) stockholders of Janex,
Futech, Trudy, Fundex and DaMert, voting separately at their respective meetings
of stockholders, each approve the mergers, and (b) other conditions included in
the Merger Agreement are either satisfied or waived. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT -- Conditions to Closing" in the
prospectus/proxy statement.
The record date for the special meeting is , 1999. This
prospectus/proxy statement supplement and the related prospectus/proxy statement
and the accompanying form of proxy are first being mailed to stockholders of
Janex on or about , 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY
STATEMENT SUPPLEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT. THE PROPOSED
MERGER IS A COMPLEX TRANSACTION. WE STRONGLY URGE YOU TO READ AND CONSIDER
CAREFULLY THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE RELATED
PROSPECTUS/PROXY STATEMENT IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO
UNDER "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus/proxy statement supplement or the accompanying prospectus/proxy
statement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus/proxy statement supplement is , 1999.
<PAGE> 392
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT. WE HAVE NOT, AND NEW FUTECH AND NEW SUB HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEW FUTECH AND NEW SUB ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS PROXY/ STATEMENT SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF THE DATE ON
THE FRONT OF THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT ONLY. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.
WHERE YOU CAN FIND MORE INFORMATION
We will send to you, without charge, any material information that we have
or can obtain without unreasonable effort or expense concerning Janex or any
other merging company, concerning the Merger Agreement and related contracts or
concerning the proposed management and operations of New Futech. You may direct
requests for such additional information to Janex in the manner described below.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http.//www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, and Chicago. You can call the SEC at 1-800-732-0330 for further
information about the public reference rooms. Similar information is available
concerning Trudy.
The SEC allows us to "incorporate by reference" some of the information we
file with them, which means we are assumed to have disclosed important
information to you when we refer you to documents that are on file with the SEC.
The information we have incorporated by reference is an important part of this
prospectus/proxy statement supplement and the related prospectus/proxy
statement, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future documents we file with the SEC under Sections 13(a),
13(c), l4 or 15(d) of the Securities Exchange Act of 1934 until the mergers
occur.
- Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998.
- Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999.
- Current Reports on Form 8-K dated February 25, 1999.
You may request a copy of these documents at no cost by writing to us at
the following address:
Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Attn: Brian Young
Telephone: 602-808-8765
TO OBTAIN TIMELY DELIVERY OF THESE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO
LATER THAN , 1999, FIVE BUSINESS DAYS BEFORE THE DATE OF THE JANEX
STOCKHOLDERS MEETING.
i
<PAGE> 393
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. Neither we nor New Futech have authorized
anyone else to provide you with additional or different information. New Futech
is not making an offer of any securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus/proxy
statement supplement or the prospectus/proxy statement is accurate as of any
date other than the date on the front of these documents.
ii
<PAGE> 394
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY INFORMATION - Q&A................................... 1
OTHER INFORMATION ABOUT THE MERGERS......................... 3
The Companies............................................. 3
The Special Meeting....................................... 5
The Merger Agreement...................................... 5
SPECIAL RISK FACTORS AFFECTING JANEX........................ 5
STOCKHOLDER MATTERS......................................... 6
THE MERGERS AND RELATED TRANSACTIONS........................ 8
General................................................... 8
Effects of the Mergers.................................... 8
Background of the Mergers................................. 9
Reasons for the Mergers................................... 9
Janex's Board Recommendation.............................. 10
Related Agreements; Interests of Certain Janex Affiliates
in the Mergers......................................... 10
Regulatory Matters........................................ 10
Certain Federal Tax Matters............................... 11
Accounting Treatment...................................... 12
RIGHTS OF DISSENTING STOCKHOLDERS........................... 12
NEW FUTECH AND JANEX SHARES................................. 13
New Futech Common Stock................................... 13
Janex Capital Stock....................................... 13
COMPARISON OF THE RIGHTS OF HOLDERS OF JANEX COMMON STOCK
AND NEW FUTECH COMMON STOCK............................... 14
SELECTED HISTORICAL FINANCIAL DATA.......................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION... 22
Overview.................................................. 22
Results of Operations..................................... 22
Seasonality and Quarterly Fluctuations.................... 27
Liquidity and Capital Resources........................... 27
Inflation................................................. 29
Year 2000................................................. 29
Safe Harbor Disclosure.................................... 30
DESCRIPTION OF JANEX'S BUSINESS............................. 31
General................................................... 31
Business.................................................. 31
Marketing, Distribution and Customers..................... 32
Manufacturing............................................. 34
Product Design and Selection.............................. 34
Competition............................................... 35
Patents, Trademarks and Licenses.......................... 36
Backlog................................................... 37
Governmental Regulations.................................. 37
Properties................................................ 37
Legal Proceedings......................................... 38
Employees................................................. 38
</TABLE>
iii
<PAGE> 395
<TABLE>
<S> <C>
JANEX MANAGEMENT............................................ 39
Employment Arrangements..................................... 40
Directors and Executive Officers.......................... 39
JANEX STOCKHOLDERS.......................................... 41
Security Ownership of Certain Beneficial Owners and
Management............................................. 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 42
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 43
APPENDICES
Appendix 1 - Section 7-113-102 Dissenters' Rights of
Colorado Business Corporation Act......................... A-1
</TABLE>
iv
<PAGE> 396
SUMMARY INFORMATION -- Q&A
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the mergers contemplated thereby, you should carefully read
this entire document and the additional documents we mention. You should pay
special attention to the "RISK FACTORS" section beginning on page of the
prospectus/proxy statement and "SPECIAL RISK FACTORS AFFECTING JANEX" on page
of this prospectus/ proxy statement supplement.
WHY ARE THE FIVE COMPANIES PROPOSING TO MERGE?
The five companies are proposing to merge because the directors of each
company believe the combination will provide significant benefits to
stockholders. We believe the mergers will enable us to take advantage of the
complementary strategic fit of our respective businesses by marketing through
additional channels of distribution. We also hope and believe the mergers will
improve the likelihood that stockholders will have a more liquid market should
they wish to sell their stock and that the combined companies will be able to
more efficiently access the markets for debt and equity when appropriate. To
review the background and reasons for the mergers in greater detail, see
"BACKGROUND OF THE MERGERS" in the prospectus/proxy statement.
WHAT WILL I RECEIVE IN THE MERGERS?
You and all Janex stockholders will receive common stock of New Futech in
exchange for your Janex stock. Stockholders of the other merging companies will
receive cash, promissory notes and common stock of New Futech. Certain
employment contracts and other agreements with affiliates of the merging
companies are also part of the deal. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT" in the prospectus/proxy statement.
WHAT RISKS SHOULD I CONSIDER?
You should review "RISK FACTORS" on page 8 of the prospectus/proxy
statement as well as the special risk factors affecting primarily Janex that are
discussed on pages 5 through 6 of this prospectus/proxy statement supplement.
WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGERS?
The following table shows the proportions of the outstanding shares that
must vote in favor of the mergers, together with the proportion of the
outstanding shares that are held by directors, executive officers and their
affiliates, the majority of whom have indicated that they intend to vote in
favor of the mergers.
<TABLE>
<CAPTION>
SHARES OWNED BY DIRECTORS,
COMPANY VOTE REQUIRED EX. OFFICERS & AFFILIATES
- ------- ------------- --------------------------
<S> <C> <C>
DaMert Majority 100.0%
Fundex Majority 70.8%
Futech Majority 72.7%
Janex Majority 78.9%
Trudy Majority 55.7%
</TABLE>
1
<PAGE> 397
WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGERS?
New Futech has the right to terminate the Merger Agreement if stockholders
from all of the merging companies combined exercise dissenters' rights with
respect to more than 5% of the aggregate merger consideration to be issued in
the mergers. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Conditions to Closing" in the prospectus/proxy statement for a
description of the other conditions to the mergers.
HOW WILL THE MERGERS BE TREATED FOR ACCOUNTING PURPOSES?
We expect the mergers to be treated as purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
We are working to complete the mergers during the third quarter of 1999.
However, the Merger Agreement does not include any express deadline for the
mergers to proceed.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS TO ME?
We and the other merging companies have structured the Merger Agreement
with the intent and expectation that a gain or loss will be recognized by Janex
shareholders upon the exchange of shares. Gain or loss will also be recognized
by the other stockholders with respect to the portion of the merger
consideration to them that consists of cash (including cash in lieu of
fractional shares), or promissory notes, or certain other property of New Futech
or New Sub. You should review the more detailed description of federal tax
consequences that appear on pages 11 through 12 of this prospectus/proxy
statement supplement. State and local taxes may also become due as a result of
the mergers.
The precise tax consequences of the mergers will depend on your own
situation. You should consult your tax advisor for a full understanding of the
tax consequences of the mergers to you.
WILL I HAVE DISSENTERS' RIGHTS?
Yes, provided you do not vote in favor of the mergers and meet all other
requirements of the dissenter's rights statute. See pages 12 through 13 and the
Colorado dissenters' rights statute which is attached as Appendix 1 to this
supplement.
WHAT DO I NEED TO DO NOW?
Just indicate on your proxy card how you want to vote on the mergers, and
sign and mail it in the enclosed return envelope as soon as possible, so that
your shares will be represented at the stockholders meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the mergers. If you do
not vote or you abstain, it will have the same effect as a vote against the
mergers.
The stockholders meeting will take place on , at local
time, at . You may attend the stockholders meeting and vote your
shares in person,
2
<PAGE> 398
rather than signing and mailing your proxy card. In addition, you may withdraw
your proxy up to and including the day of the meeting and either change your
vote or attend the meeting and vote in person.
IF MY SHARES OF JANEX STOCK ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
Your broker will vote your shares of Janex stock only if you provide
instructions on how to vote. Without instructions, your shares will not be
voted. Shares that are not voted will have the same effect as votes against the
mergers.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the mergers are completed we will send you written instructions
for exchanging your stock certificates for the New Futech stock to which you are
entitled.
OTHER INFORMATION ABOUT THE MERGERS
THE COMPANIES
NEW FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
New Futech is a newly-organized Delaware corporation that has been formed
to be the surviving parent corporation under the Merger Agreement. New Futech
has had no operations prior to the date of this prospectus/proxy statement
supplement. Under the Merger Agreement, first Futech and then Janex, Trudy and
DaMert will merge with and into New Futech, which will survive the mergers. As a
part of the mergers, New Futech will change its name to "Futech Interactive
Products, Inc."
NEW SUB
Futech Toys & Games, Inc.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
New Sub is a newly-organized Nevada corporation that has been formed to be
the surviving subsidiary corporation of New Futech under the Merger Agreement.
New Sub has had no operations prior to the date of this prospectus/proxy
statement supplement. Under the Merger Agreement, Fundex will merge with and
into New Sub, which will survive that merger as a wholly-owed subsidiary of New
Futech. All of the stock and assets of New Sub will be pledged to the former
stockholders of Fundex to secure the promissory notes of New Sub issued to them
in connection with the merger of Fundex into New Sub. In addition, the former
stockholders of Fundex who do not elect the All Cash Alternative will receive a
conditional option to purchase New Sub's license to market the "Phase 10" family
of games in 2002 in exchange for the New Futech stock they receive in the
mergers (but not the cash or promissory notes), exercisable only if the stock
has not achieved targeted liquidity and a valuation of at least $7.50 per share
($4,500,000 in the aggregate, if no stockholders elect the All Cash Alternative)
within three years after the completion of the mergers.
3
<PAGE> 399
JANEX
Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Janex manufactures and markets children's toys, banks, flashlights and
battery operated toothbrushes marketed under the brand name Janex. Janex
incorporates licensed characters into most of its products, and sells its
products to United States mass merchant retailers, toy specialty stores and
department stores.
FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Futech designs, publishes, manufactures and markets interactive,
educational, promotional and entertainment products (i.e., books, game boards
with sound capabilities and specialty post cards) targeted primarily towards
children. Futech's patented technology utilizes specialized conductive ink to
print interactive touch points. These touch points trigger speech, music and
sound effects. Futech licenses this technology to major entertainment and
publishing companies. Futech also distributes proprietary products, as well as
those of third party publishers, to warehouse clubs, national book chains,
specialty and independent retailers and major toy chains.
TRUDY
Trudy Corporation
353 Main Avenue
Norwalk, CT 06851-1552
(203) 846-2274
Trudy Corporation was initially organized as a Connecticut corporation
under the name "Norwest Manufacturing Corporation" in 1979. Trudy, which does
business under the name Soundprints, publishes juvenile story books and
audio-cassettes which are sold in conjunction with contract manufactured
educational toys to the retail and mail order markets.
FUNDEX
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
Fundex Games, Ltd. was originally incorporated in the State of Indiana as
"Third Quarter, Inc." in 1991. Fundex develops, markets, and distributes a
variety of games and toys for both children and adults, including:
- card games, puzzles and board games, including the Phase 10 card game and
its sister products;
- skill and action games for children;
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- games, puzzles and toys featuring characters licensed from third parties;
and
- spring and summer toys for children, including jump ropes, water toys and
water games.
DAMERT
DaMert Company
1609 Fourth Street
Berkeley, California 94710
(510) 524-7400
DaMert Company was founded in 1973 and incorporated in 1979. DaMert creates
and produces toy and gift products targeted primarily to children ages 6-12 with
nature and science themes. Presently, the product line includes over 200 toys,
gifts and puzzles selling through catalogs, museums, department stores,
specialty gift stores and toy stores nationwide.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Janex special meeting will be held on , at at
.
PURPOSE OF THE SPECIAL MEETING
We have called the special meeting so the Janex stockholders can vote on
whether to approve the mergers pursuant to the Merger Agreement. The directors
of Futech, Trudy, Fundex and DaMert have called for special meetings of the
stockholders of their companies so that they also can vote whether to approve
the mergers.
RECOMMENDATION OF THE JANEX BOARD OF DIRECTORS
We have unanimously approved the Merger Agreement and unanimously recommend
that the stockholders of Janex vote "FOR" approval of the Merger Agreement.
THE MERGER AGREEMENT
Under the Merger Agreement, first Futech and then Janex, Trudy, and DaMert
will merge with and into New Futech, which will survive the mergers, and Fundex
will merge into New Sub, which will survive as a wholly-owned subsidiary of New
Futech. Under the Merger Agreement, Janex stockholders who do not exercise
dissenters' rights will receive common stock of New Futech as described in the
prospectus/proxy statement under the heading "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement." Stockholders of Fundex
and Trudy will also have certain conditional rights to receive additional stock
or to exchange their New Futech stock for promissory notes or certain other
assets under specified circumstances. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement."
SPECIAL RISK FACTORS AFFECTING JANEX
In addition to the risk factors set forth elsewhere in the prospectus/proxy
statement, you should carefully consider the special risks of Janex described
below in evaluating the proposals which you will vote on at the special meeting
and the effects on the securities
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you will acquire in the mergers. Although we believe that the special risks and
uncertainties described below are the major ones facing Janex, they are not the
only ones that we will face. Any of the following could have a material adverse
effect on our business, financial condition or results of operations and the
business, and the business, financial condition or results of operations of the
combined companies.
THE NEW FUTECH STOCK MAY HAVE A LOWER MARKET VALUE THAN EXPECTED.
None of the companies participating in the merger engaged an independent
financial advisor to provide an estimate of value of any of the merging
companies or of the New Futech or an opinion concerning the fairness of the
merger consideration to be received by shareholders. Even if an active market
develops for the New Futech common stock, we have no independent basis for any
prediction about the price levels at which it might be expected to trade.
STOCKHOLDERS MAY BE UNABLE TO TRADE THEIR JANEX OR NEW FUTECH STOCK.
For several years, Janex has been a de-listed company and there is a
limited market for trading its shares. Without a merger it is not expected that
this situation will change, so Janex's stockholders may not be able to realize
any value for their ownership in Janex. On the other hand, we cannot be certain
that an active market will develop for the New Futech shares to be received in
the mergers.
REVENUES AND PROFITABILITY HAVE RECENTLY DECLINED.
For the fiscal year ended December 31, 1998, Janex's sales declined to
$3,117,599, from $5,596,979 for the year ended December 31, 1997. For the three
months ended March 31, 1999 Janex's sales declined to $222,346 from $1,608,557
for the three months ended March 31, 1998.
Net loss for the three months ended March 31, 1999 was $208,218 as compared
to net income of $223,307 for the three months ended March 31, 1998.
The decline in revenue and profitability has resulted in the Company
experiencing negative cash flow and a decrease in working capital.
Without additional cash availability, the Company will be unable to develop
new products, acquire new licenses or fund overhead and debt repayment.
STOCKHOLDER MATTERS
Janex common stock began trading on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") on October 16, 1989 and was quoted
on NASDAQ until July 17, 1997, when it was deleted from NASDAQ, as a consequence
of Janex's failure to meet the minimum capital and surplus requirements for
continued listing. Janex common stock is now traded on the OTC Bulletin Board
under the symbol "JANX." Janex preferred stock is not traded. The following
table sets forth the high and low bid prices per share for the Janex common
stock for each fiscal quarter from January 1, 1997, through May 28, 1999, as
reported by the National Association of Securities Dealers and the OTC Bulletin
Board and as adjusted to reflect the conversion of the shares of Janex stock not
held by Futech into shares of common stock of New Futech in the mergers. The
historical quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and do not necessarily represent actual transactions. On
June 4,
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<PAGE> 402
1999 (the day before the Merger Agreement was signed), the closing price of the
Janex common stock was $0.23 per share.
<TABLE>
<CAPTION>
PRICE PER NEW
FUTECH
HISTORICAL SHARE RECEIVED IN
PRICES MERGER
------------- ------------------
JANEX COMMON STOCK HIGH LOW HIGH LOW
- ------------------ ----- ---- ------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
1st Quarter................................ $1.44 $.56 $43.20 $16.80
2nd Quarter................................ .75 .31 22.50 9.30
3rd Quarter................................ .69 .05 20.10 1.50
4th Quarter................................ .55 .13 16.50 3.90
Year Ended December 31, 1998
1st Quarter................................ $ .63 $.14 $15.00 $ 5.70
2nd Quarter................................ .53 .17 14.40 5.70
3rd Quarter................................ .23 .06 7.20 2.10
4th Quarter................................ .38 .12 11.70 3.60
Year Ending December 31, 1999
1st Quarter................................ $ .35 $.17 $10.50 $ 5.10
2nd Quarter (through May 28, 1999)......... .27 .21 8.10 6.00
</TABLE>
As of April 30, 1999, there were approximately 781 and one stockholders of
record of Janex common stock and preferred stock, respectively, as shown on the
records of its transfer agent.
Janex has not paid dividends on its common stock and does not anticipate
paying dividends in the foreseeable future. If the mergers do not occur for any
reason, we anticipate that all earnings, in the foreseeable future, will be
retained for development of Janex's business.
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THE MERGERS AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of Futech into New Futech,
promptly followed by the substantially simultaneous merger of Janex, Trudy and
DaMert with and into New Futech and the substantially simultaneous merger of
Fundex with and into New Sub. The discussion in this prospectus/proxy statement
supplement and the related prospectus/proxy statement of the mergers and the
description of the principal terms of the Merger Agreement contained in the
prospectus/proxy statement are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to the
prospectus/proxy statement as Appendix A, and incorporated herein by reference.
EFFECTS OF THE MERGER
GENERAL
We intend for the mergers to occur promptly following approval of the
mergers by the requisite vote of the stockholders of each of Janex, Futech,
Trudy, DaMert and Fundex and the satisfaction or waiver of all other conditions
to consummation of the mergers. The mergers will become effective at or about
the time of filing of articles of merger or other appropriate documents with the
applicable government offices or agencies. At that time (a) first Futech and
then Janex, Trudy and DaMert will merge with and into New Futech with the result
that New Futech will be the surviving corporation and (b) Fundex will merge with
and into New Sub with the result that New Sub will be the surviving corporation.
As part of the mergers New Futech will change its name to "Futech Interactive
Products, Inc." The stockholders of Janex will become stockholders of New
Futech, and their rights will be governed by the New Futech certificate of
incorporation and bylaws. See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF JANEX AND
NEW FUTECH." See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in the
prospectus/proxy statement.
For information regarding the operation of New Futech and New Sub following
the mergers, see "DESCRIPTION OF NEW FUTECH'S BUSINESS" in the prospectus/ proxy
statement. For information regarding the officers and directors of New Futech
following the mergers, see "NEW FUTECH'S MANAGEMENT" in the prospectus/ proxy
statement.
EXCHANGE RATIOS.
Each share of Janex common stock outstanding immediately prior to the
mergers (other than dissenting shares) will be converted into the right to
receive approximately 0.0333 shares of New Futech common stock.
Outstanding shares of Futech, DaMert, Fundex and Trudy will also be
converted into a combination of cash, common stock of New Futech and promissory
notes of New Futech or New Sub. Under certain circumstances the former
stockholders of Fundex will have the right to exchange their New Futech stock
for the license rights in the "Phase 10" family of games now owned by Fundex.
Under certain other circumstances the former stockholders of Trudy will have the
right to receive additional New Futech stock or to exchange their New Futech
stock for unsecured five year debentures. In addition, outstanding options for
shares of Trudy, Futech, Janex and Fundex will be converted into options for
shares of common stock of New Futech. See "DESCRIPTION OF THE
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<PAGE> 404
MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the Merger Agreement" in the
prospectus/proxy statement.
FRACTIONAL SHARES.
Fractional shares of New Futech common stock will not be issued in the
mergers. Instead, stockholders in any of the merging companies who would
otherwise have received an amount of New Futech stock that includes a fraction
of a share will instead receive an amount of cash equal to that fraction
multiplied by $7.50. For example, a Janex stockholder who is otherwise entitled
to receive 15.5 shares of New Futech common stock will actually receive only 15
shares, plus $3.75 in cash (i.e., 0.5 times $7.50).
BACKGROUND OF THE MERGER
In April of 1998, Mr. Vince Goett, Chairman of Futech, telephoned Les
Friedland, President of Janex, to express an interest in a possible merger of
the two companies, and business synergies.
In early August 1998, Mr. Goett arranged for Les Friedland, Daniel Lesnick,
Michael Handelman and Janex counsel to visit the Futech offices in Phoenix.
During the meeting the possibilities of a merger between the two companies were
discussed, as well as a review of the financial condition of Janex. At the end
of the meeting a deal was struck with a term sheet drafted by outside counsel
for Futech.
From the visit to the Futech office in Phoenix negotiations continued
regarding the acquisition of shares and debt. The negotiations culminated in a
Letter of Intent dated August 24, 1998.
From August 30 to September 2, 1998 members of Futech including Fred
Gretsch, Mel Sauder, Joe Petter and outside counsel visited the office of Janex
to perform due diligence procedures.
The actual Stock Purchase and Sale Agreement with Futech was signed on
September 30, 1998.
On May 27, 1999, the Futech Board of Directors approved the Merger
Agreement.
REASONS FOR THE MERGER
For the year ended December 31, 1998, net sales declined to $3,117,599, as
compared to $5,596,979 for the year ended December 31, 1997, a decrease of
$2,479,380 or 44.3%. For the three months ended March 31, 1999, net sales
declined to $222,346, as compared to $1,608,557 for the three months ended March
31, 1998, a decrease of $1,386,211 or 86.2%. The decline in revenues has
resulted in the Company experiencing recurring losses from operations, negative
cash flows and decreases in working capital. Without additional cash
availability, the Company will be unable to develop new products, acquire new
licenses or fund overhead and debt repayment. As a small, de-listed company,
Janex has found it difficult to raise capital. The Company has been unable to
provide its stockholders liquidity for its stock.
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<PAGE> 405
After pursuing several alternatives, the Company agreed to the merger with
Futech. Management believes that the merger will provide many advantages that
the Company would not otherwise experience:
- Necessary financial resources through the ability to raise public
capital;
- Mass and diverse product presentation to mass retailers;
- Current Futech patented technology to be incorporated into existing and
future product lines;
- New technology provided through on-going research and development not
available to small, individual companies;
- Access to popular key licensed characters to be incorporated into
existing and future product lines;
- Access to more experienced and deeper management; and
- Broader company strength to withstand potential competitor aggression
designed to eliminate smaller competition.
Management also hopes that the merger will enable Janex shareholders to be
provided liquidity for their New Futech stock resulting from New Futech becoming
a public corporation with actively traded securities. It is expected that the
New Futech common stock will trade on the OTC Bulletin Board following the
merger. Management further hopes that within a period of time, that New Futech
will be listed on the NASDAQ market upon achieving the minimum requirements of
NASDAQ, and that upon listing, will further improve shareholder liquidity.
For additional information regarding the background of and reasons for the
merger, see "SPECIFIC REASONS FOR PREVIOUS ACQUISITIONS and PROPOSED MERGER
PARTNERS" in the prospectus/proxy statement.
JANEX'S BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF JANEX HAS DETERMINED THAT THE MERGERS ARE
ADVISABLE AND IN THE BEST INTERESTS OF JANEX AND ITS STOCKHOLDERS AND HAS
RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
RELATED AGREEMENTS; INTERESTS OF CERTAIN JANEX AFFILIATES IN THE MERGER
In connection with the mergers, New Futech will repay certain promissory
notes of Futech to the former stockholders of Janex in the principal amount of
$750,000, and will also repay certain bank debt. SEE "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE
CORRESPONDING SECTION IN THE PROSPECTUS/PROXY STATEMENT.
REGULATORY MATTERS
Except as disclosed in this prospectus/proxy statement supplement and the
prospectus/proxy statement, Janex and New Futech are not aware of any
governmental or regulatory approvals required for consummation of the mergers,
other than compliance with the federal securities laws and applicable securities
and "blue sky" laws of the various states.
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<PAGE> 406
CERTAIN FEDERAL TAX MATTERS
In the opinion of Quarles & Brady LLP, special tax counsel to New Futech,
the merger of Janex into New Futech will be treated for federal income tax
purposes as reorganization as to New Futech within the meaning of Section 368(a)
of the Code and New Futech and Janex will each be a party to that reorganization
within the meaning of Section 368(b) of the Code.
In rendering its opinion, counsel has relied upon and assumed as accurate
and correct on the date hereof, and will rely on and assume as accurate and
correct as of the Effective Time of the merger, the information contained in
this prospectus/proxy statement supplement and the related prospectus/proxy
statement and certain representations as to factual matters made by Futech, New
Futech and Janex. The representations relied upon include that Futech, prior to
the Effective Time of the mergers and within a 12 month period, has acquired by
purchase within the meaning of Section 338(h)(3) of the Code stock of Janex
representing at least 80% of the voting power of the stock of Janex and having a
value equal to at least 80% of the total value of the stock of Janex. Any
inaccuracy or change with respect to such information or representations or
actions by Futech, New Futech or Janex contrary to such representations could
adversely affect the conclusions reached in the opinion and the tax summary set
forth below.
Counsel's opinion represents its best legal judgement as to the tax
treatment of the merger, but the opinion is not binding on the Internal Revenue
Service. The parties have not and will not request a ruling from the Service in
connection with the federal income tax consequences of the merger. The following
summary of material United States federal income tax consequences of the merger
is based upon the conclusions reached in such opinion.
Based on the provisions of the Code, the applicable regulations thereunder,
judicial authority and current administrative rulings and practices as of the
date hereof, all of which are subject to change, possibly with retroactive
effect: (i) no gain or loss will be recognized by Futech, New Futech or Janex as
a result of the merger; and (ii) with respect to holders of Janex common stock
other than Futech or New Futech: (A) gain or loss will be recognized by such
holders of Janex common stock upon conversion of their shares of Janex common
stock into shares of New Futech common stock pursuant to the merger measured by
the difference between the fair market value of the New Futech common stock
received and the adjusted tax basis of the Janex common stock exchanged for it;
(B) the tax basis of the shares of New Futech common stock into which shares of
Janex common stock are converted will be equal to the fair market value of such
New Futech common stock at the Effective Time of the merger; (C) the holding
period for shares of New Futech common stock into which shares of Janex common
stock are converted will begin at the Effective Time of the merger; and (D) such
gain or loss recognized will be long term capital gain or loss provided the
Janex common stock was held as a capital asset for more than 12 months.
Notwithstanding the description above of the treatment of holders of Janex
common stock other than Futech and New Futech, it is possible that such Janex
stockholders could take the position that the merger is a reorganization within
the meaning of Section 368(a) of the Code as to all of the Janex stockholders,
in which event no gain or loss would be recognized by any of the Janex
stockholders on their receipt of the New Futech common stock.
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THE FOREGOING DISCUSSION IS INTENDED ONLY AS A DESCRIPTION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular taxpayers in light of their personal circumstances or
to taxpayers subject to special treatment under the Code (for example, insurance
companies, financial institutions, dealers in securities, tax exempt
organizations, foreign corporations, foreign partnerships, or other foreign
entities and individuals who are not citizens or residents of the United States
and persons who acquired their New Futech common stock pursuant to the exercise
or termination of employee stock options, warrants or otherwise as compensation.
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
THE GENERAL SUMMARY SET FORTH ABOVE IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF JANEX COMMON
STOCK. EACH HOLDER OF JANEX COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The mergers are intended to qualify as a purchase for accounting purposes.
Under this accounting treatment, the amount by which the total merger
consideration received by stockholders of the other merging companies plus the
amount of their liabilities exceeds the fair market value of their identifiable
assets will initially be treated as goodwill by New Futech for accounting
purposes.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Sections 7-113-101 through 7-113-302 of the Colorado Business
Corporation Act ("CBCA"), copies of which are attached to this prospectus/proxy
statement supplement as Appendix 1, stockholders of Janex may dissent from, and
obtain payment of the fair value of their Janex shares in the event of the
consummation of the mergers. A Janex stockholder who wishes to assert
dissenters' rights in connection with the mergers must (i) deliver to Janex,
before a vote of the stockholders of Janex is taken with respect to the mergers,
written notice of the stockholder's intent to demand payment for the
stockholder's Janex shares if the mergers are effectuated; and (ii) not vote in
favor of the merger proposal.
If the merger proposal is approved at the Janex special meeting and if the
other conditions of the mergers are satisfied or waived, Janex will deliver a
written dissenters' notice to all Janex stockholders who have satisfied the
requirements described above to assert those rights. Janex will send the
dissenters' notice no later than ten days after the mergers are effectuated.
The dissenters' notice delivered by Janex will: (i) state that the mergers
were authorized and the effective date or proposed effective date of the
mergers; (ii) state an address at which Janex will receive payment demands and
an address at which certificates for Janex shares must be deposited; (iii)
include a form for demanding payment; and (iv) set a date by which Janex must
receive the payment demand and by which certificates for Janex shares must be
deposited at the address for such deposits in the
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dissenters' notice, which date may not be less than 30 days after the date the
dissenters' notice is given. Additionally, Janex may require that when a record
holder of Janex shares dissents with respect to the shares held by any one or
more beneficial owners of Janex shares, each beneficial owner of Janex shares
must certify to Janex that both such beneficial owner and the record holder of
Janex shares beneficially owned by such beneficial owner have asserted
dissenters' rights as to all such Janex shares. If Janex so requires, the
dissenters' notice will state this requirement. The dissenters' notice will
include a copy of the CBCA Sections 7-113-101 through 7-113-302.
A Janex stockholder to whom a dissenters' notice is sent and who wishes to
exercise dissenters' rights must: (i) demand payment on the form provided and
within the time period set forth in the dissenters' notice; and (ii) deposit
certificates for Janex shares in accordance with the terms of the dissenters'
notice. A stockholder of Janex who demands payment as described above retains
all rights of a stockholder of Janex, except the right to transfer the shares,
until the effective time of the mergers and thereafter has only the right to
receive the fair value of his or her Janex shares.
A stockholder of Janex who does not demand payment and deposit certificates
as required is not entitled to payment under CBCA Sections 7-113-101 through
7-113-302.
NEW FUTECH AND JANEX SHARES
NEW FUTECH COMMON STOCK
For a description of New Futech common stock and its authorized but
unissued preferred stock, see "DESCRIPTION OF NEW FUTECH CAPITAL STOCK" in the
prospectus/proxy statement.
JANEX CAPITAL STOCK
The following description of Janex's capital stock is a summary only and is
subject to, and qualified in its entirety by, reference to Janex's Articles of
Incorporation and Bylaws, copies of which are included as exhibits to the
registration statement of which this prospectus/proxy statement supplement is a
part, and by reference to Colorado Law under which Janex is incorporated.
COMMON STOCK
As of May 31, 1999 there were 18,098,750 shares of Janex common stock
outstanding which were held of record by approximately 781 stockholders. Janex's
common stock is traded on the OTC Bulletin Board (under the symbol "JANX"). To
Janex's knowledge, no dealer makes a market in Janex's shares. Quotes for Janex
shares on the OTC Bulletin Board are infrequent and do not constitute an
established market for Janex shares. Janex has not paid any dividends on its
common stock. The Merger Agreement provides that Janex will not declare or pay
any dividend without the prior written approval of New Futech.
PREFERRED STOCK
As of May 31, 1999 there were 5,000,000 shares of Janex preferred stock
outstanding which were held of record by one stockholder.
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COMPARISON OF THE RIGHTS OF HOLDERS OF JANEX COMMON STOCK AND
NEW FUTECH COMMON STOCK
Janex is a Colorado corporation and the rights of its stockholders are
governed by the Colorado Business Corporation Act ("CBCA") and the Articles of
Incorporation and Bylaws of Janex. New Futech is a Delaware corporation and the
rights of it stockholders are governed by the Delaware General Corporation Law
("DGCL") and the Certificate of Incorporation and Bylaws of New Futech. By the
Merger Agreement, the Janex stockholders will become New Futech stockholders and
as such their rights will be governed by the DGCL and the New Futech Certificate
of Incorporation and Bylaws.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF COLORADO AND DELAWARE
The corporation laws of Colorado and Delaware differ in many respects.
Although all the differences are not set forth in this prospectus/proxy
statement supplement, provisions which could materially affect the rights of
stockholders are discussed below.
REMOVAL OF DIRECTORS
<TABLE>
<S> <C>
Colorado Delaware
A director of a corporation that does not have a A director of a corporation that does not have a
staggered board of directors or cumulative classified board or cumulative voting may be
voting may be removed with or without cause with removed without or without cause with approval
the approval of a majority of the outstanding of the majority of the outstanding shares
shares entitled to vote at an election of entitled to vote at an election of directors. In
directors. In the case of a Colorado corporation the case of a Delaware corporation having
having cumulative voting, if less than the cumulative voting, if less than the entire board
entire board is to be removed, a director may is to be removed, a director may not be removed
not be removed if the number of shares voted without cause if the number of shares voted
against such removal would be sufficient to against such removal would be sufficient to
elect the director under cumulative voting. elect the director under cumulative voting. A
Janex does not have a staggered board or director of a corporation with a classified
cumulative voting. board of directors may be removed only for
cause, unless the certificate of incorporation
otherwise provides. The Certificate of
Incorporation and Bylaws of New Futech provide
for a classified board of directors, but not for
cumulative voting.
</TABLE>
CLASSIFIED BOARD OF DIRECTORS
A classified (the term in Delaware) or staggered board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the composition of
the board of directors more difficult, and thus a change in control of a
corporation potentially a lengthier and more difficult process.
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<TABLE>
<S> <C>
Colorado Delaware
Colorado law permits, but does not require, a Delaware law permits, but does not require, a
staggered board of directors, by which the classified board of directors, by which the
directors can be divided into as many as three directors can be divided into as many as three
classes with staggered terms of office, with classes with staggered terms of office, with
only one class of directors standing for only one class of directors standing for
election each year. The Janex Articles of election each year. The New Futech Certificate
Incorporation and Bylaws do not provide for a of Incorporation and Bylaws provide for a
staggered board. classified board, consisting of three classes
with three directors in each class.
</TABLE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
Delaware and Colorado have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, a corporation to adopt a
provision in its articles of incorporation or certificate of incorporation, as
the case may be, eliminating the liability of a director to the corporation or
its stockholders for monetary damages for breach of the director's fiduciary
duty. There are nonetheless certain differences between the laws of the two
states respecting indemnification and limitation of liability.
<TABLE>
<S> <C>
Colorado Delaware
The Articles of Incorporation of Janex eliminate The Certificate of Incorporation of New Futech
the liability of directors to the corporation to also eliminates the liability of directors to
the fullest extent permissible under Colorado the corporation or its stockholders for monetary
law. Colorado law does not permit the damages for breach of fiduciary duty as a
elimination of monetary liability where such director to the fullest extent permissible under
liability is based on: Delaware law. Under Delaware law, such provision
may not eliminate or limit director monetary
- - breaches of the director's duty of loyalty to liability for:
the corporation or its stockholders,
- breaches of the director's duty of loyalty to
- - acts or omissions not in good faith or the corporation or its stockholders,
involving intentional misconduct or knowing
violations of law, - acts or omissions not in good faith or
involving intentional misconduct or knowing
- - in the case of conduct in an official capacity violations of law,
with the corporation, acts or omissions not in
the best interest of the corporation, and in - the payment of unlawful dividends or unlawful
all other cases acts or omissions contrary to stock repurchases or redemptions, or
the best interests of the corporation,
- transactions in which the director received an
- - receipt of an improper personal benefit, improper personal benefit.
- - liability for improper distributions, loans or Such limitation of liability provisions also may
guarantees. not limit a director's liability for violation
of or otherwise relieve directors from the
necessity of complying with federal or state
securities laws, or affect
</TABLE>
15
<PAGE> 411
<TABLE>
<S> <C>
Colorado law generally permits indemnification the availability of non-monetary remedies such
of director expenses, including attorney's fees, as injunctive relief or rescission.
actually and reasonably incurred in the defense
or settlement of a derivative or third-party Delaware law generally permits indemnification
action, provided there is a determination by a of expenses, including attorney's fees, actually
majority vote of a disinterested quorum of the and reasonably incurred in the defense or
directors, by independent legal counsel or by a settlement of a derivative or third-party
majority vote of the stockholders that the action, provided there is a determination by a
person seeking indemnification acted in good majority vote of disinterested directors, by
faith and in a manner reasonably believed to be independent legal counsel or by a majority vote
in the best interests of the corporation. of the stockholders that the person seeking
Colorado law requires indemnification of indemnification acted in good faith and in a
director expenses when the individual being manner reasonably believed to be in or not
indemnified has successfully defended any opposed to the best interest of the corporation.
action, claim, issue or on the merits or Delaware law requires indemnification, of
otherwise. expenses when the individual being indemnified
has successfully, defended any action, claim,
issue, or matter therein, on the merits or
otherwise.
Delaware law also permits a Delaware corporation
to provide indemnification in excess of that
provided by statute.
A provision of Delaware law states that the
indemnification provided by statute shall not be
deemed exclusive of any other rights under any
bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
</TABLE>
Both Colorado and Delaware law requires indemnification when the individual
has defended successfully the action on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Colorado law and Delaware law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
INSPECTION OF STOCKHOLDER LIST
Both Delaware and Colorado law allow any stockholder to inspect the
stockholder list for a purpose reasonably related to such person's interests as
a stockholder.
DIVIDENDS AND REPURCHASES OF SHARES
<TABLE>
<S> <C>
Colorado Delaware
Colorado law dispenses with the concepts of par Delaware law permits a corporation to declare
value of shares as well as statutory definitions and pay dividends out of surplus or if there is
of capital, surplus and the like. no surplus, out of net profits for
</TABLE>
16
<PAGE> 412
<TABLE>
<S> <C>
The concepts of par value, capital and surplus the fiscal year as long as the amount of capital
are retained under Delaware law. Colorado law of the corporation following the declaration and
permits a corporation to declare and pay payment of the dividend is not less than the
dividends unless, after giving it effect: aggregate amount of the capital represented by
the issued and outstanding stock of all classes
- - the corporation would not be able to pay its having preference upon the distribution of
debts as they become due in the usual course assets. In addition, Delaware law generally
of business, or provides that a corporation may redeem or
repurchase its shares only if the capital of the
- - the corporation's total assets would be less corporation is not impaired and such redemption
than the sum of its total liabilities plus or repurchase would not impair the capital of
(unless the articles of incorporation permit the corporation.
otherwise) the amount that would be needed, if
the corporation were to be dissolved at the
time of the distribution, to satisfy the
preferential rights upon dissolution of
stockholders whose preferential rights are
superior to those receiving the distribution.
</TABLE>
STOCKHOLDER VOTING
<TABLE>
<S> <C>
Colorado Delaware
Generally requires that a majority of the Generally requires that a majority of the
shareholders of both acquiring and target shareholders of both acquiring and target
corporations approve statutory mergers. corporations approve statutory mergers.
Does not require a stockholder vote of the Does not require a stockholder vote of the
surviving corporation in a merger if surviving corporation in a merger (unless the
corporation provides otherwise in its
- - the merger agreement does not amend the Certificate of Incorporation) if
existing articles of incorporation,
- the merger agreement does not amend the
- - each stockholder of the surviving corpo- existing Certificate of Incorporation,
ration whose shares were outstanding
immediately before the merger will hold the - each share of the stock of the surviving
same number of shares, with identical corporation outstanding immediately before the
designations, preferences, limitations and effective date of the merger is to be
relative rights immediately after the merger, identical outstanding or treasury share of the
surviving corporation after the merger, and
- - the number of voting shares outstanding
immediately after the merger, plus the number - either no shares of common stock of the
of voting shares issuable as a result of the surviving corporation and no shares,
merger or by the exercise of rights and securities or obligations convertible into
warrants issued pursuant to the merger, will such stock are to be issued or delivered under
not exceed by more than twenty percent (20%) the plan of merger, or the authorized unissued
the total number of shares of the surviving shares or the treasury shares of common stock
corporation outstanding immediately before the of the surviving corporation to be issued or
merger, and delivered under the plan of merger plus those
- - the number of participating shares initially issuable upon conversion of any
</TABLE>
17
<PAGE> 413
<TABLE>
<S> <C>
(shares that entitle their holders to other shares, securities or obligations to be
participate without limitation on distri- issued or delivered under such plan do not
butions) outstanding immediately after the exceed twenty percent (20%) of the shares of
merger, plus the number of participating common stock of the surviving corporation
shares issuable as a result of the merger outstanding immediately prior to the effective
either by the conversion of securities issued date of the merger.
pursuant to the merger or by the exercise of
rights and warrants issued pursuant to the
merger, will not exceed by more than twenty
percent (20%) the total number of
participating shares outstanding immediately
before the merger.
</TABLE>
Both Delaware and Colorado law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
Both Colorado and Delaware law generally do not require class voting,
except in certain transactions involving an amendment to the certificate of
incorporation that adversely affects a specific class of shares or where the
class of securities designates such a right.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS UNDER DELAWARE LAW
In recent years, a number of states have adopted special laws designed to
make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant stockholders, more
difficult. Under Section 203 of the Delaware General Corporation Law, certain
"business combinations" with "interested stockholders" of Delaware corporations
are subject to a three-year moratorium unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, fifteen
percent (15%) or more of the corporation's outstanding voting stock (including
any rights to acquire stock pursuant to an option, warrant, agreement,
arrangement or understanding, or upon the exercise of conversion or exchange
rights, and stock with respect to which the person has voting rights only), or
is an affiliate or associate of the corporation and was the owner, individually
or with or through certain other persons or entities, of fifteen percent (15%)
or more of such voting stock at any time within the pervious three years, or is
an affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value of ten
percent (10%) or more of the aggregate market value of either the corporation's
consolidated assets or all of its outstanding stock; the issuance of transfer by
the corporation or a direct or indirect majority-owned subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except for
certain transfers in
18
<PAGE> 414
a conversion or exchange or a pro rata distribution or certain other
transactions, none of which increase the interested stockholder's proportionate
ownership of any class or series of the corporation's or such subsidiary's stock
or of the corporation's voting stock); or receipt by the interested stockholder
(except proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity
becoming an interested stockholder,
- upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least eighty-five percent
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding from the eighty-five percent calculation shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans that do not give employee
participants the right to decide confidentiality whether to accept a
tender or exchange offer), or
- on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent of
the outstanding voting stock not owned by the interested stockholder.
Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is:
- listed on a national securities exchange,
- quoted on an interdealer quotation system of a registered national
securities association, or
- held of record by more than 2,000 stockholders.
Under certain circumstances, Section 203 of the DGCL may made it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three year period.
There is no provision in the CBCA equivalent to Section 203 of the DGCL.
INTERESTED DIRECTOR TRANSACTIONS
Under both Delaware and Colorado law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under Delaware and Colorado law. Under Delaware and Colorado law, (a)
either the stockholders or the board of directors must approve any such contract
or transaction after full disclosure of the material facts, and, in the case of
board approval, the contract or transaction must also be "fair" to the
corporation, or (b) the contract or transaction must have been fair as to the
corporation at the time it was approved. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested
19
<PAGE> 415
directors (except that interested directors may be counted for purposes of
establishing a quorum).
APPRAISAL/DISSENTERS' RIGHTS
Under both Delaware and Colorado law, a stockholders of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal/dissenters' rights by which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transactions. Under both Delaware and Colorado law, such fair market value is
determined exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation.
<TABLE>
<S> <C>
Colorado Delaware
Dissenters' rights are not available (a) with Appraisal rights are not available (a) with
respect to the sale of all or substantially all respect to the sale of all or substantially all
of the assets of the corporation or a merger if of the assets of a corporation, (b) with respect
no vote of the stockholders is required to to a merger or consolidation by a corporation
approve the transaction under Colorado law or the shares of which are either listed on a
(b) to stockholders of shares which either were national securities exchange, designated as a
listed on a national securities exchange national market system security on an
registered under the federal Securities and interdealer quotation system by the National
Exchange Act of 1934 or on the national market Association of securities Dealers, Inc. or are
system of the National Association of Securities held of record by more than 2,000 holders if
Dealers Automated System or were held of record such stockholders receive only shares of the
by more than 2,000 holders if such stockholders surviving corporation or shares of any other
receive only shares of the surviving corporation corporation that are either listed on a national
or shares of any other corporation that are securities exchange, designated as a national
either listed on a national securities exchange market system security on an interdealer
registered under the federal Securities Act of quotation system by the National Association of
1934 or on the national market system of the securities Dealers, Inc. or held of record by
National Association of Securities Dealers more than 2,000 holders, plus cash in lieu of
Automated Quotation System or held of record by fractional shares of such corporations, or (c)
more than 2,000 holders, plus cash in lieu to stockholders of a corporation surviving a
record by more than 2,000 holders, plus cash in merger if no vote of the stockholders of the
lieu of fractional shares. surviving corporation is required to approve the
merger under Delaware law.
</TABLE>
20
<PAGE> 416
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to the
consolidated statements of income of Janex for each of the five years in the
period ended December 31, 1998, and with respect to the consolidated balance
sheets of Janex at December 31 of each of the five years ending December 31,
1998, are derived from the audited consolidated financial statements of Janex
incorporated by reference in this prospectus/proxy statement supplement.
The data set forth below are qualified by reference to, and should be read
in conjunction with, the financial statements and the notes related thereto
included in the prospectus/proxy statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING
DATA
Net Sales............. $ 3,117,599 $ 5,596,979 $ 7,112,921 $ 9,355,021 $13,109,165
Net income (loss)..... (1,283,340) (3,174,851) (2,865,439) (1,137,822) 1,186,738
Net income (loss) per
share............... (0.13) (0.55) (0.56) (0.23) .24
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA
Current assets........... $ 441,411 $ 745,156 $1,848,305 $2,647,930 $2,918,658
Total assets............. 1,105,139 1,708,800 4,931,776 5,448,967 5,315,494
Current liabilities...... 2,684,072 2,527,926 3,041,051 2,576,320 1,467,805
Total Liabilities........ 2,684,072 3,757,926 4,156,051 2,576,320 1,780,725
Stockholders' equity..... (1,578,933) (2,049,126) 775,725 2,872,647 3,534,769
</TABLE>
21
<PAGE> 417
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Janex's
audited consolidated financial statements and notes thereto appearing elsewhere
in the prospectus.
OVERVIEW
Incorporated in 1986, Janex currently develops, manufactures and markets a
combination of functional children's products, toys and novelty gift items,
through its Janex and Malibu lines.
The Janex line incorporates licensed fantasy characters into most of its
functional products such as flashlights, battery powered toothbrushes and alarm
clocks, and sells them under the "Janex" brand name to mass merchant retailers,
toy specialty stores and department stores in the United States. The Janex
products are sold at retail prices ranging from $3.00 to $30.00. Royalties are
paid to the licensors of the fantasy characters.
The Malibu line focuses primarily on children's toys and novelty gift items
for which a demand exists, and seeks to make them more attractive or fun through
a unique design or innovative packaging. The Malibu line products are sold to
mass merchant retailers, chain stores and speciality stores and are offered at
retail prices ranging from $3.00 to $40.00. The Malibu line products do not
incorporate licensed characters.
Historically, the Company's sales were almost evenly divided between the
Janex line and the Malibu line. However, Janex's current business strategy is to
focus on sales of products by the Malibu line. The Malibu line does not
incorporate licensed fantasy characters into its products and therefore does not
pay royalties to licensors which are significant and often require guaranteed
minimum payments. Sales of products incorporating licensed characters can be
volatile, especially given the short-lived popularity of such characters and
increasing competition in the children's entertainment and animation industries.
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth, for the periods indicated, the relative
percentage that certain income and expense items bear to net sales.
22
<PAGE> 418
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
--------------------------------------------------------------------- --------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 MARCH 31, 1998
--------------------- --------------------- --------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ----------- ------- ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.................. $ 7,112,921 100.0% $ 5,596,979 100.0% $ 3,117,599 100.0% $1,608,557 100.0%
Cost of Sales.............. 4,348,280 61.1 3,354,114 59.9 1,663,627 52.4 769,735 47.9
Royalties.................. 1,002,429 14.0 651,422 11.6 380,969 12.2 54,859 3.4
----------- ----- ----------- ----- ----------- ----- ---------- -----
Gross Profit............... 1,762,212 24.9 1,591,443 28.5 1,103,003 35.4 783,963 48.7
Selling, general and
administrative
expenses................. 3,509,706 49.5 2,208,106 39.5 1,755,882 56.3 424,536 26.3
Depreciation and
amortization............. 783,095 11.0 551,951 9.9 376,283 12.1 75,244 4.7
Write-off of goodwill and
intangible assets........ -- -- 1,643,386 29.3 -- -- -- --
----------- ----- ----------- ----- ----------- ----- ---------- -----
Operating income (loss).... (2,530,589) (35.6) (2,812,000) (50.2) (1,029,162) (33.0) 284,183 17.7
Other expense.............. 322,325 (4.5) 359,303 (6.4) 248,432 (8.0) 55,793 (3.5)
----------- ----- ----------- ----- ----------- ----- ---------- -----
Loss before taxes.......... (2,052,954) (40.1) (3,171,303) (56.6) (1,277,594) (41.0) 228,390 14.2
Income tax expense......... 12,485 (0.2) 3,548 (0.1) 5,746 (0.1) 5,083 (.3)
----------- ----- ----------- ----- ----------- ----- ---------- -----
Net income (loss).......... $(2,865,439) (40.3) $(3,174,851) (56.7) $(1,283,340) (41.1) $ 223,307 13.9
=========== ===== =========== ===== =========== ===== ========== =====
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH 31, 1999
-------------------
AMOUNT PERCENT
--------- -------
<S> <C> <C>
Net Sales.................. $ 222,346 100.0%
Cost of Sales.............. 187,037 84.1
Royalties.................. 5,355 2.4
--------- -----
Gross Profit............... 29,954 13.5
Selling, general and
administrative
expenses................. 154,928 69.7
Depreciation and
amortization............. 73,408 33.0
Write-off of goodwill and
intangible assets........ -- --
--------- -----
Operating income (loss).... (198,382) (89.2)
Other expense.............. 5,111 (2.3)
--------- -----
Loss before taxes.......... (203,493) 91.5
Income tax expense......... 4,725 (2.1)
--------- -----
Net income (loss).......... $(208,218) (93.6)
========= =====
</TABLE>
23
<PAGE> 419
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
For three months ended March 31, 1999, net sales decreased significantly by
$1,386,211 or 86.2%, to $222,346, as compared to net sales of $1,608,557 for the
three months ended March 31, 1998. The significant decrease in net sales is a
direct result of the changeover in new management. The resulting relocation of
the Company's headquarters and a major change in sales representative groups had
a direct negative impact on net sales for the three months ended March 31, 1999.
At March 31, 1999, the Company had a backlog of unfilled orders of
approximately $400,000 comparable with its order backlog of approximately
$1,200,000 at March 31, 1998. Although the Company has noted a general decrease
in order flow in 1999, as compared to prior years, the present backlog is not
necessarily indicative of net sales to be expected for the full fiscal year
ending December 31, 1999.
For the three months ended March 31, 1999, gross profit was $29,954 or
13.5% of net sales, as compared to $783,963 or 48.7% of net sales for the three
months ended March 31, 1998. The Company typically establishes prices to obtain
a target gross margin ranging from 45% to 50%, but overall gross margin can vary
depending on the sales mix in each quarter. The decrease in gross margin in
1999, as compared to 1998, was the result of the Company deciding to close out
certain slow-moving inventory at little or no profit and price adjustments due
to competition.
For the three months ended March 31, 1999, royalty expense was $5,355 or
2.4% of net sales, as compared to $54,859 or 3.4% of net sales for the three
months ended March 31, 1998. The decrease in royalty expense in 1999, as
compared to 1998 was a result of a shift in the sales mix to a higher proportion
of non-royalty sales, which include the Wet Pet line.
For the three months ended March 31, 1999, selling, general and
administrative expenses decreased by $269,608 or 63.5%, to $154,928 or 69.7% of
net sales, as compared to $424,536 or 26.3% of net sales, for the three months
ended March 31, 1998. Selling, general and administrative expenses are comprised
of fixed overhead costs and variable selling expenses. The decrease in selling,
general and administrative expenses is a direct result of management's
continuing effort to reduce fixed overhead costs.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Sales for the year ended December 31, 1998, were $3,117,599, as compared to
$5,596,979 for the year ended December 31, 1997, a decrease of $2,479,380 or
44.3%. Management believes the sales decrease resulted from a number of factors.
Many of the Company's customers had inventory carry-overs from 1997 and were
reluctant to place large orders for shipment for 1998. In addition, approvals on
product designs from certain licensors were provided on an untimely basis,
delaying manufacturing. And finally, there was a significantly reduced demand
for products incorporating a licensed character.
The net loss for the year ended December 31, 1998, was $1,283,340 or $0.13
per share, compared to a net loss of $3,174,851 or $0.55 per share for the year
ended December 31, 1997. However, the significant net loss for 1997 was due in
part to the Company's write-off of certain intangible assets, consisting of
trademarks, licensing arrangements and goodwill, amounting to $1,643,386.
Without these write-offs, the company's net losses for 1997 would have been
$1,531,465, or $0.27 per share.
24
<PAGE> 420
Sales during the year ended December 31, 1998, were primarily from shipment
of products from the Malibu product line. The Wet Pets product line generated
sales of $1,798,866 or 57.7% of total sales in 1998. This compares to sales for
the year ended December 31, 1997 of $2,817,410 or 50.3% of total sales. Shipment
of products incorporating characters licensed from the Walt Disney Company
generated sales of $62,243 or 2.0% of total sales, and the shipment of products
incorporating characters licensed from Warner Bros. generated sales of $95,366
or 3.1% of total sales. This compares to sales during the year ended December
31, 1997, when licenses from the Walt Disney Company generated sales of $628,184
or 11.2% of total sales, and licenses from Warner Bros. generated $1,361,780 or
24.3% of total sales.
Royalty expense was $380,969 for the year ended December 31, 1998, or 12.2%
of sales, as compared to royalties of $651,422 or 11.6% of sales for the year
ended December 31, 1997. The increase in royalties as a percentage of sales is a
result of a significant shift in the sales mix to a higher proportion of
non-royalty sales (including the Wet Pet products) which resulted in a reduction
of royalty expense, which was offset by a charge to operations of $197,880 to
meet royalty guarantees made on contracts under which insufficient product sales
were generated to meet the minimum guarantees through December 31, 1998.
Gross profit of $1,103,003 was 35.4% of total sales for the year ended
December 31, 1998, as compared to $1,591,443 or 28.5% of sales for the year
ended December 31, 1997. Gross profits fell in 1998 because of significantly
lower sales but margins improved because sales of lower margin products were
more substantially affected. The gross profit for both 1998 and 1997 was
negatively affected by the write down of inventories of approximately $299,000
and $50,000 during those years, respectively.
Selling, general and administrative ("SG&A") expenses were $1,755,882 or
56.3% of sales for the year ended December 31, 1998, as compared to $2,208,106
or 39.5% of sales for the year ended December 31, 1997. SG&A expenses are
comprised of fixed overhead costs and variable selling costs. SG&A increased as
a percentage of sales due to the significant decrease in sales volume in 1998
over that of 1997, partially offset by a decrease in fixed overhead costs.
Interest expense for the year ended December 31, 1998, was $260,533 or 8.4%
of sales as compared to $389,401 or 7.0% of the sales for the year ended
December 31, 1997. The decrease was primarily attributable to the decrease of
imputed interest charges on notes payable to related parties. For 1998, the
charge was $116,863, as compared to $214,292 for 1997. The decrease was slightly
offset by an increase in the use of the Company's credit facilities to finance
operations during peak business periods as a result of the overall decrease in
sales during the year.
Depreciation expense for the year ended December 31, 1998, was $376,283 or
12.1% of sales, as compared to $551,951 or 9.9% of sales for the year ended
December 31, 1997. Due to historical operating losses and limited working
capital, the Company's ability to acquire new fixed assets has decreased. As a
result, depreciation expense has declined.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Sales for the year ended December 31, 1997, were $5,596,979, as compared to
$7,112,921 for the year ended December 31, 1996, a decrease of $1,515,942 or
21.4%. The net loss for the year ended December 31, 1997 was $3,174,851 or $0.55
per share,
25
<PAGE> 421
compared to a net loss of $2,865,439 or $0.56 per share for the year ended
December 31, 1996. However, the significant net loss for 1997 was due in part to
the Company's write-off of certain intangible assets, consisting of trademarks,
licensing arrangements and goodwill, amounting to $1,643,386. Without these
write-offs, the company's net losses for 1997 would have been $1,531,465, or
$0.27 per share.
Sales during the year ended December 31, 1997, were primarily from shipment
of products from the Malibu product lines. This line of Wet Pets generated sales
of $2,817,410 or 50.3% of total sales. Shipment of products incorporating
characters licensed from The Walt Disney Company, generated sales of $628,184 or
11.2% of total sales, and the shipment of products incorporating characters
licensed from Warner Bros., generated sales of $1,361,780 or 24.3% of total
sales. This compares to sales during the year ended December 31, 1996, when
licenses from The Walt Disney Company generated sales of $2,735,273 or 38.5% of
total sales, and licenses from Warner Bros. generated $2,467,849 or 34.7% of
total sales.
Royalty expense was $651,422 for the year ended December 31, 1997, or 11.6%
of sales, as compared to royalties of $1,002,429 for the year ended December 31,
1996, which was 14.0% of sales. The decrease in royalties as a percentage of
sales is a result of two factors. A significant shift in the sales mix to a
higher proportion of non-royalty sales, which include the Wet Pet Line, resulted
in a reduction of royalty expense. This reduction partially was offset by a
provision for loss of $292,500 that was charged to operations to meet royalty
guarantees made on contracts under which insufficient product sales were
generated to meet the minimum guarantees due through December 31, 1997.
Gross profit of $1,591,443 was 28.5% of total sales for the year ended
December 31, 1997, as compared to gross profit of $1,762,212 or 24.9% of total
sales for the year ended December 31, 1996. The decline in gross profit is the
result of significantly lower sales in 1997, offset by better sales of higher
margin Malibu Products vis-a-vis the Janex Products which incorporate licensed
characters. The gross profit was negatively affected by the write down of
inventories of approximately $50,000 and $100,000 during the years ended
December 31, 1997 and 1996, respectively, and by the sales of product of
approximately $78,000 and $92,000, at or below cost, for the years ended
December 31, 1997 and 1996, respectively. In addition, gross profit generated on
sales of Malibu Products was 35%, well below the target rate set for the Company
overall.
Selling, general and administrative ("SG&A") expenses were $2,208,106 or
39.5% of sales for the year ended December 31, 1997, as compared to $3,509,706
or 49.5% of sales for the year ended December 31, 1996. SG&A expenses are
comprised of fixed overhead costs and variable selling expenses. The fixed
overhead portion of SG&A for the year ended December 31, 1997 was $1,733,101,
$764,109 or 31% less than in 1996. SG&A decreased during 1997, primarily as a
result of decreases in payroll costs of $503,647, as well as decreases in travel
and accommodation costs, sales and marketing costs, product development costs,
communication costs, professional fees and investor relations costs, and
financial costs. These decreases were offset by increases in occupancy costs,
office expenses and insurance costs.
The variable selling cost component of SG&A was $475,003 for the year ended
December 31, 1997, or 8.5% of sales, compared to $1,012,496 for the year ended
December 31, 1996, which was 14.2% of sales. Variable selling costs include
sales representative's commission, agent's commission, freight, product
liability insurance, testing fees and other charges that vary directly with
sales volume. Management expects variable selling costs to be between 10% and
12% of sales. Variable selling costs were slightly lower
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in 1997 as compared to 1996 as a result of a decrease in the cost of local
transportation charges in Hong Kong for moving customer orders from the factory
to the delivery point and as a result of a decrease in testing fees.
In conjunction with the change in management during August 1997, new
management conducted a review of the Company's operations, financial condition
and business prospects. As a result, new management decided to decrease the
Company's dependence on licensed products and to develop and market new product
lines. In light of the historical operating losses from the Company's existing
product lines, limited working capital, and the change in the Company's business
focus, the Company determined to write-off certain intangible assets aggregating
$1,643,386. This write-off consisted of trademarks, licensing relationships and
goodwill.
For the year ended December 31, 1997, interest expense increased by $35,885
to $389,401 or 7.0% of net sales, as compared to $353,516 or 5.0% of net sales
for the year ended December 31, 1996.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business historically tended to generate the greater part of
both sales and profits during the Christmas selling season. However, with the
significant shift of sales relating to the Wet Pet line, approximately 50% of
shipping has taken place between January and March.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its existing cash balance together with its
existing lines of credit and projected cash flow from operations will not be
sufficient to fund projected order flow, overhead and debt repayment for the
fiscal year ending December 31, 1999. The Company has experienced recurring
losses from operations, negative cash flows and decreases in working capital.
The Company's ultimate ability to continue as a going concern depends on:
(i) the market acceptance of its products; (ii) its generation of operating
profits; (iii) its creation of a sustainable positive cash flow; and (iv)
obtaining additional financial resources to provide near term operating cash.
Management believes that the financial resources from its majority shareholder,
Futech, in addition to sales generated from new product lines that it is
developing, will allow the Company to continue in operation for fiscal year
1999.
The Company had negative cash flow from operating activities of $626,229
for the three months ended March 31, 1999, as compared to a negative operating
cash flow for the three months ended March 31, 1998 of $100,514, as declining
sales have led to lower accounts receivable collections in 1999.
During the three months ended March 31, 1999, the Company incurred
additions to product development costs of $24,168. This compares to additions to
tooling and molds related to new licenses of $6,483 and additions to product
development costs of $19,998 for the three months ended March 31, 1998.
The Company generated $605,718 from financing activities during the three
months ended March 31, 1999 compared to $142,581 during the same period in 1998.
The cash generated in financing activities came from proceeds of advances from
parent of $605,718.
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The Company had negative cash flow from operating activities of $666,007
for the year ended December 31, 1998, compared to a positive cash flow in 1997
of $323,180, as declining sales have led to lower accounts receivable
collections in 1998.
The Company used $96,031 in investing activities for the year ended
December 31, 1998, compared to providing $103,018 in 1997. The increase in cash
used in investing activities relates primarily to a slight decrease in
expenditures to build tools and molds and to develop new products. During 1998,
the Company invested $81,567 in additions to property, plant and equipment, of
which all of it was for tooling for new products, and the Company invested
$114,464 in product development costs. Additionally, in 1998 the Company
redeemed $100,000 of its certificate of deposit. During 1997, the Company made
comparable investments of $190,898 in property, plant and equipment, of which
approximately $174,499 was for tooling for new products, and the Company
invested $106,084 in product development costs. Additionally, the Company
redeemed $400,000 of its certificate of deposit.
The Company generated $659,778 from financing activities during the year
ended December 31, 1998, compared to using $448,142 during 1997. The cash
generated in financing activities came primarily from an increase in bank debt
of $257,000, a decrease in note payable of $219,189, a decrease in loan
payable-agent of $249,113 and offset by proceeds of advances from parent of
$621,080 and proceeds of issuance of common stock of $250,000.
The Company's capital commitments for 1999 include commitments for minimum
guaranteed royalties under licensing agreements. The commitments for 1999 and
2000 amount to $268,959 and $35,000, respectively. The Company also maintains a
non-cancelable operating lease on its former facility, although it subleases
that space for an amount approximating the Company's rent to the landlord.
Future minimum payments under this lease are $102,000 per year for each of 1999
and 2000.
On December 11, 1998, Futech purchased 5,219,046 shares of common stock and
$1,480,783 of stockholder loans (including interest of $250,784) to the Company
from certain of the Company's majority stockholders. Subsequently, the
shareholder loans were converted into 8,011,645 shares of common stock and
5,000,000 shares of preferred stock. After such conversion, Futech owns
approximately 79 percent of the Company's outstanding stock.
Until December 1998, the Company had the ability to borrow up to $900,000
under a Revolving Credit Agreement with a significant stockholder of the Company
that expires on October 19, 1999. The Revolving Credit Agreement bears interest
at 9.5 percent payable quarterly. The Revolving Credit Agreement is secured by
all of the assets of Janex Corporation, and the guarantee of the Company. As
additional consideration, on April 19, 1996, the Company granted the lender
warrants to purchase up to 900,000 shares of the Company's common stock,
exercisable at a price of $1.45 per share through April 19, 2000. The Company
has used $150,000 under the Revolving Credit Agreement as security to issue a
stand-by letter of credit in connection with the loan payable to the Company's
Hong Kong agent. This agreement ended and all warrants were canceled on December
11, 1998 in connection with Futech's acquisition of all this significant
stockholder's Common Stock.
In connection with the acquisition of Janex Corporation in 1993, the
Company issued promissory notes to two stockholders totaling $1,000,000, payable
in semi-annual installments over a three-year period. On June 28, 1996, the note
holders agreed to extend
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the payment date for all remaining payments to February 1, 1998, subject to
payment of interest at the rate of 9.5 percent per annum, retroactive to January
1, 1996. On August 4, 1997, the note holders agreed to further extend the
payment date to February 1, 1999. Quarterly interest payments commenced on
September 1, 1996. In connection with the extension of the notes, the Company
entered into a warrant agreement with each of the note holders, providing for
the issuance of up to 282,994 warrants to one of them and up to 167,994 warrants
to the other, to acquire a total of 450,998 shares of the Company's common
stock, exercisable at a price of $1.45 per share through June 28, 2000. The
warrants vest in six-month increments over the term of the loan, and if the loan
is paid off early, certain of the warrants will be void. The agreement ended and
all warrants were canceled on December 11, 1998 in connection with Futech's
acquisition of all these two stockholder's common stock.
The Company charged to operations $116,863 and $214,292 of imputed interest
expense from the issuance of stock purchase warrants noted above for the years
ended December 31, 1998 and 1997, respectively.
The Company may borrow up to $400,000 under a line of credit agreement with
a bank. Borrowings under the line bear interest at the bank's prime rate plus
0.25 percent (8.0 percent at December 31, 1998). The line is secured by all of
the Company's assets and is personally guaranteed by two shareholders.
Borrowings under the line are due July 1, 1999. Borrowing capacity of $143,000
is available at December 31, 1998.
Through 1998, the Company had the ability to borrow up to $450,000 from its
Hong Kong agent for the payment of product development and tooling costs. Any
loans are to be repaid from collections of certain customer invoices at the rate
of 5 percent of the invoice amount, with interest at two percent above the Hong
Kong prime rate. All borrowings under this arrangement were repaid in 1998. Any
borrowings are secured by certain tooling, as well as an irrevocable stand-by
letter of credit for $150,000.
Pursuant to a supplementary agency agreement, the Company had the ability
to borrow an additional $200,000 from its Agent provided that the Company issues
to the Agent an irrevocable stand-by letter of credit for $100,000. Any advance
under this facility was to be repaid within 60 days from the date of advance
with interest at 2 percent above the Hong Kong prime rate. As of December 31,
1997 and 1998, the Company had no borrowings under this credit facility.
The Company previously borrowed $340,000 under a private unsecured loan. At
December 31, 1997, the balance outstanding against this facility was $219,189,
which bore interest at prime plus 2 percent. This loan was repaid in 1998.
INFLATION
Management believes that inflation has not had a significant impact on the
Company's costs and profits during the past two years.
YEAR 2000
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. The Year 2000 issue affects Janex's internal
systems, including information technology (IT) and non-IT systems. Janex is
assessing the readiness of its systems for handling the Year 2000. Although the
assessment is still underway, management believes that all material systems will
be compliant by the Year 2000 and that the cost to address the
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issues will not be material. Nevertheless, Janex is creating contingency plans
for certain internal systems.
The Company has not instituted any procedures to obtain certification from
its major vendors or customers that their systems are Year 2000 compliant. Such
a survey would include vendors who provide systems related services, e.g.,
banking, letter of credit processing, shipping, security, HVAC, etc. along with
third-party factories providing toy products. The cost of such a survey, in both
time and money, would be substantial. However, the Company does not believe that
the failure of any vendor or customer to be Year 2000 compliant will have a
material impact on the Company.
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus/proxy statement and each related prospectus/proxy statement
supplement contains or incorporates by reference forward-looking statements. The
factors identified above in this section are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, New Futech or any of the merging companies.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, New Futech
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. We cannot promise that
statements of expectation or belief will be achieved or accomplished. The words
"believe," "expect," and "anticipate" and similar expressions identify forward-
looking statements throughout these materials.
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DESCRIPTION OF JANEX'S BUSINESS
Janex International, Inc., formerly known as With Design in Mind
International, Inc., was incorporated in Colorado in 1986. Its direct or
indirect wholly-owned subsidiaries include: With Design in Mind, a California
corporation ("WDIM"); Janex Corporation, a New Jersey corporation ("Janex"); and
Malibu Fun Stuffed, Inc., a California corporation ("Malibu"); Pro Gains Company
Limited, a Hong Kong corporation ("Pro Gains"); and Malibu Fun Stuffed
International Limited, a Hong Kong corporation ("MFSI"). As used herein, the
term "the Company" refers to Janex International, Inc. and its wholly owned
subsidiaries, unless the context indicates otherwise. The Company's principal
place of business is located at 2999 N. 44th Street, Suite 225, Phoenix, Arizona
85018-7247. The Company's telephone number is (602) 808-8765.
The business of Janex and ProGains (collectively referred to as the "Janex
Division") focuses on the manufacturing and marketing of children's toys, coin,
flashlights and battery operated toothbrushes marketed under the brand name
Janex. Janex incorporates licensed characters into most of its products, and
sells its products to United States mass merchant retailers, toy specialty
stores and department stores. Sales and manufacturing were historically
facilitated through Janex's sister company in Hong Kong, Pro Gains.
Malibu and MFSI (collectively referred to as the "Malibu Division") operate
in tandem similar to Janex and Pro Gains. Together they develop, manufacture and
market toys and novelty gift items, selling to mass merchant retailers, chains
stores, and specialty stores primarily in the United States.
The product line of the Malibu Division differs from that of the Janex
Division in that most of the Malibu Division products ("Malibu Products") do not
incorporate licensed characters. While the Malibu Products fall more clearly
into the toy category, the Company considers the Janex Division products ("Janex
Products") to be of a functional nature and not necessarily toys. Therefore, the
Company operates Malibu and MFSI, and Janex and Pro Gains, as two distinct
divisions. Nevertheless, their methods of operation and procedures are almost
identical, and therefore will not be separately discussed herein, unless there
are significant differences.
BUSINESS
PRODUCTS
The Company's products are either created by the Company or licensed from
independent inventors. Royalties are payable by the Company with respect to
products manufactured from designs or technologies licensed by the Company from
inventors or other third parties.
Janex Products. Most of the Janex products incorporate licensed fantasy
characters. Presently, Janex has licenses to utilize one or more trademarks
and/or copyrights owned or controlled by The Walt Disney Company, Saban
Merchandising, New Line Productions, Inc., MCA/Universal Merchandising, Inc.,
Children's Television Workshop, World Championship Wrestling, The Lyons Group,
Lionel LLC, Warner Bros. Corporation and Turner Home Entertainment, Inc.
Although the basic underlying product may stay the same, generally the product
is tailored to match the licensed character which is incorporated into it.
Janex products are targeted for sale by mass merchant retailers at prices
ranging from $3 to $30. Generally, the commercial life expectancy of any given
Janex product is virtually unlimited in its generic state (i.e., without a
licensed character). However, the
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commercial life span of any particular version of one of the Janex products is
directly tied to the length of the license agreement for the fantasy character
incorporated into that product, and the popularity of that fantasy character
with consumers. Since most of the Janex license agreements are written for a
term of two years, and given that the popularity of most fantasy characters is
short lived, the Company estimates that the useful life of any given version of
a Janex product will be no more than two years. Although the Company intends to
continue to market some version of every one of the Janex Products it now sells
for at least the next two years, the Company nevertheless is actively developing
new products which could incorporate fantasy characters.
The Janex product line currently includes the following: battery operated
Power Toothbrush and Stand, battery operated Power Toothbrush (without stand),
battery operated Power Flashlight, Action/Talking Alarm Clock, Role Play Gear,
Deluxe Doll Carrier, Deluxe Doll Diaper Bag, Budget Doll Bedding Assortment,
Doll Comforter and Pillow Set and Lil' Miss Executive Play Set.
Malibu Products. The Malibu products do not normally incorporate licensed
fantasy characters. As a result, this product line is not limited by licensor
approval of the products it develops and sells. Malibu products are targeted for
sale by mass merchant retailers, specialty retailers and gift stores at prices
ranging from $3 to $40. The commercial life span of the Malibu products could be
long-lived, as is the case with many toys that are not tied into a fashion or
fad, but the Company expects the life span of a Malibu product to be five years
or less. Consequently, the Company is constantly seeking new product concepts
for the Malibu product line, and further, is continually redesigning and
repackaging existing products to improve consumer appeal.
Malibu products include the following pool and bathtub toys: Wee Wet Pets,
Wet Pet Babies, Water Wings, Water Rings, Bath Tub Basketball, Tub-A-Ducks, Wee
Boats, Train Adventure Video Set and Mr. Baby Proofer.
The Company intends to add several new products in 1999, subject to the
availability of working capital. The concentration of new product introductions
will be on products of similar characteristics to those already in the Company's
product lines, i.e., similar retail price levels, similar capability of
incorporating a fanciful licensed character (for Janex products), similar target
age groups, suitable for manufacture through existing or similar factories, and
suitable for distribution through existing distribution channels.
MARKETING, DISTRIBUTION AND CUSTOMERS
The Company sells its products nationwide to retailers primarily through a
network of independent sales representative firms. One of those independent
sales representative firms is owned by the Company's former President and
current director. That firm represents the Company's products to one of its
largest customers. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The
Company's products are displayed at two major consumer product shows in January
and February of each year, and at a number of smaller specialty market shows
throughout the year. Marketing activities for the Company's product lines
primarily target mass merchant retailers in the United States and Canada, as
well as smaller regional merchants, drug chains, department stores and gift
stores. In 1998, two mass merchant retailers represented more than half of the
Company's revenues.
Janex Products. The product marketing strategy for the Janex Product line
is to market the line as a selection of products for children that are primarily
functional in
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nature and will provide a benefit to both the parent and child, and may in
certain circumstances be used as toys. Janex products incorporate licensed
characters where possible, are marketed under one brand name, Janex, and are
sold at retail prices ranging from $3 and $30. The brand name provides an
umbrella for all products which helps both the sell-in of the product line to
retailers, and the sell-through to customers.
The primary target audience for the product line is mothers of boys and
girls between the ages of three and ten. Janex products are designed to be
functional fun products which would help a parent "manage" their children and at
the same time make routine activities and chores fun and/or easier for the child
to do.
Malibu Products. The product marketing strategy for the Malibu Product
line is to market a line of reasonably priced toys and novelty gift items for
which a demand exists, and that are different from other products on the market,
either through unique product design or innovative packaging. Because the
Company does not have the financial strength to support Malibu products with
television advertising, the product design and unique packaging need to capture
the attention of consumers at the shelf level. Further, Malibu products will be
customized, either in design or in packaging, to meet the needs of specific
customers.
The Company historically offered to customers two primary methods of
purchasing product: on customary industry credit terms, FOB the Company's
primary warehouse facility in Baltimore, Maryland; or on a letter of credit
basis, through the Hong Kong subsidiaries Pro Gains and MFSI, FOB Hong Kong.
Under these terms, title to the goods passes to the buyer at the point of
origin, and in most cases the buyer is responsible for the costs of
transportation.
Prior to 1998, domestic inventories were kept in a third party contract
warehouse facility located in Baltimore, Maryland owned by the father of the
Company's former President and current director. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." Orders from domestic customers were processed by the
Company. Shipping documents were forwarded to the Baltimore warehouse, which
filled the orders and ensured shipment of product to customers in accordance
with customer specified shipping instructions. The warehouse confirmed shipment
to the customer, and the Company then invoiced the customer.
Letter of credit orders are processed through the Company's Hong Kong
subsidiaries. The Company has no employees in Hong Kong, but instead has entered
into a service agreement with a Hong Kong based services company (also referred
to in the industry as an agent) that provides the personnel and facilities to
accomplish accepting orders primarily from United States and Canadian based
retailers, arranging for the manufacture of products to fill those orders,
delivering the products to the customers or the customers' representatives in
Hong Kong, and then processing the necessary documentation to negotiate payment
for the goods by way of letters of credit or, in some instances, by direct wire
transfer from the customer.
Although Janex maintained a domestic warehouse in Baltimore, Maryland, and
shipped to customers FOB Baltimore, this business activity ceased in 1997
because it required continued investment in inventory and accounts receivable.
Management believes that shipping to customers on normal credit terms from
domestic inventories provides access to a base of customers that do not purchase
on a letter of credit basis. This group of customers may include smaller
retailers that do not purchase enough product to make
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letter of credit purchasing advantageous, and certain larger multi-location
retailers that rely on their suppliers to provide inventory and logistics
services along with product.
In order to facilitate shipping to these customers, the Company entered
into an agreement with Advantage Merchandise, a warehouse in San Diego,
California. Advantage Merchandise purchased directly from the Company, on a
letter of credit basis, enough inventory to fulfill orders sold by the Company,
through its network of sales representative firms. Advantage Merchandise then
processed these orders, delivering the product to the customer and then
processing the collection of the accounts receivable.
As of December 31, 1998, the agreement with Advantage Merchandise expired
and the Company entered into a non-exclusive verbal distribution agreement with
Fundex Games, Ltd. on terms and service similar to the Advantage Merchandise
agreement, without commission mark up.
MANUFACTURING
All of the Company's products are manufactured to the Company's
specifications by manufacturers based in Macau and China. The Company believes
that teaming contract manufacturers with Company representatives yields cost
savings, maximizes the design resources of the Company and shortens the new
product introduction cycle. During the design stage, Company representatives
work closely with employees of the manufacturers and travel to the
manufacturers' facilities, in order to accomplish the Company's design goals.
Company employees also travel to the manufacturing facilities for the purpose of
inspecting the manufacturing process and verifying the effectiveness of quality
control and assurance programs.
Pro Gains or MFSI, through its agent, initiates all orders for product with
the manufacturer and pays the manufacturer, subsequent to the delivery of the
product in accordance with payment terms agreed to between the Company and the
manufacturer. All products manufactured in Asia are manufactured specifically
for a customer order.
PRODUCT DESIGN AND SELECTION
New products are initially selected based upon what management believes
will be successful. However, in order to reduce the expense of producing a
product that may not sell, the Company may utilize the services of professional
market research companies to perform product testings and to determine product
viability. In the product selection and design process input is also solicited
from buyers at certain retailers and from sales representatives. Feedback from
these market research resources is also used in the development of product
packaging and in the establishment of product price levels. In addition, for the
Janex products, since most incorporate licensed characters, the licensor's input
into product and packaging design is always solicited, and in some cases may
even be required by the terms and conditions of the license agreement.
While the Company has been the sole originator of several of its products,
it actively seeks innovative and unusual product concepts from third parties. If
and when the Company determines that it is willing to license a product, it
seeks to obtain the exclusive marketing and manufacturing rights.
Historically, the Company has not incurred any significant costs in
connection with research and development and does not expect to do so in the
foreseeable future. The Company keeps the direct investment in research and
development on new products to a
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minimum by entering into agreements with product researchers/inventors providing
for ongoing royalty participation should a given product be brought to market.
For the Janex product line, the Company continually searches for new
characters to license. A new fantasy character can be used on new products as
well as extend the life of an existing product. When new licenses are acquired,
the licensors generally specify exactly what products the licensed characters
can be incorporated into, the territory in which products incorporating those
licenses can be sold, the royalty rate payable on sales of products, the royalty
advance (if any), and the royalty guarantee (if any). The amount of the royalty
rate, advance and guarantee required under any given license agreement is
generally a function of the credibility of the owner of the licensed property,
and the popularity of the licensed character with the target market.
For the Janex products, the Company seeks licenses which may open up
additional target market groups. As an example, the Little Mermaid character on
a battery operated toothbrush is a suitable product for a four year old girl.
That same battery operated toothbrush with a Batman character on it would be a
suitable product for a seven year old boy. As a result, the Company endeavors as
part of its product development program to ensure that it has spread its
available license acquisition funds across a range of licenses, rather than
investing heavily in only one or two licenses.
COMPETITION
The market for both toys and functional children's products is served by
manufacturers, both foreign and domestic, many of whom have greater financial
resources and greater name and product recognition than the Company. Because
each of the Company's products are available over a broad price range, the
market is competitive, including numerous small manufacturers and two industry
giants that dominate the industry. The Company classifies the competition for
its product lines as follows: (1) toy and novelty gift manufacturers, (2)
functional product manufacturers, and (3) direct functional children's product
competitors.
Toy and novelty gift manufacturers are companies which are primarily in the
business of manufacturing and marketing toys. Functional product manufacturers
are companies which are primarily in the business of manufacturing and marketing
a specific type, or group, of functional products, such as furniture, lighting,
or clocks, but which may include in their product line certain functional
children's products. Direct functional children's product competitors are
companies which manufacture and market functional children's products as their
company's primary business. All companies that fall into these three categories
compete with the Company's product lines.
There is considerable competition for the consumer's dollar in the
Company's target markets. However, the Company believes that Janex products are
differentiated from those of the competition by relying heavily on the use of
licensed characters. Malibu products are differentiated from those of the
competition by relying on unique product designs and unique packaging. Although
the Company attempts to protect its products with patents and/or trademarks when
available, successful products in any product classification are always
susceptible to imitation or "knock-off." The Company seeks to maintain a
competitive advantage by continuing to introduce new products and/or product
enhancements over time, by producing high quality products, and by pursuing
licenses for a broad range of children's characters.
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For the Janex products, competition between companies for licenses is
intense. Most license agreements are non-exclusive and limited in duration.
Within the industry, two years is the standard term for most license agreements.
When licenses become available, or when they are up for renewal, the licensor
may give the license to the company which is willing to offer the highest
royalty rate, advance royalty amount, or royalty guarantee. The Company ranks as
a very small player in the industry, and is extremely vulnerable in the
competition for licenses should financial strength become a primary decision
making criterion of the licensor.
The Company believes its relationship with its major licensors to be good,
and believes that it will continue to be able to obtain from its existing
licensors, and new licensors, the necessary licenses to maintain a competitive
advantage in the marketplace. However, there is no guarantee that the Company
will be able to obtain the licenses necessary to maintain a competitive
advantage, and failure to obtain those licenses would adversely effect the sales
of Janex products.
Since the Janex Division relies upon licensed characters as the primary
method of differentiating its products from those of other companies, revenues
tend to be a function of the general popularity of the characters licensed by
the Company. Thus, the strength or weakness of the licenses held by the Company
can be expected to a have a major influence on revenues and profitability, and
over time the Company expects to experience both significant upward and downward
fluctuations in sales. These upward and downward swings in revenue associated
with "fad" or "hit" licenses that generate tremendous sales volumes for short
periods make the business of selling products that incorporate licensed fantasy
characters extremely volatile, in comparison to businesses that do not sell
products that incorporate licensed fantasy characters, and that do not sell
products that are considered fads.
The volatility of revenues and profits created as a result of the
significant reliance on licensed characters by Janex products has, over time,
been reduced as Malibu products increasingly contribute to the operations of the
Company.
PATENTS, TRADEMARKS AND LICENSES
For those products that can be patented, the Company normally takes the
steps necessary to do so. However, the Company recognizes that patents are not
totally effective in prohibiting competitors from producing similar products
that could compete with those of the Company. Therefore, the Company does not
rely heavily upon patent protection to maintain its competitive position. The
Company believes that its growth, competitive position and success are dependent
upon its right to use specific licensed characters and trademarks, its ability
to develop and design unique products and packaging, its relationships with
customers, and its relationship with contract manufacturers.
The Company has entered into a number of license agreements for the use of
licensed fantasy characters on its products. These licenses typically run for
two years and all have guaranteed royalties. The following is a partial list of
the current licensors to the Company and the characters licensed:
- The Walt Disney Company for Hercules
- Warner Bros. Corporation for Looney Tunes
- Children's Television Workshop for Sesame Street
- Lionel LLC for Lionel Trains
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- New Line Cinema Productions, Inc. for Lost in Space
- Turner Home Entertainment, Inc. for Jonny Quest
- MCA/Universal Merchandising, Inc. for Lost World
- Leisure Concepts for World Championship Wrestling, Inc. for WCW
characters
- The Lyons Group for Barney
- Saban Merchandising, Inc. for Power Rangers in Space
In addition, the Company has entered into a number of license agreements
for the use of product designs and for the rights to use certain trademarks.
These license agreements typically run two to five years. The respective
licensors in each instance have registered, own and/or control the trademark,
registered trademarks and/or copyright rights to the characters licensed and the
characters, likenesses thereof, names, pictures, drawings and any other
associations with those characters that are used by the Company strictly under
license from the respective licensor.
BACKLOG
Shipment of the Company's products is anticipated to peak during the summer
months and, consequently, it is expected that the Company's backlog will be at a
maximum during June, July and August. If items are not in stock, delivery
typically takes between one and three months. When items are in stock, items are
normally shipped on the date upon which the customer has requested shipment.
At December 31, 1998, the backlog of orders was approximately $.25 million
and at December 31, 1997, the backlog of orders was approximately $1.0 million.
GOVERNMENT REGULATIONS
The Company is subject to the provision of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Products Safety Act. Those
laws empower the Consumer Products Safety Commission (the "CPSC") to protect
children from hazardous products. The CPSC has the authority to exclude from the
market articles which are found to be hazardous and can require a manufacturer
to repurchase such products under certain circumstances. Any such determination
by the CPSC is subject to court review. Similar laws exist in some states and
cities in the United States and in many jurisdictions throughout the world. The
Company endeavors to comply with all applicable regulations through a program of
quality inspections and product testing. The Company maintains product liability
insurance in the amount of $1,000,000.
PROPERTIES
As of December 11, 1998, the Company moved its headquarters to Phoenix,
Arizona, and is presently operating in the offices of Futech Interactive
Products, Inc. (Futech) its parent corporation.
The Company entered into a lease, effective April 1, 1994, for 2,202 square
feet of office space in a multi-tenant high rise building located at 21700
Oxnard Street, Woodland Hills, California (the "Office"). The Company and the
Landlord amended the lease, effective January 1, 1996, providing the Company
with an additional 2,460 square feet of space adjacent to its current offices,
and extended the expiration date of the lease to December 31, 2000. The lease
allows for its early termination at any time after
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March 1997, provided that the Company enters into another lease with the
landlord in the same complex. Effective April 1, 1997, the Company entered into
an agreement to sublease a portion of the facility to a third party for the
balance of the lease. Effective May 1, 1998, the Company entered into an
agreement to sublease the remaining portion of the facility to a third party for
the remaining term of the lease.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Company.
EMPLOYEES
As of April 1, 1999, the Company had two full-time employees. The full-time
employees were engaged as follows: one in accounting and one in marketing and
product development. The Company has never experienced a work stoppage and the
Company believes that relations with its employees are good. None of the
Company's employees are covered by collective bargaining agreements.
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JANEX MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the Company's
executive officers and directors as of December 31, 1998:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Vincent W. Goett..................... 35 Chairman of the Board, Chief Executive
Office, President and Director
Joseph K. Petter..................... 56 Chief Operating Officer
Frederick B. Gretsch, Sr............. 53 Chief Financial Officer, Treasurer,
Secretary and Director
Charles M. Foley..................... 41 Director
Leslie Friedland..................... 45 Director
Daniel Lesnick....................... 46 Director
</TABLE>
VINCENT W. GOETT Mr. Goett has served as Chairman of the Board, Chief
Executive Officer and Director of Janex since December 11, 1998. Mr. Goett has
served as Chairman and Chief Executive Officer and Director of Futech since
March 1995. Mr. Goett joined Futech as its Chief Operating Officer on January 5,
1995. From August 1991 to January 1994, Mr. Goett owned and operated Paradise
International, an investment business engaged in acquisition and joint venture
activities. From September 1985 to August 1991, Mr. Goett was President of
Westplex, Inc. which effected major investments in commercial real estate. Mr.
Goett attended Arizona State University, where he studied Business Management.
JOSEPH K. PETTER Mr. Petter has served as Chief Operating Officer of Janex
since December 11, 1998, and of Futech since February 1997. Mr. Petter joined
Futech as Vice President of Operations in March 1996. From July 1989 to December
1995, Mr. Petter was a Division Vice President of ADVO, Inc., a direct mail
marketing company. From 1970 to 1989, Mr. Petter was a Group or Senior Manager
with several different operating companies of the Dun & Bradstreet Corporation.
Mr. Petter completed the Executive Management Program at the University of
Chicago and received a B.S. in Industrial Engineering from the Illinois
Institute of Technology.
FREDERICK B. GRETSCH, SR. Mr. Gretsch has been Chief Financial Officer,
Treasurer, Secretary and Director of Janex since December 11, 1998. Mr. Gretsch
has served as Chief Financial Officer, Secretary and Treasurer of Futech since
September 1997. He has served in various financial and marketing positions
throughout his career. Prior to joining Futech, from November 1995 to May 1996,
Mr. Gretsch was Treasurer of Cable Systems International, Inc., a copper wire
and cable manufacturing company, and from May 1996 to December 1996, he was
Treasurer of Vail Resorts, Inc., a ski resort company. From February 1992 to
February 1995, Mr. Gretsch was Director of Treasury Operations at General
Dynamics Corporation, a defense contractor. From June 1975 to December 1991, he
was Vice President at Citicorp/Citibank, a major bank holding company. From
October 1968 to June 1975, Mr. Gretsch was manager of Sales Accounting and an
Administrator of Finance at RCA, a diversified corporation. Mr. Gretsch received
his Masters degree in Business Administration from Columbia University and his
B.A. in Economics from Georgetown University.
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<PAGE> 435
CHARLES M. FOLEY Mr. Foley has been a Director of Janex since December 11,
1998. Mr. Foley currently serves a the President of Home, Office & Personal
Organizers, Inc., a consulting business that specializes in accounting,
financial, administrative and Y2K issues. He started his company in 1996 after
having served as Futech's Chief Operating and Financial Officer from January
1995 through February 1997, and on Futech's Board of Directors from 1997 through
the Spring of 1998. Prior to his tenure at Futech, Mr. Foley was Corporate
Controller for Paradise International Distribution Corporation, an international
and specialty markets distributor for Futech's Talking Pages from January 1995.
From 1993 to 1994, he was Corporate Controller for Hypercom, Inc., an
international manufacturer of networks and EFT terminals and systems. From 1990
to 1993, Mr. Foley served as the Financial Revenue Manager for Syntellect Inc.,
a global manufacturer of interactive voice response systems. From 1987 to 1990,
he was an Audit Supervisor for Greyhound Corporation, and from 1983 to 1987, he
was an Internal Auditor with Monsanto Company in St. Louis, Missouri. Mr. Foley
received his Masters in International Management from the American Graduate
School of International Management in 1982 and his B.S. in Management Science
from Moorhead State University in 1979. Mr. Foley served in the Peace Corps in
Honduras, Central America, from 1980 to 1982.
LESLIE FRIEDLAND Mr. Friedland has been a Director of Janex since August
4, 1997. Mr. Friedland was President and Chief Executive Officer of Janex from
August 4, 1997 to December 11, 1998. Mr. Friedland is the owner of LFA
Associates, a manufacture representative firm, which represents 18 different
lines in the mid-Atlantic region. He has been President of LFA since 1993.
DANIEL LESNICK Mr. Lesnick has been a Director of Janex since August 29,
1997. Mr. Lesnick was Executive Vice President and Chief Operating officer of
Janex from August 4, 1997 to December 11, 1998. Prior to that time, Mr. Lesnick
had been Executive Vice President of Janex Corporation, a wholly owned
subsidiary of Janex International, Inc., from October 6, 1993 to January 31,
1997, at which time he left Janex. From August 1988 to October 5, 1993, Mr.
Lesnick was Vice President and co-owner of MJL Marketing, Inc. (now Janex). He
was Director of Sales and Marketing for Sunk Yong Company, a Korean corporation
operating in a number of different industries, from February 1986 to July 1988.
Previously, Mr. Lesnick held positions as Merchandising Manager with Spencer
Gifts and as a Senior Buyer with Lionel Leisure, both specialty retailers. Mr.
Lesnick holds an associate degree in marketing.
EMPLOYMENT ARRANGEMENTS
The Company has not entered into employment agreements with any of its
executive officers.
In August 1995, the Company established a 401K Profit Sharing Plan ("401K")
for the benefit of the employees of the Company. Under the provisions of the
401K, employees may make contributions on a tax deferred basis to their 401K
account, up to the legal limits provided for by United States income tax
regulations. The Company, at its discretion, may contribute a portion of the
Company's profits to the 401K. Such contributions are allocated between members
of the 401K based on a pre-stated formula. Employer contributions vest with 401K
participants at the rate of 20% per year, beginning in year two and ending in
year six of employment. For the year ended December 31, 1998, the Company did
not make a contribution to the 401K.
The Company has a health insurance plan, which covers all employees in a
non-discriminatory manner. With the exception of the health insurance plan and
the 401K, the
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<PAGE> 436
Company has no insurance or medical reimbursement plans covering its officers or
directors, nor do they contemplate implementing any such plans at this time.
JANEX STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 31, 1999, with
respect to the beneficial ownership of the Company's common stock by each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding common stock, by each of the Company's directors, and by the
officers and directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
BENEFICIAL OWNERS BENEFICIALLY OF CLASS(1)
- ----------------- ------------ -----------
<S> <C> <C>
Security ownership of certain beneficial owners:
Futech Interactive Products, Inc................... 13,230,691(2) 73.0%
2999 N. 44th Street, Suite 225
Phoenix, AZ 85018-7247
Security ownership of management:
Vincent W. Goett................................... 10,000 0.1%
All executive officers and directors as a group (6
persons)........................................... 10,000 0.1%
</TABLE>
- -------------------------
(1) Based upon 18,098,750 shares of common stock issued and outstanding on
December 31, 1998.
(2) Does not include ownership of 5,000,000 shares of the Company's preferred
stock which is convertible at any time into 5,000,000 shares of common
stock, provided that a sufficient number of shares of common stock are
authorized and unissued which is not currently the case. If such ownership
is included, Futech would own 79% of the Company's common stock on a
fully-diluted basis.
The Company is not aware of any contract or other arrangement, including a
pledge of the Company's securities, that could result in a change in the control
of the Company. The Company is not aware of any voting trusts.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged the services of a manufacturers representative
firm, Les Friedland Associates ("LFA"), to represent the Company to customers
located in the states of New York, New Jersey, Connecticut and Pennsylvania. LFA
represents the Company to its largest customer, Toys R Us. The principal owner
and operator of LFA, Mr. Leslie Friedland, is one of the former shareholders and
former Chief Executive Officer of Janex, and currently a director of the
Company. Under the terms of the representative agreement ("LFA Agreement"), LFA
was to be paid a commission of 4.25% on all sales that it generates within its
territory. Effective April 1, 1995, LFA and the Company agreed to reduce the
commission rate under the LFA Agreement to 4%. The terms and conditions of the
representative agreement are standard in the industry, and the agreement is
cancelable at any time with 30 days notice. Pursuant to the LFA Agreement, LFA
was paid, or will be paid, $65,154 for the year ended December 31, 1998 and was
paid, or will be paid, $98,166 for the year ended December 31, 1997. Further,
the Company rented showroom space from LFA during a major industry trade show in
1997, for which the Company paid $26,000. The rate charged by LFA for the
showroom rental is competitive with other showroom space rental rates during the
show period. No such expense was incurred in 1998.
On June 28, 1996, the Company and Leslie Friedland entered into an
agreement whereby the due date on the Company's note held by Mr. Friedland was
extended to February 1, 1998. Additionally the Company owed Mr. Friedland
$115,000 for commissions as of December 31, 1995, which Mr. Friedland also
extended to December 31, 1997. In connection with such extension agreement, the
Company granted warrants to Mr. Friedland to acquire up to 282,994 shares of the
Company's common stock (restricted), with certain "piggy-back" registration
rights. These warrants have an exercise price of $1.45 and expire on June 28,
2000. The warrants vest in six-month increments over the term of the loan,
commencing on June 28, 1996. The warrants were canceled on December 11, 1998.
On June 28, 1996, the Company and Daniel Lesnick, Executive Vice President
of Janex, entered into an agreement whereby the due date on the Company's note
held by Mr. Lesnick was extended to February 1, 1998. In connection with such
extension agreement, the Company granted warrants to Mr. Lesnick to acquire up
to 167,994 shares of the Company's common stock (restricted), with certain
"piggy-back" registration rights. These warrants have an exercise price of $1.45
and expire on June 28, 2000. The warrants vest in 6-month increments over the
term of the loan, commencing on June 28, 1996. The warrants were canceled on
December 11, 1998.
The Company utilized the services of a public warehouse facility, Hollins
Distributors, in Baltimore, Maryland. The warehouse facility charges the Company
a fee based on the amount of goods received, and the amount of goods shipped.
The rates charged by Hollins Distributors are competitive with those of other
public warehouses, and the relationship can be terminated annually upon 60 days
written notification. Hollins Distributors is owned by Mr. Howard Friedland, the
father of Mr. Leslie Friedland. Hollins Distributors was paid $20,911 during
1997. No payments were owed during 1998.
In December 1998, Futech Interactive Products, Inc. acquired 5,219,046
shares of the Company's common stock and shareholder loans of $1,480,783
(including interest of $250,784) from certain of the Company's majority
shareholders, including Leslie Friedland and Daniel Lesnick. Subsequently, the
Company converted those shareholder loans into 8,011,645 shares of common stock
and 5,000,000 shares of preferred stock. As a result,
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<PAGE> 438
Futech owns 73% of the Company's outstanding common stock and 100% of its
outstanding preferred stock.
On December 11, 1998, three of the Company's major stockholders, including
Leslie Friedland and Daniel Lesnick, completed the sale of their stock under a
stock purchase and sale agreement with Futech Interactive Products, Inc., a
Phoenix, Arizona-based company. Pursuant to the agreement, the shareholders sold
all 5,219,046 shares of the common stock of Janex stock owned by them,
constituting approximately 52% of the issued and outstanding common stock of
Janex, to Futech for a combination of 3,750,000 shares of Futech's Series A
Preferred Stock and $750,000 in promissory notes, and the assumption by Futech
of certain liabilities. As part of the transaction, Futech also purchased
certain receivables owed by Janex to these shareholders. In connection with the
closing of the transaction, Futech exchanged these receivables for 8,011,645
shares of common stock and 5,000,000 shares of preferred stock of the Company.
As a result, Futech is the owner of an aggregate of approximately 73% of the
issued and outstanding common stock and all of the preferred stock of the
Company, together aggregating 79% of the issued and outstanding capital stock of
the Company.
Also in connection with the closing of the transaction, Alex Hughes, Jr.
resigned from the Board of Directors of the Company, and Futech nominees Vincent
W. Goett, Frederick B. Gretsch, Sr. and Charles M. Foley were appointed to the
Board of Directors. In addition, Vincent W. Goett became the President, Chief
Executive Officer and Chairman of the Board of the Company, Joseph K. Petter
became the Chief Operating Officer, Frederick B. Gretsch became the Chief
Financial Officer, Treasurer and Secretary.
Since its acquisition of the Janex's stock, Futech has provided
administrative services to Janex, and has made certain loan advances to the
Company for its operations and is likely to make further advances as needed.
As of May 12, 1999, Futech was in the process of negotiating terms for a
series of related transactions which would involve the mergers of Futech, Janex
and three other companies into a newly-formed Delaware corporation. The
stockholders of the companies involved in these mergers would receive common
stock of the new corporation in exchange for their shares of these companies
plus other consideration. The new corporation's common stock would be registered
with the Securities and Exchange Commission and an application would be filed
with Nasdaq to list the stock on the Nasdaq Small Cap Market.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported in the Company's Current Report on Form 8-K dated
February 25, 1999, the Company engaged Ernst & Young, LLP as its independent
auditor for the fiscal year ending December 31, 1998, to replace the firm of BDO
Seidman, LLP. Ernst & Young, LLP is the independent auditor used by the
Company's majority shareholder. The decision to change auditors was made in the
ordinary course of business.
The reports of BDO Seidman, LLP on the Company's financial statements for
1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles, except as discussed in the following paragraph.
As indicated in the reports of BDO Seidman, LLP on the Company's financial
statements for the past two fiscal years, there are factors that raise
substantial doubt about
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<PAGE> 439
the Company's ability to continue as a going concern. The independent auditor's
report indicates there is no assurance the Company will be able to realize its
recorded assets and liquidate its liabilities in the normal course of business.
Although Management discusses, in a footnote, its plans in regard to these
matters, the financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1996 and 1997, and in the
subsequent interim period, there were no disagreements with BDO Seidman, LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of BDO Seidman, LLP would have caused BDO Seidman, LLP to make
reference to the matter in their report.
The Company has agreed to indemnify and hold harmless BDO Seidman, LLP for
any and all liabilities, costs or expenses of any nature whatsoever incurred by
BDO Seidman LLP in defending itself in a lawsuit brought because of the
re-issuance of BDO Seidman, LLP's report on its audit of the Company's 1997
financial statements.
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APPENDIX 1
COLORADO BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
7-113-101 -- DEFINITIONS.
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or
foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at
the time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action except to the extent
that exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares that are registered in the name of a nominee to the extent such
owner is recognized by the corporation as the shareholder as provided in
section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 -- RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102 (1); and
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<PAGE> 441
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102 (2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at
which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate action;
or
(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan
of merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national
securities exchange registered under the federal "Securities Exchange Act
of 1934", as amended, or on the national market system of the national
association of securities dealers automated quotation system, or will be
held of record by more than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu
of fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, sec. 30, effective June 1,
1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
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7-113-103 -- DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
7-113-201 -- NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any
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action taken pursuant to section 7-107-104 for which the notice was to have been
given, but any shareholder who was entitled to dissent but who was not given
such notice shall not be precluded from demanding payment for the shareholder's
shares under this article by reason of the shareholder's failure to comply with
the provisions of section 7-113-202 (2).
7-113-202 -- NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting and if
notice of dissenters' rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201 (1), a shareholder who wishes to
assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201 (2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203 -- DISSENTERS' NOTICE.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if
such requirement is imposed; and
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<PAGE> 444
(g) Be accompanied by a copy of this article.
7-113-204 -- PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203 (2) (d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the
demand for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205 -- UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206 -- PAYMENT.
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and a statement
of cash flow for that year, which balance sheet and statements shall have
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<PAGE> 445
been audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available financial
statements, if any, for the interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207 -- FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
7-113-208 -- SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION.
(1) The corporation may, in or with the dissenters' notice given pursuant
to section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment provided in section 7-113-206, offer to make such payment if the
dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209 -- PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206,
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<PAGE> 446
or reject the corporation's offer under section 7-113-208 and demand payment of
the fair value of the shares and interest due, if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the fair value of
the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
7-113-301 -- COURT ACTION.
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the
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<PAGE> 447
corporation, or for the fair value, plus interest, of the dissenter's shares for
which the corporation elected to withhold payment under section 7-113-208.
7-113-302 -- COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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<PAGE> 448
TRUDY CORPORATION
353 MAIN AVENUE
NORWALK, CONNECTICUT 06851-1552
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
-------------------------
You are invited to attend a Special Meeting of Stockholders of Trudy
Corporation that will be held at a.m. local time on , 1999, at
. The Trudy Board of Directors has called this special
meeting for the following purposes:
- To consider and vote upon a proposal to approve and adopt the Merger
Agreement dated as of June 7, 1999, by and among Trudy, Futech
Interactive Products, Inc., Janex International, Inc., Fundex Games,
Ltd., DaMert Company, and two newly formed companies that we are
referring to as "New Futech" and "New Sub." Under the Merger Agreement,
first Futech and then Trudy, Janex, and DaMert will merge with and into
New Futech, which will survive the mergers, and Fundex will merge into
New Sub, which will survive as a wholly-owned subsidiary of New Futech.
Each share of Trudy common stock outstanding immediately prior to the
mergers (other than dissenting shares) will be converted into the right
to receive approximately .0011 shares of New Futech common stock and
$.0012 in cash. In addition, if at the time the New Futech stock is first
traded on a listed and recognized securities exchange, its average
closing price over a specified 15 day period is less than $7.50 per
share, the former Trudy stockholders will receive additional shares of
New Futech common stock in an amount sufficient to cause the value of all
such stock issued to them to equal $3,000,000. If by the fifth
anniversary of the closing the New Futech common stock is still not
publicly traded as described above, each former Trudy stockholder will
have the right to exchange New Futech stock for unsecured five year
debentures of New Futech bearing interest at prime and with a principal
amount equal to $7.50 per share exchanged.
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These matters are more fully described in the prospectus/proxy statement
supplement and related prospectus/proxy statement that are attached to this
Notice.
We, the board of directors of Trudy, unanimously recommend that you vote
FOR the mergers.
You will be entitled to vote at the special meeting or any adjournment or
postponement of the special meeting only if you are a holder of record of Trudy
common stock at the close of business on , 1999.
BY ORDER OF THE BOARD OF DIRECTORS
William W. Burnham
Chairman
Norwalk, Connecticut
, 1999
IMPORTANT
We cordially invite all stockholders to attend the special meeting in
person.
Whether or not you plan to attend the special meeting in person, in order
to assure your representation at the meeting, we urge you to complete, sign and
date the enclosed proxy card, which is being solicited by the board of
directors, and promptly return it in the self-addressed return envelope enclosed
for that purpose. You may revoke your proxy at any time prior to the vote at the
meeting by telling us that you want to do so.
<PAGE> 449
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
FUTECH INTERACTIVE FUTECH TOYS & GAMES, INC. PRODUCTS (DELAWARE), INC.
TRUDY CORPORATION
PROSPECTUS/PROXY STATEMENT SUPPLEMENT
This prospectus/proxy statement supplement, and the related prospectus/proxy
statement, are being furnished to you and the other stockholders of Trudy
Corporation, in connection with the solicitation of proxies by the Trudy board
of directors for use at the Special Meeting of Stockholders to be held at a.m.
local time on , 1999, at and at any adjournments or
postponements of the special meeting. At the special meeting, we will ask you to
consider and vote upon a proposal to approve and adopt the Merger Agreement
dated as of , 1999, by and among Trudy, Futech Interactive Products,
Inc., Janex International, Inc., Fundex Games, Ltd., DaMert Company, and two
newly formed companies (Futech Interactive Products (Delaware), Inc. and Futech
Toys & Games, Inc.) that we are referring to as "New Futech" and "New Sub,"
respectively. Under the Merger Agreement, first Futech and then Trudy, Janex,
and DaMert will merge with and into New Futech, which will survive the mergers
and Fundex will merge into New Sub, which will survive as a wholly-owned
subsidiary of New Futech. Each share of Trudy common stock outstanding
immediately prior to the mergers (other than dissenting shares) will be
converted into the right to receive approximately .0011 shares of New Futech
common stock and $.0012 in cash. In addition, if at the time the New Futech
stock is first traded on a listed and recognized securities exchange, its
average closing price over a specified 15 day period is less than $7.50 per
share, the former Trudy stockholders will receive additional shares of New
Futech common stock in an amount sufficient to cause the value of all such stock
issued to them to equal $3,000,000. If by the fifth anniversary of the closing
the New Futech common stock is still not publicly traded as described above,
each former Trudy stockholder will have the right to exchange New Futech stock
for unsecured five year debentures of New Futech bearing interest at prime and
with principal amount equal to $7.50 per share exchanged. Outstanding shares of
Futech, Janex, Fundex and DaMert will also be converted into a combination of
cash, shares of New Futech stock and promissory notes of New Futech or New Sub.
In addition, outstanding options for shares of Trudy, Futech, Janex and Fundex
will be converted into options to purchase common stock of New Futech. See
"DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement" in the prospectus/proxy statement.
This prospectus/proxy statement supplement and the related prospectus/proxy
statement, together with similar supplements that are being provided to
stockholders of Futech, Janex, Fundex and DaMert with copies of the prospectus/
proxy statement, also constitute the prospectus of New Futech and New Sub in
connection with the offer and issuance of their securities pursuant to the
mergers. Excluding any additional shares that may be issued to Trudy
stockholders if a public market develops for New Futech stock at an initial
price of less than $7.50 per share and assuming no outstanding options or
warrants are exercised prior to the mergers, a minimum aggregate of 5,867,628
shares and a maximum aggregate of 5,955,297 shares of New Futech common stock, a
minimum of $1,018,330 and a maximum of $2,116,830 in cash and a minimum
aggregate of $5,751,000 and a maximum aggregate of $6,850,000 in promissory
notes of New Futech or New Sub will be issued to the stockholders of Trudy,
Futech, Janex, Fundex and DaMert in the mergers. In addition, certain
outstanding indebtedness in the amount of $10,000,000 is expected to be
exchanged for 2,222,222 shares of New Futech preferred stock shortly after the
mergers. Former stockholders of Fundex may exchange their New Futech stock for
the license rights in the "Phase 10" family of games and former stockholders of
Trudy may become entitled to receive additional New Futech shares or to exchange
their New Futech shares for debentures in the future, under certain
circumstances. Certain loan agreements and employment agreements, including
employee options to acquire New Futech common stock, are also part of the deal.
See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement" in the prospectus/proxy statement.
There is no established public trading market for Trudy common stock,
although it is traded sporadically on the OTC Bulletin Board under the symbol
"TRDY." We expect the New Futech common stock to trade on the OTC Bulletin Board
after the mergers, but we cannot be sure it will do so and we cannot predict
what the price might be. We do not expect a trading market to develop for any of
the other securities of New Futech or New Sub.
The mergers cannot be consummated unless: (a) stockholders of Trudy, Futech,
Janex, Fundex and DaMert, voting separately at their respective meetings of
stockholders, each approve the mergers, and (b) other conditions included in the
Merger Agreement are either satisfied or waived. See "DESCRIPTION OF THE MERGERS
AND THE MERGER AGREEMENT -- Conditions to Closing" in the prospectus/proxy
statement.
The record date for the special meeting is , 1999. This
prospectus/proxy statement supplement and the related prospectus/proxy statement
and the accompanying form of proxy are first being mailed to stockholders of
Trudy on or about , 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY STATEMENT
SUPPLEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT. THE PROPOSED MERGER IS A
COMPLEX TRANSACTION. WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS
PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT
IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER "RISK FACTORS"
BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus/proxy statement supplement or the accompanying prospectus/proxy
statement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus/proxy statement supplement is June 7, 1999.
<PAGE> 450
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT. WE HAVE NOT, AND NEW FUTECH AND NEW SUB HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEW FUTECH AND NEW SUB ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF THE DATE ON THE
FRONT OF THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT ONLY. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.
WHERE YOU CAN FIND MORE INFORMATION
We will send to you, without charge, any material information that we have
or can obtain without unreasonable effort or expense concerning Trudy or any
other merging company, concerning the Merger Agreement and related contracts or
concerning the proposed management and operations of New Futech. You may direct
requests for such additional information to Trudy in the manner described below.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http.//www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, and Chicago. You can call the SEC at 1-800-732-0330 for further
information about the public reference rooms. Similar information is available
concerning Janex.
The SEC allows us to "incorporate by reference" some of the information we
file with them, which means we are assumed to have disclosed important
information to you when we refer you to documents that are on file with the SEC.
The information we have incorporated by reference is an important part of this
prospectus/proxy statement supplement and the related prospectus/proxy
statement, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future documents we file with the SEC under Sections 13(a),
13(c), l4 or 15(d) of the Securities Exchange Act of 1934 until the mergers
occur.
- Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.
- Quarterly Reports on Form 10-QSB for the periods ended June 30, 1998,
September 30, 1998 and December 31, 1998.
- Current Reports on Form 8-K dated December 18, 1998 and April 12, 1999.
You may request a copy of these documents at no cost by writing to us at
the following address:
Trudy Corporation
353 Main Avenue
Norwalk, Connecticut 06851-1552
Attn: William T. Carney
Telephone: 203-846-2274
TO OBTAIN TIMELY DELIVERY OF THESE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO
LATER THAN , FIVE BUSINESS DAYS BEFORE THE DATE OF THE TRUDY
STOCKHOLDERS MEETING.
i
<PAGE> 451
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. Neither we nor New Futech have authorized
anyone else to provide you with additional or different information. New Futech
is not making an offer of any securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus/proxy
statement or any prospectus/proxy statement supplement is accurate as of any
date other than the date on the front of these documents.
ii
<PAGE> 452
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY INFORMATION -- Q&A.................................. 1
OTHER INFORMATION ABOUT THE MERGERS......................... 3
The Companies............................................. 3
The Special Meeting....................................... 5
The Merger Agreement...................................... 5
SPECIAL RISK FACTORS AFFECTING TRUDY........................ 6
STOCKHOLDER MATTERS......................................... 6
THE MERGERS AND RELATED TRANSACTIONS........................ 7
General................................................... 7
Effects of the Mergers.................................... 7
Background of the Mergers................................. 8
Reasons for the Mergers................................... 10
Trudy's Board Recommendation.............................. 10
Related Agreements; Interests of Certain Trudy Affiliates
in the Mergers......................................... 10
Regulatory Matters........................................ 11
Certain Federal Tax Matters............................... 11
Accounting Treatment...................................... 14
APPRAISAL RIGHTS OF TRUDY STOCKHOLDERS...................... 14
NEW FUTECH AND TRUDY SHARES................................. 16
New Futech Common Stock................................... 16
Trudy Capital Stock....................................... 16
COMPARISON OF THE RIGHTS OF HOLDERS OF TRUDY COMMON STOCK
AND NEW FUTECH COMMON STOCK............................... 17
SELECTED HISTORICAL FINANCIAL DATA.......................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION... 21
Overview.................................................. 21
Results of Operations..................................... 21
Seasonality and Quarterly Fluctuations.................... 23
Liquidity and Capital Resources........................... 23
Inflation................................................. 24
Year 2000................................................. 24
Safe Harbor Disclosure: Forward-Looking Statements and
Associated Risks....................................... 24
DESCRIPTION OF TRUDY'S BUSINESS............................. 25
General................................................... 25
Products and Licensing.................................... 25
Marketing and Sales....................................... 25
Customers................................................. 26
Manufacturing and Product Design.......................... 26
</TABLE>
iii
<PAGE> 453
<TABLE>
<S> <C>
Employees and Product Design.............................. 27
Property.................................................. 27
Legal Proceedings......................................... 27
TRUDY MANAGEMENT............................................ 28
Directors and Executive Officers.......................... 28
TRUDY STOCKHOLDERS.......................................... 30
Security Ownership of Certain Beneficial Owners and
Management............................................. 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 31
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 32
APPENDICES
Appendix I -- Section 262 Appraisal Rights Delaware General
Corporation Law........................................... A-1
</TABLE>
iv
<PAGE> 454
SUMMARY INFORMATION -- Q&A
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the mergers contemplated thereby, you should carefully read
this entire document and the additional documents we mention. You should pay
special attention to the "RISK FACTORS" section beginning on page 8 of the
prospectus/proxy statement and "SPECIAL RISK FACTORS FOR TRUDY" on page 6 of
this prospectus/proxy statement supplement.
WHY ARE THE FIVE COMPANIES PROPOSING TO MERGE?
The five companies are proposing to merge because the directors of each
company believe the combination will provide significant benefits to
stockholders. We believe the mergers will enable us to take advantage of the
complementary strategic fit of our respective businesses by marketing through
additional channels of distribution. We also hope and believe that the mergers
will improve the likelihood that stockholders will have a more liquid market
should they wish to sell their stock and that the combined companies will be
able to more efficiently access the markets for debt and equity when
appropriate. To review the background and reasons for the mergers in greater
detail, see "BACKGROUND OF THE MERGERS" in the prospectus/proxy statement.
WHAT WILL I RECEIVE IN THE MERGERS?
You and all Trudy stockholders will receive a combination of cash and
common stock of New Futech in exchange for your Trudy stock. Stockholders of the
other merging companies will receive cash, common stock of New Futech and
promissory notes of New Futech or New Sub. Certain employment contracts and
other agreements with affiliates of the merging companies are also part of the
deal. See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in the
prospectus/proxy statement.
WHAT RISKS SHOULD I CONSIDER?
You should review "RISK FACTORS" on pages 8 through 13 of the prospectus/
proxy statement as well as the "SPECIAL RISK FACTORS AFFECTING TRUDY" on pages 6
through 7 of this prospectus/proxy statement supplement.
WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGERS?
The following table shows the proportions of the outstanding shares that
must vote in favor of the mergers, together with the proportion of the
outstanding shares that are held by directors, executive officers and their
affiliates, the majority of whom have indicated that they intend to vote in
favor of the mergers.
<TABLE>
<CAPTION>
SHARES OWNED BY DIRECTORS,
COMPANY VOTE REQUIRED EXECUTIVE OFFICERS AND AFFILIATES
- ------- ------------- ---------------------------------
<S> <C> <C>
Trudy.. Majority 55.7%
Fundex... Majority 70.8%
Futech... Majority 72.7%
Janex.. Majority 78.9%
DaMert... Majority 100.0%
</TABLE>
1
<PAGE> 455
WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGERS?
New Futech has the right to terminate the Merger Agreement if stockholders
from all of the merging companies combined exercise dissenters' rights with
respect to more than 5% of the aggregate merger consideration to be issued in
the mergers. See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT --
Conditions to Closing" in the prospectus/proxy statement for a description of
the other conditions to the mergers.
HOW WILL THE MERGERS BE TREATED FOR ACCOUNTING PURPOSES?
We expect the mergers to be treated as purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
We are working to complete the mergers during the third quarter of 1999.
However, the Merger Agreement does not contain any express deadline for the
mergers to proceed.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS TO ME?
We and the other merging companies have structured the Merger Agreement
with the intent and expectation that the exchange of shares by Trudy
shareholders will be tax-free for federal income tax purposes. THERE WILL BE
FEDERAL INCOME TAXES DUE ON THE CASH AND OTHER RIGHTS THAT YOU RECEIVE. You
should review the more detailed description of federal tax consequences in
"CERTAIN FEDERAL TAX MATTERS" in this prospectus/proxy statement supplement.
State and local taxes may also become due as a result of the mergers.
The precise tax consequences of the mergers will depend on your own
situation. You should consult your tax advisor for a full understanding of the
tax consequences of the mergers to you.
WILL I HAVE DISSENTERS' RIGHTS?
Yes, provided you do not vote in favor of the mergers and meet all other
requirements of the dissenters' rights statute. See "APPRAISAL RIGHTS OF TRUDY
STOCKHOLDERS" in this prospectus/proxy statement supplement.
WHAT DO I NEED TO DO NOW?
Just indicate on your proxy card how you want to vote on the mergers, and
sign and mail it in the enclosed return envelope as soon as possible, so that
your shares will be represented at the stockholders meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the mergers. If you do
not vote or you abstain, it will have the same effect as a vote against the
mergers.
The stockholders meeting will take place on , at
local time, at . You may attend the stockholders
meeting and vote your shares in person, rather than signing and mailing your
proxy card. In addition, you may withdraw your proxy up to and including the day
of the meeting and either change your vote or attend the meeting and vote in
person.
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IF MY SHARES OF TRUDY STOCK ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
Your broker will vote your shares of Trudy stock only if you provide
instructions on how to vote. Without instructions, your shares will not be
voted. Shares that are not voted will have the same effect as votes against the
mergers.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the mergers are completed we will send you written instructions
for exchanging your stock certificates for the New Futech stock and cash to
which you are entitled.
OTHER INFORMATION ABOUT THE MERGERS
THE COMPANIES
NEW FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
New Futech is a newly-organized Delaware corporation that has been formed
to be the surviving parent corporation under the Merger Agreement. New Futech
has had no operations prior to the date of this prospectus/proxy statement
supplement. Under the Merger Agreement, first Futech and then Trudy, Janex and
DaMert will merge with and into New Futech, which will survive the mergers. As a
part of the mergers, New Futech will change its name to "Futech Interactive
Products, Inc."
NEW SUB
Futech Toys & Games, Inc.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
New Sub is a newly-organized Nevada corporation that has been formed to be
the surviving subsidiary corporation of New Futech under the Merger Agreement.
New Sub has had no operations prior to the date of this prospectus/proxy
statement supplement. Under the Merger Agreement, Fundex will merge with and
into New Sub, which will survive that merger as a wholly-owed subsidiary of New
Futech. All of the stock and assets of New Sub will be pledged to the former
stockholders of Fundex to secure the promissory notes of New Sub issued to them
in connection with the merger of Fundex into New Sub. In addition, the former
stockholders of Fundex who do not elect the All Cash Alternative will receive a
conditional option to purchase New Sub's license to market the "Phase 10" family
of games in 2002 in exchange for the New Futech stock they receive in the
mergers (but not the cash or promissory notes), exercisable only if the stock
has not achieved targeted liquidity and a valuation of at least $7.50 per share
($4,500,000 in the aggregate, if no stockholders elect the All Cash Alternative)
within three years after the completion of the mergers. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the Merger Agreement" in the
prospectus/proxy statement.
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TRUDY
Trudy Corporation
353 Main Avenue
Norwalk, Connecticut 06851-1552
(203) 846-2274
Trudy Corporation was initially organized as a Connecticut corporation
under the name "Norwest Manufacturing Corporation" in 1979. Trudy, which does
business under the name Soundprints, publishes juvenile storybooks and audio
cassettes under license agreements with the Smithsonian Institution and the
Nature Conservancy which are sold in conjunction with contract-manufactured
educational toys to the retail, education and mail order markets.
FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Futech designs, publishes, manufactures and markets interactive,
educational, promotional and entertainment products (i.e., books, game boards
with sound capabilities and specialty post cards) targeted primarily towards
children. Futech's patented technology utilizes specialized conductive ink to
print interactive touch points. These touch points trigger speech, music and
sound effects. Futech licenses this technology to a major entertainment and
publishing company. Futech also distributes proprietary products, as well as
those of third party publishers, to warehouse clubs, national book chains,
specialty and independent retailers, and major toy chains.
JANEX
Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Janex manufactures and markets children's toys, gumball banks, flashlights
and battery operated toothbrushes marketed under the brand name Janex. Janex
incorporates licensed characters into most of its products, and sells its
products to United States mass merchant retailers, toy specialty stores and
department stores.
FUNDEX
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
Fundex Games, Ltd. was originally incorporated in the State of Indiana as
"Third Quarter, Inc." in 1991. Fundex develops, markets, and distributes a
variety of games and toys for both children and adults, including:
- card games, puzzles and board games, including the Phase 10 card game and
its sister products;
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- skill and action games for children;
- games, puzzles and toys featuring characters licensed from third parties;
and
- spring and summer toys for children, including jump ropes, water toys and
water games.
DAMERT
DaMert Company
1609 Fourth Street
Berkeley, California 94710
(510) 524-7400
DaMert Company was founded in 1973 and incorporated in 1979. DaMert creates
and produces toy and gift products targeted primarily to children ages 6-12 with
nature and science themes. Presently, the product base includes over 200 toys,
gifts and puzzles selling through catalogs, museums, department stores,
specialty gift stores and toy stores nationwide.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Trudy special meeting will be held on , at at
.
PURPOSE OF THE SPECIAL MEETING
We have called the special meeting so the Trudy stockholders can vote on
whether to approve the mergers pursuant to the Merger Agreement. The directors
of Futech, Janex, Fundex and DaMert have called for special meetings of the
stockholders of their companies so that they also can vote whether to approve
the mergers.
RECOMMENDATION OF THE TRUDY BOARD OF DIRECTORS
We have unanimously approved the Merger Agreement and unanimously recommend
that the stockholders of Trudy vote "FOR" approval of the Merger Agreement.
THE MERGER AGREEMENT
Under the Merger Agreement, first Futech and then Trudy, Janex and DaMert
will merge with and into New Futech, which will survive the mergers, and Fundex
will merge into New Sub, which will survive as a wholly-owned subsidiary of New
Futech. Under the Merger Agreement, each share of Trudy common stock outstanding
immediately prior to the mergers (other than dissenting shares) will be
converted into the right to receive approximately .0011 shares of New Futech
common stock and $.0012 in cash. In addition, if at the time the New Futech
stock is first traded on a listed and recognized securities exchange, its
average closing price over a specified 15 day period is less than $7.50 per
share, the former Trudy stockholders will receive additional shares of New
Futech common stock in an amount sufficient to cause the value of all such stock
issued to them to equal $3,000,000. If by the fifth anniversary of the closing
the New Futech common stock is still not publicly traded as described above,
each former Trudy stockholder will have the right to exchange New Futech stock
for unsecured five year debentures of New Futech bearing interest at prime and
with principal amount equal to $7.50 per share exchanged. See "DESCRIPTION OF
THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the Merger Agreement" in
the prospectus/proxy statement.
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SPECIAL RISK FACTORS AFFECTING TRUDY
In addition to the risk factors set forth elsewhere in the prospectus/proxy
statement, you should carefully consider the special risks of Trudy described
below in evaluating the proposals which you will vote on at the special meeting
and the effects on the securities you will acquire in the mergers. Although we
believe that the special risks and uncertainties described below are the major
ones facing Trudy, they are not the only ones that we will face. Any of the
following could have a material adverse effect on our business, financial
condition or results of operations and the business, financial condition or
results of operations of the combined companies.
TRUDY'S REVENUES AND PROFITABILITY HAVE RECENTLY DECLINED.
For the fiscal year ended March 31, 1999 Trudy's sales declined to $3.4
million from $5.0 million in the previous year. This decline was primarily the
result of reduced sales to warehouse clubs, but a general decline was
experienced across most trade and mail order segments. For the same period, net
income declined to a loss of $0.7 million from a profit of $0.2 million in the
previous year. (Financial results for fiscal 1999 are not yet audited.) The
decline in profitability has resulted in the need for Trudy to exhaust its bank
credit line and seek additional financing from a modification in the borrowing
formula on this credit line. This credit line expires on June 15, 1999. Trudy
has been advised that it is in default on its bank loan because it is in
violation of loan covenants to maintain a total liabilities to net tangible
worth ratio of 2.50 to 1.00 and a minimum level of net tangible worth of
$750,000. Additionally, William W. Burnham, the President of Trudy, loaned Trudy
$339,000 in 1998 and the company has been unable to repay these loans. Without
additional cash availability, Trudy will be unable to develop new products,
acquire additional inventory, execute a new mail order catalog for 1999 and
expand its sales in the educational markets.
STOCKHOLDERS MAY BE UNABLE TO TRADE THEIR TRUDY STOCK.
For several years, Trudy has been a de-listed company and there has been an
extremely limited market for trading shares of the company. Without a merger, it
is not expected that this situation will change, so Trudy's stockholders may not
be able to realize any value for their ownership in Trudy.
TRUDY HAS FAILED OR BEEN DELINQUENT IN FILING ITS PERIODIC AND OTHER REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Trudy's common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934. Accordingly, Trudy is required to file periodic
and other reports with the Securities and Exchange Commission. Trudy has failed
to file, and more recently has been late on several occasions in filing, with
the Securities and Exchange Commission certain of Trudy's reports on Forms
10-QSB, 10-KSB and 8-K. In addition, Trudy's directors, officers and beneficial
owners of more than 10% of Trudy's common stock are required to file reports
with the Commission pursuant to Section 16 of the Exchange Act. Some of these
required reports have not been filed timely or at all.
STOCKHOLDER MATTERS
There is no established public trading market for Trudy common stock,
although it is traded sporadically on the OTC Bulletin Board under the symbol
"TRDY." There is no
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public trading market for the New Futech common stock. We expect the New Futech
common stock to trade on the OTC Bulletin Board/Nasdaq Stock Market soon after
the mergers, but we cannot be sure it will do so and we cannot predict what the
price might be. We do not expect a trading market to develop for any of the
other securities of New Futech or New Sub.
As of May 31, 1999, the record date, there were approximately 1,479
stockholders of record of Trudy common stock, as shown on the records of our
transfer agent.
Since its organization, Trudy has not paid any dividends on its common
stock and does not anticipate paying dividends in the foreseeable future. If the
mergers do not occur for any reason, we anticipate that all earnings, in the
foreseeable future, will be retained for development of Trudy's business.
THE MERGERS AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of Futech with and into New
Futech, promptly followed by the substantially simultaneous merger of Trudy,
Janex, and DaMert with and into New Futech and the substantially simultaneous
merger of Fundex with and into New Sub. The discussion in this prospectus/proxy
statement supplement and the related prospectus/proxy statement of the mergers
and the description of the principal terms of the Merger Agreement contained in
the prospectus/proxy statement are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to the
prospectus/proxy statement as Appendix A, and incorporated herein by reference.
EFFECTS OF THE MERGERS
GENERAL
We intend for the mergers to occur promptly following approval of the
mergers by the requisite vote of the stockholders of each of Trudy, Futech,
Janex, DaMert and Fundex and the satisfaction or waiver of all other conditions
to consummation of the mergers. The mergers will become effective at or about
the time of filing of articles of merger or other appropriate documents with the
applicable government offices or agencies. At that time (a) first Futech and
then Trudy, Janex, and DaMert will merge with and into New Futech with the
result that New Futech will be the surviving corporation and (b) then Fundex
will merge with and into New Sub with the result that New Sub will be the
surviving corporation. As part of the mergers, New Futech will change its name
to "Futech Interactive Products, Inc." The stockholders of Trudy will become
stockholders of New Futech, and their rights will be governed by the New Futech
certificate of incorporation and bylaws. See "COMPARISON OF RIGHTS OF
STOCKHOLDERS OF TRUDY AND NEW FUTECH." See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT" in the prospectus/proxy statement.
For information regarding the operation of New Futech and New Sub following
the mergers, see "NEW FUTECH BUSINESS" in the prospectus/proxy statement. For
information regarding the officers and directors of New Futech following the
mergers, see "NEW FUTECH'S MANAGEMENT" in the prospectus/proxy statement.
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EXCHANGE RATIOS
Each share of Trudy common stock outstanding immediately prior to the
mergers (other than dissenting shares) will be converted into the right to
receive approximately .0011 shares of new Futech common stock and $.0012 in
cash. In addition, if at the time the New Futech stock is first traded on a
listed and recognized securities exchange, its average closing price over a
specified 15 day period is less than $7.50 per share, the former Trudy
stockholders will receive additional shares of New Futech common stock in an
amount sufficient to cause the value of all such stock issued to them to equal
$3,000,000. If by the fifth anniversary of the closing the New Futech common
stock is still not publicly traded as described above, each former Trudy
stockholder will have the right to exchange New Futech stock for unsecured five
year debentures of New Futech bearing interest at prime and with principal
amount equal to $7.50 per share exchanged.
Outstanding shares of Futech, Fundex, Janex and DaMert will also be
converted into a combination of cash, common stock of New Futech and promissory
notes of New Futech or New Sub. Under certain circumstances the former
stockholders of Fundex will have the right to exchange their New Futech stock
for the license rights in the "Phase 10" family of games now owned by Fundex. In
addition, outstanding options for shares of Trudy, Futech, Janex and Fundex will
be converted into options for shares of common stock of New Futech. See
"DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement" in the prospectus/proxy statement.
FRACTIONAL SHARES
Fractional shares of New Futech common stock will not be issued in the
mergers. Instead, stockholders in any of the merging companies who would
otherwise have received an amount of New Futech stock that includes a fraction
of a share will instead receive an amount of cash equal to that fraction
multiplied by $7.50. For example, a Trudy stockholder who is otherwise entitled
to receive 15.5 shares of New Futech common stock will actually receive only 15
shares, plus $3.75 in cash (i.e., 0.5 times $7.50).
BACKGROUND OF THE MERGERS
During 1998, Trudy had been actively seeking an acquisition which would
provide ready distribution for Soundprints storybooks and audio tapes in the
supplemental education market either to libraries and/or the classroom. After
several years of growth in sales and profitability due to the successful
penetration of the Soundprints products in the book seller and specialty retail
trade, warehouse clubs, and direct mail segments, the Company decided, after
reviewing market data, that the best opportunity for continued sales momentum
was to sell directly to educators where the Soundprints products could be used
in libraries and classrooms. Trudy management also believed that it had
sufficient direct marketing, back-office and order fulfillment expertise and
capacity to nearly double its sales without adding substantially to overhead
costs.
During the summer of 1998, Trudy entered preliminary discussions with three
companies with a presence in the education market. During this time, sales in
Trudy's main market segments, particularly sales to the warehouse clubs, began
to decline. It was determined that, at this reduced level of sales, the Company
would not have the financial resources to acquire another company. In the
meantime the Company had hired a mergers and acquisitions consulting firm, JPMC
Associates, which was actively seeking acquisition candidates for Trudy. This
firm introduced Trudy to a manufacturer and marketer of
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science educational products which was seeking to acquire other companies.
Discussions between Trudy's management, JPMC, and the management of the other
company took place during the fall of 1998. Historical financial results and
projections were exchanged. However, a merger agreement acceptable to Trudy's
management could not be reached.
In early November 1998, Vincent Goett, Futech's CEO, having become aware of
Trudy's interest in acquisition candidates, placed a telephone call to William
Burnham, Trudy's chief executive officer. William Carney, Trudy's chief
financial officer, returned the call to Mr. Goett. Mr. Goett reviewed Futech's
recent history of acquiring several toy, game, greeting card and publishing
distribution companies and outlined his strategy to continue making acquisitions
of companies that could utilize Futech's proprietary conductive ink sound
technology. A confidentiality agreement between the two companies was signed by
Mr. Goett and Mr. Carney on November 11.
On November 16 and 17, 1998 at an annual strategic planning retreat of
management and board members in Vermont, the Company's financial condition was
reviewed and discussed in detail as to a near strategy to address the recent
sales softness. Various alternatives were considered including remaining
independent, merging with Futech, continuing to seek other merger partners
including the science educational products company or rekindle the earlier
strategy of acquiring a literature based educational publisher. For the latter
option, one such publisher had been identified and preliminary acquisition
negotiations initiated. The consensus of those at the retreat was Soundprints
did not have a source of cash to fund an acquisition. Alternatively, a purchase
with Trudy stock would not be sufficient incentive to the acquiring party since
Trudy's stock had been de-listed and there were no market makers. In addition,
the sales level of the company was such that sufficient cash could not be
generated in the next six months to allow the Company to stay within its bank
lending covenants. Accordingly, it was decided that management should continue
with preliminary merger negotiations with Futech. On November 23 and 24, a
meeting was held at Futech's offices in Phoenix, AZ between Mr. Goett and Mr.
Burnham, Elisabeth Prial, Trudy's publisher, and Mr. James McGough, principal of
JPMC Associates. Terms of an agreement for Futech to acquire Trudy were agreed
to at these meetings. On December 11th, at a special board meeting, details of
the acquisition terms were discussed and the agreement was unanimously approved.
On December 18, 1998 a Letter of Intent was signed by both companies.
Throughout January and February, both companies performed due diligence
while the definitive merger agreement was drafted. On March 1, 1999, Trudy's
Board held a special meeting to review the proposed merger and, after discussion
and consideration, approved and authorized the execution of the merger
agreement. Following further negotiation, each of Trudy and Futech executed and
delivered the merger agreement on March 3. Since March, Trudy management has
been working closely with the management of the other merging companies to
integrate the various operations. Additional due diligence work has been
performed by all parties. Since the execution of the merger agreement on March
3, 1999 between Trudy and Futech, it was determined that it would be preferable
to have a global merger agreement which would be signed by all of the merging
companies and would supersede the prior merger agreement between Trudy and
Futech. The Global Merger Agreement (which is referred to herein as the "Merger
Agreement") contains substantially similar terms as the prior merger agreement
and was unanimously approved by Trudy's board of directors on May 25, 1999.
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REASONS FOR THE MERGERS
THE TRUDY BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGERS
ARE IN THE BEST INTERESTS OF TRUDY AND ITS SHAREHOLDERS. ACCORDINGLY, THE TRUDY
BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND RECOMMENDS
THAT THE STOCKHOLDERS OF TRUDY VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
As a small, de-listed public company, Trudy has found it difficult to raise
capital for investment opportunities which it considered attractive. It has also
been unable to provide its shareholders liquidity for its stock. A decline in
sales and profitability in 1998 has made it increasingly difficult for Trudy to
fund needed investments.
After pursuing several alternatives throughout 1998, including acquiring or
merging with other small publishing companies, Trudy agreed to be acquired by
Futech. Management and the board believe that the mergers will give Trudy access
to the capital needed to increase the number of titles published each year and
also expand into the supplemental education market. The mergers will also allow
Trudy to improve profitability by realizing economies of scale needed to improve
the effectiveness of its sales efforts in multiple distribution channels and
reduce overhead costs in administrative, logistical, and back-office functions.
The mergers may provide liquidity to the former Trudy stockholders for
their New Futech common stock. Trudy's board of directors expects the New Futech
common stock to trade on the OTC Bulletin Board after the mergers, but there is
no assurance that it will do so or at what price or prices it would trade.
For additional information regarding the background of and the reasons for
the merger, see "SPECIFIC REASONS FOR PREVIOUS ACQUISITIONS AND PROPOSED MERGER
PARTNERS" beginning in the prospectus/proxy statement.
TRUDY'S BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF TRUDY HAS DETERMINED THAT THE MERGERS ARE
ADVISABLE AND IN THE BEST INTERESTS OF TRUDY AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
RELATED AGREEMENTS; INTERESTS OF CERTAIN TRUDY AFFILIATES IN THE MERGERS
In connection with the mergers, William W. Burnham will be employed as the
Vice President of Specialty Markets of New Futech. Mr. Burnham will also be a
director of New Futech and will receive a three year employment agreement
providing for a base salary of $100,000 per year and stock options for a total
of 20,000 shares of New Futech common stock, vesting in equal, annual
installments over the three year period and with an exercise price of $7.50 per
share. Some of the officers and directors of the other merging companies will
also receive employment agreements and stock options in connection with the
mergers.
New Futech has also agreed, as part of the Merger Agreement, to repay
certain loans owing by Trudy to William W. Burnham and two of his family members
in the aggregate amount (including accrued interest through January 31, 1999) of
$800,000. Interest will continue to accrue only on the debt owing to the family
members until the mergers occur. As of April 30, 1999, the balance, including
accrued interest owed to the family members was $172,253. No interest will
accrue on the debts owing to Mr. Burnham from February 1, 1999 through the
effective time of the mergers. Beginning on the closing date
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of the mergers, interest will accrue on the outstanding balance of all of these
loans at four percent (4%) per annum. At the closing, New Futech will repay 25%
of the outstanding balance, and thereafter will repay three equal amounts of
principal plus all accrued interest at six month intervals.
Within thirty days after the effective date of the mergers, New Futech will
obtain releases of William W. Burnham of his personal guaranty of the following
Trudy debts: (i) Trudy's revolving credit agreement with First Union, with an
outstanding balance as of April 30, 1999 of $795,000 and (ii) Trudy's four year
term note with First Union with an outstanding balance as of April 30, 1999 of
$195,650. New Futech may be required to refinance these loans to obtain the
releases.
Trudy has agreed to pay James P. McGough of JPMC Associates, Trudy's
mergers and acquisitions consulting firm, total compensation of approximately
$167,000 for his services in connection with the Trudy merger. Mr. McGough will
be paid $43,670 and granted 13,500,000 shares of Trudy common stock prior to the
closing of the mergers. The 13,500,000 shares of Trudy common stock will be
converted in the mergers into cash in the amount of $16,330 and 14,314 shares of
New Futech common stock.
REGULATORY MATTERS
Except as disclosed in this prospectus/proxy statement supplement and the
prospectus/proxy statement, Trudy and New Futech are not aware of any
governmental or regulatory approvals required for consummation of the mergers,
other than compliance with the federal securities laws and applicable securities
and "blue sky" laws of the various states.
CERTAIN FEDERAL TAX MATTERS
In the opinion of Quarles & Brady LLP, special tax counsel to New Futech,
the Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and New Futech and Trudy will
each be a party to that reorganization within the meaning of Section 368(b) of
the Code.
In rendering its opinion, counsel has relied upon and assumed as accurate
and correct on the date hereof, and will rely on and assume as accurate and
correct as of the Effective Time of merger, the information contained in this
prospectus/proxy statement supplement and the related prospectus/proxy statement
and certain representations as to factual matters made by New Futech and Trudy.
The representations relied upon include the following: (i) the Trudy
stockholders will receive in the merger New Futech common stock having a fair
market value of at least 40% of the fair market value of all outstanding Trudy
common stock immediately before the merger; and (ii) there is no plan or
intention on the part of New Futech or a corporation related to New Futech to
purchase any of the new Futech common stock transferred to the Trudy
shareholders in the merger. Any inaccuracy or change with respect to such
information or representations or actions of New Futech or Trudy contrary to
such representations could adversely affect the conclusions reached in the
opinion and the tax summary set forth below.
Counsel's opinion represents its best legal judgement as to the tax
treatment of the Merger, but the opinion is not binding on the Internal Revenue
Service (the "Service"). The parties have not and will not request a ruling from
the Service in connection with the federal income tax consequences of the
merger.
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The following discussion addresses certain federal tax consequences of the
merger to a Trudy stockholder assuming the merger will qualify as a
reorganization and is based on the provisions of the Code, the applicable
regulations thereunder, judicial authority and current administrative rulings
and practices as of the date hereof, all of which are subject to change,
possibly with retroactive effect. The discussion assumes that the shares of
Trudy common stock are held as capital assets.
The receipt by the Trudy stockholders of the conditional rights to
additional New Futech common stock will not be taxable to the Trudy
stockholders. However, the receipt by the Trudy stockholders of the conditional
rights to exchange their New Futech common stock for New Futech debentures after
5 years from the merger will be taxable to the Trudy stockholders. Imputed
interest may be imposed on the receipt of additional New Futech common stock or
New Futech debentures pursuant to the exercise of such conditional rights.
A Trudy stockholder will not recognize loss on the receipt of New Futech
common stock, the conditional right to exchange New Futech common stock for a
New Futech debenture and cash in exchange for Trudy common stock. However, under
Section 356(a)(1) of the Code, the stockholder will recognize gain, if any, with
respect to each share of Trudy common stock exchanged (measured by the sum of
the fair market value of the portion of a share of New Futech common stock
received for such share of Trudy common stock plus the fair market value of the
portion of the conditional right to exchange New Futech common stock for a New
Futech debenture received for such share of Trudy common stock plus the amount
of any cash received for such share of Trudy common stock, minus the tax basis
of such share of Trudy common stock) but only to the extent of the amount of the
conditional right to exchange New Futech common stock for a New Futech debenture
and cash received in exchange for such share of Trudy common stock.
Under applicable Supreme Court precedent, any such gain recognized will be
taxed as either gain from the sale or exchange or stock (i.e., capital gain) or
as a dividend (to the extent of the stockholder's ratable share of the earnings
and profits of Trudy), based upon whether, in the transaction described in the
next sentence, such stockholder's interest in Trudy was reduced sufficiently so
as to meet one of the tests set forth in Section 302(b) of the Code, as
described below. For purposes of this determination, a Trudy stockholder will be
treated as if such stockholder had engaged in a hypothetical transaction in
which such stockholder and all other Trudy stockholders (i) received solely
shares of New Futech common stock in exchange for all of their shares of Trudy
common stock; and (ii) thereafter had a portion of such shares of New Futech
common stock redeemed for the cash and the conditional right to exchange New
Futech common stock for a New Futech debenture portion of the merger
consideration. A Trudy stockholder's hypothetical interest in New Futech after
step (i) is compared to such stockholder's interest in New Futech subsequent to
the deemed redemption in step (ii). In each case, subject to limited exceptions,
shares of New Futech common stock actually or constructively owned by such
stockholder will be considered owned for purposes of applying the test, even if
such shares of New Futech common stock were not received or deemed received in
the Merger.
Under Section 302(b) of the Code a stockholder's interest in New Futech
will be deemed to have been reduced sufficiently so as to result in sale or
exchange treatment of the gain if, insofar as is here relevant, (i) such
stockholder's interest in New Futech is completely terminated as a result of the
transaction; (ii) as a result of the hypothetical redemption described above and
taking into account all other hypothetical redemptions in the Merger, the Fundex
Merger and the DaMert Merger, a stockholder's interest in New
12
<PAGE> 466
Futech is less than 80% of the stockholder's interest in New Futech before the
redemption; or (iii) such stockholder's interest was "meaningfully reduced" by
virtue of such redemption (the "Section 302 Tests"). While the latter of the
Section 302 Tests requires a determination based on a stockholder's particular
facts and circumstances, the Service has indicated in published rulings that a
distribution that results in any actual reduction in interest of an extremely
small minority stockholder in a publicly held corporation will meaningfully
reduce the stockholder's interest in the corporation if the stockholder
exercises no control with respect to corporate affairs.
Under the applicable constructive ownership rules of Section 318 of the
Code for purposes of the Section 302 Tests, a stockholder will, in general, be
treated as owning shares owned by certain family members and other related
entities, or that are subject to options owned or deemed owned by such person.
The actual or constructive ownership of shares of Trudy common stock may, in
some circumstances, have the effect of causing a Trudy stockholder that would
otherwise qualify for capital gain treatment under the Section 302 Tests to fail
to so qualify and subject such stockholder to dividend treatment.
To the extent that cash and the conditional right to exchange New Futech
common stock for a New Futech debenture received in exchange for shares of Trudy
common stock is treated as a dividend to a corporate stockholder (other than an
S corporation), such stockholder will be (i) eligible for a dividends received
deduction (subject to applicable limitations); and (ii) subject to the
"extraordinary dividend" provisions of the Code. Under recently enacted
legislation, any cash which is treated as a dividend to a corporate stockholder
will constitute an extraordinary dividend, except as otherwise provided in
Treasury Regulations which have yet to be promulgated. Consequently, in the
absence of such regulations, the nontaxed portion of any such dividend would
reduce a corporate stockholder's adjusted tax basis in the shares of New Futech
common stock received in the Merger but not below zero and would thereafter be
taxable as capital gain.
The tax basis of each share of New Futech common stock received in the
merger will be the same as the tax basis of the shares of Trudy common stock
exchanged therefor, increased by the amount of gain recognized on the exchange
with respect to such shares of Trudy common stock (including any such gain that
is treated as a dividend), decreased by any portion of such shares of Trudy
common stock which is converted into cash in lieu of receipt of a fractional
share of New Futech common stock, and further decreased by the amount of cash
and conditional right to exchange New Futech common stock for a New Futech
debenture received with respect to such shares of Trudy common stock (other than
cash received in lieu of a fractional share interest). The holding period of the
shares of New Futech common stock received will include the holding period of
the shares of Trudy common stock exchanged therefor.
The payment of cash to a holder of Trudy common stock in lieu of a
fractional share interest, if any, of New Futech common stock will result in
recognition of gain or loss, measured by the difference between the amount of
cash received and the portion of the adjusted tax basis of Trudy common stock
allocable to such fractional share interest.
A holder of Trudy common stock who receives New Futech common stock and
cash pursuant to the merger will be required to retain records and file with
such holder's federal income tax return for the taxable year in which the merger
takes place a statement setting forth all relevant facts in respect of the
nonrecognition of gain or loss upon such exchange. The statement is required to
include (i) such holder's basis in the shares of Trudy common stock surrendered
in the merger; and (ii) the value of New Futech common stock received and the
conditional right to exchange New Futech common stock for a
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<PAGE> 467
New Futech debenture (using fair market value as of the Effective Time of
merger) and the amount of any cash received in the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A DESCRIPTION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular taxpayers in light of their personal circumstances or
to taxpayers subject to special treatment under the Code (for example, insurance
companies, financial institutions, dealers in securities, tax exempt
organizations, foreign corporations, foreign partnerships, or other foreign
entities and individuals who are not citizens or residents of the United States
and persons who acquired their New Futech common stock pursuant to the exercise
or termination of employee stock options, warrants or otherwise as compensation.
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
THE GENERAL SUMMARY SET FORTH ABOVE IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF TRUDY COMMON
STOCK. EACH HOLDER OF TRUDY COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The mergers are intended to qualify as a purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
APPRAISAL RIGHTS OF TRUDY STOCKHOLDERS
Delaware law entitles the holders of record of shares of Trudy common stock
who follow the procedures specified in Section 262 of the Delaware General
Corporation Law (the "DGCL") to have their shares appraised by the Delaware
Court of Chancery and to receive the "fair value" of such shares as of the
effective date of the mergers as determined by the court in place of the merger
consideration. In order to exercise appraisal rights, a stockholder must demand
and perfect the rights in accordance with Section 262 of the DGCL. The following
is a summary of Section 262 of the DGCL and is qualified in its entirety by
reference to Section 262 of the DGCL, a copy of which is attached to this
prospectus/proxy statement supplement as Appendix I. Stockholders should
carefully review Section 262 of the DGCL as well as information discussed below
to determine their rights to appraisal.
If a stockholder of Trudy elects to exercise the right to an appraisal
under Section 262 of the DGCL, such stockholder must do ALL of the following:
(1) file with Trudy at its main office in Norwalk, Connecticut, a
written demand for appraisal of the shares of Trudy common stock held
(which demand must identify the stockholder and expressly request an
appraisal) before the vote is taken on the Merger Agreement at the special
meeting (this written demand for appraisal must be
14
<PAGE> 468
in addition to and separate from any proxy or vote against the Merger
Agreement; neither voting against, abstaining from voting nor failing to
vote on the Merger Agreement will constitute a demand for appraisal within
the meaning of Section 262 of the DGCL);
(2) not vote in favor of the Merger Agreement (a failure to vote or
abstaining from voting will satisfy this requirement, but a vote in favor
of the Merger Agreement, by proxy or in person, or the return of a signed
proxy which does not specify a vote against approval and adoption of the
Merger Agreement, will constitute a waiver of such stockholder's right of
appraisal and will nullify any previously filed written demand for
appraisal); and
(3) continuously hold such shares through the effective date of the
mergers.
All written demands for appraisal should be addressed to: William W.
Burnham, President, Trudy Corporation, 353 Main Avenue, Norwalk, Connecticut
06851-1552, before the vote is taken on the Merger Agreement at the special
meeting, and should be executed by, or on behalf of, the holder of record. Such
demand must reasonably inform Trudy of the identity of the stockholder and that
such stockholder is thereby demanding appraisal of such stockholder's shares.
Within 10 days after the effective date of the mergers, New Futech will
give written notice of the effective date of the mergers to each stockholder of
Trudy who has satisfied the requirements of Section 262 of the DGCL and has not
voted for the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby (a "Dissenting Stockholder"). Within 120 days
after the effective date of the mergers, New Futech or any Dissenting
Stockholder may file a petition in the court demanding a determination of the
fair value of the shares of Trudy common stock of all Dissenting Stockholders.
Any Dissenting Stockholder desiring the filing of such petition is advised to
file such petition on a timely basis, unless such Dissenting Stockholder
receives notice that such a petition has been filed by New Futech or another
Dissenting Stockholder.
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and thereafter will determine the
fair value of the shares of Trudy common stock held by Dissenting Stockholders,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, but together with a fair rate of interest, if any, to be paid on
the amount determined to be fair value. In determining such fair value, the
court shall take into account all relevant factors. The court may determine such
fair value to be more than, less than or equal to the consideration that such
Dissenting Stockholder would otherwise be entitled to receive pursuant to the
Merger Agreement. If a petition for appraisal is not timely filed, then the
right to an appraisal shall cease. The costs of the appraisal proceeding shall
be determined by the court and taxed against the parties as the court determines
to be equitable under the circumstances. Upon the application of any
stockholder, the court may determine the amount of interest, if any, to be paid
upon the value of stock of stockholders entitled thereto. Upon application of a
stockholder, the court may order all or a portion of the expenses incurred by
any stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, to
be charged pro rata against the value of all shares entitled to appraisal.
From and after the effective date of the mergers, no Dissenting Stockholder
shall have any rights of a Trudy stockholder with respect to such holder's
shares for any purpose, except to receive payment of its fair value and to
receive payment of dividends or other
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<PAGE> 469
distributions on such holder's shares, if any, payable to Trudy stockholders of
record as of a date prior to the effective date of the mergers. If a Dissenting
Stockholder delivers to New Futech a written withdrawal of the demand for an
appraisal within 60 days after the effective date of the mergers or thereafter
with the written approval of New Futech, or if no petition for appraisal is
filed within 120 days after the effective date of the mergers, then the right of
such Dissenting Stockholder to an appraisal will cease and such Dissenting
Stockholder will be entitled to receive only the merger consideration.
NEW FUTECH AND TRUDY SHARES
NEW FUTECH COMMON STOCK
For a description of New Futech common stock and its authorized but
unissued preferred stock, see "DESCRIPTION OF NEW FUTECH CAPITAL STOCK" in the
prospectus/proxy statement.
TRUDY CAPITAL STOCK
The following description of Trudy's capital stock is a summary only and is
subject to, and qualified in its entirety by, reference to Trudy's certificate
of incorporation and bylaws, copies of which are included as exhibits to the
registration statement of which this prospectus/proxy statement supplement is a
part, and by reference to Delaware law under which Trudy is incorporated.
COMMON STOCK
The current authorized capital of Trudy consists of 850,000,000 shares of
common stock, par value $.0001 per share. As of May 31, 1999, there were
349,072,249 shares of Trudy common stock issued and outstanding. In addition,
prior to the closing of the mergers, Trudy is obligated to issue 13,500,000
shares of its common stock to James P. McGough of JPMC Associates, Trudy's
mergers and acquisitions consulting firm. The per share consideration payable to
Trudy stockholders in the mergers described in this prospectus/proxy statement
takes into account the issuance of these shares. There were also 22,500,000
shares of Trudy common stock reserved for issuance pursuant to Trudy's 1987
Stock Option Plan, 6,765,000 shares of which of have been issued pursuant to the
exercise of options granted under the plan and 14,680,000 shares of which are
subject to outstanding options granted under the plan. To Trudy's knowledge, no
dealer makes a market in Trudy's shares. Quotes for Trudy shares on the
over-the-counter market (NASDAQ symbol: TRDY) are infrequent and do not
constitute an established market for Trudy shares. Trudy has not paid any
dividends on its common stock. The Merger Agreement provides that Trudy will not
declare or pay any dividend without the prior written approval of New Futech.
Each share of Trudy common stock is entitled to one vote. The directors of
Trudy are elected to serve one-year terms. The DGCL provides that the
affirmative vote of a majority of all shares entitled to vote is required in
order to constitute stockholder approval of a merger, consolidation or
liquidation of Trudy, sale or other disposition of substantially all of its
assets or amendment of its certificate of incorporation. Pursuant to its
certificate of incorporation, Trudy's board of directors may amend the bylaws.
Trudy's bylaws provide for removal of a director, with or without cause by the
affirmative vote of a majority of all shares entitled to vote at an election of
directors.
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<PAGE> 470
Holders of capital stock of Trudy do not have preemptive or other
subscription rights to purchase or subscribe for unissued stock or other
securities of Trudy.
COMPARISON OF THE RIGHTS OF HOLDERS OF TRUDY COMMON STOCK
AND NEW FUTECH COMMON STOCK
Trudy and New Futech are both Delaware corporations and as such the rights
of their stockholders are governed by the DGCL and their respective certificates
of incorporation and bylaws. By the Merger Agreement, the Trudy stockholders
will become New Futech stockholders and as such their rights will be governed
by, in addition to the DGCL, New Futech's Certificate of Incorporation and
Bylaws.
The certificate of incorporation and bylaws of Trudy and New Futech differ
in certain respects. In addition, certain provisions of the DGCL may apply
differently to Trudy and New Futech. Although all of the provisions of the DGCL
that may apply differently to Trudy and New Futech and all of the differences
between Trudy's and New Futech's Certificates of Incorporation and Bylaws are
not set forth in this prospectus/proxy statement supplement, differences which
could materially affect the rights of stockholders are discussed below.
CAPITAL STOCK
The Trudy Certificate of Incorporation authorizes the issuance of
850,000,000 shares of common stock, par value $.0001 per share. Trudy currently
has outstanding 349,072,249 shares of common stock. Accordingly, all
shareholders of Trudy common stock have equal rights and preferences with
respect to dividends and distributions upon liquidation.
The New Futech Certificate of Incorporation authorizes the issuance of
45,000,000 shares of common stock, par value $.001 and 5,000,000 shares of
preferred stock, par value $.001 per share. Following the mergers a minimum
aggregate of 5,867,628 shares and a maximum aggregate of 5,955,297 shares of New
Futech common stock will be outstanding. In addition, certain outstanding
indebtedness in the amount of 10,000,000 is expected to be exchanged for
2,222,222 shares of New Futech preferred stock shortly after the mergers.
Holders of New Futech preferred stock will have certain rights and
preferences with respect to dividends and upon liquidation that are superior to
those of holders of New Futech common stock. The relative rights and preferences
of any New Futech preferred stock issued in the future may be established by the
New Futech board of directors without shareholder action, and such shares, when
and if issued, could have dividend, liquidation, voting and other rights
superior to those of New Futech common stock.
STOCKHOLDER VOTING
Delaware law generally does not require class voting, except in certain
transactions involving an amendment to the Certificate of Incorporation that
adversely affects a specific class of shares or where the designation of a class
of securities grants such a right. Accordingly, holders of New Futech preferred
stock will have class voting rights in transactions involving an amendment to
New Futech's Certificate of Incorporation if such amendment will adversely
affect the rights of such holders.
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<PAGE> 471
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. This method of electing
directors makes changes in the composition of the board of directors more
difficult, and thus a potential change in control of a corporation a lengthier
and more difficult process. Delaware law permits, but does not require, a
classified board of directors, by which the directors can be divided into as
many as three classes with staggered terms of office, with only one class of
directors standing for election each year.
Trudy's Certificate of Incorporation and Bylaws do not provide for a
classified board of directors. New Futech's Certificate of Incorporation and
Bylaws provide for a classified board, consisting of three classes with three
directors in each class.
REMOVAL OF DIRECTORS
A director of Trudy may be removed with or without cause with the approval
of a majority of the outstanding shares entitled to vote at an election of
directors. A director of a corporation with a classified board of directors may
be removed only for cause, unless the corporation's certificate of incorporation
provides otherwise. New Futech's Certificate of Incorporation does not so
provide.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS UNDER DELAWARE LAW
In recent years, a number of states have adopted special laws designed to
make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant shareholders, more
difficult. Under Section 203 of the Delaware General Corporation Law, certain
"business combinations" with "interested stockholders" of Delaware corporations
are subject to a three-year moratorium unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, fifteen
percent (15%) or more of the corporation's outstanding voting stock (including
any rights to acquire stock pursuant to an option, warrant, agreement,
arrangement or understanding, or upon the exercise of conversion or exchange
rights, and stock with respect to which the person has voting rights only), or
is an affiliate or associate of the corporation and was the owner, individually
or with or through certain other persons or entities, of fifteen percent (15%)
or more of such voting stock at any time within the pervious three years, or is
an affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value of ten
percent (10%) or more of the aggregate market value of either the corporation's
consolidated assets or all of its outstanding stock; the issuance of transfer by
the corporation or a direct or indirect majority-owned subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except for
certain transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of
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<PAGE> 472
the corporation's or such subsidiary's stock or of the corporation's voting
stock); or receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity
becoming an interested stockholder,
- upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least eighty-five percent
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding from the eighty-five percent calculation shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans that do not give employee
participants the right to decide confidentiality whether to accept a
tender or exchange offer), or
- on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent of
the outstanding voting stock not owned by the interested stockholder.
Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is:
- listed on a national securities exchange,
- quoted on an interdealer quotation system of a registered national
securities association, or
- held of record by more than 2,000 stockholders.
In addition, Section 203 of the DGCL does not apply if a corporation's
original certificate of incorporation contains a provision expressly electing
not to be governed by Section 203. Neither Trudy's nor New Futech's Certificate
of Incorporation contains such an election.
Section 203 of the DGCL does not currently apply to Trudy. Based upon the
expectation that there will be more than 2,000 record holders of New Futech
common stock following the mergers, Section 203 will apply to New Futech.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three year period.
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<PAGE> 473
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to the
statements of income of Trudy for each of the three years in the period ended
March 31, 1998, and with respect to the balance sheets of Trudy at March 31 of
each of the three years ending March 31, 1998, are derived from the audited
financial statements of Trudy included or incorporated by reference in the
prospectus/proxy statement and incorporated by reference in this
prospectus/proxy statement supplement. The selected historical financial data
for Trudy for the year ended March 31, 1995, and with respect to the balance
sheet of Trudy at March 31 of the year ending March 31, 1995, are derived from
the unaudited financial statements of Trudy.
The selected historical financial data for Trudy for the year ended March
31, 1999, are derived from the unaudited financial statements of Trudy included
in the prospectus/proxy statement and incorporated by reference in this
prospectus/proxy statement supplement. The unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments, that
such company considers necessary for a fair presentation of the financial
position and results of operations for these periods.
The income (loss) from operations before taxes and other charges data
presented below does not include the cumulative effect of change in accounting
principle as disclosed in Note 13 to the financial statements included in the
prospectus/proxy statement. The data set forth below are qualified by reference
to, and should be read in conjunction with, the financial statements and the
notes related thereto included in the prospectus/proxy statement.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Net sales...................... $ 3,390,884 $ 4,977,599 $ 4,796,410 $ 4,096,219 $ 3,254,256
Income (loss) from operations
before taxes and other
charges...................... $ (717,712) $ 78,876 $ 451,795 $ 224,412 $ 278,114
Income (loss) per share........ $ (0.002167) $ 0.000627 $ 0.001093 $ 0.000999 $ 0.000887
Weighted average number of
shares outstanding........... 331,222,249 324,598,187 321,790,582 318,457,249 318,457,249
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Total assets........................ $2,927,138 $2,889,844 $2,323,438 $2,790,816 $1,597,953
Notes payable and other long term
debt (including current
portion).......................... $1,716,256 $1,087,577 $ 705,003 $1,092,570 $ 636,766
Stockholders' equity................ $ 765,863 $1,483,574 $1,272,727 $ 909,051 $ 537,726
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with Trudy's audited
financial statements and notes thereto for the two years ended March 31, 1998
and 1997 and its unaudited financial statements for the year ended March 31,
1999, appearing as an attachment to the prospectus/proxy statement.
OVERVIEW
Trudy Corporation, a Delaware corporation, was initially organized as a
Connecticut corporation under the name Norwest Manufacturing Corporation in
1979. Trudy, which does business under the name Soundprints, currently publishes
juvenile storybooks and audio cassettes which are sold in conjunction with
contract-manufactured educational toys to the retail, education and mail order
markets.
Soundprints holds an exclusive license from the Smithsonian Institution to
utilize the Smithsonian name in connection with the sale of realistic wildlife
plush toys and educational kits, storybooks and audio cassettes. Soundprints
also has a license from The Nature Conservancy to develop a series of habitat
books, toys and audio cassettes.
Soundprints' products are sold to book, toy and specialty retailers;
warehouse clubs and book, gift and educational distributors by an in-house sales
staff and independent commissioned sales representatives and are offered at
retail prices ranging from $4.95 to $32.95.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentage that certain income and expense items bear to net sales.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 52.9 55.9 52.6
----- ----- -----
Gross profit.............................. 47.1 44.1 47.4
Selling, general and administrative
expenses................................ 62.7 42.6 38.0
----- ----- -----
Income from operations.................... (15.6) 1.6 9.4
Other income (expense).................... (5.6) (1.7) (3.8)
----- ----- -----
(Loss) income before benefit for income
taxes................................... (21.2) (0.1) 5.6
Income tax benefit........................ -- 3.1 1.7
----- ----- -----
Income before extraordinary item.......... (21.2) 3.0 7.3
Extraordinary item (net of income
taxes).................................. -- 1.1 --
----- ----- -----
Net income................................ (21.2) 4.1 7.3
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
Net Sales. Net sales for the year ended March 31, 1999 were $3,390,884 as
compared with net sales of $4,977,599 for the year ended March 31, 1998. Sales
to
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<PAGE> 475
warehouse clubs, the largest market segment, were down $775,443 or 44% to
$977,961 due to the clubs' decision to purchase more conservatively and minimize
inventory carryover. Direct response sales of $961,624 were $269,554 or 22%
lower than last year. Catalog marketers, in general, experienced reduced buying
early in the pre-holiday season (September) due to financial market uncertainty.
Sales of $671,946 to bookstores and specialty retailers were $492,101, 42%,
below last year as the number of independent bookstores continues to decline and
specialty stores have become more selective in their purchases. Sales to schools
and education wholesalers continue to increase as a result of the Company's
decision to target its direct marketing toward this growing market segment.
Cost of Sales. Cost of sales of $1,792,781 decreased from $2,780,401 in
the prior year primarily because of the lower level of sales volume. In
percentage terms, cost of sales decreased to 52.9% from 55.9%. The lower
percentage is the result of reduced product cost and favorable product mix among
market segments.
Selling, General and Administrative Expense. Selling, general, and
administrative expenses increased slightly to $2,128,721 from $2,118,322. Lower
royalty and sales commission expenses resulting from lower revenue were offset
by the higher cost of a larger consumer catalog mailing.
Income/(Loss) from Operations. Income from operations was a loss of
$530,618 compared with a profit of $78,876 in the prior year. The decline is
primarily the result of lower sales.
Interest Expense. Interest expense increased to $115,151 from $102,099
last year as a result of higher borrowing needed to fund working capital
requirements and operating losses.
Depreciation Expense. Depreciation expense increased to $75,255 from
$17,449 in the prior year. A write-off of $53,081 for a computer operating
system purchased in December 1997 was recorded because it was determined that
the new system did not meet the Company's requirements.
Other Income. Other income of $3,312 decreased from $35,904 in the prior
year. In the third quarter, the Company recognized a $30,000 liability for
sub-right royalty expense.
Net Income/(Loss). A net loss of $717,712 for the year ended March 31,
1999 compares to a profit of $203,552 in the prior year. In addition to the
changes discussed above, the decline is also the result of two non-recurring
gains recorded last year: an income tax benefit of $152,000 and an after tax
gain of $56,320 from the forgiving of accrued interest on loans made to the
Company by its President.
FISCAL YEAR ENDED MARCH 31, 1998, COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
Net Sales. Net sales for the year ended March 31, 1998 were $4,977,599 as
compared with net sales of $4,796,410 for the year ended March 31, 1997, or an
increase of 3.8%. Direct market catalog sales increased by over 50% from
$810,067 in 1997 to $1,231,178 in 1998. Sales to mass merchant warehouse clubs
were flat year to year, but remained the largest segment. Sales to the retail
booksellers and special markets declined due to increased competition from the
large bookstore chains.
Cost of Sales. Cost of sales of $2,780,401 increased from $2,522,688 in
the prior year. In percentage terms to sales, cost of sales increased from 52.6%
to 55.9% principally as a result of increases in fixed costs, amortization of
pre-publication design costs
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<PAGE> 476
associated with the increased number of titles published in the last two years,
design and editorial costs, and labor and shipping costs.
Selling General and Administrative Expense. Selling, general, and
administrative ("SG&A") expenses increased from $1,821,927 to $2,118,322. Higher
advertising and catalog expenses along with outside telemarketing costs and
sales salaries account for the increase, but position Trudy for continued growth
in both the direct mail and trade segments.
Income from Operations. Consequently, income from operations of $78,876
was down from $451,795 in 1997.
Interest Expense. Interest expense increased to $102,099 from $55,077 in
the prior year primarily to fund increased working capital levels. With an
increasing portion of revenues occurring in the pre-holiday period in the direct
mail segment, it was necessary to increase inventory levels in the summer months
in preparation of this period of heavy demand.
Non-Recurring Expense and Gain. The 1997 results included a non-recurring
expense of $124,384 related to the relocation of the Company's facilities in
July 1997. In 1998, the Company posted a non-recurring gain of $56,320 (net of
income taxes) as William Burnham forgave $96,320 in interest payments due to him
on loans made to the Company over the past several years.
Income Tax Benefit. Trudy recognized an income tax benefit of $152,000 in
1998, as a result of net operating loss carry-forwards.
Net Income. As a result of the above factors, net income of $203,552 for
the period was below last year's level of $351,676.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The demand for Trudy's retail products is seasonal, with a majority of
sales to retailers occurring during the late summer and early fall in
anticipation of the Christmas season. Direct mail sales are concentrated in the
October-December quarter.
LIQUIDITY AND CAPITAL RESOURCES
The seasonality of sales has made credit availability an important issue
for Trudy. It is necessary for Trudy to build inventory during the summer in
anticipation of the large number of direct mail shipments, which are primarily
paid by credit card, in the fall. Shipments to the warehouse clubs are also
heavy in the late summer and early fall, but payment terms for these customers
are sixty days.
In March 1998, Trudy renewed a bank revolving line of credit of $1,200,000
and obtained a four-year term loan of $250,000 to finance seasonal working
capital needs, catalog expenses, and system improvements. As of April 30, 1999
the balances outstanding on these loans were $795,000 and $195,600,
respectively. The line of credit bears interest at the rate of prime plus .25%
and the term loan bears interest at the rate of 8.75%. These loans are currently
in violation of covenants requiring the maintenance of a ratio of total
liabilities to tangible net worth of not more than 2.50 to 1.00 and a minimum
level of net tangible worth of $750,000. The line of credit is due on June 15,
1999 and the term loan is due March 30, 2002. Both loans are in default and the
term loan will be called at the time of the mergers. Futech has agreed to
provide $200,000 of interim financing. The bank will
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<PAGE> 477
provide an additional $100,000, contingent upon Futech's funding until the
closing of the mergers. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
In July 1998, William W. Burnham loaned Trudy $28,900 to fund conversion
costs for a second computer system. The note bears an interest rate of 8% and is
payable in one year. In August 1998, Mr. Burnham loaned the company $310,000 to
finance short term working capital needs. This note bears an interest rate of 8%
and was due in sixty days. Lower than expected direct mail sales in the fall
prevented repayment of this loan. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Loans from the President of the Company and his family totaled $815,992 on
March 31, 1999 compared with $448,888 on March 31, 1998.
Accounts receivable were $246,048 on March 31, 1999 compared with $321,898
on March 31,1998. The decrease is due to lower sales volume in the last quarter
of the fiscal year compared with last year. Inventory levels were $1,657,939 on
March 31, 1998 compared with $1,574,901 on March 31, 1998. The increase in
inventory is the result of slower turnover resulting from the downturn in sales
along with the need to stock new titles and toys.
INFLATION
Trudy does not believe that inflation has a significant impact on its
operations.
YEAR 2000
During 1998, Trudy upgraded its computer system and MAS90 software used for
accounting, order processing, and inventory management. The Company believes
that this equipment and software is Year 2000 compliant. The Company is now in
the process of receiving certification from its major vendors that their systems
are Year 2000 compliant. This survey includes vendors who provide
systems-related services, e.g., banking, credit card processing, shipping,
security, HVAC, etc. along with those providing the Company with its book and
toy products. The Company does not believe that the failure of any vendor to be
Year 2000 compliant would have a material impact on the Company.
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus/proxy statement and each related prospectus/proxy statement
supplement contains or incorporates by reference forward-looking statements. The
factors identified above in this section are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, New Futech or any of the merging companies.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, New Futech
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. We cannot promise that
statements of expectation or belief will be achieved or accomplished. The words
"believe," "expect," and "anticipate" and similar expressions identify forward-
looking statements throughout these materials.
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<PAGE> 478
DESCRIPTION OF TRUDY'S BUSINESS
GENERAL
Trudy Corporation, which does business under the name Soundprints,
publishes juvenile storybooks and audio cassettes which are sold in conjunction
with contract-manufactured educational toys to the retail, education and mail
order markets.
Trudy Corporation was initially organized as a Connecticut corporation
under the name Norwest Manufacturing Corporation on September 14, 1979, changed
its name to Trudy Toys Company, Inc. on December 5, 1979, changed its name to
Trudy Corporation on March 27, 1984, and was re-incorporated as a Delaware
corporation on February 25, 1987. As used herein, the terms "Trudy" or
"Soundprints" include Trudy Corporation and its Connecticut predecessor, except
as the context may otherwise require.
PRODUCTS AND LICENSING
Soundprints holds an exclusive license from the Smithsonian Institution to
utilize the Smithsonian name through the period ending September 30, 2002, in
connection with the sale of realistic wildlife plush toys and educational kits,
storybooks, and audio cassettes. Since 1991, Soundprints has published a total
of 60 titles in four different series under the Smithsonian license. Royalties
are paid to the Smithsonian at the rate of 5.0% of net sales on all licensed
products.
Soundprints also has a license from The Nature Conservancy to develop a
series of habitat books, toys and audio cassettes. The first four titles in the
habitat series were introduced in the spring of 1997. The orientation of the
habitat series has been toward both the education and trade markets. Through
1998, twelve Nature Conservancy titles have been published. The license from the
Nature Conservancy runs to January 2000.
Market reception of the Smithsonian and Nature Conservancy series has been
extremely positive as a result of the highly perceived value of the book and
plush animal sets. Each season Soundprints introduces five to seven new titles.
In addition to new titles in the Smithsonian and Nature Conservancy series, an
international series, combining books and dolls, was launched this spring. In
the fall of 1999, a new series of photographic board books accompanied by soft
cotton velour toys for toddlers will be launched in cooperation with the
Smithsonian Institution National Zoological Park.
MARKETING AND SALES
Soundprints' products are sold to book, toy, and specialty store retailers;
warehouse clubs; and book, gift and educational distributors by an in-house
sales staff and independent commissioned sale representatives. In addition,
Soundprints mails a catalog directly to consumers, schools, and libraries and an
in-house telemarketing staff receives and processes phone, Internet and mail
orders.
A promising growth area is the educational market. Schools and libraries
have discovered how to use Soundprints' products as supplemental classroom
reading material. School book clubs and book fairs have experienced impressive
sales growth to both students and teachers. In addition to actual book sales,
subsidiary rights are sold to book club operators who also purchase significant
quantities of plush toys to accompany the books.
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<PAGE> 479
During 1998, sales to retailers, principally book, toy, and specialty
stores, were flat or off somewhat from the prior year. Sales to aquarium,
museum, and zoo stores continued to increase because of the nature theme of the
products. Sales to independent booksellers have been the most volatile as these
retailers continue to be adversely affected by the market penetration of the
superstore chains and Internet booksellers.
CUSTOMERS
One customer accounted for 35.2% of sales in 1998 with this same customer
representing 36.5% in 1997.
MANUFACTURING AND PRODUCT DESIGN
Plush and toy product design is done in "design rooms" managed by
Soundprints' overseas contractors. Storybooks are created by free-lance authors
and illustrators working under the direction of Soundprints' editorial and
graphic design staff. Audio is produced by an award-winning sound designer
overseen by Soundprints' editorial department.
Soundprints produces the majority of its products by sub-contracting with
independent toy factories and printing plants located in Asia. Approximately 95%
of the toys are purchased from one vendor in China, but Trudy has other
qualified sources of supply from which it has purchased in the past. Trudy owns
the design of each existing toy product (except for Smithsonian plush toys which
are co-trademarked with Smithsonian Institution) and actively manages the design
of new products. Trudy believes that production could quickly be transferred to
other companies in Bangladesh and Sri Lanka if production were not available
from the company in China, or if more favorable pricing became available. Books
are purchased from a U.S. company which subcontracts production to various
printers in the Far East. These manufacturers can also perform certain other
functions such as the labeling and packaging of product for volume shipments
directly to specific customers. Audio cassettes are duplicated locally. Delivery
has been satisfactory from all suppliers.
Originally a plush toy manufacturer, Soundprints discontinued its plush toy
sewing operations in 1990 and now concentrates its operational expertise on
package assembly of the toy, book and tape components for fulfillment to retail
and mail order customers.
BACKLOG
As of December 31, 1998, Trudy's order backlog was approximately $40,000.
Orders are generally shipped promptly unless items are on back order or the
customer requests a later delivery date. As of March 31, 1998, Trudy's order
backlog was approximately $472,365. As of March 31, 1997, the Company's backlog
was approximately $143,918. Sales in this industry and backlog figures are
volatile and may change dramatically from month to month. The increase in order
backlog in March 1998 was primarily the result of several large orders placed by
the Company's largest customers. Although orders are subject to cancellation,
this happens only rarely.
GOVERNMENTAL REGULATIONS
Trudy is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Products Safety Act. Those
laws empower the Consumer Products Safety Commission (the "CPSC") to protect
children from hazardous products. The CPSC has the authority to exclude from the
market articles which are found to be hazardous and can require a manufacturer
to repurchase such products under
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<PAGE> 480
certain circumstances. Any such determination by the CPSC is subject to court
review. Similar laws exist in some states and cities in the United States and in
many jurisdictions throughout the world. Trudy endeavors to comply with all
applicable regulations.
COMPETITION
Management believes Soundprints is the leading supplier of licensed,
realistic plush toys packaged with an educational book and audio cassette. Trudy
is not aware of any direct competitors in this market, although there are a few
publishers who compete by combining plush toys with single titles of children's
classic books. Soundprints believes that its competitive advantages are its
unique editorial genre, its superior design and the perceived high quality of
its products relative to the retail price, in addition to the licenses with the
Smithsonian Institution and The Nature Conservancy.
EMPLOYEES AND PRODUCT DESIGN
As of March 31, 1999, Trudy had 21 full-time employees, all in its Norwalk
facility, consisting of 11 persons in sales and administration, seven in
shipping and handling, and three in editing and graphic design. Seasonal
personnel are hired in the fall to assist with greater volumes in the assembly
area and to handle in-bound telemarketing for the direct response business.
Soundprints' ability to design, manufacture, market, and sell products
depends largely upon its ability to attract and retain highly skilled personnel,
particularly in the product design, publishing, and sales areas. Over the last
year, Soundprints has upgraded positions in editorial and sales management in
terms of professionalism and experience to further improve the quality and
distribution of its products and their value to the customer.
PROPERTY
Trudy leases warehouse and administrative facilities in a 27,000 square
foot building at 353 Main Avenue in Norwalk, Connecticut. The building is
located approximately 50 miles east of New York City. This facility, first
occupied by the Company in July 1996, is owned by a partnership comprised of
Trudy's President, a former Vice President, and a Board Member.
The lease, which runs to 2004, provides for annual rent which is
representative of the local market today and holds the Company responsible for
payment of taxes and utilities as well as rent.
The Main Avenue property was purchased and financed independently of Trudy.
Renovations to the site however required the use of a $300,000 installment loan
payable over eight years. This bank loan is collateralized with the Trudy lease
contract, as well as a Trudy Corporation guarantee. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
Trudy believes that its facilities are adequate for all of its foreseeable
requirements.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party, or of which, any of its property is subject.
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<PAGE> 481
TRUDY MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Trudy, at March 31, 1999, are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Alice B. Burnham..................... 51 Director
William W. Burnham................... 56 Chairman of the Board of Directors,
President and Treasurer
Peter D. Nalle....................... 52 Director
Fred M. Filoon....................... 57 Director
Elisabeth T. Prial................... 41 Director
William T. Carney.................... 45 Vice President and Chief Financial Officer
</TABLE>
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified. Executive
officers are elected by the Board of Directors and hold office until their
successors are chosen and qualified, subject to earlier removal by the Board of
Directors.
The principal occupations for the past five years of each director and
officer of Trudy are as follows:
Alice B. Burnham was elected a director of Trudy in October 1994. As a
major shareholder and wife of the President, she had long been familiar with the
workings of Trudy. Mrs. Burnham manages her own interior design business in New
Canaan, Connecticut and is active in civic and professional affairs. Mrs.
Burnham received her degree from Briarcliff College.
William W. Burnham has been President and a director of Trudy since 1979.
Mr. Burnham served as Group Director of Marketing at Pepsico, Inc. from 1976 to
1979. From 1972 to 1976, Mr. Burnham served as the Director of Advertising and
Sales Promotion at Vlasic Foods. Mr. Burnham received a B.S. from Trinity
College and an M.B.A. from Columbia University.
Peter D. Nalle was named a director of Trudy in September 1996. Mr. Nalle
has years of experience in the publishing industry having worked for McGraw-Hill
and later for Lippincott and for Simon & Schuster. More recently, Mr. Nalle was
Chief Operating Officer of Grolier, Inc. He received his degree from Brown
University.
Fred M. Filoon was named a director of Trudy in January 1993. Mr. Filoon
has 30 years of experience in the investment and financial community having
worked for Donaldson, Lufkin & Jenrette as well as Morgan Stanley in New York.
Currently, he is a partner with Cramer, Rosenthal & McGlynn. Mr. Filoon received
his B.A. from Bowdoin College.
Elisabeth T. Prial was named Vice President and Publisher of Futech on May
24, 1999. Prior to joining Futech, Ms. Prial served as the Vice President of
Sales of Trudy since October 1994 and Publisher of Trudy since 1996. For the
three years prior to October 1994, Ms. Prial served as Director of Sales of
Trudy. Prior to joining Trudy
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<PAGE> 482
Corporation she worked in juvenile publishing with Warner Books, Putnam, and
others. Mrs. Prial attended the New York Fashion Institute of Design.
William T. Carney was named Vice President and Chief Financial Officer on
March 23, 1998. Mr. Carney has held various financial management positions with
Pechiney/American National Can and Ford Motor Company. Mr. Carney received an
B.A. from Dartmouth College and an M.B.A. from the Wharton School.
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<PAGE> 483
TRUDY STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Trudy's common stock at May 28, 1999, with respect to (i) each
person known to Trudy to own beneficially more than 5% of the outstanding shares
of Trudy's common stock, (ii) each director of Trudy, (iii) each of the
executive officers of Trudy and, (iv) all directors and executive officers of
Trudy as a group.
<TABLE>
<CAPTION>
TRUDY COMMON STOCK
NAME BENEFICIALLY OWNED(1) PERCENT OF CLASS
- ---- --------------------- ----------------
<S> <C> <C>
William W. Burnham(2)(3)(4)................. 115,090,000 32.8%
Alice B. Burnham(2)(3)(5)................... 63,250,000 18.1%
Peter B. Burnham............................ 35,410,000 10.1%
216 Hardwick Road
Petersham, MA
Peter D. Nalle(3)........................... 2,750,000 0.8%
Fred M. Filoon(3)(6)........................ 5,250,000 1.5%
Elisabeth T. Prial(3)(7).................... 12,000,000 3.4%
William T. Carney(3)........................ 3,000,000 0.9%
All executive officers and directors as a
group (6 persons)(4)(5)(6)(7)............. 201,340,000 55.7%
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon exercise of stock options which are
currently exercisable or which become exercisable within 60 days of the date
of the table are deemed beneficially owned by the optionee. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of Trudy common stock
shown as beneficially owned by them.
(2) Husband and wife.
(3) The address of each of these individuals is: c/o Trudy Corporation, 353 Main
Avenue, Norwalk, Connecticut 06851-1552.
(4) Includes 2,000,000 shares of Trudy common stock issuable upon exercise of
immediately exercisable options.
(5) Includes 1,000,000 shares of Trudy common stock issuable upon exercise of
immediately exercisable options.
(6) Includes 3,000,000 shares of Trudy common stock issuable upon exercise of
immediately exercisable options.
(7) Includes 6,500,000 shares of Trudy common stock issuable upon exercise of
immediately exercisable options.
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<PAGE> 484
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the mergers, William W. Burnham will be employed as the
Vice President of Specialty Markets of New Futech. Mr. Burnham will also be a
director of New Futech and will receive a three year employment agreement
providing for a base salary of $100,000 per year and stock options for a total
of 20,000 shares of New Futech common stock, vesting in equal, annual
installments over the three year period and with an exercise price of $7.50 per
share. Some of the officers and directors of the other merging companies will
also receive employment agreements and stock options in connection with the
mergers.
The Main Avenue property leased by Trudy is owned by a Connecticut limited
liability corporation, Noreast Management LLC, which is owned jointly by William
W. Burnham, the Chairman of the Board of Directors and President of Trudy, P.
Ogilvie, a former officer of Trudy, and Fred M. Filoon, a director of Trudy. To
effect refurbishment on this building, Noreast Management borrowed $300,000 as
an eight year loan from a local bank. This loan was secured by personal
guarantees from both Mr. Burnham and Mr. Ogilvie, an assignment of the lease,
and a guarantee by Trudy Corporation. Pursuant to the Merger Agreement, Mr.
Burnham has agreed to indemnify New Futech for any all claims relating to
hazardous waste associated with this property for all periods of time prior to
the closing of the mergers.
In previous years, Trudy had borrowed an aggregate of $454,729 from William
W. Burnham, Peter B. Burnham and members of their families. The loans bear
interest at the rate of 10% per annum. On March 31, 1987, the note holders
contributed to the Company's capital an aggregate of $374,205 of these notes
payable. The balance of $80,525 in demand loans was converted to five-year term
loans with interest payments quarterly in arrears at the greater of 10% per
annum or the applicable Federal rate. Interest accruals aggregating $91,728 have
further increased the indebtedness to $172,253 as of April 30, 1999.
As of March 31, 1998, Trudy has borrowed an aggregate of $383,742 in cash
advances (including accrued interest) from William W. Burnham to finance
inventory purchases and catalog printing. This total is comprised of promissory
notes which bear interest at the rate of 12% per annum. The notes are secured
with a pledge of all of the Company's inventory, accounts receivable, and
equipment. On March 31, 1998, Mr. Burnham forgave the unpaid accrued interest,
totaling $96,320 on these notes. No further interest expense has been accrued on
these loans. The aggregate balance of these loans, as of April 30, 1999, was
$359,509.
In July and August 1998, William W. Burnham made additional loans to the
Company totaling $338,900 to fund an investment in a new computer system and
seasonal working capital requirements. The note for the computer system is for
$28,900 and bears an interest rate of 8%. It is due in July 1999. The note for
the working capital totals $310,000 and bears an interest rate of 8%. It was due
in October 1998, but remains unpaid.
New Futech has also agreed, as part of the Merger Agreement, to repay
certain loans owing by Trudy to William W. Burnham and two of his family members
in the aggregate amount (including accrued interest through January 31, 1999) of
$800,000. Interest will continue to accrue only on the debt owing to the family
members until the mergers occur. As of April 30, 1999, the balance, including
accrued interest owed to the family members was $172,253. No interest will
accrue on the debts owing to Mr. Burnham from
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<PAGE> 485
February 1, 1999 through the effective time of the mergers. Beginning on the
closing date of the mergers, interest will accrue on the outstanding balance of
all of these loans at four percent (4%) per annum. At the closing, New Futech
will repay 25% of the outstanding balance, and thereafter will repay three equal
amounts of principal plus all accrued interest at six month intervals.
Within thirty days after the effective date of the mergers, New Futech will
obtain releases of William W. Burnham of his personal guaranty of the following
Trudy debts: (i) Trudy's revolving credit agreement with First Union, with an
outstanding balance as of April 30, 1999 of $795,000 and (ii) Trudy's four year
term note with First Union with an outstanding balance as of April 30, 1999 of
$195,650. New Futech may be required to refinance these loans to obtain the
releases.
Trudy has agreed to pay James P. McGough of JPMC Associates, Trudy's
mergers and acquisitions consulting firm, total compensation of approximately
$167,000 for his services in connection with the Trudy merger. Mr. McGough will
be paid $43,670 and granted 13,500,000 shares of Trudy common stock prior to the
closing of the mergers. The 13,500,000 shares of Trudy common stock will be
converted in the mergers into cash in the amount of $16,330 and 14,314 shares of
New Futech common stock.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported in Trudy's Current Report on Form 8-K dated April
12, 1999, Trudy's board of directors approved the engagement of Ernst & Young,
LLP and is in the process of retaining this firm as its independent auditor for
the fiscal year ending March 31, 1999 to replace the firm of Abrams and Company,
P.C., who was dismissed as auditor of the Trudy effective April 9, 1999. Ernst &
Young, LLP is the independent auditor used by Futech Interactive Products, Inc.,
one of the other merging companies.
The reports of Abrams and Company, P.C. on Trudy's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of Trudy's financial
statements for each of the two fiscal years ended March 31, 1997 and 1998, there
were no disagreements with Abrams and Company, P.C. on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope
procedures which, if not resolved to the satisfaction of Abrams and Company,
P.C. would have caused Abrams and Company, P.C. to make reference to these
matters in their report. Trudy has requested Abrams and Company, P.C. to furnish
Trudy with a letter addressed to the Securities Exchange Commission stating
whether it agrees with the above statements and such letter has been furnished.
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<PAGE> 486
APPENDIX 1
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market
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<PAGE> 487
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of
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<PAGE> 488
any class or series of stock of a constituent corporation that are entitled
to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their
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<PAGE> 489
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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<PAGE> 490
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
A-5
<PAGE> 491
FUNDEX GAMES, LTD.
2237 DIRECTORS ROW
INDIANAPOLIS, INDIANA 46241
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
------------------------
You are invited to attend a Special Meeting of Stockholders of Fundex
Games, Ltd., that will be held at a.m. local time on , 1999,
at .
The Fundex board of directors has called this special meeting for the
following purposes:
- To consider and vote upon a proposal to approve and adopt the Merger
Agreement dated as of June 7, 1999, by and among Fundex, Futech
Interactive Products, Inc., Trudy Corporation, Janex International, Inc.,
DaMert Company, and two newly formed companies that we are referring to
as "New Futech" and "New Sub." Under the Merger Agreement, first Futech
and then Janex, Trudy, and DaMert will merge with and into New Futech,
which will survive the mergers, and Fundex will merge into New Sub, which
will survive as a wholly-owned subsidiary of New Futech. Under the Merger
Agreement, Fundex stockholders who do not exercise dissenters' rights
will generally receive a combination of cash, promissory notes of New Sub
and common stock of New Futech as described in the prospectus/proxy
statement under the heading "DESCRIPTION OF THE MERGERS AND THE Merger
Agreement -- Basic Terms of the Merger Agreement." However, holders of up
to approximately 29% of the outstanding stock of Fundex may elect to
receive cash at the rate of $2.84 per Fundex share (the "All Cash
Alternative"). Those Fundex stockholders not electing the All Cash
Alternative will receive promissory notes in the aggregate amount of
$4,500,000 minus the total consideration paid to stockholders electing
the All Cash Alternative. Fundex stockholders not electing the All Cash
Alternative will also receive approximately .3693 shares of New Futech
common stock per Fundex share plus their pro rata proportion (shared
among all Fundex stockholders who do not elect the All Cash Alternative)
of .184635 shares of New Futech for each of the Fundex shares as to which
the All Cash Alternative is selected. The promissory note of New Sub will
be secured by a subordinated pledge of its assets and secured by a pledge
of the New Sub stock.
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These matters are more fully described in the prospectus/proxy statement
supplement and related prospectus/proxy statement that are attached to this
Notice.
We, the board of directors of Fundex, unanimously recommend that you vote
FOR the mergers.
You will be entitled to vote at the special meeting or any adjournment or
postponement of the special meeting only if you are a holder of record of Fundex
common stock at the close of business on , 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Chip Voigt
President
Indianapolis, Indiana
, 1999
IMPORTANT
We cordially invite all stockholders to attend the special meeting in
person.
Whether or not you plan to attend the special meeting in person, in order
to assure your representation at the meeting, we urge you to complete, sign
and date the enclosed proxy card, which is being solicited by the board of
directors, and promptly return it in the self-addressed return envelope
enclosed for that purpose. You may revoke your proxy at any time prior to the
vote at the meeting by telling us that you want to do so.
<PAGE> 492
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
FUTECH TOYS & GAMES, INC.
FUNDEX GAMES, LTD.
PROSPECTUS/PROXY STATEMENT SUPPLEMENT
This prospectus/proxy statement supplement, and the related prospectus/proxy
statement, are being furnished to you and the other stockholders of Fundex
Games, Ltd., in connection with the solicitation of proxies by the Fundex board
of directors for use at the Special Meeting of Stockholders to be held at
a.m. local time on , 1999, at and at any
adjournments or postponements of the special meeting. At the special meeting, we
will ask you to consider and vote upon a proposal to approve and adopt the
Merger Agreement dated as of June 7, 1999, by and among Fundex, Futech
Interactive Products, Inc., Trudy Corporation, Janex International, Inc., DaMert
Company, and two newly formed companies (Futech Interactive Products (Delaware),
Inc. and Futech Toys & Games, Inc.) that we are referring to as "New Futech" and
"New Sub," respectively. Under the Merger Agreement, first Futech and then
Janex, Trudy, and DaMert will merge with and into New Futech, which will survive
the mergers, and Fundex will merge into New Sub, which will survive as a
wholly-owned subsidiary of New Futech. Under the Merger Agreement, Fundex
stockholders who do not exercise dissenters' rights will generally receive a
combination of cash, promissory notes of New Sub and common stock of New Futech
as described in the prospectus/proxy statement under the heading "DESCRIPTION OF
THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the Merger Agreement."
However, holders of up to approximately 29% of the outstanding stock of Fundex
(i.e. all Fundex stockholders except Carl E. Voigt, III and Carl E. Voigt, IV,
who have agreed not to receive this right) may elect to receive cash at the rate
of $2.84 per Fundex share (the "All Cash Alternative"). Those Fundex
stockholders not electing the All Cash Alternative will receive promissory notes
in the aggregate amount of $4,500,000 minus the total consideration paid to
stockholders electing the All Cash Alternative. Fundex stockholders not electing
the All Cash Alternative will also receive approximately .3693 shares of New
Futech common stock per Fundex share plus their pro rata proportion (shared
among all Fundex stockholders who do not elect the All Cash Alternative) of
approximately .184635 shares of New Futech for each of the Fundex shares as to
which the All Cash Alternative is selected. The promissory note of New Sub will
bear interest at the rate of 10% per annum, will be due one year after the
mergers occur, and will be secured by New Futech's pledge of all of the stock of
New Sub and by a subordinated lien on New Sub's assets. Outstanding shares of
Futech, Trudy, Janex and DaMert will also be converted into a combination of
cash, promissory notes and common stock of New Futech. In addition, outstanding
options of Fundex, Futech, Janex and Trudy will be converted into options to
purchase common stock of New Futech.
This prospectus/proxy statement supplement and the related prospectus/proxy
statement, together with similar supplements that are being provided to
stockholders of Futech, Trudy, Janex and DaMert with copies of the
prospectus/proxy statement, also constitute the prospectus of New Futech and New
Sub in connection with the offer and issuance of their securities pursuant to
the mergers.
Excluding any additional shares that may be issued to Trudy stockholders if
a public market develops for New Futech stock at an initial price of less than
$7.50 per share, and assuming no outstanding options or warrants are exercised
prior to the mergers, a minimum aggregate of 5,867,628 shares and a maximum
aggregate of 5,955,297 shares of New Futech common stock, a minimum of
$1,018,330 and a maximum of $2,116,830 in cash and a minimum aggregate of
$5,751,500 and a maximum aggregate of $6,850,000 in promissory notes of New
Futech or New Sub will be issued to the stockholders of Janex, Futech, Trudy,
Fundex and DaMert in the mergers. In addition, certain outstanding indebtedness
in the amount of $10,000,000 is expected to be exchanged for 2,222,222 shares of
New Futech preferred stock shortly after the mergers. Former stockholders of
Fundex may exchange their New Futech stock for the license rights in the "Phase
10" family of games and former stockholders of Trudy may become entitled to
receive additional New Futech shares or to exchange their New Futech shares for
debentures in the future under certain circumstances. Certain loan agreements
and employment agreements, including employee options to acquire New Futech
common stock, are also part of the deal. See "DESCRIPTION OF THE MERGERS AND THE
Merger Agreement -- Basic Terms of the Merger Agreement" in the prospectus/proxy
statement.
We expect the New Futech common stock to trade on the OTC Bulletin Board
after the mergers, but we cannot be sure it will do so and we cannot predict
what the price might be. We do not expect a trading market to develop for any of
the other securities of New Futech.
The mergers cannot be consummated unless: (a) stockholders of Janex,
Futech, Trudy, Fundex and DaMert, voting separately at their respective meetings
of stockholders, each approve the mergers, and (b) other conditions included in
the Merger Agreement are either satisfied or waived. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT -- Conditions to Closing" in the
prospectus/proxy statement.
The record date for the special meeting is , 1999. This
prospectus/proxy statement supplement and the related prospectus/proxy statement
and the accompanying form of proxy are first being mailed to stockholders of
Fundex on or about , 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY STATEMENT
SUPPLEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT. THE PROPOSED MERGER IS A
COMPLEX TRANSACTION. WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS
PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE RELATED PROSPECTUS/PROXY STATEMENT
IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER "RISK FACTORS"
BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus/proxy statement supplement or the accompanying prospectus/proxy
statement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus/proxy statement supplement is , 1999.
<PAGE> 493
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT. WE HAVE NOT, AND NEW FUTECH AND NEW SUB HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEW FUTECH AND NEW SUB ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS PROXY/ STATEMENT SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF THE DATE ON
THE FRONT OF THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT ONLY. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.
WHERE YOU CAN FIND MORE INFORMATION
We will send to you, without charge, any material information that we have
or can obtain without unreasonable effort or expense concerning Fundex or any
other merging company, concerning the Merger Agreement and related contracts or
concerning the proposed management and operations of New Futech. You may direct
requests for additional information regarding DaMert, Futech, Trudy, Fundex, or
Janex to Frederick B. Gretsch, Sr. at 2999 North 44th Street, Suite 225,
Phoenix, Arizona 85018-7247, (602) 808-8765.
TO OBTAIN TIMELY DELIVERY OF THESES DOCUMENTS, YOU MUST MAKE YOUR REQUEST
NO LATER THAN , FIVE BUSINESS DAYS BEFORE THE DATE OF THE FUNDEX
STOCKHOLDERS MEETING.
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. Neither we nor New Futech have authorized
anyone else to provide you with additional or different information. New Futech
is not making an offer of any securities in any state where the offer is
permitted. You should not assume that the information in this prospectus/proxy
statement or any prospectus/proxy statement supplement is accurate as of any
date other than the date on the front of these documents.
i
<PAGE> 494
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY INFORMATION -- Q&A.................................. 1
Why are the five companies proposing to merge?............ 1
What will I receive in the mergers?....................... 1
What risks should I consider?............................. 1
What stockholder vote is required to approve the
mergers?............................................... 1
What circumstances might prevent the mergers?............. 2
How will the mergers be treated for accounting
purposes?.............................................. 2
When do you expect the mergers to be completed?........... 2
What are the tax consequences of the mergers to me?....... 2
Will I have dissenters' rights?........................... 2
What do I need to do now?................................. 2
Should I send in my stock certificate now?................ 3
OTHER INFORMATION ABOUT THE MERGERS......................... 3
The Companies............................................. 3
The Special Meeting....................................... 5
The Merger Agreement...................................... 5
SPECIAL RISK FACTORS AFFECTING FUNDEX....................... 6
STOCKHOLDER MATTERS......................................... 7
THE MERGERS AND RELATED TRANSACTIONS........................ 9
General................................................... 9
Effects of the Mergers.................................... 9
Background of the Mergers................................. 10
Reasons for the Mergers................................... 11
Fundex's Board Recommendation............................. 12
Related Agreements; Interests of Certain Fundex Affiliates
in the Merger.......................................... 12
Regulatory Matters........................................ 12
Certain Federal Tax Matters............................... 12
Accounting Treatment...................................... 16
NEW FUTECH AND FUNDEX SHARES................................ 16
New Futech Common Stock................................... 16
General Description of Fundex Common Stock................ 16
Common Stock.............................................. 16
COMPARISON OF THE RIGHTS OF HOLDERS OF FUNDEX COMMON STOCK
AND NEW FUTECH COMMON STOCK............................... 17
SELECTED HISTORICAL FINANCIAL DATA.......................... 22
FUNDEX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATION......................... 24
Overview.................................................. 24
Results of Operations of the Company...................... 24
</TABLE>
ii
<PAGE> 495
<TABLE>
<S> <C>
Seasonality and Quarterly Fluctuations........................................................ 27
Liquidity and Capital Resources............................................................... 28
Inflation..................................................................................... 28
Year 2000..................................................................................... 28
Safe Harbor Disclosure; Forward-Looking Statements and Associated Risks....................... 28
DESCRIPTION OF FUNDEX'S BUSINESS................................................................ 29
Business...................................................................................... 29
Marketing, Distribution and Customers......................................................... 31
Manufacturing................................................................................. 32
Product Design and Selection.................................................................. 32
Competition................................................................................... 33
Patents, Trademarks and Licensing............................................................. 33
Backlog....................................................................................... 33
Government Regulations........................................................................ 34
Employees..................................................................................... 34
Properties.................................................................................... 34
Legal Proceedings............................................................................. 34
FUNDEX MANAGEMENT............................................................................... 35
Directors and Executive Officers.............................................................. 35
FUNDEX STOCKHOLDERS............................................................................. 37
Security Ownership of Certain Beneficial Owners and Management................................ 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................. 37
APPENDICES
Appendix I -- Section 92A.380 of Nevada Revised Statutes........................................ A-1
</TABLE>
iii
<PAGE> 496
SUMMARY INFORMATION -- Q&A
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the mergers contemplated thereby, you should carefully read
this entire document and the additional documents we mention. You should pay
special attention to the "RISK FACTORS" section beginning on page 8 of the
prospectus/proxy statement and "SPECIAL RISK FACTORS AFFECTING FUNDEX" on page 6
of this prospectus/proxy statement supplement.
WHY ARE THE FIVE COMPANIES PROPOSING TO MERGE?
The five companies are proposing to merge because the directors of each
company believe the combination will provide significant benefits to
stockholders. We believe the mergers will enable us to take advantage of the
complementary strategic fit of our respective businesses by marketing through
additional channels of distribution. We also hope and believe that the mergers
will improve the likelihood that stockholders will have a more liquid market
should they wish to sell their stock and that the combined companies will be
able to more efficiently access the markets for debt and equity when
appropriate. To review the background and reasons for the mergers in greater
detail, see "BACKGROUND OF THE MERGERS" in the prospectus/proxy statement.
WHAT WILL I RECEIVE IN THE MERGERS?
Unless you or other Fundex stockholders elect the All Cash Alternative
described below, you and all Fundex stockholders will receive a combination of
cash, promissory notes and common stock in exchange for your Fundex stock.
Stockholders of the other merging companies will receive cash, promissory notes
and common or preferred stock of New Futech. Certain employment contracts and
other agreements with affiliates of the merging companies are also part of the
deal. See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in the
prospectus/proxy statement.
WHAT RISKS SHOULD I CONSIDER?
You should review "RISK FACTORS" on pages 8 through 13 of the prospectus/
proxy statement, as well as the special risk factors affecting primarily Fundex
that are discussed on pages 6 through 7 of this prospectus/proxy statement
supplement.
WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGERS?
The following table shows the proportions of the outstanding shares that
must vote in favor of the mergers, together with the proportion of the
outstanding shares that are held by directors, executive officers and their
affiliates, the majority of whom have indicated that they intend to vote in
favor of the mergers.
<TABLE>
<CAPTION>
SHARES OWNED BY DIRECTORS,
COMPANY VOTE REQUIRED EXECUTIVE OFFICERS AND AFFILIATES
------- ------------- ---------------------------------
<S> <C> <C>
DaMert Majority 100.0%
Fundex Majority 70.8%
Futech Majority 72.7%
Janex Majority 78.9%
Trudy Majority 55.7%
</TABLE>
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<PAGE> 497
WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGERS?
New Futech has the right to terminate the Merger Agreement if stockholders
from all of the merging companies combined exercise dissenters' rights with
respect to more than 5% of the aggregate merger consideration to be issued in
the mergers. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Conditions to Closing" in the prospectus/proxy statement for a
description of the other conditions to the mergers.
HOW WILL THE MERGERS BE TREATED FOR ACCOUNTING PURPOSES?
We expect the mergers to be treated as purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
We are working to complete the mergers during the third quarter of 1999.
However, the Merger Agreement does not contain any express deadline for the
mergers to proceed.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS TO ME?
We and the other merging companies have structured the Merger Agreement
with the intent and expectation that the exchange of shares by Fundex
shareholders will be tax-free for federal income tax purposes. THERE WILL BE
FEDERAL INCOME TAXES DUE ON THE CASH, PROMISSORY NOTES AND CONDITIONAL RIGHTS
THAT YOU RECEIVE. You should review the more detailed description of federal tax
consequences that appear on pages through of this prospectus/proxy statement
supplement. State and local taxes may also become due as a result of the
mergers.
The precise tax consequences of the mergers will depend on your own
situation. You should consult your tax advisor for a full understanding of the
tax consequences of the mergers to you.
WILL I HAVE DISSENTERS' RIGHTS?
Yes, provided you do not vote in favor of the mergers and meet all other
requirements of the dissenter's rights statute. See pages 22 and Appendix I to
this prospectus/proxy statement supplement.
WHAT DO I NEED TO DO NOW?
Just indicate on your proxy card how you want to vote on the mergers, and
sign and mail it in the enclosed return envelope as soon as possible, so that
your shares will be represented at the stockholders meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the mergers. If you do
not vote or you abstain, it will have the same effect as a vote against the
mergers.
The stockholders meeting will take place on , at
local time, at . You may attend the stockholders
meeting and vote your shares in person, rather than signing and mailing your
proxy card. In addition, you may withdraw
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your proxy up to and including the day of the meeting and either change your
vote or attend the meeting and vote in person.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the mergers are completed we will send you written instructions
for exchanging your stock certificates for the New Futech stock, cash and
promissory notes to which you are entitled.
OTHER INFORMATION ABOUT THE MERGERS
THE COMPANIES
NEW FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
New Futech is a newly-organized Delaware corporation that has been formed
to be the surviving parent corporation under the Merger Agreement. New Futech
has had no operations prior to the date of this prospectus/proxy statement
supplement. Under the Merger Agreement, first Futech and then Janex, Trudy and
DaMert will merge with and into New Futech, which will survive the mergers. As a
part of the mergers, New Futech will change its name to "Futech Interactive
Products, Inc."
NEW SUB
Futech Toys & Games, Inc.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
New Sub is a newly-organized Nevada corporation that has been formed to be
the surviving subsidiary corporation of New Futech under the Merger Agreement.
New Sub has had no operations prior to the date of this prospectus/proxy
statement supplement. Under the Merger Agreement, Fundex will merge with and
into New Sub, which will survive that merger as a wholly-owed subsidiary of New
Futech. All of the stock and assets of New Sub will be pledged to the former
stockholders of Fundex to secure the promissory notes of New Sub issued to them
in connection with the merger of Fundex into New Sub. In addition, the former
stockholders of Fundex who do not elect the All Cash Alternative will receive a
conditional option to purchase New Sub's license to market the "Phase 10" family
of games in 2002 in exchange for the New Futech stock they receive in the
mergers (but not the cash or promissory notes), exercisable only if the stock
has not achieved targeted liquidity and a valuation of at least $7.50 per share
($4,500,000 in the aggregate, if no stockholders elect the All Cash Alternative)
within three years after the completion of the mergers.
JANEX
Janex International
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
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<PAGE> 499
Janex manufactures and markets children's toys, gumball banks, flashlights
and battery operated toothbrushes marketed under the brand name Janex. Janex
incorporates licensed characters into most of its products, and sells its
products to United States mass merchant retailers, toy specialty stores and
department stores.
FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
(602) 808-8765
Futech designs, publishes, manufactures and markets interactive,
educational, promotional and entertainment products (i.e., books, game boards
with sound capabilities and specialty post cards) targeted primarily towards
children. Futech's patented technology utilizes specialized conductive ink to
print interactive touch points. These touch points trigger speech, music and
sound effects. Futech licenses this technology to major entertainment and
publishing companies. Futech also distributes proprietary products, as well as
those of third party publishers, to warehouse clubs, national book chains,
specialty and independent retailers and major toy chains.
TRUDY
Trudy Corporation
353 Main Avenue
Norwalk, CT 06851-1552
(203) 846-2274
Trudy Corporation was initially organized as a Connecticut corporation
under the name "Norwest Manufacturing Corporation" in 1979. Trudy, which does
business under the name Soundprints, publishes juvenile story books and
audio-cassettes which are sold in conjunction with contract manufactured
educational toys to the retail and mail order markets.
FUNDEX
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
(317)248-1080
Fundex Games, Ltd. was originally incorporated in the State of Indiana as
"Third Quarter, Inc." in 1991. Fundex develops, markets, and distributes a
variety of games and toys for both children and adults, including:
- card games, puzzles and board games, including the Phase 10 card game and
its sister products;
- skill and action games for children;
- games, puzzles and toys featuring characters licensed from third parties;
and
- spring and summer toys for children, including jump ropes, water toys and
water games.
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<PAGE> 500
DAMERT
DaMert Company
1609 Fourth Street
Berkeley, California 94710
(510) 524-7400
DaMert Company was founded in 1973 and incorporated in 1979. DaMert creates
and produces toy and gift products targeted primarily to children ages 6-12 with
nature and science themes. Presently, the product line includes over 200 toys,
gifts and puzzles selling through catalogs, museums, department stores,
specialty gift stores and toy stores nationwide.
THE SPECIAL MEETING
DATE, TIME AND PLACE (PAGE )
The Fundex special meeting will be held on , at
at .
PURPOSE OF THE SPECIAL MEETING (PAGE )
We have called the special meeting so the Fundex stockholders can vote on
whether to approve the mergers pursuant to the Merger Agreement. The directors
of Futech, Trudy, Janex and DaMert have called for special meetings of the
stockholders of their companies so that they also can vote whether to approve
the mergers.
RECOMMENDATION OF THE FUNDEX BOARD OF DIRECTORS (PAGE )
We have unanimously approved the Merger Agreement and unanimously recommend
that the stockholders of Fundex vote "FOR" approval of the Merger Agreement.
THE MERGER AGREEMENT
Under the Merger Agreement, first Futech and then Janex, Trudy, and DaMert
will merge with and into New Futech, which will survive the mergers, and Fundex
will merge into New Sub, which will survive as a wholly-owned subsidiary of New
Futech. Under the Merger Agreement, Fundex stockholders who do not exercise
dissenters' rights will generally receive a combination of cash, promissory
notes of New Sub and common stock of New Futech as described in the
prospectus/proxy statement under the heading "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement." However, holders of up
to approximately 29% of the outstanding stock of Fundex (i.e., all Fundex
stockholders except Carl E. Voigt, IV and Carl E. Voigt, III, who have agreed
not to receive this right) may elect to receive cash at the rate of $2.84 per
Fundex share (the "All Cash Alternative"). Those Fundex stockholders not
electing the All Cash Alternative will receive promissory notes in the aggregate
amount of $4,500,000 minus the total consideration paid to stockholders electing
the All Cash Alternative. Fundex stockholders not electing the All Cash
Alternative will also receive .3693 shares of New Futech common stock per Fundex
share plus their pro rata proportion (shared among all Fundex stockholders who
do not elect the All Cash Alternative) of approximately .184635 shares of New
Futech for each of the Fundex shares as to which the All Cash Alternative is
selected. The promissory note of New Sub will be secured by a subordinated
pledge of its assets and secured by a pledge of the New Sub stock and will also
be fully and unconditionally guaranteed. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement."
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<PAGE> 501
SPECIAL RISK FACTORS AFFECTING FUNDEX
In addition to the risk factors set forth elsewhere in the prospectus/proxy
statement, you should carefully consider the special risks of Fundex described
below in evaluating the proposals which you will vote on at the special meeting
and the effects on the securities you will acquire in the merger. Although we
believe that the special risks and uncertainties described below are the major
ones facing Fundex, they are not the only ones that we will face. Any of the
following could have a material adverse effect on our business, financial
condition or results of operations and the business, financial condition or
results of operations of the combined companies.
A FEW CUSTOMERS ACCOUNT FOR MOST OF OUR SALES.
Our five largest customers accounted for approximately 57.8% and 41.2% of
our net sales in 1997 and 1998, respectively. We do not have any contracts with
any of our customers, and we do not expect to enter into any. If we lose any of
our major customers or if they substantially reduce their orders to us, this
could have a material adverse effect on the future results of operations and
financial condition of the combined company.
OUR PRODUCTS CAN BECOME OBSOLETE VERY QUICKLY.
Consumer preferences can change rapidly in our markets. Our success
generally depends on our ability to successfully introduce new products which
consumers like. Because we have to make new product commitments well in advance
of sales, we must anticipate future market demand when making new product
decisions. The success of our new products depends on a number of things:
- making the right product selections,
- completing product design in a timely fashion,
- implementing manufacturing and assembly processes in a timely and
efficient manner, and
- designing and implementing effective sales and marketing strategies and
programs.
Because of the factors outlined above, we cannot assure you that we will
succeed in introducing new products which consumers like and that we will
introduce these new products in a timely and efficient manner. If we fail to do
these things or to do them well, our failure could have a material adverse
effect on the future results of operations and financial condition of the
combined companies.
MANY OF OUR COMPETITORS ARE BIGGER, HAVE GREATER FINANCIAL RESOURCES AND DO MORE
CONSUMER ADVERTISING.
We compete with many other companies in the design and development of new
toys and games, in getting licenses for our current products and new products,
and in marketing and distributing our products. Many of our competitors have
greater financial resources, more sophisticated sales forces, larger facilities
for product development and greater name recognition than we do. Many of our
competitors do more consumer advertising than we do. Many of our competitors may
also have greater influence with retailers than we do because of their size and
may have the ability to price their products more aggressively.
We cannot assure you that we will be able to compete successfully or that
we will have the ability to expand our operations to help the combined companies
grow.
6
<PAGE> 502
WE RELY ON THE SUCCESS OF ONE PRINCIPAL PRODUCT LINE.
We rely heavily on the success or failure of one principal product line and
on the introduction of promotional products. We derived approximately 32.8% and
35.9% of our net sales in 1997 and 1998, respectively, from our Phase 10(TM)
product line.
Our failure to maintain the marketability of our Phase 10(TM) line could
have a material adverse effect on the future results of operations and financial
condition of the combined company. We cannot assure you that we will be able to
maintain the marketability of our Phase 10(TM) line.
OUR RAW MATERIALS COSTS FLUCTUATE AND WE CANNOT ALWAYS INCREASE THE PRICE OF OUR
PRODUCTS TO MATCH INCREASES IN THE COST OF OUR RAW MATERIALS.
To make our products we primarily use the raw materials paper and plastic.
We believe that adequate supplies of these raw materials are readily available
to us and our contract manufacturers. However, as the price of these raw
materials fluctuates, our manufacturing costs fluctuate accordingly. When raw
materials costs rise during the year, we usually cannot increase the sales
prices of our products to make up for increased costs of raw materials until the
beginning of a calendar year, if at all.
WE DEPEND ON LICENSES FROM INVENTORS.
We obtain many of our products through licenses from inventors. We compete
with many other companies for such licenses. In addition, we depend upon
proprietary character licenses for one of our newer product lines. We intend to
seek other character licenses to expand our business.
Many of our competitors have substantially greater financial and other
resources than we do and therefore may have the resources to out-bid us for
licenses. Many of our licensing agreements are non-exclusive and limited in
duration, and competition for licenses is intense. We cannot assure you that we
will succeed in renewing our present licenses or in obtaining new licenses.
WE HAVE SEASONAL VARIATIONS IN THE AMOUNT OF OUR SALES AND OUR FINANCIAL RESULTS
USUALLY VARY FROM QUARTER TO QUARTER.
To a greater extent than some other parts of the toy and game industry, the
majority of retail sales of games and puzzles occur during the period from
September to December. The great majority of shipments of games and puzzles
occur during the third and fourth quarters, and we have our highest inventory
levels then.
We generate a substantial portion of our revenues during the third and
fourth quarters, and our operating results usually fluctuate significantly among
quarters because of this. Operating results may also fluctuate as a result of a
number of other factors, including the timing of shipments of new products,
activities of our competitors, advertising by competitors, and the emergence of
new companies and products in the market.
STOCKHOLDER MATTERS
Fundex stock does not trade on any established market. Similarly, there is
no public trading market for the New Futech common stock. We expect the New
Futech common stock to trade on the OTC Bulletin Board/Nasdaq Stock Market soon
after the mergers,
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<PAGE> 503
but we cannot be sure it will do so and we cannot predict what the price might
be. We do not expect a trading market to develop for any of the other securities
of New Futech.
As of May 31, 1999, the record date, there were approximately 60
stockholders of record of Fundex common stock, as shown on our records.
Fundex has not paid dividends on its common stock and does not anticipate
paying dividends in the foreseeable future. If the mergers do not occur for any
reason, we anticipate that all earnings, in the foreseeable future, will be
retained for development of Fundex's business.
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THE MERGERS AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of Futech with and into New
Futech, promptly followed by the substantially simultaneous merger of Janex,
Trudy and DaMert with and into New Futech and the substantially simultaneous
merger of Fundex with and into New Sub. The discussion in this prospectus/proxy
statement supplement and the related prospectus/proxy statement of the mergers
and the description of the principal terms of the Merger Agreement contained in
the prospectus/proxy statement are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to the
prospectus/proxy statement as Appendix A, and incorporated herein by reference.
EFFECTS OF THE MERGERS
GENERAL
We intend for the mergers to occur promptly following approval of the
mergers by the requisite vote of the stockholders of each of Janex, Futech,
Trudy, DaMert and Fundex and the satisfaction or waiver of all other conditions
to consummation of the mergers. The mergers will become effective at or about
the time of filing of articles of merger or other appropriate documents with the
applicable government offices or agencies. At that time (a) first Futech and
then Janex, Trudy and DaMert will merge with and into New Futech with the result
that New Futech will be the surviving corporation and (b) then Fundex will merge
with and into New Sub with the result that New Sub will be the surviving
corporation. As part of the mergers, New Futech will change its name to "Futech
Interactive Products, Inc." The stockholders of Fundex will become stockholders
of New Futech, and their rights will be governed by the New Futech certificate
of incorporation and bylaws. See "Comparison of Rights of Stockholders of Fundex
and New Futech." See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in
the prospectus/proxy statement.
For information regarding the operation of New Futech and New Sub following
the mergers, see "DESCRIPTION OF NEW FUTECH'S BUSINESS" in the prospectus/proxy
statement. For information regarding the officers and directors of New Futech
following the mergers, see "NEW FUTECH'S MANAGEMENT" in the prospectus/proxy
statement.
EXCHANGE RATIOS
If none of the Fundex stockholders elects the All Cash Alternative, each
share of Fundex common stock outstanding immediately prior to the mergers (other
than dissenting shares) will be converted into the right to receive
approximately 0.3693 shares of New Sub common stock, approximately $0.1539 in
cash, and a promissory note of New Futech in the amount of approximately $2.6157
that bears interest at the rate of 10% per annum, is due one year after the
mergers occur, and is secured by New Futech's pledge of all of the stock of New
Sub, by a subordinated lien on New Sub's assets and by the full and
unconditional guarantee of New Futech. Stockholders will also receive the
conditional right to exchange their New Futech stock for the license rights to
the "Phase 10" family of products as described below.
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<PAGE> 505
Any Fundex stockholders who elect the All Cash Alternative will instead
receive cash at the rate of $2.84 per Fundex share. In that case the remaining
Fundex stockholders will receive:
- one year promissory notes in an aggregate amount of $4,500,000 minus the
aggregate amount paid to stockholders who elect the All Cash Alternative;
plus
- approximately .3693 shares of New Futech common stock per Fundex share;
plus
- their pro rata proportion (shared among all Fundex stockholders who do
not elect the All Cash Alternative) of approximately .184635 shares of
New Futech for each of the Fundex shares as to which the All Cash
Alternative is selected.
Outstanding shares of Futech, Trudy, Janex and DaMert will also be
converted into a combination of cash, promissory notes and common stock of New
Futech. Under certain circumstances the former stockholders of Trudy will have
the right to receive additional New Futech stock or to exchange their New Futech
stock for unsecured five year debentures. In addition, outstanding options of
each of the merging companies will be converted into options to purchase common
stock of New Futech. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Basic Terms of the Merger Agreement."
FRACTIONAL SHARES
Fractional shares of New Futech common stock will not be issued in the
mergers. Instead, stockholders in any of the merging companies who would
otherwise have received an amount of New Futech stock that includes a fraction
of a share will instead receive an amount of cash equal to that fraction
multiplied by $7.50. For example, a Fundex stockholder who is otherwise entitled
to receive 15.5 shares of New Futech common stock will actually receive only 15
shares, plus $3.75 in cash (i.e., 0.5 times $7.50).
BACKGROUND OF THE MERGER
On September 3, 1998, Mr. Vince Goett, Chairman of Futech, telephoned Mr.
Chip Voigt, President of Fundex, to express interest in working together on the
development, marketing and production of certain game products utilizing
Futech's proprietary product. Mr. Goett also wanted to further explore business
synergies.
On September 11, 1998, Mr. Goett arranged for Mr. Chip Voigt and Mr. Pete
Voigt, Executive Vice President, to visit the Futech offices in Phoenix. During
the meeting the Voigts and Mr. Goett toured the facilities and discussed the
Futech proprietary product and the possibilities for a merger between the two
companies.
On January 7, 1999, Mr. Chip Voigt and Fundex counsel met with Mr. Goett
and Mr. Mel Sauder, President of Futech, to continue discussions and structure
of a possible merger.
From the visit to the Futech offices in Phoenix in 1998 through March 5,
1999, Mr. Chip Voigt, Mr. Goett, and Mr. Sauder engaged in negotiations
regarding the merger. The negotiations culminated in a Letter of Intent of
Merger dated March 5, 1999.
From shortly after the date of the discussions with Futech in 1998 through
the signing of the Merger Agreement, Mr. Chip Voigt and Mr. George Propsom,
Fundex's Director of Product Development, had lengthy discussions on the
development of games and puzzles utilizing the Futech patents and processes with
Mr. Joe Petter, Futech's Chief Operating Officer, and Mr. Scott Leuthold,
Futech's Director of Product Development.
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<PAGE> 506
From March 5, 1999, through the date of the signing of the agreement, the
parties have engaged in extensive discussions to negotiate the complete and
final terms of the Merger Agreement and have conducted extensive due diligence
with regard to each other's business.
On April 29, 1999, the Fundex Board of Directors met to discuss the
progress of the discussions of the Merger Agreement.
On May 27, 1999, the Futech Board of Directors approved the mergers and the
Merger Agreement. On June 7, 1999, the Fundex Board of Directors approved the
merger of Fundex into New Sub and the Merger Agreement, and as of June 7, 1999,
the Merger Agreement was executed.
REASONS FOR THE MERGERS
Fundex is a privately held company which has historically found it
difficult to obtain access to sufficient capital to expand its business and make
all of the investments in its products and operations which it felt were
desirable. It has also relied very heavily on a single product line, making
introductions of new products and promotional items more risky, because of the
heavier financial burden these placed on Fundex financial resources than on
larger companies with more diverse and varied product lines and greater
financial resources. Cash flow shortfalls have occurred more frequently than the
company desired.
Fundex believes the mergers will offer a number of benefits to Fundex,
including the following:
- Fundex expects to benefit from Futech's patented technology as well as
Futech's established distribution channels in children's publishing.
- Fundex expects to benefit from the greater financial resources and access
to capital of the combined entities, especially for product development
and distribution.
- Fundex expects to benefit from the combined entities' greater access to
character licensed products which are essential to continued growth of
the Fundex product line.
- Fundex expects to benefit from the greater depth of management which the
resulting entity will provide.
- Fundex expects to benefit from the more diverse product line of the
combined companies and the diminished seasonal impact on its business.
- Fundex expects that stockholders who do not sell their shares for cash
will benefit because the Futech stock which they will receive is likely
to be publicly traded and therefore much more liquid than current Fundex
stock.
Although Fundex believes the mergers will offer it a number of benefits, as
outlined above, it has no assurances that the post-merger company will provide
it with adequate capital to fund future growth or that additional acquisitions
can be completed to create the economies of scale which it believes that the
merger can provide.
In addition to the factors outlined above, Fundex's Board of Directors
considered the following additional factors in arriving at its decision.
Fundex's Board of Directors viewed the mergers as the best means to obtain
liquidity for the stockholders investment in Fundex. In the past few years,
Fundex's Board of Directors have considered a number of alternatives to provide
liquidity and greater capital resources for Fundex, including an initial public
offering in 1996. Because it has a niche product line and is a relatively small
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<PAGE> 507
company, Fundex's Board of directors determined that the prospects for an
advantageous initial public offering were not favorable.
Fundex's Board of Directors believes that the mergers are fair and in the
best interests of Fundex and its stockholders and therefore recommends that the
stockholders vote in favor of the merger of Fundex into New Sub.
Fundex's Board of Directors believes that the merger of Fundex into New Sub
is the best alternative for Fundex stockholders because Fundex stockholders are
likely to have a public market available for sale of their Futech shares should
they wish to sell them. Moreover, the Fundex Board of Directors believes that
the two alternatives offered to shareholders for disposition of their Fundex
stock under the Merger Agreement provide investors with an attractive set of
alternatives for disposition of their interest in Fundex. Fundex's Board of
Directors has considered the fact that the value of Futech stock may fluctuate
significantly after the mergers.
For additional information regarding the background of and reasons for the
mergers, see "DESCRIPTION OF NEW FUTECH'S BUSINESS -- Reasons for the Mergers"
in the prospectus/proxy statement.
FUNDEX'S BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF FUNDEX HAS DETERMINED THAT THE MERGERS ARE
ADVISABLE AND IN THE BEST INTERESTS OF FUNDEX AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
RELATED AGREEMENTS; INTERESTS OF CERTAIN FUNDEX AFFILIATES IN THE MERGER
ON JUNE 7, 1999, FUNDEX AND FUTECH ENTERED INTO A LOAN AND LICENSING
AGREEMENT PURSUANT TO WHICH (a) FUTECH AGREED TO LOAN FUNDEX (OR PROVIDE LETTERS
OF CREDIT FOR) AN AGGREGATE OF $1,500,000 AND (b) A NONEXCLUSIVE LICENSE
PERMITTING CERTAIN FUNDEX PRODUCTS TO USE FUTECH'S GAME BOARD TECHNOLOGY PENDING
THE MERGERS IN EXCHANGE FOR A ROYALTY EQUAL TO 50% OF NET PROFITS ON THE
ASSOCIATED PRODUCTS. THE DEBT MUST BE REPAID OVER A PERIOD OF 24 MONTHS. IF THE
MERGERS OCCUR AND THEREAFTER THE FORMER FUNDEX STOCKHOLDERS FORECLOSE ON THE NEW
SUB STOCK AS A RESULT OF A DEFAULT ON THE PROMISSORY NOTES ISSUED IN THE
MERGERS, UP TO $750,000 OF THIS DEBT WILL BE CANCELLED AS A PENALTY.
REGULATORY MATTERS
Except as disclosed in this prospectus/proxy statement supplement and the
prospectus/proxy statement supplement, Fundex and New Futech are not aware of
any governmental or regulatory approvals required for consummation of the
mergers, other than compliance with the federal securities laws and applicable
securities and "blue sky" laws of the various states.
CERTAIN FEDERAL TAX MATTERS
In the opinion of Quarles & Brady LLP, special tax counsel to New Futech,
the merger of Fundex into New Sub will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and New Futech, New Sub and Fundex will each be a party to that reorganization
within the meaning of Section 368(b) of the Code.
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In rendering its opinion, counsel has relied upon and assumed as accurate
and correct on the date hereof, and will rely on and assume as accurate and
correct as of the Effective Time of merger, the information contained in this
prospectus/proxy statement supplement and the related prospectus/proxy statement
and certain representations as to factual matters made by New Futech, New Sub
and Fundex. The representations relied upon include the following: (i) the
Fundex stockholders will receive in the merger New Futech common stock having a
fair market value of at least 40% of the fair market value of all outstanding
Fundex common stock immediately before the merger; (ii) in the merger Fundex
will transfer to New Sub assets representing at least 90% of the fair market
value of its net assets and at least 70% of the fair market value of its gross
assets taking into account any redemptions or distributions by Fundex occurring
prior to the merger and certain other items; (iii) there is no plan or intention
on the part of New Futech or a corporation related to New Futech to purchase any
of the New Futech common stock transferred to the Fundex stockholders in the
merger; and (iv) the source of payment of all cash to any Fundex stockholder in
the merger will be New Futech. Any inaccuracy or change with respect to such
information or representations or actions of New Futech, New Sub or Fundex
contrary to the representations could adversely affect the conclusions reached
in the opinion and the tax summary set forth below.
Counsel's opinion represents its best legal judgement as to the tax
treatment of the merger, but its opinion is not binding on the Internal Revenue
Service (the "Service"). The parties have not and will not request a ruling from
the Service in connection with the federal income tax consequences of the
merger.
The following discussion addresses certain federal tax consequences of the
merger to a Fundex stockholder assuming the Merger will qualify as a
reorganization and is based on the provisions of the Code, the applicable
regulations thereunder, judicial authority and current administrative rulings
and practices as of the date hereof, all of which are subject to change,
possibly with retroactive effect. The discussion assumes that the shares of
Fundex common stock are held as capital assets.
If any Fundex stockholders elect the All Cash Alternative, then such Fundex
stockholders will receive only cash for their Fundex common stock in the merger
and the nonelecting Fundex stockholders will receive shares of New Futech common
stock, New Sub Notes and the conditional rights and no cash for their Fundex
common stock in the merger. If no Fundex stockholders elect the All Cash
Alternative, then all Fundex stockholders will receive new Futech common stock,
New Futech Notes, the conditional rights and cash for their Fundex common stock
in the merger.
A Fundex stockholder that receives solely cash in the merger in exchange
for such stockholder's shares of Fundex common stock generally will recognize
capital gain or loss measured by the difference between the amount of cash
received with respect to each share of Fundex common stock and the tax basis of
each such share of Fundex common stock exchanged therefor. However, if any such
stockholder actually or constructively owns shares of New Futech common stock
after the merger (as the result of constructive ownership of shares of Fundex
common stock that are exchanged for shares of New Futech common stock in the
merger), the cash received by such stockholder may, in certain circumstances, be
taxed as a dividend. The circumstances under which dividend treatment may apply
and the tax consequences thereof are similar to those discussed below with
respect to the receipt of New Futech common stock, New Sub Notes, the
conditional rights and cash, except that the amount treated as a dividend would
not be limited to the amount of such stockholder's gain realized in the
transaction.
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<PAGE> 509
A Fundex stockholder that receives New Futech common stock, New Sub Notes
and the conditional rights in the merger in exchange for such stockholder's
shares of Fundex common stock will have the same treatment as discussed below
with respect to the receipt of New Futech common stock, New Sub Notes, the
conditional rights and cash.
A Fundex stockholder will not recognize loss on the receipt of New Futech
common stock, New Sub Notes and cash in exchange for Fundex common stock.
However, under Section 356(a)(1) of the Code, the stockholder will recognize
gain, if any, with respect to each share of Fundex common stock exchanged
(measured by the sum of the fair market value of the portion of a share of New
Futech common stock received for such share of Fundex common stock, plus the
fair market value of the portion of the New Sub Notes received for such share of
Fundex common stock, plus the fair market value of the portion of the
conditional rights received for such share of Fundex common stock, plus the
amount of any cash received for such share of Fundex common stock, minus the tax
basis of such share of Fundex common stock) but only to the extent of the amount
of the New Sub Notes plus the amount of conditional rights plus the amount of
cash received in exchange for such share of Fundex common stock.
Under applicable Supreme Court precedent, any such gain recognized will be
taxed as either gain from the sale or exchange or stock (i.e., capital gain) or
as a dividend (to the extent of the stockholder's ratable share of the earnings
and profits of Fundex), based upon whether, in the transaction described in the
next sentence, such stockholder's interest in Fundex was reduced sufficiently so
as to meet one of the tests set forth in Section 302(b) of the Code, as
described below. For purposes of this determination, a Fundex stockholder will
be treated as if such stockholder had engaged in a hypothetical transaction in
which such stockholder and all other Fundex stockholders (i) received solely
shares of New Futech common stock in exchange for all of their shares of Fundex
common stock; and (ii) thereafter had a portion of such shares of New Futech
common stock redeemed for the New Sub Notes, conditional rights and cash portion
of the merger consideration. A Fundex stockholder's hypothetical interest in New
Futech after step (i) is compared to such stockholder's interest in New Futech
subsequent to the deemed redemption in step (ii). In each case, subject to
limited exceptions, shares of New Futech common stock actually or constructively
owned by such stockholder will be considered owned for purposes of applying the
test, even if such shares of New Futech common stock were not received or deemed
received in the merger.
Under Section 302(b) of the Code a stockholder's interest in New Futech
will be deemed to have been reduced sufficiently so as to result in sale or
exchange treatment of the gain if, insofar as is here relevant, (i) such
stockholder's interest in New Futech is completely terminated as a result of the
transaction; (ii) as a result of the hypothetical redemption described above and
taking into account all other hypothetical redemptions in the merger, the Trudy
merger and the DaMert merger, a stockholder's interest in New Futech is less
than 80% of the stockholder's interest in New Futech before the redemption; or
(iii) such stockholder's interest was "meaningfully reduced" by virtue of such
redemption (the "Section 302 Tests"). While the latter of the Section 302 Tests
requires a determination based on a stockholder's particular facts and
circumstances, the Service has indicated in published rulings that a
distribution that results in any actual reduction in interest of an extremely
small minority stockholder in a publicly held corporation will meaningfully
reduce the stockholder's interest in the corporation if the stockholder
exercises no control with respect to corporate affairs.
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<PAGE> 510
Under the applicable constructive ownership rules of Section 318 of the
Code for purposes of the Section 302 Tests, a stockholder will, in general, be
treated as owning shares owned by certain family members and other related
entities, or that are subject to options owned or deemed owned by such person.
The actual or constructive ownership of shares of Fundex common stock may, in
some circumstances, have the effect of causing a Fundex stockholder that would
otherwise qualify for capital gain treatment under the Section 302 Tests to fail
to so qualify and subject such stockholder to dividend treatment.
To the extent that cash, the conditional rights and New Sub Notes received
in exchange for shares of Fundex common stock are treated as a dividend to a
corporate stockholder (other than an S corporation), such stockholder will be
(i) eligible for a dividends received deduction (subject to applicable
limitations); and (ii) subject to the "extraordinary dividend" provisions of the
Code. Under recently enacted legislation, any cash which is treated as a
dividend to a corporate stockholder will constitute an extraordinary dividend,
except as otherwise provided in Treasury Regulations which have yet to be
promulgated. Consequently, in the absence of such regulations, the nontaxed
portion of any such dividend would reduce the stockholder's adjusted tax basis
in the shares of New Futech common stock received in the merger but not below
zero and would thereafter be taxable as capital gain.
The tax basis of each share of New Futech common stock received in the
merger will be the same as the tax basis of the shares of Fundex common stock
exchanged therefor, increased by the amount of gain recognized on the exchange
with respect to such shares of Fundex common stock (including any such gain that
is treated as a dividend), decreased by any portion of such shares of Fundex
common stock which is converted into cash in lieu of receipt of a fractional
share of New Futech common stock, and further decreased by the amount of New Sub
Notes, the amount of the conditional rights and cash received with respect to
such shares of Fundex common stock (other than cash received in lieu of a
fractional share interest). The holding period of the shares of New Futech
common stock received will include the holding period of the shares of Fundex
common stock exchanged therefor.
The payment of cash to a holder of Fundex common stock in lieu of a
fractional share interest, if any, of New Futech common stock will result in
recognition of gain or loss, measured by the difference between the amount of
cash received and the portion of the adjusted tax basis of Fundex common stock
allocable to such fractional share interest.
Provided that a Fundex stockholder's recognized gain in the merger is
treated under the Section 302 Tests as a gain from the sale or exchange of stock
and not as a dividend, a Fundex stockholder may report the portion of the gain
attributable to the New Sub Notes received for the Fundex common stock under the
installment method (i.e., gain is reportable in the taxable year in which cash
is received under the New Sub Notes).
A holder of Fundex common stock who receives New Futech common stock, New
Sub Notes, the conditional rights and/or cash pursuant to the merger will be
required to retain records and file with such holder's federal income tax return
for the taxable year in which the merger takes place a statement setting forth
all relevant facts in respect of the nonrecognition of gain or loss upon such
exchange. The statement is required to include (i) such holder's basis in the
shares of Fundex common stock surrendered in the merger; and (ii) the value of
New Futech common stock, New Sub Notes and the conditional rights received
(using fair market value as of the Effective Time of merger) and the amount of
any cash received in the merger.
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<PAGE> 511
The foregoing discussion is intended only as a description of the material
federal income tax consequences of the merger and does not purport to be a
complete analysis or description of all potential tax effects of the merger. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular taxpayers in light of their personal circumstances or
to taxpayers subject to special treatment under the Code (for example, insurance
companies, financial institutions, dealers in securities, tax exempt
organizations, foreign corporations, foreign partnerships, or other foreign
entities and individuals who are not citizens or residents of the United States
and persons who acquired their New Futech common stock pursuant to the exercise
or termination of employee stock options, warrants or otherwise as
compensation).
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
The general summary set forth above is not intended to be, nor should it be
construed to be, legal or tax advice to any particular holder of Fundex common
stock. EACH HOLDER OF FUNDEX COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The mergers are intended to qualify as purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
NEW FUTECH AND FUNDEX SHARES
NEW FUTECH COMMON STOCK
For a description of New Futech common stock and its authorized but
unissued preferred stock, see "DESCRIPTION OF NEW FUTECH CAPITAL STOCK" in the
prospectus/proxy statement.
GENERAL DESCRIPTION OF FUNDEX COMMON STOCK
Fundex is authorized to issue up to 8,000,000 shares of common stock, $.001
par value. There are 1,624,824 shares of common stock outstanding at the date of
this prospectus/proxy statement supplement. At the date of this prospectus/proxy
statement supplement, there were approximately 60 holders of record of the
Company's Common Stock.
COMMON STOCK
Holders of Fundex common stock are entitled to share ratably in dividends
as are declared by the Board of Directors of the company out of funds legally
available for the payment of dividends. In the event of any liquidation,
dissolution or winding-up of the Fundex, the holders of common stock will be
entitled to receive a pro rata share of the net assets of the company remaining
after payment or provision for payment of the debts and other liabilities of the
company.
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<PAGE> 512
Holders of common stock are entitled to one vote per share in all matters
to be voted upon by stockholders. Cumulative voting for the election of
directors, and all other matters brought before stockholders meetings, whether
annual or special, is not permitted. Holders of Fundex common stock have no
preemptive or subscription rights, and the common stock is not subject to
redemption or assessment.
COMPARISON OF THE RIGHTS OF HOLDERS OF FUNDEX COMMON STOCK AND NEW FUTECH COMMON
STOCK
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF NEVADA AND DELAWARE
The corporation laws of Nevada and Delaware differ in many respects.
Although all the differences are not set forth in this prospectus/proxy
statement supplement, provisions which could materially affect the rights of
stockholders are discussed below.
REMOVAL OF DIRECTORS
Nevada
Applicable Nevada law provides that one or more directors of a corporation may
be removed with or without cause, by the vote of stockholders representing not
less than two-thirds of the voting power of the issued and outstanding stock
entitled to vote, subject to certain conditions. These conditions include
certain voting requirements applicable to corporations having cumulative voting
rights and to the removal of a member of a board who is elected by a single
class. The Fundex Board of Directors is not classified. Fundex stockholders may
not cumulate votes for directors.
Delaware
Under applicable Delaware law any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors. Applicable Delaware law also
provides additional requirements for the removal of a member of a board which is
classified as to term or elected by a single class or elected by classes
possessing cumulative voting rights. In the case of a Delaware corporation
having cumulative voting, if less than the entire board is to be removed, a
director may not be removed without cause if the number of shares voted against
such removal would be sufficient to elect the director under cumulative voting.
A director of a corporation with a classified board of directors may be removed
only for cause, unless the certificate of incorporation otherwise provides. The
certificate of incorporation and bylaws of New Futech provide for a classified
board of directors, but not for cumulative voting.
CLASSIFIED BOARD OF DIRECTORS
A classified (the term in Delaware) or staggered board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the composition of
the board of directors more difficult, and thus, a change in control of a
corporation potentially a lengthier and more difficult process.
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<PAGE> 513
Nevada
Nevada law permits, but does not require, a staggered board of directors, by
which the directors can be divided into as many as three classes with staggered
terms of office, with only one class of directors standing for election each
year. The Fundex articles of incorporation do not provide for a staggered board.
Delaware
Delaware law permits, but does not require, a classified board of directors, by
which the directors can be divided into as many as three classes with staggered
terms of office, with only one class of directors standing for election each
year. The New Futech certificate of incorporation and bylaws provide for a
classified board, consisting of three classes with three directors in each
class.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Both the Nevada and applicable Delaware laws provide that a director,
employee, officer or agent of a corporation may be indemnified against liability
(other than in an action by or in the right of the corporation) and other costs
incurred by such person in connection with such proceeding, provided such person
acted in good faith and in a manner such person reasonably believed to be in,
and not opposed to, the best interests of the corporation, and, with respect to
any criminal proceeding, had no reason to believe the conduct was unlawful. For
actions or suits brought by or in the name of the corporation, both the Nevada
and applicable Delaware laws provide that a director, employee, officer or agent
of a corporation may be indemnified against expenses incurred by such person in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in, or at least not opposed to, the
best interests of the corporation, except that if such person is adjudged to be
liable to the corporation, such person can be indemnified if and only to the
extent that a court determines that despite the adjudication of liability, in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper. On the
other hand, if he/she prevails, indemnification is mandatory. See the following
paragraph for a discussion of the differences in the standards of liability for
Fundex directors compared to New Futech directors.
The Nevada and Delaware Statutes both allow a corporation to include, in
its articles or certificate of incorporation, a provision that limits or
eliminates the personal liability of an officer (Nevada only) or a director to
the corporation and its stockholders for monetary damages for such person's
breach of fiduciary duty, provided that such provision may not so limit a
director's liability (i) for a breach of his or her duty of loyalty to the
corporation (Delaware only); (ii) for acts or omissions not in good faith or
involving fraud (Nevada only); intentional misconduct or a knowing violation of
law; (iii) for unlawful payments of dividends, certain stock repurchases or
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit (Delaware only).
INSPECTION OF STOCKHOLDER LIST
Nevada law allows any stockholder who has been a holder of record of shares
for at least six months, or any person holding, or thereunto authorized in
writing by the holder of, at least 5% of all of the outstanding shares of a
corporation to inspect the stockholder list, if the stockholder makes a demand
in good faith and for a proper purpose and the records requested are directly
connected with the stockholder's purpose. Delaware law allows any stockholder to
inspect the stockholder list for a purpose reasonably related to
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<PAGE> 514
such person's interests as a stockholder. Both Nevada and Delaware law require
the stockholder to give the corporation written notice of its demand prior to
inspection of the stockholder list.
DIVIDENDS AND REPURCHASES OF SHARES
Nevada
Holders of Fundex common stock are entitled to share ratably in such cash
dividends as may be declared from time to time by Fundex's Board of Directors
out of funds legally available therefor. Nevada law permits a corporation to
declare and pay dividends unless it would render the corporation insolvent.
Delaware
Delaware law permits a corporation to declare and pay dividends out of surplus
or if there is no surplus, out of net profits for the fiscal year as long as the
amount of capital of the corporation following the declaration and payment of
the dividend is not less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
STOCKHOLDER VOTING
Nevada
Applicable Nevada law requires that any proposed exchange, merger or
consolidation of a corporation must be approved by the holders of a majority of
the outstanding shares entitled to vote.
Delaware
Applicable Delaware law provides that a merger, consolidation, sale, lease or
exchange of all or substantially all of its assets may be effected upon a vote
of the holders of a majority of a corporation's outstanding shares. Delaware law
does not require a stockholder vote of the surviving corporation in a merger if
(a) the merger does not amend the existing certificate of incorporation, (b)
each outstanding share of the surviving corporation before the merger is
unchanged or becomes a treasury share of the surviving corporation, and (c) the
number of shares to be issued by the surviving corporation in the merger does
not exceed 20% of the shares outstanding immediately prior to such issuance.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS UNDER DELAWARE AND NEVADA
LAW
In recent years, a number of states have adopted special laws designed to
make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a
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<PAGE> 515
corporation, and one or more of its significant stockholders, more difficult.
Under sec. 203 of the Delaware General Corporation Law, certain "business
combinations" with "interested stockholders" of Delaware corporations are
subject to a three-year moratorium unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, 15% or more
of the corporation's outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner, individually or with or through certain other
persons or entities, of 15% or more of such voting stock at any time within the
pervious three years, or is an affiliate or associate of any of the foregoing.
For purposes of sec. 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value of 10% or
more of the aggregate market value of either the corporation's consolidated
assets or all of its outstanding stock; the issuance of transfer by the
corporation or a direct or indirect majority-owned subsidiary of stock of the
corporation or such subsidiary to the interested stockholder (except for certain
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock or of the corporation's voting stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by sec. 203 does
not apply if:
- prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity
becoming an interested stockholder,
- upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least 85% of the
corporation's voting stock outstanding at the time the transaction
commenced (excluding from the eighty-five percent calculation shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans that do not give employee
participants the right to decide confidentiality whether to accept a
tender or exchange offer), or
- on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent of
the outstanding voting stock not owned by the interested stockholder.
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Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is:
- listed on a national securities exchange,
- quoted on an interdealer quotation system of a registered national
securities association, or
- held of record by more than 2,000 stockholders.
Under certain circumstances, sec. 203 of the DGCL may made it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period.
Applicable Nevada law similarly prohibits such business combinations
between Nevada corporations and interested stockholders for a period of 3 years
after the interested stockholder's date of acquiring shares unless the
combination or the purchase of the shares, made by the interested stockholder is
approved by the board of directors. Applicable Nevada law also prohibits such
business combinations after the expiration of 3 years after the interested
stockholder's date of acquiring shares unless the combination meets the
requirements specified in Section 78,439 for director and stockholder approvals
or Sections 78,441 to 78,444 inclusive with respect to the consideration to be
received in the combination by all stockholders other than the interested
stockholder. Applicable Nevada law defines interested stockholders to include
persons who, alone or together with affiliates, beneficially own 10% of the
outstanding stock of the corporation. A Nevada corporation may opt-out of the
application of these provisions under certain circumstances.
Applicable Nevada law also denies voting rights to a stockholder who
acquires a controlling interest in a Nevada corporation, unless such voting
rights are approved by a majority of the voting powers of the corporation. A
Nevada corporation may opt-out of the application of these provisions under
certain circumstances. Fundex has not opted out of the application of this
statute.
Nevada law does not require a stockholder vote of the surviving corporation
in a merger if (a) the merger does not amend the existing articles of
incorporation, (b) each outstanding share of the surviving corporation before
the merger is unchanged, and (c) the number of shares to be issued by the
surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to such issuance.
INTERESTED DIRECTOR TRANSACTIONS
NEVADA
Applicable Nevada law contains a provision similar to Delaware law, except
that the board of directors may approve the transaction only if the vote is
sufficient without counting the vote of the interested directors.
DELAWARE
Applicable Delaware law states that a transaction involving an interested
director of a Delaware corporation is not void or voidable if (a) the director's
interest in the transaction is disclosed to the board and a majority of the
disinterested directors approve it, (b) the interest is disclosed to the
stockholders and the transaction is approved by a majority of the stockholders,
or (c) the transaction is fair to the corporation.
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APPRAISAL/DISSENTERS' RIGHTS
According to Nevada Revised Statutes Section 92A.420.1, stockholders of
Fundex who wish to assert dissenters' rights:
- must deliver to Fundex BEFORE the vote is taken at the Special
Meeting written notice of their intent to demand payment for their
Fundex common stock if the merger is completed; and
- must not vote their shares in favor of the Merger Agreement.
Stockholders failing to satisfy these requirements will not be entitled to
dissenters' rights under Chapter 92A of the Nevada Revised Statutes.
According to Delaware law, appraisal rights are not available (a) with
respect to the sale of all or substantially all of the assets of a corporation,
(b) with respect to a merger or consolidation by a corporation the shares of
which are either listed on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or are held of record by more
than 2,000 holders if such stockholders receive only shares of the surviving
corporation or shares of any other corporation that are either listed on a
national securities exchange, designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders, plus cash in lieu of
fractional shares of such corporations, or (c) to stockholders of a corporation
surviving a merger if no vote of the stockholders of the surviving corporation
is required to approve the merger under Delaware law.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to the
consolidated statements of income of Fundex for each of the five years in the
period ended December 31, 1998, and with respect to the consolidated balance
sheets of Fundex at December 31 of each of the five years ending December 31,
1998, are derived from the audited consolidated financial statements of Fundex
incorporated by reference in this prospectus/proxy statement supplement. The
data for the three month periods ended March 31, 1999 and 1998 are derived from
the Fundex unaudited quarterly financial statements that are also incorporated
herein.
The data set forth below are qualified by reference to, and should be read
in conjunction with, the financial statements and the notes related thereto
included in the prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING
DATA
Net Sales............ $3,802 $4,601 $6,212 $7,798 $8,577 $1,117 $ 935
Net income (loss).... 359 337 34 (1,164) (3) (143) (109)
Net income (loss) per
share.............. 0.31 0.29 0.03 (0.71) 0.00 -- --
</TABLE>
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<PAGE> 518
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999
---- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA
Current assets............ $ 982 $1,130 $2,236 $4,165 $3,851 $3,132 $3,151
Total assets.............. 1,025 1,234 2,842 4,793 5,279 4,270 4,529
Current liabilities....... 526 590 1,990 1,935 1,316 1,578 1,277
Total Liabilities......... 548 590 2,008 3,558 4,047 3,178 3,406
Stockholders' equity...... 477 644 834 1,235 1,232 1,092 1,123
</TABLE>
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FUNDEX MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Fundex's
audited financial statements and notes thereto for the three years ended
December 31, 1998, 1997 and 1996 and its unaudited financial statements for the
three months ended March 31, 1999 and 1998, appearing as an attachment to the
prospectus/proxy statement supplement.
OVERVIEW
Fundex was originally incorporated and founded by Carl E. ("Chip") Voigt,
IV and Carl E. ("Pete") Voigt, III in the State of Indiana in 1991 as Third
Quarter, Inc. In August 1996, Fundex was reincorporated in the State of Nevada
by establishing a new Nevada corporation and merging the Indiana corporation
into the Nevada corporation. In connection with the merger, the name of the
Company was changed to Fundex Games, Ltd.
Fundex Games, Ltd. ("Fundex" or the "Company") develops, markets, and
distributes a variety of games and toys for both children and adults. The
Company's principal products include: (i) card games, puzzles, and board games;
(ii) skill and action games for children; (iii) games, puzzles, and toys
featuring highly-recognized entertainment properties and characters licensed by
Fundex from third parties; and (iv) spring and summer toys for children.
The Fundex products are sold to mass merchant retailers, chain stores and
specialty stores and are offered at retail prices ranging from $1.00 to $60.00.
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth, for the periods indicated, the relative
percentage that certain income and expense items bear to net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales.............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales.......... 67.7 64.5 65.0 71.3 62.6
Royalties.............. 3.2 4.2 4.2 3.7 5.1
----- ----- ----- ----- -----
Gross Profit........... 29.1 31.3 30.7 25.0 32.3
Selling, general and
administrative
expenses............. 20.6 43.2 25.9 31.2 28.0
Depreciation and
amortization......... 1.1 2.3 2.7 4.2 8.3
----- ----- ----- ----- -----
Operating Income
(loss)............... 7.4 (14.2) 2.2 (10.3) (4.0)
Other expense.......... (7.2) (0.7) (2.2) (2.5) (7.7)
----- ----- ----- ----- -----
Income (loss) before
taxes................ 0.2 (14.9) (0.0) (12.8) (11.7)
Income tax benefit
(expense)............ 0.3 (0.0) (0.0) (0.0) (0.0)
----- ----- ----- ----- -----
Net income (loss)...... 0.5 (14.9) (0.0) (12.8) (11.7)
</TABLE>
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<PAGE> 520
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Sales. Net sales for the three months ended March 31, 1999 were
$935,019 as compared with net sales of $1,117,470 for the three months ended
March 31, 1998, or a decrease of 16.3%. The decrease is related to fewer
inventory close-out sales for the three months ended March 31, 1999 as compared
to March 31, 1998.
Cost of Sales. Cost of sales of $585,495 decreased from $796,530 in the
prior year. In percentage terms to net sales, cost of sales decreased from 71.3%
to 62.6% principally as a result of the 1998 close-outs of inventory.
Royalties. Royalties were $47,872 as of March 31, 1999 as compared to
$41,412 on March 31, 1998. The increase is a result of increased international
sales on Phase 10(TM) product line.
Selling General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses decreased from $261,417 to $348,156. The
decrease was a result from the company terminating it's retirement plan on
January 1, 1999 resulting in a recapture of expenses approximating $104,000.
Depreciation & Amortization. Depreciation and amortization expense was
$77,143 as of March 31, 1999 as compared to $46,616 on March 31, 1998. The
$30,527 increase is primarily a result of amortization of loan costs. In the
third and fourth quarter of 1998, the Company secured a mezzanine facility with
Liberty BIDCO Investment Company and replaced lender's on the line of credit
facility. The new line of credit is with Wells Fargo Business Credit (formerly
"Norwest Business Credit") and the old line of credit was with NBD Bank, N.A.
Income from Operations. Consequently, income from operations of $(36,908)
was up from ($115,244) in 1998.
Other Income (Expense). Other expense was $71,924 as of March 31, 1999 as
compared to $27,992 on March 31, 1998. Interest expense increased to $76,701
from $40,386 in the prior year. Fundex secured a $1,000,000 subordinated term
loan from Liberty BIDCO Investment Corporation in August 1998. Interest is based
on prime plus 3 percentage points and a revenue participation fee of 1.25% of
net sales is also assessed. The interest cost attributable to the term loan was
$46,126. The balance of the interest expenses at March 31, 1999 relates to the
company's line of credit. Royalty income increased to $10,000 from $9,276 in the
prior year. Phase 10(TM) international sales accounted for the increase in
royalty income. Interest income decreased to $0 from $2,189 in the prior year.
Fundex changed financial lenders in October 1998 and as a result, changed cash
management processes.
Taxes. No tax provision as company has approximately $1,000,000 of net
operating carryforwards (expiring in 2012) which can be utilized to offset
future taxable income. The deferred tax asset of $340,000 has been fully offset
by a valuation allowance because realization is not likely at this time.
Net Income (Loss). As a result of the above factors, net loss decreased
from $(143,236) as of March 31, 1998 to $(108,832) as of March 31, 1999.
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<PAGE> 521
FISCAL YEAR ENDED DECEMBER 31, 1998, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net Sales. Net sales for the year ended December 31, 1998 were $8,576,702
as compared with net sales of $7,797,681 for the year ended December 31, 1997,
or an increase of 10.0%. Sales of the new Super Sports Arena game and the
continued growth of the Phase 10(TM) card game accounted for the majority of the
increased net sales.
Cost of Sales. Cost of sales of $5,577,320 increased in 1998 from
$5,027,267 in the prior year. As a percentage of net sales, cost of sales
increased from 64.5% to 65.0%, principally as a result of a 1997 product
close-out.
Royalties. Royalties were $363,778 on December 31, 1998 as compared to
$330,678 on December 31, 1997. The increase is a result of increased sales. Both
December 31, 1998 and December 31, 1997 royalties represented 4.2% of net sales
Selling General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses decreased from $3,370,967 in 1997 to $2,217,887
in 1998. Higher advertising costs in 1997 accounted for the significant
decrease, partially offset by increased personnel costs. Advertising costs
decreased from $1,548,832 in 1997 to $140,855 in 1998, or a decrease of
$1,407,977.
Depreciation & Amortization. Depreciation and amortization expense was
$230,512 on December 31, 1998 as compared to $179,894 on December 31, 1997. The
increase in depreciation relates to new product tooling introduced in the later
part of 1997 and in early 1998.
Income from Operations. Income from operations of $187,205 in 1998 was up
from a loss of $1,111,125 in 1997, largely due to decreased advertising
expenses.
Other Income (Expense). Other income (expense) was ($190,132) as of
December 31, 1998 as compared to ($53,067) on December 31, 1997. Interest
expense increased to $245,895 in 1998 from $81,419 in the prior year. Fundex
secured a $1,000,000 subordinated term loan from Liberty BIDCO Investment
Corporation in August 1998. Interest is based on prime plus 3 percentage points,
and a revenue participation fee of 1.25% of net sales is also assessed. The
interest cost attributable to the term loan was $83,152. The Company's other
principal debt, its line of credit was put in place in March 1997 and resulted
in only nine (9) months of interest expense in 1997 as compared to twelve (12)
months in 1998. Royalty income increased to $51,816 from $28,009 in 1997
compared to twelve months in 1998. Phase 10(TM) international sales were up
significantly resulting in the increase in royalty income. Interest income
decreased to $3.947 in 1998 from $5,343 in the prior year. Fundex changed
financial lenders in October 1998 and as a result, changed cash management
processes.
Taxes. No tax provision as company has approximately $1,000,000 of net
operating carryforwards (expiring in 2012) which can be utilized to offset
future taxable income. The deferred tax asset of $340,000 has been fully offset
by a valuation allowance because realization is not likely at this time.
Net Income (Loss). As a result of lower advertising costs and slightly
higher royalty income, partially offset by higher costs of sales and interest
expense, the Company had a net loss of ($2,927) in 1998, improved from a net
loss of ($1,164,192) in 1997.
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<PAGE> 522
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Net Sales. Net sales for the year ended December 31, 1997 were $7,797,681
as compared with net sales of $6,211,875 for the year ended December 31, 1996,
or an increase of 25.5%. The introduction of new products and increased sales
for existing products resulted in the significant change.
Cost of Sales. Cost of sales of $5,027,267 increased from $4,204,522 in
the prior year. As a percentage of net sales, cost of sales decreased from 67.7%
in 1996 to 64.5% in 1997. The percentage decrease related to a shift in product
mix, with the Company selling more products with a higher gross margin in 1997.
The Company was also able to implement a modest price increase on key products.
Royalties. Royalties were $330,678 on December 31, 1997 as compared to
$199,945 on December 31, 1996. The Company introduced a significant amount of
new licensed products in 1997 resulting in the royalty expense increase.
Royalties as a percentage of net sales increased from 3.2% on December 31, 1996
to 4.2% on December 31, 1997.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses increased from $1,281,147 in 1996 to $3,370,967
in 1997. Higher advertising costs and other selling expenses in 1997 accounted
for the significant increase.
Depreciation & Amortization. Depreciation and amortization expense was
$179,894 on December 31, 1997 as compared to $67,130 on December 31, 1996. The
increase in depreciation relates to new product tooling introduced in 1997.
Other Income (Expense). Other income (expense) as of December 31, 1997,
was ($53,067) as compared to ($444,679) on December 31, 1996. The Company
abandoned an initial public offering in December 1996. The costs associated with
the offering were $437,630. The offering costs were charged against income in
1996. The Company had rental income of $18,000 in 1996 from warehouse space it
sublet. The Company also had an equity loss in a joint venture of $6,411 in
1996. The Company bought out the other parties in the joint venture in August
1996. Interest expense increased to $86,419 in 1997 from $23,474 in 1996. The
Company secured additional financing in 1997 which resulted in the increase of
interest expenses. Royalty income increased to $28,009 in 1997 from $4,270 in
1996. Phase 10(TM) international sales were up significantly resulting in the
increase in royalty income. Interest income increased to $5,343 from $566.
Taxes. No tax provision on December 31, 1997 as a company had
approximately a $1,000,000 tax loss for the period 1997, resulting in net
operating carryforwards (expiring in 2012) which can be utilized to offset
future taxable income. The deferred tax asset of $340,000 has been fully offset
by a valuation allowance because realization is not likely at this time. In
1996, the Company was a Subchapter S Corporation. At the close of business on
December 31, 1996, the Company became a C Corporation. At that time a deferred
tax asset of $19,100 was recorded for exiting temporary differences.
Net Income. Largely as a result of increased advertising expenses, which
rose from $22,286 in 1996 to $1,672,368 in 1997, the Company experienced a net
loss of $(1,164,192) in 1997 compared to net income of $33,552 in 1996.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The demand for Fundex Games' retail products is seasonal, with a majority
of sales to retailers occurring July through November in anticipation of the
Christmas season.
27
<PAGE> 523
LIQUIDITY AND CAPITAL RESOURCES
Demand for Fundex Games' products continues to be strong and the company is
continuously developing additional products. Fundex Games' benchmark product,
Phase 10(TM) continues to sell strongly and serves as a product introduction
item with new and existing customers.
The seasonality of sales has made credit availability an important issue
for Fundex Games. In October 1998, the Company replaced the existing bank lender
with an asset based lender, resulting in a $2,500,000 line of credit and
obtained a five-year term loan of $1,000,000 to finance seasonal working capital
and the 1997 net loss.
Accounts receivable decreased to $718,314 at March 31, 1999, compared with
$924,318 a year earlier due in part to decreased sales in the first quarter
compared to the previous year. The Company had two customers file bankruptcy,
with the appropriate reserve set up; Playtoy Industries ($36,632) in November
1998 and Caldor (67,414) in January 1999. Inventory levels were $2,018,710 on
March 31, 1999, compared with $1,874,423 on March 31, 1998. The increase of
$144,287 was attributable to new product buildup. The Company anticipates
selling the additional inventory in the third quarter of 1999. Loans outstanding
at March 31, 1999, were $1,000,000 on the term loan from Liberty BIDCO
Investment Corporation and $1,217,198 on the line of credit due from Wells Fargo
(formerly known as "Norwest Business Credit") as compared to $1,600,000
outstanding at March 31, 1998 from NBD Bank, N.A.
INFLATION
Management believes that inflation has not had a significant impact on the
Company's costs and profits during the past two years.
YEAR 2000
Fundex Games' FACTS software, used for accounting, order processing and
inventory management, is Year 2000 compliant. The Company is now in the process
of receiving certification from its major vendors that their systems are Year
2000 compliant. This survey includes vendors who provide systems related
services including banking, credit card processing, shipping as well as those
providing the company with its game products. The Company does not believe that
the failure of any vendor to be Year 2000 compliant would have a material impact
on the Company.
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus/proxy statement supplement and the related prospectus/proxy
statement contains or incorporates by reference forward-looking statements. The
factors identified above in this section are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, New Futech or any of the merging companies.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, New Futech
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. We cannot promise that
statements of expectation or belief will be achieved or accomplished. The words
"believe," "expect," and "anticipate" and similar expressions identify forward-
looking statements throughout these materials.
28
<PAGE> 524
DESCRIPTION OF FUNDEX'S BUSINESS.
Fundex was originally incorporated and founded by Carl E. ("Chip") Voigt,
IV and Carl E. ("Pete") Voigt, III in the State of Indiana in 1991 as Third
Quarter, Inc. In August 1996, Fundex was reincorporated in the State of Nevada
by establishing a new Nevada corporation and merging the Indiana corporation
into the Nevada corporation. The Company's principal place of business is
located at 2237 Directors Row, Indianapolis, IN 46241. The Company's telephone
number is (317) 248-1080.
Fundex develops, markets, and distributes a variety of games and toys for
both children and adults. The Company's principal products include: (i) card
games, puzzles, and board games; (ii) skill and action games for children; (iii)
games, puzzles, and toys featuring highly-recognized entertainment properties
and characters licensed by Fundex from third parties; and (iv) spring and summer
toys for children..
The Fundex products are sold to mass merchant retailers, chain stores and
specialty stores and are offered at retail prices ranging from $1.00 to $60.00.
BUSINESS
PRODUCTS
Fundex has a broad and well established line of games and toys, and is
continually developing additional games and toys for children, families, and
adults.
The Company's products are generally acquired from others or developed for
Fundex by unaffiliated third parties. Fundex employs an individual to review and
refine new toy, game, and puzzle concepts submitted from these third parties. If
Fundex accepts and develops a third party's concept for a new toy, game or
puzzle, it generally pays a royalty to the inventor on items sold which were
developed from such concept. Generally, Fundex will commit to manufacture and
sell a minimum number of such items. Royalties paid to the inventors range from
1% to 10% of the wholesale sales price for each unit sold by Fundex. Fundex
occasionally pays advance royalties on products where a significant amount of
development has been done by an inventor. Fundex believes that utilizing third
party inventors give it a wide range of available new products and eliminates
operating costs associated with maintaining full time inventors.
The following is a description of Fundex's major product lines:
Phase 10(TM)
The Phase 10(TM) card game is an established card game for ages eight (8)
to adult. Phase 10(TM) is currently the second best-selling card came in the
United States and the world, with over 6,000,000 units sold. The Phase
10(TM)card game and its sister products, Phase 10 Dice, Phase 10 UPSETS, and
Take Five, comprise Fundex's principal product line. Phase 10(TM) is sold by a
very broad base of retailers and is available at over 20,000 retail locations.
Card games such as Phase 10(TM) and Uno(TM) from Mattel, Inc. typically have
very long product cycles often lasting for decades and a very broad demographic
base of players. As a result, these games are not normally sensitive to economic
volatility. The retail price range for these products is $3.99 to $19.99.
Family Games
Fundex markets a broad range of family games designed to appeal to ages 8
to adult. These products' retail prices range from $7.99 to $19.99. The family
range of games
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<PAGE> 525
include "Penguin Pileup", "A to Z", and the "52 Game Chest". This is the fastest
growing of the Fundex product lines due in part to broad age appeal and games
that are classics and critically acclaimed. "A to Z" was selected as the Best
Word Game of 1997 by Games Magazine. This line carries high gross margins
because of the exclusivity of the products. The games are carried by a broad
cross section of the retail base, from mass market retailers to independent game
and toy retailers.
Action Games
Fundex markets several action games, those games that require a degree of
manual dexterity to play. These products range in price from $9.99 to $59.99
retail. The action game category has been one that has been diminished due to
the popularity of electronic games such as Nintendo 64 and Sony Playstation in
the past several years. Fundex positions its products to provide high perceived
value with low retail price points to the retailer so as to make the product
appealing to the consumer. Products such as the "Super Sports Arena" game
comprise this category. These products are highly promotional and lend
themselves to advertising in customer newspaper ads.
Preschool Games and Toys
Fundex markets a range of products designed for the preschool age child.
These games do not require reading, so the child may play amongst other children
or with parents. These products range in price from $6.99 to $19.99 retail. The
products are sold to a broad range of retailers from mail order catalogs to mass
market retailers and toy specialty chains. Products in this range include the
"Wigglin Wally" fishing game, "Peanut Butter & Jelly", the "Beginners Bible
Noah's Ark Playset", and "Noah's Ark Board Game". Each of these products is
proprietary to Fundex.
Wooden Games
A growing category for the Company has been its line of wooden games. These
are competitively priced and well made wood versions of several classic games
such as labyrinths, chess, checkers, Chinese checkers and Mancala. The Company
has gained market share with its market leading package design and innovative
gift sets. The products range in price from $6.99 to $24.99. Each year Fundex
introduces several new items in this category. Senat, an ancient Egyptian game,
and Kalahari were introduced this year. This product line is sold primarily
through upscale retailers.
Basic Board Games and Mini Games
Fundex markets a comprehensive line of traditional board games such as
chess and checkers. These products retail in the $2.99 to $9.99 range. Although
this is a large business dominated by two major competitors, Fundex has shown a
profit for these basic board games in its first full year of production. Fundex
expects that margins will improve in this category as volume increases.
Spring & Summer Toys and Games
Fundex markets a line of spring and summer toys and games to complement its
line. The spring and summer line sells primarily in the first six months of the
year providing some balance to the heavily seasonal second half of the year. The
company produces jump ropes, water toys, and water games. The products range in
price from $0.99 to $14.99.
30
<PAGE> 526
New Products
In 1998 and 1999, Fundex introduced several new games which management
believes will strengthen and broaden its product mix. Set forth below is an
overview of these products.
"Electronic Interactive Games" are the first games to utilize the
patented 'in the gameboard' circuitry developed by Futech Interactive
Products. The games in this series include "Blastoid," a space game,
"Chat," the race around the Internet game, and a series of collectible
NASCAR racing circuit games. The games features drivers Jeff Gordon, Dale
Earnhardt, Dale Jarrett, Rusty Wallace and Dale Earnhardt Jr. Die-cast
collectible cars that move around the race track gameboard with the play
dictated by random commands and sound effects from the circuitry. The games
are expected to retail from $15 to $25. This product is expected to begin
shipment in July 1999.
"Electronic Interactive Puzzles" are the first puzzles to utilize the
Futech circuitry. The puzzle asks the child to find certain pieces and when
the puzzle piece is correctly placed in the puzzle an appropriate sound is
made by the puzzle to confirm the piece was placed correctly. The puzzle is
expected to retail for $10. This product is expected to begin shipment in
July 1999.
"The Amazing Kreskins Celtic Oracle Game" uses the power of Kreskin,
the world famous mentalist, to create an intriguing and revealing game.
Players respond to questions using the Oracle, which reveals their true
answer. The game is expected to retail for $20. This product is expected to
begin shipment in July 1999.
"Super Sports Arena 5 in I Game Table" is a versatile game allows
realistic play of Pool, Bowling, Basketball, Hockey, and Ping Pong in a
portable system. The Super Sports Arena is expected to retail for
approximately $60 and is priced about 30-40% under its competition from
Fisher Price, Amav, and Toy Biz. This item is an exceptional value for the
consumer. Retailer response has been tremendous and management believes
this will be a staple item in the industry for years to come. This product
began shipments in 1998.
"Penguin Pileup" is a family skill game that comes from a renowned
design firm in London. The game consists of a floating iceberg, and 24
penguins. The object is to place all of ones penguins on the iceberg
without them falling off. This product was successfully marketed to the
educational and specialty toy markets in 1997 and has been successfully
introduced to the mass market in 1998. Management believes Penguin Pileup
will be a staple item. The product retails from $15 to $20. This product
began shipments in 1998.
MARKETING, DISTRIBUTION AND CUSTOMERS
The Company sells its products nationwide to retailers primarily through a
network of independent sales representative firms. The Company's products are
displayed at two major consumer product shows in January and February of each
year, and at a number of smaller specialty market shows throughout the year.
Marketing activities for the Company's product lines primarily target mass
merchant retailers in the United States and Canada, as well as smaller regional
merchants, drug chains, department stores and gift stores. In 1998, the
Company's 10 largest customers represented more than half of the Company's
revenues.
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<PAGE> 527
The Company distributes its products primarily out of its facility in
Indianapolis, Indiana. Some orders are sold on an FOB Hong Kong basis are
shipped directly from Fundex's manufacturers.
Fundex's products are sold primarily in retail mass market, wholesalers,
toy and chain stores.
MANUFACTURING
Fundex's products are currently manufactured by unaffiliated third parties
located in the United States, China, Taiwan, and the Philippines. Approximately
50% of Fundex's products are manufactured within the United States. The
manufacturers are chosen based on their ability to manufacture the products to
meet delivery requirements, quality, reliability, and price. The use of third
party manufacturers not only enables Fundex to avoid fixed operating costs
associated with manufacturing, but also affords Fundex greater flexibility in
the manufacturing process and in the materials used in its products since Fundex
is not restricted by the capabilities of expensive purchased equipment.
Manufacturing costs are paid for by open account with the manufacturer. Fundex
believes that alternative sources of supply are available for each of its
products.
At its Indianapolis facility, Fundex assembles, packages, and shrink wraps
many of its products. Approximately 40% of Fundex's products, including the
Phase 10(TM) product line, are produced in Indianapolis. Although Fundex does
not manufacture its products, it does participate in the decision of prototype
products, production tooling and molds, printing plates and dies, and seeks to
insure quality control by actively reviewing the production processes and in
testing goods produced by its manufacturers.
The principal raw materials used in Fundex's products are printed paper and
paperboard, plastics, and wood. Fundex believes there are adequate sources of
supply for such raw materials, and although Fundex does not manufacture all of
its own products, the molds, films, printing plates, and dies used in the
manufacturing process are transferable if Fundex employs different
manufacturers.
PRODUCT DESIGN AND SELECTION
The Company's products are generally acquired from others or developed for
Fundex by unaffiliated third parties. Fundex employs an individual to review and
refine new toy, game, and puzzle concepts submitted from these third parties. If
Fundex accepts and develops a third party's concept for a new toy, game or
puzzle, it generally pays a royalty to the inventor on items sold which were
developed from such concept. Generally, Fundex will commit to manufacture and
sell a minimum number of such items. Royalties paid to the inventors range from
1% to 10% of the wholesale sales price for each unit sold by Fundex. Fundex
occasionally pays advance royalties on products where a significant amount of
development has been done by an inventor. Fundex believes that utilizing third
party inventors gives it a wide range of available new products and eliminates
operating costs associated with maintaining full time inventors.
Safety testing of Fundex's products are conducted by independent third
party contractors to meet safety regulations imposed by federal and state
governmental agencies. Fundex, in conjunction with these contractors, determines
the appropriate warning labels (such as choking hazard and age restrictions) to
be placed on its products.
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<PAGE> 528
COMPETITION
The market for games and toys is served by manufacturers, both foreign and
domestic, many of whom have greater financial resources and have greater name
and product recognition than the Company. Many products are available over a
broad price range. The market is competitive, includes numerous small
manufacturers, and is dominated by two industry giants. The toy industry is
highly competitive and sensitive to changing consumer preferences and demands.
Competition is based primarily on price, quality, and play value. In recent
years the toy industry has experienced rapid consolidation driven, in part, by
the desire of industry competitors to offer a range of products across a broader
variety of categories.
Generally speaking, Fundex competes with Mattel, Inc., Hasbro, Inc.
(including, its Milton Bradley and Parker Bros. Divisions), and Pressman, Inc.
Mattel and Hasbro, the two largest toy companies in the United States, control
approximately 50% of the game and toy market.
PATENTS, TRADEMARKS AND LICENSES
Carl E. (Chip) Voigt, III and Carl E. (Pete) Voigt, IV (collectively, the
"Voigts") obtained the exclusive rights to manufacture, market and distribute
the Phase 10(TM) card game (and all enhancements) pursuant to an agreement dated
December 18, 1986. The agreement is for a term of ten (10) years, and
automatically renews for successive five year periods unless terminated by the
Voigts. The Voigts assigned such rights to Fundex in respect of the sales of
Phase 10(TM) in the United States effective in 1991, and transferred all foreign
rights to Fundex in 1996. In connection with the assignment of the foreign
rights to Fundex, the Voigts assigned to Fundex all of their rights under
various sub-license agreements. Pursuant to the sub-license agreements, certain
rights to market and sell Phase 10(TM) products were assigned to entities with
respect to individual territories, including Spain, Italy, Canada, Sweden,
Germany, Australia, and New Zealand.
Because Fundex obtains many of its products through licenses, it relies on
trademark and other protection obtained by its licensors. The license agreements
for such products, including the license relating to Phase 10(TM), permit Fundex
to utilize the trademarks and other proprietary rights owned by the licensor.
Company trademarks granted include Fundex Games, Roundabout, Tyrannorace, Take
Five, Toot R Ville Express, Piranha, and Telephone Tag. Trademarks pending, and
applied for, include Upsets(TM), Penguin Pileup, Wigglin Wally, Search 4, Pegs
and Jokers and Limbo Splash. Fundex has received a patent on a certain game
playing apparatus to be used in connection with its "10 in I" games. Fundex
recognizes that patents are not totally effective in prohibiting competitors
from producing similar products that could compete with those of Fundex.
Therefore, Fundex does not rely heavily upon patent protection to maintain its
competitive provision, but instead relies to a greater extent on trademark and
copyright protection.
BACKLOG
Shipment of the Company's products is anticipated to peak during the summer
months and, consequently it is expected that the Company's backlog will be at a
maximum during June, July and August. Orders are normally shipped on the date
upon which the customer has requested shipment.
Many of the Company's customers order on an as needed basis and for
immediate shipment. Fundex normally ships these orders within 48 hours.
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<PAGE> 529
At December 31, 1998, the backlog of orders was approximately $216,000 and
at December 31, 1997, the backlog of orders was approximately $206,000.
GOVERNMENT REGULATIONS
The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Products Safety Act. Those
laws empower the Consumer Products Safety Commission (the "CPSC") to protect
children from hazardous products. The CPSC has the authority to exclude from the
market articles which are found to be hazardous and can require a manufacturer
to repurchase such products under certain circumstances. Any such determination
by the CPSC is subject to court review. Similar laws exist in some states and
cities in the United States and in many jurisdictions throughout the world. The
Company endeavors to comply with all applicable regulations through a program of
quality inspections and product testing. The Company maintains product liability
insurance in the amount of $2,000,000.
EMPLOYEES
As of December 31, 1998, Fundex employed twenty-one (21) full-time
employees, including its three executive officers. All of Fundex's employees are
located in the United States. Fundex believes that its relations with its
employees are good. None of Fundex's employees are represented by a union.
PROPERTIES
Fundex presently leases approximately 32,000 square feet of space at 2237
Directors Row, Indianapolis, Indiana 46241. The term of the lease is for a
period of five (5) years and contains a renewal option for an additional three
(3) years. The monthly rental is $13,985. Fundex also leases approximately 1,000
square feet of showroom and office space at the Toy Center South, 200 Fifth
Avenue, Room 516, New York, NY, at a current rental of approximately $2,200 per
month. The showroom is used to exhibit Fundex's products for the International
Toy Fair in February each year, and is used as an office for the balance of the
year. The showroom lease expires April 30, 2006. Fundex believes it will need a
larger New York showroom as the number of its products and product lines grow.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company is a party,
or of which, any of its property is subject.
34
<PAGE> 530
FUNDEX MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding Fundex's executive
officers and directors as of December 31, 1998:
<TABLE>
<CAPTION>
YRS. WITH YRS. IN
NAME AGE POSITION CO. INDUSTRY
- ---- --- -------- --------- --------
<S> <C> <C> <C> <C>
Carl E. (Chip) Voigt, IV........... 38 President, CEO & Director 8 15
Carl E. (Pete) Voigt, III.......... 61 Executive Vice President 9 40
& Director
James E. Money, D.................. 36 Chief Financial Officer 1 1
and Treasurer & Director
George Propsom..................... 51 Product Development 3 25
Manager
Eric J. Voigt...................... 34 Plant & Purchasing 8 8
Manager
William H. Prophater............... 53 Director 2 --
Sheldon Drobny..................... 52 Director 2 --
</TABLE>
MR. CARL E. (CHIP) VOIGT, IV Fundex's President, Chief Executive Officer
and Chairman of the Board has been engaged in the toy and game industry for over
15 years. He is one of the founders of Fundex and has been President and Chief
Executive Officer since the inception of Fundex in 1991. Prior to joining
Fundex, Mr. Voigt spent four years as a manufacturer representative in the toy
and game industry. He received a Bachelor of Science degree in Industrial
Management from Purdue University. Mr. Voigt is the son of Carl E. (Pete) Voigt,
III and the brother of Eric J Voigt.
MR. CARL E. (PETE) VOIGT, III Fundex's Executive Vice President, Secretary
and Director has been engaged in the game and toy business for over 37 years. He
is one of the founders of Fundex and has been Executive Vice President since its
inception in 1991. Mr. Voigt was a manufacturer's representative in the toy and
game industry from 1974 until 1988, and participated in the development and
implementation of the sales and marketing plan for the card came "Uno", the
best-selling card game in the world. Prior to that time, Mr. Voigt was a
salesman or buyer in the toy and game business. Mr. Voigt is the father of Carl
E. (Chip) Voigt, IV and of Eric J Voigt.
MR. JAMES E. MONEY, II Fundex's Chief Financial Officer and Vice President
joined the Company in April 1998. Mr. Money is a Certified Public Account and
has been involved in the services industry for the past ten years. Mr. Money
spent the last two years as Director of Billing & Collections for a
transportation company. Prior to working in the transportation industry, Mr.
Money spent two plus years as controller of a financial service company. Mr.
Money also spent three years in public accounting working for an Indianapolis
area local firm. Mr. Money Graduated from Indiana University with a B. S. in
Accounting,
MR. GEORGE PROPSOM Fundex's Director of Development joined the Company in
July of 1996. Mr. Propsom has been in the toy industry since 1971. Mr. Propsom
started with Western Publishing Company as an Associate Designer. Mr. Propsom
spent five years at Parker Brothers as a designer for games and Nerf products.
While at Western Publishing
35
<PAGE> 531
Mr. Propsom spent 17 years as Manager of product development for SkilCraft and
Westerns Game and Activity Department. Mr. Propsom was also employed at Cadaco
in Chicago as Operation Manager.
MR. ERIC J. VOIGT Fundex's Plant and Purchasing Manager has been engaged
in the toy and came industry for over 9 years. Prior to joining Fundex, Mr.
Voigt was in the hotel and restaurant business. He attended Purdue University
and Northern Michigan College. Mr. Voigt is the son of Mr. Carl E. Voigt, III
and brother of Mr. Carl E. Voigt IV.
MR. WILLIAM H. PROPHATER Mr. Prophater has been a director of Fundex since
July 1996. Mr. Prophater has been executive vice president of Style-Line, Inc.,
a manufacturer of window treatments since 1992. From 1990 to 1991, Mr. Prophater
was vice president and general merchandise manager of Ames Department Stores.
Prior to that time, Mr. Prophater was senior vice president and general
merchandise manager of Gold Circle Stores. Mr. Prophater received a Bachelor of
Science/Bachelor of Arts degree in management from Creighton University.
MR. SHELDON DROBNY Mr. Drobny has been a director of Fundex since
September 1996. He is a registered representative with Merrill Weber & Co., Inc.
Mr. Drobny is a principal in the accounting firm of Adler, Drobny & Fischer, LLC
and is the managing director of Paradigm Venture Investors, LLC, a private
investment firm. Prior to joining Adler, Drobny & Fischer, LLC, Mr. Drobny was
with the Internal Revenue Service. Mr. Drobny received a Bachelor of Science
degree in accounting from Roosevelt University, and Mr. Drobny is a Certified
Public Accountant.
36
<PAGE> 532
FUNDEX STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Fundex common stock at May 31, 1999 with respect to (i) each person
known to Fundex to own beneficially more than 5% of the outstanding shares of
Fundex's common stock, (ii) each director of Fundex, (iii) each of the executive
officers of Fundex, and (iv) all directors and executive officers of Fundex as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO MERGER
-------------------------
NAME NUMBER PERCENT(1)
- ---- ---------- -----------
<S> <C> <C>
Identity of Stockholder or Group
Carl E. Voigt, IV, Officer/Director..................... 575,000 35.4
Carl E. Voigt, III, Officer/Director.................... 575,000 35.4
Sheldon Drobny, Director................................ 44,062 2.7
All Executive Officers and Directors as Group........... 1,194,062 73.5
</TABLE>
(1) Based upon 1,624,824 shares of Common Stock issued and outstanding on May
31, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the mergers, Chip Voigt will become a director and Vice
President of the Toys/Games Division of New Futech and a director and President
of New Sub. Peter Voigt will become the Vice President of New Sub. Chip Voigt
and Peter Voigt will each receive an employment agreement providing for a base
salary of $150,000 per year for a three year term and providing each with
options for 33,333 shares of New Futech common stock that vest over the three
year period and have an exercise price of $4.50 per share. The amount of options
and the exercise price for the option were arrived at by negotiation between
Futech each of Chip Voigt and Peter Voigt. Some of the officers and directors of
other merging companies will also receive employment agreements and stock
options in connection with the mergers. Certain officers and directors of the
merging companies have given personal guarantees of the indebtedness of those
companies, and New Futech is required to obtain releases of those personal
guarantees. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Employment Agreements with Affiliates" and "NEW FUTECH'S
MANAGEMENT -- Employment Agreements" in the prospectus/proxy statement.
37
<PAGE> 533
APPENDIX 1
NEV. REV. STAT. ANN. @ 92A.380 (1998) Right of stockholder to dissent from
certain corporate actions and to obtain payment for shares
1. Except as otherwise provided in NRS 92A.370 to 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and
he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests
will be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of
the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
NEV. REV. STAT. ANN. @ 92A.400 (1998) LIMITATIONS ON RIGHT OF
DISSENT: Assertion as to portions only to shares registered to stockholder;
assertion by beneficial stockholder
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
A-1
<PAGE> 534
NEV. REV. STAT. ANN. @ 92A.410 (1998) Notification of stockholders
regarding right of dissent
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
NEV. REV. STAT. ANN. @ 92A.420. Prerequisites to demand for payment for
shares
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.
NEV. REV. STAT. ANN. @ 92A.430 (1998) DISSENTER'S NOTICE: Delivery to
stockholders entitled to assert rights
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
A-2
<PAGE> 535
NEV. REV. STAT. ANN. @ 92A.460 (1998) Payment for shares: General
requirements:
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
NEV. REV. STAT. ANN. @ 92A.480 (1998) DISSENTER'S ESTIMATE OF FAIR VALUE:
Notification of subject corporation; demand for payment of estimate
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
NEV. REV. STAT. ANN. @ 92A.490 (1998) Legal proceeding to determine fair
value: Duties of subject corporation; powers of court; rights of dissenter
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
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<PAGE> 536
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.
A-4
<PAGE> 537
DAMERT COMPANY
1609 FOURTH STREET
BERKELEY, CALIFORNIA 94710
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
-------------------------
You are invited to attend a Special Meeting of Stockholders of DaMert
Company that will be held at a.m. local time on , 1999 at
. The DaMert board of directors has called this special
meeting for the following purposes:
- To consider and vote upon a proposal to approve and adopt the Merger
Agreement dated as of June 7, 1999, by and among DaMert, Futech
Interactive Products, Inc., Trudy Corporation, Fundex Games, Ltd., Janex
International, Inc., and two newly formed companies that we are referring
to as "New Futech" and "New Sub." Under the Merger Agreement, first
Futech and then Janex, Trudy, and DaMert will merge with and into New
Futech, which will survive the merger, and Fundex will merge into New
Sub, which will survive as a wholly-owned subsidiary of New Futech. Each
share of DaMert common stock outstanding immediately prior to the mergers
(other than dissenting shares) will be converted into the right to
receive approximately 613.07 shares of New Futech common stock, $285.00
in cash, and a promissory note of New Futech in the amount of $2,375.00.
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These matters are more fully described in the prospectus/proxy statement
supplement and related prospectus/proxy statement that are attached to this
Notice.
We, the board of directors of DaMert, unanimously recommend that you vote
FOR the mergers.
You will be entitled to vote at the special meeting or any adjournment or
postponement of the special meeting only if you are a holder of record of DaMert
common stock at the close of business on , 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Frederick A. DaMert
Chairman
Berkeley, California
, 1999
IMPORTANT
We cordially invite all stockholders to attend the special meeting in person.
<PAGE> 538
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
FUTECH TOYS & GAMES, INC.
DAMERT COMPANY
PROSPECTUS/PROXY STATEMENT SUPPLEMENT
This prospectus/proxy statement supplement, and the related
prospectus/proxy statement, are being furnished to you and the other
stockholders of DaMert Company, in connection with the solicitation of proxies
by the DaMert board of directors for use at the Special Meeting of Stockholders
to be held at a.m. local time on , 1999, at and at any adjournments
or postponements of the special meeting. At the special meeting, we will ask you
to consider and vote upon a proposal to approve and adopt the Merger Agreement
dated as of June 7, 1999, by and among DaMert, Futech Interactive Products,
Inc., Trudy Corporation, Fundex Games, Ltd., Janex International, Inc., and two
newly formed companies (Futech Interactive Products (Delaware), Inc. and Futech
Toys & Games, Inc.) that we are referring to as "New Futech" and "New Sub,"
respectively. Under the Merger Agreement, first Futech and then Janex, Trudy,
and DaMert will merge with and into New Futech, which will survive the mergers
and Fundex will merge into New Sub, which will survive as a wholly-owned
subsidiary of New Futech. Each share of DaMert common stock outstanding
immediately prior to the mergers (other than dissenting shares) will be
converted into the right to receive approximately 613.07 shares of New Futech
common stock, $285.00 in cash, and a promissory note of New Futech in the amount
of approximately $2,375.00. Outstanding shares of Futech, Trudy, Fundex and
Janex will be converted into a combination of cash, promissory notes and common
stock of New Futech. In addition, outstanding options of each of the merging
companies will be converted into options to purchase common stock of New Futech.
This prospectus/proxy statement supplement and the related prospectus/proxy
statement, together with similar supplements that are being provided to
stockholders of Futech, Trudy, Fundex and Janex with copies of the
prospectus/proxy statement, also constitute the prospectus of New Futech and New
Sub in connection with the offer and issuance of shares of their securities
pursuant to the mergers. Excluding any additional shares that may be issued to
Trudy stockholders if a public market develops for New Futech stock at an
initial price of less than $7.50 per share and assuming no outstanding options
or warrants are exercised prior to the mergers, a minimum aggregate of 5,865,297
and a maximum aggregate of 5,955,297 shares of New Futech common stock, a
minimum aggregate of $1,018,330 and a maximum aggregate of $2,116,830 in cash
and a minimum aggregate of $5,751,500 and a maximum aggregate of $6,850,000 in
promissory notes of New Sub or New Futech will be issued to the stockholders of
Janex, Futech, Trudy, Fundex and DaMert in the mergers. In addition, certain
outstanding indebtedness in the amount of $10,000,000 is expected to be
exchanged for 2,222,222 shares of New Futech preferred stock shortly after the
mergers. Former stockholders of Fundex may exchange their New Futech stock for
the license rights in the "Phase 10" family of games and former stockholders of
Trudy may become entitled to receive additional New Futech shares or to exchange
their New Futech shares for debentures in the future under certain
circumstances. Certain loan agreements and employment agreements, including
employee options to acquire New Futech common stock, are also part of the deal.
See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT -- Basic Terms of the
Merger Agreement" in the prospectus/proxy statement.
We expect the New Futech common stock to trade on the OTC Bulletin Board
after the mergers, but we cannot be sure it will do so and we cannot predict
what the price might be. We do not expect a trading market to develop for any of
the other securities of New Futech.
The mergers cannot be consummated unless: (a) stockholders of Janex,
Futech, Trudy, Fundex and DaMert, voting separately at their respective meetings
of stockholders, each approve the mergers, and (b) other conditions included in
the Merger Agreement are either satisfied or waived. See "DESCRIPTION OF THE
MERGERS AND THE MERGER AGREEMENT -- Conditions to Closing" in the
prospectus/proxy statement.
The record date for the special meeting is , 1999. This
prospectus/proxy statement supplement and the related prospectus/proxy statement
are first being mailed to stockholders of DaMert on or about , 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/PROXY
STATEMENT SUPPLEMENT AND THE RELATED ATTACHED PROSPECTUS/PROXY STATEMENT. THE
PROPOSED MERGER IS A COMPLEX TRANSACTION. WE STRONGLY URGE YOU TO READ AND
CONSIDER CAREFULLY THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE RELATED
ATTACHED PROSPECTUS/PROXY STATEMENT IN ITS ENTIRETY, PARTICULARLY THE MATTERS
REFERRED TO UNDER "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus/proxy statement supplement or the accompanying prospectus/proxy
statement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus/proxy statement supplement is , 1999.
<PAGE> 539
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT. WE HAVE NOT, AND NEW FUTECH AND NEW SUB HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEW FUTECH AND NEW SUB ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF THE DATE ON THE
FRONT OF THIS PROSPECTUS/PROXY STATEMENT SUPPLEMENT ONLY. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.
WHERE YOU CAN FIND MORE INFORMATION
We will send to you, without charge, any material information that we have
or can obtain without unreasonable effort or expense concerning DaMert or any
other merging company, concerning the Merger Agreement and related contracts or
concerning the proposed management and operations of New Futech. You may direct
requests for additional information regarding DaMert, Futech, Trudy, Fundex, or
Janex to Frederick B. Gretsch, Sr. at 2999 N. 44th Street, suite 225, Phoenix,
Arizona 85018-7247, (602) 808-8765.
TO OBTAIN TIMELY DELIVERY OF THESE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO
LATER THAN , 1999, FIVE BUSINESS DAYS BEFORE THE DATE OF THE DAMERT
STOCKHOLDERS MEETING.
You should rely only on the information provided in or incorporated by
reference (and not later changed) in the prospectus/proxy statement or any
prospectus/proxy statement supplement. Neither we nor New Futech have authorized
anyone else to provide you with additional or different information. New Futech
is not making an offer of any securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus/proxy
statement supplement or the prospectus/proxy statement is accurate as of any
date other than the date on the front of these documents.
i
<PAGE> 540
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY INFORMATION -- Q&A.................................. 1
OTHER INFORMATION ABOUT THE MERGERS......................... 3
The Companies............................................. 3
The Special Meeting....................................... 5
The Merger Agreement...................................... 5
SPECIAL RISK FACTORS AFFECTING DAMERT....................... 5
STOCKHOLDER MATTERS......................................... 6
THE MERGERS AND RELATED TRANSACTIONS........................ 6
General................................................... 6
Effects of the Mergers.................................... 6
Background of the Mergers................................. 7
Reasons for the Mergers................................... 8
DaMert's Board Recommendation............................. 8
Related Agreements; Interests of Certain DaMert Affiliates
in the Mergers......................................... 8
Regulatory Matters........................................ 9
Certain Federal Tax Matters............................... 9
Accounting Treatment...................................... 10
RIGHTS OF DISSENTING STOCKHOLDERS........................... 10
NEW FUTECH AND DAMERT SHARES................................ 13
New Futech Common Stock................................... 13
DaMert Capital Stock...................................... 13
COMPARISON OF THE RIGHTS OF HOLDERS OF DAMERT COMMON STOCK
AND NEW FUTECH COMMON STOCK............................... 13
SELECTED HISTORICAL FINANCIAL DATA.......................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION... 24
Overview.................................................. 24
Results of Operations..................................... 24
Seasonality and Quarterly Fluctuations.................... 26
Liquidity and Capital Resources........................... 26
Inflation................................................. 27
Year 2000................................................. 27
Safe Harbor Disclosure.................................... 27
DESCRIPTION OF DAMERT'S BUSINESS............................ 28
General................................................... 28
Products.................................................. 28
Sales, Marketing and Distribution......................... 28
Customers................................................. 30
</TABLE>
ii
<PAGE> 541
<TABLE>
<S> <C>
Manufacturing................................................................................. 30
Seasonality................................................................................... 30
Backlog....................................................................................... 30
Product Design and Selection.................................................................. 30
Competition................................................................................... 31
Patents, Trademarks and Licenses.............................................................. 31
Government Regulations........................................................................ 31
Employees..................................................................................... 31
Properties.................................................................................... 32
Legal Proceedings............................................................................. 32
DAMERT MANAGEMENT............................................................................... 33
Employment Arrangements....................................................................... 34
DAMERT STOCKHOLDERS............................................................................. 36
Security Ownership of Certain Beneficial Owners and Management................................ 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................. 36
APPENDICES
Appendix 1 -- California General Corporation Law Dissenters' Rights............................. A-1
</TABLE>
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SUMMARY INFORMATION -- Q&A
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the mergers contemplated thereby, you should carefully read
this entire document and the additional documents we mention. You should pay
special attention to the "RISK FACTORS" section beginning on page 8 of the
prospectus/proxy statement and "SPECIAL RISK FACTORS AFFECTING DAMERT" on page 5
of this prospectus/ proxy statement supplement.
WHY ARE THE FIVE COMPANIES PROPOSING TO MERGE?
The five companies are proposing to merge because the directors of each
company believe the combination will provide significant benefits to
stockholders. We believe the mergers will enable us to take advantage of the
complementary strategic fit of our respective businesses by marketing through
additional channels of distribution. We also hope and believe the mergers will
improve the likelihood that stockholders will have a more liquid market should
they wish to sell their stock and that the combined companies will be able to
more efficiently access the markets for debt and equity when appropriate. To
review the background and reasons for the mergers in greater detail, see
"BACKGROUND OF THE MERGERS" in the prospectus/proxy statement.
WHAT WILL I RECEIVE IN THE MERGERS?
You and all DaMert stockholders will receive a combination of cash,
promissory notes and common stock of New Futech in exchange for your DaMert
stock. Stockholders of the other merging companies will receive cash, promissory
notes and common stock of New Futech. Certain employment contracts and other
agreements with affiliates of the merging companies are also part of the deal.
See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in the
prospectus/proxy statement.
WHAT RISKS SHOULD I CONSIDER?
You should review "RISK FACTORS" beginning on page 8 of the
prospectus/proxy statement as well as the special risk factors affecting
primarily DaMert that are discussed on pages 5 through 6 of this
prospectus/proxy statement supplement.
WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGERS?
The following table shows the proportions of the outstanding shares that
must vote in favor of the mergers, together with the proportion of the
outstanding shares that are held by directors, executive officers and their
affiliates, the majority of whom have indicated that they intend to vote in
favor of the mergers.
<TABLE>
<CAPTION>
SHARES OWNED BY DIRECTORS,
COMPANY VOTE REQUIRED EXECUTIVE OFFICERS AND AFFILIATES
- ------- ------------- ---------------------------------
<S> <C> <C>
DaMert Majority 100.0%
Fundex Majority 70.8%
Futech Majority 72.7%
Janex Majority 78.9%
Trudy Majority 55.7%
</TABLE>
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WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGERS?
New Futech has the right to terminate the Merger Agreement if stockholders
from all of the merging companies combined exercise dissenters' rights with
respect to more than 5% of the aggregate merger consideration to be issued in
the mergers. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Conditions to Closing" in the prospectus/proxy statement for a
description of the other conditions to the mergers.
HOW WILL THE MERGERS BE TREATED FOR ACCOUNTING PURPOSES?
We expect the mergers to be treated as purchases by Futech, which means
that the amount by which the total merger consideration received by stockholders
of the other merging companies plus the amount of their liabilities exceeds the
fair market value of their identifiable assets will initially be treated as
goodwill by New Futech for accounting purposes.
WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
We are working to complete the mergers during the third quarter of 1999.
However, the Merger Agreement does not include any express deadline for the
mergers to proceed.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS TO ME?
We and the other merging companies have structured the Merger Agreement
with the intent and expectation that the exchange of shares by DaMert
shareholders will be tax-free for federal income tax purposes. THERE WILL BE
FEDERAL INCOME TAXES DUE ON THE CASH AND PROMISSORY NOTES THAT YOU RECEIVE. You
should review the more detailed description of federal tax consequences that
appear on pages 9 through 10 of this prospectus/proxy statement supplement.
State and local taxes may also become due as a result of the mergers.
The precise tax consequences of the mergers will depend on your own
situation. You should consult your tax advisor for a full understanding of the
tax consequences of the mergers to you.
WILL I HAVE DISSENTERS' RIGHTS?
Yes, provided you do not vote in favor of the mergers and meet all other
requirements of the dissenter's rights statute. See pages 10 through 12.
WHAT DO I NEED TO DO NOW?
You need merely to participate in the stockholders meeting that has been
called to consider the mergers. The stockholders meeting will take place on
, at local time, at .
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the mergers are completed we will send you written instructions
for exchanging your stock certificates for the New Futech stock, cash and
promissory notes to which you are entitled.
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OTHER INFORMATION ABOUT THE MERGERS
THE COMPANIES
NEW FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
New Futech is a newly-organized Delaware corporation that has been formed
to be the surviving parent corporation under the Merger Agreement. New Futech
has had no operations prior to the date of this prospectus/proxy statement.
Under the Merger Agreement, first Futech and then Janex, Trudy and DaMert will
merge with and into New Futech, which will survive the mergers. As a part of the
mergers, New Futech will change its name to "Futech Interactive Products, Inc."
NEW SUB
Futech Toys & Games, Inc.
c/o Fundex Games, Ltd.
2237 Directors Row
Indianapolis, IN 46241
(317) 248-1080
New Sub is a newly-organized Nevada corporation that has been formed to be
the surviving subsidiary corporation of New Futech under the Merger Agreement.
New Sub has had no operations prior to the date of this prospectus/proxy
statement supplement. Under the Merger Agreement, Fundex will merge with and
into New Sub, which will survive that merger as a wholly-owed subsidiary of New
Futech. All of the stock and assets of New Sub will be pledged to the former
stockholders of Fundex to secure the promissory notes of New Sub issued to them
in connection with the merger of Fundex into New Sub. In addition, the former
stockholders of Fundex who do not elect the All Cash Alternative will receive a
conditional option to purchase New Sub's license to market the "Phase 10" family
of games in 2002 in exchange for the New Futech stock they receive in the
mergers (but not the cash or promissory notes), exercisable only if the stock
has not achieved targeted liquidity and a valuation of at least $7.50 per share
($4,500,000 in the aggregate, if no stockholders elect the All Cash Alternative)
within three years after the completion of the mergers.
JANEX
Janex International, Inc.
c/o Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Janex manufactures and markets children's toys, gumball banks, flashlights
and battery operated toothbrushes marketed under the brand name Janex. Janex
incorporates licensed characters into most of its products, and sells its
products to United States mass merchant retailers, toy specialty stores and
department stores.
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<PAGE> 545
FUTECH
Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
(602) 808-8765
Futech designs, publishes, manufactures and markets interactive,
educational, promotional and entertainment products (i.e., books, game boards
with sound capabilities and specialty post cards) targeted primarily towards
children. Futech's patented technology utilizes specialized conductive ink to
print interactive touch points. These touch points trigger speech, music and
sound effects. Futech licenses this technology to major entertainment and
publishing companies. Futech also distributes proprietary products, as well as
those of third party publishers, to warehouse clubs, national book chains,
specialty and independent retailers and major toy chains.
TRUDY
Trudy Corporation
353 Main Avenue
Norwalk, CT 06851-1552
(203) 846-2274
Trudy Corporation was initially organized as a Connecticut corporation
under the name "Norwest Manufacturing Corporation" in 1979. Trudy, which does
business under the name Soundprints, publishes juvenile story books and
audio-cassettes which are sold in conjunction with contract manufactured
educational toys to the retail and mail order markets.
FUNDEX
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
(317) 248-1080
Fundex Games, Ltd. was originally incorporated in the State of Indiana as
"Third Quarter, Inc." in 1991. Fundex develops, markets, and distributes a
variety of games and toys for both children and adults, including:
- card games, puzzles and board games, including the Phase 10 card game and
its sister products;
- skill and action games for children;
- games, puzzles and toys featuring characters licensed from third parties;
and
- spring and summer toys for children, including jump ropes, water toys and
water games.
DAMERT
DaMert Company
1609 Fourth Street
Berkeley, California 94710
(510) 524-7400
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DaMert Company was founded in 1973 and incorporated in 1979. DaMert Company
manufactures and markets toys, gifts and puzzles targeted primarily to children
ages 6-12 with science and nature themes. Presently, the product base includes
over 200 toys, gifts and puzzles selling through catalogs, museums, department
stores, specialty gift stores and toy stores nationwide.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The DaMert special meeting will be held on , at at
.
PURPOSE OF THE SPECIAL MEETING
We have called the special meeting so the DaMert stockholders can vote on
whether to approve the mergers pursuant to the Merger Agreement. The directors
of Futech, Trudy, Fundex and Janex have called for special meetings of the
stockholders of their companies so that they also can vote whether to approve
the mergers.
RECOMMENDATION OF THE DAMERT BOARD OF DIRECTORS
We have unanimously approved the Merger Agreement and unanimously recommend
that the stockholders of DaMert vote "FOR" approval of the Merger Agreement.
THE MERGER AGREEMENT
Under the Merger Agreement, first Futech and then Janex, Trudy, and DaMert
will merge with and into New Futech, which will survive the mergers, and Fundex
will merge into New Sub, which will survive as a wholly-owned subsidiary of New
Futech. Under the Merger Agreement, DaMert stockholders who do not exercise
dissenters' rights will receive a combination of cash, promissory notes of New
Futech and common stock of New Futech as described in the prospectus/proxy
statement under the heading "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Basic Terms of the Merger Agreement." Stockholders of Fundex and
Trudy will also have certain conditional rights to receive additional stock or
to exchange their New Futech stock for promissory notes or certain other assets
under specified circumstances. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Basic Terms of the Merger Agreement."
SPECIAL RISK FACTORS AFFECTING DAMERT
In addition to the risk factors beginning on page 8 of the prospectus/proxy
statement, you should carefully consider the special risks of DaMert described
below in evaluating the proposals which you will vote on at the special meeting
and the effects on the securities you will acquire in the mergers. Although we
believe that the special risks and uncertainties described below are the major
ones facing DaMert, they are not the only ones that we will face. Any of the
following could have a material adverse effect on our business, financial
conditions or results of operations and the business, financial condition or
results of operations of the combined companies.
WE ARE IN DEFAULT UNDER OUR CREDIT ARRANGEMENTS.
DaMert is in violation of certain of its credit arrangements with its bank.
DaMert has the ability to borrow up to $2,800,000 under a Revolving Line of
Credit Note with its bank
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<PAGE> 547
that expired on May 15, 1999. The bank has approved an extension to June 30,
1999. This may not be sufficient extension to allow the merger to close. DaMert
will have to renegotiate the extension and they cannot be certain it will be
approved. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION -- Liquidity and Capital Resources."
STOCKHOLDER MATTERS
DaMert stock does not trade on any established market. Similarly, there is
no public trading market for the New Futech common stock. We expect the New
Futech common stock to trade on the OTC Bulletin Board/Nasdaq Stock Market soon
after the mergers, but we cannot be sure it will do so and we cannot predict
what the price might be. We do not expect a trading market to develop for the
other securities of New Futech.
As of May 31, 1999, the record date, there was one stockholder of record of
DaMert common stock. Another person is expected to exercise employee options,
and a third person will exchange SAR's in exchange for DaMert common stock
immediately before the mergers.
DaMert has not paid dividends on its common stock and does not anticipate
paying dividends in the foreseeable future. If the mergers do not occur for any
reason, we anticipate that all earnings, in the foreseeable future, will be
retained for development of DaMert's business.
THE MERGERS AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of Futech into New Futech,
promptly followed by the substantially simultaneous merger of Janex, Trudy and
DaMert with and into New Futech and the substantially simultaneous merger of
Fundex with and into New Sub. The discussion in this prospectus/proxy statement
supplement and the related prospectus/proxy statement of the mergers and the
description of the principal terms of the Merger Agreement contained in the
prospectus/proxy statement are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to the
prospectus/proxy statement as Appendix A, and incorporated herein by reference.
EFFECTS OF THE MERGERS
GENERAL
We intend for the mergers to occur promptly following approval of the
mergers by the requisite vote of the stockholders of each of Janex, Futech,
Trudy, DaMert and Fundex and the satisfaction or waiver of all other conditions
to consummation of the mergers. The mergers will become effective at or about
the time of filing of articles of merger or other appropriate documents with the
applicable government offices or agencies. At that time (a) first Futech and
then Janex, Trudy and DaMert will merge with and into New Futech with the result
that New Futech will be the surviving corporation and (b) Fundex will merge with
and into New Sub with the result that New Sub will be the surviving corporation.
As part of the mergers New Futech will change its name to "Futech Interactive
Products, Inc." The stockholders of DaMert will become stockholders of New
Futech, and their rights will be governed by the New Futech certificate of
incorporation
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<PAGE> 548
and bylaws. See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF DaMERT
AND NEW FUTECH." See "DESCRIPTION OF THE MERGERS AND THE MERGER AGREEMENT" in
the prospectus/proxy statement.
For information regarding the operation of New Futech and New Sub following
the mergers, see " DESCRIPTION OF NEW FUTECH'S BUSINESS" in the prospectus/
proxy statement. For information regarding the officers and directors of New
Futech following the mergers, see "NEW FUTECH'S MANAGEMENT" in the prospectus/
proxy statement.
EXCHANGE RATIOS
Each outstanding share of DaMert common stock at the effective date of the
mergers will be converted into the right to receive approximately:
- $285.00 in cash,
- a non-interest bearing promissory note (secured by a lien that is
subordinated to New Futech's bank debt) in the amount of approximately
$2,375.00, payable $475.00 one month after the mergers and $1,900.00
seven months after the mergers, and
- 613.07 shares of New Futech common stock.
The promissory notes do not bear interest, but substantial penalties will
apply should New Futech default on its payment obligations.
Outstanding shares of Futech, Janex, Fundex and Trudy will also be
converted into a combination of cash, common stock of New Futech and promissory
notes of New Futech or New Sub. Under certain circumstances the former
stockholders of Fundex will have the right to exchange their New Futech stock
for the license rights in the "Phase 10" family of games now owned by Fundex.
Under certain other circumstances the former stockholders of Trudy will have the
right to receive additional New Futech stock or to exchange their New Futech
stock for unsecured five year debentures. In addition, outstanding options for
shares of Trudy, Futech, Janex and Fundex will be converted into options for
shares of common stock of New Futech. See "DESCRIPTION OF THE MERGERS AND THE
MERGER AGREEMENT -- Basic Terms of the Merger Agreement" in the prospectus/proxy
statement.
FRACTIONAL SHARES
Fractional shares of New Futech common stock will not be issued in the
mergers. Instead, stockholders in any of the merging companies who would
otherwise have received an amount of New Futech stock that includes a fraction
of a share will instead receive an amount of cash equal to that fraction
multiplied by $7.50. For example, a DaMert stockholder who is otherwise entitled
to receive 15.5 shares of New Futech common stock will actually receive only 15
shares, plus $3.75 in cash (i.e., 0.5 times $7.50).
BACKGROUND OF THE MERGER
In January 1999 the DaMert Company's merger consultant, Robert P. Oliver,
President, CorDev Corporation, was in merger discussions with several
manufacturers of toys, games and puzzles. On January 16, 1999, Mr. Jeffrey Gold,
President Goldmark Advisors, Inc., a merger and acquisition firm, informed Mr.
Oliver that Futech Interactive
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<PAGE> 549
Products, Inc. ("Futech"), could be a strategic buyer prospect for the DaMert
Company ("DaMert"). Mr. Oliver agreed that Mr. Gold could introduce DaMert to
Futech.
On January 25, 1999, Mr. Gold met with Futech, described DaMert and
provided Mr. Goett with a copy of DaMert's detailed information book. Mr. Sauder
visited the DaMert Booth at the New York Toy Fair in early February. On February
18, 1999, Mr. Goett and Mr. Oliver discussed Futech's serious interest and
DaMert product samples and more financial information were sent. Subsequently,
Fred DaMert and Mr. Oliver spent March 4, 1999 at Futech, in Phoenix, for
detailed discussions with Mr. Goett and other Futech executives. At this time,
terms of an acquisition of DaMert by Futech or its affiliate were agreed upon.
An additional visit to Futech was made by Gail and Fred DaMert the
following week. A letter of intent was presented to DaMert at its facility by
Mr. Sauder of Futech on March 24, 1999. Thereafter ensued a period of due
diligence, strategic planning, structural decisions, personnel assignments and
merger documentation. On May 27, 1999 Futech Board of Directors approved the
mergers and the Merger Agreement. On June 7, 1999, the Global Merger Agreement
was signed by all parties.
On May 27, 1999 the Futech Board of Directors approved the Merger
Agreement.
REASONS FOR THE MERGER
Over the past 26 years, DaMert Company has established a well-regarded
leadership reputation for product innovation in the fields of nature, science
and learning toys. Over these years there has been a growing retail environment
supported by "baby boomer" consumers who wish to provide their children and
family members with products that educate as well as entertain. Most recently,
however, there has been increasing consumer interest in electronic and
interactive products coupled with increasing competition in the more traditional
puzzle, game and science toy categories. Frustrated by the limitations of its
internally generated capital base, DaMert decided in September 1998 to actively
seek a strategic partnership with an external company or investors. The
interactive technology base and cross-marketing opportunities presented by the
merger allow DaMert's product innovation strengths to carry forward into the
twenty-first century.
For additional information regarding the reasons for the merger, see
"SPECIFIC REASONS FOR PREVIOUS ACQUISITIONS AND PROPOSED MERGER PARTNERS" in the
prospectus/proxy statement.
DAMERT'S BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF DaMERT HAS DETERMINED THAT THE MERGERS ARE
ADVISABLE AND IN THE BEST INTERESTS OF DaMERT AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
RELATED AGREEMENTS; INTERESTS OF CERTAIN DAMERT AFFILIATES IN THE MERGER
Fred and Gail DaMert will enter into employment agreements with New Futech
in connection with the merger. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Employment Agreements with Affiliates" and "NEW FUTECH'S
MANAGEMENT -- Employment Agreements" in the prospectus/proxy statement.
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<PAGE> 550
SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" IN THIS
PROSPECTUS/PROXY STATEMENT SUPPLEMENT AND THE CORRESPONDING HEADING IN THE
PROSPECTUS/ PROXY STATEMENT.
REGULATORY MATTERS
Except as disclosed in this prospectus/proxy statement supplement and the
prospectus/proxy statement, DaMert and New Futech are not aware of any
governmental or regulatory approvals required for consummation of the mergers,
other than compliance with the federal securities laws and applicable securities
and "blue sky" laws of the various states.
CERTAIN FEDERAL TAX MATTERS
In the opinion of Quarles & Brady LLP, special tax counsel to Futech and
New Futech, the merger of DaMert into New Futech will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, and DaMert and New Futech will each be a party to that reorganization
within the meaning of Section 368(b) of the Code.
In rendering its opinion, counsel has relied upon and assumed as accurate
and correct on the date hereof, and will rely on and assume as accurate and
correct as of the Effective Time of merger, the information contained in this
prospectus/proxy statement supplement and the related prospectus/proxy statement
and certain representations as to factual matters made by DaMert and New Futech.
Counsel's opinion represents its best legal judgement as to the tax treatment of
the merger, but the opinion is not binding on the Internal Revenue Service. The
parties have not and will not request a ruling from the Service in connection
with the federal income tax consequences of the merger. The following summary of
material United States federal income tax consequences of the merger is based
upon the conclusions reached in such opinion.
Based on the provisions of the Code, the applicable regulations thereunder,
judicial authority and current administrative rulings and practices as of the
date hereof, all of which are subject to change, possibly with retroactive
effect: (i) no gain or loss will be recognized by DaMert or New Futech as a
result of the merger; (ii) no gain or loss will be recognized by the holders of
DaMert Common Stock upon conversion of their shares of DaMert Common Stock into
shares of New Futech Common Stock pursuant to the merger, except with respect to
the portion of the merger consideration that does not consist of New Futech
common stock; (iii) the tax basis of the shares of New Futech common stock into
which shares of DaMert common stock are converted will be the same as the basis
of the shares of Futech common stock converted into such New Futech common
stock, reduced by any amount allocable to the portion of the merger
consideration that does not consist of New Futech common stock; (iv) the holding
period for shares of New Futech common stock into which shares of DaMert common
stock are converted will include the period that such shares of DaMert common
stock were held by the holder, provided such shares were held as capital assets
of the holder at the Effective Time of Merger; and (v) the payment of
consideration that does not consist of shares of New Futech common stock to a
holder of DaMert common stock will result in the recognition of gain or loss for
federal income tax purposes, measured by the difference between the amount of
cash or other nonstock consideration received and the portion of the adjusted
tax basis of DaMert common stock allocable to it (such gain or loss will be
capital gain
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<PAGE> 551
or loss, provided that such stock was held as a capital asset as of the
Effective Time of merger).
A holder of DaMert common stock who receives New Futech common stock
pursuant to the merger will be required to retain records and file with such
holder's federal income tax return for the taxable year in which the merger
takes place a statement setting forth all relevant facts in respect of the
nonrecognition of gain or loss upon such exchange. The statement is required to
include (i) such holder's basis in the shares of DaMert common stock surrendered
in the merger; and (ii) the value of New Futech common stock received (using
fair market value as of the Effective Time of merger) and the amount of any cash
or other nonstock consideration received in the merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A DESCRIPTION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular taxpayers in light of their personal circumstances or
to taxpayers subject to special treatment under the Code (for example, insurance
companies, financial institutions, dealers in securities, tax exempt
organizations, foreign corporations, foreign partnerships, or other foreign
entities and individuals who are not citizens or residents of the United States
and persons who acquired their New Futech common stock pursuant to the exercise
or termination of employee stock options, warrants or otherwise as compensation.
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
THE GENERAL SUMMARY SET FORTH ABOVE IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF DAMERT COMMON
STOCK. EACH HOLDER OF DAMERT COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The mergers are intended to qualify as a purchase for accounting purposes.
Under this accounting treatment, the amount by which the total merger
consideration received by stockholders of the other merging companies plus the
amount of their liabilities exceeds the fair market value of their identifiable
assets will initially be treated as goodwill by New Futech for accounting
purposes.
RIGHTS OF DISSENTING STOCKHOLDERS
The rights of DaMert stockholders who dissent in connection with the
mergers are governed by specific legal provisions contained in Chapter 13
("Chapter 13") of the California General Corporation Law ("CGCL"). The following
summary of the provisions of Chapter 13 is not intended to be a complete
statement of such provisions and is qualified in its entirety by reference to
the full text of Chapter 13, a copy of which is attached to this
prospectus/proxy statement as Appendix 1 and is incorporated herein by
reference. Failure to follow the steps required by Chapter 13 for perfecting
dissenters' rights may result in the loss of such rights.
Under Chapter 13, if the mergers are completed, any shares of DaMert common
stock as to which dissenters' rights are properly exercised ("Dissenting
Shares") will not be
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<PAGE> 552
converted by virtue of the mergers into the right to receive the merger
consideration pursuant to the Merger Agreement, but instead will be converted
into the right to receive in cash the "fair market value" of such shares,
determined as of the day before the first announcement of the terms of the
mergers, and excluding any appreciation or depreciation in consequence of the
mergers. For shares of DaMert common stock to qualify as Dissenting Shares, (i)
the holders of such shares must not have voted in favor of approval of the
Merger Agreement and (ii) the holder of such shares must submit stock
certificates for endorsement (as described below).
If the mergers are approved at the DaMert special meeting, DaMert will,
within ten days after such approval, mail to any stockholder who may have a
right to require DaMert to purchase his, her or its shares for cash as a result
of making a demand (as described below), a notice that the required stockholder
approval of the Merger Agreement was obtained (the "Notice of Approval"),
accompanied by a copy of Chapter 13. The Notice of Approval will set forth the
price determined by DaMert to represent the "fair market value" of any
Dissenting Shares (which will constitute an offer by DaMert to purchase the
Dissenting Shares at the stated price) and will set forth a brief description of
the procedures to be followed by the stockholders who wish to exercise their
dissenters' rights.
Within 30 days after the date on which the Notice of Approval was mailed,
DaMert must receive the demand of the dissenting stockholders. The demand is
required by law to contain a statement concerning the number and class of shares
of DaMert stock held of record by such dissenting stockholder and what the
stockholder claims to be the fair market value of the Dissenting Shares as of
the close of business on the day immediately prior to the announcement of the
merger. The statement of fair market value in the demand by the dissenting
stockholder constitutes an offer by the dissenting stockholder to sell the
Dissenting Shares at that price. The dissenting stockholder must submit DaMert
stock certificate(s) representing the Dissenting Shares to DaMert at DaMert's
principal office within that 30 day period. The DaMert stock certificate(s) will
be stamped or endorsed with a statement that the shares are Dissenting Shares.
If the price contained in the Notice of Approval is acceptable to the dissenting
stockholder, the dissenting stockholder may demand the same price. This would
constitute an acceptance of the offer by DaMert to purchase the dissenting
stockholder's stock at the price stated in the Notice of Approval.
If DaMert and a dissenting stockholder agree upon the price to be paid for
the Dissenting Shares, the agreed price (together with interest thereon at the
legal rate on judgments from the date of the agreement between DaMert and the
dissenting stockholder) is required by law to be paid to the dissenting
stockholder within 30 days after that agreement or within 30 days after any
statutory or contractual conditions to the mergers are satisfied, whichever is
later, subject to the surrender of the DaMert stock certificates.
If DaMert and a dissenting stockholder disagree as to the price for the
Dissenting Shares or disagree as to whether the Dissenting Shares are entitled
to be classified as Dissenting Shares, the stockholder may, within six months
after the Notice of Approval is mailed, file a complaint in the Superior Court
of the proper county requesting the court to make the determinations or,
alternatively, may intervene in any pending action brought by another dissenting
stockholder. Costs of the action (including compensation of appraisers) are
required to be assessed as the court considers equitable, but must be assessed
against DaMert if the appraised value determined by the court exceeds the price
offered by DaMert.
11
<PAGE> 553
The court action to determine the fair market value of the shares will be
suspended if litigation is instituted to test the sufficiency or regularity of
the votes of the stockholders in authorizing the mergers. Furthermore, no
stockholder who is entitled to assert dissenters' rights under Chapter 13 shall
have any right to attack the validity of the mergers or to have the mergers set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the mergers has been legally voted in favor of
the mergers.
Dissenting Shares may lose their status as such and the right to demand
payment will terminate, among other reasons, if (i) the mergers are abandoned,
(ii) the shares are transferred before being submitted for endorsement or are
surrendered for conversion into shares of another class, (iii) the dissenting
stockholder and DaMert do not agree upon the status of the shares as Dissenting
Shares or upon the price of such shares and the dissenting stockholders fails to
file suit against DaMert or intervene in a pending action within six months
following the date on which the Notice of Approval was mailed to the
stockholder, or (iv) the dissenting stockholder withdraws his or her demand for
the purchase of the Dissenting Shares with the consent of DaMert.
12
<PAGE> 554
NEW FUTECH AND DAMERT SHARES
NEW FUTECH COMMON STOCK
For a description of New Futech common stock and its authorized but
unissued preferred stock, see "DESCRIPTION OF NEW FUTECH CAPITAL STOCK" in the
prospectus/proxy statement.
DAMERT CAPITAL STOCK
The following description of DaMert's capital stock is a summary only and
is subject to, and qualified in its entirety by, reference to DaMert's Articles
of Incorporation and Bylaws, copies of which are included as exhibits to the
registration statement of which this prospectus/proxy statement supplement is a
part, and by reference to California law under which DaMert is incorporated.
COMMON STOCK
As of May 31, 1999 there were 1,000 shares of DaMert common stock
outstanding which were held of record by one stockholder. There is no public
market for DaMert common stock. DaMert has not paid any dividends on its common
stock. The Merger Agreement provides that DaMert will not declare or pay any
dividend without the prior written approval of New Futech.
COMPARISON OF THE RIGHTS OF HOLDERS OF DAMERT COMMON STOCK AND
NEW FUTECH COMMON STOCK
DaMert is a California corporation and the rights of its shareholders are
governed by the California General Corporation Law ("CGCL") and the Articles of
Incorporation and Bylaws of DaMert. New Futech is a Delaware corporation and the
rights of it stockholders are governed by the Delaware General Corporation Law
("DGCL") and the Certificate of Incorporation and Bylaws of New Futech. By the
Merger Agreement, the DaMert shareholders will become New Futech stockholders
and as such their rights will be governed by the DGCL and the New Futech
articles of incorporation and bylaws.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The corporation laws of California and Delaware differ in many respects.
Although all the differences are not set forth in this prospectus/proxy
statement supplement, provisions which could materially affect the rights of
shareholders are discussed below.
13
<PAGE> 555
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
California Delaware
<S> <C>
A director of a corporation that does not have a A director of a corporation that does not have a
classified board of directors may not be removed classified board or cumulative voting may be
if the number of shares voted against such removed without or without cause with approval
removal would be sufficient to elect the of the majority of the outstanding shares
director if voted cumulatively at an election at entitled to vote at an election of directors. In
which the same total number of votes were cast the case of a Delaware corporation having
and either the number of directors elected at cumulative voting, if less than the entire board
the most recent annual meeting of stockholders, is to be removed, a director may not be removed
or if greater, the number of directors for whom without cause if the number of shares voted
removal is being sought, were then being against such removal would be sufficient to
elected. In the case of a California corporation elect the director under cumulative voting. A
having cumulative voting, if less than the director of a corporation with a classified
entire board is to be removed, a director may board of directors may be removed only for
not be removed if the number of shares voted cause, unless the certificate of incorporation
against such removal would be sufficient to otherwise provides. The certificate of
elect the director if voted cumulatively at an incorporation and bylaws of New Futech provide
election at which the same total number of votes for a classified board of directors, but not for
were cast and the entire number of the directors cumulative voting.
authorized at the time of the director's most
recent election were then being elected. In
addition, the holders of at least 10% of the
number of outstanding shares of any class of
stock may initiate a court action to remove any
director for cause. DaMert does not have a
classified board.
</TABLE>
14
<PAGE> 556
CLASSIFIED BOARD OF DIRECTORS
A classified (the term in Delaware) or staggered board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the composition of
the board of directors more difficult, and thus a change in control of a
corporation potentially a lengthier and more difficult process.
<TABLE>
<CAPTION>
California Delaware
<S> <C>
California law permits, but does not require, Delaware law permits, but does not require, a
"listed corporations" to have a classified board classified board of directors, by which the
of directors, by which the directors can be directors can be divided into as many as three
divided into as many as three classes with classes with staggered terms of office, with
staggered terms of office, with only one class only one class of directors standing for
of directors standing for election each year. A election each year. The New Futech certificate
"listed company" is a company that meets certain of incorporation and bylaws provide for a
requirements such as having its shares listed classified board, consisting of three classes
for trading on the New York Stock Exchange, with three directors in each class.
American Stock Exchange or the NASDAQ. The
DaMert articles of incorporation and bylaws do
not provide for a classified board, nor is
DaMert a "listed company."
</TABLE>
15
<PAGE> 557
INDEMNIFICATION AND LIMITATION OF LIABILITY
Delaware and California have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, a corporation to adopt a
provision in its articles of incorporation or certificate of incorporation, as
the case may be, eliminating the liability of a director to the corporation or
its stockholders for monetary damages for breach of the director's fiduciary
duty. There are nonetheless certain differences between the laws of the two
states respecting indemnification and limitation of liability.
<TABLE>
<CAPTION>
California Delaware
<S> <C>
The articles of incorporation of DaMert do not The certificate of incorporation of New Futech
eliminate the liability of directors to the eliminates the liability of directors to the
corporation to the fullest extent permissible corporation or its stockholders for monetary
under California law. California law does not damages for breach of fiduciary duty as a
permit the elimination of monetary liability director to the fullest extent permissible under
where such liability is based on: Delaware law. Under Delaware law, such provision
may not eliminate or limit director monetary
- - intentional misconduct or knowing and culpable liability for:
violation of law,
- breaches of the director's duty of loyalty to
- - acts or omissions that a director believes to the corporation or its stockholders,
be contrary to the best interests of the
corporation or its stockholders, or that - acts or omissions not in good faith or
involve the absence of good faith on the part involving intentional misconduct or knowing
of the director, violations of law,
- - receipt of any improper personal benefit, - the payment of unlawful dividends or unlawful
stock repurchases or redemptions, or
- - acts or omissions that show reckless disregard
for the director's duty to the corporation or - transactions in which the director received an
its stockholders, where the director in the improper personal benefit.
ordinary course of performing a director's
duties should have been aware of a risk of Such limitation of liability provisions also may
serious injury to the corporation or its not limit a director's liability for violation
shareholders, of or otherwise relieve directors from the
necessity of complying with federal or state
- - acts or omissions that constitute and securities laws, or affect the availability of
unexcused pattern of inattention that amounts non-monetary remedies such as injunctive relief
to an abdication of the director's duty to the or rescission.
corporation and its stockholders,
Delaware law generally permits indemnification
- - interest transactions between the corporation of expenses, including attorney's fees, actually
and the director, in which a director has a and reasonably incurred in the defense or
material financial interest, or settlement of a derivative or third-party
action, provided there is a determination by a
- - liability for improper distributions, loans or majority vote of disinterested directors, by
guarantees. independent legal counsel or by a majority vote
of the stockholders that the person seeking
California law permits indemnification of indemnification acted in good faith and in a
expenses in a derivative or third party manner reasonably believed to be in or
</TABLE>
16
<PAGE> 558
<TABLE>
<CAPTION>
California Delaware
<S> <C>
action, except that with respect to derivative not opposed to the best interest of the
actions (i) no indemnification may be made when corporation. Delaware law requires
a person is adjudged liable to the corporation indemnification, of expenses when the individual
in the performance of that person's duty to the being indemnified has successfully, defended any
corporation and its stockholders, unless and action, claim, issue, or matter therein, on the
only to the extent that a court determines that merits or otherwise.
the person is fairly and reasonably entitled to
indemnity for expenses, (and (ii) no Delaware law also permits a Delaware corporation
indemnification may be made in respect of to provide indemnification in excess of that
amounts paid or expenses incurred in settling or provided by statute.
otherwise disposing of a threatened pending
action without court approval or expenses A provision of Delaware law states that the
incurred in an action settled or disposed of indemnification provided by statute shall not be
without court approval. Indemnification is deemed exclusive of any other rights under any
permitted by California law only for acts taken bylaw, agreement, vote of stockholders or
in good faith and reasonably believed to be in disinterested directors or otherwise.
the best interests of the corporation and its
stockholders, as determined by a majority vote
of a disinterested quorum of the directors,
independent legal counsel (if a quorum of
independent directors is not obtainable), a
majority vote of a quorum of the stockholders
(excluding shares owned by the indemnified
party), or the court handling the action and, in
the case of a criminal proceeding,
indemnification is permitted if the indemnified
party had no reasonable cause to believe his or
her conduct was unlawful.
</TABLE>
Both California and Delaware law requires indemnification when the
individual has defended successfully the action on the merits.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under California law and Delaware law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
INSPECTION OF STOCKHOLDER LIST
The CGCL provides for an absolute right of inspection of the stockholder
list for persons holding five percent or more of a corporation's voting shares
or persons holding one percent or more of such shares who have filed a Schedule
14A with the SEC relating to the election of directors. Both the CGCL and the
DGCL allow any stockholder or
17
<PAGE> 559
stockholder to inspect the stockholder list for a purpose reasonably related to
such person's interest as a stockholder or shareholder. However, the DGCL
contains no provision comparable to the absolute right of inspection provided by
the CGCL to certain shareholders.
DIVIDENDS AND REPURCHASES OF SHARES
<TABLE>
<CAPTION>
California Delaware
<S> <C>
Generally, under the CGCL a California Delaware law permits a corporation to declare
corporation may pay dividends out of retained and pay dividends out of surplus or if there is
earnings or if, after giving effect thereto, (i) no surplus, out of net profits for the fiscal
the assets (excluding goodwill and certain other year as long as the amount of capital of the
assets) of the corporation are at least equal to corporation following the declaration and
1.25 times its liabilities (excluding certain payment of the dividend is not less than the
deferred credits), and (ii) the current assets aggregate amount of the capital represented by
of such corporation are at least equal to (x) the issued and outstanding stock of all classes
its current liabilities or (y) if the average of having preference upon the distribution of
the earnings of such corporation before taxes assets. In addition, Delaware law generally
and interest expense for the two preceding provides that a corporation may redeem or
fiscal years was less than the average of the repurchase its shares only if the capital of the
interest expense of such corporation for such corporation is not impaired and such redemption
fiscal years, 1.25 times its current or repurchase would not impair the capital of
liabilities. In addition, the ability of a the corporation.
California corporation to pay dividends is
restricted by certain limitations for the
benefit of certain preference shares.
</TABLE>
18
<PAGE> 560
STOCKHOLDER VOTING
<TABLE>
<CAPTION>
California Delaware
<S> <C>
Generally requires that a majority of the Generally requires that a majority of the
stockholders of both acquiring and target shareholders of both acquiring and target
corporations approve statutory mergers. corporations approve statutory mergers.
Does not require a stockholder vote of the Does not require a stockholder vote of the
surviving corporation in a merger if surviving corporation in a merger (unless the
corporation provides otherwise in its
- - such stockholders shall own, immediately after certificate of incorporation) if
the merger, equity securities (not including
any warrants or similar rights to purchase - the merger agreement does not amend the
such equity securities) of the surviving or existing certificate of incorporation,
acquiring corporation or a parent party
possessing more than five-sixths of the voting - each share of the stock of the surviving
power of the surviving or acquiring corporation outstanding immediately before the
corporation or parent party. effective date of the merger is to be
identical outstanding or treasury share of the
However, California law does require that the surviving corporation after the merger, and
principal terms of a merger be approved by the
outstanding shares of the surviving corporation - either no shares of common stock of the
if any amendment is made to its articles which surviving corporation and no shares,
would otherwise require approval. securities or obligations convertible into
such stock are to be issued or delivered under
the plan of merger, or the authorized unissued
shares or the treasury shares of common stock
of the surviving corporation to be issued or
delivered under the plan of merger plus those
initially issuable upon conversion of any
other shares, securities or obligations to be
issued or delivered under such plan do not
exceed twenty percent (20%) of the shares of
common stock of the surviving corporation
outstanding immediately prior to the effective
date of the merger.
</TABLE>
With certain exceptions, the CGCL requires that a merger, sale of assets or
similar transaction be approved by a majority vote, and in some cases a
two-thirds vote, of each class of shares outstanding. The DGCL does not
generally require such class voting, except in certain transactions involving an
amendment to the certificate of incorporation that adversely affects a specific
class of shares or where the class of securities designates such a right,
although Delaware law does require that a sale of all or substantially all of
the assets of a corporation be approved by a majority of the outstanding voting
shares of the corporation transferring such assets.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS UNDER DELAWARE LAW
In recent years, a number of states have adopted special laws designed to
make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a
19
<PAGE> 561
corporation and one or more of its significant shareholders, more difficult.
Under Section 203 of the Delaware General Corporation Law, certain "business
combinations" with "interested stockholders" of Delaware corporations are
subject to a three-year moratorium unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, fifteen
percent (15%) or more of the corporation's outstanding voting stock (including
any rights to acquire stock pursuant to an option, warrant, agreement,
arrangement or understanding, or upon the exercise of conversion or exchange
rights, and stock with respect to which the person has voting rights only), or
is an affiliate or associate of the corporation and was the owner, individually
or with or through certain other persons or entities, of fifteen percent (15%)
or more of such voting stock at any time within the pervious three years, or is
an affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value of ten
percent (10%) or more of the aggregate market value of either the corporation's
consolidated assets or all of its outstanding stock; the issuance of transfer by
the corporation or a direct or indirect majority-owned subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except for
certain transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock or of the corporation's voting stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity
becoming an interested stockholder,
- upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least eighty-five percent
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding from the eighty-five percent calculation shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans that do not give employee
participants the right to decide confidentiality whether to accept a
tender or exchange offer), or
- on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent of
the outstanding voting stock not owned by the interested stockholder.
20
<PAGE> 562
Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is:
- listed on a national securities exchange,
- quoted on an interdealer quotation system of a registered national
securities association, or
- held of record by more than 2,000 stockholders.
Under certain circumstances, Section 203 of the DGCL may made it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three year period.
There is no provision in the CGCL equivalent to Section 203 of the DGCL.
However, under the CGCL, if a party that makes a tender offer or proposes to
acquire a corporation by a reorganization or certain sales of assets is
controlled by such corporation or is controlled by an officer or director of
such corporation, or if a director or executive officer of such corporation has
a material financial interest in such party (each an "Interested Party
Proposal"), (i) an affirmative opinion in writing as to the fairness of the
consideration to the stockholders of such corporation must be delivered to
stockholders of such corporation, and (ii) such stockholders must be (x)
informed of certain later tender offers or written proposals for a
reorganization or sale of assets made by other persons, and (y) afforded a
reasonable opportunity to withdraw any vote, consent or proxy previously given
or shares previously tendered in connection with the Interested Party Proposal.
INTERESTED DIRECTOR TRANSACTIONS
Under the laws of both California and Delaware, contracts or transactions
between a corporation and one or more of its directors, or between a corporation
and any other entity in which one or more of its directors are directors or have
a financial interest, are not void or voidable because of such interest or
because such director is present at a meeting of the board which authorizes or
approves the contract or transaction, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under the CGCL and the DGCL. Under the CGCL and the DGCL, either (i) the
stockholders or shareholders or the board of directors must approve any such
contract or transaction in good faith after full disclosure of the material
facts (and, in the case of board approval other than for a common directorship,
the CGCL requires that the contract or transaction must also be "just and
reasonable" to the corporation), or (ii) the contract or transaction must have
been "fair" (in Delaware) or, in the case of a common directorship (in
California), "just and reasonable" as to the corporation at the time it was
approved. The CGCL explicitly places the burden of proof of the just and
reasonable nature of the contract or transaction on the interested director.
Under the DGCL, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though less
than a majority of a quorum). Under the CGCL, if stockholder approval is sought,
the interested director is not entitled to vote his or her shares at a
stockholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors (except that interested directors may be
counted for purposes of establishing a quorum.)
21
<PAGE> 563
APPRAISAL/DISSENTERS' RIGHTS
Under both Delaware and California law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal/dissenters' rights by which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transactions. Under both Delaware and California law, such fair market value is
determined exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation.
<TABLE>
<CAPTION>
California Delaware
<S> <C>
Under California law, in connection with the Appraisal rights are not available (a) with
merger of a corporation for which the approval respect to the sale of all or substantially all
of outstanding shares is required, dissenting of the assets of a corporation, (b) with respect
stockholders of such corporation who follow to a merger or consolidation by a corporation
prescribed statutory procedures are entitled to the shares of which are either listed on a
receive payment of the fair market value of national securities exchange, designated as a
their shares. No such rights are available, national market system security on an
however, if the shares are listed on a national interdealer quotation system by the National
securities exchange certified by the California Association of securities Dealers, Inc. or are
Commissioner of Corporations or appear on the held of record by more than 2,000 holders if
Federal Reserve Board list of over-the-counter such stockholders receive only shares of the
margin stocks unless (i) such shares are subject surviving corporation or shares of any other
to certain restrictions on transfer, or (ii) the corporation that are either listed on a national
holders of at least five percent of such shares securities exchange, designated as a national
elect dissenter's rights. In connection with the market system security on an interdealer
Merger, holders of DaMert Common Stock may, by quotation system by the National Association of
complying with required procedures, be entitled securities Dealers, Inc. or held of record by
to dissenters' rights under the CGCL. See more than 2,000 holders, plus cash in lieu of
"RIGHTS OF DISSENTING STOCKHOLDERS." fractional shares of such corporations, or (c)
to stockholders of a corporation surviving a
merger if no vote of the stockholders of the
surviving corporation is required to approve the
merger under Delaware law.
</TABLE>
22
<PAGE> 564
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to the
consolidated statements of income of DaMert for each of the five years in the
period ended December 31, 1998, and with respect to the consolidated balance
sheets of DaMert at December 31 of each of the five years ending December 31,
1998, are derived from the audited, and in the case of 1994 and 1995, the
reviewed consolidated financial statements of DaMert incorporated by reference
in this prospectus/proxy statement supplement.
The data set forth below are qualified by reference to, and should be read
in conjunction with, the financial statements and the notes related thereto
included in the prospectus/proxy statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
--------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Net sales.............................. $ 6,837 $8,876 $9,836 $9,024 $7,208
Net income (loss)...................... (879) 90 517 600 155
Net income (loss) per share............ (878.89) 89.76 0.52 0.60 0.16
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Current assets........................... $2,603 $3,150 $2,433 $2,467 $2,124
Total assets............................. 3,103 3,657 2,887 2,812 2,332
Current liabilities...................... 2,609 2,235 1,349 1,531 1,451
Total liabilities........................ 2,747 2,390 1,525 1,590 1,512
Stockholders' equity..................... 355 1,267 1,362 1,222 820
</TABLE>
23
<PAGE> 565
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the DaMert's
audited consolidated financial statements and notes thereto appearing elsewhere
in the prospectus/ proxy statement.
OVERVIEW
Founded in 1973 and incorporated in 1979, DaMert currently develops,
manufactures and markets high quality toys, gifts and puzzles. DaMert enters
into agreements with inventors to create a steady stream of high quality
products. Presently, DaMert's products include over 200 toys, gifts and puzzles
selling to catalogs, museums, department stores, specialty gift and toy stores
nationwide. The DaMert products are sold at retail prices generally ranging from
$5.00 to $25.00.
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth, for the periods indicated, the relative
percentage that certain income and expense items bear to net sales.
<TABLE>
<CAPTION>
YEARS ENDED: THREE MONTHS ENDED:
------------------------------------------- -------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997 MARCH 31, 1999 MARCH 31, 1998
-------------------- -------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................. $6,837,280 100.00% $8,876,462 100.00% $1,256,848 100.00% $1,163,084 100.00%
Cost of Sales......... 4,291,854 62.8% 5,328,453 60.0% 736,566 58.6% 696,072 59.8%
---------- ------ ---------- ------ ---------- ------ ---------- ------
Gross Profit.......... 2,545,425 37.2% 3,548,009 40.0% 520,282 41.4% 467,012 40.2%
---------- ------ ---------- ------ ---------- ------ ---------- ------
Operating Expenses
Product
Development....... 546,706 8.0% 488,638 5.5% 86,822 6.9% 138,261 11.9
Marketing and
Sales............. 998,802 14.6% 1,320,380 14.9% 230,800 18.4% 283,889 24.4%
General and Admin... 1,878,005 27.5% 1,647,803 18.6% 426,271 33.9% 464,787 40.0%
---------- ------ ---------- ------ ---------- ------ ---------- ------
Total Op. Exp..... $3,423,513 50.1% $3,456,821 38.9% $ 743,893 59.2% $ 886,937 76.3%
---------- ------ ---------- ------ ---------- ------ ---------- ------
Income (loss) before
taxes............... (878,005) (12.8)% 91,188 1.0% (223,611) (17.8)% (419,925) (36.1)%
Provision for income
taxes............... 800 0.0% 1,431 0.0% -- 0.0% -- 0.0%
---------- ------ ---------- ------ ---------- ------ ---------- ------
Net income (loss)..... $ (878,887) (12.9)% $ 89,757 1.0% $ (223,611) (17.8)% $ (419,925) (36.1)%
---------- ------ ---------- ------ ---------- ------ ---------- ------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Sales. For the three months ended March 31, 1999, net sales were
$1,256,848, an increase of $93,764 or 8.1% compared to $1,163,084 for the period
ending March 31, 1998. This increase was related to a restructure of the
domestic sales management instituted in November 1998. Three regional directors
functionally replaced a national manager, sales assistant and key account
manager, the structure in place January 1998. The National Sales Manager had
been terminated in March 1998, and a suitable replacement was not found until
November 1998.
Gross Profit. For the three months ended March 31, 1999, gross profit was
$520,282, 41.4% of Sales, an increase of $53,270 or 11.4% compared to gross
profit of $467,012,
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<PAGE> 566
40.2% of Sales for the same period in 1998. International sales were 11.9% of
sales as of March 31, 1999, compared to 16.2% as of March 31, 1998. Since these
sales are highly discounted, less relative contribution leads to higher gross
profit. Additionally, cost control in the shipping and inventory control
departments contributed to higher gross profit.
Operating Expenses (includes interest expense). For the three months ended
March 31, 1999, operating expenses (which include product development,
marketing, general and administrative, and interest expense) were $743,893, a
decrease of $143,044 or 16.1%, compared to operating expenses of $886,937 in
1998. Cost control in each department's fixed overhead lowered expenses in 1999
relative to 1998. Interest expenses for the period ending March 31, 1999, were
$46,666, an increase of $8,994 or 23.9% compared to interest expenses of $37,672
for the same period in 1998. Higher borrowing was necessitated by lower
receivables at year end 1998 compared to year end 1997.
Net Income. For the three months ended March 31, 1999, net loss was
($223,611), an improvement of $196,314 or 46.7% over the net loss of ($419,925)
for the same period in 1998. Because of the seasonality of the business, profit
is not expected until the Third Quarter.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net Sales. Net sales for 1998 were $6,837,280, a decrease of $2,039,182,
or 23% from $8,876,462 in 1997. This decline was due primarily to lost sales
orders that resulted from terminating the National Sales Manager in first
quarter 1998 and not finding suitable replacement personnel until November 1998
when the holiday buying season was essentially over.
Gross Profit. Gross profit for 1998 was $2,545,426, a decrease of
$1,002,583, or 28.3% from $3.5 million in 1997. Margins decreased from 40.0% to
37.2%. This was due to a higher percentage of international sales (which are
highly discounted) relative to total sales, 17.7% in 1998 compared to 15.9% in
1997. The international sales volume was not affected by the termination of the
National Sales Manager since it was not under his jurisdiction.
Operating Expenses (includes interest expense). Operating expenses which
include product development, marketing and sales, general and administrative,
and interest expenses for 1998 were $3,423,513 a decrease of $33,308, or 1% from
$3,456,821 in 1997. Higher product development expenses in 1998 were due to the
expansion of the game product category and the hiring of additional personnel
during part of the year. Marketing and sales expenses decreased in 1998 due to a
decrease in sales commissions resulting from lower revenue, reclassifying the
salary of the Marketing Director to G & A with his promotion to President, and
termination of the National Sales Manager early in the year. General and
administrative expenses increased in 1998 due to the salary reclassification
mentioned above and an increase of interest expense of $31,594, or 17.5% to
$211,74 over $180,152 in 1997. Lower receivables necessitated higher borrowing
to meet working capital requirements.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Net Sales. Net sales for 1997 were $8,876,462, a decrease of $959,410, or
9.8% from $9,835,872 in 1996. This decrease was due primarily to lower sales
from three key accounts who changed product mix and focus.
25
<PAGE> 567
Gross Profit. Gross profit for 1997 was $3,548,009, a decrease of
$476,916, or 11.8% from $4,024,924 in 1996. Margins decreased from 40.9% to
40.0%. This was due to a higher ratio of international sales which are heavily
discounted relative to domestic sales.
Operating Expenses (includes interest expense). Operating expenses which
include product development, marketing and sales, general and administrative,
and interest expenses for 1997 were $3,456,821 a decrease of $48,717, or 1.4%
from $3,505,538 in 1996. Lower product development expenses in 1997 were due to
year end timing. Marketing and sales expenses decreased in 1997 due to cost
control. General and administrative expenses decreased in 1997 due to cost
control.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The demand for DaMert's retail product has a large seasonal component, with
a majority of sales to retailers during the 3rd and 4th fiscal quarters.
Quarterly revenue breakdowns are as follows (stated in % of total sales): 1st
quarter, 16-20%; 2nd quarter, 16-20%; 3rd quarter, 30-34%, 4th quarter, 30-34%.
LIQUIDITY AND CAPITAL RESOURCES
The seasonality of sales has made credit availability an important issue.
It is necessary to build inventory during the summer in anticipation of the
heavy fall buying by retailers. However, receivables are at their lowest in the
first two quarters of the year when the buying decisions for product and
materials must be made. On May 15, 1998, DaMert renewed an annual bank revolving
line of credit of $2,500,000 to finance working capital needs. On August 15,
1998, a short term loan of $500,000 was added to DaMert's credit facilities.
This loan was due December 15, 1998. It was rewritten into a $400,000 loan due
January 30, 1999. There is currently $300,000 remaining on this note.
Accounts Receivables were $925,590 on December 31, 1998, compared with
$1,765,871 on December 31, 1997, a decrease of $840,281. This decrease was due
primarily to lower sales in 4th quarter 1998 than in 4th quarter 1997,
$2,157,600 in 1998 compared to $3,041,200 in 1997.
DaMert has the ability to borrow up to $2,800,000 under a Revolving Line of
Credit Note with its bank that expires on May 15, 1999. The bank has approved an
extension to June 30, 1999. The Revolving Line of Credit Note bears interest at
the bank's prime rate plus $0.75%. The Revolving Line of Credit Note is secured
by a first priority security interest in all of DaMert's accounts receivable and
other rights of payment, general intangibles and inventory. As part of the
Revolving Line of Credit Note, DaMert has the ability to obtain letters of
credit in the aggregate amount of $250,000 outstanding at any one time. This
feature has been eliminated in the credit line extension dated May 15, 1999. The
indebtedness of DaMert under the Revolving Line of Credit Note is guaranteed
pursuant to a personal guarantee of Frederick A. DaMert. As stated above, an
additional loan of $400,000 was written December 15, 1998. This Loan was due
January 30, 1999. The bank has approved an extension until June 30, 1999. This
loan bears interest at the bank's prime rate plus 3.75% and is secured by a
first priority security interest in all of DaMert's accounts receivable and
other rights of payment, general intangibles and inventory. The indebtedness of
DaMert under the Loan was personally guaranteed by Frederick A. DaMert. There is
an outstanding balance of $300,000 on this Loan.
As of December 31, 1997, DaMert was not in compliance with certain
covenants required by the credit agreement with its bank. The bank subsequently
waived compliance with these covenants for the year ended December 31, 1997. As
of December 31, 1998,
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<PAGE> 568
DaMert was not in compliance with certain covenants required by its credit
agreement with its bank. All interest payments are current.
DaMert had previously borrowed $80,260 in a Term Loan to finance office
equipment for the Berkeley facility. This Term Loan was financed with a first
priority security interest in the equipment and bears interest at the bank's
prime rate plus 0.75%. This loan is current and as of December 15, 1998 had an
outstanding principal balance of $26,753.44.
The agreement with the bank does not allow DaMert to merge or consolidate
with any other entity unless the bank otherwise consents in writing. The bank
will agree to the Merger contingent on refinancing of the current credit
facilities by New Futech.
DaMert has also borrowed funds from Frederick A. DaMert, the founder. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS", in this prospectus/proxy
statement supplement.
INFLATION
The Company does not believe inflation has a significant impact on its
operations.
YEAR 2000
DaMert utilizes a Local Area Network (LAN) system of PC's and a
commercially produced software packages (MACOLA). Software Y2K upgrades provided
by MACOLA will be installed in May 1999. Some PC's in use are not Y2K compliant
and will have to be replaced. Cost estimates for replacement of dated PC
hardware are currently in process. Management thinks that replacement costs will
be $30,000 to $40,000. DaMert does not believe that failure of any vendor to be
Year 2000 compliant would have a material impact on the company.
SAFE HARBOR DISCLOSURE: FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus/proxy statement and each related prospectus/proxy statement
supplement contains or incorporates by reference forward-looking statements. The
factors identified above in this section are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, New Futech or any of the merging companies.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, New Futech
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. We cannot promise that
statements of expectation or belief will be achieved or accomplished. The words
"believe," "expect," and "anticipate" and similar expressions identify forward-
looking statements throughout these materials.
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<PAGE> 569
DESCRIPTION OF DAMERT'S BUSINESS
GENERAL
DaMert's principal place of business is located at 1609 Fourth Street,
Berkeley, California 94710. The Company's telephone number is (510) 524-7400.
DaMert Company creates and produces affordable, high quality gifts and toys that
entertain, educate and endure, incorporating themes that capture the magic of
imagination, the wonders of nature and science, the beauties of art and the
mysteries of space. Approximately 200 products are marketed to a nationwide
customer base of 8000 accounts and internationally distributed to over 48
countries.
DaMert was founded by Fred DaMert on February 5, 1973 in San Rafael,
California. It was incorporated in the State of California on January 1, 1979,
and elected subchapter-S status on January 1, 1989. Up until its acquisition by
New Futech, DaMert has been self capitalized and wholly owned by Fred DaMert and
his wife Gail Patton DaMert.
In September of 1998, frustrated by the limitations of its internally
generated capital base, DaMert began to actively seek a strategic partnership
with an external company or investors. DaMert engaged an outside consultant to
assist and advise in this scenario.
PRODUCTS
DaMert Company focuses on six categories of about 200 affordable toy and
gift products designed for the specialty toy, museum and gift markets:
Puzzles/Brainteasers, Glow-In-The-Dark, Activity Kits, Great Gizmos, Games and
Rainbows. These products are targeted primarily to children ages 6-12, however,
many of these items are designed to be enjoyed by adults and children together.
Approximately 35% of current sales are derived from Puzzles/Brainteasers,
including the cardboard Triazzle Puzzle Collection and the plastic 3D Slide
Puzzle Collection. Triazzle(R) Puzzles, a significant volume contributor since
1991, are manufactured under a long-term exclusive license from inventor Dan
Gilbert, through December 2002.
Glow represents 26% of sales, followed by Great Gizmos and Activity Kits,
covering a broad variety of science and discovery topics, together totaling 17%.
Games, a relatively new category, has grown to approximately 12% of total sales
with new product expansion underway. Prisms, diffraction and other Rainbow
themed items comprise approximately 9% of sales.
DaMert has a significant R&D staff but also works in conjunction with
outside inventors and product designers throughout the country. DaMert products
have been the recipient of numerous excellence awards including the National
Parenting Center Seal of Approval, Parent's Choice, Gold Seal of Excellence from
The Oppenheim Toy Portfolio, and Great American TV Toy Test. In 1998 alone,
DaMert was included in Dr. Toy's 100 Best Children's Products, Dr. Toy's Best
Vacation Products, Child Magazine Best Toys of the Year, and was the recipient
of the prestigious Family Fun's T.O.Y. (Toy of the Year) for its proprietary
game Impact Zone.
SALES, MARKETING AND DISTRIBUTION
DaMert Company's marketing and overall business strategy is based on
creating excellence in its niche. In the product area, this means that the
company is placing more
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<PAGE> 570
emphasis and support on creating a DaMert "brand" that crosses all six product
categories. To accomplish this goal, new packaging was introduced in 1998 and
has helped build recognition of DaMert as a key player in the toy, museum and
gift retail market. Its reputation for products that blend fun with education
has also created significant demand for custom orders from retailers such as The
Nature Company/Discovery Channel Stores, Natural Wonders, Warner Bros.' retail
stores, the Smithsonian catalog, and most recently, Restoration Hardware.
However, DaMert Company's formula for success goes beyond its products. Its
prices are kept within an affordable range of $5 to $25 for retail stores and
catalogs. This price-value ratio has enabled the company to prosper through
recessions because its products offer more value -- more hours of fun and
learning -- for the same price as competing products.
DaMert Company's products are sold to a balanced and broad range of
accounts including museums, zoos, aquariums, specialty toy and gift retailers,
traditional and electronic catalogs, prominent national chains, plus an
international distribution network which reaches over 48 countries. The company
currently distributes products to over 4,000 retailers nationwide, handling many
larger accounts directly. Other retailers are covered by a nationwide sales
network of approximately 100 representatives. The domestic sales effort is
managed by three internal regional directors. The internal team is supported by
a small customer service staff responsible for order processing and
telemarketing. DaMert Company also attends major gift and toy trade shows, and
uses public relations and trade advertising to increase awareness and sales.
The domestic market enjoys a continued popularity for science and learning
toys as retail opportunities evolve and expand. A growing number of specialty
retail chains are thriving with this merchandising platform, including Discovery
Channel Stores, Learning Express, LeamingSmith, Natural Wanders, Noodle
Kidoodle, Zany Brainy and World Of Science. These segments comprise over 600
total locations nationwide.
Electronic commerce (i.e. retailers selling products on the Internet) has
emerged in the toy segment over the last 12 months, and DaMert has opened
several electronic commerce accounts including EToy.com, Amazon.com,
Toysmart.com and Red Rocket.com, a division of Nickelodeon. At this time, the
company also promotes its products through its own website but is not currently
offering them for direct consumer purchasing.
In 1998, for the first time in DaMert's 26 year history, the company
allowed selective testing of a few specialty toy products at Target Stores. The
success of this venture has led to product expansion in Target in 1999.
DaMert Company began international distribution of its product line in
1992. Over the last several years, popularity of the product line has grown
throughout the international community. DaMert Company currently has
distribution in over 48 countries around the world.
International sales comprised 18% of total sales in 1998, predominantly
through key distribution agreements in the major industrial countries. Volume
purchases, significant discounts and factory-direct shipping are common to major
distributors in this business segment, with a common strategy to replicate
American retail price points in all foreign markets.
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<PAGE> 571
CUSTOMERS
DaMert had over 4200 active customers in 1998. The single largest customer
represented 5.93% of sales in 1998 as compared to 2.91% of sales in 1997. The
next largest customer represented 4.67% of sales in 1998 and 4.69% of sales in
1997. Approximately 80% of sales were represented by 622 customers in 1998 as
compared to 677 customers in 1997.
MANUFACTURING
DaMert produces the majority of its products by subcontracting with a
number of independent factories located in China and Taiwan. Less than 5% of the
products are produced domestically. One independent agent is responsible for
approximately 40% of the foreign manufacturing which is spread out over many
different factories. A direct relationship between DaMert and another
manufacturer accounts for approximately another 25% of its overseas
manufacturing. Some customers require direct shipments from these factories.
However, approximately 95% of manufactured products are shipped to DaMert.
Certain minimum order requirements necessitate holding inventory in the Berkeley
warehouse in advance of expected retail sales. Most payments to factories are
made by wire transfer upon confirmation of shipment, however, DaMert's loan
facility allows a line of credit to be used for certain transactions.
SEASONALITY
The demand for DaMert's retail product has a large seasonal component, with
a majority of sales to retailers during the 3rd and 4th fiscal quarters. The
Company experiences 32-40% of its sales in the first half of the year and 60-68%
in the second half of the year.
BACKLOG
Due to the high seasonal demand of DaMert's business, all December orders
in the system were shipped by December 18, 1998. As a matter of accounting
policy, all back orders of value less than $40 were canceled. There were no
significant cancellations due to product unavailability (out of stock
merchandise). Future orders (due January 1, 1999 and beyond) in the system as of
December 31, 1998 were $176,731, an increase of $79,956 or 82.6%, from $96,775
of future orders on December 31, 1997.
PRODUCT DESIGN AND SELECTION
DaMert has established a reputation for product innovation in the area of
nature, science and learning toys and gifts. Internally, the company has created
a team of extremely capable and inventive concept and product developers.
However, over the years DaMert has built a reputation among independent
innovators as a company who can maximize their ideas in fair mutually,
beneficial relationships. This reputation, coupled with DaMert's location in the
creatively acclaimed San Francisco Bay Area, results in a continuous flow of
ideas from external sources. DaMert works with these "creative partners" in a
variety of ways including licensing, purchase of the concept, or exclusive
purchase of the manufactured product.
DaMert is fundamentally "market-oriented and product driven." Fred and Gail
DaMert, as well as the four operating executives, participate fully in the
product development process. This process starts with the creative idea and
carries all the way into product introduction and sales, and inventory
management and quality control.
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<PAGE> 572
COMPETITION
DaMert strives to be a leading innovator in each of its six major product
categories introducing 40 to 50 new additions annually. Because of the diversity
of its six product categories, DaMert has competitors in each of these areas.
Competition in DaMert's market is defined primarily as competing for the
business of the same retailers. DaMert identifies its key competitors in each
product category as follows: Puzzles/Brainteasers -- Binary Arts and Bedazzled;
Glow-in-the-Dark -- Great Explorations and Illuminations; Activity
Kits -- Creativity for Kids and Curiosity Kits; Great Gizmos (science toys) --
Wild Planet, Rainbows -- Lightrix and White Eagle, and Games -- University Games
and Briarpatch.
DaMert believes that its unique mix of product categories provides
competitive strength in two key ways. First, DaMert offers cross-merchandising
opportunities among the categories, as well as strong thematic presentations
(e.g. space, ocean, insects), allowing retailers to offer a broad range of
merchandise. These merchandising opportunities were further enhanced in 1998
when DaMert began rolling out a comprehensive look for all packaging and
presentation material, which tied together the product categories in an attempt
to build stronger overall brand recognition and preference. The second
competitive advantage offered by DaMert is the retailer's opportunity to
"consolidate vendors" and order a wide variety of merchandise from one place.
This is further supported by DaMert's low minimum order requirement and low to
no minimum case quantity requirement on many items.
PATENTS, TRADEMARKS AND LICENSES
In the normal course of business DaMert Company makes every effort to
patent or trademark internally developed concepts as well as the licensing of
patents and trademarks from submissions provided by outside developers. DaMert
currently has no "fantasy character" license. Although the procurement of
patents, trademarks and licenses does not eliminate the possibility of
infringement it has proven to be an effective deterrent to competitors.
Licenses for rights to use patents and trademarks from outside product
designers typically run for two to five years, are world wide in scope, have
automatic renewals and are transferable in the event of a change in ownership of
DaMert Company.
GOVERNMENT REGULATIONS
The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Products Safety Acts. Those
laws empower the Consumer Products Safety Commission (the "CPSC") to protect
children from hazardous products. The CPSC has the authority to exclude from the
market articles which are found to be hazardous and can require a manufacturer
to repurchase such products under certain circumstances. Any such determination
by the CPSC is subject to court review. Similar laws exist in some states and
cities in the United States and in many jurisdictions throughout the world. The
Company endeavors to comply with all applicable regulations through a program of
quality inspections and product testing. The Company maintains product liability
insurance in the amount of $4,000,000.
EMPLOYEES
As of December 31, 1998 DaMert had 31 full-time employees, all in its
Berkeley facility, consisting of 18 in marketing, sales and administration, 8 in
shipping, and 5 in
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product design and development. Seasonal warehouse personnel are hired in the
summer and fall to assist with the greater volume of orders being shipped.
PROPERTIES
On July 27, 1995, DaMert entered into a six-year lease commencing December
1, 1995, for 32,000 square feet of office and warehouse space in a building
located at 1609 Fourth Street, Berkeley, California (the "Facility"). The
Facility is located in a mixed industrial, retail and residential area 15 miles
east of San Francisco. It is divided into a 24,000 square feet of warehouse and
8,000 square feet of office. DaMert Company feels that the facility will meet
its foreseeable requirements.
The lease provides for one six-year extension option. The base monthly rent
for the initial six-year term is fixed at $23,295. Rent for the option period
shall be set at the then fair market rental rate for a similar industrial gross
lease. In addition to the base rent, DaMert is liable for its share of any
increase in operating cost over the base year operating expenses. Future minimum
rental payments per year for the lease of the Facility are $279,540 for 1999
through 2000 and $256,245 for 2001. The lease grants DaMert a right of first
refusal to lease additional portions of the building which become available.
Pursuant to the lease, Fred DaMert entered into a Lease Guaranty with the
landlord. Under the terms of the Lease Guaranty, Fred DaMert has guaranteed the
obligations of DaMert under the lease for the initial six-year term of the
lease. If there is a change in control of DaMert, the new shareholders would
have to execute a similar lease guaranty in order for Fred DaMert to be released
from the current Lease Guaranty.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company is a party,
or of which, any of its property is subject.
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DAMERT MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding DaMert's executive
officers and directors as of April 1, 1999:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Frederick A. DaMert................ 52 Chairman of the Board and Director
Chief Executive Officer and
Gail Patton DaMert................. 48 Director
Joyce DaMert....................... 80 Director
Lynne McDonald..................... 47 Secretary of Board and Director
Greg McVey......................... 45 President
Larry Waide*....................... 45 Director of Operations
Tom Santilena...................... 50 Controller and Director of Finance
</TABLE>
- -------------------------
* Mr. Waide submitted a letter of resignation to DaMert Company effective April
29, 1999.
FREDERICK A. DAMERT. Fred DaMert is Chairman and Founder of DaMert
Company. He has owned and operated the company for 26 years, and is responsible
for creating and sourcing toy and gift products. He was a Humanities major at
San Francisco State University.
GAIL PATTON DAMERT. Gail DaMert became a member of the Board of Directors
of DaMert shortly after her marriage to Fred DaMert in 1983. In 1989, she joined
DaMert Company as the Director of Finance. In 1994, she became Chief Executive
Officer. Prior to 1989, Gail was a systems engineering manager at Lockheed
Missiles and Space Company. Gail holds a B.A. Degree in Mathematics and
Astronomy from Smith College, and a Ph.D. in Astronomy from State University of
New York at Stony Brook.
JOYCE DAMERT. Joyce DaMert is the mother of Fred DaMert and is retired and
living in Piedmont, California. She has served as the President of the Oakland
Museum Board and the Vice President of the Albert Baker Foundation. She has a
B.A. in Art from Pomona College.
LYNNE MCDONALD. Lynne McDonald was elected to the Board in 1982 and has
served as its Secretary since 1986. She has been an employee of DaMert Company
since 1981 and has held various positions in almost all functional areas of
DaMert Company including administration, accounting, sales and marketing. She is
currently the Managing Supervisor for Customer Service. Lynne holds a degree in
Early Childhood Development from St. Cloud State University.
GREG MCVEY. Greg McVey joined DaMert Company in early 1992 as Director of
Marketing and Sales, with responsibility for all product development, marketing,
promotional and sales functions. He was promoted to President in 1997. Prior to
his employment with DaMert, McVey owned his own marketing consulting business
and has held senior marketing positions at Laurel Burch, Inc. and Lucky Stores,
Inc. He holds a Liberal Arts Degree in Retail Business Administration and
Marketing from Saddleback College.
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<PAGE> 575
LARRY WAIDE. Larry Waide joined DaMert Company in 1991 to manage the
company's worldwide sourcing, manufacturing, engineering and distribution
functions. His industry experience includes R. Dakin & Company, Discovery Toys,
Child's Play USA and YES! Entertainment. He holds a B.A. degree in Mathematics
from California State University at Fresno.
TOM SANTILENA. Tom Santilena joined DaMert Company in 1994. He is
responsible for all policies and procedures concerning records, finance, and
accounting as well as human resource management. Prior to DaMert, Tom was the
company controller at Laurel Burch, Inc. and Leaseway Transportation
Corporation. He majored in Accounting at Armstrong Business College.
EMPLOYMENT ARRANGEMENTS
On April 28, 1999, DaMert entered into an employment agreement with Julie
Nunn, Director of Product Development. The agreement provides that in the event
of a change in control occurring within two years from the date of the
agreement, Nunn will continue in her present capacity with DaMert or its
successor, but her annual base salary will increase to $82,000 at the time of
the change in control. According to the employment agreement, a change of
control occurs if at least 51% of the assets of DaMert are transferred or sold
to another entity, or if DaMert is merged or consolidated with or into another
entity. Subsequent to a change in control, if Nunn's employment with DaMert or
its successor is involuntarily terminated for other than cause before the
one-year anniversary of the change in control, then DaMert or its successor will
pay Nunn four months severance pay at the rate of her then current base salary.
In 1995, DaMert established a 401K Profit Sharing Plan ("401K") for the
benefit of the employees of DaMert. Under the provisions of the 401K, employees
may make contributions on a tax deferred basis to their 401K account, up to the
legal limits provided for by United States income tax regulations. DaMert makes
a non-elective matching contribution of 10% of the employee's salary deferral.
Participants are immediately vested in the balance of their matching account.
DaMert may also make discretionary contributions at the discretion of the Board
of Directors. Such contributions are allocated between participants of the 401K
based on a pre-stated formula. Participants become vested in such discretionary
contributions as follows: 20% after two years of service and an additional 20%
each year thereafter until a participant reaches 100% at six years or more of
service. For the years ended December 31, 1997 and December 31, 1996, DaMert
made discretionary contributions of $0 and $41,600, respectively.
DaMert has a health insurance plan, which covers all employees in a non-
discriminatory manner. With the exception of the health insurance plan and the
401K, DaMert has no insurance or medical reimbursement plans covering its
officers or directors, nor do they contemplate implementing any such plans at
this time.
DaMert has granted stock appreciation rights ("SARs") to certain employees
pursuant to a Special Executive Incentive Compensation Plan which was
established in 1995. A participating executive is awarded by the Board of
Directors a certain number of "units" each of which is hypothetically assumed to
represent one share of stock in the company. The SARs are adjusted for dilutive
events to maintain a targeted percentage interest in DaMert until the aggregated
interests of all employees equals 20%. A participant of the plan at no time owns
any capital stock of DaMert, nor any rights of a stockholder. The SARs earn a
proportionate share of the increase in book value of
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<PAGE> 576
DaMert, payable upon a sale of at least 50%, or a public offering, of DaMert's
stock, or the termination of employment. The employees' interest in the SARs
vest 20% annually over 5 years. At the present time, the employees participating
in this plan and their percentage interests are as follows: Greg McVey, 4%;
Larry Waide, 3%. DaMert is in the process of repurchasing Mr. Waide's SARs. Mr.
McVey's SAR's are to be exchanged for 42.10 shares of DaMert common stock prior
to and in connection with the mergers.
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<PAGE> 577
DAMERT STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of May 31, 1999, with
respect to the beneficial ownership of DaMert's common stock by each person
known by DaMert to
be the beneficial owner of more than five percent of the outstanding common
stock, by each of DaMert's directors, and by the officers and directors of
DaMert as a group:
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
BENEFICIAL OWNERS BENEFICIALLY OF CLASS(1)
----------------- ------------ -----------
<S> <C> <C>
Security ownership of certain beneficial owners:
Frederick A. DaMert and Gail Patton DaMert......... 1,000 100%
as Trustees of the DaMert Trust UDT
September 28, 1998
Security ownership of management:
No direct ownership, but 100% beneficial
ownership as trustees of the DaMert Trust.......... 1,000 100%
All officers and directors as a group (5 persons):... 1,000 100%
</TABLE>
- -------------------------
(1) Based upon 1,000 shares of common stock issued and outstanding on May 31,
1999.
There are no contracts or other arrangements, including any pledge of
DaMert's securities, that could result in a change in the control of the
company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1998, DaMert Company has borrowed an aggregate of
$128,849 from Fred DaMert. These are in the form of two promissory notes, the
first dated July 1, 1987 for $58,849 and the second dated November 1, 1996 for
$70,000. These notes are paying interest at the rate of 10% per annum. They were
used to supplement working capital requirements at the time they were issued.
On February 29, 1996, DaMert entered into an option agreement with Lynne
McDonald, a director, which restated a previous option agreement of March 9,
1989 and granted McDonald rights to acquire 52.63 shares of the common stock of
DaMert at an exercise price of $1.00. The option is exercisable in the event of
(a) disposition of 50% or more of DaMert's voting stock via transaction to any
person or persons or merger with any other entity in which the stockholders of
DaMert hold less than 50% of the surviving corporate entity or (b) prior to any
registered public offering. The rights granted pursuant to the option agreement
expire on March 3, 2024. The option agreement also contains an anti-dilution
clause to adjust the number of shares covered by the option for certain types of
transactions in DaMert's common stock. The rights to this option are personal to
Lynne McDonald and are not assignable.
Fred and Gail DaMert will enter into employment agreements with New Futech
in connection with the merger. See "DESCRIPTION OF THE MERGERS AND THE MERGER
AGREEMENT -- Employment Agreements with Affiliates" and "NEW FUTECH'S
MANAGEMENT -- Employment Agreements" in the prospectus/proxy statement.
36
<PAGE> 578
APPENDIX 1
CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
1300. (a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301. (a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such
A-1
<PAGE> 579
corporation shall mail to each such shareholder a notice of the approval of the
reorganization by its outstanding shares (Section 152) within 10 days after the
date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304
and this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. (a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or
A-2
<PAGE> 580
within 30 days after any statutory or contractual conditions to the
reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. (a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. (a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share.
Within the time fixed by the court, the appraisers, or a majority of them,
shall make and file a report in the office of the clerk of the court. Thereupon,
on the motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court finds
the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the
A-3
<PAGE> 581
corporation for the amount thereof together with interest at the legal rate on
judgments until the date of payment, but subordinate to all other creditors in
any liquidation proceeding, such debt to be payable when permissible under the
provisions of Chapter 5.
1307. Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
1308. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
1309. Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
1311. This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions specifically set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.
1312. (a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
A-4
<PAGE> 582
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
A-5
<PAGE> 583
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law (the "General
Corporation Law") provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (0ther than an employee by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense or any claim, issue or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under such Section 145. Section
102(b)(7) of the General Corporation Law provides that a corporation in its
original certificate of incorporation or an amendment thereto validly approved
by stockholders may eliminate or limit personal liability of members of its
board of directors or governing body for violations of a director's duty of
care. However, no such provision may eliminate or limit the liability of a
director for breaching his duty of loyalty, acting or failing to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying
an unlawful dividend or approving an unlawful stock repurchase, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. The Company's Certificate of Incorporation contains such a
provision.
II-1
<PAGE> 584
The Company's Bylaws provide that the Company shall indemnify officers and
directors to the full extent permitted by and in the manner permissible under
the laws of the State of Delaware.
The holders of the Company's capital stock or warrants to purchase capital
stock who have contractual registration rights are required to be indemnified by
the Company against losses, claims, damages or liabilities arising out of any
untrue statement of a material fact or omission thereof in a Registration
Statement under the Securities Act of 1933. The Company's obligation to
indemnify such holders includes the officers, directors and partners of such
holders, some of whom are currently directors of the Company. The Company shall
not be liable for any such indemnity to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
material omission in reliance upon and in conformity with written information
furnished by such person to the Company, specifically for use therein.
The indemnification provided as set forth above is not exclusive of any
rights to which a director or officer of the Company may be entitled. The
general effect of the foregoing provisions may be to reduce the circumstances in
which a director or officer may be required to bear the economic burdens of the
foregoing liabilities and expenses.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
See Exhibit Index following the Signatures page which is incorporated
herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are not applicable or are not
required or the information required to be set forth herein is included in the
Financial Statements or Notes thereto.
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public offering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 (the "Act")
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 585
(3) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus/Joint Proxy
Statement pursuant to Items 4, (10(b), 11 or 13 of Form S-4, within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of respecting to the request.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Act, as
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in a
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy, as expressed in the Act, and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 586
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Phoenix, State of Arizona, on June 7, 1999.
FUTECH INTERACTIVE PRODUCTS
(DELAWARE), INC.
By: /s/ VINCENT W. GOETT
------------------------------------
Vincent W. Goett
President
FUTECH TOYS & GAMES, INC.
By: /s/ VINCENT W. GOETT
------------------------------------
Vincent W. Goett
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Vincent W. Goett, or Frederick B. Gretsch, Sr.,
either of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and gents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that all said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
II-4
<PAGE> 587
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in their
capacities as officers, executives and directors of Futech Interactive Products
(Delaware), Inc. and Futech Toys & Games, Inc., as indicated, and on the dates
indicated.
FUTECH INTERACTIVE PRODUCTS (DELAWARE), INC.
<TABLE>
<CAPTION>
PERSON TITLE DATE
------ ----- ----
<C> <S> <C>
/s/ VINCENT W. GOETT Chairman of the Board, June 7, 1999
- ----------------------------------------------------- President, Chief Executive
Vincent W. Goett Officer and Director
(Principal Executive
Officers)
/s/ JOSEPH K. PETTER Chief Operating Officer June 7, 1999
- -----------------------------------------------------
Joseph K. Petter
/s/ FREDERICK B. GRETSCH, SR. Chief Financial Officer, June 7, 1999
- ----------------------------------------------------- Treasurer and Secretary
Frederick B. Gretsch, Sr.
/s/ CARL E. VOIGT, IV Vice President of Games/Toys June 7, 1999
- ----------------------------------------------------- and Director
Carl E. Voigt, IV
/s/ WILLIAM W. BURNHAM Vice President of Speciality June 7, 1999
- ----------------------------------------------------- Items and Director
William W. Burnham
/s/ RODERICK L. TURNER Director June 7, 1999
- -----------------------------------------------------
Roderick L. Turner
/s/ GARY A. OMAN Director June 7, 1999
- -----------------------------------------------------
Gary A. Oman
/s/ ROBERT J. ROSEPINK Director June 7, 1999
- -----------------------------------------------------
Robert J. Rosepink
/s/ F. KEITH WITHYCOMBE Director June 7, 1999
- -----------------------------------------------------
F. Keith Withycombe
</TABLE>
S-1
<PAGE> 588
FUTECH TOYS & GAMES, INC.
<TABLE>
<CAPTION>
PERSON TITLE DATE
------ ----- ----
<C> <S> <C>
/s/ CARL E. VOIGT, IV President and Director June 7, 1999
- -----------------------------------------------------
Carl E. Voigt, IV
/s/ CARL E. VOIGT, III Vice President June 7, 1999
- -----------------------------------------------------
Carl E. Voigt, III
/s/ FREDERICK B. GRETSCH, SR. Secretary, Treasurer and June 7, 1999
- ----------------------------------------------------- Director
Frederick B. Gretsch, Sr.
/s/ VINCENT W. GOETT Director June 7, 1999
- -----------------------------------------------------
Vincent W. Goett
</TABLE>
S-2
<PAGE> 589
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
2.1FT Agreement for Purchase and Sale X
of Assets dated September 30,
1997 by and between Gick
Publishing, a California
Corporation, James W. and Terri
L. Gick, and Futech Educational
Products, Inc. ("Futech")
2.2FT Agreement for Purchase and Sale X
of Assets dated as of October
17, 1997 by and between XYZ,
Group, Inc. and Futech
2.3FT Stock Purchase and Sale X
Agreement dated as of September
30, 1998 by and between Les
Friedland, Dan Lesnick, Howard
W. Moore and Helen Z. Moore
Revocable Trust, dated November
1, 1996, Howard Moore
Associates, Inc., Defined
Benefit Plan & Trust, Howard
Moore Associates, Inc. and
Howard W. Moore and Futech
3.1FT Amended and Restated Articles of X
Incorporation of Futech
3.1J Articles of Incorporation of Filed as Exhibit 3.1 to Janex's
Pacific Acquisitions, Inc. as Registration Statement on Form
filed July 28, 1986 8-A (file 00017929) and
incorporated herein by reference
3.1T Certificate of Incorporation of Filed as Exhibit 3a. to Trudy's
Trudy Corporation ("Trudy"), as Registration Statement on Form
adopted February 24, 1987 S-18 (file 33-4379B) dated May
22, 1987 and incorporated herein
by reference
3.1FD Articles of Incorporation of X
Fundex Games, Ltd. ("Fundex")
dated July 16, 1996
3.1D Articles of Incorporation of X
DaMert Company ("DaMert"), dated
January 31, 1979
3.2FT Amended and Restated Bylaws of X
Futech
</TABLE>
<PAGE> 590
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
3.2J Articles of Amendment to the Filed as Exhibit 3.2 to Janex's
Articles of Incorporation of Registration Statement on Form
Pacific Acquisitions, Inc. as S-1 (file 00017929) dated August
adopted July 18, 1988 8, 1990 and incorporated herein
by reference
3.2T Agreement of Merger, dated as of X
March 23, 1987 between Trudy
Corporation, a Connecticut
Corporation, and Trudy, a
Delaware corporation
3.2FD Certificate of Amendment to X
Fundex dated August 24, 1997
3.2D By-Laws of DaMert, as adopted X
March 25, 1979
3.3J Statement of Resolution Filed as Exhibit 3.3 to Janex's
Establishing Series for Shares Registration Statement on Form
as adopted October 4, 1988 S-1 (file 00017929) dated August
8, 1990 and incorporated herein
by reference
3.3T Certificate of Amendment of Filed as Exhibit 3b. to Trudy's
Certificate of Incorporation of Registration Statement on Form
Trudy, as adopted May 13, 1987 S-18 (file 33-4379B) dated May
22, 1987 and incorporated herein
by reference
3.3FD Bylaws of Fundex X
3.4J Articles of Amendment to the Filed as Exhibit 3.4 to Janex's
Articles of Incorporation of Registration Statement on Form
With Design In Mind S-1 (file 00017929) dated August
International, Inc. as adopted 8, 1990 and incorporated herein
July 11, 1990 by reference
3.4T Bylaws of Trudy Filed as Exhibit 3c. to Trudy's
Registration Statement on Form
S-18 (file 33-4379B) dated May
22, 1987 and incorporated herein
by reference
3.5J Articles of Amendment to the Filed as Exhibit 3.6 to Janex's
Articles of Incorporation of Registration Statement on Form
With Design In Mind S-A (file 00017929) dated
International, Inc. as adopted December 20, 1994 and
August 11, 1994 incorporated herein by reference
3.6J Articles of Amendment to the X
Articles of Incorporation of
Janex International, Inc. as
adopted December 11, 1998
</TABLE>
<PAGE> 591
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
3.7J Certificate of Correction for X
Articles of Amendment to the
Articles of Incorporation of
Janex
3.8J Bylaws of Janex Filed as Exhibit 3.6 to Janex's
Registration Statement on Form
8-A (file 00017929) dated August
15, 1989 and incorporated herein
by reference
3.9J Amendment to Article IV of the X
Bylaws of With Design In Mind
International, Inc. dated
September 3, 1991
4.1FT Section 4.1 of the Amended and X
Restated Articles of
Incorporation of Futech. See
Exhibit 3.1FT
4.1J Articles IV, V, VI, X, XI, XII,
XIII, XIV, and XV of the
Articles of Incorporation of
Janex, as amended. See Exhibits
3.1J (Incorporated by Reference)
to 3.7J
4.1T Articles 4, 9, 10, 11 and 12 of Filed as Exhibit 3 a. to Trudy's
the Certificate of Incorporation Registration Statement on Form
of Trudy Corporation. See S-18 (file 33-4379B) dated May
Exhibit 3.1T and Exhibit 3.3T 22, 1987 and incorporated herein
by reference
4.1FD Sections 3.2 and 3.3 of the X
Articles of Incorporation of
Fundex Games, Ltd. See Exhibit
3.2
4.1D Articles IV, V, VI and VIII of X
the By-Laws of DaMert. See
Exhibit 3.2D
4.2FT Articles II, III, VI and VII of X
the Amended and Restated Bylaws
of Futech. See Exhibit 3.2FT
4.2J Articles II, VI, and VIII of the
Bylaws of Janex, as amended. See
Exhibits 3.8J (Incorporated by
Reference) to 3.9J
4.2T Articles 5 and 6 of the X
Agreement of Merger, dated as of
March 23, 1987 between Trudy
Corporation, a Connecticut
corporation, and Trudy
Corporation, a Delaware
corporation. See Exhibit 3.2T
</TABLE>
<PAGE> 592
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
4.2FD Articles 11, VIII, and IX of the X
Bylaws of Fundex Games, Ltd. See
Exhibit 3.3
4.2D Specimen Common Stock *
Certificate of DaMert
4.3FT Specimen Common Stock
Certificate of Futech
4.3J Specimen Common Stock Filed as Exhibit 4.1 to Janex's
Certificate Registration Statement on Form
S-1 (file 00017929) dated August
8, 1990 and incorporated herein
by reference
4.3T Articles 11, 111, V, IX and X of Filed as Exhibit 3 b. to Trudy's
the Bylaws Trudy Registration Statement on Form
S-18 (file 33-4379B) dated May
22, 1987 and incorporated herein
by reference
4.3FD Specimen Stock Certificate *
4.4FT Stock Restrictions and Sale X
Agreement dated January 27, 1994
by and between Vincent W.Goett
and Melissa Turner Goett and
Futech
4.4T Specimen Common Stock *
Certificate of Trudy
4.5FT Stock Purchase Agreement dated X
January 27, 1994 by and between
Vincent W. Goett and Melissa
Turner Goett and Futech
4.6FT First Amendment to Stock X
Purchase Agreement dated
February 7, 1994 by and among
Vincent W. Goett and Melissa
Turner Goett, Gary and Darilyne
Goett, and Futech
4.7FT First Amendment to Stock X
Restrictions and Sale Agreement
dated February 7, 1994, by and
between Vincent W. Goett and
Melissa Turner Goett and Futech
4.8FT Registration Rights Agreement X
dated January 5, 1998 by and
between Manmohan Singh Bhatia
and Futech
</TABLE>
<PAGE> 593
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
4.9J Settlement Warrant Agreement Filed as Exhibit 4.9 to Janex's
dated March 26, 1996 by and Registration Statement on Form
between Janex and Deco Disc 10-KSB (file 00017929) for the
Industries, Inc. fiscal year ended December 31,
1995 and incorporated herein by
reference
9.1FT Voting Agreement dated December X
3, 1998 by the shareholders of
Futech or the benefit of F.
Keith Withycombe and Patricia A.
Withycombe
10.1FT Lease Agreement dated August 5, X
1996 by and between Concord
Equities, L.L.C. and Futech
10.1T Security Interest Agreement X
dated May 16, 1991 between Trudy
and William W. Burnham regarding
Mr. Burnham hypothecating and
assigning his personal
Investment Savings Account at
Union Trust as collateral for
Trudy to effect the opening of
the Letters of Credit for $8,160
and $28,300
10.1FD Warrant Agreement dated as of X
August 31, 1996 by and among
Fundex and Toy Paradise
Partnership
10.1D Option to Purchase Corporate X
Common Stock dated February 29,
1996 by and between DaMert and
Lynne McDonald
10.2FT 1998 Stock Option Plan for X
Futech
10.2T Security Interest Agreement (#2) X
dated July 31, 1991 between
Trudy and William W. Burnham
regarding a $16,000 loan
10.2FD Purchase Agreement dated March X
, 1997 between Fundex and
Harbor Court LP1
10.2D Employment Agreement dated April X
28, 1999 between DaMert and
Julie Nunn
10.3FT Employment Agreement dated X
December 31, 1997 by and between
Vincent Goett and Futech
</TABLE>
<PAGE> 594
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.3T Security Interest Agreement (#3) X
dated August 5, 1991 between
Trudy and William W. Burnham
regarding Mr. Burnham
hypothecating and assigning his
personal Investment Savings
Account and Union Trust as
collateral for Trudy to effect
the opening of the Letters of
Credit for $12,960 for T.E.
Squirrels and $11,180 for Wolves
10.3FD Fundex 1996 Stock Option Plan X
for Non-Employee Directors Terms
and Conditions
10.3D Credit Agreement dated December X
15, 1998 by and between DaMert
and Wells Fargo Bank, N.A.
10.4FT Confidentiality Agreement dated X
September 2, 1997 by and between
Fred B. Gretsch and Futech
10.4T Security Interest Agreement (#4) X
dated August 20, 1991 between
Trudy and William S. Burnham
regarding a $30,000 loan
10.4(A)FD Fundex 1996 Stock Option Plan X
for Non-Employee Directors
10.4(B)FD Fundex Gamer, LTD. 1996 Stock X
Option Plan for Non-Employee
Directors nonstatitory Stock
Option Agreement
10.4D Corporation Promissory Note X
dated July 1, 1987 of DaMert and
payable to Frederick A. DaMert
10.5FT Futech Employment Contract dated X
September 2, 1997 by and between
Fred B. Gretsch and Futech
</TABLE>
<PAGE> 595
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.5T Security Interest Agreement (#5) X
dated September 5, 1991 between
Trudy and William W. Burnham
regarding a $30,000 loan
10.5FD Fundex 1996 Employee Stock X
Option Plan
10.5D Office Lease dated July 27, 1995 X
by and between Cedar/Fourth
Street Partners and DaMert
10.6FT Agreement Regarding X
Confidentiality Information and
Technology dated March 4, 1996
by and between Joseph K. Petter
and Futech
10.6T Security Interest Agreement (#6) X
dated October 18, 1991 between
Trudy and William W. Burnham
regarding a $10,000 loan
10.6FD Fundex 1996 Stock Option Plan X
Nonstatutory Stock Option
Agreement
10.6D Finder Agreement dated June 15, X
1998 by and between CorDev
Corporation and DaMert
10.7FT Futech Employment Contract dated X
February 1, 1997 by and between
Joseph K. Petter and Futech
10.7T Security Interest Agreement (#7) X
dated January 24, 1992 between
Trudy and William W. Burnham
regarding a $12,500 loan
10.7FD Fundex Nonstatutory Employee X
Stock Option Agreement
</TABLE>
<PAGE> 596
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.7D Special Executive Incentive X
Compensation Plan Agreement
dated July 13, 1995 by and
between DaMert and Gregory McVey
10.8FT Agreement Regarding Inventions X
dated October 17, 1997 by and
between Zeb Billings and Futech
10.8T Security Interest Agreement (#9) X
dated April 30, 1992 between
Trudy and William W. Burnham
regarding a $15,000 loan
10.8FD Fundex Stock Purchase Agreement X
10.8D Special Executive Incentive X
Compensation Plan Agreement
dated November 30, 1995 by and
between DaMert and Larry A.
Waide
10.9FT Agreement dated August 14, 1996 X
by and between Golden Books
Family Entertainment, Inc. and
Futech
10.9T Security Interest Agreement X
(#12) dated August 25, 1992
between Trudy and William N.
Burnham regarding a $16,000 loan
10.9FD Fundex Incentive Stock Option X
Agreement
10.9D Master License Agreement dated
November 1, 1994 by and between
Dan Gilbert, Inc., d.b.a. Dan
Gilbert Art Group and DaMert
10.10FT Operating Agreement of Little X
Tiger Press U.S.A., L.L.C.
10.10T Security Interest Agreement X
(#13) dated September 25, 1992
between Trudy and William W.
Burnham regarding a $50,000 loan
10.10FD Credit and Security Agreement X
dated October 30, 1998 between
Fundex and Norwest Business
Credit, Inc.
</TABLE>
<PAGE> 597
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.11FT Distribution Agreement dated X
January 5, 1998 by and between
Little Tiger Press USA, L.L.C.
and Futech
10.11T Security Interest Agreement X
(#14) dated October 5, 1992
between Trudy and William W.
Burnham regarding a $13,000 loan
10.11FD Business Loan Note with X
Covenants in an amount up to
$1,000,000 dated August 27, 1998
payable to Liberty Bidco
Investment Corporation
("Liberty")
10.12FT Consulting Agreement dated X
January 5, 1998 by and between
Manmohan Singh Bhatia and Little
Tiger Press USA, L.L.C.
10.12J Settlement Agreement dated Filed as Exhibit 10.13 to
October 17, 1994, by and between Janex's Registration Statement
Janex and Dentsu Prox Inc. on Form 8-K (File 00017929)
dated October 14, 1994 and
incorporated herein by reference
10.12T Security Interest Agreement X
(#15) dated March 12, 1993
between Trudy and William W.
Burnham regarding a $45,000 loan
10.12FD Continuing Security Agreement X
dated August 27, 1998 between
Liberty and Fundex
10.13FT Co-Publishing Agreement (U.S. X
Materials) dated January 5, 1998
by and between Magi Publications
and Little Tiger Press USA,
L.L.C.
10.13T Security Interest Agreement X
(#16) dated May 19, 1993 between
Trudy and William W. Burnham
regarding a $15,000 loan
10.13FD Revenue and Participation X
Agreement dated August 27, 1998
between Liberty and Fundex
10.14FT Co-Publishing Agreement (U.K. X
Materials) dated January 5, 1998
by and between Magi Publications
and Little Tiger Press USA,
L.L.C.
</TABLE>
<PAGE> 598
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.14T Security Interest Agreement X
(#17) dated March 29, 1995
between Trudy and William W.
Burnham regarding a $4,800 loan
10.14FD Articles of Merger dated August X
27, 1996 of Third Quarter, Inc.
with and into Fundex
10.15FT Multiple Advance Promissory Note X
dated January 5, 1998 by Little
Tiger Press USA, L.L.C. to the
order of Futech
10.15T Security Interest Agreement X
(#18) dated July 10, 1998
between Trudy and William W.
Burnham regarding a $28,900 loan
10.15FD Lease Agreement dated January 8, X
1997 by and between Dugan
Realty, L.L.C. and Fundex
10.16FT Registration Rights Agreement X
dated January 5, 1998 by and
between Manmohan Singh Bhatia
and Futech
10.16T Security Interest Agreement X
(#19) dated August 5, 1998
between Trudy and William W.
Burnham regarding a $310,000
loan
10.16FD Agreement dated May 21, 1993 by X
and between Random Games,
Inc.dba Random Games & Toys and
Third Quarter Corporation
10.17FT Articles of Amendment of X
Articles of Organization of Gold
Star Publishing, L.L.C.
10.17T Loan Agreement dated March 30, X
1998 between First Union
National Bank and Trudy
10.17FD Assignment of Intellectual X
Property Rights dated August 1,
1996 among Carl E. Voigt, III,
Carl E. Voigt, IV, and Third
Quarter Corporation.
10.18FT Termination Agreement and X
Amendment dated February 1, 1999
by and between Responsible Kids,
L.L.C. and Futech
</TABLE>
<PAGE> 599
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.18J Settlement Agreement and Filed as Exhibit 10.19 to
Specific Release by and between Janex's Registration Statement
Janex, Deco Disc Industries, on Form 10-KSB (filed 00017929)
Inc., and its shareholders, for the fiscal year ended
Donald Spector, Michael Deutch, December 31, 1995 and
Barbara Carver and James McGraw incorporated herein by reference
dated March 26, 1996
10.18T Security Agreement dated March X
30, 1998 between First Union
National Bank and Trudy
10.18FD Addendum to Agreement dated X
December 18, 1986 by and between
K & K International, Kenneth
Johnson, and Carl E. Voigt, III
and Carl E. Voigt.
10.19FT Notice of Winding Up SuperStar X
Kids' Club, LLC
10.19T First Union Bank Modification X
Number Two to Loan Agreement
dated March 1, 1999.
10.19FD License Agreement dated November X
1, 1995 by and between Hollywood
Ventures Corporation and Third
Quarter Corporation dba Fundex
10.20FT Operating Agreement of GoldStar X
Publishing, L.L.C.
10.20T Landlord Subordination and X
Waiver dated March 30, 1998
between First Union National
Bank and Noreast Management LLC
10.20FD License Agreement dated June 1, X
1996 by and between Hollywood
Ventures corporation and Third
quarter Corporation dba Fundex
10.21FT Agreement dated August 7, 1996 X
by and between Stephen I.
McTaggart and Futech
10.21T Promissory Note dated March 30, X
1998 in the amount of $1,200,000
by Trudy d/b/a TMC Soundprints
in favor of First Union National
Bank
</TABLE>
<PAGE> 600
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.22FT Agreement to amend payment terms X
of patent-related and royalty
promissory notes dated March 27,
1997 by and between Vincent W.
Goett, Stephen I. McTaggart, and
Cebra McTaggart
10.22T Promissory Note dated March 30, X
1998 in the amount of $250,000
by Trudy d/b/a TMC Soundprints
in favor of First Union National
Bank
10.23FT Agreement for Purchase and Sale X
of Assets dated October 29, 1997
by and between Newtech
Consulting, Inc. and Futech
10.23T Lease Agreement between Noreast X
Management LLC and TMC/
Soundprints, Inc. (Trudy) dated
December 5, 1994
10.24FT Promissory Note in the principal X
amount of $2,000,000 dated
October 29, 1997 by Futech to
the order of Newtech Consulting,
Inc.
10.24T The Nature Conservancy letter of X
understanding with Soundprints
(Trudy) dated December 5, 1994
10.25FT Agreement for Purchase and Sale X
of Assets dated December 31,
1997 by and between Newtech
Consulting, Inc. and Futech
10.25J Form of Indemnification X
Agreement wherein Janex Company
is indemnifying its former
accountants BDO Seidman, LLP for
claims arising out of the
reissuance of the Company's 1997
financial statements.
10.25T Smithsonian/Soundprints X
Agreement dated June 17,1997
between Smithsonian Institution
and Soundprints, a division of
Trudy
10.26FT Agreement for Reassignment of X
Promissory Note dated January
21, 1998 by and between Newtech
Consulting, Inc., Vincent W.
Goett and Futech
</TABLE>
<PAGE> 601
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.26T Consent to Assignment of the X
June 17, 1997 Smithsonian/
Soundprints; Agreement from
Soundprints; to Futech
Interactive Products, dated
March 3, 1999
10.27FT Consulting Agreement dated X
January 28, 1998 by and between
Stephen McTaggart and Futech
10.27T Trudy 1987 Stock Option Plan X
10.28FT Promissory Note in the amount of X
$1,130,000 dated June 1, 1995 by
and between Vincent W. Goett and
Futech
10.29FT Financing Agreement dated August X
1, 1995 for $7,000,000 by and
between Republic Acceptance
Corporation and XYZ Group, Inc.
10.30FT Amendment to Financing Agreement X
dated July 25, 1996 by and
between XYZ Group, Inc. and
Republic Acceptance Corporation
10.31FT Guaranty of Payment for Existing X
and/or Future Indebtedness dated
August 4, 1995
10.32FT Assignment of Life Insurance X
Policy As Collateral dated
August 1, 1995
10.33FT Subordination Agreement dated X
August 1, 1995 by and between
Republic Acceptance Corporation,
Gary R. Billings and XYZ Group,
Inc.
10.34FT Subordination Agreement dated X
August 1, 1995 by and between
Republic Acceptance Corporation,
Gary Billings, as legal guardian
for Allison Billings, a minor,
and XYZ Group, Inc.
10.35FT Loan Agreement dated December X
12, 1995 for $1,000,000 by and
between Roderick L. Turner,
Garry Goett and Vincent W. Goett
and Futech
</TABLE>
<PAGE> 602
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.36FT Master Promissory Note in the X
principal amount of $1,000,000
dated December 12, 1995 payable
to Roderick L. Turner, Garry
Goett and Vincent W. Goett
10.37FT Shareholder Loan and Master X
Promissory Note for Credit Line
Agreement dated January 1, 1997
between Vincent W. Goett and
Futech
10.38FT Final Resolution on Loan Due X
dated February 26, 1997 executed
by Vincent W. Goett
10.39FT Promissory Note in the principal X
amount of $350,000 dated April
2, 1997 payable to Vincent W.
Goett
10.40FT Stock Option and Loan Agreement X
dated April 4, 1997 by and
between Roderick L. Turner and
Futech
10.41FT Promissory Note in the principal X
amount of $1,000,000 dated April
25, 1997 payable to Roderick
Turner and Vincent W. Goett
10.42FT Addendum 1 to Promissory Note X
for $1 Million loaned to Futech
by Roderick Turner and Vincent
W. Goett dated April 25, 1997
10.43FT Addendum 2 to Promissory Note X
for $1 Million loaned to Futech
by Roderick Turner and Vincent
W. Goett dated September 2, 1997
10.44FT Promissory Note in the principal X
amount of $250,000 dated October
29, 1997 payable to Roderick
Turner and Vincent W. Goett
10.45FT Financing Agreement dated March X
31, 1998 by and between U.S.
Bancorp Republic Commercial
Finance, Inc. and Futech
10.46FT Collateral Assignment of Patents X
dated March 31, 1998 by and
between U.S. Bancorp Republic
Commercial Finance, Inc. and
Futech
</TABLE>
<PAGE> 603
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.47FT Collateral Assignment of X
Trademarks dated March 31, 1998
by and between U.S. Bancorp
Republic Commercial Finance,
Inc. and Futech
10.48FT Personal Guarantee Agreement and X
Promissory Note made and entered
into March 31, 1998 by and
between Vincent W. Goett and
Futech
10.49FT Promissory Note for $1.5 Million X
loan to Futech from Roderick L.
Turner and Vincent W. Goett
10.50FT Promissory Note for $1 Million X
credit line to Futech from
Roderick L. Turner and Vincent
W. Goett
10.51FT First Amendment to Financing X
Agreement dated July 2, 1998 by
and between U.S. Bancorp
Republic Commercial Finance,
Inc. and Futech
10.52FT Promissory Note in the principal X
amount of $2,000,000 dated
August 10, 1998 payable to The
Chase Manhattan Bank by Futech
10.53FT Promissory Note Agreement for X
$2.0 Million Loan to Futech from
Melissa Turner Goett and Vincent
W. Goett made and entered into
August 10, 1998
10.54FT Business Loan Agreement dated X
December 1, 1998 between Bank of
America National Trust and
Savings Association and Futech
10.55FT Guarantor Agreement relating to X
$7 million line of credit dated
December 3, 1998 by and between
Vincent W. Goett and Futech
10.56FT Futech Stock Purchase Warrant X
for Robert J. Rosepink to
purchase 4,000,000 shares of
common stock dated December 3,
1998
10.57FT Futech Stock Purchase Warrant X
for Palmilla Management Trust to
purchase 21,000,000 shares of
common stock dated December 3,
1998
</TABLE>
<PAGE> 604
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
10.58FT Futech Stock Purchase Warrant X
for F. Keith Withycombe and
Patricia A. Withycombe to
purchase 21,000,000 shares of
common stock dated December 3,
1998
10.59FT Master Promissory Note for Loan X
and/or Credit Line Agreements
for a principal amount totaling
$8,000,000, dated December 15,
1998 by and between Vincent W.
Goett, Roderick L. Turner and
Futech
10.60FT Collateral Agreements regarding X
transfer of the secured
interests of. Roderick L.
Turner, Terry C. Turner and T.
Valdetaire Turner to The Chase
Manhattan Bank
10.61FT Subordination, Priority and X
Security Agreement dated
December 3, 1998 by and among
Vincent W. Goett, F. Keith
Withycombe and Patricia A.
Withycombe and Futech
10.62FT Cash Advance Conversion X
Agreement dated March 1, 1999 by
and between Roderick L. Turner
and Futech
21.J Subsidiaries of Janex:
1) With Design in Mind, a
California corporation, a
wholly-owned subsidiary
2) Janex Corporation, a New
Jersey corporation, a
wholly-owned subsidiary
3) Pro Gain Company Limited, a
Hong Kong corporation, a
wholly-owned subsidiary
4) Malibu Fun Stuffed, Inc., a
California corporation, a
wholly-owned subsidiary
5) Malibu Fun Stuffed
International Limited, a Hong
Kong corporation, a
wholly-owned subsidiary
23.1FT Consent of Ernst & Young [LLP]
23.1J Consent of BDO Seidman, LLP *
</TABLE>
<PAGE> 605
<TABLE>
<CAPTION>
EXHIBIT FILED
NO. DESCRIPTION INCORPORATED BY REFERENCE TO: HEREWITH
- ------- ----------- ----------------------------- --------
<C> <S> <C> <C>
23.1T Consent of Abrams and Company, *
P.C.
23.1FD Consent of BDO Seidman LLP *
23.1D Consent of Armanino McKenna LLP *
23.2FT Consent of Quarles & Brady LLP *
23.2J Consent of Ernst & Young LLP *
23.2T Consent of Ernst & Young [LLP] *
23.2FD Consent of Quarles & Brady LLP *
23.2D Consent of Ernst & Young [LLP] *
23.3J Consent of Quarles & Brady LLP *
23.3T Consent of Quarles & Brady LLP *
23.3D Consent of Quarles & Brady LLP *
24.FT [Power of Attorney]
24.J [Power of Attorney]
24.T [Power of Attorney]
24.FD [Power of Attorney]
24.D [Power of Attorney]
27.FT Financial Data Schedule X
27.J Financial Data Schedule X
27.T Financial Data Schedule X
27.FD Financial Data Schedule X
27.D Financial Data Schedule X
</TABLE>
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* To be filed by Amendment
<PAGE> 1
Exhibit: 2.1FT
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT is made and entered into as of the 30th day of September,
1997 by and between GICK PUBLISHING, a California Corporation ("Seller"), JAMES
W. and TERRI L. GICK (the "Gicks"), and FUTECH EDUCATIONAL PRODUCTS, INC., an
Arizona Corporation ("Buyer").
RECITALS
A. Seller owns and operates a distribution business (the "Business")
distributing crafts, stationary, toys and greeting cards under the trade names
"The Gick Companies", "Gick Crafts", "Quack-Ups!", "Magickal Ink", and "Future
Crafts Today" (the "Trade Names"). The Business is operated at the following
address: 9 Studebaker Drive, Irvine, CA.
B. Gicks have filed a patent application which is now pending.
C. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller the Business and assets of the Business, and Gicks desire to sell and
assign to Buyer all of Gicks' rights under the pending patent application, all
in accordance with the terms and conditions set forth below (the "Transaction").
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
the parties hereto agree as follows:
TERMS
1. Purchase and Sale. Seller hereby agrees to sell to Buyer, and Buyer
agrees to purchase from Seller, the following (collectively the "Assets"):
1.1 All fixtures, furniture, notes receivable (other than the notes
receivable from the Gicks), accounts receivable, all prepaid items, equipment,
vehicles, machinery, inventory (all finished and unfinished goods,
work-in-process, inventories, and materials of Seller are sometimes collectively
referred to here-in as the "Inventory"), supplies and all other property
currently used by Seller in connection with the operation of the Business
(excluding Seller's cash).
Upon execution of this Agreement, Seller shall provide Buyer with a
list of all assets of Seller other than Inventory, cash, office supplies, and
accounts receivable. The list shall include, but not be limited to, all
furniture, fixtures,
<PAGE> 2
equipment, dies, molds, toolings, prepaids, intangible rights, notes receivable,
and deposits (the "Other Assets"). Seller shall be obligated to transfer the
Other Assets to Buyer at the Closing.
1.2 All of Seller's interest in any leases of real and/or personal
property, including all of Seller's interest in any and all leasehold
improvements located on leased real property (but not the leasehold improvements
at 9 Studebaker Drive). The Lease on 11 Studebaker Drive expires in early 1998.
Seller will determine whether or not to renew that Lease, in Seller's sole
discretion.
1.3 All rights to the Trade Names and any and all other trade names used
by Sellers in connection with the Business, along with any and all trademarks,
service marks, logos and designs relating thereto. As soon as is practicable
after the Closing, Seller with change its corporate name to eliminate use of any
of the names transferred to Buyer.
1.4 Any and all deposits associated with the operation of the Business,
including but not limited to all deposits on lease, insurance contracts
transferred to Buyer, utility deposits and license deposits.
1.5 All of Seller's books and records, computer programs. software,
drawings, and customer vendor files pertaining to Seller's products (exclusive
of Seller's financial and tax records).
1.6 All contracts and other accounts which remain unperformed as of the
Closing.
1.7 All other contracts, licenses, accounts and other general intangibles
currently held by Seller.
1.8 All patents, copyrights, trade secrets, customer and supplier lists,
promotional materials, and other tangible rights used in connection with the
operation of the Business.
1.9 The Gicks have currently pending in the United States Patent office an
application of applications for certain patents relating to the Business. As
part of the Transaction, the Gicks shall convey to Buyer (without any assurance
that the patent will be issued) any and all interest they have in such
patent(s), application(s), idea(s) and right(s).
1.10 The phone numbers and all phone and other advertising associated with
the Business.
1.11 All warranties and all warranty claims of Seller.
1.12 All other assets utilized by Seller in the conduct of its business,
other than that certain building and its
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<PAGE> 3
appurtenances, consisting of approximately 16,066 square feet, located at 9
Studebaker Drive, Irvine, California (the "Gick Building"), and the life
insurance policy on the life of James W. Gick (including cash surrender value)
which shall not be included in the assets.
2. Purchase Price. The purchase price for the Assets shall be the sum of
$1,900,000.00, payable in full in cash or cash equivalent at the time of
closing, plus the assumption by Buyer of the liabilities set forth in Section 3
below.
3. Liabilities.
3.1 Buyer will at the closing, in addition to paying the $1,900,000.00
purchase price, assume Seller's liabilities, as follows:
3.1.1 Upon execution of this Agreement, Seller shall provide Buyer with a
list of all agreements, including leases, to which Buyer is subject. At that
time, Seller shall also deliver to Buyer copies of all of the documents relating
to said agreements.
3.1.2 The parties acknowledge and agree that at the Closing Buyer shall
assume all of the agreements and leases disclosed by Seller under 3.1.1. above,
together with the following liabilities (the "Assumed Liabilities"):
(a) Trade payables for services and products received or receivable by
Seller incurred in the ordinary course of business.
(b) Bank, finance company and other third party debt, whether secured or
unsecured, represented by Note or on open account, including the $60,000.00
prepayment fee on Seller's line of credit with Fremont and $150,000.00 Note
payable to Litho Sales.
(c) Payroll and payroll tax obligations for employees for not more than
the most recent pay period prior to the Closing, plus only the employee benefits
obligations identified on Exhibit "C" attached hereto and hereby made a part
hereto.
(d) Any sales tax liability which may arise as a result of the
Transaction.
3.1.3 Specifically, but not in limitation of the foregoing, Buyer shall
not be assuming the following liabilities:
(a) Any federal, state or local income taxes;
(b) Any labor, discrimination, harassment. or similar claims;
(c) Any environmental liability claims;
(d) Any negligence, conversion, tortious, interferences or
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<PAGE> 4
other tort claims, or claims for infringement of trade name, patent, or
copyright, or other tangible right;
(e) Any liability associated with any litigation or other proceeding
pending or threatened at the time of the Closing;
(f) Any contractual liability not reflected in Seller's books and records,
or not disclosed to Buyer by Seller, or not discovered by Buyer during the
course of Buyer's due diligence investigation, or any liability to or for
employees or employee benefits not expressly agreed upon by Buyer.
(g) Any obligation, debts or liabilities to the Gicks.
(h) Any obligations secured by a lien on land or buildings including the
mortgage debt on the real property at 9 Studebaker Drive, Irvine, CA.
(i) Any unfunded employee benefit obligations except as assumed under
paragraph 3.1.2(d).
3.2 All liabilities of Seller other than those expressly assumed by Buyer
as identified in Section 3.1 above shall be remain the obligations of Seller,
and Seller shall indemnify, defend and hold Buyer harmless from and against any
and all such liabilities.
3.3 The following expenses of the Business will be prorated to the close
of escrow: utilities and phone expenses, advertising expense, insurance premiums
on any insurance transferred to the Buyer, personal property taxes, and other
normal operating expenses of the Business.
3.4 Seller hereby agrees to indemnify, defend and hold Buyer harmless from
and against any and all liabilities, claims, expenses, and other costs arising
from Seller's operations of the Business prior to the Closing, except as
expressly assumed by Buyer pursuant to this Section 3, and except as arise in
the ordinary course of business, such as issuing refunds for return merchandise,
and normal operating obligations of a similar nature. Buyer hereby agrees to
indemnify, defend and hold Seller harmless from and against any and all
liabilities, claims, expenses or other costs arising from Buyer's operations of
the Business from and after the Closing. The indemnities set forth in this
Section shall survive the Closing.
4. Employees. Buyer shall have the right to cancel the Agreement if: (i)
the employment of any two of the five highest paid employees of the Business is
terminated prior to the closing; or (ii) there is a significant reduction in
the number of employees prior to the Closing, which impairs the operations of
the Business in Buyer's reasonable discretion.
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<PAGE> 5
5. Buyer's Nominee. Buyer, or a successor to Buyer (Buyer intends to
convert its operations, through corporate formations and mergers, to a Delaware
corporation - it is now an Arizona corporation), will form a wholly owned
subsidiary to purchase the Business, and will assign Buyer's rights under this
Agreement to said entity. The subsidiary so formed will acquire the assets and
assume the liabilities as provided for herein.
6. Interim Events. Seller agrees that Seller will take no action prior to
the Closing, other than in the ordinary course of the Business, which would or
might have a material adverse effect upon the financial condition of Seller, and
no unreasonable benefits will be paid or incurred to shareholders, officers, or
directors of Seller between the date hereof and the Closing. Seller will use
Seller's best efforts to preserve for Buyer the present relationships of Seller
with Seller's employees, customers and others having business relations with
Seller.
7. Conditions of Closing. Buyer's and Seller's obligations to close the
Transaction shall be conditioned upon (each of the conditions may be waived by
Buyer in writing only):
7.1 Buyer obtaining the consent of the lessors of the leases assumed by
Buyer, and the consent of the other parties to any other contracts assumed by
Buyer, to the extent said consents are required;
7.2 Buyer having obtained, or having obtained the appropriate consents or
approvals to the assignment of, all permits, licenses and contracts necessary to
continue the operations of the Business;
7.3 Seller having maintained the Assets in the same condition as of the
date of this Agreement (subject to ordinary wear and tear only);
7.4 Seller having conducted the Business diligently and substantially in
the same manner as prior to the execution of this Agreement and not having
entered into any contract, commitment or transaction not in the usual and
ordinary course of business;
7.5 The operations of the Business not having changed in A material and
adverse manner between the date of this Agreement and the date of Closing;
7.6 There being no governmental investigations or suits pending or
threatened with respect to the operations of the Business, except as may
otherwise be agreed to in writing by Buyer;
7.7 Buyer obtaining adequate financing for this Transaction.
7.8 The Gicks entering into a Consulting Agreement in the
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<PAGE> 6
form of Exhibit "A" attached hereto, and a Confidentiality Agreement in the form
of Exhibit "B" attached hereto. The Glicks agree to sign said Agreements;
7.9 Buyer obtaining executed Employment Agreements from key employees as
determined by Buyer, with terms and content acceptable to Buyer;
7.10 Buyer and Seller agreeing as to the manner in which the purchase
price shall be allocated among the various assets transferred pursuant to this
Agreement. The parties agree to execute and complete such forms as are required
by the Internal Revenue Service to evidence such allocation. At this time it is
contemplated that more than one half of the purchase price shall be allocated to
Gicks pending patent rights.
7.11 Buyer and Seller executing a Lease for the Gick Building in the form
attached as Exhibit "D", at an initial rate of rent of $12,049.50 per month,
triple net, subject to annual C.P.I. increases.
7.12 Buyer confirming that Seller did not omit any known material
liabilities from its June 30, 1997 Balance Sheet (Exhibit "E").
8. Closing. The closing of the Transaction (the "Closing") shall be as
follows:
8.1 The Closing shall occur on or before December 31, 1997, at Seller's
office, located at 9 Studebaker Drive, Irvine, California. The Transaction shall
be consummated without the use of an independent escrow company.
8.2 If the Buyer is not ready, willing and able to close the Transaction
on or before December 31, 1997, Buyer shall have the option of extending the
Closing to on or before January 31, 1998. The option may be exercised by paying
the sum of $25,000.00 to Seller on or before December 15, 1997. The $25,000.00
sum shall be fully earned by Seller upon receipt, solely as consideration for
the granting of an extension of time to Buyer to close the Transaction. Buyer
shall not have acquired any equitable interest in Seller's business or assets as
a result of the payment of the option price. The $25,000.00 sum shall be
retained by Seller, whether or not Buyer thereafter completes the purchase
Transaction. However, if Buyer pays the option price and thereafter completes
the purchase Transaction on or before January 31, 1998, the purchase price shall
then be reduced to $1,875,000.00. By accepting Buyer's $25,000.00 option
payment, Seller shall have no obligations not otherwise imposed by seller under
the terms of this Agreement, and shall have no greater duties of good faith and
fair dealing than would have been imposed upon Seller had Buyer not exercised
its option.
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<PAGE> 7
8.3 If the Buyer is not ready, willing and able to close the Transaction
on or before January 31, 1998, Buyer shall have the option of extending the
Closing to on or before March 31, 1998. The option may be exercised by paying
the sum of $100,000.00 to Seller on or before January 15, 1998. The $100,000.00
sum shall be fully earned by Seller upon receipt, solely as consideration for
the granting of an extension of time to Buyer to close the Transaction. Buyer
shall not have acquired any equitable interest in Seller's business or assets as
a result of the payment of the option price. The $100,000.00 sum shall be
retained by Seller, whether or not Buyer thereafter completes the purchase
Transaction. However, if Buyer pays the option price and thereafter completes
the purchase Transaction or or before March 31, 1998, the purchase price shall
then be reduced to $1,775,000.00. By accepting Buyer's $100,000.00 option
payment, Seller shall have no obligations not otherwise imposed by Seller under
the terms of this Agreement, and shall have no greater duties of good faith and
fair dealing then would have been imposed upon Seller had Buyer not exercised
its option.
9. Restrictive Covenants.
9.1 Seller and Gicks shall not, except as representatives of and as
directed by Buyer, without the prior written consent of Buyer, which consent may
be withheld for any or no reason, for a period of 2 years following the Closing,
directly or indirectly, own, manage, operate, control, be employed by,
participate in, render services to, make loans to, or be connected in any manner
with the ownership, management, operation, or control of any business located
anywhere in the world, in any business competitive with the Business (which is
defined as being limited to crafts, stationary, toys, and greeting cards).
However, if Gicks conceive a new or improved product, and if Buyer fails to
exercise its right of first refusal to acquire the idea, as set forth in the
Consulting Agreements (Exhibit "A"), Gicks may thereupon market the ideas
rejected by Buyer to competitors of Buyer, or Gick may enter into direct
competition with Buyer in order to exploit the ideas.
In the event of any actual or threatened breach of the provisions of
this Section, Buyer shall be entitled to an injunction restraining the actual or
threatened breach. The parties further agree that should there be a violation of
the provisions of this Section, the violating party shall be liable to Buyer
for, in addition to amounts pursuant to other remedies available against that
party, two (2) times the greater of the amount of profit earned by the violating
party as a result of the violation and the amount of profit which would have
been earned by Buyer from the activities causing the violation had Buyer
conducted said activities, plus interest on said greater amount calculated at
eighteen percent (18%) per annum from the date of the violating activities until
paid, as liquidated damages for only Buyer's loss of potential profits. Nothing
in this paragraph
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<PAGE> 8
shall be construed as prohibiting Buyer from pursuing any other available
remedies for Agreement for Purchase and Sale of Assets Page 9 such breach or
threatened breach, including pursuing a recovery for damages.
9.2 Seller and the Gicks shall not at any time, without the prior written
consent of Buyer, which consent may be withheld for any or no reason, disclose,
in any fashion other than as required in the day to day affairs of Buyer, to any
person or entity: (i) the names of customers of Buyer or the Business, or the
names of other persons or entities having business dealings with Buyer or the
Business, or (ii) any of the business methods or confidential information of
Buyer or the Business, including but not limited to its customer lists,
prospective customers, customers purchasing habits, customer contact personnel,
marketing and servicing techniques, financial matters, sales and marketing
systems and methods, marketing development and business expansion plans and
projections, personnel training and development programs, customer and supplier
relationships, and trade secrets.
9.3 Seller and the Gicks shall not, at any time within two (2) years after
the Closing, without prior written consent of Buyer, which consent may be
withheld for any reason or no reason, directly or indirectly induce, encourage
or solicit or assist any person who was or is employed (whether as an employee
or as an independent contractor) by the Business during the two years preceding
the Closing, to leave the employ of the Business.
9.4 The parties acknowledge and agree that the restrictions contained
herein, including but not limited to the time period and geographical area
restrictions, are fair and reasonable and necessary for the successful operation
of the Business, that violation of any of them would cause irreparable injury,
and that the restrictions contained herein are not unreasonably restrictive of
any party's ability to earn a living. If the scope of any restrictions in this
Section is too broad to permit enforcement of such restriction to its fullest
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and all parties hereto consent and agree that such scope shall be
modified judicially or by arbitration in any proceeding brought to enforce
such restriction. The parties hereto acknowledge and agree that remedies at law
for any breach or violation of the provisions of this Section would alone be
inadequate, and agree and consent that temporary and permanent injunctive relief
may be granted in connection with such violations, without the necessity of
proof of actual damage, and such remedies shall be in addition to other remedies
and rights the parties may have at law or in equity. The parties agree that no
party shall be required to give notice or post any bond in connection with
applying for or obtaining any such injunctive relief.
9.5 The parties acknowledge and agree that the covenants in this Section
shall be construed as an agreement independent of any
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<PAGE> 9
other provision of this Agreement, so that the existence of any claim or cause
of action by Seller (or the Gicks) against Buyer, whether predicated on this
Section or otherwise, shall not constitute a defense to the enforcement of this
Section.
10. Access to Customer Files and Other Records. For a period of 5 years
following the Closing, where there is a legitimate purpose not injurious to
Buyer, or if there is an audit by any taxing authority, other governmental
inquiry, or litigation or prospective litigation to which Seller (or its
principals) is or may become a party, Seller (and its principals) shall be
granted access, at reasonable times and after reasonable notice, and at Seller's
cost to all customer files and other records transferred to Buyer pursuant to
this Agreement.
11. Due Diligence Investigation. Buyer shall have until THE date of
Closing (the "Due Diligence Period") in which to conduct any due diligence
investigations, including UCC-1 searches, which Buyer may deem necessary or
appropriate to ascertain the commercial viability and value of the Business.
Throughout the Due Diligence Period Buyer (and its agents) shall have the right
to inspect: (i) all books, records and computer systems maintained by Seller, in
order to authenticate and audit all financial information provided to Buyer,
(ii) all equipment and machinery used in the Business to verify that it is in an
acceptable state of repair, (iii) all agreements to which Seller is a party, and
(iv) all facilities and physical operations of Seller, including facilities
warehousing Inventory. Seller shall provide access to Seller's federal and state
income tax returns, sales tax returns, financial statements (internal and those
issued to third parties), personal property tax returns, and all other
governmental filings, for the three previous years, for the purpose of
conducting due diligence investigations. Buyer shall indemnify Seller from and
against any and all liabilities, costs, claims and losses incurred by Seller as
a result of Buyer's conduct of its due diligence investigation. Buyer shall
conduct its due diligence investigation in a discreet manner and will avoid
interrupting Seller's normal daily business activities.
Buyer and its representatives will have the authority to communicate with
Seller's creditors, debtors, suppliers, agents and employees. Seller agrees to
aid Buyer and its representatives in Buyer's investigations and evaluations of
the Business and the Assets, and to provide whatever information and documents
Buyer reasonably deems necessary or appropriate to the making of an informed
decision regarding the Transaction.
Buyer agrees that, should it elect not to close the Transaction at any
time, any and all information acquired by it as a result of its investigation of
Seller shall remain confidential and shall not be disclosed to any third party
or used by Buyer for any purpose whatsoever.
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<PAGE> 10
12. Representations and Warranties. Seller and the Gicks each hereby
represent and warrant as follows, as of the date hereof and as of the date of
the Closing.
12.1 Authority. Seller has the power and authority to enter into and
perform its obligations under this Agreement, and Board of Directors of Seller
has approved, authorized, and ratified the execution and delivery of this
Agreement, and of the documents herein required to consummate the transaction
contemplated herein.
12.2 Financial Information. Seller has furnished Buyer with true,
correct and complete copies of the financial statements utilized by Seller in
the ordinary course of its business. The statements warranted by Seller shall be
identified during the Due Diligence Period and attached as Exhibit "E".
12.3 Taxes. The Assets shall be free of lien for any taxes, except
personal property taxes which are the subject of proration between Buyer and
Seller.
12.4 Ordinary Course of Business. The Business has been conducted in the
ordinary course from the date of this Agreement to the date of Closing.
12.5 Litigation. To the knowledge of Seller of Gick, there is no
litigation, proceeding, or investigation pending against Seller or the Business,
and neither Seller nor Gick have any reasonable grounds to know any basis for
such litigation, proceeding or investigation.
12.6 Licenses. Seller has any and all licenses, permits, and contracts
necessary and/or appropriate to operate the Business in the manner in which the
Business is currently operated.
12.7 Hazardous Materials. The Business has not dealt in any manner with
any hazardous or toxic materials or waste other than Seller's process for mixing
some of its dyes.
12.8 Judgments Against Seller and/or Business. Neither Seller nor the
Business is under any governmental investigation, no such investigation has been
threatened, and there are no judgments against Seller, the Business or the
Assets.
12.9 Complete Sale. The assets to be transferred under this Agreement are
of the assets used by Seller in the operation of the Business.
12.10 Bulk Sales Provisions. Buyer and Seller shall comply with any
applicable Bulk Sales Law.
12.11 Vendor Accounts. Sellers will use Seller's best efforts to cause a
transfer to Buyer of all of Seller's supplier and other
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<PAGE> 11
vendor accounts without adverse changes in the account terms.
All representations and warranties in this Section 12 shall survive the
Closing of the Transaction.
13. Bulk Sale Provisions. The parties shall comply with and all bulk sale
laws applicable to the Transaction.
14. Expenses. Buyer shall bear all costs and expenses of Seller in
completing the Transaction. "Expenses" shall mean any expense of any nature
incurred in connection with the Transaction including without limitation
attorneys fees, accounting fees, filing fees and other costs, to be paid by
Buyer on a monthly basis as incurred and billed by Seller.
15. Brokerage Commissions. Seller shall be solely responsible for the
payment of any and all brokerage fees or commissions in connection with the
Transaction and shall indemnify and hold harmless Buyer from and against any
liabilities or claim incurred in connection with such fees or commissions.
16. Governing Law; Jurisdiction. The courts of the State of California
shall have the sole and exclusive jurisdiction and venue in any case or
controversy arising under this Agreement or by reason of this Agreement. The
parties agree that any litigation arising from the interpretation or enforcement
of this Agreement shall be in the Superior Court for the State of California for
the County of Orange, and for this purpose each party to this Agreement (and
each person who shall become a party hereby expressly and revocably consent to
the jurisdiction and venue of such courts.
17. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
18. Entire Agreement. Except as otherwise set forth herein this Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof, and supersedes all prior understandings, if any, with respect
thereto.
19. Jointly Drafted. This Agreement shall be deemed to have been jointly
drafted by Buyer, Seller and Gicks. No presumption or inference shall arise in
favor of or against any party as a result of the drafting of this Agreement.
20. Further Assurances. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm any
agreement contained herein in the manner bound by the modification or waiver.
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<PAGE> 12
21. Modification. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
22. Severability. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal or unenforceable portion had never been a part of this
Agreement.
23. Attorney's Fees. Should any party institute any action or proceeding
to enforce this Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Agreement, or of any provision hereof, or for a
declaration of rights hereunder, the prevailing party(s) of such action or
proceeding shall be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorney's fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
24. Notices. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be delivered in person or
mailed by certified mail, return receipt requested, in the United States Mail,
postage pre-paid, addressed as follows:
If to Seller: James W. Gick
9 Studebaker Drive
Irvine, CA. 92718
If to Gick: James W. Gick
9 Studebaker Drive
Irvine, CA. 92718
With copy to: W. Patrick O'Keefe, Jr., Esq.
1055 North Main Street, Suite 401
Santa Ana, CA. 92701
If to Buyer: Futech Educational Products, Inc.
Attention: Vincent W. Goett
2999 N. 44th Street, Suite 225
Phoenix, AZ 85018-7247
With a copy to: Philip R. Rupprecht, Esq.
Hebert, Schenk & Johnson, P.C.
1440 E. Missouri, Suite 125
Phoenix, AZ 85014
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<PAGE> 13
or at such other address as a person may from time to time designate by Notice
hereunder. Notice shall be effective upon delivery in person, or if mailed, at
midnight on the third business day after the date of mailing.
25. Paragraph, Titles and Headings. The titles and headings of sections of
this Agreement are for the convenience of reference only, and are not intended
to define, limit, or describe the scope or intent of any provision of this
Agreement, and shall not affect the construction of any provision of this
Agreement.
26. Miscellaneous. The parties agree that each party and its counsel have
reviewed and revised this Agreement, or had an opportunity to review and revise
this Agreement and that any rule of construction to the effect that ambiguities
are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
GICK PUBLISHING, INC., a
California corporation
"Seller" By: /s/ James W. Gick
---------------------------
James W. Gick, President
FUTECH EDUCATION PRODUCTS, INC.,
an Arizona corporation
"Buyer" By: /s/ Vincent W. Goett
---------------------------
VINCENT W. GOETT, President
/s/ James W. Gick
---------------------------
JAMES W. GICK
"Gicks" /s/ Terri L. Gick
---------------------------
TERRI L. GICK
List of Exhibits:
- -----------------
Consulting Agreement "A"
Confidentiality Agreement "B"
Assumed Employee Benefits Obligations "C"
Lease "D"
Financial Statements "E"
<PAGE> 14
CONSULTING AGREEMENT
THIS AGREEMENT is made as of the ________ day of _______________ , 1997,
by and between James W. Gick (collectively "Consultant") and Futech Educational
Products, Inc., an Arizona corporation ("Futech").
RECITALS
A. Consultant frequently creates inventions, new ways of combining
existing products and technology, and generally improved ways of doing things.
B. Futech desires to acquire certain rights in connection with future
inventions, and Consultant is willing to grant those rights, all upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
TERMS
1. Definitions. The following terms shall have the following meanings when
used in this Agreement.
1.1 "Completion" means the processing and refinement of an Invention to
the state of creation of a useable prototype.
1.2 "Disclosure Materials" means all drawings, prototypes, and
manufacturing, marketing, distributing and sales plans and/or projections
associated with an Invention, a detailed list of all Development Costs for the
Invention, and any and all other information regarding the Invention in the
possession of or available to Consultant which would be useful in evaluating the
commercial viability of the Invention.
1.3 "Futech Field" means any products or services in the field, area, or
industry of any product manufactured, marketed, distributed or sold, or any
service marketed or sold, by Futech, or any subsidiary of Futech, or any such
product or service which Futech or any subsidiary of Futech contemplates
manufacturing, marketing, distributing or selling.
1.4 "Invention" means each and every idea, concept or development
involving an invention, a new way of combining existing products and/or
technology, and/or an improved way of doing things, pursued during the term of
this Agreement by Consultant, in the Futech Field, including ideas, etc. which
have been pursued prior to commencement of this Agreement but which have not yet
reached completion prior to commencement of this Agreement, and includes all
ideas, etc. pursued during the term of this Agreement but which reach completion
after the expiration of this Agreement. Any and all alterations and/or
improvements to an
EXHIBIT "A"
<PAGE> 15
Invention shall be included within the definition of "invention" hereunder.
2. Right of Refusal. Consultant hereby grants to Futech and Futech shall
have the right of first refusal with respect to all inventions in the craft,
stationary, toy and greeting card field worked on by Consultant during the term
of this Agreement. Upon completion of an Invention, Consultant shall present to
Futech the completed Invention, and all Disclosure Materials relating to the
Invention, and Futech shall have ninety (90) days from receipt of said
Disclosure Materials to determine whether or not to acquire the Invention upon
the terms and at the price demanded by Consultant.
If Futech does not exercise its right to acquire the Invention, then
Consultant shall be entitled to enter into a transaction, independently, or with
a third party for the manufacturing, marketing, distribution and/or sales of the
Invention, and Futech shall not be obligated to pay any Development Costs or
other expenses associated with the Invention.
3. Term. The term of this Agreement shall be three (3) years.
4. Compensation. Futech shall pay to Consultant $25,000.00 per year in
four quarterly installments, plus any out-of-pocket expenses incurred by
Consultant in performing this Agreement.
5. Consulting Services. During the term of this Agreement, Consultant
shall meet, confer, advise, consult and otherwise counsel Futech in matters
relating to crafts, stationary, toys and greeting cards. Consultant shall
provide such consulting services as and when needed, at times that are
convenient to Consultant and which shall not interfere with Consultant's full
time employment. Consultant shall not be required, however, to provide any
service under this paragraph 5 in excess of 20 hours in any calendar month.
6. Entire Agreement. Except as otherwise set forth herein this Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior understandings, if any, with respect
thereto. The parties do not intend to confer any benefit hereunder on any
person, firm, or corporation other than the parties hereto. No representation,
warranty, or agreement herein may be relied upon by any person not a party to
this Agreement. There are no oral promises, conditions, representations,
understandings, interpretations, or terms of any kind as conditions or
inducement to the execution hereof, or in effect between the parties, except as
may otherwise be expressly provided herein.
7. Further Assurances. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
either party may reasonably require to consummate, evidence, or confirm the
agreement contained herein in the manner contemplated hereby.
-2-
<PAGE> 16
8. Construction. Each party and its counsel have reviewed and revised this
Agreement, or had an opportunity to review and revise this Agreement, and any
rule of construction to the effect that ambiguities are to be resolved against
the drafting party shall not apply to the interpretation of this Agreement or
any amendment or exhibits hereto.
9. Modification. Any modification or waiver of any term of this Agreement,
including a modification or waiver of this term, must be in writing and signed
by the parties to be bound by the modification or waiver.
10. Partial Invalidity. In the event any portion of this Agreement shall
be declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal, or unenforceable portion had never been part of this
Agreement. Further, any court striking any portion of this Agreement shall
modify the stricken terms as narrowly as possible to give as much effect as
possible to the intentions of the parties, as such intentions existed at the
time of the execution of this Agreement.
11. Authority. Each party for itself, its heirs, personal representatives,
successors, and assigns hereby represents and warrants that it has the full
capacity and authority to enter into, execute, deliver, and perform this
Agreement, that such execution, delivery and performance does not violate any
contractual or other obligation by which it is bound, and that this Agreement
constitutes an agreement binding upon, and enforceable against, that party.
12. Successors and Assigns. This agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
13. Governing Law. This Agreement shall be governed by, interpreted under,
and construed and enforced in accordance with the laws of the State of
California. The parties agree that any litigation or arbitration arising from
the interpretation or enforcement of this Agreement shall be in the Orange
County Superior Court, and for this purpose each party to this Agreement (and
each person who shall become a party) hereby expressly and irrevocably consents
to the exclusive jurisdiction of such courts.
14. Attorney's Fees. In the event of any litigation or other proceeding
concerning this Agreement, the prevailing party(s) shall be entitled to recover
its costs, reasonable attorney's fees, and other reasonable expenses.
15. Titles and Headings. Titles and headings of sections of this Agreement
are for the convenience of reference only, are not intended to define, limit or
describe the scope or intent of any
-3-
<PAGE> 17
provision of this Agreement, and shall not affect the construction of any
provision of this Agreement.
16. Time. Time is of the essence of each and every provision of this
Agreement.
DATED the date first hereinabove written.
____________________________________
JAMES W. GICK
FUTECH EDUCATION PRODUCTS, INC.
By:____________________________________
VINCENT W. GOETT, President
-4-
<PAGE> 1
Exhibit: 2.2FT
AGREEMENT
FOR
PURCHASE AND SALE
OF
ASSETS
THIS AGREEMENT is made as of the 17th day of October, 1997, by and
between XYZ Group Inc., a Wisconsin corporation ("Seller") and Futech
Educational Products, Inc., an Arizona corporation ("Buyer").
R E C I T A L S:
A. Seller owns and operates a distribution business (the "Business")
distributing books, toys and games under the trade names "XYZ Distributors" and
"Little Tiger Press." The Business is operated at the following address:
N16W23390 Stoneridge Drive
Waukesha, Wisconsin 53188
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Business and the assets of the Business, all in accordance with the
terms and conditions set forth below (the "Transaction").
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
T E R M S:
1. PURCHASE AND SALE. Seller hereby agrees to sell to Buyer, and
Buyer agrees to purchase from Seller, the following (collectively the "Assets"):
1.1 All fixtures, furniture, cash, notes receivable, accounts
receivable, all prepaid items, equipment, vehicles, machinery,
inventory (all finished and unfinished goods, work-in-process,
inventories, and materials of Seller are sometimes collectively
referred to herein as the "Inventory"), supplies and all other property
currently used by Seller in connection with the operation of the
Business. For purposes of this Agreement, the Inventory will be valued
at the lower of cost or market value.
Within ten (10) days after the execution of this Agreement,
Seller shall provide Buyer with a list of all assets of Seller other
than Inventory, cash, office supplies, and accounts receivable. The
list shall include, but not be limited to, all furniture, fixtures,
equipment, dies, molds, toolings, prepaids, intangible rights, notes
receivable, and deposits. Within ten (10) days after receipt by Buyer
of said list, Buyer may terminate this Agreement if Buyer is not
satisfied with said list by so notifying Seller in writing. Seller
shall be obligated to transfer to Buyer at the Closing the assets
identified on the
<PAGE> 2
Agreement for Purchase and Sale of Assets
Page 2
agreed upon list. The assets of Seller to be transferred hereunder
shall in any event include, without limitation, all of the fixed assets
included in the "Total Fixed Assets at Cost" on Seller's July 31, 1997
balance sheet attached hereto as Exhibit "E".
1.2 All of Seller's interest in any leases of real and/or
personal property, including all of Seller's interest in any and all
leasehold improvements located on leased real property.
1.3 All rights to the trade names "XYZ Group" and "XYZ
Distributors," and any and all other trade names (other than "Little
Tiger Press," which name is not owned by Seller) used by Seller in
connection with the Business, along with any and all trademarks,
service marks, logos and designs relating thereto. As soon as is
practicable after the Closing, Seller will change its corporate name to
eliminate use of any of the names transferred to Buyer.
1.4 Any and all deposits associated with the operation of the
Business, including but not limited to all deposits on leases,
insurance contracts transferred to Buyer, utility deposits and license
deposits.
1.5 All of Seller's books and records, computer programs,
software, drawings, financial and tax information, and customer and
vendor files.
1.6 All contracts and other accounts which remain unperformed
as of the Closing, including all contracts with Magi Publications.
1.7 All other contracts, licenses, accounts and other general
intangibles currently held by Seller. Buyer understands that contracts
with Seller's customers may be transferable only with the consent of
the customer, and that transfer of said contracts without such consent
may not be binding on the customer.
1.8 All patents, copyrights, trade secrets, customer and
supplier lists, promotional materials, and other intangible rights used
in connection with the operation of the Business.
1.9 The phone numbers and all phone and other advertising
associated with the Business.
1.10 All warranties and all warranty claims of Seller.
1.11 All other assets, of any type or nature, owned by Seller.
2. PURCHASE PRICE.
<PAGE> 3
Agreement for Purchase and Sale of Assets
Page 3
2.1 The purchase price for the Assets shall, subject to adjustment
as described below, be as follows, and shall be payable as follows:
2.1.1 $6,000,000.00 payable in full in cash equivalent at the
closing;
2.1.2 $300,000.00 of Futech Stock (defined below), valued as of
the date of the Closing, payable at the Closing or as soon as is
practicable thereafter, to be held pursuant to Section 8.2 below, and
payable pursuant to Section 2.3 below;
2.1.3 $1,367,334.00 of Futech Stock (defined below), valued as
of the date of the Closing, payable at the Closing or as soon as is
practicable thereafter;
2.1.4 $1,332,666.00 of Futech Stock (defined below), valued as
of December 31, 1998, payable within thirty days after said date if
and only if: (i) the "Net Sales" (defined below) of the Business for
the calendar year 1998 are at least 115% of the calendar year 1997
Net Sales, and (ii) a "Billings Termination" (defined below) has not
occurred prior to said date;
2.1.5 $500,000.00 of Futech Stock (defined below), valued as of
January 1, 1999, payable within thirty days after said date if and
only if: (i) the "Net Sales of All Futech Entities" (defined below)
for the calendar year 1998 are at least 120% of the calendar year 1997
Net Sales of All Futech Entities, and (ii) a "Billings Termination"
(defined below) has not occurred prior to said date;
2.1.6 $500,000.00 of Futech Stock (defined below), valued as of
January 1, 2000, payable within thirty days after said date if and
only if: (i) the "Net Sales of All Futech Entities" (defined below)
for the calendar year 1999 are at least 120% of the calendar year 1998
Net Sales of All Futech Entities, and (ii) a "Billings Termination"
(defined below) has not occurred prior to said date;
The term "Futech Stock" as used herein means the common stock of
Buyer (or Buyer's successor), subject to all of the terms and
restrictions generally applying to said stock. Said stock shall be
unregistered stock subject to all restrictions required by law, and
subject to such reasonable restrictions as are required by Buyer's
underwriter, and will be stock subject to a Registration Rights
Agreement in the form of Exhibit "F" attached hereto and hereby made
a part hereof. At Buyer's election, Buyer may substitute cash or cash
equivalent for Futech Stock under Sections 2.1.3 through 2.1.6 above.
The term "Net Sales" as used herein shall mean gross sales of the
Business, minus only returns and allowances.
<PAGE> 4
Agreement for Purchase and Sale of Assets
Page 4
The term "Net Sales of All Futech Entities" as used herein shall
mean gross sales, minus only returns and allowances, of Buyer and any
successor of Buyer, including all subsidiaries thereof.
The term "Billings Termination" shall mean voluntary termination
by Gary Roy ("Joe") Billings (hereinafter "Billings") of his
employment with Buyer, or if Billings is or becomes no longer able to
render employment services to Buyer as a result of his death,
disability or other cause, or if Billings breaches his obligations to
Buyer under the Employment Agreement in the form of Exhibit "A"
attached hereto or the Confidentiality Agreement in the form of
Exhibit "B" attached hereto.
2.2 The purchase price assumes collection of Seller's accounts
receivable existing as of the Closing at the rate of at least 90% of the
net face value thereof (after deduction for allowance for doubtful
accounts). If, within 150 days after Closing, Buyer is unable to collect at
least 90% of the net face value of the accounts receivable as of the
Closing, then the purchase price shall be adjusted downward by the face
amounts of the accounts receivable existing as of the Closing which are not
collected within said 150 days, and said reduction may be offset by the
Buyer against the payment next due to Seller under subparagraph 2.1 above,
or, at Buyer's election, shall be payable within 30 days in cash equivalent
by Seller to Buyer. The uncollected receivables shall be, at the time of
offset or payment, assigned by Buyer to Seller for Seller's collection.
Buyer shall not be obligated to file lawsuits to collect receivables.
2.3 The $300,000.00 described in subparagraph 2.1.2 above shall, if it
is cash, be held in an escrow governed by the escrow terms appearing in
Section 8.2 below as security for payment by Buyer of any amounts owing to
Seller under Section 2.2 above, and for amounts owing by Seller elsewhere
in this Agreement, until all such amounts are paid and the parties jointly
authorize distribution of the funds held, or until a court of competent
jurisdiction orders distribution of the amount held. If the $300,000.00 is
in the form of stock, then Buyer may reserve issuing/transferring said
stock as security for payment by Buyer of any amounts owing to Seller under
Section 2.2 above, and for amounts owing by Seller elsewhere in this
Agreement, until all such amounts are paid, or until a court of competent
jurisdiction orders issuance/transfer of the stock held.
2.4 The purchase price set out in Section 2.1 above assumes no
decrease in the net value of the assets of Seller between July 31, 1997 and
the Closing. At and as of the date of the Closing (or the "Pre-Closing
Date" if and as called for under Section 8.2 below), a balance sheet shall
be prepared for Seller in the same form and format, and using the same
principals, as the July 31, 1997 balance sheet attached hereto as Exhibit
"E" and hereby made a part hereof. The "Total Current Assets" amount shown
on said balance sheet, minus the "Total Current Liabilities" amount shown
on said balance sheet, is referred to below as the "Net Value." (See
Section 1.1 above regarding Seller's fixed
<PAGE> 5
Agreement for Purchase and Sale of Assets
Page 5
assets). If the Net Value is greater than a negative balance of
$939,977.00 (for clarification - a negative $900,000.00 is greater than
a negative $939,977.00), then the purchase price will be increased by
said amount, and if the Net Value is less than a negative balance of
$939,977.00, the purchase price shall be decreased by said difference.
Any change to the purchase price under this Section shall be made to
the price payable under Section 2.1.1 above (not under 2.1.2).
If the Net Value is less than a negative balance of
$940,000.00 (for clarification - a negative $950,000.00 is less than a
negative $940,000.00), then Buyer shall be entitled to terminate this
transaction as provided for in Section 7.15 below.
All transactions of Buyer after July 31, 1997 shall be done in
a manner such that the value acquired by Buyer under this Agreement
shall not be decreased between said date and the Closing date. For
example, all cash received shall be: (i) held and transferred to Buyer
at the Closing, or (ii) paid against trade payables or bank debt to be
assumed by Buyer at the Closing.
2.5 The purchase price includes assumption of liabilities as
set out in Section 3 below.
2.6 The purchase price shall be allocated as follows, and the
parties agree to execute and complete such forms as are required by the
Internal Revenue Service to evidence such allocation:
<TABLE>
<S> <C>
Furniture, fixtures and equipment, leasehold Note #1
improvements, prepaids, and other assets not
listed below
Inventory Note #2
Accounts Receivable Note #3
Restrictive Covenants $5,000.00
Goodwill The Balance
</TABLE>
Note 1: Seller's adjusted basis for federal income
tax purposes.
Note 2: The Inventory will be valued at the lower of
cost or market value.
Note 3: The net face amount of the accounts
receivable.
3. LIABILITIES.
3.1 Buyer will at the Closing assume liabilities as, and only
as, follows:
<PAGE> 6
Agreement for Purchase and Sale of Assets
Page 6
3.1.1 Seller's obligations under the leases and other
contracts assumed by Buyer, for time periods after the
Closing. Within ten (10) days after the execution of this
Agreement, Seller shall provide Buyer with a list of all
agreements, including leases, to which Seller is subject. At
that time, Seller shall also deliver to Buyer copies of all of
the documents relating to said agreements. Within ten (10)
days after receipt by Buyer of all of said documents, Buyer
shall inform Seller in writing as to which agreements Buyer
will assume at the Closing. In the event Seller objects to the
list, Seller shall be entitled to terminate this Transaction
within five (5) days after receipt of the written notice from
Buyer. If no such objection is made by Seller, Buyer shall
assume at the Closing only the obligations identified in
Buyer's notice to Seller. Absent delivery of a notice to
Seller as set out above, Buyer will be assumed to have elected
not to assume any of Seller's liabilities of any type.
3.1.2 The parties acknowledge and agree that, at the
Closing, Buyer will assume only the following liabilities (the
"Assumed Liabilities"):
(a) Normal trade payables for services and
products received or receivable by Seller, incurred
in the ordinary course of the Business not exceeding
150 days past due (i.e., excluding payables which
have not been paid within 150 days of receipt by
Buyer of the first invoice received by Buyer for the
payable);
(b) Bank debt incurred by Buyer in the
ordinary course of the operation of the Business;
provided, however, that Seller shall be responsible
for any prepayment penalties charged on said debt as
a result of this Transaction;
(c) Buyer's obligations under leases and
other contracts disclosed to and approved by Buyer;
and
(d) Payroll and payroll tax obligations for
employees for not more than the most recent pay
period prior to the Closing, plus only the employee
benefits identified on Exhibit "C" attached hereto
and hereby made a part hereof.
3.1.3 Specifically, but not in limitation of the
foregoing, Buyer shall not be assuming the following
liabilities:
(a) Any federal, state or local income
taxes;
(b) Any labor, discrimination, harassment or
similar claims;
<PAGE> 7
Agreement for Purchase and Sale of Assets
Page 7
(c) Any environmental liability claims;
(d) Any negligence, conversion, tortious
interference or other tort claims, or claims
for infringement of tradename, patent, or
copyright, or other intangible right;
(e) Any liability associated with any
litigation or other proceeding pending or
threatened at the time of the Closing;
(f) Any contractual liability for contracts
not disclosed to and agreed upon by Buyer, or
any liability to or for employees or employee
benefits not expressly agreed upon by Buyer.
(g) Any sales and use tax arising from the
sale of asset contemplated by this Agreement
(Seller shall be responsible for same).
(h) Any debt of Seller payable to Seller's
shareholders.
3.2 All liabilities of Seller other than those expressly
assumed by Buyer as identified in Section 3.1 above shall be and remain
the obligations of Seller, and Seller shall indemnify, defend and hold
Buyer harmless from and against any and all such liabilities.
3.3 Buyer may offset against the purchase price any and all
liabilities associated with the Business which are not expressly
assumed by Buyer but which Buyer is required to pay.
3.4 The following expenses of the Business will be prorated to
the Closing: utilities and phone expenses, advertising expense,
insurance premiums on any insurance transferred to the Buyer, personal
property taxes, and other normal operating expenses of the Business.
3.5 Seller will, to the extent requested by Buyer, deliver to
Buyer prior to the Closing, estoppel letters or certificates, in form
acceptable to Buyer, from parties to contracts under which Seller is
obligated.
3.6 Seller hereby agrees to indemnify, defend and hold Buyer
harmless from and against any and all liabilities, claims, expenses and
other costs arising from Seller's operations of the Business prior to
the Closing, except as expressly assumed by Buyer pursuant to this
Section 3. Buyer hereby agrees to indemnify, defend and hold harmless
Seller from and against any and all liabilities, claims, expenses or
other costs arising from Buyer's operations of the Business from and
after the Closing. The indemnities set forth in this Section shall
survive the Closing.
<PAGE> 8
Agreement for Purchase and Sale of Assets
Page 8
4. EMPLOYEES. Buyer shall have the right to cancel this Agreement if:
(i) the employment of any of the ten highest paid employees of the
Business is terminated prior to the Closing; or (ii) there is a
significant reduction in the number of employees prior to the Closing,
which impairs the operations of the Business in Buyer's reasonable
discretion.
Seller shall cooperate with Buyer in any reasonable efforts by Buyer to
obtain the transfer of Seller's portion of the Wisconsin Unemployment
Compensation Fund and experience rating applicable to the employees of
Seller hired by Buyer to the extent Buyer elects to transfer such
items.
After the Closing, Buyer will offer employment only to those employees
of Seller as Buyer chooses. Immediately prior to the Closing, Seller
shall terminate the employment of all its employees. It is, however,
Buyer's present intent to immediate employ of all Seller's employees
after the Closing.
5. BUYER'S NOMINEE. Buyer, or a successor to Buyer, may form a wholly
owned subsidiary to purchase the Business, and in that event may assign
Buyer's rights under this Agreement to said entity.
6. INTERIM EVENTS.
6.1 Seller agrees that Seller will take no action prior to the
Closing, other than in the ordinary course of the Business, which would
or might have a material adverse effect upon the financial condition of
Seller, and no benefits will be paid or incurred to shareholders,
officers, or directors of Seller between the date hereof and the
Closing other than as is consistent with past activities and practices.
Seller will use Seller's best efforts to preserve for Buyer the present
relationships of Seller with Seller's employees, customers and others
having business relations with Seller. Seller will not allow its trade
payables to go unpaid, except in the ordinary course of business.
6.2 Buyer will pay Joe Billings a lump sum of $50,000.00 no
later than five days after this Agreement is fully signed. In exchange
for said fee, Joe Billings agrees to assist Buyer with integration,
prospectus structuring, and road shows for the Initial Public Offering,
and provide other services in connection with the restructuring and
Initial Public Offering of Buyer. Joe Billings will pay his own travel,
hotel and meal expense for trips to Phoenix. Said expenses for trips
associated with the road show will be paid by Buyer.
6.3 Risk of loss regarding the Assets shall remain with Seller
until Closing and shall pass to Buyer upon Closing.
6.4 Seller shall, as soon as is practicable, provide Buyer
with audited financial statements for Seller with a September 30, 1997
cut-off, and will cooperate with Buyer
<PAGE> 9
Agreement for Purchase and Sale of Assets
Page 9
and timely provide Buyer with other documents and information as
requested by Buyer in connection with preparation for Buyer's Initial
Public Offering. Buyer shall pay the costs of the September 30, 1997
audit, but Seller will reimburse Buyer, within thirty days after the
amount to be reimbursed is first known, but in any event prior to the
Closing and prior to the "Net Value" calculation being done under
Section 2.4 above, an amount equal to the auditor's and accountant's
fees and costs saved by Seller in connection with Seller's December 31,
1997 audit or review as a result of the work done for the September 30,
1997 audit. Said savings shall be payable regardless of whether the
Transaction ultimately closes, and shall be calculated by subtracting
the cost of the December 31, 1997 audit or review from $15,000.00
(Seller's estimate of what the December 31, 1997 audit or review would
have cost without the work done for the September 30, 1997 audit).
7. CONDITIONS TO CLOSING. Buyer's obligation to close the Transaction
shall be conditioned upon (each of the conditions may be waived by Buyer in
writing only):
7.1 Buyer obtaining the consent of the lessors of the leases
assumed by Buyer, and the consent of the other parties to any other
contracts assumed by Buyer, to the extent said consents are required;
7.2 Buyer having obtained, or having obtained the appropriate
consents or approvals to the assignment of, all permits, licenses and
contracts necessary to continue the operations of the Business;
7.3 Seller having maintained the Assets in the same condition
as of the date of this Agreement (subject to ordinary wear and tear
only);
7.4 Seller having conducted the Business diligently and
substantially in the same manner as prior to the execution of this
Agreement and not having entered into any contract, commitment or
transaction not in the usual and ordinary course of business;
7.5 The operations of the Business not having changed in a
material and adverse manner between the date of this Agreement and the
date of Closing;
7.6 There being no governmental investigations or suits
pending or threatened with respect to the operations of the Business,
except as may otherwise be agreed to in writing by Buyer;
7.7 Buyer closing its Initial Public Offering on terms
acceptable to Buyer;
7.8 Billings entering into an Employment Agreement in the form
of Exhibit "A" attached hereto, and a Confidentiality Agreement in the
form of Exhibit "B" attached hereto, to be effective at the Closing.
Billings agrees to sign said Agreement;
<PAGE> 10
Agreement for Purchase and Sale of Assets
Page 10
7.9 Buyer's approval of Seller's most recent Financial
Statements prior to the Closing;
7.10 Buyer obtaining for use by Buyer, based solely upon the
strength of the assets of the Business, revolving credit lines and
other debt instruments satisfactory to Buyer;
7.11 Buyer's receipt of opinions of Seller's counsel
satisfactory to Buyer as to certain matters deemed necessary by Buyer's
counsel;
7.12 Buyer's approval of a report of Buyer's independent
auditors with respect to the operations and assets of the Business;
7.13 Buyer obtaining executed Employment Agreements from key
employees as determined by Buyer, with terms and content acceptable to
Buyer;
7.14 Buyer's purchase, on terms acceptable to Buyer, of the
stock of Premier Publishing Inc., with a closing simultaneous with that
of the Closing hereunder;
7.15 The Net Value at the Closing being not less than a
negative balance of $940,000.00, as identified in Section 2.4 above;
and
7.16 Buyer and Seller agreeing as to the manner in which the
purchase price shall be allocated among the various assets transferred
pursuant to this Agreement. The parties agree to execute and complete
such forms as are required by the Internal Revenue Service to evidence
such allocation.
7.17 Seller's representations and warranties set forth in this
Agreement being accurate in all material respects as of the Closing
date.
7.18 Buyer receiving a certificate of the Department of
Financial Institutions of Wisconsin as to the legal existence of the
Seller in Wisconsin.
8. CLOSING.
8.1 The closing of the Transaction (the "Closing") shall occur
simultaneously with the closing of Buyer's Initial Public Offering, on
a date selected by Buyer within said time period. If Buyer is not
ready, willing and able to close the transaction on or before February
15, 1998, then Seller shall be entitled to terminate this Agreement by
providing written notice thereof to Buyer. The Closing shall occur at
3:00 p.m. M.S.T. at the offices of Buyer, at 2999 North 44th Street,
Suite 225, Phoenix, Arizona 85018-7247. The Transaction shall be
consummated without the use of an independent escrow company.
<PAGE> 11
Agreement for Purchase and Sale of Assets
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At the Closing, Seller shall execute and deliver to Buyer such
conveyance documents as are necessary or appropriate to accomplish the
Transaction, in form reasonably satisfactory to Buyer.
8.2 Notwithstanding the foregoing, Buyer shall be entitled to
purchase an extension until April 30, 1998 of Buyer's time to close
this Transaction by payment (prior to February 16, 1998) by Buyer of
earnest money in the amount of $50,000.00. In the event the Transaction
closes prior to April 30, 1998, then the $50,000.00 earnest money so
paid shall be applied against the purchase price. If Buyer is not
ready, willing and able to close the Transaction by April 30, 1998,
then Seller shall be entitled to terminate this Agreement by providing
written notice thereof to Buyer, and receive and retain the $50,000.00
earnest money; provided, however, that said earnest money, and any
interest earned thereon, shall be returned to Buyer if the Transaction
fails to close because a condition identified in Section 7 above, other
than those in Sections 7.7, 7.10, 7.12, or 7.13, has not been
satisfied or waived, if a condition to Buyer's obligation to close
appearing anywhere else in this Agreement has not been satisfied or
waived, or if Buyer exercises one of Buyer's termination rights
appearing in this Agreement.
The earnest money described above, and the funds described in
Section 2.1.2 above, shall be payable to and deposited into an interest
bearing Wisconsin Bar Trust account of Seller's attorney, Jeff Mawicke,
to be held by said attorney and distributed pursuant to this Agreement.
Said attorney and his successors, if any, as holders of said funds, are
collectively referred to below as the "Holder." The interest earned on
the funds while held by Holder shall accrue to the benefit of Buyer.
The Holder shall be relieved of all responsibility for funds
held upon surrendering them or tendering surrender of them pursuant to
this Agreement. The parties hereby authorize Holder, in the event any
demand is made upon Holder concerning this Agreement, at Holder's
election, to hold the money and any documents deposited with Holder
until an action shall be brought in a court of competent jurisdiction
to determine the rights of the parties, or to interplead the parties by
an action brought in any Court. Deposit by Holder of all of said funds
and documents, after deducting therefrom Holder's charges and expenses
and attorneys' fees incurred in connection with any such Court action
or incurred in connection with Holder's duties hereunder, shall relieve
Holder from all further liability and responsibility in connection
therewith.
The parties shall indemnify and hold harmless Holder against
all claims, demands or damages, attorney's fees, expenses, and
liabilities that Holder may incur or sustain in connection with this
Agreement or any Court action arising therefrom, and will pay the same
upon demand. If not paid upon demand, such amounts shall accrue
interest at the rate of 12% per annum until paid in full.
Holder, solely at Holder's election, may resign as Holder by
sending written
<PAGE> 12
Agreement for Purchase and Sale of Assets
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notice thereof to the parties to this Agreement. The resignation shall
be effective ten (10) days after the notice is deposited into the
United States Mail, or such other date as selected by the Holder. All
documents and money held by Holder after such resignation shall be
returned to the proper parties or held by Holder at Holder's discretion
until the parties shall have named a successor Holder.
8.3 The parties acknowledge that it may be difficult to
coordinate all that must happen on the date of Closing. To facilitate a
smoother Closing, pre-Closing calculations will be done as of the last
day (the "Pre-Closing Date") of the most recent calendar month which
ended at least five (5) business days prior to the Closing. Inventory,
accounts receivable, trade payables, etc. will be determined as of the
Pre-Closing Date as if said date were the actual Closing date. All
transactions of the Corporation after the Pre-Closing shall be done in
a manner such that the value acquired by Buyer shall not be decreased
between the Pre-Closing Date and the Closing date. For example, all
cash received shall be held and transferred to Buyer at the Closing or
paid against trade payables to be assumed by Buyer at the Closing.
Buyer may elect to use the Pre-Closing figures as if they were
the actual Closing figures, for all purposes of this Agreement, and
close the Transaction based on those figures. In said event, no
adjustments shall be made for the actual Closing figures, except any
necessary to account for violations of the last two sentences of the
paragraph immediately preceding this paragraph.
Instead, Buyer may elect to use the actual Closing numbers. In
said event, the Transaction shall be closed using the Pre-Closing
figures as estimates, and $100,000.00 shall be held from Seller's sales
price at the Closing as security until the final actual Closing figures
are determined (the parties estimate this should take no longer than
ten days). The withheld sales price shall be held by Buyer's counsel in
escrow on terms similar to those described in Section 8.2 above, except
that an interest bearing account need not be used.
8.4 The cash portion of the purchase price payable to Seller
may be paid by Buyer the day after the day of the Closing, and Buyer
shall have thirty (30) days after the Closing to transfer to Seller the
stock portion of said purchase price.
9. RESTRICTIVE COVENANTS.
9.1 Neither Seller nor Gary Roy (Joe) Billings (hereinafter
"Billings"), by his signature appearing below, shall, except as
representatives of and as directed by Buyer, without the prior written
consent of Buyer, which consent may be withheld for any or no reason,
for a period of 2 years following the Closing, directly or indirectly,
own, manage, operate, control, be employed by, participate in, render
services to, make loans to, or be connected in any manner with the
ownership, management, operation, or
<PAGE> 13
Agreement for Purchase and Sale of Assets
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control of any business located anywhere in United States of America,
Canada, or Europe, in any business competitive with the Business (which
shall be deemed to include all business operations publishing,
manufacturing, and/or distributing books, toys or games, or electronic
or other parts or components thereof).
In the event of any actual or threatened breach of the
provisions of this Section, Buyer shall be entitled to an injunction
restraining the actual or threatened breach. The parties further agree
that should there be a violation of the provisions of this Section, the
violating party shall be liable to Buyer for, in addition to amounts
pursuant to other remedies available against that party, two (2) times
the greater of the amount of profit earned by the violating party as a
result of the violation and the amount of profit which would have been
earned by Buyer from the activities causing the violation had Buyer
conducted said activities, plus interest on said greater amount from
the date of the violating activities until paid, as liquidated damages
for only Buyer's loss of potential profits. Said interest shall be
calculated at the lesser of: (i) eighteen percent (18%) per annum, and
(ii) the highest rate of interest permitted by applicable law. Nothing
in this paragraph shall be construed as prohibiting Buyer from pursuing
any other available remedies for such breach or threatened breach,
including pursuing a recovery for damages. The parties agree that the
liquidated provisions set out above do not constitute a penalty, but
rather reflect the estimate of the parties as to the actual damages,
including loss of profits, Buyer might or is likely to incur in the
event of a violation of the restrictions appearing herein.
9.2 Neither Seller nor Billings shall at any time, without
the prior written consent of Buyer, which consent may be withheld for
any or no reason, disclose, in any fashion other than as required in
the day to day affairs of Buyer, to any person or entity: (i) the names
of customers of Buyer or the Business, or the names of other persons or
entities having business dealings with Buyer or the Business, or (ii)
any of the business methods or confidential information of Buyer or the
Business, including but not limited to its customer lists, prospective
customers, customers purchasing habits, customer contact personnel,
marketing and servicing techniques, financial matters, sales and
marketing systems and methods, marketing development and business
expansion plans and projections, personnel training and development
programs, customer and supplier relationships, and trade secrets.
9.3 Neither Seller nor Billings shall, at any time within two
(2) years after the Closing, without the prior written consent of
Buyer, which consent may be withheld for any reason or no reason,
directly or indirectly induce, encourage or solicit or assist any
person who was or is employed (whether as an employee or as an
independent contractor) by the Business during the two years preceding
the Closing, to leave the employ of the Business.
9.4 The parties acknowledge and agree that the restrictions
contained herein, including but not limited to the time period and
geographical area restrictions, are fair and reasonable and necessary
for the successful operation of the Business, that violation
<PAGE> 14
Agreement for Purchase and Sale of Assets
Page 14
of any of them would cause irreparable injury, and that the
restrictions contained herein are not unreasonably restrictive of any
party's ability to earn a living. If the scope of any restriction in
this Section is too broad to permit enforcement of such restriction to
its fullest extent, then such restriction shall be enforced to the
maximum extent permitted by law, and all parties hereto consent and
agree that such scope shall be modified judicially or by arbitration in
any proceeding brought to enforce such restriction. The parties hereto
acknowledge and agree that remedies at law for any breach or violation
of the provisions of this Section would alone be inadequate, and agree
and consent that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity of
proof of actual damage, and such remedies shall be in addition to other
remedies and rights the parties may have at law or in equity. The
parties agree that no party shall be required to give notice or post
any bond in connection with applying for or obtaining any such
injunctive relief.
9.5 The parties acknowledge and agree that the covenants in
this Section shall be construed as an agreement independent of any
other provision of this Agreement, so that the existence of any claim
or cause of action by Seller (or Billings) against Buyer, whether
predicated on this Section or otherwise, shall not constitute a defense
to the enforcement of this Section.
9.6 The provisions in this Section 9 were specifically
bargained for as a material portion of the Transaction. The
consideration for the restrictions appearing in this Section include,
without limitation, the financial benefits received by the Corporation
and Billings from the sale transaction.
10. ACCESS TO CUSTOMER FILES AND OTHER RECORDS. For a period of 3 years
following the Closing, where there is a legitimate purpose not injurious to
Buyer, or if there is an audit by any taxing authority, other governmental
inquiry, or litigation or prospective litigation to which Seller (or its
principals) is or may become a party, Seller (and its principals) shall be
granted access, at reasonable times and after reasonable notice, to all customer
files and other records transferred to Buyer pursuant to this Agreement.
11. DUE DILIGENCE INVESTIGATION. Buyer shall have sixty (60) days from
the date of execution of this Agreement (the "Due Diligence Period") in which to
conduct any due diligence investigations, including UCC-1 searches, which Buyer
may deem necessary or appropriate to ascertain the financial viability and value
of the Business. Throughout the Due Diligence Period Buyer (and its agents)
shall have the right to inspect: (i) all books, records and computer systems
maintained by Seller, in order to authenticate and audit all financial
information provided to Buyer, (ii) all equipment and machinery used in the
Business to verify that it is in an acceptable state of repair, (iii) all
agreements to which Seller is a party, and (iv) all facilities and physical
operations of Seller, including facilities warehousing Inventory. Seller shall
provide access to Seller's federal and state income tax returns, sales tax
returns, financial statements (internal and those issued to third parties),
personal property tax returns, and all other governmental filings,
<PAGE> 15
Agreement for Purchase and Sale of Assets
Page 15
for the three previous years, for the purpose of conducting due diligence
investigations. Buyer shall indemnify Seller from and against any and all
liabilities, costs, claims and losses incurred by Seller as a result of Buyer's
conduct of its due diligence investigation. Buyer may, in Buyer's sole
discretion, terminate this Agreement within five days after the date of
termination of the Due Diligence Period for any reason deemed appropriate by
Buyer.
Buyer and its representatives will further have the authority to
communicate with Seller's creditors, debtors, suppliers, agents and employees.
Seller agrees to aid Buyer and its representatives in Buyer's investigations and
evaluations of the Business and the Assets, and to provide whatever information
and documents Buyer reasonably deems necessary or appropriate to the making of
an informed decision regarding the Transaction.
12. REPRESENTATIONS AND WARRANTIES. Seller and Billings each hereby
represent and warrant as follows, as of the date hereof and as of the date of
the Closing:
12.1 Authority. Seller has the power and authority to enter
into and perform its obligations under this Agreement, and the Board
of Directors and the shareholders of Seller have approved, authorized,
and ratified the execution and delivery of this Agreement, and of the
documents herein required to consummate the transaction contemplated
herein. This Agreement constitutes the legally valid and binding
obligation of Seller, enforceable in accordance with its terms.
12.2 Financial Information. Seller has furnished Buyer with
true, correct and complete copies of Seller's financial statements and
other books and records relating to the operation of the Business,
which statements fairly present the financial condition of the Business
as of their respective dates.
12.3 Taxes. All federal and state income, excise, franchise,
payroll, property, sales, and other tax returns required to be filed
by or with respect to the Business (except returns not yet due) have
been filed, are complete and accurately reflect in all material
respects all matters therein required to be reflected, and all taxes
shown on such returns to be due, and any assessments received by
Seller with respect thereto, have been paid in full. Seller shall pay
all such future taxes relating to periods prior to the Closing, when
and as the same shall become due and payable. Seller shall provide
Buyer with such certificates and other evidence of payment of all
taxes due in connection with the Assets and the Business as Buyer
shall request. Seller shall be responsible for all sales and use taxes
arising from the sale of assets contemplated by this Agreement.
12.4 Material Changes. From the date of the most recent
financial statements provided by Seller to Buyer, and through the day
hereof, and through the date of Closing, the Business has been
conducted only in the ordinary course, there have been no material
adverse changes in the financial condition or operations of the
Business, and there has been no damage, destruction or other occurrence
(whether or not insured
<PAGE> 16
Agreement for Purchase and Sale of Assets
Page 16
against) which materially adversely affects the financial condition or
operations of the Business.
12.5 Title to Assets: Liens. Seller owns all assets it
purports to own, including all assets reflected in its financial
information. Seller does not own any real property. All property to be
transferred by Seller to Buyer pursuant to this Agreement is, at the
time of this Agreement, or will be at the Closing, free and clear of
any and all liens, claims and encumbrances.
12.6 Litigation. To the knowledge of Seller or Billings, there
is no litigation, proceeding, or investigation pending against Seller
or the Business, and neither Seller nor Billings have any reasonable
grounds to know any basis for such litigation, proceeding or
investigation.
12.7 Licenses. Seller has any and all licenses, permits, and
contracts necessary and/or appropriate to operate the Business in the
manner in which the Business is currently operated.
12.8 Hazardous Materials. The Business has not dealt in any
manner with any hazardous or toxic materials or waste.
12.9 Complete Disclosure. Seller has disclosed to Buyer all
facts and papers which would or might be important to Buyer in making
the decision to purchase the Business as called for in this Agreement.
12.10 Judgments Against Seller and/or Business. Neither
Seller nor the Business is under any governmental investigation, no
such investigation has been threatened, and there are no judgments
against Seller, the Business or the Assets.
12.11 Complete Sale. The assets to be transferred under this
Agreement are all of the assets used by Seller in the operation of the
Business.
12.12 Assets in Good Condition. Each of the Assets which is a
tangible asset is and will be at the Closing in good working order and
condition, and are adequate to the uses to which they are being put.
12.13 Disclosure Materials. The financial condition of the
Business is at least as favorable as presented in the financial
information, including tax returns and financial statements, and books
and records provided by Seller to Buyer. Those materials and the other
materials disclosed to Buyer are true, complete and accurate in all
respects, and fairly represent the information they purport to provide.
All the information disclosed, as a whole, does not contain any
statement that, as of the date hereof, or as of the Closing, is false
or misleading, and does not omit to state any material fact (i)
necessary
<PAGE> 17
Agreement for Purchase and Sale of Assets
Page 17
to make the statements made, in light of the circumstances under which
they were made, not false or misleading, or (ii) necessary to provide
Buyer with complete and accurate information as to the assets and
financial standing of the Business.
12.14 Defaults. There are no defaults or events with which
the giving of notice or the passage of time would constitute defaults
under any document under which Seller is obligated.
12.15 Bulk Sales Provisions. Seller shall indemnify and hold
Buyer harmless from any liability resulting from any failure to comply
with any applicable Bulk Sales provisions with respect to any and all
liabilities of Seller.
12.16 Vendor Accounts. Seller will use Seller's best efforts
to cause a transfer to Buyer of all of Seller's supplier and other
vendor accounts without adverse changes in the account terms.
12.17 Outstanding Liabilities. There are no liabilities of
Seller other than as are shown on the most recent financial statement,
other than liabilities arising in the normal course of business out of
purchases and sales of goods. There are no liabilities relating to the
Business which are more than ninety (90) days past due.
12.18 Inventory. The Inventory is useable and in good
condition, with not more than 1% thereof being obsolete, and all of
the inventory is owned by Seller, none of it being held by Seller on
consignment.
12.19 Losses. There are no unrealized or anticipated losses on
any commitment or contract of Seller.
12.20 Patents. There is no litigation pending or threatened
with respect to the patents of Seller, there is no outstanding order,
judgment, decree or stipulation affecting the validity or
enforceability of said patents, there exits no outstanding notices of
infringement given by Seller regarding the patents, there are no
pending interferences or other contested proceedings pending, or that
are in the process of being instituted, in the United States Patent
Office or in the courts, relating to said patents, and, to the best
knowledge of Seller and Billings, none of Seller's patents are being
presently infringed.
12.21 Receivables. All accounts receivable arose in the
regular course of business, and, to the best knowledge of Seller and
Billings, are collectable and subject to no defenses or counterclaims.
12.22 No Conflict. The execution, delivery and performance of
this Agreement and the other documents and instruments to be executed
and delivered by Seller pursuant hereto, and the consummation by Seller
of the transactions contemplated herein or
<PAGE> 18
Agreement for Purchase and Sale of Assets
Page 18
therein:
(a) Will not violate or conflict with any applicable law;
(b) Will not require any authorization, consent, approval,
exemption or other action by or notice to any government entity
(including, without limitation, under any "plant closing" or similar
law); and
(c) Will not violate or conflict with, or constitute a default
(or event which, with notice or lapse of time, or both, would
constitute a default) under, or will not result in the termination of,
or accelerate the performance required by, or result in the creation of
any lien upon any of the Assets under any term or provision of the
Seller's Articles of Incorporation or Bylaws, or any contract,
commitment, understanding, arrangement, agreement or restriction of any
kind or character to which Seller is a party or by which Seller or any
of the Assets may be bound or affected.
12.23 Violations of Law
(a) None of the present or past operations of the Business,
the products of the Business, or the Assets violates or conflicts, in
any material respect, with any permits, any law (including
Environmental Laws), governmental specification, authorization, or
requirement, or any decree, judgment, order, or similar restriction. To
the knowledge of Seller, neither Seller nor any supplier of Seller is
the subject of an inspection or inquiry regarding violations or alleged
violations of any law by other state, federal, or local agency.
(b) There are no proceedings, threatened proceedings, orders,
notice of violations, inspection reports, or other similar occurrences
relating to the conduct of the Business or the Assets.
(c) Seller has not been the subject of an Occupational and
Safety Health Administration inspection or found by any agency to be
in violation of any state or federal occupational safety or health law
in the conduct of the Business.
12.24 Condition and Sufficiency of Assets. All Assets are in
good operating condition and repair, and are adequate for the uses to
which they are being put, and none of such items are in need of
maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The Assets are
sufficient for the continued conduct of then Business after the
Closing in substantially the same manner as conducted prior to the
Closing.
12.25 Environmental Matters. For the purposes of this
Section:
<PAGE> 19
Agreement for Purchase and Sale of Assets
Page 19
(i) "Environmental Law" means all federal, state,
local, foreign, and other applicable jurisdiction Laws relating to the
environment or the use, disposal, existence, or release of any
Hazardous Materials, including but not limited to any and all Laws
concerning, affecting, controlling, or in any way relating to, whether
in whole or in part, noise levels, ground vibrations, air pollutants,
water pollutants, process waste water, or Hazardous Materials;
(ii) "Environmental Release" means any release,
spill, emission, leaking, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the atmosphere, soil, surface
water, groundwater or property;
(iii) "Hazardous Materials" means: (A) any waste,
hazardous waste, pollutant, contaminant, or hazardous or toxic
substance as specified, listed, identified, or defined in (1) the
Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901, et
seq., and the rules, regulations and orders promulgated thereunder; (2)
CERCLA; (3) the Clean Water Act, 33 U.S.C. 1251, et seq., and the
rules, regulations and orders promulgated thereunder; (4) the Clean Air
Act, 42 U.S.C. 7401 et seq., and the rules, regulations and orders
promulgated thereunder; (5) the Toxic Substances Control Act, 15 U.S.C.
2601, et seq., and the rules, regulations and orders promulgated
thereunder; (6) the Hazardous Materials Transportation Act, 49 U.S.C.
1801, et seq., and the rules, regulations and orders promulgated
thereunder; (7) the Occupational Safety and Health Act, 29 U.S.C. 651
et seq., and the rules, regulations, and orders promulgated
thereunder; and (8) any other applicable U.S. federal, state, local,
foreign, or other statutes or Laws, and the rules, regulations, and
orders promulgated thereunder; (B) asbestos; (C) formaldehyde; (D)
polychlorinated biphenuls; (E) radioactive materials; (F) waste oil and
other petroleum products; and (G) any other substance which constitutes
a nuisance or hazard to the environment or to the public health,
safety, or welfare;
(iv) "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C.A. Section 9601, et seq., and the rules, regulations and orders
promulgated thereunder; and
(v) "Environmental Claim" shall mean any and all
administrative, regulatory, judicial, or third party actions, suits,
demands, demand letters, directives, claims, liens, investigations,
proceedings or notices of noncompliance or violation (written or oral)
by any person or entity alleging damage or other adverse effect on the
environment, or potential liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial costs,
natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from: (A) the
presence, or release into the environment, of any Hazardous Materials,
contaminant, odor, audible noise, or other release into the environment
from or at any location, whether or not owned by any Seller; or (B)
environmental aspects of the transportation, storage, treatment or
disposal
<PAGE> 20
Agreement for Purchase and Sale of Assets
Page 20
of Hazardous Materials in connection with the operation of the
Business; or (C) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (D) any and all claims
by any person or entity seeking damages, contribution, indemnification,
cost, recovery, compensation or injunctive relief resulting from the
presence or release of any Hazardous Materials.
12.25.1 Seller is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. Seller has no basis to expect, nor has
any other person for whose conduct Seller is or may be held to be
responsible received, any actual or threatened order, notice, or other
communication from (i) any governmental body or private citizen acting
in the public interest, or (ii) the current or prior owner or operator
of any of Seller's properties or assets, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
Seller's properties or assets (whether real, personal, or mixed) in
which Seller has had an interest, or with respect to any of Seller's
properties at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by
Seller or any other person for whose conduct Seller is or may be held
responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
12.25.2 There are no pending or, to the knowledge of
Seller threatened claims, encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to
or affecting any of Seller's properties and assets (whether real,
personal, or mixed) in which Seller has or had an interest.
12.25.3 Seller has no basis to expect, nor has any
other person for whose conduct Seller is or may be held responsible,
received, any citation, directive, inquiry, notice, order, summons,
warning, or other communication that relates to hazardous activity,
Hazardous Materials, or any alleged, actual, or potential violation or
failure to comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
Seller's properties or assets (whether real, personal, or mixed) in
which Seller has an interest, or with respect to any property or
facility to which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by Seller or any other person
for whose conduct Seller is or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled,
or received.
12.25.4 Neither Seller nor any other person for
whose conduct Seller is or may be held responsible, has any
Environmental, Health, Safety Liabilities with
<PAGE> 21
Agreement for Purchase and Sale of Assets
Page 21
respect to Seller's properties and assets (whether real, personal, or
mixed) in which Seller (or any predecessor), has or had an interest, or
at any property geologically or hydrologically adjoining the facilities
or any other property or assets of Seller.
12.25.5 There are no Hazardous Materials present on or in the
environment at Seller's properties or at any geologically or
hydrologically adjoining property, including any Hazardous Materials
contained in barrels, above or underground storage tanks, landfills,
temporary or permanent, and deposited or located in land, water, sumps,
or any other part of Seller's properties or such adjoining property, or
incorporated into any structure therein or thereon. Neither Seller nor
any other person for whose conduct Seller is or may be held
responsible, or any other person, has permitted or conducted, or is
aware of, any hazardous activity conducted with respect to Seller's
properties or assets (whether real, personal, or mixed) in which Seller
has or had an interest except in full compliance with all applicable
Environmental Laws.
12.25.6 There has been no Environmental Release or, to the
knowledge of Seller, any threat of such release, of any Hazardous
Materials at or from Seller's properties or at any other locations
where any Hazardous Materials are generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by Seller's
properties or from or by any other properties and assets (whether real,
personal, or mixed) in which Seller has or had an interest, or any
geologically or hydrologically adjoining property, whether by Seller or
any other person.
12.25.7 Seller has delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Seller pertaining to Hazardous Materials or
hazardous activities in, on, or under Seller's properties or concerning
compliance by Seller or any other person for whose conduct Seller is or
may be held responsible, with Environmental Laws.
12.26 Employment Matters. For purposes of this Section: (i)
the term "Employee Benefit Plans" shall mean any pension plan, profit
sharing plan, bonus plan, incentive compensation plan, stock purchase
plan, stock option plan, stock appreciation plan, benefit plan, benefit
policy, retirement plan, fringe benefit program, insurance plan,
severance plan or any other plan or program to provide income or
benefits to active or former employees of Seller; (ii) "Employee
Liabilities" shall mean all liabilities arising under law relating to
severance payments due to employees of Seller, or any other liabilities
arising from the termination, change of status or any other
employee-related matter; and (iii) "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
promulgated thereunder.
(a) Seller has delivered to Buyer a list of all
employees of the Business, their current rates of compensation and most
recent pay increase, date of hire, benefits, location of employment,
and other related information requested by Buyer.
<PAGE> 22
Agreement for Purchase and Sale of Assets
Page 22
(b) Exhibit "D" hereto lists and describes all of
Seller's present or past Employee Benefit Plans. Each Employee Benefit
Plan is and at all times has been in full compliance with all
applicable Laws (including ERISA). Seller is not contributing to, and
has not contributed to any multi-employer plan, as defined in ERISA.
Any past Employee Benefit Plan that has been terminated was done so in
full compliance with all applicable laws, and there is no basis for
further liability or obligation of Seller pursuant to any and all past
Employee Benefit Plans.
(c) Seller has no Employee Benefit Plan or other
agreements (including collective bargaining agreements), arrangements,
or plans which would bind or in any way affect Buyer after the Closing
date, regardless of whether Buyer employs any such employees.
(d) Seller is in material compliance with all
federal, foreign, state, or other applicable laws respecting employment
and employment practices, terms and conditions of employment, wages and
hours, and has not and is not engaged in any unfair labor practice that
would in any way affect Buyer after the Closing.
(e) No present or former employee of the Business has
any claim against Seller (whether under federal, foreign or state law,
under any employee agreement or otherwise), that would in any way
affect Buyer after the Closing, on account of or for: (i) overtime pay,
other than overtime pay for the current payroll period; (ii) wages or
salaries, other than wages or salaries for the current payroll period;
or (iii) vacations, time off or pay in lieu of vacation or time off,
other than vacation or time off (or pay in lieu thereof) earned in the
past twelve-month period.
(f) Seller has disclosed to Buyer Seller's
unemployment compensation contribution and solvency rates. Seller has
made all required payments to its unemployment compensation reserve
account with the appropriate governmental department(s) under
applicable law, such accounts have positive balances and, to the
knowledge of Seller, there are no current or former employees:
(i) receiving unemployment compensation benefits which are being
charged against such account, (ii) that are eligible for such benefits,
or (iii) that are claiming such benefits.
12.27 Labor Relations: Compliance. Seller has not been nor is
a party to any collective bargaining or other labor contract. There
has not been, there is not presently pending or existing, and there is
not threatened: (i) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (ii) any proceeding against or affecting
Seller relating to the alleged violation of any legal requirement
pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National
Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other
labor or employment dispute against or affecting Seller or its
premises, or (iii) any
<PAGE> 23
Agreement for Purchase and Sale of Assets
Page 23
application for certification of a collective bargaining agent. No
event has occurred or circumstance exists that could provide the basis
for any work stoppage or other labor dispute. There is no lockout of
any employees by Seller, and no such action is contemplated by Seller.
Seller has complied in all respects with all legal requirements
relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. Seller is not liable
for the payment of any compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for failure to comply with any of
the foregoing legal requirements.
12.28 Consents and Approvals. No consent, approval or
authorization of, or declaration, filing or registration with, any
governmental person, whether federal, state or local, is required of
Seller in connection with the execution or delivery by Seller of this
Agreement or the consummation by Seller of any of the transactions
contemplated hereby or thereby.
12.29 Customers and Suppliers Seller has provided Buyer with a
list of the ten (10) largest customers of Seller in terms of dollar
volume of sales for the three (3) preceding fiscal years and for the
current fiscal year, showing the approximate total dollar amount of
sales to each such customer during each such fiscal year. Seller has
provided Buyer with a list of the ten (10) largest suppliers to Seller
in terms of dollar volume of purchases for the three (3) preceding
fiscal years and for the current fiscal year showing the approximate
total dollar amount of purchases from each supplier during each such
fiscal year. Since January 1, 1994, Seller has not received any notice
from and has not otherwise been informed or made aware that any of such
ten (10) largest suppliers or customers will be terminating or
curtailing its business with Seller in a manner that would have a
material adverse effect on Seller. To Seller's knowledge, to date of
this Agreement, there has been no material adverse change in the
business relationship of Seller with its customers taken as a whole and
with its suppliers taken as a whole.
12.30 Investment Intent. The provisions of this Section are
subject to the provisions in Section 2.1 above. The Futech Stock to be
acquired by Seller is being acquired by Seller for its own account and
not with the view to, or for the resale in connection with, any
distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"). Seller understands
that the Futech Stock has not been registered under the 1933 Act by
reason of its issuance in transactions exempt from the registration and
prospectus delivery requirements of the 1933 Act pursuant to Section
4(2) thereof and agrees to deliver to the Buyer, if requested by the
Buyer, an investment letter in customary form. Seller understands that
the Futech Stock may not be sold, transferred or otherwise disposed of
without registration under the 1933 Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the
Futech Stock, or an available exemption from registration under
<PAGE> 24
Agreement for Purchase and Sale of Assets
Page 24
the 1933 Act, the Futech Stock must be held indefinitely. Seller
further understands that the certificates representing the Futech Stock
may bear a legend substantially in the following form and agrees that
it will hold such Futech Stock subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME
IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE
OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER
THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).
12.31 Knowledge; Resources. Seller has such knowledge and
experience in financial and business matters that Seller is capable of
evaluating independently the risks and merits of acquiring Futech
Stock. Seller has independently evaluated the risks and merits of
acquiring Futech Stock and has independently determined that Futech
Stock is a suitable investment for Seller. Seller has sufficient
financial resources to bear the loss of its entire investment in Futech
Stock.
12.32 Ability to Ask Questions. Seller represents that it has
had an opportunity to ask questions and receive answers from Buyer
regarding the business, properties, prospects and financial condition
of Buyer and to obtain additional information (to the extent Buyer
possesses such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information
furnished to Seller or to which Seller had access.
12.33 Due Incorporation. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Wisconsin, and is duly licensed or qualified to do business
and is in good standing in each State where the property owned or held
under lease is such as to require Seller to be so licensed or
qualified, except those states where the failure to be so licensed or
qualified would not have a material adverse effect on the financial
condition or operations of Seller or the Business. Seller has the
corporate power and authority to own and operate its properties and
carry on the Business as now conducted.
True, correct and complete copies of the corporate formation
documents for
<PAGE> 25
Agreement for Purchase and Sale of Assets
Page 25
Seller, and all operating minutes, resolutions and consents, have been
or will be delivered to Buyer within twenty (20) days from the date of
the execution of this Agreement. The minute book(s) of Seller correctly
records all resolutions of the directors and shareholders of Seller,
and Seller's stock records correctly reflect the ownership of stock of
Seller.
12.34 Subsidiaries. Seller has no subsidiaries or equity
interests of stock ownership or otherwise in any firm, corporation,
association or business enterprise.
12.35 Compliance with Laws. Seller is not aware of any
investigation with respect to any violation of any provision of any
federal, state or local law, regulation, ordinance, order or
administrative ruling, relating to Seller or the Business.
12.36 Intellectual Property.
(a) Seller has provided Buyer with a true, correct
and complete list of: (i) all patents held by Seller, and all
re-examinations, re-issues, divisions, continuations, continuations in
part and extensions thereof and all pending patent applications by
Seller, including for each such patent the serial or patent number,
country, filing and expiration date and title, (ii) all registered
trademarks of Seller and pending trademark registrations by Seller,
including, for each such trademark, the registration number, country,
filing and expiration date, mark and class, (iii) all registered
copyrights of Seller, and copyright applications by Seller, including
the registration number, country and filing and expiration date of each
such copyright, and (iv) all service marks, trade names and brand names
of Seller, used in the Business (whether or not registered) (all of the
foregoing collectively referred to as the "Intellectual Property"). All
such patents, trademarks and copyrights are properly registered, any
applications therefor have been properly made, and all annuity,
maintenance, renewal and other fees in connection with any of the
foregoing are current.
(b) Seller has provided Buyer with a list of all
material licenses, contracts, commitments (including, without
limitation, confidentiality agreements) to which Seller is a party or
otherwise subject relating to the Intellectual Property, including,
without limitation, computer software (except for standard licensing
agreements or provisions from the seller or licensor of such software).
During the preceding three (3) fiscal years and the current fiscal year
to date, no claim or allegation of infringement has been made by or
against Seller, whether relating to any item of Intellectual Property
or otherwise, no claim or allegation of misappropriation or misuse of
any item of Intellectual Property has been made by or against Seller,
and no claim or allegation has been asserted against Seller with
respect to the ownership or use of any of the Intellectual Property by
Seller, or challenging or questioning the validity or effectiveness of
any such license, contract or commitment, and there does not exist to
the knowledge of Seller any valid basis for any such claim or
allegation.
<PAGE> 26
Agreement for Purchase and Sale of Assets
Page 26
(c) Seller has good and valid title to, or otherwise
possesses rights to use, the Intellectual Property.
12.37 Relationships with Related Persons. Neither Seller nor
any person affiliated with Seller has, or since January 1, 1994, has
had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to Buyer's
businesses. Other than inventory purchases made in the ordinary course
of business, neither Seller nor any person affiliated with Seller is,
or since January 1, 1994, has owned (of record or as a beneficial
owner) an equity interest or any other financial or profit interest in,
a person that has: (i) had business dealings or a material financial
interest in any transaction with the Buyer, or (ii) engaged in
competition with the Buyer with respect to any line of the products or
services of the Buyer (a "Competing Business") in any market presently
served by the Buyer, except for less than one percent of the
outstanding capital stock of any Competing Business that is publicly
traded on any recognized exchange or in the over-the-counter market.
Neither Seller nor any person affiliated with Seller is a party to any
contract with, or has any claim or right against, Buyer.
The representations and warranties in this Section, and elsewhere in
this Agreement, and all indemnification provisions in this Agreement, shall
survive the Closing of the Transaction.
13. BULK SALE PROVISIONS. At Buyer's option, the parties will comply
with any and all bulk sale laws applicable to the Transaction. If Buyer elects
to close the Transaction without complying with applicable bulk sales laws, then
Seller and Gary Roy ("Joe") Billings shall indemnify and defend and hold Buyer
harmless from any and all liabilities of Seller to which Buyer, the Assets, or
the Business are subject but would not have been subject with such compliance.
14. EXPENSES. Each party shall bear its own expenses in completing the
Transaction. "Expenses" shall mean any expense of any nature incurred in
connection with the Transaction, including without limitation attorneys' fees,
accounting fees, filing fees and other costs.
15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Arizona,
without giving effect to the conflicts of laws rules thereof. The courts of the
State of Arizona shall have the sole and exclusive jurisdiction and venue in any
case or controversy arising under this Agreement or by reason of this Agreement.
The parties agree that any litigation or arbitration arising from the
interpretation or enforcement of this Agreement shal1 be only in either
Maricopa County Superior Court or in the United States Federal District Court
for the District of Arizona, and for this purpose each party to this Agreement
(and each person who shall become a party) hereby expressly and irrevocably
consents to the jurisdiction and venue of such courts.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the
<PAGE> 27
Agreement for Purchase and Sale of Assets
Page 27
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Seller may not assign any rights of
Seller under this Agreement without the prior written consent of Buyer.
17. ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Agreement constitutes the entire agreement between the parties which respect to
the subject matter hereof, and supersedes all prior understandings, if any, with
respect thereto.
18. FURTHER ASSURANCES. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm any
agreement contained herein in the manner contemplated hereby.
19. MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
20. SEVERABILITY. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal or unenforceable portion had never been a part of this
Agreement.
21. COUNTERPARTS, FACSIMILE SIGNATURES. This Agreement may be executed
by the parties in one or more counterparts, and any number of counterparts
signed in the aggregate by the parties shall constitute a single instrument. The
parties authorize and agree to accept facsimile signatures in counterparts to
this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were original signatures.
22. ATTORNEY'S FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement, or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party(s) of such action or
proceeding shall be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorneys' fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
23. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be delivered in person or
mailed by certified mail, return receipt requested, in the United States Mail,
postage pre-paid, addressed as follows:
If to Seller: Gary Roy ("Joe") Billings
N16W23390 Stoneridge Drive
Waukesha, Wisconsin 53188
<PAGE> 28
Agreement for Purchase and Sale of Assets
Page 28
If to Billings: Gary Roy ("Joe") Billings
N16W23390 Stoneridge Drive
Waukesha, Wisconsin 53188
If to Buyer: Futech Educational Products, Inc.
Attention: Vincent W. Goett
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
or at such other address as a person may from time to time designate by Notice
hereunder. Notice shall be effective upon delivery in person, or if mailed, at
midnight on the third business day after the date of mailing.
24. PARAGRAPH TITLES AND HEADINGS. The titles and headings of sections
of this Agreement are for the convenience of reference only, and are not
intended to define, limit, or describe the scope or intent of any provision of
this Agreement, and shall not affect the construction of any provision of this
Agreement.
25. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as Buyer determines. Unless
consented to by Buyer in advance or required by legal requirements, prior to the
Closing, Seller shall keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any person. Seller and Buyer will consult
with each other concerning the means by which Seller's employees, customers, and
suppliers and others having dealings with Seller will be informed of this
Agreement and the transactions contemplated hereby, and Buyer will have the
right to be present for any such communication.
26. NO NEGOTIATION. Between the date of this Agreement and the Closing,
or until such time, if any, as this Agreement is terminated pursuant to the
terms of this Agreement, Buyer and Seller will not, directly or indirectly,
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any person (other than Buyer)
relating to any transaction involving the sale of the business or assets (other
than in the ordinary course of business) of Seller, or any of the capital stock
of Seller, or any merger, consolidation, business combination, or similar
transaction involving Seller.
27. CONFIDENTIALITY. Between the date of this Agreement and the
Closing, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer or Seller to
maintain in confidence, and not use to the detriment of the other party, any
written, oral, or other information obtained in confidence from the other party
in connection with this Agreement or the transactions contemplated hereby,
unless: (i) such
<PAGE> 29
Agreement for Purchase and Sale of Assets
Page 29
information is already known to such other party or to others not bound by a
duty of confidentiality, or such information becomes publicly available through
no fault of such party, (ii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated by this Agreement, or
(iii) the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings.
If the transactions contemplated by this Agreement are not consummated,
each party will return or destroy as much of such written information as the
other party may reasonable request. Whether or not the Closing takes place,
Seller waives any cause of action, right, or claim arising out of the access of
Buyer or its representatives to any trade secrets or other confidential
information of Seller, except for the intentional competitive misuse by Buyer of
such trade secrets or confidential information.
28. MISCELLANEOUS. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
SELLER: XYZ Group Inc.,
a Wisconsin corporation
By /s/ Gary Roy Billings
---------------------------------------
Gary Roy ("Joe") Billings, President
BUYER: Futech Educational Products, Inc.,
an Arizona corporation
By
----------------------------------------
Vincent W. Goett, President
ACCEPTED AND AGREED TO as to
Sections 6, 7.8, 9 and 12 above,
and the timely performance of
the obligations of Seller are
hereby guarantied, as of the
date first hereinabove written,
by:
<PAGE> 30
Agreement for Purchase and Sale of Assets
Page 29
information is already known to such other party or to others not bound by a
duty of confidentiality, or such information becomes publicly available through
no fault of such party, (ii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated by this Agreement, or
(iii) the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings.
If the transactions contemplated by this Agreement are not consummated,
each party will return or destroy as much of such written information as the
other party may reasonable request. Whether or not the Closing takes place,
Seller waives any cause of action, right, or claim arising out of the access of
Buyer or its representatives to any trade secrets or other confidential
information of Seller, except for the intentional competitive misuse by Buyer of
such trade secrets or confidential information.
28. MISCELLANEOUS. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
SELLER: XYZ Group Inc.,
a Wisconsin corporation
By
---------------------------------------
Gary Roy ("Joe") Billings, President
BUYER: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
----------------------------------------
Vincent W. Goett, President
ACCEPTED AND AGREED TO as to
Sections 6, 7.8, 9 and 12 above,
and the timely performance of
the obligations of Seller are
hereby guarantied, as of the
date first hereinabove written,
by:
<PAGE> 31
Agreement for Purchase and Sale of Assets
Page 30
/s/ Gary Roy Billings
- ----------------------------------
Gary Roy ("Joe") Billings
/s/ Deborah J. Billings
- ----------------------------------
Deborah J. Billings
<TABLE>
<S> <C>
List of Exhibits:
Employment Agreement "A"
Confidentiality Agreement "B"
Assumed Employee Benefits Obligations "C"
Seller's Employee Benefit Plans "D"
July 31, 1997 Balance Sheet "E"
Registration Rights Agreement "F"
</TABLE>
<PAGE> 32
EXHIBIT "A"
(EMPLOYMENT AGREEMENT FOR JOE BILLINGS)
<PAGE> 33
EXHIBIT "A"
FUTECH EDUCATIONAL PRODUCTS, INC.
EMPLOYMENT CONTRACT
DATED AS OF ________________________ , 199_____
The following sets forth the agreement by and between Gary Roy ("Joe") Billings
("Employee") and Futech Educational Products, Inc., an Arizona corporation
("Futech"), as to the employment of the Employee by Futech.
1. POSITIONS AND DUTIES. Futech shall employ Employee and Employee shall accept
employment from Futech, during the term of this Agreement, upon the terms and
subject to the conditions set forth below. Employee's duties as President shall
be subject to the direction and control of Futech's Chairman and Chief Executive
Officer, Vincent W. Goett, or his designee.
2. ACTIVITIES RELATING TO THE CORPORATION'S BUSINESS. At all times during the
term of this Agreement, Employee shall devote his full energies, interest,
abilities and productive time to the performance of this duties and
responsibilities hereunder. During the term of this Agreement, and for a period
of two (2) years thereafter, Employee shall not, without the prior written
consent of Futech, which consent may be withheld for any or no reason, directly
or indirectly, own, manage, operate, control, be employed by, participate in,
render services to, make loans to, or be connected in any manner with the
ownership, management, operation, or control of any business operation located
in the United States, Canada, or Europe, or any other country in which Futech,
or any of its subsidiaries, does business or intends to do business, which
business operation conducts business activities the same or substantially
similar to any type of business ever conducted by Futech, or any of its
subsidiaries, or proposed to be carried on by Futech or its subsidiaries.
In the event of any actual or threatened breach of the provisions of
this Section, Futech shall be entitled to an injunction restraining the actual
or threatened breach. The parties further agree that should Employee violate the
provisions of this Section, Employee shall be liable to Futech for, in addition
to any amounts pursuant to other remedies available against Employee, two (2)
times the greater of the amount of profit earned by Employee as a result of the
violation and the amount of profit which would have been earned by Futech from
the activities causing the violation had Futech conducted said activities, plus
interest on said greater amount from the date of the violating activities until
paid, as liquidated damages for only Futech's loss of potential profits. Said
interest shall be calculated at the lesser of: (i) eighteen percent (18%) per
annum, and (ii) the highest rate of interest permitted by applicable law.
Nothing in this Section shall be construed as prohibiting Futech from pursuing
any other available remedies for such breach or threatened breach, including
pursuing a recovery for damages. The parties agree that the liquidated
provisions set out above do not constitute a penalty, but rather reflect the
estimate of the parties as to the actual damages, including loss of profits,
Futech might or is likely to incur in the event of a violation of the
restrictions appearing herein.
Employee shall not, during the term of this Agreement and for a period
of two (2) years
EXHIBIT "A", PAGE 1 OF 6
<PAGE> 34
thereafter, without the prior written consent of Futech, which consent may be
withheld for any reason, directly or indirectly induce, encourage or solicit or
assist any person who was or is employed (whether as employee or as independent
contractor) by Futech, during the time period described above in this sentence,
to leave Futech's employ. If Employee has any control over, or responsibility
with respect to, the hiring of employees, agents or consultants at any facility
or with any other employer, Employee shall do everything in Employee's power to
preclude the hiring of or retention by such other employer or facility of any
individual who was employed by Futech during the period of time described in the
beginning of the proceeding sentence.
Employee acknowledges and agrees that the restrictions contained in
this Agreement, including but not limited to time period and geographical area
restrictions, are fair and reasonable and necessary for the successful operation
of Futech, that violation of any of them would cause irreparable injury, and
that the restrictions contained herein are not unreasonably restrictive of
Employee's ability to earn a living. If the scope of any restriction in this
Section is too broad to permit enforcement of such restriction to its fullest
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and the parties hereto consent and agree that such scope may be modified
judicially or by arbitration in any proceeding brought to enforce such
restriction. Employee acknowledges and agrees that remedies at law for any
breach or violation of the provisions of this Section would alone be inadequate,
and agrees and consents that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity of proof of
actual damage, and such remedies shall be in addition to other remedies and
rights Futech may have at law or in equity. Employee agrees that Futech shall
not be required to give notice or post any bond in connection with applying for
or obtaining any such injunctive relief.
The parties acknowledge and agree that the covenants in this Section
shall be construed as an agreement independent of any other provision of this
Agreement so that the existence of any claim or cause of action by Employee
against Futech, whether predicated on this Section or otherwise, shall not
constitute a defense to the enforcement of this Section.
This Agreement was specifically bargained for as a material portion of
a transaction wherein XYZ Group Inc. agreed to sell its assets to Futech
Educational Products, Inc. The consideration for this Agreement includes,
without limitation, the financial benefits received by Employee from said sale
transaction.
3. CONFIDENTIALITY AGREEMENTS. The obligations of the Employee and the rights of
Futech set forth herein are in addition to those set forth in a certain
Confidentiality Agreement executed by the Employee (the "Confidentiality
Agreement").
4. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to and
covenants with Futech that: (a) he has furnished to Futech a true and correct
copy of any agreements with any prior employer in the securities industry and is
subject to no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or any rights of Futech hereunder or under the Confidentiality
Agreement, (b) upon information and belief, there are no regulatory,
self-regulatory, administrative, civil or criminal matters past or present,
2 EXHIBIT "A", PAGE 2 OF 6
<PAGE> 35
affecting the employment of Employee by Futech.
5. SALARY. Employee will receive an annual salary of $250,000 (the "Base
Salary") for each year during the term of this Agreement. Such salary shall be
payable in equal periodic installments in accordance with Futech's usual
practice, but not less frequently than twice monthly, and shall be subject to
payroll and withholding deductions as may be required by law.
Employee's salary as set forth in the preceding paragraph shall
increase as follows if the performance criteria set forth below are satisfied:
(a) On January 1, 1999, if and only if the "Net Sales"
(defined below) of "Futech Entities" (defined below) for the calendar
year 1998 are at least 120% of Net Sales of Futech Entities for the
calendar year 1997, then Employee's Base Salary shall increase by 10%
over what it was at the end of the prior calendar year;
(b) On January 1, 2000, if and only if the "Net Sales"
(defined below) of "Futech Entities" (defined below) for the calendar
year 1999 are at least 120% of Net Sales of Futech Entities for the
calendar year 1998, then Employee's Base Salary shall increase by 10%
over what it was at the end of the prior calendar year.
The term "Net Sales" shall mean gross product sales, minus
returns and allowances. As used in this Agreement, the term "Futech
Entities" means Futech (defined at the beginning of this Agreement),
and any successor thereto, together with all subsidiaries thereof.
Employee may be eligible for additional discretionary
incentive compensation in the discretion of an executive committee of
the board of directors of Futech.
6. BENEFITS. During the term of his employment, Employee shall be eligible to
participate in, subject to their respective terms, all Futech employee (i) group
medical, hospitalization and life insurance plans, (ii) pension and profit
sharing plans, and (iii) other benefit plans or programs. Futech shall pay or
reimburse Employee for all out-of-pocket expenses for travel, meals, hotel
accommodations and the like reasonably incurred by him in accordance with
Futech's policies and directives (including any required prior approvals) for
such expenses in connection with the performance of Futech's business, each such
payment for reimbursement to be made upon submission of a statement and evidence
documenting such expenses as required by Futech. During the term of this
Agreement, Employee shall be entitled to an annual paid vacation of such period
as may be established from time to time by Futech's Board of Directors.
7. TERM. The term of this Agreement shall commence on , 199 and shall
continue in effect until December 31, 2000, or until such time as terminated as
provided in paragraphs 8, 9, 10 and/or 11. Upon termination of this Agreement
pursuant to paragraphs 8 or 9, Futech's sole obligation to Employee shall be to
pay all salary and stock options, if any, accrued by him up to the date of such
termination. Upon termination of this Agreement, Employee's obligations under
the Confidentiality Agreement shall survive.
3 EXHIBIT "A", PAGE 3 OF 6
<PAGE> 36
8. TERMINATION UPON DEATH. In the event of the death of Employee, the employment
of, and this Agreement with respect to, such deceased Employee shall be
terminated; provided always that Futech shall pay any accrued salary and any
accrued stock options, if any, as of the date of termination to the legal
representative of Employee's estate.
9. TERMINATION FOR DISABILITY. Futech may terminate the employment of, and this
Agreement with respect to, Employee if Employee becomes disabled, including
disability by reason of any emotional or mental disorders, physical diseases or
injuries, and as a result of such disability is unable to work on a full-time
basis for a continuous period of two months or more or any two months in a
twenty four month period. Upon such termination, Futech shall have no further
liability to Employee hereunder, except to pay any accrued salary and accrued
stock options, if any, as of the termination date. Upon such termination,
Employee's obligation to Futech under the Confidentiality Agreement shall
survive.
10. TERMINATION FOR CAUSE. Futech may terminate the employment of, and this
Agreement with respect to, Employee if: (a) Employee breaches his fiduciary
duties to Futech or is guilty of fraud or willful malfeasance, (b) Employee
materially breaches any representation, warranty, covenant or agreement
contained in this Agreement or fails to perform any of the obligations under
this Agreement or duties assigned to him pursuant to this Agreement or otherwise
by Futech, (c) Employee materially misrepresents any statement to Futech, (d)
Employee is convicted of a crime involving moral turpitude or a felony, (e)
Employee knowingly commits a material violation of any law, rule, regulation or
by-law of a securities exchange or association or other regulatory or
self-regulatory body or agency applicable to any general policy or directive of
Futech communicated in writing to Employee, (f) Employee fails to follow
reasonable instructions and/or policies of Futech's Chairman of the Board and
Chief Executive Officer, or (g) Employee terminates this Agreement at any time.
Upon termination of this Agreement pursuant to this paragraph 10,
Futech's sole obligation to Employee shall be to pay all accrued salary.
However, this shall not affect Employee's vested benefits under paragraph 6
above.
Upon such termination, Employee's obligation to Futech under the
Confidentiality Agreement shall survive.
11. TERMINATION OTHER THAN FOR CAUSE. Futech retains the right to terminate this
Agreement and/or Employee's employment for cause as set forth in paragraph 10,
and notwithstanding anything to the contrary in this Agreement, Futech shall
have the right to terminate this Agreement and/or Employee's employment
hereunder at any time for any reason other than for cause. In such event, Futech
shall remain obligated to pay Employee salary through December 31, 2000, at the
level of the Base Salary at the time of termination, as the salary accrues
between the termination date and December 31, 2000 (i.e., it is not payable in
one lump sum at the date of termination). The Base Salary so payable does not
include the 10% increases under subparagraphs 5(a) or 5(b) above. Employee's
obligation to Futech under the Confidentiality Agreement shall survive.
Employee shall provide Futech at least sixty (60) days notice of
Employee's termination of his employment with Futech.
4 EXHIBIT "A", PAGE 4 OF 6
<PAGE> 37
12. REVIEW. On August 1, 1998 and on each of the subsequent six month periods
thereafter during the term of employment, Vincent W. Goett shall provide
Employee with an informal verbal review of Employee's performance. Prior to
expiration of this Agreement, Vincent W. Goett and Employee shall discuss the
potential for Employee's continued employment subsequent to the termination of
this Agreement. Futech makes no promises and has no obligation to so continue
Employee's employment.
13. SUCCESSORS AND ASSIGNS. The rights and obligations of Futech hereunder shall
inure to the benefit of and shall be binding upon the successors and assigns of
Futech; provided, however, that Futech's obligations or liabilities hereunder
may not be assigned without the prior written approval of Employee, except to an
affiliate of Futech (which assignment shall not release Futech from its
obligations to Employee hereunder) or to a successor to all or substantially all
of Futech's assets, business or stock that agrees to be bound hereby. This
Agreement is personal to the Employee and may not be assigned by Employee.
14. AMENDMENT OR WAIVER. This Agreement may not be amended or modified except by
an agreement in writing duly executed by the Chairman and Chief Executive
Officer of Futech and Employee. The failure of Futech, on the one hand, or
Employee, on the other hand, at any time to enforce performance by the other of
any provision of this Agreement shall in no way affect Futech's or the
Employee's, as the case may be, rights thereafter to enforce the same, nor shall
the waiver by Futech, on the one hand, or Employee, on the other hand, of any
breach of any provision hereof be deeded to be a waiver by Futech or Employee,
as the case may be, of any other breach of the same or any other provision
hereof.
15. ARBITRATION. Except as set forth in the Confidentiality Agreement, any
controversy or claim arising out of or relating to this Agreement, or the breach
hereof, shall be settled in Arizona by arbitration in accordance with the rules
of the American Arbitration Association. Judgment upon the award of the
arbitrator(s) may be entered in any court having jurisdiction thereof.
16. MISCELLANEOUS. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof. This Agreement shall be constructed, interpreted and enforced in
accordance with the laws of the State of Arizona. The parties agree that the
State of Arizona shall have sole and exclusive jurisdiction and venue over the
parties and any disputes arising under or otherwise relating to this Agreement.
This, Agreement contains all of the terms and conditions agreed to by the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, except those set forth in the Confidentiality
Agreement.
DATED the date first hereinabove written.
-----------------------------------
Gary Roy ("Joe") Billings
5 EXHIBIT "A", PAGE 5 OF 6
<PAGE> 38
Futech Educational Products, Inc.,
an Arizona corporation
By:
--------------------------------
Vincent W. Goett, Chairman and
Chief Executive Officer
6 EXHIBIT "A", PAGE 6 OF 6
<PAGE> 39
EXHIBIT "B"
(CONFIDENTIALITY AGREEMENT FOR JOE BILLINGS)
<PAGE> 40
EXHIBIT "B"
CONFIDENTIALITY AGREEMENT
This Agreement is made as of __________, 199_, by and between Futech
Educational Products, Inc., a __________ corporation ("Futech") and the
undersigned ("Recipient").
Futech has developed or otherwise obtained certain confidential
information and proprietary technology relating to, among other things,
electronic books. Recipient wishes to negotiate with respect to, and possibly
enter into, a business relationship with Futech. However, in order to do so, it
is necessary that Recipient be made aware of confidential information and
propriety technology belonging to Futech. Futech does not wish to lose the
confidentiality or diminish its rights in the confidential information and
technology, and requires assurances that its rights therein will not be
diminished or impaired by virtue of the dealings with Recipient. In
consideration of being made aware of the confidential information and
proprietary technology, RECIPIENT THEREFORE AGREES AS FOLLOWS:
1. "Technology" means concepts, inventions, technological developments
and improvements, mask works, methods, techniques, systems, documentation, data
and information (irrespective of whether in human or machine-readable form),
works of authorship, and products, whether or not patentable, copyrightable, or
susceptible to any other form of protection and whether or not reduced to
practice.
2. "Confidential Information" means any and all Technology and/or
information which: (i) is provided to Recipient by Futech, (ii) is created,
developed, or otherwise generated by or on behalf of Futech, (iii) concerns or
relates to any aspect of Futech's business, or (iv) is, for any reason,
identified by Futech as confidential: except such information which Recipient
can show, clearly and convincingly: (a) is publicly and openly known and in the
public domain, (b) becomes publicly and openly known and in the public domain
through no fault of Recipient, or (c) is in Recipient's possession and
documented prior to this agreement, lawfully obtained by Recipient from a source
other than from Futech, and not subject to any obligation of confidentiality or
restrictions on use.
3. All Confidential Information and all Technology embodying or
comprising Confidential Information is and shall be the sole and exclusive
property of Futech. Any Technology embodying or derived from the Confidential
Information, or conceived or first made in connection with the business
relationship shall likewise be the sole and exclusive property of Futech.
Recipient shall not take or cause any action which would be inconsistent with or
tend to diminish or impair Futech's rights in the Confidential Information.
Recipient shall not, directly or indirectly, print, copy or otherwise reproduce,
in whole or in part, or embody in any product, any Confidential Information
without Futech's prior consent.
4. Confidential Information is revealed to Recipient in strict
confidence, and solely for the purpose of assessing (and perhaps forming under)
the business relationship. Recipient shall not use, or induce others to use, any
Confidential Information for any other purpose whatsoever, nor shall it disclose
or reveal any Confidential Information to anyone except those of Recipient's
employees directly involved in the business relationship, with a specific need
to
EXHIBIT "B", PAGE 1 OF 2
<PAGE> 41
know, and who have first agreed to be bound by the terms of this agreement.
Recipient acknowledges that in view of the nature of the Confidential
Information, the geographical scope (universal), temporal scope (so long as
information qualifies as Confidential Information hereunder), and scope of
restriction on use and disclosure are reasonable. Recipient also acknowledges
that any unauthorized disclosure or use of Confidential Information would cause
Futech immediate and irreparable injury or loss.
5. Upon Futech's request, Recipient will deliver over to Futech all
Confidential Information, as well as all documents, media, items and Technology
comprising, embodying, or relating to the Confidential Information, as well as
any other documents or things belonging to Futech that may be in Recipient's
possession. Recipient shall not retain any copies.
6. This agreement may be amended only in writing signed by Futech, and
there are no other understandings, agreements, or representations, express or
implied. If any clause or provision of this agreement is or becomes illegal,
invalid, or unenforceable, such clause or provisions shall be interpreted to
call for the protection of Futech's rights to the greatest extent which is
legal, valid, and enforceable, unless such clause or provision cannot be so
interpreted, or a court of competent jurisdiction declines to permit such clause
or provision to be so interpreted, in which case such clause or provision shall
be severed and the remaining provisions of this agreement shall continue in full
force and effect. This agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, and jurisdiction and venue
over the parties and any dispute arising under or otherwise relating to this
agreement shall solely and exclusively be in Arizona.
RECIPIENT:
Address:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
2 EXHIBIT "B", PAGE 2 OF 2
<PAGE> 42
EXHIBIT "C"
(ASSUMED EMPLOYEE BENEFITS OBLIGATIONS)
1. Vacation and sick pay earned by employees in accordance with company
policies, not however exceeding 25 days total for any employee.
2. Buyer will provide Seller's employees, after the Closing, health and life
insurance benefits, and 401k benefits, similar to those currently provided by
Seller to Seller's employees. [END OF LIST]
<PAGE> 43
EXHIBIT "D"
(SELLER'S EMPLOYEE BENEFIT PLANS)
1. Health and life insurance plans.
2. 401k Plan.
3. Profit Sharing Plan.
<PAGE> 44
EXHIBIT "E"
(JULY 31, 1997 BALANCE SHEET)
<PAGE> 45
EXHIBIT "E"
Page: 1
Date: 08/26/97 at 12:21 PM
XYZ GROUP INC.
BALANCE SHEET
JULY 1997
<TABLE>
<CAPTION>
BALANCE
-------
<S> <C>
ASSETS
- -------------------Current Assets--------------------------
Petty Cash Fund 1,000
Cash In Bank -- Regular Checking 2,495
Trade Receivables 4,524,938
Employee Receivables 5,362
Reserve For Doubtful Accounts -106,731
Reserve For Currency Exchange Losses -4,310
Reserve For Returns -200,000
Inventory -- XYZ 3,573,100
Inventory In Progress 47,500
Inventory -- Reserve For Returns 170,000
Inventory -- Consignment 63,660
Prepaid Insurance 4,144
Other Prepaid Expenses -49,654
---------
Total Current Assets 80,31,504
- -------------------Fixed Assets at Cost---------------------
Leasehold Improvements 36,814
Amortization Of Leasehold Improvements -614
Vehicles 47,566
Reserve For Depreciation -- Vehicles -11,891
Furniture And Fixtures 786,686
Reserve For Depreciation -- Furniture & Fixtures -409,205
Machinery 213,334
Depreciation -- Machinery And Equipment -127,610
---------
Total Fixed Assets at Cost 535,079
---------
Total ASSETS 8,566,583
=========
Liabilities
- ----------------------Current Liabilities-------------------
Notes Payable To Bank 4,705,476
Accounts Payable 4,191,220
Accrued Commission 3,152
Accrued State Withholding 124
</TABLE>
Page 1 of 2
<PAGE> 46
Page: 2
Date: 08/26/97 at 12:21 PM
XYZ GROUP INC.
BALANCE SHEET
JULY 1997
<TABLE>
<CAPTION>
BALANCE
-------
<S> <C>
Accrued Federal Unemployment 36
Accrued State Unemployment 442
Accrued Vacation Pay 19,827
Accrued Interest 45,444
Accrued Personal Property Taxes 5,712
Payroll Deduction Clearing 48
--------
Total Current Liabilities 8,971,481
- ----------------------Long Term Liabilities---------------------
Subordinated Debt -- From Stockholder 772,637
----------
Total Long Term Liabilities 772,637
----------
Total LIABILITIES 9,744,118
----------
EQUITY
- ----------------------------Equity------------------------------
Treasury Stock -1,032
Capital Stock 20,632
Capital In Excess Of Par Value 154,570
Retained Earnings -- Prior Years 236,132
S Corp Distributions -812,180
----------
Total Equity -401,878
Year-to-date Net Income -775,656
----------
Total EQUITY -1,177,534
----------
Total Liabilities and Equity 8,566,583
==========
</TABLE>
Page 2 of 2
<PAGE> 47
EXHIBIT "F"
(REGISTRATION RIGHTS AGREEMENT)
<PAGE> 48
EXHIBIT "F"
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), which shall be
effective as of October , 1997, is by and between Futech Educational Products,
Inc., an Arizona corporation (the "Company"), and Gary Roy ("Joe") Billings (the
"Shareholder");
RECITALS:
A. The Company and XYZ Group, Inc., a Wisconsin corporation ("XYZ") are
parties to an Agreement and Sale for Purchase of Assets dated October , 1997
(the "Asset Purchase Agreement").
B. Pursuant to the Asset Purchase Agreement, XYZ is acquiring shares of
the Company's common stock, no par value.
C. Shareholder shall acquire the shares from XYZ as sole shareholder of a
subchapter S corporation.
D. The shares of the Company's common stock which will or may be issued
pursuant to the Asset Purchase Agreement, as described in Recital B, are
referred to in this Agreement as the "Common Stock."
E. The Common Stock will not be registered under the Securities Act of
1933, as amended, or under the securities laws of any state, in reliance upon
exemptions from registration thereunder.
In consideration of the mutual covenants and obligations hereinafter set
forth, the Company and the Shareholder, hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the terms listed in this
Section shall have the meanings set forth below:
(a) "Affiliate" of any Person means any other Person who either
directly or indirectly is in control of, is controlled by or is under common
control with such Person; provided that for purposes of this definition an
investment entity shall be deemed to be controlled by its investment manager,
investment advisor or general partner.
(b) "Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of Phoenix are authorized by law, regulation or executive order to close.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are effect from time to time.
(d) "Holder" shall mean the Shareholder and his successors, assigns
and transferees (subject to Section 10 hereof). For purposes of this Agreement
the Company may
EXHIBIT "F", PAGE 1 OF 12
<PAGE> 49
deem the registered holder of a Registrable Security as the Holder thereof
(subject to Section 10 hereof).
(e) "Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture, trust or unincorporated organization,
a government or agency or political subdivision thereof or any other entity.
(f) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference in such prospectus.
(g) "Registrable Securities" shall mean (i) all shares of Common
Stock issued or issuable to the Shareholder pursuant to the Asset Purchase
Agreement as further described in Recital Section B; and (ii) any other
securities issued as a result of or in connection with any stock dividend, stock
split or reverse stock split, combination, recapitalization, reclassification,
merger or consolidation, exchange or distribution in respect of the shares of
Common Stock referred in to (i) above.
(h) "Registration Expenses" shall have the meaning set forth in
Section 6 hereof.
(i) "Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement including post effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
(j) "Registration Termination Date" shall mean the earlier to occur
of (i) the date that is five years following the date hereof or (ii) the first
date upon which the Registrable Securities may be sold without limitation under
Rule 144 under the Securities Act (as such Rule may be amended from time to
time), other than the limitations set forth in paragraphs (c), (f) and (h) of
such Rule, as determined by the opinion of counsel to the Company (which shall
be reasonably satisfactory to counsel to the Holders).
(k) "SEC" shall mean the U.S. Securities and Exchange Commission, or
any other U.S. federal agency at the time administering the Securities Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time,
EXHIBIT "F", PAGE 2 OF 12
<PAGE> 50
(m) "Underwritten Offering" shall mean an offering that is registered
under the Securities Act in which securities of the Company are sold pursuant to
a firm commitment underwriting, to an underwriter at a fixed price for
reoffering to the public or pursuant to agency or best efforts arrangements with
an underwriter.
SECTION 2. Securities Subject to this Agreement. The Registrable Securities
are entitled to the benefits of this Agreement.
SECTION 3. Demand Registration.
(a) Demand Registration (i) Upon the written request of Holders
owning not less than 50% of the Registrable Securities (excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act), and provided that
there is then no effective Registration Statement in effect with respect to such
Registrable Securities, the Company will effect, in accordance with the terms of
this Agreement, the registration under the Securities Act of the Registrable
Securities which the Company has been so requested to register by such Holders,
subject to Section 3(c) hereof; provided that the number of securities requested
to be so registered shall be not less than 50% of the Registrable Securities
held by such requesting Holders. NO SUCH REQUEST MAY BE MADE EARLIER THAN ONE
YEAR AFTER THE ACQUISITION OF THE COMMON STOCK BY THE HOLDER PURSUANT TO THE
TERMS OF THE ASSET PURCHASE AGREEMENT (THE "DEMAND COMMENCEMENT DATE"). In
addition, no such request shall be made during the 90-day period following the
completion of any Underwritten Offering of the Company's shares of Common Stock
and no such request shall be made to include any Registrable Securities in the
initial public offering of securities of the Company. The Company shall not be
obligated to effect more than two demand registrations pursuant to this Section
3, provided that the Company shall not be required to effect registrations on a
form other than a Form S-3 (or any successor to such form).
(ii) Expenses. The Company shall pay all Registration Expenses
with respect to any demand registration pursuant to this Section 3.
(b) Effectiveness of Registration Statement. The Company agrees to
use its best efforts to (i) cause the Registration Statement relating to any
demand registration pursuant to this Section 3 to become effective under the
Securities Act as promptly as practicable (ii) thereafter keep such Registration
Statement effective continuously for the period specified in the next succeeding
paragraph; and (iii) prevent the happening of any event of the kinds described
in clauses (4) or (5) of Section 5(a)(ii) hereof.
A demand registration requested pursuant to this Section 3 will not be
deemed to have been effected unless the Registration Statement relating thereto
has become effective under the Securities Act and remain continuously effective
(except as otherwise permitted under this Agreement) for a period ending on the
earlier of:
EXHIBIT "F", PAGE 3 OF 12
<PAGE> 51
(A) in the case of a Registration Statement on Form S-3 (subject to
Section 5(c) below), the Registration Termination Date; or
(B) the date on which all Registrable Securities covered by such
Registration Statement have been sold and the distribution
contemplated thereby has been completed.
(c) Inclusion of Other Securities. The Company, and any other holder
of the Company's securities that has registration rights, may include its
securities in any demand registration effected pursuant to this Section 3;
provided, however, that if the managing' underwriter or underwriters of any
Underwritten Offering contemplated thereby advise the Holders in writing that
the total amount or kind of securities which such Holder, the Company or any
such other holder intends to include in such proposed public offering is
sufficiently large to affect the success of the proposed public offering
requested by the Holder or Holders materially and adversely, then the amount or
kind of securities to be offered for the account of the Company or any such
other holder shall be reduced to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters.
(d) Form. Registrations under this Section 3 will be on a form
permitted by the rules and regulations of the SEC selected by the Company;
provided, however, the Company may use Form S-3 if at the time of filing such
Registration Statement the Company is eligible to use such Form.
(e) Manner of Sale. The Company may (but shall have no obligation to)
cause any Registrable Securities that are the subject of a demand registration
pursuant to this Section 3 to be sold in an Underwritten Offering in which event
the Company shall have the right to designate the managing underwriter or
underwriters thereof (which shall be reasonably satisfactory to the Holders
whose Registrable Securities are the subject of such demand registration).
SECTION 4. Piggyback Registration.
(a) Piggyback Registration. If the Company at any time proposes to
file a registration statement with respect to any class of equity securities,
whether for its own account (other than a registration statement on Form S-4 or
S-8, or any successor or substantially similar form or a registration statement
covering (i) an employee stock option, stock purchase or compensation plan or
securities issued or issuable pursuant to any such plan or (ii) a dividend
reinvestment plan) or for the account of a holder of securities of the Company
pursuant to registration rights granted by the Company (a "Requesting
Securityholder"), then the Company shall in each case give written notice of
such proposed filing to all Holders of Registrable Securities at least 20
Business Days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities held by such
Holders included in such registration statement.
EXHIBIT "F", PAGE 4 OF 12
<PAGE> 52
Each Holder of Registrable Securities desiring to have his Registrable
Securities registered under this Section 4 shall so advise the Company in
writing within 10 Business Days after the date of receipt of such notice (which
request shall set forth the amount of Registrable Securities for which
registration is requested), and the Company shall include in such Registration
Statement all such Registrable Securities so requested to be included therein;
provided, however, that if such Registration Statement is for an Underwritten
Offering, the Holders of Registrable Securities included therein shall join in
the underwriting on the same terms and conditions as the Company or the
Requesting Securityholders except that the Holders of Registrable Securities
shall not be required to give any representations and warranties relating to the
Company, and shall execute any underwriting agreement, "lock-up" letters or
other customary agreements or documents executed by the Company or the
Requesting Securityholders in connection therewith. Notwithstanding the
foregoing, if the managing underwriter or underwriters of any such proposed
public offering advise the Holders in writing that the total amount or kind of
securities which the Holders of Registrable Securities, the Company, the
Requesting Securityholders and any other Persons intended to be included in such
proposed public offering is sufficiently large to affect the success of such
proposed public offering materially and adversely, then the amount or kind of
securities to be offered for the accounts of the Holders of Registrable
Securities shall be reduced pro rata, together with the amount or kind of
securities to be offered for the accounts of any other Persons requesting
registration of securities pursuant to rights similar to the rights of the
Holders under this Section 4, to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters before
the securities offered by the Company or any Requesting Securityholder are so
reduced. Notwithstanding the foregoing, however, the Holders shall have no right
to include any Registrable Securities in the Company's initial public offering
of securities.
(b) No Obligation. Neither the giving of notice by the Company nor
any request by the Holders to register Registrable Securities pursuant to
Section 4(a) shall in any way obligate the Company to file any such Registration
Statement. The Company may, at any time prior to the effective date thereof,
determine not to offer the securities to which Registration Statement relates
and/or withdraw the Registration Statement from the SEC, without liability of
the Company to the Holders.
SECTION 5. Registration Procedures and Other Agreements.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 and, to the extent applicable thereto, Section
4 hereof, the Company will:
(i) prepare and file with the SEC a new Registration Statement
or such amendments and post-effective amendments to an existing Offering
Registration Statement as may be necessary to keep such Registration Statement
effective as set forth in Section 3(b); provided, however, that no Registration
Statement shall be required to remain in effect after all Registrable Securities
covered by such Registration Statement have been sold and distributed as
contemplated by such Registration Statement;
EXHIBIT "F", PAGE 5 OF 12
<PAGE> 53
(ii) notify each selling Holder promptly (1) when a new
Registration Statement, amendment thereto, Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to any
new Registration Statement or posteffective amendment, when it has become
effective, (2) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional information, (3) of the
issuance by the SEC of any comments with respect to any filing, (4) of any stop
order suspending the effectiveness of any Registration Statement or the
initiation or threatening of any proceedings for such purpose, (5) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (6) of the happening of any event which makes any statement of a
material fact made in any Registration Statement, Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in any Registration Statement, Prospectus or any document incorporated
therein by reference in order to make the statements therein (in the case of any
Prospectus, in the light of the circumstances under which they were made) not
misleading; and make every reasonable effort to obtain as promptly as
practicable the withdrawal of any order or other action suspending the
effectiveness of any Registration Statement or suspending the qualification or
registration (or exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(iii) furnish to each selling Holder, without charge, at least
one manually signed or "edgarized" copy and as many conformed copies as may
reasonable be requested, of the then effective Registration Statement and any
post-effective amendment thereto, and one copy of all financial statements and
schedules, all documents incorporated therein by reference and all exhibits
thereto (including those incorporated by reference);
(iv) deliver to each selling Holder, without charge, as many
copies of the then effective Prospectus (including each prospectus subject to
completion) and any amendments or supplements thereto as such Holder may
reasonably request;
(v) use its best efforts to register or qualify under the
securities or blue sky laws of such jurisdictions as the selling Holders
reasonably request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the then effective Registration Statement;
provided, however, that the Company will not be required to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, or (y) subject itself to general taxation in any such jurisdiction, or
(z) register or qualify such Registrable Securities under the securities or blue
sky laws of any jurisdiction in which the Company does not then maintain a
currently effective registration or qualification of any of its securities;
(vi) upon the occurrence of any event contemplated by clause (6)
of Section 5(a)(ii) hereof, as promptly as practicable (in light of the
circumstances causing the occurrence of such event) prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
EXHIBIT "F", PAGE 6 OF 12
<PAGE> 54
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in the light of the circumstances under which they were made, not misleading;
(vii) use reasonable efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
(or quotation system operated by a national securities association) on which
identical securities issued by the Company are then listed, and enter into
customary agreements including, if necessary, a listing application and
indemnification agreement in customary form;
(viii) if the registration is in connection with an Underwritten
Offering, enter into an underwriting agreement with respect to the Registrable
Securities, which agreement shall contain provisions that are customary in
connection with underwritten secondary offerings, including representations and
warranties, opinions of counsel, letters of accountants and indemnification
provisions with underwriters that acquire Registrable Securities;
(ix) otherwise use its best efforts to comply in all material
respects with all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and make
generally available to its securities holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and complying with Rule 158
of the SEC thereunder;
(x) cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc.; and
(xi) make available for inspection by a representative of selling
Holders and any attorney or accountant retained by such selling Holders, all
financial and other records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors and employees to supply all
information reasonably requested by, and to cooperate fully with, any such
representative, underwriter, attorney or accountant in connection with such
registration, and otherwise to cooperate fully in connection with any due
diligence investigation; provided that such representatives, underwriters,
attorneys or accountants enter into a confidentiality agreement in form and
substance reasonably satisfactory to the Company, prior to the release or
disclosure to them of any such information, records or documents.
(b) Each selling Holder shall furnish to the Company, upon request,
in writing such information and documents as, in the opinion of counsel to the
Company may be reasonably required to prepare properly and file such
Registration Statement in accordance with the applicable provisions of the
Securities Act.
SECTION 6. Registration Expenses. All expenses incident to the Company
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of one
counsel in connection with blue sky qualifications or registrations (or
EXHIBIT "F", PAGE 7 OF 12
<PAGE> 55
the obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of counsel retained by the Holders (which
counsel shall be reasonably satisfactory to the Company), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants (including the expenses
of any special audit or "comfort" letters required by or incident to such
performance or compliance), securities acts liability insurance (if the Company
elects to obtain such insurance), fees and expenses of any special experts
retained by the Company in connection with any registration hereunder and the
fees and expenses of any other Person retained by the Company (all such fees and
expenses being referred to as "Registration Expenses"), shall be borne by the
Company, whether or not any Registration Statement becomes effective.
SECTION 7. Suspension of Sales under Certain Circumstances.
(a) Upon receipt of any notice from the Company that dispositions
under the then current Prospectus must be discontinued and suspended, whether as
a result of an event described in Section 5(a)(ii)(4),(5) or (6) hereof or
otherwise, each Holder will forthwith discontinue and suspend disposition of
Registrable Securities pursuant to such Prospectus until (i) the Holders are
advised in writing by the Company that a new Registration Statement covering the
offer of Registrable Securities has become effective under the Securities Act,
or (ii) the Holders receive copies of a supplemented or amended Prospectus
contemplated by Section 5(a) hereof, or (iii) the Holders are advised in writing
by the Company that the use of the Prospectus may be resumed.
(b) If at any time following the date hereof any of the Company's
shares of Common Stock are to be sold pursuant to an Underwritten Offering, then
for the period commencing 45 days prior to, and expiring 180 days after, the
effective date of such Underwritten Offering, none of the Holders will effect
any public sale or distribution of any Registrable Securities or any other
shares of Common Stock of the Company then owned by such Holders, other than
pursuant to such Underwritten Offering (if any Registrable Securities are
included in such Underwritten Offering).
SECTION 8. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, but without duplication,
each Holder of Registrable Securities, any their respective officers and
directors, if any, and each Person who controls such Holder within the meaning
of the Securities Act, against all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and reasonable legal fees
and expenses) resulting from any untrue statement of a material fact in, or any
omission of a material fact required to be stated in, any Registration Statement
or in any preliminary or final Prospectus, or any amendment or supplement
thereto, or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made)
EXHIBIT "F", PAGE 8 OF 12
<PAGE> 56
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any underwriter
expressly for use therein; provided that the Company will not be liable pursuant
to this Section 8(a) if such losses, claims, damages, liabilities or expenses
have been caused by the failure of any selling Holder to deliver a copy of the
Registration Statement or Prospectus, or any amendments or supplements thereto,
after the Company has furnished such copies to such Holder.
(b) Indemnification by the Holders of Registrable Securities. In
connection with any Registration Statement covering Registrable Securities of
any Holder, such Holder will furnish to the Company in writing such information
as the Company reasonably requests for use in connection with any such
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, but without duplication, the Company, its
officers, directors, shareholders, employees, advisors and agents, and each
Person who controls the Company (within the meaning of the Securities Act),
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of a material fact in, or any omission of a material fact
required to be stated in, the Registration Statement or in any preliminary or
final Prospectus, or any amendment or supplement thereto, or necessary to make
the statements therein (in the case of a Prospectus in light of the
circumstances under which they were made) not misleading, but only to the extent
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
therein. If the offering to which the Registration Statement relates is an
Underwritten Offering, each Holder agrees to enter into an underwriting
agreement in customary form with such underwriters and to indemnify such
underwriters, their officers and directors, if any, and each Person who controls
such underwriters within the meaning of the Securities Act to the same extent as
hereinabove provided with respect to indemnification by such Holder of the
Company.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in, but not control, the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of such
indemnified Person, unless (A) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably, satisfactory to
the indemnified party in a timely manner, or (B) in the reasonable judgment of
any such Person, based upon written advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing, that such Person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of any such claim as to which such conflict of interest may
exist). The indemnifying party will not be subject to any liability for any
settlement made without its consent. No indemnified party will be required to
consent to the entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability
EXHIBIT "F", PAGE 9 OF 12
<PAGE> 57
in respect of such claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of the claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, as well as
one local counsel in each relevant jurisdiction.
(d) Contribution. If for any reason the indemnification provided for
in Section 8(a) or 8(b) hereof is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by Sections 8(a) and 8(b)
hereof, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
SECTION 9. Current Public Information. The Company agrees that it will file
all reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder (or, if it
ceases to be required to file such reports, it will, upon the request of Holders
owning not less than 51% of the Registrable Securities [excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act], make publicly
available other information), and it will take such further action as may
reasonably be required, in each case to the extent required from time to time to
enable the Holders to sell Registrable Securities without registration under the
Securities Act within the limitations of the applicable exemptions provided by
(x) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (y) any similar regulation hereinafter adopted by the SEC.
SECTION 10. No Inconsistent Agreements. The Company has not previously
entered into and shall not in the future enter into any agreement, arrangement
or understanding with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
SECTION 11. Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, without the written consent of (a)
the Company and (b) the Holders owning not less than 51% of the Registrable
Securities (excluding any Registrable Securities that have previously been sold
pursuant to a Registration Statement hereunder or Rule 144 under the Securities
Act).
SECTION 12. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile, or air-courier guaranteeing overnight delivery:
EXHIBIT "F", PAGE 10 OF 12
<PAGE> 58
(a) If to a Holder of Registrable Securities, at the most current
address for such Holder, as it appears on the books of the Company; and
(b) If to the Company: Futech Educational Products, Inc., 2999 North
44th Street, Suite 225, Phoenix, Arizona 85018, Attention: Chief Executive
Officer; facsimile no. 808-9863, or at such other address as may be designated
from time to time by notice given in accordance with the provisions of this
Section 11.
All such notices and other communications shall be deemed to have been
delivered and received (i) in the case of personal delivery or facsimile, on the
date of such delivery, (ii) in the case of air courier, on the Business Day
after the date when sent, and (iii) in the case of mailing, on the fifth
Business Day following such mailing.
SECTION 13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, transferees and assigns of the
parties hereto; provided, however, that (a) no transferee in any transfer made
in reliance on Rule 144 under the Securities Act shall have any rights as a
Holder under this Agreement; and (b) no Person to whom the Registrable
Securities are transferred shall have any rights under this Agreement as a
Holder unless such Person agrees to be bound by the terms and conditions of this
Agreement.
SECTION 14. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
SECTION 15. Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of Arizona without reference to principles of conflict of laws. The
parties to this Agreement hereby consent to the jurisdiction in personam of the
Superior Court of the State of Arizona, in and for the County of Maricopa or of
the United States District Court for the District of Arizona, in any legal
proceeding to enforce any obligations under this Agreement, and agree that venue
in Maricopa County is not inconvenient.
SECTION 16. Construction. The Section headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 17. Entire Agreement. This Agreement, together with any other
documents and certificates delivered hereunder and the Asset Purchase Agreement,
state the entire agreement of the Company and the Shareholder with respect to
the subject matter hereof, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties and
agreements which have induced this Agreement.
EXHIBIT "F", PAGE 11 OF 12
<PAGE> 59
IN WITNESS WHEREOF, the Company and the Shareholder have duly executed and
delivered this agreement as of the date written above.
SHAREHOLDER:
_________________________________
FUTECH EDUCATIONAL PRODUCTS, INC.
By:______________________________
Name:_______________________
Title:______________________
EXHIBIT "F", PAGE 12 OF 12
<PAGE> 1
Exhibit: 2.3FT
STOCK PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made as of the 30th day of September, 1998, by and
between Les Friedland ("Friedland"), Dan Lesnick ("Lesnick"), Howard W. Moore
and Helene Z. Moore, Trustees of the Howard W. Moore and Helene Z. Moore
Revocable Trust, dated November 1, 1996 ("Moore Trust"), Howard Moore
Associates, Inc. Defined Benefit Plan & Trust ("Moore Plan"), Howard Moore
Associates, Inc., a Nevada corporation, ("Moore Inc.") and Howard W. Moore
("Howard Moore")(all of the foregoing persons or entities involving Howard Moore
are referred to herein collectively as "Moore")(all of the foregoing sometimes
hereinafter referred to individually and collectively as "Seller" or "Sellers"),
Futech Interactive Products, Inc., an Arizona corporation ("Buyer"), and Vincent
W. Goett ("Goett").
RECITALS:
A. Sellers own 5,219,046 shares of common stock, no par value ("Common
Stock"), of Janex International, Inc., a Colorado corporation (said corporation,
and any and all subsidiaries of said corporation, are hereinafter referred to
collectively as the "Corporation"). The shares of Common Stock of the
Corporation owned by the Sellers is sometimes referred to herein as the "Stock."
B. The Corporation owns and operates a business (the "Business")
designing, developing, manufacturing and marketing children's toys, coin and
gumball banks, flashlights, battery-operated toothbrushes and "wet pets," and
activities relating thereto, under the trade name "Janex." The Business is
operated at the following address:
615 Hope Road
Building 1, First Floor
Eatontown, New Jersey 07724
C. Sellers are owed money by the Corporation under the "Sellers'
Receivables" described in Section 1.2 below.
D. Sellers desire to sell to Buyer, and Buyer desires to purchase from
Sellers, the Stock and Sellers' Receivables, all in accordance with the terms
and conditions set forth below (the "Transaction").
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
T E R M S:
1. PURCHASE AND SALE.
<PAGE> 2
1.1 Each Seller hereby sells to Buyer, the Stock owned by such
Seller as set forth below and Buyer hereby purchases said Stock, on the terms
and conditions set out herein. The shares of Stock owned by each Seller are as
follows:
<TABLE>
<CAPTION>
Seller Stock
------ -----
<S> <C>
Friedland 627,000
Lesnick 528,000
Moore Trust 2,386,184
Moore Plan 718,177
Moore Inc. 952,685
---------
5,219,046
</TABLE>
Immediately after these transfers, the ownership of the Common Stock of the
Corporation will be as follows:
<TABLE>
<CAPTION>
Shareholder Common Shares % of Common Shares
----------- ------------- ------------------
<S> <C> <C>
Buyer 5,219,046 52.3890%
Other Shareholders 4,743,059 47.6110%
--------- ---------
TOTAL 9,962,105 100.0000%
========= =========
</TABLE>
Also outstanding are options to purchase 76,250 shares of Common Stock,
held by a former employee of the Corporation named Mike Manahan. Warrants
(at approximately $.64) for 100,000 shares of Common Stock are owned by
Deco Disc. There are 1,725,000 public warrants outstanding, having an
exercise price of $7.50 each. Assuming exercise of the warrants and options
described above, there would be 11,863,355 common shares outstanding.
The Corporation is authorized to issue 20,000,000 shares of Common
Stock, of which none are held in the Corporation's treasury. The
Corporation is also authorized to issue 5,000,000 preferred shares, no par
value, some of which were previously issued, but were reacquired by the
Corporation in exchange for the issuance of Common Stock. None of the
preferred shares are issued or outstanding and none are held in the
Corporation's treasury.
1.2 The Seller named below, sells to Buyer the debt owing from
the corporation to such Seller, as follows:
(a) Promissory Note, dated October 6, 1993, payable by
the Corporation to Friedland, in the original principal amount of
$560,000.00. Friedland represents and warrants the balance of said
debt to be $280,000.00 of principal, plus $79,800.00 of accrued
interest as of August 31, 1998. An additional Promissory Note,
dated June 28, 1996, payable by Janex Corporation to Friedland, in
the original principal amount of $115,000.00. Sellers represent
and warrant the balance of said debt to be
2
<PAGE> 3
$115,000 of principal, plus $32,750 of accrued interest, as of August
31, 1998. The total of said indebtedness is $507,550.00, principal and
interest, as of August 31, 1998.
(b) Promissory Note, dated October 6, 1993, payable by the
Corporation to Lesnick, in the original principal amount of
$420,000.00. Sellers represent and warrant the balance of said debt to
be $220,000.00 of principal, plus $62,700.00 of accrued interest as of
August 31, 1998, for a total owing as of that date of $282,700.00.
(c) Eleven (11) Promissory Notes of various amounts and dates
between April 30, 1996 and June 9, 1997, totaling $615,000.00 in
principal, payable by the Corporation to the Moore Trust. Sellers
represent and warrant the balance of said debt to be $615,000.00 in
principal, plus $104,782.06 of accrued interest as of August 31, 1998,
for a total owing as of that date of $719,782.06.
This Agreement shall act as a bill of sale and assignment of interest
wherein each Seller transfers to Buyer the debt or debts described above as
owing to such Seller, and all security interests, all rights to collateral, and
all other rights associated with said debts (collectively "Sellers'
Receivables"), and Sellers instruct the Corporation to pay all amounts due under
said debts directly to Buyer. This document shall also act as a transfer of the
UCC-1 Financing Statement filing relating to said debts. Sellers agree to
execute and deliver to Buyer immediately upon request any and all documents
necessary or appropriate to effectuate the transfers described above, including
but not limited to Financing Statement filings transferring the existing
Financing Statements to Buyer.
Each Seller, represents and warrants as to the debt or debts described
above as owing to such Seller, that the debt or debts are valid debts of the
Corporation owing to such Seller, that the Seller owns the rights relating to
said debts, has not transferred or encumbered those rights, and is transferring
those rights free and clear of any and all liabilities, and that the debts are
secured with perfected financing statements creating a valid first position lien
against all assets of the Corporation pledged as collateral for the debts.
2. PURCHASE PRICE.
2.1 The purchase price for the Stock and Seller's Receivables, subject
to adjustment as described below, shall be the sum of $1,500,000.00, payable as
follows:
(a) 1,240,965 shares of Preferred Stock (defined below) of
Buyer, to be issued to Friedland as soon as practicable after the
execution of this Agreement, which, when valued at $.20 per share, have
an agreed value of $248,193;
(b) 743,285 shares of Preferred Stock of Buyer, to be issued
to Lesnick as soon as practicable after the execution of this
Agreement, which, when valued at $.20 per share, have an agreed value
of $148,657.00;
3
<PAGE> 4
(c) 1,765,750 shares of Preferred Stock of Buyer, to be issued
to Moore (as Moore shall designate) as soon as practicable after the
execution of this Agreement, which, when valued at $.20 per share, have
an agreed value of $353,150.00;
(d) $248,193.00 payable to Friedland, without interest, in
full in cash or cash equivalent, on the later to occur of ninety (90)
days after the date of this Agreement or 30 days after the closing by
Buyer of Buyer's reverse merger into the Corporation. Said obligation
shall be evidenced by a promissory note in the form of Exhibit 2.1(d)
attached hereto. The note shall bear interest at the rate of ten
percent (10%) per annum from the date of the note, if not paid when
due;
(e) $148,657.00 payable to Lesnick, without interest, in full
in cash or cash equivalent, on the later to occur of ninety (90) days
after the date of this Agreement or 30 days after the closing by Buyer
of Buyer's reverse merger into the Corporation. Said obligation shall
be evidenced by a promissory note in the form of Exhibit 2.1(d)
attached hereto. The note shall bear interest at the rate of ten
percent (10%) per annum from the date of the note, if not paid when
due; and
(f) $353,150.00 payable to Moore (as Moore shall designate),
without interest, in full in cash or cash equivalent, on the later to
occur of ninety (90) days after the date of this Agreement or 30 days
after the closing by Buyer of Buyer's reverse merger into the
Corporation. Said obligation shall be evidenced by a promissory note in
the form of Exhibit 2.1(d) attached hereto. The note shall bear
interest at the rate of ten percent (10%) per annum from the date of
the note, if not paid when due.
The term "Preferred Stock" as used above means the Series A Preferred
Stock of Buyer, said stock to have the same rights and restrictions as all other
preferred stock of Buyer has at the time the Preferred Stock is issued to
Sellers as called for above.
The $1,500,000.00 purchase price described above is allocated
$200,000.00 to the Stock and $1,300,000.00 to Sellers' Receivables.
2.2 The obligations of Buyer in subsections 2.1(d), (e) and (f) above
are hereby personally guaranteed by Goett.
2.3 No representation or warranty is made by Buyer as to the value of
the shares of the Preferred Stock of Buyer issued pursuant to this Section, and
Sellers take full risk and responsibility if the value of said shares is not the
value specified above in this Section.
3. LIABILITIES.
3.1 Buyer agrees to obtain, by the later to occur of ninety (90) days
after the date
4
<PAGE> 5
of this Agreement or 30 days after closing by Buyer of Buyer's reverse merger
into the Corporation, the release of Friedland, Lesnick and Moore from their
personal obligation or guaranty of the Corporation's line of credit with Tinton
Falls State Bank, but the liability of Buyer under this subsection shall be
limited to the maximum amount of $300,000.00, excluding interest, costs,
attorneys' fees and other charges (the "Tinton Bank Obligation). Buyer
irrevocably agrees to defend, indemnify and hold Friedland, Lesnick and Moore
free and harmless from any claim, suit, obligation, liability, loss, cost and
expense (including attorneys' fees) arising out of or related to the Tinton Bank
Obligation, but only as to the first $300,000.00 of said debt. Sellers guaranty
that all proceeds from all advances on the Tinton Bank Obligation made after
September 1, 1998 have been and will be applied to pay normal operating expenses
of the Corporation.
3.2 The parties acknowledge and agree that the Corporation is to be
liable as of the Closing for only the following liabilities (the "Approved
Liabilities"):
(a) The obligations and liabilities as shown in the
Corporation's Financial Statement, Form 1O-QSB, for the quarter ended
June 30, 1998 ("June 98 Financial Statement");
(b) Normal trade payables for services and products received
or receivable by the Corporation, incurred in the ordinary course of
the Business, after the date of the June 98 Financial Statement;
(c) The Corporation's obligations under the leases and other
contracts identified on Schedule 3.2(c) attached hereto and hereby
made a part hereof; and
(d) Payroll and payroll tax obligations for employees for not
more than the most recent pay period prior to the Closing, plus only
the employee benefits identified on Schedule 3.2(d) attached hereto
and hereby made a part hereof.
Attached hereto as Schedule 3.2 is a calculation made by the parties as
to net liabilities of the Corporation. The parties agree that a similar
calculation will be done at the later to occur of ninety (90) days after the
date of this Agreement or thirty (30) days after the closing by Buyer of Buyer's
reverse merger into the Corporation, using figures as of the Closing, with
however the Accounts Receivable number being the dollar amount of said
receivables which were outstanding as of the Closing and actually collected
between the Closing and the date as of which the calculation is being done. If
the result of the calculation is net liabilities exceeding $1,615,000.00, then
that portion in excess of $1,615,000.00 shall proportionately reduce the
principal of the amounts owing to the Sellers under subsections 2.1 (d) through
(f) above and proportionately increase the Preferred Stock to be issued to
Sellers under subsections 2.1 (a) through (c) above. Except as provided for in
Section 6 below, the provisions of the foregoing sentence shall be the sole
remedy for a breach of the provisions of this Section 3.2.
3.3 Specifically, but not in limitation of the foregoing, the
Corporation shall be
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free from the following liabilities:
(a) Any federal, state or local income taxes through
the date of Closing, except for those reserved against in the
Corporation's Financial Statements or arising as a consequence
of or related to the transactions contemplated by this
Agreement;
(b) Any labor, discrimination, harassment or similar
claims;
(c) Any environmental liability claims;
(d) Any negligence, conversion, tortious interference
or other tort claims, or claims for infringement of trade
name, patent, or copyright, or other intangible right;
(e) Any liability associated with any litigation or
other proceeding pending or threatened at the time of the
Closing, and not identified on Schedule 6.9 attached hereto
and hereby made a part hereof;
(f) Any contractual liability for contracts not
disclosed to and agreed upon by Buyer, or any liability to or
for employees or employee benefits not expressly agreed upon
by Buyer, other that any such contracts, liabilities and
benefits shown in the Corporation's Financial Statements or
otherwise disclosed to BUYER in writing.
4. CLOSING. The closing of the Transaction (the "Closing") shall occur
simultaneously and automatically with the complete signing of this Agreement,
subject to delivery of the following:
4.1 Sellers shall deliver to Buyer, the certificates for the
Stock duly endorsed or accompanied by duly endorsed Stock Assignments
Separate from Certificate.
4.2 Sellers shall deliver executed UCC Financial Statement
assignments of the UCC-1s on file against the Corporation and held by
one or more of the Sellers.
4.3 Buyer shall deliver to the Sellers, duly executed
Promissory Notes, as required by subsections 2.1 (d) through (f).
4.4 Buyer shall deliver the Preferred Stock as required by
subsections 2.1 (a) through (c).
5. POST-CLOSING TRANSACTIONS. Sellers acknowledge and understand and
agree that Buyer intends immediately after the Closing to convert Sellers'
Receivables to common and preferred stock of the Corporation. That preferred and
common stock will be all of the authorized but unissued shares of stock of the
Corporation, that are not reserved for issuance, which Sellers represent to be
approximately 8,000,000 shares of common stock and 5,000,000 shares of preferred
stock.
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Sellers represent and warrant that Friedland, Lesnick and Alex Hudges,
are the sole current directors of the Corporation, and Friedland is the current
president of the Corporation. Within 48 hours after the Closing, Sellers
represent, warrant and guaranty that the board of directors of the Corporation,
will hold a special meeting of the board of directors. At that meeting, the
board will consider and act upon a proposal to convert Sellers' Receivables to
the common and preferred shares of stock of the Corporation as described above
in this Section, and will authorize all actions necessary or appropriate to
accomplish that conversion. Sellers represent and warrant that the directors
have full authority to consider and authorize said conversion, without the aid,
consent, vote or other action of any person or entity, including but not limited
to the shareholders of the Corporation. Buyer acknowledges and understands that
in order for the Corporation to issue new shares of preferred stock, that a
Certificate of Determination of Rights, Preferences, Privileges and Restrictions
(or similar document) may have to be prepared and filed with the Colorado
secretary of State before any such shares may be issued. Sellers acknowledge and
understand that in order for Buyer to issue new shares of preferred stock, a
Certificate of Determination of Rights, Preferences, Privileges and Restrictions
(or similar document) may have to be prepared and filed with the State of
Arizona before any such shares may be issued.
Sellers will cooperate with Buyer in the appointment of a new board of
directors selected and/or approved by Buyer. Provided, that, Buyer understands
and acknowledges that new directors may not participate on the board until there
is compliance with Section 14(f) of the Securities Exchange Act of 1934
("Exchange Act"). Buyer agrees to be responsible for all costs and expenses
involved with the preparation and filing of all reports or documents required to
be filed under the Securities Act of 1933 or the Exchange Act, as a consequence
of the transactions described in this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF SELLER. In addition to the other
representations and warranties of Sellers appearing in this Agreement, Sellers
each hereby represent and warrant, as follows:
6.1 Due Incorporation. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Colorado. To the knowledge of Sellers, the Corporation is duly
licensed or qualified to do business and is in good standing in each
State where the property owned or held under lease is such as to
require the Corporation to be so licensed or qualified, except those
states where the failure to be so licensed or qualified would not have
a material adverse effect on the financial condition or operations of
the Corporation or the Business. To the knowledge of Sellers, the
Corporation has the corporate power and authority to own and operate
its properties and carry on the Business as now conducted.
True, correct and complete copies of the corporate formation
documents for the Corporation, and all operating minutes, resolutions
and consents, have been delivered to Buyer. To the knowledge of
Sellers, the minute book(s) of the Corporation correctly records all
resolutions of the directors and shareholders of the Corporation, and
the Corporation's stock records correctly reflect the ownership of
stock of the Corporation.
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6.2 Authority. Sellers have the power and authority to enter into and
perform their respective obligations under this Agreement, and the documents
herein required to consummate the Transaction. This Agreement constitutes the
legally valid and binding obligation of Sellers, enforceable against Sellers in
accordance with its terms.
6.3 Capitalization. The authorized capital stock of the Corporation as
of the date of this Agreement is as shown in Section 1.1 above. No other shares
of capital stock of the Corporation are outstanding. Except as set forth in
Schedule 6.3, there are no rights, subscriptions, warrants, options, conversion
rights or agreements of any kind outstanding to purchase or otherwise acquire
from the Corporation any shares of capital stock of the Corporation, or
securities or obligations of any kind of the Corporation convertible into or
exchangeable for any shares of capital stock of the Corporation. To the
knowledge of sellers, all issued shares have been duly authorized, and the
issued and outstanding shares of stock are fully paid, non-assessable, and were
not issued in violation of the terms of any agreement or other understanding,
and were issued in compliance with all applicable federal and state securities
or "blue sky" laws and regulations. Sellers own of record and beneficially, and
have good and marketable title to, the Stock. Sellers have provided a complete
and accurate list of the identity of each shareholder of the Corporation (other
than shares held in street name), and the numbers of shares of each class of
stock held by each such shareholder, and such list is consistent with the
capitalization information appearing in Section 1.1 above. Buyer acknowledges
that Sellers own certain warrants of the Corporation, which unless otherwise
agreed in writing with Buyer, Sellers will cancel as of the Closing.
No legend or other reference to any purported encumbrance appears on
any certificate representing equity shares of the Corporation, except for shares
issued by the Corporation in a private placement.
Ownership of the Stock purchased in this Transaction shall permit the
owners thereof to control the Corporation for all purposes except as
specifically provided by federal law or by the corporate statutes of the State
of Colorado.
6.4 Subsidiaries. The Corporation does not own and does not have any
agreement, whether written or oral, regarding rights or contracts to acquire any
equity securities or other securities of any company, or any direct or indirect
equity or ownership interest in any other entity, except as set forth in
Schedule 6.4.
6.5 Financial Information. Sellers or the Corporation have furnished
Buyer with true, correct and complete copies of the Corporation's financial
statements and other books and records. To the knowledge of Sellers, the
Corporation's financial statements were prepared in accordance with the books
and records of the Corporation, have been prepared in accordance with generally
accepted accounting principles consistently applied, and present fairly the
financial condition of the Corporation as of their respective dates and the
results of operations and changes in financial positions for the periods then
ended.
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The Corporation's December 31, 1997 Balance Sheet has been audited by
BDO Seidman, LLP, independent certified public accountants. To the knowledge of
Sellers, all financial statements provided to Buyer, except for adjustments from
matters raised during the audit, do not contain any material items of special or
non-recurring income or other income not earned in the ordinary course of
business, except as expressly specified therein.
At the Closing, all of the books and records of the Corporation will be
in the possession of the Corporation.
6.6 Taxes. To the knowledge of Sellers, all federal and state income,
excise, franchise, payroll, property, sales, and other tax returns required to
be filed by or with respect to the Corporation (except returns not yet due) have
been filed, are complete and accurately reflect in all material respects all
matters therein required to be reflected, and all taxes shown on such returns to
be due, and any assessments received by the Corporation with respect thereto,
have been paid in full.
6.7 Material Changes. To the knowledge of Sellers, from the date of the
most recent financial statements of the Corporation provided by Sellers to
Buyer, and through the date hereof, the Business has been conducted only in the
ordinary course, there have been no material adverse changes in the financial
condition or operations of the Business except as set forth on Schedule 6.7, and
there has been no damage, destruction or other occurrence (whether or not
insured against) which materially adversely affects the financial condition or
operations of the Business.
6.8 Title to Assets; Liens. To the knowledge of Sellers, the
Corporation owns all assets it purports to own, including all assets reflected
in its financial statements and information. The Corporation does not own any
real property. All assets of the Corporation are free and clear of all
restrictions, claims, liens, encumbrances or rights of others, other than those
imposed under the Articles of Incorporation or Bylaws of the Corporation, and
other than by Sellers' Receivables or the debts described in Section 3.1 above.
The Stock is free and clear of any and all liens, claims and encumbrances.
6.9 Litigation. To the knowledge of Sellers, and except as disclosed on
Schedule 6.9 attached hereto, there is no litigation, proceeding, or
investigation pending against Sellers or the Business, and the Sellers have no
reasonable grounds to know any basis for such litigation, proceeding or
investigation.
6.10 Compliance with Laws. Sellers are not aware of any investigation
with respect to any violation of any provision of any federal, state or local
law, regulation, ordinance, order or administrative ruling, relating to the
Corporation or the Business.
6.11 Insurance. The Corporation carries insurance against personal
injury and property damage to third persons and in respect of its products and
services, and other insurance, including any and all workers compensation
insurance required by law. To the knowledge of Sellers, the Corporation has not
received any notice that the Corporation is in
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default with respect to any provision contained in any insurance policy, and
Sellers are not aware of any such default. Sellers have delivered to Buyer
copies of all insurance policies of the Corporation.
6.12 Licenses. To the knowledge of Sellers, the Corporation has any and
all licenses, permits, and contracts necessary and/or appropriate to operate the
Business in the manner in which the Business is currently operated.
6.13 Hazardous Materials. To the knowledge of Sellers, the Business has
not dealt in any manner with any hazardous or toxic materials or waste.
6.14 Judgments Against Corporation and/or Business. To the knowledge of
Sellers, neither the Corporation nor the Business is under any governmental
investigation, no such investigation has been threatened, and there are no
judgments against the Corporation, the Business or the assets of the
Corporation.
6.15 Complete Sale. All assets used by the Corporation in the operation
of the Business are either owned by the Corporation or leased by the Corporation
under the leases described on Schedule 3.2(c) attached hereto. The assets of
the Corporation include, without limitation, the assets identified on Schedule
6.15 attached hereto.
By this Agreement, Sellers sell to Buyer all of the issued and
outstanding shares of capital stock of the Corporation which Sellers own or have
a right to acquire, including but not limited to any and options to acquire
shares of any type, except for Sellers' warrants and options, which warrants and
options Sellers will cancel.
6.16 Amounts Owing to Sellers. No amounts are owing to any of the
Sellers from the Corporation other than Sellers' Receivables, expenses incurred
by such Seller in connection with the Business, commissions owing and contingent
obligations to Sellers related to the Tinton Bank Obligation and the Moore
Letter of Credit.
6.17 Inventory. The inventory held by the Corporation is useable and in
good condition, with not more than 10% thereof being obsolete, and all of the
Inventory is owned by the Corporation, none of it being held by the Corporation
on consignment. To the knowledge of Sellers, the quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Corporation.
6.18 Disclosure Material. The financial condition of the Business is
as presented in the financial information, including tax returns and financial
statements, and books and records provided by Sellers to Buyer. To the knowledge
of Sellers, those materials and the other materials disclosed to Buyer are true,
complete and accurate in all respects, and fairly represent the information they
purport to provide. To the knowledge of Sellers, all of the information
disclosed, as a whole, does not contain any statement that, as of the date
hereof, is false or misleading, and does not omit to state any material fact (i)
necessary to make the
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statements made, in light of the circumstances under which they were made, not
false or misleading, or (ii) necessary to provide Buyer with complete and
accurate information as to the assets and financial standing of the Business.
Sellers have provided Buyer with complete and accurate copies of all
organizational documents of and/or relating to the Corporation, as well as a
complete copy of the existing minute book(s) for the Corporation.
6.19 Defaults. To the knowledge of Sellers, there are no defaults or
events with which the giving of notice or the passage of time would constitute
defaults under any document under which the Corporation is obligated, except
that the corporation is in default under its obligations to keep the prospectus
updated relating to the public warrants and the warrants issued to Deco Disc.
6.20 Vendor Accounts. Sellers shall do nothing to cause the Corporation
to lose any of the Corporation's supplier and other vendor accounts, or to cause
adverse changes in the account terms.
6.21 Material Contract. Except as disclosed in Schedule 3.2(c)
attached hereto, disclosed in the Corporation's Financial Statements or known to
Buyer, to the best of Sellers' knowledge, the Corporation is not a party to or
bound by any agreement not made in the ordinary course of its business which is
material to the financial condition or operations of the Corporation.
6.22 Outstanding Liabilities. To the knowledge of Sellers, there are no
liabilities of the Corporation other than as are shown on the June 30, 1998
Financial Statements, and other than liabilities arising in the normal course of
business since the June 30, 1998 Financial Statements.
6.23 Losses. To the knowledge of Sellers, there are no unrealized or
anticipated losses on any commitment or contract of the Corporation.
6.24 Patents. Except as disclosed on Schedule 6.24 attached hereto, to
the Sellers' knowledge, there is no litigation pending or threatened with
respect to the patents of the Corporation, there is no outstanding order,
judgment, decree or stipulation affecting the validity or enforceability of said
patents, there exits no outstanding notices of infringement given by the
Corporation regarding the patents, there are no pending interferences or other
contested proceedings pending, or to the knowledge of Sellers that are in the
process of being instituted, in the United States Patent Office or in the
courts, relating to said patents, and, to the best knowledge of Sellers, none of
the Corporation's patents are being presently infringed.
6.25 Receivables. All accounts receivable of the Corporation arose in
the regular course of business, and, to the best knowledge of Sellers, represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business and are collectable and subject to
no defenses or counterclaims, except as may be reserved against in the
Corporation's financial statements.
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6.26 Employees. There are no employee benefits for the Corporation's
employee other than those described in Schedule 3.2(d) attached hereto. To the
knowledge of Sellers, the Corporation is in compliance with all terms of all
employee benefit plans of the Corporation.
Sellers have provided to Buyer a complete and accurate list of the
following information for each employee of the Corporation, including each
employee on leave of absence or layoff status: name; job title; current
compensation; vacation and sick pay accrued; and services credited for purposes
of vesting and eligibility to participate in any of the Corporation's employee
benefit plans.
6.27 No Conflicts. The execution, delivery and performance of this
Agreement and the other documents and instruments to be executed and delivered
by Sellers pursuant hereto, and the consummation by Sellers of the transactions
contemplated herein or therein:
(a) Will not violate or conflict with any applicable federal,
state, foreign, local or other law, ordinance, rule, regulation, or
governmental requirement or restriction of any kind, including any
rules, regulations, and orders promulgated thereunder, and any final
orders, decrees, consents, or judgments of any regulatory agency or
court ("Law");
(b) Except as may be required to comply with the Securities
Act and the Exchange Act, will not require any authorization, consent,
approval, exemption or other action by or notice to any government
entity (including, without limitation, under any "plant closing" or
similar law) (neither Sellers nor the Corporation are required to give
any notice or to obtain any consent from any person, entity, or
governmental agency in connection with the execution and delivery of
this Agreement or the consummation of the Transaction);
(c) Will not constitute a default or an event that, with
notice, lapse of time, or both, would be a default, breach, or
violation of the Articles of Incorporation or Bylaws of the
Corporation or any lease, license, promissory note, conditional sales,
contract, commitment, indenture, mortgage, deed of trust, or other
agreement, instrument, or arrangement to which Corporation is a party
or by which the Corporation or its property is bound.
(d) Will not cause the creation or imposition of any lien,
charge, or encumbrance on any of the properties of the Corporation;
(e) Will not give any governmental body the right to revoke,
withdraw, suspend, cancel, terminate, or modify any governmental
authorization held by the Corporation or that otherwise relates to the
Business, except with respect to immaterial instances; and
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(f) Will not cause Buyer or the Corporation to become subject
to, or to become liable for, the payment of any tax which relates to
time periods prior to the Closing.
6.28 Violations of Law.
(a) To the knowledge of Sellers, none of the present or past
operations of the Business, the products of the Business, or the
Corporation's assets violate or conflict, in any material respect, with
any permits, any law (including environmental laws), governmental
specification, authorization, or requirement, or any decree, judgment,
order, or similar restriction. To the knowledge of Sellers, neither the
Corporation nor any supplier of the Corporation is the subject of an
inspection or inquiry regarding violations or alleged violations of any
law by any state, federal, or local agency.
(b) To the knowledge of Sellers, there are no proceedings,
threatened proceedings, orders, notice of violations, inspection
reports, and other similar occurrences, if any, relating to the conduct
of the Business or the Corporation's assets.
(c) To the knowledge of Sellers, the Corporation has not been
the subject of an Occupational and Safety Health Administration
inspection or found by any agency to be in violation of any state or
federal occupational safety or health law in the conduct of the
Business.
6.29 Condition and Sufficiency of Assets. To the knowledge of Sellers,
all tangible assets of the Corporation are in operating condition and repair,
and are adequate for the uses to which they are being put, and none of such
items is in need of maintenance or repairs, except for ordinary, routine
maintenance and repairs that are not material in nature or cost. To the
knowledge of Sellers, the assets are sufficient for the continued conduct of the
Corporation's businesses after the Closing in substantially the same manner as
conducted prior to the Closing.
6.30 Bank Accounts. Sellers have to the best of their knowledge,
disclosed to Buyer the names and locations of all banks, trust companies,
savings and loan associations and other financial institutions at which the
Corporation maintains a safe deposit box, lock box or checking, savings,
custodial or other account of any nature, the type and number of each such
account and the signatories therefor, a description of any compensating balance
arrangements, and the names of all individuals authorized to draw thereon, make
withdrawals therefrom or otherwise have access thereto.
6.31 Intentionally Omitted.
6.32 Environmental Matters. For the purposes of this Section:
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(i) "Environmental Law" means all federal, state, local,
foreign, and other applicable jurisdiction Laws relating to the
environment or the use, disposal, existence, or release of any
Hazardous Materials, including but not limited to any and all Laws
concerning, affecting, controlling, or in any way relating to, whether
in whole or in part, noise levels, ground vibrations, air pollutants,
water pollutants, process waste water, or Hazardous Materials;
(ii) "Environmental Release" means any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere, soil, surface water,
groundwater or property;
(iii) "Hazardous Materials" means: (A) any waste, hazardous
waste, pollutant, contaminant, or hazardous or toxic substance
regulated by Law; (B) asbestos; (C) formaldehyde; (D) polychlorinated
biphenuls; (E) radioactive materials; (F) waste oil and other petroleum
products; and (G) any other substance which constitutes a nuisance or
hazard to the environment or to the public health, safety, or welfare;
6.32.1 To the knowledge of Sellers, the Corporation is, and
at all times has been, in full compliance with, and has not been and is not in
violation of or liable under, any Environmental Law. Sellers have no basis to
expect, nor has any of them or any other person for whose conduct they are or
may be held to be responsible received, any actual or threatened order, notice,
or other communication from (i) any governmental body or private citizen acting
in the public interest, or (ii) the current or prior owner or operator of any of
the Corporation's properties or assets, of any actual or potential violation or
failure to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any environmental, health, and
safety liabilities with respect to any of the Corporation's properties or assets
(whether real, personal, or mixed) in which Sellers or the Corporation have had
an interest, or with respect to any of the Corporation's properties at or to
which Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by Sellers, the Corporation, or any other person
for whose conduct they are or may be held responsible, or from which Hazardous
Materials have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
6.32.2 Sellers have delivered to Buyer true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Sellers or the Corporation pertaining to Hazardous
Materials or hazardous activities in, on, or under the Corporation's properties
or concerning compliance by Sellers, the Corporation, or any other person for
whose conduct they are or may be held responsible, with Environmental Laws.
6.33 Intellectual Property.
(a) Sellers have provided Buyer with a true, correct and
complete list of (i) all patents held by the Corporation and all
re-examinations, re-issues, divisions, continuations, continuations in
part and extensions thereof and all pending patent
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applications by the Corporation, including for each such patent the
serial or patent number, country, filing and expiration date and title,
(ii) all registered trademarks of the Corporation and pending trademark
registrations by the Corporation, including, for each such trademark,
the registration number, country, filing and expiration date, mark and
class, (iii) all registered copyrights of the Corporation and copyright
applications by the Corporation, including the registration number,
country and filing and expiration date of each such copyright, and (iv)
all service marks, trade names and brand names of the Corporation, used
in the Business (whether or not registered) (all of the foregoing
collectively referred to as the "Intellectual Property"). All such
patents, trademarks and copyrights are properly registered, any
applications therefor have been properly made, and all annuity,
maintenance, renewal and other fees in connection with any of the
foregoing are current.
(b) Sellers have provided Buyer with a list of all material
licenses, contracts, commitments (including, without limitation,
confidentiality agreements) to which to the knowledge of Sellers, the
Corporation is a party or otherwise subject relating to the
Intellectual Property, including, without limitation, computer software
(except for standard licensing agreements or provisions from the seller
or licensor of such software). During the preceding three (3) fiscal
years and the current fiscal year to date, no claim or allegation of
infringement has been made by or against the Corporation, whether
relating to any item of Intellectual Property or otherwise, no claim or
allegation of misappropriation or misuse of any item of Intellectual
Property has been made by or against the Corporation, and no claim or
allegation has been asserted against the Corporation with respect to
the ownership or use of any of the Intellectual Property by the
Corporation or challenging or questioning the validity or effectiveness
of any such license, contract or commitment, and there does not exist
to the knowledge of any Seller or of the Corporation any valid basis
for any such claim or allegation.
(c) The Corporation has good and valid title to, or otherwise
possesses rights to use, the Intellectual Property.
6.34 Intentionally omitted.
6.35 Consents and Approvals. No consent, approval or authorization of,
or declaration, filing or registration with, any governmental person, whether
federal, state or local, is required of Sellers in connection with the execution
or delivery by Seller of this Agreement or the consummation by Sellers of any of
the transactions contemplated hereby, except as may be required to comply with
the Securities Act or the Exchange Act and a filing with the Colorado Secretary
of State pertaining to the preferred stock contemplated to be issued to the
Buyer.
6.36 Customers and Supplier. Sellers have provided Buyer with a list,
which to the knowledge of Sellers, sets forth the ten (10) largest customers of
the Corporation in terms of dollar volume of sales for the three (3) preceding
fiscal years and for the current fiscal
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year, showing the approximate total dollar amount of sales to each such customer
during each such fiscal year. Sellers have provided Buyer with a list, which to
the knowledge of Sellers, sets forth the ten (10) largest suppliers to the
Corporation in terms of dollar volume of purchases for the three (3) preceding
fiscal years and for the current fiscal year showing the approximate total
dollar amount of purchases from each supplier during each such fiscal year. To
the knowledge of Sellers, since January 1, 1994, the Corporation has not
received any notice from and has not otherwise been informed or made aware that
any such ten (10) largest suppliers or customers will be terminating or
curtailing its business with the Corporation in a manner that would have a
material adverse effect on the Corporation, except as may be indicated in the
lists, and by virtue of any decrease in business or production from such
customers or suppliers over the three (3) year period indicated, to the date of
the Closing.
6.37 Changes in the Corporation or its Documents. Except as set forth
in Schedule 6.37, none of the following has occurred within the last twelve
months prior to the date of this Agreement: (i) any change in the Articles of
Incorporation or Bylaws of the Corporation; (ii) any change in the number of
shares of stock issued and outstanding; (iii) the merger or consolidation of the
Corporation with or into any other corporation or other entity; (iv) declaration
or payment by the Corporation of any dividend or any repurchase by the
Corporation of any shares of stock of the Corporation; or (v) except in the
ordinary course of business and consistent with the Corporation's past practice,
any increase in the compensation payable by the Corporation to any director,
officer, employee or agent, or payment of any bonus, severance payment or other
compensation to any director, officer, employee or agent, or the entering into
of any agreement of any type which is not terminable by the Corporation on no
more than 30 days notice.
6.38 Shareholders Agreements and Other Agreements. Except as set forth
in Schedule 6.38, there are no shareholders agreements of any type, including
but not limited to any voting trust agreements, voting agreements or similar
arrangements restricting voting rights or the transferability of any interest in
the Corporation relating to the capital stock of the Corporation, or otherwise
relating to the Corporation. Furthermore, there are no employment agreements,
consulting agreements or similar type agreements relating to the Corporation,
other than one independent contractor agreement which is terminable by the
Corporation on not more than 30 days notice. There are no leases affecting the
Corporation other than one lease of real property in California, where the
leased property has been subleased to third parties.
6.39 Certain payments. To the knowledge of Sellers, neither the
Corporation nor any director, officer, agent or employee of the Corporation, or
any other person associated with or acting for or on behalf of the Corporation,
has directly or indirectly: (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any person, private or
public, regardless of form, whether in money, property, or services: (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, or (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the Corporation, or
(iv) in violation of any law; or (b)
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established or maintained any fund or asset that has not been recorded in the
books and records of the Corporation.
6.40 SEC Filings Complete. To Sellers' knowledge, the
Corporation's most recent Form 10-K for the fiscal year ended December
31, 1997 and all intervening Form 8-Ks AND Form 10-Qs, and the
Corporation's most recent annual meeting proxy statement and most
recent registration statement filed under the Securities Act, all as
filed with the SEC, do not contain a misstatement of a material fact or
an omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading as of the time
such document was filed or became effective. Since the filing of the
most recent Form 1O-K, no other document has been required to be filed
by the Corporation with the SEC which has not been filed, and no event
or transaction has occurred which will thereafter be required to be
disclosed by the Corporation in an Form 10-Q, Form 8-K or similar
filing except as expressly disclosed in this Agreement.
Sellers will cooperate with Buyer with respect to all filings
that Buyer or the Corporation make in connection with this Transaction.
6.41 Products. To the knowledge of Sellers, the products
offered currently or in the past by the Corporation for sale meet all
product and/or process specifications which they purport or are
required to meet, and satisfy in all material respects all applicable
laws.
An individual will be deemed to have knowledge of a particular fact or
other matter if such individual is actually aware of such fact or other matter
without inquiring.
The representations and warranties in this Section, and elsewhere in
this Agreement shall survive the Closing of the Transaction for a period of two
(2) years.
Sellers will indemnify and defend and hold Buyer free and harmless from
and against any liability, obligation, loss, cost and expense, including
attorneys' fees incurred by Buyer, in connection with any material breach by
Sellers of any their representations, warranties or covenants, contained in this
Agreement. Provided, however, that each Seller's maximum liability under this
paragraph and this Agreement, shall be limited to the aggregate value of the
consideration received by such Seller from Buyer under this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. In addition to the other
representations and warranties of Buyer appearing in this Agreement, Buyer
hereby represents and warrants, as follows:
7.1 Due Incorporation. Buyer is duly organized, validly
existing and in good standing under the laws of the State of Arizona.
To the knowledge of Buyer, Buyer is duly licensed or qualified to do
business and is in good standing in each State where the property owned
or held under lease is such as to require the Buyer to be so licensed
or qualified, except those states where the failure to be so licensed
or qualified would not have a material adverse effect on the financial
condition or operations of Buyer or its business. To the
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<PAGE> 18
knowledge of Buyer, Buyer has the corporate power and authority to own and
operate its properties and carry on its business as now conducted.
7.2 Authority. Buyer has full power and authority to enter into and
perform its obligations under this Agreement, and the documents herein required
to consummate the Transaction. This Agreement has been approved by all required
action of the Board of Directors and shareholders of Buyer. This Agreement
constitutes the legally valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms.
7.3 Capitalization. The authorized capital stock of the Buyer as of the
date of this Agreement is 235,000,000 shares of common stock, no par value, of
which there are 106,942,457 shares issued and outstanding, and 100,000,000
shares of Series A preferred stock, no par value, of which there are no shares
issued and outstanding. No other shares of capital stock of the Buyer are
outstanding. To the knowledge of Buyer, all issued shares and the shares of
Preferred Stock to be issued to Sellers, have been duly authorized, and the
issued and outstanding shares of stock, and the shares of Preferred Stock to be
issued to Sellers, are fully paid, non-assessable, and were and will not be
issued in violation of the terms of any agreement or other understanding, and
were and will be issued in compliance with all applicable federal and state
securities or "blue sky" laws and regulations.
7.4 Financial Information. Buyer has furnished to Sellers, true,
correct and complete copies of Buyer's financial statement, including a balance
sheet, profit and loss statement and notes thereto, for the fiscal year ended
December 31, 1997, and interim financial statements for June 30, 1998 ("Buyer's
Financial Statements"). To the knowledge of Buyer, Buyer's Financial Statements
were prepared in accordance with the books and records of the Buyer, have been
prepared in accordance with generally accepted accounting principles
consistently applied, and present fairly the financial condition of the Buyer as
of their respective dates and the results of operations and changes in financial
positions for the periods then ended.
Buyer's Financial Statement for the fiscal year ended December 31, 1997
has been audited by Ernst and Young, independent certified public accountants.
To the knowledge of Buyer, all financial statements provided by Buyer, except
for adjustments from matters raised during the audit, do not contain any
material items of special or non-recurring income or other income not earned in
the ordinary course of business, except as expressly specified therein.
7.5 Taxes. To the knowledge of Buyer, all federal and state income,
excise, franchise, payroll, property, sales, and other tax returns required to
be filed by or with respect to the Buyer (except returns not yet due) have been
filed, are complete and accurately reflect in all material respects all matters
therein required to be reflected, and all taxes shown on such returns to be due,
and any assessments received by the Buyer with respect thereto, have been paid
in full.
7.6 Material Changes. To the knowledge of Buyer, from the date of
Buyer's
18
<PAGE> 19
Financial Statements, through the date hereof, Buyer's business has been
conducted only in the ordinary course, there have been no material adverse
changes in the financial condition or operations of its business except as set
forth on Schedule 7.6 and there has been no damage, destruction or other
occurrence (whether or not insured against) which materially adversely affects
the financial condition or operations of Buyer's business.
7.7 Title, to Assets; Liens. To the knowledge of Buyer, Buyer owns all
assets it purports to own, including all assets reflected in Buyer's Financial
Statements. All assets of the Buyer are free and clear of all restrictions,
claims, liens, encumbrances or rights of others, other than those imposed under
the Articles of Incorporation or Bylaws of the Buyer, and other than as set
forth in Buyer's Financial Statements, and other than for debts incurred or
amended since the date of Buyer's Financial Statements.
7.8 Litigation. To the knowledge of Buyer, and except as disclosed on
Schedule 7.8 attached hereto, there is no litigation, proceeding, or
investigation pending against Buyer or its business, and Buyer has no reasonable
grounds to know any basis for such litigation, proceeding or investigation.
7.9 Compliance with Laws. Buyer is not aware of any investigation with
respect to any violation of any provision of any federal, state or local law,
regulation, ordinance, order or administrative ruling, relating to Buyer or its
business.
7. 10 License. To the knowledge of Buyer, Buyer has any and all
licenses, permits, and contracts necessary and/or appropriate to operate its
business in the manner in which the business is currently operated.
7.11 Hazardous Materials. To the knowledge of Buyer, Buyer has not
dealt in any manner with any hazardous or toxic materials or waste, as defined
under any federal, state or local law.
7.12 Judgments Against Buyer and/or its Business. To the knowledge of
Buyer, neither the Buyer nor its business is under any governmental
investigation, no such investigation has been threatened, and there are no
judgments against the Buyer, its business or the assets of Buyer.
7.13 Defaults. To the knowledge of Buyer, there are no defaults or
events with which the giving of notice or the passage of time would constitute
defaults under any document under which the Buyer is obligated.
7.14 No Conflict. The execution, delivery and performance of this
Agreement and the other documents and instruments to be executed and delivered
by Buyer pursuant hereto, and the consummation by Buyer of the transactions
contemplated herein or therein:
(a) Will not violate or conflict with any applicable federal,
state, foreign, local or other law, ordinance, rule, regulation, or governmental
requirement or restriction of
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<PAGE> 20
any kind, including any rules, regulations, and orders promulgated thereunder,
and any final orders, decrees, consents, or judgments of any regulatory agency
or court ("Law");
(b) Will not require any authorization, consent, approval,
exemption or other action by or notice to any government entity (including,
without limitation, under any "plant closing" or similar law) (neither Sellers
nor the Buyer are required to give any notice or to obtain any consent from any
person, entity, or governmental agency in connection with the execution and
delivery of this Agreement or the consummation of the Transaction);
(c) Will not constitute a default or an event that, with
notice, lapse of time, or both, would be a default, breach, or violation of the
Articles of Incorporation or Bylaws of Buyer or any lease, license, promissory
note, conditional sales, contract, commitment, indenture, mortgage, deed of
trust, or other agreement, instrument, or arrangement to which Buyer is a party
or by which Buyer or its property it bound.
(d) Will not cause the creation or imposition of any lien,
charge, or encumbrance on any of the properties of Buyer.
(e) Will not give any governmental body the right to revoke,
withdraw, suspend, cancel, terminate, or modify any governmental authorization
held by the Buyer or that otherwise relates to Buyer's business, except with
respect to immaterial instances; and
(f) Will not cause Buyer to become subject to, or to become
liable for, the payment of any tax which relates to time periods prior to the
Closing.
7.15 Violations of Law.
(a) To the knowledge of Buyer, none of the present or past
operations of its business, the products of the Business, or the
Buyer's assets violate or conflict, in any material respect, with any
permits, any law (including environmental laws), governmental
specification, authorization, or requirement, or any decree, judgment,
order, or similar restriction. To the knowledge of Buyer, neither the
Buyer nor any supplier of the Buyer is the subject of an inspection or
inquiry regarding violations or alleged violations of any law by any
state, federal, or local agency.
(b) To the knowledge of Buyer, there are no proceedings,
threatened proceedings, orders, notice of violations, inspection
reports, and other similar occurrences, if any, relating to the conduct
of its business or the Buyer's assets.
(c) To the knowledge of Buyer, Buyer has not been the subject
of an Occupational and Safety Health Administration inspection or found
by any agency to be in violation of any state or federal occupational
safety or health law in the conduct of its business.
7.16 Environmental Matters. For the purposes of this Section:
20
<PAGE> 21
(i) "Environmental Law" means all federal, state, local,
foreign, and other applicable jurisdiction Laws relating to the
environment or the use, disposal, existence, or release of any
Hazardous Materials, including but not limited to any and all Laws
concerning, affecting, controlling, or in any way relating to, whether
in whole or in part, noise levels, ground vibrations, air pollutants,
water pollutants, process waste water, or Hazardous Materials;
(ii) "Environmental Release" means any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere, soil, surface water,
groundwater or property;
(iii) "Hazardous Materials" means: (A) any waste, hazardous
waste, pollutant, contaminant, or hazardous or toxic substance
regulated by Law; (B) asbestos; (C) formaldehyde; (D) polychlorinated
biphenuls; (E) radioactive materials; (F) waste oil and other petroleum
products; and (G) any other substance which constitutes a nuisance or
hazard to the environment or to the public health, safety, or welfare;
7.16.1 To the knowledge of Buyer, the Buyer is, and at all
times has been, in full compliance with, and has not been and is not in
violation of or liable under, any Environmental Law. Buyer has no basis
to expect, nor has any Buyer or any other person for whose conduct
Buyer is or may be held to be responsible received, any actual or
threatened order, notice, or other communication from (i) any
governmental body or private citizen acting in the public interest, or
(ii) the current or prior owner or operator of any of the Buyer's
properties or assets, of any actual or potential violation or failure
to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any environmental, health,
and safety liabilities with respect to any of the Buyer's properties or
assets (whether real, personal, or mixed) in which the Buyer had an
interest, or with respect to any of the Buyer's properties at or to
which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by Buyer, the Buyer, or any
other person for whose conduct they are or may be held responsible, or
from which Hazardous Materials have been transported, treated, stored,
handled, transferred, disposed, recycled, or received.
7.16.2 Buyer has delivered to Sellers true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Buyer pertaining to Hazardous Materials or
hazardous activities in, on, or under the Buyer's properties or
concerning compliance by Buyer, or any other person for whose conduct
Buyer is or may be held responsible, with Environmental Laws.
7.17 Consents and Approvals. No consent, approval or authorization of,
or declaration, filing or registration with, any governmental person, whether
federal, state or local, is required of Buyer in connection with the execution
or delivery by Buyer of this
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<PAGE> 22
Agreement or the consummation by Buyer of any of the transactions
contemplated hereby, except as may be required to comply with the
Securities Act or the Exchange Act and a filing with the Colorado
Secretary of State pertaining to the preferred stock contemplated to be
issued to Buyer.
7.18 Buyer's Intent. In order to induce Sellers to sell the
Stock and the Sellers' Receivables to Buyer, Buyer represents and
warrants to Sellers that Buyer is acquiring the Stock and any
securities that Buyer may obtain upon conversion of the Sellers'
receivables into securities, for investment, for its own account and
not with a view to further distribution thereof, and Buyer further
represents and warrants that neither it nor any affiliate of Buyer has
any present intent to dissolve or liquidate the Corporation, or to
dissipate its assets or to take any actions which are not commercially
reasonable and might be viewed as materially detrimental to the
shareholders of the Corporation; provided, however, that Buyer does
intent to convert Sellers' Receivables to stock, and consummate a
reverse merger, as described herein.
7.19 Buyer's Due Diligence. Buyer acknowledges that it has
completed its own due diligence investigation of the Corporation,
including but not limited to reviewing the books and records of the
Corporation. Buyer further acknowledges that it has reviewed internal
financial statements for the Corporation as at June 30, 1998. Buyer
further acknowledges and understands that the Corporation has been
losing money every month in the recent past and that such losses shall
not be considered in determining whether or not an adverse material
affect on the financial condition of the Corporation has occurred.
An individual will be deemed to have knowledge of a particular fact or
other matter if such individual is actually aware of such fact or other matter
without inquiring.
The representations and warranties of Buyer in this Section, and
elsewhere in this Agreement shall survive the Closing of the Transaction for a
period of two (2) years.
Buyer will indemnify and defend and hold Sellers, and each of them,
free and harmless from and against any liability, obligation, loss, cost and
expense, including attorneys' fees incurred by Sellers or any of them, in
connection with any material breach by Buyer of any its representations,
warranties or covenants, contained in this Agreement; provided, however, that
Buyer's maximum liability for indemnification under this paragraph and elsewhere
in this Agreement shall be limited to $1,500,000.00.
8. EXPENSES. Each party shall bear its own expenses in completing the
Transaction. "Expenses" shall mean any expense of any nature incurred in
connection with the Transaction, including without limitation attorneys' fees,
accounting fees, filing fees and other costs.
9. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Arizona,
without giving effect to the conflicts of laws rules thereof. The courts of the
State of Arizona shall have the sole and exclusive jurisdiction and venue in any
case or controversy arising under this Agreement or by reason of this
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<PAGE> 23
Agreement. The parties agree that any litigation or arbitration arising from the
interpretation or enforcement of this Agreement shall be only in either Maricopa
County Superior Court or in the United States Federal District Court for the
District of Arizona, and for this purpose each party to this Agreement (and each
person who shall become a party) hereby expressly and irrevocably consents to
the jurisdiction and venue of such courts.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. No Sellers may assign any rights of the
Sellers under this Agreement without the prior written consent of Buyer and the
remaining Sellers.
11. ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Agreement constitutes the entire agreement between the parties which respect to
the subject matter hereof, and supersedes all prior understandings, if any, with
respect thereto.
12. FURTHER ASSURANCES. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm any
agreement contained herein in the manner contemplated hereby.
13. MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
14. SEVERABILITY. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal or unenforceable portion had never been a part of this
Agreement.
15. COUNTERPARTS, FACSIMILE SIGNATURES. This Agreement may be executed
by the parties in one or more counterparts, and any number of counterparts
signed in the aggregate by the parties shall constitute a single instrument. The
parties authorize and agree to accept facsimile signatures in counterparts to
this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were original signatures.
16. ATTORNEY'S FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement, or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party(s) of such action or
proceeding shall be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorneys' fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
17. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be delivered in person or
mailed by certified mail, return
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receipt requested, in the United States Mail, postage pre-paid, addressed as
follows:
If to Friedland: Les Friedland
37 Mohawk Avenue
Oceanport, New Jersey 07757
If to Lesnick: Dan Lesnick
564 Grant Street
Newtown, Pennsylvania 18940
If to Moore: Howard W. Moore
2056 Bobtail Circle
Henderson, Nevada 89012
If to Buyer: Futech Interactive Products, Inc.
Attention: Vincent W. Goett
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
or at such other address as a person may from time to time designate by Notice
hereunder. Notice shall be effective upon delivery in person, or if mailed, at
midnight on the third business day after the date of mailing.
18. PARAGRAPH TITLES AND HEADINGS. The titles and headings of sections
of this Agreement are for the convenience of reference only, and are not
intended to define, limit, or describe the scope or intent of any provision of
this Agreement, and shall not affect the construction of any provision of this
Agreement.
19. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as Buyer determines. Unless
consented to by Buyer in advance or required by legal requirements, Sellers
shall keep this Agreement strictly confidential and may not make any disclosure
of this Agreement to any person. Sellers and Buyer will consult with each other
concerning the means by which the Corporation's employees, customers, and
suppliers and others having dealings with the Corporation will be informed of
this Agreement and the Transactions, and Buyer will have the right to be present
for any such communication.
20. MISCELLANEOUS . The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Sellers hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Sellers' obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party
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to this Agreement. No waiver of any provision of this Agreement shall be
effective unless made in writing.
21. GUARANTY REGARDING SELLERS' SPOUSES. Each Seller who is married
hereby represents, warrants, and guaranties that he has the authority to enter
into and consummate the Transaction, including the transfer of the Stock,
without the signature or consent of his spouse, and agrees to defend and hold
Buyer harmless from and against any and all loss and expense, including
attorneys' fees and costs, incurred by Buyer as a result of said representation
not being accurate.
22. BROKERS. Each party to this Agreement represents and warrants that
he/she/it has not dealt with a broker regarding this transaction, and agrees to
indemnify, defend and hold the other parties to this Agreement harmless from and
against any and all expenses or other obligations, including attorneys' fees and
costs, claimed by any broker or finder as a result of dealings with the
indemnifying party.
23. AUTHORITY. Any individual executing this Agreement on behalf of an
entity represents and warrants that such individual has the right and authority
to execute this Agreement on behalf of such entity and that the entity will be
bound by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLERS:
/s/ Les Friedland
-----------------
Les Friedland
/s/ Dan Lesnick
---------------
Dan Lesnick
/s/ Howard Moore
-------------------
Howard W. Moore
HOWARD W. MOORE and HELENE MOORE
REVOCABLE TRUST DATED
------------
By: /s/ Howard Moore Trustee
---------------------------
Howard W. Moore, Trustee
By: /s/ Helene Moore, Trustee
---------------------------
Helene Z. Moore, Trustee
HOWARD MOORE & ASSOCIATES, INC.
By: /s/ Howard Moore President
-----------------------------
25
<PAGE> 26
Howard W. Moore, President
HOWARD MOORE & ASSOCIATES DEFINED
BENEFIT PLAN AND TRUST
By: /s/ Howard Moore, Trustee
----------------------------
Howard W. Moore, Trustee
BUYER: Futech Interactive Products, Inc.,
an Arizona corporation
By: /s/ Vincent W. Goett
------------------------------
Vincent W. Goett, CEO
GOETT: /s/ Vincent W. Goett
------------------------------
Vincent W. Goett
LIST OF SCHEDULES
Schedules Subject Matter
- --------- --------------
2.1(d) Promissory Note Form
3.2 Net Liabilities Calculation
3.2(c) Leases and Contracts
3.2(d) Approved Employee Benefits
6.3 Exceptions to Capitalization
6.4 Subsidiaries
6.7 Material Changes of Corporation
6.9 Litigation involving Corporation
6.15 Certain Assets of Corporation
6.24 Patent Exceptions
6.37 Changes in Corporation and Documents
6.38 Shareholders and Related Agreements
7.6 Material Changes of Buyer
7.7 Litigation involving Buyer
26
<PAGE> 27
SCHEDULE 3.2(c)
(APPROVED LEASES AND OTHER CONTRACTUAL OBLIGATIONS)
1. The Corporation's only real property lease is the lease on certain
Woodland, California property, on which the Corporation has an exposure limited
to the payment of approximately $1600. 00 per month through December, 2000, at
which time such lease shall expire.
<PAGE> 28
SCHEDULE 3.2(d)
(APPROVED EMPLOYEE BENEFITS)
<PAGE> 29
SCHEDULE 6.15
(LIST OF CERTAIN ASSETS OF THE CORPORATION)
1. All rights to the trade name "Janex" and any and all other trade
names used by the Business, along with any and all trademarks, service marks,
logos and designs relating thereto.
2. All of Sellers' and the Corporation's books and records, computer
programs, software, drawings, financial and tax information, and customer and
vendor files.
3. All patents, copyrights, trade secrets, customer and supplier lists,
promotional materials, and other intangible rights used in connection with the
operation of the Business.
4. The phone numbers and all phone and other advertising associated
with the Business.
5. The equipment, toolings and other fixed assets and personal property
described on the personal property lists provided by Sellers to Buyer.
<PAGE> 1
Exhibit: 3.1FT
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FUTECH EDUCATIONAL PRODUCTS, INC.
Pursuant to the provisions of Sections 10-1006 and 10-1007 of the
Arizona Revised Statutes, the undersigned corporation adopts the following
amendments and restatement of its Articles of Incorporation:
FIRST: The name of the corporation is FUTECH EDUCATIONAL PRODUCTS, INC.
SECOND: The document attached hereto as Exhibit A sets forth a restatement of
the Articles of Incorporation, which contain amendments to the Articles
of Incorporation.
THIRD: The document attached hereto as Exhibit A was adopted by the board of
directors and shareholders of the Corporation on January 29,1998.
F0URTH: The number of shares outstanding and entitled to vote at the time of
such adoption was 74,242,457 shares of common stock. The number of
undisputed votes cast for the amendments and restatement was
55,301,937. The number of votes cast for the amendments and restatement
was sufficient for approval.
DATED: February 5, 1998.
FUTECH EDUCATIONAL PRODUCTS, INC.
(t/b/a Futech Interactive Products, Inc.)
By:/s/ Vincent W. Goett
---------------------------
Vincent W. Goett, President
<PAGE> 2
EXHIBIT A
ARTICLES OF INCORPORATION
OF
FUTECH INTERACTIVE PRODUCTS, INC.
1. Name. The name of the corporation is Futech Interactive Products,
Inc. (the "Corporation").
2. Purpose. The purpose for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the laws of the State of Arizona, as they may be amended from
time to time.
3. Business. The current business conducted by the Corporation is
research, development, manufacturing, marketing and sale of rights to the
technology of education products.
4. Authorized Capital. The Corporation shall have authority to issue
335,000,000 shares, consisting of 235,000,000 shares of Common Stock, having no
par value (the "Common Stock") and 100,000,000 shares of preferred stock, having
no par value (the "Preferred Stock").
4.1 Preferred Stock. The board of directors is authorized, subject to
limitations prescribed by law and these Articles of Incorporation, to provide
for the issuance of the shares of preferred stock in series, and by filing a
certificate pursuant to the applicable law of the State of Arizona, to establish
from time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof,
including, without limitation, any rights of such series with respect to the
election of directors.
5. Number of Directors. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors consisting
of not less than one director nor more than nine directors, the exact number of
directors to be determined from time to time by resolution adopted by the Board
of Directors.
5.1 Classification and Terms of Directors. In the event the size of the
Board of Directors is fixed at six to eight directors, the directors shall be
divided into two classes designated Class I and Class II. In the event the size
of the Board of Directors is fixed at nine directors, the directors shall be
divided into three classes, designated Class I, Class 11 and Class III. Each
class shall consist of at least three directors, and, as nearly as may be
possible, of one-half of the total number of directors constituting the entire
Board of Directors in the case of six to eight directors, and one-third of the
total number of directors constituting the entire Board of Directors in the
case
<PAGE> 3
of nine directors. The Board of Directors shall have discretion to assign
individual directors among the classes so created, taking into account such
factors as it deems relevant. The term of office of Class I directors shall
expire at the first annual shareholders' meeting following their election, the
term of office of the Class II directors shall expire at the second annual
shareholders' meeting following their election, and the term of office of the
Class III directors shall expire at the third annual shareholders' meeting
following their election. At each annual meeting of shareholders at which the
term of a class of directors expires, successors to the class of directors whose
term expires at that annual meeting shall be elected for a two-year term if
there are two classes of directors, and for a three-year term if there are three
classes of directors. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes by the Board of Directors so as
to maintain the number of directors in each class as nearly equal as possible,
and in any event the size of each class shall be at least three directors. In
the event there are three classes of directors and the number of directors is
changed to a number less than nine but greater than six, there shall no longer
be Class III directors and such directors shall be apportioned among Class I and
Class II by the Board of Directors. In the event there are two classes of
directors and the number of directors is changed to a number of directors less
than six, there shall be no classification or staggered terms of directors. Any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining terms of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors that results from an increase in the number of
directors may be filled by a majority of the whole Board of Directors, and any
other vacancy may be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. In the event of a
vacancy in any class, such vacancy shall be filled prior to the next meeting of
directors. If the vacancy is not so filled, the Board of Directors shall
reapportion the classes as described elsewhere in this paragraph 5.1.
5.2 Preferred Stock Directors. Notwithstanding the foregoing, whenever
the holders of any one or more classes or series of Preferred Stock issued by
the Corporation shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of the shareholders, the
election, term of office, filling of vacancies, nomination, terms of removal and
other features of such directorships shall be governed by the terms of these
Articles of Incorporation or the resolution or resolutions adopted by the Board
of Directors pursuant to Article 4 applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this Article 5 unless
expressly provided by such terms.
6. Removal of Directors. Subject to the rights, if any, of the holders
of shares of Preferred Stock then outstanding, any or all of the directors of
the Corporation may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of a majority of the outstanding
shares of the Corporation then entitled to vote generally in the election of
directors, considered for purposes of this Article 6 as one class. If less than
the entire Board is to be removed, a director shall not be removed if the number
of votes sufficient to elect the director under cumulative voting is voted
against the director's removal.
<PAGE> 4
7. Special Meetings. Special meetings of the shareholders of the
Corporation for any purpose or purposes may be called at any time only by the
Chairman of the Board, the Chief Executive Officer or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors,
or at the request in writing of shareholders owning 50% or more in amount of
the capital stock issued and outstanding and entitled to vote. Special meetings
of the shareholders may not be called by any other person or persons. Business
transacted at any special meeting of the shareholders shall be limited to the
purposes stated in the notice of such meeting.
8. Known Place of Business. The known place of business of the
Corporation is 2999 North 44th Street, Suite 225, Phoenix, Arizona 85018-7247.
9. Statutory Agent. The statutory agent is Lawdock, Inc., One East
Camelback Road, Suite 400, Phoenix, Arizona 85012.
10. Board of Directors. The current board of directors consists of five
directors. The names and address of the directors until the next annual meeting
of shareholders is:
Vincent W. Goett
Roderick L. Turner
Gary Oman
Gary Roy "Joe" Billings
Robert Rosepink
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247.
11. Director Liability. A director of the Corporation shall not be
personally liable to the Corporation or its shareholders for monetary damages
for any action taken or any failure to take any action as a director, except for
liability (i) for the amount of a financial benefit received by a director to
which the director is not entitled (ii) for an intentional infliction of harm on
the Corporation or the shareholders, (iii) for an intentional violation of
criminal law, or (iv) for a violation of Section 10-833 of the Arizona Business
Corporation Act. If the Arizona Business Corporation Act is amended after
approval by the shareholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Arizona Business Corporation Act, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification. No amendment to the Arizona Revised Statutes that further
limits the acts, omissions or transactions for which elimination or limitation
of liability is permitted shall affect the liability of a director for any act,
omission or transaction which occurs prior to the effective date of such
amendment.
<PAGE> 1
Exhibit: 3.1FD
SECRETARY OF STATE
[SEAL OF NEVADA GRAPHIC]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that FUNDEX GAMES, LTD. did on JULY 16, 1996 file in this office
the original Articles of Incorporation; that said Articles are now on file and
of record in the office of the Secretary of State of the State of Nevada, and
further, that said Articles contain all the provisions required by the law of
said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand
and affixed the Great Seal of State, at my office,
in Carson City, Nevada, on July 16, 1996.
/s/ Dean Heller
Dean Heller
[SEAL OF NEVADA]
Secretary of State
By /s/ Deborah Jennings
Deborah Jennings
Certification Clerk
<PAGE> 2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JULY 16 1996
NO. C15272.96
---------
/s/ Dean Heller
-----------
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
FUNDEX GAMES, LTD.
I, the person hereinafter named as incorporator, for the purpose of
establishing a corporation, under the provisions and subject to the requirements
of Title 7, Chapter 78 of the Nevada Revised Statutes, and the acts amendatory
thereof, and hereinafter sometimes referred to as the General Corporation Law of
the State of Nevada, do hereby adopt and make the following Articles of
Incorporation:
FIRST. The name of the corporation (hereinafter called the corporation) is:
Fundex Games, Ltd.
SECOND. The name of the corporation's resident agent in the State of Nevada
is CSC Services of Nevada, Inc., and the street address of the said resident
agent where process may be served on the corporation is 502 East John Street,
Carson City, Nevada 89706. The mailing address and the street address of the
said resident agent are identical.
THIRD.
SECTION 3.1 -- SHARES. The total number of shares of all classes of stock
which the corporation is authorized to issue is Nine Million (9,000,000) shares,
consisting of Eight Million (8,000,000) shares of Common Stock, $0.001 par value
per share ("COMMON STOCK"), and One Million (1,000,000) shares of Preferred
Stock, $1.00 par value per share ("PREFERRED STOCK").
SECTION 3.2 -- COMMON STOCK. The Common Stock shall have the rights,
privileges and limitations of common stock generally under the laws of the State
of Nevada. Each share of Common Stock shall be entitled to one vote on each
matter coming before the stockholders, including, but not limited to, the right
to vote for directors.
SECTION 3.3 -- PREFERRED STOCK. The Board of Directors shall have authority
by resolution to issue the shares of Preferred Stock from time to time on such
terms as it may determine and to divide the Preferred Stock into one or more
series and, in connection with the creation of any such series and before the
issuance of any shares of such series, to determine and fix by the resolution or
resolutions providing for the issuance of shares thereof:
<PAGE> 3
(a) The distinctive designation of such series, the number of shares
constituting such series, which number may increased or decreased (but not
below the number of shares then outstanding) from time to time by action of the
Board of Directors, and the stated value thereof if different than the par
value thereof;
(b) The dividend rate on the shares constituting such series, the times of
payment of dividends on the shares of such series, whether dividends shall be
cumulative, and, if so, from what date or dates, and the relative rights of
priority, if any, which such dividends will bear to the dividends payable on
any shares of stock of any other class or any other series of this class;
(c) Whether the shares of such series shall be convertible into, or
exchangeable for, any other shares of stock of the corporation or any other
securities and, if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustments thereof, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(d) Whether the shares of such series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at
different redemption dates;
(e) Whether the shares of such series shall be entitled to the benefit of
a retirement or sinking fund for the redemption or purchase of shares of such
series, and, if so entitled, the terms and amount of such fund and the
provisions relative to the operation thereof;
(f) The rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of such series;
(g) Whether the shares of such series shall have voting rights, including,
without limitation, the authority to confer voting rights as to specified
matters or issues such as mergers, consolidations or sale of assets, or voting
rights to be exercised either together with holders of Common Stock as a single
class, or independently as a separate class; and
(h) Any other powers, designations, preferences and relative,
participating, optional, or other special rights of such series, and the
qualifications, limitations or restrictions thereof, to the
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<PAGE> 4
full extent now or hereafter permitted by the General Corporation Law of the
State of Nevada.
The powers, designations, preferences and relative, participating,
optional and other special rights of each series of Preferred Stock, and the
qualification, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. All shares of any
one series of Preferred Stock shall be identical in all respects with all other
shares of such series, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereon shall be
cumulative.
FOURTH. The governing board of the corporation shall be styled as a "Board
of Directors", and any number of said Board shall be styled as a "Director".
The number of members constituting the first Board of Directors is two (2); and
the names and the street addresses of said members are as follows:
Name Address
---- -------
Carl E. Voigt III 3750 W. 16th Street
Indianapolis, Indiana 46222
Carl E. Voigt IV 3750 W. 16th Street
Indianapolis, Indiana 46222
FIFTH. The name and street address of the incorporator signing these
Articles of Incorporation is as follows:
Name Address
---- -------
Carl E. Voigt IV 3750 W. 16th Street
Indianapolis, Indiana 46222
SIXTH. The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the General Corporation
Law of the State of Nevada, as the same may be amended and supplemented.
SEVENTH. The corporation shall, to the fullest extent permitted by the
provisions of the General Corporation Law of the State of Nevada, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said Law from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said Law,
and the aforesaid indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding
-3-
<PAGE> 5
such office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
IN WITNESS WHEREOF, I do hereby execute these Articles of Incorporation on
July 15, 1996.
/s/ Carl E. Voigt, IV
-------------------------------
Carl E. Voigt, IV
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On this 15th day of July, 1996, personally appeared before me, a Notary
Public in and for the State and County aforesaid, Carl E. Voigt, IV, known to
me to be the person described in and who executed the foregoing Articles of
Incorporation, and who acknowledged to me that he executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year first above
written.
/s/ Mitchell Roth
-------------------------------
Notary Public
(Notarial Seal)
[Official Seal of Mitchell Roth]
-4-
<PAGE> 1
Exhibit: 3.1D
[STATE OF STATE
CALIFORNIA OF
LOGO] CALIFORNIA
OFFICE OF THE SECRETARY OF STATE
- --------------------------------------------------------------------------------
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript was prepared by and in this office from the
record on file, of which it purports to be a copy, and that it is full, true and
correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
FEB 2 - 1982
--------------------------
[GREAT SEAL OF THE STATE OF CALIFORNIA] /s/ March Fong Eu
Secretary of State
- --------------------------------------------------------------------------------
SEC/STATE FORM CE-108 (REV. 4-76)
<PAGE> 2
ARTICLES OF INCORPORATION
OF
DaMERT COMPANY
I
The name of this corporation is DaMERT COMPANY.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations code.
III
The name and address in the State of California of this corporation's
initial agent for service of process is JACKSON E. MORRISON, ESQ., 1970
Broadway, Suite 1105, Oakland, CA 94612.
IV
This corporation is authorized to issue only one class of shares of stock;
and the total number of shares which this corporation is authorized to issue
is 5,000.
Dated: January 29, 1979
/s/ Frederick Allen DaMert Jr.
------------------------------
Frederick Allen DaMert Jr.
I hereby declare that I am the person who executed the foregoing Articles
of Incorporation which execution is my act and deed.
/s/ Frederick Allen DaMert Jr.
------------------------------
Frederick Allen DaMert Jr.
<PAGE> 1
Exhibit: 3.2FT
AMENDED AND RESTATED
BYLAWS
OF
FUTECH INTERACTIVE PRODUCTS
ARTICLE I
OFFICES
SECTION 1.1 Principal Office.
The corporation shall maintain a principal office at its known
place of business in Maricopa County, Arizona.
SECTION 1.2 Other Offices.
The Corporation also may have offices at such other places both
within and without the State of Arizona as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 Shareholder Meetings.
(a) Time and Place of Meetings. Meetings of the shareholders shall be
held at such times and places, either within or without the State of
Arizona, as may from time to time be fixed by the Board of Directors and
stated in the notices or waivers of notice of such meetings.
(b) Annual Meeting. The annual meeting of the shareholders shall be
held when designated by the Board of Directors, for the election of
directors and the transaction of such other business properly brought
before such annual meeting of the shareholders and within the powers of the
shareholders.
(c) Special Meetings. Special meetings of the shareholders of the
Corporation for any purpose or purposes may be called at any time only by
the Chairman of the Board, the
-1-
<PAGE> 2
Chief Executive Officer, or the Board of Directors pursuant to a resolution
approved by a majority of the whole Board of Directors, or at the request in
writing of shareholders owning at least 50% of the capital stock issued
and outstanding and entitled to vote. Business transacted at any special
meeting of the shareholders shall be limited to the purposes stated in the
notice of such meeting.
(d) Notice of Meetings. Except as otherwise provided by law, the
Articles of Incorporation or these Bylaws, written notice of each meeting of
the shareholders shall be given not less than ten days nor more than sixty
days before the date of such meeting to each shareholder entitled to vote
thereat, directed to such shareholder's address as it appears upon the books
of the Corporation, such notice to specify the place, date, hour and purpose
or purposes of such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, addressed
to the shareholder at his address as it appears on the stock ledger of the
Corporation. When a meeting of the shareholders is adjourned to another time
and/or place, notice need not be given of such adjourned meeting if the time
and place thereof are announced at the meeting of the shareholders at which
the adjournment is taken, unless the adjournment is for more than thirty
days or unless after the adjournment a new record date is fixed for such
adjourned meeting, in which event a notice of such adjourned meeting shall
be given to each shareholder of record entitled to vote thereat. Notice of
the time, place and purpose of any meeting of the shareholders may be waived
in writing either before or after such meeting and will be waived by any
shareholder by such shareholder's attendance thereat in person or by proxy.
Any shareholder so waiving notice of such a meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
(e) Quorum. Except as otherwise required by law, the Articles of
Incorporation or these Bylaws, the holders of not less than a majority of
the shares entitled to vote at any meeting of the shareholders, present in
person or by proxy, shall constitute a quorum and the affirmative vote of
the majority of such quorum shall be deemed the act of the shareholders. If
a quorum shall fail to attend any meeting of the shareholders, the presiding
officer of such meeting may adjourn such meeting from time to time to
another place, date or time, without notice other than announcement at such
meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting of the shareholders as
originally noticed. The foregoing notwithstanding, if a notice of any
adjourned special meeting of the shareholders is sent to all shareholders
entitled to vote thereat which states that such adjourned special meeting
will be held with those present in person or by proxy constituting a quorum,
then, except as otherwise required by law, those present at such adjourned
special meeting of the shareholders shall constitute a quorum and all
matters shall be determined by a majority of the votes cast at such special
meeting.
-2-
<PAGE> 3
SECTION 2.2 Determination of Shareholders Entitled to Notice and to Vote.
To determine the shareholders entitled to notice of any meeting of
the shareholders or to vote thereat, the Board of Directors may fix in
advance a record date as provided in Article VII, Section 7.1 of these
Bylaws, or if no record date is fixed by the Board of Directors, a record
date shall be determined as of 4:00 p.m. on the day before notice is sent.
SECTION 2.3 Voting.
(a) Except as otherwise required by law, the Articles of
Incorporation or these Bylaws, each shareholder present in person or by
proxy at a meeting of the shareholders shall be entitled to one vote for
each full share of stock registered in the name of such shareholder at the
time fixed by the Board of Directors or by law at the record date of the
determination of shareholders entitled to vote at such meeting.
(b) Every shareholder entitled to vote at a meeting of the
shareholders may do so either (i) in person or (ii) by one or more agents
authorized by a written proxy executed by the person or such shareholder's
duly authorized agent, whether by manual signature, typewriting, telegraphic
transmission or otherwise as permitted by law. No proxy shall be voted on
after three years from its date, unless the proxy provides for a longer
period.
(c) Voting may be by voice or by ballot as the presiding officer of
the meeting of the shareholders shall determine. On a vote by ballot, each
ballot shall be signed by the shareholder voting, or by such shareholder's
proxy, and shall state the number of shares voted.
(d) In advance of or at any meeting of the shareholders, the
Chairman of the Board or President shall appoint one or more persons as
inspectors of election (the "Inspectors") to act at such meeting. Such
Inspectors shall take charge of the ballots at such meeting. After the
balloting, the Inspectors shall count the ballots cast and make a written
report to the secretary of such meeting of the results. Subject to the
direction of the chairman of the meeting, the duties of such Inspectors may
further include without limitation: determining the number of shares
outstanding and the voting power of each; the shares represented at the
meeting; the existence of a quorum; the authenticity, validity, and effect
of proxies; receiving votes, ballots, or consents; hearing and determining
all challenges and questions in any way arising in connection with the right
to vote; counting and tabulating all votes of consents and determining when
the polls shall close; determining the result; and doing such acts as may be
proper to conduct the election or vote with fairness to all shareholders. An
Inspector need not be a shareholder of the Corporation and any officer of
the Corporation may be an Inspector on any question other than a vote for or
against such officer's election to any position with the Corporation or on
any other questions in which such officer may be directly interested. If
there are three or more Inspectors, the
-3-
<PAGE> 4
determination, report or certificate of a majority of such Inspectors shall be
effective as if unanimously made by all Inspectors.
SECTION 2.4 List of Shareholders.
The officer who has charge of the stock ledger of the Corporation
shall prepare and make available, at least 10 days before every meeting of
shareholders, a complete list of the shareholders entitled to vote thereat,
arranged in alphabetical order, showing the address of and the number of
shares registered in the name of each such shareholder. Such list shall be
open to the examination of any shareholder, for any purpose germane to such
meeting, either at a place within the city where such meeting is to be held
and which place shall be specified in the notice of such meeting, or, if not
so specified, at the place where such meeting is to be held. The list also
shall be produced and kept at the time and place of the meeting of the
shareholders during the whole time thereof, and may be inspected by any
shareholder who is present.
SECTION 2.5 Action by Consent of Shareholders.
A resolution in writing signed by the shareholders, representing
all of those shares entitled to vote shall be deemed to be the action of the
shareholders to the effect therein expressed with the same force and effect
as if the same had been duly passed by the same vote at a duly convened
meeting, and it shall be the duty of the Secretary of the Corporation to
record such resolution in the minute book of the Corporation under its
proper date.
SECTION 2.6 Conduct of Meetings.
The chairman of the meeting shall have full and complete authority
to determine the agenda, to set the procedures and order the conduct of
meetings, all as deemed appropriate by such person in his sole discretion
with due regard to the orderly conduct of business.
SECTION 2.7 Notice of Agenda Matters.
If a shareholder wishes to present to the Chairman of the Board or
the President an item for consideration as an agenda item for a meeting of
shareholders, he must give timely notice to the Secretary of the
Corporation and give a description of (i) the business desired to be
brought before the meeting and (ii) all arrangements or understandings
between such shareholder and any other person or persons (including their
names) in connection with the proposal of business by such shareholder and
any material interest of such shareholder and such other person(s) in such
business. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation,
not less than sixty days nor more than ninety days prior to the meeting;
provided, however, that in the event that less than seventy days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received
-4-
<PAGE> 5
not later than the close of business on the fifteenth day following the date
on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever is earlier, and provided further that any
other time period necessary to comply with federal proxy solicitation rules
or other regulations shall be deemed to be timely.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 General Powers.
Unless otherwise restricted by law, the Articles of Incorporation or
these Bylaws as to action which shall be authorized or approved by the
shareholders, and subject to the duties of directors as prescribed by these
Bylaws, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be controlled by,
the Board of Directors.
SECTION 3.2 Election of Directors.
(a) Number, Qualification and Term of Office. The authorized number of
directors of the Corporation shall be fixed from time to time by a
resolution duly adopted by a majority of the whole Board of Directors, but
shall not be less than one nor more than nine. The exact number of
directors shall be determined from time to time by a resolution duly
adopted by a majority of the Board of Directors. Directors need not be
shareholders and may succeed themselves.
(b) Resignation. Any director may resign from the Board of Directors
at any time by giving written notice to the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein, or if
the time when such resignation shall become effective shall not be so
specified, then such resignation shall take effect immediately upon its
receipt by the Secretary; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
(c) Nomination of Directors. Candidates for director of the
Corporation shall be nominated only either by:
(i) the Board of Directors or a committee appointed by the Board
of Directors, or
(ii) nomination at any shareholders' meeting by or on behalf of
any shareholder entitled to vote thereat; provided, that written
notice of such shareholder's intent to make such nomination or
nominations shall have been
-5-
<PAGE> 6
given, either by personal delivery or by United States certified mail,
postage prepaid, to the Secretary of the Corporation not later than
(1) with respect to an election to be held at an annual meeting of the
shareholders, not less than sixty days nor more than ninety days prior
to the meeting; provided, however, that in the event that less than
seventy days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to
be timely must be so received not later than the close of business on
the fifteenth day following the date on which such notice of the date
of the meeting was mailed or such public disclosure was made,
whichever is earlier, and (2) with respect to an election to be held
at a special meeting of the shareholders for the election of
directors, the close of business on the fifteenth day following the
date on which notice of such special meeting is first given to the
shareholders entitled to vote thereat or public disclosure of the
meeting date is made, whichever occurs first. Each such notice by a
shareholder shall set forth: (1) the name and address of the (A)
shareholder who intends to make the nomination and (B) person or
persons to be nominated; (2) a representation that the shareholder is
a holder of record of stock of the Corporation entitled to vote at
such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (3)
a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (4) such other
information regarding each nominee proposed by such shareholder as
would be required to be included in a proxy or information statement
filed with the Securities and Exchange Commission pursuant to the
proxy rules promulgated under the Securities Exchange Act of 1934, as
amended, or any successor statute thereto, had the nominee been
nominated or intended to be nominated, by the Board of Directors; and
(5) the manually signed consent of each nominee to serve as a director
of the Corporation if so elected. The presiding officer of the meeting
of the shareholders may refuse to acknowledge the nominee of any
person not made in compliance with the foregoing procedure.
(d) Preferred Stock Directors. Notwithstanding the foregoing, whenever
the holders of any one or more classes or series of stock issued by the
Corporation having a preference over the Common Stock as to dividends or upon
liquidation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of the shareholders, the election,
term of office, filling of vacancies, nomination, terms of removal and other
features of such directorships shall be governed by the terms of the Article of
the Articles of Incorporation authorizing the preferred stock and the resolution
or resolutions adopted by the Board of Directors establishing such class or
series adopted pursuant thereto,
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<PAGE> 7
and such directors so elected shall not be divided into classes pursuant to the
Articles of Incorporation unless expressly provided by such terms.
(e) Vacancies. Vacancies and new directorships resulting from an
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by the sole
remaining director. Directors so chosen shall hold office until their successors
are duly elected at the annual meeting and qualified. If no directors are in
office, an election may be held as provided by statute.
SECTION 3.3 Meetings of the Board of Directors.
(a) Regular Meetings. Regular meetings of the Board of Directors shall
be held without call at the following times:
(i) at such times as the Board of Directors shall from time to
time by resolution determine; and
(ii) one-half hour prior to any special meeting of the
shareholders and immediately following the adjournment of any annual
or special meeting of the shareholders.
Notice of all such regular meetings hereby is dispensed with.
(b) Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, the Chief Executive Officer, or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors.
Notice of the time and place of special meetings of the Board of Directors shall
be given by the Secretary or an Assistant Secretary of the Corporation, or by
any other officer authorized by the Board of Directors. Such notice shall be
given to each director personally or by mail, messenger, telecopy, telephone or
telegraph at such director's business or residence address. Notice by mail shall
be deposited in the United States mail, postage prepaid, not later than the
fifth day prior to the date fixed for such special meeting. Notice by telecopy,
telephone or telegraph shall be sent and notice given personally or by
messenger shall be delivered, at least twenty-four hours prior to the time set
for such special meeting. Notice of a special meeting of the Board of Directors
need not contain a statement of the purpose of such special meeting.
(c) Adjourned Meetings. A majority of directors present at any regular
or special meeting of the Board of Directors or any committee thereof, whether
or not constituting a quorum, may adjourn any meeting from time to time until a
quorum is present or otherwise. Notice of the time and place of holding any
adjourned meeting shall not be required if the time and place are fixed at the
meeting adjourned.
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(d) Place of Meetings. Meetings of the Board of Directors, both
regular and special, may be held within or without the State of Arizona.
(e) Participation by Telephone. Members of the Board of Directors or
any committee may participate in any meeting of the Board of Directors or
committee through the use of conference telephone or similar communications
equipment, so long as all members participating in such meeting can hear
one another, and such participation shall constitute presence in person at
such meeting.
(f) Quorum. At all meetings of the Board of Directors or any committee
thereof, a majority of the total number of directors of the entire then
authorized Board of Directors or such committee shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any such meeting at which there is a quorum shall be the act of
the Board of Directors or any committee, except as may be otherwise
specifically provided by law, the Articles of Incorporation or these
Bylaws. A meeting of the Board of Directors or any committee at which a
quorum initially is present may continue to transact business
notwithstanding the withdrawal of directors so long as any action is
approved by at least a majority of the required quorum for such meeting.
(g) Waiver of Notice. The transactions of any meeting of the Board of
Directors or any committee for which notice is required, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the directors not present signs a
written waiver of notice, or a consent to hold such meeting, or an approval
of the minutes thereof. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 3.4 Action Without Meeting.
Any action required or permitted to be taken by the Board of Directors
at any meeting or at any meeting of a committee may be taken without a
meeting if all members of the Board of Directors or such committee consent
in writing and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee.
SECTION 3.5 Compensation of Directors.
Unless otherwise restricted by law, the Articles of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving
compensation therefor. Members of
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committees of the Board of Directors may be allowed like compensation for
attending committee meetings.
SECTION 3.6 Committees of the Board.
(a) Committees. The Board of Directors may, by resolution adopted by a
majority of the Board of Directors, designate one or more committees of the
Board of Directors, each committee to consist of one or more directors.
Each such committee, to the extent permitted by law, the Articles of
Incorporation and these Bylaws, shall have and may exercise such of the
powers of the Board of Directors in the management and affairs of the
Corporation as may be prescribed by the resolutions creating such
committee. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. The Board of Directors shall have the power, at any
time for any reason, to change the members of any such committee, to fill
vacancies, and to discontinue any such committee.
(b) Minutes of Meetings. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
(c) Executive Committee. There may be an executive committee
consisting of at least three members of the Board of Directors elected by
the whole Board. Members of the executive committee shall serve at the
pleasure of the Board of Directors and each member of the executive
committee may be removed with or without cause at any time by the Board of
Directors. Vacancies shall be filled by the Board of Directors. The
executive committee may exercise the powers of the Board of Directors and
the management of the business and affairs of the corporation, but shall
not possess any authority prohibited to it by law.
SECTION 3.7 Interested Directors.
In addition to the statutory and corporate common law of Arizona, no
contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted
for such purpose if (i) the material facts as to his or their relationship
or interest and
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as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of
the shareholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the shareholders. Common or
interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 4.1 Officers.
(a) Number. The officers of the Corporation shall be chosen by the
Board of Directors and may include a Chairman of the Board of Directors
(who must be a director as chosen by the Board of Directors) and shall
include a Chief Executive Officer, a President, a Vice President, a
Secretary and a Treasurer. The Board of Directors also may appoint one or
more Assistant Secretaries or Assistant Treasurers and such other officers
and agents with such powers and duties as it shall deem necessary. Any Vice
President may be given such specific designation as may be determined from
time to time by the Board of Directors. Any number of offices may be held
by the same person, unless otherwise required by law, the Articles of
Incorporation or these Bylaws. The Board of Directors may delegate to any
other officer of the Corporation the power to choose such other officers
and to prescribe their respective duties and powers.
(b) Election and Term of Office. The officers shall be elected
annually by the Board of Directors at its annual meeting and each officer
shall hold office until the next annual election of officers and until such
officer's successor is elected and qualified, or until such officer's
death, resignation or removal. Any officer may be removed at any time, with
or without cause, by a vote of the majority of the whole Board of
Directors. Any vacancy occurring in any office may be filled by the Board
of Directors.
(c) Salaries. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors or a committee thereof from time to time.
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SECTION 4.2 Chairman of the Board of Directors.
The Chairman of the Board of Directors, if there be a Chairman,
shall preside at all meetings of the shareholders and the Board of Directors
and shall have such other power and authority as may from time to time be
assigned by the Board of Directors.
SECTION 4.3 Chief Executive Officer.
The Chief Executive Officer shall preside at all meetings of the
shareholders and the Board of Directors (if a Chairman of the Board has not
been elected), and shall see that all orders and resolutions of the Board of
Directors are carried into effect. Subject to the provisions of these Bylaws
and to the direction of the Board of Directors, the Chief Executive Officer
shall have the general and active management of the business of the
Corporation, may execute all contracts and any mortgages, conveyances or
other legal instruments in the name of and on behalf of the Corporation, but
this provision shall not prohibit the delegation of such powers by the Board
of Directors to some other officer, agent or attorney-in-fact of the
Corporation.
SECTION 4.4 President.
If the President and Chief Executive Officer are different
individuals, in the absence or disability of the Chief Executive Officer,
the President shall perform all the duties of the Chief Executive Officer,
and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the Chief Executive Officer. The President shall have
such other powers and perform such other duties as from time to time may be
prescribed by the Board of Directors or these Bylaws.
SECTION 4.5 Vice Presidents.
In the absence or disability of the Chief Executive Officer and the
President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them,
respectively, by the Board of Directors or these Bylaws.
SECTION 4.6 Secretary and Assistant Secretaries.
The Secretary shall record or cause to be recorded, in books
provided for the purpose, minutes of the meetings of the shareholders, the
Board of Directors and all committees of the Board of Directors; see that
all notices are duly given in accordance with the provisions of these Bylaws
as required by law; be custodian of all corporate records (other than
financial)
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and of the seal of the Corporation, and have authority to affix the
seal to all documents requiring it and attest to the same; give, or
cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors; and, in general, shall
perform all duties incident to the office of Secretary and such other
duties as may, from time to time, be assigned to him by the Board of
Directors or by the President. At the request of the Secretary, or in
the Secretary's absence or disability, any Assistant Secretary shall
perform any of the duties of the Secretary and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon,
the Secretary.
SECTION 4.7 Treasurer and Assistant Treasurers.
The Treasurer shall keep or cause to be kept the books of
account of the Corporation and shall render statements of the financial
affairs of the Corporation in such form and as often as required by the
Board of Directors or the President. The Treasurer, subject to the
order of the Board of Directors, shall have custody of all funds and
securities of the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The
shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements. The
Treasurer shall perform all other duties commonly incident to his
office and shall perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to
time. At the request of the Treasurer, or in the Treasurer's absence
or disability, any Assistant Treasurer may perform any of the duties of
the Treasurer and, when so acting, shall have all the powers of, and be
subject to all the restrictions upon the Treasurer. Except where by
law the signature of the Treasurer is required, each of the Assistant
Treasurers shall possess the same power as the Treasurer to sign all
certificates, contracts, obligations and other instruments of the
Corporation.
SECTION 4.8 Non-Executive Staff Officers.
In addition to the executive officer positions which are
described in the preceding paragraphs of this Article IV, the
Corporation shall have such non-executive staff officer positions as
may be created by the Board of Directors, from time to time, which may
include, but shall not necessarily be limited to, a Vice-President of
Risk Management and a Vice-President of Human Resources and Benefits.
Non-executive staff officers will be designated as such in the
resolutions of the Board of Directors which create or fill such
positions. Non-executive staff officers will not have the power or
right to sign documents on behalf of the Corporation, to otherwise bind
the corporation as to legal matters, or to otherwise have any of the
powers or rights of an executive officer of the Corporation. It is the
intent of the Corporation that such restrictions be imposed to vest the
day-to-day management of the Corporation solely in the executive
officers and not in the non-executive staff officers and, furthermore,
to not make the non-executive staff officers executive offers for the
purposes
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of reporting to the United States Securities and Exchange Commission under
applicable federal law or the Commission's Rules and Regulations.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 5.1 Right to Indemnification.
Subject to the terms and conditions of this Article V, each officer
or director of the Corporation who was or is made a party or witness or is
threatened to be made a party or witness to or is otherwise involved in any
threatened, pending or completed action, suit, alternative dispute
resolution, inquiry, hearing, investigation, or proceeding, whether civil,
criminal, administrative or investigative, including any derivative action
(hereinafter a "proceeding"), by reason of the fact that he or she is or was
a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action or
inaction in an official capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized or permitted by the Arizona Business
Corporation Act (the "Act"), as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that, except as provided herein with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Act requires, an advancement of expenses incurred by an indemnitee shall
be made only upon delivery to the Corporation of an undertaking in the form
then required by the Act (if any), by or on behalf of such indemnitee, with
respect to the repayment of amounts so advanced (hereinafter an
"undertaking").
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SECTION 5.2 Advance of Expenses.
(a) If so requested by an indemnitee in writing, the Corporation
shall (subject to the expense advance rules hereinafter described) advance
to an indemnitee (an "expense advance") any and all expenses incurred in
connection with the investigation and preparation of the indemnitee's
participation in any indemnifiable action, whether as a witness or a party,
pursuant to these Bylaws. The Corporation shall comply with the indemnitee's
written request for an expense advance, and, if required by the Act, make
any necessary determination that the facts then known would not preclude
indemnification under the Act, within ten (10) business days of receipt of
such written request, together with the reimbursement commitment referred to
in subparagraph (b) below.
(b) The obligation of the Corporation to make an expense advance
shall be subject to the condition that, if it is ultimately determined (by
final judicial determination from which there is no further right to appeal)
that there are matters to which indemnitee is not entitled to indemnity
under these Bylaws, the Corporation shall be entitled to be reimbursed by
indemnitee for all such amounts. Prior to obtaining the initial expense
advance, indemnitee shall confirm such reimbursement obligation by delivery
to Corporation of a signed undertaking to that effect. Such obligation shall
be unsecured, and accepted without reference to financial ability to make
repayment.
(c) Expenses in all cases must be reasonable and comply with
existing or future billing procedures of the Company so that the Company can
reasonably monitor and audit such expenses. With respect to attorneys'
fees, the Company will give reasonable consideration to requests for
specific counsel and to requests for the grouping of individuals for joint
defense purposes. Any attorney representing more than one individual may be
requested to render separate statements to each individual or otherwise
allocate billings by individual.
(d) Expenses include attorneys' fees, court costs, deposition
costs, court reporter fees, travel and all other costs, expenses and
obligations actually paid to another or incurred in connection with
investigating the facts underlying a proceeding, preparing to defend and
defending a proceeding or preparing for and participating in a proceeding as
a witness, or any of the foregoing expenses incurred on appeal or in an
action or other proceeding to enforce indemnitee's rights hereunder, or any
other reasonable expenses incurred by indemnitee in participating in any
indemnifiable proceeding.
SECTION 5.3 Right of Indemnitee to Bring Suit.
If a claim under Section 5.1 of this Article is not paid in full
by the Corporation within sixty days after a written claim has been
received by the Corporation, or a claim under Section 5.2 of this Article
is not paid in full within twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount
of the claim.
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If successful in whole or in part in any such suit or in a suit brought by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met the applicable
standard of conduct set forth in the Act. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its shareholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Act, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
shareholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard or conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit.
SECTION 5.4 Burden of Proof.
In any determination thereunder, suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified or to such advancement
of expenses under this Section or otherwise shall be on the Corporation. For
purposes of these Bylaws, the termination of any proceeding by judgment,
order, settlement (whether with or without court approval) or conviction, or
upon a plea of nolo contendere or its equivalent, shall not create a
presumption that indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not payable under these Bylaws or permitted by applicable
law.
SECTION 5.5 Specific Limitations on Indemnification.
Notwithstanding anything in this Article to the contrary, the
Corporation shall not be obligated to make any payment to any indemnitee
with respect to any proceeding (i) to the extent that payment is actually
made to the indemnitee under any insurance policy, or is made to indemnitee
by the Corporation or an affiliate thereof otherwise than pursuant to this
Article, (ii) for any expense, liability or loss in connection with a
proceeding settled without the Corporation's written consent, which
consent, however, shall not be unreasonably withheld, (iii) for an
accounting of profits made from the purchase or sale by the indemnitee of
securities of the Corporation within the meaning of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or similar provisions of any
state statutory or common law, or (iv) where prohibited by applicable law.
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SECTION 5.6 Contract.
The provisions of this Article shall be deemed to be a contract between
the Corporation and each director and officer who serves in such capacity at any
time while such Section is in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter based in whole or in part upon any such state of
facts. However, nothing contained in these Bylaws is intended to, or shall,
create any right to continued employment by the Corporation.
SECTION 5.7 Partial Indemnity.
If the indemnitee is entitled under any provision of this Article to
indemnification by the Corporation for some or a portion of the expenses,
liabilities or losses incurred in connection with a proceeding but not, however,
for all of the total amount thereof, the Corporation shall nevertheless
indemnify the indemnitee for the portion thereof to which the indemnitee is
entitled. Moreover, notwithstanding any other provision of this Article, to the
extent that the indemnitee has been successful on the merits or otherwise in
defense of any or all claims relating in whole or in part to a proceeding or in
defense of any issue or matter therein, including dismissal without prejudice,
the indemnitee shall be indemnified against all loss, expense and liability
incurred in connection with the portion of the proceeding with respect to which
indemnitee was successful on the merits or otherwise.
SECTION 5.8 Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any contract, statute, the Articles
of Incorporation, bylaw, agreement, vote of shareholders or disinterested
directors or otherwise.
SECTION 5.9 Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under law.
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SECTION 5.10 Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation, or to such lesser extent as may be determined by the Board of
Directors.
SECTION 5.11 Notice by Indemnitee and Defense of Claim.
The indemnitee shall promptly notify the Corporation in writing
upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any matter, whether
civil, criminal, administrative or investigative, but the omission so to
notify the Corporation will not relieve it from any liability which it may
have to the indemnitee if such omission does not prejudice the Corporation's
rights. If such omission does prejudice the Corporation's rights, the
Corporation will be relieved from liability only to the extent of such
prejudice; nor will such omission relieve the Corporation from any liability
which is may have to the indemnitee otherwise than under this Article V.
With respect to any proceedings as to which the indemnitee notifies the
Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at its own
expense; and
(b) The Corporation will be entitled to assume the defense thereof,
with counsel reasonably satisfactory to the indemnitee; provided, however,
that the Corporation shall not be entitled to assume the defense of any
proceeding (and this Section 5.11 shall be inapplicable to such proceeding)
if the indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Corporation and the indemnitee with
respect to such proceeding. After notice from the Corporation to the
indemnitee of its election to assume the defense thereof, the Corporation
will not be liable to the indemnitee under this Article V for any expenses
subsequently incurred by the indemnitee in connection with the defense
thereof, other than reasonable costs of investigation or as otherwise
provided below. The indemnitee shall have the right to employ its own
counsel in such proceeding but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the indemnitee unless:
(i) The employment of counsel by the indemnitee has been
authorized by the Corporation in writing; or
(ii) The Corporation shall not have employed counsel to assume
the defense in such proceeding or shall not have assumed such defense
and be acting in connection therewith with reasonable diligence;
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in each of which cases the fees and expenses of such
counsel shall be at the expense of the Corporation.
(c) The Corporation shall not settle any proceeding in any manner
which would impose any penalty or limitation on the indemnitee without the
indemnitee's written consent; provided, however, that the indemnitee will
not unreasonably withhold his consent to any proposed settlement.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Shares.
Unless otherwise provided by a resolution of the Board of
Directors, the shares of the Corporation shall be represented by a
certificate. The certificates of stock of the Corporation shall be numbered
and shall be entered in the books of the Corporation as they are issued.
They shall exhibit the holder's name and number of shares and shall be
signed by or in the name of the Corporation by (a) the Chairman of the
Board of Directors, the President or any Vice President and (b) the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary. Any or all of the signatures on a certificate may be facsimile.
In case any officer of the Corporation, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon such certificate,
shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, such certificate may nevertheless be issued by
the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issuance.
SECTION 6.2 Classes of Stock.
(a) If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers,
designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the
qualification, limitations, or restrictions of such preferences or rights
shall be set forth in full or summarized on the face or back of the
certificate that the Corporation shall issue to represent such class or
series of stock; provided, that in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate that the Corporation
shall issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each shareholder who so requests
the powers, designations, preferences and relative participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences or rights.
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(b) Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth
or stated on certificates pursuant to applicable law or a statement that the
Corporation will furnish without charge to each shareholder who so requests
the powers, designations, preferences and relative participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences or rights.
SECTION 6.3 Transfer.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it
shall be the duty of the Corporation to issue a new certificate to the
person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions
from the registered owner of uncertificated shares, such uncertificated
shares shall be cancelled, issuance of new equivalent uncertificated shares
or certificated shares shall be made to the person entitled thereto and the
transaction shall be recorded upon the books of the Corporation.
SECTION 6.4 Record Owner.
The Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof, and,
accordingly shall not be bound to recognize any equitable or other claim
to or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by
the laws of the State of Arizona.
SECTION 6.5 Lost Certificates.
The Board of Directors may direct a new certificate or certificates
or uncertificated shares to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates
or uncertificated shares, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as the Board of
Directors shall require and to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Record Date.
(a) In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of the shareholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than seventy nor less than ten days prior to the date of
such meeting nor more than seventy days prior to any other action. If not fixed
by the Board of Directors, the record date shall be determined as provided by
law.
(b) A determination of shareholders of record entitled to notice of or
to vote at a meeting of the shareholders shall apply to any adjournments of the
meeting, unless the Board of Directors fixes a new record date for the adjourned
meeting.
(c) Holders of stock on the record date are entitled to notice and to
vote or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of the
shares on the books of the Corporation after the record date, except as
otherwise provided by agreement or by law, the Articles of Incorporation or
these Bylaws.
SECTION 7.2 Execution of Instruments.
The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other persons, to execute
any corporate instrument or document or to sign the corporate name without
limitation, except where otherwise provided by law, the Articles of
Incorporation or these Bylaws. Such designation may be general or confined to
specific instances.
SECTION 7.3 Voting of Securities Owned by the Corporation.
All stock and other securities of other corporations held by the
Corporation shall be voted, and all proxies with respect thereto shall be
executed, by the person so authorized by resolution of the Board of Directors,
or, in the absence of such authorization, by the President.
-20-
<PAGE> 1
Exhibit: 3.2T
[GRAPHIC]
STATE
of
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of Delaware,
do hereby certify that the attached is a true and correct copy of
Certificate of Agreement of Merger
-------------------
filed in this office on March 25, 1967
--------------
[DELAWARE DEPARTMENT OF STATE SEAL] Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
BY: illegible
-----------------------------------
DATE: July 10, 1987
-----------------------------------
<PAGE> 2
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Merger Agreement"), dated as of March 23, 1987,
is between Trudy Corporation, a Connecticut corporation ("TC/Connecticut"), and
Trudy Corporation, a Delaware corporation ("TC/Delaware"). TC/Connecticut and
TC/Delaware are hereinafter sometimes collectively referred to as the
"Constituent Corporations."
WHEREAS, TC/Connecticut is a corporation duly organized and existing under
the laws of the State of Connecticut;
WHEREAS, TC/Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, on the date of this Merger Agreement, TC/Connecticut has
authority to issue 5,000 shares ("TC/Connecticut Common Stock, no par value per
share, 1,500 of which shares are issued and outstanding;
WHEREAS, on the date of this Merger Agreement, TC/Delaware has authority
to issue 850,000,000 shares, consisting of 850,000,000 shares of Common Stock,
$00001 par value per share, 100 of which shares are issued and outstanding;
WHEREAS, the respective Board of Directors of TC/Connecticut and
TC/Delaware have determined that it is advisable and in the best interests of
each of such corporations that TC/Connecticut merge with and into TC/Delaware
upon the terms and subject to the conditions of this Merger Agreement for the
purpose of effecting the reincorporation of TC/Connecticut in the State of
Delaware; and
WHEREAS, the respective Board of Directors of TC/Connecticut and
TC/Delaware have, by resolutions duly adopted, approved this Merger Agreement,
the shareholders of TC/Connecticut have, by unanimous consent, approved this
Merger Agreement, and the sole shareholder of TC/Delaware has, by written
consent, approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, TC/Connecticut and TC/Delaware hereby agree as follows:
1. Merger. TC/Connecticut shall be merged with and into TC/Delaware (the
"Merger"), and TC/Delaware shall be the surviving corporation "hereinafter
sometimes referred to as (the "Surviving Corporation.") The merger shall become
effective upon the time and date of filing of such documents as may be required
under application law ("Effective Time").
2. Governing Documents. The Certificate of Incorporation of TC/Delaware,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation without change or amendment until
thereafter amended in accordance with
<PAGE> 3
the provisions thereof and applicable laws and the Bylaws of TC/Delaware, as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without change or amendment until thereafter amended in
accordance with the provisions thereof and applicable laws.
3. Succession. At the Effective Time, the separate corporate existence of
TC/Connecticut shall cease, and TC/Delaware shall possess all the rights,
privileges, powers and franchises of a public and private nature and be subject
to all of the restrictions, desabitities and duties of TC/Connecticut; and
plural and singular, the rights, privileges, powers and franchises of
TC/Connecticut, and all property, real, personal and mixed, and all debts due
to TC/Connecticut on whatever account, as well as for share subscriptions and
all other things in action or belonging to TC/Connecticut, shall be vested in
the Surviving Corporation, and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter treated as
effectually the property of the Surviving Corporation as they were of
TC/Connecticut, and the title to any real estate vested by deed or otherwise,
under the laws of the State of Delaware, in TC/Connecticut, shall not revert or
be in any way impaired by reason of the General Corporation Law of the State of
Delaware; but all rights of creditors and all liens upon any property of
TC/Connecticut, shall be preserved unimpaired; and all debts, liabilities and
duties of TC/Connecticut shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it. All corporate acts, plans,
policies, agreements, arrangements, approvals and authorizations of
TC/Connecticut, its shareholders, Board of Directors and committees thereof,
officers and agents which were valid and effective immediately prior to the
Effective Time, shall be taken for all purposes as the acts, plans, policies,
agreements, arrangements, approvals and authorizations of TC/Delaware and shall
be as effective and binding thereon as the same were with respect to
TC/Connecticut. The employees and agents of TC/Connecticut shall become the
employees and agents of TC/Delaware and continue to be entitled to the same
rights and benefits which they enjoyed as employees of TC/Connecticut.
4. Further Assurances. From time to time, as and when required by
TC/Delaware, or by its successors and assigns, there shall be executed and
delivered on behalf of TC/Connecticut such deeds and other instruments, and
there shall be taken or caused to be taken by it all such further and other
action, as shall be appropriate or necessary in order to vest, perfect or
confirm, of record or otherwise, in TC/Delaware the title to and possession of
all property, interest, assets, rights, privileges, immunities, powers,
franchises and authority of TC/Connecticut, and otherwise to carry out the
purposes of this Merger Agreement, and the officers and directors of
TC/Delaware are fully authorized in name and on behalf of TC/Connecticut to
take any and all such action and to execute and delivery any and all deeds and
other instruments.
5. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
<PAGE> 4
(a) Each share of TC/Connecticut Common Stock outstanding immediately
prior to the Effective Time shall be changed and converted into and shall
be Two Hundred Seventy Thousand Six Hundred Sixty Six and 67/100
(270,666.67) fully-paid and non-assessable shares of TC/Delaware Common
Stock.
(b) The 100 shares of TC/Delaware Common Stock presently issued and
outstanding in the name of William W. Burnham shall be given to TC/Delaware
as a capital contribution and shall be cancelled and resume the status of
authorized and unissued shares of TC/Delaware Common Stock, and no shares
of TC/Delaware Common Stock or other securities of TC/Delaware shall be
issued in respect thereof.
6. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of TC/Connecticut Common Stock shall be presented to the
Surviving Corporation to be exchanged for certificates representing shares of
TC/Delaware Common Stock as converted as herein provided. The registered owner
of any such outstanding certificate shall, until such certificate shall have
been surrendered for transfer or otherwise accounted for to TC/Delaware or its
transfer agents, have and be entitled to exercise and voting and other rights
with respect to and to receive and dividends and other distributions upon the
shares of TC/Delaware Common Stock evidenced by such outstanding certificate as
above provided. All certificates representing shares of TC/Connecticut and
TC/Delaware immediately prior to the Effective Time shall be surrendered to
TC/Delaware for cancellation; as and after the Effective Time, the shares
represented by such certificates shall be deemed to be cancelled whether or not
the certificates have been surrendered or otherwise accounted for.
7. Employee Benefit Plans. As of the Effective Time, TC/Delaware hereby
assumes all obligations of TC/Connecticut under any and all employee benefit
plans in effect as of the Effective Time or with respect to which employee
rights or accrued benefits are outstanding as of the Effective Time.
8. Amendment. Subject to applicable law, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
9. Abandonment. At any time prior to the Effective Time, the Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either of TC/Connecticut or TC/Delaware, or both of them,
notwithstanding approval of this Merger Agreement by the stockholders of any of
said corporations or circumstances arise which, in the opinion of the board of
directors of TC/Connecticut or TC/Delaware, make the Merger advisable.
<PAGE> 5
10. COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in two or more counterparts, each of
which shall be deemed to be an original and the same agreement.
IN WITNESS WHEREOF, TC/Connecticut and TC/Delaware have caused this Merger
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
TRUDY CORPORATION
A Connecticut Corporation
ATTEST:
/s/ Robert A. Gerlin By: /s/ William W. Burnham
- ------------------------ ------------------------------
Secretary William W. Burnham
President
TRUDY CORPORATION
A Delaware Corporation
ATTEST:
/s/ Robert A. Gerlin By: /s/ William W. Burnham
- ------------------------ ------------------------------
Secretary William W. Burnham
President
<PAGE> 6
SECRETARY'S CERTIFICATE
I. Robert A. Gerlin, Secretary of Trudy Corporation, a corporation
organized and existing under the laws of the State of Delaware, hereby certify,
as such Secretary and under the seal of the said corporation, that the Agreement
of Merger to which this certificate is attached, after having been first duly
signed on behalf of said corporation by the President and attested by the
Secretary of said Trudy Corporation, a corporation of the State of Delaware, was
duly submitted to the sole stockholder of said Trudy Corporation, pursuant to
Title 8, Section 228 of the Delaware Corporation Law for the purpose of
considering and taking action upon said Agreement of Merger, that one hundred
(100) shares of Common Stock of said corporation were on the said date issued
and outstanding and that the holder of all of said shares voted in favor of said
Agreement and no holder of shares voted against same, the said affirmative vote
representing at least two-thirds of the total number of shares of the
outstanding capital stock of said corporation, and that thereby the Agreement
was duly adopted as the act of the stockholders of said Trudy Corporation, and
the duly adopted agreement of the said Corporation.
WITNESS my hand and seal of said Trudy Corporation on this 23rd day of
March, 1987.
TRUDY CORPORATION
(CORPORATE SEAL)
By /s/ Robert A. Gerlin
----------------------------
TRUDY CORPORATION Robert A. Gerlin
Secretary
<PAGE> 1
Exhibit: 3.2FD
[FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
APR 24 1997
No. C15272-96
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE]
CERTIFICATE OF AMENDMENT
OF
FUNDEX GAMES, LTD.
FIRST. Fundex Games, Ltd. is a duly organized Nevada corporation
("Corporation").
SECOND. The Board of Directors of the Corporation deems it to be
advisable and in the best interests of the Corporation to amend and restate in
its entirety Article THIRD of the Corporation's Articles of Incorporation to
eliminate the class of Preferred Stock which the Corporation is authorized to
issue.
THIRD. Article THIRD of the Corporation's Articles of Incorporation is
hereby amended and restated in its entirety to be and read as follows:
THIRD.
Section 3.1 - Shares. The total number of shares of all classes of stock
which the corporation is authorized to issue is Eight Million (8,000,000)
shares of Common Stock, $0.001 par value per share ("Common Stock").
Section 3.2 - Common Stock. The Common Stock shall have the rights,
privileges and limitations of common stock generally under the laws of the
State of Nevada. Each share of Common Stock shall be entitled to one vote on
each matter coming before the stockholders, including, but not limited to, the
right to vote for directors.
FOURTH. The aforesaid amendment was duly adopted on March 4, 1997, by
the Stockholders in accordance with the provisions of the Nevada General
Corporation Law. The number of Stockholders voting for the aforesaid amendment
was 1,225,000. The number of Stockholders voting against the aforesaid
amendment was 0.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed in its name by Carl E. Voigt, IV, President, this 5th
day of March, 1997.
FUNDEX GAMES, LTD.
By: /s/ Carl E. Voigt, IV
-------------------------------
Carl E. Voigt, IV, President
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On this 5th day of March, 1997, personally appeared before me, a Notary
Public in and for the State and County aforesaid, Carl E. Voigt, IV known to me
to be the person described in and who executed the foregoing Certificate of
Amendment, and who acknowledged to me that he executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year first above
written.
/s/ Mitchell Roth
-------------------------------
Notary Public
[Official Seal of Mitchell Roth]
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed in its name by Carl E. Voigt, III, Secretary, this 5th
day of March, 1997.
FUNDEX GAMES, LTD.
By: /s/ Carl E. Voigt, III
-------------------------------
Carl E. Voigt, III, Secretary
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On this 5th day of March, 1997, personally appeared before me, a Notary
Public in and for the State and County aforesaid, Carl E. Voigt, III known to me
to be the person described in and who executed the foregoing Certificate of
Amendment, and who acknowledged to me that he executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year first above
written.
/s/ Mitchell Roth
-------------------------------
Notary Public
[Official Seal of Mitchell Roth]
<PAGE> 1
Exhibit: 3.2D
BY-LAWS
OF
DaMert Company
A CALIFORNIA CORPORATION
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
business of the corporation is hereby fixed and located at
City of , County of , State
of California. The location may be changed by approval of a majority of the
authorized Directors, and additional offices may be established and maintained
at such other place or places, either within or without California, as the Board
of Directors may from time to time designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the provisions
of the General Corporation Law and to any limitations in the Articles of
Incorporation of the corporation relating to action required to be approved by
the Shareholders, as that term is defined in Section 153 of the California
Corporations Code, or by the outstanding shares, as that term is defined in
Section 152 of the Code, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the Board of Directors. The Board may delegate the management of the day-to-day
operation of the business of the corporation to a management company or other
person, provided that the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the Board.
Section 2. STANDARD OF CARE. Each Director shall perform the duties of a
Director, including the duties as a member of any committee of the Board upon
which the Director may serve, in good faith, in a manner such Director believes
to be in the best interests of the corporation, and with such care, including
reasonable inquiry, as an ordinary prudent person in a like position would use
under similar circumstances. (Sec. 309)
<PAGE> 2
Section 3. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions
of Section 1, in the event that this corporation shall elect to become a close
corporation as defined in Sec. 186, its Shareholders may enter into a
Shareholders' Agreement as provided in Sec. 300 (b). Said agreement may provide
for the exercise of corporate powers and the management of the business and
affairs of this corporation by the Shareholders, provided, however, such
agreement shall, to the extent and so long as the discretion or the powers of
the Board in its management of corporate affairs is controlled by such
agreement, impose upon each Shareholder who is a party thereof, liability for
managerial acts performed or omitted by such person pursuant thereto otherwise
imposed upon Directors as provided in Sec. 300 (d).
Section 4. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
Directors shall be ( ) until changed by a duly adopted amendment to the Articles
of Incorporation or by an amendment to this by-law adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote, as provided in Sec. 212.
Section 5. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the Shareholders to hold office until the next
annual meeting. Each Director, including a Director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 6. VACANCIES. Vacancies in the Board of Directors may be filled by
a majority of the remaining Directors, though less than a quorum, or by a sole
remaining Director, except that a vacancy created by the removal of a Director
by the vote or written consent of the Shareholders or by court order may be
filled only by the vote of a majority of the shares entitled to vote represented
at a duly held meeting at which a quorum is present, or by the written consent
of holders of a majority of the outstanding shares entitled to vote. Each
Director so elected shall hold office until the next annual meeting of the
Shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in the event of the death, resignation, or removal of any Director, or if the
Board of Directors by resolution declares vacant the office of a Director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of Directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any Director or Directors are
elected, to elect the number of Directors to be voted for at that meeting.
-2-
<PAGE> 3
The Shareholders may elect a Director or Directors at any time to fill any
vacancy or vacancies not filled by the Directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any Director may resign effective on giving written notice to the Chairman
of the Board, the President, the Secretary, or the Board of Directors, unless
the notice specifies a later time for that resignation to become effective. If
the resignation of a Director is effective at a future time, the Board of
Directors may elect a successor to take office when the resignation becomes
effective.
No reduction of the authorized number of Directors shall have the effect
of removing any Director before that Director's term of office expires.
Section 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual Director may be removed from office as provided by Secs. 302, 303 and
304 of the Corporations Code of the State of California. In such case, the
remaining Board members may elect a successor Director to fill such vacancy for
the remaining unexpired term of the Director so removed.
Section 8. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of
Directors may be called by the Chairman of the Board, or the President, or any
Vice President, or the Secretary, or any two (2) Directors and shall be held at
the principal executive office of the corporation, unless some other place is
designated in the notice of the meeting. Members of the Board may participate in
a meeting through use of a conference telephone or similar communications
equipment so long as all members participating in such a meeting can hear one
another. Accurate minutes of any meeting of the Board or any committee thereof,
shall be maintained as required by Sec. 312 of the Code by the Secretary or
other Officer designated for that purpose.
Section 9. ORGANIZATION MEETINGS. The organization meetings of the Board
of Directors shall be held immediately following the adjournment of the annual
meetings of the Shareholders.
Section 10. OTHER REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at the corporate offices, or such other place as may be
designated by the Board of Directors, as follows:
-3-
<PAGE> 4
Time of Regular Meeting:
Date of Regular Meeting:
If said day shall fall upon a holiday, such meetings shall be held on the
next succeeding business day thereafter. No notice need be given of such regular
meetings.
Section 11. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings of the
Board may be called at any time by the President or, if he or she is absent or
unable or refuses to act, by any Vice President or the Secretary or by any two
(2) Directors, or by one (1) Director if only one is provided.
At least forty-eight (48) hours notice of the time and place of special
meetings shall be delivered personally to the Directors or personally
communicated to them by a corporate Officer by telephone or telegraph. If the
notice is sent to a Director by letter, it shall be addressed to him or her at
his or her address as it is shown upon the records of the corporation, or if it
is not so shown on such records or is not readily ascertainable, at the place in
which the meetings of the Directors are regularly held. In case such notice is
mailed, it shall be deposited in the United States mail, postage prepaid, in the
place in which the principal executive office of the corporation is located at
least four (4) days prior to the time of the holding of the meeting. Such
mailing, telegraphing, telephoning or delivery as above provided shall be due,
legal and personal notice to such Director.
When all of the Directors are present at any Directors' meeting, however
called or noticed, and either (i) sign a written consent thereto on the records
of such meeting, or, (ii) if a majority of the Directors are present and if
those not present sign a waiver of notice of such meeting or a consent to
holding the meeting or an approval of the minutes thereof, whether prior to or
after the holding of such meeting, which said waiver, consent or approval shall
be filed with the Secretary of the corporation, or, (iii) if a Director attends
a meeting without notice but without protesting, prior thereto or at its
commencement, the lack of notice, then the transactions thereof are as valid as
if had at a meeting regularly called and noticed.
Section 12. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION OR
BY-LAWS. In the event only one (1) Director is required by the By-Laws or
Articles of Incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the Directors
shall be deemed to refer to such notice, waiver, etc., by such sole Director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to a Board of Directors.
-4-
<PAGE> 5
Section 13. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting and with the same force and effect as if taken by a unanimous vote of
Directors, if authorized by a writing signed individually or collectively by all
members of the Board. Such consent shall be filed with the regular minutes of
the Board.
Section 14. QUORUM. A majority of the number of Directors as fixed by the
Articles of Incorporation or By-Laws shall be necessary to constitute a quorum
for the transaction of business, and the action of a majority of the Directors
present at any meeting at which there is a quorum, when duly assembled, is valid
as a corporate act; provided that a minority of the Directors, in the absence of
a quorum, may adjourn from time to time, but may not transact any business. A
meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of Directors, if any action taken is
approved by a majority of the required quorum for such meeting.
Section 15. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given to absent Directors if the time and place
be fixed at the meeting adjourned and held within twenty-four (24) hours, but if
adjourned more than twenty-four (24) hours, notice shall be given to all
Directors not present at the time of the adjournment.
Section 16. COMPENSATION OF DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but by resolution of the Board a
fixed sum and expense of attendance, if any, may be allowed for attendance at
each regular and special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 17. COMMITTEES. Committees of the Board may be appointed by
resolution passed by a majority of the whole Board. Committees shall be composed
of two (2) or more members of the Board, and shall have such powers of the Board
as may be expressly delegated to it by resolution of the Board of Directors,
except those powers expressly made non-delegable by Sec. 311.
Section 18. ADVISORY DIRECTORS. The Board of Directors from time to time
may elect one or more persons to be Advisory Directors who shall not by such
appointment be members of the Board of Directors. Advisory Directors shall be
available from time to time to perform special assignments specified by the
President, to attend meetings of the Board of Directors upon invitation and to
furnish consultation to the Board. The period during which the title shall be
held may be prescribed by the Board of Directors. If no period is prescribed,
the title shall be held at the pleasure of the Board.
-5-
<PAGE> 6
Section 19. RESIGNATIONS. Any Director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The Officers of the corporation shall be a President,
a Secretary, and a Chief Financial Officer. The corporation may also have, at
the discretion of the Board of Directors, a Chairman of the Board, one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other Officers as may be appointed in accordance with the
provisions of Section 3 of this Article III. Any number of offices may be held
by the same person.
Section 2. ELECTION. The Officers of the corporation, except such Officers
as may be appointed in accordance with the provisions of Section 3 or Section 5
of this Article, shall be chosen annually by the Board of Directors, and each
shall hold office until he or she shall resign or shall be removed or otherwise
disqualified to serve, or a successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint
such other Officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the By-Laws or as the Board of Directors may from time to
time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an Officer under any contract of employment, any Officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting of the Board, or, except in case of an Officer chosen by the
Board of Directors, by any Officer upon whom such power of removal may be
conferred by the Board of Directors.
Any Officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Officer is a
party.
-6-
<PAGE> 7
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-Laws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned by the Board of Directors or prescribed by the By-Laws. If
there is no President, the Chairman of the Board shall in addition be the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in Section 7 of this Article III.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an Officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and Officers of the
corporation. He or she shall preside at all meetings of the Shareholders and in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. The President shall be ex officio a member of all the
standing committees, including the Executive Committee, if any, and shall have
the general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the By-Laws.
Section 8. VICE PRESIDENT. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to, all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the By-Laws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a
book of minutes at the principal office or such other place as the Board of
Directors may order, of all meetings of Directors and Shareholders, with the
time and place of holding, whether regular or special, and if special, how
authorized, the notice thereof given, the names of those present at Directors'
meetings, the number of shares present or represented at Shareholders' meetings
and the proceedings thereof.
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The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the Shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the Shareholders and of the Board of Directors required by the By-Laws or by
law to be given. He or she shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained in accordance with
generally accepted accounting principles, adequate and correct accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
earnings (or surplus) and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
This Officer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board of Directors. He or she shall disburse the funds of the corporation as
may be ordered by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his or her
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the By-Laws.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall be
held at the principal executive office of the corporation unless some other
appropriate and convenient location be designated for that purpose from time to
time by the Board of Directors.
Section 2. ANNUAL MEETINGS. The annual meetings of the Shareholders shall
be held, each year, at the time and on the day following:
Time of Meeting:
Date of Meeting:
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If this day shall be a legal holiday, then the meeting shall be held on
the next succeeding business day, at the same hour. At the annual meeting, the
Shareholders shall elect a Board of Directors, consider reports of the affairs
of the corporation and transact such other business as may be properly brought
before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be
called at any time by the Board of Directors, the Chairman of the Board, the
President, a Vice President, the Secretary, or by one or more Shareholders
holding not less than one-tenth (1/10) of the voting power of the corporation.
Except as next provided, notice shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman, President,
Vice President, or Secretary, mailed or delivered personally to such Officer by
any person (other than the Board) entitled to call a special meeting of
Shareholders, such Officer shall cause notice to be given, to the Shareholders
entitled to vote, that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of such request. If such notice is not given
within twenty (20) days after receipt of such request, the persons calling the
meeting may give notice thereof in the manner provided by these By-Laws or apply
to the Superior Court as provided in Sec. 305 (c).
Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, annual or
special, shall be given in writing not less than ten (10) nor more than sixty
(60) days before the date of the meeting to Shareholders entitled to vote
thereat. Such notice shall be given by the Secretary or the Assistant Secretary,
or if there be no such Officer, or in the case of his or her neglect or refusal,
by any Director or Shareholder.
Such notices or any reports shall be given personally or by mail or other
means of written communication as provided in Sec. 601 of the Code and shall be
sent to the Shareholder's address appearing on the books of the corporation, or
supplied by him or her to the corporation for the purpose of notice, and in the
absence thereof, as provided in Sec. 601 of the Code.
Notice of any meeting of Shareholders shall specify the place, the day and
the hour of meeting, and (1) in case of a special meeting, the general nature of
the business to be transacted and no other business may be transacted, or (2) in
the case of an annual meeting, those matters which the Board at date of mailing,
intends to present for action by the Shareholders. At any meetings where
Directors are to be elected, notice shall include the names of the nominees, if
any, intended at date of notice to be presented by management for election.
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If a Shareholder supplies no address, notice shall be deemed to have been
given if mailed to the place where the principal executive office of the
corporation, in California, is situated, or published at least once in some
newspaper of general circulation in the County of said principal office.
Notice shall be deemed given at the time it is delivered personally or
deposited in the mail or sent by other means of written communication. The
Officer giving such notice or report shall prepare and file an affidavit or
declaration thereof.
When a meeting is adjourned for forty-five (45) days or more, notice of
the adjourned meeting shall be given as in case of an original meeting. Save, as
aforesaid, it shall not be necessary to give any notice of adjournment or of the
business to be transacted at an adjourned meeting other than by announcement at
the meeting at which such adjournment is taken.
Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of Shareholders, however called and noticed, shall
be valid as though had at a meeting duly held after regular call and notice, if
a quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the Shareholders entitled to vote, not present in person or
by proxy, sign a written waiver of notice, or a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance shall constitute a waiver of notice, unless
objection shall be made as provided in Sec. 601 (e).
Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING - DIRECTORS. Any action
which may be taken at a meeting of the Shareholders, may be taken without a
meeting or notice of meeting if authorized by a writing signed by all of the
Shareholders entitled to vote at a meeting for such purpose, and filed with the
Secretary of the corporation, provided, further, that while ordinarily Directors
can only be elected by unanimous written consent under Sec. 603 (d), if the
Directors fail to fill a vacancy, then a Director to fill that vacancy may be
elected by the written consent of persons holding a majority of shares entitled
to vote for the election of Directors.
Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise provided in
the GCL or the Articles, any action which may be taken at any annual or special
meeting of Shareholders may be taken without a meeting and without prior notice,
if a consent in writing, setting forth the action so taken, signed by the
holders of outstanding shares having not less than the
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minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Unless the consents of all Shareholders entitled to vote have been
solicited in writing,
(1) Notice of any Shareholder approval pursuant to Secs. 310, 317,
1201 or 2007 without a meeting by less than unanimous written consent
shall be given at least ten (10) days before the consummation of the
action authorized by such approval, and
(2) Prompt notice shall be given of the taking of any other
corporate action approved by Shareholders without a meeting by less than
unanimous written consent, to each of those Shareholders entitled to vote
who have not consented in writing.
Any Shareholder giving a written consent, or the Shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
Shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 8. QUORUM. The holders of a majority of the shares entitled to
vote thereat, present in person, or represented by proxy, shall constitute a
quorum at all meetings of the Shareholders for the transaction of business
except as otherwise provided by law, by the Articles of Incorporation, or by
these By-Laws. If, however, such majority shall not be present or represented at
any meeting of the Shareholders, the Shareholders entitled to vote thereat,
present in person, or by proxy, shall have the power to adjourn the meeting from
time to time, until the requisite amount of voting shares shall be present. At
such adjourned meeting at which the requisite amount of voting shares shall be
represented, any business may be transacted which might have been transacted at
a meeting as originally notified.
If a quorum be initially present, the Shareholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken is approved by a
majority of the Shareholders required to initially constitute a quorum.
Section 9. VOTING. Only persons in whose names shares entitled to vote
stand on the stock records of the corporation on the day of any meeting of
Shareholders, unless some other day be
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fixed by the Board of Directors for the determination of Shareholders of record,
and then on such other day, shall be entitled to vote at such meeting.
Provided the candidate's name has been placed in nomination prior to the
voting and one or more Shareholder has given notice at the meeting prior to the
voting of the Shareholder's intent to cumulate the Shareholder's votes, every
Shareholder entitled to vote at any election for Directors of any corporation
for profit may cumulate their votes and give one candidate a number of votes
equal to the number of Directors to be elected multiplied by the number of
votes to which his or her shares are entitled, or distribute his or her votes on
the same principle among as many candidates as he or she thinks fit.
The candidates receiving the highest number of votes up to the number of
Directors to be elected are elected.
The Board of Directors may fix a time in the future not exceeding thirty
(30) days preceding the date of any meeting of Shareholders or the date fixed
for the payment of any dividend or distribution, or for the allotment of rights,
or when any change or conversion or exchange of shares shall go into effect, as
a record date for the determination of the Shareholders entitled to notice of
and to vote at any such meeting, or entitled to receive any such dividend or
distribution, or any allotment of rights, or to exercise the rights in respect
to any such change, conversion or exchange of shares. In such case only
Shareholders of record on the date so fixed shall be entitled to notice of and
to vote at such meeting, or to receive such dividends, distribution or allotment
of rights, or to exercise such rights, as the case may be notwithstanding any
transfer of any share on the books of the corporation after any record date
fixed as aforesaid. The Board of Directors may close the books of the
corporation against transfers of shares during the whole or any part of such
period.
Section 10. PROXIES. Every Shareholder entitled to vote, or to execute
consents, may do so, either in person or by written proxy, executed in
accordance with the provisions of Secs. 604 and 705 of the Code and filed with
the Secretary of the corporation.
Section 11. ORGANIZATION. The President, or in the absence of the
President, any Vice President, shall call the meeting of the Shareholders to
order, and shall act as chairman of the meeting. In the absence of the President
and all of the Vice Presidents, Shareholders shall appoint a chairman for such
meeting. The Secretary of the corporation shall act as Secretary of all meetings
of the Shareholders, but in the absence of the
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Secretary at any meeting of the Shareholders, the presiding Officer may appoint
any person to act as Secretary of the meeting.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders the Board of Directors may, if they so elect, appoint inspectors of
election to act at such meeting or any adjournment thereof. If inspectors of
election be not so appointed, or if any persons so appointed fail to appear or
refuse to act, the chairman of any such meeting may, and on the request of any
Shareholder or his or her proxy shall, make such appointment at the meeting in
which case the number of inspectors shall be either one (1) or three (3) as
determined by a majority of the Shareholders represented at the meeting.
Section 13. (A) SHAREHOLDERS' AGREEMENTS. Notwithstanding the above
provisions, in the event this corporation elects to become a close corporation,
an agreement between two (2) or more Shareholders thereof, if in writing and
signed by the parties thereof, may provide that in exercising any voting rights
the shares held by them shall be voted as provided therein or in Sec. 706, and
may otherwise modify these provisions as to Shareholders' meetings and actions.
(B) EFFECT OF SHAREHOLDERS' AGREEMENTS. Any Shareholders' Agreement
authorized by Sec. 300 (b), shall only be effective to modify the terms of these
By-Laws if this corporation elects to become a close corporation with
appropriate filing of or amendment to its Articles as required by Sec. 202 and
shall terminate when this corporation ceases to be a close corporation. Such an
agreement cannot waive or alter Secs. 158, (defining close corporations), 202
(requirements of Articles of Incorporation), 500 and 501 relative to
distributions, 111 (merger), 1201 (e) (reorganization) or Chapters 15 (Records
and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22
(Crimes and Penalties). Any other provisions of the Code or these By-Laws may be
altered or waived thereby, but to the extent they are not so altered or waived,
these By-Laws shall be applicable.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of
such form and device as the Board of Directors may designate and shall state the
name of the record holder of the shares represented thereby; its number; date of
issuance; the number of shares for which it is issued; a statement of the
rights, privileges, preferences and restrictions, if any; a statement as to the
redemption or conversion, if any; a statement of liens or restrictions upon
transfer or voting, if any; if the shares be assessable or, if assessments are
collectible by personal action, a plain statement of such facts.
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All certificates shall be signed in the name of the corporation by the
Chairman of the Board or Vice Chairman of the Board or the President or Vice
President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be facsimile. In case
any Officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that Officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an Officer,
transfer agent, or registrar at the date of issue.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and shall, if the Directors so require, give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the Board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued in the same tenor
and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint one or more transfer agents or transfer clerks, and one or more
registrars, which shall be an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that the
corporation may determine the Shareholders entitled to notice of any meeting or
to vote or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect
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of any other lawful action, the Board may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days prior to the date
of such meeting nor more than sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining Shareholders
entitled to notice of or to vote at a meeting of Shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held. The record date for
determining Shareholders entitled to give consent to corporate action in writing
without a meeting, when no prior action by the Board is necessary, shall be the
day on which the first written consent is given.
The record date for determining Shareholders for any other purpose shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
Section 6. LEGEND CONDITION. In the event any shares of this corporation
are issued pursuant to a permit or exemption therefrom requiring the imposition
of a legend condition, the person or persons issuing or transferring said shares
shall make sure said legend appears on the certificate and shall not be required
to transfer any shares free of such legend unless an amendment to such permit or
a new permit be first issued so authorizing such a deletion.
Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing
shares of this corporation, in the event it shall elect to become a close
corporation, shall contain the legend required by Sec. 418 (c).
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Section PROVISION RESTRICTING TRANSFER OF SHARES. Before there can be a
valid sale or transfer of any of the shares of this corporation by the holders
thereof, the holder of the shares to be sold or transferred shall first give
notice in writing to the Secretary of this corporation of his or her intention
to sell or transfer such shares. Said notice shall specify the number of shares
to be sold or transferred, the price per share and the terms upon which such
holder intends to make such sale or transfer. The Secretary shall within five
(5) days thereafter, mail or deliver a copy of said notice to each of the other
Shareholders of record of this corporation. Such notice may be delivered to such
Shareholders personally or may be mailed to the last known addresses of such
Shareholders, as the same may appear on the books of this corporation. Within
days after the mailing or delivery of said notices to such Shareholders, any
such Shareholder or Shareholders desiring to acquire any part or all of the
shares referred to in said notice shall deliver by mail or otherwise to the
Secretary of this corporation a written offer or offers to purchase a specified
number or numbers of such shares at the price and upon the terms stated in said
notice.
If the total number of shares specified in such offers exceeds the number
of shares referred to in said notice, each offering Shareholder shall be
entitled to purchase such proportion of the shares referred to in said notice to
the Secretary, as the number of shares of this corporation, which he or she
holds, bears to the total number of shares held by all Shareholders desiring to
purchase the shares referred to in said notice to the Secretary.
If all of the shares referred to in said notice to the Secretary are not
disposed of under such apportionment, each Shareholder desiring to purchase
shares in a number in excess of his or her proportionate share, as provided
above, shall be entitled to purchase such proportion of those shares which
remain thus undisposed of, as the total number of shares which he or she holds
bears to the total number of shares held by all of the Shareholders desiring to
purchase shares in excess of those to which they are entitled under such
apportionment.
The aforesaid right to purchase the shares referred to in the aforesaid
notice to the Secretary shall apply only if all of the shares referred to in
said notice are purchased. Unless all of the shares referred to in said notice
to the Secretary are purchased, as aforesaid, in accordance with offers made
within said days, the Shareholder desiring to sell or transfer may dispose of
all shares of stock referred to in said notice to the Secretary to any person or
persons whomsoever; provided, however, that he or she shall not sell or transfer
such shares at a lower price or on terms more favorable to the purchaser or
transferee than those specified in said notice to Secretary.
Any sale or transfer, or purported sale or transfer, of the shares of said
corporation shall be null and void unless the terms, conditions and provisions
of this section are strictly observed and followed.
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Section PLEDGED OR HYPOTHECATED SHARES. Any Shareholder desiring to
borrow money on or hypothecate any or all of the shares of stock held by such
Shareholder shall first mail notice in writing to the Secretary of this
corporation of his or her intention to do so. Said notice shall specify the
number of shares to be pledged or hypothecated, the amount to be borrowed per
share, the terms, rate of interest, and other provisions upon which each
Shareholder intends to make such loan or hypothecation. The Secretary shall,
within five (5) days thereafter, mail or deliver a copy of said notice to each
of the other Shareholders of record of this corporation. Such notice may be
delivered to such Shareholder personally, or may be mailed to the last known
addresses of such Shareholders as the same may appear on the books of this
corporation. Within fifteen (15) days after the mailing or delivering of said
notice to said Shareholders, any such Shareholder or Shareholders desiring to
lend any part or all of the amount sought to be borrowed, as set forth in said
notice, at the terms therein specified, shall deliver by mail, or otherwise, to
the Secretary of this corporation a written offer or offers to lend a certain
amount of money for the term, at the rate of interest, and upon the other
provisions specified in said notice.
If the total amount of money subscribed in such offers exceeds the amount
sought to be borrowed, specified in said notice, each offering Shareholder shall
be entitled to lend such proportion of the amount sought to be borrowed, as set
forth in said notice, as the number of shares which he or she holds bears to the
total number of shares held by all such Shareholders desiring to lend all or
part of the amount specified in said notice.
If the entire amount of monies sought to be borrowed, as specified in said
notice, is not subscribed as set forth in the preceding paragraphs, each
Shareholder desiring to lend an amount in excess of his or her proportionate
share, as specified in the preceding paragraph, shall be entitled to lend such
proportion of the subscribed amount as the total number of shares which he or
she holds bears to the total number of shares held by all of the Shareholders
desiring to lend an amount in excess of that to which they are entitled under
such apportionment. If there be but one Shareholder so desiring to lend, such
Shareholder shall be entitled to lend up to the full amount sought to be
borrowed.
If none, or only a part of the amount sought to be borrowed, as specified
in said notice, is subscribed as aforesaid, in accordance with offers made
within said fifteen (15) day period, the Shareholder desiring to borrow may
borrow from any person or persons he or she may so desire as to any or all
shares of stock held by him or her which have not been covered by lending
Shareholders; provided, however, that said Shareholders shall not borrow any
lesser amount, or any amount on terms less favorable to the borrower, than those
specified in said notice to the Secretary.
Any pledge or hypothecation, or other purported transfer as security for
a loan of the shares of this corporation, shall be null and void unless the
terms, conditions and provisions of these By-Laws are strictly observed and
followed.
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ARTICLE VI
RECORDS - REPORTS - INSPECTION
Section 1. RECORDS. The corporation shall maintain, in accordance with
generally accepted accounting principles, adequate and correct accounts, books
and records of its business and properties. All of such books, records and
accounts shall be kept at its principal executive office in the State of
California, as fixed by the Board of Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records provided
for in Sec. 1500 shall be open to inspection of the Directors and Shareholders
from time to time and in the manner provided in said Sec. 1600 - 1602.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy
of these By-Laws, as amended or otherwise altered to date, certified by the
Secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the Shareholders of the corporation at all
reasonable times during office hours, as provided in Sec. 213 of the
Corporations Code.
Section 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. CONTRACTS, ETC. - HOW EXECUTED. The Board of Directors, except
as in the By-Laws otherwise provided, may authorize any Officer or Officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation. Such authority may be general or
confined to specific instances. Unless so authorized by the Board of Directors,
no Officer, agent or employee shall have any power or authority to bind the
corporation by any contract or agreement, or to pledge its credit, or to render
it liable for any purpose or to any amount, except as provided in Sec. 313 of
the Corporations Code.
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ARTICLE VII
ANNUAL REPORTS
Section 1. REPORT TO SHAREHOLDERS, DUE DATE. The Board of Directors shall
cause an annual report to be sent to the Shareholders not later than one hundred
twenty (120) days after the close of the fiscal or calendar year adopted by the
corporation. This report shall be sent at least fifteen (15) days before the
annual meeting of Shareholders to be held during the next fiscal year and in the
manner specified in Section 4 of Article IV of these By-Laws for giving notice
to Shareholders of the corporation. The annual report shall contain a balance
sheet as of the end of the fiscal year and an income statement and statement of
changes in financial position for the fiscal year, accompanied by any report of
independent accountants or, if there is no such report, the certificate of an
authorized Officer of the corporation that the statements were prepared without
audit from the books and records of the corporation.
Section 2. WAIVER. The annual report to Shareholders referred to in
Section 1501 of the California General Corporation Law is expressly dispensed
with so long as this corporation shall have less than one hundred (100)
Shareholders. However, nothing herein shall be interpreted as prohibiting the
Board of Directors from issuing annual or other periodic reports to the
Shareholders of the corporation as they consider appropriate.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be adopted or these
By-Laws may be amended or repealed by the vote or written consent of holders of
a majority of the outstanding shares entitled to vote; provided, however, that
if the Articles of Incorporation of the corporation set forth the number of
authorized Directors of the corporation, the authorized number of Directors may
be changed only by an amendment of the Articles of Incorporation.
Section 2. POWERS OF DIRECTORS. Subject to the right of the Shareholders
to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article
VIII, and the limitations of Sec. 204 (a) (5) and Sec. 212, the Board of
Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or
amendment thereof changing the authorized number of Directors.
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Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is
adopted, it shall be copied in the book of By-Laws with the original By-Laws, in
the appropriate place. If any By-Law is repealed, the fact of repeal with the
date of the meeting at which the repeal was enacted or written assent was filed
shall be stated in said book.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
"California."
ARTICLE X
MISCELLANEOUS
Section 1. REFERENCES TO CODE SECTIONS. "Sec." references herein refer to
the equivalent Sections of the General Corporation Law effective January 1,
1977, as amended.
Section 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President
and the Secretary or an Assistant Secretary.
Section 3. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one (1) or more subsidiaries.
Section 4. INDEMNITY. The corporation may indemnify any Director, Officer,
agent or employee as to those liabilities and on those terms and conditions as
are specified in Sec. 317 of the Code. In any event, the corporation shall have
the right to purchase and maintain insurance on behalf of any such persons
whether or not the corporation would have the POWER to indemnify such person
against the liability insured against.
Section 5. ACCOUNTING YEAR. The accounting year of the corporation shall
be fixed by resolution of the Board of Directors.
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CERTIFICATE OF ADOPTION OF BY-LAWS
ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S).
The undersigned person(s) appointed in the Articles of Incorporation to
act as the Incorporator(s) or First Director(s) of the above named corporation
hereby adopt the same as the By-Laws of said corporation.
Executed this 25th day of March, 1979
/s/ Frederick Allen DaMert Jr.
- ------------------------------------
Name
CERTIFICATE BY SECRETARY.
I DO HEREBY CERTIFY AS FOLLOWS:
That I am the duly elected, qualified and acting Secretary of the above
named corporation, that the foregoing By-Laws were adopted as the By-Laws of
said corporation on the date set forth above by the person(s) appointed in the
Articles of Incorporation to act as the Incorporator(s) or First Director(s) of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate
seal this 25th day of March, 1979.
/s/ Joyce DaMert
----------------------------------
Secretary
CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE.
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the above
named corporation and that the above and foregoing Code of By-Laws was submitted
to the Shareholders at their first meeting and recorded in the minutes thereof,
was ratified by the vote of Shareholders entitled to exercise the majority of
the voting power of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March,
1979.
/s/ Joyce DaMert
----------------------------------
Secretary
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<PAGE> 1
Exhibit: 3.3FD
BY-LAWS
OF
FUNDEX GAMES, LTD.
ARTICLE I
OFFICES
SECTION 1.1. RESIDENT AGENT OFFICES. The name of the corporation's resident
agent in the State of Nevada is CSC Services of Nevada, Inc., and the street
address of the said resident agent where process may be served on the
Corporation is 502 East John Street, Carson City, Nevada 89706.
SECTION 1.2. OTHER OFFICES. The corporation may also have offices at such other
places both within and without the State of Nevada as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.1. PLACE OF MEETING. All meetings of stockholders shall be held at
such place, either within or without the State of Nevada, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held
on the 3rd Tuesday in April each year if not a legal holiday, and if a legal
holiday then on the next secular day following, at 10:00 o'clock a.m., or the
annual meeting of stockholders may be held at such date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.3. VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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SECTION 2.4. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation of the corporation, (the "ARTICLES OF INCORPORATION"), may be
called by the Chairman of the Board, the President or by the Board of Directors
or by written order of a majority of the directors or may be called by the
Chairman of the Board, the President or the Secretary at the request in writing
of stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purposes of the proposed meeting, and any notice of special meeting
shall state the purposes thereof. In addition to notice of any specific matters
to be considered by the stockholders at any special meeting, there may also be
included in such notice a reference to the fact that other matters may be
considered at the meeting. Business transacted at all special meetings shall be
confined to the matters stated in the notice, and, if the notice so specifies,
such other business as may come before the meeting. The officers or directors
shall fix the time and any place, either within or without the State of Nevada,
as the place for holding such meeting.
SECTION 2.5. NOTICE OF MEETING. Written notice of the annual and each special
meeting of stockholders, stating the date, time, place and purpose or purposes
thereof, shall be given to each stockholder entitled to vote, not less than 10
nor more than 60 days before the meeting. The President, a Vice President, the
Secretary, an assistant Secretary or any other person designated by the Board of
Directors shall sign and deliver such written notice. The written certificate of
the individual signing a notice of meeting, setting forth the substance of the
notice or having a copy thereof attached, the date the notice was mailed or
personally delivered to the stockholders and the addresses to which the notice
was mailed, shall be prima facie evidence of the manner and fact of giving such
notice.
SECTION 2.6. QUORUM. At any meeting, the holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum of stockholders for the
transaction of business except when stockholders are required to vote by class,
in which event a majority of the issued and outstanding shares of the
appropriate class shall be present in person or by proxy, and except as
otherwise provided by statute or by the Articles of Incorporation.
Notwithstanding any other provision of the Articles of Incorporation or these
by-laws, the holders of a majority of the shares of capital stock entitled to
vote thereat, present in person or represented by proxy, whether or not a quorum
is present, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.7. VOTING. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Articles of Incorporation or of these by-laws,
a different vote is required, in which case such express provision shall govern
and control
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the decision of such question. Every stockholder having the right to vote shall
be entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder, and filed with the Secretary of the corporation
before, or at the time of, the meeting. Provided, however, no such proxy shall
be valid after the expiration of six months from the date of its execution,
unless coupled with an interest, or unless the person executing it specifies
therein the length of time for which it is to continue in force, which in no
case shall exceed seven years from the date of its execution. If such instrument
shall designate two or more persons to act as proxies, unless such instrument
shall provide the contrary, a majority of such persons present at any meeting at
which their powers thereunder are to be exercised shall have and may exercise
all the powers of voting or giving consents thereby conferred, or if only one be
present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, each proxy so
attending shall be entitled to exercise such powers in respect of the same
portion of the shares as he is of the proxies representing such shares. Unless
required by statute or determined by the Chairman of the meeting to be
advisable, the vote on any question need not be by written ballot.
SECTION 2.8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Articles
of Incorporation or these by-laws, whenever the vote of stockholders at any
annual or special meeting of the stockholders is required or permitted to be
taken for or in connection with any corporate action, the meeting and vote of
stockholders may be dispensed with by consent in writing setting forth such
action being taken, and shall be signed by the holders of outstanding stock
having not less than a minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. The written consent must be filed with the
minutes of the proceedings of the stockholders.
SECTION 2.9. VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the by-laws of such corporation may prescribe, or in the absence of
such provision, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by the executor or
administrator of such deceased person, either in person or by proxy. Shares
standing in the name of a guardian, conservator or trustee may be voted by such
fiduciary, either in person or by proxy, but no such fiduciary shall be entitled
to vote shares held in such fiduciary capacity without a transfer of such shares
into the name of such fiduciary. Shares standing in the name of a receiver may
be voted by such receiver. A stockholder whose shares are pledged shall be
entitled to vote such shares, unless in the transfer by the pledgor on the books
of the corporation, he has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent the stock and vote
thereon.
SECTION 2.10. TREASURY STOCK. The corporation shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.11. FIXING RECORD DATE. The Board of Directors may fix in advance a
date, not exceeding 60 nor less than 10 days preceding the date of any meeting
of stockholders, or the date for payment of any dividend or distribution, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date
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in connection with obtaining a consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of and to vote at any such meeting and any adjournment
thereof, or to receive payment of such dividend or distribution, or to receive
such allotment of rights, or to exercise such rights, or to give such consent,
as the case may be, notwithstanding any transfer of any stock on the books of
the corporation after any such record date fixed as aforesaid.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. POWERS. The business and affairs of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not prohibited by
statute or by the Articles of Incorporation or by these by-laws.
SECTION 3.2. NUMBER, ELECTION AND TERM. The directors shall be elected at the
annual meeting of stockholders, except as provided in Section 3.3, and each
director elected shall hold office until his successor shall be elected and
shall qualify. The total number of directors shall not be fewer than four (4)
nor more than nine (9), which number may be increased or decreased by the
affirmative vote of a majority of the directors or by the holders of a majority
in interest of the shareholders at an annual meeting or at a meeting called for
that purpose. By a like vote, the additional directors may be elected at such
meeting. Directors need not be residents of Nevada or stockholders of the
corporation.
SECTION 3.3. VACANCIES, ADDITIONAL DIRECTORS AND REMOVAL FROM OFFICE. If any
vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or if any new directorship is created by an increase in the
authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
director or a director to fill the newly created directorship, as the case may
be; and a director so chosen shall hold office until the next annual meeting of
stockholders and until his successor shall be duly elected and shall qualify,
unless such director is sooner displaced. Any director may be removed either for
or without cause at any special meeting of stockholders duly called and held for
such purpose by the vote of stockholders representing net less than two-thirds
of the voting power of the stock entitled to vote at such meeting.
SECTION 3.4. REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held each year, without other notice than this by-law, at the place of, and
immediately following, the annual meeting of stockholders; and other regular
meetings of the Board of Directors shall be held during each year, at such time
and place as the Board of Directors may from time to time provide by resolution,
either within or without the State of Nevada, without other notice than such
resolution.
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SECTION 3.5. SPECIAL MEETINGS. A special meeting of the Board of Directors may
be called by the Chairman of the Board or by the President and shall be called
by the Secretary on the written request of any two directors. The Chairman of
the Board or President so calling, or the directors so requesting, any such
meeting shall fix the time and any place, either within or without the State of
Nevada, as the place for holding such meeting.
SECTION 3.6. NOTICE OF SPECIAL MEETINGS. Written notice of special meetings of
the Board of Directors shall be given to each director at least 48 hours prior
to the time of such meeting. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting solely for the purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting, except that notice shall be
given of any proposed amendment to the by-laws if it is to be adopted at any
special meeting or with respect to any other matter where notice is required by
statute.
SECTION 3.7. QUORUM. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute, by the Articles of Incorporation or
by these by-laws. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Articles
of Incorporation or these by-laws, any action required or permitted to be taken
at any meeting of the Board of Directors, or of any committee thereof as
provided in Article IV of these by-laws, may be taken without a meeting, if a
written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
SECTION 3.9. MEETING BY TELEPHONE. Any action required or permitted to be taken
by the Board of Directors or any committee thereof may be taken by means of a
meeting by conference telephone network or similar communications method so long
as all persons participating in the meeting can hear each other. Any person
participating in such meeting shall be deemed to be present in person at such
meeting.
SECTION 3.10. COMPENSATION. Except as otherwise provided in this Section 3.10,
directors, as such, shall not be entitled to any compensation for their services
unless voted by the stockholders; provided, however, by resolution of the Board
of Directors, there may be allowed (a) to "OUTSIDE" directors, as that term is
defined in Section 4.2 of these by-laws, a stated salary and/or a fixed sum for
each regular or special meeting of the Board of Directors or any meeting of a
committee of directors attended, and (b) to all directors, expenses of
attendance, if any, for each regular or special meeting of the Board of
Directors or any meeting of a committee of
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directors attended. No provision of these by-laws shall be construed to preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 4.1. AUDIT COMMITTEE. The Audit Committee of the Board of Directors (the
"AUDIT COMMITTEE") shall consist solely of directors, one or more, each of whom
shall be an "OUTSIDE" director of the corporation, to be designated annually by
the Board of Directors at its first regular meeting held pursuant to Section 3.4
of these by-laws after the annual meeting of stockholders or as soon thereafter
as conveniently possible. The term "outside" director, as used in this Section
4.1, shall mean a director of the corporation who is independent of management,
not an officer, employee, consultant, agent or affiliate (except as a director)
of the corporation and who is free of any relationship that, in the opinion of
the Board of Directors, would interfere with the designated director's exercise
of independent judgment as a member of the Audit Committee. The Audit Committee
shall have and may exercise all of the powers of the Board of Directors during
the period between meetings of the Board of Directors, except as may be
prohibited by law, with respect to (i) the selection and recommendation for
employment by the corporation, subject to approval by the Board of Directors and
the stockholders, of a firm of certified public accountants whose duty it shall
be to audit the books and accounts of the corporation and its subsidiaries for
the fiscal year in which they are appointed and who shall report to the Audit
Committee, provided, that in selecting and recommending for employment any firm
of certified public accountants, the Audit Committee shall make a thorough
investigation to insure the "independence" of such accountants as defined in the
applicable rules and regulations of the Securities and Exchange Commission; (ii)
instructing the certified public accountants to expand the scope and extent of
the annual audits of the corporation into areas of any concern to the Audit
Committee, which may be beyond that necessary for the certified public
accountants to report on the financial statements of the corporation, and, at
its discretion, directing other special investigations to insure the objectivity
of the financial reporting of the corporation; (iii) reviewing the reports
submitted by the certified public accountants, conferring with the auditors and
reporting thereon to the Board of Directors with such recommendations as the
Audit Committee may deem appropriate; (iv) meeting with the corporation's
principal accounting and financial officers, the certified public accountants
and auditors, and other officers or department managers of the corporation as
the Audit Committee shall deem necessary in order to determine the adequacy of
the corporation's accounting principles and financial and operating policies,
controls and practices, its public financial reporting policies and practices,
and the results of the corporation's annual audit; (v) conducting inquiries into
any of the foregoing, the underlying and related facts, including such matters
as the conduct of the personnel of the corporation, the integrity of the records
of the corporation, the adequacy of the procedures and the legal and financial
consequences of such facts; and (vi) retaining and deploying such professional
assistance, including outside counsel and auditors and any others, as the Audit
Committee shall deem necessary or appropriate, in connection with the exercise
of its powers on such terms as the Audit Committee shall deem necessary or
appropriate to protect the interests of the stockholders of the corporation.
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SECTION 4.2. OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more additional special or
standing committees other than the Audit Committee, each such additional
committee to consist of one or more of the directors of the corporation. Each
such committee shall have and may exercise such of the powers of the Board of
Directors in the management of the business and affairs of the corporation as
may be provided in such resolution, except as delegated by these by-laws or by
the Board of Directors to another standing or special committee or as may be
prohibited by law.
SECTION 4.3. COMMITTEE OPERATIONS. A majority of a committee shall constitute a
quorum for the transaction of any committee business. Such committee or
committees shall have such name or names and such limitations of authority as
provided in these by-laws or as may be determined from time to time by
resolution adopted by the Board of Directors. The corporation shall pay all
expenses of committee operations. The Board of Directors may designate one or
more appropriate directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of any members of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another appropriate member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member.
SECTION 4.4. MINUTES. Each committee of directors shall keep regular minutes of
its proceedings and report the same to the Board of Directors when required. The
Secretary or any Assistant Secretary of the corporation shall (i) serve as the
Secretary of the Audit Committee and any other special or standing committee of
the Board of Directors of the corporation, (ii) keep regular minutes of standing
or special committee proceedings, (iii) make available to the Board of
Directors, as required, copies of all resolutions adopted or minutes or reports
of other actions recommended or taken by any such standing or special committee
and (iv) otherwise as requested keep the members of the Board of Directors
apprised of the actions taken by such standing or special committees.
SECTION 4.5. COMPENSATION. Members of special or standing committees who are
"outside" directors, as that term is defined elsewhere in this Article, may be
allowed compensation for serving as a member of any such committee and all
members may be compensated for expenses of attending committee meetings, if the
stockholders or Board of Directors shall so determine in accordance with Section
3.10.
ARTICLE V
Notices
SECTION 5.1. METHODS OF GIVING NOTICE. Whenever under the provisions of the
statutes, the Articles of Incorporation or these by-laws, notice is required to
be given to any director, member of any committee or stockholder, such notice
shall be in writing and delivered personally or
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mailed, postage prepaid, to such director, member or stockholder; provided that
in the case of a director or a member of any committee such notice may be given
orally, by telephone, by telegram or by facsimile. If mailed, notice to a
director, member of a committee or stockholder shall be deemed to be given when
deposited in the United States mail, in a sealed envelope, with first class
postage thereon prepaid, addressed, in the case of a stockholder, to the
stockholder at the stockholder's address as it appears on the records of the
corporation or, in the case of a director or a member of a committee, to such
person at his business address. If sent by telegraph, notice to a director or
member of a committee shall be deemed to be given when the telegram, so
addressed, is delivered to the telegraph company. If sent by facsimile, notice
to a director or 'member of a committee shall be deemed to be given when the
transmission from the transmitting facsimile machine has been completed.
SECTION 5.2. WRITTEN WAIVER. Whenever any notice is required to be given under
the provisions of the statutes, the Articles of Incorporation or these by-laws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VI
Officers
SECTION 6.1. OFFICERS AND OFFICIAL POSITIONS. The executive officers of the
corporation shall be the Chairman of the Board, President, Secretary and
Treasurer. The Board of Directors shall elect and, when applicable, appoint all
the executive officers of the corporation. The Board of Directors and the
Chairman of the Board may appoint such other officers and agents, including but
not limited to one or more Vice Presidents (any one or more of which may be
designated Executive Vice President or Senior Vice President), Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as they deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as prescribed by the Board of Directors or
Chairman of the Board. Any two or more offices may be held by the same person.
No officer shall execute, acknowledge, verify or countersign any instrument on
behalf of the corporation in more than one capacity, if such instrument is
required by law, by these by-laws or by any act of the corporation to be
executed, acknowledged, verified or countersigned by two or more officers. The
Chairman of the Board shall be elected from among the directors. With the
foregoing exception, none of the other officers need be a director, and none of
the officers need be a stockholder of the corporation.
SECTION 6.2. ELECTION AND TERM OF OFFICE. The executive officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each executive officer shall hold office
until his successor shall have been chosen and shall have qualified or until his
death or the effective date of his resignation or removal, or until he shall
cease to be a director in the case of the Chairman of the Board.
SECTION 6.3. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interests of the corporation shall be served
thereby, but such removal shall be without
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prejudice to the contractual rights, if any, of the person so removed. Any
executive officer or other officer or agent may resign at any time by giving
written notice to the corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 6.4. VACANCIES. Any vacancy occurring in any executive office of the
corporation by death, resignation, removal or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 6.5. SALARIES. The salaries of all executive officers of the corporation
shall be fixed by the Board of Directors or pursuant to the direction of the
Board of Directors; and no executive officer shall be prevented from receiving
such salary by reason of his also being a director. Compensation of officers and
agents not appointed by the Board of Directors shall be established by the
Chairman of the Board and President, but subject to review by the Board of
Directors.
SECTION 6.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the Board of Directors and of the stockholders of the
corporation. In the Chairman's absence, such duties shall be attended to by the
President. The Chairman of the Board shall hold the position of chief executive
officer of the corporation and shall perform such duties as usually pertain to
the position of chief executive officer and such duties as may be prescribed by
the Board of Directors. The Chairman of the Board shall formulate and submit to
the Board of Directors matters of general policy for the corporation and shall
perform such other duties as usually appertain to the office or as may be
prescribed by the Board of Directors. He shall have the power to appoint and
remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. He may sign with the President or any other
officer of the corporation thereunto authorized by the Board of Directors
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors, and any deeds, bonds,
mortgages, contracts, checks, notes, drafts or other instruments which the Board
of Directors has authorized to be executed, except in cases where the signing
and execution thereof has been expressly delegated or reserved by these by-laws
or by the Board of Directors to some other officer or agent of the corporation,
or shall be required by law to be otherwise executed.
SECTION 6.7. PRESIDENT. The President, subject to the control of the Board of
Directors, and the Chairman of the Board, shall in general supervise and control
the business and affairs of the corporation. He shall have the power to appoint
and remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. The President shall keep the Board of
Directors and the Chairman of the Board fully informed as they or any of them
shall request and shall consult them concerning the business of the corporation.
He may sign with the Chairman of the Board or any other officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of capital stock of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors, and any deeds, bonds.
mortgages, contracts, checks, notes, drafts or other instruments which the Board
of Directors has authorized to be executed, except in cases where the signing
and execution thereof has been expressly delegated by these by-laws or by the
Board of Directors
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to some other officer or agent of the corporation, or shall be required by law
to be otherwise executed. In general he shall perform all other duties normally
incident to the office of the President, except any duties expressly delegated
to other persons by these by-laws or the Board of Directors and such other
duties as may be prescribed by the stockholders, Chairman of the Board or the
Board of Directors, from time to time.
SECTION 6.8. VICE PRESIDENTS. In the absence of the President, or in the event
of his inability or refusal to act, the Executive Vice President (or in the
event there shall be no Vice President or more than one Vice President
designated Executive Vice President, any Vice President designated by the Board)
shall perform the duties and exercise the powers of the President. Any Vice
President authorized by resolution of the Board of Directors to do so, may sign
with any other officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of capital stock of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors. The Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the Chairman of the Board, the President or the
Board of Directors.
SECTION 6.9. SECRETARY. The Secretary shall (a) keep the minutes of the meetings
of the stockholders, the Board of Directors and committees of directors; (b) see
that all notices are duly given in accordance with provisions of these by-laws
and as required by law; (c) be custodian of the corporate records and of the
seal of the corporation, and see that the seal of the corporation or a facsimile
thereof is affixed to all certificates for shares prior to the issuance thereof
and to all documents, the execution of which on behalf of the corporation under
its seal is duly authorized in accordance with the provisions of these by-laws;
(d) keep or cause to be kept a register of the post office address of each
stockholder which shall be furnished by such stockholder; (e) have general
charge of the stock transfer books of the corporation; and (f) in general,
perform all duties normally incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Chairman of the Board,
the President, the Board of Directors or the Executive Committee.
SECTION 6.10. TREASURER. The Treasurer shall (a) have charge and custody of and
be responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 7.3 of these by-laws; (b) prepare, or cause to be
prepared, for submission at each regular meeting of the Board of Directors, at
each annual meeting of stockholders, and at such other times as may be required
by the Board of Directors, the Chairman of the Board as the President, a
statement of financial condition of the corporation in such detail as may be
required, and (c) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Chairman of the Board, the President as the Board of Directors. If required
by the Board of Directors, the Treasurer shall give a bond for the faithful
discharge of his duties in such sums and with such surety or sureties as the
Board of Directors shall determine.
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SECTION 6.11. ASSISTANT SECRETARIES OR TREASURERS. The Assistant Secretaries and
Assistant Treasurers shall, in general, perform such duties as shall be assigned
to them by the Secretary or the Treasurer, respectively, or by the Chairman of
the Board, the President as the Board of Directors. The Assistant Secretaries or
Assistant Treasurers shall, in the absence of the Secretary or Treasurer,
respectively, perform all functions and duties which such absent officers may
delegate, but such delegation shall not relieve the absent officer from the
responsibilities and liabilities of his office. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine.
ARTICLE VII
CONTRACTS, CHECKS, DEPOSITS
SECTION 7.1. CONTRACTS. Subject to the provisions of Section 6.1., the Board of
Directors may authorize any officer, officers, agent or agents, to enter into
any contract or execute and deliver an instrument in the name of and on behalf
of the corporation, and such authority may be general or confined to specific
instances.
SECTION 7.2. CHECKS, ETC. All checks, demands, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers or such agent or
agents of the corporation, and in such manner, as shall be determined by the
Board of Directors.
SECTION 7.3. DEPOSITS. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Chairman of the Board, the
President or the Treasurer may be empowered by the Board of Directors to select
or as the Board of Directors may select.
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<PAGE> 12
ARTICLE VIII
CERTIFICATE OF STOCK
SECTION 8.1. ISSUANCE. Each stockholder of this corporation shall be entitled to
a certificate or certificates showing the number of shares of stock registered
in his name on the books of the corporation. The certificates shall be in such
form as may be determined by the Board of Directors, shall be issued in
numerical order and shall be entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the Chairman of the Board and the President or such other officers
as may from time to time be authorized by resolution of the Board of Directors.
Any of or all the signatures on the certificate may be a facsimile. The seal of
the corporation shall be impressed, by original or by facsimile, printed or
engraved, on all such certificates. In case any officer who has signed or whose
facsimile signature has been placed upon any such certificate shall have ceased
to be such officer before such certificate is issued, such certificate may
nevertheless be issued by the corporation with the same effect as if such
officer had not ceased to be such officer at the date of its issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the designation, preferences and relative,
participating, option or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class of stock;
provided that except as otherwise provided by statute, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate which
the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish to each stockholder who so requests
the designations, preferences and relative, participating, option or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights. All certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in the case of a
lost, stolen, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and with such indemnity, if any, to the corporation as
the Board of Directors may prescribe.
SECTION 8.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may
direct that a new certificate or certificates be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require or to give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate or certificates alleged to have been
lost, stolen or destroyed, or both.
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<PAGE> 13
SECTION 8.3. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the transfer agent.
SECTION 8.4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by laws of the State of Nevada.
ARTICLE IX
Dividends
SECTION 9.1. DECLARATION. Dividends upon the capital stock of the corporation,
subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of capital
stock, subject to the provisions of the Articles of Incorporation.
SECTION 9.2. RESERVE. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
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<PAGE> 14
ARTICLE X
INDEMNIFICATION
SECTION 10.1. THIRD PARTY ACTIONS. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 10.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
SECTION 10.3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
10.1 and 10.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
SECTION 10.4. DETERMINATION OF CONDUCT. Any indemnification under Section 10.1
or 10.2 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is
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<PAGE> 15
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 10. 1 and 10-2. Such determination shall be made
(1) by the Board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
SECTION 10.5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article X.
SECTION 10.6. INDEMNITY NOT EXCLUSIVE. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any other by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 10.7. THE CORPORATION. For purposes of this Article X, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under and subject to the provisions of this
Article X (including, without limitation the provisions of Section 10.4) with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
SECTION 10.8. INSURANCE INDEMNIFICATION. The corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article X.
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SECTION 10.9. EXPANDED INDEMNIFICATION. If the Nevada General Corporation Law is
amended at any time or from time to time so as to expand the circumstances under
which, the extent to which, or the persons for which, the corporation may make
indemnification, this corporation may make such indemnification to the extent of
such expansion.
ARTICLE XI
AMENDMENT
SECTION 11.1. DIRECTOR AMENDMENT. These by-laws may be altered, amended or
repealed at any regular meeting of the Board of Directors without prior notice,
or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting.
SECTION 11.2. SHAREHOLDER AMENDMENT. These by-laws may be amended altered, or
repealed, in whole or in part, upon the affirmative vote of the holders of not
less than two-thirds (2/3) of the outstanding voting shares of the corporation.
ARTICLE XII
General Provisions
SECTION 12.1. SEAL. The corporate seal shall have inscribed thereon the name of
the corporation, and the words "Corporate Seal, Nevada". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
SECTION 12.2. BOOKS. The books of the corporation may be kept within or without
the State of Nevada (subject to any provisions contained in the statutes) at
such place or places as may be designated from time to time by the Board of
Directors or the Executive Committee.
SECTION 12.3. FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SECTION 12.4. REDEMPTION OF CONTROL SHARES. The corporation, in accordance with
Section 78.3792 of the General Corporation Law of the State of Nevada may call
for redemption of not less than all of the control shares (as defined in Section
78.3784 of the Nevada General Corporation Law) upon the terms and conditions set
out in the General Corporation Law of the State of Nevada.
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Exhibit: 3.6J
STOCK CHANGE
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
JANEX INTERNATIONAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation.
FIRST: The name of the corporation is Janex International, Inc.
SECOND: The following amendment was adopted on December 11, 1998 by the Board
of Directors. Shares have been issued and shareholder action was not
required, as prescribed by Section 7-106-102 of the Colorado Business
Corporation Act.
THIRD: Attached hereto as ANNEX "A" is the amendment to the Articles of
Incorporation.
Dated: January 14, 1999.
FILED - CUSTOMER COPY
VICTORIA BUCKLEY
COLORADO SECRETARY OF STATE
JANEX INTERNATIONAL, INC.
By: /s/ Vincent W. Goett
------------------------------------
Vincent W. Goett, CEO and President
19991021339 C
$40.00
SECRETARY OF STATE
02-03-1999 14:41:23
<PAGE> 2
ANNEX "A"
Janex International, Inc.
Designation of Series A Preferred Stock
In accordance with Article IV, Section 2 of the Articles of Incorporation
of Janex International, Inc., a Colorado corporation (the "Corporation"), there
is hereby established one series of the previously authorized preferred stock
of the Corporation having no par value per share (the "Preferred Stock",
consisting of 5,000,000 shares, the designation and the powers, preferences and
rights, and the qualifications, limitations or restrictions thereof are hereby
fixed pursuant to this Certificate of Designation (the "Certificate") as
follows:
1. Designation. The designation of said series of Preferred Stock of the
Corporation created hereby, consisting of 5,000,000 shares, shall be Series A
Convertible Preferred Stock ("Series A Preferred Stock").
2. Dividends. Holders of the Series A Preferred Stock shall be entitled
to receive cash dividends, when and as declared by the Corporation's board of
directors (the "Board of Directors"), out of the funds of the Corporation
legally available therefor. Dividends on outstanding shares of Series A
Preferred Stock shall be paid and set apart for payment before any dividends
shall be paid or set apart for payment on the common stock of the Corporation,
no par value (the "Common Stock").
3. Redemption: Sinking Fund. Shares of Series A Preferred Stock shall
not be redeemable, and the Series A Preferred Stock shall not have a sinking
fund.
4. Liquidation. In case of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, prior and in
preference to any other distribution to the holders of Common Stock, an amount
equal to the then current market value of a share of the Common Stock per share
of Series A Preferred Stock. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the holders
of shares of Series A Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series A Preferred Stock and any other
series of preferred stock of the Corporation shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
5. Conversion. The conversion of Series A Preferred Stock into Common
Stock
<PAGE> 3
pursuant to this paragraph 5 will be effected only if a sufficient number of
shares of Common Stock is authorized, available and reserved for conversion. As
of the date of this designation, a sufficient number of shares of Common Stock
is not authorized or available for conversion, but the shareholders of
Corporation may in the future authorize and reserve such shares of Common Stock.
5A. Optional Conversion. Subject to the provisions of paragraph 4 hereof
regarding liquidation, and subject to the terms and conditions of this paragraph
5, the holder of any share or shares of Series A Preferred Stock shall have the
right, at its option at any time, to convert any such shares of Series A
Preferred Stock (except that upon any liquidation of the Corporation the right
of conversion shall terminate at the close of business on the last full business
day next preceding the date fixed for payment of the amount distributable on the
Series A Preferred Stock) into an equal number of fully paid and nonassessable
whole shares of Common Stock. Such rights of conversion shall be exercised by
the holder thereof by giving written notice in the form of APPENDIX 1 attached
hereto, that the holder elects to convert a stated number of shares of Series A
Preferred Stock into Common Stock, and by surrender of a certificate or
certificates for the Series A Preferred Stock so to be converted to the
Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holder
or holders of the Series A Preferred Stock) at any time during its usual
business hours on the date set forth in such notice, together with a statement
of the name or names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued.
5B. Issuance of Certificates; Time Conversion Effected. Promptly after
receipt of the written notice referred to in paragraph 5A and surrender of the
certificate or certificates for the share or shares of Series A Preferred Stock
to be converted, the Corporation shall issue and deliver, or cause to be issued
and delivered, to the holder, registered in such name or names as such holder
may direct, a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such share or shares thereof,
subject, in the case of registration in a name other than the holder of the
Series A Preferred Stock so surrendered, to compliance with any agreement
relating to transfer by which such holder is bound. To the extent permitted by
law, such conversion shall be deemed to have been effected as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares as such holder shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
5C. Fractional Shares; Dividends; Partial Conversion. No fractional shares
shall be issued upon conversion of Series A Preferred Stock into Common Stock
and no payment or adjustment shall be made upon any conversion on account of
any cash dividends on the Common Stock issued upon such conversion. At the time
of each conversion, to the extent and as soon as permitted by applicable law,
the Corporation shall pay in cash an amount equal to all dividends declared and
unpaid on the shares surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in paragraph 5B. In case the
number of shares of
A-2
<PAGE> 4
Series A Preferred Stock represented by the certificate or certificates
surrendered pursuant to paragraph 5A exceeds the number of shares of such Series
converted, the Corporation shall, upon such conversion, execute and deliver to
the holder thereof, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series A Preferred Stock of such
Series, represented by the certificate or certificates surrendered which are not
to be converted. If any fractional interest in a share of Common Stock would,
except for the provisions of the first sentence of this paragraph 5C, be
deliverable upon any such conversion, the Corporation, in lieu of delivering the
fractional share thereof, shall pay to the holder surrendering Series A
Preferred Stock for conversion an amount in cash equal to the current market
price of such fractional interest as determined by the Board of Directors.
5D. Subdivision or Combination of Stock. In case the Corporation shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the number of shares of Common Stock into which each share of Series
A Preferred Stock shall be converted shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the number of Shares of Common Stock into
which each Share of Series A Preferred Stock shall be converted shall be
proportionately increased.
5E. Reorganization, Reclassification, Merger, Consolidation or Sale. If
any capital reorganization or reclassification of the capital stock of the
Corporation or any merger or consolidation of the Corporation into or with
another corporation, or the sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way
that holders of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of such respective Series of Series A Preferred Stock shall thereafter have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of Series A Preferred
Stock (determined in accordance with paragraph 5D, if applicable), such shares
of stock, securities or assets as may be issued or payable with respect to or
in exchange for a number of outstanding shares of such Common Stock equal to
said number of shares of such stock immediately theretofore so receivable had
such reorganization or reclassification not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
The Corporation will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed
or delivered to each holder of shares of Series A Preferred Stock at the last
address of such holder appearing on the books of the Corporation, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
receive.
A-3
<PAGE> 5
5F. Stock to Be Reserved. The Corporation may reserve and keep available
out of its authorized Common Stock or its treasury shares, solely for the
purpose of issue upon the conversion of the Series A Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof. The Corporation
will take all such action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the Common Stock may be listed, provided that it shall not have to
register any shares beyond any separate agreement to do so. If it is in the
best interests of the Corporation as determined by the Board of Directors, the
Corporation will take action to increase the number of authorized shares of
Common Stock if the total number of shares of Common Stock issued and issuable
upon conversion of the Series A Preferred Stock would exceed the total number
of shares of Common Stock then authorized by the Corporation's Articles of
Incorporation.
5G. No Reissuance of Series A Preferred Stock. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as provided
herein shall be restored to the status of authorized and unissued shares of
Preferred Stock, undesignated as to series, and shall not under any
circumstances be reissued as Series A Preferred Stock.
5H. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversions of the Series A Preferred Stock shall be made without charge
to the holders of such Series A Preferred Stock for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series A Preferred Stock converted.
5I. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Series A Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series A
Preferred Stock in any manner which interferes with the timely conversion of
such Series A Preferred Stock.
6. Automatic Conversion. If at any time while any of the Series A
Preferred Stock shall be outstanding, the Corporation shall complete a firm
commitment underwritten public offering, all outstanding shares of Series A
Preferred Stock shall, automatically and without further action on the part of
the holders of the Series A Preferred Stock, be converted into shares of Common
Stock in accordance with the terms of paragraph 5 with the same effect as if
the certificates evidencing such shares had been surrendered for conversion,
such conversion to be effective simultaneously with the closing under such
underwritten public offering, provided, however, that certificates evidencing
the shares of Common Stock issuable upon such conversion shall not be issued
except on surrender of the certificates for the shares of Series A Preferred
Stock so converted. The Common Stock issued pursuant to the conversion of the
Series A Preferred Stock will be subject to a Registration Rights
A-4
<PAGE> 6
Agreement in the form attached hereto as Schedule A.
7. Certain Notices to Holders. In case at any time (a) there shall be any
capital reorganizations, or reclassification of the capital stock of the
Corporation, or consolidation or merger of the Corporation with, or sale of all
or substantially all of its assets to, another corporation, or (b) there shall
be a voluntary or involuntary dissolution, liquidation or winding up of the
Corporation; then, in any one or more of said cases, the Corporation shall
give, by first class mail, postage prepaid, addressed to each holder of any
shares of Series A Preferred Stock at the address of such holder as shown on
the books of the Corporation, at least 20 days' prior written notice of the
date when the same shall take place. Such notice shall also specify the date on
which the holders of Series A Preferred Stock shall be entitled to exchange
their Series A Preferred Stock for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
8. Voting Rights. The Series A Preferred Stock shall have no voting rights.
9. Transfer of Preferred Shares. A holder of Series A Preferred Stock may
sell or transfer all or any portion of its Series A Preferred Stock to any
person or entity as long as such sale or transfer is exempt from registration
under the Securities Act of 1933, as amended. From and after the date of such
sale or transfer, the transferee thereof shall be deemed to be a holder of
Series A Preferred Stock. Upon any such sale or transfer, the Corporation
shall, promptly following the return of the certificate or certificates
representing the shares of Series A Preferred Stock that are the subject of
such sale or transfer, issue and deliver to such transferee a new certificate
in the name of such transferee.
10. Notices. Except as otherwise provided herein, any notice, demand or
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the third Business Day after
deposit in the U.S. mail (certified or registered mail, receipt requested,
postage prepaid), addressed to the parties as follows:
If to the Corporation:
Janex International, Inc.
2999 North 44th Street
Suite 225
Phoenix, Arizona 85018-7247
Attn: President
Tel: 602-808-8765
Fax: 602-808-9863
A-5
<PAGE> 7
with a copy to:
P. Robert Moya, Esq.
Quarles & Brady LLP
One East Camelback Road
Suite 400
Phoenix, Arizona 85012
Tel: 602-230-5500
Fax: 602-230-5598
and if to any holder of Series A Preferred Stock, to such address for such
holder as shall be designated by such holder in writing to the Corporation.
11. Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Series A Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity reasonably satisfactory to the Corporation, and upon
surrender and cancellation of such certificate if mutilated, the Corporation
shall execute and deliver to such holder of Series A Preferred Stock a new
certificate identical in all respects to the original certificate.
12. No Restrictions. Nothing herein contained shall require a class vote
or consent in connection with any increase in the total number of authorized
shares of Common Stock. The provisions of this Certificate shall not in any way
limit the right and power of the Corporation to issue the presently authorized
but unissued shares of its capital stock, or bonds, notes, mortgages,
debentures, or other obligations, or to incur indebtedness to banks or to other
lenders.
13. Amendment of Certificate. This Certificate constitutes an agreement
between the Corporation and the holders of the Series A Preferred Stock. It may
be amended by vote of the Board of Directors and the holders of a majority of
the outstanding shares of Series A Preferred Stock.
14. Other Amendments. The Corporation will not amend, alter or repeal the
Corporation's Articles of Incorporation or Bylaws in any manner, or file any
certificate pursuant to Section 10-602 of the Arizona Revised Statutes,
containing any provision, in any case, which affects the respective
preferences, qualifications, special or relative rights or privileges of the
Series A Preferred Stock of the Common Stock or which in any manner affects the
Series A Preferred Stock, or the Common Stock or the holders thereof.
A-6
<PAGE> 8
Appendix 1
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock"), represented by stock
certificate No(s). (the "Preferred Stock Certificates"), into shares
of common stock ("Common Stock") of Janex International, Inc. according to the
terms and conditions of the Certificate of Designation relating to the Series A
Preferred Stock (the "Certificate of Designation"), as of the date written
below. Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Certificate of Designation.
Date of Conversion: ----------------------------------------
Number of Shares of Series A
Preferred Stock to be Converted: ---------------------------
Applicable Conversion Price: -------------------------------
Number of Shares of
Common Stock to be Issued: ---------------------------------
Name of Holder: --------------------------------------------
Address: ---------------------------------------------
---------------------------------------------
---------------------------------------------
Signature: ------------------------------------------------
Name:
Title:
Holder Requests Delivery to be made: (check one)
[ ] By Delivery of Physical Certificates to the Above Address
[ ] Through Depository Trust Corporation
(Account )
---------------------------
<PAGE> 1
Exhibit: 3.7J
SECRETARY OF STATE FOR OFFICE USE ONLY 006
CORPORATIONS SECTION
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
MUST BE TYPED
FILING FEE: $10.00
MUST SUBMIT TWO COPIES -------------------------
---
CERTIFICATE OF CORRECTION
Pursuant to the Colorado Business Corporation Act, the undersigned hereby
executes the following certificate of correction:
FIRST: The exact name of the corporation is Janex International, Inc.
----------------------------
organized under the laws of Colorado
-------------------------------------
SECOND: Description of the documents being corrected (i.e. Articles of
Incorporation, Amendment, Merger or other) or an attached copy of
the document:
----------------------------------------------------
Articles of Amendment to the Articles of Incorporation
-----------------------------------------------------------------
THIRD: Date document was filed February 3 , 1999 .
----------------- ------
FOURTH: Statement of Incorrect information:
See Exhibit A attached.
FIFTH: Statement of corrected information:
See Exhibit A attached.
Signature /s/ Fred B. Gretsch
------------------------------
Title Fred B. Gretsch, Secretary
-----------------------------------
Revised 7/95
<PAGE> 2
EXHIBIT A
FOURTH: Statement of incorrect information:
5D. Subdivision or Combination of Stock. In case the Corporation shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the number of shares of Common Stock into which each share of Series
A Preferred Stock shall be converted shall be proportionately REDUCED and
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the number of Shares of Common Stock into which
each Share of Series A Preferred Stock shall be converted shall be
proportionately INCREASED.
FIFTH: Statement of corrected information:
5D. Subdivision or combination of Stock. In case the Corporation shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the number of shares of Common Stock into which each share of Series
A Preferred Stock shall be converted shall be proportionately INCREASED and
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the number of Shares of Common Stock into which
each Share of Series A Preferred Stock shall be converted shall be
proportionately REDUCED.
<PAGE> 1
Exhibit: 3.9J
AMENDMENT TO ARTICLE IV OF THE BYLAWS
OF
WITH DESIGN IN MIND INTERNATIONAL, INC.
Section 5. Chairman of the Board of Directors. The Chairman shall be
the chief executive officer of the corporation and, subject to the control of
the Board of Directors, shall be in general charge of the business affairs of
the corporation. The chairman shall be responsible for developing basic goals,
operating plans, and policies for the corporation and implementing
board-approved plans. The Chairman shall preside at all meetings of the
shareholders and of the Board of Directors. The Chairman shall perform such
other duties as may be reasonably prescribed by the Board of Directors from time
to time.
Section 6. President. The President shall be the chief operating
officer of the corporation and, shall be primarily responsible for management of
the operations of the corporation. The President shall work together with the
Chairman of the Board to develop goals, operating plans, and policies for the
corporation, and implement board-approved plans. The President shall perform
such other duties as may be reasonably prescribed by the Board of Directors from
time to time.
Adopted: September 3, 1991
<PAGE> 1
Exhibit: 4.4FT
STOCK RESTRICTIONS AND SALE AGREEMENT
FUTECH EDUCATIONAL PRODUCTS, INC.
VINCENT W. GOETT and MELISSA TURNER GOETT
---------
<PAGE> 2
STOCK RESTRICTIONS AND SALE AGREEMENT
THIS STOCK RESTRICTIONS AND SALE AGREEMENT ("Agreement") is made on the
date hereinafter subscribed, by and between VINCENT W. GOETT AND MELISSA TURNER
GOETT, HUSBAND AND WIFE, AS JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP
(collectively "Stockholder"), and FUTECH EDUCATIONAL PRODUCTS, INC., an Arizona
corporation ("Corporation").
WITNESSETH
WHEREAS, the Stockholder owns Eight Hundred Sixty-five Thousand Eight
Hundred Fifty-two (865,852) shares of the common capital stock of the
Corporation;
WHEREAS, a condition of the issuance of said stock requires the Stockholder
to subject their stock to the restrictions hereinafter contained to further
enable the Corporation to purchase their stock upon any subsequent proposed
transfer or encumbrance.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
undertakings hereinafter contained, it is mutually agreed as follows:
I. SHARES OF STOCK OWNED BY THE STOCKHOLDER
1.01 SHARES NOW OWNED. The Stockholders is the owner of the number of
shares of the common capital stock of the Corporation as set forth on the
Certificate ("Shares") attached hereto and incorporated herein by reference. All
of such Shares of the Corporation is subject to this Agreement and shall be held
subject to the terms hereof.
1.02 AFTER ACQUIRED SHARES. The Stockholder agrees that if any additional
shares of the common capital stock of the Corporation are acquired by the
Stockholder, in any manner, including, but not limited to, those received by
reason of a stock dividend, stock split, recapitalization of the Corporation,
gift, inheritance, purchase, enforcement of a lien by foreclosure or by any
other means whatsoever, such shares shall also be subject to the terms and
provisions of this Agreement.
1.03 POSSESSION, STOCK POWER, POWER OF ATTORNEY AND ACTIONS CONCERNING
CERTIFICATES. Upon the execution hereof, the Stockholder shall deposit all of
the certificate with the Corporation together with a stock power entitled
"Assignment Separate From Certificate" executed with assignee and effective date
blank. The Stockholder shall follow the same procedure with regard to all
certificates hereafter acquired. The Stockholder
<PAGE> 3
hereby grants to the Corporation the power of attorney to complete the assignee
and effective date to carry out the terms of this Agreement, whenever the terms
hereof provide for a transfer of such Shares, and the Corporation shall not be
liable for any errors made in good faith.
II. TRANSFER OF STOCK BY THE STOCKHOLDER DURING LIFETIME
2.01 PROPOSED TRANSFER DURING LIFETIME OF THE STOCKHOLDER. In the event
that the Stockholder (hereinafter the "Selling Stockholder") shall, during
their lifetime, desire to sell, assign, gift, encumber or in any other manner
dispose of (hereinafter referred to as "transfer or encumber") the Shares, in
whole or in part, they shall first offer to transfer or encumber such Shares of
stock to the Corporation by giving notice in writing to the Board of Directors
of the Corporation. The notice shall contain the price and all of the terms and
conditions of such proposed transfer or encumbrance, the number of shares and
the name of the person or persons to be involved in the proposed transfer or
encumbrance. Upon receipt of the written notice, the Corporation may elect to
purchase or participate in the transfer or encumbrance of all of such stock, on
the terms proposed, in the manner set forth below. Notwithstanding the
foregoing, or any other provision of this Article II, no Shareholder shall
sell, exchange, assign, give or otherwise transfer any shares of the
Corporation to any one other than an individual, estate or trust that is an
eligible shareholder of a S Corporation under the provisions of Section 1361 of
the Internal Revenue Code of 1986, as amended and in a manner permitted by this
Agreement.
2.02 ELECTION BY CORPORATION. Upon receipt of the written notice specified
in Paragraph 2.01 above, the Corporation shall have twenty (20) days therefrom
within which to accept the Selling Stockholder's offer upon the same terms and
conditions as are set forth in such written notice. The Selling Stockholder
shall not be entitled to vote either as a member of the Board of Directors or a
stockholder at the meeting held for the purpose of making the corporate
election. If the Corporation elects to accept the Selling Stockholder's offer,
such acceptance shall be made in writing and posted in the United States mail
to the Selling Stockholder prior to expiration of the twenty (20) day election
period. If the Corporation elects to not accept the Selling Stockholder's
offer, it shall immediately notify the Stockholder.
2.03 VOID TRANSFERS. Any transfer or encumbrance to persons for a
different number of shares, or at a lesser price or on terms less favorable to
the Selling Stockholder than those originally proposed, shall be invalid unless
first offered to the Corporation as hereinabove provided. In the event that the
Selling Stockholder does not consummate their proposed transfer or encumbrance
within ninety (90) days from the final notice of rejection by the Corporation,
such offer by the Selling Stockholder shall terminate
-2-
<PAGE> 4
and any subsequent offer of transfer or encumbrance shall again comply with the
terms of this Agreement.
2.04 DISCLOSURE OF TERMS OF TRANSFER TO THIRD PARTIES. If any transfer or
encumbrance occurs to any person or entity other than the Corporation, the
Selling Stockholder shall immediately deposit with the Corporation executed
copies of all documents relating to such transfer or encumbrance, and the
Corporation shall have the right to investigate the details of any such
transfer or encumbrance.
III. DEATH OF THE STOCKHOLDER
3.01 DEATH OF THE STOCKHOLDER. The parties agree that the provisions of
Article II of this Agreement shall not be operative upon the death of VINCENT
W. GOETT and/or MELISSA TURNER GOETT.
IV. TRANSFERS
4.01 CLOSING TRANSACTION. All stock transfers or encumbrances made
hereunder shall be consummated through and delivery shall be made at the
offices of the Corporation, and all instruments, documents and stock
certificates required shall be signed or endorsed on or before the closing date
and shall be delivered to the Corporation. The purchaser or lender, if other
than the Corporation, shall deposit the purchase price or loan (or the initial
payment, if there are deferred installments) with the Corporation on or before
the closing date. When all parties have complied, the Corporation shall deliver
at its principal office the purchase price or loan to the seller, an original
or signed copy of all documents and instruments to all of the parties to the
transaction, and certificates representing the stock transferred to the
purchaser or lender according to the terms of any pledge or security agreement.
4.02 DIVIDENDS AND VOTING RIGHTS.
a. After the Corporation receives notice of an offer under Article II, it
shall withhold all dividends payable in cash, kind or stock on each share to be
sold, offered for sale or used as collateral for a loan until the same is
completed or canceled or the offer rejected as to that share. All dividends
payable after an offer for sale shall belong to the purchaser or, if a loan
transaction is entered into; shall be distributed in accordance with its
provisions.
b. After a sale under Article II, the parties purchasing the Shares shall,
so long as not in default under the terms thereof, be entitled to vote those
Shares. However, a purchaser of stock under Article II shall have no right to
vote shares until those shares have been reissued to him.
-3-
<PAGE> 5
4.03 ENDORSEMENT ON STOCK CERTIFICATES. Upon the execution of this
Agreement, the certificates of stock which are the subject matter of this
Agreement shall be endorsed with the following legend:
This certificate is transferable only upon compliance with the
provisions of that certain Stock Restrictions and Sale Agreement to
which the Corporation and one of its Stockholders are parties. The
Corporation will mail to the Stockholder a copy of said restrictions
without charge within five (5) days of receipt of written request
therefor.
All stock hereafter issued to the Stockholder shall bear the same
endorsement.
V. ENFORCEMENT, BREACH AND NON-PERFORMANCE
5.01 REMEDIES. The stock of the Corporation cannot be readily purchased,
sold or encumbered in the open market, and for that reason, among others, the
parties will be irreparably damaged in the event that this Agreement is not
specifically enforced. Should any dispute arise concerning the transfer or
encumbrance of stock, an injunction may be issued restraining any transfer or
encumbrance pending the determination of such controversy. In the event of any
controversy concerning the right or obligation to purchase, sell or encumber any
of the stock, such right or obligation shall be enforceable in a court of equity
by a decree of specific performance. Such remedy shall be cumulative and not
exclusive, and shall be in addition to any other remedy which the parties have
at law or in equity.
5.02 ATTORNEYS' FEES. If any action should be brought for the enforcement
of this Agreement, the prevailing party shall be entitled to reimbursement, by
the opposing party, of its reasonable attorneys' fees in addition to all other
relief awarded.
5.03 CONSENT, ACQUIESCENCE AND WAIVER. No acquiescence in, waiver of, or
failure to enforce any breach, default, violation or remedy shall be a waiver of
subsequent or other breaches, defaults, violations or remedies. Acquiescence in
or consent to a transfer or grant of a security interest prohibited by this
Agreement, or inconsistent herewith shall not void or vitiate this Agreement, or
any part hereof (except and only to the extent made impossible of performance)
unless the transfer or grant itself terminates this Agreement.
5.04 NOTICE. Any notice required to be given hereunder shall be in writing
and delivered personally or mailed by certified mail, if directed to the
Corporation, to the Corporation's principal place of business, or if directed to
the Stockholder, to the
-4-
<PAGE> 6
Stockholder's address as it appears in the stock transfer record of the
Corporation. The Stockholder's address as of this date is set forth below the
signatures hereon. Notice shall be deemed given on the date of personal delivery
or, if mailed, the date of delivery shown on the return receipt for certified
mail.
5.05 ASSIGNMENT. No right or interest in, under or arising by virtue of
this Agreement may be assigned, and no encumbrances therein may be created, and
any such assignment or encumbrance shall be null and void.
VI. TERM AND TERMINATION
6.01 TERM. This Agreement shall take effect on the date hereinafter
subscribed and shall remain in effect until termination as hereinafter provided
in Paragraph 6.02.
6.02 TERMINATION. This Agreement shall be terminated in the event of any of
the following:
a. The mutual agreement of all parties hereto to terminate this
Agreement;
b. The Corporation is adjudicated insolvent or bankruptor dissolves or
makes an assignment or a substantial part of the assets for the
benefit of creditors;
c. The Corporation merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets;
d. The sale of all of the stock of the Stockholder during the lifetime of
the Stockholder within the permissive provisions of this Agreement,
but only as to the Stockholder.
VII. INTERPRETATION AND CONSTRUCTION
7.01 TIME PERIODS. Time periods referred to herein shall be determined by
excluding the day of the event when the period commences or from which it runs
and shall expire at 5:00 o'clock p.m., local time, on the last day included in
such period unless it falls on a Saturday, Sunday or legal holiday, and then it
shall expire at 5:00 o'clock p.m., local time, on the first following business
day.
7.02 CAPTIONS AND HEADINGS. All headings set forth in the Agreement are
intended for convenience only and shall not concern or affect the meaning,
construction or effect of this Agreement of the provisions hereof. Recitals
shall not be construed as separate agreements or affect the interpretation of
the other provision's hereof
-5-
<PAGE> 7
7.03 INVALID PROVISIONS. The invalidity or unenforceability of any
particular provision shall not affect the other provisions, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions have been removed.
7.04 CONTROLLING LAW; IMPAIRMENT OF CAPITAL. This Agreement shall be
governed by the laws of the State of Arizona. The parties hereto understand
that a corporation may purchase its own shares only where no statutory
liability is placed upon its stock, and the corporation is solvent and subject
to the rights of creditors and non-assenting stockholders. The parties hereto
further understand that the purchase of shares should be from the corporate
surplus without impairing its capital, and this Agreement is entered into in
full consideration of the law.
7.05 JOINT TENANTS. It is mutually agreed by the parties hereto that in
the event that the Stockholder shall elect to have her stock certificate held
in joint tenancy with another person, that joint tenant shall be made a party
hereto.
7.06 COUNTERPARTS. This Agreement may be executed in multiple counterparts
and when a counterpart has been executed by each of the parties hereto, such
counterparts, taken together, shall constitute a single agreement. Duplicate
originals may also be utilized, each of which shall be deemed an original
document.
IN WITNESS WHEREOF, each Stockholder, on the 27 day of January, 199 has
hereunto set their name, and the Corporation has caused its name to be signed
by its President and attested by its Secretary.
"STOCKHOLDER"
/s/ Vincent W. Goett 1/27/94
-------------------------------------
VINCENT W. GOETT Date
--------------------------
--------------------------
602 949-0533 (Phone #)
---------------
/s/ Melissa Turner Goett 1/27/94
-------------------------------------
MELISSA TURNER GOETT Date
--------------------------
--------------------------
602 949-0533 (Phone #)
---------------
-6-
<PAGE> 8
"CORPORATION"
FUTECH EDUCATIONAL PRODUCTS, INC.,
an Arizona corporation
BY: /s/ Stephen McTaggart 1/28/97
------------------------------
President Date
ATTEST:
/s/ Debra McTaggart 1/28/97
- -----------------------------------
DEBRA McTAGGART Date
Secretary
-7-
<PAGE> 1
Exhibit: 4.5FT
STOCK PURCHASE AGREEMENT - GOETT
THIS STOCK AGREEMENT is made and entered into on the date
hereinafter set forth, by and between VINCENT W. GOETT and MELISSA TURNER GOETT,
husband and wife, (collectively "Goetts"), and FUTECH EDUCATIONAL PRODUCTS,
INC., an Arizona corporation (the "Corporation").
RECITALS:
A. The Corporation is a corporation organized and validly
existing under the laws of the State of Arizona and is authorized to issue up to
a total of 10,000,000 shares of common capital stock without par value.
B. Currently, there are 7,792,665 shares of common capital
stock issued and outstanding, leaving 2,207,335 shares available for issuance
from the Corporation.
C. Goetts desire to acquire ten percent (10%) of the common
capital stock of the Corporation consisting of 865,852 shares of common capital
stock, on the terms and conditions set forth herein.
D. This Agreement sets forth the terms under which Goetts will
purchase no par value, voting, capital common stock of the Corporation.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, and undertakings hereinafter contained, it is mutually agreed as
follows:
1. RECITALS INCORPORATION. The Recitals set forth above are
hereby incorporated by reference.
2. PAYMENT AND ISSUANCE OF SHARES. Upon the execution of this
Agreement, Goetts shall pay to the Corporation the sum of ONE MILLION DOLLARS
($1,000,000.00) consisting of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00) cash
and SIX HUNDRED THOUSAND DOLLARS ($600,000.00) to be supplied by means of Goetts
obtaining a line of credit in said amount for Corporation immediately upon
signing of this Agreement. The line of credit shall be made at commercially
reasonable terms approved by Corporation. Goetts shall be obligated to pay all
costs and expenses in obtaining the line of credit, and shall make all payments
on the line of credit. On or
<PAGE> 2
before June 1, 1994, Goetts shall cause the line of credit to be reduced by
$200,000; on or before October 1, 1994, Goetts shall cause the line of credit to
be reduced by an additional $200,000, and on or before January 25, 1995, the
line of credit shall be paid in full and cancelled. Goetts may extend the
aforestated payment dates an additional thirty (30) days provided no defaults
exist under the line of credit. Corporation acknowledges that Corporation will
be signatory on the line of credit for not more than twenty percent (20%) of the
first monies to be paid on the line of credit. Corporation shall be obligated to
grant security against $750,000 of equipment owned by the Corporation. In return
for the $400,000.00 cash and the $600,000.00 line of credit (to be paid by
Goetts), Corporation will issue a Stock Certificate to Goetts for EIGHT HUNDRED
SIXTY-FIVE THOUSAND EIGHT HUNDRED FIFTY TWO (865,852) shares of the common
capital stock of the corporation. (the "Shares"). The certificate evidencing the
Shares will be imprinted with a conspicuous legend stating that the Shares have
not been registered under the Securities Act of 1933, as amended (the "Act"),
and referring to certain restrictions on transfer or encumbrance of the Shares.
3. REGISTRATION RIGHTS. The Corporation does not intend to
file a registration statement under the Act. Instead, the corporation intends to
rely on the "private placement" exemption contained in Section 4(2) of the Act.
4. REPRESENTATIONS OF THE CORPORATION. The Corporation
represents, warrants and covenants as follows:
a. The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona
and has the corporate power to carry on its business as it is now being
conducted.
b. The sale of Shares to Goetts, under this Agreement, has
been duly and validly authorized by the Corporation by all necessary
corporate actions; there are no preemptive rights with respect to the
Shares, and such Shares, when issued, will be validly issued, fully
paid and non-assessable.
5. REPRESENTATIONS OF GOETTS. Goetts represent, warrant and
covenant as follows:
a. Goetts are familiar with the business and affairs of the
Corporation and realize an investment in the Shares involves a high
degree of risk.
b. Goetts have been advised that there will be no public
market for the Shares; they may not be able to readily liquidate their
investment; the Shares have not
-2-
<PAGE> 3
been registered or qualified under Federal or State laws governing the
issuance of securities; and the Corporation has no current intention of
registering the Shares or reporting under the Act or any comparable or
related Federal or State law.
c. Goetts acknowledge that they are acquaintances of Stephen
McTaggart and Debra McTaggart, the majority shareholders of the
Corporation; that the issuance of stock hereunder is a private
transaction, and hereby waive all claims and causes of action of any
kind or nature relating to any subsequent assertion that this
transaction is not private.
d. Goetts are accredited investors and acknowledge that their
overall commitment to investments which are not readily marketable is
not disproportionate to their net worth, and their investment in the
Shares will not cause such overall commitment to become excessive; that
Goetts have adequate means of providing for their current needs and
personal contingencies, and has no need for liquidity of this
investment; that Goetts have evaluated the risk of investing in the
Corporation; that Goetts are aware of the financial risks and possible
financial hazards of purchasing the Shares and they have carefully
considered these risks and hazards; and that Goetts are able to bear
the economic risk of the investment, including the possibility of a
complete loss thereof. Goetts agree to provide their financial
statements to Corporation upon execution of this Agreement, and if
requested, to provide updated financial statements annually (to be held
confidential by Corporation and its attorneys and accountants).
e. The Shares are being acquired solely for the purpose of
investment; are not being purchased for distribution, subdivision, sale
or fractionalization thereof to the public generally; Goetts have no
contract, undertaking, agreement or arrangement with any person to
sell, transfer or pledge to anyone else the Shares or any part thereof;
Goetts have no present plans to enter into such contract, undertaking,
agreement or arrangement, and Goetts are the sole parties in interest
of the Shares and as such are vested with all legal and equitable
rights in such Shares.
f. Goetts agree the Corporation will restrict the
transferability of the Shares and will cause the certificate evidencing
the Shares to bear a legend stating such reasonable and agreed upon
restrictions against transfer. In this regard, Goetts agree to
-3-
<PAGE> 4
execute, simultaneously herewith, a Stock Restrictions And Sale
Agreement.
g. Goetts acknowledge that all documents, records and books
pertaining to this investment have been made available for inspection
by Goetts, their attorney and accountant. Goetts and their
representatives have had the opportunity to ask questions of, and
receive answers from, the officers of the Corporation concerning the
operation of the Corporation's business, and to obtain any additional
information which the officers of the Corporation possess or can
acquire without unreasonable effort or expense which is necessary to
verify the accuracy of the information requested and given to Goetts.
Goetts are purchasing the Shares without being furnished any offering
literature or prospectus.
h. Goetts acknowledge that they have obtained financial
statements of the Corporation, and that the Corporation has the right
to utilize their investment for the payment of presently outstanding
obligations of the Corporation.
i. Goetts have been advised that this is a start-up
corporation in its early stages of development and marketing, that mass
production has just commenced on a limited number of orders, and that
no financing is presently in place to permit mass production to
continue. Further, Goetts have retained an attorney and an accountant
to represent their individual interests and provide proper counseling
as to the risks and proper analysis of the investment, and said counsel
have discussed, among other items, the requirements of being qualified
as an accredited investor. Goetts acknowledge that they are not relying
on the law firm of Warner Angle Roper & Hallam, P.C. for advice or
counsel in this matter and that said law firm is merely documenting the
purchase of the Shares.
6. ADDITIONAL STOCK PURCHASES. Should stock of the Corporation
at any time be increased, such increase shall be offered to, and may be
subscribed to by Goetts in proportion to their shareholdings at that time at the
price being offered to the new shareholder. Goetts shall have fifteen (15) days
to complete the purchase of new stock at which time this pre-emptive right shall
expire.
7. SURVIVAL. The representations, warranties and covenants
contained in Paragraphs 4 and 5 shall survive transfer of the Shares.
-4-
<PAGE> 5
8. ATTORNEYS' FEES. The prevailing party in any action to
enforce the terms and conditions shall be entitled to recover its reasonable
attorneys' fees and court costs.
9. CONSTRUCTION. Where the context of this Agreement requires,
the singular shall be construed as the plural, and neuter pronouns shall be
construed as masculine and feminine pronouns, and vice versa. This Agreement
shall be construed according to its fair meaning and neither for nor against any
party hereto.
DATED the 27 day of January, 1994.
"GOETTS"
/s/ Vincent W. Goett
---------------------------------------
VINCENT W. GOETT Date
Social Security No.
--------------------
Phone No. 602-949-0533
------------------------------
/s/ Melissa Turner Goett 1/27/94
---------------------------------------
MELISSA TURNER GOETT Date
Social Security No.
--------------------
Phone No. 602-949-0533
------------------------------
"CORPORATION"
FUTECH EDUCATIONAL PRODUCTS, INC.,
an Arizona corporation
By: /s/ Stephen McTaggart 1/27/94
------------------------------------
Stephen McTaggart Date
Its: President
-5-
<PAGE> 1
Exhibit: 4.6FT
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT is dated the
7 day of February, 1994, by and among VINCENT W. GOETT and MELISSA TURNER GOETT,
husband and wife (collectively "VM GOETT"), GARRY AND DARILYNE GOETT, husband
and wife (collectively "GD GOETT"), and FUTECH EDUCATIONAL PRODUCTS, INC., an
Arizona Corporation ("Corporation").
RECITALS:
VM Goett and the Corporation entered into a Stock Purchase
Agreement dated January 27, 1994 ("Agreement"). The parties wish to amend the
Agreement.
IN CONSIDERATION OF THE FOREGOING, the parties hereby agree
as follows:
1. The Agreement is hereby deemed modified as follows:
a. Ownership. The Stock to be acquired shall be owned
eight percent (8%) by VM Goett and two percent (2%) by GD
Goett.
b. Payment. Paragraph 2 of the Agreement is amended
to read as follows:
"Upon the execution of this Agreement GD Goett shall pay to
the Corporation the sum of Two Hundred Thousand Dollars
($200,000.00) cash, and VM Goett shall pay to the Corporation
the sum of Eight Hundred Thousand Dollars ($800,000)
consisting of $200,000 cash and $600,000 to be supplied by VM
Goett obtaining a line of credit (non-revolving) in said
amount for Corporation immediately upon signing of this
Agreement. The line of credit shall be made at commercially
reasonable terms approved by Corporation. VM Goett shall be
obligated to pay all costs and expenses in obtaining the line
of credit, and shall make all payments on the line of credit.
On or before June 1, 1994, VM Goett shall cause the line of
credit to be reduced by $200,000; on or before October 1,
1994, Goetts shall cause the line of credit to be reduced by
an additional $200,000, and on or before January 25, 1995, VM
Goett shall cause the line of credit to be paid in full and
cancelled. VM Goett may extend these payment dates an
additional thirty (30) days provided no defaults exist under
the line of credit.
<PAGE> 2
Corporation acknowledges that Corporation will be signatory on
the line of credit for not more than twenty percent (20%) of
the first monies to be paid on the line of credit. Corporation
shall be obligated to grant security against $750,000 of
equipment owned by the Corporation. In return for the $200,000
paid by GD Goett, Corporation will issue a Stock Certificate
to GD Goett for 173,170 shares of the common capital stock of
the Corporation, and in return for the $200,000 paid by VM
Goett and the $600,000 line of credit (to be paid by VM
Goett), Corporation will issue a Stock Certificate to VM Goett
for 692,682 shares of the common capital stock of the
Corporation. Collectively, the stock issued to GD Goett and
the stock issued to VM Goett are referred to as the "Shares".
The certificate evidencing the Shares will be imprinted with a
conspicuous legend stating that the Shares have not been
registered under the Securities Act of 1933, as amended (the
"ACT"), and referring to certain restrictions on transfer or
encumbrance of the shares."
c. Representations. VM Goett shall be deemed to have
made the representations in Paragraph 5 only on behalf of VM
Goett. GD Goett shall be deemed to have made the
representations in Paragraph 5 only on behalf of GD Goett.
d. Defined Terms. Except as noted, all references to
"Goetts" in the Agreement shall mean both VM Goett and GD
Goett.
2. Except as modified, the Agreement remains in full force.
/s/ Vincent W. Goett
----------------------------------
Vincent W. Goett
/s/ Melissa Turner Goett
----------------------------------
Melissa Turner Goett
/s/ Garry Goett
----------------------------------
Garry Goett
-2-
<PAGE> 3
/s/ Darilyne Goett
----------------------------------
Darilyne Goett
FUTECH EDUCATIONAL PRODUCTS, INC.,
an Arizona corporation
BY: /s/ Stephen McTaggart
-------------------------------
ITS: President
------------------------------
-3-
<PAGE> 1
Exhibit: 4.7FT
FIRST AMENDMENT TO
STOCK RESTRICTIONS AND SALE AGREEMENT
THIS FIRST AMENDMENT TO STOCK RESTRICTIONS AND SALE AGREEMENT
("Agreement") is made on the date hereinafter subscribed, by and between VINCENT
W. GOETT and MELISSA TURNER GOETT, husband and wife (collectively
"Stockholder"), and FUTECH EDUCATIONAL PRODUCTS, INC., an Arizona corporation
("Corporation").
WITNESSETH
WHEREAS, the Stockholder entered into that certain Stock Restrictions
And Sale Agreement dated January 27, 1994 (the "Agreement").
WHEREAS, at the time the Stockholder acquired their shares of stock in
the Corporation, they executed a Stock Purchase Agreement (the "Stock Purchase
Agreement") which provided for the terms of the stock acquisition and stated the
number of shares being purchased by the Stockholder.
WHEREAS, the Stockholder has entered into a First Amendment To Stock
Purchase Agreement wherein the number of shares of stock acquired by them has
been modified.
WHEREAS, it is the intention and desire of the Stockholder to enter
into this First Amendment To Stock Restrictions And Sale Agreement in order to
show the correct number of shares purchased by the Stockholder in the
Corporation.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and undertakings hereinafter contained, it is mutually agreed as follows:
1. The Certificate attached to the Agreement (which references the
number of shares owned by the Stockholder) is amended in its entirety and shall
be in the form attached as Exhibit "A".
2. The Assignment Separate From Certificate attached to the Agreement
is amended in its entirety and shall be in the form attached hereto as Exhibit
"B".
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this First Amendment To
Stock Restrictions And Sale Agreement the 7 day of February, 1994.
/s/ Vincent W. Goett 2/7/94
----------------------------------
VINCENT W. GOETT Date
----------------------------------
----------------------------------
-------------------------(Phone #)
/s/ Melissa Turner Goett 2/7/94
----------------------------------
MELISSA TURNER GOETT Date
----------------------------------
----------------------------------
-------------------------(Phone #)
"CORPORATION"
FUTECH EDUCATIONAL PRODUCTS, INC.,
an Arizona corporation
BY: /s/ Stephen McTaggart
-------------------------------
President Date
ATTEST:
/s/ Debra McTaggart 2/8/94
- ----------------------------------
DEBRA McTAGGART DATE
Secretary
-2-
<PAGE> 3
EXHIBIT "A" TO FIRST AMENDMENT
CERTIFICATE TO
STOCK RESTRICTIONS AND SALE AGREEMENT
FUTECH EDUCATIONAL PRODUCTS, INC.
DATED February 7, 1994.
Number of shares of common capital stock owned by the Stockholder in
Futech Educational Products, Inc.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES OWNED
- ---- ------------
<S> <C>
Vincent W. Goett and 692,682
Melissa Turner Goett
</TABLE>
ACKNOWLEDGED AND AGREED:
"STOCKHOLDER"
/s/ Vincent W. Goett
----------------------------------
VINCENT W. GOETT Date
/s/ Melissa Turner Goett
----------------------------------
MELISSA TURNER GOETT Date
-3-
<PAGE> 4
EXHIBIT "B" TO FIRST AMENDMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
For value received we, VINCENT W. GOETT and MELISSA TURNER GOETT,
husband and wife, hereby sell, assign and transfer unto , Six Hundred
Ninety-two Thousand Six Hundred Eighty-two (692,682) shares of the common
capital stock of FUTECH EDUCATIONAL PRODUCTS, INC., standing in our name on the
books of said corporation, represented by Certificate Number therewith and do
irrevocably constitute and appoint Dean Formanek as our attorney for the sole
purpose of transferring the said stock on the books of the within named
corporation with full power of substitution in the premises.
Dated: February 7, 1994.
/s/ Vincent W. Goett 2/7/94
----------------------------------
VINCENT W. GOETT Date
/s/ Melissa Turner Goett 2/7/94
----------------------------------
MELISSA TURNER GOETT Date
In the Witness of:
/s/ Beth Thomas
- ------------------------
-4-
<PAGE> 5
ASSIGNMENT SEPARATE FROM CERTIFICATE
For value received we, VINCENT W. GOETT and MELISSA TURNER GOETT,
husband and wife, hereby sell, assign and transfer unto , Six Hundred
Ninety-two Thousand Six Hundred Eighty-two (692,682) shares of the common
capital stock of FUTECH EDUCATIONAL PRODUCTS, INC., standing in our name on the
books of said corporation, represented by Certificate Number therewith and do
irrevocably constitute and appoint Dean Formanek as our attorney for the sole
purpose of transferring the said stock on the books of the within named
corporation with full power of substitution in the premises.
Dated: February 7, 1994.
/s/ Vincent W. Goett 2/7/94
----------------------------------
VINCENT W. GOETT Date
/s/ Melissa Turner Goett 2/7/94
----------------------------------
MELISSA TURNER GOETT Date
In the Witness of:
/s/ Beth Thomas
- ------------------------
<PAGE> 1
Exhibit: 4.8FT
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), which shall be
effective as of January 5, 1998, is by and between Futech Educational Products,
Inc., an Arizona corporation (the "Company"), and Manmohan Singh Bhatia (the
"Shareholder");
RECITALS:
A. The Company and Magi Publications, a partnership ("Magi") are members
of Little Tiger Press USA, LLC, a New York limited liability company governed by
an Operating Agreement dated January 5, 1998 (the "Operating Agreement").
B. Pursuant to the Operating Agreement, Magi is acquiring shares of the
Company's common stock, no par value.
C. Shareholder shall acquire the shares from Magi as partner of Magi.
D. The shares of the Company's common stock which will or may be issued
pursuant to the Operating Agreement, as described in Recital B, are referred to
in this Agreement as the "Common Stock."
E. The Common Stock will not be registered under the Securities Act of
1933, as amended, or under the securities laws of any state, in reliance upon
exemptions from registration thereunder.
In consideration of the mutual covenants and obligations hereinafter set
forth, the Company and the Shareholder, hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the terms listed in
this Section shall have the meanings set forth below:
(a) "Affiliate" of any Person means any other Person who either
directly or indirectly is in control of, is controlled by or is under common
control with such Person; provided that for purposes of this definition an
investment entity shall be deemed to be controlled by its investment manager,
investment advisor or general partner.
(b) "Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of Phoenix are authorized by law, regulation or executive order to close.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are effect from time to time.
<PAGE> 2
(d) "Holder" shall mean the Shareholder and his successors, assigns
and transferees (subject to Section 10 hereof). For purposes of this Agreement,
the Company may deem the registered holder of a Registrable Security as the
Holder thereof (subject to Section 10 hereof).
(e) "Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture, trust or unincorporated organization,
a government or agency or political subdivision thereof or any other entity.
(f) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference in such prospectus.
(g) "Registrable Securities" shall mean (i) all shares of Common
Stock issued or issuable to the Shareholder pursuant to the Asset Purchase
Agreement as further described in Recital Section B; and (ii) any other
securities issued as a result of or in connection with any stock dividend, stock
split or reverse stock split, combination, recapitalization, reclassification,
merger or consolidation, exchange or distribution in respect of the shares of
Common Stock referred in to (i) above.
(h) "Registration Expenses" shall have the meaning set forth in
Section 6 hereof.
(i) "Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement including post effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
(j) "Registration Termination Date" shall mean the earlier to occur
of (i) the date that is five years following the date hereof or (ii) the first
date upon which the Registrable Securities may be sold without limitation under
Rule 144 under the Securities Act (as such Rule may be amended from time to
time), other than the limitations set forth in paragraphs (c), (f) and (h) of
such Rule, as determined by the opinion of counsel to the Company (which shall
be reasonably satisfactory to counsel to the Holders).
(k) "SEC" shall mean the U.S. Securities and Exchange Commission, or
any other U.S. federal agency at the time administering the Securities Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
<PAGE> 3
(m) "Underwritten Offering" shall mean an offering that is
registered under the Securities Act in which securities of the Company are sold
pursuant to a firm commitment underwriting, to an underwriter at a fixed price
for reoffering to the public or pursuant to agency or best efforts arrangements
with an underwriter.
SECTION 2. Securities Subject to this Agreement. The Registrable
Securities are entitled to the benefits of this Agreement.
SECTION 3. Demand Registration.
(a) Demand Registration (i) Upon the written request of Holders
owning not less than 50% of the Registrable Securities (excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act), and provided that
there is then no effective Registration Statement in effect with respect to such
Registrable Securities, the Company will effect, in accordance with the terms of
this Agreement, the registration under the Securities Act of the Registrable
Securities which the Company has been so requested to register by such Holders,
subject to Section 3(c) hereof; provided that the number of securities requested
to be so registered shall be not less than 50% of the Registrable Securities
held by such requesting Holders. NO SUCH REQUEST MAY BE MADE PRIOR TO AN INITIAL
PUBLIC OFFERING OF THE COMPANY'S SECURITIES AND EARLIER THAN ONE YEAR AFTER THE
ACQUISITION OF THE COMMON STOCK BY THE HOLDER PURSUANT TO THE TERMS OF THE ASSET
PURCHASE AGREEMENT (THE "DEMAND COMMENCEMENT DATE"). In addition, no such
request shall be made during the 90-day period following the completion of any
Underwritten Offering of the Company's shares of Common Stock and no such
request shall be made to include any Registrable Securities in an initial public
offering of securities of the Company. The Company shall not be obligated to
effect more than two demand registrations pursuant to this Section 3, provided
that the Company shall not be required to effect registrations on a form other
than a Form S-3 (or any successor to such form).
(ii) Expenses. The Company shall pay all Registration Expenses
with respect to any demand registration pursuant to this Section 3.
(b) Effectiveness of Registration Statement. The Company agrees to
use its best efforts to (i) cause the Registration Statement relating to any
demand registration pursuant to this Section 3 to become effective under the
Securities Act as promptly as practicable (ii) thereafter keep such Registration
Statement effective continuously for the period specified in the next succeeding
paragraph; and (iii) prevent the happening of any event of the kinds described
in clauses (4) or (5) of Section 5(a)(ii) hereof.
A demand registration requested pursuant to this Section 3 will not
be deemed to have been effected unless the Registration Statement relating
thereto has become effective under the Securities Act and remain continuously
effective (except as otherwise permitted under this Agreement) for a period
ending on the earlier of:
<PAGE> 4
(A) in the case of a Registration Statement on Form S-3 (subject to
Section 5(c) below), the Registration Termination Date; or
(B) the date on which all Registrable Securities covered by such
Registration Statement have been sold and the distribution
contemplated thereby has been completed.
(c) Inclusion of Other Securities. The Company, and any other holder
of the Company's securities that has registration rights, may include its
securities in any demand registration effected pursuant to this Section 3;
provided, however, that if the managing underwriter or underwriters of any
Underwritten Offering contemplated thereby advise the Holders in writing that
the total amount or kind of securities which such Holder, the Company or any
such other holder intends to include in such proposed public offering is
sufficiently large to affect the success of the proposed public offering
requested by the Holder or Holders materially and adversely, then the amount or
kind of securities to be offered for the account of the Company or any such
other holder shall be reduced to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters.
(d) Form. Registrations under this Section 3 will be on a form
permitted by the rules and regulations of the SEC selected by the Company;
provided, however, the Company may use Form S-3 if at the time of filing such
Registration Statement the Company is eligible to use such Form.
(e) Manner of Sale. The Company may (but shall have no obligation
to) cause any Registrable Securities that are the subject of a demand
registration pursuant to this Section 3 to be sold in an Underwritten Offering
in which event the Company shall have the right to designate the managing
underwriter or underwriters thereof (which shall be reasonably satisfactory to
the Holders whose Registrable Securities are the subject of such demand
registration).
SECTION 4. Piggyback Registration.
(a) Piggyback Registration. If the Company at any time proposes to
file a registration statement with respect to any class of equity securities,
whether for its own account (other than a registration statement on Form S-4 or
S-8, or any successor or substantially similar form or a registration statement
covering (i) an employee stock option, stock purchase or compensation plan or
securities issued or issuable pursuant to any such plan or (ii) a dividend
reinvestment plan) or for the account of a holder of securities of the Company
pursuant to registration rights granted by the Company (a "Requesting
Securityholder"), then the Company shall in each case give written notice of
such proposed filing to all Holders of Registrable Securities at least 20
Business Days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all
<PAGE> 5
Holders the opportunity to have any or all of the Registrable Securities held by
such Holders included in such registration statement. Each Holder of Registrable
Securities desiring to have his Registrable Securities registered under this
Section 4 shall so advise the Company in writing within 10 Business Days after
the date of receipt of such notice (which request shall set forth the amount of
Registrable Securities for which registration is requested), and the Company
shall include in such Registration Statement all such Registrable Securities so
requested to be included therein; provided, however, that if such Registration
Statement is for an Underwritten Offering, the Holders of Registrable Securities
included therein shall join in the underwriting on the same terms and conditions
as the Company or the Requesting Securityholders except that the Holders of
Registrable Securities shall not be required to give any representations and
warranties relating to the Company, and shall execute any underwriting
agreement, "lock-up" letters or other customary agreements or documents executed
by the Company or the Requesting Securityholders in connection therewith.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
any such proposed public offering advise the Holders in writing that the total
amount or kind of securities which the Holders of Registrable Securities, the
Company, the Requesting Securityholders and any other Persons intended to be
included in such proposed public offering is sufficiently large to affect the
success of such proposed public offering materially and adversely, then the
amount or kind of securities to be offered for the accounts of the Holders of
Registrable Securities shall be reduced pro rata, together with the amount or
kind of securities to be offered for the accounts of any other Persons
requesting registration of securities pursuant to rights similar to the rights
of the Holders under this Section 4, to the extent necessary to reduce the total
amount or kind of securities to be included in such proposed public offering to
the amount or kind recommended by such managing underwriter or underwriters
before the securities offered by the Company or any Requesting Securityholder
are so reduced. Notwithstanding the foregoing, however, the Holders shall have
no right to include any Registrable Securities in an initial public offering of
Company's securities.
(b) No Obligation. Neither the giving of notice by the Company nor
any request by the Holders to register Registrable Securities pursuant to
Section 4(a) shall in any way obligate the Company to file any such Registration
Statement. The Company may, at any time prior to the effective date thereof,
determine not to offer the securities to which Registration Statement relates
and/or withdraw the Registration Statement from the SEC, without liability of
the Company to the Holders.
SECTION 5. Registration Procedures and Other Agreements.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 and, to the extent applicable thereto, Section
4 hereof, the Company will:
(i) prepare and file with the SEC a new Registration Statement
or such amendments and post-effective amendments to an existing Offering
Registration
<PAGE> 6
Statement as may be necessary to keep such Registration Statement effective as
set forth in Section 3(b); provided, however, that no Registration Statement
shall be required to remain in effect after all Registrable Securities covered
by such Registration Statement have been sold and distributed as contemplated by
such Registration Statement;
(ii) notify each selling Holder promptly (1) when a new
Registration Statement, amendment thereto, Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to any
new Registration Statement or posteffective amendment, when it has become
effective, (2) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional information, (3) of the
issuance by the SEC of any comments with respect to any filing, (4) of any stop
order suspending the effectiveness of any Registration Statement or the
initiation or threatening of any proceedings for such purpose, (5) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (6) of the happening of any event which makes any statement of a
material fact made in any Registration Statement, Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in any Registration Statement, Prospectus or any document incorporated
therein by reference in order to make the statements therein (in the case of any
Prospectus, in the light of the circumstances under which they were made) not
misleading; and make every reasonable effort to obtain as promptly as
practicable the withdrawal of any order or other action suspending the
effectiveness of any Registration Statement or suspending the qualification or
registration (or exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(iii) furnish to each selling Holder, without charge, at least
one manually signed or "edgarized" copy and as many conformed copies as may
reasonable be requested, of the then effective Registration Statement and any
post-effective amendment thereto, and one copy of all financial statements and
schedules, all documents incorporated therein by reference and all exhibits
thereto (including those incorporated by reference);
(iv) deliver to each selling Holder, without charge, as many
copies of the then effective Prospectus (including each prospectus subject to
completion) and any amendments or supplements thereto as such Holder may
reasonably request;
(v) use its best efforts to register or qualify under the
securities or blue sky laws of such jurisdictions as the selling Holders
reasonably request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the then effective Registration Statement;
provided, however, that the Company will not be required to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, or (y) subject itself to general taxation in any such jurisdiction, or
(z) register or qualify such Registrable Securities under the securities or blue
sky laws of any jurisdiction in which the Company does not then maintain a
currently effective registration or qualification of any of its securities;
<PAGE> 7
(vi) upon the occurrence of any event contemplated by clause
(6) of Section 5(a)(ii) hereof, as promptly as practicable (in light of the
circumstances causing the occurrence of such event) prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in the light of the circumstances under which they were made, not misleading;
(vii) use reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on each securities
exchange (or quotation system operated by a national securities association) on
which identical securities issued by the Company are then listed, and enter into
customary agreements including, if necessary, a listing application and
indemnification agreement in customary form;
(viii) if the registration is in connection with an
Underwritten Offering, enter into an underwriting agreement with respect to the
Registrable Securities, which agreement shall contain provisions that are
customary in connection with underwritten secondary offerings, including
representations and warranties, opinions of counsel, letters of accountants and
indemnification provisions with underwriters that acquire Registrable
Securities;
(ix) otherwise use its best efforts to comply in all material
respects with all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and make
generally available to its securities holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and complying with Rule 158
of the SEC thereunder;
(x) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc.; and
(xi) make available for inspection by a representative of
selling Holders and any attorney or accountant retained by such selling Holders,
all financial and other records, pertinent corporate documents and properties of
the Company and cause the Company's officers, directors and employees to supply
all information reasonably requested by, and to cooperate fully with, any such
representative, underwriter, attorney or accountant in connection with such
registration, and otherwise to cooperate fully in connection with any due
diligence investigation; provided that such representatives, underwriters,
attorneys or accountants enter into a confidentiality agreement in form and
substance reasonably satisfactory to the Company, prior to the release or
disclosure to them of any such information, records or documents.
<PAGE> 8
(b) Each selling Holder shall furnish to the Company, upon request,
in writing such information and documents as, in the opinion of counsel to the
Company may be reasonably required to prepare properly and file such
Registration Statement in accordance with the applicable provisions of the
Securities Act.
SECTION 6. Registration Expenses. All expenses incident to the Company
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of one
counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of counsel retained by the Holders (which
counsel shall be reasonably satisfactory to the Company), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants (including the expenses
of any special audit or "comfort" letters required by or incident to such
performance or compliance), securities acts liability insurance (if the Company
elects to obtain such insurance), fees and expenses of any special experts
retained by the Company in connection with any registration hereunder and the
fees and expenses of any other Person retained by the Company (all such fees and
expenses being referred to as "Registration Expenses"), shall be borne by the
Company, whether or not any Registration Statement becomes effective.
SECTION 7. Suspension of Sales under Certain Circumstances.
(a) Upon receipt of any notice from the Company that dispositions
under the then current Prospectus must be discontinued and suspended, whether as
a result of an event described in Section 5(a)(ii)(4),(5) or (6) hereof or
otherwise, each Holder will forthwith discontinue and suspend disposition of
Registrable Securities pursuant to such Prospectus until (i) the Holders are
advised in writing by the Company that a new Registration Statement covering the
offer of Registrable Securities has become effective under the Securities Act,
or (ii) the Holders receive copies of a supplemented or amended Prospectus
contemplated by Section 5(a) hereof, or (iii) the Holders are advised in writing
by the Company that the use of the Prospectus may be resumed.
(b) If at any time following the date hereof any of the Company's
shares of Common Stock are to be sold pursuant to an Underwritten Offering, then
for the period commencing 45 days prior to, and expiring 180 days after, the
effective date of such Underwritten Offering, none of the Holders will effect
any public sale or distribution of any Registrable Securities or any other
shares of Common Stock of the Company then owned by such Holders, other than
pursuant to such Underwritten Offering (if any Registrable Securities are
included in such Underwritten Offering).
<PAGE> 9
SECTION 8. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, but without duplication,
each Holder of Registrable Securities, any their respective officers and
directors, if any, and each Person who controls such Holder within the meaning
of the Securities Act, against all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and reasonable legal fees
and expenses) resulting from any untrue statement of a material fact in, or any
omission of a material fact required to be stated in, any Registration Statement
or in any preliminary or final Prospectus, or any amendment or supplement
thereto, or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any underwriter
expressly for use therein; provided that the Company will not be liable pursuant
to this Section 8(a) if such losses, claims, damages, liabilities or expenses
have been caused by the failure of any selling Holder to deliver a copy of the
Registration Statement or Prospectus, or any amendments or supplements thereto,
after the Company has furnished such copies to such Holder.
(b) Indemnification by the Holders of Registrable Securities. In
connection with any Registration Statement covering Registrable Securities of
any Holder, such Holder will furnish to the Company in writing such information
as the Company reasonably requests for use in connection with any such
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, but without duplication, the Company, its
officers, directors, shareholders, employees, advisors and agents, and each
Person who controls the Company (within the meaning of the Securities Act),
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of a material fact in, or any omission of a material fact
required to be stated in, the Registration Statement or in any preliminary or
final Prospectus, or any amendment or supplement thereto, or necessary to make
the statements therein (in the case of a Prospectus in light of the
circumstances under which they were made) not misleading, but only to the extent
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
therein. If the offering to which the Registration Statement relates is an
Underwritten Offering, each Holder agrees to enter into an underwriting
agreement in customary form with such underwriters and to indemnify such
underwriters, their officers and directors, if any, and each Person who controls
such underwriters within the meaning of the Securities Act to the same extent as
hereinabove provided with respect to indemnification by such Holder of the
Company.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified
<PAGE> 10
party; provided, however, that any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in, but not
control, the defense of such claim, but the fees and expenses of such counsel
shall be at the expense of such indemnified Person, unless (A) the indemnifying
party shall have failed to assume the defense of such claim and employ counsel
reasonably, satisfactory to the indemnified party in a timely manner, or (B) in
the reasonable judgment of any such Person, based upon written advice of its
counsel, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing, that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of any such claim as to
which such conflict of interest may exist). The indemnifying party will not be
subject to any liability for any settlement made without its consent. No
indemnified party will be required to consent to the entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of the claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, as well as one local counsel in each relevant jurisdiction.
(d) Contribution. If for any reason the indemnification provided for
in Section 8(a) or 8(b) hereof is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by Sections 8(a) and 8(b)
hereof, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
SECTION 9. Current Public Information. The Company agrees that it will
file all reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if
it ceases to be required to file such reports, it will, upon the request of
Holders owning not less than 51% of the Registrable Securities [excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act], make publicly
available other information), and it will take such further action as may
reasonably be required, in each case to the extent required from time to time to
enable the Holders to sell Registrable Securities without registration under the
Securities Act within the limitations of the applicable exemptions provided by
(x) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (y) any similar regulation hereinafter adopted by the SEC.
<PAGE> 11
SECTION 10. No Inconsistent Agreements. The Company has not previously
entered into and shall not in the future enter into any agreement, arrangement
or understanding with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
SECTION 11. Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, without the written consent of (a)
the Company and (b) the Holders owning not less than 51% of the Registrable
Securities (excluding any Registrable Securities that have previously been sold
pursuant to a Registration Statement hereunder or Rule 144 under the Securities
Act).
SECTION 12. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile, or air-courier guaranteeing overnight delivery:
(a) If to a Holder of Registrable Securities, at the most current
address for such Holder, as it appears on the books of the Company; and
(b) If to the Company: Futech Educational Products, Inc., 2999 North
44th Street, Suite 225, Phoenix, Arizona 85018, Attention: Chief Executive
Officer; facsimile no. 808-9863, or at such other address as may be designated
from time to time by notice given in accordance with the provisions of this
Section 11.
All such notices and other communications shall be deemed to have
been delivered and received (i) in the case of personal delivery or facsimile,
on the date of such delivery, (ii) in the case of air courier, on the Business
Day after the date when sent, and (iii) in the case of mailing, on the fifth
Business Day following such mailing.
SECTION 13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, transferees and assigns of the
parties hereto; provided, however, that (a) no transferee in any transfer made
in reliance on Rule 144 under the Securities Act shall have any rights as a
Holder under this Agreement; and (b) no Person to whom the Registrable
Securities are transferred shall have any rights under this Agreement as a
Holder unless such Person agrees to be bound by the terms and conditions of this
Agreement.
SECTION 14. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
SECTION 15. Governing Law: Consent to Jurisdiction. This Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of Arizona without reference to principles of conflict of laws. The
parties to this Agreement
<PAGE> 12
hereby consent to the jurisdiction in personam of the Superior Court of the
State of Arizona, in and for the County of Maricopa or of the United States
District Court for the District of Arizona, in any legal proceeding to enforce
any obligations under this Agreement, and agree that venue in Maricopa County is
not inconvenient.
SECTION 16. Construction. The Section headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 17. Entire Agreement. This Agreement, together with any other
documents and certificates delivered hereunder and the Asset Purchase Agreement,
state the entire agreement of the Company and the Shareholder with respect to
the subject matter hereof, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties and
agreements which have induced this Agreement.
IN WITNESS WHEREOF, the Company and the Shareholder have duly executed and
delivered this agreement as of the date written above.
SHAREHOLDER:
/s/ Manmohan Singh Bhatia
-------------------------------------------
FUTECH EDUCATIONAL PRODUCTS, INC.
By: /s/ Vincent W. Goett
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit: 9.1FT
VOTING AGREEMENT
THIS AGREEMENT is made as of the December 3, 1998 by the undersigned
shareholders (the "Shareholders") of Futech Interactive Products, Inc., an
Arizona corporation ("Futech"), for the benefit of F. Keith Withycombe and
Patricia A. Withycombe, husband and wife ("Withycombe").
R E C I T A L S:
A. Futech and Withycombe entered into a Subordination, Priority and
Security Agreement, dated December 3, 1998, wherein, among other things, Futech
agreed to indemnify Withycombe against obligations under a Guaranty, dated
December 3, 1998 (the "Guaranty") in favor of Bank of America ("Lender").
B. The Subordination, Priority and Security Agreement requires Futech to
deliver to Withycombe this Voting Agreement.
C. The Shareholders are willing to execute this Agreement in favor of
Withycombe in connection with Withycombe undertaking the obligations set out in
the Guaranty.
TERMS:
1. So long as there are outstanding any obligations guaranteed by
Withycombe in the Guaranty, the Shareholders agree to vote their shares of stock
of Futech for Keith Withycombe as a member of the Board of Directors of Futech.
DATED the date first hereinabove written.
SHAREHOLDERS:
/s/ Vincent W. Goett
---------------------------------------
Vincent W. Goett
/s/ Melissa Anne Turner Goett
---------------------------------------
Melissa Anne Turner Goett
<PAGE> 1
Exhibit: 10.1FT
LEASE AGREEMENT
Lease Date - August 5, 1996
(For Reference Purposes Only)
CONCORD EQUITIES, L.L.C., AN ARIZONA LIMITED LIABILITY COMPANY, hereafter
"Landlord", agrees to lease to FUTECH EDUCATIONAL PRODUCTS, INC., AN ARIZONA
CORPORATION hereafter "Tenant", and Tenant agrees to lease from Landlord, that
certain office space located at 2999 North 44th Street, Phoenix, which is
described in Exhibit "A" to this agreement and known as Suite 225, hereafter
"the Premises", upon the following terms and conditions.
1. TERM: The term of this Lease shall be for a period of thirty six (36
months and shall commence on the 1st day of September, 1996, and
expiring on the 14th day of August 1999.
2. POSSESSION: Tenant agrees that in the event of the inability of
Landlord to deliver possession of the Premises to Tenant on the date
above specified for the commencement of the term of this Lease, this
Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom, but in such event
Tenant shall not be liable for any rent until such time as Landlord
tenders delivery of possession of the Premises to Tenant with
Landlord's work therein, if any, substantially completed. Tenant shall
be bound by all provisions of this Lease, including the payment of
rent, at all times Tenant is in possession of the Premises. Should
Landlord tender possession of the Premises to Tenant prior to the date
specified for commencement of the term thereof, and Tenant elects to
accept such prior tender, such prior occupancy shall be subject to all
of the terms, covenants and conditions of this Lease, including the
payment of rent.
3. RENT: Tenant agrees to pay Landlord as Base Rent $ See Addendum per
month for each month of the Lease, subject to increases as hereinafter
provided, plus any excise, privilege or sales tax imposed upon the rent
paid by Tenant. Rent is due in advance on or before the first (1st)
day of each month and is payable at Landlord's offices or at such other
place as Landlord may designate in writing. Rent shall be prorated on
the basis of a thirty (30) day month for each partial month during the
term of this Lease or during which Tenant is in possession of the
Premises. All other monetary obligations of Tenant under this Lease
shall constitute additional rent and shall be due as specified in each
instance.
4. OPERATING EXPENSES: The operating expenses of the Project shall be paid
by Landlord when due, however, Landlord shall be entitled to partial
reimbursement from Tenant for such operating expenses as proved for
hereafter.
Concord Equities Lease Agreement
Page 1 of 13
<PAGE> 2
(a) Landlord shall contribute $6.60 per square foot annually or
the actual operating expenses for the Base Year of 1996, which
ever is greater. Tenant shall pay to Landlord, as Additional
Rent, Tenants proportionate share of any excess operating
expenses in the manner provided for in Subparagraphs 4(d) and
4(e).
(b) The operating expenses of the project include without
limitation: property taxes, special assessments, utilities,
maintenance, supplies, management fees, janitorial services,
trash removal, insurance premiums, repairs and all other costs
(other than those required to be capitalized for federal
income tax purposes) which can properly be considered expenses
of operating and maintaining the Building and surrounding
property of which the Premises are a part.
(c) For the purposes of determining Tenant's proportionate share
of the operating expenses and Landlord's total contribution,
the project shall be deemed to be comprised of 133.289 square
feet, the Premises shall be deemed to be comprised of
approximately 5.327 rentable square feet and Tenant shall be
deemed to have occupied the Premises for the entire year.
(d) If the actual operating expenses of the Project for a calendar
year exceed the Landlord's contribution, Tenant shall pay to
Landlord within thirty (30) days of demand, Tenant's
proportionate share of such excess multiplied by the larger of
(i) the percentage of the year this Lease was in effect and
(ii) the percentage of the year Tenant was in possession of
the Premises, less any payments made by Tenant under
Subparagraph 4(e) for that year.
(e) If, upon creating an operating budget for the following
calendar year, it appears to the Landlord that the actual
operating expenses for the Project will exceed the Landlord's
contribution, Landlord, upon written demand, may require
Tenant to make monthly payments of Tenant's proportionate
share of such estimated excess which shall be payable at the
same time and in the same manner as Base Rent.
(f) If in a calendar year Tenant's proportionate share of the
actual operating expenses of the Project after Landlord's
contribution is less than the payments made by Tenant under
Subparagraph 4(e), such difference shall be credited to Tenant
and applied pro rata to reduce payments due from Tenant under
Subparagraph (4)e for the following year.
(g) Landlord shall compute the operating expenses of the project
for each calendar year within the first three (3) months of
the next calendar year and shall notify Tenant thereof within
a reasonable time thereafter.
Concord Equities Lease Agreement
Page 2 of 13
<PAGE> 3
(h) Tenant shall have the right to have the Landlord's computation
of the operating expenses of the project audited by an
independent accounting agency so long as another tenant has
not previously had an audit conducted of the operating
expenses for that same year. The audit shall be at Tenant's
sole expense unless the audit reveals a discrepancy in
Landlord's favor of greater than ten percent (10%) in which
case Landlord shall pay the reasonable cost of such audit.
5. USE OF PREMISES: Tenant shall use the Premises for the sole purpose of
general office use and shall not use or allow the Premises to be used
for any illegal or objectionable purpose or in any manner inconsistent
with use in a first class office building or in manner which would
interfere with the rights of the other Tenants. Tenant shall not do or
permit anything to be done which would increase the cost of any fire,
extended coverage or any other insurance covering the Building. Tenant
shall promptly reimburse Landlord for any additional premium charged by
reason of Tenant's failure to comply with this paragraph.
6. REPAIRS:
(a) Tenant shall at its own expense keep the Premises in good
condition and repair.
(b) Landlord shall keep in good condition and repair the
structural and common areas of the Building, including the
basic plumbing, air conditioning and electrical systems
provided by Landlord.
7. ASSIGNMENT & SUBLETTING: Tenant shall not sublet any portion of the
Premises and shall not assign or hypothecate this Lease without
Landlord's prior written consent. Any assignee or subtenant shall agree
in writing to assume, perform and be bound by all of the terms of this
Lease and a duplicate executed original counterpart of such writing
shall be delivered to Landlord within ten (10) days of its execution.
Landlord's approval of any such assignment or sublease shall not
release Tenant from its obligations under this Lease or constitute
assent to any subsequent assignment or sublease; provided however, that
if, after approval by Landlord, Tenant assigns its entire interest in
this Lease to an entity that, at the sole determination of Landlord,
has a financial condition that is as strong or stronger than the
financial condition of Tenant at the time of this Lease, Tenant may
request that Landlord fully release Tenant from liability under the
Lease arising subsequent to the assignment. Landlord shall not
unreasonably withhold its consent to such request.
8. ALTERATIONS & IMPROVEMENTS: Tenant shall not make any alterations or
improvements to the Premises (including but not limited to, structural
alterations or improvements), other than movable furniture, without
Landlord's prior written consent of plans and contractor. Landlord may
require Tenant to provide a payment bond in an amount up to one and one
half (1.5) times the expected cost of the alterations or
Concord Equities Lease Agreement
Page 3 of 13
<PAGE> 4
improvements. All such alterations and improvements shall at once
become part of the realty and belong to Landlord, this shall not,
however, preclude Landlord from requiring Tenant to remove such
alterations or improvements as provided for in Paragraph 9 of this
agreement. Furthermore, Tenant shall not file or allow the filing of
any liens on the Premises.
9. REMOVAL OF ALTERATIONS: Upon the termination of this Lease, Landlord
may require Tenant to remove all or some of the alterations or
improvements which Tenant made to the Premises. Tenant shall promptly
remove the designated alterations or improvements and shall repair all
damage caused by such removal at its own expense.
10. RETURN OF PREMISES: Upon the termination of this Lease, Tenant shall
return the Premises to Landlord in their original condition, ordinary
wear and tear and alterations or improvements not designated to be
removed excepted.
11. SUBORDINATION: Tenant agrees that this Lease shall be subject and
subordinate to First Mortgage Liens only, or to any renewals,
extensions or replacements of any existing encumbrances upon the
Premises. Tenant agrees to immediately execute and deliver upon demand
any instrument that a lender may require in connection with this
subordination agreement. Tenant irrevocably appoints Landlord to act as
Tenant's agent and attorney-in-fact for the limited purpose of
executing all such instruments.
12. SALE BY LANDLORD: Landlord reserves the right to sell or transfer the
premises and to assign its rights in this Lease. Upon any such
assignment, Landlord shall be released from any further liability under
this Lease. In conjunction with any such sale or assignment, Landlord
may transfer any security deposit made by Tenant under this Lease to
such assignee and upon such transfer shall be relieved of all liability
to Tenant for such deposit. Tenant agrees to immediately execute and
deliver upon demand of Landlord or any such assignee and instrument in
proper form by which Tenant attorns to said assignee.
13. INSURANCE: Tenant shall maintain at its own expense comprehensive
general liability insurance from an insurer licensed to do business in
the State of Arizona insuring the indemnity set forth in this agreement
for claims for personal injury or death property damage in and about
the premises with limits not less than $1,000,000 in the event of
bodily injury or death of any number of persons in any one accident and
limits of not less than $1,000,000 for damage to property, and shall
provide Landlord with a copy of the policy prior to commencement of
this Lease. Tenant shall name Landlord as an additional named insured
under the policy. The insurance shall be primary insurance and shall
provide that any right of subrogation against Landlord is waived. The
policy shall further provide that no act or omission by Tenant shall
impair the rights of the insured to receive
Concord Equities Lease Agreement
Page 4 of 13
<PAGE> 5
the proceeds of the policy and that the policy shall not be cancelled
except upon ten (10) days prior written notice to each named insured.
14. INDEMNIFICATION: Tenant shall indemnify, defend and hold Landlord
harmless from all actions, claims, demands, penalties or liabilities
arising out of events occurring in or about the premises or caused in
whole or in part by Tenant or Tenant's agents, servants, employees or
invites. This indemnification shall include all costs and expenses and
reasonable attorney's fees which Landlord may expend in connection with
any of the foregoing. Any and all monies due Landlord from Tenant shall
survive this Lease.
15. UTILITIES & SERVICES: Landlord agrees to furnish water and electricity
suitable for the intended use of the premises, janitorial service five
(5) nights a week, elevator service and maintenance of the common areas
of the building. Landlord further agrees to furnish heat and air
conditioning required in Landlord's judgement for the comfortable use
of the premises on generally recognized business days. These services
and utilities constitute operating expenses under Paragraph 4 and will
be paid for in accordance with said Paragraph.
After hours use, which is monitored by Landlord, of heating,
ventilation, air conditioning, and electric shall be charged to Tenant
at Six Dollars and 00/100 ($6.00) per hour per zone activated. The
above rate is subject to increase relative to additional costs of
electricity service and wages of personnel directly associated with the
operation of such after hours usage. Landlord shall require Tenant to
pay for such after hours usage (if any) on the next preceding month of
such usage. All amounts due shall be considered as Additional Rent
which shall be payable at the same time and in the same manner as base
rent.
Business Office Hours shall be:
7:00 a.m. to 7:00 p.m., Monday through Friday and from 8:00 a.m. to
2:00 p.m. on Saturday, except for the generally recognized six (6)
major holidays of New Year's Day, Memorial Day, Fourth of July, Labor
Day, Thanksgiving Day and Christmas Day.
16. LIMITATION OF LIABILITY: Landlord shall not be liable to Tenant for
damages nor shall Tenant be entitled to a reduction in rent by reason
of any of the following: (i) Landlord's failure to provide utilities
or services when such failure is caused by accident, repairs, strikes,
disturbances or any other cause beyond the reasonable control of
Landlord (ii) disruption to Tenant's business caused by Landlord's
repairs or improvements to the project (iii) damage to the Premises or
Tenant's property unless caused by Landlord's negligence or misconduct.
Concord Equities Lease Agreement
Page 5 of 13
<PAGE> 6
17. NOTICE: All notices or demands under this Lease or required to be given
by law are to be made in writing by registered or certified mail and
are deemed given three (3) days after being deposited in the United
states mail postage prepaid and addressed to Landlord or Tenant at the
addresses set forth on the signature page of this Agreement. Each party
shall have the right, from time to time, to designate a different
address to which notices and demands are to be sent by giving notice in
the manner provided for above except that Landlord may in any event use
the premises as Tenant's address for notice purposes.
18. ENTRY BY LANDLORD: Landlord shall have the right, upon twenty-four (24)
hour notice (except in case of emergency), to enter the Premises at all
reasonable times for the purposes of inspecting, repairing or
maintaining the Premises, determining whether the terms of the Lease
are being complied with, posting such notices as Landlord deems
advisable for its protection, and, showing the Premises to prospective
tenants, purchasers or lenders. For these purposes Landlord shall
retain keys to all doors upon the Premises other than Tenant's vaults
and safes.
19. DEFAULT & REMEDIES:
(a) The occurrence of one or more of the following events shall
constitute a default of this Agreement by Tenant:
(1) The abandonment of the Premises by Tenant or absence
of Tenant from Premises for five (5) days or longer.
(2) The failure by Tenant to make any payment of rent or
other payments required to be made by Tenant under
this Agreement when due where such failure continues
for a period of five (5) days.
(3) The failure by Tenant to observe or perform any
provision of this Agreement other than the payment of
money where such failure continues for a period of
ten (10) days after written notice thereof from
Landlord to Tenant. This notice shall be in lieu of,
and not addition to, any notice required under
Arizona law. (4)(i) The making by Tenant of any
general assignment for the benefit of creditors; (ii)
the filing by or against Tenant of a petition under
the United States Bankruptcy Code unless dismissed
within thirty (30) days; (iii) the appointment of a
receiver or trustee to take possession of
substantially all of Tenant's assets located at the
Premises or of this Lease where possession is not
restored to Tenant within thirty (30) days; (iv) the
attachment, execution or other judicial seizure of
substantially all of Tenant's assets located on the
Premises where such seizure is not discharged within
thirty (30) days.
Concord Equities Lease Agreement
Page 6 of 13
<PAGE> 7
(b) In the event of any default by Tenant as defined above, Landlord may
exercise one or more of the following remedies in addition to any
remedy provided for at law or equity:
(1) With or without notice or process of law and using such force
as Landlord may deem reasonably necessary under the
circumstances, and without terminating this Lease or relieving
Tenant of any obligation hereunder, Landlord may re-enter and
take possession of the Premises. Under no circumstances shall
Landlord be liable in damages or otherwise by reason of the
exercise by Landlord of any such re-entry or eviction, or by
reason of the exercise by Landlord of any other remedy
provided in this subparagraph (b).
(2) Without terminating this Lease or relieving Tenant of any
obligation hereunder, Landlord may relet the Premises for such
rental and upon such terms as Landlord in its sole discretion
deems proper and apply the proceeds actually collected against
the amounts due from Tenant.
(3) Landlord may terminate this Lease by notifying Tenant in
writing that it intends to do so. Such termination will not
relieve Tenant of any obligation which accrued prior to the
date of termination. In addition to all other sums recoverable
under this Lease or at law, in the event of such termination,
Landlord shall be entitled to recover from Tenant the
difference between the present value of the rent which would
have fallen due under this Lease over the remaining term of
this Lease if this Lease had not been terminated and the
present value of the amount that Tenant proves Landlord will
receive over that same period by reletting the Premises.
(4) In the event that Landlord recovers possession of the Premises
without termination of this Lease, Tenant shall pay to
Landlord all sums due under this Lease on the dates due as if
Tenant remained in possession of the Premises.
(5) Landlord may recover from Tenant, and Tenant shall pay upon
demand, all expenses incurred in recovering possession of the
Premises, repairing and altering the Premises for reletting,
and attempting to relet the Premises, including commissions
and attorney fees.
Concord Equities Lease Agreement
Page 7 of 13
<PAGE> 8
(c) The remedies described in subparagraph (b) are cumulative and
in addition to any remedy at law or in equity. The filing of
an action by Landlord against Tenant requesting under one or
more remedies shall not be deemed an election of that remedy
or remedies to the exclusion of all others.
(d) Landlord shall be under no obligation to observe or perform
any duty imposed by this Lease which accrues after the date of
any default by Tenant.
(e) The failure or delay of Landlord in exercising any right or
remedy shall not be construed as a waiver of any such right or
remedy or of any default by Tenant.
20. ATTORNEY FEES: Should any action be brought to enforce any of the terms
of this agreement, the prevailing party shall be entitled to the award
of its reasonable attorneys' fees.
21. WAIVER: The waiver by Landlord of Tenant's breach by any provision of
this agreement shall not constitute a continuing waiver of any
subsequent breach by Tenant of the same or other provision.
22. PARKING: Landlord shall provide, operate and maintain a parking area or
areas, together with necessary access, having a capacity adequate, in
the opinion of the Landlord, to accommodate the requirements of Tenant
and others entitled to use said parking areas and adequate to comply
with the requirements of appropriate government authorities. Landlord
shall provide Tenant with ten (10) covered, reserved parking spaces so
identified for the sole use of Tenant for the term of the Lease thereof
at no cost to Tenant. Tenant has the option to lease additional covered
reserved parking spaces from Landlord at the prevailing rate which will
be payable as Additional Rent. The balance of the parking is considered
non reserved and shall be on a first-come first-served basis, with the
understanding that Tenant, Tenant's agents, servants, employees or
invites will not over burden the parking lot. Landlord shall not be
obligated to provide any additional parking.
23. SECURITY DEPOSIT: Tenant, upon execution of this Lease, will deposit
with Landlord the sum of $ . See Addendum as security for Tenant's
performance of all of the terms of this Lease. If Tenant defaults on
any of the terms of this Lease, Landlord may use such sum to cure such
default and compensate Landlord for any loss or damage which it has
suffered thereby. If any portion of the deposit is so used, Tenant
shall immediately deposit with Landlord an amount sufficient to restore
the security deposit to its original amount. Landlord shall not be
required to keep this security deposit separate from its general funds
and Tenant shall not be entitled to interest on such deposit.
Concord Equities Lease Agreement
Page 8 of 13
<PAGE> 9
24. DEFAULT BY LANDLORD: Landlord shall not be in default unless Landlord
fails to perform its obligations under this Lease within thirty (30)
days after written notice by Tenant to Landlord specifying the
obligations which the Landlord has failed to perform. If an obligation
is such that it cannot reasonably be completed within such thirty (30)
day period, Landlord shall not be in default if Landlord commences
performance within thirty (30) days and thereafter diligently
prosecutes the same to completion.
25. SURRENDER OF PREMISES: The surrender of this Lease by Tenant to
Landlord shall not work a merger and shall, at the option of Landlord,
operate as an assignment to it of any subleases affecting the Premises.
26. ESTOPPEL CERTIFICATE:
(a) Tenant shall upon not less than ten (10) days prior written
notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease
is unmodified and in full force and effect and if modified,
stating the nature of such modification and certifying that
this Lease as modified is in full force and effect (ii)
specifying the dates to which rental and other charges are
paid in advance, and (iii) acknowledging that there are no
uncured defaults on the part of Landlord or specifying such
defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrancer of the real
property of which the Premises are a part.
(b) Tenant's failure to deliver such a statement within the time
specified above shall be conclusive upon Tenant (i) that this
Lease is in full force and effect and without modification
except as may be represented by Landlord (ii) that there are
not uncured defaults by Landlord, and (iii) that no more than
one (1) month's rental has been paid in advance.
27. RULES AND REGULATIONS: Tenant shall comply with the rules and
regulations which are attached hereto as Exhibit "B" and all
non-discriminatory modifications thereof and additions thereto put into
effect by Landlord. Landlord shall not be responsible to Tenant for the
violation of any such rules and regulations by any other occupant or
Tenant of the Building.
28. CONDITION OF PREMISES: Tenant acknowledges that neither the Landlord
nor any of the Landlord's agents has made any representation or
warranty with respect to the Premises or Building or with respect to
the suitability of either for the conduct of Tenant's business. Taking
possession of the Premises by Tenant shall conclusively establish that
the Premises and Building were in good, sanitary order, condition and
repair at such time.
Concord Equities Lease Agreement
Page 9 of 13
<PAGE> 10
29. DESTRUCTION OF PREMISES: In the event that the Premises or the Building
of which the Premises are a part are destroyed in whole or in part by
fire or other casualty, Landlord may terminate this Lease at its
option. If Landlord does not terminate this Lease and elects to repair
the damage, this Lease shall remain in full force and effect except
that Tenant shall be entitled to a proportionate reduction in the rent
specified in Paragraph 3 from the date of damage until the repairs have
been completed. Such proportionate reduction shall be based upon the
extent to which the damage and making of such repairs reasonably
interferes with the business carried on by the Tenant in the Premises:
If the damage is caused in whole or in part by the Tenant or Tenant's
agents, servants, employees or invites, there shall be no abatement of
rent.
30. CONDEMNATION: If all or a portion of the Leased Premises are
appropriated by a public or quasi-public authority under the power of
eminent domain or are transferred by Landlord in lieu thereof, Landlord
may terminate this Lease without liability to Tenant for any unexpired
term of this Lease. If this Lease is not terminated as a result of such
appropriation or transfer, Base Rent shall be equitably reduced. In
either event, Landlord shall be entitled to the entire condemnation
award or settlement except that Tenant shall be entitled to any award
made by such authority specifically to Tenant for moving expenses or
damages for disruption to Tenant's business.
31. LATE CHARGES: All sums due under this Lease not paid by Tenant within
Ten (10) calendar days from the date such payment(s) were due shall be
subject to a late charge of Twenty Dollars ($20.00), or Five Percent
(5.00%) of the amount, whichever is greater. Additionally, for each
month that it remains unpaid such payment(s) shall bear interest at a
rate of Eighteen Percent (18.00%) per annum from the date the
payment(s) were due until paid in full.
32. LANDLORD'S CONSENT: Where Landlord's consent is required under this
agreement, such consent shall not be unreasonably withheld.
33. APPLICABLE LAW: This agreement shall be governed by the laws of the
State of Arizona.
34. TIME OF ESSENCE: Time is of the essence with respect to the
performance of every provision of this Lease in which time of
performance is a factor.
35. PRIOR AGREEMENTS; AMENDMENTS: This Lease incorporates and supersedes
all previous understandings and agreements concerning any matter
covered or mentioned in this Lease and may not be amended except in
writing signed by both parties.
Concord Equities Lease Agreement
Page 10 of 13
<PAGE> 11
36. PRIOR FIRST RIGHTS: Landlord may have granted an existing Tenant the
right of the first refusal of the Premises and, therefore, may be
obligated to offer to Lease the Premises to such Tenant upon the same
terms contained in this Lease. If so, this Lease is contingent upon
such Tenant's failure to exercise its right of first refusal with
respect to the Premises. If any such Tenant exercises its right of
first refusal with respect to the Premises, this Lease shall be null
and void.
37. QUIET ENJOYMENT: Upon payment by Tenant of the rents herein provided,
and upon the observance and performance of all the covenants, terms and
conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby
demised without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under
Landlord, subject, nevertheless, to the terms and conditions of this
Lease, and any mortgage and/or deed of trust to which this Lease is
subordinate.
38. HOLDOVER TENANCY: Upon expiration of this Lease, should Tenant continue
to occupy the Premises on an unpermitted holdover, the lease term be
extended on a month-to-month basis and the most current base rental
amount shall be increased by a minimum of Fifty Percent (50%).
Furthermore, (i) Tenant shall indemnify Landlord for any and all costs
incurred as a result of this holdover, (ii) either Party may cancel
this holdover by giving thirty (30) days written notice, and (iii) all
provisions of this Lease shall remain in full force and effect during
the entire holdover period.
39. LIMITATION OF LANDLORD'S LIABILITY:
a) Tenant recourse shall be limited to Landlord's interest in the
building. In the event of a transfer of ownership, assignor
must remain responsible for any accrued liability or
obligation.
b) Landlord's failure to perform any term, provision, or
covenants under this Lease relating to services or maintenance
to be provided by Landlord shall be subject to force majeure.
(i) Tenant's Remedies: If Landlord does not commence to
cure within thirty (30) days after receiving notice,
Tenant must inform Mortgagee of Landlord's default
and give Mortgagee the right, but not the obligation,
to cure the default with an additional thirty (30)
days after notice, subject to force majeure (provided
that default is of a nature that cannot be cured
within thirty (30) days, the Mortgagee's cure period
shall be extended so long as Mortgagee is diligently
proceeding to cure).
Concord Equities Lease Agreement
Page 11 of 13
<PAGE> 12
40. INVALIDITY CLAUSE: If a portion of this Lease is declared invalid, the
remainder must remain in full force and effect.
41. HAZARDOUS MATERIALS: Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of a
biologically or chemically active or other hazardous substances or
materials. Tenant shall not allow the storage or use of such substances
or materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Premises any
such materials or substances except to use in the ordinary course of
Tenant's business, and then only after written notice is given to
Landlord of the identity of such substances or materials. Without
limitation, hazardous substances and materials shall include those
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended 42 U.S.C. Section 9601 et seq., any
applicable state or local laws and the regulations adopted under these
acts. If any lender or governmental agency shall ever require testing
to ascertain whether or not there has been any release of hazardous
materials, then the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as additional charges, if such
requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief
regarding the presence of hazardous substances or material on the
Premises. In all events, Tenant shall indemnify Landlord in the manner
elsewhere provided in this Lease from any release of hazardous
materials on the Premises occurring while Tenant is in possession, or
elsewhere if caused by Tenant or persons acting under Tenant. The
within covenants shall survive the expiration or earlier termination of
the Lease term.
42. OPTION TO RENEW: Tenant, upon paying the rent herein reserved and
performing all the terms, covenants and conditions herein contained on
its part to be kept and performed, shall have the option to renew this
Lease for one (1) additional term of two (2) years. Any such extension
of this lease for the additional terms shall be upon the same covenants
and conditions as are set forth herein, except that the Base rental
rate for the additional term of two (2) years shall be $23.00 per
square foot for the first (1st) year of the option period and $24.00
per square That for the second (2nd) year of the option period. Tenant
must notify Landlord in writing not less that three (3) months prior to
the expiration of this Lease of its election to exercise the above
option and the agreement to be bound by the terms, covenants and
conditions of the Lease for the additional term stated above. In the
event Tenant fails to so notify Landlord or declines to exercise said
Option to Renew, such right shall terminate and not longer be in
effect.
BUILDING PLANNING: Intentionally deleted.
Concord Equities Lease Agreement
Page 12 of 13
<PAGE> 13
An Addendum is attached hereto and made a part of this Lease.
IN WITNESS WHEREOF the parties hereto have executed this Lease by proper
persons thereunto duly authorized so to do on the day and year first hereinabove
written.
LANDLORD: TENANT:
CONCORD EQUITIES, L.L.C. FUTECH EDUCATIONAL PRODUCTS, INC.,
an Arizona Limited Liability Company an Arizona Corporation
2999 North 44th Street, Suite 600 2999 North 44th Street, Suite 225
Phoenix, Arizona 85018 Phoenix, Arizona 85018
BY: /s/ Kenneth P. Braun BY: /s/ Vincent W. Goett
------------------------------ -----------------------------
Kenneth P. Braun Vincent W. Goett
ITS: Manager ITS: Chief Executive Officer
Concord Equities Lease Agreement
Page 13 of 13
<PAGE> 14
HORIZON REAL ESTATE GROUP, INC.
NOTICE AND WAIVER OF LIABILITY RIDER
Notice to Landlords/Tenants Regarding Hazardous
Materials and Americans with Disabilities Act
Comprehensive federal, state and local regulations have recently been enacted
to control the use, storage, handling, clean-up, removal and disposal of
hazardous and toxic wastes and substances. Extensive legislation has also been
adopted with regard to underground storage tanks. As real estate licensees, we
are not experts in the area of hazardous substances and we encourage you to
consult with your legal counsel with respect to your rights and liabilities with
regard to hazardous substances laws and regulations and to obtain technical
advice with regard to the use, storage, handling, clean-up, removal or disposal
of hazardous substances from professions, such as a civil engineer, geologist,
or other persons with experience in these matters to advise you concerning the
property. We also encourage you to review the past uses of the property (as to
which we make no representation) which may provide information as to the
likelihood of the existence of hazardous substances or underground storage tanks
on the property.
Legislation known as the "Americans with Disabilities Act ("ADA") was recently
adopted and may affect the property and/or its intended use. As real estate
licensee, we are not experts in the legal or technical aspects of ADA as it may
pertain to you. We encourage you to consult you legal counsel, architect and/or
other professionals with appropriate experience with regard to your rights or
obligations for compliance with ADA. HORIZON REAL ESTATE GROUP, INC. makes no
representation or warranty regarding the compliance or noncompliance of the
property under ADA.
INDEMNIFICATION
Owner/Landlord and Buyer/Tenant shall defend, indemnify, and hold harmless
HORIZON REAL ESTATE GROUP, INC. from and against all claims, costs, expenses,
actions, losses, damages and liabilities of any kind whatsoever (including
reasonable attorneys' fees) directly or indirectly arising out of the existence
of Hazardous Substances and/or Environmental Conditions or ADA noncompliance
conditions on the Property. This indemnification shall survive the termination
of any contract, listing or lease and continue thereafter.
Owner hereby authorizes Broker to represent and serve as agent for any
prospective tenant or purchaser of the Property and Owner hereby waives any
conflict of interest which may arise as a result thereof.
NOTE TO TENANT FROM BROKER
It has been a pleasure working with you towards consummation of a mutually
beneficial commercial lease. It is my hope that this negotiation process has
brought to light any interests, questions or concerns which you may have had.
Throughout our discussions, I have endeavored to provide you with the full and
complete information which you have requested. Following our discussions, this
lease agreement has been prepared which should include all relevant issues. If
you are relying upon any discussion, statement, inference or representation
which is not memorialized by the present lease agreement, please immediately
notify Broker both verbally and in writing. We have no wish to have you proceed
with the lease based upon inaccurate information or assumptions.
If the lease document accurately reflects our agreement, please indicate your
approval by signing in the space provided below. You should sign this document
if, and only if, you are relying entirely upon the lease agreement and no
further oral promises, discussions, statements or representations.
Rules and Regulations
Page 1 of 4
<PAGE> 15
LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOU AND YOUR ATTORNEY FOR REVIEW,
COMMENT AND APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY HORIZON
REAL ESTATE GROUP, INC. (BROKER), ITS AGENTS, EMPLOYEES, OWNER OR ANY OTHER
PERSON AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.
PREMISES: Concord Place. 2999 North 44th Street, Suite 225, Phoenix, Arizona
LEASE DATED: August 5,1996
LANDLORD: TENANT:
CONCORD EQUITIES, L.L.C., an FUTECH EDUCATIONAL PRODUCTS, INC.
Arizona Liability Company an Arizona Corporation
2999 North 44th Street, Suite 600 2999 North 44th Street, Suite 225
Phoenix, Arizona 85018 Phoenix, Arizona 85018
By: /s/ Kenneth P. Braun By: /s/ Vincent W. Goett
----------------------------- ------------------------------
Kenneth P. Braun Vincent W. Goett
Its: Manager its: Chief Executive Officer
Date: 8-16-96 Date:
Rules And Regulations
Page 2 of 4
<PAGE> 16
ADDENDUM TO LEASE
THE ATTACHED LEASE made and entered into the 5th day of August, 1996, by and
between CONCORD EQUITIES, L.L.C., an Arizona Limited Liability Company, as
"Landlord", and FUTECH EDUCATIONAL PRODUCTS, INC., An Arizona Corporation
as "Tenant", of which this Addendum to Lease is made a part is hereby amended
and supplemented as follows:
- WITNESSETH -
1. CONSTRUCTION OF PREMISES: Tenant to accept Suite 225 in "as is"
condition. Landlord's sole construction obligations with respect to
Suite 225, shall be to install (at it's sole cost) one set of double
"solid core" doors between the large executive office and the adjoining
board room (see exhibit "C"). All work and materials shall conform to
existing building standards with quality of work to be at Landlord's
sole and absolute discretion.
The following is added to paragraph 3.
2. RENT: The rent schedule during the term of this Lease shall be modified
as follows:
<TABLE>
<CAPTION>
Year Monthly Amount
---- --------------
<S> <C>
1 through 3 $8,878.33
4 (option period) see paragraph 42 $10,210.08
5 (option period) see paragraph 42 $10,654.00
</TABLE>
3. SECURITY DEPOSIT: Notwithstanding anything to the contrary regarding
Paragraph 23 of this Lease, Landlord and Tenant do hereby agree that
Tenant shall establish a "trading account" at Peacock, Hislop, Staley
and Givens, located at 2999 North 44th Street, Suite #100, Phoenix,
Arizona 85018, wherein Tenant will maintain a minimum balance of Fifty
Five Thousand Dollars ($55,000) for the entire term of this Lease. A
copy of the documentation establishing this account shall be attached
to this Lease as Exhibit "D". Upon written notice from Landlord of
default by Tenant (pursuant to Paragraph #19), Landlord shall have the
right to instruct Peacock, Hislop, Staley and Givens to immediately
convert to cash that amount Landlord deems necessary to cure the
default. Furthermore, should the balance of the "trading account" fall
below the Fifty Five Thousand Dollars ($55,000) minimum required
balance, this shall constitute a default of this Agreement by Tenant
(pursuant to Paragraph #19).
LANDLORD: TENANT:
CONCORD EQUITIES, L.L.C. an FUTECH EDUCATIONAL PRODUCTS, INC.
Arizona Limited Liability Company an Arizona Corporation
By: /s/ Kenneth P. Braun By: /s/ Vincent W. Goett
------------------------------ ------------------------------
Kenneth P. Braun Vincent W. Goett
Its: Manager Its: Chief Executive Officer
<PAGE> 17
EXHIBIT A
RENTABLE SQUARE FOOTAGE
SECOND FLOOR
[FLOOR PLAN]
<PAGE> 18
EXHIBIT "B"
RULES AND REGULATIONS
1. Except with the prior written consent of the Landlord, no Tenant shall
sell or cause to be sold any items or services at retail on or from the
leased premises, nor shall any Tenant carry on or permit or allow any
employee or person to carry on the business of machine copying,
stenography, typewriting or similar business in or from the leased
premises for the service or accommodation of occupants of any portion
of the building without written consent of the Landlord.
2. The Sidewalks, halls and passageways will not be obstructed by any of
the Tenants or used by them for any purpose other than for the ingress
and egress to and from their respective premises.
3. All Tenants shall adhere to and obey all such parking control measures
as may be placed into effect by the Landlord through the use of signs,
identifying decals or other instructions.
4. No moving companies shall be used for the purpose of moving furnishings
in or out of the lease premises unless they are licensed, commercial
movers.
5. Any electric wiring that the Tenant desires to introduce into the
Premises must be connected as directed by the Landlord. No boring or
cutting for wires will be allowed except with a specific consent of the
Landlord. The location of telephones, electrical appliances, call
boxes, intercoms, etc., shall be prescribed by Landlord.
6. The Tenant shall not conduct any auction or permit any fire or
bankruptcy sale to be held on the Premises, nor store goods, wares or
merchandise on the Premises.
7. All freight must be moved into, within and our of the Building under
the supervision of the Landlord and according to such regulations as
may be posted in the Building Office. All moving of furniture or
equipment into or out of the Building by the Tenant shall be done at
such time and in such manner as directed by the Landlord or its agent.
In no cases shall items of freight, furniture, fixtures or equipment be
moved into or out of the Building during such
Rules And Regulations
Page 1 of 4
<PAGE> 19
hours as are normally considered rush hours to an office building (i.e.
morning rush hours, noon rush hours and evening rush hours).
8. Requirements of the Tenant for Building services, maintenance or repair
shall be attended to only upon application to the office of the
Building. Employees of the Building are not permitted to perform any
work nor to do anything outside of their regular duties unless under
special instructions from the office of the Building. No employees of
the Building shall admit any person, Tenant or otherwise without
specific instructions from the Office Manager of the Building.
9. The Tenant shall not change locks nor install other locks on doors
without the prior written consent of the Landlord.
10. The Tenant shall give prompt notice to the Building of any accidents to
or defects in plumbing, electrical fixtures or heating apparatus so
that the same may be attended to properly.
11. No safes or other objects larger that the doors shall be brought into
or installed on the Leased Premises without the prior written consent
of the Landlord. Also, the Landlord shall have the power to prescribe
the weight and positions of or other objects which shall, if considered
necessary by the Landlord, be required to be supported by additional
materials placed on the floor. In such event, the additional materials
shall be at the expense of the Tenant. In no event can these items
exceed a weight of fifty (50) pounds per square foot of floor space
utilized.
12. No person or persons other that those approved by the Landlord will be
permitted to enter the Building for purposes of cleaning, maintenance,
construction or painting.
13. Tenant shall not permit or offer the Leased Premises to be occupied or
used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors or vibrations or
interfere in any way with other Tenants or those having business
therein, nor shall any animals or birds be kept in or about the
Building.
14. No cooking shall be done or permitted by any Tenant on the Leased
Premises except for that cooking utilizing existing kitchen facilities
or microwave ovens in Premises nor shall offices of The Building be
used, nor any part thereof, permitted to be used for lodging.
Rules And Regulations
Page 2 of 4
<PAGE> 20
15. Each Tenant, upon the termination of the tenancy, shall deliver to the
Landlord all the keys of the offices, rooms and toilet rooms which
shall have been furnished to the Tenant.
16. No Tenant shall lay floor covering so that the same shall be affixed to
the Leased Premises in any manner by paste or other material, except
that which may easily be removed with water. The use of cement or other
similar adhesive materials is expressly prohibited. Landlord shall have
no obligation to repair, restretch, clean or replace carpeting but will
spot clean and sweep carpeting as part of any janitorial services
required to be furnished by Landlord under the Lease.
17. On Sundays, holidays (legal), and on other days during certain hours of
which the Building may be closed after normal business hours, access to
the Building or to the halls or corridors will be subject to complete
control and approval of the Landlord.
18. Janitorial service shall be provided five (5) days per week in and
about the Premises, and in no case shall such services be provided on
Saturdays, Sundays and holidays (legal). Tenants shall not cause
unnecessary labor by reason of carelessness or indifference in the
preservation of good order and cleanliness.
19. Tenants shall see that doors of the Premises are closed and securely
locked before leaving the Building and must observe strict care not to
leave such doors, etc. open and exposed to the weather or other
elements, and each Tenant shall exercise extraordinary care and caution
that all water faucets or water apparatus are entirely shut off before
the Tenant or the Tenant's employees leave the Building, and that all
electricity, gas and air conditioning shall likewise be carefully shut
off, so as to prevent waste or damage, where controlled by Tenant.
20. Canvassing, soliciting and peddling in the Building are prohibited.
Tenants shall cooperate to prevent the same.
21. Intentionally Deleted.
Rules And Regulations
Page 3 of 4
<PAGE> 21
22. No signs of any kind shall be placed on the walls or windows of the
Leased Premises or outside the Leased Premises without the prior
written consent of the Landlord first had and obtained. It is intended
that the only identification to be provided for Tenant will be a
directory of design and location as approved by Landlord.
23. The non-enforcement of any one or more of these Rules and Regulations
with respect to any one or more Tenants in the Leased Premises, or the
development of which the Leased Premises are a part, shall not be
deemed a waiver of any of these Rules and Regulations, nor prohibit
the right of the Landlord to enforce these Rules and Regulations at any
time.
24. The Landlord reserves the right, at any time, to rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable rules and regulations as in the Landlord's judgement may,
from time to time, be necessary for the safety, care and cleanliness of
the Premises, and for the preservation of order therein.
25. Tenant will not, without the prior written consent of the Landlord, use
any apparatus or device in the Leased Premises, including but without
limitation thereto, electronic data processing machines, punch card
machines, and machines using current in excess of 110 volts, which
will, in any way, increase the amount of electricity or water usually
furnished or supplied for use of the Leased Premises as general office
space; nor connect with electric current, except through existing
electrical outlets in the Leased Premises, or water pipes, any
apparatus or device for the purposes of using electric current or
water.
AGREED AND ACCEPTED:
LANDLORD: TENANT:
CONCORD EQUITIES, L.L.C. FUTECH EDUCATIONAL PRODUCTS, INC.
2999 North 44th Street, Suite 600 2999 North 44th Street, Suite 225
Phoenix, Arizona 85018 Phoenix, Arizona 85018
BY: /s/ Kenneth P. Braun BY: /s/ Vincent W. Goett
---------------------------- -----------------------------
Kenneth P. Braun Vincent W. Goett
ITS: Manager ITS: Chief Executive Officer
DATE: 8-16-96 DATE: 8-15-96
Rules And Regulations
Page 4 of 4
<PAGE> 22
EXHIBIT "C"
(FLOOR PLAN OF LEASED PREMISES)
<PAGE> 23
[FUTECH LOGO]
EXHIBIT "D"
PAGE ONE OF TWO
Date: September 19, 1996
TO: Concord Equities, L.L.C. (Concord)
cc: M. Sherman, Peacock, Hislop, Staley and Givens (PHSG)
From: Vincent W. Goett, Chairman and CEO (Futech)
Subject: Addendum to lease re: Security deposit through Peacock, Hislop,
Staley and Givens investment account
Dear Concord Equities, L.L.C.,
This is to serve as Futech's instructions to Concord and PHSG regarding
Concord's limited access to Futech's investment account with PHSG.
Per the terms of the lease, Paragraph 23, Futech opened an account with PHSG
(#705-05115 per the attached) and have invested the minimum amount of funds per
the lease's terms. The lease specifies the grace period and notification
requirements by Concord if Futech does not meet its monthly obligation. If
Futech does not meet its outstanding obligation to Concord per the stated terms
of the lease agreement, then Concord may, with prior written notice to Futech
and PHSG, independently access Futech investment account in order to cure the
outstanding default. Prior to any actual transaction occurring, however, Futech
must be advised by PHSG as to the specifics of the transaction. Concord must
specify in writing to Futech and PHSG who within their organization is
authorized to perform such transaction.
Concord does not have the right to make inquiries (except for minimum balance
verification pursuant to the terms of the lease) or any other action
regarding Futech's account at PHSG.
Sincerely,
/s/ Charles M. Foley
- -------------------------------
Charles M. Foley
COO/CFO
<PAGE> 24
STATEMENT OF
ACCOUNT
[PEACOCK, HISLOP, STALEY & GIVEN, INC. LETTERHEAD]
G-05115 TAX ID 86-0648128 AUGUST 01 - AUGUST 31, 1996
EDUCATIONAL PRODUCT INC YOUR INVESTMENT REPRESENTATIVE IS:
CHARLES M FOLEY MICHAEL SHERMAN
44TH STREET STE 2999 N. 44TH.STREET, SUITE 100
PHOENIX, AZ 185018 PHOENIX, AZ 85018-9855
IR# 705-424 PHONE 602-952-6800
TOLL FREE (800) 999-1818
MONEY MARKET FUND 7 DAY AVERAGE YIELDS
FOR CURRENT YIELD INFORMATION PLEASE
CONTACT YOUR INVESTMENT REPRESENTATIVE
ASSETS LIABILITIES
PERCENT OF YOUR
AMOUNT PORTFOLIO AMOUNT
CASH
15,734.97 21 % MARGIN LOAN
SHORT OPTIONS
OTHER SHORT SECURITIES
58,500.00 79 %
$ 74,234.97 TOTAL LIABILITIES $ 00
YOUR ACCOUNT $ 74,234.97 CURRENT ESTIMATED YIELD .83%
SECURITIES ESTIMATED ANNUAL INCOME $682.00
FUNDS DEPOSITED AND WITHDRAWN
YOUR ACCOUNT $75,000.00 FUNDS REMITTED FROM YOUR ACCOUNT $.00
INCOME/EXPENSE SUMMARY
THIS THIS THIS THIS
PERIOD YEAR EXPENSE PERIOD YEAR
INTEREST CHARGES
U.S. TAX
NON-RES TAX
FOREIGN TAX
.00 .00 TOTAL .00 .00
EXHIBIT "D"
PAGE TWO OF TWO
<PAGE> 25
[CONCORD EQUITIES LOGO]
June 30, 1997
Mr. Vincent W. Goett, CEO
FUTECH EDUCATIONAL PRODUCTS, INC.
2999 N. 44th Street
Suite #215
Phoenix, AZ 85018
Re: Amendment to Lease
Release of Trading Account
Dear Vince:
Pursuant to paragraph #9 of the aforementioned Amendment to Lease, Landlord
hereby authorizes you to close the "trading account", which was established by
Tenant as a Security Deposit, for the benefit of Landlord.
Immediately upon closing of said account, Tenant shall deliver to Landlord a
cashiers check in the amount of $25,490.50, which shall be held by Landlord as
Security Deposit for the entire term of the Amended Lease.
Sincerely,
/s/ Kenneth P. Braun
- ----------------------------------
Kenneth P. Braun
Managing Member
cc: file
2999 N. 44th STREET, SUITE 600
PHOENIX, ARIZONA 85018
PHONE 602.952.9952 FAX 602.952.9964
<PAGE> 26
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE, made and entered into this 27th day of June, 1997, by
and between CONCORD EQUITIES, L.L.C., an Arizona limited liability company
hereinafter referred to as "Landlord" and FUTECH EDUCATIONAL PRODUCTS, INC., an
Arizona corporation hereinafter referred to as "Tenant".
WITNESSETH
WHEREAS, Landlord wishes to lease additional premises ("Expanded Area") to
Tenant and Tenant wishes to lease additional premises ("Expanded Area") from
Landlord; and
WHEREAS, Landlord wishes to modify the rent payments of the Original Lease
(Dated August 5, 1996) and Tenant wishes to modify the rent payments of the
Original Lease; and
WHEREAS, Landlord wishes to modify the term of the Original Lease and Tenant
wishes to modify the term of the Original Lease;
NOW, THEREFORE, in consideration of these present and the agreement of each
other, Landlord and Tenant agree that the said Lease shall be and the same is
hereby amended as of the 27th day of June, 1997 as to the following items, but
shall remain as stated with regard to all other matters.
1. Line 5 of the prologue paragraph of the Lease is amended by the
replacement of Exhibit "A" with the new Exhibit "D", attached hereto
and made a part hereof, showing the "Expanded Area" and "Existing
Space".
2. Paragraph 1 of the Lease: The term of the Modified Lease shall be for a
period of thirty-six (36) months and shall commence on the 1st day of
September, 1997 and expire on the 31st day of August, 2000.
3. Paragraph 3 of the Lease: Tenant agrees to pay Landlord a base rent of
Twelve Thousand Seven Hundred Forty-Five Dollars and 25/100 $12,745.25)
per month, subject to increases as hereinafter provided, plus any
excise, privilege or sales tax imposed upon the rent paid by Tenant.
Said rent shall commence on the latter to occur of September 1, 1997 or
the date the tenant improvements in the "Expanded Area" are completed
and said space is ready for occupancy by Tenant.
4. Paragraph 4 of the Lease: For the purpose of calculating the operating
expenses of the project as outlined and defined in Paragraph 4.
"OPERATING EXPENSES" of the Lease the following terms will prevail:
(a). The terms of the Original Lease shall remain in full force and
effect relating to of "operating expenses" for the primary
space (existing space) as defined in the Lease.
<PAGE> 27
(b). Tenant shall have a 1997 Base Year Expense Stop (Landlord to
pay said expense stop amount) calculated for the "Expanded
Area", which area is comprised of 1,956 net rentable square
feet, with all other terms and conditions of Paragraph 4. of
the Lease remaining in full force and effect.
(c). It is the intent of this Paragraph that the operating expenses
for the existing premises and the expanded area be calculated
separately from each other using the respected rentable square
footage of each area and the respective Base Year for each
area as outlined above.
5. Paragraph 4c of the Lease: It is hereby amended and the following new
paragraph is added:
4(c). For the purpose of determining Tenant's proportionate share of
the operating expenses and Landlord's total contribution, the
project shall be deemed to be comprised of 133,289 net
rentable square feet; the existing primary space shall be
deemed to be comprised of 5,327 net rentable square feet and
the "Expanded Area" to be comprised of 1,956 net rentable
square feet.
6. Paragraph 1 of the Addendum to Lease is hereby amended and the
following new paragraph is added:
Landlord shall build out the Expanded Area with tenant
improvements acceptable to Tenant. Landlord will pay for said
improvements up to $48,900.00. If the costs exceed $48,900.00,
said excess, plus simple interest thereon calculated at 9% per
annum, shall be amortized in equal monthly installments and
paid by Tenant to Landlord as additional rent between
September 1, 1997 and August 1, 2000. Tenant shall have the
right to approve all bids and contracts relating to
the construction work. The contracts will call for the work to
be completed, and the work will be completed, by September 15,
1997. Either party may terminate this Amendment if the details
of the tenant improvements are not finalized to the
satisfaction of the parties by August 1, 1997.
Landlord shall retain the bills, invoices, or their written
documentation evidencing the final total construction costs
and make same available to Tenant for audit.
7. Line 8 of Paragraph 22. "PARKING" of the Original Lease Agreement - the
figure "ten (10)" is deleted and "fifteen (15)" is substituted. The 5
new parking spaces will be adjacent to Tenant's current 10 spaces.
8. Line(s) 6 and 7 of Paragraph 42: "OPTION TO RENEW" of the Original
Lease - the figure "$23.00 shall be replaced with "$24.00" and the
figure "$24.00" shall be replaced with "$25.00".
2
<PAGE> 28
9. Paragraph 3 of the Addendum to Lease is hereby modified as follows:
Notwithstanding anything to the contrary regarding Paragraph 23 of the
Original Lease, Landlord and Tenant do hereby agree that Tenant shall
deposit with Landlord an amount equal to $25,490.50, which amount shall
be held by Landlord as Security Deposit for the entire term of the
Amended Lease. Furthermore, upon receipt by Landlord of the
aforementioned Security Deposit, Tenant shall be permitted to close the
"$55,000 trading account" previously established by Tenant as a
Security Deposit for the benefit of Landlord.
10. Section 36 of the Original Lease is hereby deleted from this lease.
11. All other terms and conditions in this Lease, as amended, remain in
full force and effect as heretofore.
IN WITNESS WHEREOF, Landlord and Tenant have executed this instrument by
proper persons thereunto authorized so to do on the day and year first
hereinabove written.
LANDLORD: TENANT:
CONCORD EQUITIES, L.L.C., an FUTECH EDUCATIONAL PRODUCTS, INC.,
Arizona limited liability company an Arizona corporation
By: /s/ Kenneth P. Braun By: /s/ Vincent W. Goett
---------------------------- ------------------------------
Kenneth P. Braun Vincent W. Goett
Its: Managing Member Its: Chief Executive Officer
3
<PAGE> 29
9. Paragraph 3 of the Addendum to Lease is hereby modified as follows:
Notwithstanding anything to the contrary regarding Paragraph 23 of the
Original Lease, Landlord and Tenant do hereby agree that Tenant shall
deposit with Landlord an amount equal to $25,490.50, which amount shall
be held by Landlord as Security Deposit for the entire term of the
Amended Lease. Furthermore, upon receipt by Landlord of the
aforementioned Security Deposit, Tenant shall be permitted to close the
"$55,000 trading account" previously established by Tenant as a
Security Deposit for the benefit of Landlord.
10. Section 36 of the Original Lease is hereby deleted from this lease.
11. All other terms and conditions in this Lease, as amended, remain in
full force and effect as heretofore.
IN WITNESS WHEREOF, Landlord and Tenant have executed this instrument by proper
persons thereunto authorized so to do on the day and year first hereinabove
written.
LANDLORD: TENANT:
CONCORD EQUITIES, L.L.C., an FUTECH EDUCATIONAL PRODUCTS, INC.,
Arizona limited liability company an Arizona corporation
By: By: /s/ Vincent W. Goett
-------------------------- -----------------------------
Kenneth P. Braun Vincent W. Goett
Its: Managing Member Its: Chief Executive Officer
3
<PAGE> 1
Exhibit: 10.1T
SECURITY INTEREST AGREEMENT May 16, 1991
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to open additional letters of credit in the Orient to import new
merchandise for confirmed and pending orders, and
WHEREAS the Trudy Corp needs additional cash collateral to provide to Union
Trust as a condition for opening the Letters of Credit, and has to date been
unable to secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by hypothecating and assigning his
personal Investment Savings Account at Union Trust (A/C #350328639 for
$36,460.00 as of 5/16/91) as the necessary collateral for Trudy Corp to achieve
the opening of the Letters of Credit (L/C #1001267 with separate drawings for
$8,160.00, and for $28,300.00),
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the company and the risks inherent
therein. Given that this collateral is necessary for the company to obtain
needed product to survive, that collateral has great value to Trudy, in excess
of the stated value of the merchandise imported.
Trudy agrees to give Burnham's collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount of the letter of Credit referred to
above plus imputed interest of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to pay Union Trust on maturity of the Letter of Credit and the Bank
takes possession of the collateral. In such circumstances, Burnham shall have a
collateral interest second only to that of Union Trust (if any), but in any
event senior to all trade creditors and to all other liabilities of the Company
unless otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
5/22/91
<PAGE> 1
Exhibit: 10.1FD
FUNDEX GAMES, LTD.
WARRANT
AGREEMENT
<PAGE> 2
FUNDEX GAMES, LTD.
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is dated as of August 31, 1996, and is
entered into by and among FUNDEX GAMES, LTD., a Nevada corporation ("Fundex"),
and Toy Paradise Partnership, an Illinois general partnership (the
"Partnership").
1 . DEFINITIONS.
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings.
"Act" means the Securities Act of 1933, as amended.
"Business" means the business, properties, assets, liabilities or
condition of Fundex.
"Common Stock" means the Company's Common Stock, no par value.
"IPO" means the Company's initial registered publIc offering of equity
securities.
"IPO Closing Date" means the closing date of the IPO.
"IPO Price" means the price per Share issued to the public in
connection with the IPO.
"Material Adverse Event" means any change, event, action, condition or
effect which, individually or in the aggregate, (a) impairs the validity or
enforceability of this Agreement or any documents, instruments or agreements
executed in connection with this Agreement; (b) subjects any officer or director
of Fundex to criminal liability; or (c) materially and adversely affects the
business, assets, operations, prospects or financial condition of Fundex or the
ability of Fundex to perform its obligations under this Agreement and any
documents, instruments or agreements executed in connection with this Agreement.
"Merger or Sale" shall have the meaning given to that term in Section
11.3(a).
2
<PAGE> 3
"Shares" means the shares of Common stock that can be acquired upon
exercise of the Warrants.
"Termination Date" means the date on which the Warrants are no longer
exercisable, which date shall be December 31, 2001 (or sooner as provided in
this Agreement and the Warrants, including, without limitation, in connection
with a Merger or Sale).
"Transfer Agent" means the Company's registrar and transfer agreement,
if any, for the Warrants.
"Warrant" means a warrant issuable upon exercise of the Warrant.
"Warrant Exercise Price" has the meaning given to that term in Section
2.3.
2. SALE AND ISSUANCE OF WARRANTS.
2.1 Warrants. Fundex has authorized the issuance and sale, pursuant to
the terms of this Agreement, to the Partnership of Seventy-Five Thousand
(75,000) warrants ("Warrants"), each Warrant entitling the holder upon exercise
thereof to acquire one share of common stock, with no par value ("Common
Stock"), of Fundex. The Warrants shall be substantially in the form of Exhibit
A attached hereto. The Warrants and the shares of Common Stock issuable upon
exercise of the Warrants are sometimes referred to collectively herein as the
"Securities."
2.2 Sale and Issuance. Subject to the terms and conditions hereof,
Fundex hereby agrees to sell to the Partnership, and the Partnership hereby
agree to purchase the Warrants.
2.3 Exercise Price; Amount. The price per Share at which Shares shall
be purchasable upon the exercise of Warrants (the "Warrant Exercise Price") is
one hundred twenty percent (120%) multiplied by the IPO Price per Share;
provided, however, that if there is no IPO on or before August 27, 1997, the
exercise price per Share for the total number of Warrants issued shall be equal
to $9.60 per Share. Each holder shall be entitled to receive one (1) Share for
each Warrant exercised.
2.4 Term. (a) Subject to the terms of this Agreement, with respect to
the Warrants, the Partnership shall have the right, at any time during the
period commencing at 9:00 a.m. on December 1, 1997 to and including 5:00 p.m,
Chicago Time, on the Termination Date to purchase from the Company up to the
number of fully
3
<PAGE> 4
paid and nonassessable Shares to which the Partnership may at the time be
entitled to purchase pursuant to this Agreement.
(b) The right of the Partnership to purchase Warrants shall be
conditioned upon the surrender by the Partnership to the Company, at its
principal office, of the certificate evidencing the Warrants to be exercised,
together with the purchase form, duly filled in and signed, with signatures
guaranteed if required by the Company or its Transfer Agent, and upon payment to
the Company of the Exercise Price for the number of Shares in respect of which
such Warrants are then exercised.
Notwithstanding the foregoing, the Company shall not be obligated to deliver any
shares pursuant to the exercise of a Warrant, and the Partnership shall not have
the right to exercise any Warrant, if in the Company's opinion the delivery of
Shares upon exercise of such Warrant would not comply with any applicable
federal or state securities laws. Without limiting the foregoing, Warrants may
not be exercised by, or securities issued to, any Partnership in any state in
which such exercise would be unlawful.
3. CLOSING AND DELIVERIES.
3.1 Closing. The initial closing of the sale and purchase of the
Warrants under this Agreement shall take place at such time and place as the
Partnership may determine (the "Closing") and the date of such Closing will be
referred to as the "Closing Date."
3.2 Deliveries of Payment and Certificates. At the Closing and subject
to the terms and conditions hereof, Fundex shall deliver to the Partnership the
Warrants to be purchased by the Partnership, dated the date of the Closing and
registered in that Partnership's name, paid by check made payable to the order
of Fundex or by wire transfer to the account of Fundex as instructed by Fundex
at least one (1) business day before the Closing.
4. REPRESENTATIONS AND WARRANTIES OF FUNDEX. Fundex hereby represents and
warrants to the Partnership as follows:
4.1 Organization and Standing; Articles and Bylaws; Subsidiaries.
Fundex is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Nevada. Fundex has full corporate power and
authority to own and operate its properties and assets, and to carry on its
business as currently conducted. Fundex is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each jurisdiction
where the nature of its activities and properties makes such qualification
necessary, except where the failure to be so qualified would not
4
<PAGE> 5
constitute a Material Adverse Event. Effective as of August 28, 1996, Third
Quarter, Inc. was merged with and into Fundex, Inc., and each act required to be
taken by or on the part of such companies to effectuate such merger has been
duly and properly taken on. Fundex does not own any equity interest in or have
any investment in any other business.
4.2 Capitalization. The authorized capital stock of Fundex, immediately
before the Closing consists of 8,000,000 shares of Common Stock, with a par
value of .001 per share, 1,225,000 shares of which are issued and outstanding.
There are no options and warrants outstanding. All issued and outstanding shares
of the Fundex's capital stock, and all Securities issuable pursuant hereto and
outstanding immediately after the Closing, have been duly authorized and, when
issued and sold for the consideration set forth in this Agreement, shall be
validly issued, fully paid and nonassessable, and issued in material compliance
with all applicable state and federal laws concerning the issuance of
securities. The holders of the outstanding capital stock of the Fundex do not
have any pre-emptive rights or similar rights with respect to the Securities.
4.3 Authorization. All corporate action on the part of Fundex, their
respective officers, directors and shareholders that is necessary for the
authorization, sale and issuance of the Warrants pursuant hereto and for the
performance of Fundex's obligations hereunder has been taken or shall be taken
prior to the Closing. This Agreement is a valid and binding obligation of Fundex
enforceable against Fundex in accordance with its terms, subject to general
principles of equity, laws of general application regarding bankruptcy,
insolvency, relief of debtors' and creditors' rights generally, and limitations
of public policy.
4.4 Material Contracts and Agreements. All contracts or agreements to
which Fundex is a party are valid, binding, and in full force and effect in all
material respects and without any material breach by any party thereto which
would constitute a Material Adverse Event.
4.5 Operating Rights. Fundex has all governmental licenses, franchises,
permits, approvals, certificates, consents, authorizations, rights and
privileges (except that no covenant, representation or warranty is made pursuant
to this Section with respect to the Intellectual Property rights that are the
subject of Section 4.8 hereof) (collectively "Licenses") that are necessary to
the operation of the Business, the lack of which would constitute a Material
Adverse Event. Such Licenses are in full force and effect, Fundex has not
received or given any notice of a violation (nor is it aware of any basis
therefor) in respect of any such Licenses, and no proceeding is pending or
threatened seeking the revocation or limitation of any of such Licenses.
5
<PAGE> 6
4.6 Conflicting Agreements. No shareholder, director, officer, or
employee of Fundex is a party to or bound by any agreement, contract or
commitment, or subject to any restrictions in connection with any previous or
current employment of any such person, that could materially and adversely
affect, or in the future shall materially and adversely affect, the Business.
4.7 Title to Properties and Assets; No Other Security Interests in the
Collateral; No Other Security Interest in Material Assets. Fundex has good and
marketable title to its properties and assets, real and personal, tangible and
intangible (except that no covenant, representation or warranty is made in this
Section as to the intellectual property rights which are the subject of Section
4.8 hereof) and, good title to all its leasehold estates, in each case subject
to no mortgage, pledge, lien, lease, encumbrance, security interests, use
restrictions, assessments or charge, other than (i) purchase money security
interests created in the ordinary course of business, (ii) taxes which have not
yet become delinquent, (iii) liens in respect of pledges or deposits under
workers' compensation laws or similar legislation or (iv) liens imposed by law
and incurred in the ordinary course of business for obligations not yet due to
carriers, warehousemen, laborers, materialmen and the like (item (i) through
(iv) referred to as "Ordinary Encumbrances"). Fundex has not granted and shall
not grant any security interest in, or any other lien or encumbrance on, any of
the Collateral. Fundex shall not grant any other security interest in, or any
other lien or encumbrance (other than Ordinary Encumbrances) on any assets of
Fundex other than the Collateral.
4.8 Patents, Trademarks, etc. Fundex does not own or have rights to use
all licenses, trademarks, trademark applications, patents, patent applications,
service marks, trade names, brand names, inventions, technology, trade secrets,
processes, formulae and copyrights, that are necessary for the operation of the
Business (collectively, "Intellectual Property") with no infringement of or
conflict with the rights of others. There are no contracts to which Fundex is a
party that adversely affect the rights of Fundex to own, use, license or
transfer any of Fundex's material Intellectual Property. Fundex knows of any
claims of third parties to any ownership interest or lien with respect to any of
the Intellectual Property. Fundex is aware of any facts that would lead it to
conclude that any of the Intellectual Property are invalid. No patent is
infringed by the activities of Fundex or by the manufacture, use or sale of any
product, device, instrument or other material made and used according to the
Intellectual Property. Fundex is not aware of any pending or threatened actions,
suits, proceedings or claim by others challenging the validity or scope of the
Intellectual Property. Fundex is not aware of any infringement on the part of
any third party of the Intellectual Property.
4.9 Compliance With Other Instruments. Fundex is not in breach or
violation of any provision of its Articles of Incorporation or its By-Laws, each
as
6
<PAGE> 7
amended through the date hereof, or any provision of any contract or agreement
to which Fundex is a party or by which the assets of Fundex are bound, or any
judgment, decree, order, statute, rule, or regulation applicable to Fundex,
except for such breaches or violations that would not constitute a Material
Adverse Event.
4.10 Litigation, etc. There are no actions, proceedings,
investigations, orders, judgments or decrees pending or, to Fundex's knowledge,
threatened, against Fundex that question the validity of this Agreement or any
action taken or to be taken in connection herewith or that, either individually
or in the aggregate, would constitute a Material Adverse Event.
4.11 Insurance. Fundex has in force insurance, with insurers which
Fundex believes (without having made any special investigation) are financially
sound and reputable, with respect to its properties and business in amounts that
Fundex believes are customary for companies similarly situated (including
without limitation, its stage of development), against loss or damage of the
kinds customarily insured against by such corporations.
4.12 Governmental Consents, etc. No consent, approval, or authorization
of, or designation, declaration, or filing with, any governmental authority, is
required on the part of Fundex in connection with the valid execution and
delivery of this Agreement, or the offer, sale, or issuance of the Warrants.
4.13 Full Disclosure. This Agreement and the Exhibits hereto, when
taken together as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There are no facts which
individually or in the aggregate constitute a Material Adverse Event that are
not set forth in this Agreement (including Exhibits and Schedules hereto).
5. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP. The Partnership,
hereby represents and warrants to Fundex as follows:
5.1 Power. Such Partnership has (i) taken all acts and satisfied all
conditions required by law and its charter documents (if the Partnership is
other than an individual) to authorize the execution and delivery of this
Agreement and to consummate the transactions contemplated herein, (ii) all
requisite legal power and authority to enter into this Agreement, to purchase
the Securities hereunder, and to carry out and perform its obligations under the
terms of this Agreement, and (iii) not been organized for the purpose of
acquiring the Securities (if the Partnership is other than an individual).
7
<PAGE> 8
5.2 Due Execution. This Agreement has been duly executed and delivered
by such Partnership, and this Agreement will be a valid and binding obligation
of the Partnership, legally enforceable as to the Partnership in accordance with
its terms, subject to general principles of equity, laws of general application
regarding bankruptcy, relief of debtors and creditors' rights generally, and
limitations of public policy.
5.3 Investment Representations; Accredited Partnership Representation.
(a) Such Partnership is acquiring the Warrants, and upon exercise of
the Warrants, will acquire the Securities issuable upon such exercises, for
itself, not as nominee or agent, for investment and not for resale in connection
with any distribution or public offering thereof within the meaning of the Act.
(b) Such Partnership understands (i) that the Securities have not
been registered under the Act or applicable state securities laws by reason of
specific exemptions therefrom which depend upon, among other things, the bona
fide nature of its investment intent as expressed herein, and (ii) that it may
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered and qualified under the Act and
applicable state securities laws or is exempt from such registration or
qualification requirements. Each certificate representing any Securities, and
any other security issued in respect of any of the Securities, will be endorsed
with the following or a substantially similar legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS COVERING SUCH SECURITIES, OR FUNDEX GAMES, LTD.
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY
TO FUNDEX GAMES, LTD., STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
and any and all other legends required by law or which Fundex, acting upon the
advice of its counsel, deems necessary or appropriate unless the conditions
specified in this Agreement are satisfied. Such Partnership is aware of the
provisions of Rule 144
8
<PAGE> 9
promulgated under the Act, which, among other things, permit limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions.
(c) Such Partnership has been furnished with such materials and has
been given access to such information relating to Fundex as it or its qualified
representative has requested, has been afforded the opportunity to ask questions
regarding Fundex and the Securities, all as it has found necessary to make an
informed investment decision.
(d) Such Partnership is a Partnership in securities of companies in
the development stage and acknowledges that it is able to fend for itself, can
bear the economic risk of its investment and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
(e) Such Partnership understands that no public market now exists
for any of the securities issued by Fundex.
(f) Such Partners of the Partnership either are (a) "accredited
Investors" as defined in Regulation D under the Act; such Partners of the
Partnership are (i) a natural person who individual net worth, or joint net
worth with that person's spouse, as of the date of this Agreement exceeds
$1,000,000, (ii) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year, (iii) a
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose purchase of the Warrants is
directed by a sophisticated person as described in SEC Rule 506(b)(2)(ii), or
(iv) a person or entity otherwise within the definition of an "accredited
Investor" under SEC Rule 501 (a); or (b) if not an accredited Investor, is not a
citizen or resident of the United States or any territory thereof.
5.4 Transfer of Securities. Such Partnership agrees that it will not
sell, transfer, pledge, assign, hypothecate, or otherwise dispose of (each, a
"Transfer") any Securities until the Partnership has notified Fundex of the
proposed Transfer, provided such additional information regarding the Transfer
as Fundex reasonably requests, and if Fundex so requests has at the
Partnership's expense provided Fundex with an opinion of counsel (which counsel
must be reasonably satisfactory to Fundex) to the Partnership, in form and
substance satisfactory to Fundex, that the proposed Transfer complies with all
applicable federal and state securities laws. Fundex shall have no obligation to
transfer any Securities unless the Partnership has complied with the foregoing
provisions, and any such attempted Transfer shall be null and void.
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<PAGE> 10
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of the Partnership at the Closing. The
obligation of any Partnership to purchase the Warrants at the Closing is subject
to the fulfillment to the Partnership's reasonable satisfaction, at or before
the Closing, of all the following conditions, any of which may be waived by such
party in writing:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by Fundex in Section 4 shall be true and
correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date, and Fundex shall have
performed in all material respects all covenants, obligations and conditions
herein required to be performed or observed by it on or before the Closing.
(b) Consents, Permits, and Waivers. Fundex shall have obtained and
shall have in effect any and all consents, permits, and waivers that are
necessary for consummation of the transactions contemplated by this Agreement to
be effected at the Closing.
(c) No Stop Order. No stop order or other order enjoining the sale
of the Warrants shall have been issued, and no proceedings for such purpose
shall be pending or, to the knowledge of Fundex, threatened by the Securities
and Exchange Commission or any commissioner of corporations or similar officer
of any other state having jurisdiction over this transaction.
(d) Other Agreements. The Security Agreement shall have been
executed by all parties thereto.
6.2 Conditions to Obligations of Fundex. Fundex's obligation to issue
and sell the Securities at the Closing is subject to the fulfillment to the
Fundex's reasonable satisfaction, on or before the Closing, of the following
conditions, any of which may be waived by Fundex in writing:
(a) Representations and Warranties True. The representations and
warranties made by the Partnership in Section 5 shall be true and correct in all
material respects at the Closing Date with the same force and effect as if they
had been made on and as of said date.
(b) Performance of Obligations. The Partnership shall have performed in all
material respect all covenants, obligations and conditions herein required to be
performed by it on or before the Closing.
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7. EXERCISE OF WARRANTS; FORM OF WARRANTS.
7.1 Payment of Exercise Price. Payment of the aggregate Exercise Price
shall be made in cash or by check, or any combination thereof.
7.2 Issuance of Certificate. Upon such surrender of the Warrants and
payment of such Exercise Price, the Company shall issue and cause to be
delivered to the Partnership and in the Partnership's name, a certificate or
certificates for the number of full Shares so purchased upon the exercise of the
Warrant, together with cash, as provided herein, in respect of any fractional
Share otherwise issuable upon such surrender. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such securities as
of the date of surrender of the Warrants and payment of the Exercise Price, as
aforesaid, notwithstanding that the certificate or certificates representing
such securities shall not actually have been delivered. The Warrants shall be
exercisable, at the election of the Partnership, either in full or from time to
time in part and, in the event that a certificate evidencing the Warrants is
exercised in respect of less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrants will be issued by the Company.
7.3 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
7.4 Certificates. The Warrants may be divided or combined, upon request
to the Company by the Partnership, into a certificate or certificates
representing the right to purchase the same aggregate number of Shares. Unless
the context indicates otherwise, the term "Partnership" shall include any
transferee or transferees of the Warrants.
7.5 Form of Warrants. The text of the Warrants shall be substantially
as set forth in Exhibit A attached hereto, respectively. The number of Shares
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall be
executed on behalf of the Company by its President or by a Vice President and
attested to by its Secretary or an Assistant Secretary. A Warrant bearing the
signature of an individual who was at any time the proper officer of the Company
shall bind the Company, notwithstanding that such individual shall have ceased
to hold such office prior to the delivery of such Warrant or did not hold such
office on the date of this Agreement.
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7.6 Exchange of Warrant Certificate. Any Warrant certificate may be
exchanged for another certificate or certificates entitling the Partnership to
purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Partnership to purchase. Any holder of a Warrant
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed if required by the Company, the certificate evidencing the
Warrant to be so exchanged. Thereupon, the Company shall execute and deliver to
the person entitled thereto a new Warrant certificate as so requested.
8. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Warrants or the securities comprising the Shares;
provided, however, the company shall not be required to pay any tax which may be
payable in respect of any transfer of the Warrants or the securities comprising
the Shares.
9. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrants shall
be mutilated, lost, stolen or destroyed, the Company shall, at the request of
the Partnership, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant and a bond of
indemnity, if requested, also satisfactory in form and amount, at the
applicant's cost. Applicants for such substitute Warrant certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
10. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrants remain outstanding, out of its authorized and
unissued Common Stock, such number of shares of Common Stock as shall be subject
to purchase under the Warrants.
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<PAGE> 13
11. ADJUSTMENT OF NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Exercise Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
11.1 Adjustments. The number of Shares purchasable upon the exercise
of the Warrants shall be subject to adjustment as follows:
(a) Stock Splits; Stock Dividends. In case the Company shall (i) pay
a dividend in Common Stock, (ii) subdivide its outstanding Common Stock, (iii)
combine its outstanding Common Stock into a smaller number of shares of Common
Stock, or (iv) issue by reclassification of its Common Stock other securities of
the Company, then the number of Shares purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the Partnership shall be
entitled to receive upon exercise of the Warrant the kind and number of Shares
or other securities of the Company which he, she or it would have owned or would
have been entitled to receive immediately after the happening of any of the
events described above, had the Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection shall become effective immediately after the
effective date of such event, retroactive to the record date, if any, for such
event.
(b) Corresponding Adjustment of Exercise Price. Whenever the number
of Shares purchasable upon the exercise of a Warrant is adjusted, as herein
provided, the Exercise Price payable upon exercise of the Warrant shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, the numerator of which shall be the number of Shares purchasable
upon the exercise of the Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Shares so purchasable immediately
thereafter.
(c) Notice of Adjustment. Whenever the number of Shares purchasable
upon the exercise of a Warrant is adjusted as herein provided, the Company shall
cause to be mailed to the Partnership or holder of record within a reasonable
time thereafter notice of such adjustment setting forth the number of Shares
purchasable upon the exercise of the Warrant after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
11.2 No Adjustment for Dividends. Except as provided in subsection 11.
1 (a), no adjustment in respect of any dividends or distributions out of
earnings shall be made during the term of the Warrants or upon the exercise of
the Warrants.
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<PAGE> 14
11.3 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc.
(a) Subject to paragraph (b) of this Section, in case of any
consolidation of the Company with or merger of the Company into another
corporation where the Company will not be the surviving corporation, or in case
of any sale or conveyance to another corporation of the property, assets or
business of the Company as an entirety or substantially as an entirety (any such
event referred to as a "Merger or Sale"), the Company or such successor or
purchasing corporation, as the case may be, shall agree that the Partnership
shall have the right thereafter upon payment of the Exercise Price in effect
immediately prior to such action to purchase, upon exercise of the Warrants, the
kind and amount of shares and other securities and property which it would have
owned or have been entitled to receive after the happening of such Merger or
Sale had the Warrants been exercised immediately prior to such action. Any such
agreements referred to in this subsection shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section. The provisions of this subsection shall similarly apply to
successive Mergers or Sales.
(b) Notwithstanding the foregoing provisions, if the surviving,
successor or purchasing corporation does not agree to the provisions set forth
in paragraph (a) above, or if the Board of Directors of the Company determines
that the Warrants should not be outstanding following consummation of such
Merger or Sale, then the Company shall deliver a notice to each Partnership at
least twenty (20) days before the consummation of such Merger or Sale, the
Partnership may exercise the Warrants at any time before the consummation of
such Merger or Sale (and such exercise may be made contingent upon the
consummation of such Merger or Sale), and any Warrants that have not been
exercised before consummation of such Merger or Sale shall terminate and expire,
and shall no longer be outstanding.
11.4 Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this Section, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section.
11.5 Statement on Warrant Certificates. Irrespective of any adjustments
in the number of securities issuable upon exercise of the Warrants, Warrant
certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its sole discretion (which shall
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<PAGE> 15
be conclusive), make any change in the form of Warrant certificate that it may
deem appropriate and that does not affect the substance thereof; and any Warrant
certificate thereafter issued, whether upon registration of transfer of, or in
exchange or substitution for, an outstanding Warrant certificate, may be in the
form so changed.
12. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Shares on the
exercise of the Warrants. If any fraction of a Share would, except for the
provisions of this Section, be issuable on the exercise of the Warrants (or
specified portion thereof), the Company shall pay an amount in cash equal to the
amount of such fractional interest.
13. NO RIGHTS AS SHAREHOLDER; NOTICES TO PARTNERSHIP.
Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Partnership or his, her or its transferees any
rights as a shareholder of the Company, including the right to vote, receive
dividends, consent or receive notices as a shareholder in respect of any meeting
of shareholders for the election of directors of the Company or any other
matter.
14. RESTRICTIONS ON TRANSFER.
The Partnership agrees that prior to making any sale, transfer, pledge,
assignment, hypothecation, or other disposition (each, a "Transfer") of the
Warrants or Shares, the Partnership shall give written notice to the Company
describing the manner in which any such proposed Transfer is to be made and
providing such additional information regarding the Transfer as the Company
reasonably requests. If the Company so requests, the Partnership shall at its
expense provide the Company with an opinion of counsel (which counsel must be
reasonably satisfactory to the Company) to the holder, in form and substance
satisfactory to the Company, that the proposed Transfer complies with applicable
federal and state securities laws. The Company shall have no obligation to
Transfer any Securities unless the holder thereof has complied with the
foregoing provisions, and any such attempted Transfer shall be null and void.
15. LOCK-UP AGREEMENT.
In consideration for the Company agreeing to its obligations hereunder,
the Partnership agrees, in connection with the IPO and upon the request of the
Company or the underwriters managing the offering, not to sell, make short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
shares of Common Stock (other than those, if any, included in the registration),
whether now owned or hereafter acquired, without the prior written consent of
the Company or such underwriters, as the
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<PAGE> 16
case may be, for such period of time following the effective date of such
registration as the Company or the underwriters may specify (such period not to
exceed 365 days). The Partnership agrees to execute and deliver such
documentation as may be reasonably required by the underwriters in connection
with this Section. This restriction shall not apply to a registration relating
solely to employee benefit plans on Form S-8 or similar successor forms, or
registration relating solely to a Rule 145 transaction on Form S-4 or similar or
successor form.
16. MISCELLANEOUS.
16.1 APPLICABLE LAW. THIS AGREEMENT BY AND CONSTRUED SHALL BE
GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES THEREOF.
16.2 Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Partnership and the holders of Shares, any legal or equitable right, remedy or
claim under this Agreement, and this Agreement shall be for the sole and
exclusive benefit of the company, the Partnership and the holders of Shares.
16.3 Amendment. Except as provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought. Any provisions hereof may
be amended, waived, discharged or terminated, either retroactively or
prospectively, upon the written consent of the Company and the persons holding
(or having the right to acquire by virtue of holding Warrants) at least
fifty-one percent (51%) of the Shares which have been (or may be) issued upon
exercise of the Warrants. The Partnership acknowledges that by operation of this
Section, the Partnership will, subject to the limitations contained in this
Section, have the right and power to diminish or eliminate certain rights of the
Partnership under this Agreement, either prospectively or retroactively.
16.4 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof, and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants, and agreements except as
specifically set forth herein and therein. Nothing in this Agreement, expressed
or implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
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16.5 Severability. Any invalidity, illegality, or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Agreement, or any part thereof, whether arising by reason of the law of any
such party's domicile or otherwise, shall in no way affect or impair the
validity, legality, or enforceability of this Agreement with respect to all
other parties. In case any provision of this Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
16.6 Information Confidential. Each party acknowledges that the
information received by it pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the Act
or reproduce, disclose or disseminate such information to any other person
(other than its employees or agents having a need to know the contents of such
information, and its attorneys) or use such information to the detriment of the
Company, except in connection with the exercise of rights under this Agreement,
where the Company has made such information available to the public generally or
such party is required to disclose such information by an applicable law or a
rule or regulation thereunder, including without limitation, securities and
anti-fraud laws, rules and regulations.
16.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16.8 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by Fundex or the
Partnership and the Closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered at the Closing by or on behalf of Fundex pursuant hereto
shall be deemed to be representations and warranties made by Fundex hereunder
solely as of the date of such certificate or instrument.
16.9 Successors and Assigns. This Agreement shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors, and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by the Partnership and its successors and assigns; provided,
however, that prior to the receipt by Fundex of adequate written notice of the
Transfer of any Securities specifying the full name and address of the
transferee, Fundex may deem and treat the person listed as the holder of such
securities in its records as the absolute owner and holder of such securities
for all purposes.
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<PAGE> 18
16.10 Delays or Omissions. No delay or omission to exercise any
right, power, or remedy accruing upon any breach, default or noncompliance under
this Agreement shall impair any such right, power, or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. Any waiver, permit, consent, or approval of any kind or
character of any breach, default or noncompliance under this Agreement, must be
in writing and shall be effective only to the extent specifically set forth in
such writing.
16.11 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given (i) on the date of delivery if delivered personally or by Federal Express
or another national overnight delivery service, (ii) upon transmission by
facsimile transmission, or (iii) two (2) days after mailing if mailed by first
class mail, to the following addresses:
If to Fundex: Fundex Games, Ltd.
3750 W. 16th Street
Indianapolis, IN 46222
Attn: Mr. Chip Voigt
and if to the Partnership, to the addresses set forth under Partnership's name
on Exhibit A hereto or such other address or with such copies to such additional
addresses as the party has provided to all other parties by notice duly given.
16.2 Finder's Fees.
(a) Fundex Representation and Indemnity. Fundex (i) represents and
warrants it has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) hereby agrees to indemnify and to hold
the Partnership and the other parties hereto harmless from and against any
liability for any commission or compensation in the nature of a finders fee to
any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which it, or any of its
employees or representatives, is responsible.
(b) Partnership Representations and Indemnities. The Partnership,
(i) represents and warrants for itself that it has retained no finder or broker
in connection with the transactions contemplated by this Agreement, and (ii)
hereby agrees to indemnify and to hold Fundex and the other parties hereto
harmless from and against any liability for any commission or compensation in
the nature of a finder's fee to any broker or other person or firm (and the
costs and expenses of defending against
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<PAGE> 19
such liability or asserted liability) for which it, or any of its employees or
representatives, is responsible.
16.13 Expenses and Fees. Fundex shall pay its own expenses,
including without limitation attorneys fees and costs, incurred in negotiating,
preparing or otherwise relating to this Agreement or the other agreements and
documents contemplated hereby.
16.14 Titles and Subtitles. The titles of the Sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
16.15 Information Confidential. The Partnership acknowledges that
the information received by it concerning Fundex pursuant hereto is confidential
and for its use only, and it will not use such confidential information or
reproduce, disclose or disseminate such information to any other person (other
than its employees or agents having a need to know the contents of such
information, and its attorneys) or use such information to the detriment of
Fundex, except (i) where Fundex has previously made such information available
to the public generally or (ii) such party is required to disclose such
information by an applicable law or a rule or regulation thereunder, including
without limitation, securities and antifraud laws, rules and regulations.
16.16 Further Assurances. The parties hereto shall use good faith
reasonable efforts to do and perform or cause to be done and performed all such
further acts and things and shall execute and deliver all such other agreements,
certificates, instruments or documents as any other party may reasonably request
in order to carry out the intent and purpose of this Agreement and the
consummation of the transactions contemplated hereby and thereby. Neither Fundex
nor any Partnership shall undertake intentionally any course of action
inconsistent with satisfaction of the requirements applicable to it set forth in
this Agreement, and each shall use its best efforts promptly to take all such
acts and measures as may be appropriate to enable it to perform as early as
practicable the obligations herein and therein required to be performed by them.
16.17 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 20
IN WITNESS WHEREOF, this Warrant Agreement has been signed and entered into as
of the date first set forth above.
FUNDEX GAMES, LTD.
By:
-----------------------------------
Its:
-----------------------------------
TOY PARADISE PARTNERSHIP
By:
-----------------------------------
Its:
-----------------------------------
<PAGE> 1
Exhibit: 10.1D
[DAMERT COMPANY LOGO]
OPTION TO PURCHASE
CORPORATE COMMON STOCK
THIS AGREEMENT is entered into 29 February 1996, by and between DAMERT
COMPANY, A CALIFORNIA CORPORATION (the "Company"), and LYNNE MCDONALD (the
"Optionee").
WHEREAS the Company granted Optionee rights to acquire five percent (5%)
of the common stock of the Company on March 9, 1989; and
WHEREAS said option was to become exercisable on March 3, 1994 or at such
time that the Company was sold or went public; and
WHEREAS the parties desire to amend and restate the option agreement in
its entirety and hereby do so;
Now, THEREFORE, THE PARTIES DO AGREE AS FOLLOWS:
1. OPTION. Subject to the terms of this Agreement, the Company hereby
grants to Optionee the option to purchase fifty-three (53) shares of the common
stock of THE DAMERT COMPANY, A CALIFORNIA CORPORATION. The rights granted
pursuant to this Option Agreement shall expire on March 3, 2024.
2. PURCHASE PRICE. The purchase price payable for fifty-three (53) shares
of Common Stock shall be one dollar ($1), to be paid by Optionee upon exercise
of this option.
3. EXERCISE OF OPTION. This Option to purchase shall be exercisable by
Optionee by notice in writing by registered mail to the Company at 1609 Fourth
Street, Berkeley California 94710. Optionee agrees to exercise this option prior
to its termination date only with the consent of the Company, provided Optionee
shall have the right to exercise the option from and after any of the following
events (a "Triggering Event"):
a. disposition of (1) 50% or more of the Company's voting stock,
whether in one transaction or a series of transactions, by the
holder or holders thereof and/or by the Company to any person
or persons or (ii) a merger consolidation of the Company with
any other corporation or entity pursuant to which the
stockholders of the Company hold less than 50% of the voting
securities of the surviving corporation or entity; or
b. prior to any registered public offering of any Common Stock.
4. NONASSIGNABILITY OF OPTION. The rights hereunder to acquire common
stock are personal to Optionee and are not assignable. The shares, if and when
issued, shall become subject to a buy-sell agreement, which agreement shall
provide for rights of first refusal in favor of the Company or its controlling
shareholders with respect to the shares issued hereunder. In the event of the
death of the Optionee prior to exercise, the Company shall reacquire the option
rights granted hereunder for an amount equal to five percent (5%) of the Net
Book Value as computed under generally accepted accounting principles.
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<PAGE> 2
5. CHANGE IN CAPITALIZATION (ANTI-DILUTION CLAUSE). If the outstanding
shares of Common Stock are increased, decreased, or changed into, or exchanged
for a different number or kind of shares or securities of the Company, without
receipt of consideration by the Company, through reorganization, merger,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation, or otherwise, an appropriate and proportionate adjustment shall
be made in the number and kind of shares covered by this option and the exercise
price per share. Any such adjustment, however, shall be made without change in
the total price applicable to the unexercised portion of this option but with a
corresponding adjustment in the price for each share subject to this option.
Adjustments under this section shall be made by the Board or the Committee,
whose determination as to what adjustments shall be made, and, the extent
thereof, shall be final and conclusive. No fractional shares of stock shall be
issued on account of any such adjustment.
6. CLOSING. Delivery of the Common Stock and payment of the purchase price
shall take place at the office of the Company at 1609 Fourth Street, Berkeley
California 94710, within the first thirty (30) days after receipt by the Company
of the notice of the exercise of the option.
7. REPRESENTATIONS. The Company represents that the shares are properly
authorized and that all steps will be taken to secure any and all approvals, if
any, which are required to permit issuance under the California securities laws.
8. BENEFITS. This Agreement shall be binding upon the parties, their
heirs, legal representatives, successors, and assigns.
IN WITNESS WHEREOF the parties have signed this Agreement on the date
first entered above.
OPTIONOR COMPANY
DAMERT COMPANY, A CALIFORNIA CORPORATION
/s/ Lynne McDonald
- -------------------------------------
LYNNE McDONALD
By /s/ Fred DaMert
-------------------------------------
Fred DaMert, President
2
<PAGE> 1
Exhibit: 10.2FT
FUTECH INTERACTIVE PRODUCTS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE
The purposes of the 1998 Stock Option Plan (the "Plan") of Futech
Interactive Products, Inc., an Arizona corporation (the "Company"), are to
attract and retain the best available employees and directors of the Company or
any parent or subsidiary or affiliate of the Company which now exists or
hereafter is organized or acquired by or acquires the Company, as well as
appropriate third parties who can provide valuable services to the Company, to
provide additional incentive to such persons and to promote the success of the
business of the Company. To the extent applicable, this Plan is intended to
comply with Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934,
as amended or any successor rule ("Rule 16b-3"), and, to the extent applicable,
the Plan shall be construed, interpreted and administered to comply with Rule
16b-3 and Section 162(m) of the Code ("Section 162(m)").
2. DEFINITIONS
(a) "Affiliate" means any corporation, partnership, joint venture
or other entity, domestic or foreign, in which the Company, either directly or
through another affiliate or affiliates, has a 50% or more ownership interest.
(b) "Affiliated Group" means the group consisting of the Company
and any entity that is an "affiliate," a "Parent" or a "subsidiary" of the
Company.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Compensation or Stock Option Committee
of the Board (as designated by the Board), if such a committee has been
appointed.
(e) "Code" means the United States Internal Revenue Code of 1986,
as amended.
(f) "Incentive Stock Options" means options intended to qualify as
incentive stock options under Section 422 of the Code, or any successor
provision.
(g) "ISO Group" means the group consisting of the Company and any
corporation that is a "parent" or a "subsidiary" of the Company.
(h) "Nonemployee Director" shall have the meaning assigned in
Section 4(a)(ii) hereof
<PAGE> 2
(i) "Nonqualified Stock Options" means options that are not
intended to qualify for favorable income tax treatment under Sections 421
through 424 of the Code.
(j) "Parent" means a corporation that is a "parent" of the Company
within the meaning of Code Section 424(e).
(k) "Section 16" means Section 16 of the Securities Exchange Act
of 1934, as amended.
(l) "Subsidiary" means a corporation that is a "subsidiary" of the
Company within the meaning, of Code Section 424(f).
3. INCENTIVE AND NONQUALIFIED STOCK OPTIONS
Two types of options (referred to herein as "options," without
distinction between such two types) may be granted under the Plan: Incentive
Stock Options and Nonqualified Stock Options.
4. ELIGIBILITY AND ADMINISTRATION
(a) Eligibility. The following individuals shall be eligible to
receive grants pursuant to the Plan as follows:
(i) Any employee (including any officer or director who
is an employee) of the Company or any ISO Group member shall be eligible to
receive either Incentive Stock Options or Nonqualified Stock Options under the
Plan. An employee may receive more than one option under the Plan.
(ii) Any director who is not an employee of the Company or
any Affiliated Group member (a "Nonemployee Director") shall be eligible to
receive only Nonqualified Stock Options.
(iii) Any other individual whose participation the Board or
the Committee determines is in the best interests of the Company shall be
eligible to receive Nonqualified Stock Options.
(b) Administration. The Plan may be administered by the Board or
by a Committee appointed by the Board which, to the extent applicable, is
constituted so to permit the Plan to comply under Rule 16b-3 and Section 162(m).
The Company shall indemnify and hold harmless each director and Committee member
for any action or determination made in good faith with respect to the Plan or
any option. The Board or the Committee shall have full and final authority to
waive, in whole or in part, any limitations, restrictions or conditions
previously imposed on any option. Determinations by the Committee or the Board
shall be final and conclusive upon all parties.
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<PAGE> 3
5. SHARES SUBJECT TO OPTIONS
The stock available for grant of options under the Plan shall be shares
of the Company's authorized but unissued or reacquired voting common stock. The
aggregate number of shares that may be issued pursuant to exercise of options
granted under the Plan shall be 7,200,000 shares. If any outstanding option
grant under the Plan for any reason expires or is terminated, the shares of
common stock allocable to the unexercised portion of the option grant shall
again be available for options under the Plan as if no options had been granted
with respect to such shares. No individual may be granted options covering more
than 200,000 shares in any calendar year.
6. TERMS AND CONDITION OF OPTIONS
Option grants under the Plan shall be evidenced by agreements in such
form and containing such provisions as are consistent with the Plan as the Board
or the Committee shall from time to time approve. Each agreement shall specify
whether the option(s) granted thereby are Incentive Stock Options or
Nonqualified Stock Options. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the following
terms and conditions:
(a) Shares Granted. Each option grant agreement shall specify the
number of Incentive Stock Options and/or Nonqualified Stock Options being
granted; one option shall be deemed granted for each share of stock. In
addition, each option grant agreement shall specify the exercisability and/or
vesting schedule of such options, if any.
(b) Purchase Price. The purchase price for a share subject to (i)
a Nonqualified Stock Option may be any amount determined in good faith by the
Committee, and (ii) an Incentive Stock Option shall not be less than 100% of the
fair market value of the share on the date the option is granted, provided,
however, the option price of an Incentive Stock Option shall not be less than
110% of the fair market value of such share on the date the option is granted to
an individual then owning (after the application of the family and other
attribution rules of Section 424(d) or any successor rule of the Code) more than
10% of the total combined voting power of all classes of stock of the Company or
any ISO Group member. For purposes of the Plan, "fair market value" at any date
shall be (i) the reported closing price of such stock on the New York Stock
Exchange or other established stock exchange or Nasdaq National Market on such
date, or if no sale of such stock shall have been made on that date, on the
preceding date on which there was such a sale, (ii) if such stock is not then
listed on an exchange or the Nasdaq National Market, the last trade price per
share for such stock in the over-the-counter market as quoted on Nasdaq or the
pink sheets or successor publication of the National Quotation Bureau on such
date, or (iii) if such stock is not then listed or quoted as referenced above,
an amount determined in good faith by the Board or the Committee.
(c) Termination. Unless otherwise provided herein or in a specific
option grant agreement which may provide for accelerated vesting and/or longer
or shorter periods of exercisability, no option shall be exercisable after the
expiration of the earliest of
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<PAGE> 4
(i) in the case of an Incentive Stock Option:
(1) 10 years from the date the option is granted, or five
years from the date the option is granted to an individual owning
(after the application of the family and other attribution rules of
Section 424(d) of the Code) at the time such option was granted, more
than 10% of the total combined voting power of all classes of stock of
the Company or any ISO Group member,
(2) immediately after the date the optionee ceases to
perform services for the Company or any ISO Group member, if such
cessation is for any reason other than death, disability (within the
meaning of Code Section 22[e][3]), or cause,
(3) one year after the date the optionee ceases to
perform services for the Company or any ISO Group member, if such
cessation is by reason of death or disability (within the meaning of
Code Section 22[e][3]), or
(4) the date the optionee ceases to perform services for
the Company or any ISO Group member, if such cessation is for cause, as
determined by the Board or the Committee in its sole discretion;
(ii) in the case of a Nonqualified Stock Option;
(1) 10 years from the date the option is granted,
(2) one year after the date the optionee ceases to
perform services for the Company or any Affiliated Group member, if
such cessation is for any reason other than death, permanent
disability, retirement or cause,
(3) two years after the date the optionee ceases to
perform services for the Company or any Affiliated Group member, if
such cessation is by reason of death, permanent disability or
retirement, or
(4) the date the optionee ceases to perform services for
the Company or any Affiliated Group member, if such cessation is for
cause, as determined by the Board or the Committee in its sole
discretion;
provided, that, unless otherwise provided in a specific option grant agreement,
an option shall only be exercisable for the periods above following the date an
optionee ceases to perform services to the extent the option was exercisable on
the date of such cessation.
(d) Method of Payment. The purchase price for any share purchased
pursuant to the exercise of an option granted under the Plan shall be paid in
full upon exercise of the option by any of the following methods, (i) by cash,
(ii) by check, or (iii) to the extent permitted under the
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<PAGE> 5
particular grant agreement, by transferring to the Company shares of stock of
the Company at their fair market value as of the date of exercise of the option
as determined in accordance with paragraph 6(b), provided that the optionee held
the shares of stock for at least six months. Notwithstanding the foregoing, the
Company may arrange for or cooperate in permitting broker-assisted cashless
exercise procedures. The Company may also extend and maintain, or arrange for
the extension and maintenance of, credit to an optionee to finance the
optionee's purchase of shares pursuant to the exercise of options, on such terms
as may be approved by the Board or the Committee, subject to applicable
regulations of the Federal Reserve Board and any other applicable laws or
regulations in effect at the time such credit is extended.
(e) Exercise. Except for options which have been transferred
pursuant to paragraph 6(f), no option shall be exercisable during the lifetime
of an optionee by any person other than the optionee, his or her guardian or
legal representative. The Board or the Committee shall have the power to set the
time or times within which each option shall be exercisable and to accelerate
the time or times of exercise; provided, however, no options may be exercised
prior to the later of the expiration of six months from the date of grant
thereof or shareholder approval, unless otherwise provided by the Board or
Committee. To the extent that an optionee has the right to exercise one or more
options and purchase shares pursuant thereto, the option(s) may be exercised
from time to time by written notice to the Company stating the number of shares
being purchased and accompanied by payment in full of the purchase price for
such shares. Any certificate for shares of outstanding stock used to pay the
purchase price shall be accompanied by a stock power duly endorsed in blank by
the registered owner of the certificate (with the signature thereon guaranteed).
If the certificate tendered by the optionee in such payment covers more shares
than are required for such payment, the certificate shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
the disposition of the balance of the shares covered thereby.
(f) Nontransferability. No Incentive Stock Option shall be
transferable by an optionee otherwise than by will or the laws of descent and
distribution. No Nonqualified Stock Option shall be transferable by an optionee
otherwise than by will or the laws of descent and distribution; provided that
the Board or Committee in its discretion may grant Nonqualified Stock Options
that are transferable, without payment of consideration, to immediate family
members of the optionee or to trusts or partnerships for such family members;
the Board or Committee may also amend outstanding Nonqualified Stock Options to
provide for such transferability.
(g) ISO $100,000 Limit. If required by applicable tax rules
regarding a particular grant, to the extent that the aggregate fair market value
(determined as of the date an Incentive Stock Option is granted) of the shares
with respect to which an Incentive Stock Option grant under this Plan (when
aggregated, if appropriate, with shares subject to other Incentive Stock Option
grants made before said grant under this Plan or another plan maintained by the
Company or any ISO Group member) is exercisable for the first time by an
optionee during any calendar year exceeds $100,000 (or such other limit as is
prescribed by the Code), such option grant shall be treated as a grant of
Nonqualified Stock Options pursuant to Code Section 422(d).
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<PAGE> 6
(h) Investment Representation. Unless the shares of stock covered
by the Plan have been registered with the Securities and Exchange Commission
pursuant to Section 5 of the Securities Act of 1933, as amended, each optionee
by accepting an option grant represents and agrees, for himself or herself and
his or her transferees by will or the laws of descent and distribution, that all
shares of stock purchased upon the exercise of the option grant will be acquired
for investment and not for resale or distribution. Upon such exercise of any
portion of any option grant, the person entitled to exercise the same shall upon
request of the Company furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares of stock are
being acquired in good faith for investment and not for resale or distribution.
Furthermore, the Company may if it deems appropriate affix a legend to
certificates representing shares of stock purchased upon exercise of options
indicating that such shares have not been registered with the Securities and
Exchange Commission and may so notify its transfer agent.
(i) Rights of Optionee. An optionee or transferee holding an
option grant shall have no rights as a shareholder of the Company with respect
to any shares covered by any option grant until the date one or more of the
options granted thereunder have been properly exercised and the purchase price
for such shares has been paid in full. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such share certificate is issued, except as provided for in paragraph 6(k).
Nothing in the Plan or in any option grant agreement shall confer upon any
optionee any right to continue performing services for the Company or any
Affiliated Group member, or interfere in any way with any right of the Company
or any Affiliated Group member to terminate the optionee's services at any time.
(j) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of an option. The value of any fractional
share subject to an option grant shall be paid in cash in connection with an
exercise that results in all full shares subject to the grant having been
exercised.
(k) Reorganizations, Etc. Subject to paragraph 9 hereof, if the
outstanding shares of stock of the class then subject to this Plan are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations, stock splits,
reverse stock splits, stock dividends, spin-offs, other distributions of assets
to shareholders, appropriate adjustments shall be made in the number and/or type
of shares or securities for which options may thereafter be granted under this
Plan and for which options then outstanding under this Plan may thereafter be
exercised. Any such adjustments in outstanding options shall be made without
changing the aggregate exercise price applicable to the unexercised portions of
such options.
(l) Option Modification. Subject to the terms and conditions and
within the limitations of the Plan, the Board or the Committee may modify,
extend or renew outstanding options granted under the Plan, accept the surrender
of outstanding options (to the extent not theretofore exercised), reduce the
exercise price of outstanding options, or authorize the granting of new options
in
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<PAGE> 7
substitution therefor (to the extent not theretofore exercised). Notwithstanding
the foregoing, no modification of an option (either directly or through
modification of the Plan) shall, without the consent of the optionee, alter or
impair any rights of the optionee under the option.
(m) Grants to Foreign Optionees. The Board or the Committee in
order to fulfill the Plan purposes and without amending the Plan may modify
grants to optionees who are foreign nationals or performing services for the
Company or an Affiliated Group member outside the United States to recognize
differences in local law, tax policy or custom.
(n) Other Terms. Each option grant agreement may contain such
other terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, such as without limitation
discretionary performance standards, tax withholding provisions, or other
forfeiture provisions regarding competition and confidential information.
7. TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time terminate or amend the Plan; provided, that,
to the extent applicable, shareholder approval shall be obtained of any action
for which shareholder approval is required in order to comply with Rule 16b-3,
the Code or other applicable laws or regulatory requirements within such time
periods prescribed.
8. SHAREHOLDER APPROVAL AND TERM OF THE PLAN
The Plan shall be effective as of January 31, 1998, subject, to the
extent applicable, to ratification by the shareholders of the Company within
(each of) the time period(s) prescribed under Rule 16b-3, the Code, and any
other applicable laws or regulatory requirements, and shall continue thereafter
until terminated by the Board. Unless sooner terminated by the Board, in its
sole discretion, the Plan will expire on January 31, 2008, solely with respect
to the granting of Incentive Stock Options or such later date as may be
permitted by the Code for Incentive Stock Options, provided that options
outstanding upon termination or expiration of the Plan shall remain in effect
until they have been exercised or have expired or been forfeited.
9. MERGER, CONSOLIDATION OR REORGANIZATION
In the event of a merger, consolidation or reorganization with another
corporation in which the Company is not the surviving corporation, the Board,
the Committee (subject to the approval of the Board) or the board of directors
of any corporation assuming the obligations of the Company hereunder shall take
action regarding each outstanding and unexercised option pursuant to either
clause (a) or (b) below:
(a) Appropriate provision may be made for the protection of such
option by the substitution on an equitable basis of appropriate shares of the
surviving corporation, provided that the excess of the aggregate fair market
value (as defined in paragraph 6[b]) of the shares subject to
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<PAGE> 8
such option immediately before such substitution over the exercise price thereof
is not more than the excess of the aggregate fair market value of the
substituted shares made subject to option immediately after such substitution
over the exercise price thereof; or
(b) Appropriate provision may be made for the cancellation of such
option. In such event, the Company, or the corporation assuming the obligations
of the Company hereunder, shall pay the optionee an amount of cash (less normal
withholding taxes) equal to the excess of the highest fair market value (as
defined in paragraph 6[b]) per share of the Common Stock during the 60-day
period immediately preceding the merger, consolidation or reorganization over
the option exercise price, multiplied by the number of shares subject to such
options (whether or not then exercisable).
10. DISSOLUTION OR LIQUIDATION.
Anything contained herein to the contrary notwithstanding, on the
effective date of any dissolution or liquidation of the Company, the holder of
each then outstanding option (whether or not then exercisable) shall receive the
cash amount described in paragraph 9(b) hereof and such option shall be
cancelled.
11. WITHHOLDING TAXES
(a) General Rule. Pursuant to applicable federal and state laws,
the Company is or may be required to collect withholding taxes upon the exercise
of an option. The Company may require, as a condition to the exercise of an
option or the issuance of a stock certificate, that the optionee concurrently
pay to the Company (either in cash or, at the request of optionee but in the
discretion of the Board or the Committee and subject to such rules and
regulations as the Board or the Committee may adopt from time to time, in shares
of Common Stock of the Company) the entire amount or a portion of any taxes
which the Company is required to withhold by reason of such exercise, in such
amount as the Committee or the Board in its discretion may determine.
(b) Withholding from Shares to be Issued. In lieu of part or all
of any such payment, the optionee may elect, subject to such rules and
regulations as the Board or the Committee may adopt from time to time, or the
Company may require that the Company withhold from the shares to be issued that
number of shares having a fair market value (as defined in paragraph 6[b]) equal
to the amount which the Company is required to withhold.
(c) Special Rule for Insiders. To the extent applicable, any such
request or election (to satisfy a withholding obligation using shares) by an
individual who is subject to the provisions of Section 16 shall be made in
accordance with the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
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<PAGE> 1
Exhibit: 10.2T
SECURITY INTEREST AGREEMENT (#2) July 31, 1991
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including payment of property and
income taxes, and
WHEREAS the Trudy Corp needs additional cash, and has to date been unable to
secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $16,000
(sixteen thousand dollars) via his check # 848 for deposit into the Company's
account 820-817-414,
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on October 1, 1991. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
8/8/91
<PAGE> 1
Exhibit: 10.2FD
PURCHASE AGREEMENT
(Bridge Lenders)
THIS PURCHASE AGREEMENT (this "Agreement") is made as of March , 1997
between FUNDEX GAMES, LTD., a Nevada corporation with its principal place of
business at 3750 W 16th Street, Indianapolis, IN 46222 (the "COMPANY"), and the
Purchaser whose name and address is set forth on the signature space hereof
(the "PURCHASER").
In consideration of the mutual covenants contained in this Agreement, and
for other good and valuable consideration, the receipt, sufficiency and
adequacy of which is hereby acknowledged, the Company and the Purchaser agree
as follows:
1. AUTHORIZATION OF SALE OF THE UNITS. Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of up to one
hundred thousand (100,000) Units (the "Units"), consisting of two (2) Shares of
Common Stock of the Company ("Shares"), One (1) $5.50 Common Stock Purchase
Warrant and One (1) $6.30 Common Stock Purchase Warrant, at $6.72 per Unit. In
addition, bridge lenders will receive two (2) $4.20 Common Stock Purchase
Warrants.
2. AGREEMENT TO SELL AND PURCHASE THE UNITS. At the Closing (as defined
in Section 3), the Company will sell to the Purchaser, and the Purchaser will
buy from the Company, upon the terms and conditions hereinafter set forth, 7440
Units in exchange for releasing loans in the aggregate amount of fifty thousand
Dollars ($50,000). The Company proposes to enter into this same form of
purchase agreement with certain other investors (the "Other Purchasers") and
expects to complete sales of Units to them. The Purchaser and the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Purchasers," and this Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Agreements."
3. DELIVERY OF THE UNITS AT THE CLOSING. The completion of the purchase
and sale of the Units to be issued pursuant to this Agreement (the "Closing")
shall occur on March , 1997, or on such other date as may be agreed to by the
Company and the Purchaser. At the Closing, the Company shall deliver to the
Purchaser one or more stock certificates and warrants registered in the name of
the Purchaser, or in such nominee name(s) as designated by the Purchaser,
representing the number of Shares and warrants, respectively, set forth in
Section 2 above. The name(s) in which the stock certificates are to be issued
are set forth in the Stock Certificate and Funds Transfer Questionnaire
attached hereto as part of Appendix I. The Company's obligation to complete the
purchase and sale of the Units and deliver such stock certificates and warrants
to the Purchaser at the Closing shall be subject
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<PAGE> 2
to the following conditions, any one or more of which may be waived by the
Company: (a) receipt by the Company of immediately available funds, by check or
wire transfer, in the full amount of the purchase price for the Units being
purchased hereunder; (b) receipt by the Company of a signed and dated Investor
Qualification Questionnaire attached as Appendix II hereto; (c) the accuracy of
the representations and warranties made by the Purchaser herein as of the
Closing; and (d) the fulfillment of those undertakings of the Purchaser to be
fulfilled prior to the Closing. The Purchaser's obligation to accept delivery
of such stock certificates) and to pay for the Units evidenced thereby shall be
subject to the following conditions: (i) the accuracy of the representations
and warranties made by the Company herein as of the Closing; and (ii) the
fulfillment in all material respects of those undertakings of the Company to be
fulfilled prior to the Closing. The Purchaser's obligations hereunder are
expressly not conditioned on the purchase by any or all of the Other Purchasers
of the Units that they have agreed to purchase from the Company.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Company hereby
represents and warrants to, and covenants with, the Purchaser as follows:
4.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has all requisite corporate
power and authority to conduct its business as currently conducted.
4.2 DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENTS. The
Company's execution, delivery and performance of the Agreements (a) have been
duly authorized by all requisite corporate action by the Company, and (b) will
not violate any law or the Articles of Incorporation or By-laws of the Company
or any provision of any material indenture, mortgage, agreement, contract or
other material instrument to which the Company or any subsidiary is a party or
by which the Company or any subsidiary or any of their respective properties or
assets is bound as of the date hereof, or result in a breach of or constitute
(upon notice or lapse of time or both) a default under any such indenture,
mortgage, agreement, contract or other material instrument or result in the
creation or imposition of any lien, security interest, mortgage, pledge, charge
or other encumbrance, of any material nature whatsoever, upon any properties or
assets of the Company or any subsidiary. Upon their execution and delivery, and
assuming the valid execution thereof by the respective Purchasers, the
Agreements will constitute valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
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<PAGE> 3
4.3 ISSUANCE, SALE AND DELIVERY OF THE SHARES. When issued and paid for,
the Shares to be sold hereunder by the Company and to be issued in connection
with the Warrants specified herein will be validly issued and outstanding,
fully paid and non-assessable.
4.4 ADDITIONAL INFORMATION. The Company represents and warrants that the
information contained in the Confidential Private Placement Memorandum, dated
February 25, 1997 (the "Memorandum"), is true and correct as of such date.
4.5 DISCLOSURE. Neither this Agreement, nor the Memorandum, any exhibit
thereto or any agreement related hereto, nor any statement, agreement,
certificate or document furnished by the Company or any of its Subsidiaries,
contains any untrue statement of material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
4.6 NO MATERIAL CHANGE. As of the date hereof, except as may be
reflected in the Memorandum, there has been no material adverse change in the
financial condition or results of operations of the Company since February 25,
1997.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
(a) The Purchaser represents and warrants to, and covenants with, the
Company that: (i) the Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the
Units contemplated hereby, is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with
respect to investments in shares presenting an investment decision
like that involved in the purchase of the Units, including
investments in securities issued by the Company, and has requested,
received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Units; (ii) the
Purchaser is acquiring the number of Units set forth in Section 2
above in the ordinary course of its business and for its own account
for investment only and with no present intention of distributing any
of such Units or any arrangement or understanding with any other
persons regarding the distribution of such Units (this representation
and warranty not limiting the Purchaser's right to sell in the
future); (iii) the Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers
to buy, purchase or otherwise acquire or take a pledge of any of the
Units except in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and
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<PAGE> 4
regulations promulgated thereunder; (iv) the Purchaser has completed
or caused to be completed the Stock Certificate and Funds Transfer
Questionnaire, both attached hereto as Appendix I; (v) the Purchaser
has, in connection with its decision to purchase the number of Units
set forth in Section 2 above, relied solely upon the information
delivered to the Purchaser as described in Section 4.4 above and the
representations and warranties of the Company contained herein; and
(vi) the Purchaser is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act and
has completed or caused to be completed the Investor Qualification
Questionnaire attached hereto as Appendix II.
(b) The Purchaser further represents and warrants to, and covenants with,
the Company that (i) the Purchaser has full right, power, authority
and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action
to authorize the execution, delivery and performance of this
Agreement, and (ii) upon the execution and delivery of this
Agreement, this Agreement shall constitute a valid and binding
obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles
of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein and in the certificates for the Shares and warrants
delivered pursuant hereto shall survive the execution of this Agreement, the
delivery to the Purchaser of the Shares and warrants being purchased and the
payment therefor.
7. [INTENTIONALLY OMITTED]
8. PLACEMENT AGENT'S FEE.
(a) Each of the parties hereto hereby represents that, except as
provided in Section 8(b), on the basis of any actions and agreements
by it, there are no brokers or finders entitled to compensation in
connection with the sale of Units to the Purchaser; and
(b) The Company shall pay Merrill Weber & Co., Inc. (the "Placement
Agent")
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<PAGE> 5
a fee in an amount equal to six percent (6%) of the total sales price
of any Units sold by such Placement Agent, plus five-year warrants,
exercisable one year after the date of issuance, to purchase up to an
aggregate of 15,378 shares of Common Stock of the Company at exercise
prices of: (i) $4.20 per Share, as shall equal two percent (2%) of the
gross amount paid for the Units, divided by $4.20; (ii) $5.50 per
Share, as shall equal two percent (2%) of the gross amount paid to the
Company upon exercise of the $5.50 Warrants, divided by $5.50; (iii)
$6.30 per Share, as shall equal two percent (2%) of the gross amount
paid for the Units, divided by $6.30; and (iv) $3.36 per Share, as
shall equal two percent (2%) of the gross amount paid to the Company
upon exercise of the $3.36 Warrants, divided by $3.36; plus the amount
equal to six percent (6%) of the aggregate amount paid to the Company
upon exercise of warrants with exercise prices of the $4.20, $5.50 and
$6.30 Warrants.
9. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be sent by facsimile or mailed by first
class registered or certified airmail, or nationally recognized overnight
express courier postage prepaid, and shall be deemed given when so sent by
facsimile or mailed and shall be delivered as follows:
(a) If to the Company, to:
FUNDEX GAMES, LTD.
3750 W. 16th Street
Indianapolis, IN 46222
Attention: Carl (Chip) E. Voigt, IV
President and Chief
Executive Officer
or to such other person at such other place as the Company shall
designate to the Purchaser in writing; and
(b) If to the Purchaser, at its address as set forth at the end of this
Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.
10. CHANGES. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Purchaser.
11. HEADINGS. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
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<PAGE> 6
12. SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
FUNDEX GAMES, LTD.
By: /s/ [Illegible]
-----------------------------
Its: President
----------------------------
PURCHASER
By: /s/ [Illegible]
-----------------------------
Its: General Partner
----------------------------
By: Harbour Court LPI
-----------------------------
Its: General Partner
----------------------------
Address: 253 W 73rd
------------------------
Suite 6D
--------------------------------
New York, N.Y. 10023
--------------------------------
Telephone No. (212) 496-7409
-------------------
Facsimile No. (212) 874-7365
-------------------
6
<PAGE> 1
Exhibit: 10.2D
EMPLOYMENT AGREEMENT
1. PARTIES. This Employment Agreement ("Agreement") is entered into as
of the __ day of April, 1999 between DaMert Company ("the Company") and Julie
Nunn ("Nunn").
2. RECITALS.
WHEREAS, Nunn is currently employed by the Company in a key management
position as its Director of Product Development; and
WHEREAS, the Company has engaged in discussions concerning its possible
acquisition by, or merger with, another company or entity; and
WHEREAS, the Company wishes to ensure itself continuity of management in
the event of any actual or anticipated change in control of the Company and
WHEREAS, Nunn desires to assure herself of reasonable continued employment
in the event of any such change in control;
NOW, THEREFORE, for good and valuable consideration, the parties have
entered into this Agreement.
3. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred if at least 51% of the assets of the
Company shall be transferred or sold to another entity, or if the Company shall
be merged or consolidated with or into another corporation or entity (the
"Acquiring Company").
4. NUNN'S CONTINUED EMPLOYMENT. Nunn agrees to continue in the Company's
employment in her present capacity. Absent a Change in Control, her salary
shall remain the same, through the end of 1999, as the salary she currently
receives. In the event of a Change in Control occurring within two (2) years
from the date of this Agreement, Nunn will continue in her present capacity
with the Company or its successor, but her base annual salary will increase to
$82,000 at the time of the Change in Control.
5. BONUS PAYMENT. In the event of a Change in Control occurring within
two (2) years from the date of this Agreement, if Nunn remains in the employment
of the Company or its successor continuously for one year thereafter, she shall
receive an additional bonus in the amount of Twenty Thousand Dollars ($20,000)
on the one-year anniversary after the Change in Control. Nunn shall not be
eligible for this bonus payment if
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<PAGE> 2
her employment with the Company or its successor ends, regardless of the
reason, prior to the anniversary of the Change in Control.
6. SEVERANCE PAY. In the event of a Change in Control, if Nunn's
employment with the Company or its successor is involuntarily terminated
thereafter for any reason other than "cause," as defined herein, before the
one-year anniversary of the Change in Control, then Nunn shall be entitled to
receive four (4) months' severance pay at her then-current base salary. Neither
the Company nor its successor shall bear any further obligation to provide
severance pay to Nunn, whether before or after any Change in Control, except as
provided in this paragraph.
7. "CAUSE" DEFINED. For purposes of this Agreement, "cause" means wilful
misconduct, gross neglect of duties, wilful failure to perform the duties of
the job, or the commission of any dishonest, fraudulent or illegal act having a
detrimental effect upon the Company and/or its successor.
8. NON-DISCLOSURE OF PROPRIETARY INFORMATION. During the term of this
Agreement and at all times thereafter, Nunn will not, without the prior written
consent of the Company or its successor, divulge or communicate to any person,
firm or corporation, directly or indirectly, any confidential or proprietary
information or trade secrets concerning the business of the Company and/or its
successor, except to the extent disclosure may be required in the normal course
of Nunn's employment by the Company and/or its successor.
9. DISPUTE RESOLUTION. If any dispute arises under this Agreement that
the parties are unable to resolve through informal discussions, it will be
submitted to final and binding arbitration before a neutral arbitrator
mutually selected by the parties or, alternatively, selected under the auspices
of the American Arbitration Association. The arbitration will be conducted in
accordance with the rules of the American Arbitration Association. The
arbitrator's determination will be final, conclusive and binding upon the
parties.
10. SUCCESSORS. The parties agree that this Agreement shall be binding
on, and inure to the benefit of, their respective successors, heirs, executors
and/or administrators. It is further agreed, however, that the employment
duties to be performed by Nunn under this Agreement are personal to Nunn and
may not be assigned or delegated to any other person, firm or corporation.
11. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California.
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<PAGE> 3
1. SEVERABILITY. In the event any provision of this Agreement is found
by an arbitrator or a court of competent jurisdiction to be invalid or
unenforceable, such finding shall not affect the validity or effectiveness of
any or all of the remaining provisions of this Agreement.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties on the subjects contained in it. It supersedes and replaces
any and all prior agreements, understandings, promises or inducements that may
have been made, or may have existed, between the parties on the subjects
covered. Any modification of this Agreement will be effective only if it is in
writing and signed by both parties.
DAMERT COMPANY
Dated: 28 April 99 By: /s/ Fred DaMert
------------------
Chairman
Dated: 4/20/99 By: /s/ Julie Nunn
------------------
Julie Nunn
3
<PAGE> 1
Exhibit: 10.3FT
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") effective as of December 31, 1997 is
by and between Futech Educational Products, Inc., an Arizona corporation,
("EMPLOYER"), and Vincent Goett, an individual ("EMPLOYEE").
A. EMPLOYER is engaged in the business of designing,
manufacturing, distributing and marketing books, greeting cards, electronic
devices and toys.
B. EMPLOYEE has been working for EMPLOYER pursuant to a certain
employment agreement dated August 7, 1996 between EMPLOYEE and EMPLOYER, and the
parties now desire to redefine the nature, terms and conditions of their
employment relationship.
In consideration of the recitals and mutual agreements hereinafter set
forth, the parties agree as follows:
1. Employment. EMPLOYER agrees to continue to employ
EMPLOYEE on a full-time basis, in accordance with the terms and conditions set
forth herein, and EMPLOYEE agrees to accept such continued full-time employment
in accordance with said terms and conditions. EMPLOYEE's title shall be
"President and Chief Executive Officer." EMPLOYEE's title and duties may be
changed from time to time in the discretion of EMPLOYER's Board of Directors
(the "Board"), President or Chief Executive Officer. EMPLOYEE agrees to devote
his full time, skill, knowledge and attention to the business of EMPLOYER and
the performance of his duties under this Agreement.
2. Term. The term of employment under this Agreement
shall commence on December 31, 1997 (the "Effective Date") and shall continue
for a period of five years, unless earlier terminated as set forth in Section 7
below. Thereafter, this Agreement shall automatically renew for additional
one-year periods unless either party gives the other written notice of
non-renewal at least 30 days prior to the expiration of the initial term or any
renewal term.
3. Duties. EMPLOYEE shall be responsible for all of the
duties of a President and Chief Executive Officer, including without limitation:
(a) Develop short and long term strategic
objectives for EMPLOYER with the assistance of the Board;
(b) Pursue and evaluate business opportunities
that may be beneficial to the financial growth and
profitability of EMPLOYER;
(c) Initiate business alliances with industry
leaders as required to attain EMPLOYER's objectives;
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<PAGE> 2
(d) Interface with executive management of
EMPLOYER to assure performance of EMPLOYER's operations are in
accordance with EMPLOYER's established objectives; and
(e) Such other duties as may be determined by
EMPLOYER.
4. Compensation.
(a) Base Salary. EMPLOYER agrees to pay EMPLOYEE
a base salary, before deducting all applicable withholdings,
at the rate of not less than $200,000 per year in the first
year of the Agreement and $350,000 per year in the second year
of the Agreement, which shall be payable in accordance with
EMPLOYER's standard payroll policies, which policies may be
revised from time to time. At the end of the second year of
the Agreement and each year thereafter, EMPLOYEE's base salary
shall be reviewed by the Board and increased by no less than
10%.
(b) Deductions. EMPLOYER shall deduct from the
payments made to EMPLOYEE hereunder any federal, state or
local withholding or other taxes or charges which EMPLOYER is
required to deduct under applicable law, and all amounts
payable to EMPLOYEE under this Agreement are stated before any
such deductions. EMPLOYER shall have the right to rely upon
written opinion of counsel if any questions arise as to any
deductions.
(c) Bonus. From time to time, EMPLOYEE may be
eligible for a bonus at EMPLOYER's sole discretion.
(d) Stock Options. For past and future services
rendered by EMPLOYEE to EMPLOYER, EMPLOYER shall issue to
EMPLOYEE options to purchase 7,000,000 shares of common stock
of EMPLOYER at an exercise price of $0.10 per share, according
to the following vesting schedule:
<TABLE>
<CAPTION>
Vesting Date Number of Options Vested Expiration Date
- ------------ ------------------------ ---------------
<S> <C> <C>
12/31/98 2,000,000 12/31/08
12/31/99 2,000,000 12/31/09
12/31/00 1,000,000 12/31/10
12/31/01 1,000,000 12/31/11
12/31/02 1,000,000 12/31/12
</TABLE>
5. Benefits.
(a) Insurance. In addition to the compensation
described above, while EMPLOYEE is employed hereunder,
EMPLOYER shall pay for and provide EMPLOYEE and EMPLOYEE's
dependents with the same amount and type of life,
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<PAGE> 3
health and disability insurance as is provided from time to
time to EMPLOYER's executive employees during the term of this
Agreement.
(b) Expense Reimbursement. In addition to the
compensation and benefits provided above, EMPLOYER shall, upon
receipt of appropriate documentation, reimburse EMPLOYEE each
month for EMPLOYEE's reasonable travel, lodging and other
ordinary and necessary business expenses consistent with
EMPLOYER's policies as in effect from time to time.
(c) Retirement. EMPLOYEE shall be entitled to
participate in any retirement savings or benefits plan offered
by EMPLOYER to its employees, as revised by EMPLOYER from time
to time.
6. Vacation. EMPLOYEE shall be entitled to up to eight
weeks of vacation with full pay per calendar year, in addition to such holidays
as EMPLOYER may approve for its employees.
7. Termination. EMPLOYER may terminate EMPLOYEE's
employment prior to the expiration of the initial term of employment or any
extension thereof, in the manner provided in Section 7(a). Additionally, if
EMPLOYEE's employment is terminated by EMPLOYER without Cause (as defined
below), EMPLOYEE shall be entitled to compensation as provided in Section 7(d).
(a) For Cause. EMPLOYER may terminate this
Agreement for Cause upon a unanimous vote of disinterested
directors of the Board and a subsequent written notice to the
EMPLOYEE stating the facts constituting such Cause, provided
that EMPLOYEE shall have 10 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for
termination for Cause hereunder. In the event of termination
for Cause, EMPLOYER shall be obligated to pay the EMPLOYEE
only the salary due him through the date of termination
pursuant to Section 4(a). "Cause" shall include material
neglect of duties; wilful failure to abide by instructions or
policies from, or set by, EMPLOYER in good faith; conviction
of a felony or serious misdemeanor offense or pleading guilty
or nolo contendere to same; the commission by EMPLOYEE of an
act of dishonesty or moral turpitude involving EMPLOYER;
EMPLOYEE's material breach of this Agreement; EMPLOYEE's
breach of any other material obligation to EMPLOYER; or upon
the bankruptcy, receivership, dissolution or cessation of
business of EMPLOYER.
(b) Disability. If during the term of this
Agreement, EMPLOYEE fails to perform his duties hereunder
because of physical or mental illness or other incapacity for
30 consecutive days, or for 45 days during any 120-day period,
EMPLOYER shall have the right to terminate this Agreement
without further obligation hereunder, except for any bonus
amount payable in accordance with Section 4(c) and any amounts
payable pursuant to disability or workers'
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<PAGE> 4
compensation insurance plans generally applicable to
EMPLOYER's employees. EMPLOYER shall provide EMPLOYEE with
notice of commencement of the disability period, which period
cannot commence more than 14 days prior to the date of the
notice. If there is any dispute as to whether EMPLOYEE is or
was physically or mentally disabled under this Agreement,
whether his disability has ceased or whether he is able to
resume his duties, such question shall be submitted to a
licensed physician agreed upon by EMPLOYER and EMPLOYEE.
EMPLOYEE shall submit to such examinations and provide
information as such physician may request, and the
determination of such physician as to EMPLOYEE's physical or
mental condition shall be binding and conclusive on the
parties. EMPLOYER agrees to pay the cost of any such
physician's services, tests and examinations.
(c) Death. If the EMPLOYEE dies during the term
of this Agreement, this Agreement shall terminate immediately,
and the EMPLOYEE's legal representatives or estate shall be
entitled to receive the base salary due to EMPLOYEE through
the last day of the calendar month in which EMPLOYEE's death
occurs and any other death benefits generally applicable to
EMPLOYER's employees.
(d) Termination Without Cause; Severance Pay.
EMPLOYER may terminate this Agreement without Cause upon a
unanimous vote of disinterested directors of the Board and a
subsequent written notice to EMPLOYEE. If EMPLOYER terminates
this Agreement before the end of the term of the Agreement for
any reason other than those described in Sections 7(a), 7(b)
or 7(c), EMPLOYER shall pay to EMPLOYEE an amount equal to one
year of EMPLOYEE's base salary, less applicable withholdings
(the "Severance Pay").
(e) Termination by Employee; Severance Pay. If
EMPLOYEE terminates this Agreement prior to the end of the
term hereof, EMPLOYEE shall give written notice to EMPLOYER at
least 30 days prior to termination. EMPLOYEE shall not be
entitled to the Severance Pay if EMPLOYEE terminates this
Agreement for any reason other than EMPLOYER's material breach
thereof, or if EMPLOYEE's employment is terminated for the
reasons described in Sections 7(a), 7(b) Or 7(c).
8. Confidential Information; Exclusivity of EMPLOYEE's
Services.
(a) Confidential Information. EMPLOYEE
acknowledges that EMPLOYEE may receive, or contribute to the
production of, Confidential Information. For purposes of this
Agreement, EMPLOYEE agrees that "Confidential Information"
shall mean information or material proprietary to EMPLOYER or
designated as Confidential Information by EMPLOYER or its
clients or customers and not generally known by non-EMPLOYER
personnel, which EMPLOYEE develops or of, or to, which
EMPLOYEE may obtain knowledge or access through, or as a
result of, EMPLOYEE's relationship with EMPLOYER (including
information conceived, originated, discovered or developed in
whole or in part by EMPLOYEE).
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<PAGE> 5
Confidential Information includes, but is not limited to, the
following types of information and other information of a
similar nature (whether or not reduced to writing) related to
EMPLOYER's business: discoveries, inventions, ideas, concepts,
research, development, processes, procedures, "know-how",
formulae, marketing techniques and materials, marketing and
development plans, business plans, customer names, employee
names and other information related to customers, price lists,
pricing policies, financial information, employee
compensation, and computer programs and systems. Confidential
Information also includes any information described above
which EMPLOYER obtains from another party and which EMPLOYER
treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by EMPLOYER.
EMPLOYEE acknowledges that the Confidential Information
derives independent economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use. Information
publicly known without breach of this Agreement that is
generally employed by the trade at or after the time EMPLOYEE
first learns of such information, or generic information or
knowledge which EMPLOYEE would have learned in the course of
similar employment or work elsewhere in the trade, shall not
be deemed part of the Confidential Information. EMPLOYEE
further agrees:
i) To furnish EMPLOYER on demand, at
any time during or after employment, a complete list
of the names and addresses of all present, former and
potential customers and other contacts gained while
an EMPLOYEE of EMPLOYER in EMPLOYEE's possession,
whether or not in the possession or within the
knowledge of EMPLOYER.
ii) That all notes, memoranda,
documentation and records in any way incorporating or
reflecting any Confidential Information shall belong
exclusively to EMPLOYER, and EMPLOYEE agrees to turn
over all copies of such materials in EMPLOYEE's
control to EMPLOYER upon request or upon termination
of EMPLOYEE's employment with EMPLOYER.
iii) That while employed by EMPLOYER and
thereafter EMPLOYEE will hold in confidence and not
directly or indirectly reveal, report, publish,
disclose or transfer any of the Confidential
Information to any person or entity, or utilize any
of the Confidential Information for any purpose,
except in the course of EMPLOYEE's work for EMPLOYER.
iv) That any idea in whole or in part
conceived of or made by EMPLOYEE during the term of
his employment, consulting, or similar relationship
with EMPLOYER which relates directly or indirectly to
EMPLOYER's current or planned lines of business and
is made through the use of any of the Confidential
Information of EMPLOYER or any of EMPLOYER's
equipment, facilities, trade secrets or time, or
which results
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<PAGE> 6
from any work performed by EMPLOYEE for EMPLOYER,
shall belong exclusively to EMPLOYER and shall be
deemed a part of the Confidential Information for
purposes of this Agreement. EMPLOYEE hereby assigns
and agrees to assign to EMPLOYER all rights in and to
such Confidential Information whether for purposes of
obtaining patent or copyright protection or
otherwise. EMPLOYEE shall acknowledge and deliver to
EMPLOYER, without charge to EMPLOYER (but at its
expense) such written instruments and do such other
acts, including giving testimony in support of
EMPLOYEE's authorship or inventorship, as the case
may be, necessary (in the opinion of EMPLOYER) to
obtain patents or copyrights or to otherwise protect
or vest in EMPLOYER the entire right and title in and
to the Confidential Information.
(b) Exclusivity of EMPLOYEE's Services. During
the EMPLOYEE's employment by EMPLOYER and for a period of two
years thereafter [but with regard to the two years thereafter,
this Section 8(b) shall apply only if this Agreement is
terminated for Cause pursuant to Section 7(a) or due to
EMPLOYEE resigning or otherwise terminating his employment
before the end of term of this Agreement], EMPLOYEE agrees
that he shall not, except as an owner of less than two percent
of a publicly-traded corporation's stock, enter into or
engage, directly or indirectly, whether on his own account or
as a shareholder, partner, joint venturer, employee,
consultant, advisor, and/or agent, of any person, firm,
corporation, or other entity other than EMPLOYER, in any or
all of the following activities:
i) Engaging in the business of
designing, manufacturing, distributing and marketing
books, greeting cards, electronic devices and toys in
the entire world.
ii) Soliciting the past or existing
joint venturers, partners, customers, clients,
suppliers, or business patronage of EMPLOYER or any
of its predecessors, affiliates or subsidiaries.
iii) Soliciting the employment of any
employees of EMPLOYER or any of its affiliates or
subsidiaries.
iv) Promoting or assisting, financially
or otherwise, any person, firm, association,
corporation, or other entity engaged in the business
of designing, manufacturing, distributing and
marketing books, greeting cards, electronic devices
and toys in the entire world.
v) Using any Confidential Information
[as defined in Section 8(a)] for the purpose of, or
which results in, direct competition with EMPLOYER or
any of its affiliates or subsidiaries.
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<PAGE> 7
(c) Injunctions. EMPLOYER and EMPLOYEE agree
that the restrictions contained in this Section 8 are
reasonable, but it is recognized that damages in the event of
the breach of any of the restrictions will be difficult or
impossible to ascertain; and, therefore, EMPLOYEE agrees that,
in addition to and without limiting any other right or remedy
EMPLOYER may have, EMPLOYER shall have the right to an
injunction against EMPLOYEE issued by a court of competent
jurisdiction enjoining any such breach without showing or
proving any actual damage to EMPLOYER.
(d) EMPLOYEE also agrees, acknowledges,
covenants, represents and warrants as follows:
i) that he has read and fully
understands the foregoing restrictions and that he
has been advised to consult with a competent attorney
regarding the uses and enforceability of restrictive
covenants;
ii) that he is aware that there may be
defenses to the enforceability of the foregoing
restrictive covenants based on time or territory
considerations, and that he knowingly, consciously,
intentionally and entirely voluntarily, irrevocably
waives any and all such defenses and will not assert
the same in any action or other proceeding brought by
EMPLOYER for the purpose of enforcing the restrictive
covenants or in any other action or proceeding
involving him and EMPLOYER;
iii) that he is fully and completely
aware that, and further understands that, the
foregoing restrictive covenants are an essential part
of the consideration for EMPLOYER entering into this
Agreement and has entered into this Agreement in full
reliance on these acknowledgments, covenants,
representations and warranties; and
iv) that the existence of any claim or
cause of action by EMPLOYEE against EMPLOYER, if any,
whether predicated upon this Agreement or otherwise,
shall not constitute a defense to the enforcement by
EMPLOYER of the foregoing restrictive covenants which
shall be litigated separately, except when EMPLOYEE's
employment is terminated pursuant to Section 7(a)
herein and a court of competent jurisdiction
determines subsequently that EMPLOYEE was not
terminated for Cause.
(e) If any of the provisions of this Section 8
should ever be deemed by a court of competent jurisdiction to
exceed the temporal, geographic or occupational limitations
permitted by applicable laws, those provisions shall be and
are hereby reformed to the maximum temporal, geographic,
and/or occupational limitations permitted by law.
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<PAGE> 8
(f) The obligations described in Sections 8(a),
(c), (d) and (e), above, shall survive any termination of this
Agreement or any termination of the employment relationship
created hereunder.
(g) After EMPLOYEE's employment terminates, the
covenant not to compete in Section 8(b) shall be enforced at
the sole option of EMPLOYER. This option shall be exercised by
notice to the EMPLOYEE within 15 business days after
termination of EMPLOYEE's employment. In the absence of such
notice, said covenant not to compete shall be void. In the
event employer elects to exercise this option, the employer
shall pay employee, as additional compensation therefor, a sum
of $350,000 (the "Noncompete Payment"). The Noncompete Payment
shall be paid to employee in twelve equal monthly
installments, without interest, monthly in arrears, beginning
on the first day of the month following EMPLOYER's exercise of
said option. Provided that, if the covenant not to compete in
Section 8(b) is modified or reduced by a court of competent
jurisdiction, the Noncompete Payment to EMPLOYEE pursuant to
this Section 8(g) shall be reduced accordingly. For example,
if the duration or geographic area of the covenant not to
compete in Section 8(b) is reduced from two years to one year,
the Noncompete Payment shall be reduced by 50%.
9. Inventions and Creations.
(a) EMPLOYEE agrees that all inventions,
discoveries, developments, improvements, ideas, distinctive
marks, symbols or phrases, copyrightable creations, works of
authorship, mask works and other contributions including but
not limited to software, advertising, design, art work,
manuals and writings (collectively referred to as
"Creations"), whether or not protected by statute, which have
been, or are in the forfeiture conceived, created, made,
developed or acquired by EMPLOYEE, either individually
or jointly, while EMPLOYEE is retained by EMPLOYER and relate
in any manner to EMPLOYEE's work for EMPLOYER, the research or
business of EMPLOYER or fields into which the business of
EMPLOYER may extend, belong to and are the property of
EMPLOYER.
(b) EMPLOYEE agrees and warrants that the
Creations will be EMPLOYEE's original work and will not
improperly or illegally incorporate any material created by or
belonging to others.
(c) EMPLOYEE hereby sells, assigns and transfers
to EMPLOYER exclusively and irrevocably, without further
compensation, all ownership, title and rights in and to all of
the Creations. EMPLOYEE further agrees to promptly and fully
disclose the Creations to EMPLOYER in writing, if requested by
EMPLOYER, and to deliver promptly to EMPLOYER whenever
reasonably requested and also upon completion of this
Agreement, any and all originals and copies of manuscripts,
programs, writings, pictorial materials, drafts and notes of
the Creations, regardless
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<PAGE> 9
of the media in which they might exist. EMPLOYEE agrees to
execute and deliver any and all lawful applications,
assignments and other documents which EMPLOYER requests for
protecting the Creations in the United States or any other
country. EMPLOYER shall have the full and sole power to
prosecute such applications and to take all other actions
concerning the Creations, and EMPLOYEE agrees to cooperate
fully, at the expense of EMPLOYER, in the preparation and
prosecution of all such applications and any legal-actions and
proceedings concerning the Creations.
(d) Without diminishing in any way the rights
granted to EMPLOYER above, if a Creation is described in a
patent, copyright or trademark application, or is disclosed to
a third party by EMPLOYEE within two years after EMPLOYEE's
employment with EMPLOYER is terminated, EMPLOYEE agrees that
it is to be presumed that the Creation was conceived, created,
made, developed or acquired by EMPLOYEE during the period of
his employment with EMPLOYER, unless EMPLOYEE can prove
otherwise by clear and convincing evidence.
10. Governing Law and Venue. Arizona law shall govern the
construction and enforcement of this Agreement and the parties agree that any
claim or cause of action pertaining to this Agreement shall lie only in courts
of competent jurisdiction located in Maricopa County, Arizona.
11. Construction. The language in all parts of this
Agreement shall in all cases be construed as a whole according to its fair
meaning and not strictly for nor against any party. The parties agree that each
party has reviewed this Agreement and that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
apply in the interpretation of this Agreement or any amendment or any exhibits
thereof.
12. Nondelegability of EMPLOYEE's Rights: EMPLOYER
Assignment Rights. The obligations, rights and benefits of EMPLOYEE hereunder
are personal and may not be delegated, assigned or transferred in any manner
whatsoever, nor are such obligations, rights or benefits subject to involuntary
alienation, assignment or transfer. Upon reasonable notice to EMPLOYEE, EMPLOYER
may transfer EMPLOYEE to an affiliate of EMPLOYER, which affiliate shall assume
the obligations of EMPLOYER under this Agreement. This Agreement shall be
assigned automatically to any entity merging with or acquiring EMPLOYER or its
business.
13. Severability. If any term or provision of this
Agreement is declared by a court of competent jurisdiction to be invalid or
unenforceable for any reason, this Agreement shall remain in full force and
effect, and either (a) the invalid or unenforceable provision shall be modified
to the minimum extent necessary to make it valid and enforceable or (b) if such
a modification is not possible, this Agreement shall be interpreted as if such
invalid or unenforceable provision were not a part hereof.
9
<PAGE> 10
14. Attorneys' Fees. Except as otherwise provided herein,
if any party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
15. Consideration. It is expressly understood and agreed
that this document sets forth the entire consideration for this Agreement, and
that said consideration for this Agreement is contractual and not a mere
recital.
16. Gender and Number. All terms used in one number or
gender shall be construed to include any other number or gender as the context
may require.
17. Counterparts. This Agreement may be executed in any
number of counterparts, all such counterparts shall be deemed to constitute one
and the same instrument, and each of said counterparts shall be deemed an
original hereof.
18. Section Headings. The section headings used in this
Agreement are inserted for convenience only and shall not affect the meaning or
construction of this Agreement.
19. Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed duly given upon receipt if either
personally delivered, sent by certified mail, return receipt requested, sent by
telefacsimile with a copy by first-class U.S. mail, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to EMPLOYER: Futech Educational Products, Inc.
2999 N. 44th Street
Suite 225
Phoenix, Arizona 85018-7247
Attention: Fred B. Gretsch
Fax: 602-808-9950
With a copy to: Quarles & Brady
One East Camelback Road, Suite 400
Phoenix, Arizona 85012-1649
Attention: Mark K. Briggs
Fax: 602-230-5598
If to EMPLOYEE: Vincent Goett
6400 North 48th Street
Paradise Valley, AZ 85253
Fax: 602-808-9737
10
<PAGE> 1
Exhibit: 10.3T
SECURITY INTEREST AGREEMENT (#3) August 5, 1991
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to open additional letters of credit in the Orient to import new
merchandise for confirmed and pending orders, and
WHEREAS the Trudy Corp needs additional cash collateral to provide to Union
Trust as a condition for opening the Letters of Credit, and has to date been
unable to secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by hypothecating and assigning his
personal Investment Savings Account at Union Trust (A/C #350328639 for
$24,140.00 as of 8/5/91) as the necessary collateral for Trudy Corp to effect
the opening of the Letters of Credit (L/C #1001437 with separate drawings of
$12,960.00 for T.E. Squirrels, and for $11,180.00 for Wolves),
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this collateral is necessary for the Company to obtain
needed product to survive, that collateral has great value to Trudy, in excess
of the stated value of the merchandise imported.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount of the Letter of Credit referred to
above, plus imputed interest of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to pay Union Trust on maturity of the Letter of Credit and the Bank
takes possession of the collateral. In such circumstances, Burnham shall have a
collateral interest second only to that of Union Trust (if any), but in any
event senior to all trade creditors and to all other liabilities of the Company
unless otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp 9/8/91
<PAGE> 1
Exhibit: 10.3FD
FUNDEX GAMES, LTD.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Purpose: This Stock Option Plan is intended for those members of the Board of
Directors who are not employees.
Effective date: Date of adoption by the Board of Directors, with Shareholder
approval required within twelve months. Options may be granted after adoption
but prior to shareholder approval.
Shares Subject to Plan: Currently 75,000.
Plan Administration: Compensation Committee administers this Plan.
- - Committee has full and conclusive authority to rewrite the Plan;
- - Committee may appoint an administrator to run the Plan.
Terms and Conditions of Formula Stock Option Awards: Each director receives
stock options according to the following terms:
- - Initial grant of an option to purchase 2000 shares occurs on the first
business day after election or appointment to the Board of Directors,
at an exercise price equal to the then-existing fair market value;
- - Thereafter, annually each director receives an option to purchase 2000
shares, at an exercise price equal to the then-existing fair market
value of the shares;
- - fair market value equals the market price or, if that is unavailable,
then the Committee's determination.
General Terms and Conditions of Options: Options granted to directors are
subject to the following conditions:
- - Written notice to company and full payment required before option can
be exercised;
- - Payment in full (i) by cash, (ii) by stock of equal value, or (iii) by
"cashless exercise" through a broker;
- - Ten-year time limit on exercise of options;
- - If a director dies, his unexercised options can be exercised by his
heirs or his estate, subject to a one-year time limit or the expiration
date of the option;
- - No option maybe exercised in the fiscal year it was granted (exceptions
exist).
Changes in Capitalization: Appropriate and proportionate changes in the stock
amounts and prices will be made.
Limitation of Rights: Under this Plan:
- - No one has a right to continue as director or any assurance of
compensation;
- - No one is granted any shareholder rights until issuance of shares;
- - A director's participation ends upon his becoming an employee.
Transferability: only by will or due to disability, and then only after six
months have passed.
Amendment, Modification, and Termination: Board may terminate, amend or modify
the terms of the Plan at any time, except that the Board may NOT do any of the
following:
- - Increase number of aggregate shares available under the Plan;
<PAGE> 2
- - Extend an option's exercise period;
- - Extend the term of the Plan;
- - Change an option's exercise price. or
- - Alter the class of persons eligible to receive options; (such changes
need shareholder approval).
- - Retroactively amend a previously granted option;
- - Change section five ("General Terms and Conditions") more than twice a
year.
RESTRICTIONS ON DELIVERY AND SALE OF SHARES: The Compensation Committee can hold
up delivery of shares in order to comply with applicable securities laws.
<PAGE> 1
Exhibit: 10.3D
December 15, 1998
DaMert Company
1609 Forth Street
Berkeley, CA 97410
Dear Sir/Madam:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available to DaMert Company ("Borrower") the following described credit
accommodations (each, a "Credit" and collectively, the "Credits"):
1. A revolving line of credit under which Bank will make advances to
Borrower from time to time up to and including May 15, 1999, not to exceed at
any time the maximum principal amount of Two Million Five Hundred Thousand
Dollars ($2,500,00.00) ("Line of Credit"), the proceeds of which shall be used
to finance working capital requirements.
2. A term loan in the original amount of Eighty Thousand Two Hundred and
Sixty Dollars ($80,260.00) ("Term Loan"), on which the outstanding principal
balance as of the date hereof is Twenty Six Thousand Seven Hundred Fifty-Three
and 44/100 Dollars ($26,753.44).
3. A loan in the principal amount of Four Hundred Thousand Dollars
($400,000.00) ("Loan"), the proceeds of which shall be used to finance working
capital requirements.
I. CREDIT TERMS:
1. LINE OF CREDIT:
(a) Line of Credit Note. Borrower's obligation to repay advances under the
Line of Credit shall be evidenced by a promissory note substantially in the form
of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
<PAGE> 2
Damert Company
December 15, 1998
Page 2
(b) Letter of Credit Subfeature. As a subfeature under the Line of Credit,
Bank agrees from time to time during the term thereof to issue sight commercial
letters of credit for the account of Borrower to finance inventory purchase
(each, a "Letter of Credit" and collectively, "Letters of Credit") ; provided
however, that the form and substance of each Letter of Credit shall be subject
to approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed Two Hundred Fifty Thousand Dollars ($250,000.00). Each Letter of
Credit shall be issued for a term not to exceed 120 days, as designated by
Borrower; provided however, that no Letter of Credit shall have an expiration
date subsequent to the maturity date of the Line of Credit. The undrawn amount
of all Letters of Credit shall be reserved under the Line of Credit and shall
not be available for borrowings thereunder. Each Letter of Credit shall be
subject to the additional terms and conditions of the Letter of Credit Agreement
and related documents, if any, required by Bank in connection with the issuance
thereof. Each draft paid by Bank under a Letter of Credit shall be deemed an
advance under the Line of Credit and shall be repaid by Borrower in accordance
with the terms and conditions of this letter applicable to such advances;
provided however, that if advances under the Line of Credit are not available,
for any reason, at the time any draft is paid by Bank, then Borrower shall
immediately pay to Bank the full amount of such draft, together with interest
thereon from the date such amount is paid by Bank to the date such amount is
fully repaid by Borrower, at the rate of interest applicable to advances under
the Line of Credit. In such event Borrower agrees that Bank, in its sole
discretion, may debit any demand deposit account maintained by Borrower with
Bank for the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outs-Landing
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
2. TERM LOAN:
(a) Term Note. Borrower's obligation to repay the Term Loan shall be
evidenced by a promissory note substantially in the form of Exhibit B attached
hereto ("Term Note"), all terms of which are incorporated herein by this
reference.
<PAGE> 3
Damert Company
December 15, 1998
Page 3
(b) Repayment. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on the Term Loan solely in
accordance with the provisions of the Term Note.
3. LOAN:
(a) Loan Note. Borrower's obligation to repay the Loan shall be evidenced
by a promissory note substantially in the form of Exhibit C attached hereto
("Loan Note"), all terms of which are incorporated herein by this reference.
(b) Repayment. The outstanding principal balance of the Loan shall be due
and payable in full on January 31,1999.
(c) Prepayment. Borrower may prepay principal on the Loan solely in
accordance with the provisions of the Loan Note.
4. COLLATERAL:
As security for ail indebtedness of Borrower to Bank under the Line of
Credit and the Loan, Borrower hereby grants to Bank security interests of first
priority in all Borrower's accounts receivable and other rights to payment,
general intangibles and inventory.
As security for all indebtedness of Borrower to Bank under the Term Loan
and the Loan, Borrower hereby grants to Bank security interests of first
priority in all Borrower's equipment.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
5. GUARANTIES:
All indebtedness of Borrower to Bank shall be guaranteed by evidenced by
and subject to the terms of guaranties in form and substance satisfactory to
Bank.
<PAGE> 4
Damert Company
December 15, 1998
Page 4
6. SUBORDINATION OF DEBT:
All obligations of Borrower to Frederick A. DaMert shall be subordinated
in right of repayment to all obligations of Borrower to Bank, as evidenced by
and subject to the terms of subordination agreements in form and substance
satisfactory to Bank.
II. INTEREST/FEES:
1. Interest. The outstanding principal balance of the Line of Credit, Term
Loan and Loan shall bear interest at the rate of interest set forth in the line
of credit note, term note and the promissory note.
The amount of each draft paid under any letter of credit shall bear
interest from the date such draft is paid by Bank to the date such amount is
fully repaid by Borrower.
2. Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note, term Note and Promissory Note.
3. Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
4. Collection of Payments. Borrower authorizes Bank to collect all
principal, interest and fees due under each Credit by charging Borrower's demand
deposit account number 4121-089916 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
<PAGE> 5
Damert Company
December 15, 1998
Page 5
III. REPRESENTATIONS AND WARRANTIES:
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this letter and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this letter.
1. Legal Status. Borrower is a corporation, duly organized and existing
and in good standing under the laws of the state of California, and is qualified
or licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
2. Authorization and Validity. This letter, the Notes, and each other
document, contract or instrument deemed necessary by Bank to evidence any
extension of credit to Borrower pursuant to the terms and conditions hereof, or
now or at any time hereafter required by or delivered to Bank in connection with
this letter (collectively, the "Loan Documents") have been duly authorized, and
upon their execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms.
3. No Violation. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
4. Litigation. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
5. Correctness of Financial Statement. The Financial statement of Borrower
dated December 31, 1997, a true copy of which has been delivered by Borrower to
Bank prior to the date hereof, (a) is complete and correct and presents fairly
the
<PAGE> 6
Damert Company
December 15, 1998
Page 6
financial condition of Borrower, (b) discloses all liabilities of Borrower that
are required to be reflected or reserved against under generally accepted
accounting principles, whether liquidated or unliquidated, fixed or contingent,
and (c) has been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the condition or operation of
Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except in favor of Bank or
as otherwise permitted by Bank in writing.
6. Income Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
7. No Subordination. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.
8. Permits, Franchises. Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and all
rights to trademarks, trade names, patents and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
9. ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event,
as defined in ERISA, has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
10. Other Obligations. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
<PAGE> 7
Damert Company
December 15, 1998
Page 7
11. Environmental Matters. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
IV. CONDITIONS:
1. Conditions of Initial Extension of Credit. The obligation of Bank to
grant any of the Credits is subject to fulfillment to Bank's satisfaction of all
of the following conditions:
(a) Documentation. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.
(b) Financial Condition. There shall have been no material adverse change,
as determined by Bank, in the financial condition or business of Borrower or any
guarantor hereunder, nor any material decline, as determined by Bank, in the
market value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower or any such guarantor.
(c) Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage on all Borrower's property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Bank, and where required by Bank, with
loss payable endorsements in favor of Bank.
<PAGE> 8
Damert Company
December 15, 1998
Page 8
2. Conditions of Each Extension of Credit. The obligation of Bank to make
each extension of credit requested by Borrower hereunder shall be subject to the
fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and in
each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such a default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
may be required in connection with such extension of credit.
V. COVENANTS:
Borrower covenants that so long Bank remains committed to extend credit to
Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
1. Punctual Payment. Punctually pay all principal, interest, fees or other
liabilities due under any of the Loan Documents at the times and place and in
the manner specified therein, and immediately upon demand by Bank, the amount by
which the outstanding principal balance of any of the Credits at any time
exceeds any limitation on borrowings applicable thereto.
2. Accounting Records. Maintain adequate books and records in accordance
with generally accepted accounting principles consistently applied, and permit
any representative of Bank, at any reasonable time, to inspect, audit and
examine such books and records, to make copies of the same and inspect the
properties of Borrower.
3. Financial Statements. Provide to Bank all of the following, in form and
detail satisfactory to Bank:
<PAGE> 9
Damert Company
December 15, 1998
Page 9
(a) not later than 120 days after and as of the end of each fiscal year, a
reviewed financial statement of Borrower, prepared by an independent certified
public accountant acceptable to Bank, to include balance sheet, income
statements and statements of cash flow.
(b) not later than 45 days after and as of the end of each fiscal year, a
financial statement of Borrower, prepared by Borrower, to include balance sheet
and income statement;
(c) not later than 180 days after and as of the end of each fiscal year, a
financial statement of guarantor hereunder, prepared by such guarantor, to
include balance sheet and income statement, and within 30 days after filing, but
in no event later than each November 15, copies of such guarantor's filed
federal income tax returns, K1's and extension letters for such year;
(d) from time to time such other information as Bank may reasonably
request
4. Compliance. Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply with the provisions of all documents pursuant to which
Borrower is organized and/or which govern Borrower's continued existence and
with the requirements of all laws, rules, regulations and orders of a
governmental agency applicable to Borrower and/or its business.
5. Insurance. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.
6. Facilities. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
7. Taxes and Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and
<PAGE> 10
Damert Company
December 15, 1998
Page 10
assessments, except (a) such as Borrower may in good faith contest or as to
which a bona fide dispute may arise, and (b) for which Borrower has made
provision, to Bank's satisfaction, for eventual payment thereof in the event
Borrower is obligated to make such payment.
8. Financial Condition. Maintain Borrower's financial condition as follows
using generally accepted accounting principles consistently applied and used
consistently with prior practices (except to the extent modified by the
definitions herein):
(a) Total Liabilities divided by Tangible Net Worth not at any time
greater than 3.90 to 1.0 until December 30, 1998 and 1.50 to 1.00 thereafter,
with "Total Liabilities" defined as the aggregate of current liabilities and
non-current liabilities less subordinated debt, and with "Tangible Net Worth"
defined as the aggregate of Stockholders' equity plus subordinated debt less any
intangible assets.
(b) Net loss after taxes not greater than $500,000.00 and net income after
taxes not less than $50,000.00 as of December 31, 1998.
9. Other Indebtedness. Not create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof.
10. Merger, Consolidation, Transfer of Assets. Not merge into or
consolidate with any other entity; nor make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
11. Dividends, Distributions. Not declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding in
excess of Borrower's Net Income before taxes.
<PAGE> 11
Damert Company
December 15, 1998
Page 11
12. Pledge of Assets. Not mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except any of the foregoing in favor of Bank or
which are existing as of, and disclosed to Bank in writing prior to, the date
hereof.
13. Year 2000 Compliance. Perform all acts reasonably necessary to ensure
that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all of Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms hereof
as Bank may from time to time require.
VI. DEFAULT, REMEDIES:
1. Default, Remedies. Upon the violation of any term or condition of any
of the Loan Documents, or upon the occurrence of any default or defined event of
default under any of the Loan Documents: (a) all indebtedness of Borrower under
each of the Loan Documents, any term thereof to the contrary notwithstanding,
shall at Bank's option and without notice become immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any
further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any of the Credits and
to exercise any or all of the rights of a beneficiary or secured party pursuant
to applicable law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of any such breach
or default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.
<PAGE> 12
Damert Company
December 15, 1998
Page 12
2. No Waiver. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
VII. MISCELLANEOUS:
1. Notices. All notices, requests and demands which any party is required
or may desire to give to any other party under any provision of this letter must
be in writing delivered to each party at its address first set forth above, or
to such other address as any party may designate by written notice to all other
parties. Each such notice, request and demand shall be deemed given or made as
follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon
the earlier of the date of receipt or three (3) days after deposit in the U.S.
mail, first class and postage prepaid; and (c) if sent by telecopy, upon
receipt.
2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
letter and the other Loan Documents, Bank's continued administration hereof and
thereof, and the preparation of amendments and waivers hereto and thereto, (b)
the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.
<PAGE> 13
Damert Company
December 15, 1998
Page 13
3. Successors, Assignment. This letter shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any of the Credits, Borrower or its business, [any guarantor
hereunder or the business of such guarantor,] or any collateral required
hereunder.
4. Entire Agreement; Amendment. This letter and the other Loan Documents
constitute the entire agreement between Borrower and Bank with respect to the
Credits and supersede all prior negotiations, communications, discussions and
correspondence concerning the subject matter hereof. This letter may be amended
or modified only in writing signed by each party hereto.
5. No Third Party Beneficiaries. This letter is made and entered into for
the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.
6. Severability of Provisions. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.
7. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of California.
8. Arbitration.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this letter. A "Dispute" shall mean any action, dispute, claim
or controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit
<PAGE> 14
DaMert Company
December 15, 1998
Page 14
and other activities, transactions or obligations of any kind related directly
or indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party may
by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject
<PAGE> 15
Damert Company
December 15, 1998
Page 15
matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary
rulings in response to motions filed prior to the final arbitration hearing.
Arbitrators (i) shall resolve all Disputes in accordance with the substantive
law of the state of California, (ii) may grant any remedy or relief that a court
of the state of California could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award, and (iii) shall
have the power to award recovery of all costs and fees, to impose sanctions and
to take such other actions as they deem necessary to the same extent a judge
could pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages, costs,
fees and expenses). By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness
<PAGE> 16
Damert Company
December 15, 1998
Page 16
secured directly or indirectly, in whole or in part, by any real property unless
(i) the holder of the mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii) all parties to the arbitration
waive any rights or benefits that might accrue to them by virtue of the single
action rule statute of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid and
enforceable. If any such Dispute is not submitted to arbitration, the Dispute
shall be referred to a referee in accordance with California Code of Civil
Procedure Section 638 et seq., and this general reference agreement is intended
to be specifically enforceable in accordance with said Section 638. A referee
with the qualifications required herein for arbitrators shall be selected
pursuant to the AAA's selection procedures. Judgment upon the decision rendered
by a referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure Sections 644 and
645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Bank's commitment to extend any credit to
Borrower pursuant to the terms
<PAGE> 17
Damert Company
December 15, 1998
Page 17
of this letter shall terminate on May 15, 1999, unless this letter is
acknowledged by Borrower and returned to Bank on or before that date.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Mark Schoenrock
-----------------------------
Mark Schoenrock
Vice President
Acknowledged and accepted as of 25 Dec 98:
DaMert Company
By: /s/ Frederick A. DaMert
-----------------------------
Frederick A. DaMert
President
<PAGE> 18
Exhibit A
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$2,500,000.00 Oakland, California
May 15, 1998
FOR VALUE RECEIVED, the undersigned DAMERT COMPANY ("Borrower") promises to
pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at East Bay RCBO, One Kaiser Plaza Suite 850, Oakland, CA 94612, or at
such other place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal sum
of $2,500,000.00, or so much thereof as may be advanced and be outstanding, with
interest thereon, to be computed on each advance from the date of its
disbursement as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum .75000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is
announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable
in the 15th day of each month, commencing June 15, 1998.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on
the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
(d) Collection of Payments. Borrower authorizes Bank to collect all
interest due hereunder by charging Borrower's demand deposit account number
4121-089916 with Bank, or any other demand deposit account maintained by any
Borrower with Bank, for the full amount thereof. Should there be insufficient
funds in any such demand deposit account to pay all such sums when due, the
full amount of such deficiency shall be immediately due and payable by Borrower.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made
hereon by or for any Borrower, which balance may be endorsed hereon from time
to time by the holder. The outstanding principal balance of this Note shall be
due and payable in full on May 15, 1999.
(b) Advances. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) Frederick A. DaMert or Gail Patton DaMert, any one acting alone,
who are authorized to request advances and direct the disposition of any
advances until written notice of the revocation of such authority is received
by the holder at the office designated above, or (ii) any person, with respect
to advances deposited to the credit of any account of any Borrower with the
holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of each Borrower regardless of the fact
that persons other than those authorized to request advances may have authority
to draw against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver,
Revolving Line of Credit Note (08/96), Page 1
<PAGE> 19
trustee, custodian or liquidator of or for any part of the assets or property of
any Borrower or Third Party Obligor; any Borrower or Third Party Obligor becomes
insolvent, makes a general assignment for the benefit of creditors or is
generally not paying its debts as they become due; or any attachment or like
levy on any property of any Borrower or Third Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
(g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
DAMERT COMPANY
By: /s/ Frederick A. DaMert
------------------------
Frederick A. DaMert
Chairman
Revolving Line of Credit Note (08/96), Page 2
<PAGE> 20
Exhibit B
WELLS FARGO BANK TERM NOTE
- --------------------------------------------------------------------------------
$80,260.00 Oakland, California
April 30, 1996
FOR VALUE RECEIVED, the undersigned DAMERT COMPANY ("Borrower") promises
to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at East Bay RCBO, One Kaiser Plaza, Suite 850, Oakland, CA 94612, or at
such other place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal sum
of $80,260.00, with interest thereon as set forth herein.
INTEREST/FEES:
(a) Interest. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) .75000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is
announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable
on the 15th day of each month, commencing May 15, 1996.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on
the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
(d) Collection of Payments. Borrower authorizes Bank to collect all
principal and interest due hereunder by charging Borrower's demand deposit
account number 4121-089916 with Bank, or any other demand deposit account
maintained by any Borrower with Bank, for the full amount thereof. Should there
be insufficient funds in any such demand deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
REPAYMENT AND PREPAYMENT:
(a) Repayment. Principal shall be payable on the 15th day of each month
in installments of $1,672.08 each, commencing May 15, 1996, and continuing up
to and including April 15, 2000, with a final installment consisting of all
remaining unpaid principal due and payable in full on May 15, 2000.
(b) Prepayment. Borrower may prepay principal on this Note at any time,
in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this
Note, or any defined event of default under any loan agreement now or at any
time hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note, shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal, interest,
fees and charges outstanding hereunder to be immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
expressly waived by each Borrower, and the obligation, if any, of the holder to
extend any further credit hereunder shall immediately cease and terminate. Each
Borrower shall pay to the holder immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of the
holder's in-house counsel), incurred by the holder in connection with the
enforcement of the holder's rights and/or the collection of any amounts which
become due to the holder under this Note, and the prosecution or defense of any
action in any way related to this Note, including without limitation, any
action for declaratory relief, and including any of the foregoing incurred
in connection with any bankruptcy proceeding relating to any Borrower.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which cash such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
Term Note, Prime Rate; Unsecured (EXPDOCS), Page 1
<PAGE> 21
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
DAMERT COMPANY
By: /s/ Fred DaMert
----------------------------
Title: President
-------------------------
Term Note, Prime Rate; Unsecured (EXPDOCS), Page 2
<PAGE> 22
Exhibit C
WELLS FARGO BANK PROMISSORY NOTE
- --------------------------------------------------------------------------------
$400,000.00 OAKLAND, CALIFORNIA
DECEMBER 15, 1998
FOR VALUE RECEIVED, the undersigned DAMERT COMPANY ("Borrower") promises
to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at EAST BAY RCBO, ONE KAISER PLAZA SUITE 850, OAKLAND, CA 94612, or at
such other place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal sum
of $400,000.00 with interest thereon as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum 3.75000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is
announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable
on the 15th day of each month, commencing JANUARY 15, 1999.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
REPAYMENT AND PREPAYMENT:
(a) Repayment. The outstanding principal balance of this Note shall be
due and payable in full on JANUARY 31, 1999.
(b) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
(c) Prepayment. Borrower may prepay principal on this Note at any time,
in any amount and without penalty.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner
and/or joint venturer referred to herein as a "Third Part Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they
become due; or any attachment or like levy on any property of any Borrower or
Third Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, and purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
FIXED MATURITY PROMISSORY NOTE (08/96) Page 1
02677, #1861417241
<PAGE> 23
(g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel),
expended or incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
DAMERT COMPANY
By:
----------------------------------
FREDERICK A. DAMERT
CHAIRMAN OF THE BOARD
Fixed Maturity Promissory Note (08/96) Page 2
02677, #1861417241
<PAGE> 1
Exhibit: 10.4FT
CONFIDENTIALITY AGREEMENT
This Agreement is made as of September 2, 1997, by and between Futech
Education Products, Inc., ("Futech") and the undersigned ("Recipient").
Futech has developed or otherwise obtained certain confidential
information and proprietary technology to, among other things, electronic books.
Recipient wishes to negotiate with respect to, and possibly enter into, a
business relationship with Futech. However, in order to do so, it is necessary
that Recipient be made aware of confidential information and propriety
technology belonging to Futech. Futech does not wish to lose the confidentiality
or diminish its rights in the confidential information and technology, and
requires assurances that its rights there will not be diminished or impaired by
virtue of dealing with Recipient. In consideration of being made aware of the
confidential information and proprietary technology, RECIPIENT THEREFORE AGREES
AS FOLLOWS:
1. "Technology" means concepts, inventions, technological developments
and improvements, mask works, methods, techniques, systems, documentation, data
and information (irrespective of whether in human or machine-readable form),
works of authorship, and products, whether or not patentable, copyrightable or
susceptible to any other form of protection and whether or not reduced to
practice.
2. "Confidential Information" means any and all Technology and/or
information which: (i) is provided to Recipient by Futech, (ii) is created,
developed, or otherwise generated by or on behalf of Futech, (iii) concerns or
relates to any aspect of Futech's business, or (iv) is, for any reason,
identified by Futech as confidential; except such information which Recipient
can show, clearly and convincingly: (a) publicly and openly known and in the
public domain, (b) becomes publicly and openly known and in the public domain
through no fault of Recipient, or (c) is in Recipient's possession and
documented prior to this agreement, lawfully obtained by Recipient from a source
other than from Futech, and not subject to any obligation of confidentiality or
restrictions on use.
3. All Confidential Information and all Technology embodying or
comprising Confidential Information is and shall be the sole and exclusive
property of Futech. Any Technology embodying or derived from the Confidential
Information, or conceived or first made in connection with the business
relationship shall likewise be the sole and exclusive property of Futech.
Recipient shall not take or cause any action which would be inconsistent with or
tend to diminish or impair Futech's rights in the Confidential Information.
Recipient shall not, directly or indirectly, print, copy or otherwise reproduce,
in whole or in part, or embody in any product, any Confidential Information
without Futech's prior consent.
4. Confidential Information is revealed to Recipient in strict
confidence, and solely for the purpose of assessing (and perhaps performing
under) the business relationship. Recipient shall not use, or induce others to
use, any Confidential Information for any other purpose whatsoever, nor shall it
disclose or reveal any Confidential Information to anyone except those of
Recipients employees directly involved in the business relationship, with a
specific need to know, and who have first agreed to be bound by the terms of
this agreement. Recipient acknowledges that in view of the nature of the
Confidential Information, the geographical scope (universal), temporal scope (so
long as information qualifies as Confidential Information hereunder), and scope
of restriction on use and disclosure are reasonable. Recipient also acknowledges
that any unauthorized disclosure or use of Confidential Information would cause
Futech immediate and irreparable injury or loss.
<PAGE> 2
5. Upon Futech's request, Recipient will deliver over to Futech all
Confidential Information as well as all documents, media, items and Technology
comprising, embodying, or relating to the Confidential Information, as well as
any other documents or things belonging to Futech that may be in Recipient's
possession. Recipient shall not retain any copies.
6. This agreement may be amended only in writing signed by Futech, and
there are no other understandings, agreements, or representations, express or
implied. If any clause or provision of this agreement is or becomes illegal,
invalid, or unenforceable, such clause or provisions shall be interpreted as a
call for the protection of Futech's rights to the greatest extent which is
legal, valid, and enforceable, under such clause or provision cannot be so
interpreted, or a court of competent jurisdiction declines to permit such clause
or provision to be so interpreted, in which case such clause or provision shall
be severed and the remaining provisions of this agreement shall continue in full
force and effect. This agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, and jurisdiction and venue
over the parties and any dispute arising under or otherwise relating to this
agreement shall solely and exclusively be in Arizona.
RECIPIENT:
Address: 1522 E. Treasure Cove Drive, Gilbert, AZ 85234-2
By: /s/ Fred B. Gretsch
-----------------------------------------
Name: Fred B. Gretsch
-----------------------------------------
Title: --
-----------------------------------------
Date: 9/2/97
-----------------------------------------
<PAGE> 1
Exhibit: 10.4T
SECURITY INTEREST AGREEMENT (#4) August 20, 1991
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including payment of property and
income taxes, and
WHEREAS the Trudy Corp needs additional cash, and has to date been unable to
secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $30,000
(thirty thousand dollars) via his check # 855 for deposit into the Company's
account 820-817-414,
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on November 1, 1991. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham 9/16/91
for Trudy Corp
<PAGE> 1
Exhibit: 10.4(A)FD
FUNDEX GAMES, LTD.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. The purpose of this 1996 Stock Option Plan for Non-Employee
Directors ("PLAN") of FUNDEX GAMES, LTD., (the "COMPANY"), a Nevada corporation,
is to encourage stock ownership by nonemployee directors ("DIRECTORS" or a
"DIRECTOR") by providing them a means to acquire a proprietary interest in the
Company, thereby advancing the interests of the Company by encouraging and
enabling the acquisition of its stock by Directors whose judgment and ability
are relied upon by the Company for the attainment of its long term growth and
development. Accordingly, the Plan is intended to promote a close identity of
interests among the Company, the Directors and its shareholders, as well as to
provide a means to attract and retain well-qualified Directors.
2. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective as of
the date of the adoption of the Plan by the Company's Board of Directors,
subject to the approval of the Company's shareholders within 12 months before or
after the date the Plan is adopted; provided, however, that Options may be
granted pursuant to the Plan prior to such shareholder approval subject to
subsequent approval of the Plan by such shareholders. The Plan shall remain in
effect for ten years from such date (October 4, 1996), or until earlier
termination by the Board of Directors of the Company (the "BOARD"), whichever
occurs first.
3. STOCK SUBJECT TO THE PLAN. There are authorized for issuance or
delivery upon the exercise of options to be granted from time to time under the
Plan an aggregate of 50,000 shares of the Company's common stock, $.001 par
value ("COMMON STOCK"), subject to adjustment as provided hereinafter in Section
8. Such shares may be, as a whole or in part, authorized but unissued shares,
whether now or hereafter authorized, or issued shares which have been reacquired
by the Company. If any option issued under this Plan shall expire, terminate or
be cancelled for any reason without having been exercised in full, the shares of
Common Stock which have not been purchased thereunder shall again become
available for the purposes of this Plan.
4. PLAN ADMINISTRATION:
(a) The Plan shall be administered by the Compensation Committee
(the "COMMITTEE"), which shall consist of at least two Directors
appointed by the Board.
(b) The Committee shall have full and final authority to interpret
the Plan, adopt, amend and rescind rules and regulations relating to the
Plan, and make all other determinations and take all other actions
necessary and advisable for the administration of the Plan.
(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be
conclusive. No member of the Committee shall be liable for any action
taken or decision made in good faith relating to this Plan or any grant
hereunder.
<PAGE> 2
(d) An administrator of the Plan (the "ADMINISTRATOR") may from
time to time be appointed by the Committee. If appointed, the
Administrator shall be responsible for the general administration of the
Plan under the policy guidance of the Committee. The Administrator shall
be in the employ of the Company, and shall be compensated for services
and expenses by the Company according to its normal employment policies
without special or additional compensation, other than reimbursement of
expenses, if any, for his or her services as the Administrator.
5. TERMS AND CONDITIONS OF "FORMULA" STOCK OPTION AWARDS. Each Director
shall receive a non-qualified stock option in accordance with the terms and
conditions of this Section 5 and Section 6.
(a) INITIAL GRANTS UPON APPOINTMENT TO THE BOARD OF DIRECTORS.
Each person who is first elected or appointed to serve as a Director
following the effective date of this Plan shall be granted a
non-qualified stock option as of the first business day following the
Director's election or appointment to purchase 2,000 shares of Common
Stock at an exercise price equal to the then Fair Market Value (as
defined in Section 5(d)) per share of Common Stock.
(b) SUBSEQUENT GRANTS DURING TENURE AS A DIRECTOR. Each Director
shall be granted, as of the first business day of each fiscal year of the
Company beginning after the effective date of this Plan, a non-qualified
stock option to purchase 2,000 shares of Common Stock at an exercise
price equal to the then Fair Market Value (as defined in Section 5(d))
per share of Common Stock.
(c) CONDITIONS TO GRANTS. Options awarded pursuant to this Section
5 shall be subject to such additional terms as set forth in a
non-qualified stock option agreement as approved by the Committee and
incorporated herein by reference.
(d) FAIR MARKET VALUE. "Fair Market Value" with regard to any date
means the closing price at which a share of Common Stock shall have been
sold on that date as reported by the NASDAQ Stock Market (or, if
applicable, as reported by a national securities exchange selected by the
Committee on which the shares of Common Stock are then actively traded)
and published in The Wall Street Journal. If at the time of the
determination of Fair Market Value shares of Common Stock are not
actively traded on any market described above, Fair Market Value means
the fair market value of a share of Common Stock as determined by the
Committee taking into account such facts and circumstances deemed to be
material by the Committee to the value of the Common Stock in the hands
of the Director.
6. GENERAL TERMS AND CONDITIONS OF OPTIONS. Options awarded under Section
5 shall be subject to the following additional terms and conditions.
(a) TERM AND EXERCISE OF OPTION. Options may be exercised only by
written notice to the Company. Payment for all shares of Common Stock
purchased pursuant to exercise of an option shall be made (i) in cash;
(ii) by delivery to the Company of a number of shares of Common Stock
which have been beneficially owned by the Director for at least six (6)
months prior to the date of exercise having an aggregate Fair Market
Value of not less than the product of the exercise price multiplied by
the number of shares the participant intends to purchase upon exercise of
the option on the date of delivery; or (iii)
<PAGE> 3
in a cashless exercise through a broker. Payment shall be made at the
time that the option or any part thereof is exercised, and no shares
shall be issued or delivered upon exercise of an option until full
payment has been made by the participant. No option granted under the
Plan may be exercised before the expiration of the fiscal year for which
it was granted; provided, however, that any option granted under the
Plan shall become immediately exercisable upon the retirement of the
Director because of age, death or disability. No option granted under the
Plan shall be exercisable after the expiration of ten (10) years from the
date upon which it is granted. Each option shall be subject to
termination before its date of expiration as provided in Section 6(b).
(b) DEATH OF DIRECTOR. Any option granted to a Director and
outstanding on the date of his or her death may be exercised by the
administrator of such Director's estate, the executor under his or her
will, or the person or persons to whom the option shall have been validly
transferred by such executor or administrator pursuant to the will or
laws of intestate succession, but not beyond the first to occur of (i)
the first anniversary of the Director's death, or (ii) the specified
expiration date of the option; provided, however, that an option that is
not exercised prior to the first anniversary of the Director's death
shall be deemed exercised on the first anniversary of the date of death
to the extent the then aggregate Fair Market Value of the shares subject
to the option exceeds the aggregate Option Exercise Price and payment of
such exercise price shall be effected by withholding a number of shares
of Common Stock otherwise issuable pursuant to the option the Fair Market
Value of which on such anniversary is equal to the exercise price. If the
Fair Market Value of the Stock on the first anniversary of the Directors
death equals or is less than the option exercise price, then the option
shall be deemed to have expired unexercised.
7. CHANGES IN CAPITALIZATION. If the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities, or if additional shares of other property (other than
ordinary cash dividends) are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, dividend, stock split, reverse stock split,
spin-off, split-off or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment shall be
made in (i) the maximum number and kind of shares reserved for issuance under
the Plan, (ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan, and (iii) the price for each share subject
to any then outstanding options under the Plan. No fractional shares will be
issued under the Plan on account of any such adjustments. Any adjustment
pursuant to this Section 7 shall provide for the elimination without payment
therefor of any fractional shares. No such adjustment shall be made with respect
to the Company's reincorporation as a Nevada corporation in connection with its
initial public offering.
8. LIMITATION OF RIGHTS:
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option, nor any other action taken pursuant to the Plan,
shall constitute evidence of any agreement or understanding, express or
implied, that the Company will retain a Director as a director for any
period of time, or at any particular rate of compensation.
<PAGE> 4
(b) NO SHAREHOLDERS RIGHTS FOR OPTIONS. The holder of an option
granted under the Plan shall have no rights as a shareholder with respect
to the shares covered by his or her options until the date of the
issuance to such holder of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
(c) NO RIGHT TO PARTICIPATE AS AN EMPLOYEE DIRECTOR. A Director's
right to participate in the Plan shall automatically terminate if and
when a Director becomes an employee of the Company.
9. TRANSFERABILITY:
(a) Options are not transferable other than by will or the laws of
intestate succession. No transfer by will or by the laws of intestate
succession shall be effective to bind the Company unless the Committee
shall have been furnished with a copy of the deceased participant's will
or such other evidence as the Committee may deem necessary to establish
the validity of the transfer.
(b) Only a Director, or in the event of disability, his or her
guardian, or in the event of death, his or her legal representative or
beneficiary, may exercise options and receive deliveries of shares.
(c) A Director or his transferee upon his death may not transfer
any Option or any of the Common Stock acquired pursuant to the exercise
of an Option until six months from the date of grant of the Option.
10. AMENDMENT, MODIFICATION AND TERMINATION. The Board at any time may
terminate and in any respect amend or modify the Plan; provided, however, that
no such action by the Board, without approval of the Company's shareholders, may
(i) increase the total number of shares of Common Stock available under the Plan
in the aggregate (except as otherwise provided in Section 7 above), (ii) extend
the period during which any option may be exercised, (iii) extend the term of
the Plan, (iv) change any option exercise price or (v) alter the class of
persons eligible to receive options. No amendment, modification or termination
of the Plan shall in any manner adversely affect the rights of any Director with
respect to an option previously granted. Notwithstanding any other provision of
this Plan, the provisions of Section 5 may not be amended more than once every
six months, other than to conform it with changes in the Internal Revenue Code
of 1986, as amended, the Employee Retirement Income Security Act of 1974, or any
rules under either of the foregoing.
11. NOTICE. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Corporate Secretary of the
Company and shall become effective when it is received.
12. RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS. Each option is
subject to the condition that if at any time the Committee, in its discretion,
shall determine that the listing, registration or qualification of the shares
covered by such option upon any securities exchange or under any state or
federal law is necessary or desirable as a condition of or in connection with
the granting of such option or the purchase or delivery of shares thereunder,
the delivery of any or all shares pursuant to such option may be withheld
<PAGE> 5
unless and until such listing, registration or qualification shall have been
effected. If a registration statement is not in effect under the Securities Act
of 1933 or any applicable state securities laws with respect to the shares of
Common Stock purchasable or otherwise deliverable under options then
outstanding, the Committee may require, as a condition of exercise of any option
or as a condition to any other delivery of Common Stock pursuant to an option,
that the Director represent, in writing, that the shares received pursuant to
the option are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities laws. The Company
may include on certificates representing shares issued pursuant to an option
such legends referring to the foregoing representations or restrictions or any
other applicable restrictions on resale as the Company, in its discretion, shall
deem appropriate.
<PAGE> 1
Exhibit: 10.4(B)FD
FUNDEX GAMES, LTD.
1996 STOCK OPTION PLAN
FOR
NON-EMPLOYEE DIRECTORS
NONSTATUTORY STOCK OPTION AGREEMENT
FUNDEX GAMES, LTD., a Nevada corporation (the "COMPANY"), hereby grants
to Sheldon Drobny (the "OPTIONEE") an option to purchase a total of Two Thousand
(2,000) shares of Common Stock (the "SHARES") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1996 Stock Option Plan (the "PLAN") applicable to nonstatutory stock
options which terms and provisions are hereby incorporated by reference herein.
Unless otherwise defined or the context herein otherwise requires, capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1. NATURE OF THE OPTION. This Option is intended to be a nonstatutory
stock option and is NOT intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), or to otherwise qualify for any special tax benefits to the Optionee.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of October
24, 1997 ("OPTION GRANT DATE"), and it may not be exercised later than October
3, 2006.
3. OPTION EXERCISE PRICE. The Option exercise price is $4.00 per Share,
which price is not less than 85% of the fair market value thereof on the date
this Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. This Option shall vest and be exercisable
on the first anniversary of the Option Grant Date.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise this Option,
the number of Shares in respect to which this Option is being exercised,
such other representations and agreements as to the Optionee's investment
intent with respect to such Shares as may be required by the Company
hereunder or pursuant to the provisions of the Plan. Such written notice
shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company or such other person as
may be designated by the Company. The written notice shall be accompanied
by payment of the exercise price and by an executed Stock Purchase
Agreement if required by the Company. Payment of the exercise price shall
be by cash or by check or by such other method of payment as is
authorized by the Board in accordance with the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised
shall be registered in the name of the Optionee and shall be legended as
set forth in the Plan, and/or as required under applicable law. This
Option may not be exercised for a fraction of a Share.
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if
the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other
laws or regulations. As a condition to the exercise of this Option, the
Company may require the Optionee to make such representations and
warranties to the Company as may be required by any applicable law or
regulation.
<PAGE> 2
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No rights
as a shareholder shall exist with respect to the Shares subject to the
Option as a result of the grant of the Option. Such rights shall exist
only after issuance of a stock certificate in accordance with Section 8
(d) (i) of the Plan following the exercise of the Option as provided in
this Agreement and the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of
this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale
in connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or
controlling persons and by reason of his business or financial
experience, has, and could be reasonably assumed to have, the capacity to
evaluate the merits and risks of purchasing Common stock of the Company
and to make an informed investment decision with respect thereto and to
protect Optionee's interests in connection with the acquisition of this
Option and the Shares.
6. TERMINATION OF STATUS AS DIRECTOR. This option shall terminate prior
to the expiration of its term as follows:
(a) One (1) year after you cease to be a Non-Employee Director (as
defined in the Plan) of the Company for any reason other than Termination
For Cause. In the event you become disabled or die while you are, or
within one (1) year after you cease to be, a NonEmployee Director of the
Company, you or your estate or your personal representative may exercise
the option prior to the time such option terminates as provided in the
preceding sentence.
(b) If you cease to be Non-Employee Director for cause, as
determined by the Company's Board of Directors in its sole discretion,
you shall cease to have any right to exercise any option upon such
termination.
7. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution or a transfer between spouses
incident to a "divorce" within the meaning of Section 1041(a) of the Code, and
may be exercised during the lifetime of the Optionee only by such Optionee or
his or her legal guardian. Subject to the foregoing and the terms of the Plan,
the terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
8. CONTINUATION AS DIRECTOR. Neither this Option, the Plan nor any Option
granted thereunder shall confer upon the Optionee any right whatsoever to
continue as Director of the Company or any of its Subsidiaries for any period of
time, or at any particular rate of compensation.
9. WITHHOLDING. The Company reserves the right to withhold, in accordance
with any applicable laws, from any consideration or other amounts payable to the
Optionee any taxes
<PAGE> 3
required to be withheld by federal, state or local law as a result of the grant
or exercise of this Option or the sale or other disposition of the Shares issued
upon exercise of this Option.
10. THE PLAN. This Option is subject to, and the Company and the Optionee
agree to be bound by, all of the terms and conditions of the Company's Plan as
such Plan may be amended from time to time in accordance with the terms thereof,
provided that no such amendment shall deprive the Optionee, without his consent,
of this Option or any rights hereunder. Pursuant to the Plan, the Board is
authorized to adopt rules and regulations not inconsistent with the Plan as it
shall deem appropriate and proper. A copy of the Plan in its present form is
available for inspection at the Company's principal office during business hours
by the Optionee or the persons entitled to exercise this Option.
11. ENTIRE AGREEMENT. The terms of this Agreement and the Plan constitute
the entire agreement between the Company and the Optionee with respect to the
subject matter hereof and supersede any and all previous agreements between the
Company and the Optionee.
FUNDEX GAMES, LTD., a Nevada corporation
Date: By:
Title:
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to and agrees to be bound by all of the terms and provisions of
the Plan and of this Agreement.
Date:
Signature of Optionee
Address
City State Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE> 1
Exhibit: 10.4D
CORPORATION PROMISSORY NOTE
$58,849.44 July 1, 1987
THE DAMERT COMPANY, a corporation organized and existing under the laws
of the State of California with the principal office for the transaction of its
business located in Oakland, County of Alameda, State of California, promises to
pay FREDERICK A. DA MERT, the sum of FIFTY EIGHT THOUSAND EIGHT HUNDRED FORTY
NINE and 44/100ths dollars ($58,849.44), payable only in lawful money of the
United States of America, for value received, with interest thereon at the rate
of nine percent (9%) per year from date until paid, interest payable in
installments of Four Hundred Forty-One and 37/100ths dollars ($441.37)
commencing August 1, 1987.
Should interest not be so paid it shall thereafter bear like interest as
the principal, but such unpaid interest so compounded shall not exceed an amount
equal to simple interest on the unpaid principal at the maximum rate permitted
by law.
<PAGE> 2
Should default be made in payment of interest when due the whole sum of
principal and interest shall become immediately due at the option of the holder
of this note. Principal and interest payable in lawful money of the United
States. If action be instituted on this note I promise to pay such sum as the
Court may fix as attorney's fees.
This promissory note may be prepaid in whole or in part at any time prior
to maturity without penalty.
THE DA MERT COMPANY
By /s/ Fred DaMert
-------------------------------------
President
and /s/ Lynne McDonald
------------------------------------
Secretary
18 June 1992
This document replaces the original which has been lost. The
wording, terms and amounts are the same as the original.
THE DA MERT COMPANY
By /s/ Fred DaMert 6/18/92
------------------------------------- --------------
President Date
and /s/ Lynne McDonald 6/18/92
------------------------------------ --------------
Secretary Date
<PAGE> 3
DAMERT COMPANY
Notes to Financial Statements
December 31, 1996, and 1995
4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NOTES PAYABLE TO STOCKHOLDER IN MONTHLY
PAYMENTS OF INTEREST ONLY AT 9%, UNSECURED $128,849 $ 58,849
Equipment notes payable in monthly
installments of $1,672, plus interest
at 9%, secured by equipment 66,883 4,755
-------- --------
195,732 63,604
Less current maturity of long-term debt 20,065 4,755
-------- --------
$175,667 $ 58,849
======== ========
</TABLE>
The anticipated principal payments required on the Company's
long-term debt during the next four fiscal years are: 1997 - $20,065; 1998
- $20,065; 1999 -$20,065; 2000 - $6,688; and thereafter - $128,849.
Interest expense incurred was $146,680 in 1996 and $100,253 in 1995.
5. Operating Leases
The Company leased its prior facilities under an agreement which
expired December 31, 1995. The Company's base monthly net rent was $9,965
in 1995, plus taxes and utilities. The Company leased new facilities
December 1, 1995. The lease term is for six years with one six-year
extension option. Base monthly rent for the initial six-year term fixed at
$23,295. Rent for the option period shall be set at the then fair market
rental rate for a similar industrial gross lease. In addition to the base
rent, the Company is liable for its share of any increase in operating
cost over the base year operating expenses.
During the years ended December 31, 1996, and 1995, total rent
expense was approximately $279,540 and $158,400, respectively.
Future minimum payments on the Company's facilities lease are
$279,540 for 1996 through 2000 and $256,245 for 2001.
-9-
<PAGE> 1
Exhibit: 10.5FT
FUTECH INTERACTIVE PRODUCTS, INC.
EMPLOYMENT CONTRACT
DATED AS OF SEPTEMBER 2,1997
The following sets forth the agreement by and between Fred B. Gretsch
("Employee") and Futech Interactive Products ("Futech"), Inc., as to the
employment of the Employee by Futech.
1. Positions and Duties. Futech shall employ Employee and Employee shall accept
employment from Futech, during the term of this agreement, upon the terms and
subject to the conditions set forth below. Employee's duties as Chief Financial
Officer shall be subject to the direction and control of Futech's Chairman and
Chief Executive Officer, Vincent W. Goett or his designee.
2. Outside Activities. At all times during the term of this Agreement the
Employee shall devote his full energies, interest, abilities and productive time
to the performance of his duties and responsibilities hereunder. Unless Employee
obtains the prior written consent of Futech, Employee shall not render to others
services of any kind for compensation, or directly or indirectly engage in any
other business activity or own any interest in any enterprise which is engaged
in any business or activity that is similar to that carried on or proposed to be
carried on by Futech.
3. Confidentiality Agreements. The obligations of the Employee and the rights of
Futech set forth herein are in addition to those set forth in a certain Employee
Confidentiality Agreement annexed hereto, which is being executed by the
Employee simultaneously with the execution hereof (the "Confidentiality
Agreement").
4. Representations and Warranties. Employee represents and warrants to and
covenants with Futech, that (a) he has furnished to Futech a true and correct
copy of any agreements with any prior employer in the securities industry and is
subject to no contractual or other restriction or obligation which is
inconsistent with the execution of this letter agreement, the performance of his
duties hereunder, any rights of Futech hereunder or under the Confidentiality
Agreement, (b) upon information and belief, there are no regulatory,
self-regulatory, administrative, civil or criminal matters past or present,
affecting the employment of Employee by Futech.
5. Salary. Employee will receive a salary of $9167.00 per month for the first
four months of employment and no less than $125,000 per year, effective January
1, 1998, for the second and third years of employment. Such salary shall be
payable in equal periodic installments in accordance with Futech's usual
practice, but not less frequently than twice monthly, and shall be subject to
payroll and withholding deductions as may be required by law.
6. Benefits. During the term of his employment, Employee shall be eligible to
participate in, subject to their respective terms, all Futech employee (i) group
medical, hospitalization and life insurance plans, (ii) pension and profit
sharing plans, and (iii) other benefit plans or programs. Futech shall pay or
reimburse Employee for all out-of-pocket expenses for travel, meals, hotel
accommodations and the like reasonably incurred by him in accordance with
Futech's policies and directives (including any required prior approvals) for
such expenses in connection with the performance of Futech's business, each such
payment for reimbursement to be made upon submission of a statement documenting
such expenses as required by Futech. During the term of this letter agreement,
Employee shall be entitled to an annual paid vacation of such period as may be
established from time to time by Futech for its managerial employees generally.
<PAGE> 2
7. Term. The term of this letter agreement shall commence on September 2, 1997
and shall continue in effect as to Employee until December 31, 2000 or until
such time as terminated as provided in paragraph 8, 9, 10 and 11. Upon
termination of this agreement pursuant to paragraph 8 or 9, Futech's sole
obligation to Employee shall be to pay all salary and stock options accrued by
him up to the date of such termination. Upon termination of this agreement,
Employee's obligations under the Confidentiality Agreement shall survive.
8. Termination upon Death. In the event of the death of Employee, the employment
of, and this agreement with respect to, such deceased Employee shall be
terminated; provided always that Futech shall pay any accrued salary and any
accrued stock options as of the date of termination to the legal representative
of his estate.
9. Termination for Disability. Futech may terminate the employment of, and this
Agreement with respect to, Employee who becomes disabled, including disability
by reason of any emotional or mental disorders, physical diseases or injuries,
and as a result of such disability is unable to work on a full-time basis for a
continuous period of six months or more or any six months in a twelve month
period. Upon such termination, Futech shall have no further liability to such
disabled Employee hereunder, except to pay any accrued salary and accrued stock
options as of the termination date. Upon such termination, such disabled
Employee's obligation to Futech under the Confidentiality Agreement shall
survive.
10. Termination of Cause. Futech may terminate the employment of, and this
agreement with respect to, Employee if (a) such Employee breaches his fiduciary
duties to Futech or is guilty of fraud or willful malfeasance, (b) such Employee
materially breaches any representation, warranty, covenant or agreement
contained in this agreement or fails to perform any of this obligations under
this agreement or duties assigned to him pursuant to his agreement within 10
days after Futech has given written notice to such Employee of such failure, (c)
if Employee materially misrepresents any statement to Futech, (d) such Employee
is convicted of a crime involving moral turpitude or a felony, (e) such Employee
knowingly commits a material violation of any law, rule, regulation or by-law of
a securities exchange or association or other regulatory or self-regulatory body
or agency applicable to or any general policy or directive of Futech
communicated in writing to such Employee, (f) such Employee fails to follow
reasonable instructions and/or policies of Futech's Chairman of the Board and
Chief Executive Officer, or (g) such Employee terminates this Agreement at any
time.
Upon termination of this letter agreement pursuant to this paragraph
10, Futech's sole obligation to Employee shall be to pay all accrued salary.
However, this shall not affect Employee's vested benefits under paragraph 6.
Upon such termination, Employee's obligation to Futech under the
Confidentiality Agreement shall survive.
11. Termination Other than for Cause. Futech retains the right to terminate this
agreement and/or Employee's employment for cause as set forth in paragraph 10,
and notwithstanding anything to the contrary in this letter agreement, Futech
shall have the right to terminate this agreement and/or Employee's employment
hereunder at any time for any reason other than for cause. In such event Futech
shall pay to Employee all salary as it accrued during the term of the contract,
subject however to Employee's obligation to look for and obtain suitable
employment. Upon Employee obtaining such employment, Futech's obligation under
this paragraph 11 shall cease. However, Employee's obligation to Futech under
the Confidentiality Agreement shall survive.
<PAGE> 3
12. Review. On January 1, 1998 and on each of the two subsequent six month
periods thereafter during the term of employment, Vincent W. Goett shall provide
Employee with an informal verbal review of the Employee's performance.
Concurrent with the third semi-annual verbal review of the performance Vincent
W. Goett and Employee shall discuss the potential for Employee's continued
employment subsequent to the termination of this Agreement.
13. Successors and Assigns. The rights and obligations of Futech hereunder shall
inure to the benefit of and shall be binding upon the successors and assigns of
Futech; provided, however, that Futech's obligations or liabilities hereunder
may not be assigned without the prior written approval of Employee, except to an
affiliate of Futech (which assignment shall not release Futech from its
obligations to Employee hereunder) or to a successor to all or substantially all
of Futech's assets, business or stock that agrees to be bound hereby. This
letter agreement is personal to the Employee and may not be assigned.
14. Amendment or Waiver. This letter agreement may not be amended or modified
except by an agreement in writing duly executed by the Chairman and Chief
Executive Officer of Futech and the Employee. The failure of Futech, on the one
hand, or the Employee, on the other hand, at any time to enforce performance by
the other of any provision of this letter agreement shall in no way affect
Futech's or the Employee's, as the case may be, rights thereafter to enforce the
same, nor shall the waiver by Futech, on the one hand, or the Employee, on the
other hand, of any breach of any provision hereof be deemed to be a waiver by
Futech or the Employee, as the case may be, of any other breach of the same or
any other provision hereof.
15. Arbitration. Except as set forth in the Confidentiality Agreement, any
controversy or claim arising out of or relating to this agreement, or the breach
hereof, shall be settled in Arizona by arbitration in accordance with the rules
of the American Arbitration Association. Judgment upon the award of the
arbitrator(s) may be entered in any court having jurisdiction thereof.
16. Miscellaneous. The invalidity or unenforceability of any provision of this
letter agreement shall not affect the validity or enforceability of any other
provision hereof. This letter agreement shall be constructed, interpreted and
enforced in accordance with the laws of the state of Arizona. This letter
agreement contains all of the terms and conditions agreed to by the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, except those set forth in the Confidentiality
Agreement.
FOREGOING AGREED TO:
By: /s/ Vincent W. Goett By: /s/ Fred B. Gretsch
- ------------------------ -----------------------
Vincent W. Goett Fred B. Gretsch
Chairman and Chief Executive Officer
Futech Educational Products, Inc.
<PAGE> 1
Exhibit: 10.5T
SECURITY INTEREST AGREEMENT (#5) September 5, 1991
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including payment of property and
income taxes, and
WHEREAS the Trudy Corp needs additional cash, and has to date been unable to
secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $30,000
(thirty thousand dollars) via his check # 858 for deposit into the Company's
account 820-817-414,
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on November 1, 1991. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham 9/16/91
for Trudy Corp
<PAGE> 1
Exhibit: 10.5FD
FUNDEX GAMES, LTD.
1996 EMPLOYEE STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1996 Employee Stock
Option Plan (the "Plan") are to attract and retain the best available personnel,
to provide additional incentive to the Employees of the Company and its
Subsidiaries, to promote the success of the Company's business and to enable the
Employees to share in the growth and prosperity of the Company by providing them
with an opportunity to purchase stock in the Company.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written stock option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "AFFILIATE" shall mean any entity that directly, or
indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Company.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time. References in the Plan to any section of the
Code shall be deemed to include any amendment or successor provisions
to such section and any regulations issued under such section.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean Fundex Games, Ltd., a Nevada
corporation.
(f) "COMMITTEE" shall mean the Committee appointed by the
Board in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "CONTINUOUS EMPLOYMENT" OR "CONTINUOUS STATUS AS AN
EMPLOYEE" shall mean the absence of any interruption or termination of
employment or service as an Employee by or to the Company or any Parent
or Subsidiary of the Company which now exists or is hereafter organized
or acquired by or acquires the Company. Continuous Employment shall not
be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Board or in the case of
transfers between locations of the Company or between the Company, its
Parent, or any of its Subsidiaries or its successors.
(h) "DISABILITY" shall mean the inability of the Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or has lasted or can be expected to last for a
continuous period of not less than 12 months. In determining the
Disability of an Optionee, the Board may require the Optionee to
furnish proof of the existence of Disability and may select a physician
to examine the Optionee. The final determination as to the Disability
of the Optionee shall be made by the Board.
<PAGE> 2
(i) "DISINTERESTED PERSON" shall mean an administrator of the Plan
who, during the one year prior to service as an administrator of the
Plan, has not been granted or awarded and, during such service, is not
granted or awarded stock, stock options or stock appreciation rights
pursuant to the Plan or any other plan of the Company or any of its
Affiliates entitling the participants therein to acquire stock, stock
options or stock appreciation rights of the Company or any Affiliates,
except for any plan under which the award of stock, stock options or
stock appreciation rights is not subject to the discretion of any person
or persons. The term "DISINTERESTED PERSON" shall be interpreted in a
manner consistent with the meaning of such term under Rule 16b-3
promulgated by the Securities and Exchange Commission under the Exchange
Act.
(j) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company, its Parent, any of its Subsidiaries
or its successors. A person shall not be deemed to be employed by the
Company merely because such person is a member of the Board of Directors
of the Company or a consultant to the Company.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended
(l) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code.
(m) "NONSTATUTORY STOCK OPTION" shall mean an Option which is not
an Incentive Stock Option.
(n) "OPTION" shall mean a stock option granted pursuant to the
Plan evidencing the grant of a right to an Employee pursuant to the Plan
to purchase a specified number of Shares at a specified exercise price.
(o) "OPTION AGREEMENT" shall mean a written agreement
substantially in one of the forms attached hereto as Exhibit A, or such
other form or forms as the Board (subject to the terms and conditions of
this Plan) may from time to time approve, evidencing and reflecting the
terms of an Option.
(p) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(q) "OPTIONEE" shall mean an Employee who is granted an Option.
(r) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Sections 424 (e) and (g) of the Code.
(s) "PLAN" shall mean this 1996 Stock Option Plan.
(t) "SHARE" or "SHARES" shall mean shares of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(u) "STOCK PURCHASE AGREEMENT" shall mean an agreement
substantially in the form attached hereto as Exhibit B, or such other
form or forms as the Board (subject to the terms and conditions of this
Plan) may from time to time approve,
2
<PAGE> 3
which is to be executed as a condition of purchasing Optioned Stock upon
exercise of an Option.
(v) "SUBSIDIARY" shall mean a subsidiary corporation, whether now
or hereafter existing, as defined in Sections 424(f) and (g) of the Code.
(w) "TERMINATION FOR CAUSE" shall mean termination of employment
as a result of (i) any act or acts by the Optionee constituting a felony
under any federal, state or local law; (ii) the Optionee's willful and
continued failure to perform the duties assigned to him or her as an
Employee, (iii) any material breach by the Optionee of any agreement with
the Company concerning his or her employment or other understanding
concerning the terms and conditions of employment by the Company; (iv)
dishonesty, gross negligence or malfeasance by the Optionee in the
performance of his or her duties as an Employee or any conduct by the
Optionee which involves a material conflict of interest with any business
of the Company or Affiliate; or (v) the Optionee's taking or knowingly
omitting to take any other action or actions in the performance of
Optionee's duties as an Employee without informing appropriate members of
management to whom such Optionee reports, which action or actions, in the
determination of the Board, have caused or substantially contributed to
the material deterioration in the business or financial condition of the
Company or any Affiliate, taken as a whole.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
pursuant to the exercise of Options under the Plan is 300,000 Shares. The Shares
may be authorized, but unissued or reacquired Shares.
If an Option should expire or become unexercisable for any reason without
having been exercised in full or if the Company repurchases Shares from the
Optionee pursuant to the terms of a Stock Purchase Agreement, the unpurchased or
repurchased Shares, respectively, which were subject thereto shall, unless the
Plan shall have been terminated, return to the Plan and become available for
other Options under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board.
Members of the Board who are eligible for Options or have been granted Options
may vote on any matters affecting the administration of the Plan or the grant of
any Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option to himself or herself, but any such member may be counted
in determining the existence of a quorum at any meeting of the Board or
Committee during which action is taken with respect to the granting of Options
to him or her.
The Board may at any time appoint a Committee consisting of not less than
two persons to administer the Plan on behalf of the Board, subject to such terms
and conditions as the Board may prescribe. Members of the Committee shall serve
for such period of time as the Board may determine. From time to time the Board
may increase the size of the Committee and appoint additional members thereto,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan. In the event the Company has a
class of equity securities registered under Section 12 of the Exchange Act and
unless the Board
3
<PAGE> 4
determines otherwise, from the effective date of such registration until six
months after the termination of such registration, all grants of Options to
persons subject to the provisions of Section 16(b) of the Exchange Act during
any and all periods of time when all members of the Board do not qualify as
Disinterested Persons shall be made by, or only in accordance with the
recommendations of, a Committee of two or more persons having full authority to
act in the matter and all of whom are Disinterested Persons.
(b) POWERS OF THE BOARD. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options and Nonstatutory Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 7 of the Plan, the
fair market value per Share; (iii) to determine the terms and conditions of
vesting of Options, the exercise price of the Options and the consideration to
be paid for shares upon the exercise of Options (which exercise price and
consideration shall be determined in accordance with Section 7 of the Plan);
(iv) to determine the Employees to whom, and the time or times at which, Options
shall be granted, and the number of Shares to be subject to each Option; (v) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vi) to
determine the terms and provisions of each Option Agreement and each Stock
Purchase Agreement (each of which need not be identical with the terms of other
Options and Stock Purchase Agreements) and, with the consent of the holder
thereof, to modify or amend each Option and Stock Purchase Agreement; (vii) to
determine whether a stock repurchase agreement or other agreement will be
required to be executed by any Employee as a condition to the exercise of an
Option, and to determine the terms and provisions of any such agreement (which
need not be identical with the terms of any other such agreement) and, with the
consent of the Optionee, to amend any such agreement; (viii) to interpret the
Plan, the Option Agreements, the Stock Purchase Agreements or any agreement
entered into with respect to the grant or exercise of Options; (ix) to authorize
any person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted by the Board or to take
such other actions as may be necessary or appropriate with respect to the
Company's rights pursuant to Options or agreements relating to the grant or
exercise thereof; and (x) to make such other determinations and establish such
other procedures as it deems necessary or advisable for the administration of
the Plan.
(c) EFFECT OF THE BOARD'S DECISION. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionee's and any other holders of Options.
5. ELIGIBILITY. Options may be granted only to Employees (including
employees of the Company who are also directors of the Company). An Employee who
has been granted an Option may, if such Employee is otherwise eligible, be
granted additional Options.
6. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective as of
the date of the adoption of the Plan by the Company's Board of Directors subject
to the approval by the Company's shareholders within 12 months before or after
the date the Plan is adopted; provided, however, that Options may be granted
pursuant to the Plan prior to such shareholder approval subject to subsequent
approval of the Plan by such shareholders. The Plan shall continue in effect for
a term of ten years unless sooner terminated in accordance with the terms and
provisions of the Plan.
4
<PAGE> 5
7. OPTION PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The exercise price per Share for the
Shares to be issued pursuant to the exercise of a Nonstatutory Stock Option
shall be not less than 85% of the "fair market value" per Share, as described
below. The exercise price per Share for the Shares to be issued pursuant to the
exercise of an Incentive Option shall be the fair market value per Share.
However, with respect to both Incentive Stock Options and Nonstatutory Stock
Options, the exercise price shall be 110% of the fair market value per Share on
the date of grant in the case of any Optionee who, at the time the Option is
granted, owns stock (as determined under Section 424(d) of the Code) possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or its Parent or Subsidiaries.
(b) FAIR MARKET VALUE. The fair market value per Share on the
date of grant shall be determined by the Board in its sole discretion, exercised
in good faith; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the average of the
closing bid and asked prices of the Common Stock on the date of grant, as
reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotations
("NASDAQ") System), or, in the event the Common Stock is listed on a stock
exchange or on the NASDAQ Stock Market, the fair market value per Share shall be
the closing price on the exchange or on the NASDAQ Stock Market as of the date
of grant of the Option, as reported in THE WALL STREET JOURNAL.
(c) PAYMENT OF CONSIDERATION. The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board in its discretion on the date of grant
and may consist of cash, check, promissory notes or other forms of legally
permitted consideration if authorized by the Board in connection with the grant
of an Option.
8. OPTIONS.
(a) TERMS AND PROVISIONS OF OPTIONS. As provided in Section 4
of this Plan and subject to any limitations specified herein, the Board shall
have the authority to determine the terms and provisions of any Option granted
under the Plan or any agreement required to be executed in connection with the
grant or exercise of an Option. Each Option granted pursuant to this Plan shall
be evidenced by an Option Agreement. Options granted under the Plan are
conditioned upon the Company obtaining any required permit or order from
appropriate governmental agencies, authorizing the Company to issue such Options
and Shares issuable upon exercise thereof.
(b) NUMBER OF SHARES. Each Option Agreement shall state the
number of Shares to which it pertains and whether such Option is intended to
constitute an Incentive Stock Option or a Nonstatutory Stock Option. The maximum
number of Shares which may be awarded as Options under the Plan during any
calendar year to any Optionee is 50,000 Shares. If an Option held by an Employee
is canceled, the canceled Option shall continue to be counted against the
maximum number of Shares for which Options may be granted to such Employee and
any replacement Option granted to such Employee shall also count against such
limit.
(c) TERM OF OPTION. The term of each Option may be up to ten
years from the date of grant thereof, as determined by the Board upon the grant
of the Option and
5
<PAGE> 6
specified in the Option Agreement, except that the term of an Incentive Stock
Option granted to an Employee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent of the total combined
voting power of all classes of stock of the Company or its Parent or
Subsidiaries, shall not exceed five years from the date of grant thereof.
(d) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
option shall vest and become exercisable at such times, in such
installments and under such conditions as may be determined by the
Board, specified in the Option Agreement and as shall be
permissible under the terms of the Plan, including performance
criteria with respect to the Company and/or the Optionee, provided
that each Option shall vest and become exercisable at the rate of
not less than 20% per year over five years from the date such
Option is granted. An Option may be exercised in accordance with
the provisions of this Plan as to all or any portion of the Shares
then exercisable under an Option, from time to time during the
term of the Option. An Option may not be exercised for a fraction
of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company at its
principal business office in accordance with the terms of the
Option Agreement by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the Company, accompanied by an
executed Stock Purchase Agreement (including the attachments
thereto) substantially in the form of Exhibit B hereto and as may
be modified by the Board from time to time, and any other
agreements required by the terms of the Plan and/or the Option
Agreement. Full payment may consist of such consideration and
method of payment allowable under Section 7 of the Plan. Until the
Option is properly exercised in accordance with the terms of this
Section 8(d), no right to vote or to receive dividends or any
other rights as a shareholder shall exist with respect to the
Optioned Stock. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the
Option is exercised, except as provided in Section 10 of the Plan.
As soon as practicable after any proper exercise of an
Option in accordance with the provisions of the Plan, the Company
shall, without transfer or issue tax to the Optionee, deliver to
the Optionee at the principal executive office of the Company or
such other place as shall be mutually agreed upon between the
Company and the Optionee, a certificate or certificates
representing the Shares for which the Option shall have been
exercised. The time of issuance and delivery of the certificate(s)
representing the Shares for which the Option shall have been
exercised may be postponed by the Company for such period as may
be required by the Company, with reasonable diligence, to comply
with any applicable listing requirements of any national or
regional securities exchange or any
6
<PAGE> 7
law or regulation applicable to the issuance or delivery of such
Shares. No Option may be exercised unless the Plan has been duly
approved by the shareholders of the Company in accordance with
applicable law. Notwithstanding anything to the contrary herein,
the terms of a Stock Purchase Agreement required to be executed
and delivered in connection with the exercise of an Option may
require the certificate or certificates representing the Shares
purchased upon the exercise of an Option to be delivered and
deposited with the Company as security for the Optionee's faithful
performance of the terms and conditions of his or her Stock
Purchase Agreement.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is
exercised.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE. If an Optionee
ceases to serve as an Employee for any reason other than death or
Disability or Termination for Cause, and thereby terminates his or
her Continuous Status As An Employee, to the extent that such
Optionee was entitled to exercise the Option at the date of such
termination, such Optionee shall have the right to exercise the
Option at any time within 30 days subsequent to the last day of
such Optionee's Continuous Status As An Employee (unless at the
time of grant of such Option the Board specified a longer period,
not to exceed 90 days), PROVIDED, however, that no Option shall be
exercisable after the expiration of the term set forth in the
Option Agreement. To the extent that such Optionee was not
entitled to exercise the Option at the date of the terminating
event, or if such Optionee does not exercise such Option (which
such Optionee was entitled to exercise) within the time specified
herein, the Option shall terminate. In the event that an
Optionee's Continuous Status As An Employee terminates due to
death or Disability, to the extent that such Optionee was entitled
to exercise the Option at the date of such termination, the Option
may be exercised any time within 180 days subsequent to the death
or Disability of the Optionee (unless at the time of grant of such
Option the Board specified a longer period, not to exceed one
year), PROVIDED, however, that no Option shall be exercisable
after the expiration of the Option term set forth in the Option
Agreement. To the extent that such Optionee was not entitled to
exercise such Option at the date of his or her termination due to
death or Disability or if such Option is not exercised (to the
extent it could be exercised) within the time specified herein,
the Option shall terminate. If an Optionee ceases to serve as an
Employee due to a Termination For Cause, as determined by the
Company's Board, in its sole discretion, Optionee shall cease to
have any right to exercise any Option under such termination, and
the Option shall terminate.
(e) LIMIT ON VALUE OF OPTIONED STOCK. To the extent that the
aggregate fair market value (determined at the time an Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year under all
incentive stock option plans of the Company, its
7
<PAGE> 8
Parent or its Subsidiaries, if any, exceeds $100,000, the Options in excess of
such limit shall be treated as Nonstatutory Stock Options.
(f) EXPIRATION OF OPTION. Notwithstanding any provision in the
Plan, including but not limited to the provisions set forth in this Section 8,
an Option may not be exercised, under any circumstances, after the expiration of
its term.
9. NONTRANSFERABILITY OF OPTIONS. Options granted under this Plan may not
be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in
any manner, either voluntarily or involuntarily by operation of law, other than
by will or by the laws of descent or distribution or as a transfer between
spouses incident to a "divorce" within the meaning of Section 1041(a) of the
Code, and any such attempt may result, at the discretion of the Board, in the
termination of such Options. During the lifetime of the Optionee, his or her
Option may be exercised only by such Optionee or his or her legal guardian.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option, and the number
of Shares which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or repurchase of Shares from an Optionee
upon termination of employment or service, as well as the exercise price per
Share covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, combination, recapitalization or
reclassification of the Common Stock, or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company (other than stock bonuses to Employees or directors); provided, however,
that the conversion of any convertible securities of the Company shall not be
deemed to have been effected without the receipt of consideration. Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to the Plan
or an Option.
(b) In the event of a proposed dissolution or liquidation of
the Company or the sale of all or substantially all of the assets of the Company
(other than in the ordinary course of business), or the merger, consolidation or
reorganization of the Company with or into another corporation as a result of
which the Company is not the surviving corporation or as a result of which the
outstanding Shares are exchanged for or converted into cash or property or
securities not of the Company, the Board shall (i) make provision for the
assumption of all outstanding Options by the successor corporation or a Parent
or a Subsidiary thereof, or (ii) declare that outstanding Options shall
terminate as of a date fixed by the Board which is at least thirty (30) days
after the notice thereof to the Optionee (unless such thirty (30) day period is
waived by the Optionee) and shall give each Optionee the right to exercise his
or her Option as to all or any part of the shares underlying such Option to the
extent then exercisable, provided such exercise does not violate Section
8(d)(ii) of the Plan.
8
<PAGE> 9
(c) No fractional shares of Common Stock shall be issuable on
account of any action described in this Section, and the aggregate number of
shares into which Shares then covered by the Option, when changed as the result
of such action, shall be reduced to the largest number of whole shares resulting
from such action, unless the Board, in its sole discretion, shall determine to
issue scrip certificates in respect to any fractional shares, which scrip
certificates, in such event, shall be in a form and have such terms and
conditions as the Board in its discretion shall prescribe.
11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option, PROVIDED, however, that if the Board determines that such grant
shall be as of some future date, the date of grant shall be such future date.
Notice of the determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable and shall make any amendments which may be required so that Options
intended to be Incentive Stock Options shall at all times continue to be
Incentive Stock Options for the purpose of the Code, except that, without
approval of the holders of a majority of the shares of the Company's capital
stock represented or present and entitled to vote at a valid meeting of the
Company's shareholders at which action is taken on an amendment or revision, no
such amendment or revision shall:
(i) Increase the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 10 of
the Plan;
(ii) Materially change the designation of the class of
Employees eligible to be granted Options;
(iii) Remove the administration of the Plan from the Board
except to a Committee;
(iv) Materially increase the benefits accruing to
participants under the Plan; or
(v) Extend the term of the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. Except as otherwise
provided in Section 10, any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force and
effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Company, which agreement must be
in writing and signed by the Optionee and the Company.
13. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto
9
<PAGE> 10
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, applicable state securities laws, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) As a condition to the exercise of an Option, the Board may
require the person exercising such Option to execute an agreement with, and/or
may require the person exercising such Option to make any representation and
warranty to, the Company as may in the judgment of counsel to the Company be
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or to distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
appropriate under any of the aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available, such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The Company, during the term of this Plan, shall use its best efforts to
seek to obtain from appropriate regulatory agencies any requisite authorization
in order to issue and to sell such number of Shares as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or to sell such Shares as to which
such requisite authority shall not have been obtained.
15. STOCK OPTION AND STOCK PURCHASE AGREEMENTS. Options shall be
evidenced by written Option Agreements in such form or forms as the Board shall
approve from time to time. Upon the exercise of an Option, the Optionee shall
sign and deliver to the Company a Stock Purchase Agreement in such form or forms
as the Board shall approve from time to time.
16. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon
shareholder approval as provided in Section 17 of the Plan. The Plan shall
continue in effect for a term of ten years unless sooner terminated under
Section 12 of the Plan.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within 12 months before or after the
date the Plan is adopted by the Board. If such shareholder approval is obtained
at a duly held shareholders' meeting, it may be obtained by the affirmative vote
of the holders of a majority of the shares of the Company represented or present
and entitled to vote thereon. All Options granted prior to shareholder approval
of the Plan are subject to such approval, and if such approval is not obtained
within 12 months before or after the date the Plan is adopted by the Board all
such Options shall expire and shall be of no further force or effect.
10
<PAGE> 11
18. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) The Company shall pay all original issue and transfer
taxes (but not income taxes, if any) with respect to the grant of Options and/or
the issue and transfer of Shares pursuant to the exercise thereof, and all other
fees and expenses necessarily incurred by the Company in connection therewith,
and will from time to time use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) The grant of Options hereunder and the issuance of Shares
pursuant to the exercise thereof is conditioned upon the Company's reservation
of the right to withhold, in accordance with any applicable law, from any
compensation or other amounts payable to the Optionee, any taxes required to be
withheld under federal, state or local law as a result of the grant or exercise
of such Option or the sale of the Shares issued upon exercise thereof. To the
extent that compensation or other amounts, if any, payable to the Optionee are
insufficient to pay any taxes required to be so withheld, the Company may, in
its sole discretion, require the Optionee, as a condition of the exercise of an
Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the Company's satisfaction
of its withholding obligations under federal, state and local law.
19. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Options intended to be
Incentive Stock Options granted hereunder do not qualify as incentive stock
options within the meaning of Section 422 of the Code.
20. INFORMATION TO OPTIONEE. The Company shall provide without charge at
least annually to each Optionee during the period his or her Option is
outstanding a balance sheet and income statement of the Company. In the event
that the Company provides annual reports or periodic reports to its shareholders
during the period in which an Optionee's Option is outstanding, the Company
shall provide to each Optionee a copy of each such report.
21. INDEMNIFICATION. No member of the Committee or of the Board shall be
liable for any act or action taken, whether of commission or omission, except in
circumstances involving actual bad faith, or for any act or action taken,
whether of commission or omission, by any other member or by any officer, agent,
or Employee. In addition to such other rights of indemnification they may have
as members of the Board, or as members of the Committee, the Committee shall be
indemnified by the Company against reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken, by commission
or omission, in connection with the Plan or any Option taken thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee or Board member is liable for actual bad faith in
the performance of his or her duties; provided that within 60 days after
institution of any such action, suit or proceeding, a Committee or Board member
shall in writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
11
<PAGE> 12
22. NOTICES. Any notice to be given to the Company pursuant to the
provisions of this Plan shall be given in writing, addressed to the Company in
care of its Secretary at its principal office, and any notice to be given to an
employee to whom an Option is granted hereunder shall be delivered personally or
addressed to him or her at the address given beneath his or her signature on his
Option Agreement or Stock Purchase Agreement or at such other address as such
Optionee or his or her transferee (upon the transfer of the Optioned Stock) may
hereafter designate in writing to the Company. Any such notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited, postage and registry or
certification fee prepaid, in a post office or branch post office regularly
maintained by the United States Postal Service. It shall be the obligation of
each Optionee and each transferee holding Shares purchased upon exercise of an
Option to provide the Secretary of the Company, by letter mailed as provided
hereinabove, with written notice of his or her direct mailing address.
23. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment or service of any Employee.
Nothing contained in this Plan shall be deemed to give any Employee the right to
be retained in the employ or service of the Company, its Parent, Subsidiary or a
successor corporation, or to interfere with the right of the Company or any such
corporations to discharge or to retire any Employee at any time with or without
cause and with or without notice. No Employee shall have any right to or
interest in Options authorized hereunder prior to the grant thereof to such
Employee, and upon such grant he or she shall have only such rights and
interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company's Articles of Incorporation, as the same may be
amended from time to time.
24. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement
is filed pursuant to the Federal Securities Act of 1933, as amended, with
respect to the Options and Shares issuable under this Plan, each document or
certificate representing such Options or Shares shall be endorsed thereon with a
legend substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) ADDITIONAL LEGENDS. Each document or certificate
representing the Options or Shares issuable under the Plan shall also contain
legends as may be required under applicable blue sky laws or by any Stock
Purchase Agreement or other agreement the execution of which is a condition to
the exercise of an Option under this Plan.
12
<PAGE> 13
25. AVAILABILITY OF PLAN. A copy of this Plan shall be delivered to the
Secretary of the Company and shall be shown by him or her to any eligible person
making reasonable inquiry concerning it.
26. INVALID PROVISIONS. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
27. SEVERABILITY. In the event that any provision of the Plan is found to
be invalid or otherwise unenforceable under any applicable law, such invalidity
or unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
28. APPLICABLE LAW. To the extent that federal laws do not otherwise
control, this Plan shall be governed by and construed in accordance with the
laws of the State of Nevada without regard to the conflict of laws principles
thereof.
(END OF PLAN)
13
<PAGE> 1
Exhibit: 10.5D
OFFICE LEASE
for
1609 FOURTH STREET
BERKELEY, CALIFORNIA
by and between
CEDAR/FOURTH STREET PARTNERS
and
DAMERT COMPANY
<PAGE> 2
BASIC LEASE INFORMATION
WAREHOUSE/OFFICE LEASE
DaMert Company
<TABLE>
<CAPTION>
<S> <C>
Lease Date: July 27, 1995
Landlord: Cedar/Fourth Street Partners,
a California limited partnership
Landlord's Address: 5800 Shellmound Street
Suite 210
Emeryville, California 94608
Tenant: DaMert Company, a California subchapter
S corporation
Premises: Suite 1
1609 Fourth Street
Berkeley, CA 94710
Rentable Area of the Premises: 32,000 square feet measured in
accordance with the standard set
forth in Section 1.3
Permitted Uses: Warehouse and distribution, office
and other related uses necessary to
conduct its business.
Term: Six (6) years, plus one Six (6)
year option
Scheduled Term
Commencement Date: December 1, 1995 [See Section 3.1]
Monthly Base Rent: ($0.69/rentable square foot) $22,080.00
as more particularly set forth in Section
4.1,
Security Deposit: $22,080.00
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Rent Escalations: None during Initial Term
Option to Renew: One (1) six (6) year option (See
Section 3.5)
Broker: CB Commercial Real Estate and Grubb
and Ellis Commercial Real Estate Services
Broker's Fee or
Commission,
paid by: Landlord
</TABLE>
The foregoing Basic Lease Information is hereby incorporated into and
made a part of this Lease. Each reference in this Lease to any of the terms
above shall mean the respective information set forth above and shall be
construed to incorporate all of the terms provided under the particular
paragraph pertaining to such information. In the event of any conflict between
any Basic Lease Information and the Lease, the Lease shall control.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PREMISES 1
1.1 Premises 1
1.2 Exhibits 2
1.3 Rentable Area 2
1.4 Verification of Rentable Area 2
1.5 Warehouse/Distribution Space and
Office Space 3
2. IMPROVEMENTS 3
2.1 Plans 3
2.2 Construction 3
3. TERM 4
3.1 Commencement of Term 4
3.2 Lease Commencement Memorandum 4
3.3 Early Entry 5
3.4 Delivery of Possession 5
3.5 Option to Extend 5
3.6 Penalty for Late Delivery 6
4. RENT 6
4.1 Rent 6
4.2 Security Deposit 6
4.3 Late Charge 7
4.4 Lease Year 7
4.5 Additional Rent 7
4.6 Adjustments 7
4.7 Option Period 8
5. INSURANCE AND INDEMNITY 10
5.1 Tenant's Liability Insurance 10
5.2 Form of Policies 12
5.3 Insurance of Personalty 13
5.4 Landlord to Insure Building 13
S.S Waiver of Liability 14
5.6 Indemnity 14
5.7 Landlord's Disclaimer 16
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
6. OPERATING EXPENSES 17
6.1 Operating Expenses 17
6.2 Impositions 24
6.3 Utility Services 26
7. MAINTENANCE, REPAIRS AND ALTERATIONS 27
7.1 (a)Landlord's Responsibility 27
7.2 Tenant's Responsibility 29
7.3 Condition Upon Surrender 30
7.4 Improvements by Tenant 30
7.5 Sanitary Condition 31
8. FIXTURES AND PERSONAL PROPERTY 31
8.1 Fixtures and Personal Property 3l
9. USE AND COMPLIANCE WITH LAWS 31
9.1 General Use and Compliance with Laws 31
9.2 Signs 32
9.3 Parking and Parking Access 32
9.4 Floor Load 33
9.5 Pickup and Deliveries 33
9.6 Hazardous Materials 33
10. DAMAGE AND DESTRUCTION 35
10.1 Reconstruction 35
10.2 Rent Abatement 35
10.3 Excessive Damage or Destruction 36
10.4 Uninsured Casualty 36
10.5 Waiver 37
11. EMINENT DOMAIN 37
11.1 Automatic Termination 37
11.2 Rent Abatement 37
11.3 Condemnation Award 38
11.4 Sale Under Threat of Condemnation 38
12. DEFAULTS; REMEDIES 38
12.1 Defaults 38
12.2 Remedies 39
12.3 Default by Landlord 41
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
13. ASSIGNMENT AND SUBLETTING 42
13.1 Assignment and subletting: Prohibition 42
13.2 Bonus Rental 43
13.3 Scope 43
13.4 Waiver 43
13.5 Release 44
14. 0FFSET STATEMENT, ATTORNMENT AND SUBORDINATION 44
14.1 Offset Statement 44
14.2 Attornment 45
14.3 Subordination & Non-Disturbance 45
15. NOTICES 46
15.1 Notices 46
16. SUCCESSORS BOUND 47
16.1 Successors Bound 47
17. INTENTIONALLY OMITTED 47
18. MISCELLANEOUS 47
18.1 Waiver 47
18.2 Easements 48
18.3 Interest 48
18.4 No Light, Air or View Easement 48
18.5 Partnership and Corporate Authority 48
18.6 Accord and Satisfaction 48
18.7 Limitation of Landlord's Liability 49
18.8 Lease Guaranty 49
18.9 Time 49
18.10 Attorneys' Fees 49
18.11 Captions and Article Numbers 50
18.12 Severability 50
18.13 Applicable Law 50
18.14 Submission of Lease 50
18.15 Holding Over 50
18.16 Surrender 50
18.17 Rules and Regulations 51
18.18 No Nuisance 51
18.19 Broker 51
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
18.20 Landlord's Right to Perform 52
18.21 Mortgage Protection 52
18.22 Abatement of Rent 52
18.23 Location of Outdoor Equipment 54
18.24 Modification for Lender 54
18.25 Recording 55
18.26 Entire Agreement 55
18.27 Roof Penetration 55
18.28 Landlord's Representations 55
19. ADDITIONAL PROVISIONS 55
19.1 Arbitration 55
19.2 Premises Security 58
19.3 When Payment Is Due 58
19.4 Limited Guarantees 58
19.5 Right of First Refusal 58
</TABLE>
<PAGE> 8
WAREHOUSE OFFICE LEASE
THIS LEASE ("Lease"), dated as of this 27th day of July, 1995, by and
between Cedar/Fourth Street Partners, a California partnership ("Landlord") and
DaMert Company, Inc., a California subchapter S corporation ("Tenant") for space
in a portion that building commonly known as 1609 Fourth Street (the
"Building") located in the City of Berkeley, County of Alameda, State of
California, shall be upon the terms and conditions contained hereinafter. The
legal description of the land upon which the Building and parking facilities
located (the "Lot") is attached hereto as Exhibit A.
1. PREMISES
1.1 Premises. Landlord leases to Tenant, subject to the provisions of
this Lease, Thirty Two Thousand (32,000) rentable square feet ("RSF") of
warehouse, distribution and office space, consisting of the
Warehouse/Distribution and Office Space as described in Section 1.6 below, whose
address is 1609 Fourth Street, Suite 1 in the Building, the usable space of
which is shown on the Building Floor Plan, attached hereto as Exhibit "B"
("Premises") and made a part hereof. In addition the Premises shall include
exclusive use of three of the existing loading docks with mechanical load
levelers on the west side of the Building and exclusive use of the loading ramp
as shown on Exhibit B, provided, Landlord shall have the right to utilize the
ramp for handicapped aces in order to satisfy ADA requirements so long as
modification and use do not impede Tenant's ability to use the ramp for its
purposes. Landlord shall build out the Tenant Improvements, as defined in the
Work Letter Agreement, in the Premises according to the Preliminary Plan
attached hereto as Exhibit "C" and made a part hereof and pursuant to the Work
Letter Agreement attached hereto as Exhibit "D" and made a part hereof.
Landlord, at Landlord's expense, will build out the Landlord's Improvements, as
defined in the Work Letter Agreement, pursuant to Paragraph 8 of the Work Letter
Agreement. Tenant acknowledges that the only warranties and representations
Landlord has made in connection with the physical condition of the Premises or
Tenant's use of the same upon which Tenant has
1
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relied directly or indirectly for any purpose are those expressly provided in
this Lease and the Exhibits referenced and incorporated into this Lease.
1.2 Exhibits. The following Exhibits are attached to this Lease after
the signatures and by reference thereto are incorporated herein:
Exhibit "A" - Property Legal Description
Exhibit "B" - Building Floor Plan & Premises
Exhibit "C" - Preliminary Plans
Exhibit "D" - Work Letter Agreement
Exhibit "E" - Rules and Regulations
1.3 Rentable Area. As used in this Lease, the usable area of space and
rentable area of space shall be determined by measuring to the exterior surface
of exterior walls, and to the middle of demising walls between the Premises and
other Tenants. No deductions shall be made for columns or electrical panels or
sprinkler risers. The total rentable area of floor space in the Premises shall
be Thirty Two Thousand (32,000) square feet upon completion of the Final Plans,
as described in the Work Letter Agreement, subject to adjustment as set forth
below.
1.4 Verification of Rentable Area. After completion of construction of
the Premises and the Premises are Ready for Occupancy (as defined in the Work
Letter Agreement), Landlord's space planner shall certify by letter to Tenant
the actual usable and rentable square footage of the Premises. Tenant shall have
thirty (30) days from receipt of the space planner's certification letter to
review the square footage calculations and to remeasure the Premises and the
Building. If Tenant disagrees with her final square footage, Landlord's and
Tenant's space planner shall meet to resolve the difference. In the event that
subsequent remeasurement of the Premises or the Building by Tenant, within the
time period specified above, indicates that the square footage measurement
prepared by Landlord produces a square footage number in excess of or lower than
the square footage number which would have resulted had the method described
above been properly utilized, any payments due to Landlord from Tenant based
upon the amount of square feet contained in the Premises shall be
proportionally, retroactively and prospectively reduced or increased, as
appropriate, to reflect the actual number of square feet, as properly
remeasured. If Landlord
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disagrees with Tenant's remeasurement and if a dispute occurs regarding the
final accuracy of such measurements, such dispute will be resolved pursuant to
binding arbitration pursuant to Section 19.4. The final rentable square footage
shall be included in the Lease Commencement Memorandum executed by the parties.
1.5 Warehouse/Distribution Space and Office Space. The Premises will
be built out for occupancy and use as warehouse/distribution space and office
space. The warehouse/distribution space [the "Warehouse/Distribution Space"]
will consist of 23,360 RSF, and the office space will consist of 8,640 RSF [the
"Office Space], and, both as set forth on Exhibit E.
2. IMPROVEMENTS
2.1. Plans.
(a) Preliminary Plans. Landlord and Tenant have
approved the preliminary plans and outline specifications ("Preliminary
Plans") identified in Exhibit "C", for the construction of the Premises
("Tenant Improvements").
(b) Final Plans. Landlord shall have final plans and
specifications ("Final Plans") prepared by Malinda Malin, Consolidated
Interiors, which Final Plans shall be in conformity with the
Preliminary Plans. "Plans" shall hereinafter mean Preliminary Plans and
then, when prepared and approved by Landlord and Tenant, Final Plans.
Preparation and approval of the Preliminary Plans and Final Plans and
any changes requested by Tenant thereto shall be made only in
accordance with the Work Letter attached hereto as Exhibit "D".
2.2 Construction. Landlord shall construct the Premises in accordance
with the Final Plans. Landlord covenants that at the time the Premises are Ready
for Occupancy, the Premises shall be in full compliance with the American
Disabilities Act, and Landlord further covenants to remedy any deficiency which
exists on the date the Premises are ready for occupancy. Landlord shall
determine Tenant's share of the cost of constructing the Tenant Improvements, if
any, based on the parties' obligations as specified in the Work Letter. Landlord
shall make the Premises
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Ready for Occupancy, as defined in the Work Letter, not later than December 1,
1995, ("Scheduled Term Commencement Date"); provided, however (but subject to
the provisions of Section 3.4) that the Scheduled Term Commencement Date shall
be extended for a period equal to the period of any delays encountered by
Landlord affecting said work of construction because of fire, earthquake,
inclement weather, acts of God, acts of the public enemy, riot, insurrection,
City of Berkeley delays in issuing permits or approvals, or performing
inspections, governmental regulation of the sales of materials or supplies or
the transportation thereof, strikes or boycotts, shortages of material or labor,
changes in the Plans pursuant to the Work Letter, or any causes beyond the
control of Landlord. Notwithstanding the foregoing, the Commencement Date and
Tenant's obligation to pay Monthly Rent shall be determined in accordance with
the provisions of Section 3.1.
3. TERM
3.1 Commencement of Term. The Term shall be for a period equal to six
(6) years, commencing upon the earliest of the following dates:
(a) The day following the date Landlord delivers to
Tenant a factually correct written notice stating that the Premises are
Ready for Occupancy (as defined in Exhibit "D").
(b) The day following the date Landlord delivers to
Tenant a factually correct written notice stating the date the Premises
would have been ready for Occupancy had there been no Tenant Delay (as
defined in Exhibit "D"); and
(c) The date upon which Tenant actually commences to
do business in the Premises with Landlord's written consent.
3.2 Lease Commencement Memorandum. Upon determination of the
Commencement Date of the Lease Term, Landlord and Tenant shall execute a Lease
Commencement Memorandum which acknowledges said Lease Commencement Date, the
final square footage of the Premises measured in accordance with the method set
forth in Section 1.3, and the effective rental rate for the Premises.
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3.3 Early Entry. If Tenant is permitted to occupy the Premises prior to
the Commencement Date pursuant to Paragraph 16 of Exhibit "D", such early entry
shall be at Tenant's sole risk and subject to all the terms and provisions
hereof, except for the payment of Monthly Rent which shall commence as set forth
in Section 4.1 and the payment of Tenant's share of expenses and charges which
shall be determined pursuant to the provisions of Section 6.3. Landlord shall
use its good faith efforts to provide Tenant with an advance notice of the date
the Premises shall be Ready for Occupancy so that Tenant can schedule its
move-in into the Premises, which advance notice shall be provided by Landlord to
Tenant as soon as reasonably possible, but in any event within ten (10) business
days before the date the Premises shall be Ready for Occupancy.
3.4 Delivery of Possession. Landlord shall make the Premises Ready for
Occupancy on or before December 1, 1995 (subject to the provisions of Section
2.2), and, except as set forth in Section 3.7, Landlord shall not be subject to
liability therefor if it cannot so deliver, nor shall such failure affect the
validity of this Lease or the obligations of Tenant. If the office and
warehouse portions of the Premises are not Ready for Occupancy by February 28,
1996, Tenant may, at Tenant's option with notice in writing to Landlord within
ten (10) days thereafter, cancel this Lease ("Cancellation Right"). If notice of
cancellation is not received by Landlord within such ten (10) day period,
Tenant's right to cancel this Lease shall terminate and be of no further force
and effect.
3.5 Option to Extend. Provided that Landlord has not given notice of a
material default which remains uncured on the part of Tenant, either at the time
of exercise of the option to Extend or at the time the extended Term commences,
Tenant shall have the option to extend ("Option to Extend") the Initial Term of
this Lease for one (1) additional period of six (6) years ("Option Period") and
except as may be provided elsewhere herein, on the same terms, covenants and
conditions provided herein, except that upon such renewal the Monthly Rent due
shall be equal to the Fair Market Rental Rate (as hereinafter defined);
provided, however, the Option Period rent shall not be less than the Monthly
Rent during the Initial term. In addition, there shall be no broker's commission
payable by Landlord other than as agreed to by Landlord in writing, ie. no
commission shall be payable as a
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result of Tenant's actions. Tenant shall exercise its option to extend for the
Option Period by giving Landlord written notice ("Option Notice") of its intent
to renew at least nine (9) months prior to the expiration of the Initial Term,
and the failure by Tenant to give Landlord such Option Notice shall render the
Option to Extend null and void.
3.6 Penalty for Late Delivery. If Landlord has not delivered the
Premises Ready for Occupancy by 5PM (PST) December 20, 1995, Landlord shall be
liable for a penalty of Three Hundred Dollars ($300.00) per day for each day
beyond December 20th that the warehouse has not been delivered. Tenant shall be
compensated for the penalty in the form of free rent. Notwithstanding the above,
the penalty initiation date shall be extended one day for each day of Tenant
Delay as described in Section 13 of Exhibit D.
4. RENT
4.1 Rent. Subject to the adjustments, if any, set forth in the Work
Letter Agreement attached hereto as Exhibit "C", Tenant shall pay to Landlord as
rent for the Premises the Rent set forth herein.
<TABLE>
<CAPTION>
Month of Term Monthly Rent
------------- ------------
<S> <C>
Months 1 - 72 $22,080 ($0.69 per RSF)
</TABLE>
4.2 Security Deposit. On execution of this Lease, Tenant shall deposit
with Landlord $22,080.00 as a security deposit for the performance by Tenant of
the provisions of this Lease. If Tenant remains in default upon written notice
and failure to cure within five (5) business days, Landlord can use the security
deposit, or any portion of it, to cure the default or to compensate Landlord for
all damage sustained by Landlord resulting from Tenant's default. Tenant shall
immediately on demand pay to Landlord a sum equal to the portion of the security
deposit expended or applied by Landlord as provided in this Section so as to
maintain the security deposit in the sum initially deposited with Landlord. If
Tenant is not in default at the end of the fourth Lease Year, and if during the
first four years of the Initial Lease Term, Tenant has not been in material
default, and if Landlord has not given written notice more than three (3) times
that rent has not been paid when due during said period, then within Ten (10)
days of the end of the fourth Lease Year, Landlord shall refund Tenant's
security deposit. If the security deposit has not been returned earlier, and if
Tenant is
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not in default at the expiration or termination of this Lease, Landlord shall
return the security deposit to Tenant. Landlord's obligations with respect to
the security deposit are those of a debtor and not a trustee. Landlord shall not
be required to hold the security deposit in a segregated fund. Landlord shall
not be required to pay Tenant interest on the security deposit.
4.3 Late Charge. If Tenant is in default in the payment of rent or any
other amount due hereunder, upon written notice pursuant to this Lease, and if
not cured within Five (5) business days of notice, Landlord may impose a late
charge of five percent (5%) of the amount overdue. The parties agree that this
late charge represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of the late payment by Tenant. The amount of the late
charge shall be added to the delinquent rent. Any dishonored check shall be
treated as rent unpaid and shall be subject to late charges. A late charge shall
only be assessed after written notice has been received by Tenant detailing the
overdue rent, and the overdue rent has not been paid within five (5) days of
Tenant's receipt of such notice, which notice may be sent by facsimile
transmission with Tenant's receipt thereof to be confirmed by telephone.
Initials: /s/ TG /s/ FD
Landlord Tenant
4.4 Lease Year. The term "Lease Year" as used in the Lease means as
follows:
(a) The first Lease Year shall be the first twelve
months of the Lease Term.
(b) Each succeeding Lease Year shall be a full year
commencing on the anniversary date of the first Lease Year.
4.5 Additional Rent. All other amounts of money to be paid by Tenant to
Landlord shall be deemed additional rent.
4.6 Adjustments. The Monthly Base Rent set forth herein has been agreed
upon by the parties and is based upon the square footage for the Premises as
estimated by Landlord. If, at any
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time prior to the Commencement Date, the approximate square footage of the
Premises is adjusted pursuant to the provisions of Section 1.4, the Monthly Base
Rent shall be adjusted accordingly upward or downward.
4.7 Option Period. Rent for the Option Period shall be set at the then
Fair Market Rental Rate for a similar industrial gross lease for
warehouse/distribution office space for use as warehouse/distribution and office
space. No later than fifteen (15) days of Tenant's exercising its option,
Landlord shall give Tenant written notice of the proposed Fair Market Rental
Rate broken down by the respective uses and the proposed rent for each. If
Tenant does not agree, it shall inform Landlord within seven (7) days of receipt
of Landlord's notice ("Tenant's Review Period"). If Landlord and Tenant fail to
reach agreement within fifteen (15) days following Tenant's Review Period
("Outside Agreement Date"), then the parties shall agree upon and jointly
select, within ten (10) days, a single arbitrator agreed upon by the parties.
Neither Landlord nor Tenant shall consult with such arbitrator as to his or her
opinion as to Fair Market Rental Rate prior to the appointment. The
determination of the arbitrator shall be limited to determination of the Fair
Market Rent taking into account the requirements of this Section 4.6., provided,
however, the Fair Market Rent determined by the arbitrator shall be either the
same as Landlord's or Tenant's final proposal, or between such final proposals
subject to the minimum Monthly Rent as defined in Section 3.5. Such arbitrator
may hold such meetings and require such input as the arbitrator, in his or her
sole discretion, determines is necessary. In addition, Landlord or Tenant may
submit to the arbitrator with a copy to the other party within five (5) business
days after the appointment of the arbitrator any market data and additional
information that such party deems relevant to the determination of Fair Market
Rental Rate ("FMRR Data") and the other party may submit a reply in writing
within ten (10) business days after receipt of such FMRR Data.
The Arbitrator shall, within thirty (30) days of his or her
appointment, reach a decision as to whether the parties shall use Landlord's or
Tenant's submitted Fair Market Rental Rate, or a Fair Market Rate between such
proposals, and shall notify Landlord and Tenant of such determination.
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The decision of the Arbitrator shall be binding upon Landlord and
Tenant, except as provided below.
If Landlord and Tenant fail to agree upon and appoint an arbitrator,
then the appointment of the Arbitrator shall be made by the American Arbitration
Association or a comparable organization agreed upon by the parties.
The cost of arbitration shall be paid by Landlord and Tenant equally.
Notwithstanding the above, in no event shall the Option Period rent be less than
the minimum monthly rent set forth in Section 3.5. After receipt of the final
determination of the Fair Market Rental Rate by the arbitrator as set forth
above, Tenant shall have seven (7) days to reaffirm or rescind its exercise of
its Option to Extend. If written notice of the election by Tenant to rescind the
exercise of its option to Extend is not delivered to Landlord within the seven
(7) day period, the exercise of the option shall be deemed affirmed. If Tenant
shall elect to rescind the exercise of its Option to Extend as set forth above,
then the Term of this Lease shall expire as set forth in this Lease; provided,
however, that in the event Tenant shall elect to rescind as set forth herein,
Landlord shall have the right for five (5) days to accept Tenant's initial
proposed Fair Market Rental Rate, and, if Landlord accepts, the exercise of the
option shall be deemed affirmed and the Rent for the option Period shall be
Tenant's initial proposed Fair Market Rental Rate.
For purposes of the Lease, the term "Fair Market Rental Rate" shall
mean the annual amount per rentable square foot that a comparable landlord of
comparable warehouse/distribution and office space in the Emeryville/Berkeley
area would accept in Comparable Transactions. In any determination of Comparable
Transactions, appropriate consideration shall be given to the annual rental
rates per rentable square foot, the standard of measurement by which the
rentable square footage is measured, the ratio of rentable square feet to usable
square feet, the type of escalation clause (e.g., whether increases in
additional rent are determined on a net or gross basis, and if gross, whether
such increases are determined according to a base year or a base dollar amount
expense stop), length of the lease term, size and location of premises being
leased, tenant improvement allowances, deferred or free rent periods and any
other then customary tenant
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inducement provided with respect to comparable space and other generally
applicable conditions of tenancy for such Comparable Transactions.
Notwithstanding the preceding sentence, the Arbitrator shall not factor into
his determination of Comparable Transactions and his ultimate determination of
the Fair Market Rental Rate, more than Two Dollars ($2.00) in customary tenant
inducements, including, but not limited to, tenant improvements allowances,
deferred or free rent periods or any other customary tenant inducement. For
example, if the Arbitrator determines that customary tenant inducements in
Comparable Transactions equal $5.00, he shall only take into consideration
$2.00. In addition, the Arbitrator shall have the right to take into account
whether it is then customary to include rent "bumps" during comparable lease
terms. The Arbitrator shall take into account that the Premises were built out
as of the Commencement Date, do not consist of "shell" space and shall assume
that additional modifications do not have to be made, except as required by law
or as required by the Lease. Further, the Arbitrator shall not take into
account any alterations, additions or improvements to the Premises paid for by
Tenant.
If the final determination of the Fair Market Rental Rate has not been
made prior to the date on which Tenant's obligation to pay rent for the Option
Period commences, then, from such date until the date the final determination is
made ("Interest Period"), Tenant shall pay estimated rent for the Premises at
the rate applicable to the Premises during the month immediately preceding such
rent commencement date. Once the final determination of the Fair Market Rental
Rate has been made, if the rent payable by Tenant for the Premises pursuant to
the Fair Market Rental Rate exceeds the rent paid by Tenant during the Interest
Period, Tenant shall pay the excess to Landlord concurrently with its next
installment of Monthly Rent, and if the rent paid by Tenant during the Interest
Period exceeds the rent payable by Tenant for the Premises pursuant to the Fair
Market Rental Rate, Landlord shall credit the excess against the rent or other
charges next coming due under the Lease.
5. INSURANCE AND INDEMNITY
5.1 Tenant's Liability Insurance. Tenant shall procure at its sole cost
and expense and keep in effect from the date of
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this Lease and at all times until the end of the Term either Comprehensive
General Liability insurance or Commercial General Liability insurance applying
to the use and occupancy of the Premises or the Building, or any part of either,
or any areas adjacent thereto, and the business operated by Tenant, or any other
occupant, on the Premises. Such insurance shall include Broad Form Contractual
liability insurance coverage insuring all of Tenant's indemnity obligations
under this Lease. Such coverage shall have a minimum combined single limit of
liability of at least Two Million Dollars ($2,000,000) and a general aggregate
limit of Five Million Dollars ($5,000,000); provided, that Landlord, not more
than once every two (2) years during the Initial Term and Option Term, if
applicable, hereof and upon the advice of Landlord's insurance broker, and in
consultation with Tenant's insurance broker, may require Tenant to increase its
single limit liability and aggregate liability if within the reasonable
discretion of the broker, and comparable landlords and comparable tenants in
Alameda County are doing the same. All such policies shall be written to apply
to all bodily injury, property damage, personal injury and other covered loss,
however occasioned, occurring during the policy term, shall be endorsed to add
Landlord as an additional insured, to provide that such coverage shall be
primary and that any insurance maintained by Landlord shall be excess insurance
only. Such coverage shall also contain endorsements: (a) deleting any employee
exclusion on personal injury coverage; and (b) providing for coverage of
employer's vehicle non-ownership liability. All such insurance shall provide for
severability of interests; shall provide that an act or omission of one of the
named insureds shall not reduce or avoid coverage to the other named insureds.
Tenant shall also maintain Worker's Compensation insurance in accordance with
California law, and employers liability insurance with a limit no less than
$1,000,000 per employee and $1,000,000 per occurrence. Such coverage shall be
endorsed to waive the insurer's rights of subrogation against Landlord. All
coverages described in this Section shall be endorsed to provide Landlord with
thirty (30) days, notice of cancellation or change in terms. If at any time
during the Term the amount or coverage of insurance which Tenant is required to
carry under this Section is, in Landlord's reasonable judgment, materially less
than the amount or type of insurance coverage typically carried by comparable
tenants of comparable buildings located in Alameda County, California, which are
similar to and operated for similar purposes as the Premises,
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Landlord shall have the right upon the advice of Landlord's broker, to require
Tenant, not more than once every two (2) years, to increase the amount or change
the types of insurance coverage required under this Section.
5.2 Form of Policies. All insurance policies required to be carried
under this Lease shall (a) be written by companies rated A-VII or better in
"Best's Insurance Guide" and authorized to do business in California, and (b)
name any parties with an insurable interest designated by Landlord as additional
insureds. Tenant shall deliver to Landlord on or before the Commencement Date,
and thereafter at least thirty (30) days before the expiration dates of expiring
policies, certified copies of its insurance policies, or a certificate
evidencing the same issued by the insurer thereunder, and, in the event Tenant
shall fail to procure such insurance, or to deliver such policies or
certificates, Landlord may, at its option (upon Tenant's failure to procure such
insurance or to deliver such policies or certificates within fifteen (15) days
following receipt of notice thereof from Landlord) and in addition to Landlord's
other remedies in the Event of Default by Tenant hereunder, procure the same for
the account of Tenant, and the cost thereof shall be paid to Landlord as
Additional Charges. Any insurance provided for in Sections 5.1 and 5.3 may be
maintained by means of a policy or policies of blanket insurance, covering
additional items or locations or insureds, provided, however, that:
(a) Landlord and any other parties in interest from
time to time designated by Landlord to Tenant shall be named as an
additional insured thereunder as its interest may appear;
(b) the coverage afforded Landlord and any such other
parties in interest will not be reduced or diminished by reason of the
use of such blanket policy of insurance;
(c) any such policy or policies shall specify therein
(or Tenant shall furnish Landlord with a written statement from the
insurers under such policy specifying) the amount of the total
insurance allocated to the Tenant's improvements and property; and
(d) the requirements set forth in this Article 5 are
otherwise satisfied.
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5.3 Insurance of Personalty. Tenant shall at all times during the Term,
at its cost and expense, maintain in effect policies of insurance covering (a)
its trade fixtures, personal property and equipment located on the Premises, in
an amount not less than eighty percent (80%) of their actual cash value,
providing protection against any peril included within the classification "Fire
and Extended Coverage", together with insurance against sprinkler damage,
vandalism and malicious mischief, and (b) all plate glass in the exterior
walls of and inside the Premises. The proceeds of such insurance, so long as
this Lease remains in effect, shall be used to repair or replace the fixtures,
equipment and plate glass so insured.
5.4 Landlord to Insure Building. During the Term, Landlord shall carry
the types of insurance, and with such policy limits, as protecting the Building
and Landlord as are normally and customarily carried by comparable landlords of
comparable buildings including the following: (a) Landlord shall maintain "All
Risk" property insurance (including inflation endorsement sprinkler leakage
endorsement, and, at Landlord's lender's option, earthquake and flood coverage
on the Building covering one hundred percent (100%) of the full replacement cost
valuation of the Building with a reasonable deductible included (provided,
however, that the amount of property insurance that Landlord shall carry with
regard to the shell of the Building shall be in accordance with at least the
requirements of Landlord's lender), the Tenant Improvements (to the extent of
Landlord's contribution to Tenant in connection therewith) and Landlord's
personal property, excluding coverage of all Tenant's trade fixtures, personal
property and equipment located on or in the Premises, (b) policy of commercial
general liability and property damage insurance, (c) loss of rent insurance and
(d) workers' compensation insurance if Landlord has employees. Landlord shall
provide Tenant with certificates of insurance within 10 days of purchase of the
Building. Such insurance shall also include insurance against loss of rents on
an "All Risk" basis in an amount equal to the Monthly Rent and additional rent
payable under the Lease, for a period of at least six (6) months commencing on
the date of loss. Such insurance shall name Landlord and its agents as
additional insureds and include a lender's loss payable endorsement (Form 438
BFU) in favor of Landlord's lender, if any. If the insurance premium increases
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due to Tenant's use (other than uses PERMITTED BY this Lease) of the Premises,
Tenant shall pay the full amount of the increase.
5.5 Waiver of Liability. Landlord and Tenant each hereby waives the
right of subrogation against the other and any and all rights of recovery
against the other or against any other tenant or occupant of the Building or
against the officers, partners in, employees, agents, representatives, customers
and business visitors of, such other party or of such other tenant or occupant
of the Building for loss of or damage to such waiving party or its property or
the property of others under its control, arising from any cause insured against
under any standard form of fire insurance policy with all permissible extension
endorsements covering additional perils or under any other policy of insurance
carried by such waiving party in lieu thereof.
5.6 Indemnity. Except as hereinafter set forth, Tenant shall indemnify,
defend, protect and hold Landlord harmless from and against any and all claims,
loss, proceedings, damages, causes of action, liability, costs or expense
(including reasonable attorneys' fees) arising from or in connection with, or
caused by (a) any willful act, omission or negligence of Tenant or any subtenant
of Tenant, or their respective contractors, licensees, invitees, agents,
servants or employees, wheresoever the same may occur, or (b) any use of the
Premises, or any accident, injury, death or damage to any person or property
occurring in, on or about the Premises, or any part thereof, and any service
delivery facilities or any other portions of the Building used by Tenant, this
indemnity shall not apply to and specifically excluding such claims, loss,
proceedings, damages, causes of action, liability, costs or expense (including
attorneys' fees) arising from or in connection with, or caused by, the
negligence or willful misconduct of Landlord or its agents, contractors or
employees.
Notwithstanding the foregoing to the contrary, Tenant shall not be
required to indemnify and hold Landlord harmless from any loss, cost, liability,
damage or expense, including, but not limited to, penalties, fines, attorneys'
fees or costs (collectively "Claims"), to any person, property or entity
resulting from the negligent acts or omissions or willful misconduct of Landlord
or its agents, contractors, servants, employees or licensees, in connection with
Landlord's activities in the Building (except for damage to the Tenant
Improvements and
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Tenant's personal property, fixtures, furniture and equipment in the Premises,
to the extent Tenant is required to obtain the requisite insurance coverage
pursuant to the Lease) or the site, and Landlord hereby so indemnifies and holds
Tenant harmless from any such Claims, including but not limited to Claims
arising from any noncompliance of the Building and/or the site with any laws
relating to disabled access, or Claims arising from the presence in the
Premises, the Building and/or the site of hazardous substances, except to the
extent such hazardous substances were placed in or on the Premises, the Building
and/or the site by Tenant or Tenant's agents, contractors, servants, employees
or licensees or other tenants of the Building (the "Exception") (Landlord's and
Tenant's indemnity hereunder will survive the expiration of the Term of, or any
termination of the Lease) as long as all tenants of the Building shall be
treated equally with regard to the Exception. Provided, further, to the extent
any damage or repair obligation is covered by insurance obtained by Landlord as
part of Operating Expenses, but is not covered by insurance required to be
maintained and carried by Tenant pursuant to the provisions of this Article 5 or
actually carried by Tenant, then Tenant shall be relieved of its indemnity
obligation up to the amount of the insurance proceeds which Landlord is entitled
to receive. Tenant's agreement to indemnify and hold Landlord harmless pursuant
to this Section 5.6 and the exclusion from Tenant's indemnity and Landlord's
agreement to indemnify and hold Tenant harmless pursuant to this provision are
not intended to and shall not relieve any insurance carrier of its obligations
under policies required to be carried by Landlord or Tenant, respectively,
pursuant to the Lease to the extent that such policies cover the results of such
acts, omissions or willful misconduct. If Landlord or Tenant has been or at any
time hereafter is granted the right to self insure or if either party breaches
this agreement by its failure to carry required insurance, such failure shall
automatically be deemed to be a covenant and agreement by Landlord or Tenant,
respectively, to self-insure to the full extent of such required coverage, with
full waiver of subrogation.
Notwithstanding the foregoing to the contrary, because Landlord is
required to maintain insurance on the Building and because of the existence of
waivers of subrogation set forth in Lease Section 5.5, Landlord hereby
indemnifies and holds Tenant harmless from any loss, cost, liability, damage or
expense
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(including, but not limited to penalties, fines and actual attorneys' fees and
costs) to any property outside of the Premises to the extent such loss, costs,
liability, damage or expenses are covered by such insurance, even if resulting
from the negligent acts, omissions, or willful misconduct of Tenant or those of
its agents, contractors, servants, employees or licensees. Similarly, since
Tenant must carry insurance pursuant to Lease Section 5.1 to cover its personal
property within the Premises, Tenant hereby indemnifies and holds Landlord
harmless from any loss, cost, liability, damage or expense (including, but not
limited to penalties, fines and actual attorneys' fees and costs) to any
property within the Premises, to the extent such loss, costs, liability, damage
or expenses are covered by such insurance, even if resulting from the negligent
acts, omissions or willful misconduct of Landlord or those of its agents,
contractors, servants, employees or licensees. In the event the Premises and/or
the Building are damaged or destroyed and such damage or destruction is covered
by insurance obtained by Landlord and not covered by insurance obtained by
Tenant, Landlord shall, subject to any limitations imposed by Landlord's lender,
use the proceeds of its insurance actually received by Landlord as compensation
specifically paid for these purposes to repair the damage or destruction to the
Premises and/or the Building, subject to any rights either Landlord or Tenant
may have to terminate the Lease in the event such damage or destruction occurs.
5.7 Landlord's Disclaimer. Landlord shall not be liable for injury or
damage which may be sustained by the person, goods, wares, merchandise or
property of Tenant, its employees, invitees or customers or any other person in
or about the Premises or the Building caused by or resulting from fire, steam,
electricity, gas, water or rain, which may leak or flow from or into any part of
the Premises, or from the breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures of the same, whether such damage or injury results from conditions
arising upon the Premises or upon other portions of the Building, or from other
sources, unless any such injury or damage is caused by the negligence or,
willful acts of Landlord or Landlord's agents, contractors, or employees.
Landlord shall not be liable for any damages arising from any act or neglect of
any other tenant of the Building.
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6. OPERATING EXPENSES-INDUSTRIAL GROSS LEASE
6.1 Operating Expenses. Tenant understands and agrees that this is an
Industrial Gross Lease. Tenant's share ("Tenant's Share") is hereby mutually
agreed to be fifty three and 56/100 percent [53.56%, which percent shall
represent the ratio of the RSF of the then occupied or deemed occupied portion
of the Premises to the RSF of the Building and shall be confirmed by Landlord's
space planner pursuant to Section 1.4 after the Premises are Ready for
Occupancy. Tenant shall pay to Landlord, as Additional Rent, Tenant's Share of
any increase in Operating Expenses over Base Year Operating Expenses. The Base
Year shall be the first Lease Year and Landlord shall provide Tenant with a
statement of Base Year Operating Expense within five (5) months of the Base Year
end. Tenant's Share shall be confirmed in the Commencement Memorandum.
(a) Definition. Subject to the exclusions and the amortization
requirements set forth in (b) below, "Operating Expenses" shall include all
expenses and costs of every kind and nature which Landlord shall pay or
become obligated to pay because of or in connection with the ownership and
operation of the Building and Lot on which it stands and supporting
facilities, including, without limitation: (i) all Impositions; (ii)
premiums for insurance maintained by Landlord pursuant to Article 5; (iii)
wages, salaries and related expenses and benefits of all
employees/personnel of level of building manager or below engaged in
operation, maintenance and security; provided, however, that if any such
employees of Landlord provide services for more than one building of
Landlord, then a prorated portion of their wages, benefits and taxes shall
be included in Operating Expenses based on the pro-rata portion of their
working time devoted to the Building; (iv) all supplies, materials and
equipment rental used in operation; (v) all maintenance and repair,
janitorial, trash removal, security and service costs to the extent
provided by Landlord; (vi) legal and accounting expenses; (vii) repairs,
replacements and general maintenance (excluding those paid for by proceeds
of insurance or other parties and alterations attributable solely to
tenants of the Building
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other than Tenant); (viii) all maintenance and repair costs, including
sidewalks, landscaping, service areas, mechanical rooms and parking areas,
Building exterior, driveways; (ix) amortization of capital improvements
(over the useful life of the improvements); and (x) all charges for heat,
water, gas, electricity and other utilities used or consumed in the
Building and not directly charged to tenants, and; (xi) the cost of
maintaining and repairing parking areas, entranceways, sidewalks to
Building, etc.
(b) Exclusions from Operating Expenses. Notwithstanding the foregoing,
Operating Expenses shall not include the following:
(I) Any ground lease rental;
(ii) Costs of items considered capital repairs,
replacements, improvements and equipment under generally
accepted, accounting principles consistently applied ("Capital
Items"), except for (1) the cost of those Capital Items, together
with interest at the actual interest rate incurred by Lessor,
acquired to reduce Operating Expenses amortized over the useful
life of such Capital Items;
(iii) Rentals for items (except when needed in connection
with normal repairs and maintenance of permanent systems) which
if purchased, rather than rented, would constitute a capital
improvement which is specifically excluded in Subsection (ii)
above (excluding, however, equipment not affixed to the Building
which is used in providing janitorial or similar services);
(iv) Costs incurred by Landlord for the repair of casualty
damage to the Building;
(v) Costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant or other
occupants' improvements in the Building or incurred in renovating
or otherwise improving, decorating, painting or redecorating
vacant space for tenants or other occupants of the Building;
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(vi) Costs associated with the operation of the business of
the partnership or entity which constitutes Landlord as the same
are distinguished from the costs of operation of the Building,
including partnership accounting and legal matters, costs of
defending any lawsuits with any mortgagee (except as the actions
of Tenant may be in issue), costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest
in the Building, costs of any disputes between Landlord and its
employees (if any) not engaged in Building operation, disputes of
Landlord with Building management, or outside fees paid in
connection with disputes with other tenants; and
(vii) Marketing costs including, without limitation,
leasing commissions, attorneys' fees in connection with the
negotiation and preparation of deal memos, letters of intent,
leases, subleases and/or assignments, space planning costs, and
other costs and expenses incurred in connection with lease,
sublease and/or assignment negotiations and transactions with
present or prospective tenants or other occupants of the
Building;
(viii) Expenses in connection with services or other
benefits which are not offered to Tenant or for which Tenant is
charged for directly but which are provided to another tenant or
occupant of the Building;
(ix) Costs incurred by Landlord due to the violation by
Landlord or any tenant of the terms and conditions of any lease
of space in the Building;
(x) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services
in or to the Building to the extent the same exceeds the costs of
such goods and/or services rendered by unaffiliated third parties
on a competitive basis;
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(xi) Interest, principal, points and fees on debts or
amortization on any mortgage or mortgages or any other debt
instrument encumbering the Building or the site (except as
permitted elsewhere in this Lease;
(xii) Landlord's general partnership overhead and general
and administrative expenses;
(xiii) Costs (including in connection therewith all
attorneys' fees and costs of settlement judgments and payments in
lieu thereof) arising from claims, disputes or potential disputes
in connection with potential or actual claims litigation or
arbitrations pertaining to Landlord and/or the Building and/or
the Lot;
(xiv) Costs for sculpture, paintings or other objects of
art;
(xv) Advertising and promotional expenditures, and costs of
signs in or on the Building identifying the owner of the Building
or other tenants' signs;
(xvi) Electric power costs for which any tenant directly
contracts with the local public service company;
(xvii) Costs arising from Landlord's charitable or political
contributions;
(xviii) Costs incurred in connection with upgrading or
otherwise making alterations, additions or improvements to the
Building exterior or the Building foundation or structural
elements to comply with disability, life, fire and safety or
other codes, ordinances, statutes, or other laws in effect prior
to the Commencement Date including, without limitation, the ADA,
including penalties or damages incurred due to such
non-compliance;
(xix) Tax penalties incurred as a result of Landlord's
negligence, inability or
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unwillingness to make payments and/or to file any tax or
information returns when due;
(xx) Costs for which Landlord has been compensated by a
management fee;
(xxi) Costs arising from the negligence or fault of other
tenants or Landlord or its agents, or any vendors, contractors,
or providers of materials or services selected, hired or engaged
by Landlord or its agents including, without limitation, the
selection of building materials;
(xxii) Notwithstanding any contrary provision of the Lease,
including, without limitation, any provision relating to capital
expenditures, any and all costs arising from the presence of
hazardous materials or substances (as defined by Applicable Laws
in effect on the date of this Lease) in or about the Building or
site including, without limitation, hazardous substances in the
ground water or soil, not placed in the Premises, Building or Lot
by Tenant, it's agents, employees, invitees, or customers;
(xxiii) Costs arising from earthquake insurance unless
required by Landlord's lender;
(xxiv) Any other expenses which, in accordance with
generally accepted accounting principles, consistently applied,
would not normally be treated as Operating Expenses by landlords
of Comparable Buildings.
(1) Landlord agrees that since one of the purposes of
passing thru Operating Expenses is to allow Landlord to
require Tenant to pay for the pro-rata cost attributable to
its Premises, Landlord agrees that (I)(Landlord will not
collect or be entitled to collect Operating Expenses from
all of its tenants in an amount which is in excess of one
hundred percent (100%) of the Operating Expenses actually
paid by Landlord in connection with the operation of the
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Building, and (ii) Landlord shall make no profit from
Landlord's collections of Operating Expenses except in the
form of late charges or interest on amounts not paid when
due. All assessments and premiums which are not specifically
charged to Tenant because of what Tenant has done, which can
be paid by Landlord in installments, shall be paid by
Landlord in the maximum number of installments permitted by
law and not included as Operating Expenses except in the
year in which the assessment or premium installment is
actually paid; provided, however, that if the prevailing
practice in other comparable buildings in the vicinity of
the Building is to pay such assessments or premiums on an
earlier basis, and Landlord pays on such basis, such
assessments or premiums shall be included in Operating
Expenses as paid by Landlord; in no event, however, shall
Landlord include any accrued interest (resulting from such
assessments or premiums) in its computation of Operating
Expenses.
(2) Each time Landlord provides Tenant with an actual
and/or estimated statement of Operating Expenses, such
statement shall be itemized on a line item by line item
basis, showing the applicable expense for the applicable
year and the year prior to the applicable year.
(c) Proration. Any Operating Expenses attributable to a period which
falls only partially within the Term shall be prorated between Landlord and
Tenant so that Tenant shall pay only that proportion thereof which the part
of such period within the Term bears to the entire period;
(d) Survival. Any such sum payable by Tenant which would not otherwise
be due until after the date of the termination of this Lease, shall, if the
exact amount is uncertain at the time that this Lease terminates, be paid
by Tenant to Landlord upon such termination in an amount to be determined
by Landlord with an adjustment to be made once the exact amount is known;
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(e) Estimated Payments. Prior to the commencement of each of
Landlord's accounting years of the Term, Landlord may reasonably estimate
the Additional Rent payable by Tenant for such years pursuant to this
provision and, commencing on the Commencement Date, Tenant shall pay to
Landlord on the first of each month in advance, one-twelfth (1/12) of
Landlord's estimated amount. At the end of each year there shall be an
adjustment made to account for any difference between the actual and the
estimated Operating Expenses for the previous year. Landlord shall provide
Tenant with a statement of actual Operating Expenses ninety (90) days after
year-end. In the event of any dispute regarding the amount due as Tenant's
Share of Operating Expenses, Tenant shall have the right, not more often
than once per calendar year, to audit the Operating Expenses and to retain
an independent company to audit and/or review Landlord's records to
determine the proper amount of Tenant's Share of Operating Expenses. If
such audit or review reveals that Landlord has overcharged Tenant, then
within five (5) days after the results of such audit are made available to
Landlord, Landlord shall reimburse Tenant the amount of such overcharge
plus interest at the Interest Rate. If the audit reveals that Tenant was
undercharged, then within five (5) days after the results of such audit are
made available to Tenant, Tenant shall reimburse Landlord the amount of
such undercharge plus interest thereon at the Interest Rate. If Landlord
desires to contest such audit results, Landlord may do so by submitting the
results of the audit to arbitration pursuant to Section 19.4 within five
(5) days of receipt of the results of the audit, and the arbitration shall
be final and binding upon Landlord and Tenant. Tenant agrees to pay the
cost of such audit, provided that, if the audit reveals that Landlord's
determination of Tenant's Share of Operating Expenses as set forth in any
statement sent to Tenant was in error in Landlord's favor by more than five
percent(5%) Landlord shall pay the cost of such audit. Landlord shall be
required to maintain records of all operating Expenses and other Rent
Adjustments for the entirety of the three-year period ("Review Period")
following Landlord's delivery to Tenant of each actual statement setting
forth Tenant's Share of Operating Expenses. The payment by Tenant
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of any amounts pursuant to Lease Article 6 shall not preclude Tenant from
questioning the correctness of any actual statement provided by Landlord at
any time during the Review Period, but the failure of Tenant to object
thereto prior to the expiration of the Review Period shall be conclusively
deemed Tenant's approval of the actual statement.
In the event that any other tenant audits or reviews Operating
Expenses and an adjustment is made, the results of such audit or review
shall be sent to Tenant to allow Tenant to determine whether Tenant is to
be permitted a corresponding adjustment.
(f) Adjustment. Notwithstanding any provision herein to the contrary,
in the event the Building is not fully occupied during any full calendar
year of the Term, including the Base Year, an adjustment shall be made in
computing Operating Expenses for such year so that the same shall be
computed for such year as though the Building had been at least ninety-five
percent (95%) occupied during such year. Operating Expenses shall not
include any costs and expenses related to comparable equipment used solely
for other tenants' premises.
(g) Operating Expenses for Equipment Used Solely for Tenant. If any
equipment is used solely for the Premises, e.g., HVAC units ("Equipment"),
then any Operating Expenses due entirely to such Equipment, e.g.,
maintenance costs, shall be apportioned entirely to Tenant in calculating
Operating Expenses.
6.2 Impositions. Subject to the exclusions and the amortization
requirements set forth in 6.1(b), real estate taxes and all other taxes relating
to the Premises and/or the Building or the Lot, including, but not limited to,
license fees, city business tax, rent tax or levy, all other taxes which may be
levied in lieu of real estate taxes, all assessments, assessment bonds, levies,
fees and other governmental charges (including, but not limited to, charges for
traffic facilities improvements, water service studies and improvements, and
fire service studies and improvements) or amounts necessary to be expended
because of governmental orders, whether general or special, ordinary or
extraordinary, unforeseen as well as foreseen, of any kind and
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nature for public improvements, services, benefits, or any other purpose which
are assessed, levied, confirmed, imposed or become a lien upon the Premises or
Building or Lot or become payable during the Term to the extent that same are
attributable to any Lease Year or portion thereof shall collectively be referred
to as "Impositions."
(a) Installment Election. In the case of any Impositions which may be
evidenced by improvement or other bonds or which may be paid in annual or
other periodic installments, Landlord shall elect to cause such bonds to be
issued or cause such assessment to be paid in installments over the maximum
period permitted by law and only such installments as are due annually
shall be included in the Operating Expenses.
(b) Limitation. Nothing contained in this Lease shall require Tenant
to pay any franchise, estate, inheritance or succession transfer tax of
Landlord, or any income, profits or revenue tax or charge, upon the net
income of Landlord from all sources; provided, however, that if at any time
during the Term under the laws of the United States Government or the State
of California, or any political subdivision thereof, a tax or excise on
rent, or any other tax however described, is levied or assessed by any such
political body against Landlord on account of Rent, or a portion thereof,
the same shall be included as Impositions.
(c) Sale or Transfer of the Property. Notwithstanding any other
provision of Article 6, during the first three (3) years of the Initial
Term (but not including the final three years or the Option Period), Tenant
shall not be responsible for paying any increase of or reassessment in real
estate taxes solely attributable to (i) an increase in the assessed value
of the Building and Land (the "Property") based upon Change of Ownership as
defined in Revenue and Taxation Code Section 61 or from major alterations,
improvements, modifications or renovations to the Building or Land, or (ii)
any action, including without limitation, judicial action or action by
initiative, which serves to repeal, modify and/or limit the application of
Article XIIIA of the California Constitution (otherwise known as
Proposition 13);
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provided, however, this exclusion shall not apply to any lender which
forecloses on the Property or takes a deed-in-lieu of foreclosure or any
transferee of such a lender (or any subsequent transfer thereafter).
(d) Personal Property Taxes. Tenant shall pay or cause to be paid,
prior to delinquency, any and all taxes and assessments levied upon all
trade fixtures, inventories and other personal property placed in and upon
the Premises by Tenant.
(e) Reassessment for Tenant Improvements. Any increase in real
property taxes as the result of reassessment of the Property based upon the
construction by Tenant of any improvements made after the Tenant
Improvements or Landlord's Improvements shall be charged to Tenant.
6.3 Utility Services.
(a) Tenant to Pay. Except for those utility charges attributable to
the Building exterior and parking and drive areas (which are Operating
Expenses), e.g., exterior lights connected to the Building electric meter
and in light of the fact that the Premises are separately metered for
utilities, Tenant shall pay directly to the provider all charges for gas,
sewer, electricity, telephone, heating, trash removal and other utility
services (except water) used by Tenant in the Premises during the Term. If
any such charges are not paid when due, Landlord, upon ten (10) days, prior
notice to Tenant and failure by Tenant within such ten (10) day period to
pay such charges, may pay the same, and any amount so paid by Landlord
shall thereupon become due to Landlord from Tenant as Additional Rent.
(b) Landlord's Election to Furnish. If Landlord shall elect to furnish
any utility service to the Premises, Tenant shall pay the cost of any such
utilities based upon the actual usage of the utilities) by Tenant without a
profit to or overhead charge by Landlord ("Actual Cost"). In order to
determine the actual usage, Landlord shall submeter the particular utility,
e.g. gas. If any rationing of utilities occurs (e.g. water), allocation
shall be made
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based upon the pro rata square footage which Tenant occupies in the
Building, or such other basis as may be required by the provider of the
services.
(c) Interruption of Services. Except as set forth in Section 18.22,
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service being furnished the Premises, provided
Landlord acted diligently and in good faith to provide such services and
diligently and promptly acts to remedy any interruption in the supplying of
the same, and no such failure or interruption shall entitle Tenant to
terminate this Lease.
7. MAINTENANCE, REPAIRS AND ALTERATIONS
7.1 (a) Landlord's Responsibility. Subject to the provisions of Section
7.2, Landlord shall, during the Term, keep in good order, condition and repair
(comparable with other similar buildings in the vicinity of the Building) the
landscaping, parking lot and driveway area, all structural components of the
Building, including the floor slab and plumbing in the slab, mechanical ducts,
the electrical system up to, but not including, the panel connecting to Tenant's
transformer, the sprinkler system, the plumbing system, pipes, lines and drains
up to the exterior wall(s) of the Premises, which are not the responsibility of
Tenant or other tenants; the foundations, exterior walls (excluding the interior
surface of exterior walls and excluding all windows, doors and plate glass),
skylights, downspouts, gutters and roof, except for any damage thereto caused by
negligent act or omission of Tenant or its agents, contractors, employees or
invitees, and except for reasonable wear and tear. All of the costs incurred by
Landlord in performing its responsibilities under this Section shall be included
in Operating Costs except those costs which are expended for maintenance or
repair of items which are exclusively for Tenant's or a tenant's use, which
costs shall be billed to the tenant which is using the equipment or system.
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(b) Tenant's Right to Make Repairs. If Tenant provides written notice
(or oral notice, which oral notice may be by facsimile transmission with
receipt thereof to be confirmed by telephone, in the event of an emergency
such as damage or destruction to or of a structural component, or any
electrical, plumbing, mechanical or telecommunications system of or in the
Building or the Premises and said item shall be Landlord's responsibility
to so repair (including but not limited to damage to the roof, or exterior
window or door)) to Landlord of an event or circumstance which requires the
action of Landlord with respect to repair and/or maintenance (excluding
therefrom any repair obligation of the utility company), and Landlord fails
to provide such action within a reasonable period of time, given the
circumstances, after the receipt of such notice, but in any event not later
than twenty-one (21) days after receipt of such notice, then Tenant may
proceed to take the required action upon delivery of an additional ten (10)
business days' notice to Landlord specifying that Tenant is taking such
required action (provided, however, that no such second notice shall be
required in the event of an emergency, and if such action was required
under the terms of the Lease to be taken by Landlord and was not taken by
Landlord within such ten (10) day period, then Tenant shall be entitled to
prompt reimbursement by Landlord of Tenant's reasonable costs and expenses
in taking such action plus interest thereon at the Interest Rate (as
hereinafter defined in Section 18.3). In the event Tenant takes such
action, and such work will affect the Building Systems (including, without
limitation, any intra building network cable) or the structural integrity
of the Building or the roof of the Building, Tenant shall use only those
contractors used by Landlord in the Building for work on such systems
unless such contractors are unwilling or unable to perform, or timely
perform, such work, in which event Tenant may utilize the services of any
other qualified contractor licensed for the trade involved which normally
and regularly performs similar work in Class A Buildings. Further, if
Landlord does not deliver a detailed written objection to Tenant within
thirty (30) days after receipt of an invoice by Tenant of its costs of
taking action which Tenant claims should have been taken by Landlord, and
if such invoice from Tenant sets forth a reasonably particularized
breakdown of its costs and expenses in
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connection with taking such action on behalf of Landlord, then Tenant shall
be entitled to deduct from rent payable by Tenant under the Lease, the
amount set forth in such invoice. If, however, Landlord delivers to Tenant
within thirty (30) days after receipt of Tenant's invoice, a written
objection to the payment of such invoice, setting forth with reasonable
particularity Landlord's reasons for its claim that such action did not
have to be taken by Landlord pursuant to the terms of the Lease or that the
charges are excessive (in which case Landlord shall pay the amount it
contends would not have been excessive) or that the action was unwarranted,
then Tenant shall not be entitled to such deduction from rent, but as
Tenant's sole remedy, Tenant may proceed to claim a default by Landlord or,
if elected by either Landlord or Tenant, the matter shall proceed to
resolution by the selection of an arbitrator to resolve the dispute, which
arbitrator shall be selected and qualified pursuant to the procedures set
forth in Section 19.4 and whose costs shall be paid for by the losing
party, unless it is not clear that there is a "losing party," in which
event the costs of arbitration shall be shared equally.
7.2 Tenant's Responsibility. Tenant shall, during the Term, keep in good
order, condition and repair the non-structural portion of the Premises and every
part thereof, including, without limitation, all plumbing pipes and fixtures in
the Premises, HVAC equipment whether located inside or outside the Premises,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, floors and
floor coverings, windows, doors, plate glass, entrances and vestibules located
within the Premises and all telecommunication and networking equipment. Tenant
shall paint the interior office and demising walls as often as may be required
to keep the Premises neat and attractive. Tenant shall provide all janitorial
services necessary to keep the Premises in a clean, good and sanitary condition.
If Tenant fails to perform its obligations under this Paragraph 7.2,
notwithstanding any other provisions hereof, Landlord may, at its option, after
ten (10) days' written notice to Tenant and failure by Tenant to so perform in
such ten (10)
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day period, enter upon the Premises and put the same in first-class condition
and repair and the cost incurred by Landlord in connection therewith shall be
reimbursed by Tenant as additional rent with interest thereon at the Interest
Rate from the date such cost shall be incurred by Landlord until the date Tenant
shall reimburse Landlord for such cost.
7.3 Condition Upon Surrender. On the last day of the Term, or on any sooner
termination, unless agreed otherwise in writing by Landlord, Tenant shall remove
its personal property and trade fixtures (those paid for by Tenant) from the
Premises, surrender the Premises to Landlord in the same condition as on the
Commencement Date, ordinary wear and tear and damage by fire, the elements or
any other cause beyond the control of Tenant excepted.
7.4 Improvements by Tenant. Tenant shall not, without prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed and
which consent shall be provided by Landlord pursuant to the receipt by Landlord
of a five (5) business days' notice from Tenant, make any alterations,
improvements, remodeling or additions to the Premises or to fixtures installed
therein in accordance with approved fixture plans, or mark, paint, drill or in
any way deface any portion of the Premises. Tenant may, however, make
nonstructural alterations to the Premises without Landlord's prior written
consent and without notice to Landlord. Landlord shall have the right at all
reasonable times to post and keep posted on the Premises such notices of
non-responsibility as Landlord may deem necessary for the protection of Landlord
from mechanic's liens and materialmen's liens. All alterations and improvements
shall be installed at Tenant's sole expense, in compliance with all applicable
laws, permit requirements and any covenants, conditions or restrictions of
record, by a licensed contractor, shall be done in a good and workmanlike manner
conforming in quality and design with the Premises existing as of the
Commencement Date, and shall not interfere with access to other tenants in the
Building. All alterations and improvements made by Tenant (excluding Tenant's
trade fixtures and personal property paid for by Tenant) shall be and become the
property of Landlord upon installation and shall not be deemed Tenant's
personal property. Notwithstanding any other provisions of this Lease, Tenant
shall be solely responsible for the maintenance and
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repair of any alterations and improvements made by it to the Premises.
7.5 Sanitary Condition. Tenant shall keep the Premises at all times in a
neat, clean and sanitary condition, shall neither commit nor permit any waste or
nuisance thereon, and shall keep the walks and parking areas free from Tenant's
waste or debris.
8. FIXTURES AND PERSONAL PROPERTY
8.1 Fixtures and Personal Property. Tenant, at Tenant's expense, may
install any trade fixtures, equipment and furniture in the Premises; provided,
that such items are installed and are removable without damage to the structure
of the Building. Landlord reserves the right to reasonably approve or disapprove
of window coverings or treatments visible from outside the Premises on wholly
aesthetic grounds based on a uniform program which Landlord shall have
instituted for the Building. Such improvements must be submitted for Landlord's
written approval prior to installation, or Landlord may remove or replace such
items at Tenant's sole expense. Said trade fixtures, equipment and furniture
shall remain Tenant's property and shall be removed by Tenant upon expiration of
the Term, or earlier termination of this Lease or at any time during the Term
hereof. Tenant shall repair, at Tenant's sole expense, all damage to exterior
walls, roof or slab caused by the installation or removal of trade fixtures,
equipment, furniture or temporary improvements. If Tenant fails to remove the
foregoing items on termination of this Lease, Landlord may keep and use them or
remove any or all of them at Tenant's cost and cause them to be stored or sold
in accordance with applicable law.
9. USE AND COMPLIANCE WITH LAWS
9.1 General Use and Compliance with Laws. Tenant shall only use the
Premises for the Permitted Uses specified in the Basic Lease Information and for
no other use without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed; provided, however, Landlord shall have
the right within its sole discretion to refuse to allow a use if it includes the
use of Hazardous Materials.
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Tenant shall, at Tenant's sole cost and expense, comply with all of the
requirements of municipal, county, state, federal and other applicable
governmental authorities, now in force, or which may hereafter be in force,
pertaining to Tenant's use of the Premises, Building, parking and drive areas
and secure any necessary permits. Tenant, in Tenant's use and occupancy of the
Premises, shall not subject the Premises to any use which would tend to damage
any portion thereof or which shall in any way increase the existing rate of any
insurance on the Building (unless Tenant shall elect to pay such increase in
premiums) or any portion thereof or cause any cancellation of any insurance
policy covering the Building or portion thereof. Notwithstanding the above, if a
change in any law, ordinance or regulation requires that the Lot, Building or
Premises be modified in order for Tenant to continue to occupy the Premises for
the Permitted Uses, then in such case Tenant shall be responsible for the cost
of such modification.
9.2 Signs. Tenant shall not install any sign on the exterior of the
Building without Landlord's prior written approval, which approval shall not be
unreasonably withheld or delayed. Any exterior sign shall conform to and be
approved in accordance with the City of Berkeley's Sign Ordinance. Prior to
submission to the City for approval, Tenant shall submit its written Plans to
Landlord for approval. Any sign placed by Tenant on the Premises or Building
shall be installed at Tenant's sole cost and expense, and shall contain only
Tenant's name, or the name of any affiliate of Tenant actually occupying the
Premises and the company logo, and no advertising matter. Tenant shall remove
any such sign upon termination of this Lease and shall return the portion of the
Premises affected by the placement or removal of the sign(s) to their condition
prior to the placement or erection of said sign(s).
9.3 Parking and Parking Access. Any governmental charges or surcharges or
other monetary obligations imposed relative to parking rights with respect to
the Premises, Building and parking area shall be considered as Impositions and
shall be payable by Tenant under the provisions of Article 6 hereinabove.
Landlord shall not charge for parking. Tenant shall have the right, in common
with other tenants and occupants of the Building, and their customers, invitees
and guests, to park in the Building's parking facilities ("Parking Facilities")
without charge subject to the reasonable and non-discriminatory terms and
conditions, as
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may from time-to-time be established by Landlord. Tenant agrees not to
overburden the parking facilities and agrees to cooperate with Landlord and
other tenants in the use of the parking facilities. Landlord reserves the right
in its reasonable and non-discriminatory discretion to determine whether the
parking facilities are becoming crowded and to allocate and assign parking
spaces among tenants, subtenants, customers and invitees. Landlord shall not
discriminate against Tenant in the exercise of any of its rights under this
Article. Landlord shall make available to the tenants of the Building at a
minimum that number necessary to satisfy the City of Berkeley parking
requirements for parking as of the date this Lease is executed seven (7) days
per week, every day of the year in the Parking Facilities. Should Landlord
provide reserved, segregated, preferred, priority, or block parking to other
tenants, the same shall be made available to Tenant on a pro-rata basis.
9.4 Floor Load. Tenant shall not place a load upon any portion of the
floor of the Premises in excess of 300 psi.
9.5 Truck Pickup and Deliveries. All truck deliveries to and from the
Premises, except for mail and small packages, shall be made from the loading
docks which access the Premises and so as to cause the minimum amount of
interference with the business of other tenants. Trucks shall not park or load
or unload in the Parking Facilities, nor shall they block the drive areas and
ingress and egress for vehicles. Landlord reserves the right to post signs
regulating truck access to and from the Building and Lot so long as such
regulation does not discriminate against Tenant.
9.6 Hazardous Materials. Except for ordinary and general office supplies
typically used in the ordinary course of business within offices (some or all of
which may constitute Hazardous Materials pursuant to the terms of this Section
9.6) and which supplies shall be used by Tenant for their prescribed uses in
accordance with the highest standard as may be customary for office use, Tenant
shall not cause or permit the escape, disposal or release of any biologically or
chemically active or other substances or materials which are classified or
deemed hazardous by any agency or are defined as hazardous under any local,
state, or federal environmental statue or regulation, or as defined in CERCLA
(42 U.S.C. subsections 9601(23) and (24))("Hazardous
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Materials"). Tenant shall not allow the storage or use of such Hazardous
Materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of such Hazardous Materials,
nor allow to be brought into the Building or onto the Property any such
Hazardous Materials, except to use in the ordinary course of Tenant's business,
and then, except for ordinary office supplies, only after written notice is
given to Landlord of the identity of such Hazardous Materials. In addition,
Tenant shall execute certificates, representations and the like from
time-to-time at Landlord's lender's request or at a prospective buyer's request
concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Materials on the Premises. In all events, Tenant shall indemnify
Landlord in the manner elsewhere provided in this Lease from any release of
Hazardous Materials in the Premises or on the Property not caused by Landlord or
persons acting under Landlord (including, but not limited to, all costs of
dealing with all governmental agencies with jurisdiction, testing, reporting,
monitoring, remediation, clean-up or disposal for such Hazardous Materials)
occurring while Tenant is in possession, or elsewhere if caused by Tenant or
persons acting under Tenant. The within covenants shall survive the expiration
or earlier termination of the Lease Term.
Landlord shall indemnify Tenant in the manner elsewhere provided in this
Lease from any liability which Tenant may have as the result of any release of
Hazardous Materials in the Building or on the Property (including, but not
limited to, all costs of, dealing with all government agencies with
jurisdiction, testing, reporting, monitoring, remediation, clean-up or disposal
for such Hazardous Materials) caused by Landlord or persons acting under
Landlord, but excluding any tenant or person acting under a tenant. Landlord
hereby represents and warrants that as of the date hereof, to the best of
Landlord's knowledge i.e. that of the partners constituting Landlord, there are
no Hazardous Materials on or about the Premises, the Building or the Lot which
are above the levels permitted by the California Environmental Protection Agency
and other agencies with jurisdiction, and applicable Laws. If Tenant knows or
has reasonable cause to believe, that a Hazardous Substance has come to be
located in, on, under or about the Premises or the Building, other than as
previously consented to by Landlord, Tenant shall immediately give Landlord
written notice thereof, together with a copy of any statement, report, notice,
registration, application, permit,
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license, claim, action or proceeding given to, or received from, any
governmental authority or private party concerning the presence, spill release,
discharge of, or exposure to, such Hazardous Substance including but not limited
to all such documents or statements as may be involved in any Reportable Use
involving the Premises.
10. DAMAGE AND DESTRUCTION
10.1 Reconstruction. If the Premises are damaged or destroyed during the
Term, Landlord shall, provided that repairs thereto can be made within one
hundred eighty (180) days after the date of such damage or destruction and to
the extent that insurance proceeds are available therefor and are not applied by
any lender against payment of an existing loan on the Building or Lot, except as
hereinafter provided, diligently repair or rebuild them to the same or higher
standard in which they existed immediately prior to such damage or destruction.
Notwithstanding the foregoing, as provided in Section 10.4 below, Landlord shall
bear a portion of the amount by which insurance proceeds shall not be available
to repair such damage or destruction to a maximum amount of $50,000.
10.2 Rent Abatement. Monthly Rent and any Additional Rent due and payable
hereunder shall be abated proportionately, during any period in which, by reason
of any such damage or destruction, Tenant reasonably determines that there is
substantial interference with the operation of Tenant's business in the
Premises, having regard to the extent to which Tenant may be required to
discontinue its business in the Premises. Such abatement shall continue for the
period commencing with such damage or destruction and ending with a substantial
completion by Landlord of the work of repair or reconstruction which Landlord is
obligated to do in accordance with the provisions herein. If it be determined by
Tenant in its reasonable determination that continuation of business is not
practical pending reconstruction, Rent due and payable hereunder shall abate to
the extent of proceeds from rental loss insurance until reconstruction is
substantially completed or until business is totally or partially resumed,
whichever is the earlier; provided, however, this limitation on rental abatement
to the extent of rental loss insurance shall only be effective if Landlord
carries such
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insurance and it is in effect at the time of the damage or destruction.
10.3 Excessive Damage or Destruction. If the Premises is damaged or
destroyed to the extent that Landlord, based upon its contractor's advice,
determines that it cannot, with reasonable diligence, be fully repaired or
restored by Landlord within one hundred eighty (180) days after the date of the
damage or destruction, Landlord or Tenant may elect to terminate this Lease.
Notwithstanding the fact that the Premises have been damaged or destroyed,
Landlord, based upon the advice of its contractor, shall determine whether the
Building can be fully repaired or restored within the one hundred eighty (180)
day period, and Landlord's determination shall be binding upon Tenant. Landlord
shall notify Tenant of its determination, in writing, within forty-five (45)
days after the date of the damage or destruction. If Landlord determines that
the Building can be fully repaired or restored within the one hundred eighty
(180) day period, or if it is determined that such repair or restoration cannot
be made within said period but Landlord does not elect to terminate within
forty-five (45) days from the date of said determination, Tenant may terminate
this Lease by giving Landlord notice within the earlier of fifteen (15) days
after the forty-five (45) day period or after receiving notice from Landlord
that it cannot repair within the requisite period and elects not to terminate.
In the event neither Landlord nor Tenant shall elect to terminate this Lease as
set forth above, this Lease shall remain in full force and effect and Landlord
shall diligently repair and restore the damage as soon as reasonably possible
and the Monthly Rent and Additional Rent shall abate as set forth above.
10.4 Uninsured Casualty. Notwithstanding anything contained herein to the
contrary, in the event of damage to or destruction of all or any portion of the
Building in excess of Fifty Thousand Dollars ($50,000) which is not fully
covered by the available insurance proceeds received by Landlord under the
insurance policies required to be carried by Landlord under Article 5
hereinabove, Landlord may terminate this Lease by written notice to Tenant,
given within thirty (30) days after the date of notice to Landlord that said
damage or destruction is not so covered. If Landlord does not elect to terminate
this Lease, the Lease shall remain in full force and effect and the Building
shall be repaired and rebuilt in accordance with the provisions
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for repair set forth in this Article 10. Notwithstanding the above, Tenant shall
have the option for fifteen (15) days after receipt of Landlord's termination
notice to contribute the additional sums over Fifty Thousand dollars ($50,000)
which is not fully covered by the available insurance proceeds received by
Landlord under the insurance policies required to be carried by Landlord under
Article 5 hereinabove necessary to repair and rebuild the Building in which case
Landlord shall proceed to restore the Building as required herein. Said
contribution by Tenant shall not be deemed a loan or entitle Tenant to any
interest in the Building. Notwithstanding anything to the contrary contained in
this Article 10, if the Premises are damaged or destroyed, and (I) Landlord
shall not elect to terminate this Lease by reason thereof, (ii) under the
provisions of this Article 10, Landlord shall not be obligated to repair such
damage or destruction (whether by reason of any application of insurance
proceeds by any lender or otherwise) and (iii) Landlord shall not in fact
repair such damage or destruction, then Tenant shall have the right to
terminate this Lease by written notice to Landlord.
10.5 Waiver. With respect to any destruction which Landlord is obligated to
repair or may elect to repair under the terms of this Article 10, Tenant hereby
waives all rights to terminate this Lease pursuant to rights otherwise presently
or hereafter accorded by law to tenants, including, but not limited to, Civil
Code Sections 1932(2) and 1933(4), except as expressly otherwise provided
herein.
11. EMINENT DOMAIN
11.1 Automatic Termination. If the entire Premises or the Building, or so
much of either as to make the Premises not reasonably adequate for the conduct
of Tenant's business (including the accommodation of all of Tenant's employees
and equipment comfortably therein) notwithstanding restoration by Landlord as
hereinafter provided, shall be taken under the power of eminent domain, this
Lease shall automatically terminate as of the date on which the condemning
authority takes possession.
11.2 Rent Abatement. In the event of any taking of the Premises under the
power of eminent domain which does not so
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result in a termination of this Lease, the Monthly Rent payable hereunder shall
be equitably reduced, effective as of the date on which the condemning authority
takes possession, in an amount based upon Tenant's ability to use and enjoy the
remaining portion of the Premises for its intended purposes under this Lease,
which shall include all of Tenant's precondemnation uses, using Tenant's
proportion of floor area as indication of Tenant's ability to use and enjoy the
remaining Premises. Landlord shall promptly, at its expense, restore the portion
of the Premises not so taken to as near its former condition as is reasonably
possible, and this Lease shall continue in full force and effect. In the event
that the remaining portion of the Premises is not fully restored to the former
condition of the Premises, Tenant will have the right to terminate this Lease as
of the date on which the condemning authority takes possession of the condemned
portion of the Premises upon thirty (30) days' prior written notice to Landlord.
11.3 Condemnation Award. Any award for taking of all or any part of the
Premises or the Building under the power of eminent domain shall be the property
of Landlord, whether such award shall be made as compensation for the diminution
in value of the leasehold or for taking of the fee. Nothing contained herein,
however, shall be deemed to preclude Tenant from obtaining any award to Tenant
for loss of or damage to Tenant's business, "goodwill" or trade fixtures and in
connection with Tenant's relocation, displacement, inability to relocate or the
removal of personal property. Landlord will cooperate with Tenant if Tenant
seeks to recover such amounts, in the same action or a separate action.
11.4 Sale Under Threat of Condemnation. A sale by Landlord to any authority
having the power of eminent domain, either under threat of condemnation or while
condemnation proceedings are pending, shall be deemed a taking under the power
of eminent domain for all purposes under this Article.
12. DEFAULTS; REMEDIES
12.1 Defaults. The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant ("Event of Default"):
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(a) The failure by Tenant to timely make any payment of Rent,
Additional Rent or other payment required to be made by Tenant hereunder,
such failure continuing for a period of five (5) business days after
written notice of such failure.
(b) The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed
by Tenant, other than as specified in (a) above, where such failure shall
continue for a period of thirty (30) days after written notice from
Landlord; provided, however, that if the nature of Tenant's default is such
that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant shall commence such
cure within such thirty (30) day period and thereafter diligently prosecute
such cure to completion.
Any such notice under these sub-paragraphs (a) and (b) shall not be in
lieu of, but in addition to, any notice required under California Code of
Civil Procedure Section 1161.
12.2 Remedies. Upon an Event of Default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
12.2.1 Landlord may continue this Lease in full force and effect, and
this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect rent
when due.
12.2.2 Landlord, if an Event of Default shall have occurred, may
terminate Tenant's right to possession of the Premises at any time by
giving written notice to that effect and, at Tenant's expense, relet the
Premises or any part thereof, including, without limitation, broker's
commissions, expenses of cleaning and redecorating the Premises required by
the reletting and like costs. Reletting may be for a period shorter or
longer than the
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remaining Term of this Lease. Acts of maintenance, efforts to relet the
Premises or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession. On termination, Landlord has
the right to remove all Tenant's personal property, signs and trade
fixtures and store same at Tenant's cost and to recover from Tenant as
damages:
(a) The worth at the time of award of unpaid rent and other sums
due and payable which had been earned at the time of termination; plus
(b) The worth at the time of award of the amount by which the
unpaid rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount
of such rent loss that Tenant proves could have been reasonably
avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid rent and other sums due and payable for the balance of the Term
after the time of award exceeds the amount of such rent loss that
Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary which is to compensate Landlord
for all the detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease, or which, in the
ordinary course of things, would be likely to result therefrom,
including, without limitation, any costs or expenses incurred by
Landlord: (I) in retaking possession of the Premises; (ii) in
maintaining, repairing, preserving, restoring, replacing, cleaning,
altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii)
for leasing commissions; or (iv) for any other costs necessary or
appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as
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may be permitted from time-to-time by the laws of the State of
California.
The "worth at the time of award" of the amounts referred to in
Sections 12.2.2(a) and 12.2.2(b) is computed by allowing interest at
the Interest Rate on the unpaid rent and other sums due and payable
from the termination date through the date of award. The "worth at the
time of award" of the amount referred to in Section 14.2.2(c) is
computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
12.2.3 Landlord may, with the appropriate order from a Court of
competent jurisdiction, with or without terminating this Lease, re-enter
the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No re-entry or taking possession
of the Premises by Landlord pursuant to this Paragraph shall be construed
as an election to terminate this Lease unless a written notice of such
intention is given to Tenant.
12.2.4 No delay or omission of Landlord to exercise any right or
remedy shall be construed as a waiver of any such right or remedy or of any
default by Tenant hereunder.
12.2.5 Notwithstanding any other provision of subsection 12.2,
Landlord shall not have the right to exercise its rights under the Unlawful
Detainer provisions of the Civil Code of Procedure Section 1161 et seq for
the nonpayment of amounts which do not constitute monthly rent, eg.
Operating Expense reimbursements, unless the non monthly rent monetary
payments claimed by Landlord are included in an Unlawful Detainer action
for nonpayment of monthly rent.
12.3 Default by Landlord. Except in emergencies, Landlord shall not be
deemed to be in default in the performance of any obligation required to be
performed by it hereunder unless and until it has failed to perform such
obligation promptly and within thirty (30) days after written notice by Tenant
to
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Landlord specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for its performance then Landlord shall not
be deemed to be in default if it shall commence such performance within such
thirty (30) day period and thereafter diligently prosecute the same to
completion.
13. ASSIGNMENT AND SUBLETTING
13.1 Assignment and Subletting: Prohibition. Tenant shall not assign,
mortgage, pledge or otherwise transfer this Lease, in whole or in part, nor
sublet all or any part of the Premises, without the prior written consent of
Landlord in each instance, which shall not be unreasonably withheld or delayed.
Tenant shall submit each proposed assignment or sublease agreement to Landlord
for Landlord's approval. No assignment or subletting by Tenant shall relieve
Tenant of any obligation under this Lease, including Tenant's obligation to
pay Rent and Additional Rent hereunder. Any purported assignment or subletting
contrary to the provisions hereof without consent shall be void. The consent by
Landlord to any assignment or subletting shall not constitute a waiver of the
necessity for such consent to any subsequent assignment or subletting. Provided,
it shall be reasonable for Landlord to refuse to consent to a proposed
assignment or subletting if the proposed use is not a use generally comparable
to the use of comparable space in the Building, or if the proposed assignee or
sublessee shall require the use of parking in excess of the number of parking
spaces normally used by Tenant, or if the proposed assignee will use any
Hazardous Materials in or about the Premises except those used in normal office
use. Notwithstanding the above, upon prior written notice to Landlord (but
without receipt of Landlord's consent), Tenant may assign or sublet or permit
occupancy of the Premises to or by any person or entity controlling, controlled
by, or under common control (directly or indirectly) with Tenant or anyone who
buys Tenant's business at the Premises and continues to operate the business of
Tenant or to any entity which acquires all or part of Tenant, or which is
acquired in whole or in part by Tenant so long as such transaction was not
entered into as a subterfuge to avoid the obligations and restrictions of the
Lease.
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13.2 Bonus Rental. If for any assignment or sublease, Tenant receives rent
or other consideration, either initially or over the term of the assignment or
sublease, in excess of the Rent called for hereunder, or in case of the sublease
of a portion of the Premises (not including space sharing as permitted above),
in excess of such Rent fairly allocable to such portion, after appropriate
adjustments to assure that all other payments required to be made by Tenant
hereunder are appropriately taken into account ("Profits"), Tenant shall pay to
Landlord, as Additional Rent hereunder, forty percent (40%) of the Profits
received by Tenant promptly after its receipt.
13.3 Scope. The prohibition against assigning or subletting contained in
this Article shall be construed to include a prohibition against any assignment
or subletting by operation of law. If this Lease be assigned, or if the
underlying beneficial interest of Tenant is transferred, or if the Premises or
any part thereof be sublet or occupied by anybody other than Tenant, Landlord
may collect rent from the assignee, subtenant or occupant and apply the net
amount collected to the Rent herein reserved and apportion any excess rent so
collected in accordance with the terms of the immediately preceding paragraph,
but no such assignment, subletting occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, subtenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. No assignment or
subletting shall affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the assignee), and Tenant
shall not be released from performing any of the terms, covenants and conditions
of this Lease.
13.4 Waiver. Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant waives notice of any default of any assignee or sublessee and
agrees that Landlord may, at its option, proceed against Tenant without having
taken action against or joined such assignee or sublessee, except that Tenant
shall have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee.
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13.5 Release. Whenever Landlord conveys its interest in the Building,
Landlord shall be automatically released from the further performance of
covenants on the part of Landlord herein contained; and from any and all further
liability, obligations, costs and expenses, demands, causes of action, claims or
judgments arising from or growing out of, or connected with this Lease after the
effective date of said release. The effective date of said release shall be the
date the assignee executes an assumption of such an assignment whereby the
assignee expressly agrees to assume, as of the date of the assignment, all of
Landlord's future obligations, duties, responsibilities and liabilities with
respect to this Lease. If requested, Tenant shall execute a form of release and
such other documentation as may be required to further effect the provisions of
this Article 13.
14. OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION
14.1 Offset Statement. Within twenty (20) days after receipt of request
therefor by Landlord, or if on any sale, assignment or hypothecation by Landlord
of Landlord's interest in the Building, or any part thereof, an offset statement
shall be required from Tenant, Tenant shall deliver, in recordable form, a
certificate (Estoppel Certificate) to any proposed mortgagee or purchaser, and
to Landlord, certifying (if such be the case) that this Lease is in full force
and effect; the date of Tenant's most recent payment of Rent, the amount of any
security deposit or prepaid rent paid by Tenant, and that Tenant, to the best of
Tenant's knowledge, has no defenses or offsets outstanding, or stating those
claimed by Tenant, that Landlord to the best of Tenant's knowledge (if such be
the case) is not in default under any provision of the Lease and any other
information reasonably requested. Upon Tenant's failure to deliver said
statement in time, Landlord and Landlord's lender or any prospective buyer of
the Building may deem the following as true and rely on such and it shall be
conclusive upon Tenant that: (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord; (b) there are no uncured
defaults in Landlord's performance and Tenant has no right of offset,
counterclaim or deduction against Rent hereunder, and (c) no more than one
period's Base Rent has been paid in advance.
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Landlord hereby agrees to provide to Tenant an Estoppel Certificate signed
by Landlord, containing the same types of information, and within the same
periods of time, as are set forth above, except such changes as are reasonably
necessary to reflect that the Estoppel Certificate is being granted and signed
by Landlord to Tenant or Tenant's lender, assignee or sublessee, rather than
from Tenant to Landlord or to a lender or purchaser.
14.2 Attornment. Tenant shall, in the event any proceedings are brought for
the foreclosure of, or in the event of exercise of the power of sale under any
mortgage or deed of trust made by the Landlord, its successors or assigns,
encumbering the Premises, or any part thereof, or in the event of termination of
a ground lease, if any, and if so requested, attorn to the purchaser upon such
foreclosure or sale or upon any grant of a deed in lieu of foreclosure and
recognize such purchaser as the Landlord under this Lease.
14.3 Subordination & Non-Disturbance. The rights of Tenant hereunder are
and shall be, at the election of the mortgagee, subject and subordinate to the
lien of such mortgage, or the lien resulting from any other method of financing
or refinancing, now or hereafter in force against the Building, and to all
advances made or hereafter to be made upon the security thereof; provided,
however, that notwithstanding such subordination, so long as Tenant is not in
default under any of the terms, covenants and conditions of this Lease with any
applicable cure period having expired, neither this Lease nor any of the rights
of Tenant hereunder upon Tenant's covenanting that Tenant is not in default
hereunder with any applicable cure period having expired, shall be terminated or
subject to termination by any trustee's sale, any action to enforce the
security, or by any proceeding or action in foreclosure. If requested, Tenant
agrees to execute whatever documentation may be reasonably required to further
effect the provisions of this Article.
Landlord agrees to provide Tenant with commercially reasonable
non-disturbance agreement(s) in favor of Tenant from any Superior Mortgagee(s)
of Landlord who later come into existence at any time prior to the expiration of
the Term of the Lease in consideration of, and as a condition precedent to,
Tenant's agreement to be bound by Lease Section 14.3.
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14.4 Financial Statements. If Landlord desires to finance, refinance or
sell the Premises or the Building, or any part thereof, Tenant and all
Guarantors shall deliver to any potential lender or purchaser designated by
Landlord such financial statements of Tenant and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to,
Tenant's financial statements for the past 3 years. All such financial
statements shall be received by Landlord and such Lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
15. NOTICES
15.1 Notices. All notices required to be given hereunder shall be in
writing (except for notice required under the Unlawful Detainer Statutes, which
shall be given according to law) and mailed postage prepaid by certified or
registered mail, or air courier, return receipt requested, by personal delivery,
or by facsimile transmission followed by confirmation of receipt by telephone
with the hard copy immediately forwarded by first class mail to the appropriate
address indicated below or at such other place or places as either Landlord or
Tenant may, from time to time, respectively, designate in a written notice given
to the other. Notices shall be deemed sufficiently served on the date of
facsimile transmission, or four (4) days after the date of mailing thereof, or
upon personal delivery, or one day after deposit with an overnight/next day
courier.
To Landlord: Thomas J. Gram
Fourth Street Partners
5800 Shellmound St., Suite 210
Emeryville, CA 94608
FAX: (510) 652-1967
To Tenant: DaMert Company, Inc.
1609 Fourth Street
Berkeley, CA.
Att: Fred DaMert
FAX: (510)
In the event Landlord shall so designate by written notice to Tenant the
name and address of any beneficiary of a deed of trust or mortgagee covering the
Premises, Tenant shall also send
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to such beneficiary a copy of any notice claiming non-performance or default
sent by Tenant to Landlord.
16. SUCCESSORS BOUND
16.1 Successors Bound. This Lease and each of its covenants and conditions
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, successors and legal representatives and their
respective assigns, subject to the provisions hereof. Whenever in this Lease a
reference is made to the Landlord, such reference shall be deemed to refer to
the person in whom the interest of the Landlord shall be vested, and Landlord
shall have no obligation hereunder as to any claim arising after the transfer of
its interest in the Premises if such vested person or entity shall have assumed
the obligations of Landlord hereunder as of such date. Any successor or assignee
of the Tenant who accepts an assignment or the benefit of this Lease and enters
into possession or enjoyment hereunder shall thereby assume and agree to perform
and be bound by the covenants and conditions thereof. Nothing herein contained
shall be deemed in any manner to give a right of assignment to Tenant without
the written consent of Landlord, except as set forth in Article 13.
17. INTENTIONALLY OMITTED.
18. MISCELLANEOUS
18.1 Waiver. No waiver of any default or breach of any covenant by either
party hereunder shall be implied from any omission by either party to take
action on account of such default if such default persists or is repeated, and
no express waiver shall affect any default other than the default specified in
the waiver, and then said waiver shall be operative only for the time and to the
extent therein stated. Waivers of any covenant, term or condition contained
herein by either party shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
either party to or of any act by either party requiring further consent or
approval shall not be deemed to waive or render unnecessary their consent or
approval to or of any subsequent similar acts.
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18.2 Easements. Landlord reserves the right to (a) alter the boundaries of
the Lot and (b) grant easements on the Lot and dedicate for public use portions
thereof without Tenant's consent; provided, however, that no such grant or
dedication shall materially interfere with Tenant's use of and access to the
Premises or with Tenant's ingress to and egress from the Building.
18.3 Interest. Any amount due from Tenant to Landlord, or from Landlord to
Tenant, hereunder which is not paid when due shall bear interest at the then-
prime/reference rate of Bank of America NT & SA, plus four (4) percentage
points, or the maximum rate allowed by law, if applicable, whichever is less,
from ten (10) days after notice of amount due is given, but the payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
18.4 No Light. Air or View Easement. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to or
in the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
18.5 Partnership and Corporate Authority.
(a) The persons executing the Lease on behalf of Tenant covenant and
warrant that they are officers of Tenant and have been duly authorized and
directed to execute this Lease on Tenant's behalf; further, Tenant shall deliver
to Landlord a duly adopted resolution of the Board of Directors of Tenant, and
certified by the Secretary of the corporation, authorizing the corporation to
enter into this Lease and authorizing and directing the President to execute the
Lease on behalf of the corporation.
(b) The person executing the Lease behalf of Landlord covenants
and warrants that he is the General Partner of Landlord and is authorized to
execute this Lease on Landlord's behalf.
18.6 Accord and Satisfaction. No payment by Tenant or receipt by Landlord
of a lesser amount than the Rent herein stipulated shall be deemed to be other
than on account of the
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Rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy provided in
this Lease.
18.7 Limitation of Landlord's Liability. The obligations of Landlord under
this Lease shall constitute personal obligations of the individual general
partners of Landlord only up to a combined total of $100,000 during the Initial
Term and Option Period, and beyond that amount Tenant shall look solely to the
real estate that is the subject of this Lease and to no other assets of
Landlord, its partners or their personal assets for satisfaction of any
liability in respect of this Lease.
18.8 Lease Guaranty. Concurrently with execution of this Lease, Fred
DaMert ("Guarantor") will execute a Lease Guaranty. Under this Lease and the
Lease Guaranty, the Guarantor shall be personally liable, jointly and severally,
for all of Tenant's obligations arising during the Lease Term, provided,
however, the Lease Guaranty shall not apply to the Option Period. If during the
Initial Term, Tenant is sold or Guarantor sells its entire interest in Tenant,
and another individual with comparable net worth and liquidity executes a Lease
Guaranty in the same form, then Guarantor shall be released from all liability
under the Lease Guaranty. Further, if at the end of the fourth Lease Year of the
Lease, Tenant is not in material default under the Lease, and if the financial
condition of Tenant is as strong or stronger than that of the company at the end
of fiscal year 1995, then Guarantor shall be released from this Guaranty.
18.9 Time. Time is of the essence of every provision hereof.
18.10 Attorneys' Fees. In any action or proceeding, in connection with or
arising out of this Lease, which the Landlord or the Tenant may be required to
prosecute to enforce its respective rights hereunder, the unsuccessful party
therein agrees to pay all costs incurred by the prevailing party therein,
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be made a part of the judgment in said action.
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18.11 Captions and Article Numbers. The captions, article numbers and
table of contents appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent or such sections or articles of this Lease nor in any way affect this
Lease.
18.12 Severability. If any term, covenant, condition or provision of this
Lease, or the application thereof to any person or circumstance, shall to any
extent be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, covenants, conditions or provisions
of this Lease, or the application thereof to any person or circumstance, shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
18.13 Applicable Law. This Lease, and rights and obligations of the
parties hereto, shall be construed and enforced in accordance with the laws of
the State of California.
18.14 Submission of Lease. The submission of this document for examination
and negotiation does not constitute an offer to lease, or a reservation of, or
option for leasing the Premises. This document shall become effective and
binding only upon execution and delivery hereof by Landlord. No act or omission
of any employee or agent of Landlord or of Landlord's broker shall alter,
change, or modify any of the provisions hereof.
18.15 Holding Over. Should Tenant, or any of its successors in interest,
hold over the Premises, or any part thereof, after the expiration of the Term of
this Lease, unless otherwise agreed to in writing, such holding over shall
constitute and be construed as tenancy from month-to-month only, at a monthly
rent equal to one hundred fifty percent (150%) of the Monthly Rent owed during
the final year of the Term of this Lease as the same may be extended from time
to time. This inclusion of the preceding sentence shall not be construed as
Landlord's permission for Tenant to hold over.
18.16 Surrender. Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises to Landlord in good order, condition and
repair, except for reasonable wear and tear or as otherwise provided in Articles
7, 10 and 11. Tenant shall not commit or allow any waste or damage
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to be committed on any portion of the exterior walls, roof or slab. All,
property that Tenant is required to surrender shall become Landlord's property
upon the termination of this Lease. Landlord may cause any of said personal
property that is not removed from the Premises within thirty (30) days after the
date of any termination of this Lease to be removed from the Premises and stored
at Tenant's expense, or, at Landlord's election said personal property
thereafter shall belong to Landlord without the payment of any consideration,
subject to the rights of any person holding a perfected security interest
therein.
18.17 Rules and Regulations. At all times during the Term, Tenant shall
comply with rules and regulations ("Rules and Regulations") for the Building and
the Lot, as set forth in Exhibit "D" (and such amendments as Landlord may
reasonably adopt), attached hereto and by this reference made a part hereof.
Tenant hereby acknowledges that Tenant shall not use in excess of Tenant's pro
rata share of the Building's total parking spaces as more particularly set forth
in Section 9.3. Landlord agrees that the Rules and Regulations of the Building,
attached to the Lease as Exhibit "D", shall not be changed or revised or
enforced in any unreasonable way by Landlord, nor enforced or changed by
Landlord in such a way as to interfere with the Permitted Uses. In the event any
other tenant or occupant of the Building fails to comply with the Rules and
Regulations, and such non-compliance unreasonably interferes with Tenant's use
of the Premises, Landlord shall use reasonable efforts to make such other
tenants and/or occupants comply with the Rules and Regulations.
18.18 No Nuisance. Tenant shall conduct its business and control its
agents, employees, invitees and visitors in such a manner as not to create any
nuisance, or interfere with, annoy or disturb any other tenant or Landlord in
its operation of the Building.
18.19 Broker. Tenant warrants that it has had no dealings with any real
estate broker or agent other than Grubb and Ellis Commercial Real Estate
Services ("Broker") in connection with the negotiation of this Lease, and that
it knows of no other real estate broker or agent who is entitled to any
commission or finder's fee as a result of representing Tenant in connection with
this Lease. Tenant agrees to indemnify Landlord and hold Landlord harmless from
and against any and all claims, demands,
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losses, liabilities, lawsuits, judgments, costs and expenses (including without
limitation, reasonable attorneys' fees and costs) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of Tenant's
dealings with any real estate broker or agent other than Broker. Landlord shall
indemnify Tenant for and hold Tenant harmless from and against any and all
claims of any person (including Landlord's broker) other than Tenant's broker
making a claim based on its representation and/or alleged representation of
Landlord in connection with this Lease and all liabilities arising out of or in
connection with such claim. Landlord shall be responsible for payment of a
commission as set forth in its agreement with CB Commercial Real Estate.
18 .20 Landlord's Right to Perform. Upon Tenant's failure to perform any
obligation of Tenant hereunder, including without limitation, payment of
Tenant's insurance premiums, charges of contractors who have supplied materials
or labor to the Premises, etc., Landlord shall have the right to perform such
obligations of Tenant with prior notification to Tenant on behalf of Tenant and
failure by Tenant to perform within thirty (30) days following receipt of notice
thereof. Tenant shall reimburse Landlord the actual cost of Landlord's
performing such obligation on Tenant's behalf, including reimbursement of any
amounts that may be expended by Landlord, plus interest thereon at the Interest
Rate.
18.21 Mortgage Protection. No act or failure to act on the part of
Landlord which would entitle Tenant under the terms of this Lease, or by law, to
be relieved of Tenant's obligations hereunder or to terminate this Lease, shall
result in a release of such obligations or a termination of this Lease unless
(a) Tenant has given notice by registered or certified mail to any beneficiary
of a deed of trust or mortgagee covering the Premises whose address shall have
been furnished to Tenant, and (b) Tenant offers such beneficiary or mortgagee a
reasonable opportunity to cure the default, including time to obtain possession
of the Premises by power of sale or of judicial foreclosure, if such should
prove necessary to effect a cure. The foregoing shall not apply to the
termination of the Lease pursuant to Section 3.4.
18.22 Abatement of Rent. In the event that Tenant is prevented from using,
and does not use, the Premises or any
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portion thereof, for fifteen(15) consecutive business days or thirty (30) days
in any twelve (12) month period (the "Eligibility Period") as a result of any
damage or destruction to the Premises or any repair, maintenance or alteration
performed by Landlord after the Commencement Date and required by the Lease,
which interferes with Tenant's use of the Premises, or the failure of any
utility for any cause except that of Tenant or anyone acting under Tenant, or
because of an eminent domain proceeding or because of the presence of hazardous
substances in, on or around the Building, the Premises or the site which could,
in Tenant's business judgment and taking into account the standards, guidance
and recommendations included in the definition of Applicable Laws (as set forth
in Section 19.2) with respect to hazardous substances, pose a health risk to
occupants of the Premises, then Tenant's rent shall be abated or reduced, as the
case may be, after expiration of the Eligibility Period for such time that
Tenant continues to be so prevented from using, and does not use, the Premises
or a portion thereof, in the proportion that the rentable area of the portion of
the Premises that Tenant is prevented from using, and does not use, bears to the
total rentable area of the Premises. However, in the event that Tenant is
prevented from conducting, and does not conduct, its business in any portion of
the Premises for a period of time in excess of the Eligibility Period, and the
remaining portion of the Premises is not sufficient to allow Tenant to
effectively conduct its business therein, and if Tenant does not conduct its
business from such remaining portion, then for such time after expiration of the
Eligibility Period during which Tenant is so prevented from effectively
conducting its business therein, the rent for the entire Premises shall be
abated; provided, however, if Tenant reoccupies and conducts its business from
any portion of the Premises during such period, the rent allocable to such
reoccupied portion, based on the proportion that the rentable area of such
reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business operations
commence. If Tenant's right to abatement occurs during the Rent Abatement
Period, such Rent Abatement Period shall be extended for the number of days that
the abatement period overlapped the Rent Abatement Period ("Overlap Period").
Landlord shall have the right to extend the expiration date for a period of time
equal to the Overlap Period if Landlord sends a notice to Tenant of such
election within ten (10) days following the end of the
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extended Rent Abatement Period. If Tenant's right to abatement occurs because of
an eminent domain taking and/or because of damage or destruction to the Premises
or Tenant's property, Tenant's abatement period shall continue until Tenant has
been given sufficient time, and sufficient access to the Premises, to rebuild
the portion of the Premises it is required to rebuild, to install its property,
furniture, fixtures, and equipment and to move in over one (1) weekend. To the
extent Tenant is entitled to abatement because of an event covered by Lease
Sections 10 [Damage & Destruction] or 11 [Eminent Domain], then the Eligibility
Period shall not be applicable.
Subject to the provisions above, Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting from,
nor shall the Rent herein reserved be abated by reason of any failure to furnish
or delay in furnishing any services required to be provided by Landlord when
such failure or delay is caused by accident or any condition beyond the
reasonable control of Landlord or by the making of necessary repairs or
improvements to the Premises or to the Building, or the limitation, curtailment,
rationing or restriction on use of water or electricity, gas or any other form
of energy or any other service or utility whatsoever serving the Premises or the
Building.
18.23 Location of Outdoor Equipment. Tenant shall not locate any equipment
on the roof unless equipment space inside the Premises or on the south side of
the building is unavailable. Further, Tenant shall not locate any equipment at
any other location outside the Premises without Landlord's written consent.
Tenant shall cover any of its roof equipment if required by the City of
Berkeley.
18.24 Modification for Lender. If, in connection with obtaining
construction, interim or permanent financing for the Building, the lender shall
request reasonable modifications in this Lease as a condition to such financing,
Tenant will not unreasonably withhold, delay or defer its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or adversely affect the leasehold interest hereby created or Tenant's
rights hereunder.
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18.25 Recording. Neither Landlord nor Tenant shall record this Lease nor
a short form memorandum thereof without the consent of the other.
18.26 Entire Agreement. This Lease and the Exhibits hereto set forth all
covenants, promises, agreements, conditions and understandings between Landlord
and Tenant concerning the Premises, Building and Lot, and there are no
covenants, promises, agreements, conditions or understandings, either oral or
written, between Landlord and Tenant other than as are herein set forth. Except
as herein otherwise provided, no subsequent alteration, amendment, change or
addition to this Lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed by Landlord and Tenant.
18.27 Roof Penetration. All roof penetrations necessary for any additional
improvements which Tenant wishes to make in addition to the Tenant Improvements
to be installed by Landlord shall be made, at Tenant's option, by Landlord's
contractor or a contractor approved in writing by Landlord. All such costs
incurred by Landlord shall be charged to Tenant, and Tenant shall reimburse
Landlord within thirty (30) days of receipt of Landlord's invoice.
18.28 Landlord's Representations. Landlord represents to Tenant that: (a)
the Building and Lot are zoned for Tenant's use as described in the Basic Lease
Information; and (b) to the best of Landlord's knowledge, there is no asbestos
or other Hazardous Materials in the Building, and if any is found during
construction, it shall be removed by Landlord at Landlord's expense.
19. ADDITIONAL PROVISIONS
19.1 Arbitration. With the exception of the arbitration provisions which
shall specifically apply to Section 4.6 (Fair Market Rental Rate) and the
provisions of the Unlawful Detainer provisions under applicable California Civil
Code which shall apply in the event of the non-payment by Tenant of Monthly
Base Rent and additional rent pursuant to the terms of this Lease, the
provisions of this Section 19.4 contain the sole and exclusive method, means and
procedure to resolve any and all disputes or
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disagreements arising out of or in connection with this Lease, including whether
any particular matter constitutes, or with the passage of time would constitute,
an event of default ("Event of Default"): The parties hereby irrevocably waive
any and all rights to the contrary and shall at all times conduct themselves in
strict, full, complete and timely accordance with the provisions of this
Section. Any and all attempts to circumvent the provisions of this Section shall
be absolutely null and void and of no force or effect whatsoever. As to any
matter submitted to arbitration to determine whether it would, with the passage
of time, constitute an Event of Default, such passage of time shall not commence
to run until any such affirmative determination, so long as it is simultaneously
determined that the challenge of such matter as a potential Event of Default was
made in good faith, except with respect to the payment of money. With respect to
the payment of money, such passage of time shall not commence to run only if the
party which is obligated to make the payment does in fact make the payment to
the other party. Such payment can be made "under protest," which shall occur
when such payment is accompanied by a good-faith notice stating why the party
has elected to make a payment under protest. Such protest will be deemed waived
unless the subject matter identified in the protest is submitted to arbitration
as set forth in the following:
(a) Arbitration Panel. Within ten (10) days after delivery of
written notice ("Notice of Dispute") of the existence and nature of any
dispute given by any party to the other party, and unless otherwise
provided herein in any specific instance, the parties shall apply to the
American Arbitration Association for resolution of the dispute by a three
member panel,
(b) Duty. Consistent with the provisions of this Section, the
members of the Arbitration Panel shall utilize their utmost skill and
shall apply themselves diligently so as to hear and decide, by majority
vote, the outcome and resolution of any dispute or disagreement submitted
to the Arbitration Panel as promptly as possible, but in any event on or
before the expiration of thirty (30) days after the appointment of the
members of the Arbitration Panel. None of the members of the Arbitration
Panel shall have any liability whatsoever for any acts or omissions
performed or omitted in good faith pursuant to the provisions of this
Section.
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(c) Authority. The Arbitration Panel shall (i) enforce and
interpret the rights and obligations set forth in the Lease to the extent
not prohibited by law, (ii) fix and establish any and all rules as it
shall consider appropriate in its sole and absolute discretion to govern
the proceedings before it, including any and all rules of discovery,
procedure and/or evidence, and (iii) make and issue any and all orders,
final or otherwise, and any and all awards, as a court of competent
jurisdiction sitting at law or in equity could make and issue, and as it
shall consider appropriate in its sole and absolute discretion, including
the awarding of monetary damages (but shall not award consequential
damages to either party and shall not award punitive damages except in
situations involving knowing fraud or egregious conduct condoned by, or
performed by, the person who, in essence, occupies the position which is
the equivalent of the chief executive officer of the party against whom
damages are to be awarded), the awarding of reasonable attorneys' fees and
costs to the prevailing party as determined by the Arbitration Panel in
its sole and absolute discretion, and the issuance of injunctive relief.
If the party against whom the award is issued complies with the award,
within the time period established by the Arbitration Panel, then no Event
of Default will be deemed to have occurred, unless the Event of Default
pertained to the non-payment of money by Tenant or Landlord, and Tenant or
Landlord failed to make such payment under protest.
(d) Appeal. The decision of the Arbitration Panel shall be
final and binding, may be confirmed and entered by any court of competent
jurisdiction at the request of any party and may not be appealed to any
court of competent jurisdiction or otherwise except upon a claim of fraud
on the part of the Arbitration Panel, or on the basis of a mistake as to
the applicable law. The Arbitration Panel shall retain jurisdiction over
any dispute until its award has been implemented, and judgment on any such
award may be entered in any court having appropriate jurisdiction.
(e) Compensation. Each member of the Arbitration Panel shall
be compensated for any and all services rendered
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under this Section according to the schedule set by the American
Arbitration Association. Such compensation and reimbursement shall be
borne by the nonprevailing party as determined by the Arbitration Panel in
its sole and absolute discretion.
It is the understanding of the parties hereto that in the event a dispute
or disagreement between Landlord and Tenant shall involve the type and amount
(as may be amended by applicable laws) that could come under the jurisdiction of
the local small claims court, the parties shall submit such dispute or
disagreement to such small claims court for resolution. The decision of the
small claims court shall be final and binding on the parties hereto.
19.2 Premises Security. Subject to Landlord's reasonable approval,
Tenant shall be entitled, at its sole cost, to install its own security systems
for the Premises, which shall be located within the Premises and which shall not
interfere with the Building Systems. Landlord shall not be required to provide
security or security services for the Premises or the Building.
19.3 When Payment Is Due. Whenever a payment is required to be made by one
party to the other under the Lease, but a specific date for payment or a
specific number of days within which payment is to be made is not set forth in
the Lease, or the words "immediately," "promptly" and/or "on demand," or their
equivalent, are used to specify when such payment is due, then such payment
shall be due thirty (30) days after the party which is entitled to such payment
sends written notice to the other party demanding such payment.
19.4 Lease Guaranty. The obligations of Tenant under this Lease have been
guaranteed pursuant to a Lease Guaranty executed by Fred DaMert on the same date
as this Lease.
19.5 Right of First Refusal. Tenant shall have the first right ("First
Right of Refusal") to rent any portion(s) of the Building which become available
after the initial tenancy(ies) for the remainder of the Building terminate,
subject to options and renewals. Tenant's First Right of Refusal shall be
triggered by receipt of written notice from Landlord that the space is available
or will be available, in which case the rent and term will be those for which
Landlord is currently offering the space.
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Tenant shall have 10 business days to exercise its First Right. If Tenant does
not exercise its First Right, it shall be triggered again by Landlord's
execution of a non binding letter of intent with a prospective tenant. Tenant
shall have 10 business to exercise its first right by accepting the terms set
forth in the non binding letter of intent. If Tenant does not exercise its First
Right of Refusal, Landlord shall have the right to enter into any lease
arrangement it elects, whether in conformity with the non binding letter of
intent or on more favorable terms to the tenant. If Tenant exercises its right
to match another offer, and that offer includes a tenant improvement allowance
which is unnecessary for Tenant's needs, the parties shall work out an
alternative arrangement whereby Tenant will receive free rent to make up for the
free allowance and Landlord will receive the effective rent for which it
bargained.
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IN WITNESS WHEREOF, the Parties have executed this Lease as of the date
first above written.
"Landlord" "Tenant"
CEDAR/FOURTH STREET PARTNERS, DAMERT COMPANY,
a California Partnership a California subchapter S
corporation
By: /s/ Thomas Gram By: Fred DaMert
-------------------------- -------------------------------
its President
Thomas J. Gram
Its: General Partner
-------------------------
Edmund B. Taylor, Jr.
Its: General Partner'
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EXHIBIT "A"
PROPERTY LEGAL DESCRIPTION
(To Be Attached)
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DESCRIPTION
Page 1 Order No. 105689 MEW
CITY OF BERKELEY
PARCEL ONE:
THE NORTHWESTERN 100 FEET OF BLOCK "G", ACCORDING TO MAP OF TRACT "B" OF THE
BERKELEY L. T. & I. ASSOCIATION, FILED FEBRUARY 4, 1876, IN THE OFFICE OF THE
COUNTY RECORDER OF SAID ALAMEDA COUNTY, AND OF RECORD IN MAP BOOK 19, PAGE 79.
PARCEL TWO:
BEGINNING AT A POINT ON THE EASTERLY LINE OF 4TH STREET, DISTANT THEREON 100
FEET SOUTHERLY FROM THE SOUTHERLY LINE OF CEDAR, FORMERLY HOLYOKE STREET;
RUNNING THENCE SOUTHERLY ALONG SAID EASTERLY LINE OF 4TH STREET, 51.25 FEET;
THENCE AT RIGHT ANGLES EASTERLY, 125 FEET; THENCE AT RIGHT ANGLES NORTHERLY,
51.25 FEET; THENCE AT RIGHT ANGLES WESTERLY, 125 FEET TO THE POINT OF BEGINNING.
BEING A PORTION OF BLOCK "G", AS SAID BLOCK IS SHOWN ON THE "MAP OF TRACT B OF
THE BERKELEY L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1878, IN BOOK 19 OF MAPS,
PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL THREE:
BEGINNING AT A POINT ON THE WESTERN LINE OF 5TH STREET, DISTANT THEREON 201
FEET, 3 INCHES NORTHERLY FROM THE INTERSECTION THEREOF, WITH THE NORTHERN LINE
OF VIRGINIA STREET, FORMERLY FOLSOM STREET, AS SAID STREETS ARE SHOWN ON THE
MAP HEREIN REFERRED TO; RUNNING THENCE NORTHERLY ALONG SAID LINE OF 5TH STREET,
75 FEET; THENCE AT RIGHT ANGLES WESTERLY, 150 FEET; THENCE AT RIGHT ANGLES
SOUTHERLY, 75 FEET; AND THENCE AT RIGHT ANGLES EASTERLY, 150 FEET TO THE POINT
OF BEGINNING.
BEING A PORTION OF BLOCK "G", ACCORDING TO THE "MAP OF TRACT 'B' OF THE
BERKELEY L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS,
PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL FOUR:
BEGINNING AT A POINT ON THE EASTERN LINE OF 4TH STREET, DISTANT THEREON
SOUTHERLY, 251 FEET, 3 INCHES, FROM THE POINT OF INTERSECTION THEREOF, WITH THE
SOUTHERN LINE OF CEDAR STREET, FORMERLY HOLYOKE STREET, AS SAID STREETS ARE
SHOWN ON THE MAP HEREIN REFERRED TO; RUNNING THENCE SOUTHERLY ALONG SAID LINE
OF 4TH STREET, 100 FEET, MORE OR LESS, TO A POINT ON SAID LINE OF 4TH STREET,
DISTANT THEREON NORTHERLY 251 FEET, 3 INCHES, FROM THE POINT OF INTERSECTION
THEREOF, WITH THE NORTHERN LINE OF VIRGINIA STREET, FORMERLY FOLSOM STREET, AS
SAID STREETS ARE SHOWN ON SAID MAP; THENCE EASTERLY, PARALLEL WITH SAID LINE OF
VIRGINIA STREET, 100 FEET; THENCE NORTHERLY, PARALLEL WITH SAID LINE OF 4TH
STREET, 100 FEET, MORE OR LESS, TO A POINT THAT WOULD BE INTERSECTED BY A LINE
DRAWN EASTERLY FROM THE POINT OF BEGINNING AND AT RIGHT ANGLES TO SAID LINE OF
4TH STREET; AND THENCE WESTERLY ALONG THE LINE SO DRAWN, 100 FEET TO THE POINT
OF BEGINNING.
BEING A PORTION OF BLOCK "G", ACCORDING TO THE "MAP OF BLOCK 'B' OF THE
BERKELEY L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS,
PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
<PAGE> 71
DESCRIPTION
Page 2 Order No. 105689 MEW
PARCEL FIVE:
PORTION OF BLOCK "G", AS SAID BLOCK IS SHOWN ON THE "MAP OF TRACT 'B' OF THE
BERKELEY L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS,
PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY, DESCRIBED AS
FOLLOWS:
BEGINNING AT A POINT ON THE EASTERN LINE OF 4TH STREET, DISTANT THEREON
SOUTHERLY 151.25 FEET FROM THE INTERSECTION THEREOF, WITH THE SOUTHERN LINE OF
CEDAR, FORMERLY HOLYOKE STREET, AS SAID STREETS ARE SHOWN ON THE MAP HEREIN
REFERRED TO; RUNNING THENCE SOUTHERLY ALONG SAID LINE OF 4TH STREET, 100 FEET;
THENCE AT RIGHT ANGLES EASTERLY, 100 FEET; THENCE AT RIGHT ANGLES NORTHERLY,
100 FEET; THENCE AT RIGHT ANGLES WESTERLY, 100 FEET TO THE POINT OF BEGINNING.
PARCEL SIX:
BEGINNING AT A POINT ON THE WESTERN LINE OF 5TH STREET, DISTANT THEREON 276
FEET, 3 INCHES NORTHERLY FROM THE INTERSECTION THEREOF WITH THE NORTHERLY LINE
OF VIRGINIA STREET, FORMERLY FOLSOM STREET, AS SAID STREETS ARE SHOWN ON THE
MAP HEREIN REFERRED TO; RUNNING THENCE NORTHERLY ALONG SAID LINE OF 5TH STREET,
75 FEET; THENCE AT RIGHT ANGLES WESTERLY, 150 FEET; THENCE AT RIGHT ANGLES
SOUTHERLY, 75 FEET; THENCE AT RIGHT ANGLES EASTERLY, 150 FEET TO THE POINT OF
BEGINNING.
BEING A PORTION OF BLOCK "G", AS SAID BLOCK IS SHOWN ON THE "MAP OF TRACT 'B'
OF THE BERKELEY L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1876, IN BOOK 19 OF
MAPS, PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL SEVEN:
PORTION OF BLOCK "G", AS SAID BLOCK IS SHOWN ON MAP OF "TRACT B OF THE BERKELEY
L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS, PAGE 79, IN
THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE WESTERN LINE OF 5TH STREET, DISTANT THEREON
SOUTHERLY 151.25 FEET FROM THE INTERSECTION THEREOF WITH THE SOUTHERN LINE OF
CEDAR, FORMERLY HOLYOKE STREET, AS SAID STREETS ARE SHOWN ON THE ABOVE MAP;
RUNNING THENCE SOUTHERLY ALONG SAID LINE OF 5TH STREET, 101.41 FEET; THENCE AT
RIGHT ANGLES WESTERLY, 150 FEET TO A LINE DRAWN PARALLEL WITH THE EASTERN LINE
OF 4TH STREET, AS SHOWN ON SAID MAP, AND DISTANT AT RIGHT ANGLES 100 FEET
EASTERLY THEREFROM; THENCE AT RIGHT ANGLES ALONG THE LINE SO DRAWN NORTHERLY,
101.41 FEET; THENCE AT RIGHT ANGLES EASTERLY, 150 FEET TO THE POINT OF
BEGINNING.
PARCEL EIGHT:
BEGINNING AT A POINT ON THE WESTERN LINE OF 5TH STREET, DISTANT THEREON 151
FEET, 3 INCHES NORTHERLY FROM THE POINT OF INTERSECTION THEREOF, WITH THE
NORTHERN LINE OF VIRGINIA STREET, FORMERLY FOLSOM STREET; AND RUNNING THENCE
NORTHERLY ALONG SAID LINE OF 5TH STREET, 50 FEET; THENCE AT RIGHT ANGLES
WESTERLY, 150 FEET; THENCE AT RIGHT ANGLES SOUTHERLY, 50 FEET; AND THENCE AT
RIGHT ANGLES EASTERLY, 150 FEET TO THE POINT OF BEGINNING.
BEING A PORTION OF BLOCK "G", AS SAID BLOCK IS SHOWN ON THE "MAP OF TRACT B OF
THE BERKELEY L. T. I. ASSOCIATION," FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS,
<PAGE> 72
DESCRIPTION
Page 3 Order No. 105689 MEW
AT PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL NINE:
BEGINNING AT A POINT ON THE WESTERN LINE OF 5TH STREET, DISTANT THEREON, 100
FEET SOUTHERLY FROM THE SOUTHERN LINE OF CEDAR STREET (FORMERLY HOLYOKE STREET);
RUNNING THENCE SOUTHERLY ALONG SAID LINE OF 5TH STREET, 27 FEET; THENCE AT A
RIGHT ANGLE WESTERLY, 125 FEET; THENCE AT A RIGHT ANGLE NORTHERLY, 27 FEET; AND
THENCE AT A RIGHT ANGLE EASTERLY, 125 FEET TO THE POINT OF BEGINNING.
BEING A PORTION OF BLOCK "G", AS SAID BLOCK IS SHOWN ON THE "MAP OF TRACT 'B' OF
THE BERKELEY L.T.I. ASSOCIATION, ETC.,", FILED FEBRUARY 4, 1876, IN BOOK 19 OF
MAPS, PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL TEN:
THAT PORTION OF BLOCK G, OF "MAP OF TRACT B OF THE BERKELEY L.T.I. ASSOCIATION,"
FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS, AT PAGE 79, RECORDS OF SAID COUNTY,
DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE WESTERLY LINE OF 5TH STREET, DISTANT THEREON 127
FEET SOUTHERLY FROM THE SOUTHERLY LINE OF CEDAR, FORMERLY HOLYOKE STREET; THENCE
SOUTHERLY ALONG SAID LINE OF 5TH, STREET 24-1/4 FEET; THENCE AT RIGHT ANGLES
WESTERLY, 125 FEET; THENCE AT RIGHT ANGLES NORTHERLY, 24-1/4 FEET; THENCE AT
RIGHT ANGLES EASTERLY, 125 FEET TO THE POINT OF BEGINNING.
PARCEL ELEVEN:
THAT PORTION OF BLOCK G OF "MAP OF TRACT B OF THE BERKELEY L.T.I. ASSOCIATION,
ETC.," FILED FEBRUARY 4, 1876, IN BOOK 19 OF MAPS, AT PAGE 79, RECORDS OF SAID
COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE WESTERN LINE OF 5TH STREET, DISTANT THEREON 101 FEET
NORTHERLY FROM THE NORTHERN LINE OF VIRGINIA, FORMERLY FOLSOM STREET, AS SHOWN
ON SAID MAP; THENCE NORTHERLY ALONG SAID WESTERN LINE OF 5TH STREET, 50 FEET, 3
INCHES; THENCE WESTERLY, PARALLEL WITH SAID LINE OF VIRGINIA STREET, 125 FEET TO
A LINE DRAWN PARALLEL WITH THE EASTERN LINE OF 4TH STREET, AS SHOWN ON SAID MAP,
AND DISTANT 125 FEET EASTERLY THEREFROM, MEASURED ALONG SAID NORTHERN LINE OF
VIRGINIA STREET; THENCE SOUTHERLY, PARALLEL WITH SAID LINE OF 4TH STREET, 50
FEET, 3 INCHES; THENCE EASTERLY, PARALLEL WITH SAID LINE OF VIRGINIA STREET, 125
FEET TO THE POINT OF BEGINNING.
ASSESSOR'S PARCEL NO. 057-2116-020-03
<PAGE> 73
Map of Tract B of the
Berkeley Land and Town Improvement
Association
[MAP]
"Important: This plat is not a survey. It is
merely furnished as a convenience to locate the
land in relation to adjoining streets and other
lands and NOT to guarantee any dimensions,
distances, bearings, or acreage."
<PAGE> 74
EXHIBIT "B"
BUILDING FLOOR PLAN AND PREMISES
[To Be Attached]
63
<PAGE> 75
EXHIBIT "C"
PRELIMINARY PLANS
[To Be Attached]
64
<PAGE> 76
EXHIBIT B
[FLOORPLAN]
<PAGE> 1
Exhibit: 10.6FT
AGREEMENT REGARDING CONFIDENTIALITY INFORMATION AND TECHNOLOGY
This is an agreement between FUTECH EDUCATIONAL PRODUCTS, INC., of 2315
N. 35th Avenue, Phoenix, Arizona 85009 (herein "FUTECH") and RECIPIENT
(undersigned to this agreement).
FUTECH has developed or otherwise obtained certain confidential
information and proprietary technology relating to electronic books. RECIPIENT
wishes to negotiate with respect to, and possibly enter into, a business
relationship with FUTECH. However, in order to do so, it is necessary that
RECIPIENT be made aware of confidential information and propriety technology
belonging to FUTECH. FUTECH does not wish to lose the confidentiality or
diminish its rights in the confidential information and technology, and requires
assurances that its rights therein will not be diminished or impaired by virtue
of the dealings with RECIPIENT. In consideration of being made aware of the
confidential information and proprietary technology, RECIPIENT THEREFORE AGREES
AS FOLLOWS:
1. "Technology" means concepts, inventions, technological developments
and improvements, mask works, methods, techniques, systems, documentation, data
and information (irrespective of whether in human or machine-readable form),
works of authorship, and products, whether or not patentable, copyrightable, or
susceptible to any other form of protection and whether or not reduced to
practice.
2. "Confidential Information" means any and all Technology and/or
information which: (i) is provided to RECIPIENT by FUTECH, (ii) is created,
developed, or otherwise generated by or on behalf of FUTECH, (iii) concerns or
relates to any aspect of FUTECH'S business, or (iv) is, for any reason,
identified by FUTECH as confidential: except such information which RECIPIENT
can show, clearly and convincingly: (a) is publicly and openly known and in the
public domain, (b) becomes publicly and openly known and in the public domain
through no fault of RECIPIENT, or (c) is in RECIPIENTS possession and documented
prior to this agreement, lawfully obtained by RECIPIENT from a source other than
from FUTECH, and not subject to any obligation of confidentiality or
restrictions on use.
3. All Confidential Information and all Technology embodying or
comprising Confidential Information is and shall be the sole and exclusive
property of FUTECH. Any Technology embodying or derived from the Confidential
Information, or conceived or first made in connection with the business
relationship shall likewise be the sole and exclusive property of FUTECH.
RECIPIENT shall not take or cause any action which would be inconsistent with or
tend to diminish or impair FUTECH'S rights in the Confidential Information.
RECIPIENT shall not, directly or indirectly, print, copy or otherwise reproduce,
in whole or in part, or embody in any product, any Confidential Information
without FUTECH'S prior consent.
4. Confidential Information is revealed to RECIPIENT in strict
confidence, and solely for the purpose of assessing (and perhaps performing
under) the business relationship. RECIPIENT shall not use, or induce others to
use, any Confidential Information for any other
<PAGE> 2
purpose whatsoever, nor shall it disclose or reveal any Confidential Information
to anyone except those of RECIPIENTS employees directly involved in the business
relationship, with a specific need to know, and who have first agreed to be
bound by the terms of this agreement. RECIPIENT acknowledges that in view of the
nature of the Confidential Information, the geographical scope (universal),
temporal scope ( so long as information qualifies as Confidential Information
hereunder), and scope of restriction on use and disclosure are reasonable.
RECIPIENT also acknowledges that any unauthorized disclosure or use of
Confidential Information would cause FUTECH immediate and irreparable injury or
loss.
5. Upon FUTECH'S request, RECIPIENT will deliver over to FUTECH all
Confidential Information, as well as all documents, media, items and Technology
comprising. embodying, or relating to the Confidential Information as well as
any other documents or things belonging to FUTECH that may be in RECIPIENTS
possession. RECIPIENT shall not retain any copies.
6. This agreement may be amended only in a writing signed by FUTECH,
and there are no other understandings, agreements, or representations, express
or implied. If any clause or provision of this agreement is or becomes illegal,
invalid, or unenforceable, such clause or provisions shall be interpreted to
call for the protection of FUTECH'S rights to the greatest extent which is
legal, valid, and enforceable, unless such clause or provision cannot be so
interpreted, or a court of competent jurisdiction declines to permit such clause
or provision to be so interpreted, in which case such clause or provision shall
be severed and the remaining provisions of this agreement shall continue in full
force and effect. This agreement shall be governed by and construed in
accordance with the internal laws of the State of Arizona.
RECIPIENT:
Address:
By: /s/ Joseph K. Petter
-----------------------------------------
Name: Joseph K. Petter
-----------------------------------------
Title: Vice President Operations
-----------------------------------------
Date: March 4, 1996
-----------------------------------------
<PAGE> 1
Exhibit: 10.6T
SECURITY INTEREST AGREEMENT (#6) October 18, 1991
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including payroll and withholding
taxes, and
WHEREAS the Trudy Corp needs additional cash, and has to date been unable to
secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $10,000 (ten
thousand dollars) via his check # 862 for deposit into the Company's account
820-817-414,
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on February 1, 1992. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: 1/24/92
<PAGE> 1
Exhibit: 10.6FD
FUNDEX GAMES, LTD.
1996 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
FUNDEX GAMES, LTD., a Nevada corporation (the "COMPANY"), hereby grants
to (the "OPTIONEE") an option to purchase a total
of shares of Common Stock (the "SHARES") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1996 Stock Option Plan (the "PLAN") applicable to nonstatutory stock
options which terms and provisions are hereby incorporated by reference herein.
Unless otherwise defined or the context herein otherwise requires, capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1. NATURE OF THE OPTION. This Option is intended to be a nonstatutory
stock option and is NOT intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), or to otherwise qualify for any special tax benefits to the Optionee.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of October
24, 1997 ("OPTION GRANT RULE"), and it may not be exercised later than October
3, 2008.
3. OPTION EXERCISE PRICE. The Option exercise price is $21.00 per
Share, which price is not less than 85% of the fair market value thereof on the
date this Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. This Option shall vest and be
exercisable on the first anniversary of the date of the Option Date.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise this Option,
the number of Shares in respect to which this Option is being
exercised, such other representations and agreements as to the
Optionee's investment intent with respect to such Shares as may be
required by the Company hereunder or pursuant to the provisions of the
Plan. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the exercise price
and by an executed Stock Purchase Agreement if required by the Company.
Payment of the exercise price shall be by cash or by check or by such
other method of payment as is authorized by the Board in accordance
with the Plan. The certificate or certificates for the Shares as to
which the Option shall be exercised shall be registered in the name of
the Optionee and shall be legended as set forth in the Plan, the Stock
Purchase Agreement and/or as required under applicable law. This Option
may not be exercised for a fraction of a Share.
<PAGE> 2
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other
laws or regulations. As a condition to the exercise of this Option, the
Company may require the Optionee to make such representations and
warranties to the Company as may be required by any applicable law or
regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No
rights as a shareholder shall exist with respect to the Shares subject
to the Option as a result of the grant of the Option. Such rights shall
exist only after issuance of a stock certificate in accordance with
Section 8 (d) (i) of the Plan following the exercise of the Option as
provided in this Agreement and the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of
this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his
own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or
controlling persons and by reason of his business or financial
experience, has, and could be reasonably assumed to have, the capacity
to evaluate the merits and risks of purchasing Common stock of the
Company and to make an informed investment decision with respect
thereto and to protect Optionee's interests in connection with the
acquisition of this Option and the Shares.
6. TERMINATION OF STATUS AS AN EMPLOYEE.
(a) If the Optionee's Continuous Employment terminates for any
reason other than death or Disability, the Optionee shall have the right to
exercise the Option at any time within 30 days after the date of such
termination to the extent that the Optionee was entitled to exercise the Option
at the date of such termination (subject to any earlier termination of the
Option as provided by its terms).
(b) If the Optionee's Continuous Employment terminates due to
the death or Disability of the Optionee, the Option may be exercised at any time
within 180 days after the date of such termination, in the case of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, or, in the case of Disability, by the Optionee
(subject to any earlier termination of the Option as provided by its terms).
(c) If the Optionee's Continuous Employment terminates for
cause, as determined in the Plan, Optionee's right to exercise any Option shall
immediately cease upon such Termination For Cause.
(d) Notwithstanding the foregoing regarding the exercise of
the Option after the termination of Continuous Employment, the Option shall not
be exercisable after the expiration of its term, as set forth in Section 2
herein, and the Option may be exercised only to the extent the Optionee was
entitled to exercise it on the date Optionee's Continuous Employment with the
Company terminated. To the extent that the Optionee was not entitled to
2
<PAGE> 3
exercise the Option at the date of termination, or to the extent the Option is
not exercised within the time specified herein, the Option shall terminate.
7. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution or a transfer between spouses
incident to a "divorce" within the meaning of Section 1041 (a) of the Code, and
may be exercised during the lifetime of the Optionee only by such Optionee or
his or her legal guardian. Subject to the foregoing and the terms of the Plan,
the terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
8. CONTINUATION OF EMPLOYMENT. Neither this Option, the Plan nor any
Option granted thereunder shall (a) confer upon the Optionee any right
whatsoever to continue in the employment of the Company or any of its
Subsidiaries or (b) limit or restrict in any respect the rights of the Company,
which rights are hereby expressly reserved, to terminate the Optionee's
employment and compensation at any time for any reason whatsoever, with or
without cause, in the Company's sole discretion and with or without notice.
9. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration or other amounts
payable to the Optionee any taxes required to be withheld by federal, state or
local law as a result of the grant or exercise of this Option or the sale or
other disposition of the Shares issued upon exercise of this Option.
10. THE PLAN. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Company's
Plan as such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without his
consent, of this Option or any rights hereunder. Pursuant to the Plan, the Board
is authorized to adopt rules and regulations not inconsistent with the Plan as
it shall deem appropriate and proper. A copy of the Plan in its present form is
available for inspection at the Company's principal office during business hours
by the Optionee or the persons entitled to exercise this Option.
11. ENTIRE AGREEMENT. The terms of this Agreement and the Plan
constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
FUNDEX GAMES, LTD., a Nevada corporation
Date: By:
Title:
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this Agreement.
The Optionee hereby agrees to accept as binding,
3
<PAGE> 4
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Date: Signature of Optionee
Address
City State Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL AND MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF A STOCK PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE
HOLDER OF THIS OPTION AND THE COMPANY UPON EXERCISE OF THIS OPTION, A COPY OF
WHICH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY.
4
<PAGE> 1
Exhibit: 10.6D
CORDEV CORPORATION [LOGO] Corporate Development
Suite 400, Stanford Financial Square
2600 El Camino Real, Palo Alto, California
94306 - 650-493-9111
June 15, 1998
Dr. Gail Patton DaMert, C E 0
The DaMert Company
1609 Fourth Street
Berkeley, CA 94710
(mailed to Kentfield address)
Dear Gail:
This letter is an exclusive "Finder" agreement between CorDev Corporation
("CorDev"), and the DaMert Company ("Client"), under which CorDev will act as
Client's exclusive Project Manager for the disposition of all or a part of
Client's stock and/or assets (the "Sale").
If anyone other than CorDev should approach Client with the name of a potential
buyer "Prospect", Client will refer them to CorDev without in any way obligating
Client or CorDev to paying them a fee. If any potential Prospects have in the
past contacted Client or in the future should contact Client directly, they are
also included in this Agreement and shall be referred by Client to CorDev.
In the event of a Sale during the term of this Agreement, Client will pay CorDev
a "Success Fee" in cash at the time of the legal Closing of the Sale. The
Success Fee shall be: $200,000 plus 2% of the total Sale price paid. This
Success Fee is contingent upon the Closing of the Sale; if no sale is made, no
Success Fee is due. If any part of the Sale's consideration shall be contingent
upon future earnings or the determination of any other fact in the future, the
2% portion of CorDev's Success Fee payable on those amounts shall be paid at the
same time as such contingent payments are made to Client or its shareholders. In
all other cases, payment to CorDev shall be made at the Closing as provided
above.
For purposes of this Agreement, the words "merger", "consolidation", "sale", and
"acquisition of the seller" are synonymous.
In addition to said Success Fee and whether or not a sale is closed, Client
agrees to pay CorDev a retainer fee of $4,000 per month due in advance monthly
commencing July 1, 1998.
<PAGE> 2
Client also agrees to reimburse CorDev monthly for reasonable out-of-pocket
expenses incurred by CorDev in connection with the performance of this
Agreement. These expenses shall include travel, telephone, and similar
out-of-pocket disbursements, but shall exclude personnel time, indirect overhead
and similar costs related to the operation of CorDev's business. All large
expenses, e.g., travel, shall require preapproval by Client before being
incurred. Reimbursement invoices shall be accompanied by such accounting and
substantiation as Client shall reasonably request.
CorDev agrees that it will not disclose any information regarding Client which
Client directs it not to disclose. Except as contemplated by this Agreement or
necessary to carry out the transactions herein contemplated, all information or
documents furnished by Client to CorDev shall be kept confidential and in the
event that no Sale is consummated, shall be returned to Client by CorDev.
After November 30, 1998, this Agreement may be terminated by either Client or
CorDev at any time for any reason by giving written notice to the other party at
least 30 days prior to termination date. If this Agreement is terminated, and
within 18 months after the date of said termination a closing of Sale as
hereinabove described occurs between Client and one or more of those Prospects
that have been identified to Client by CorDev or with whom CorDev has been in
contact on behalf of Client, then Client shall pay CorDev the full Success Fee
due it as if this Agreement had not been terminated.
This Agreement shall become effective July 1, 1998, and shall not be amended
except by written agreement signed and accepted by both Client and CorDev.
ACCEPTED AND AGREED: ACCEPTED AND AGREED:
DaMert Company CorDev Corporation
/s/ R. P. Oliver
- -------------------------------- -----------------------------------
BY: Gail P. DaMert, CEO BY: R. P. Oliver, President
6-15-98
- ---------------- ----------------
(date) (date)
<PAGE> 1
Exhibit: 10.7FT
FUTECH EDUCATIONAL PRODUCTS, INC.
EMPLOYMENT CONTRACT
DATED AS OF FEBRUARY 1, 1997
The following sets forth the agreement by and between Joseph K. Petter
("Employee") and Futech Educational Products, Inc., an Arizona corporation
("Futech"), as to the employment of the Employee by Futech.
1. POSITIONS AND DUTIES. Futech shall employ Employee and Employee shall accept
employment from Futech, during the term of this Agreement, upon the terms and
subject to the conditions set forth below. Employee's duties as Chief Operating
Officer shall be subject to the direction and control of Futech's Chairman and
Chief Executive Officer, Vincent W. Goett or his designee.
2. ACTIVITIES RELATING TO THE CORPORATION'S BUSINESS. At all times during the
term of this Agreement, the Employee shall devote his full energies, interest,
abilities and productive time to the performance of this duties and
responsibilities hereunder. During the term of this Agreement, and for a period
of two (2) years thereafter, Employee shall not, without the prior written
consent of Futech, which consent may be withheld for any or no reason, directly
or indirectly, owned, managed, operate, control, be employed by, participate in,
render services to, make loans to, or be connected in any manner with the
ownership, management, operation, or control of any business located in the
United States, or any other foreign country in which Futech does business or
intends to do business, which business conducts business the same or
substantially similar to any type of business ever conducted by Futech or
proposed to be carried on by Futech.
In the event of any actual or threatened breach of the provisions of this
Section, Futech shall be entitled to an injunction restraining the actual or
threatened breach. The parties further agree that should Employee violate the
provisions of this Section, Employee shall be liable to Futech for, in addition
to any amounts pursuant to other remedies available against Employee, two (2)
times the greater of the amount of profit earned by Employee as a result of the
violation and the amount of profit which would have been earned by Futech from
the activities causing the violation had Futech conducted said activities, plus
interest on said greater amount calculated at eighteen percent (18%) per annum
from the date of the violating activities until paid, as liquidated damages for
only Futech's loss of potential profits. Nothing in this Section shall be
construed as prohibiting Futech from pursuing any other available remedies for
such breach or threatened breach, including pursuing a recovery for damages.
Employee shall not, during the term of this Agreement and for a period of
two (2) years thereafter, without the prior written consent of Futech, which
consent may be withheld for any reason, directly or indirectly induce, encourage
or solicit or assist any person who was or is employed (whether as employee or
as independent contractor) by Futech during the time period described above in
this sentence to leave Futech's employ. If Employee has any control over, or
responsibility with respect to, the hiring of employees, agents or consultants
at any facility or with any other employer, Employee shall do everything in
Employee's power to preclude the
<PAGE> 2
hiring of or retention by such other employer or facility of any individual who
was employed by Futech during the period of time described in the beginning of
the proceeding sentence.
Employee acknowledges and agrees that the restrictions contained in this
Agreement, including but not limited to time period and geographical area
restrictions, are fair and reasonable and necessary for the successful operation
of Futech, that violation of any of them would cause irreparable injury, and
that the restrictions contained herein are not unreasonably restrictive of
Employee's ability to earn a living. If the scope of any restriction in this
Section is too broad to permit enforcement of such restriction to its fullest
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and all parties hereto consent and agree that such scope may be modified
judicially or by arbitration in any proceeding brought to enforce such
restriction. Employee acknowledges and agrees that remedies at law for any
breach or violation of the provisions of this Section would alone be inadequate,
and agrees and consents that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity of proof of
actual damage, and such remedies shall be in addition to other remedies and
rights Futech may have at law or in equity. Employee agrees that Futech shall
not be required to give notice or post any bond in connection with applying for
or obtaining any such injunctive relief.
The parties acknowledge and agree that the covenants in this Section shall
be construed as an agreement independent of any other provision of this
Agreement so that the existence of any claim or cause of action by Employee
against Futech, whether predicated on this Section or otherwise, shall not
constitute a defense to the enforcement of this Section.
3. CONFIDENTIALITY AGREEMENTS. The obligations of the Employee and the rights
of Futech set forth herein are in addition to those set forth in a certain
Employee Confidentiality Agreement executed by the Employee (the
"Confidentiality Agreement").
4. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to and
covenants with Futech, that (a) he has furnished to Futech a true and correct
copy of any agreements with any prior employer in the securities industry and is
subject to no contractual or other restriction or obligation which is
inconsistent with the execution of this letter agreement, the performance of his
duties hereunder, or any rights of Futech hereunder or under the Confidentiality
Agreement, (b) upon information and belief, there are no regulatory,
self-regulatory, administrative, civil or criminal matters past or present,
affecting the employment of Employee by Futech.
5. SALARY. Employee will receive a salary of no less than $125,000 for the
first year of employment and no less than $175,000 per year for the second
through fifth years of employment. Such salary shall be payable in equal
periodic installments in accordance with Futech's usual practice, but not less
frequently than twice monthly, and shall be subject to payroll and withholding
deductions as may be required by law.
Futech may defer Employee's compensation for the first six (6) months of
this
2
<PAGE> 3
Agreement, other than $4,000.00 per month (net, excluding all applicable Federal
and State taxes, Social Security and Medicare) which shall not be deferred.
After said six (6) months, the deferred amount shall be paid to Employee.
6. BENEFITS. During the term of his employment, Employee shall be eligible to
participate in, subject to their respective terms, all Futech employee (i) group
medical, hospitalization and life insurance plans, (ii) pension and profit
sharing plans, and (iii) other benefit plans or programs. Futech shall pay or
reimburse Employee for all out-of-pocket expenses for travel, meals, hotel
accommodations and the like reasonably incurred by him in accordance with
Futech's policies and directives (including any required prior approvals) for
such expenses in connection with the performance of Futech's business, each such
payment for reimbursement to be made upon submission of a statement and evidence
documenting such expenses as required by Futech. During the term of this letter
agreement, Employee shall be entitled to an annual paid vacation of such period
as may be established from time to time by Futech for its managerial employees
generally (other than its President, C.E.O., and/or Chairman).
7. TERM. The term of this letter agreement shall commence on February 1, 1997
and shall continue in effect as to Employee until January 2002, or until
such time as terminated as provided in paragraph 8, 9, 10 and 11. Upon
termination of this agreement pursuant to paragraph 8 or 9, Futech's sole
obligation to Employee shall be to pay all salary and stock options, if any,
accrued by him up to the date of such termination. Upon termination of this
agreement, Employee's obligations under the Confidentiality Agreement shall
survive.
8. TERMINATION UPON DEATH. In the event of the death of Employee, the employment
of, and this agreement with respect to, such deceased Employee shall be
terminated; provided always that Futech shall pay any accrued salary and any
accrued stock options, if any, as of the date of termination to the legal
representative of his estate.
9. TERMINATION FOR DISABILITY. Futech may terminate the employment of, and this
Agreement with respect to, Employee who becomes disabled, including disability
by reason of any emotional or mental disorders, physical diseases or injuries,
and as a result of such disability is unable to work on a full-time basis for a
continuous period of two months or more or any two months in a twenty four month
period. Upon such termination, Futech shall have no further liability to such
disabled Employee hereunder, except to pay any accrued salary and accrued stock
options, if any, as of the termination date. Upon such termination, such
disabled Employee's obligation to Futech under the Confidentiality Agreement
shall survive.
10. TERMINATION OF CAUSE. Futech may terminate the employment of, and this
agreement with respect to, Employee if (a) such Employee breaches his fiduciary
duties to Futech or is guilty of fraud or willful malfeasance, (b) such Employee
materially breaches any representation, warranty, covenant or agreement
contained in this agreement or fails to perform any of the obligations under
this agreement or duties assigned to him pursuant to his agreement or otherwise
by Futech, (c) if Employee materially misrepresents any statement to Futech, (d)
such Employee is convicted of a crime involving moral turpitude or a felony, (e)
such Employee
3
<PAGE> 4
knowingly commits a material violation of any law, rule, regulation or by-law of
a securities exchange or association or other regulatory or self-regulatory body
or agency applicable to any general policy or directive of Futech communicated
in writing to such Employee, (f) such Employee fails to follow reasonable
instructions and/or policies of Futech's Chairman of the Board and Chief
Executive Officer, or (g) such Employee terminates this Agreement at any time.
Upon termination of this letter agreement pursuant to this paragraph
10, Futech's sole obligation to Employee shall be to pay all accrued salary.
However, this shall not affect Employee's vested benefits under paragraph 6.
Upon such termination, Employee's obligation to Futech under the
Confidentiality Agreement shall survive.
11. TERMINATION OTHER THAN FOR CAUSE. Futech retains the right to terminate this
agreement and/or Employee's employment for cause as set forth in paragraph 10,
and notwithstanding anything to the contrary in this letter agreement Futech
shall have the right to terminate this agreement and/or Employee's employment
hereunder at any time for any reason other than for cause. In such event Futech
shall pay to Employee all salary as it accrued during the term of the contract,
subject, however, to Employee's obligation to look for and obtain suitable
employment. Employee's obligation to Futech under the Confidentiality Agreement
shall survive.
Employee shall provide Futech at least thirty (30) days notice of
Employee's termination of his employment with Futech.
12. REVIEW. On August 1, 1997 and on each of the subsequent six month periods
thereafter during the term of employment, Vincent W. Goett shall provide
Employee with an informal verbal review of the Employee's performance.
Concurrent with the eighth semi-annual verbal review of performance, Vincent W.
Goett and Employee shall discuss the potential for Employee's continued
employment subsequent to the termination of this Agreement. Futech makes no
promises and has no obligation to so continue Employee's employment.
13. SUCCESSORS AND ASSIGNS. The rights and obligations of Futech hereunder shall
inure to the benefit of and shall be binding upon the successors and assigns of
Futech; provided, however, that Futech's obligations or liabilities hereunder
may not be assigned without the prior written approval of Employee, except to an
affiliate of Futech (which assignment shall not release Futech from its
obligations to Employee hereunder) or to a successor to all or substantially all
of Futech's assets, business or stock that agrees to be bound hereby. This
letter agreement is personal to the Employee and may not be assigned.
14. AMENDMENT OR WAIVER. This letter agreement may not be amended or modified
except by an agreement in writing duly executed by the Chairman and Chief
Executive Officer of Futech and the Employee. The failure of Futech, on the one
hand, or the Employee, on the other hand, at any time to enforce performance by
the other of any provision of this letter
4
<PAGE> 5
agreement shall in no way affect Futech's or the Employee's, as the case may be,
rights thereafter to enforce the same, nor shall the waiver by Futech, on the
one hand, or the Employee, on the other hand, of any breach of any provision
hereof be deeded to be a waiver by Futech or the Employee, as the case may be,
of any other breach of the same or any other provision hereof.
15. ARBITRATION. Except as set forth in the Confidentiality Agreement, any
controversy or claim arising out of or relating to this letter agreement, or the
breach hereof, shall be settled by arbitration in accordance with the rules of
the American Arbitration Association. Judgment upon the award of the
arbitrator(s) may be entered in any court having jurisdiction thereof.
16. MISCELLANEOUS. The invalidity or unenforceability of any provision of this
letter agreement shall not affect the validity or enforceability of any other
provision hereof. This letter agreement shall be constructed, interpreted and
enforced in accordance with the laws of the State of Arizona. This letter
agreement contains all of the terms and conditions agreed to by the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, except those set forth in the Confidentiality
Agreement.
FOREGOING AGREED TO:
By: /s/ Joseph K. Petter
------------------------
Joseph K. Petter
BY: Futech Educational Products,
Inc., an Arizona corporation
By /s/ Vincent W. Goett
------------------------
Vincent W. Goett, Chairman
Chief Executive Officer
5
<PAGE> 1
Exhibit: 10.7T
SECURITY INTEREST AGREEMENT (#7) January 24, 1992
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including payment of the first half
of the royalty advance to the National Wildlife Federation, and
WHEREAS the Trudy Corp needs additional cash, and has to date been unable to
secure financing from other sources, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $12,500
(twelve thousand five hundred dollars) via his check # 894 for deposit into the
Company's account 820-817-414,
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on April 1, 1992. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
goods are imported and paid for by Trudy; the collateral interest shall be
reduced pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: 1/24/92
<PAGE> 1
Exhibit: 10.7FD
FUNDEX GAMES, LTD.
NONSTATUTORY EMPLOYEE STOCK OPTION AGREEMENT
FUNDEX GAMES, LTD., a Nevada corporation (the "COMPANY"), hereby grants
to (the "OPTIONEE") an option to purchase a total
of shares of Common Stock (the "SHARES") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1996 Stock Option Plan (the "PLAN") applicable to nonstatutory stock
options which terms and provisions are hereby incorporated by reference herein.
Unless otherwise defined or the context herein otherwise requires, capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1. NATURE OF THE OPTION. This Option is intended to be a nonstatutory
stock option and is NOT intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), or to otherwise qualify for any special tax benefits to the Optionee.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of October
24, 1997 ("OPTION GRANT DATE"), and it may not be exercised later than October
3, 2006.
3. OPTION EXERCISE PRICE. The Option exercise price is $4.00 per Share,
which price is not less than 85% of the fair market value thereof on the date
this Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. This Option shall vest and be
exercisable on the first anniversary of the date of the Option Grant
Date.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise this Option,
the number of Shares in respect to which this Option is being
exercised, such other representations and agreements as to the
Optionee's investment intent with respect to such Shares as may be
required by the Company hereunder or pursuant to the provisions of the
Plan. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the exercise price
and by an executed Stock Purchase Agreement if required by the Company.
Payment of the exercise price shall be by cash or by check or by such
other method of payment as is authorized by the Board in accordance
with the Plan. The certificate or certificates for the Shares as to
which the Option shall be exercised shall be registered in the name of
the Optionee and shall be legended as set forth in the Plan, the Stock
Purchase Agreement and/or as required under applicable law. This Option
may not be exercised for a fraction of a Share.
<PAGE> 2
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other
laws or regulations. As a condition to the exercise of this Option, the
Company may require the Optionee to make such representations and
warranties to the Company as may be required by any applicable law or
regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No
rights as a shareholder shall exist with respect to the Shares subject
to the Option as a result of the grant of the Option. Such rights shall
exist only after issuance of a stock certificate in accordance with
Section 8 (d) (i) of the Plan following the exercise of the Option as
provided in this Agreement and the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of
this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his
own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or
controlling persons and by reason of his business or financial
experience, has, and could be reasonably assumed to have, the capacity
to evaluate the merits and risks of purchasing Common stock of the
Company and to make an informed investment decision with respect
thereto and to protect Optionee's interests in connection with the
acquisition of this Option and the Shares.
6. TERMINATION OF STATUS AS AN EMPLOYEE.
(a) If the Optionee's Continuous Employment terminates for any
reason other than death, Disability, or Termination For Cause, the
Optionee shall have the right to exercise the Option at any time within
30 days after the date of such termination to the extent that the
Optionee was entitled to exercise the Option at the date of such
termination (subject to any earlier termination of the Option as
provided by its terms).
(b) If the Optionee's Continuous Employment terminates due to
the death or Disability of the Optionee, the Option may be exercised at
any time within 180 days after the date of such termination, in the
case of death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, or, in the case
of Disability, by the Optionee (subject to any earlier termination of
the Option as provided by its terms).
(c) If the Optionee's Continuous Employment terminates due to
Termination For Cause, as determined in the Plan, Optionee's right to
exercise any Option shall immediately cease upon such Termination For
Cause.
(d) Notwithstanding the foregoing regarding the exercise of
the Option after the termination of Continuous Employment, the Option
shall not be exercisable after the expiration of its term, as set forth
in Section 2 herein, and the Option may be exercised only to the extent
the Optionee was entitled to exercise it on the date Optionee's
Continuous Employment with the Company terminated. To the extent that
the Optionee was not entitled to
<PAGE> 3
exercise the Option at the date of termination, or to the extent the Option is
not exercised within the time specified herein, the Option shall terminate.
7. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution or a transfer between spouses
incident to a "divorce" within the meaning of Section 1041 (a) of the Code, and
may be exercised during the lifetime of the Optionee only by such Optionee or
his or her legal guardian. Subject to the foregoing and the terms of the Plan,
the terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
8. CONTINUATION OF EMPLOYMENT. Neither this Option, the Plan nor any
Option granted thereunder shall (a) confer upon the Optionee any right
whatsoever to continue in the employment of the Company or any of its
Subsidiaries or (b) limit or restrict in any respect the rights of the Company,
which rights are hereby expressly reserved, to terminate the Optionee's
employment and compensation at any time for any reason whatsoever, with or
without cause, in the Company's sole discretion and with or without notice.
9. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration or other amounts
payable to the Optionee any taxes required to be withheld by federal, state or
local law as a result of the grant or exercise of this Option or the sale or
other disposition of the Shares issued upon exercise of this Option.
10. THE PLAN. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Company's
Plan as such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without his
consent, of this Option or any rights hereunder. Pursuant to the Plan, the Board
is authorized to adopt rules and regulations not inconsistent with the Plan as
it shall deem appropriate and proper. A copy of the Plan in its present form is
available for inspection at the Company's principal office during business hours
by the Optionee or the persons entitled to exercise this Option.
11. ENTIRE AGREEMENT. The terms of this Agreement and the Plan
constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
FUNDEX GAMES, LTD., a Nevada corporation
Date: By:
Title:
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and
<PAGE> 4
provisions thereof and of this Agreement. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under the Plan.
Date: Signature of Optionee
Address
City State Zip Code
<PAGE> 5
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL AND MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF A STOCK PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE
HOLDER OF THIS OPTION AND THE COMPANY UPON EXERCISE OF THIS OPTION, A COPY OF
WHICH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY.
<PAGE> 1
Exhibit: 10.7D
13 July 1995
Mr. Gregory McVey
THE DAMERT COMPANY
2476 Verna Court
San Leandro, California 94577
Re: Special Executive Incentive Compensation Plan: The DaMert Company
Dear Greg:
The DaMert Company, a California corporation ("the Corporation") is
offering you the opportunity to participate in a Special Executive Incentive
Compensation Plan ("the Plan"). The terms of the Plan are set forth below.
1. Purpose: The purpose of this Plan is to advance the growth and
prosperity of the Corporation by providing certain key employees with an
additional incentive to contribute to the best interests of the Corporation. The
plan provides participants with the economic equivalent of owning stock in the
company. As the value of the Corporation's stock increases, recipients of the
"Units" will see a proportionate increase in the value of their "Units".
2. Administration of the Plan: This Plan shall be administered by
the Board of Directors of the Corporation. The Board of Directors shall have the
power to interpret the Plan, to make regulations for carrying out its purpose,
and to make all other determinations in connection with its administration.
3. Interpretation of Terms and Conditions: The Board of Directors'
interpretation of the terms and provisions of the Plan shall be final, binding,
and conclusive.
4. The Special Executive Incentive Compensation Plan: A
participating executive is awarded by the Board of Directors a certain number of
"Units", each of which is hypothetically assumed to represent one share of stock
of the Corporation. This Plan measures the amount of benefit to be realized by a
participating executive with reference to the increase in the value of the
Corporation as reasonably determined by the Board of Directors. These Units
generally are vested over five (5) years, with twenty percent (20%) earned one
year after award, forty percent (40%) earned two years after award, sixty
percent (60%) earned three years after award, etc. The Board may provide
supplemental awards which incorporate appropriate performance
<PAGE> 2
objectives. The effective date of the award is January 1 and annual vesting date
is December 31.
The December 31, 1993 per-Unit value is equal to the Corporation's
net-worth divided by one hundred thousand (100,000) Units. The future value for
awarded Units will be the Corporation's year-end net-worth divided by the total
Units then outstanding. The number of outstanding Units will be adjusted to
reflect transactions affecting the number of outstanding shares of common stock.
A participant under the plan at no time owns any issued stock of the
Corporation, nor any of the rights (including any voting or dividend rights) of
a stockholder of the Company.
The Corporation, in making Unit grants, may choose to provide for
antidilution. In such event the Units granted to any employee shall be adjusted
so as to maintain a target percentage interest in the Corporation until a
certain aggregate number of Units shall be outstanding. The antidilution rights
shall apply only to transactions pursuant to which Units are issued to employees
pursuant to this or any other employee incentive compensation plan.
For purposes of simplifying administration and providing an
objective means of determining the value of the Corporation, the Board of
Directors has determined to use book value as annually determined by the
auditors of the Corporation. This value will be utilized until such time as an
event of liquidity shall occur. An event of liquidity shall mean the sale of
substantially all of the assets of the Corporation or a disposition of a
controlling interest by the holders of the outstanding common stock in an
arm's-length transaction with an unrelated party.
When the event of liquidity occurs it is anticipated that the Board
of Directors will structure the transaction in such a manner as to fund the
Corporation's commitment under the Special Executive Incentive Compensation Plan
to the Plan participants. The Board currently anticipates that the Corporation
will seek a buyer at such time as the level of $15 million in annual sales, with
$1.5 million of pretax profits, has been achieved.
If an executive departs the Corporation, for any reason, the vested
Units will be valued at the prior year-end's book value. At the Corporation's
option, the increase in value of the vested Units from the value at Award will
be paid in full to the executive within 90 days of exercise, or in 24 equal
monthly payments commencing 90 days after exercise, plus 8% simple interest
("Repurchase Rights").
5. Eligibility: Only senior executives of the Corporation shall be
eligible to participate in the Plan, with participants to be determined at the
sole discretion of the
<PAGE> 3
Board of Directors. In determining the employees to whom Units shall be
rewarded, the Board of Directors may take into account the nature of the
services rendered by the respective employees, their present and potential
contributions to the success of the Corporation, and such other factors as the
Board of Directors in its discretion shall deem relevant. The Corporation shall
affect the granting of Units under the Plan in accordance with the determination
made by the Board of Directors. Participants in the Plan may be added or
subtracted for any succeeding year, at the complete discretion of the Board of
Directors. Participation in one year's award of Units will not in any way
obligate the Corporation to provide participation to that participant in
succeeding years. The Board may further make conditional grants and/or adopt
modified vesting schedules to provide targeted incentives to senior managers.
6. Termination of Employment: In the event your employment with the
Corporation, or any related entity, terminates, other than upon permanent
disability or death, the vested percentage will be determined with reference to
the schedule that is set forth in the award certificate. If an executive departs
the Corporation, for reasons other than death or permanent disability, the
vested Units will be valued at the prior year-end's book value and shall be
subject to the Repurchase Rights set forth above.
7. Death or Permanent Disability: In the event of death or permanent
disability, the vested percentage shall be one hundred percent. Upon the
occurrence of any of those events, you or your legally authorized representative
shall hold the Units subject to the Repurchase Rights set forth above.
8. Amendments: The Board of Directors of the Corporation shall have
the power at any time to add to, amend or repeal any of the provisions of the
Plan, to suspend the operation of the entire Plan or of any provision or
provisions thereof, for any period or periods or to terminate the Plan in whole
or in part, provided, however, that no such addition, amendment, repeal,
suspension, or termination shall in any way affect the rights of the holders of
Units which have vested in accordance with the provisions hereof.
9. Nontransferability: No Unit granted to an employee pursuant to
this Plan may be sold, pledged, assigned, or transferred in any manner during
his or her lifetime.
<PAGE> 4
By signing this letter, the undersigned acknowledges that they have read
the above-described Plan, and agree to be bound by its terms and conditions as
set forth herein.
Very truly yours,
Fred DaMert, President
ACCEPTED AND AGREED:
______________________________________
Gregory McVey
<PAGE> 5
CERTIFICATE OF BASIC AWARD
Special Executive Incentive Compensation Plan
1994 Participation Units
Plan Participant:
Gregory McVey
The Board of Directors of DaMert Company hereby issues you 3,093 Units of
participation in the Company for the year 1994. The value per Unit at the date
of issue (1/1/94) is computed below.
This award is made pursuant to the plan description of January 1, 1994, a copy
of which is attached.
The Company will provide you an annual benefit statement to determine your
vested percentage as well as the formula value of your interest in the Company.
December 31, 1993 value per Unit, based on 100,00 Units outstanding = $6.55
1994 Participation Unit vesting schedule:
<TABLE>
<S> <C> <C>
12/31/94 20%
12/31/95 40%
12/31/96 60%
12/31/97 80%
12/31/98 100%
</TABLE>
These Units equal 3% of the total Units outstanding as of the date of grant and
shall not be subject to dilution until the aggregate interests of all employees
(including all grants to you) in the Company shall equal 20%.
<PAGE> 6
[DAMERT COMPANY LOGO]
July 27. 1998
TO: Fred and Gail DaMert
FROM: Greg McVey
SUBJECT: Phantom Stock Adjustment
Gail and Fred.
A couple actions, regarding my stock incentive program:
At Bob Oliver's suggestion, I need to formally "memorialize" your gesture to
advance my phantom stock position another 1% (from 3% to 4%) as a part of my
contribution in 1997. I appreciate this gesture and just want your written
acknowledgment that this was done in our '97 bonus review meeting in Spring,
'98.
Please let me know what the next step is and thank you.
Greg
/s/ Greg
<PAGE> 1
Exhibit: 10.8FT
AGREEMENT REGARDING INVENTIONS
THIS AGREEMENT is made as of the 17th day of October, 1997, by and
between Zeb Billings ("Consultant") and Futech Educational Products, Inc., an
Arizona corporation ("Futech").
R E C I T A L S:
A. Consultant frequently creates inventions, new ways of combining
existing products and technology, and generally improved ways of doing things.
B. Futech desires to acquire certain rights in connection with future
inventions, and Consultant is willing to grant those rights, all upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, for $10.00 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
T E R M S:
1. DEFINITIONS. The following terms shall have the following meanings
when used in this Agreement:
1.1 "COMPLETION" means the processing and refinement of an Invention
to the stage of creation of a useable prototype.
1.2 "DEVELOPMENT COSTS" means all out of pocket costs of Consultant
incurred directly for the design of an Invention, or incurred in designing or
manufacturing a prototype, or incurred for professional fees in connection with
research regarding the patentability of the Invention, and accounting fees
incurred in creating cost or sales projections associated with the Invention.
1.3 "DISCLOSURE MATERIALS" means all drawings, prototypes, and
manufacturing, marketing, distributing and sales plans and/or projections
associated with an Invention, a detailed list of all Development Costs for the
Invention, and any and all other information regarding the Invention in the
possession of or available to Consultant which would be useful in evaluating the
commercial viability of the Invention.
1.4 "FUTECH FIELD" means any products or services in the field,
area, or industry of any product manufactured, marketed, distributed or sold, or
any service marketed or sold, by Futech, or any subsidiary of Futech, or any
such product or service which Futech or any subsidiary of Futech contemplates
manufacturing, marketing, distributing or selling.
1.5 "INVENTION" means each and every idea, concept or development
involving
<PAGE> 2
an invention, a new way of combining existing products and/or technology, and/or
an improved way of doing things, pursued during the term of this Agreement by
Consultant, in the Futech Field, including ideas, etc. which have been pursued
prior to commencement of this Agreement but which have not yet reached
completion prior to commencement of this Agreement, and includes all ideas, etc.
pursued during the term of this Agreement but which reach completion after the
expiration of this Agreement. Any and all alterations and/or improvements to an
Invention shall be included within the definition of "Invention" hereunder.
1.6 "NET SALES" means for any calendar quarter: (i) the gross sales
of Futech, or a subsidiary of Futech, for the calendar quarter for sales of
products or services using an Invention, including however only the portion of
sales relating solely to the Invention, (ii) minus all freight charges for
products so sold, co-op advertising expenses, promotional allowances, placement
fees, and special freight considerations associated with those sales, (iii)
minus the sales price of all returns, received in the calendar quarter, of sales
on which Royalties were paid, and (iv) minus the face amount of any receivable
for a sale for which a Royalty was paid, which receivable is 120 or more days
past due (each receivable may only be subtracted from Net Sales once; aggregate
receivables from a customer including both sales for which Royalties were paid
and other sales shall be allocated between Royalty sales and non-Royalty sales
in the same proportion as the sales which generated the receivables). Net Sales
shall be calculated on a "sales made" (accrual) basis and not on a "cash
collected" basis.
1.7 "ROYALTIES" have the meaning given that term in Section 3 below.
2. RIGHT OF FIRST REFUSAL. Consultant hereby grants Futech, and Futech
shall have, a right of first refusal with respect to all Inventions worked on by
Consultant during the term of this Agreement. Upon Completion of an Invention,
Consultant shall present to Futech the completed Invention, and all Disclosure
Materials relating to the Invention, and Futech shall have ninety (90) days from
receipt of said Disclosure Materials to determine whether or not to acquire the
Invention.
If Futech does not exercise its right to acquire the Invention, then
Consultant shall be entitled to enter into a transaction with a third party for
the manufacturing, marketing, distribution and/or sales of the Invention, and
Futech shall not be obligated to pay any Development Costs or other expenses
associated with the Invention..
If Futech elects to acquire an Invention, then Futech shall pay
Consultant, within one hundred twenty (120) days after Futech's election to
acquire the Invention, an amount equal to the Development Costs associated with
the Invention, and, simultaneously with said payment, Consultant shall
irrevocably and unconditionally, without additional cost to Futech, transfer to
Futech: (i) all rights associated with the Invention, including all intellectual
property rights relating thereto, (ii) all documents and things which relate to
and embody the Invention, including all copies thereof, all prototypes, (iii)
all equipment and materials provided by or paid for by Futech, whether as part
of the Development Costs or otherwise, and (iv) the Disclosure Materials
relating to the Invention. At no additional cost to Futech, Consultant shall
execute any
2
<PAGE> 3
and all documents necessary or appropriate in connection with the transfer to
Futech of all rights relating to the Invention, and will aid Futech in preparing
any and all applications necessary or appropriate to transfer the rights, and/or
to patent, copyright or trademark the Invention.
3. ROYALTIES.
(a) Futech shall pay Consultant royalties ("Royalties") equal to
five percent (5%) of the Net Sales of Futech or any subsidiary of Futech.
Notwithstanding the foregoing, if there shall be an
extraordinary amount of returns relating to an Invention, or if sales relating
to the Invention are being discontinued, Futech shall be entitled to withhold
from payments of Royalties amounts sufficient in Futech's reasonable discretion
to cover future returns and uncollectible receivables.
To the extent not offset against sales as provided for in
Section 1.6 above, Consultant shall be obligated to reimburse Futech, within
twenty (20) days after demand is made therefor, for any Royalties received for
(ii) products returned or (ii) receivables not collected within 120 days.
Royalties are payable only on Inventions which are genuinely new
and different. If Futech elects to acquire an Invention under Section 2 above,
the Invention shall be deemed to be new and different.
(b) Royalties shall be paid by Futech on a calendar quarter basis,
by the thirtieth day of the month following the quarter to which the Royalties
relate.
(c) Futech shall furnish Consultant with a summary statement of all
sales generating Royalties under this provision, quarterly by the thirtieth day
of the month following the quarter to which the statement relates.
(d) Notwithstanding any provision of this Agreement, no Royalties
shall be payable in connection with any Invention for more than ten (10) years
after Royalties are first paid in connection with the Invention.
4. ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior understandings, if any, with
respect thereto. The parties do not intend to confer any benefit hereunder on
any person, firm, or corporation other than the parties hereto. No
representation, warranty, or agreement herein may be relied upon by any person
not a party to this Agreement. There are no oral promises, conditions,
representations, understandings, interpretations, or terms of any kind as
conditions or inducements to the execution hereof, or in effect between the
parties, except as may otherwise be expressly provided herein.
5. FURTHER ASSURANCES. The parties agree to do such further acts and
things and
3
<PAGE> 4
to execute and deliver such additional agreements and instruments as either
party may reasonably require to consummate, evidence, or confirm the agreement
contained herein in the manner contemplated hereby.
6. CONSTRUCTION. Each party and its counsel have reviewed and revised
this Agreement, or had an opportunity to review and revise this Agreement, and
any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not apply to the interpretation of this
Agreement or any amendment or exhibits hereto.
7. MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
8. PARTIAL INVALIDITY. In the event any portion of this Agreement shall
be declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal, or unenforceable portion had never been part of this
Agreement. Further, any court striking any portion of this Agreement shall
modify the stricken terms as narrowly as possible to give as much effect as
possible to the intentions of the parties, as such intentions existed at the
time of the execution of this Agreement.
9. AUTHORITY. Each party for itself, its heirs, personal
representatives, successors, and assigns hereby represents and warrants that it
has the full capacity and authority to enter into, execute, deliver, and perform
this Agreement, that such execution, delivery and performance does not violate
any contractual or other obligation by which it is bound, and that this
Agreement constitutes an agreement binding upon, and enforceable against, that
party.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
11. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the laws of the State of
Arizona. The parties agree that any litigation or arbitration arising from the
interpretation or enforcement of this Agreement shall be either in Maricopa
County Superior Court or in the United States Federal District Court for the
District of Arizona, and for this purpose each party to this Agreement (and each
person who shall become a party) hereby expressly and irrevocably consents to
the exclusive jurisdiction of such courts.
12. ATTORNEY'S FEES. In the event of any litigation or other proceeding
concerning this Agreement, the prevailing party(s) shall be entitled to recover
its costs, reasonable attorneys' fees, and other reasonable expenses.
13. TITLES AND HEADINGS. Titles and headings of sections of this
Agreement are for
4
<PAGE> 5
the convenience of reference only, are not intended to define, limit or describe
the scope or intent of any provision of this Agreement, and shall not affect the
construction of any provision of this Agreement.
14. TIME. Time is of the essence of each and every provision of this
Agreement.
DATED the date first hereinabove written.
CONSULTANT: /s/ Zeb Billings
-----------------------------------
Zeb Billings
FUTECH: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
---------------------------------
Vincent W. Goett, CEO
5
<PAGE> 1
Exhibit: 10.8T
SECURITY INTEREST AGREEMENT (#9) April 30, 1992
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including those for catalog
development and photography, and has to pay Westvaco $7,000 for new packaging,
and
WHEREAS the Trudy Corp has to date been unable to secure financing from other
sources for general purpose funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $15,000
(fifteen thousand dollars) for its use for operating purposes.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on Sept 1, 1992. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: 4/30/92
<PAGE> 1
Exhibit: 10.8FD
FUNDEX GAMES, LTD.
STOCK PURCHASE AGREEMENT
This Agreement is made as of the ______ day of _________ 199 , by and
between Fundex Games, Ltd., a Nevada corporation (the "COMPANY"), And
_______________________ ("OPTIONEE"). Unless the context herein otherwise
requires, capitalized terms used herein shall have the same meaning as such
capitalized terms have under the Plan.
R E C I T A L S
A. Optionee was granted a Stock Option (the "Option") on October 24,
1997 pursuant to the Company's 1996 Employee Stock Option Plan (the "Plan"), the
terms and conditions of which are incorporated herein by reference.
B. Pursuant to said Option, Optionee was granted the right to purchase
shares of the Company's common stock, as adjusted in accordance with the (the
"Optioned Shares").
C. Optionee has elected to exercise the Option to purchase
________________________ of such Optioned Shares (herein referred to as the
"Shares") under the Stock Option Agreement evidencing said Option (the "Option
Agreement").
D. As required by the Option Agreement, as a condition to Optionee's
exercise of his or her Option, Optionee must execute this Agreement which gives
the Company the right of first refusal upon transfer.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1 . EXERCISE OF OPTION. Subject to the terms and conditions hereof,
Optionee hereby agrees to exercise his or her Option or a portion thereof to
purchase ________ Shares at $________ per Share, payable in accordance with the
terms and provisions of the Option Agreement.
2. COMPANY'S RIGHT TO REPURCHASE SHARES.
(a) If an Optionee ceases to serve as an Employee for any reason,
including death, Disability or Termination for Cause, and thereby terminates his
or her Continuous Status As An Employee, the Company shall have the right to
repurchase all of the Shares purchased by Optionee hereunder, at a price to be
determined as set forth below. Such right on the part of the Company shall
commence upon the last day of such Optionee's Continuous Status As An Employee
(the "Termination Date") and shall expire on the 90th day after the Termination
Date.
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<PAGE> 2
(b) The repurchase price shall be an amount equal to the higher of the
exercise price of the Option or 100% of the fair market value of the shares
underlying the option on the date of termination of employment, times the number
of shares to be repurchased. The repurchase price may be paid by the Company by
check, evidence of cancellation of indebtedness of Optionee to Company, or some
combination thereof, as the Company acting in its sole discretion determines.
3. RIGHT OF FIRST REFUSAL. Before any Shares registered in the name of
Optionee may be sold or transferred (including transfer by operation of law),
such Shares shall first be offered to the Company at the same price, and upon
the same terms (or terms as similar as reasonably possible), in the following
manner:
(a) Optionee shall deliver a notice ("Notice") to the Company stating
(i) his or her bona fide intention to sell or transfer such Shares, (ii) the
number of such Shares to be sold or transferred, (iii) the price for which he or
she proposes to sell or transfer such Shares, and (iv) the name of the proposed
purchaser or transferee.
(b) Within 30 days after receipt of the Notice, the Company or its
assignee may elect to purchase any or all Shares to which the Notice refers, at
the price per share and on the same terms (or terms as similar as reasonably
possible) specified in the Notice.
(c) If all or a portion of the Shares to which the Notice refers are
not elected to be purchased pursuant to paragraph 3(b) hereof, Optionee may sell
the Shares not purchased by the Company to any person named in the Notice at the
price and terms specified in the Notice or at a higher price, provided that such
sale or transfer is consummated within 60 days of the date of said Notice to the
Company, and provided, further, that any such sale is in accordance with all the
terms and conditions hereof.
In the event of any transfer by operation of law or other involuntary transfer
(including, but not limited to, by will or by the laws of descent or
distribution) where there is no price established as a matter law, the Company
shall have the right to repurchase all of the Shares purchased by Optionee
hereunder, at a price to be determined as set forth in Section 2(b) above. In
such event, Optionee or Optionee's estate shall notify the Company promptly
after the happening of the event giving rise to the involuntary transfer. Within
30 days after receipt of such Notice, the Company or its assignee may elect to
purchase any or all Shares to which the Notice refers.
4. TERMINATION OF REPURCHASE RIGHT AND RIGHT OF FIRST REFUSAL. Optionee's
obligations and the Company's rights under paragraphs 2 and 3 above shall
terminate upon the earlier of (i) the first sale of Common Stock by the Company
to the public which raises an aggregate of not less than $10,000,000.00 and
which is effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act"), or (ii) the merger or
consolidation of the Company into, or the sale of all or substantially all of
the Company's assets to, another corporation, if immediately after such merger,
consolidation or sale of assets, at least 50% of the capital stock of the
Company or such other corporation is
2
<PAGE> 3
owned by persons who are not holders of capital stock of the Company immediately
prior to such merger, consolidation or sale.
5. ASSIGNMENT. The Company may assign its rights under paragraphs 2 and
3 hereof to one or more persons, who shall have the right to so exercise such
rights in his or her own name and for his or her own account. If the exercise of
any such right requires the consent of the Nevada Securities Commissioner or the
consent of the Securities Commissioner, or the equivalent, of another state, the
parties agree to cooperate in requesting such consent.
6. ADJUSTMENT. If, from time to time during the term of the right of
first refusal available pursuant to paragraph 3 hereof:
(a) There is any stock dividend or liquidating dividend of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Company; or
(b) There is any consolidation, merger or sale of all or substantially
all of the assets of the Company;
then, in such event, any and all new, substituted or additional securities or
other property to which Optionee is entitled by reason of his or her ownership
of Shares shall be immediately subject to the right of first refusal set forth
in paragraph 3 hereof, and be included in the word "Shares" for all purposes
with the same force and effect as the Shares presently subject to such right of
first refusal (provided, however, if such consolidation, merger or sale of all,
or substantially all, of the assets of the Company causes a termination of the
right of first refusal set forth in paragraph 3 hereof, then such new,
substituted or additional securities or other property shall not be included in
the word "Shares" for the purposes of this paragraph).
7. LEGENDS. All certificates representing any Shares of the Company
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form unless in the opinion of the Company's
counsel such legends are no longer necessary:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER, OR ITS PREDECESSOR IN INTEREST, COPY OF WHICH
IS ON FILE WITH THE SECRETARY OF THE COMPANY."
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
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<PAGE> 4
8. INVESTMENT REPRESENTATIONS. Unless the Shares have been registered
under the Act in which event the Company will so advise Optionee in writing,
Optionee agrees, represents and warrants, in connection with the proposed
purchase of the Shares, as follows:
(a) Optionee represents and warrants that he or she is purchasing the
Shares solely for Optionee's own account for investment and not with a view to,
or for resale in connection with any distribution thereof within the meaning of
the Act. Optionee further represents that he or she does not have any present
intention of selling, offering to sell or otherwise disposing of or distributing
the Shares or any portion thereof, and that the entire legal and beneficial
interest of the Shares Optionee is purchasing is being purchased for, and will
be held for the account of, Optionee only and neither in whole nor in part for
any other person.
(b) Optionee represents and warrants that he or she is aware of the
Company's business affairs and financial condition and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision to
acquire the Shares. Optionee further represents that he or she has a preexisting
personal or business relationship with the officers and directors of the Company
and that Optionee has such knowledge and experience in business and financial
matters to enable him to evaluate the risks of the prospective investment and to
make an informed investment decision with respect thereto and that he or she has
the capacity to protect his or her own interests in connection with the purchase
of the Shares. Optionee further represents and warrants that Optionee has
discussed the Company and its plans, operations and financial condition with its
officers, has received all such information as he or she deems necessary and
appropriate to enable Optionee to evaluate the financial risk inherent in making
an investment in the Shares and has received satisfactory and complete
information concerning the business and financial condition of the Company in
response to all inquiries in respect thereof.
(c) Optionee represents and warrants that he or she realizes that
Optionee's purchase of the Shares will be a speculative investment and that he
or she is able, without impairing Optionee's financial condition, to hold the
Shares for an indefinite period of time and to suffer a complete loss on his or
her investment.
(d) Optionee represents and warrants that the Company has disclosed to
him or her in writing: (i) the sale of the Shares has not been registered under
the Act, and the Shares must be held indefinitely unless a transfer of them is
subsequently registered under the Act or an exemption from such registration is
available, and that the Company is under no obligation to register the Shares;
and (ii) the Company shall make a notation in its records of the aforementioned
restrictions on transfer and legends.
(e) Optionee represents and warrants that he or she is aware of the
provisions of Rule 144, promulgated under the Act, which, in substance, permits
limited public resale of restricted securities acquired, directly or indirectly,
from the issuer thereof (or an affiliate of such issuer) in a non-public
offering subject to the satisfaction of certain conditions, including among
other things: the resale occurring not less than one (1) year from the date
Optionee has purchased and paid for the Shares; the availability of certain
public information concerning the Company; the sale being through a broker in an
unsolicited "brokers' transaction" or in a
4
<PAGE> 5
transaction directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and that any sale of the Shares may be made by
Optionee, if he or she is an affiliate of the Company, only in limited amounts
during any three-month period not exceeding specified limitations. Optionee
further represents that Optionee understands that at the time he or she wishes
to sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, he or she may be precluded from selling the Shares under Rule 144
even if the one-year minimum holding period had been satisfied. Optionee
represents that he or she understands that in the event the applicable
requirements of Rule 144 are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
(f) Without in any way limiting Optionee's representations and
warranties set forth herein, Optionee further agrees that he or she shall in no
event make any disposition of all or any portion of the Shares which Optionee is
purchasing unless and until:
(i) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or
(ii) Optionee shall have (x) notified the Company of the
proposed disposition and furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition,
and (y) furnished the Company with an opinion of his or her own counsel
to the effect that such disposition will not require registration of
such shares under the Act, and such opinion of his or her counsel shall
have been concurred in by counsel for the Company and the Company shall
have advised Optionee of such concurrence.
9. ESCROW. As security for his or her faithful performance of the terms
of this Agreement and to insure the availability for delivery of Optionee's
Shares upon exercise of the Company's right to repurchase and right of first
refusal herein provided for, Optionee agrees to deliver to and deposit with the
Secretary of the Company or the Secretary's nominee (in either case, the "Escrow
Agent"), as Escrow Agent in this transaction, two Assignment Separate From
Certificates duly endorsed (with date and number of shares blank) in the form
attached hereto as Attachment A, together with the certificate or certificates
evidencing the Shares; said documents are to be held by the Escrow Agent and
delivered to said Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and Optionee set forth in Attachment B attached hereto and incorporated
herein by this reference, which instructions shall also be delivered to the
Escrow Agent at the closing hereunder.
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<PAGE> 6
10. RESTRICTION ON ALIENATION. Optionee agrees that he or she will not
sell, transfer, gift, pledge, hypothecate, assign or otherwise dispose of any of
the Shares or any right or interest therein, whether voluntary, by operation of
law or otherwise, without the prior written consent of the Company, except a
transfer which meets the requirements of this Agreement. Any sale, transfer,
gift, pledge, hypothecation, assignment or disposition or purported sale,
transfer or other disposition of such Shares by Optionee shall be null and void
unless the terms, conditions and provisions of this Agreement are strictly
observed.
11. LOCKUP AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock or other securities of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by the Optionee during the period not to exceed 180 days as
requested by the managing underwriter following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, provided that all officers and directors of the Company are required or
agreed to enter into similar agreements. Such agreement shall be in writing in a
form satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares or other securities
subject to the foregoing restriction until the end of such period.
12. MISCELLANEOUS.
(a) The Company shall not be required (i) to transfer on its books any
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (ii) to treat as owner of such Shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
(b) Subject to the provisions of this Agreement, Optionee shall, during
the term of this Agreement, exercise all rights and privileges of a stockholder
of the Company with respect to the purchased Shares.
(c) The parties agree to execute such further instruments and to take
such further action as may reasonably be necessary to carry out the intent of
this Agreement.
(d) Any notice required or permitted hereunder shall be writing and
shall be deemed effectively given upon personal delivery or deposit in the
United States Post Office, by registered or certified mail with postage and fees
prepaid, addressed to the other party hereto at his or her address hereinafter
shown below his or her signature or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
(e) This Agreement shall inure to the benefit of the successors and
assigns of the Company and, subject to all compliance with the restrictions on
transfer herein set forth, be binding upon Optionee, his or her heirs,
executors, administrators, and permitted successors and assigns.
(f) This Agreement shall be construed under the laws of the State of
Nevada and constitutes the entire Agreement of the parties with respect to the
subject matter hereof
6
<PAGE> 7
superseding all prior written or oral agreements, and no amendment or addition
hereto shall be deemed effective unless agreed to in writing by the parties
hereto.
(g) Optionee agrees that, until a public market for the Shares exists,
the Shares cannot be readily purchased, sold, or evaluated in the open market,
that they have a unique and special value, and that the Company and its
stockholders would be irreparably damaged if the terms of this Agreement were
not capable of being specifically enforced, and for this reason, among others,
Optionee agrees that the Company shall be entitled to a decree of specific
performance of the terms hereof or an injunction restraining violation of this
Agreement, said right to be in addition to any other remedies of the Company.
(h) If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force and effect without being impaired or
invalidated in any way and shall be construed in accordance with the purposes
and tenor and effect of this Agreement.
(i) Nothing in this Agreement shall be deemed to create any term of
employment or affect in any manner whatsoever the right or power of the Company
to terminate Optionee's employment, for any reason, with or without cause.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FUNDEX GAMES, LTD., a Nevada corporation
By: ____________________________________
Title: _________________________________
OPTIONEE
________________________________________
Address:________________________________
________________________________________
7
<PAGE> 8
CONSENT
The undersigned spouse of Optionee acknowledges that he/she has read
the foregoing Agreement and agrees that his or her interest, if any, in the
Shares subject to the foregoing Agreement shall be irrevocably bound by this
Agreement and further understands and agrees that any community property
interest, if any, shall be similarly bound by this Agreement.
Date: ____________________________ ________________________________________
Spouse of Optionee
Spouse's Name: _________________________
8
<PAGE> 9
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _______________________________ hereby sells,
assigns and transfers unto _______________________________________ (________)
shares of the Common Stock (the "Shares") of Fundex Games, Ltd. a Nevada
corporation (the "Company"), standing in the undersigned's name on the books of
the Company represented by Certificate No. ________ herewith, and does hereby
irrevocably constitute and appoint _______________ attorney to transfer the
Shares on the books of the Company with full power of substitution in the
premises.
Dated: _________________________________
Signature: _____________________________
9
<PAGE> 10
ATTACHMENT B
JOINT ESCROW INSTRUCTIONS
____________________, 199__
Secretary
Fundex Games, Ltd.
P.O. Box 22128
Indianapolis, Indiana 46222
Dear ____________________:
As Escrow Agent for both Fundex Games, Ltd., a Nevada corporation (the
"COMPANY"), and the undersigned grantee of an option to purchase stock of the
Company ("OPTIONEE") you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
Agreement (the "AGREEMENT"), dated as of ___________, 199_, to which a copy of
these Joint Escrow Instructions is attached as Attachment B, in accordance with
the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the "COMPANY") shall elect
to exercise the repurchase right set forth in Section 2 of the Agreement or the
right of first refusal set forth in Section 3 of the Agreement (collectively,
"REPURCHASE RIGHTS"), the Company shall give to Optionee and you a written
notice specifying the number of shares of stock to be purchased, the exercise
price, and the time for a closing hereunder at the principal office of the
Company. Optionee and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the exercise price (by check, evidence of
cancellation of indebtedness of Optionee to the Company or a promissory note, or
some combination thereof) for the number of shares of stock being purchased
pursuant to the exercise of the Repurchase Rights.
3. Optionee irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said stock as defined in the Agreement. Optionee
does hereby irrevocably constitute and appoint you as his attorney-in-fact and
agent for the term of this escrow to execute with respect to such securities all
stock certificates, stock assignments, or other
10
<PAGE> 11
documents necessary or appropriate to make such securities negotiable and
complete any transaction herein contemplated.
4. This escrow shall terminate at such time as there are no longer any
shares of stock subject to the Repurchase Rights under the Agreement.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Optionee,
you shall deliver all of same to Optionee and shall be discharged of all further
obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Optionee while acting in good faith
and in the exercise of your own good judgment, and any act done or omitted by
you pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary or proper to advise you in connection with
your obligations hereunder and may rely upon the advice of such counsel, and
Company shall pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In
11
<PAGE> 12
the event of any such termination, the Company shall appoint any officer or
employee of the Company as successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other address as a party may
designate by ten (10) days advance written notice to each of the other parties
hereto.
COMPANY: Fundex Games, Ltd.
P.O. Box 28128
Indianapolis, Indiana 46222
Attention: President
OPTIONEE: ____________________________________________________
____________________________________________________
____________________________________________________
ESCROW AGENT: Fundex Games, Ltd.
P.O. Box 28128
Indianapolis, Indiana 46222
Attention: Secretary
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
12
<PAGE> 13
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
Fundex Games, Ltd., a Nevada corporation
By:
Title:
OPTIONEE
Address:
Agreed to and accepted as of the date set
forth above.
ESCROW AGENT
Secretary
13
<PAGE> 1
Exhibit: 10.8D
[DAMERT COMPANY LOGO]
30 November 1995
Mr. Larry A. Waide
THE DAMERT COMPANY
2476 Verna Court
San Leandro, California 94577
Re: Special Executive Incentive Compensation Plan: The DaMert Company
Dear Larry:
The DaMert Company, a California corporation ("the Corporation") is
offering you the opportunity to participate in a Special Executive Incentive
Compensation Plan ("the Plan"). The terms of the Plan are set forth below.
1. Purpose: The purpose of this Plan is to advance the growth and
prosperity of the Corporation by providing certain key employees with an
additional incentive to contribute to the best interests of the Corporation. The
plan provides participants with the economic equivalent of owning stock in the
company. As the value of the Corporation's stock increases, recipients of the
"Units" will see a proportionate increase in the value of their "Units".
2. Administration of the Plan: This Plan shall be administered by the
Board of Directors of the Corporation. The Board of Directors shall have the
power to interpret the Plan, to make regulations for carrying out its purpose,
and to make all other determinations in connection with its administration.
3. Interpretation of Terms and Conditions: The Board of Directors'
interpretation of the terms and provisions of the Plan shall be final, binding,
and conclusive.
4. The Special Executive Incentive Compensation Plan: A participating
executive is awarded by the Board of Directors a certain number of "Units", each
of which is hypothetically assumed to represent one share of stock of the
Corporation. This Plan measures the amount of benefit to be realized by a
participating executive with reference to the increase in the value of the
Corporation as reasonably determined
DaMert Company - 2476 Verna Court - San Leandro, California 94577 -
Tel (510) 895-6500 - Fax (510) 895-5454
<PAGE> 2
by the Board of Directors. These Units generally are vested over five (5) years,
with twenty percent (20%) earned one year after award, forty percent (40%)
earned two years after award, sixty percent (60%) earned three years after
award, etc. The Board may provide supplemental awards which incorporate
appropriate performance objectives. The effective date of the award is January 1
and annual vesting date is December 31.
The December 31, 1994 per-Unit value is equal to the Corporation's
net-worth divided by one hundred three thousand and ninety three (103,093)
Units. The future value for awarded Units will be the Corporation's year-end
net-worth divided by the total Units then outstanding. The number of outstanding
Units will be adjusted to reflect transactions affecting the number of
outstanding shares of common stock.
A participant under the plan at no time owns any issued stock of the
Corporation, nor any of the rights (including any voting or dividend rights) of
a stockholder of the Company.
The Corporation, in making Unit grants, may choose to provide for
antidilution. In such event the Units granted to any employee shall be adjusted
so as to maintain a target percentage interest in the Corporation until a
certain aggregate number of Units shall be outstanding. The antidilution rights
shall apply only to transactions pursuant to which Units are issued to employees
pursuant to this or any other employee incentive compensation plan.
For purposes of simplifying administration and providing an
objective means of determining the value of the Corporation, the Board of
Directors has determined to use book value as annually determined by the
auditors of the Corporation. This value will be utilized until such time as an
event of liquidity shall occur at which time the units will be 100% vested. An
event of liquidity shall mean the sale of substantially all of the assets of the
Corporation or a disposition of a controlling interest by the holders of the
outstanding common stock in an arm's-length transaction with an unrelated party.
When the event of liquidity occurs it is anticipated that the Board
of Directors will structure the transaction in such a manner as to fund the
Corporation's commitment under the Special Executive Incentive Compensation Plan
to the Plan participants. The Board currently anticipates that the Corporation
will seek a buyer at such time as the level of $15 million in annual sales, with
$1.5 million of pretax profits, has been achieved.
If an executive departs the Corporation, for any reason, the vested
Units will be valued at the prior year-end's book value. At the Corporation's
option, the increase in value of the vested Units from the value at award, will
be paid in full to the
<PAGE> 3
executive within 90 days of exercise, or in 24 equal monthly payments commencing
90 days after exercise, plus 8% simple interest ("Repurchase Rights").
5. Eligibility: Only senior executives of the Corporation shall be
eligible to participate in the Plan, with participants to be determined at the
sole discretion of the Board of Directors. In determining the employees to whom
Units shall be rewarded, the Board of Directors may take into account the nature
of the services rendered by the respective employees, their present and
potential contributions to the success of the Corporation, and such other
factors as the Board of Directors in its discretion shall deem relevant. The
Corporation shall affect the granting of Units under the Plan in accordance with
the determination made by the Board of Directors. Participants in the Plan may
be added or subtracted for any succeeding year, at the complete discretion of
the Board of Directors. Participation in one year's award of Units will not in
any way obligate the Corporation to provide participation to that participant in
succeeding years. The Board may further make conditional grants and/or adopt
modified vesting schedules to provide targeted incentives to senior managers.
6. Termination of Employment: In the event your employment with the
Corporation, or any related entity, terminates, other than upon permanent
disability or death, the vested percentage will be determined with reference to
the schedule that is set forth in the award certificate. If an executive departs
the Corporation, for reasons other than death or permanent disability, the
vested Units will be valued at the prior year-end's book value and shall be
subject to the Repurchase Rights set forth above.
7. Death or Permanent Disability: In the event of death or permanent
disability, the vested percentage shall be one hundred percent. Upon the
occurrence of any of those events, you or your legally authorized representative
shall hold the Units subject to the Repurchase Rights set forth above.
8. Amendments: The Board of Directors of the Corporation shall have the
power at any time to add to, amend or repeal any of the provisions of the Plan,
to suspend the operation of the entire Plan or of any provision or provisions
thereof, for any period or periods or to terminate the Plan in whole or in part,
provided, however, that no such addition, amendment, repeal, suspension, or
termination shall in any way affect the rights of the holders of Units which
have vested in accordance with the provisions hereof.
9. Nontransferability: No Unit granted to an employee pursuant to this
Plan may be sold, pledged, assigned, or transferred in any manner during his or
her lifetime.
<PAGE> 4
By signing this letter, the undersigned acknowledges that they have read
the above-described Plan, and agree to be bound by its terms and conditions as
set forth herein.
Very truly yours,
Fred DaMert, President
ACCEPTED AND AGREED:
___________________________________
Larry A. Waide
<PAGE> 5
[DAMERT COMPANY LOGO]
CERTIFICATE OF BASIC AWARD
Special Executive Incentive Compensation Plan
1995 Participation Units
Plan Participant:
Larry A. Waide
The Board of Directors of DaMert Company hereby issues you 3,191 Units of
participation in the Company for the year 1995. The value per Unit at the date
of issue (1 /1 /95) is computed below.
This award is made pursuant to the plan description of November 30th, 1995, a
copy of which is attached.
The Company will provide you an annual benefit statement to determine your
vested percentage as well as the formula value of your interest in the Company.
December 31, 1994 value per Unit, based on 103,093 Units outstanding = $7.95
1995 Participation Unit vesting schedule:
<TABLE>
<S> <C>
12/31/95 20%
12/31/96 40%
12/31/97 60%
12/31/98 80%
12/31/99 100%
</TABLE>
These Units equal 3% of the total Units outstanding as of the date of grant and
shall not be subject to dilution until the aggregate interests of all employees
(including all grants to you) in the Company shall equal 20%.
<PAGE> 6
[DAMERT COMPANY LOGO]
TO: LARRY WAIDE
FROM: THE DAMERT COMPANY
DATE: MAY 21, 1997
SUBJECT: SPECIAL EXECUTIVE INCENTIVE COMPENSATION PLAN AMENDMENT
In the course of conducting a full financial audit of DaMert Company's 1996
financials, the CPA firm responsible for the audit detected a statement in the
document with the potential for erroneous and ambiguous interpretation. The
statement in question is in section 4. The Special Executive Incentive
Compensation Plan, paragraph 7, commencing "If an executive departs the
Corporation, for any reason, the vested Units will be valued at the prior
year-end's book value."
The misinterpretation can result if the tax liability resulting from the
Subchapter S status of DaMert Company is not paid through W-2 distribution to
the owners at year end, but instead is paid in the following year (by January
15) through an equity withdrawal. This situation would artificially inflate the
value of the company at year end since the tax liability that occurred in that
year would not be recorded in that year's financial statements. The method of
tax liability payment is evaluated annually by our CPA firm and the proposed
amendment would accommodate both situations.
Therefore, we are amending this document by inserting this sentence immediately
following the sentence indicated above:
"THE BOOK VALUE WILL BE DETERMINED BY A CERTIFIED PUBLIC ACCOUNTANT AND MAY BE
ADJUSTED FOR TAX LIABILITY INCURRED IN THE PRIOR YEAR BUT NOT PAID UNTIL THE
CURRENT YEAR."
CONCURRENCE:
/s/ Larry Waide 8/11/97
- -------------------------- ------------------
LARRY WAIDE DATE
/s/ Fred DaMert 8/11/97
- -------------------------- ------------------
FRED DAMERT
<PAGE> 1
Exhibit: 10.9FT
AGREEMENT
THIS AGREEMENT is made effective the 14th day of August, 1996, by and
between Futech Educational Products, Inc., an Arizona corporation ("Futech") and
Golden Books Family Entertainment, Inc., a Delaware corporation ("Golden").
R E C I T A L S:
A. Futech and Golden entered into that certain Joint Venture and
Limited Liability Company Agreement, dated August 14, 1996 (the "Joint Venture
Agreement") relating to the formation of a limited liability company to be
operated under the name "Golden Books Electronic Publishing Ventures, L.L.C."
(hereinafter referred to as the "Joint Venture LLC").
B. Certain other documents (collectively, with the Joint Venture
Agreement, referred to hereinafter as the "JV Documents") were executed in
connection with the formation of the Joint Venture LLC, namely that certain
License Agreement, dated August 14, 1996, Contribution Agreement, dated August
14, 1996, and Consulting and Non-Competition Agreement, dated August 14, 1996.
C. The parties desire to rescind and terminate the JV Documents, and
restructure the transaction and structure a new transaction, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, for valuable consideration received, the parties hereto
agree as follows:
TERMS:
1. RECISION AND ASSIGNMENT. The JV Documents are hereby rescinded and
terminated, effective August 14, 1996. The parties to the JV Documents are
hereby forever released and fully discharged from any obligations thereunder.
Futech hereby assigns to Golden, effective the date of this Agreement,
any and all rights Futech may have in connection with the shell Joint Venture
LLC entity. Golden shall be responsible for any and all expenses associated with
the Joint Venture LLC, whether they are expenses associated with maintaining or
operating the LLC as a Golden entity or whether those expenses are associated
with dissolution of the entity. Golden shall indemnify and defend and hold
Futech harmless from any and all liabilities in connection with the Joint
Venture LLC.
2. LICENSE AGREEMENT. The parties shall, effective the date of this
Agreement, and simultaneously with the execution of this Agreement, execute a
License Agreement in the form of Exhibit "A" attached hereto and hereby made a
part hereof.
3. $2,000,000 TECHNOLOGY FEE. The $2,000,000 to be paid to Futech
pursuant to Section 3.4 of the Joint Venture Agreement has been paid to Futech,
and shall be the technology fee described in Section 7.1 of the License
Agreement.
<PAGE> 2
4. EQUIPMENT. The equipment identified on Schedule 1.6 attached to the
Joint Venture Agreement shall be available for use by Golden until demand for
return thereof is made by Futech. A copy of the equipment list is attached
hereto as Exhibit "B" and hereby made a part hereof. Upon said demand being made
by Futech, Golden will make the equipment available to Futech at Golden's
facilities, and Futech shall pay all shipping and reinstallation charges
associated with moving the equipment to Futech's facilities. When demand is made
by Futech for return of the equipment, the equipment will be in at least as good
a condition as its condition on August 14, 1996 (normal wear and tear excepted),
and any improvements or alterations to the equipment shall become part of the
equipment and shall become the property of Futech upon demand by Futech for
return of the equipment.
As and when requested by Futech, after reasonable notice and during
normal business hours, Futech shall be entitled to inspect the equipment at
Golden's facilities, for condition and completeness, and shall be entitled to be
available to supervise the loading, packaging and/or transport of the equipment.
No such inspection or supervision shall in any manner reduce Golden's
obligations under this Agreement with respect to the equipment.
5. $1,000,000 NOTE. Futech acknowledges receipt of the $250,000
described in Section 5.8 of the Joint Venture Agreement, and acknowledges that
there may be some losses (included some generated from attorneys' fees and
costs) associated with start-up operations for products covered by the License
Agreement. In consideration thereof, Futech shall execute and deliver to Golden,
simultaneously with the execution of this Agreement, a Promissory Note in the
form of Exhibit "C" attached hereto and hereby made a part hereof, and a UCC-1
Financing Statement in the form of Exhibit "D" attached hereto and hereby made a
part hereof.
6. PUBLIC ANNOUNCEMENTS. Except as may otherwise be required by law,
the parties agree not to make any public announcement with respect to the
transactions identified in this Agreement without the prior written consent of
the other party. This provision shall not however restrict either party in any
manner from disclosing this Agreement or the transactions identified herein in
connection with any SEC requirements (including any filing made in connection
with a Public Offering of Futech), or in connection with any financing
requirements; provided, however, that each party hereto shall have a prior
approval right regarding any such disclosure as to the description of this
transaction, the use of the party's name, and the description of the party and
its officers, directors and business operations.
7. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles of such state.
8. COUNTERPARTS. This Agreement may be executed by the parties in one
or more counterparts, and any number of counterparts signed in the aggregate by
the parties shall constitute a single instrument.
9. EXPENSES. Each party shall bear its own attorneys' fees and costs
associated with
2
<PAGE> 3
binding upon, and enforceable against, that party.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
17. HEADINGS. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
DATED the date first hereinabove written.
FUTECH: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
------------------------------------
Vincent W. Goett, CEO
GOLDEN: Golden Books Family Entertainment, Inc.,
a Delaware corporation
By /s/ Philip Galanes
------------------------------------
Its General Counsel
---------------------------------
List of Exhibits
License Agreement "A"
Equipment List "B"
$1,000,000 Promissory Note "C"
UCC-1 Financing Statement "D"
4
<PAGE> 4
EXHIBIT "A"
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 14th day of August, 1996, by
and between Futech Educational Products, Inc., an Arizona corporation
("Futech"), and Golden Books Family Entertainment, Inc., a Delaware corporation
("Golden").
R E C I T A L S:
A. Futech owns certain intellectual property rights.
B. Golden desires to obtain the right to use certain of those rights in
connection with the sale of certain products and/or services, subject to the
terms and conditions set forth herein.
C. Futech is willing to grant the requested rights to Golden, subject
to the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the covenants and agreements
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
T E R M S:
1. DEFINITIONS. In addition to the various defined terms set forth in
this Agreement, the following terms shall have these meanings throughout this
Agreement:
1.1 "FUTECH TECHNOLOGY" means:
(a) general and specific knowledge, experience and
information, not in written or printed form, used by Futech and
applicable to the design, development, manufacture, assembly, servicing
or sale of products; and
(b) documents containing technical information, engineering or
production data, blueprints, drawings, plans, specifications,
descriptions of assembly and manufacturing procedures, quality and
inspection standards, test records and data and other written materials
owned and used by Futech and applicable to the design, development,
manufacturing, assembly, servicing or sale of products; and
(c) inventions (whether or not patentable), works of
authorship, mask works, products, manufacturing methods, processes,
concepts, designs, algorithms, computer hardware and software, models,
prototypes, automations, designs, and related information and things;
(d) with respect to which Futech owns at the date of this
Agreement intellectual property rights;
EXHIBIT "A", PAGE 1 OF 23
<PAGE> 5
(e) together with any and all Improvements to the foregoing
developed by Futech during the term of this Agreement.
1.2 "IMPROVEMENT" means any improvement or enhancement of the
manufacturing process or design of, and which operates similarly to, a device,
apparatus, product, process or invention described in the patent applications
and/or patents identified on Exhibit "A" attached hereto, in order to accomplish
an equivalent or related result as said initially listed patent or application,
so long as the Improvement: (i) relates to Licensed Products; and (ii) relates
to at least one claim of any patent or application directed to Licensed Products
already listed on Exhibit "A" attached hereto.
Should the parties be unable to agree on whether something is an
Improvement, the parties shall submit the issue to a licensed patent attorney
well versed in the applicable law, and the determination of said counsel shall
be deemed binding and final relative solely however to the issue of what is an
Improvement. Such counsel shall be appointed by agreement between the parties,
or failing such appointment within twenty (20) days after demand is made
therefor by either party, then either party may by written notice to the other
party appoint one such counsel, and the other party may within fifteen (15) days
after receipt of written notice of such appointment, appoint one such counsel,
by giving written notice thereof to the other party. If either party fails to so
appoint counsel, then the determination made by counsel appointed by the other
party shall be binding upon the parties. If two counsel are so appointed, they
shall promptly attempt to agree upon a third such counsel. If they cannot agree
within fifteen (15) days after appointment of the second counsel, then either
party may propose that the third counsel be appointed by a then presiding
officer of the American Arbitration Association office located in or nearest to
Wilmington, Delaware, and the third counsel shall thus be chosen. Said third
counsel alone shall determine the issue of what is an Improvement. If any
counsel resigns or becomes unavailable, replacement counsel shall be appointed
in the same manner as the counsel who has become unavailable. All counsel
selected shall be licensed patent attorneys well versed in the applicable law.
The parties shall make available to the single counsel appointed to
determine the issue all information available to the parties relating to the
issue to be determined. If any of said information is argued to be confidential,
it shall be delivered to such counsel on a confidential basis for his/her eyes
only, to be used solely in deciding the issue of what is an Improvement. Once
counsel is appointed to determine an Improvement issue, that counsel shall
decide all issues regarding what is an Improvement arising within two years
after the date of such appointment. All counsel appointed under this provision
shall be protected from liability for acting in the appointed role to the same
extent as a judge of civil court in Delaware would be protected in connection
with judicial determinations made by the judge.
1.3 "CONFIDENTIAL INFORMATION" means any and all Futech Technology,
information and/or data which is not readily ascertainable by proper means and
which derives economic value, actual or potential, from not being generally
known, and which has been the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. All information relating to the products
or operations of Futech, which is provided to Golden, or to which Golden
otherwise obtains access, pursuant to, or as a result of, this Agreement shall
be considered Futech Confidential Information; Except such information which
Golden can clearly show: (a) at the time
2 EXHIBIT "A", PAGE 2 OF 23
<PAGE> 6
of this Agreement is publicly and openly known; (b) after the date of this
Agreement becomes publicly and openly known through no fault of Golden; (c)
comes into Golden's possession and lawfully obtained by Golden from a source
other than from Futech or a source deriving from Futech, and not subject to any
obligation of confidentiality or restrictions on use; or (d) is approved for
release by written authorization of Futech.
1.4 "FUTECH INTELLECTUAL PROPERTY" means: (i) any and all United
States and foreign patent, copyrights, trade secret and mask work rights held by
Futech as of the date of this Agreement, including but not limited to the
patents and patent applications, and copyright registrations identified on
Exhibit "A" attached hereto; and (ii) any and all United States and foreign
patent, copyrights, trade secret and mask work rights which Futech acquires
during the term of this Agreement. For purposes of clarity, trademark rights
shall be separately defined and treated.
1.5 "FUTECH MARKS" means any and all United States and foreign
trademark, service mark and trade name rights held by Futech as of the date of
this Agreement, including but not limited to, the trademarks, service marks, and
trade names identified on Exhibit "A" attached hereto, together with any and all
United States and foreign trademark, service mark and trade name rights which
Futech acquires during the term of this Agreement.
1.6 "LICENSED PRODUCTS" means products manufactured and/or sold by
Golden, incorporating, embodying or comprising the Futech Technology as allowed
by the licenses contained in this Agreement.
1.7 "SUBSIDIARY" means a corporation, company, partnership, or other
entity more than fifty percent (50%) of whose outstanding stock or interest
entitled to vote for the election of directors or similar management control
(other than preferred or other stock entitled to vote only upon failure of the
entity to pay dividends) is now or hereafter during the term of this Agreement
owned or controlled, directly or indirectly by Futech or Golden, as the case may
be in the specific provisions using the defined term "Subsidiary," provided that
any such entity which would be a Subsidiary by reason of the foregoing shall be
considered a Subsidiary only so long as such ownership or control exists.
1.8 "PRESS THE PAGE BOOK FORMAT" means books utilizing multiple
printed tactile points which are embedded inside the two ply lamination of each
page. The inside front and back covers of the book do not contain any embedded
tactile points. Finger tip pressure applied directly to the individual page
tactile points energizes a sound module control center attached to the back
cover of the book. "Quad Fold Technology" is not included in or part of Press
The Page Book Format.
1.9 "PRESS THROUGH THE PAGE FORMAT" means:
(i) books using a folded panel containing printed tactile
points embedded on the inside of the panel. The panel is adhered to the
inside front and back cover of the book. The actual pages are single
ply and do not contain any embedded tactile points. Interactive play is
obtained by finger pressure through the pages to the tactile points
located within the
3 EXHIBIT "A", PAGE 3 OF 23
<PAGE> 7
inside front and back cover. A sound module control center is attached
to the back cover of the book; and
(ii) game boards for children, sound pads for children, sound
games for children and puzzles for children containing printed tactile
points similar to those described in subparagraph (i) above.
"Quad Fold Technology" is not included in or part of Press Through The
Page Format.
1.10 "QUAD FOLD TECHNOLOGY" is not a book format but rather a
smaller version of a bi-fold board game mounted directly on a stiff back board
which also contains the sound module control center assembly. The printed
tactile points are embedded within the two ply lamination of the bi-fold game
board. Interactive play is obtained by applying pressure directly to the tactile
points within the game board.
2. GRANT OF LICENSES.
2.1 Golden's Right to Make and Sell. Subject to the terms and
conditions of this Agreement, Futech hereby grants to Golden and Golden's
Subsidiaries, for the term of this Agreement, a non-exclusive license to use the
Futech Technology relating to Press The Page Book Format, the Press Through The
Page Format, and the Quad Fold Technology, to make or have made for commercial
sale, and to sell Press The Page Book Format books, Press Through The Page
Format Licensed Products, and Quad Fold Technology Licensed Products. Neither
this Agreement, nor any other agreement between the parties, grants Golden any
licenses other than as are expressly provided for in this Section 2.1 and in
Section 4 below.
2.2 Futech's Right to Make and Sell. The license appearing in
Section 2.1 above is non-exclusive because Futech and Futech's Subsidiaries
shall be entitled to use the Futech Technology relating to Press The Page Book
Format, the Press Through The Page Format, and the Quad Fold Technology, to
make or have made for commercial sale, and to sell Press The Page Book Format
books, Press Through The Page Format products, and Quad Fold Technology
products. Except as expressly provided for in Section 3 below, nothing in this
Agreement, or in any other agreement between the parties, restricts in any
manner Futech's rights to use Futech Technology, Futech Intellectual Property,
and/or Futech Marks, including but not limited to the right to use the same in
connection with products competing with the Licensed Products, or in connection
with any other product.
2.3 No Duty in Golden to Work the License. Except as called for in
Section 3 below (i.e., as to third party deals Golden has elected to perform),
Golden shall have no duty to manufacture or sell Licensed Products.
3. GOLDEN'S RIGHT REGARDING THIRD PARTY LICENSES. Notwithstanding
Section 2.2 above, if Futech (or a Futech Subsidiary) desires to license to an
entity which is not a Futech Subsidiary, rights to use the Futech Technology
relating to Press the Page Book Format, the Press Through The Page Format as it
relates to books described in Section 1.9 (i) above, or the Quad Fold Technology
as it relates to the publishing of books, to make or have made for commercial
4 EXHIBIT "A" PAGE 4 OF 23
<PAGE> 8
sale, and/or sell Press The Page Book Format books, Press Through The Page
Format books, or Quad Fold Technology books, then Golden shall have the right to
elect to do the transaction offered to the third party to the exclusion of the
third party, as follows:
(a) Futech shall give Golden written notice of the license
rights Futech proposes to offer to the third party, along with an
outline summary of the transaction describing the "deal points" of the
proposed license arrangement, including but not limited to the name of
the publisher in the third party transaction, any time requirements for
bringing the products to market, and any production and/or sales
quantity requirements.
(b) Golden shall have five (5) business days from the giving
of said notice to give Futech written notice that Golden will publish
books the same or comparable to the books described in the third party
offer. If Golden so elects to publish the books, then Golden's
obligation to publish shall be covered by the terms of this Agreement,
including but not limited to the obligation to pay royalties (Net Sales
from said publishing shall apply against the $40,000,000 figure in
subparagraph 9(a) below) at the rate and on the terms appearing in
Section 9 below; provided, however, that notwithstanding the other
terms of this Agreement which do not require Golden to meet any timing,
production, or sales performance criteria, Golden shall be obligated to
meet any "time to market" and any production and/or sales quantity
requirements appearing in the third party offer. The parties expressly
agree that Golden shall not be required to pay an advance in connection
with publishing under this subparagraph (b), even if one appears in the
third party offer.
(c) The existence of and terms of any third party offer
described above shall be kept confidential by Golden as Confidential
Information subject to Section 15.1 below.
(d) If Golden does not elect (within the five (5) day period
described in subparagraph (b) above) to publish the books described in
the third party outline summary as allowed in subparagraph (b) above,
then Futech may for a period of sixty (60) days (after the expiration
of the five (5) day period) enter into a license arrangement with the
third party identified in the outline summary of the third party
transaction on the terms appearing in the outline summary provided to
Golden under subparagraph (a) above.
(e) If Futech enters into a license arrangement with a third
party under subparagraph (d) above, then Futech shall pay Golden forty
percent (40%) of the difference between: (i) all amounts actually
received by Futech under the license agreement, and (ii) Futech's
actual direct third-party costs associated therewith, including but not
limited to attorneys' fees and costs. Golden shall reimburse Futech for
any amounts so received by Golden if necessary to accomplish a 40%/60%
split of the net amounts received by Futech from the third party. An
amount equal to twenty (20) times all amounts paid to Golden under this
subparagraph shall be applied against and shall reduce the remaining
balance, if any, of the $40,000,000 Royalty-free Net Sales described in
subparagraph 9(a) below.
5 EXHIBIT "A", PAGE 5 OF 23
<PAGE> 9
Amounts payable to Golden under this subparagraph (e)
(hereinafter "Golden's Share") will be payable on a calendar quarter
basis, by the sixtieth day following the calendar quarter to which the
payments relate. All amounts not so paid shall bear interest from the
due date until the date of payment at the per annum rate of one (1)
percentage point above the prime rate of interest published by the Wall
Street Journal, as such rate may from time to time change.
On or before the due date of Golden's Share, and at least
quarterly on a calendar quarter basis, Futech shall make written
reports to Golden in form and with detail as shall reasonably be
requested by Golden, certified to be accurate by an authorized agent of
Futech, setting forth the detail relating to Golden's Share for the
period of time to which the reports relate; provided, however, that
Futech shall not be in breach of this provision for failure to provide
information unavailable to Futech (for example as a result of the
failure of the third party licensee to provide the information). Said
reports need only be furnished if there are payments due on Golden's
Share for the calendar quarter to which the reports relate. The failure
or refusal of Futech to timely furnish any such report, or the payment
due as shown in the report, shall be deemed a substantial and material
breach of this Agreement. The receipt and acceptance by Golden of any
of the reports furnished pursuant to this Agreement, or of any payments
made herein (or the cashing of any checks paid hereunder) shall not
preclude Golden from questioning the accuracy of any such report at any
time (within the two year period described below), and in the event
that any inconsistencies or mistakes are discovered in any such report
or payment, they shall immediately be rectified and the appropriate
payment made by Futech, together with interest on the overdue payments
at the per annum rate of one (1) percentage point above the prime rate
of interest published by the Wall Street Journal, as such rate may from
time to time change. Royalty statements and reports shall become
incontestable if not contested within two (2) years after receipt
thereof by Golden.
Futech shall keep at its principal place of business, such
books and records and other documents relating to Golden's Share during
the term of this Agreement as may be necessary or proper to enable the
amounts payable to Golden hereunder to be conveniently ascertained.
Golden shall have the right, from time to time during the term
of this Agreement, and for a period of two years thereafter (with
respect to any then-contestable statement), but not more than once
annually, upon thirty (30) days prior written notice, during regular
office hours, to cause a certified public accountant(s) on behalf of
Golden to audit or otherwise review the books and records of Futech,
and the following shall apply with respect thereto:
(i) If the audit or review discloses that Golden was
underpaid Golden's Share by five percent (5%) or more during
the period covered by the audit, Futech shall, within ten (10)
days after demand is made therefor, pay all costs relating to
said audit or review and pay Golden an amount equal to two (2)
times the amount of the underpayment. Golden shall further
have all other rights and remedies
6 EXHIBIT "A", PAGE 6 OF 23
<PAGE> 10
against Futech available at law, in equity, or under this
Agreement with respect to such underpayment.
(ii) If the audit or review fails to disclose an
underpayment to Golden of five percent (5%) or more, Golden
shall pay the cost of the audit or review.
(iii) If the audit or review discloses that Golden
was underpaid by less than five percent (5%), or overpaid, in
any period, Futech, or Golden, as the case may be, shall
within ten (10) days after demand made therefor, pay the
amount of the underpayment or overpayment.
Futech shall cooperate with such audit or review, and provide
requested information relating to royalties and other amounts due
Futech in connection with third party license agreements covered by
this subparagraph (e). The auditor shall be entitled to inspect all
accounts and records of Futech relating to said amounts and to take
extracts therefrom or copies thereof to the extent necessary to verify
the reports and payments required under the terms of this subparagraph
(e). The duration of any audit under this provision shall not exceed
thirty (30) days.
(f) If Golden elects to perform the third party offer, and
then defaults under its obligations to perform the third party offer as
described and limited in subparagraph (b) above, and said default
continues for a period of thirty (30) days after written notice of the
default is given to Golden, then Futech's obligation to provide Golden
notice of third party license arrangements, and Golden's right to
perform under those arrangements (other than arrangements for which
Golden has previously elected to perform), all as set out in this
Section 3 above, shall immediately and without further notice be
terminated.
4. LICENSE OF FUTECH MARKS. Subject to the terms and conditions of this
Agreement, Futech hereby grants to Golden and Golden's Subsidiaries an
non-exclusive license to use the Futech Marks in connection with, and only in
connection with, the Licensed Products. Golden agrees that it will use the
Futech Marks only in connection with the Licensed Products, and shall not use
the Futech Marks except as permitted by and in connection with this Agreement.
This license does not limit or otherwise effect in any manner Futech's rights of
use or other rights regarding the Futech Marks, including but not limited to the
right to use the Futech Marks in connection with products competing with the
Licensed Products, or in connection with any other product.
5. NO OWNERSHIP TRANSFER. Golden acknowledges and agrees that this
Agreement grants Golden no title or right of ownership in or to the Futech
Technology, the Futech Intellectual Property, the Futech Marks, or any goodwill
relating thereto. Golden expressly recognizes and acknowledges that the use of
the Futech Technology, the Futech Intellectual Property, and/or the Futech Marks
shall not confer upon Golden any proprietary rights thereto, and that all such
use by Golden shall inure to the benefit of Futech.
Golden agrees that during the term of this Agreement, or at any time
thereafter, Golden shall not dispute or contest Futech's rights to the Futech
Technology, the Futech Intellectual
7 EXHIBIT "A", PAGE 7 OF 23
<PAGE> 11
Property, the Futech Marks, or any goodwill relating thereto, or the validity
thereof or the validity of this Agreement, and shall not assist others in so
doing.
6. LICENSES NON-ASSIGNABLE.
(a) The licenses appearing in Sections 2 and 4 above are personal
and non-assignable, and include no right of sublicense. Any attempt by Golden to
assign or sublicense any right under this Agreement, without prior written
consent of Futech, shall be null and void.
Notwithstanding the foregoing, Golden shall have the right to grant
sublicenses of the licenses granted hereunder to and only to Golden
Subsidiaries. If the relationship of a Subsidiary of Golden changes so that such
entity ceases to be a "Subsidiary," the rights of the Subsidiary to the
sublicenses described above shall automatically terminate as of the date such
relationship changes.
(b) Notwithstanding the foregoing, Golden and Golden's Subsidiaries
may have Licensed Products, or portions thereof, made by other manufacturers for
the reassembly and/or sale of same by Golden or its Subsidiaries, as long as the
following conditions are met for such manufacturers:
(i) The designs, specifications and working drawings for the
manufacture of Licensed Products, or portions thereof, must be
furnished by, and originate with, Golden and/or its Subsidiaries,
and/or a third party specifically hired by Golden or its Subsidiaries
to design said Licensed Products; and
(ii) Said designs, specifications and working drawings are in
such detail that no additional designing by the other manufacturer is
required other than adaptation to those production processes and
standards normally used by the manufacturer which change the
characteristics of the Licensed Products only to a negligible extent.
7. TECHNOLOGY TRANSFER AND ASSISTANCE.
7.1 Technology Fee. Futech acknowledges payment by Golden of a
technology transfer fee in the amount of $2,000,000 for the license of the
technology rights as set out in this Agreement. The parties agree that said fee
shall be earned for all purposes on January 2, 1998. Said fee is non-refundable
and Futech shall have no obligation to repay said amount under any
circumstances.
7.2 Assistance - Immediate. Within a reasonable time following
execution of this Agreement, Futech will make available to Golden the technical
information then in its possession relating to the licenses granted in this
Agreement.
7.3 Assistance - At Futech's Facilities. Futech shall:
(i) Permit Golden from time to time to send a reasonable
number of Golden's technical representatives or engineers to Futech's
facility or other place designated by Futech, for the purpose of
receiving technical training and studying technical questions
8 EXHIBIT "A", PAGE 8 OF 23
<PAGE> 12
and problems relating to the manufacture, assembly, servicing and sale
of Licensed Products, and
(ii) Make its qualified technical personnel reasonably
available by telephone for the purposes referenced in subparagraph (i)
above.
Futech shall use its best efforts to make its qualified technical personnel
available for such training and assistance. Golden shall be solely responsible
for the travel and living expenses and salaries of its employees receiving
training or assistance at Futech's facilities, and Golden shall maintain, at its
sole expense, appropriate insurance coverage for such employees against
accident, injury or illness.
7.4 Assistance - At Golden's Facilities. Upon Golden's reasonable
request, but subject to availability, Futech will send its qualified technical
personnel to Golden's facility to provide such training and assistance as
reasonably required to enable Golden to manufacture, assemble, service and sell
the Licensed Products. Golden shall reimburse Futech for the reasonable travel
and living expenses incurred by Futech's technical personnel in rendering such
assistance or training, and Futech (or Newtech Consulting, Inc.) shall maintain,
at its sole expense, appropriate insurance coverage for such employees against
accident, injury or illness.
8. FURTHER RESEARCH AND DEVELOPMENT.
(a) Futech shall have no obligation to continue product development
or research and development relating to the Futech Technology.
(b) Futech shall, during the term of this Agreement, as appropriate,
promptly communicate to Golden all Improvements to the Futech Technology which
relate to the licenses contained in this Agreement.
(c) Golden will promptly notify Futech, in writing, of any
Improvements of which Golden becomes aware, relating to the Futech Technology
associated with the licenses contained in this Agreement.
9. ROYALTIES.
(a) Golden (Golden's Subsidiary may pay) agrees to pay Futech a
royalty (referred to in this Agreement as the "Royalty" or "Royalties") equal to
five percent (5%) of Net Sales (defined below); provided, however, that no
Royalties shall be payable on the first $40,000,000 of Net Sales.
Notwithstanding the foregoing, no Royalties shall be payable in connection with
any Net Sales occurring prior to January 1, 1998.
(b) The Royalties will be payable on a calendar quarter basis, by
the sixtieth day following the calendar quarter to which the Royalties relate.
(c) The term "Net Sales" as used in this Agreement means the gross
invoiced sales prices for each Licensed Product sold (an item is "sold" not
later than the earlier of the date shipped and the date invoiced) by or for
Golden or a Subsidiary of Golden, less only normal and
9 EXHIBIT "A", PAGE 9 OF 23
<PAGE> 13
reasonable discounts actually given to customers, returns actually received and
allowances actually made and credited; provided, however, that the deduction for
discounts, returns and allowances for any calendar quarter may not exceed 9% of
the gross sales for Licensed Products for the preceding calendar quarter. No
additional set-offs or deductions of any kind will be allowed, without the prior
written consent of Futech, which consent may be given or withheld in Futech's
sole and absolute discretion. Golden shall have written verification for all
discounts, returns and allowances.
(d) All unpaid Royalties and other amounts due to Futech hereunder
shall bear interest from the due date until the date of payment at the per annum
rate of one (1) percentage point above the prime rate of interest published by
the Wall Street Journal, as such rate may from time to time change.
(e) If, during the term of this Agreement, Golden, or any Subsidiary
of Golden, offers any product or service in exchange for less than commercially
reasonable consideration, without the prior written approval of Futech, or if
Golden or any Subsidiary of Golden offers any product or service in exchange for
something other than cash equivalent, Futech shall nonetheless be entitled to
Royalties based upon the value of the product transferred or services performed.
Notwithstanding any provision of this Agreement, if any product or service is
sold or otherwise disposed of at less than fifteen percent (15%) below Golden's
normal established price, then "Net Sales" therefore shall be determined, and
Royalties payable thereon, assuming a sales price of fifteen percent (15%) below
Golden's normal established price.
(f) All taxes, levies, charges or duties imposed in connection with
Licensed Products shall be paid by Golden, and no deductions for any such
amounts or any other expenses, except as may expressly be provided for in this
Agreement, shall be deducted from Royalties payable hereunder, it being the
intent of the parties that Royalties shall be net amounts payable to Futech,
free and clear of any and all expenses of any type or nature other than as may
expressly be provided for herein to the contrary.
10. REPORTS, BOOKS AND RECORDS, SAMPLES.
(a) On or before the due date of the Royalties described herein, and
at least quarterly on a calendar quarter basis, Golden shall make written
reports to Futech in form and with detail as shall reasonably be requested by
Futech, certified to be accurate by an authorized agent of Golden, setting forth
the Net Sales and other detail relating to the Net Sales for the period to which
the Royalties relate. Said reports need only be furnished if there are Net Sales
during the calendar quarter. The failure or refusal of Golden to timely furnish
any such report, or the payment due as shown in the report, shall be deemed a
substantial and material breach of this Agreement. The receipt and acceptance by
Futech of any of the reports furnished pursuant to this Agreement, or of any
payments made herein (or the cashing of any checks paid hereunder) shall not
preclude Futech from questioning the accuracy of any such report at any time
(within the two year period described below), and in the event that any
inconsistencies or mistakes are discovered in any such report or payment, they
shall immediately be rectified and the appropriate payment made by Golden,
together with interest on the overdue payments at the per annum rate of one (1)
percentage point above the prime rate of interest published by the Wall Street
Journal, as such rate may from time to time
10 EXHIBIT "A", PAGE 10 OF 23
<PAGE> 14
change. Royalty statements and reports shall become incontestable if not
contested within two (2) years after receipt thereof by Futech.
(b) Golden shall keep at its principal place of business, such books
and records and other documents relating to Net Sales during the term of this
Agreement as may be necessary or proper to enable the amounts payable to Futech
hereunder to be conveniently ascertained.
(c) Futech shall have the right, from time to time during the term
of this Agreement, and for a period of two years thereafter (with respect to any
then-contestable statement), but not more than once annually, upon thirty (30)
days prior written notice, during regular office hours, to cause a certified
public accountant(s) on behalf of Futech to audit or otherwise review the books
and records of Golden, and the following shall apply with respect thereto:
(i) If the audit or review discloses that Futech was underpaid
its Royalties by five percent (5%) or more during the period covered by
the audit, Golden shall, within ten (10) days after demand is made
therefor, pay all costs relating to said audit or review and pay Futech
an amount equal to two (2) times the amount of the underpayment. Futech
shall further have all other rights and remedies against Golden
available at law, in equity, or under this Agreement with respect to
such underpayment.
(ii) If the audit or review fails to disclose an underpayment
to Futech of five percent (5%) or more, Futech shall pay the cost of
the audit or review.
(iii) If the audit or review discloses that Futech was
underpaid by less than five percent (5%), or overpaid, in any period,
Golden, or Futech, as the case may be, shall within ten (10) days after
demand made therefor, pay the amount of the underpayment or
overpayment.
Golden shall cooperate with such audit or review, and provide
requested information relating to sales of Futech audio book products. The
auditor shall be entitled to inspect all accounts and records of Golden relating
to sales of Futech audio book products and to take extracts therefrom or copies
thereof to the extent necessary to verify the Royalty reports and payments
required under the terms of this Agreement. The duration of any audit under this
provision shall not exceed thirty (30) days.
(d) Golden will provide Futech with one hundred (100) free samples
of each product incorporating Futech Technology sold by or for Golden, within
thirty (30) days after the product first becomes available for sale.
11. PRODUCT LIABILITY; INSURANCE.
(a) Golden agrees to indemnify and defend and save harmless Futech
from every claim, demand, expense, and cost, including reasonable attorneys'
fees, which may arise by reason of the use by Golden of the Futech Technology or
the Futech Marks, and any injury or damage of any kind or nature to any person
or property caused by or resulting from or arising out of a defect in design,
workmanship, or material of any Licensed Product; provided, however, that the
foregoing
11 EXHIBIT "A", PAGE 11 OF 23
<PAGE> 15
shall not apply to any such claim, etc. arising out of, relating to or caused by
the Futech Technology and/or the Futech Intellectual Property, to and only to
the extent so related or caused (this provision shall not limit Golden's
indemnification for liability for products defectively manufactured by or for
Golden, unless the liability results from defects inherent in the Futech
Technology and the defective product was manufactured substantially in
accordance with Futech instructions).
(b) Golden shall obtain at its own expense and maintain during the
term of this Agreement, and for a period of seven (7) years thereafter, general
liability insurance and product liability insurance with at least coverage of
$1,000,000 per occurrence and $3,000,000 in the aggregate. Golden shall also
obtain at its own expense and maintain during the term of this Agreement, and
for a period of seven (7) years thereafter (ten (10) years if the policy form is
"claims made") publishers liability insurance which provides coverage for claims
arising out of published materials, which shall include but not be limited to
the allegations of defamation, copyright infringement, invasion of right of
privacy, or other personal injury and breach of implied contract.
All insurance must be provided by a recognized insurance company
having a Best's Rating of no less than "A." As proof of such insurance, a fully
paid certificate of insurance naming Futech as an additional insured shall be
submitted to Futech's office as and when requested by Futech, within thirty (30)
days after written request is made therefor. Futech shall be entitled throughout
the term of this Agreement, to a copy of the prevailing policies of insurance.
The policies of insurance must be non-cancelable except after thirty (30) days
prior written notice to Futech.
(c) Futech shall obtain at its own expense and maintain during the
term of this Agreement, and for a period of seven (7) years thereafter, general
liability insurance and product liability insurance with at least coverage of
$1,000,000 per occurrence and $3,000,000 in the aggregate. Futech shall also
obtain at its own expense and maintain during the term of this Agreement, and
for a period of seven (7) years thereafter (ten (10) years if the policy form is
"claims made") publishers liability insurance which provides coverage for claims
arising out of published materials, which shall include but not be limited to
the allegations of defamation, copyright infringement, invasion of right of
privacy, or other personal injury and breach of implied contract.
All insurance must be provided by a recognized insurance company
having a Best's Rating of no less than "A." As proof of such insurance, a fully
paid certificate of insurance naming Golden as an insured party shall be
submitted to Golden's office as and when requested by Golden, within thirty (30)
days after written request is made therefor. Golden shall be entitled throughout
the term of this Agreement, to a copy of the prevailing policies of insurance.
The policies of insurance must be non-cancelable except after thirty (30) days
prior written notice to Golden.
12. STANDARDS, QUALITY CONTROL. Golden shall maintain high standards of
quality, style, appearance and service with respect to all Licensed Products
made and/or sold, and all related advertising and promotional material
including, without limitation, the quality of physical material utilized. All
Licensed Products will be manufactured, sold, and distributed in accordance with
all applicable federal, state, local, and foreign laws and regulations.
12 EXHIBIT "A", PAGE 12 OF 23
<PAGE> 16
13. PATENT INFRINGEMENT.
13.1 Infringement By a Third Party. In the event Golden becomes
aware of any information indicating that a third party may be infringing (or may
have infringed) any of the Futech Intellectual Property or Futech Marks with
respect to the Licensed Products, Golden shall give Futech notice of such
alleged infringement, identifying the country or countries in which the alleged
infringing product is sold and describing the alleged infringing product in
sufficient detail to enable Futech to determine whether such product infringes
any of the Futech Intellectual Property or Futech Marks. Futech shall assert the
Futech Intellectual Property or Futech Marks against the infringer within three
months of such notice, unless (a) Golden and Futech determine not to assert such
claim, or (b) Futech has received an opinion from qualified patent counsel that
the allegedly infringing product does not infringe the Futech Intellectual
Property or Futech Marks. All recoveries relating to losses of Golden in
connection with Licensed Products, including, but not limited to, awards of
damages, statutory damages, and awards of attorneys' fees, expenses and/or
costs, net of all costs, including attorneys' fees and costs, incurred by Futech
to obtain said recoveries, obtained by Futech in the course of any litigation
arising out of any notification of Futech by Golden pursuant to this
subparagraph shall be paid to Golden.
13.2 Infringement Alleged By a Third Party. In the event that any
third party alleges that any Licensed Product infringes any intellectual
property rights of such third party, and such intellectual property rights
reasonably relate to the Futech Technology on which the Licensed Product is
based, then Futech shall investigate and defend against such allegations at
Futech's expense. If the basis of the third party's infringement claim is for
any other reason, then Golden shall investigate and defend Futech and Golden
against such allegations at Golden's expense.
If a Licensed Product is held to infringe the intellectual property
rights of a third party and Golden is required to pay a royalty to such party
for the right to continue to manufacture and sell such Licensed Product, or if
settlement of any claim of rights similarly so requires (and Futech consents to
the settlement in writing), (i) Futech shall be required to make such payments
if the infringement is of intellectual property rights reasonably relating to
the Futech Technology on which the Licensed Product is based, and (ii) Golden
shall be required to make such payments if the infringement claim is for any
other reason.
Golden shall not knowingly infringe on the rights of any third party
in connection the manufacturing, marketing or sale of Licensed Products.
14. TRADEMARK USAGE; MARKING.
(a) This subparagraph (a) shall apply until December 31, 1997.
Any Licensed Product incorporating, embodying, or comprising Futech
Technology shall display in a plainly visible manner the Futech Mark "Talking
Pages" as a trademark in connection therewith on the back cover, in a manner
agreed upon beforehand by the parties; provided, however, that such display is
not required if precluded by any agreement after reasonable efforts are
exercised to modify or waive such agreement. Golden shall mark all Licensed
Products
13 EXHIBIT "A", PAGE 13 OF 23
<PAGE> 17
with such appropriate patent and trademark marking and other proprietary legends
as reasonably requested by Futech.
(b) This subparagraph (b) shall apply only after December 31, 1997.
All Licensed Products incorporating, embodying, or comprising Futech
Technology or Futech Marks shall display in a plainly visible manner the Futech
Mark "Talking Pages," or "Talking Pages Plus," as the case may be, as a
trademark in connection therewith on the back cover, in a manner agreed upon
beforehand by the parties. Golden shall also mark all Licensed Products with
such other appropriate patent and trademark marking and other proprietary
legends as reasonably requested by Futech.
Unless otherwise agreed in writing by Futech, all Licensed Products
shall be clearly marked with type in readable size with the words "Talking Pages
[or Talking Pages Plus, as the case may be], Technology Provided by Futech
Educational Products, Inc.," and immediately thereafter shall appear the
then-current address and phone number of Futech provided by Futech to Golden. No
portion of the statement appearing within the quotation marks in the preceding
sentence shall be in larger type in or any way any more prominent than any other
part thereof.
15. CONFIDENTIALITY.
15.1 Futech's Confidential Information. Golden acknowledges that
Futech's Confidential Information is unique and valuable and was developed or
otherwise acquired by Futech at great expense, and that any unauthorized
disclosure or use of Futech's Confidential Information may cause Futech
irreparable injury loss for which damages would be an inadequate remedy. Golden
agrees to hold such Confidential Information in strictest confidence, to use all
efforts reasonable under the circumstances to maintain the secrecy thereof, and
not to make use thereof other than in accordance with this Agreement, and not to
make use of or to release or disclose Confidential Information to any third
party without Futech's prior written consent.
15.2 Golden's Confidential Information. Futech acknowledges that
various information regarding the business plans and product concepts of Golden
may comprise Confidential Information. Futech agrees to hold Golden's
confidential information (defined consistently with Section 1.3 above) in
strictest confidence, not to make use thereof other than in accordance with this
Agreement, to use all efforts reasonable under the circumstances to maintain the
secrecy thereof, and not to make use of or to release or disclose Golden's
confidential information to any third party without Golden's prior written
consent. Golden hereby acknowledges and consents to Futech's disclosure of
Golden's confidential information to Futech's consultant, Newtech Consulting,
Inc., an Arizona Corporation.
15.3 Injunctive Relief. The parties acknowledge that any violation
of this Section 15 shall constitute a material breach of this Agreement
resulting in irreparable injury to the non-breaching party, and agree that, in
addition to any and all other rights available to the nonbreaching party by law
or by this Agreement, the non-breaching party shall have the right to seek to
have an injunction entered against the breaching party to enjoin any further
violations of this Agreement.
14 EXHIBIT "A", PAGE 14 OF 23
<PAGE> 18
16. WARRANTIES. Except as otherwise set forth on Exhibit "A" attached
hereto:
16.1 Ownership of Rights. Futech is the owner of all right, title
and interest in and to the currently existing Futech Intellectual Property and
currently existing Futech Marks, free and clear of any and all liabilities,
obligations, licenses, liens or assignments, whether written, oral or implied in
fact or law, and no use by Golden of the Futech Intellectual Property as
provided for in this Agreement will infringe upon or violate the rights of any
third party.
16.2 Validity of Rights. No holding, decision or judgment is pending
or threatened and none has been rendered by any governmental authority which
would limit, cancel or question the validity of any of the currently existing
Futech Intellectual Property or currently existing Futech Marks. Futech is not
aware of any information that would affect the validity of any of the currently
existing Futech Intellectual Property or current existing Futech Marks.
16.3 No Inconsistent Licenses. There are no outstanding licenses or
other agreements that relate to or restrict the use of the currently existing
Futech Intellectual Property or currently existing Futech Marks which are
inconsistent with the licenses granted in this Agreement.
16.4 Notices of Claims. Futech has no knowledge of and has received
no notice of any adversely held patent, patent right, trademark, service mark,
trade name, trade secret, copyright, franchise or other proprietary right of any
other person or notice of any claim of any other person, nor has Futech made a
claim against any person, relating to any of the current existing Futech
Intellectual Property, current existing Futech Marks, or any process or
Confidential Information of Futech, and Futech has no knowledge of any basis for
any such charge or claim.
17. INDEMNITIES.
17.1 Mutual. The parties hereto shall each indemnify and hold the
other harmless from and against any and all claims, liabilities, loss, expense
(including reasonable attorneys' fees) or damages arising out of any breach of
this Agreement, including without limitation any representation, warranty,
covenant or agreement of such party set forth in this Agreement, provided that
the indemnified party shall, with reasonable promptness, notify the indemnifying
party of any such claim, demand, or suit and shall fully cooperate in the
defense thereof.
17.2 By Golden. Golden shall defend, indemnify and hold Futech, and
its Subsidiaries, and associated and affiliated companies, harmless from and
against any liabilities (including reasonable attorneys' fees and costs) of any
kind or nature whatsoever which may be sustained or suffered by Futech: (i) in
connection with the Licensed Products or the packaging, distribution, promotion,
sale or exploitation of the Licensed Products, including but not limited to any
actual or alleged defect in the Licensed Products, or their packaging, whether
latent or patent, including failure of said Licensed Products or their
packaging, distribution, promotion, sale or exploitation to meet any federal,
state or local laws or standards; (ii) based upon or arising out of any actual
or alleged unauthorized use by Golden or its Subsidiaries of any patent, trade
secret, process, idea, method or device, or any copyright or trademark; or (iii)
any other actual or alleged unauthorized action of Golden. The foregoing
indemnification shall not however apply to any such liability arising out of,
relating to or caused by the Futech Technology and/or the Futech Intellectual
15 EXHIBIT "A", PAGE 15 OF 23
<PAGE> 19
Property, to and only to the extent so related or caused (this provision shall
not limit Golden's indemnification for liability for products defectively
manufactured by or for Golden, unless the liability results from defects
inherent in the Futech Technology and the defective product was manufactured
substantially in accordance with Futech instructions).
17.3 By Futech. Futech shall defend, indemnify and hold Golden, and
its Subsidiaries harmless from and against any liabilities (including reasonable
attorneys' fees and costs) of any kind or nature whatsoever which may be
sustained or suffered by Golden arising out of, relating to or caused by the
Futech Technology and/or the Futech Intellectual Property, to and only to the
extent so related or caused (this indemnification shall not apply to liability
for products defectively manufactured by or for Golden, unless the liability
results from defects inherent in the Futech Technology and the defective product
was manufactured substantially in accordance with Futech instructions).
17.4 General Terms. The indemnifying party shall have the right to
designate counsel to defend against such claims and suits; however, at the
indemnified party's option, the indemnified party shall have the right to
participate in the defense with its own counsel at its own expense. In no event
shall any such claims or suits affecting the rights of a party be settled
without the prior written consent of that party.
18. TERM. This Agreement shall be effective as of August 14, 1996, and
shall continue thereafter until August 13, 2001, unless sooner terminated as
provided for in this Agreement. In addition to said term, Golden shall have one
(1) option (the "Option") to extend the term of this Agreement for a period of
one additional five year period (to the extent this Agreement is so extended,
the new term is sometimes hereinafter referred to as the "Extended Term"). The
Option is granted upon the following terms and conditions:
(a) Golden shall exercise the Option by delivering written notice to
Futech of such exercise not later than May 13, 2001;
(b) Golden shall not be in default under this Agreement on the date
the Option is exercised, or on the commencement date of the Extended Term;
(c) At the time the Option is exercised, Golden shall pay an advance
and guarantee in the amount of $2,000,000, payable in cash equivalent. Royalties
payable by Golden to Futech hereunder for Net Sales made during the Extended
Term shall be first applied against said advance and guarantee, until the
advance and guarantee is used in its entirety. In no event shall the advance and
guarantee be repayable by Futech to Golden, except against future Royalties as
described in the preceding sentence.
(d) All terms and conditions of this Agreement shall remain in full
force and effect, and apply to the Extended Term, including but not limited to
Golden's obligation to pay Futech Royalties under Section 9 above.
19. DEFAULT AND TERMINATION.
16 EXHIBIT "A", PAGE 16 OF 23
<PAGE> 20
19.1 Termination For Default. Either party shall have the right to
terminate this Agreement upon thirty (30) days' written notice to the other
party, if such other party fails to comply in any material respect with any term
or condition of this Agreement and such failure to comply is not corrected
within the foregoing thirty (30) day notice period.
19.2 Termination For Golden's Bankruptcy. Futech shall have the
right to terminate this Agreement in the event Golden becomes bankrupt or
insolvent, suffers a receiver to be appointed, or makes an assignment for the
benefit of creditors.
19.3 Golden's Rights Cease at Termination. Upon termination of this
Agreement for any reason or cause, Golden's rights hereunder shall terminate
immediately and Golden shall immediately cease all use of Futech Technology and
Futech Marks and all marketing, distribution and sale of Licensed Products;
provided, however, that Golden shall be entitled, for and only for a period of
one hundred twenty (120) days, to complete, market, distribute and sell all
work-in-progress inventory, and market, distribute and sell all completed
inventory, existing on the date of termination (this Agreement shall continue to
apply to such inventory, including Golden's obligation to pay Royalties on all
such sales).
Within thirty (30) days after the expiration or termination of this
Agreement, Golden shall issue a statement executed by an authorized
representative of Golden certifying the number and description of the Licensed
Products in inventory or in process.
19.4 Rights Which Survive Termination. The termination or expiration
of this Agreement shall not release any party of any obligation to pay monies or
perform any other obligation that became due or owing or arose out of any
transaction prior to the date of said termination or expiration, including but
not limited to an obligation to pay Royalties. Also, Sections 5 (ownership), 7.1
(technology fee), 9 (Royalties), 10 (records), 11 (insurance), 12.4 (customer
complaints), 14.2 (approval for product markings), 15 (confidentiality), 16
(Futech's representations and warranties), 17 (indemnities), and 19.5 (return of
artwork) hereof shall survive termination (for any reason) and expiration of
this Agreement.
19.5 Return to Futech of Artwork, etc. Within thirty (30) days after
termination or expiration of this Agreement, Golden shall deliver to Futech any
and all original artwork relating to the Futech Marks, and all technical
information, materials, samples, formulas, drawings, and know-how in tangible
form furnished by or for Futech.
20. EXPORT. Regardless of any disclosure by Golden to Futech of the
ultimate destination of any Licensed Product, Golden shall not knowingly use or
transport any Futech Technology or Futech Mark, directly or indirectly, in a
manner contrary to U.S. Export Administration Regulations.
21. FORCE MAJEURE. If the performance of this Agreement, or any
obligation under this Agreement, is prevented, restricted or interfered with by
reason of fire, flood, earthquake, explosion or other casualty or accident,
strikes or labor disputes, inability to procure or obtain delivery of parts,
supplies or power, war or other violence, any law, order, proclamation,
regulation, ordinance, demand or requirement of any governmental agency, or any
other act or condition whatsoever beyond the reasonable control of the affected
party, the party so affected, upon giving prompt notice
17 EXHIBIT "A", PAGE 17 OF 23
<PAGE> 21
to the other party, shall be excused from such performance to the extent of such
prevention, restriction or interference; provided, however, that the party so
affected shall take all reasonable steps to avoid or remove such cause of
nonperformance and shall resume performance under this Agreement with dispatch
whenever such causes are removed.
If a party was required to meet a scheduled date of performance of
an obligation during such period of nonperformance, then the date for
performance shall be extended by a period equal to the period of nonperformance.
22. ASSIGNMENT. Neither party may assign or otherwise transfer this
Agreement, or any rights under it, without the prior written consent of the
other party, which consent shall not be unreasonably withheld; provided,
however, that Futech and/or Golden shall be entitled to assign its rights, or
any portion thereof, under this Agreement without the consent of the other
party, so long as such assignment is to a Subsidiary of Futech or Golden, as
applicable. Any attempted assignment in violation of this Section shall be null
and void. All terms and conditions of this Agreement shall be binding upon and
shall inure to the benefit of the parties to this Agreement and their respective
permitted successors and assigns.
23. CHOICE OF LAW. This Agreement is made under, and shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflicts of law.
24. RELATIONSHIP OF THE PARTIES. The relationship between the parties
hereto is that of licensor and licensee, and this Agreement is not to be
construed as creating a partnership, joint venture, master-servant,
principal-agent, or other relationship for any purpose whatsoever. Except as may
be expressly provided herein, neither party may be held for the acts of omission
or commission of the other party, and neither party is authorized to or has the
power to obligate or bind the other party by contract, agreement, warranty,
representation or otherwise in any manner whatsoever.
25. GENERAL.
25.1 Entire Agreement. Except as otherwise set forth in this
Agreement or in that certain "Agreement" dated the same date as this Agreement
and entered into by Futech and Golden, this Agreement (including the Exhibits
attached hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior understandings,
proposals, representations, negotiations and communications, oral or written, if
any, with respect thereto. No variation from these provisions shall be binding
unless in writing and signed by both parties. There are no oral promises,
conditions, representations, understandings, interpretations, or terms of any
kind as conditions or inducements to the execution hereof, or in affect between
the parties, except as may otherwise be expressly provided herein or in the
Agreement referred to in the first sentence of this Section 25.1.
The parties do not intend to confer any benefit hereunder to any
person, firm, or corporation other than the parties hereto. No representation,
warranty, or agreement herein may be relied upon by any person not a party to
this Agreement.
18 EXHIBIT "A", PAGE 18 OF 23
<PAGE> 22
The parties agree that this Agreement relates only to the technology
and products specifically identified herein, and does not apply to or create any
obligations of Futech, or rights of Golden, with respect to any other technology
or products.
25.2 Sales Tax. Golden shall be responsible for, and shall pay, all
sales, value added and similar taxes, if any, which may be imposed on any sales
of the Licensed Products, as well as any other tax based upon Golden's use,
sale, or possession of the Futech Technology, Futech Marks, and the Licensed
Products.
25.3 Partial Validity. In the event any provision of this Agreement
or the application of any provision shall be held by a tribunal of competent
jurisdiction to be contrary to law, then the remaining provisions of this
Agreement shall be unimpaired, and the illegal, invalid or unenforceable
provision shall be replaced by a provision, which, being legal, valid and
enforceable, comes closest to the intent of the parties underlying the illegal,
invalid or unenforceable provision.
25.4 Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed to have been given upon personal
delivery or upon deposit in the U.S. mail, first-class, postage prepaid. The
addresses of the parties (until written notice of change shall have been given)
shall be as follows:
Futech: Futech Educational Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
Attn: Vincent Goett, CEO
Golden: Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, New York 10106-4100
Attn: Philip Galanes
25.5 No Waiver. None of the provisions hereof shall be deemed to be
waived or modified, nor shall they be renewed, extended, altered, changed or
modified in any respect, except by an express agreement in writing duly executed
by the party against whom enforcement of such waiver, modification, etc. is
sought. The failure of either party hereto to object to the failure on the part
of the other party to perform any of the terms, provisions or conditions hereof,
or to exercise any option herein given, or to require performance on the part of
the other party of any term, provision or condition hereof, or any delay in
doing so, or any custom or practice of the parties at variance therewith, shall
not constitute a waiver or modification of this Agreement or any provision
hereof, or of any subsequent breach or default of the same or a different
nature, nor affect the validity of any part hereof, nor the right of either
party thereafter to enforce the same, nor constitute a novation.
19 EXHIBIT "A", PAGE 19 OF 23
<PAGE> 23
25.6. Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
25.7. Counterparts. This Agreement may be executed by the parties in
one or more counterparts, and any number of counterparts signed in the aggregate
by the parties shall constitute a single instrument.
25.8 Other. All rights and remedies conferred under this Agreement
or by any other instrument or by law shall be cumulative, and may be exercised
singularly or concurrently.
DATED as of the date first hereinabove written.
FUTECH: Futech Educational Products, Inc., an Arizona
corporation
By___________________________________________
Vincent W. Goett, CEO
GOLDEN: Golden Books Family Entertainment, Inc., a
Delaware corporation
By___________________________________________
Its________________________________________
List of Exhibits
Existing Futech Intellectual Property and Existing Futech Marks "A"
20 EXHIBIT "A", PAGE 20 OF 23
<PAGE> 24
EXHIBIT "A"
Existing Patents
<TABLE>
<CAPTION>
Patent Number Serial Number Country Filing Date Grant Date
<S> <C> <C> <C> <C>
57656 78210811 Taiwan August 21, 1989 September 1, 1990
5,167,508 07/685,278 USA April 15, 1991 December 1, 1992
664,701 17841/92 Australia April 14, 1992 March 19, 1996
2,108,554 Canada April 14, 1992
EP 92911059.1 EPO April 14, 1992
4-510057 Japan April 14, 1992
18887 South Korea April 14, 1992
(Republic of Korea) April 14, 1992
178299 925737 Mexico April 14, 1992 June 7, 1995
PCT/US92/03056 PCT April 14, 1992
Not yet received Russian Federation April 14, 1992
92 1 11051.0 China April 14, 1992
886/Del/92 India April 14, 1992
5,417,575 08/137,063 USA April 14, 1992 May 23, 1995
Not yet assigned Kazakhstan Not yet confirmed
5,484,292 07/980,649 USA November 24, 1992 January 16, 1996
PCT/US93/10705 PCT November 11, 1993
08/195,755 USA February 11, 1994
93120335.X China November 24, 1993
1253/Del/93 India November 9, 1993
</TABLE>
Exhibit "A", Page 21 of 23
<PAGE> 25
<TABLE>
<CAPTION>
===================================================================================================
Patent Number Serial Number Country Filing Date Grant Date
===================================================================================================
<S> <C> <C> <C> <C>
55940/94 Australia November 4, 1993
- ---------------------------------------------------------------------------------------------------
2,150,013 Canada November 4, 1993
- ---------------------------------------------------------------------------------------------------
Not yet assigned EPO November 4, 1993
- ---------------------------------------------------------------------------------------------------
952545 Finland November 4, 1993
- ---------------------------------------------------------------------------------------------------
6-513158 Japan November 4, 1993
- ---------------------------------------------------------------------------------------------------
702092/1995 Korea November 4, 1993
- ---------------------------------------------------------------------------------------------------
258342 New Zealand November 4, 1993
- ---------------------------------------------------------------------------------------------------
952042 Norway November 4, 1993
- ---------------------------------------------------------------------------------------------------
95118875 Russian Federation November 4, 1993
- ---------------------------------------------------------------------------------------------------
10815 10815 Sri Lanka November 4, 1993 February 23, 1996
- ---------------------------------------------------------------------------------------------------
PCT November 5, 1996
- ---------------------------------------------------------------------------------------------------
India November 6, 1996
- ---------------------------------------------------------------------------------------------------
08/474,707 USA November 4, 1993
- ---------------------------------------------------------------------------------------------------
08/554,734 USA November 7, 1995
===================================================================================================
</TABLE>
Registered Trademarks and Copyrights
<TABLE>
<CAPTION>
=====================================================================================================
Type Registration Serial Number Country/ Filing Date Grant Date
Number State
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Trademark 1,923,092 74/431,014 USA August 30, 1993 September 26, 1995
- -----------------------------------------------------------------------------------------------------
Trademark 7-80127 Japan August 2, 1995
- -----------------------------------------------------------------------------------------------------
Trademark 028881 Arizona October 5, 1990
- -----------------------------------------------------------------------------------------------------
Trademark not yet November 15, 1996
received
=====================================================================================================
</TABLE>
Exhibit "A", Page 22 of 23
<PAGE> 26
<TABLE>
<CAPTION>
=====================================================================================================
Type Registration Serial Number Country/ Filing Date Grant Date
Number State
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Trademark not yet November 15, 1996
received
- -----------------------------------------------------------------------------------------------------
Trademark not yet November 15, 1996
received
- -----------------------------------------------------------------------------------------------------
Tradename 103552 Arizona June 14, 1991
- -----------------------------------------------------------------------------------------------------
Tradename 096432 Arizona July 12, 1990
- -----------------------------------------------------------------------------------------------------
Tradename 096284 Arizona July 5, 1990
- -----------------------------------------------------------------------------------------------------
Tradename 103550 Arizona June 14, 1991
- -----------------------------------------------------------------------------------------------------
Tradename 096434 Arizona July 12, 1990
- -----------------------------------------------------------------------------------------------------
Tradename 103551 Arizona June 14, 1991
- -----------------------------------------------------------------------------------------------------
Tradename 093474 Arizona March 8, 1990
- -----------------------------------------------------------------------------------------------------
Tradename 096433 Arizona July 12, 1990
- -----------------------------------------------------------------------------------------------------
Copyright VAu 241-157 USA November 9, 1992
- -----------------------------------------------------------------------------------------------------
Copyright VAu 244-017 USA January 7, 1993
=====================================================================================================
</TABLE>
Exhibit "A", Page 23 of 23
<PAGE> 27
EXHIBIT "B"
<TABLE>
<CAPTION>
PRODUCTION EQUIPMENT INVENTORY
ITEM# MANUFACTURER MODEL/TYPE SERIAL NO. MFR. DATE FUNCTION
- ----- ------------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
1 Sakurai SC112A RJO11293 1993 Screen cylinder press
SPE Inc HPGH2-4/30/16ACR 4684-0695 1995 High profile gas drying sys.
SPE Inc DS-48HP 4685-0695 1995 Descending pile stacker
2 Sakurai SC112A RJ004887 1987 Screen cylinder press
SPE Inc 3PI-482CS/AC 2388-1287 1987 Ultra-violet curing reactor
SPE Inc WRS-50 2389-1287 1987 Water recirculating system
SPE Inc ST112H VJ010187 1987 Descending pile stacker
3 Amer. Graphic Arts Custom Built 001 1994 Pattern gluer (Pageline)
4 Muller Martini 240 924869 1975 Three knife trimmer
5 Fasteck 110MDA - 1994 Defects analysis board tester
6 Rosback 202 1975 1975 (rebuilt Auto-stitcher w/Acme heads
1993)
7 Kolbus DA367 J-28 1975 (rebuilt Casemaker (double headed)
1994)
8 Kolbus EMP45/530 J-800 rebuilt 1994 Encasing machine
</TABLE>
<PAGE> 28
EXHIBIT "C"
PROMISSORY NOTE
$1,000,000.00 As of August 14, 1996
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Futech Educational
Products, Inc., an Arizona corporation ("Maker") to the order of Golden Books
Family Entertainment, Inc., a Delaware corporation ("Payee").
1. PAYMENT. For value received, Maker promises to pay to Payee or
Payee's order, without offset (other than offsets for non-payment of royalties
under that certain License Agreement, dated August 14, 1996, between Maker and
Payee), the principal sum of One Million Dollars ($1,000,000.00), together with
interest calculated at prime rate (as announced in the Wall Street Journal) plus
1%, as hereinafter set forth; provided, however, that the outstanding balance
shall be interest free, and no interest shall in any event accrue, until January
1, 1998. Principal and interest are payable in lawful money of the United States
of America at 888 Seventh Avenue, New York, New York 10106-4100, or at such
other address as the holder hereof may from time to time designate in writing,
in full on or before June 1, 1999, and on June 1, 1999 the outstanding principal
amount of this Note, together with all accrued and unpaid interest, shall be
paid in full. All payments made hereunder shall be applied to interest and
principal in that order.
2. PREPAYMENT. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
3. INTEREST. All interest payable pursuant to this Note shall be
computed on the basis of a 365-day year. In no event shall the aggregate of the
interest herein provided to be paid over the contractual term of the loan exceed
the highest rate to which a borrower and lender may agree in writing under
applicable laws.
4. DEFAULT. If any one or more of the following events (each, an "Event
of Default" and collectively, called "Events of Default") shall occur for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default shall be made in the payment of the principal of
this note when and as the same shall become due and payable, whether
pursuant to the terms hereof or at a date fixed for prepayment or by
acceleration or otherwise; or
(b) Maker shall (i) be unable to pay its debts generally as
they become due; (ii) file a petition to take advantage of any
insolvency act; (iii) make an assignment for the benefit of its
creditors; (iv) commence a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of itself or of a whole or
any substantial part of its property; (v) file a petition
EXHIBIT "C", PAGE 1 OF 4
<PAGE> 29
or answer seeking reorganization or arrangement or similar relief
under the Federal Bankruptcy Code or any other applicable law or
statute of the United States of America or any state; or (vi) by
appropriate proceedings of the board of directors of Maker, authorize
the filing of any such petition, making such assignment or commencement
of such a proceeding; or
(c) a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee,
liquidator or conservator of Maker or of the whole or any substantial
part of its properties, or approve a petition filed against Maker
seeking reorganization or arrangement or similar relief under the
Federal Bankruptcy Code or any other applicable law or statute of the
United States of America or any state; or if, under the provision of
any other law for the relief or aid of debtors, a court of competent
jurisdiction shall assume custody or control of Maker or of the whole
or any substantial part of its properties; or if there is commenced
against Maker any proceeding for any of the foregoing relief and such
proceeding or petition remains undismissed for a period of sixty (60)
days; or if Maker by any act indicates its consent to or approval of
any such proceeding or petition;
then, and in any such event and at any time thereafter, if such or any other
Event of Default shall then be continuing, the Payee shall have the right,
without presentment, demand or notice of any kind, to accelerate this Note and
to declare the entire unpaid balance hereof and the obligations evidenced hereby
immediately due and payable and to seek and obtain payment of this Note.
5. WAIVER; CONSENT. Maker and each endorser, guarantor or other party
that may be liable under this Note hereby severally waive diligence, demand,
presentment for payment, notice of dishonor, acceleration, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Note. No delay by the holder in exercising any rights
hereunder shall operate as a waiver thereof. The non-exercise or partial
exercise by the holder of any rights hereunder in any particular instance shall
not constitute a waiver thereof in that or any subsequent instance or preclude
other or further exercise thereof.
6. SEVERABILITY. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall, to the fullest extent possible, remain in full force and effect,
and such court shall reform such unenforceable provision so as to give maximum
permissible effect to the intentions of the parties as expressed therein.
7. SECURITY. As security for Maker's performance under this Note, Maker
hereby grants Payee a security interest in the assets identified on Exhibit "A"
attached hereto and hereby made a part hereof. In the event of default by Maker
hereunder, Payee shall have all rights with respect to such collateral as are
available to a secured party under applicable laws, as the same may from time to
time be changed.
8. MISCELLANEOUS. The provisions of this Note shall be binding upon
Maker and Maker's successors and assigns, and shall inure to the benefit of
Payee and Payee's successors and assigns. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of Arizona. This
Note shall be construed according to its fair meaning and neither for nor
against the
2 EXHIBIT "C", PAGE 2 OF 4
<PAGE> 30
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Futech Educational Products, Inc.,
an Arizona corporation
By_________________________________
Vincent W. Goett, CEO
List of Exhibits:
Equipment List "A"
GUARANTY: The faithful and timely performance by the Maker under the
above-described Note is hereby unconditionally guaranteed by the undersigned.
This is a guarantee of performance and not of collection. The undersigned
further agrees that any action may be bought and prosecuted by the Payee against
the undersigned guarantor whether or not any action is brought against the
Maker, and whether or not the Maker or any other parties are joined in such
action. The undersigned guarantor specifically agrees to be liable to Payee for
the obligations of Maker as set out above, even if Payee or any successor-
in-interest releases any or all rights of any sort against the Maker. The
undersigned guarantor hereby consents to any such release, which release shall
be without effect on the undersigned guarantor's liability for said obligations.
The undersigned guarantor waives any right to require Payee to proceed against
Maker or pursue any other remedy in Payee's power. The undersigned guarantor
waives any defense arising by reason of any disability or other defense of Maker
by reason of the cessation from any cause whatsoever (other than performance in
full) of the liability of Maker under the above-described Note. This guaranty is
made for performance without offset, other than offsets for non-payment of
royalties under that certain License Agreement, dated August 14, 1996, between
Maker and Payee. The undersigned guarantor shall have forty-five (45) days after
notice of default is given to the undersigned guarantor in which to perform
Maker's obligations under the Note.
No delay, failure, forbearance or omission by Payee in exercising any
right or remedy hereunder or otherwise guaranteed by law or another agreement
shall effect or release the liability of the undersigned or operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies of Payee hereunder are
cumulative. No modification or amendment of any provision of this guaranty shall
be effective unless in writing and subscribed by a duly authorized officer of
Payee. This guaranty inures to and shall be enforceable by payee and Payee's
successors and assigns, and shall bind the successors and assigns of the
undersigned.
This guaranty shall be governed by and construed and enforced in
accordance with the laws
3 EXHIBIT "C", PAGE 3 OF 4
<PAGE> 31
of the State of Arizona.
DATED the date first hereinabove written:
______________________________________
Vincent W. Goett
4 Exhibit "C", Page 4 of 4
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT "D"
<S> <C>
- ------------------------------------------------------------------------------------------------------------
This instrument was recorded at request of: |
|
Golden Books Family Entertainment, Inc. |
888 Seventh Avenue |
New York, New York 10106-4100 |
|
The recording official is directed to return this |
instrument or a copy to the above person. | Space Reserved For Recording Information
- -------------------------------------------------------------------------------------------------------------
UNIFORM
COMMERCIAL CODE
FINANCING STATEMENT
Loan No. Form UCC-1 F O R F I L I N G
---------------------
- -------------------------------------------------------------------------------------------------------------
Effective Date | County and State of Transaction
As of August 14, 1996 | Maricopa County, Arizona
- -------------------------------------------------------------------------------------------------------------
DEBTOR (Name, Address and ZIP Code) | SECURED PARTY (Name, Address and ZIP Code)
Futech Educational Products, Inc. | Golden Books Family Entertainment, Inc.
2999 North 44th Street, Suite 225 | 888 Seventh Avenue
Phoenix, Arizona 85018-7247 | New York, New York 10106-4100
- -------------------------------------------------------------------------------------------------------------
Assignee of Secured Party | Record Owner of Real Property, If Not Debtor
(Name, Address and ZIP Code) | (Name, Address and ZIP Code)
- -------------------------------------------------------------------------------------------------------------
Counties Where Collateral is Located | / / Products of Collateral are also covered
Maricopa County, Arizona | / / Proceeds of Collateral are also covered
- -------------------------------------------------------------------------------------------------------------
If collateral is timber to be cut, crops growing or to be grown, minerals or the like, accounts to be financed
at the wellhead or minehead of the well or mine, or goods which are or are to become fixtures, the real
property to which these are affixed or concerned is legal described:
/ / This financing statement is to be filed in the office where a mortgage on the real property would be
recorded.
- -------------------------------------------------------------------------------------------------------------
Financing Statement covers the following types or items of property:
See Exhibit "A" attached hereto and hereby made a part hereof.
- -------------------------------------------------------------------------------------------------------------
This Financing Statement is filed or recorded without Debtor's signature to perfect a security interest in
collateral in which
/ / Is already subject to a security interest in another jurisdiction when it was brought into the state or which
Debtor changes location to this State;
/ / Are proceeds of the original collateral described above in which a security interest was perfected;
/ / Was acquired four months or less after Debtor has changed its name, identity or corporate structure;
/ / Is no longer effective due to lapse of the original filing.
- -------------------------------------------------------------------------------------------------------------
Futech Educational Products, Inc., an Arizona | Golden Books Family Entertainment, Inc., a
Corporation | Delaware corporation
|
By | By
- -------------------------------------------------------------------------------------------------------------
Vincent W. Goett, CEO | Its
| -----------------------------------------------
- -------------------------------------------------------------------------------------------------------------
|
|
Signatures of Debtor or Assignor | Signatures of Secured Party or Assignee
</TABLE>
<PAGE> 33
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 14th day of August, 1996, by
and between Futech Educational Products, Inc., an Arizona corporation
("Futech"), and Golden Books Family Entertainment, Inc., a Delaware corporation
("Golden").
R E C I T A L S:
A. Futech owns certain intellectual property rights.
B. Golden desires to obtain the right to use certain of those
rights in connection with the sale of certain products and/or services, subject
to the terms and conditions set forth herein.
C. Futech is willing to grant the requested rights to Golden,
subject to the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the covenants and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
TERMS:
1. DEFINITIONS. In addition to the various defined terms set
forth in this Agreement, the following terms shall have these meanings
throughout this Agreement:
1.1 "FUTECH TECHNOLOGY" means:
(a) general and specific knowledge, experience
and information, not in written or printed form, used by Futech and
applicable to the design, development, manufacture, assembly, servicing
or sale of products; and
(b) documents containing technical information,
engineering or production data, blueprints, drawings, plans,
specifications, descriptions of assembly and manufacturing procedures,
quality and inspection standards, test records and data and other
written materials owned and used by Futech and applicable to the
design, development, manufacturing, assembly, servicing or sale of
products; and
(c) inventions (whether or not patentable),
works of authorship, mask works, products, manufacturing methods,
processes, concepts, designs, algorithms, computer hardware and
software, models, prototypes, automations, designs, and related
information and things;
(d) with respect to which Futech owns at the
date of this Agreement intellectual property rights;
<PAGE> 34
(e) together with any and all Improvements to
the foregoing developed by Futech during the term of this Agreement.
1.2 "IMPROVEMENT" means any improvement or enhancement of
the manufacturing process or design of, and which operates similarly to, a
device, apparatus, product, process or invention described in the patent
applications and/or patents identified on Exhibit "A" attached hereto, in order
to accomplish an equivalent or related result as said initially listed patent or
application, so long as the Improvement: (i) relates to Licensed Products; and
(ii) relates to at least one claim of any patent or application directed to
Licensed Products already listed on Exhibit "A" attached hereto.
Should the parties be unable to agree on whether something is
an Improvement, the parties shall submit the issue to a licensed patent attorney
well versed in the applicable law, and the determination of said counsel shall
be deemed binding and final relative solely however to the issue of what is an
Improvement. Such counsel shall be appointed by agreement between the parties,
or failing such appointment within twenty (20) days after demand is made
therefor by either party, then either party may by written notice to the other
party appoint one such counsel, and the other party may within fifteen (15) days
after receipt of written notice of such appointment, appoint one such counsel,
by giving written notice thereof to the other party. If either party fails to so
appoint counsel, then the determination made by counsel appointed by the other
party shall be binding upon the parties. If two counsel are so appointed, they
shall promptly attempt to agree upon a third such counsel. If they cannot agree
within fifteen (15) days after appointment of the second counsel, then either
party may propose that the third counsel be appointed by a then presiding
officer of the American Arbitration Association office located in or nearest to
Wilmington, Delaware, and the third counsel shall thus be chosen. Said third
counsel alone shall determine the issue of what is an Improvement. If any
counsel resigns or becomes unavailable, replacement counsel shall be appointed
in the same manner as the counsel who has become unavailable. All counsel
selected shall be licensed patent attorneys well versed in the applicable law.
The parties shall make available to the single counsel
appointed to determine the issue all information available to the parties
relating to the issue to be determined. If any of said information is argued to
be confidential, it shall be delivered to such counsel on a confidential basis
for his/her eyes only, to be used solely in deciding the issue of what is an
Improvement. Once counsel is appointed to determine an Improvement issue, that
counsel shall decide all issues regarding what is an Improvement arising within
two years after the date of such appointment. All counsel appointed under this
provision shall be protected from liability for acting in the appointed role to
the same extent as a judge of civil court in Delaware would be protected in
connection with judicial determinations made by the judge.
1.3 "CONFIDENTIAL INFORMATION" means any and all Futech
Technology, information and/or data which is not readily ascertainable by proper
means and which derives economic value, actual or potential from not being
generally known, and which has been the subject of efforts that are reasonable
under the circumstances to maintain its secrecy. All information relating to the
products or operations of Futech, which is provided to Golden, or to which
Golden otherwise obtains access, pursuant to, or as a result of, this Agreement
shall be considered Futech Confidential Information; Except such information
which Golden can clearly show: (a) at the time
2
<PAGE> 35
of this Agreement is publicly and openly known; (b) after the date of this
Agreement becomes publicly and openly known through no fault of Golden; (c)
comes into Golden's possession and lawfully obtained by Golden from a source
other than from Futech or a source deriving from Futech, and not subject to any
obligation of confidentiality or restrictions on use; or (d) is approved for
release by written authorization of Futech.
1.4 "FUTECH INTELLECTUAL PROPERTY" means: (i) any and all
United States and foreign patent, copyrights, trade secret and mask work rights
held by Futech as of the date of this Agreement, including but not limited to
the patents and patent applications, and copyright registrations identified on
Exhibit "A" attached hereto; and (ii) any and all United States and foreign
patent, copyrights, trade secret and mask work rights which Futech acquires
during the term of this Agreement. For purposes of clarity, trademark rights
shall be separately defined and treated.
1.5 "FUTECH MARKS" means any and all United States and
foreign trademark, service mark and trade name rights held by Futech as of the
date of this Agreement, including but not limited to, the trademarks, service
marks, and trade names identified on Exhibit "A" attached hereto, together with
any and all United States and foreign trademark, service mark and trade name
rights which Futech acquires during the term of this Agreement.
1.6 "LICENSED PRODUCTS" means products manufactured
and/or sold by Golden, incorporating, embodying or comprising the Futech
Technology as allowed by the licenses contained in this Agreement.
1.7 "SUBSIDIARY" means a corporation, company,
partnership, or other entity more than fifty percent (50%) of whose outstanding
stock or interest entitled to vote for the election of directors or similar
management control (other than preferred or other stock entitled to vote only
upon failure of the entity to pay dividends) is now or hereafter during the term
of this Agreement owned or controlled, directly or indirectly by Futech or
Golden, as the case may be in the specific provisions using the defined term
"Subsidiary," provided that any such entity which would be a Subsidiary by
reason of the foregoing shall be considered a Subsidiary only so long as such
ownership or control exists.
1.8 "PRESS THE PAGE BOOK FORMAT" means books utilizing
multiple printed tactile points which are embedded inside the two ply lamination
of each page. The inside front and back covers of the book do not contain any
embedded tactile points. Finger tip pressure applied directly to the individual
page tactile points energizes a sound module control center attached to the back
cover of the book. "Quad Fold Technology" is not included in or part of Press
the Page Book Format.
1.9 "PRESS THROUGH THE PAGE FORMAT" means:
(i) books using a folded panel containing
printed tactile points embedded on the inside of the panel. The panel
is adhered to the inside front and back cover of the book. The actual
pages are single ply and do not contain any embedded tactile points.
Interactive play is obtained by finger pressure through the pages to
the tactile points located within the
3
<PAGE> 36
inside front and back cover. A sound module control center is attached
to the back cover of the book; and
(ii) game boards for children, sound pads for
children, sound games for children and puzzles for children containing
printed tactile points similar to those described in subparagraph (i)
above.
"Quad Fold Technology" is not included in or part of Press Through The
Page Format.
1.10 "QUAD FOLD TECHNOLOGY" is not a book format but
rather a smaller version of a bi-fold board game mounted directly on a stiff
back board which also contains the sound module control center assembly. The
printed tactile points are embedded within the two ply lamination of the bi-fold
game board. Interactive play is obtained by applying pressure directly to the
tactile points within the game board.
2. GRANT OF LICENSES.
2.1 Golden's Right to Make and Sell. Subject to the terms
and conditions of this Agreement, Futech hereby grants to Golden and Golden's
Subsidiaries, for the term of this Agreement, a non-exclusive license to use the
Futech Technology relating to Press The Page Book Format, the Press Through the
Page Format, and the Quad Fold Technology, to make or have made for commercial
sale, and to sell Press The Page Book Format books, Press Through The Page
Format Licensed Products, and Quad Fold Technology Licensed Products. Neither
this Agreement, nor any other agreement between the parties, grants Golden any
licenses other than as are expressly provided for in this Section 2.1 and in
Section 4 below.
2.2 Futech's Right to Make and Sell. The license
appearing in Section 2.1 above is non-exclusive because Futech and Futech's
Subsidiaries shall be entitled to use the Futech Technology relating to Press
The Page Book Format, the Press Through The Page Format, and the Quad Fold
Technology, to make or have made for commercial sale, and to sell Press The Page
Book Format books, Press Through The Page Format products, and Quad Fold
Technology products. Except as expressly provided for in Section 3 below,
nothing in this Agreement, or in any other agreement between the parties,
restricts in any manner Futech's rights to use Futech Technology, Futech
Intellectual Property, and/or Futech Marks, including but not limited to the
right to use the same in connection with products competing with the Licensed
Products, or in connection with any other product.
2.3 No Duty in Golden to Work the License. Except as
called for in section 3 below (i.e., as to third party deals Golden has elected
to perform), Golden shall have no duty to manufacture or sell Licensed Products.
3. GOLDEN'S RIGHT REGARDING THIRD PARTY LICENSES. Notwithstanding
Section 2.2 above, if Futech (or a Futech Subsidiary) desires to license to an
entity which is not a Futech Subsidiary, rights to use the Futech Technology
relating to Press the Page Book format, the Press Through The Page Format as it
relates to books described in Section 1.9 (i) above, or the Quad Fold Technology
as it relates to the publishing of books, to make or have made for commercial
4
<PAGE> 37
sale, and/or sell Press The Page Book Format books, Press Through The Page
Format books, or Quad Fold Technology books, then Golden shall have the right to
elect to do the transaction offered to the third party to the exclusion of the
third party, as follows:
(a) Futech shall give Golden written notice of
the license rights Futech proposes to offer to the third party, along
with an outline summary of the transaction describing the "deal points"
of the proposed license arrangement, including but not limited to the
name of the publisher in the third party transaction, any time
requirements for bringing the products to market, and any production
and/or sales quantity requirements.
(b) Golden shall have five (5) business days
from the giving of said notice to give Futech written notice that
Golden will publish books the same or comparable to the books described
in the third party offer. If Golden so elects to publish the books,
then Golden's obligation to publish shall be covered by the terms of
this agreement, including but not limited to the obligation to pay
royalties (Net Sales from said publishing shall apply against the
$40,000,000 figure in subparagraph 9(a) below) at the rate and on the
terms appearing in Section 9 below; provided, however, that
notwithstanding the other terms of this Agreement which do not require
Golden to meet any timing, production, or sales performance criteria,
Golden shall be obligated to meet any "time to market" and any
production and/or sales quantity requirements appearing in the third
party offer. The parties expressly agree that Golden shall not be
required to pay an advance in connection with publishing under this
subparagraph (b), even if one appears in the third party offer.
(c) The existence of and terms of any third
party offer described above shall be kept confidential by Golden as
Confidential Information subject to Section 15.1 below.
(d) If Golden does not elect (within the five
(5) day period described in subparagraph (b) above) to publish the
books described in the third party outline summary as allowed in
subparagraph (b) above, then Futech may for a period of sixty (60) days
(after the expiration of the five (5) day period) enter into a license
arrangement with the third party identified in the outline summary of
the third party transaction on the terms appearing in the outline
summary provided to Golden under subparagraph (a) above.
(e) If Futech enters into a license arrangement
with a third party under subparagraph (d) above, then Futech shall pay
Golden forty percent (40%) of the difference between: (i) all amounts
actually received by Futech under the license agreement, and (ii)
Futech's actual direct third-party costs associated therewith,
including but not limited to attorneys' fees and costs. Golden shall
reimburse Futech for any amounts so received by Golden if necessary to
accomplish a 40%/60% split of the net amounts received by Futech from
the third party. An amount equal to twenty (20) times all amounts paid
to Golden under this subparagraph shall be applied against and shall
reduce the remaining balance, if any, of the $40,000,000 Royalty-free
Net Sales described in subparagraph 9(a) below.
5
<PAGE> 38
Amounts payable to Golden under this subparagraph (e)
(hereinafter "Golden's Share") will be payable on a calendar quarter basis, by
the sixtieth day following the calendar quarter to which the payments relate.
All amounts not so paid shall bear interest from the due date until the date of
payment at the per annum rate of one (1) percentage point above the prime rate
of interest published by the Wall Street Journal, as such rate may from time to
time change.
On or before the due date of Golden's Share, and at least
quarterly on a calendar quarter basis, Futech shall make written reports to
Golden in form and with detail as shall reasonably be requested by Golden,
certified to be accurate by an authorized agent of Futech, setting forth the
detail relating to Golden's Share for the period of time to which the reports
relate; provided, however, that Futech shall not be in breach of this provision
for failure to provide information unavailable to Futech (for example as a
result of the failure of the third party licensee to provide the information).
Said reports need only be furnished if there are payments due on Golden's Share
for the calendar quarter to which the reports relate. The failure or refusal of
Futech to timely furnish any such report, or the payment due as shown in the
report, shall be deemed a substantial and material breach of this Agreement. The
receipt and acceptance by Golden of any of the reports furnished pursuant to
this Agreement, or of any payments made herein (or the cashing of any checks
paid hereunder) shall not preclude Golden from questioning the accuracy of any
such report at any time (within the two year period described below), and in the
event that any inconsistencies or mistakes are discovered in any such report or
payment, they shall immediately be rectified and the appropriate payment made by
Futech, together with interest on the overdue payments at the per annum rate of
one (1) percentage point above the prime rate of interest published by the Wall
Street Journal, as such rate may from time to time change. Royalty statements
and reports shall become incontestable if not contested within two (2) years
after receipt thereof by Golden.
Futech shall keep at its principal place of business, such
books and records and other documents relating to Golden's Share during the term
of this Agreement as may be necessary or proper to enable the amounts payable to
Golden hereunder to be conveniently ascertained.
Golden shall have the right, from time to time during the term
of this Agreement, and for a period of two years thereafter (with respect to any
then-contestable statement), but not more than once annually, upon thirty (30)
days prior written notice, during regular office hours, to cause a certified
public accountant(s) on behalf of Golden to audit or otherwise review the books
and records of Futech, and the following shall apply with respect thereto:
(i) If the audit or review discloses
that Golden was underpaid Golden's Share by five percent (5%)
or more during the period covered by the audit, Futech shall,
within ten (10) days after demand is made therefor, pay all
costs relating to said audit or review and pay Golden an
amount equal to two (2) times the amount of the underpayment.
Golden shall further have all other rights and remedies
6
<PAGE> 39
against Futech available at law, in equity, or under this
Agreement with respect to such underpayment.
(ii) If the audit or review fails to
disclose an underpayment to Golden of five percent (5%) or
more, Golden shall pay the cost of the audit or review.
(iii) If the audit or review discloses
that Golden was underpaid by less than five percent (5%), or
overpaid, in any period, Futech, or Golden, as the case may
be, shall within ten (10) days after demand made therefor, pay
the amount of the underpayment or overpayment.
Futech shall cooperate with such audit or review, and
provide requested information relating to royalties and other amounts
due Futech in connection with third party license agreements covered by
this subparagraph (e). The auditor shall be entitled to inspect all
accounts and records of Futech relating to said amounts and to take
extracts therefrom or copies thereof to the extent necessary to verify
the reports and payments required under the terms of this subparagraph
(e). The duration of any audit under this provision shall not exceed
thirty (30) days.
(f) If Golden elects to perform the third party
offer, and then defaults under its obligations to perform the third
party offer as described and limited in subparagraph (b) above, and
said default continues for a period of thirty (30) days after written
notice of the default is given to Golden, then Futech's obligation to
provide Golden notice of third party license arrangements, and Golden's
right to perform under those arrangements (other than arrangements for
which Golden has previously elected to perform), all as set out in this
Section 3 above, shall immediately and without further notice be
terminated.
4. LICENSE OF FUTECH MARKS. Subject to the terms and conditions
of this Agreement, Futech hereby grants to Golden and Golden's Subsidiaries a
non-exclusive license to use the Futech Marks in connection with, and only in
connection with, the Licensed Products. Golden agrees that it will use the
Futech Marks only in connection with the Licensed Products, and shall not use
the Futech Marks except as permitted by and in connection with this Agreement.
This license does not limit or otherwise effect in any manner Futech's rights of
use or other rights regarding the Futech Marks, including but not limited to the
right to use the Futech Marks in connection with products competing with the
Licensed Products, or in connection with any other product.
5. NO OWNERSHIP TRANSFER. Golden acknowledges and agrees that
this Agreement grants Golden no title or right of ownership in or to the Futech
Technology, the Futech Intellectual Property, the Futech Marks, or any goodwill
relating thereto. Golden expressly recognizes and acknowledges that the use of
the Futech Technology, the Futech Intellectual Property, and/or the Futech Marks
shall not confer upon Golden any proprietary rights thereto, and that all such
use by Golden shall inure to the benefit of Futech.
Golden agrees that during the term of this Agreement, or at
any time thereafter, Golden shall not dispute or contest Futech's rights to the
Futech Technology, the Futech Intellectual
7
<PAGE> 40
Property, the Futech Marks, or any goodwill relating thereto, or the validity
thereof or the validity of this Agreement, and shall not assist others in so
doing.
6. LICENSES NON-ASSIGNABLE.
(a) The licenses appearing in Sections 2 and 4 above are
personal and nonassignable, and include no right of sublicense. Any attempt by
Golden to assign or sublicense any right under this Agreement, without prior
written consent of Futech, shall be null and void.
Notwithstanding the foregoing, Golden shall have the right to
grant sublicenses of the licenses granted hereunder to and only to Golden
Subsidiaries. If the relationship of a Subsidiary of Golden changes so that such
entity ceases to be a "Subsidiary," the rights of the Subsidiary to the
sublicenses described above shall automatically terminate as of the date such
relationship changes.
(b) Notwithstanding the foregoing, Golden and Golden's
Subsidiaries may have Licensed Products, or portions thereof, made by other
manufacturers for the reassembly and/or sale of same by Golden or its
Subsidiaries, as long as the following conditions are met for such
manufacturers:
(i) The designs, specifications and working
drawings for the manufacture of Licensed Products, or portions thereof,
must be furnished by, and originate with, Golden and/or its
Subsidiaries, and/or a third party specifically hired by Golden or its
Subsidiaries to design said Licensed Products; and
(ii) Said designs, specifications and working
drawings are in such detail that no additional designing by the other
manufacturer is required other than adaptation to those production
processes and standards normally used by the manufacturer which change
the characteristics of the Licensed Products only to a negligible
extent.
7. TECHNOLOGY TRANSFER AND ASSISTANCE.
7.1 Technology Fee. Futech acknowledges payment by Golden
of a technology transfer fee in the amount of $2,000,000 for the license of the
technology rights as set out in this Agreement. The parties agree that said fee
shall be earned for all purposes on January 2, 1998. Said fee is non-refundable
and Futech shall have no obligation to repay said amount under any
circumstances.
7.2 Assistance - Immediate. Within a reasonable time
following execution of this Agreement, Futech will make available to Golden the
technical information then in its possession relating to the licenses granted in
this Agreement.
7.3 Assistance - At Futech's Facilities. Futech shall:
(i) Permit Golden from time to time to send a
reasonable number of Golden's technical representatives or engineers to
Futech's facility or other place designated by Futech, for the purpose
of receiving technical training and studying technical questions
8
<PAGE> 41
and problems relating to the manufacture, assembly, servicing and sale
of Licensed Products, and
(ii) Make its qualified technical personnel
reasonably available by telephone for the purposes referenced in
subparagraph (i) above.
Futech shall use its best efforts to make its qualified technical personnel
available for such training and assistance. Golden shall be solely responsible
for the travel and living expenses and salaries of its employees receiving
training or assistance at Futech's facilities, and Golden shall maintain, at its
sole expense, appropriate insurance coverage for such employees against
accident, injury or illness.
7.4 Assistance - At Golden's Facilities. Upon Golden's
reasonable request, but subject to availability, Futech will send its qualified
technical personnel to Golden's facility to provide such training and assistance
as reasonably required to enable Golden to manufacture, assemble, service and
sell the Licensed Products. Golden shall reimburse Futech for the reasonable
travel and living expenses incurred by Futech's technical personnel in rendering
such assistance or training, and Futech (or Newtech Consulting, Inc.) shall
maintain, at its sole expense, appropriate insurance coverage for such employees
against accident, injury or illness.
8. FURTHER RESEARCH AND DEVELOPMENT.
(a) Futech shall have no obligation to continue product
development or research and development relating to the Futech Technology.
(b) Futech shall, during the term of this Agreement, as
appropriate, promptly communicate to Golden all Improvements to the Futech
Technology which relate to the licenses contained in this Agreement.
(c) Golden will promptly notify Futech, in writing, of
any Improvements of which Golden becomes aware, relating to the Futech
Technology associated with the licenses contained in this Agreement.
9. ROYALTIES.
(a) Golden (Golden's Subsidiary may pay) agrees to pay
Futech a royalty (referred to in this Agreement as the "Royalty" or "Royalties")
equal to five percent (5%) of Net Sales (defined below); provided, however, that
no Royalties shall be payable on the first $40,000,000 of Net Sales.
Notwithstanding the foregoing, no Royalties shall be payable in connection with
any Net Sales occurring prior to January 1, 1998.
(b) The Royalties will be payable on a calendar quarter
basis, by the sixtieth day following the calendar quarter to which the Royalties
relate.
(c) The term "Net Sales" as used in this Agreement means
the gross invoiced sales prices for each Licensed Product sold (an item is
"sold" not later than the earlier of the date shipped and the date invoiced) by
or for Golden or a Subsidiary of Golden, less only normal and
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reasonable discounts actually given to customers, returns actually received and
allowances actually made and credited; provided, however, that the deduction for
discounts, returns and allowances for any calendar quarter may not exceed 9% of
the gross sales for Licensed Products for the preceding calendar quarter. No
additional set-offs or deductions of any kind will be allowed, without the prior
written consent of Futech, which consent may be given or withheld in Futech's
sole and absolute discretion. Golden shall have written verification for all
discounts, returns and allowances.
(d) All unpaid Royalties and other amounts due to Futech
hereunder shall bear interest from the due date until the date of payment at the
per annum. rate of one (1) percentage point above the prime rate of interest
published by the Wall Street Journal, as such rate may from time to time change.
(e) If, during the term of this Agreement, Golden, or any
Subsidiary of Golden, offers any product or service in exchange for less than
commercially reasonable consideration, without the prior written approval of
Futech, or if Golden or any Subsidiary of Golden offers any product or service
in exchange for something other than cash equivalent, Futech shall nonetheless
be entitled to Royalties based upon the value of the product transferred or
services performed. Notwithstanding any provision of this Agreement, if any
product or service is sold or otherwise disposed of at less than fifteen percent
(15%) below Golden's normal established price, then "Net Sales" therefore shall
be determined, and Royalties payable thereon, assuming a sales price of fifteen
percent (15%) below Golden's normal established price.
(f) All taxes, levies, charges or duties imposed in
connection with Licensed Products shall be paid by Golden, and no deductions for
any such amounts or any other expenses, except as may expressly be provided for
in this Agreement, shall be deducted from Royalties payable hereunder, it being
the intent of the parties that Royalties shall be net amounts payable to
Futech, free and clear of any and all expenses of any type or nature other than
as may expressly be provided for herein to the contrary.
10. REPORTS, BOOKS AND RECORDS, SAMPLES.
(a) On or before the due date of the Royalties described
herein, and at least quarterly on a calendar quarter basis, Golden shall make
written reports to Futech in form and with detail as shall reasonably be
requested by Futech, certified to be accurate by an authorized agent of Golden,
setting forth the Net Sales and other detail relating to the Net Sales for the
period to which the Royalties relate. Said reports need only be furnished if
there are Net Sales during the calendar quarter. The failure or refusal of
Golden to timely furnish any such report, or the payment due as shown in the
report, shall be deemed a substantial and material breach of this Agreement. The
receipt and acceptance by Futech of any of the reports furnished pursuant to
this Agreement, or of any payments made herein (or the cashing of any checks
paid hereunder) shall not preclude Futech from questioning the accuracy of any
such report at any time (within the two year period described below), and in the
event that any inconsistencies or mistakes are discovered in any such report or
payment, they shall immediately be rectified and the appropriate payment made by
Golden, together with interest on the overdue payments at the per annum rate of
one (1) percentage point above the prime rate of interest published by the Wall
Street Journal, as such rate may from time to time
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change. Royalty statements and reports shall become incontestable if not
contested within two (2) years after receipt thereof by Futech.
(b) Golden shall keep at its principal place of business,
such books and records and other documents relating to Net Sales during the term
of this Agreement as may be necessary or proper to enable the amounts payable to
Futech hereunder to be conveniently ascertained.
(c) Futech shall have the right, from time to time during
the term of this Agreement, and for a period of two years thereafter (with
respect to any then-contestable statement), but not more than once annually,
upon thirty (30) days prior written notice, during regular office hours, to
cause a certified public accountant(s) on behalf of Futech to audit or otherwise
review the books and records of Golden, and the following shall apply with
respect thereto:
(i) If the audit or review discloses that Futech
was underpaid its Royalties by five percent (5%) or more during the
period covered by the audit, Golden shall, within ten (10) days after
demand is made therefor, pay all costs relating to said audit or review
and pay Futech an amount equal to two (2) times the amount of the
underpayment. Futech shall further have all other rights and remedies
against Golden available at law, in equity, or under this Agreement
with respect to such underpayment.
(ii) If the audit or review fails to disclose an
underpayment to Futech of five percent (5%) or more, Futech shall pay
the cost of the audit or review.
(iii) If the audit or review discloses that Futech
was underpaid by less than five percent (5%), or overpaid, in any
period, Golden, or Futech, as the case may be, shall within ten (10)
days after demand made therefor, pay the amount of the underpayment or
overpayment.
Golden shall cooperate with such audit or review, and provide
requested information relating to sales of Futech audio book products. The
auditor shall be entitled to inspect all accounts and records of Golden relating
to sales of Futech audio book products and to take extracts therefrom or copies
thereof to the extent necessary to verify the Royalty reports and payments
required under the terms of this Agreement. The duration of any audit under this
provision shall not exceed thirty (30) days.
(d) Golden will provide Futech with one hundred (100)
free samples of each product incorporating Futech Technology sold by or for
Golden, within thirty (30) days after the product first becomes available for
sale.
11. PRODUCT LIABILITY; INSURANCE.
(a) Golden agrees to indemnify and defend and save
harmless Futech from every claim, demand, expense, and cost, including
reasonable attorneys' fees, which may arise by reason of the use by Golden of
the Futech Technology or the Futech Marks, and any injury or damage of any kind
or nature to any person or property caused by or resulting from or arising out
of a defect in design, workmanship, or material of any Licensed Product;
provided, however, that the foregoing
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shall not apply to any such claim, etc. arising out of, relating to or caused by
the Futech Technology and/or the Futech Intellectual Property, to and only to
the extent so related or caused (this provision shall not limit Golden's
indemnification for liability for products defectively manufactured by or for
Golden, unless the liability results from defects inherent in the Futech
Technology and the defective product was manufactured substantially in
accordance with Futech instructions).
(b) Golden shall obtain at its own expense and maintain
during the term of this Agreement, and for a period of seven (7) years
thereafter, general liability insurance and product liability insurance with at
least coverage of $1,000,000 per occurrence and $3,000,000 in the aggregate.
Golden shall also obtain at its own expense and maintain during the term of this
Agreement, and for a period a seven (7) years thereafter (ten (10) years if the
policy form is "claims made") publishers liability insurance which provides
coverage for claims arising out of published materials, which shall include but
not be limited to the allegations of defamation, copyright infringement,
invasion of right of privacy, or other personal injury and breach of implied
contract.
All insurance must be provided by a recognized insurance
company having a Best's Rating of no less than "A." As proof of such insurance,
a fully paid certificate of insurance naming Futech as an additional insured
shall be submitted to Futech's office as and when requested by Futech, within
thirty (30) days after written request is made therefor. Futech shall be
entitled throughout the term of this Agreement, to a copy of the prevailing
policies of insurance. The policies of insurance must be non-cancelable except
after thirty (30) days prior written notice to Futech.
(c) Futech shall obtain at its own expense and maintain
during the term of this Agreement, and for a period of seven (7) years
thereafter, general liability insurance and product liability insurance with at
least coverage of $1,000,000 per occurrence and $3,000,000 in the aggregate.
Futech shall also obtain at its own expense and maintain during the term of this
Agreement, and for a period a seven (7) years thereafter (ten (10) years if the
policy form is "claims made") publishers liability insurance which provides
coverage for claims arising out of published materials, which shall include but
not be limited to the allegations of defamation, copyright infringement,
invasion of right of privacy, or other personal injury and breach of implied
contract.
All insurance must be provided by a recognized insurance
company having a Best's Rating of no less than "A." As proof of such insurance,
a fully paid certificate of insurance naming Golden as an insured party shall be
submitted to Golden's office as and when requested by Golden, within thirty (30)
days after written request is made therefor. Golden shall be entitled throughout
the term of this Agreement, to a copy of the prevailing policies of insurance.
The policies of insurance must be non-cancelable except after thirty (30) days
prior written notice to Golden.
12. STANDARDS, QUALITY CONTROL. Golden shall maintain high
standards of quality, style, appearance and service with respect to all Licensed
Products made and/or sold, and all related advertising and promotional material
including, without limitation, the quality of physical material utilized. All
Licensed Products will be manufactured, sold, and distributed in accordance with
all applicable federal, state, local, and foreign laws and regulations.
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13. PATENT INFRINGEMENT.
13.1 Infringement By a Third Party. In the event Golden
becomes aware of any information indicating that a third party may be infringing
(or may have infringed) any of the Futech Intellectual Property or Futech Marks
with respect to the Licensed Products, Golden shall give Futech notice of such
alleged infringement, identifying the country or countries in which the alleged
infringing product is sold and describing the alleged infringing product in
sufficient detail to enable Futech to determine whether such product infringes
any of the Futech Intellectual Property or Futech Marks. Futech shall assert the
Futech Intellectual Property or Futech Marks against the infringer within three
months of such notice, unless (a) Golden and Futech determine not to assert such
claim, or (b) Futech has received an opinion from qualified patent counsel that
the allegedly infringing product does not infringe the Futech Intellectual
Property or Futech Marks. All recoveries relating to losses of Golden in
connection with Licensed Products, including, but not limited to, awards of
damages, statutory damages, and awards of attorneys' fees, expenses and/or
costs, net of all costs, including attorneys' fees and costs, incurred by Futech
to obtain said recoveries, obtained by Futech in the course of any litigation
arising out of any notification of Futech by Golden pursuant to this
subparagraph shall be paid to Golden.
13.2 Infringement Alleged By a Third Party. In the event
that any third party alleges that any Licensed Product infringes any
intellectual property rights of such third party, and such intellectual property
rights reasonably relate to the Futech Technology on which the Licensed Product
is based, then Futech shall investigate and defend against such allegations at
Futech's expense. If the basis of the third party's infringement claim is for
any other reason, then Golden shall investigate and defend Futech and Golden
against such allegations at Golden's expense.
If a Licensed Product is held to infringe the intellectual
property rights of a third party and Golden is required to pay a royalty to such
party for the right to continue to manufacture and sell such Licensed Product,
or if settlement of any claim of rights similarly so requires (and Futech
consents to the settlement in writing), (i) Futech shall be required to make
such payments if the infringement is of intellectual property rights reasonably
relating to the Futech Technology on which the Licensed Product is based, and
(ii) Golden shall be required to make such payments if the infringement claim is
for any other reason.
Golden shall not knowingly infringe on the rights of any third
party in connection the manufacturing, marketing or sale of Licensed Products.
14. TRADEMARK USAGE; MARKING.
(a) This subparagraph (a) shall apply until December 31,
1997.
Any Licensed Product incorporating, embodying, or comprising
Futech Technology shall display in a plainly visible manner the Futech Mark
"Talking Pages" as a trademark in connection therewith on the back cover, in a
manner agreed upon beforehand by the parties; provided, however, that such
display is not required if precluded by any agreement after reasonable efforts
are exercised to modify or waive such agreement. Golden shall mark all Licensed
Products
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with such appropriate patent and trademark marking and other proprietary legends
as reasonably requested by Futech.
(b) This subparagraph (b) shall apply only after December
31, 1997.
All Licensed Products incorporating, embodying, or comprising
Futech Technology or Futech Marks shall display in a plainly visible manner the
Futech Mark "Talking Pages," or "Talking Pages Plus," as the case may be, as a
trademark in connection therewith on the back cover, in a manner agreed upon
beforehand by the parties. Golden shall also mark all Licensed Products with
such other appropriate patent and trademark marking and other proprietary
legends as reasonably requested by Futech.
Unless otherwise agreed in writing by Futech, all Licensed
Products shall be clearly marked with type in readable size with the words
"Talking Pages [or Talking Pages Plus, as the case may be], Technology Provided
by Futech Educational Products, Inc.," and immediately thereafter shall appear
the then-current address and phone number of Futech provided by Futech to
Golden. No portion of the statement appearing within the quotation marks in the
preceding sentence shall be in larger type in or any way any more prominent than
any other part thereof.
15. CONFIDENTIALITY.
15.1 Futech's Confidential Information. Golden
acknowledges that Futech's Confidential Information is unique and valuable and
was developed or otherwise acquired by Futech at great expense, and that any
unauthorized disclosure or use of Futech's Confidential Information may cause
Futech irreparable injury loss for which damages would be an inadequate remedy.
Golden agrees to hold such Confidential Information in strictest confidence, to
use all efforts reasonable under the circumstances to maintain the secrecy
thereof, and not to make use thereof other than in accordance with this
Agreement, and not to make use of or to release or disclose Confidential
Information to any third party without Futech's prior written consent.
15.2 Golden's Confidential Information. Futech
acknowledges that various information regarding the business plans and product
concepts of Golden may comprise Confidential Information. Futech agrees to hold
Golden's confidential information (defined consistently with Section 1.3 above)
in strictest confidence, not to make use thereof other than in accordance with
this Agreement, to use all efforts reasonable under the circumstances to
maintain the secrecy thereof, and not to make use of or to release or disclose
Golden's confidential information to any third party without Golden's prior
written consent. Golden hereby acknowledges and consents to Futech's disclosure
of Golden's confidential information to Futech's consultant, Newtech Consulting,
Inc., an Arizona Corporation.
15.3 Injunctive Relief. The parties acknowledge that any
violation of this Section 15 shall constitute a material breach of this
Agreement resulting in irreparable injury to the non-breaching party, and agree
that, in addition to any and all other rights available to the non-breaching
party by law or by this Agreement, the non-breaching party shall have the right
to seek to have an injunction entered against the breaching party to enjoin any
further violations of this Agreement.
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16. WARRANTIES. Except as otherwise set forth on Exhibit "A"
attached hereto:
16.1 Ownership of Rights. Futech is the owner of all
right, title and interest in and to the currently existing Futech Intellectual
Property and currently existing Futech Marks, free and clear of any and all
liabilities, obligations, licenses, liens or assignments, whether written, oral
or implied in fact or law, and no use by Golden of the Futech Intellectual
Property as provided for in this Agreement will infringe upon or violate the
rights of any third party.
16.2 Validity of Rights. No holding, decision or judgment
is pending or threatened and none has been rendered by any governmental
authority which would limit, cancel or question the validity of any of the
currently existing Futech Intellectual Property or currently existing Futech
Marks. Futech is not aware of any information that would affect the validity of
any of the currently existing Futech Intellectual Property or current existing
Futech Marks.
16.3 No Inconsistent Licenses. There are no outstanding
licenses or other agreements that relate to or restrict the use of the currently
existing Futech Intellectual Property or currently existing Futech Marks which
are inconsistent with the licenses granted in this Agreement.
16.4 Notices of Claims. Futech has no knowledge of and has
received no notice of any adversely held patent, patent right, trademark,
service mark, trade name, trade secret, copyright, franchise or other
proprietary right of any other person or notice of any claim of any other
person, nor has Futech made a claim against any person, relating to any of the
current existing Futech Intellectual Property, current existing Futech Marks, or
any process or Confidential Information of Futech, and Futech has no knowledge
of any basis for any such charge or claim.
17. INDEMNITIES.
17.1 Mutual. The parties hereto shall each indemnify and
hold the other harmless from and against any and all claims, liabilities, loss,
expense (including reasonable attorneys' fees) or damages arising out of any
breach of this Agreement, including without limitation any representation,
warranty, covenant or agreement of such party set forth in this Agreement,
provided that the indemnified party shall, with reasonable promptness, notify
the indemnifying party of any such claim, demand, or suit and shall fully
cooperate in the defense thereof.
17.2 By Golden. Golden shall defend, indemnify and hold
Futech, and its Subsidiaries, and associated and affiliated companies, harmless
from and against any liabilities (including reasonable attorneys' fees and
costs) of any kind or nature whatsoever which may be sustained or suffered by
Futech: (i) in connection with the Licensed Products or the packaging,
distribution, promotion, sale or exploitation of the Licensed Products,
including but not limited to any actual or alleged defect in the Licensed
Products, or their packaging, whether latent or patent, including failure of
said Licensed Products or their packaging, distribution, promotion, sale or
exploitation to meet any federal, state or local laws or standards; (ii) based
upon or arising out of any actual or alleged unauthorized use by Golden or its
Subsidiaries of any patent, trade secret, process, idea, method or device, or
any copyright or trademark; or (iii) any other actual or alleged unauthorized
action of Golden. The foregoing indemnification shall not however apply to any
such liability arising out of, relating to or caused by the Futech Technology
and/or the Futech Intellectual
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Property, to and only to the extent so related or caused (this provision shall
not limit Golden's indemnification for liability for products defectively
manufactured by or for Golden, unless the liability results from defects
inherent in the Futech Technology and the defective product was manufactured
substantially in accordance with Futech instructions).
17.3 By Futech. Futech shall defend, indemnify and hold
Golden, and its Subsidiaries harmless from and against any liabilities
(including reasonable attorneys' fees and costs) of any kind or nature
whatsoever which may be sustained or suffered by Golden arising out of, relating
to or caused by the Futech Technology and/or the Futech Intellectual Property,
to and only to the extent so related or caused (this indemnification shall not
apply to liability for products defectively manufactured by or for Golden,
unless the liability results from defects inherent in the Futech Technology and
the defective product was manufactured substantially in accordance with Futech
instructions).
17.4 General Terms. The indemnifying party shall have the
right to designate counsel to defend against such claims and suits; however, at
the indemnified party's option, the indemnified party shall have the right to
participate in the defense with its own counsel at its own expense. In no event
shall any such claims or suits affecting the rights of a party be settled
without the prior written consent of that party.
18. TERM. This Agreement shall be effective as of August 14, 1996,
and shall continue thereafter until August 13, 2001, unless sooner terminated as
provided for in this Agreement. In addition to said term, Golden shall have one
(1) option (the "Option") to extend the term of this Agreement for a period of
one additional five year period (to the extent this Agreement is so extended,
the new term is sometimes hereinafter referred to as the "Extended Term"). The
Option is granted upon the following terms and conditions:
(a) Golden shall exercise the Option by delivering
written notice to Futech of such exercise not later than May 13, 2001;
(b) Golden shall not be in default under this Agreement
on the date the Option is exercised, or on the commencement date of the Extended
Term;
(c) At the time the Option is exercised, Golden shall pay
an advance and guarantee in the amount of $2,000,000, payable in cash
equivalent. Royalties payable by Golden to Futech hereunder for Net Sales made
during the Extended Term shall be first applied against said advance and
guarantee, until the advance and guarantee is used in its entirety. In no event
shall the advance and guarantee be repayable by Futech to Golden, except against
future Royalties as described in the preceding sentence.
(d) All terms and conditions of this Agreement shall
remain in full force and effect, and apply to the Extended Term, including but
not limited to Golden's obligation to pay Futech Royalties under Section 9
above.
19. DEFAULT AND TERMINATION.
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19.1 Termination For Default. Either party shall have the
right to terminate this Agreement upon thirty (30) days' written notice to the
other party, if such other party fails to comply in any material respect with
any term or condition of this Agreement and such failure to comply is not
corrected within the foregoing thirty (30) day notice period.
19.2 Termination For Golden's Bankruptcy. Futech shall
have the right to terminate this Agreement in the event Golden becomes bankrupt
or insolvent, suffers a receiver to be appointed, or makes an assignment for the
benefit of creditors.
19.3 Golden's Rights Cease at Termination. Upon
termination of this Agreement for any reason or cause, Golden's rights hereunder
shall terminate immediately and Golden shall immediately cease all use of Futech
Technology and Futech Marks and all marketing, distribution and sale of Licensed
Products; provided, however, that Golden shall be entitled, for and only for a
period of one hundred twenty (120) days, to complete, market, distribute and
sell all work-in-progress inventory, and market, distribute and sell all
completed inventory, existing on the date of termination (this Agreement shall
continue to apply to such inventory, including Golden's obligation to pay
Royalties on all such sales).
Within thirty (30) days after the expiration or termination of
this Agreement, Golden shall issue a statement executed by an authorized
representative of Golden certifying the number and description of the Licensed
Products in inventory or in process.
19.4 Rights Which Survive Termination. The termination or
expiration of this Agreement shall not release any party of any obligation to
pay monies or perform any other obligation that became due or owing or arose out
of any transaction prior to the date of said termination or expiration,
including but not limited to an obligation to pay Royalties. Also, Sections 5
(ownership), 7.1 (technology fee), 9 (Royalties), 10 (records), 11 (insurance),
12.4 (customer complaints), 14.2 (approval for product markings), 15
(confidentiality), 16 (Futech's representations and warranties), 17
(indemnities), and 19.5 (return of artwork) hereof shall survive termination
(for any reason) and expiration of this Agreement.
19.5 Return to Futech of Artwork, etc. Within thirty (30)
days after termination or expiration of this Agreement, Golden shall deliver to
Futech any and all original artwork relating to the Futech Marks, and all
technical information, materials, samples, formulas, drawings, and know-how in
tangible form furnished by or for Futech.
20. EXPORT. Regardless of any disclosure by Golden to Futech of
the ultimate destination of any Licensed Product, Golden shall not knowingly use
or transport any Futech Technology or Futech Mark, directly or indirectly, in a
manner contrary to U.S. Export Administration Regulations.
21. FORCE MAJEURE. If the performance of this Agreement, or any
obligation under this Agreement, is prevented, restricted or interfered with by
reason of fire, flood, earthquake, explosion or other casualty or accident,
strikes or labor disputes, inability to procure or obtain delivery of parts,
supplies or power, war or other violence, any law, order, proclamation,
regulation, ordinance, demand or requirement of any governmental agency, or any
other act or condition whatsoever beyond the reasonable control of the affected
party, the party so affected, upon giving prompt notice
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to the other party, shall be excused from such performance to the extent of such
prevention, restriction or interference; provided, however, that the party so
affected shall take all reasonable steps to avoid or remove such cause of
nonperformance and shall resume performance under this Agreement with dispatch
whenever such causes are removed.
If a party was required to meet a scheduled date of
performance of an obligation during such period of nonperformance, then the date
for performance shall be extended by a period equal to the period of
nonperformance.
22. ASSIGNMENT. Neither party may assign or otherwise transfer
this Agreement, or any rights under it, without the prior written consent of the
other party, which consent shall not be unreasonably withheld; provided,
however, that Futech and/or Golden shall be entitled to assign its rights, or
any portion thereof, under this Agreement without the consent of the other
party, so long as such assignment is to a Subsidiary of Futech or Golden, as
applicable. Any attempted assignment in violation of this Section shall be null
and void. All terms and conditions of this Agreement shall be binding upon and
shall inure to the benefit of the parties to this Agreement and their respective
permitted successors and assigns.
23. CHOICE OF LAW. This Agreement is made under, and shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflicts of law.
24. RELATIONSHIP OF THE PARTIES. The relationship between the
parties hereto is that of licensor and licensee, and this Agreement is not to be
construed as creating a partnership, joint venture, master-servant,
principal-agent, or other relationship for any purpose whatsoever. Except as may
be expressly provided herein, neither party may be held for the acts of
omission or commission of the other party, and neither party is authorized to or
has the power to obligate or bind the other party by contract, agreement,
warranty, representation or otherwise in any manner whatsoever.
25. GENERAL.
25.1 Entire Agreement. Except as otherwise set forth in
this Agreement or in that certain "Agreement" dated the same date as this
Agreement and entered into by Futech and Golden, this Agreement (including the
Exhibits attached hereto) constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior
understandings, proposals, representations, negotiations and communications,
oral or written, if any, with respect thereto. No variation from these
provisions shall be binding unless in writing and signed by both parties. There
are no oral promises, conditions, representations, understandings,
interpretations, or terms of any kind as conditions or inducements to the
execution hereof, or in affect between the parties, except as may otherwise be
expressly provided herein or in the Agreement referred to in the first sentence
of this Section 25.1.
The parties do not intend to confer any benefit hereunder to
any person, firm, or corporation other than the parties hereto. No
representation, warranty, or agreement herein may be relied upon by any person
not a party to this Agreement.
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The parties agree that this Agreement relates only to the
technology and products specifically identified herein, and does not apply to or
create any obligations of Futech, or rights of Golden, with respect to any other
technology or products.
25.2 Sales Tax. Golden shall be responsible for, and shall
pay, all sales, value added and similar taxes, if any, which may be imposed on
any sales of the Licensed Products, as well as any other tax based upon Golden's
use, sale, or possession of the Futech Technology, Futech Marks, and the
Licensed Products.
25.3 Partial Validity. In the event any provision of this
Agreement or the application of any provision shall be held by a tribunal of
competent jurisdiction to be contrary to law, then the remaining provisions of
this Agreement shall be unimpaired, and the illegal, invalid or unenforceable
provision shall be replaced by a provision, which, being legal, valid and
enforceable, comes closest to the intent of the parties underlying the illegal,
invalid or unenforceable provision.
25.4 Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed to have been given upon
personal delivery or upon deposit in the U.S. mail, first-class, postage
prepaid. The addresses of the parties (until written notice of change shall have
been given) shall be as follows:
Futech: Futech Educational Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
Attn: Vincent Goett, CEO
Golden: Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, New York 10106-4100
Attn: Philip Galanes
25.5 No Waiver. None of the provisions hereof shall be
deemed to be waived or modified, nor shall they be renewed, extended, altered,
changed or modified in any respect, except by an express agreement in writing
duly executed by the party against whom enforcement of such waiver,
modification, etc. is sought. The failure of either party hereto to object to
the failure on the part of the other party to perform any of the terms,
provisions or conditions hereof, or to exercise any option herein given, or to
require performance on the part of the other party of any term, provision or
condition hereof, or any delay in doing so, or any custom or practice of the
parties at variance therewith, shall not constitute a waiver or modification of
this Agreement or any provision hereof, or of any subsequent breach or default
of the same or a different nature, nor affect the validity of any part hereof,
nor the right of either party thereafter to enforce the same, nor constitute a
novation.
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<PAGE> 52
25.6. Headings. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
25.7. Counterparts. This Agreement may be executed by the
parties in one or more counterparts, and any number of counterparts signed in
the aggregate by the parties shall constitute a single instrument.
25.8 Other. All rights and remedies conferred under this
Agreement or by any other instrument or by law shall be cumulative, and may be
exercised singularly or concurrently.
DATED as of the date first hereinabove written.
FUTECH: Futech Educational Products, Inc., an Arizona
corporation
By /s/ Vincent W. Goett
------------------------------------------
Vincent W. Goett, CEO
GOLDEN: Golden Books Family Entertainment, Inc., a
Delaware corporation
By /s/ Philip Galanes
------------------------------------------
Its General Counsel
---------------------------------------
List of Exhibits
Existing Futech Intellectual Property and Existing Futech Marks "A"
20
<PAGE> 53
EXHIBIT "A"
Existing Patents
<TABLE>
<CAPTION>
Patent Number Serial Number Country Filing Date Grant Date
<S> <C> <C> <C> <C>
57656 78210811 Taiwan August 21, 1989 September 1, 1990
5,167,508 07/685,278 USA April 15, 1991 December 1, 1992
664,701 17841/92 Australia April 14, 1992 March 19, 1996
2,108,554 Canada April 14, 1992
EP 92911059.1 EPO April 14, 1992
4-510057 Japan April 14, 1992
18887 South Korea April 14, 1992
(Republic of Korea) April 14, 1992
178299 925737 Mexico April 14, 1992 June 7, 1995
PCT/US92/03056 PCT April 14, 1992
Not yet received Russian Federation April 14, 1992
92 1 11051.0 China April 14, 1992
886/Del/92 India April 14, 1992
5,417,575 08/137,063 USA April 14, 1992 May 23, 1995
Not yet assigned Kazakhstan Not yet confirmed
5,484,292 07/980,649 USA November 24, 1992 January 16, 1996
PCT/US93/10705 PCT November 11, 1993
08/195,755 USA February 11, 1994
93120335.X China November 24, 1993
1253/Del/93 India November 9, 1993
55940/94 Australia November 4, 1993
</TABLE>
<PAGE> 54
DEMAND, ACKNOWLEDGMENT AND AGREEMENT
THIS AGREEMENT is made as of and effective the 2nd day of January,
1998, by and between Futech Educational Products, Inc., an Arizona corporation
("Futech") and Golden Books Family Entertainment, Inc., a Delaware corporation
("Golden").
1. Futech hereby makes demand of Golden for return of Futech's
equipment, in accordance with Section 4 of that certain Agreement, by and
between Futech and Golden, dated August 14, 1996 (the "1996 Agreement"). Golden
acknowledges such demand and agrees that said equipment shall be available for
Futech at Golden's facilities on or before February 10, 1998. The equipment
shall be in the condition as required by the 1996 Agreement.
2. Futech and Golden acknowledge and agree that the technology fee
identified in Section 7.1 of the License Agreement ("License Agreement")
attached as an Exhibit to the 1996 Agreement is fully earned by Futech effective
January 2, 1998.
3. Futech and Golden have jointly been handling a litigation matter
filed by Publications International. Golden shall obtain from Darby and Darby a
detailed summary of the status and history of the litigation, and provide the
same, and complete copies of all invoices of Darby and Darby relating to said
case, to Futech by January 20, 1998 (copies of invoices received by Golden after
January 20, 1998 shall be provided to Futech within ten days after receipt).
Futech shall pay the approximately $11,000.00 bill recently issued by Squire,
Sanders and Dempsey. Golden shall pay all other legal fees and costs associated
with said case relating to time periods prior to January 2, 1998, and all fees
and costs of Darby and Darby regardless of when incurred. Effective January 2,
1998, Futech shall take full control of and responsibility for said case, and
pay all fees and costs associated therewith accruing after said date (other than
Darby and Darby fees and costs). The parties acknowledge that the fees and cost
of the Publications International litigation were part of the losses identified
in Section 5 of the 1996 Agreement.
4. Golden's obligation to provide free samples of products as set out
in Section 10(d) of the License Agreement shall apply only after January 1,
1998. One hundred (100) free samples of each product available for sale prior to
said date shall be delivered to Futech, to the extent not already so delivered,
by January 30, 1998.
5. Except as otherwise set forth in this Agreement, the 1996 Agreement
and its Exhibits constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior understandings, if
any, with respect thereto. There are no oral promises, conditions,
representations, understandings, interpretations, or terms of any kind as
conditions or inducements to the execution hereof, or in effect between the
parties, except as may otherwise be expressly provided herein.
The parties do not intend to confer any benefit hereunder to any
person, firm, or corporation other than the parties hereto. No representation,
warranty, or agreement herein may be relied upon by any person not a party to
this Agreement.
The parties expressly acknowledge and agree that there are no
obligations of any type or nature whatsoever, existing as of the date of this
Agreement, after the execution of this Agreement, other than the obligations
expressly set out in this Agreement and in the 1996 Agreement and its Exhibits.
The foregoing sentence applies to and includes any obligation of any nature
whatsoever, not just obligations relating to the subject matter of this
Agreement.
This Agreement may be executed by the parties in one or more
counterparts, and any number of
<PAGE> 55
<TABLE>
<CAPTION>
Patent Number Serial Number Country Filing Date Grant Date
<S> <C> <C> <C> <C>
2,150,013 Canada November 4, 1993
Not yet assigned EPO November 4, 1993
952545 Finland November 4, 1993
6-513158 Japan November 4, 1993
702092/1995 Korea November 4, 1993
258342 New Zealand November 4, 1993
952042 Norway November 4, 1993
95118875 Russian Federation November 4, 1993
10815 10815 Sri Lanka November 4, 1993 February 23, 1996
PCT November 5, 1996
India November 6, 1996
08/474,707 USA November 4, 1993
08/554,734 USA November 7, 1995
</TABLE>
<TABLE>
Registered Trademarks and Copyrights
<CAPTION>
Type Registration Serial Number Country/ Filing Date Grant Date
Number State
<S> <C> <C> <C> <C> <C>
Trademark 1,923,092 74/431,014 USA August 30, 1993 September 26, 1995
Trademark 7-80127 Japan August 2, 1995
Trademark 028881 Arizona October 5, 1990
Trademark not yet November 15, 1996
received
Trademark not yet November 15, 1996
received
</TABLE>
2
<PAGE> 56
<TABLE>
<CAPTION>
Type Registration Serial Number Country/ Filing Date Grant Date
Number State
<S> <C> <C> <C> <C> <C>
Trademark not yet November 15, 1996
received
Tradename 103552 Arizona June 14, 1991
Tradename 096432 Arizona July 12, 1990
Tradename 096284 Arizona July 5, 1990
Tradename 103550 Arizona June 14, 1991
Tradename 096434 Arizona July 12, 1990
Tradename 103551 Arizona June 14, 1991
Tradename 093474 Arizona March 8, 1990
Tradename 096433 Arizona July 12, 1990
Copyright VAu 241-157 USA November 9, 1992
Copyright VAu 244-017 USA January 7, 1993
</TABLE>
3
<PAGE> 57
counterparts signed in the aggregate by the parties shall constitute a single
instrument.
DATED the date first hereinabove written.
FUTECH: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
--------------------------------------
Vincent W. Goett
GOLDEN: Golden Books Family Entertainment, Inc.,
a Delaware corporation
By /s/ Philip Galanes
--------------------------------------
Its General Counsel
--------------------------------------
2
<PAGE> 58
PROMISSORY NOTE
$1,000,000.00 As of August 14, 1996
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Futech Educational
Products, Inc., an Arizona corporation ("Maker") to the order of Golden Books
Family Entertainment, Inc., a Delaware corporation ("Payee").
1. PAYMENT. For value received, Maker promises to pay to Payee or
Payee's order, without offset (other than offsets for non-payment of royalties
under that certain License Agreement, dated August 14, 1996, between Maker and
Payee), the principal sum of One Million Dollars ($1,000,000.00), together with
interest calculated at prime rate (as announced in the Wall Street Journal) plus
1%, as hereinafter set forth; provided, however, that the outstanding balance
shall be interest free, and no interest shall in any event accrue, until January
1, 1998. Principal and interest are payable in lawful money of the United States
of America at 889 Seventh Avenue, New York, New York 10106-4100, or at such
other address as the holder hereof may from time to time designate in writing,
in full on or before June 1, 1999, and on June 1, 1999 the outstanding principal
amount of this Note, together with all accrued and unpaid interest, shall be
paid in full. All payments made hereunder shall be applied to interest and
principal in that order.
2. PREPAYMENT. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
3. INTEREST. All interest payable pursuant to this Note shall be
computed on the basis of a 365-day year. In no event shall the aggregate of the
interest herein provided to be paid over the contractual term of the loan exceed
the highest rate to which a borrower and lender may agree in writing under
applicable laws.
4. DEFAULT. If any one or more of the following events (each, an "Event
of Default" and collectively, called "Events of Default") shall occur for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default shall be made in the payment of the principal of this note
when and as the same shall become due and payable, whether pursuant to the
terms hereof or at a date fixed for prepayment or by acceleration or
otherwise; or
(b) Maker shall (i) be unable to pay its debts generally as they become
due; (ii) file a petition to take advantage of any insolvency act; (iii)
make an assignment for the benefit of its creditors; (iv) commence a
proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself or of a whole or any substantial part of its
property; (v) file a petition or answer seeking reorganization or
arrangement or similar relief under the Federal Bankruptcy Code or any
other applicable law or statute of the United States of America or any
state; or
<PAGE> 59
(vi) by appropriate proceedings of the board of directors of Maker,
authorize the filing of any such petition, making such assignment or
commencement of such a proceeding; or
(c) a court of competent jurisdiction shall enter an order, judgment or
decree appointing a custodian, receiver, trustee, liquidator or conservator
of Maker or of the whole or any substantial part of its properties, or
approve a petition filed against Maker seeking reorganization or
arrangement or similar relief under the Federal Bankruptcy Code or any
other applicable law or statute of the United States of America or any
state; or if, under the provision of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or control
of Maker or of the whole or any substantial part of its properties; or if
there is commenced against Maker any proceeding for any of the foregoing
relief and such proceeding or petition remains undismissed for a period of
sixty (60) days; or if Maker by any act indicates its consent to or
approval of any such proceeding or petition;
then, and in any such event and at any time thereafter, if such or any other
Event of Default shall then be continuing, the Payee shall have the right,
without presentment, demand or notice of any kind, to accelerate this Note
and to declare the entire unpaid balance hereof and the obligations evidenced
hereby immediately due and payable and to seek and obtain payment of this Note.
5. WAIVER; CONSENT. Maker and each endorser, guarantor or other party
that may be liable under this Note hereby severally waive diligence, demand,
presentment for payment, notice of dishonor, acceleration, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Note. No delay by the holder in exercising any rights
hereunder shall operate as a waiver thereof. "The non-exercise or partial
exercise by the holder of any rights hereunder in any particular instance shall
not constitute a waiver thereof in that or any subsequent instance or preclude
other or further exercise thereof.
6. SEVERABILITY. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall, to the fullest extent possible, remain in full force and effect,
and such court shall reform such unenforceable provision so as to give maximum
permissible effect to the intentions of the parties as expressed therein.
7. SECURITY. As security for Maker's performance under this Note, Maker
hereby grants Payee a security interest in the assets identified on Exhibit "A"
attached hereto and hereby made a part hereof. In the event of default by Maker
hereunder, Payee shall have all rights with respect to such collateral as are
available to a secured party under applicable laws, as the same may from time to
time be changed.
8. MISCELLANEOUS. The provisions of this Note shall be binding upon
Maker and Maker's successors and assigns, and shall inure to the benefit of
Payee and Payee's successors and assigns. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of Arizona. This
Note shall be construed according to its fair meaning and neither for nor
against the
2
<PAGE> 60
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
------------------------------------
Vincent W. Goett
List of Exhibits:
Equipment List "A"
GUARANTY: The faithful and timely performance by the Maker under the
above-described Note is hereby unconditionally guaranteed by the undersigned.
This is a guarantee of performance and not of collection. The undersigned
further agrees that any action may be bought and prosecuted by the Payee against
the undersigned guarantor whether or not any action is brought against the
maker, and whether or not the Maker or any other parties are joined in such
action. The undersigned guarantor specifically agrees to be liable to Payee for
the obligations of Maker as set out above, even if Payee or any
successor-in-interest releases any or all rights of any sort against the Maker.
The undersigned guarantor hereby consents to any such release, which release
shall be without effect on the undersigned guarantor's liability for said
obligations. The undersigned guarantor waives any right to require Payee to
proceed against Maker or pursue any other remedy in Payee's power. The
undersigned guarantor waives any defense arising by reason of any disability or
other defense of Maker by reason of the cessation from any cause whatsoever
(other than performance in full) of the liability of Maker under the
above-described Note. This guaranty is made for performance without offset,
other than offsets for non-payment of royalties under that certain License
Agreement, dated August 14, 1996, between Maker and Payee. The undersigned
guarantor shall have forty-five (45) days after notice of default is given to
the undersigned guarantor in which to perform Maker's obligations under the
Note.
No delay, failure, forbearance or omission by Payee in exercising any
right or remedy hereunder or otherwise guaranteed by law or another agreement
shall effect or release the liability of the undersigned or operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies of Payee hereunder are
cumulative. No modification or amendment of any provision of this guaranty shall
be effective unless in writing and subscribed by a duly authorized officer of
Payee. This guaranty inures to and shall be enforceable by payee and Payee's
successors and assigns, and shall bind the successors and assigns of the
undersigned.
This guaranty shall be governed by and construed and enforced in
accordance with the laws
3
<PAGE> 61
of the State of Arizona.
DATED the date first hereinabove written:
/s/ Vincent W. Goett
- ----------------------------------
Vincent W. Goett
4
<PAGE> 1
Exhibit: 10.9T
SECURITY INTEREST AGREEMENT (#12) August 25, 1992
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including those for boxes from
Westvaco plus royalties for the Smithsonian Institution, and
WHEREAS the Trudy Corp has to date been unable to secure financing from other
sources for general purpose funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $16,000.00
(sixteen thousand dollars and 00/100) for its use for operating purposes.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity on February 1, 1993. In such
circumstances, Burnham shall have a collateral interest second only to that of
Union Trust (if any), but in any event senior to all trade creditors and to all
other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: 9/1/92
<PAGE> 1
Exhibit: 10.9FD
FUNDEX GAMES, LTD.
INCENTIVE STOCK OPTION AGREEMENT
Fundex Games, Ltd., a Nevada corporation (the "Company"), hereby grants
to _______________________________ (the "Optionee") an option to purchase a
total of ________ shares of Common Stock (the "Shares") of the Company, at the
price set forth herein, and in all respects subject to the terms and provisions
of the Company's 1996 Stock Option Plan (the "Plan") applicable to incentive
stock options which terms and provisions are hereby incorporated by reference
herein. Unless otherwise defined or the context herein otherwise requires, the
capitalized terms used herein shall have the same meanings ascribed to them in
the Plan.
1. NATURE OF THE OPTION. This Option is intended to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of
____________________, and it may not be exercised later than __________________.
3. OPTION EXERCISE PRICE. The Option exercise price is $___________ per
Share, which price is not less than the fair market value thereof on the date
this Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. This Option shall vest and be
exercisable, cumulatively (Specify vesting schedule, e.g., in five annual
installments commencing on the first anniversary of the date of grant and
continuing to vest as to one additional installment on every annual anniversary
thereafter as long as the Optionee remains an Employee.)
(b) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise this Option, the
number of Shares in respect to which this Option is being exercised, such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the exercise price and by an
executed Stock Purchase Agreement if required by the Company. Payment of the
exercise price shall be by cash or by check or by such other method of payment
as is authorized by the Board in accordance with the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as set forth in the
Plan, the Stock Purchase Agreement and/or as required under applicable law. This
Option may not be exercised for a fraction of a share.
<PAGE> 2
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make such representations and warranties to the Company as may be required by
any applicable law or regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No
rights as a shareholder shall exist with respect to the Shares subject to the
Option as a result of the grant of the Option. Such rights shall exist only
after issuance of a stock certificate in accordance with Section 8 (d) (i) of
the Plan following the exercise of the Option as provided in this Agreement and
the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of
this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not is a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to evaluate the merits and risks of
purchasing Common Stock of the Company and to make an informed investment
decision with respect thereto and to protect Optionee's interests in connection
with the acquisition of this Option and the Shares.
6. TERMINATION OF STATUS AS AN EMPLOYEE.
(a) If the Optionee's Continuous Employment terminates for any
reason other than death or Disability, the Optionee shall have the right to
exercise the Option at any time within 30 days after the date of such
termination to the extent that the Optionee was entitled to exercise the Option
at the date of such termination (subject to any earlier termination of the
Option as provided by its terms).
(b) If the Optionee's Continuous Employment terminates due to
the death or Disability of the Optionee, the Option may be exercised at any time
within 180 days after the date of such termination, in the case of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, or, in the case of Disability, by the Optionee
(subject to any earlier termination of the Option as provided by its terms).
(c) Notwithstanding the foregoing regarding the exercise of
the Option after the termination of Continuous Employment, the Option shall not
be exercisable after the expiration of its term, as set forth in Section 2
herein, the Option may be exercised only to the extent the Optionee was entitled
to exercise it on the date Optionee's Continuous Employment with the Company
terminated. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or to the extent the Option is not exercised
within the time specified herein, the Option shall terminate.
7. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any compensation or other
consideration payable to the
2
<PAGE> 3
Optionee, any taxes required to be withheld by federal, state or local law as a
result of the grant or exercise of this Option or the sale or other disposition
of the Shares issued upon exercise of this Option; and, if such compensation or
consideration is insufficient, the Company may require Optionee to pay to the
Company an amount sufficient to cover such withholding tax liability.
8. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution or a transfer between spouses
incident to a "divorce" within the meaning of Section 1041 (a) of the Code, and
may be exercised during the lifetime of the Optionee only by such Optionee or
his or her legal guardian. Subject to the foregoing and the terms of the Plan,
the terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
9. CONTINUATION OF EMPLOYMENT. Neither the Plan, this Option, nor any
Option granted thereunder shall (a) confer upon the Optionee any right
whatsoever to continue in the employment of the Company or any of its
subsidiaries or (b) limit or restrict in any respect the rights of the Company,
which rights are hereby expressly reserved, to terminate the Optionee's
employment and compensation at any time for any reason whatsoever, with or
without cause, in the Company's sole discretion and with or without notice.
10. THE PLAN. This Option is subject to, and the Company and the
Optionee agree to be bound by, all the terms and conditions of the Company's
Plan as such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without his
consent, of this Option or any rights hereunder. Pursuant to the Plan, the Board
is authorized to adopt rules and regulations not inconsistent with the Plan as
it shall deem appropriate and proper. A copy of the Plan in its present form is
available for inspection at the Company's principal office during business hours
by the Optionee or the persons entitled to exercise this Option.
11. ENTIRE AGREEMENT. The terms of this Agreement and the Plan
constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
FUNDEX GAMES, LTD., Inc.,
a Nevada corporation
Date: By:
Title:
3
<PAGE> 4
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto, and represents that he has read and is familiar with the
terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Date: Signature of Optionee
Address
City State Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL AND MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF A STOCK PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE
HOLDER OF THIS OPTION AND THE COMPANY UPON EXERCISE OF THIS OPTION, A COPY OF
WHICH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY.
4
<PAGE> 1
Exhibit: 10.9D
DAN GILBERT INC.
[DAN GILBERT LOGO]
DAMERT COMPANY/DAN GILBERT, INC.
MASTER LICENSE AGREEMENT
This Agreement is entered into as of the 1st day of November, 1994, by and
between Dan Gilbert, Inc., d.b.a. Dan Gilbert Art Group, a California
Corporation, located at 225 Miller Avenue, Mill Valley, California 94941
(hereinafter referred to as "DGI") and DaMert Company, a California Corporation,
located at 2476 Verna Court, San Leandro, California, 94577 (hereinafter
referred to as "LICENSEE") on the following terms:
DGI has special skills and expertise in creating applied art for consumer
products, and LICENSEE has special knowledge concerning the manufacture, sale
and distribution of certain consumer products on which LICENSEE desires to use
art designs of DGI. The parties desire to enter into this Master License
Agreement to govern the terms and conditions under which DGI may create for and
provide to LICENSEE art designs for use on LICENSEE's products. Therefore, as a
Master License Agreement, the parties hereto agree as follows:
DEFINITIONS
"Product License Agreement" shall mean agreements entered into from time to time
between DGI and License which refer to and incorporate the terms of this Master
License Agreement.
"Licensed Designs" are defined as those DGI designs identified in and licensed
under Product License Agreement ('s).
"Licensed Trademarks" are defined as those DGI trademarks and/or trade names
identified in and licensed under Product License Agreement('s).
"Licensed Products" are defined as the products identified in Product License
Agreement(s) which are manufactured and distributed by LICENSEE and in which the
Licensed Designs will be incorporated.
"Confidential Information" is defined as any trade secrets, technology, know-how
or other confidential information, which is used in either party's business and
which gives that party an advantage over competitors.
"Minimum Annual Royalty" is defined as the cumulative royalty payment
obligation incurred by LICENSEE in accordance with the terms of a Product
License Agreement during any year of such Product License Agreement.
"Minimum Annual Sales Volume" means the minimum sales of Licensed Products
made by LICENSEE under a Product License Agreement during any year of such
Product License Agreement which, if not achieved, gives DGI a right to terminate
a Product License Agreement under paragraph 11.1.1 of this Agreement.
"Minimum Product License Performance" means the minimum number of new Licensed
Designs as specified in the Licensed Properties Addendum attached to Product
License Agreement(s), which shall be developed, manufactured and marketed by
LICENSEE during each calendar year of the
/s/ FD DG
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term of this Agreement which, if not achieved, gives DGI a right to terminate a
Product License Agreement under paragraph 11.1.1 of this Agreement.
"Net Sales Price" shall mean LICENSEE's invoiced sales price, as adjusted to
reflect actual applied customary trade discounts, and actual incurred shipping
costs and taxes.
"Domestic Territory" means the United States and its Territories.
"INTERNATIONAL TERRITORY" means the entire world except for the Domestic
Territory.
"Domestic License" means the license granted in the Domestic Territories as set
forth in Section 1 below.
"International License" means the license granted in the International Territory
as set forth in Section 2 below.
LICENSE PROVISIONS
1. DOMESTIC LICENSE
1.1. Licensed Designs. Subject to the further terms and conditions set forth in
any Product License Agreement between the parties, DGI hereby grants to
LICENSEE an exclusive, non-transferable license except as set forth in
Section 12.5 "Assignment", without the right to grant sublicenses, to use
the Licensed Designs solely on and in association with the manufacturing,
marketing, distribution and sale of the Licensed Products within Domestic
Territory. It is understood that DGI reserves all rights in the Licensed
Designs not specifically granted herein, including the right to grant
licenses for Licensed Designs to third parties for products other than the
Licensed Products.
1.2. Licensed Trademarks. Subject to the further terms and conditions set forth
in any Product License Agreement between the parties, DGI hereby grant's
to LICENSEE an exclusive, non-transferable license except as set forth in
Section 12.5 "Assignment", without the right to grant sublicenses, to use
the Licensed Trademarks on, and in connection with the manufacture,
marketing, distribution and sale of the Licensed Products in the Domestic
Territory. It is understood that DGI reserves all rights in the Licensed
Trademarks not specifically granted herein, including the right to grant
licenses for Licensed Trademarks to third parties for products other than
the Licensed Products.
1.3. Required Marketing Efforts. License agrees to use best efforts to promote
and distribute Licensed Products using the Licensed Designs in the
Domestic Territory and shall provide adequate and reasonable marketing
support to Licensed Products in the Domestic Territory.
1.4. Term of Domestic License. The Domestic License shall be effective on the
date written above and shall remain in effect for an initial term of three
years from such date. Provided LICENSEE is not in default of the terms
specified in this Master License Agreement and of the terms set forth in
each Product License Agreement including the Minimum Annual Performance,
Minimum Annual Royalty and the Minimum Product License Performance
provisions for Licensed Products sold under such Product License
Agreement, such term may, at the option of LICENSEE, which option shall be
exercised by written notice to DGI given at least sixty (60) days before
expiration of such initial term, be extended for an additional five year
period.
1.5. Royalty. In consideration of the Domestic License granted herein, LICENSEE
shall pay DGI a royalty as specified in the Product License Agreement(s)
on the Net Sales Price of each Licensed Product sold or otherwise
disposed of under this Domestic License. A "sale" shall be determined to
have taken place when the LICENSEE's customer is invoiced or the goods are
received by customer, whichever occurs first.
/s/ FD DG
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1.6. Advanced Royalty. Upon the execution of any Product License Agreement or
upon the addition of a Licensed Design(s) as specified in the Licensed
Properties Addendum attached to such Product License Agreement(s),
LICENSEE shall pay to DGI a non-refundable Advance Royalty as set forth in
the Product License Agreement or as mutually agreed by the parties. This
Advance Royalty shall be credited only against the royalties due under
such Product License Agreement, for a period of 1-year (one-year),
beginning at date of first shipment in the Domestic Territory. It being
understood that such advanced royalty shall not be credited against
royalties due under any other Product License Agreement.
2. INTERNATIONAL LICENSE
2.1. Licensed Designs. Subject to the further terms and conditions set forth in
any Product License Agreement between the parties, DGI hereby grants to
LICENSEE an exclusive, non-transferable license, without the right to
grant sublicenses, to use the Licensed Designs solely on and in
association with the manufacturing, marketing, distribution and sale of
the Licensed Products within International Territory.
2.2. Trademarks. Subject to the further terms and conditions set forth in any
Product License Agreement between the parties, DGI hereby grants to
LICENSEE an exclusive, non-transferable license, without the right to
grant sublicenses, to use the Licensed Trademarks on, and in connection
with the manufacture, marketing, distribution and sale of the Licensed
Products in the International Territory.
2.3. Required Marketing Efforts. LICENSEE represents and warrants that it will
promote, distribute and provide adequate and reasonable marketing support
for all Licensed Products in each and every country within the
International Territory in which LICENSEE distributes any products
whatsoever.
2.4. Term of International License. The International License shall be
effective on the date written above and shall remain in effect for an
initial term of 3-years (three-years) from such date. Provided LICENSEE is
not in default under this Agreement including provisions of paragraphs 2.6
or 2.7 below, such term may, at the option of LICENSEE, which option shall
be exercised by written notice to DGI given at least sixty (60) days
before expiration of such initial term, be extended for an additional
5-year (five-year) period.
2.5. Royalty. In consideration of the International License granted herein,
LICENSEE shall pay DGI a royalty of 7% (seven-percent) of the Net Sales
Price of each Licensed product sold or otherwise disposed of under this
International License. If LICENSEE incorporates in a TRIAZZLE(R) Licensed
Product a third party design property as specified in Product License
Agreement ('s), Licensee shall pay DGI a royalty of 3+1/2% (three and
one-half percent) of the Net Sales Price of each Licensed Product which
contains such third party design sold or otherwise disposed of under this
International License. A "Sale" shall be determined to have taken place
when the Licensee's customer is invoiced or the good's are received by the
customer, whichever occurs first.
2.6. Guaranteed Royalties for International License. In consideration for
granting the International License hereunder, LICENSEE agrees to pay DGI a
guaranteed, non-refundable, aggregate Guaranteed Annual Royalty, to be
credited against any actual international royalties accruing in such year
hereunder, covering all Licensed Products sold under this International
License as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1994 1995 1996 1997-2001
(if term is extended)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Guaranteed Royalties $18,375 $33,750 $73,500 $73,500
- --------------------------------------------------------------------------------------
</TABLE>
/s/ FD DG
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2.7. ADVANCED ROYALTIES. As of January 15, 1994, and thereafter at such
anniversary date of each subsequent year of this Agreement, LICENSEE
shall pay DGI a non-refundable royalty advance against the above
guaranteed aggregate annual royalties as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1994 1995 1996 1997-2001
(if term is extended)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Advanced Royalties $12,250 $22,600 $49,000 $49,000
- --------------------------------------------------------------------------------------
</TABLE>
Above advanced royalties shall be paid in three equal payments starting on
January 15th, of each calendar year, and thereafter in 30-day increments
until all three payments are paid. Such Advanced Royalties shall be
credited against royalties earned for sales of Licensed Products under
this International License during the year for which such Advanced
Royalties are paid. In the event royalties paid for sales under the
International License, including Advanced Royalties, do not equal the
designated cumulative Guaranteed Annual Royalty set forth for such year in
paragraph 2.6 above, LICENSEE, within fifteen days of the end of such
year, shall pay DGI the difference between the royalties actually paid for
such year and the aggregate Guaranteed Annual Royalty.
2.8. International Trademark Registration. DGI and LICENSEE agree to each
contribute on an annual basis, up to $5,000 toward the cost of pursuing
and maintaining international trademark registrations for the Licensed
Trademarks in countries within the International Territory mutually
selected by DGI and LICENSEE. Contributions specified above shall not
cumulate if registration fee's are not used in the year specified. The
parties may mutually agree to increase such contributions as required. To
the extent that either party does not agree to increase its contribution,
the other party may, at its own option, further pursue or maintain
foreign trademarks registration for the Licensed trademarks at its own
expense. All foreign trademarks registration applications whether funded
jointly by the parties or separately by DGI, shall be made in the name of
DGI, and DGI shall be the sole owner of all trademarks registration
issuing on such applications. It is understood that DGI makes no warranty
as to the registrability or enforceability of any Licensed Trademarks in
any country in the International Territory.
GENERAL PROVISIONS
3. LICENSEE RESPONSIBILITIES
3.1. Manufacturing and Packaging. LICENSEE is responsible for all costs and
expenses related to the manufacturing, production, assembly, construction,
packaging, advertising, promotion and distribution of the Licensed
Products. DGI shall furnish to LICENSEE Licensed Designs based upon a
mutually agreed upon specification and form. LICENSEE is responsible for
all out of pocket expenses relating to the shipment, film, color prints or
other delivery materials specified for Licensed Designs.
3.2. Quality Assurance. All Licensed Products incorporating Licensed Designs or
Licensed Trademarks shall meet the quality standards established by DGI as
follows: Subsequent to manufacture, LICENSEE shall furnish three (3)
post-production samples of such Licensed Products to DGI. After samples
have been approved pursuant to this paragraph, LICENSEE shall not depart
from the post-production samples in any material respect without DGI's
prior written consent. Samples will be deemed approved unless DGI has not
approved of the samples and indicated the reason for disapproval within
ten (10) working days of receipt. From time to time after LICENSEE has
commenced marketing of the Licensed Products, and upon DGI's written
request, LICENSEE shall
/s/ FD DG
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furnish without cost to DGI not more than two additional random samples of
each product being manufactured by LICENSEE under this Agreement, together
with any cartons, containers, and packing and wrapping material used in
connection with the Licensed Products.
Further, LICENSEE shall provide DGI with no less than twenty-four (24) art
studio archive samples of each and every Licensed Product at no cost.
These art studio archive samples shall be delivered to DGI within sixty
(60) days of first product shipment.
3.3. MODIFICATION OF LICENSED DESIGNS. LICENSEE shall make no modification to
the Licensed Designs without the written consent of DGI.
3.4. ATTRIBUTION. LICENSEE shall feature on or in connection with the Licensed
Products, sales literature and promotional material and public
communications pertaining to the Licensed Products an attribution to the
author of the Licensed Designs in a manner and form approved by DGI.
3.5. APPROVAL OF PROMOTIONAL MATERIALS. LICENSEE shall furnish to DGI and seek
DGI's approval of any copies of any advertisements, product literature, or
other promotional literature, used to promote the Licensed Products prior
to the publication of such materials, and approval of such materials shall
not be unreasonable withheld. If DGI fails to provide a written response
within two working days, the materials shall be deemed to be approved.
4. EXPIRATION OF MASTER LICENSE
This Master License Agreement shall be effective on the date first written
above and shall expire upon the expiration of the Domestic License under
paragraph 1.4 or the expiration of the International License under
paragraph 2.4, whichever occurs later.
5. ROYALTY STATEMENTS, PAYMENTS AND RECORDS.
5.1. STATEMENTS, PAYMENTS, RECORDS AND AUDITS. At the end of each calendar
month, LICENSEE shall furnish to DGI: (a) payment of all outstanding
royalties accruing to DGI during the preceding month under this Agreement
and all Product License Agreement('s) in force during such calendar month.
(b) complete and accurate statements certified to be accurate by LICENSEE
showing the number and detailed description of all Licensed Products sold
or otherwise disposed of in the previous month. All royalty payments shall
be made in U.S. Dollars.
LICENSEE shall keep accurate books of accounts and records covering all
transactions relating to the license granted under any Product License
Agreement, and DGI's authorized certified accountant shall have the right
during the term of this Agreement or any extension thereof, upon
reasonable advanced notice and only during business hours, to inspect the
records of LICENSEE for the purpose of verifying compliance with the terms
and conditions hereby specified in this Agreement and associated Product
Licensing Agreements. DGI shall bear the cost of such inspection and
audit, unless the results of such audit indicate underpayment of more than
4% (four-percent) for any year with respect to royalties due under any
Product License Agreement, in which case all reasonable costs of such
audit would be borne by LICENSEE. LICENSEE shall make these records
available for two years following the expiration of this license.
5.2. Late Payment. If LICENSEE is more than thirty (30) days late in any
payment provided for under this Agreement, LICENSEE, in addition to any
and all payments due under this Agreement, including payments specified in
Section 5.1, shall be liable for interest on the payment from the due date
until paid at a rate equal to the published U.S. Prime Lending Rate plus 5
(five) percentage points.
5.3. Payment of Taxes. LICENSEE shall, in addition to the payments required
under this Agreement, pay all sales, use, transfer or other taxes, however
designated, which are levied or imposed by reason of the transactions
contemplated by this Agreement; excluding, however, income taxes on
profits which may be levied against DGI. Without limiting the foregoing,
LICENSEE shall
/s/ FD /s/ DG
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promptly reimburse DGI in an amount equal to any such taxes actually paid,
accrued, or required to be collected or paid by DGI as a result of the
transactions contemplated by this Agreement.
5.4 ANNUAL PROJECTIONS OF LICENSED PRODUCT. LICENSEE is required to prepare
and deliver to DGI an annual forecast of the sales for all Licensed
Products described herein. Said Projection shall include the projected
royalty stream by calendar month. Annual Projection shall be delivered on
or before January 15th of each calendar year for the term of this
Agreement.
6. PROPRIETARY RIGHTS
6.1. PROPRIETARY NOTICE. LICENSEE agrees that all Licensed Products and all
packaging and promotional material for Licensed Products shall contain
appropriate legends, markings and notices as required from time to time by
DGI, and as appropriate to protect and give notice of DGI's rights in the
Licensed Designs and Licensed Trademarks. Unless otherwise specified by
DGI, all Licensed Products shall contain the following notices:
COPYRIGHT 19** Dan Gilbert, Inc.
ALL RIGHTS RESERVED
6.2. TRADEMARKS. LICENSEE shall use Licensed Trademarks only in conjunction
with the sale or promotion of the Licensed Products and agrees that such
use shall inure to the benefit of DGI. LICENSEE acknowledges and agrees
that LICENSEE's right to use the Licensed Trademarks is only by virtue of
this Agreement, and that LICENSEE shall acquire no rights in such
trademarks.
6.3. TERMINATION OF USE OF LICENSED TRADEMARKS. Upon expiration or termination
of a Product License Agreement, LICENSEE shall immediately discontinue the
use or display of the Licensed Trademarks and the Dan Gilbert name in
connection with the sale of the Licensed Product as permitted by such
Product License Agreement, and shall no longer hold itself out as a
LICENSEE of DGI in respect to such Licensed Products, except as provided
in section 11.2 of this Agreement; provided, however, it is understood
that the foregoing provisions shall not effect LICENSEE's right to use
Licensed Trademarks as permitted in any other Product License Agreement
which is still in force. Upon expiration or termination of all Product
License Agreement('s), LICENSEE shall discontinue any and all uses and
display of Licensed Trademarks, except as provided in section 11.2 and
shall no longer hold itself out as a LICENSEE of DGI in respect to such
Licensed Products.
6.4. THIRD PARTY INFRINGEMENT. If either party learns at any time of any
infringement or threatened infringement of the Licensed Trademarks or the
Licensed Designs, that party will give notice in writing of such
infringement or threatened infringement to the other party. Within two
months from service of such notice, each party will be at liberty to
decline, by notice in writing to the other party, to institute or join in
instituting any proceeding in respect to the infringement. If either party
so declines, the other party shall be entitled to institute such
proceedings in its own name or in the party so declining and will be
entitled to retain the whole of any damages recovered as a result of the
proceedings, but only upon indemnifying the party so declining against all
costs, damages, and expenses in respect to the proceedings. If neither
party declines within the period provided for above, then the parties, if
either party so requires, shall join in instituting and prosecuting if
necessary proceedings to enforce the Licensed Trademarks and/or Licensed
Designs and all costs and expenses incurred thereby and all damages
thereby recovered will be shared equally by the parties.
7. NON DISCLOSURE
7.1. Both parties acknowledge that they own valuable Confidential Information
and that the other party may be given access to such Confidential
Information pursuant to this Agreement. Both parties agree to hold and
maintain the Confidential Information in strictest confidence and in trust
/s/ FD /s/ DG
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for the sole and exclusive benefit of the other. Both parties shall
carefully restrict access to any such Confidential Information to persons
bound by this Agreement. Neither party shall, without prior written
approval of the other, use for its own benefit, publish or otherwise
disclose to others, or permit the use by others for their benefit or to
the detriment of the disclosing party, any of the Confidential
Information. The provisions of this Section 7 shall continue in full force
and effect and shall survive the termination of any agreement or
relationship between DGI and LICENSEE except that neither party's
obligations under this Section shall extend to information that is: (a)
already publicly known; (b) discovered or created by the non disclosing
party independent of any involvement with the disclosing party; or (c)
otherwise learned by the non disclosing party through legitimate means
other than from the disclosing party or anyone connected with the
disclosing party.
8. WARRANTIES
8.1. DGI REPRESENTATIONS AND WARRANTIES. DGI represents and warrants to
LICENSEE that DGI has the power and authority to enter into this
Agreement, is the owner and copyright holder of Licensed Designs, or has
or will obtain all necessary and appropriate rights to grant the license
under this Agreement with respect to the Licensed Products; and that the
Licensed Designs are original to DGI, except for material in the public
domain and such excerpts from other works as may be included with the
written permission of the copyright owners.
8.2. LICENSEE REPRESENTATIONS AND WARRANTIES. LICENSEE represents and warrants
to DGI that the Licensed Products will be distributed in accordance with
all applicable laws, rules and regulations. and that LICENSEE will not
engage in any deceptive, misleading or unethical practices that are or
might be detrimental to DGI.
9. LIMITATION OF LIABILITY
9.1. DGI SHALL HAVE NO LIABILITY WITH RESPECT TO ITS OBLIGATIONS UNDER THIS
AGREEMENT OR ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, OR USE OF
THE LICENSED DESIGNS, FOR CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE
PARTIES AGREE THAT DGIs' LIABILITY, IF ANY, FOR ANY DAMAGES RELATING TO
ANY LICENSED DESIGNS OR THIS AGREEMENT WILL BE LIMITED TO THE ACTUAL
ROYALTIES PAID BY LICENSEE FOR SAID LICENSED DESIGN.
10. INDEMNITY
10.1. INDEMNIFICATION BY DGI. DGI shall indemnify and hold LICENSEE harmless
from any and all losses, damages, liabilities, costs, charges, and
expenses, including reasonable attorneys' fees, arising out of any breach
of any of DGI's representations and warranties contained in Section 8.1,
provided LICENSEE gives DGI prompt written notice of any such claim and
provides DGI such reasonable cooperation and assistance as DGI may request
from time to time in the defense of such claims. DGI shall have sole
control over any such suit or proceeding, except to the extent any
LICENSEE's proprietary materials or technology are involved, as to which
LICENSEE shall have the right at its own expense and only after
indemnifying DGI for such proceeding, to control the suit and or
proceeding as it directly relates to such proprietary materials or
technology specified above. In case the Licensed Designs or any portion
thereof furnished under any Product License Agreement and used within the
scope of the license thereunder and hereunder are determined to infringe
any third party rights, DGI may, at its sole option and expense, procure
for LICENSEE the right to continue using the Licensed Designs or portions
thereof, replace the same with non-infringing designs acceptable to
LICENSEE, or refund a reasonable portion of the license fee in
consideration of LICENSEE's cessation of use of the Licensed Designs of
such portion thereof.
/s/ FD DG
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10.2. INDEMNIFICATION BY LICENSEE. LICENSEE hereby indemnifies DGI and
undertakes to defend DGI and its assignees against and hold them harmless
(including without limitation attorneys' fees and costs) from any claims,
suits, loss, or damage arising out of any breach of LICENSEE's
representations and warranties in Section 8.2, or arising out of alleged
defects in the Licensed Products, the marketing of the Licensed Products,
or any of LICENSEE's other business activities or products.
11. TERMINATION
11.1. RIGHT TO TERMINATE.
11.1.1. DGI shall have the right, at its sole discretion, to terminate any
Product License Agreement if LICENSEE fails to meet the Minimum Annual
Sales Volume, Minimum Annual Royalty and the Minimum Product License
Performance if specified in such Product License Agreement. Termination of
a Product License Agreement under the provisions of this section 11.1.1.
shall not affect other Product License Agreements or this Master License
Agreement, all of which shall continue in force and effect.
11.1.2. Either party shall have the right to terminate this Agreement in whole
or in part, including the termination of the International License or any
and/or all Product License Agreements at any time if the other party or
its officers or employees violates, breaches or fails to observe any of
their obligations pursuant to this Agreement and such violation, breach or
failure is not cured within thirty (30) days after written notice from the
non-breaching party.
11.1.3. Either party shall have the right to terminate this Agreement in whole
or in part, including the termination of any or all Product License
Agreements in the event the other party (i) terminates or suspends its
business; (ii) becomes subject to any bankruptcy or insolvency proceeding
or (iii) becomes insolvent or becomes subject to direct control by a
trustee, receiver or similar authority.
11.1.4. The rights of termination granted herein shall be exercised by written
notice given by the terminating party to the other party.
11.2. EFFECT OF TERMINATION OR EXPIRATION.
11.2.1. Upon and after the expiration or termination of a Product license
Agreement or the International License, all rights granted to LICENSEE
under such Product License Agreement or International License shall revert
to DGI, and LICENSEE will refrain from further marketing, distribution and
use of the Licensed Designs as permitted in such expired or terminated
Product License Agreement or International License. After termination of a
Product License Agreement under the provisions of subsection 11.1.1,
above, LICENSEE, except as otherwise provided in this Agreement, may
dispose of articles covered by such Product License Agreement which are on
hand at the time such notice of termination is received for a period of
(ninety) 90-days after notice of termination, provided all payments with
respect to that period are paid in full and all statements are furnished
for that period.
11.2.2. In the event of termination by reason of LICENSEE's breach of this
Agreement, LICENSEE, within thirty (30) days after termination, at DGIs
discretion, either destroy such licensed materials and verify in writing
of such action, or shall return to DGI all Licensed Designs pertaining to
such termination in the form provided by DGI. LICENSEE acknowledges that
its failure to cease the use of the Licensed Designs and Licensed
Trademarks as required herein will result in immediate and irremediable
damage to DGI and to the rights of any subsequent LICENSEE. LICENSEE
acknowledges and admits that there is no adequate remedy at law for such
/s/ FD DG
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failure to cease sale, license or distribution, and that in the event of
such failure DGI shall be entitled to equitable relief by way of temporary
and permanent injunctions and such other further relief as any court with
jurisdiction may deem just and proper. No termination of this Agreement,
any Product License Agreement, or the International License shall release
LICENSEE of its obligation to pay DGI any fees which accrued prior to such
termination or which shall accrue to DGI after the effective date of such
termination.
11.2.3. Neither party to this Agreement shall be liable by reason of termination
of this Agreement, the International License Agreement or any Product
License Agreement to the other for compensation, reimbursement or damages
on account of any loss of prospective profits on anticipated sales or on
account of expenditures, investments, or other commitments relating to the
business or goodwill of either party, notwithstanding any law to the
contrary.
12. MISCELLANEOUS PROVISIONS
12.1. Notices. Any notice or communication required or permitted to be given
under this Agreement shall be sufficiently given when mailed by certified
mail, postage prepaid, or sent by facsimile transmission, cable or
overnight courier, charges prepaid, in each case properly addressed to the
addresses of the parties indicated on the signature page of this
Agreement, or at such other address as may be furnished in writing by
either party to the other party, and such notice shall be deemed to have
been given as of the date mailed or sent.
12.2. Modifications. This Agreement may not be modified or altered except by
written instrument duly executed by both parties.
12.3. Force Majeure. Dates or times by which either party is required to make
performance under this Agreement shall be postponed automatically to the
extent that either party is prevented from meeting them by strikes, Acts
of God, war or other causes beyond their reasonable control.
12.4. Severability. If any provision of this Agreement is invalid under any
applicable statute or rule of law, it is to that extent to be deemed
omitted and the remaining provisions of this Agreement shall in no way be
affected or impaired.
12.5. Right of Assignment. The License granted pursuant to this Master License
Agreement and any Product License Agreement entered into between the
parties hereto is for the exclusive benefit of the parties and shall not
be assigned or transferred in any way without the prior written consent of
the other party, except that either party shall have the right to assign
its rights under this Master License Agreement and any Product License
Agreement in connection with the sale of substantially all of the assets
of such parties corporation, conditional on a written notification of such
sale to the other party no later than 60-days prior to the sale and where
the purchaser of said assets agrees to be bound by the terms and
conditions of this Agreement.
However, in the case that DGI assigns its rights under this License in
connection with the sale of substantially all of its assets as specified
above, and Dan Gilbert is no longer directing art development for the
resulting entity, LICENSEE will not be required to use DGI Licensed
Designs to meet its Minimum Product License Performance obligations as
detailed in the Product License Agreement('s). Notwithstanding the above,
all other provisions of the Minimum Product License Performance and the
other conditions of the Product License Agreements and this Master License
Agreement shall remain in effect without modification.
12.6. No joint Venture. LICENSEE is not and shall not represent itself to be the
agent, employee, franchise, joint venturer, officer or partner of DGI.
Nothing in this Agreement shall be construed to place the parties in the
relationship of partners or joint venturers, and LICENSEE shall have no
power to obligate or bind DGI in any manner whatsoever.
12.7. Attorneys Fees and Expenses. The prevailing party shall have the right to
collect from the other party its reasonable costs and necessary
disbursements and attorney's fees incurred in enforcing this Agreement.
/s/ FD DG
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12.8. WAIVER. The waiver or failure of either party to exercise in any respect
any right provided for herein shall not be deemed a waiver of any further
right.
12.9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, United States of
America, excluding the United Nations Convention on Contracts for the
International Sale of Goods and excluding that body of law governing
conflicts of law. It is hereby agreed that the U.S. Copyright Act, and
other applicable U.S. federal and state law, shall apply. exclusively to
all translations and other modifications prepared by or for LICENSEE under
this Agreement. LICENSEE hereby irrevocably consents to the exclusive
jurisdiction of the state courts located in Marin County, California and
the federal courts located in San Francisco County, California, in any
action arising out of or relating to this Agreement and waives any other
venue to which LICENSEE might be entitled by domicile or otherwise.
12.10. ENTIRE UNDERSTANDING. This Agreement and any Product License Agreement,
expresses the full, complete and exclusive understanding of the parties
with respect to the Licensed Designs and/or Licensed Trademarks and
supersedes. all prior proposals, representations, agreements and
understandings, whether written or oral, pertaining thereto. Licensing
Agreement shall be read together as a separate, single and complete
agreement, and any references herein to this Agreement shall mean each
such Product License Agreement as Supplemented by this Master License
Agreement. To the extent that any term or provision of a Product License
Agreement conflicts with a term or provision of this Master License
Agreement, the term or provision of the Product License Agreement, unless
otherwise specifically provided in this Agreement, shall prevail.
DaMert Company Dan Gilbert Inc.
2476 Verna Court 225 Miller Avenue
San Leandro, CA 94577 Mill Valley, CA 94941
By: /s/ Fred DaMert By: /s/Daniel Gilbert
------------------------- ----------------------------
Fred DaMert, President Dan Gilbert, President
/s/ FD DG
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Exhibit: 10.9D
ADDENDUM TO DaMERT COMPANY / DAN GILBERT, INC.
MASTER LICENSE AGREEMENT DATED NOVEMBER 1, 1994
1. This Addendum amends and supplements the Agreement identified as the
DaMert Company / Dan Gilbert, Inc., Master License Agreement (hereinafter
"Master License Agreement") entered into as of the first day of November, 1994,
by and between the parties hereto, Dan Gilbert, Inc., dba Dan Gilbert Art and
Product Development Group, a California corporation, located at 225 Miller
Avenue, Mill Valley, California 94941 (hereinafter "DGI") and DaMert Company, a
California corporation located at 1609 Fourth Street, Berkeley, California
94710-1708 (hereinafter "Licensee").
2. It is the intention of the parties hereto that the terms of this
Addendum shall govern and supersede any provisions contained in the Master
License Agreement which relate to the International License granted therein and
that are inconsistent with the terms of this Addendum.
3. The parties hereto agree that the provisions of paragraph 2.4 of the
Master License Agreement shall be modified such that the International License
shall remain in effect for a term of five (5) calendar years beginning January
1, 1997 and extending through December 31, 2001 provided, however, that DGI
shall have an initial right to terminate this International License effective
as of December 31, 1998, by written notice sent to Licensee at least 60 days
prior to December 31, 1998, indicating DGI's intent to terminate this
International License Agreement, and thereafter DGI, at its own discretion,
shall have the right to terminate this International License by written notice
sent to Licensee at least 60 days prior to the conclusion of any calendar year
of this International License indicating DGI's intent to terminate this
International License.
4. The parties hereby agree that beginning on January 1, 1997, and
during the term of this International License, the royalties set forth in
paragraph 2.5 of the Master License Agreement shall be increased to 9% (nine
percent) for the term of the International License.
5. The parties hereby agree that the guaranteed, non-refundable,
aggregate annual royalty set forth in paragraph 2.6 of the Master License
Agreement shall be Twenty Four Thousand Dollars ($24,000.00) for each calendar
year during the period from 1997 to 2001.
6. The parties hereby agree that the provisions of paragraph 2.7 of the
Master License Agreement relating to "advanced royalties" during the period
from 1997 to 2001 shall be modified as follows:
"2.7 Advanced Royalties. Upon execution of this Addendum, Licensee
shall pay to DGI the sum of Eighteen Thousand Dollars ($18,000.00) as a
non-refundable royalty advance against the guaranteed, non-refundable
aggregate annual royalty for the 1997 calendar year as set forth in
paragraph
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2.6 above. This advanced royalty shall be credited against royalties earned
for sales of Licensed Product under this International License during the
1997 calendar year. Thereafter, on or before January 15 of each subsequent
calendar year during the term of this Agreement, Licensee shall pay to DGI
the sum of Eighteen Thousand Dollars ($18,000.00) as a non-refundable
royalty advance against the guaranteed, non-refundable aggregate annual
royalty set forth in paragraph 2.6 above. In the event royalties paid for
sales under the International License during any calendar year thereof,
including advanced royalties, do not equal the guaranteed, non-refundable,
aggregate annual royalty set forth in paragraph 2.6 above, Licensee, within
15 days of the end of any such calendar year, shall pay DGI the difference
between the royalties actually paid for such calendar year and the
guaranteed, non-refundable, aggregate annual royalty set forth in paragraph
2.6 above."
7. The parties hereby agree that paragraph 2.8 of the Master License
Agreement shall be modified such that DGI shall no longer be obligated to
contribute any amounts toward the cost of pursuing and maintaining international
trademark registrations for Licensed Trademarks. All other provisions of
paragraph 2.8 shall remain binding upon the parties.
8. The parties hereby further agree that in consideration of the
modifications set forth herein, and for other good and valuable consideration,
Dan Gilbert shall be entitled to accompany Licensee's representatives, at
Licensee's expense, on a single trip to Europe for the purpose of attending toy
and gift fairs where the Licensed Products are displayed or offered for sale.
However, it is understood by the parties hereto that Licensee shall have no
obligation to provide for such trip in the event that DGI terminates this
International License pursuant to the terms of paragraph 3 of this Addendum.
9. The parties hereby further agree that Licensee shall forthwith
immediately arrange to have the English language versions of Licensed Products,
identified as:
(a) ---------------------------------------------------------------------------,
(b) ---------------------------------------------------------------------------,
(c) -----------------------------------------------------------------------, and
(d) ----------------------------------------------------------------------------
translated into versions which also include French, German, Spanish, and Italian
versions of these Licensed Products. Further, Licensee agrees to have an
additional English language version of the Licensed Products translated into a
version which also includes French, German, Spanish, and Italian versions of any
such Licensed Products, provided, however, that such additional English language
version of the Licensed Products is among the four best selling versions of the
Licensed Products based upon world-wide unit sales of all Licensed Products
during the preceding calendar year. "World-wide unit sales" shall mean the
combined unit sales of the Licensed Products in the Domestic and International
markets.
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10. The parties hereby further agree that Licensee shall exercise
Licensee's best business judgment to expand and support the international
distribution of Licensed Products and to motivate international distribution of
Licensed Products, such that the royalties for Licensed Products sold pursuant
to this International Licensee may more closely approximate the royalties for
products sold under the terms of the Domestic License provisions of the Master
License Agreement.
DaMert Company Dan Gilbert, Inc.
1609 Fourth Street 225 Miller Avenue
Berkeley, California 94710-1708 Mill Valley, California 94941
By: /s/ Fred DaMert By: /s/ Dan Gilbert
---------------------------- ---------------------------
Fred DaMert, President Dan Gilbert, President
Date: 15 August 1997 Date: August 7, 1997
-------------------------- -------------------------
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[DAN GILBERT, INC. LETTERHEAD]
January 24, 1997
Mr. Greg McVey
Director, Sales and Marketing
DaMert Company
1609 Fourth Street
Berkeley, CA 94710
Dear Greg:
This letter is a follow-up to our conversation regarding DaMert's International
renewal proposal. DGI is willing to agree to the following terms for renewal and
modification of our international license as detailed in our Master License
Agreement.
1. Increase royalty to 9% as of 1/1/97.
2. Section 2.6 of our Master License Agreement shall be modified such that
the non-refundable, aggregate guaranteed annual royalty shall be equal to a
sum of $24,000.
3. Section 2.7 of our Master License Agreement shall be modified such that
the non-refundable annual advanced royalty payment of $18,000 shall be paid
immediately upon signature of this agreement, and an equal sum shall be
paid on or before January 15th of each year thereafter.
4. Agree to pay expenses for one trip during the term of this
international license for Dan Gilbert to attend toy fairs in Germany and
England.
5. Agree to immediately translate the four best selling Triazzle versions
into French, German, Spanish and Italian. Each year thereafter, DaMert
agrees to translate additional Triazzle versions which were the top four
sellers (based on worldwide sales) in the previous year.
6. Agrees to modify product pricing as specified in your memo dated
12/4/96 to motivate international distribution.
7. DGI shall no longer be obligated to contribute matching funds for
international trademark registration as detailed in Section 2.8. All other
conditions of this provision remain unchanged.
225 MILLER AVENUE, MILL VALLEY, CA 94941 [415] 381-8363 FAX [415] 381-5727
<PAGE> 15
8. Section 2.4 "Term of International License" shall be modified such that
the international license shall renew for a term of five-years starting on
January 1, 1997. However, DGI shall have the sole right to terminate this
international license by written notice at least 60-days prior to the
conclusion of any calendar year of this license.
Greg, in essence we will agree to continue our license on a best efforts basis
to grow the international distribution of DGI properties. Conditional on a
continued best effort to expand and support the international distribution of
our products, I foresee a long term and mutually beneficial license between our
companies.
I await your positive feedback regarding authorization for DGI to include in its
packaging identity our Internet address.
Sincerely,
/s/ Walter L. Good
-----------------------------
Walter L. Good
Executive Vice President
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Exhibit: 10.10FT
OPERATING AGREEMENT
OF
LITTLE TIGER PRESS USA, L.L.C.
<PAGE> 2
TABLE OF CONTENTS
SECTION
ARTICLE I
FORMATION; NAME; PURPOSE;
PRINCIPAL PLACE
OF BUSINESS; AGENT; TERM; INTENT; DEFINITIONS
Formation 1.1
Name 1.2
Purpose 1.3
Principal Place of Business 1.4
Agent for Service of Process 1.5
Term 1.6
Intent Regarding Partnership Status 1.7
Definitions 1.8
ARTICLE II
CAPITAL CONTRIBUTIONS
Initial Capital Contributions 2.1
Additional Capital Contributions 2.2
Return of Capital Contributions 2.3
ARTICLE III
CAPITAL ACCOUNTS
ARTICLE IV
PROFITS OR LOSSES; DISTRIBUTIONS
Interest in Profits or Losses 4.1
Limitation on Liability for Losses 4.2
Chargeable to Members
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Distributions 4.3
ARTICLE V
MANAGEMENT PROVISIONS
Management 5.1
Major Decisions 5.2
Member Compensation 5.3
Reimbursement of Expenses 5.4
Reliance by Third Parties 5.5
ARTICLE VI
ADMINISTRATIVE PROVISIONS
Limitation of Liability 6.1
Indemnification by the Company 6.2
Indemnification by Members 6.3
Loans 6.4
Banking 6.5
Books and Records 6.6
Tax Returns 6.7
Accounting Period 6.8
List of Members 6.9
Insurance 6.10
Employment of Members 6.11
ARTICLE VII
MEETINGS OF MEMBERS
Annual Meeting 7.1
Special Meetings 7.2
Place of Meetings 7.3
Notice of Meetings 7.4
Meeting of All Members 7.5
Adjourned Meetings 7.6
Record Date 7.7
Manner of Acting; Voting 7.8
Voting of Units by Certain Members 7.9
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Proxies 7.10
Action by Members Without a Meeting 7.11
Waiver of Notice 7.12
ARTICLE VIII
DISSOLUTION; TERMINATION; WITHDRAWAL
Events Causing Dissolution 8.1
Events Not Causing Dissolution 8.2
Winding Up 8.3
Member Withdrawals 8.4
ARTICLE IX
TRANSFERS BY MEMBERS;
ADDITIONAL MEMBERS
Transfer Restrictions 9.1
Additional Units; Additional Members 9.2
Involuntary Assignments 9.3
ARTICLE XI
CONTINGENCIES; TRANSFERS; OPERATIONS
Contingencies to these Transactions 10.1
Futech Purchase of Name and Logo from Magi 10.2
Futech's Contribution to the Company of the Name and Logo 10.3
Company's Use of Magi Address and Facilities 10.4
Employment of Manmohan Singh Bhatia 10.5
This Section is Reserved 10.6
Co-Publisher Agreement with Magi for U.K. Materials 10.7
Co-Publisher Agreement with Magi for U.S. Materials 10.8
Distribution Agreement with XYZ 10.9
Company's Option Regarding Formation of LTP-UK 10.10
Potential Future Merger with Magi Operations 10.11
Overhead Reimbursement to Futech 10.12
ARTICLE XI
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AMENDMENTS
ARTICLE XII
OTHER PROVISIONS
Other Interests of a Member 12.1
Partition 12.2
Notices 12.3
Validity 12.4
Headings 12.5
Governing Law 12.6
Jurisdiction 12.7
Successors and Assigns 12.8
Rights and Remedies 12.9
Waiver 12.10
Counterparts 12.11
Additional Acts 12.12
Construction 12.13
Integration 12.14
Time is of the Essence 12.15
Creditors 12.16
Attorney's Fees and Costs 12.17
Expenses 12.18
Public Announcements 12.19
EXHIBITS
Members; Units; Capital Contributions "2.1"
Promissory Note Owing to Futech "6.4.1"
Promissory Note Owing to Magi "6.4.2"
Registration Rights Agreement "10.2"
Consulting Agreement With Manmohan Singh Bhatia "10.5.1"
Confidentiality Agreement of Manmohan Singh Bhatia "10.5.2"
Co-Publishing Agreement with Magi for U.K. Materials "10.7"
Co-Publishing Agreement with Magi for U.S. Materials "10.8"
Distribution Agreement with XYZ "10.9"
iv
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OPERATING AGREEMENT
OF
LITTLE TIGER PRESS USA, L.L.C.
This Agreement is made effective January 5, 1998, by the following,
whose addresses appear on Exhibit "A" attached hereto, and who with any future
additional Members are hereinafter sometimes referred to individually as
"Member" and collectively as the "Members":
Futech Educational Products, Inc., an Arizona corporation
Magi Publications, a partnership ("Magi")
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the undersigned hereby agree as follows:
ARTICLE I
FORMATION; NAME; PURPOSE; PRINCIPAL
PLACE OF BUSINESS; AGENT; TERM; INTENT; DEFINITIONS
1.1 FORMATION. Pursuant to the laws of New York dealing with limited
liability companies (the "Act"), the Members will form a New York limited
liability company (the "Company") effective upon the filing of the Articles of
Organization of this Company with the State of New York. The parties shall
immediately, and from time to time hereafter, as may be required by law, execute
all amendments of the Articles of Organization, and do all filing, recording and
other acts as may be appropriate for the Company to comply with the Act.
1.2 NAME. The name of the Company shall be "Little Tiger Press USA,
L.L.C." The Company may do business under that name and/or under any other name
or names which the Members select. If the Company does business under a name
other than that set forth in its Articles of Organization, then the Company
shall file a fictitious name certificate or any other documents required by
applicable law.
1.3 PURPOSE. The Company has been formed for the purpose of engaging in
business in the publishing industry, and may conduct any activities relating
thereto.
1.4 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Company shall be at 2999 North 44th Street, Suite 225, Phoenix, Arizona 85018,
Maricopa County, Arizona, or at such other place, and with such other places of
business, as may be designated by the Members from time to time. The registered
office of the Company in New York shall be determined by the Company.
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1.5 AGENT FOR SERVICE OF PROCESS. The agent for service of process on
the Company is the Department of State for New York, or such other person as may
be designated by the Members from time to time.
1.6 TERM. The Company shall commence upon the filing of its Articles
of Organization, and shall continue until terminated by law or as hereinafter
provided.
1.7 INTENT REGARDING PARTNERSHIP STATUS. It is the intent of the
Members that the Company shall always be operated in a manner consistent with
its treatment as a "partnership" for federal and state income tax purposes, but
that the Company shall not be operated or treated as a partnership for purposes
of the United States federal Bankruptcy Code. No Member, member of the
Management Committee, or Manager shall take any action inconsistent with such
intent. The Company hereby elects to be treated as a partnership for federal and
state income tax purposes.
1.8 DEFINITIONS. The following terms used in this Agreement shall have
the meanings described below:
1.8.1 "Act" shall mean the laws of the State of New York that may
relate to limited liability companies.
1.8.2 "Affiliate(s)" of another Person shall mean: (a) any person
directly or indirectly owning, controlling, or holding with power
to vote ten percent (10%) or more of the outstanding voting
securities of such other Person; (b) any Person ten percent (10%)
or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote by such
other Person; (c) any Person directly or indirectly controlling,
controlled by, or under common control with such other Person; (d)
any officer, director, manager, member or partner of such other
Person; and (e) if such other Person is an officer, director,
manager, member or partner, any company for which such Person acts
in any such capacity; and (f) any immediate family member of such
other Person.
1.8.3 "Agreement" shall mean this written Operating Agreement, as
the same may from time to time be amended. No other document or
oral agreement among the Members shall be treated as part of or
superseding this Agreement unless it is reduced to writing and it
has been signed by all of the Members.
1.8.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.8.5 "Company" shall mean Little Tiger Press USA, L.L.C., the
limited liability company formed pursuant to this Agreement.
1.8.6 "Contingency Expiration Date" shall have the meaning given
that term in
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Section 10.1 below.
1.8.7 "Manager" or "Managers" shall mean any person who becomes
Manager pursuant to this Agreement, including Section 5.1 below.
1.8.8 "Management Committee" shall have the meaning given said term
in Section 5.1 below.
1.8.9 "Member" shall mean each of the parties who executes a
counterpart of this Operating Agreement as a Member and each Person
who may hereafter become an additional or substituted Member.
1.8.10 "Person" shall mean any natural person, partnership, joint
venture, corporation, estate, trust, association, limited liability
company, or other legal entity.
1.8.11 "Treasury Regulations" shall mean the federal income tax
regulations promulgated under the Code, as such regulations may be
amended from time to time, including corresponding provisions of
succeeding regulations.
1.8.12 "Unit" shall mean an interest in the Company, as that term
is used in Section 2.1 below and in other provisions of this
Agreement.
ARTICLE II
CAPITAL CONTRIBUTIONS
2. 1. INITIAL CAPITAL CONTRIBUTIONS. The initial capital contributions
of the Members, which shall be made upon execution of this Agreement, shall be
as specified in "Exhibit 2. 1" attached hereto and hereby made a part hereof,
and the Members shall acquire "Units" for said contributions as identified on
said Exhibit.
Within fifteen days after the Contingency Expiration Date (defined in
Section 10.1 below), each Member shall make an additional capital contribution
to the Company in the amount of $500,000.00 (cash, cashiers check, wire funds or
other cash equivalent agreed to by the parties).
2.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as called for in Section
10.3 below, the Members shall not be entitled to make additional capital
contributions without the prior written consent of the Manager and all Members,
and the Members shall not be required to make additional capital contributions
without the prior written consent of the Manager and all Members. Any additional
capital contributions made with said consent may be, but are not required to be,
identified on supplemental schedules to "Exhibit 2.1" (which schedules may
contain alpha numeric designations such as "Exhibit 2.1.1"). Unless otherwise
agreed to by all Members, no interest shall accrue or be paid on said
contributions and no Units shall be issued
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for the additional contributions.
2.3 RETURN OF CAPITAL CONTRIBUTIONS. No Member shall, without the prior
written consent of all of the Members (which consent may be withheld for any or
no reason), be entitled to withdraw or demand the return of any part of his/her
capital contribution, except upon dissolution of the Company and as specifically
provided otherwise in this Agreement. Upon dissolution of the Company, each
Member shall look solely to the assets of the Company for return of his or her
capital contributions and, if the Company's property remaining after the payment
and discharge of the debts, obligations, and liabilities of the Company is
insufficient to return the capital contributions of each Member, no Member shall
have any recourse against the Company or any Member, except for gross
negligence, malfeasance, bad faith or fraud. The Company shall not be obligated
to pay interest on any capital contribution of any Member.
ARTICLE III
CAPITAL ACCOUNTS
An individual capital account shall be maintained for each Member. The
capital interest of each Member shall consist of the Member's original
contribution increased by the Member's additional contributions to capital, the
Member's share of Company profits transferred to capital, and the amount of
Company liabilities assumed by the Member or that are secured by any of the
Company's property distributed to such Member, and decreased by the amount of
money and fair market value of Company property distributed to the Member in
reduction of the Member's Company capital, the Member's share of Company losses,
and the amount of liabilities of such Member that are assumed by the Company or
that are secured by any property contributed by such Member to the Company.
The provisions in this Agreement relating to the maintenance of capital
accounts, and with respect to allocations and distributions, are intended to
comply with the Internal Revenue Code and the Treasury Regulations promulgated
thereunder, and shall be interpreted and applied in a manner consistent with
such Regulations. In the event the Members shall determine that it is prudent to
modify the manner in which the capital accounts, or any debits or credits
thereto, or other allocations among the Members, are computed in order to comply
with such Regulations, the Members may make any such modification, provided that
the modification is not likely to have a material effect on the amounts
distributable to any Member upon the dissolution of the Company. The Members
also shall make any appropriate modifications in the event of unanticipated
events (for example, the acquisition by the Company of royalty and gas
properties or the encumbrance of Company property by nonrecourse debt) that
might otherwise cause this Agreement not to comply with the Treasury
Regulations.
ARTICLE IV
PROFITS OR LOSSES; DISTRIBUTIONS
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4.1 INTERESTS IN PROFITS OR LOSSES.
(a) Except as may be expressly provided to the contrary in this
Agreement, the net profits of the Company shall be credited to the Members in
proportion to their Company Units.
Except as may be expressly provided to the contrary in this Agreement,
the net losses of the Company shall be charged to the Members as follows:
(i) First, to each Member having a negative balance in that
Member's capital account, to the extent of such negative balance, in
the proportion that the negative balance of each Member bears to the
total negative balances of all Members;
(ii) Thereafter, to the Members in accordance with the balances in
their capital accounts.
(b) In accordance with Internal Revenue Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss and deductions with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members in a manner determined by the Members
so as to take into account any variation between the adjusted basis of such
property to the Company for Federal income tax purposes and the value of said
property at the date of its contribution.
(c) The Members shall make such other special allocations as are
required in order to comply with any mandatory provision of the applicable
Treasury Regulations or to reflect a Member's economic interest in the Company
determined with reference to such Member's right to receive distributions from
the Company and such Member's obligation to pay its expenses and liabilities.
(d) The Members are aware of the income tax consequences of the
allocations made by this Article and hereby agree to be bound by the provisions
of this Article in reporting their shares of Company income and loss for income
tax purposes.
4.2 LIMITATION ON LIABILITY CHARGEABLE TO MEMBERS. Notwithstanding any
other provision of this Agreement, no Member shall personally be liable for any
of the losses of the Company beyond the Member's capital interest in the
Company.
4.3 DISTRIBUTIONS.
(a) The Members shall determine whether cash or other property shall be
distributed. Except as otherwise provided for in Section 8.3 below,
distributions shall be made among the Members in proportion to their Units held.
(b) Any amounts withheld pursuant to the Code or any provisions of
state or local tax law with respect to any payment or distribution to the
Members from the Company shall be
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treated as amounts distributed to the Members for whom the withholding was made.
ARTICLE V
MANAGEMENT PROVISIONS
5.1 MANAGEMENT.
(a) Management Committee. Notwithstanding the fact that the Company is
a "member-run" limited liability company, except as may otherwise be expressly
provided for in this Agreement (including Section 5.2 below), the business and
affairs of the Company shall be governed in all respects by a committee (the
"Management Committee") composed of four members, two of whom shall be appointed
by Futech and two of whom shall be appointed by Magi. The Management Committee
shall be responsible for formulating the policies of the Company and authorizing
all material decisions regarding its operations, including decisions regarding
material capital expenditures and investments (except for the "Major Decisions"
identified in Section 5.2 below). There are provisions in this Agreement calling
for decisions to be made by the Members, and those provisions do not alter the
affect of the provisions in this subparagraph (a). Except for provisions
expressly requiring 100% vote of the Members, the Management Committee's
decisions shall exclusively be deemed to be the decisions of the Members for all
purposes. Wherever this Agreement calls for the vote or consent of less than all
of the Members, the Management Committee shall have the exclusive right to
exercise all of the discretionary authority granted to the Members under the
provisions of this Agreement, and shall manage and direct the conduct of the
Company's day-to-day business affairs. Specifically, but not in limitation of
the foregoing, the Management Committee will be responsible for all decisions
relating to title selection, production management, and expenditures for
published materials, and shall set Company customer credit policies.
Futech hereby appoints Gary Roy ("Joe") Billings and Vincent W. Goett
as Futech's initial members of the Management Committee, and Magi hereby
appoints Manmohan Singh Bhatia and Amarjit Singh Bhatia as Magi's initial
members of the Management Committee.
Each member of the Management Committee shall devote such time to the
business and affairs of the Company as shall be necessary or appropriate to
properly conduct such business and affairs in accordance with this Agreement and
applicable law. It is expressly understood and agreed that no member of the
Management Committee shall be required to devote that member's entire business
time to the business and affairs of the Company.
The Management Committee shall be under a fiduciary duty to conduct the
affairs of the Company in the best interests of the Company and its Members,
including the safe keeping of all Company property and the use thereof for the
exclusive benefit of the Company.
(b) Actions of the Management Committee. At any meeting at which a
quorum is
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present, the Management Committee shall act, except as may otherwise be provided
herein, upon the unanimous vote of the Management Committee, and such actions
shall be binding upon the Members and the Company. Each member of the Management
Committee shall have one vote. The presence, by proxy, in person or by
telephone, at any regular or special meeting of the Management Committee, of all
members of the Management Committee, shall be necessary to constitute a quorum.
(c) Manager. The members of the Management Committee may from time to
time elect one or more "Managers" who shall, to the extent designated by the
Management Committee, have the primary responsibility for managing and directing
the day-to-day operations of the Company on behalf of the Management Committee.
Managers need not be members of the Management Committee. At any time when a
Manager is acting, such Manager shall have the exclusive right to exercise all
of the discretionary authority granted to the Management Committee under the
provisions of this Agreement and all powers of the Management Committee on
behalf of the Company, except to the extent, if any, such rights and powers are
restricted by the Management Committee when the Manager is appointed or
thereafter. Initially, Manager's duties shall include handling all special sales
projects (to non-retailers), including book clubs, book fairs, catalogers, party
planners, etc; provided, however, that Manager may retain the services of XYZ
Distributors ("XYZ"; which may be a division of Futech) to aid such activities,
and in which event the Company may enter into a commission or revenue sharing
arrangement with XYZ, upon terms and conditions to be agreed to by the members
of the Management Committee.
Any two members of the Management Committee may remove a Manager by
providing written notice of the removal to the Manager and the other members of
the Management Committee, and the removal shall be effective immediately unless
a later effective date is provided for in the notice; provided, however, that
said removal move only be done after a meeting of the Management Committee
occurs in which said removal is discussed. The appointment of a Manager must be
by unanimous decision of the Management Committee. If there shall at any time be
more than one person acting as Manager hereunder, then, unless otherwise
designated by unanimous vote of the Management Committee, the unanimous approval
of said persons shall be required for any act of the "Manager."
The Manager shall be under a fiduciary duty to conduct the affairs of
the Company in the best interests of the Company and its Members, including the
safe keeping of all Company property and the use thereof for the exclusive
benefit of the Company. The Manager shall devote such time and effort as is
necessary for the management of the Company in the conduct of its business in an
efficient, thorough and businesslike manner, devoting appropriate attention to
all matters affecting the conduct of the Company's business.
The fee, if any, paid to the Manager for acting as Manager hereunder
shall be determined by and subject to change from time to time by the unanimous
vote of the Management Committee.
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Manmohan Singh Bhatia is hereby appointed as the initial Manager, to
serve so long as he is able and willing to so serve, or until he is replaced or
removed pursuant to the terms of this Agreement.
(d) Meetings of Management Committee. The Management Committee shall
meet at least once every year or more frequently as appropriate. Management
Committee meetings may be held in person, by telephone conference, or by use of
similar communications equipment. Any action required or permitted to be taken
by the Management Committee may be taken without a meeting if all of the members
of the Management Committee consent thereto in writing.
Special meetings of the Management Committee may be held upon the call
of any member of the Management Committee for any purpose. Written notice of
each regular and special meeting shall be sent to each member of the Management
Committee not less than twenty-four (24) hours before such meeting. Notice of
any meeting need not be given to any member of the Management Committee who
shall submit, either before or after the meeting, a signed waiver of notice, or
who shall attend the meeting.
(e) Term of Office of Members of Management Committee. Each member of
the Management Committee shall hold office until death, resignation, retirement
or removal by the Member that appointed such member of the Management Committee.
If a vacancy shall occur in the Management Committee, the Member that appointed
such vacating member of the Management Committee may appoint his or her
successor by giving written notice thereof to the other Member and the
Management Committee. If either Member desires to replace its appointee, such
Member may remove or replace such appointee at any time by giving written notice
thereof to the other Member and to the Management Committee.
(f) Compensation of Management Committee. Members of the Management
Committee shall not receive any salaries, fees or other compensation from the
Company for their service on the Management Committee, except to the extent
approved by the unanimous vote of all Members of the Company; provided, however,
that nothing in this provision shall prevent the Member that designated the
member of the Management Committee from paying said member of the Management
Committee compensation or reimbursement from the Member's own funds, and not
from the funds of or to be reimbursed by the Company.
(g) Communications. The members of the Management Committee, and the
Manager, shall promptly advise and inform each other of any transaction, notice,
event or proposal, other than in the ordinary course of business of the Company,
of which they may become aware which directly relates to the management and
operation of the Company or to any assets of the Company, to the extent any such
matter does or could materially affect, either adversely or favorably, the
Company, its business or its assets.
5.2 MAJOR DECISIONS. Notwithstanding any other provision of this
Agreement, no action shall be taken or sum expended or obligation incurred by
the Company with respect to
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a matter within the scope of any of the major decisions (the "Major Decisions")
affecting the Company, as defined below, unless such action, expenditure or
obligation has been approved in writing by all of the Members of the Company.
"Major Decisions" shall be the following:
(a) Any amendment to this Agreement or the Certificate of Formation of
the Company;
(b) Any act in contravention of this Agreement or any undertaking on
behalf of the Company not reasonably related to the purpose of the Company;
(c) Any act which would make it impossible to carry on the business of
the Company, or any act which would violate applicable laws;
(d) The confession of any judgment against the Company;
(e) The execution or delivery of any general assignment for the benefit
of creditors of the Company;
(f) The admission of a person as a Member, except as may otherwise
expressly be provided for in this Agreement; and
(g) All other decisions relating to the Company for which this
Agreement specifically requires the approval of all Members.
5.3 MEMBER COMPENSATION. Except as may otherwise be agreed to by all of
the Members elsewhere in this Agreement, or elsewhere in writing, no Member
shall seek or be paid any compensation for being a Member in this Company or for
acting in any management capacity in this Company.
5.4 REIMBURSEMENT OF EXPENSES. The members of the Management Committee
(and Manager(s)) shall be reimbursed by the Company for reasonable direct costs
and expenses incurred in performing their responsibilities pursuant to this
Agreement, such as airfare lodging and meals (including meals for clients and
prospective clients), and incidentals such as parking and tips, all in
reasonable amounts, reasonably incurred, while on Company business; provided,
however, that such expenses shall not be in excess of the amount customarily
paid for like services in the county in which the expenses were incurred, and
shall, except for such things as cash tips, be supported by receipts; and
provided, further, that expenses exceeding $5,000 in any month for any person
shall require the approval of the Management Committee.
5.5 RELIANCE BY THIRD PARTIES. As between all of the members of the
Management Committee (acting on behalf of the Company) and all third parties
dealing with the Company and not having actual knowledge (but this provision
shall not create a duty in third parties to investigate any member's authority)
of any lack of authority of a member, the act or signature of all of the members
of the Management Committee shall be necessary and sufficient to convey
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title to any property owned by the Company or to execute any promissory notes,
trust deeds, mortgages or other instruments of hypothecation, or any other
document or instrument (including loans and guaranties of any type), and all of
the Members agree that a copy of this Agreement may be shown to the appropriate
parties in order to confirm the same.
Every contract and other instrument executed by all of the members of
the Management Committee shall be conclusive evidence in favor of every person
or entity relying thereon or claiming thereunder that at the time of the
delivery thereof: (i) this Company was in existence; (ii) this Agreement has not
been terminated or canceled or amended in any manner so as to restrict such
authority; and (iii) the execution and delivery of such instruments were duly
authorized under this Agreement. Any persons or entity dealing with the Company
may rely on a certificate signed by all, and only by all, of the members of the
Management Committee hereunder:
(a) As to who are the Members hereunder;
(b) As to the existence or non-existence of any fact or facts which
constitute conditions precedent to acts by the members of the Management
Committee or are in any other manner germane to the affairs of this Company;
(c) As to who is authorized to execute and deliver any instrument or
document of the Company;
(d) As to the authenticity and completeness of any copy of this
Agreement and amendments thereto; and/or
(e) As to any act or failure to act by the Company or as to any other
matter whatsoever involving the Company.
The statement of all of the members of the Management Committee that said
members are acting in accordance with the provisions of this Agreement shall
fully protect all persons dealing with said members. No person paying money or
delivering any property to all of the members of the Management Committee need
see to its application, and no person dealing with all of the members of the
Management Committee shall be obligated to inquire into the terms of this
instrument or the necessity or expediency of any act of said members.
Nothing in this Section shall be deemed to alter the rights, obligations, and
limitations placed upon the members as among themselves, or upon the members of
the Management Committee.
ARTICLE VI
ADMINISTRATIVE PROVISIONS
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6.1 LIMITATION OF LIABILITY. Each Member's liability for the debts and
obligations of the Company shall be limited to the maximum extent allowed by
law.
6.2 INDEMNIFICATION BY THE COMPANY. The Members shall perform their
duties, if any, under this Agreement with ordinary prudence and in a manner
characteristic of businessmen in similar circumstances. However, no Member shall
have any liability whatsoever to the Company or to any other Member for loss
caused by any act or by the failure to do any act if the loss suffered arises
out of a mistake in the business judgment of the Member, or if the Member, in
good faith, had determined that the action or lack of action giving rise to the
loss was in the best interests of the Company; provided, however, that a Member
shall not be released from liability hereunder for any loss caused by the gross
negligence, breach of this Agreement, breach of fiduciary duties, or intentional
misconduct of such Member or its agents, or for acts outside the Member's
authority under this Agreement. The Company, or its receiver or liquidating
trustee, shall indemnify, hold harmless and pay all judgments and claims against
a Member arising from any of the Member's actions or decisions performed or made
in good faith within the scope of the Member's authority under this Agreement,
provided that such actions or decisions do not constitute gross negligence, a
breach of this Agreement, a breach of fiduciary duties, or intentional
misconduct on the part of such Member. This indemnification shall include,
without limitation, payment of reasonable attorneys' fees incurred in connection
with the defense of any claim or proceeding based on any such action or
decision, which attorneys' fees shall be paid as incurred. The Manager and all
members of the Management Committee shall be indemnified by the Company to the
extent identified above for Members.
6.3 INDEMNIFICATION BY MEMBERS. Each Member (as "Indemnitor") shall
indemnify and hold harmless the Company and the other Members from and against
all claims, demands, actions and rights of action which shall or may arise by
virtue of anything done or omitted to be done by the Indemnitor (directly or
through or by agents, employees or other representatives) which is outside the
scope of, or in breach of, the terms of this Agreement, or which constitutes
gross negligence, breach of fiduciary duties, or intentional misconduct on the
part of such Member. A Member who desires to make a claim against an Indemnitor
under this Section shall notify the Indemnitor of the claim, demand, action or
right of action which is the basis of such claim, and shall give the Indemnitor
a reasonable opportunity to participate in the defense thereof. Failure to give
such notice shall not affect the Indemnitor's obligations hereunder, except to
the extent of any actual prejudice resulting therefrom. The obligations of the
Members under this Section shall survive and be enforceable against them
notwithstanding the dissolution or termination of the Company.
6.4 LOANS. Each of Futech and Magi shall provide the Company with
revolving debt in the amount of $500,000.00. The Company, and Futech and Magi,
will simultaneously with the execution of this Agreement, execute promissory
notes evidencing said indebtedness in the form of "Exhibit 6.4.1" and "Exhibit
6.4.2" attached hereto and hereby made a part hereof, and shall execute and file
Uniform Commercial Code Financing Statements evidencing the security interests
granted in said notes. The Financing Statements will be filed in the order of
priority identified in the first sentence of this Section. All funds borrowed by
Company under said
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promissory notes shall be borrowed in equal amounts from each of the Members.
All funds paid by Company in repayment of said promissory notes shall be paid in
proportion to the balances owing under said notes. The obligations of the
parties under said notes shall be effective on the Contingency Expiration Date
(defined in Section 10.1 below).
Any Company funds not required for the operation of the Company, as
determined in the discretion of the Members, shall be paid against the debt
described in this Section. No distributions shall be made to any Member unless
and until said debt has been fully repaid.
6.5 BANKING. All Company funds shall be deposited in the Company's name
in such bank account or accounts as shall be designated by the Members. All
withdrawals therefrom shall be made upon checks signed by a person(s) selected
by the Members. The Members currently intend that the Company will have its main
banking account(s) in Phoenix, Arizona, and a supplemental account in the State
of New York. All receipts will be deposited into the main account. The
supplemental account will be funded from the main account as necessary, and will
be used for paying day to day expenses not related to the purchase of inventory.
6.6 BOOKS AND RECORDS.
(a) The Members shall keep books of account with respect to the
business and affairs of the Company, which books shall be maintained at the
Company's principal office. All Members shall at all reasonable times have
access to such books for inspection and/or copying at the expense of the
requesting Member, after reasonable request is made therefor.
(b) At a minimum, the Company shall keep at its principal place of
business the following records:
(i) A current list of the full name and last known business,
residence, or mailing address of each Member, Manager, and member
of the Management Committee;
(ii) A copy of the Articles of Organization of the Company and all
amendments thereto, together with executed copies of any powers of
attorney pursuant to which any amendment has been executed;
(iii) Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the three most recent years;
(iv) Copies of the Company's currently effective written Operating
Agreement and all amendments thereto, copies of any prior written
operating agreement no longer in effect, copies of any writings
permitted or required with respect to a Member's obligation to
contribute cash, property or services, and copies of any financial
statements of the Company for the three most recent years;
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(v) Minutes of every annual, special, and court-ordered meeting of
the Members; and
(vi) Any written consents obtained from Members for actions taken
by Members without a meeting, and any written consents obtained
from members of the Management Committee for actions taken by the
Management Committee without a meeting.
(c) The Members, at the Company's expense, shall cause annual financial
statements to be prepared by an independent accounting firm chosen by the
Members. Such statements shall be signed and verified by the Company or its duly
authorized agent and copies shall be furnished to each of the Members no later
than March 31 following the close of the Company's fiscal year.
6.7 TAX RETURNS. All federal, state and local income tax returns of
the Company required to be filed for any taxable year shall be timely prepared
and filed by the Members at the expense of the Company and furnished to the
Members as soon as is practical after the end of the taxable year.
6.8 ACCOUNTING PERIOD. The Company's accounting period shall be the
calendar year.
6.9 LIST OF MEMBERS. Upon written request of any Member, the Company
shall provide to such Member a list showing the names, last known addresses and
interests of all Members, Managers, and members of the Management Committee.
6.10 INSURANCE. The Company shall carry and maintain in force such
insurance as the Members deem appropriate, the premiums of which shall be a cost
and expense of the Company. All such policies of insurance shall name the
Company, and, if necessary, all of the Members, as named insureds as their
respective interests may appear.
6.11 EMPLOYMENT OF MEMBERS. All Members, and members of the Management
Committee, shall act in the best interests of the Company. The Company may
employ a Member or an Affiliate of a Member, and the fact that a Member is
directly or indirectly interested in or connected with any Person employed by
the Company to render or perform a service, or from which the Company may buy
merchandise or other property, shall not preclude the Company from employing
such Person or from otherwise dealing with such Person, so long as such
employment or interest is fully disclosed to all the Members and approved by all
Members, and provided that the expenses associated therewith shall not be in
excess of the amounts customarily paid for like services in the county in which
the expenses are incurred. Neither the Company nor the Members shall have any
rights in or to any income or profits derived from any such transaction with a
Member or any such entity in which a Member may have an interest.
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ARTICLE VII
MEETINGS OF MEMBERS
7.1 ANNUAL MEETING. An annual meeting of the Members may be held on the
second Tuesday of March of each year, or at such other time as shall be
determined by the Management Committee, commencing with the year 1998, for the
purpose of the transaction of such business as may come before the meeting.
7.2 SPECIAL MEETINGS. Special meetings of the Members, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by any
Member, or by the Management Committee.
7.3 PLACE OF MEETING. The Members may designate any place, either
within or outside the State of Arizona, as the place of meeting for any meeting
of the Members; provided, however, that the agreement of all Members shall be
required for a meeting to be held outside of the State of Arizona. If no
designation is made, or if a special meeting is otherwise called, the meeting
shall be held at the principal office of the Company.
7.4 NOTICE OF MEETING. Except as provided in Section 7.5 below, written
notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than three
nor more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the Management Committee or person calling the
meeting, to each Member entitled to vote at such meeting and to the Management
Committee. If mailed, such notice shall be deemed to be delivered two calendar
days after being deposited in the United States mail, addressed to the Member at
the Member's address as it appears on the books of the Company, with postage
thereon prepaid. If transmitted by way of facsimile, such notice shall be deemed
to be delivered on the date of such facsimile transmission to the fax number, if
any, for the respective Member which has been supplied by such Member to the
Company and identified as such Member's facsimile number.
7.5 MEETING OF ALL MEMBERS. If all of the Members shall meet at any
time and place, either within or outside of the State of Arizona, and consent to
the holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting lawful action may be taken.
7.6 ADJOURNED MEETINGS. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Company may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Member entitled to vote at the meeting.
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7.7 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
7.8 MANNER OF ACTING; VOTING. The manner in which Members act for or on
behalf of the Company is set out in Section 5.1 and 5.2 above, and elsewhere in
this Agreement. Where votes of the Members are required, not acting through the
Management Committee, each Unit shall be entitled to one vote.
7.9 VOTING OF UNITS BY CERTAIN MEMBERS.
(a) Units belonging to the Company, or to a corporation the majority of
the shares of which are held by the Company, shall not be entitled to vote;
provided, however, that nothing herein shall be construed as limiting the right
of the Company to vote Units held by it in a fiduciary capacity.
(b) A Member whose Units are pledged shall be entitled to vote such
Units until the Units have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the Units so transferred, but
only if allowed by the other provisions of this Agreement.
(c) If Units stand in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety or tenants by community property or otherwise, or if two or more
persons have the same fiduciary relationship with respect to the same Units,
unless the Company is given written notice to the contrary and is furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the effect of (i) if only one votes, his/her acts bind all, (ii) if more
than one votes, the act of the majority so voting binds all, and (iii) if more
than one votes, but the vote is evenly split on any one particular matter, each
fraction may vote the Units in question proportionally.
7.10 PROXIES. At all meetings of Members, a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the other Members of the
Company before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
7.11 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the action
is evidenced by one
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or more written consents describing the action taken, signed by each Member.
Action taken under this Section is effective when said Members have signed the
consent, unless the consent specifies a different effective date. The record
date for determining Members entitled to take action without a meeting shall be
the date the first Member signs a written consent.
7.12 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the Person entitled to such
notice, whether before, at, or after the time stated therein, shall be the
equivalent of the giving of such notice.
ARTICLE VIII
DISSOLUTION; TERMINATION; WITHDRAWAL
8.1 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved only
upon the occurrence of any of the following events:
(a) The written consent or affirmative vote to dissolve of 100% of the
Company Units;
(b) The entry of a judgment of dissolution by a court of competent
jurisdiction or by dissolution by operation of law;
(c) The acquisition by any one Person of all of the Units of the
Company; or
(d) Upon the occurrence of any event which causes a dissolution of the
Company under applicable law, unless the business of the Company is continued by
the specific consent of all Members, given within 90 days after such event, and
there are at least two remaining Members. Reasonable expenses incurred in the
continuation, or attempted continuation, of the Company shall be deemed expenses
of the Company.
8.2 EVENTS NOT CAUSING DISSOLUTION. Except as may otherwise be provided
in Section 8.1 above, the Company shall not be terminated or dissolved by the
legal incapacity, death, insanity, bankruptcy, withdrawal or expulsion of any
Member, by the assignment of any Member of that Member's Units, or by the
admission of a new Member, or the admission of any additional or substitute
Member or Manager, but the Company shall continue thereafter as the Company with
the remaining Members and any new Members.
As used in this Section, the term "bankruptcy" shall mean: (i) the
voluntary filing of a petition in bankruptcy or petition pursuant to any
insolvency act; (ii) the making of an assignment for the benefit of creditors;
(iii) giving consent to the appointment of a receiver, liquidator, custodian, or
trustee for the whole or any substantial part of the property of the Member;
(iv) the voluntary filing of a petition or answer seeking or consenting to
reorganization under Chapter 11 of Title 11 of the United States Code or state
insolvency statutes; (v) the appointment, by order of a court of competent
jurisdiction, of a receiver, liquidator, custodian,
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or trustee for a Member for the whole or any substantial part of his or her
property, which appointment shall not have been discharged within sixty (60)
consecutive days thereafter; (vi) the institution against a Member of any
proceeding under Chapter 11 of Title 11 of the United States Code or any
amendment or successor thereto or under any other applicable law or statute of
the United States or any state (including state insolvency statutes), which
proceedings shall not have been dismissed within sixty (60) consecutive days
after the institution thereof; or (vii) if an insolvency petition is filed
against a Member and an order for relief is directed under Chapter 11 of Title
11 of the United States Code.
8.3 WINDING UP. In the event of dissolution without continuance, and
final termination of the Company:
(a) The Members shall:
(i) Wind up the affairs of the Company;
(ii) Subject to subparagraph (d) below, sell all
Company assets as promptly as is consistent with obtaining,
insofar as is possible, the fair value thereof; and
(iii) After paying all liabilities (including all
costs of dissolution), and subject to the right of the Members
to set up cash reserves to meet Company liabilities,
distribute the remaining Company assets to the Members
pursuant to the relevant provisions of this Agreement.
(b) The Members shall continue to share profits and losses
during the period of liquidation in the same proportions as before dissolution.
The proceeds from liquidation of Company assets shall to the extent allowed by
law be applied as follows in the following order of priority:
(i) To secured creditors of the Company;
(ii) To unsecured creditors of the Company;
(iii) To Futech in reimbursement of its capital
contributions made under Section 10.3 below; provided,
however, that such reimbursement shall be in the form of a
cash repayment equal to the value of the capital contribution
advanced by Futech under Section 10.3 below at the date of
such advance.
(iv) To the Members in the amounts of and in
proportion to positive balances in their capital accounts; and
(v) To the Members in accordance with Units owned.
(c) In the event a distribution of Company property in kind is
made, such property
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shall either: (i) be transferred and conveyed to the Members or their assigns so
as to vest in each of them, as tenants-in-common, a percentage interest in the
whole of said property equal to the percentage interest the Members would have
received had the foregoing property not been distributed in kind; or (ii) be
transferred and conveyed to the Members on an asset-by-asset determination, as
determined by the Members.
(d) Notwithstanding anything to the contrary in this
Agreement, upon a liquidation of the Company (for tax or state law purposes), if
any Member has a negative capital account balance (after giving effect to all
contributions, distributions, allocations and other capital account adjustments
for all taxable years, including the year during which such liquidation occurs),
such Member shall have no obligation to make any contribution to the capital of
the Company, and the negative balance of such Member's capital account shall not
be considered a debt owed by such Member to the Company or to any other person
for any purpose whatsoever.
(e) All documents and records of the Company, including
without limitation all financial records, vouchers, canceled checks, and bank
statements, shall upon termination of the Company be delivered to a person
selected by the Members. Unless otherwise approved by the other Members, such
person shall retain such documents and records for a period of not less than
seven (7) years and shall make such documents and records available during
normal business hours to the Members for inspection and copying at such Member's
cost and expense. In the event a Member for any reason ceases, as provided in
this Agreement, to be a Member at any time prior to termination of the Company,
and the Company is continued without such withdrawing, defaulting, or selling
Member, such documents and records of the Company up to the date of the
termination of the withdrawing Member's interest shall be maintained by the
Company for a period of not less than seven (7) years thereafter; provided,
however, that if there is an audit or threat of audit, such documents and
records shall be retained until the audit is completed and any tax liability is
finally determined. The documents and records shall be available for inspection,
examination, and copying by the withdrawing, defaulting, or selling Member upon
reasonable notice. Notwithstanding the foregoing, the Company may destroy
Company records prior to the expiration of the time periods described above in
this paragraph if it is not necessary to retain said records for tax or other
purposes.
8.4 MEMBER WITHDRAWALS. No Member shall, without the prior written
consent of all of the Members (which consent may be withheld for any or no
reason), be entitled to withdraw from the Company, or cease to be a Member of
the Company, except upon dissolution of the Company and as specifically provided
otherwise in this Agreement, and each Member covenants not to withdraw from the
Company. This shall be true notwithstanding any other provision of this
Agreement, including without limitation the provisions appearing below in this
Section 8.4. Any attempted withdrawal shall be a violation of this Agreement and
the Member attempting to withdraw shall be liable to the Company for all damages
resulting from or otherwise relating to the attempted withdrawal.
If the Company dissolves and winds up its business affairs as a result
of the withdrawal
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of the Member, any distributions to which the withdrawn Member is entitled under
this Agreement shall be reduced by the damages incurred by the Company and/or
its Members as a result of the withdrawal, and the withdrawn Member and his/her
personal representatives, successors and assigns shall have only the rights of
an assignee of the withdrawn Member's interest in the Company.
If the business of the Company is continued following the withdrawal of
the Member, the withdrawn Member and said Member's successors and assigns shall
have only the rights of an assignee of the withdrawn Member's interest, and
shall not be entitled to any allocations or distributions as a result of the
withdrawal, but instead shall be entitled only to distributions which would have
been made to the Member had the Member not withdrawn from the Company; provided,
however, that the Company may, in the Company's discretion, distribute to the
withdrawn Member as complete payment for said Member's interest in the Company,
the value of the withdrawn Member's interest in the Company, reduced however by
the damages incurred by the Company and/or its Members as a result of the
withdrawal, and the value of any goodwill of the Company shall be excluded in
determining the value of the withdrawn Member's interest in the Company. The
Company may defer payment of the amount so payable to the withdrawn Member for
such a period of time as is necessary or appropriate to prevent unreasonable
hardship to the Company, and in said event, the withdrawn Member shall be
entitled to request that the Company secure the deferred payment by agreed upon
collateral, and in the event the parties cannot agree upon the collateral to be
pledged, the collateral may be determined by a court of competent jurisdiction.
ARTICLE IX
TRANSFERS BY MEMBERS; ADDITIONAL MEMBERS
9.1 TRANSFER RESTRICTIONS.
(a) Notwithstanding any other provision of this Agreement, no
Member shall be entitled to transfer, assign or encumber all or any portion of
the Member's interest in the Company without the prior written consent (which
may be withheld for any reason or no reason) of all of the Members. Any
unauthorized attempt to so transfer or encumber a Member's interest shall be
void. The granting of consent to any transfer or encumbrance in one or more
instances shall not limit or waive the need for such consent in any other or
subsequent instances. The transferor shall pay all costs and expenses of the
Company, including attorney's fees and costs, associated with a transfer or
encumbrance, or requested transfer or encumbrance of a Member's Units.
(b) In the event a Member at any time transfers or attempts to
transfer the Member's interest in the Company in violation of the provisions of
this Agreement, then the Company shall be entitled in addition to all rights and
remedies at law and in equity, to a decree or order restraining and enjoining
such transfer. The offending Member shall not plead in
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defense that there is an adequate remedy at law, it being hereby expressly
acknowledged and agreed that damages at law shall be an inadequate remedy for a
breach or threatened breach of the provisions concerning transfer set forth in
this Agreement.
9.2 ADDITIONAL UNITS; ADDITIONAL MEMBERS. No additional Units will be
issued to Members without the prior written consent of all Members, and no
additional Members will be admitted to the Company without the prior written
consent of all Members.
9.3 INVOLUNTARY ASSIGNMENTS.
(a) In the event a Member's interest is taken or disturbed by
levy, foreclosure, charging order, execution, or other similar proceeding, the
Company shall not dissolve. The assignee of the Member's interest shall in no
event have any right to interfere in the management or the administration of the
Company business or affairs or to act as a Manager or to become a substituted
Member except as may otherwise be expressly provided for herein to the contrary.
The assignee shall only have the right to receive distributions attributable to
the Member's interest in the Company, if and to the extent any are made, along
with allocations of profits and losses attributable to the Member's interest in
the Company in accordance with the allocation provisions set out in this
Agreement.
(b) Any person or entity to which an interest in the Company
is assigned pursuant to the provisions of the bankruptcy code shall be deemed
without further act to have assumed all of the obligations arising under this
Agreement and relating to the interest assigned. Upon demand any such
assignee(s) shall execute and deliver to each other party to this Agreement an
instrument confirming such assumption. Failure to deliver such instrument shall,
at the election of the Company, be deemed a default hereunder by the assignee.
ARTICLE X
CONTINGENCIES; TRANSFERS; OPERATIONS
10.1 CONTINGENCIES TO THESE TRANSACTIONS. This Agreement is signed
prior to satisfaction of the contingencies identified below. This Agreement is
binding upon the parties once signed, but performance by the parties of their
obligations under this Agreement, including their obligations to make any
capital contributions, other than those shown on "Exhibit 2.1" attached hereto,
or any loans, are conditional upon prior satisfaction of the following
conditions:
(i) The closing by Futech of its contemplated Private
Placement Offering, or other financing acceptable to Futech;
and
(ii) The closing of the transactions wherein Futech, or its
successor, purchases the businesses of XYZ Distributors and
Premier Publishing.
If the foregoing conditions are not satisfied by April 30, 1998, this Agreement
and the
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<PAGE> 26
agreements which are Exhibits hereto shall be terminated for all purposes at the
written election to so terminate made by any Member by notice given to the other
Member. The date the contingencies above are satisfied, or waived by all Members
in writing, is referred to in this Agreement as the "Contingency Expiration
Date".
Notwithstanding the foregoing, if this Agreement terminates as called
for the previous paragraph, then Futech shall reimburse Magi for Magi's
out-of-pocket costs, not exceeding $20,000.00 total, incurred to establish a New
York office, including travel expenses incurred to interview prospective
employees.
10.2 FUTECH PURCHASE OF NAME AND LOGO FROM MAGI. Immediately after the
Contingency Expiration Date, Futech shall purchase from Magi, and Magi shall
sell to Futech, all rights to use the Little Tiger Press imprint, logo,
trademark, and tradename (hereinafter collectively the "Mark") for use in, and
only in, the North America. At the time of the transfer, Magi shall execute and
deliver to Futech any and all documents necessary to accomplish the transfer,
including without limitation a bill of sale and an assignment of all North
American federal and local registrations of the Mark, in form satisfactory to
Futech. The Mark shall be transferred free and clear of any and all liabilities
or encumbrances.
The purchase price paid by Futech to Magi shall be payable immediately
at the time of the transfer, and shall be $350,000.00 in cash and $350,000.00 of
Futech stock, valued as of the Contingency Expiration Date. Said Futech stock
shall be unregistered stock subject to all restrictions required by law, and
subject to such reasonable restrictions as are required by Futech's underwriter,
and will be subject to a Registration Rights Agreement in the form of Exhibit
"10.2" attached hereto and hereby made a part hereof. Payment by Futech of said
purchase price shall automatically and without further action constitute a
transfer of the Mark in accordance with this Section, but notwithstanding such
automatic transfer, Magi agrees to execute any and all documents necessary or
appropriate to consummate, or otherwise in connection with, said transfer.
As of the date of this Agreement, and the date the transfer of the Mark
occurs, Magi hereby represents and warrants the following regarding the Mark:
(i) There are no claims pending or threatened by or against
Magi alleging any improper use or infringement by Magi or any
third person relating in any manner to the Mark;
(ii) Magi owns the Mark free and clear of any and all
liabilities or encumbrances of any type or nature, and has the
capacity and authority to transfer the Mark as set forth in
this Section; and
(iii) Magi has sole and exclusive right to use the Mark in the
United States, and has not granted any rights to use the Mark
in any manner to any person or entity.
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<PAGE> 27
The parties acknowledge that Magi has filed applications for U.S. and
Canadian registrations of the Mark, but the applications are pending. Magi
expects registration of the Mark to be completed shortly. If the Mark is not by
the Contingency Expiration Date registered in the U.S. and Canada without
restriction, or is not saleable by Magi to Futech without restriction, then: (i)
Futech shall not be obligated to purchase the Mark as called for herein, and/or
(ii) Futech may elect not to proceed with the transactions identified in this
Agreement, and if Futech so elects not to proceed, the Company shall be
liquidated.
10.3 FUTECH'S CONTRIBUTION TO THE COMPANY OF THE NAME AND LOGO.
Immediately after the transfer of the Mark to Futech as described in Section
10.2 above, and effective automatically upon the consummation of the transfer,
Futech shall contribute the Mark to the Company as an additional capital
contribution. Futech makes no warranty, express or implied, as to the use,
validity or enforceability of the Mark. Futech will transfer to the Company
whatever rights it received from Magi under Section 10.2 above, and only those
rights.
For the sake of convenience, instead of preparing two sets of transfer
papers, transferring the Mark to Futech under Section 10.2 above and then to
this Company under this Section, the transfer papers will transfer the Mark
directly from Magi to this Company.
10.4 COMPANY'S USE OF MAGI ADDRESS AND FACILITIES. The Company shall be
entitled to use Magi's London, England address, telephone number and fax number
in and on identification materials of the Company (for example, letterhead). Any
Company communications received by Magi shall immediately be forwarded to the
Company at the Company's principal place of business as identified in Section
1.4 above. Magi shall further provide the Company's representatives with use of
Magi's London, England facilities, at no cost to the Company, from time to time
to the extent necessary for the business operations of the Company; provided,
however, that said use shall be at the convenience of Magi and Magi shall not
under this provision be obligated to provide any specific facilities at any
specific times, or for any specific amount of time, the intention of the parties
being that, other than the use of the facilities as a mail recipient, the
Company's use of Magi's facilities shall be solely at the convenience and
discretion of Magi.
10.5 CONSULTING AGREEMENT WITH MANMOHAN SINGH BHATIA. Simultaneously
with the execution of this Agreement, the Company and Manmohan Singh Bhatia
shall enter into a Consulting Agreement in the form of "Exhibit 10.5.1" attached
hereto and hereby made a part hereof, and a Confidentiality Agreement in the
form of "Exhibit 10.5.2" attached hereto and hereby made a part hereof, which
Agreements are to become effective immediately after the Contingency Expiration
Date, with compensation and other benefits under the Consulting Agreement
commencing on said effective date. If the Internal Revenue Service or any other
taxing authority determines that Manmohan Singh Bhatia is an employee for tax
purposes and not an independent contractor, then Manmohan Singh Bhatia shall
reimburse the Company for any and all taxes, interest, penalties and other
charges and costs incurred by Company as a result thereof (including but not
limited to legal and accounting fees relating to an audit on said issue), the
parties intending that Manmohan Singh Bhatia is to bear all costs associated
with the
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<PAGE> 28
difference between Manmohan Singh Bhatia being an employee and him being an
independent contractor of Company.
10.6 This Section is reserved.
10.7 CO-PUBLISHING AGREEMENT WITH MAGI FOR U.K. MATERIALS.
Simultaneously with the execution of this Agreement, the Company and Magi shall
enter into a Co-Publishing Agreement in the form of "Exhibit 10.7" attached
hereto and hereby made a part hereof, allowing, among other things, the Company
the right to co-publish with Magi certain U.K. published materials. The
Co-Publishing Agreement includes the 1998 Spring and Fall front list, and its
pricing. Said agreement shall go into effect immediately and automatically on
the Contingency Expiration Date, but not before.
10.8 CO-PUBLISHING AGREEMENT WITH MAGI FOR U.S. MATERIALS.
Simultaneously with the execution of this Agreement, the Company and Magi shall
enter into a Co-Publishing Agreement in the form of "Exhibit 10.8" attached
hereto and hereby made a part hereof, allowing, among other things, Magi the
right to co-publish with the Company certain U.S. published materials. Said
agreement shall go into effect immediately and automatically on the Contingency
Expiration Date, but not before.
10.9 DISTRIBUTION AGREEMENT WITH XYZ. Simultaneously with the execution
of this Agreement, the Company and XYZ Distributors shall enter into a
Distribution Agreement in the form of "Exhibit 10.9" attached hereto and hereby
made a part hereof, calling for, among other things, XYZ Distributors to handle
certain warehousing, distribution and billing for the Company. The Distribution
Agreement includes the 1998 Spring and Fall front list, and its pricing. Said
agreement shall go into effect immediately and automatically on the Contingency
Expiration Date, but not before.
10.10 COMPANY'S OPTION REGARDING FORMATION OF LTP-UK. The intent is for
the Company originally to sell the US materials published by the Company in
Europe using Magi as the distributor (see Section 10.8 above). The parties
hereby agree that the Company shall have the option to do its own distribution
of U.S. materials in Europe or to form, or the Members of this Company may form,
a new entity to accomplish such distribution. If a new company is formed, it
will be formed using governing documents with the same format as those of the
Company, with ownership being 50% in Futech and 50% in Magi, with capital
contributions and loan commitments to be determined by the parties, with Magi to
sell to the operating company, without additional compensation, the right to use
the name "Little Tiger Press" in Europe and elsewhere world-wide, and with no
obligation of the parties currently to agree at the time as to the terms of any
employment agreement for any person.
10.11 POTENTIAL FUTURE MERGER WITH MAGI OPERATIONS. The Members agree
to consider a possible merger of this Company, Magi, the company if any formed
for marketing the Company's U.S. Materials in Europe as described in Section
10.10 above, and other related entities. This provision is merely a statement of
the current intent of the parties to discuss the
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<PAGE> 29
matter, and the Members agree that this provision does not create any binding
obligations on the part of the parties with respect to any such merger, or set
out any terms or conditions relating thereto.
10.12 OVERHEAD REIMBURSEMENT TO FUTECH. The Company shall reimburse
Futech for all direct out-of-pocket costs incurred by Futech in connection with
the Company, including costs incurred in connection with accounting and other
administrative services, and will pay Futech an overhead reimbursement fee equal
to five percent (5%) of said reimbursed costs. Said amounts shall be paid to
Futech monthly within fifteen (15) days after invoiced by Futech.
ARTICLE XI
AMENDMENTS
This Agreement may be amended only in writing, and only by all Members.
ARTICLE XII
OTHER PROVISIONS
12.1 OTHER INTERESTS OF A MEMBER
(a) Notwithstanding any other provision of this Agreement, during the
term of this Agreement as it applies to each Member and for a period of two (2)
years thereafter, no Member shall, without the prior written consent of the
Company and all of the other Members, which consent may be withheld for any
reason, directly or indirectly, own, manage, operate, control, be employed by,
participate in, render services to, make loans to, or be connected in any manner
with the ownership, management, operation, or control of any business conducting
in North America a business publishing hard cover books, soft cover books, board
books, or flap books. (The Company will/may publish other book formats, but Magi
and Futech may also publish those formats). Notwithstanding the foregoing, Magi
and/or Futech may publish any individual book which the Company expressly elects
not to publish.
Notwithstanding any other provision of this Agreement, during the term
of this Agreement as it applies to Futech, and for a period of two (2) years
thereafter, Futech shall not, without the prior written consent Magi, which
consent may be withheld for any reason, directly or indirectly, own, manage,
operate, control, be employed by, participate in, render services to, make loans
to, or be connected in any manner with the ownership, management, operation, or
control of any business conducting in Europe a business publishing hard cover
books, soft cover books, board books, or flap books. Futech will/may publish
other book formats in Europe. Notwithstanding the foregoing, Futech may publish
in Europe any individual book which the Company expressly elects not to publish
there.
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<PAGE> 30
In the event of any actual or threatened breach of the
provisions of this paragraph, any party hereto shall be entitled to an
injunction restraining the actual or threatened breach. The parties further
agree that should any Member violate the provisions of this subparagraph (a),
the violating party: (i) shall be liable to the Company for, in addition to any
amounts pursuant to other remedies available against that party, two (2) times
the greater of the amount of profit earned by the violating party as a result of
the violation and the amount of profit which would have been earned by the
Company from the activities causing the violation had the Company conducted said
activities, plus interest on said greater amount from the date of the violating
activities until paid, as liquidated damages for only the Company's loss of
potential profits; and (ii) shall be in default of this Agreement. Said interest
shall be calculated at the lesser of (i) eighteen percent (18%) per annum, and
(ii) the highest rate of interest permitted by applicable law. Nothing in this
paragraph shall be construed as prohibiting any party from pursuing any other
available remedies for such breach or threatened breach, including pursuing a
recovery for damages. The parties agree that the liquidated damages provisions
set out above do not constitute a penalty, but rather reflect the estimate of
the parties as to the actual damages, including loss of profits, the Company
might or is likely to incur in the event of a violation of the restrictions
appearing herein.
Notwithstanding any other provision of this Agreement, the parties
acknowledge that Magi currently operates a publishing business operating in the
United Kingdom. Magi shall be entitled to operate said business unrestricted by
this Agreement, except that Magi shall not publish in North America in violation
of this Agreement hard cover books, soft cover books, board books, or flap
books. Notwithstanding any other provision of this Agreement, the parties
acknowledge that Futech currently operates a publishing business operating in
the United States. Futech shall be entitled to operate said business
unrestricted by this Agreement, except that Futech shall not publish in North
America in violation of this Agreement hard cover books, soft cover books, board
books, or flap books.
(b) All Members agree that, within ten (10) days after any Member is no
longer a Member of the Company and is no longer employed by the Company, such
Member shall return to the Company all notes, documents, models, samples,
catalogs, price books, customer cards, forms, lists, and invoices received in
connection with the business of the Company, and all other documents and things
relating to the Company, and all copies thereof, along with a complete list of
all accounts and prospective accounts, including names, addresses, persons
contacted, buying habits, and pending transactions.
(c) The parties acknowledge and agree that the restrictions contained
herein, including but not limited to the time period and geographical area
restrictions, are fair and reasonable and necessary for the successful operation
of the Company, that violation of any of them would cause irreparable injury,
and that the restrictions contained herein are not unreasonably restrictive of
any party's ability to earn a living. If the scope of any restriction in this
Section is too broad to permit enforcement of such restriction to its fullest
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and all parties hereto consent and agree that such scope may be modified
judicially or by arbitration in any proceeding brought to
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<PAGE> 31
enforce such restriction. The parties hereto acknowledge and agree that remedies
at law for any breach or violation of the provisions in this Section would alone
be inadequate, and agree and consent that temporary and permanent injunctive
relief may be granted in connection with such violations, without the necessity
of proof of actual damage, and such remedies shall be in addition to other
remedies and rights the parties may have at law or in equity. The parties agree
that no party shall be required to give notice or post any bond in connection
with applying for or obtaining any such injunctive relief.
(d) The parties acknowledge and agree that the covenants in this
Section shall be construed as an agreement independent of any other provision of
this Agreement so that the existence of any claim or cause of action by a Member
against the Company or any other Member, whether predicated on this Section or
otherwise, shall not constitute a defense to the enforcement of this Section.
12.2 PARTITION. The interest of each Member in the Company shall be
personal property for all purposes. All property and interests in property,
whether real or personal, owned by the Company shall be deemed owned by the
Company as an entity, and no Member, individually, shall have any ownership of
such property or interest owned by the Company except as a Member in the
Company. Each of the Members irrevocably waives, during the term of the Company
and during any period of its liquidation following dissolution of the Company,
any right that such Member may have to maintain an action for partition with
respect to any of the assets of the Company.
12.3 NOTICES. All notices, requests, statements, or other
communications required or permitted to be given or furnished hereunder to a
Member or the Company shall be in writing and shall be deemed to have been
properly given and made if hand-delivered or sent by registered or certified
mail, postage prepaid, addressed to the Member (if notice is to the Member) at
the Member's address set forth on the attached Exhibit "A", or at such other
address or addresses as a Member may from time to time designate by notice to
all of the other Members, or the last known address of the Member reflected on
the Company's records, or to the Company (if the notice is to the Company) at
its principal place of business as set forth herein and as subsequently changed,
and shall be deemed effective and sufficiently given or made at the time
delivered or, if mailed, three days after the same is deposited in any post
office or branch post office regularly maintained by the United States
Government. Rejection or other refusal to accept, or the inability to deliver
because of change in address of which no notice was given to the Company, shall
be deemed to be receipt of the notice.
12.4 VALIDITY. If any portion of this Agreement shall be held invalid
or inoperative, then insofar as it is reasonable and possible, the remainder of
this Agreement shall be considered valid and operative, and effect shall be
given to the intent manifested by the portion held invalid or inoperative.
12.5 HEADINGS. The headings of the Articles and Sections in this
Agreement are for convenience of reference only, and shall not affect the
meaning or construction hereof.
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12.6 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the laws of the State of
Arizona, without giving effect to the conflict of laws rules thereof.
12.7 JURISDICTION. The courts of the State of Arizona shall have the
sole and exclusive jurisdiction in any case or controversy arising under this
Agreement or by reason of this Agreement. The parties agree that any litigation
or arbitration arising from the interpretation or enforcement of this Agreement
shall be either in Maricopa County Superior Court or in the United States
Federal District Court for the District of Arizona, and for this purpose each
party to this Agreement (and each person who shall become a party) hereby
expressly and irrevocably consents to the jurisdiction of such courts.
12.8 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and shall be binding upon the parties hereto and their respective heirs,
successors and assigns.
12.9 RIGHTS AND REMEDIES. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any Members
shall not preclude or waive his/her right to use any or all other remedies. The
rights and remedies of the Members under this Agreement shall not be mutually
exclusive. The exercise of one or more of the provisions shall not preclude the
exercise of any of the other provisions of this Agreement. Each of the Members
acknowledges and confirms that the respective rights and obligations of the
Members shall be enforceable by specific performance, injunction or other
equitable remedy. Nothing in this Section is intended to, nor shall it limit any
rights at law or by statute or otherwise of any aggrieved Member as against
another for a breach or threatened breach of any provision of this Agreement.
12.10 WAIVER. No consent or waiver, express or implied, by a Member to
or of any breach or default by any other Member in the performance by such
Member of its obligations under this Agreement shall be deemed or construed to
be a consent or waiver of any other breach or default in the performance by such
Member of the same or any other obligations of such Member. Failure on the part
of a Member to complain of any act or failure to act of another Member or to
declare such Member in default, irrespective of how long such failure continues,
shall not constitute a waiver. The giving of consent by a Member in any one
instance shall not limit or waive the necessity to obtain such Member's consent
in any future instance. No waiver by any Member of any provision or any breach
of any provision of this Agreement shall constitute a waiver of any other
provision or any other or future breach of this Agreement.
12.11 COUNTERPARTS. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original agreement, and all of
which shall constitute one agreement by each of the parties hereto,
notwithstanding that all of the parties are not signatories to the original or
the same counterpart.
12.12 ADDITIONAL ACTS. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably
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<PAGE> 33
require to consummate, evidence, or confirm the agreement contained herein in
the manner contemplated hereby.
12.13 CONSTRUCTION. This Agreement shall be construed in accordance
with its fair meaning, and neither for nor against the drafting party.
12.14 INTEGRATION. This Agreement constitutes the entire agreement
among the Members and supersedes all agreements, representations, warranties,
statements, promises, and understandings, whether oral or written, with respect
to the subject matter of this Agreement. Neither the Company nor any Member
shall be bound by or charged with any oral or written agreements,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement.
12.15 TIME IS OF ESSENCE. Time is expressly made of the essence of each
and every provision of this Agreement.
12.16 CREDITORS. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of the Company.
12.17 ATTORNEYS' FEES AND COSTS. In the event of any litigation or
other proceeding concerning this Agreement, the prevailing party(s) shall be
entitled to recover its costs, reasonable attorneys' fees, and other reasonable
expenses.
12.18 EXPENSES. All expenses incurred by any party to this Agreement in
connection with this transaction, including but not limited to legal expenses
and the cost of any investigations made by the parties, shall be borne by the
party which incurred the expense.
12.19. PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated hereby
will be issued, if at all, at such time and in such manner as Futech determines.
Unless consented to by Futech in advance or required by legal requirements,
prior to the Contingency Expiration Date, Magi shall keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
person.
DATED the date first hereinabove written.
MEMBERS: FUTECH Educational Products, Inc., an
Arizona corporation
By /s/ Vincent W. Goett
------------------------------
Vincent W. Goett, CEO
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Magi Publications, a partnership
By /s/ Mammohan Singh Bhatia
------------------------------
Mammohan Singh Bhatia, Partner
ACCEPTED AND AGREED TO as of the date first
hereinabove written, as Section 10.5 above,
by:
/s/ Mammohan Singh Bhatia
- ------------------------------
Mammohan Singh Bhatia, Partner
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<PAGE> 35
"EXHIBIT 2.1"
To Operating Agreement of Little Tiger Press USA, L.L.C., dated January 5, 1998.
<TABLE>
<CAPTION>
INITIAL CAPITAL
NAME AND ADDRESS NUMBER OF UNITS CONTRIBUTION
- ---------------- --------------- ---------------
<S> <C> <C>
MEMBERS:
Futech Educational Products, Inc. 100,000 $10.00
Attn: Vincent W. Goett
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Magi Publications 100,000 $10.00
Attn: Manmohan Singh Bhatia
22 Manchester Street
London W1M 5PG, England
-------- ------
TOTAL 200,000 $20.00
======== ======
</TABLE>
<PAGE> 36
EXHIBIT 6.4.1
MULTIPLE ADVANCE PROMISSORY NOTE
$500,000.00 As of January 5, 1998
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Little Tiger Press USA, L.L.C.,
a New York limited liability company ("Maker") to the order of Futech
Educational Products, Inc., an Arizona corporation ("Payee").
1. PAYMENT. For value received, Maker promises to pay, as hereinafter
set forth, without offset, such principal sum, up to a maximum of Five Hundred
Thousand Dollars ($500,000.00), as the holder hereof may advance to or for the
benefit of the undersigned, together with interest to the date paid on a daily
basis for the actual number of days any portion of said principal is
outstanding, calculated at the publicly announced prime rate of interest of Bank
One, Arizona, N.A., as such prime rate may be adjusted from time to time during
the time period this loan is outstanding.
Principal and interest are payable in lawful money of the United States
of America at 2999 North 44th Street, Suite 225, Phoenix, Arizona 85018-7247, or
at such other address as the holder hereof may from time to time designate in
writing, interest only payable monthly on the first day of each month,
commencing on the first day of the first calendar month after the date funds are
first advanced under this Note, with the full outstanding principal payment due
and payable in full on December 31, 2002.
If requested by the holder of this Note at any time, Maker shall pay
payments due hereunder by cash, cashiers check, or money order only, and
payments in other forms may, in the holder's discretion, be refused and not
accepted.
All payments hereunder shall be applied first to interest and then to
principal. The unpaid balance of this obligation at any time shall be the total
amount advanced hereunder by the holder(s) hereof plus accrued interest added to
principal, less the amount of payments made hereon by or for Maker, which
balance may be endorsed hereon from time to time by the holder hereof.
Payee agrees to loan Maker amounts requested by Maker from time to time
up to the maximum amount specified in the first paragraph of this Section 1.
2. PREPAYMENT. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
EXHIBIT 6.4.1, PAGE 1 OF 4
<PAGE> 37
3. INTEREST. All interest payable pursuant to this Note shall be
computed on the basis of a 360-day year. In no event shall the aggregate of the
interest herein provided to be paid over the contractual term of the loan exceed
the highest rate to which a borrower and lender may agree in writing under the
laws of the State of Arizona.
4. DEFAULT. If the principal due under this Note, or under any
mortgage, deed of trust, security agreement, or other agreement between Maker
and Payee pertaining to the indebtedness evidenced hereby shall not be paid
within ten (10) days after it first becomes due, or if Maker fails to comply
with all of the other terms and conditions of this Note or any instrument
securing this Note, and such failure shall continue for twenty (20) days after
notice thereof is given to Maker, then the entire principal sum, accrued
interest, and all other amounts due hereunder shall, at the option of Payee,
become immediately due and payable without further notice.
5. COLLECTION COSTS. Maker agrees to reimburse Payee for all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
in the enforcement or collection of this Note or any judgment obtained hereon.
6. WAIVER, CONSENT, ETC. Except as may be expressly provided to the
contrary in this Note, Maker, sureties, guarantors, and endorsers hereof agree
to be jointly and severally bound, severally waive any homestead or exemption
rights against said debt, severally waive diligence, demand, presentment for
payment, protest, protest and demand, notice of protest, notice of nonpayment,
notice of default, notice of acceleration, and all other notices and demands of
any kind. Maker, sureties, guarantors and endorsers hereof hereby severally
consent to the extension of time for payment of this Note or any installment
hereof, any modification hereof, release from liability of any maker, endorser,
or any other person or entity at any time liable for the payment hereof, and the
modification or release of any collateral at any time held as security for this
Note, without notice and without affecting the liability of any maker,
guarantor, surety or endorser. Maker further waives, to the extent permitted by
law, the right to plead any and all statutes of limitations as a defense to any
demand on this Note.
Delay or failure in exercising any of Payee's rights or options
hereunder shall not constitute a waiver thereof, and any waiver of any rights or
options hereunder shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default. By accepting payment of any sum
hereunder after its due date, the holder hereof shall not waive its rights
either to require prompt payment when due of all other sums hereunder or to
declare a default for failure to make prompt payment. No waiver by the holder of
this Note shall be effective unless it is in writing and signed by such holder.
7. SEVERABILITY. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall, to the fullest extent possible, remain in full force
2 EXHIBIT 6.4.1, PAGE 2 OF 4
<PAGE> 38
and effect, and such court shall reform such unenforceable provision so as to
give maximum permissible effect to the intentions of the parties as expressed
therein.
8. SECURITY. As security for Maker's performance under this Note, Maker
hereby grants Payee a security interest in any and all assets now owned or
hereafter acquired by Maker. In the event of default by Maker hereunder, Payee
shall have all rights with respect to such collateral as are available to a
secured party under the Uniform Commercial Code in the State of Arizona, as the
same may from time to time be changed. Maker agrees to execute and deliver to
Payee and pay the costs of recording financing statements evidencing this
security agreement and other documents necessary or appropriate to perfect this
security interest, and Maker hereby irrevocably appoints Payee as Maker's
attorney-in-fact for the purpose of executing and filing said financing
statements. Maker shall reimburse Payee for all reasonable costs associated with
such filings.
9. MISCELLANEOUS. The provisions of this Note shall be binding upon
Maker and Maker's personal representatives, successors and assigns, and shall
inure to the benefit of Payee and Payee's successors and assigns. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of Arizona. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Note or by reason of this Note. The parties agree that any litigation or
arbitration arising from the interpretation or enforcement of this Note shall be
only in either Maricopa County Superior Court or in the United States Federal
District Court for the District of Arizona, and for this purpose each party to
this Note (and each person who shall become a party) hereby expressly and
irrevocably consents to the jurisdiction and venue of such courts. This Note
shall be construed according to its fair meaning and neither for nor against the
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By
------------------------------------
Vincent W. Goett, CEO
By: Magi Publications, a Partnership
By
------------------------------------
Manmohan Singh Bhatia, Partner
3 EXHIBIT 6.4.1, PAGE 3 OF 4
<PAGE> 39
ACCEPTED AND AGREED TO
as of the date first shown above, by
the undersigned Payee:
Futech Educational Products, Inc.,
an Arizona corporation
By
------------------------------------
Vincent W. Goett, CEO
4 EXHIBIT 6.4.1, PAGE 4 OF 4
<PAGE> 40
EXHIBIT 6.4.2
MULTIPLE ADVANCE PROMISSORY NOTE
$500,000.00 As of January 5, 1998
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Little Tiger Press
USA, L.L.C., a New York limited liability company ("Maker") to the order of Magi
Publications, a Partnership ("Payee").
1. PAYMENT. For value received, Maker promises to pay, as hereinafter
set forth, without offset, such principal sum, up to a maximum of Five Hundred
Thousand Dollars ($500,000.00), as the holder hereof may advance to or for the
benefit of the undersigned, together with interest to the date paid on a daily
basis for the actual number of days any portion of said principal is
outstanding, calculated at the publicly announce prime rate of interest of Bank
One, Arizona, N.A., as such prime rate may be adjusted from time to time during
the time period this loan is outstanding.
Principal and interest are payable in lawful money of the United States
of America at 22 Manchester Street, London W1M 5PG, England, or at such other
address as the holder hereof may from time to time designate in writing,
interest only payable monthly on the first day of each month, commencing on the
first day of the first calendar month after the date funds are first advanced
under this Note, with the full outstanding principal payment due and payable in
full on December 31, 2002.
If requested by the holder of this Note at any time, Maker shall pay
payments due hereunder by cash, cashiers check, or money order only, and
payments in other forms may, in the holder's discretion, be refused and not
accepted.
All payments hereunder shall be applied first to interest and then to
principal. The unpaid balance of this obligation at any time shall be the total
amount advanced hereunder by the holder(s) hereof plus accrued interest added to
principal, less the amount of payments made hereon by or for Maker, which
balance may be endorsed hereon from time to time by the holder hereof.
Payee agrees to loan Maker amounts requested by Maker from time to time
up to the maximum amount specified in the first paragraph of this Section 1.
2. PREPAYMENT. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
EXHIBIT 6.4.2. PAGE 1 OF 4
<PAGE> 41
3. INTEREST. All interest payable pursuant to this Note shall be
computed on the basis of a 360-day year. In no event shall the aggregate of the
interest herein provided to be paid over the contractual term of the loan exceed
the highest rate to which a borrower and lender may agree in writing under the
laws of the State of Arizona.
4. DEFAULT. If the principal due under this Note, or under any
mortgage, deed of trust, security agreement, or other agreement between Maker
and Payee pertaining to the indebtedness evidenced hereby shall not be paid
within ten (10) days after it first becomes due, or if Maker fails to comply
with all of the other terms and conditions of this Note or any instrument
securing this Note, and such failure shall continue for twenty (20) days after
notice thereof is given to Maker, then the entire principal sum, accrued
interest, and all other amounts due hereunder shall, at the option of Payee,
become immediately due and payable without further notice.
5. COLLECTION COSTS. Maker agrees to reimburse Payee for all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
in the enforcement or collection of this Note or any judgment obtained hereon.
6. WAIVER, CONSENT, ETC. Except as may be expressly provided to the
contrary in this Note, Maker, sureties, guarantors, and endorsers hereof agree
to be jointly and severally bound, severally waive any homestead or exemption
rights against said debt, severally waive diligence, demand, presentment for
payment, protest, protest and demand, notice of protest, notice of nonpayment,
notice of default, notice of acceleration, and all other notices and demands of
any kind. Maker, sureties, guarantors and endorsers hereof hereby severally
consent to the extension of time for payment of this Note or any installment
hereof, any modification hereof, release from liability of any maker, endorser,
or any other person or entity at any time liable for the payment hereof, and the
modification or release of any collateral at any time held as security for this
Note, without notice and without affecting the liability of any maker,
guarantor, surety or endorser. Maker further waives, to the extent permitted by
law, the right to plead any and all statutes of limitations as a defense to any
demand on this Note.
Delay or failure in exercising any of Payee's rights or options
hereunder shall not constitute a waiver thereof, and any waiver of any rights or
options hereunder shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default. By accepting payment of any sum
hereunder after its due date, the holder hereof shall not waive its rights
either to require prompt payment when due of all other sums hereunder or to
declare a default for failure to make prompt payment. No waiver by the holder of
this Note shall be effective unless it is in writing and signed by such holder.
7. SEVERABILITY. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall, to the fullest extent possible, remain in full force
2 EXHIBIT 6.4.2, PAGE 2 OF 4
<PAGE> 42
and effect, and such court shall reform such unenforceable provision so as to
give maximum permissible effect to the intentions of the parties as expressed
therein.
8. SECURITY. As security for Maker's performance under this Note, Maker
hereby grants Payee a security interest in any and all assets now owned or
hereafter acquired by Maker. In the event of default by Maker hereunder, Payee
shall have all rights with respect to such collateral as are available to a
secured party under the Uniform Commercial Code in the State of Arizona, as the
same may from time to time be changed. Maker agrees to execute and deliver to
Payee and pay the costs of recording financing statements evidencing this
security agreement and other documents necessary or appropriate to perfect this
security interest, and Maker hereby irrevocably appoints Payee as Maker's
attorney-in-fact for the purpose of executing and filing said financing
statements. Maker shall reimburse Payee for all reasonable costs associated with
such filings.
9. MISCELLANEOUS. The provisions of this Note shall be binding upon
Maker and Maker's personal representatives, successors and assigns, and shall
inure to the benefit of Payee and Payee's successors and assigns. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of Arizona. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Note or by reason of this Note. The parties agree that any litigation or
arbitration arising from the interpretation or enforcement of this Note shall be
only in either Maricopa County Superior Court or in the United States Federal
District Court for the District of Arizona, and for this purpose each party to
this Note (and each person who shall become a party) hereby expressly and
irrevocably consents to the jurisdiction and venue of such courts. This Note
shall be construed according to its fair meaning and neither for nor against the
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By
------------------------------------
Vincent W. Goett, CEO
By: Magi Publications, a Partnership
By
------------------------------------
Manmohan Singh Bhatia, Partner
3 EXHIBIT 6.4.2, PAGE 3 OF 4
<PAGE> 43
ACCEPTED AND AGREED TO
as of the date first shown above, by
the undersigned Payee:
Magi Publications, a Partnership
By
------------------------------------
Manmohan Singh Bhatia, Partner
4 Exhibit 6.4.2. PAGE 4 OF 4
<PAGE> 44
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), which shall be
effective as of January 5, 1998, is by and between Futech Educational Products,
Inc., an Arizona corporation (the "Company"), and Manmohan Singh Bhatia (the
"Shareholder");
RECITALS:
A. The Company and Magi Publications, a partnership ("MAGI") are
members of Little Tiger Press USA, LLC, a New York limited liability company
governed by an Operating Agreement dated January 5, 1998 (the "Operating
Agreement").
B. Pursuant to the Operating Agreement, Magi is acquiring shares of the
Company's common stock, no par value.
C. Shareholder shall acquire the shares from Magi as partner of Magi.
D. The shares of the Company's common stock which will or may be issued
pursuant to the Operating Agreement, as described in Recital B, are referred to
in this Agreement as the "Common Stock."
E. The Common Stock will not be registered under the Securities Act of
1933, as amended, or under the securities laws of any state, in reliance upon
exemptions from registration thereunder.
In consideration of the mutual covenants and obligations hereinafter
set forth, the Company and the Shareholder, hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the terms listed in
this Section shall have the meanings set forth below:
(a) "Affiliate" of any Person means any other Person who
either directly or indirectly is in control of, is controlled by or is under
common control with such Person; provided that for purposes of this definition
an investment entity shall be deemed to be controlled by its investment manager,
investment advisor or general partner.
(b) "Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of Phoenix are authorized by law, regulation or executive order to close.
(c) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
Exhibit 10.2, page 1 of 12
<PAGE> 45
(d) "Holder" shall mean the Shareholder and his successors,
assigns and transferees (subject to Section 10 hereof). For purposes of this
Agreement, the Company may deem the registered holder of a Registrable Security
as the Holder thereof (subject to Section 10 hereof).
(e) "Person" shall mean an individual, partnership,
corporation, limited liability company, joint venture, trust or unincorporated
organization, a government or agency or political subdivision thereof or any
other entity.
(f) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference in such prospectus.
(g) "Registrable Securities" shall mean (i) all shares of
Common Stock issued or issuable to the Shareholder pursuant to the Asset
Purchase Agreement as further described in Recital Section B; and (ii) any other
securities issued as a result of or in connection with any stock dividend, stock
split or reverse stock split, combination, recapitalization, reclassification,
merger or consolidation, exchange or distribution in respect of the shares of
Common Stock referred in to (i) above.
(h) "Registration Expenses" shall have the meaning set forth
in Section 6 hereof.
(i) "Registration Statement" shall mean any registration
statement which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein, all
amendments and supplements to such Registration Statement including post
effective amendments, all exhibits and all material incorporated by reference in
such Registration Statement.
(j) "Registration Termination Date" shall mean the earlier to
occur of (i) the date that is five years following the date hereof or (ii) the
first date upon which the Registrable Securities may be sold without limitation
under Rule 144 under the Securities Act (as such Rule may be amended from time
to time), other than the limitations set forth in paragraphs (c), (f) and (h) of
such Rule, as determined by the opinion of counsel to the Company (which shall
be reasonably satisfactory to counsel to the Holders).
(k) "SEC" shall mean the U.S. Securities and Exchange
Commission, or any other U.S. federal agency at the time administering the
Securities Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
Exhibit 10.2, Page 2 of 12
<PAGE> 46
(m) "Underwritten Offering" shall mean an offering that is
registered under the Securities Act in which securities of the Company are sold
pursuant to a firm commitment underwriting, to an underwriter at a fixed price
for reoffering to the public or pursuant to agency or best efforts arrangements
with an underwriter.
SECTION 2. Securities Subject to this Agreement. The Registrable
Securities are entitled to the benefits of this Agreement.
SECTION 3. Demand Registration
(a) Demand Registration (i) Upon the written request of
Holders owning not less than 50% of the Registrable Securities (excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act), and provided that
there is then no effective Registration Statement in effect with respect to such
Registrable Securities, the Company will effect, in accordance with the terms of
this Agreement, the registration under the Securities Act of the Registrable
Securities which the Company has been so requested to register by such Holders,
subject to Section 3(c) hereof; provided that the number of securities requested
to be so registered shall be not less than 50% of the Registrable Securities
held by such requesting Holders. NO SUCH REQUEST MAY BE MADE PRIOR TO AN INITIAL
PUBLIC OFFERING OF THE COMPANY'S SECURITIES AND EARLIER THAN ONE YEAR AFTER THE
ACQUISITION OF THE COMMON STOCK BY THE HOLDER PURSUANT TO THE TERMS OF THE ASSET
PURCHASE AGREEMENT (THE "DEMAND COMMENCEMENT DATE"). In addition, no such
request shall be made during the 90-day period following the completion of any
Underwritten Offering of the Company's shares of Common Stock and no such
request shall be made to include any Registrable Securities in an initial public
offering of securities of the Company. The Company shall not be obligated to
effect more than two demand registrations pursuant to this Section 3, provided
that the Company shall not be required to effect registrations on a form other
than a Form S-3 (or any successor to such form).
(ii) Expenses. The Company shall pay all Registration
Expenses with respect to any demand registration pursuant to this Section 3.
(b) Effectiveness of Registration Statement. The Company agrees
to use its best efforts to (i) cause the Registration Statement relating to any
demand registration pursuant to this Section 3 to become effective under the
Securities Act as promptly as practicable (ii) thereafter keep such Registration
Statement effective continuously for the period specified in the next succeeding
paragraph; and (iii) prevent the happening of any event of the kinds described
in clauses (4) or (5) of Section 5(a)(ii) hereof.
A demand registration requested pursuant to this Section 3 will
not be deemed to have been effected unless the Registration Statement relating
thereto has become effective under the Securities Act and remain continuously
effective (except as otherwise permitted under this Agreement) for a period
ending on the earlier of:
Exhibit 10.2, Page 3 of 12
<PAGE> 47
(A) in the case of a Registration Statement on Form S-3
(subject to Section 5(c) below), the Registration
Termination Date; or
(B) the date on which all Registrable Securities covered by
such Registration Statement have been sold and the
distribution contemplated thereby has been completed.
(c) Inclusion of Other Securities. The Company, and any
other holder of the Company's securities that has registration rights, may
include its securities in any demand registration effected pursuant to this
Section 3; provided, however, that if the managing underwriter or underwriters
of any Underwritten Offering contemplated thereby advise the Holders in writing
that the total amount or kind of securities which such Holder, the Company or
any such other holder intends to include in such proposed public offering is
sufficiently large to affect the success of the proposed public offering
requested by the Holder or Holders materially and adversely, then the amount or
kind of securities to be offered for the account of the Company or any such
other holder shall be reduced to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters.
(d) Form. Registrations under this Section 3 will be on a
form permitted by the rules and regulations of the SEC selected by the Company;
provided, however, the Company may use Form S-3 if at the time of filing such
Registration Statement the Company is eligible to use such Form.
(e) Manner of Sale. The Company may (but shall have no
obligation to) cause any Registrable Securities that are the subject of a demand
registration pursuant to this Section 3 to be sold in an Underwritten Offering
in which event the Company shall have the right to designate the managing
underwriter or underwriters thereof (which shall be reasonably satisfactory to
the Holders whose Registrable Securities are the subject of such demand
registration).
SECTION 4. Piggyback Registration.
(a) Piggyback Registration. If the Company at any time
proposes to file a registration statement with respect to any class of equity
securities, whether for its own account (other than a registration statement on
Form S-4 or S-8, or any successor or substantially similar form or a
registration statement covering (i) an employee stock option, stock purchase or
compensation plan or securities issued or issuable pursuant to any such plan or
(ii) a dividend reinvestment plan) or for the account of a holder of securities
of the Company pursuant to registration rights granted by the Company (a
"Requesting Securityholder"), then the Company shall in each case give written
notice of such proposed filing to all Holders of Registrable Securities at least
20 Business Days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all
Exhibit 10.2, page 4 of 12
<PAGE> 48
Holders the opportunity to have any or all of the Registrable Securities held by
such Holders included in such registration statement. Each Holder of Registrable
Securities desiring to have his Registrable Securities registered under this
Section 4 shall so advise the Company in writing within 10 Business Days after
the date of receipt of such notice (which request shall set forth the amount of
Registrable Securities for which registration is requested), and the Company
shall include in such Registration Statement all such Registrable Securities so
requested to be included therein; provided, however, that if such Registration
Statement is for an Underwritten Offering, the Holders of Registrable Securities
included therein shall join in the underwriting on the same terms and conditions
as the Company or the requesting Securityholders except that the Holders of
Registrable Securities shall not be required to give any representations and
warranties relating to the Company, and shall execute any underwriting
agreement, "lock-up" letters or other customary agreements or documents executed
by the Company or the Requesting Securityholders, in connection therewith.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
any such proposed public offering advise the Holders in writing that the total
amount or kind of securities which the Holders of Registrable Securities, the
Company, the Requesting Securityholders and any other Persons intended to be
included in such proposed public offering is sufficiently large to affect the
success of such proposed public offering materially and adversely, then the
amount or kind of securities to be offered for the accounts of the Holders of
Registrable Securities shall be reduced pro rata, together with the amount or
kind of securities to be offered for the accounts of any other Persons
requesting registration of securities pursuant to rights similar to the rights
of the Holders under this Section 4, to the extent necessary to reduce the total
amount or kind of securities to be included in such proposed public offering to
the amount or kind recommended by such managing underwriter or underwriters
before the securities offered by the Company or any Requesting Securityholder
are so reduced. Notwithstanding the foregoing, however, the Holders shall have
no right to include any Registrable Securities in an initial public offering of
Company's securities.
(b) No Obligation. Neither the giving of notice by the
Company nor any request by the Holders to register Registrable Securities
pursuant to Section 4(a) shall in any way obligate the Company to file any such
Registration Statement. The Company may, at any time prior to the effective date
thereof, determine not to offer the securities to which Registration Statement
relates and/or withdraw the Registration Statement from the SEC, without
liability of the Company to the Holders.
SECTION 5. Registration Procedures and Other Agreements.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 and, to the extent applicable thereto, Section
4 hereof, the Company will:
(i) prepare and file with the SEC a new Registration
Statement or such amendments and post-effective amendments to an existing
Offering Registration
Exhibit 10.2, Page 5 of 12
<PAGE> 49
Statement as may be necessary to keep such Registration Statement effective as
set forth in Section 3(b); provided, however, that no Registration Statement
shall be required to remain in effect after all Registrable Securities covered
by such Registration Statement have been sold and distributed as contemplated by
such Registration Statement;
(ii) notify each selling Holder promptly (1) when a
new Registration Statement, amendment thereto, Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to any
new Registration Statement or post-effective amendment, when it has become
effective, (2) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional information, (3) of the
issuance by the SEC of any comments with respect to any filing, (4) of any stop
order suspending the effectiveness of any Registration Statement or the
initiation or threatening of any proceedings for such purpose, (5) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (6) of the happening of any event which makes any statement of a
material fact made in any Registration Statement, Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in any Registration Statement, Prospectus or any document incorporated
therein by reference in order to make the statements therein (in the case of any
Prospectus, in the light of the circumstances under which they were made) not
misleading; and make every reasonable effort to obtain as promptly as
practicable the withdrawal of any order or other action suspending the
effectiveness of any Registration Statement or suspending the qualification or
registration (or exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(iii) furnish to each selling Holder, without charge,
at least one manually signed or "edgarized" copy and as many conformed copies as
may reasonable be requested, of the then effective Registration Statement and
any post-effective amendment thereto, and one copy of all financial statements
and schedules, all documents incorporated therein by reference and all exhibits
thereto (including those incorporated by reference);
(iv) deliver to each selling Holder, without charge,
as many copies of the then effective Prospectus (including each prospectus
subject to completion) and any amendments or supplements thereto as such Holder
may reasonably request;
(v) use its best efforts to register or qualify under
the securities or blue sky laws of such jurisdictions as the selling Holders
reasonably request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the then effective Registration Statement;
provided, however, that the Company will not be required to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, or (y) subject itself to general taxation in any such jurisdiction, or
(z) register or qualify such Registrable Securities under the securities or blue
sky laws of any jurisdiction in which the Company does not then maintain a
currently effective registration or qualification of any of its securities;
Exhibit 10.2, Page 6 of 12
<PAGE> 50
(vi) upon the occurrence of any event contemplated by
clause (6) of Section 5(a)(ii) hereof, as promptly as practicable (in light of
the circumstances causing the occurrence of such event) prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in the light of the circumstances under which they were made, not misleading;
(vii) use reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on each securities
exchange (or quotation system operated by a national securities association) on
which identical securities issued by the Company are then listed, and enter into
customary agreements including, if necessary, a listing application and
indemnification agreement in customary form;
(viii) if the registration is in connection with an
Underwritten Offering, enter into an underwriting agreement with respect to the
Registrable Securities, which agreement shall contain provisions that are
customary in connection with underwritten secondary offerings, including
representations and warranties, opinions of counsel, letters of accountants and
indemnification provisions with underwriters that acquire Registrable
Securities;
(ix) otherwise use its best efforts to comply in all
material respects with all applicable rules and regulations of the SEC relating
to such registration and the distribution of the securities being offered and
make generally available to its securities holders earnings statements
satisfying the provisions of Section 11 (a) of the Securities Act and complying
with Rule 158 of the SEC thereunder;
(x) cooperate and assist in any filings required to be
made with the National Association of Securities Dealers, Inc.; and
(xi) make available for inspection by a representative
of selling Holders and any attorney or accountant retained by such selling
Holders, all financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors and
employees to supply all information reasonably requested by, and to cooperate
fully with, any such representative, underwriter, attorney or accountant in
connection with such registration, and otherwise to cooperate fully in
connection with any due diligence investigation; provided that such
representatives, underwriters, attorneys or accountants enter into a
confidentiality agreement in form and substance reasonably satisfactory to the
Company, prior to the release or disclosure to them of any such information,
records or documents.
Exhibit 10.2, Page 7 of 12
<PAGE> 51
(b) Each selling Holder shall furnish to the Company, upon
request, in writing such information and documents as, in the opinion of counsel
to the Company may be reasonably required to prepare properly and file such
Registration Statement in accordance with the applicable provisions of the
Securities Act.
SECTION 6. Registration Expenses. All expenses incident to the Company
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of one
counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of counsel retained by the Holders (which
counsel shall be reasonably satisfactory to the Company), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants (including the expenses
of any special audit or "comfort" letters required by or incident to such
performance or compliance), securities acts liability insurance (if the Company
elects to obtain such insurance), fees and expenses of any special experts
retained by the Company in connection with any registration hereunder and the
fees and expenses of any other Person retained by the Company (all such fees and
expenses being referred to as "Registration Expenses"), shall be borne by the
Company, whether or not any Registration Statement becomes effective.
SECTION 7. Suspension of Sales under Certain Circumstances.
(a) Upon receipt of any notice from the Company that
dispositions under the then current Prospectus must be discontinued and
suspended, whether as a result of an event described in Section 5(a)(ii)(4),(5)
or (6) hereof or otherwise, each Holder will forthwith discontinue and suspend
disposition of Registrable Securities pursuant to such Prospectus until (i) the
Holders are advised in writing by the Company that a new Registration Statement
covering the offer of Registrable Securities has become effective under the
Securities Act, or (ii) the Holders receive copies of a supplemented or amended
Prospectus contemplated by Section 5(a) hereof, or (iii) the Holders are advised
in writing by the Company that the use of the Prospectus may be resumed.
(b) If at any time following the date hereof any of the
Company's shares of Common Stock are to be sold pursuant to an Underwritten
Offering, then for the period commencing 45 days prior to, and expiring 180 days
after, the effective date of such Underwritten Offering, none of the Holders
will effect any public sale or distribution of any Registrable Securities or any
other shares of Common Stock of the Company then owned by such Holders, other
than pursuant to such Underwritten Offering (if any Registrable Securities are
included in such Underwritten Offering).
Exhibit 10.2, Page 8 of 12
<PAGE> 52
SECTION 8. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, but without
duplication, each Holder of Registrable Securities, any their respective
officers and directors, if any, and each Person who controls such Holder within
the meaning of the Securities Act, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) resulting from any untrue statement of a
material fact in, or any omission of a material fact required to be stated in,
any Registration Statement or in any preliminary or final Prospectus, or any
amendment or supplement thereto, or necessary to make the statements therein (in
the case of a Prospectus in light of the circumstances under which they were
made) not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by any Holder or any
underwriter expressly for use therein; provided that the Company will not be
liable pursuant to this Section 8(a) if such losses, claims, damages,
liabilities or expenses have been caused by the failure of any selling Holder to
deliver a copy of the Registration Statement or Prospectus, or any amendments or
supplements thereto, after the Company has furnished such copies to such Holder.
(b) Indemnification by the Holders of Registrable Securities.
In connection with any Registration Statement covering Registrable Securities of
any Holder, such Holder will furnish to the Company in writing such information
as the Company reasonably requests for use in connection with any such
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, but without duplication, the Company, its
officers, directors, shareholders, employees, advisors and agents, and each
Person who controls the Company (within the meaning of the Securities Act),
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of a material fact in, or any omission of a material fact
required to be stated in, the Registration Statement or in any preliminary or
final Prospectus, or any amendment or supplement thereto, or necessary to make
the statements therein (in the case of a Prospectus in light of the
circumstances under which they were made) not misleading, but only to the extent
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
therein. If the offering to which the Registration Statement relates is an
Underwritten Offering, each Holder agrees to enter into an underwriting
agreement in customary form with such underwriters and to indemnify such
underwriters, their officers and directors, if any, and each Person who controls
such underwriters within the meaning of the Securities Act to the same extent as
hereinabove provided with respect to indemnification by such Holder of the
Company.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified
Exhibit 10.2, page 9 of 12
<PAGE> 53
party; provided, however, that any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in, but not
control, the defense of such claim, but the fees and expenses of such counsel
shall be at the expense of such indemnified Person, unless (A) the indemnifying
party shall have failed to assume the defense of such claim and employ counsel
reasonably, satisfactory to the indemnified party in a timely manner, or (B) in
the reasonable judgment of any such Person, based upon written advice of its
counsel, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing, that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of any such claim as to
which such conflict of interest may exist). The indemnifying party will not be
subject to any liability for any settlement made without its consent. No
indemnified party will be required to consent to the entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of the claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, as well as one local counsel in each relevant jurisdiction.
(d) Contribution. If for any reason the indemnification
provided for in Section 8(a) or 8(b) hereof is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by Sections 8(a) and
8(b) hereof, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
SECTION 9. Current Public Information. The Company agrees that
it will file all reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the SEC thereunder
(or, if it ceases to be required to file such reports, it will, upon the request
of Holders owning not less than 51 % of the Registrable Securities [excluding
any Registrable Securities that have previously been sold pursuant to a
Registration Statement hereunder or Rule 144 under the Securities Act], make
publicly available other information), and it will take such further action as
may reasonably be required, in each case to the extent required from time to
time to enable the Holders to sell Registrable Securities without registration
under the Securities Act within the limitations of the applicable exemptions
provided by (x) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (y) any similar regulation hereinafter adopted by the SEC.
Exhibit 10.2, Page 10 of 12
<PAGE> 54
SECTION 10. No Inconsistent Agreements. The Company has not previously
entered into and shall not in the future enter into any agreement, arrangement
or understanding with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
SECTION 11. Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of (a) the Company and (b) the Holders owning not less than 51% of the
Registrable Securities (excluding any Registrable Securities that have
previously been sold pursuant to a Registration Statement hereunder or Rule 144
under the Securities Act).
SECTION 12. Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile, or air-courier guaranteeing overnight delivery:
(a) If to a Holder of Registrable Securities, at the most
current address for such Holder, as it appears on the books of the Company; and
(b) If to the Company: Futech Educational Products, Inc., 2999
North 44TH Street, Suite 225, Phoenix, Arizona 85018, Attention: Chief Executive
Officer; facsimile no. 808-9863, or at such other address as may be designated
from time to time by notice given in accordance with the provisions of this
Section 11.
All such notices and other communications shall be deemed to
have been delivered and received (i) in the case of personal delivery or
facsimile, on the date of such delivery, (ii) in the case of air courier, on the
Business Day after the date when sent, and (iii) in the case of mailing, on the
fifth Business Day following such mailing.
SECTION 13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, transferees and assigns of the
parties hereto; provided, however, that (a) no transferee in any transfer made
in reliance on Rule 144 under the Securities Act shall have any rights as a
Holder under this Agreement; and (b) no Person to whom the Registrable
Securities are transferred shall have any rights under this Agreement as a
Holder unless such Person agrees to be bound by the terms and conditions of this
Agreement.
SECTION 14. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
SECTION 15. Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Arizona without reference to principles of conflict of
laws. The parties to this Agreement
Exhibit 10.2, Page 11 of 12
<PAGE> 55
hereby consent to the jurisdiction in personam of the Superior Court of the
State of Arizona, in and for the County of Maricopa or of the United States
District Court for the District of Arizona, in any legal proceeding to enforce
any obligations under this Agreement, and agree that venue in Maricopa County is
not inconvenient.
SECTION 16. Construction. The Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. All terms used in one number or
gender shall be construed to include any other number or gender as the context
may require. Whenever the words "include," "includes," or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 17. Entire Agreement. This Agreement, together with any other
documents and certificates delivered hereunder and the Asset Purchase Agreement,
state the entire agreement of the Company and the Shareholder with respect to
the subject matter hereof, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties and
agreements which have induced this Agreement.
IN WITNESS WHEREOF, the Company and the Shareholder have duly executed
and delivered this agreement as of the date written above.
SHAREHOLDER:
---------------------------------------
FUTECH EDUCATIONAL PRODUCTS, INC.
By:
------------------------------------
Name:
-----------------------------
Title:
-----------------------------
Exhibit 10.2, Page 12 of 12
<PAGE> 56
EXHIBIT 10.5.1
CONSULTING AGREEMENT
This Agreement, dated January 5, 1998, is made by and between Manmohan Singh
Bhatia ("Consultant") and Little Tiger Press USA, L.L.C., a New York limited
liability company ("Company").
1. APPOINTMENT; DUTIES. Company hereby hires and appoints Consultant
for the performance of services in connection with the publishing by Company of
certain materials to be published by Company, and Consultant hereby accepts such
appointment from Company, during the term of this Agreement, upon the terms and
subject to the conditions set forth below. Consultant shall supervise and as
necessary perform, manage and administer all aspects of Company's publishing
operations. Consultant's duties shall be subject to the direction and control of
the Management Committee of Company. Notwithstanding the foregoing, and not in
limitation of the generality of the foregoing, Consultant's duties shall include
establishing a Chicago office for Company, and substantial efforts toward the
development of United States publication titles to be released in the Spring of
1999.
2. ACTIVITIES RELATING TO THE COMPANY'S BUSINESS. At all times during
the term of this Agreement, Consultant shall devote that portion of his
energies, interest, abilities and productive time to the performance of his
duties and responsibilities hereunder as necessary or appropriate for the
efficient and successful operation of the business of Company. During the term
of this Agreement, and for a period of two (2) years thereafter, Consultant
shall not, without the prior written consent of Company, which consent may be
withheld for any or no reason, directly or indirectly, own, manage, operate,
control, be employed by, participate in, render services to, make loans to, or
be connected in any manner with the ownership, management, operation, or control
of any business operation located in North America, or any other country in
which Company, or any of its subsidiaries, does business or intends to do
business, which business operation publishes hard cover books, soft cover books,
board books, or flap books.
In the event of any actual or threatened breach of the provisions of
this Section, Company shall be entitled to an injunction restraining the actual
or threatened breach. The parties further agree that should Consultant violate
the provisions of this Section, Consultant shall be liable to Company for, in
addition to any amounts pursuant to other remedies available against Consultant,
two (2) times the greater of the amount of profit earned by Consultant as a
result of the violation and the amount of profit which would have been earned by
Company from the activities causing the violation had Company conducted said
activities, plus interest on said greater amount from the date of the violating
activities until paid, as liquidated damages for only Company's loss of
potential profits. Said interest shall be calculated at the lesser of: (i)
eighteen percent (18%) per annum, and (ii) the highest rate of interest
permitted by applicable law. Nothing in this Section shall be construed as
prohibiting Company from pursuing any other available remedies for such breach
or threatened breach, including pursuing a recovery for damages. The parties
agree that the liquidated damages provisions set out above do not
EXHIBIT 10.5.1, PAGE 1 OF 7
<PAGE> 57
constitute a penalty, but rather reflect the estimate of the parties as to the
actual damages, including loss of profits, Company might or is likely to incur
in the event of a violation of the restrictions appearing herein.
Consultant shall not, during the term of this Agreement and for a
period of two (2) years thereafter, without the prior written consent of
Company, which consent may be withheld for any reason, directly or indirectly
induce, encourage or solicit or assist any person who was or is employed
(whether as employee or as independent contractor) by Company, during the time
period described above in this sentence, to leave Company's employ. If
Consultant has any control over, or responsibility with respect to, the hiring
of employees, agents or consultants at any facility or with any other employer,
Consultant shall do everything in Consultant's power to preclude the hiring of
or retention by such other employer or facility of any individual who was
employed by Company during the period of time described in the beginning of the
proceeding sentence.
Consultant acknowledges and agrees that the restrictions contained in
this Agreement, including but not limited to time period, scope, and
geographical area restrictions, are fair and reasonable and necessary for the
successful operation of Company, that violation of any of them would cause
irreparable injury, and that the restrictions contained herein are not
unreasonably restrictive of Consultant's ability to earn a living. If the scope
of any restriction in this Section is too broad to permit enforcement of such
restriction to its fullest extent, then such restriction shall be enforced to
the maximum extent permitted by law, and the parties hereto consent and agree
that such scope may be modified judicially or by arbitration in any proceeding
brought to enforce such restriction. Consultant acknowledges and agrees that
remedies at law for any breach or violation of the provisions of this Section
would alone be inadequate, and agrees and consents that temporary and permanent
injunctive relief may be granted in connection with such violations, without the
necessity of proof of actual damage, and such remedies shall be in addition to
other remedies and rights Company may have at law or in equity. Consultant
agrees that Company shall not be required to give notice or post any bond in
connection with applying for or obtaining any such injunctive relief.
The parties acknowledge and agree that the covenants in this Section
shall be construed as an agreement independent of any other provision of this
Agreement so that the existence of any claim or cause of action by Consultant
against Company, whether predicated on this Section or otherwise, shall not
constitute a defense to the enforcement of this Section.
This Agreement was specifically bargained for as a material portion of
the formation of Company. Consultant is an owner of Company. The consideration
includes, without limitation, the financial benefits received by Consultant from
said formation.
3. CONFIDENTIALITY AGREEMENTS. The obligations of the Consultant and
the rights of Company set forth herein are in addition to those set forth in a
certain Confidentiality Agreement executed by Consultant (the "Confidentiality
Agreement").
2 EXHIBIT 10.5.1, PAGE 2 OF 7
<PAGE> 58
4. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants
to and covenants with Company that: (a) he has furnished to Company a true and
correct copy of any agreements with any prior Company in the securities industry
and is subject to no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or any rights of Company hereunder or under the Confidentiality
Agreement, (b) upon information and belief, there are no regulatory,
self-regulatory, administrative, civil or criminal matters past or present,
affecting the employment of Consultant by Company.
5. COMPENSATION.
(a) Consultant will receive annual compensation of $100,000
(the "Base Compensation") for each year during the term of this Agreement. Such
compensation shall be payable in equal periodic installments not less frequently
than monthly.
(b) Consultant shall be entitled to additional compensation as
follows if the performance criteria set forth below are satisfied:
(i) If the Gross Sales (defined below) of the Company for
the calendar year 1998 exceed $2,000,000.00, then Consultant
shall, if Consultant is employed by Company under this
Agreement on December 31, 1998, be entitled to be paid (by
January 31, 1999) an amount equal to six percent (6%) of the
amount by which said Gross Sales exceed $2,000,000.00. For
example, if said Gross Sales are $2,100,000.00, then the
payment would be $6,000.00.
(ii) If the Gross Sales (defined below) of the Company for
the calendar year 1999 exceed $2,000,000.00, then Consultant
shall, if Consultant is employed by Company under this
Agreement on December 31, 1999, be entitled to be paid (by
January 31, 2000) an amount equal to three percent (3%) of the
amount by which said Gross Sales exceed $2,000,000.00. For
example, if said Gross Sales are $2,100,000.00, then the
payment would be $3,000.00.
In addition to the foregoing, if the Gross Sales of the
Company for the calendar year 1999 exceed $3,000,000.00, then
Consultant shall, if Consultant is employed by Company under
this Agreement on December 31, 1999, receive (by January 31,
2000) additional compensation in the amount of $100,000.00.
(iii) If the Gross Sales (defined below) of the Company for
the calendar year 2000 exceed the Gross Sales for the calendar
year 1999, then Consultant shall, if Consultant is employed by
Company under this Agreement on December 31, 2000, be entitled
to be paid (by January 31, 2001) an amount equal to three
percent (3%) of the excess of the Gross Sales for calendar
year 2000 over the Gross Sales for the calendar year 1999. For
example, if the Gross Sales for the year 2000 are
$3,000,000.00, and the Gross Sales for 1999 were 2,600,000.00,
3 EXHIBIT 10.5.1, PAGE 3 OF 7
<PAGE> 59
then the payment would be $12,000.00.
In addition to the foregoing, if the Gross Sales of the
Company for the calendar year 2000 exceed $4,000,000.00, then
Consultant shall, if Consultant is employed by Company under
this Agreement on December 31, 2000, receive (by January 31,
2001) additional compensation in the amount of $150,000.00.
The term "Gross Sales" as used herein shall mean gross sales minus all
returns and allowances, calculated on an accrual basis.
6. REIMBURSEMENTS. Company shall pay or reimburse Consultant for all
out-of-pocket expenses for travel, meals, hotel accommodations and the like
reasonably incurred by him in accordance with Company's policies and directives
(including any required prior approvals) for such expenses in connection with
the performance of Company's business, each such payment for reimbursement to be
made upon submission of a statement and evidence documenting such expenses as
required by Company.
7. TERM. The term of this Agreement shall commence as specified in
Section 15 below, and shall continue in effect until December 31, 2000, or until
such time as terminated as provided in paragraphs 8, 9, 10 and/or 11. Upon
termination of this agreement pursuant to paragraphs 8 or 9, Company's sole
obligation to Consultant shall be to pay all salary and stock options, if any,
accrued by him up to the date of such termination. Upon termination of this
Agreement, Consultant's obligations under the Confidentiality Agreement shall
survive.
8. TERMINATION UPON DEATH. In the event of the death of Consultant, the
employment of, and this Agreement with respect to, such deceased Consultant
shall be terminated; provided always that Company shall pay any accrued
compensation as of the date of termination to the legal representative of
Consultant's estate.
9. TERMINATION FOR DISABILITY. Company may terminate the employment of,
and this Agreement with respect to, Consultant if Consultant becomes disabled,
including disability by reason of any emotional or mental disorders, physical
diseases or injuries, and as a result of such disability is unable to work on a
full-time basis for a continuous period of two months or more or any two months
in a twenty-four month period. Upon such termination, Company shall have no
further liability to Consultant hereunder, except to pay any accrued
compensation as of the termination date. Upon such termination, Consultant's
obligation to Company under the Confidentiality Agreement shall survive.
10. TERMINATION FOR CAUSE. Company may terminate the employment of, and
this Agreement with respect to, Consultant if: (a) Consultant breaches his
fiduciary duties to Company or is guilty of fraud or willful malfeasance, (b)
Consultant materially breaches any representation, warranty, covenant or
agreement contained in this Agreement or fails to perform any of the obligations
under this Agreement or duties assigned to him pursuant to this Agreement or
otherwise by Company, (c) Consultant materially misrepresents any statement to
Company,
4 EXHIBIT 10.5.1, PAGE 4 OF 7
<PAGE> 60
(d) Consultant is convicted of a crime involving moral turpitude or a felony,
(e) Consultant knowingly commits a material violation of any law, rule,
regulation or by-law of a securities exchange or association or other regulatory
or self-regulatory body or agency applicable to any general policy or directive
of Company communicated in writing to Consultant, (f) Consultant fails to follow
reasonable instructions and/or policies of Company's Management Committee, or
(g) Consultant terminates this Agreement at any time.
Upon termination of this Agreement pursuant to this paragraph 10,
Company's sole obligation to Consultant shall be to pay all accrued
compensation.
Upon such termination, Consultant's obligation to Company under the
Confidentiality Agreement shall survive.
11. TERMINATION OTHER THAN FOR CAUSE. Company retains the right to
terminate this Agreement and/or Consultant's employment for cause as set forth
in paragraph 10, and notwithstanding anything to the contrary in this Agreement,
Company shall have the right to terminate this Agreement and/or Consultant's
employment hereunder at any time for any reason other than for cause. In such
event, Company shall pay to Consultant all compensation accrued during the term
of the Agreement through the termination date, and Company shall remain
obligated to pay Consultant salary through December 31 of the calendar year in
which the termination occurred, at the level of the Base Compensation at the
time of termination, as the compensation accrues between the termination date
and said December 31 (i.e., it is not payable in one lump sum at the date of
termination). The Base Compensation so payable does not include any compensation
under subparagraph 5(b) above. Consultant's obligation to Company under the
Confidentiality Agreement shall survive.
Consultant shall provide Company at least sixty (60) days notice of
Consultant's termination of this Agreement.
12. SUCCESSORS AND ASSIGNS. The rights and obligations of Company
hereunder shall inure to the benefit of and shall be binding upon the successors
and assigns of Company; provided, however, that Company's obligations or
liabilities hereunder may not be assigned without the prior written approval of
Consultant, except to an affiliate of Company (which assignment shall not
release Company from its obligations to Consultant hereunder) or to a successor
to all or substantially all of Company's assets, business or ownership
interests, that agrees to be bound hereby. This Agreement is personal to the
Consultant and may not be assigned by Consultant.
13. AMENDMENT OR WAIVER. This Agreement may not be amended or modified
except by an agreement in writing duly executed by Consultant and by all of the
"Members" of Company. The failure of Company, on the one hand, or Consultant, on
the other hand, at any time to enforce performance by the other of any provision
of this Agreement shall in no way affect Company's or the Consultant's, as the
case may be, rights thereafter to enforce the same, nor shall the waiver by
Company, on the one hand, or Consultant, on the other hand, of any breach of any
provision hereof be deeded to be a waiver by Company or Consultant, as the case
may
5 EXHIBIT 10.5.1, PAGE 5 OF 7
<PAGE> 61
be, of any other breach of the same or any other provision hereof.
14. ARBITRATION. Except as set forth in the Confidentiality Agreement,
any controversy or claim arising out of or relating to this Agreement, or the
breach hereof, shall be settled in Arizona by arbitration in accordance with the
rules of the American Arbitration Association. Judgment upon the award of the
arbitrator(s) may be entered in any court having jurisdiction thereof.
15. EFFECTIVE DATE; CONTINGENCIES. The obligations of the parties under
this Agreement are conditional upon the happening of the "Contingency Expiration
Date," as that term is defined in Section 10.1 of that certain Operating
Agreement, dated of even date with this Agreement, relating to the formation of
the Company by Futech Educational Products, Inc. and Magi Publications. The
obligations of the parties under this Agreement, including the obligations of
Consultant to render services and Company to pay compensation, shall commence as
of said Contingency Expiration Date.
16. NATURE OF RELATIONSHIP. The relationship the parties intend to
create by this Agreement is that of principal and independent contractor, and
nothing herein is intended, nor shall it be construed, to create a relationship
of partnership, joint venture, or employer/employee between the parties.
Company shall not have the right to direct the specific activities or practices
of Consultant, nor the manner in which Consultant conducts himself, but Company
will have the right to direct the results of Consultant's efforts expended under
this Agreement. Consultant, as a self-employed individual, shall be responsible
for the payment of Consultant's own State and Federal income tax and
self-employment tax, and acknowledges that Consultant will not be entitled to
unemployment or worker's compensation benefits, holiday pay, sick or vacation
pay, health insurance, credit toward participation in a pension or profit
sharing plan of Company, or any other benefits to which any employees of the
Company may be or become entitled. Company will not withhold, and/or pay, or be
responsible to withhold and/or pay, any such taxes or benefits, or any penalties
or interest thereon.
17. MISCELLANEOUS. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision hereof. This Agreement shall be constructed, interpreted and enforced
in accordance with the laws of the State of Arizona, without giving effect to
the conflict of laws rules thereof. The parties agree that the State of Arizona
shall have sole and exclusive jurisdiction and venue over the parties and any
disputes arising under or otherwise relating to this Agreement. This Agreement
contains all of the terms and conditions agreed to by the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, except those set forth in the Confidentiality Agreement.
DATED the date first hereinabove written.
CONSULTANT:
-------------------------------------
6 EXHIBIT 10.5.1, PAGE 6 OF 7
<PAGE> 62
Manmohan Singh Bhatia
COMPANY: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By:
------------------------------------
Vincent W. Goett, CEO
By: Magi Publications, a partnership,
Member
By:
------------------------------------
Manmohan Singh Bhatia, Partner
7 EXHIBIT 10.5.1, PAGE 7 OF 7
<PAGE> 63
EXHIBIT 10.5.2
CONFIDENTIALITY AGREEMENT
This Agreement is made as of January 5, 1998, by and between Little Tiger Press
USA, L.L.C., a New York limited liability company ("LTP") and the undersigned
("Recipient").
LTP has developed or otherwise obtained, or will develop or otherwise
obtain, certain confidential information and proprietary technology. Recipient
wishes to negotiate with respect to, and possibly enter into, a business
relationship with LTP. However, in order to do so, it is necessary that
Recipient be made aware of confidential information and propriety technology
belonging to LTP. LTP does not wish to lose the confidentiality or diminish its
rights in the confidential information and technology, and requires assurances
that its rights therein will not be diminished or impaired by virtue of the
dealings with Recipient. In consideration of being made aware of the
confidential information and proprietary technology, RECIPIENT THEREFORE AGREES
AS FOLLOWS:
1. "Technology" means concepts, inventions, technological developments
and improvements, mask works, methods, techniques, systems, documentation, data
and information (irrespective of whether in human or machine-readable form),
works of authorship, and products, whether or not patentable, copyrightable, or
susceptible to any other form of protection and whether or not reduced to
practice.
2. "Confidential Information" means any and all Technology and/or
information which: (i) is provided to Recipient by LTP, (ii) is created,
developed, or otherwise generated by or on behalf of LTP, (iii) concerns or
relates to any aspect of LTP's business, or (iv) is, for any reason, identified
by LTP as confidential: except such information which Recipient can show,
clearly and convincingly: (a) is publicly and openly known and in the public
domain, (b) becomes publicly and openly known and in the public domain through
no fault of Recipient, or (c) is in Recipient's possession and documented prior
to this agreement, lawfully obtained by Recipient from a source other than from
LTP and not subject to any obligation of confidentiality or restrictions on use.
3. All Confidential Information and all Technology embodying or
comprising Confidential Information is and shall be the sole and exclusive
property of LTP. Any Technology embodying or derived from the Confidential
Information, or conceived or first made in connection with the business
relationship shall likewise be the sole and exclusive property of LTP.
Recipient shall not take or cause any action which would be inconsistent with or
tend to diminish or impair LTP's rights in the Confidential Information.
Recipient shall not, directly or indirectly, print, copy or otherwise reproduce,
in whole or in part, or embody in any product, any Confidential Information
without LTP's prior consent.
4. Confidential Information is revealed to Recipient in strict
confidence, and solely for the purpose of assessing (and perhaps performing
under) the business relationship. Recipient
EXHIBIT 10.5.2, PAGE 1 OF 2
<PAGE> 64
shall not use, or induce others to use, any Confidential Information for any
other purpose whatsoever, nor shall it disclose or reveal any Confidential
Information to anyone except those of Recipient's employees directly involved in
the business relationship, with a specific need to know, and who have first
agreed to be bound by the terms of this agreement. Recipient acknowledges that
in view of the nature of the Confidential Information, the geographical scope
(universal), temporal scope (so long as information qualifies as Confidential
Information hereunder), and scope of restriction on use and disclosure are
reasonable. Recipient also acknowledges that any unauthorized disclosure or use
of Confidential Information would cause LTP immediate and irreparable injury
or loss.
5. Upon LTP's request, Recipient will deliver over to LTP all
Confidential Information, as well as all documents, media, items and Technology
comprising, embodying, or relating to the Confidential Information, as well as
any other documents or things belonging to LTP that may be in Recipient's
possession. Recipient shall not retain any copies.
6. This agreement may be amended only in writing signed by LTP, and
there are no other understandings, agreements, or representations, express or
implied. If any clause or provision of this agreement is or becomes illegal,
invalid, or unenforceable, such clause or provisions shall be interpreted to
call for the protection of LTP's rights to the greatest extent which is legal,
valid, and enforceable, unless such clause or provision cannot be so
interpreted, or a court of competent jurisdiction declines to permit such clause
or provision to be so interpreted, in which case such clause or provision shall
be severed and the remaining provisions of this agreement shall continue in full
force and effect. This agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, and jurisdiction and venue
over the parties and any dispute arising under or otherwise relating to this
agreement shall solely and exclusively be in Arizona.
RECIPIENT:
Address:
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Date:
-----------------------------------
2 EXHIBIT 10.5.2, PAGE 2 OF 2
<PAGE> 65
EXHIBIT 10.7
CO-PUBLISHING AGREEMENT
(U.K. MATERIALS)
THIS AGREEMENT is entered into as of the 5th day of January, 1998, by
and between Magi Publications, a partnership ("Publisher") and Little Tiger
Press USA, L.L.C., a New York limited liability company ("Co-Publisher").
R E C I T A L S:
A. Publisher publishes printed materials, and Co-Publisher is in the
business of publishing, marketing and distributing printed materials.
B. The parties desire to enter into an agreement for co-publication by
Co-Publisher of certain materials of Publisher, all on the terms and conditions
herein set forth.
T E R M S:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL. Publisher hereby grants Co-Publisher the
right of first refusal to co-publish with Publisher and distribute in the United
States any and all published materials Publisher desires to have published/
distributed in the United States (hereinafter individually a "Book" and
collectively "Books").
Publisher will supply Co-Publisher with three (3) folded and gathered
sheets, and/or three (3) review copies, of each Book Publisher wants
published/distributed in North America, at no cost to Co-Publisher. At the same
time, Publisher will supply Co-Publisher with the title, name of the author and
illustrator, Unit Price (defined below), and the proposed delivery date of the
Book.
Co-Publisher shall inform Publisher of Co-Publisher's election whether
to publish each Book within thirty (30) days after Co-Publisher receives the
Book from Publisher for review, and the other information described in the
preceding paragraph. Publisher will supply Co-Publisher with 130 folded and
gathered sheets, and/or 130 review copies, of each Book Co-Publisher elects to
publish in North America, at no cost to Co-Publisher.
Books selected by Co-Publisher for publication under this Agreement
will be published under and with the name and imprint "Little Tiger Press USA,
L.L.C."
If Co-Publisher elects not to publish any Book offered by Publisher,
then Publisher shall have the right to pursue alternative publication/
distribution for such Book; provided, however,
EXHIBIT 10.7, PAGE 1 OF 8
<PAGE> 66
that the terms offered to an alternative co-publisher/distributor shall not be
more favorable than the terms offered by Publisher to Co-Publisher.
2. APPOINTMENT AND TERRITORY. Publisher hereby grants Co-Publisher the
right to publish, distribute and sell each Book selected by Co-Publisher under
Section 1 above exclusively throughout North America. Co-Publisher's right to
publish any Book in other territories shall be subject to the prior written
consent of Publisher.
Co-Publisher shall not, without the prior written consent of Publisher,
which consent may be withheld for any reason or no reason, print or authorize
the printing of copies of any Book other than by Publisher.
Co-Publisher shall promote the sale of each Book actively throughout
the territory granted to Co-Publisher under this Agreement.
Publisher and Co-Publisher agree to co-publish the 1998 Spring and Fall
Front Lists, copies of which are attached hereto as Exhibit "A" and hereby made
a part hereof, at the pricing shown on said Exhibit, and further agree that the
rights to reprints of Publisher's "back list" are covered by and subject to this
Agreement.
3. MANNER OF PURCHASING.
(a) Co-Publisher shall have the option to purchase copies of each Book,
on a title-by-title basis, from Publisher, on a firm sale basis, on terms for
said purchases as described in Section 4 below. The details of Book orders shall
be set out from time to time on purchase orders (hereinafter "Purchase Orders")
issued by Co-Publisher.
(b) As used in this Agreement, and on any Purchase Order, the following
terms shall have the following meanings:
(i) "Book": One of Publisher's book titles, copies of which are to
be published/purchased by Co-Publisher, as further described in
Section 1 above.
(ii) "Unit Price": The price to Co-Publisher, inclusive of royalty
and delivery (C.I.F. to New York), of each copy of a Book.
(iii) "Quantity": The initial quantity of copies of a Book ordered
by Co-Publisher, as specified in a Purchase Order for such Book.
(iv) "Delivery Date": The date for bulk delivery of the Quantity of
a Book, as specified in the Purchase Order for such Book.
(v) "Imprint": The "Little Tiger Press" imprint.
2 EXHIBIT 10.7, PAGE 2 OF 8
<PAGE> 67
(c) Co-Publisher shall notify Publisher of the proposed release dates
of each Book. Co-Publisher shall release each Book within three (3) months of
delivery of the Quantity ordered of such Book, unless Co-Publisher is prevented
from doing so by circumstances beyond Co-Publisher's control, in which event
Publisher shall be notified in writing and the period permitted for release
shall be extended by the duration of such circumstances.
(d) Except as may otherwise be specified in this Agreement, all details
of publication, sale and advertisement of each Book, and the number and
destination of free copies, shall be at the sole discretion and expense of
Co-Publisher.
4. FIRM SALES.
(a) Unless otherwise agreed upon by the Publisher and Co-Publisher,
all sales under this Agreement will be firm sales. Firm sales are direct,
outright purchases of books from Publisher by Co-Publisher, as opposed to
consignment sales. The details of each purchase shall be identified on a
Purchase Order.
The Unit Price of each Book, as offered by Publisher, is based upon the
cost of paper and printing as of the date of the offer relating to such Book. If
such costs have increased by more than 5% at the time the Book goes to print,
one-half of the increase in cost per copy in excess of 5% shall be added to the
Unit Price per copy for such Book. If the increase in cost would not have been
incurred but for a delay in printing caused by Co-Publisher's failure to perform
its obligations under this Agreement, Co-Publisher shall bear the entire
increase in cost.
(b) Co-Publisher shall pay Publisher the total Unit Price for each
Book received, within fifteen (15) days after receipt of the Book by
Co-Publisher.
(c) Publisher shall supply to Co-Publisher, as ordered by
Co-Publisher, 10% additional jackets/covers for each hard cover Book purchased
by Co-Publisher, at no charge to Co-Publisher. The purchase price for
jackets/covers ordered in excess of said 10% shall be 100% of Publisher's direct
out-of-pocket costs for the jackets/covers, payable in full within fifteen (15)
days after receipt by Co-Publisher of the jackets/covers. Extra jackets/covers
sales, like Book sales, will be firm sales - not returnable.
(d) If Co-Publisher requires copies of any Book additional to those
ordered on any Purchase Order, such further copies shall be ordered from
Publisher and supplied to Co-Publisher at a price and on other terms subject to
mutual agreement by the parties.
(e) Legal title to copies of each Book and other materials
delivered to Co-Publisher shall pass to Co-Publisher upon receipt by
Co-Publisher of the Book or other materials. Risk of loss or damage with respect
to copies of each Book or other materials delivered to Co-Publisher shall pass
to Co-Publisher upon receipt by Co-Publisher of the Book or other materials.
3 EXHIBIT 10.7, PAGE 3 OF 8
<PAGE> 68
(f) Initial and reorder quantities for Books will not be less than
5000 copies per Book, unless otherwise agreed to by the parties.
5. PRODUCTION, PRINTING AND DELIVERY.
(a) Publisher will send Co-Publisher for approval (such approval
not to be unreasonably withheld or delayed), ozalids of each Book.
(b) Subject to timely performance by Co-Publisher of Co-Publisher's
obligations under this Agreement, Publisher shall arrange for the printing of
the Quantity of Books ordered for delivery to Co-Publisher by the Delivery Date,
unless Publisher is prevented from doing so by circumstances beyond Publisher's
control, or unless otherwise mutually agreed.
(c) Delivery to Co-Publisher of up to 10% under or over the
Quantity of any Book shall constitute good delivery, and Co-Publisher shall pay
for the actual number of copies received.
(d) Co-Publisher shall notify Publisher in writing of
Co-Publisher's requirements, if any, with respect to advance copies, extra
covers or jackets, and folded and gathered sheets.
(e) Co-Publisher shall not insert within or on the cover or jacket
of any edition of any Book, any advertisement, other than information about
other Books published by Publisher, without the prior written consent of
Publisher.
(f) Each party will discuss with the other opportunities regarding
co-op and promotional advertising, as those opportunities arise, and the parties
may, but are not obligated to, agree to share the costs thereof.
6. ACCOUNTING MATTERS. All monies due to Publisher shall be paid by
mail or telegraphic transfer to Publisher's bank account at Barclays Bank,
Heathrow Airport Business Centre, Cardinal Point, Newall Road, Heathrow Airport
(London), Hounslow, TVV6 2AH, England (Account #: 69521277. Sort Code: 20-3883.
Shift code: BARC GB 22). Co-Publisher shall ensure that all remittances or
notifications of remittance shall detail the names of Co-Publisher and
Publisher, the title of the Book(s), and, if applicable, Publisher's invoice
number.
7. FREIGHT. All Books will be shipped C.I.F. to New York in care of
Co-Publisher's freight forwarder. Co-Publisher will be responsible for customs
and transportation charges from New York to Co-Publisher's facilities.
8. SHIPPING SERVICES. From time to time Publisher may request
Co-Publisher to ship stock of Co-Publisher's books held by Co-Publisher to fill
orders placed by Publisher's other customers. All such orders shall be for
full-case quantities to a single shipping location. Co-Publisher will charge
Publisher, in fulfillment of any such order, the actual cost of shipping
4 EXHIBIT 10.7, PAGE 4 OF 8
<PAGE> 69
plus a handling charge of 1% of the value of such order. Publisher shall also
reimburse Co-Publisher for any portion of the purchase price paid by
Co-Publisher to Publisher for the Books so sold, and for all of Co-Publisher
out-of-pocket costs for such Books. Such charges shall be deducted from monthly
payments due to Publisher from Co-Publisher under this Agreement.
9. PACKAGING SPECIFICATIONS. Publisher agrees to package all Books
shipped to Co-Publisher under this Agreement in case packs of 30 copies unless
otherwise mutually agreed to by the parties. Each carton will have the following
information clearly marked on the outside of the carton: Publisher Imprint:
Little Tiger Press; ISBN: ; Title: ; Number of
Copies: ; Co-Publisher's Product No.: .
10. IMPRINT; COPYRIGHT. Co-Publisher shall inform Publisher promptly of
any infringement of the copyright in any Book of which Co-Publisher becomes
aware. Co-Publisher will take all reasonable steps, including registration where
applicable, to protect the copyright in each Book in the territories granted to
Co-Publisher under this Agreement.
11. RESERVED RIGHTS. All rights in each Book, other than those
specifically granted to Co-Publisher under this Agreement, are reserved by
Publisher.
12. TERM; TERMINATION. This Agreement shall be effective immediately
and automatically on the "Contingency Expiration Date," as that term is defined
in that certain Operating Agreement for Little Tiger Press USA, L.L.C., dated of
even date herewith, executed by Futech Educational Products, Inc. and Magi
Publications. This Agreement shall continue thereafter until terminated in any
one of the following ways:
(a) If Co-Publisher is at any time in breach of any of the terms
and conditions of this Agreement, and Co-Publisher fails to cure such breach
within thirty (30) days after receipt by Co-Publisher of written notice from
Publisher specifying the breach and requiring that it be cured.
(b) If Co-Publisher is declared bankrupt or goes into liquidation
(other than solvent voluntary liquidation for the purpose of reconstruction
only), or if a receiver or administrator or administrative receiver is appointed
to the whole or substantially the whole of Co-Publisher's business, or if
Co-Publisher shall make an assignment for the benefit of creditors, then
Publisher may terminate this Agreement if Co-Publisher fails to cure such breach
within thirty (30) days after receipt by Co-Publisher of written notice from
Publisher specifying the breach and requiring that it be cured.
(c) If Co-Publisher ceases to trade as a publisher/distributor or
is for any reason unable to perform and comply with the terms and conditions of
this Agreement.
(d) If Co-Publisher allows any Book to go out of stock (to the
extent that Co-Publisher has less than 50 copies of such Book in stock), and to
remain out of stock for 6 months, then Publisher may terminate this Agreement
with respect to such Book only.
5 EXHIBIT 10.7, PAGE 5 OF 8
<PAGE> 70
(e) If Co-Publisher shall dispose of all remaining stock of a Book
by remaindering or destruction, then Publisher may terminate this Agreement with
respect to such Book only.
Any termination of this Agreement by either party shall not affect
the obligations of either party under this Agreement to pay the other party
amounts owing in connection with performance under this Agreement prior to the
termination. The termination of this Agreement by either party shall not
prejudice any claim which either party has against the other.
13. ASSIGNMENT. Co-Publisher shall not, without the prior written
consent of Publisher, assign or in any way transfer Co-Publisher's rights
granted hereunder, in whole or in part, nor issue or permit issue of any Book
over any imprint other than the Imprint.
14. NATURE OF RELATIONSHIP. The relationship the parties intend to
create is that of principal and independent contractor, and nothing herein is
intended, nor shall it be construed, to create a relationship of partnership,
joint venture, or employer/employee between the parties. Publisher shall not
have the right to direct the specific daily activities or practices of
Co-Publisher nor the manner in which Co-Publisher conducts Co-Publisher's
affairs.
15. NOTICES. Any notice or communication given under the terms of
this Agreement ("Notice") shall be in writing and shall be given by any of the
following means and shall be deemed to have been received as follows:
(i) If by hand delivery, upon delivery;
(ii) If by pre-paid mail, 48 hours after posting, or if the
intended recipient party is in a country other than that of the
sender, on the seventh day after dispatch (Saturdays, Sundays and
public holidays excluded); or
(iii) If by telex, facsimile or other system which prints the
notice at the receiving end, if the sender has an acknowledgment
from the recipient of its receipt in readable form, upon receipt of
such acknowledgment;
provided, however, that no Notice shall be deemed to have been received unless
addressed to the addresses appearing below, or such other address provided to
the other party by Notice:
If to Publisher:
Magi Publications
22 Manchester Street
London W1M 5PG, England
Facsimile: 011-44-171-486-0926
If to Co-Publisher:
6 EXHIBIT 10.7, PAGE 6 OF 8
<PAGE> 71
Little Tiger Press USA, L.L.C.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
Notice given on a Saturday, Sunday or public holiday, or outside normal business
hours, shall not be deemed given until commencement of the next normal business
hours.
16. ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and a complete and exclusive statement
of its terms. No prior course of dealings between the parties and no usage of
trade shall be relevant or admissible to supplement, explain, or vary any of the
terms of this Agreement. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement shall not be relevant or
admissible to determine the meaning of this Agreement even though the accepting
or acquiescing party has knowledge of the nature of the performance and an
opportunity to make objection. No representations, understandings, or agreements
have been made or relied upon in the making of this Agreement other than those
specifically set forth herein. This Agreement can be modified only by writing
signed by all of the parties hereto.
17. MISCELLANEOUS. This Agreement contains the entire Agreement between
the parties with respect to the subject matter discussed in this Agreement, and
any prior arrangements or negotiations relating thereto are superseded by this
Agreement. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict laws thereof. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction and venue in any case or controversy arising under
this Agreement or by reason of this Agreement. The parties agree that any
litigation or arbitration arising from the interpretation or enforcement of this
Agreement shall be only in either Maricopa County Superior Court or in the
United States Federal District Court for the District of Arizona, and for this
purpose each party to this Agreement (and each person who shall become a party)
hereby expressly and irrevocably consents to the jurisdiction and venue of such
courts. This Agreement shall be construed according to its fair meaning and
neither for nor against the drafting party. If arbitration or other legal action
is instituted in connection with this Agreement, the prevailing party in such
action shall be entitled to recover from the other party reasonable attorneys'
fees and costs. The parties agree to accept facsimile signatures in counterparts
to this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were originals. The failure of a party
to require the performance of any term of this Agreement, or the waiver by a
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of such term nor be deemed a waiver of any subsequent breach. The
remedies and payments provided for in this Agreement are not exclusive of other
remedies available to the parties. Every provision of this Agreement is intended
to be severable. If any term of provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement. Time is of the essence of each and every
provision of this Agreement. Titles and headings of sections of this Agreement
are for convenience of reference only, are not intended
7 EXHIBIT 10.7, PAGE 7 OF 8
<PAGE> 72
to define, limit or describe the scope or intent of any provision of this
Agreement, and shall not affect the construction of any provision of this
Agreement.
DATED the date first hereinabove written.
PUBLISHER: Magi Publications, a partnership
By
------------------------------------
Manmohan Singh Bhatia, Partner
CO-PUBLISHER: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Magi Publications,
a partnership, Member
By
--------------------------------
Manmohan Singh Bhatia, Partner
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By
--------------------------------
Vincent W. Goett, CEO
List of Exhibits
1998 Spring and Fall Front List "A"
8 EXHIBIT 10.7, PAGE 8 OF 8
<PAGE> 73
Exhibit "A", Page 1 of 2
LITTLE TIGER PRESS, USA
FRONT LIST AND REPRINT PUBLISHING SCHEDULE SPRING '98
<TABLE>
<CAPTION>
Order Retail Futech/ W/S
Title Format Quantity Price LIP Cost Ext Cost XYZ Price Turnover Ex-Works
- ----- ------ -------- ------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
It Could Have Been Worse Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
A Duck So Small Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
You Won't Think of Me at All Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
Beware of the Bears Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
The Lion Who Wanted to Love Hardback 12,000 $14.95 $4.10 49,200 $5.23 62,760 Nov '97
Look Out for the Big Bad
Fish Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
Tommy Hardback 15,000 $16.95 $4.40 66,000 $5.93 88,950 Dec '97
I Don't Want to Take a Bath! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
I Don't Want to Go to Bed! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
Tim's Animal Stories 96-page H/B 15,000 $16.95 $4.25 63,750 $5.93 88,950 Jan '98
Animals All Around
Laura's Star Reprint** Hardback 50,000 $16.95 $4.40 220,000 $5.93 296,500 June '98
Rumble in the Jungle Reprint** Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 June '98
Magi Various Reprints** Hardback 60,000 $14.95 $3.75 225,000 $5.23 313,800 June '98
PAPERBACK
I Don't Want to Take a Bath! Paperback 25,000 $ 5.95 $1.20 $2.08
Dora's Eggs Paperback 15,000 $ 5.95 $1.20 $2.08
TOTAL 307,000 960,450 1,390,860
</TABLE>
* Price to be finalized
** Quantities, dates and titles to be finalized
<PAGE> 74
Exhibit "A", Page 2 of 2
LITTLE TIGER PRESS, USA
FRONT LIST PUBLISHING SCHEDULE FALL '98
<TABLE>
<CAPTION>
Order Retail Futech/
Title Format Quantity Price LIP Cost Ext Cost XYZ Price W/S Turnover Ex-Works
- ----- ------ -------- ----- -------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hurry Santa Hardback 40,000 $14.95 $3.60 144,000 $5.23 209,200 June '98
Mouse, Look Out Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 June '98
One Two Three Oops** Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 June '98
Little Bunny Bobkin Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 March '98
Bedtime for Little Hare Hardback 20,000 $14.95 $3.75 75,000 $5.23 104,600 June '98
Smudge** Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 July '98
Commotion in the Ocean Hardback 20,000 $14.95 $4.10 82,000 $5.23 104,600 July '98
A New Hardback*** Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 July '98
Santa's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $4.53 113,250 Aug '98
Tiger's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $4.53 113,250 Aug '98
Tim's Bear Stories 96 page H/B 15,000 $16.95 $4.25 63,750 $5.93 88,950 June '98
Little Tiger Cloth Book 1 Cloth Book 25,000 $19.95 $6.00* 150,000 $8.00* 200,000 July '98
Little Tiger Cloth Book 2 Cloth Book 25,000 $19.95 $6.00* 150,000 $8.00* 200,000 July '98
PAPERBOOK
Beware of the Bears Paperback 25,000 $ 5.95 $1.20 $2.08
It Could Have Been Worse Paperback 15,000 $ 5.95 $1.20 $2.08
TOTAL 305,000 1,097,750 1,499,950
</TABLE>
*Price to be finalized
**Pub date to be confirmed
***Titles to be confirmed
<PAGE> 75
EXHIBIT 10.8
CO-PUBLISHING AGREEMENT
(U.S. MATERIALS)
THIS AGREEMENT is entered into as of the 5th day of January, 1998, by
and between Magi Publications, a partnership ("Co-Publisher") and Little Tiger
Press USA, L.L.C., a New York limited liability company ("Publisher").
R E C I T A L S:
A. Publisher publishes printed materials, and Co-Publisher is in the
business of publishing, marketing and distributing printed materials.
B. The parties desire to enter into an agreement for co-publication by
Co-Publisher of certain materials of Publisher, all on the terms and conditions
herein set forth.
T E R M S:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL. Publisher hereby grants Co-Publisher the
right of first refusal to co-publish with Publisher and distribute in Europe any
and all published materials Publisher desires to have published/distributed in
Europe (hereinafter individually a "Book" and collectively "Books").
Publisher will supply Co-Publisher with three (3) folded and gathered
sheets, and/or three (3) review copies, of each Book Publisher wants
published/distributed in Europe, at no cost to Co-Publisher. At the same time,
Publisher will supply Co-Publisher with the title, name of the author and
illustrator, Unit Price (defined below), and the proposed delivery date of the
Book.
Co-Publisher shall inform Publisher of Co-Publisher's election whether
to publish each Book within thirty (30) days after Co-Publisher receives the
Book from Publisher for review, and the other information described in the
preceding paragraph. As to each Book Co-Publisher elects to publish,
Co-Publisher shall at the same time inform Publisher in which Countries in
Europe Co-Publisher will Publish the Book. Publisher will supply Co-Publisher
with 130 folded and gathered sheets, and/or 130 review copies, of each Book
Co-Publisher elects to publish in Europe, at no cost to Co-Publisher.
Books selected by Co-Publisher for publication under this Agreement
will be published under and with the name and imprint "Little Tiger Press."
EXHIBIT 10.8, PAGE 1 OF 8
<PAGE> 76
If Co-Publisher elects not to publish in any Country in Europe any Book
offered by Publisher, then Publisher shall have the right to pursue alternative
publication/distribution for such Book in said Country; provided, however, that
the terms offered to an alternative co-publisher/distributor shall not be more
favorable than the terms offered by Publisher to Co-Publisher.
2. APPOINTMENT AND TERRITORY. Publisher hereby grants Co-Publisher the
right to publish, distribute and sell each Book selected by Co-Publisher under
Section 1 above exclusively throughout Europe. Co-Publisher's right to publish
any Book in other territories shall be subject to the prior written consent of
Publisher.
Co-Publisher shall not, without the prior written consent of Publisher,
which consent may be withheld for any reason or no reason, print or authorize
the printing of copies of any Book other than by Publisher.
Co-Publisher shall promote the sale of each Book actively throughout
the territory granted to Co-Publisher under this Agreement.
3. MANNER OF PURCHASING.
(a) Co-Publisher shall have the option to purchase copies of each
Book, on a title-by-title basis, from Publisher, on a firm sale basis, on terms
for said purchases as described in Section 4 below. The details of Book orders
shall be set out from time to time on purchase orders (hereinafter "Purchase
Orders") issued by Co-Publisher.
(b) As used in this Agreement, and on any Purchase Order, the
following terms shall have the following meanings:
(i) "Book": One of Publisher's book titles, copies of which
are to be published/purchased by Co-Publisher, as further
described in Section 1 above.
(ii) "Unit Price": The price to Co-Publisher, inclusive of
royalty and delivery (C.I.F. to London), of each copy of a
Book.
(iii) "Quantity": The initial quantity of copies of a Book
ordered by Co-Publisher, as specified in a Purchase Order for
such Book.
(iv) "Delivery Date": The date for bulk delivery of the
Quantity of a Book, as specified in the Purchase Order for
such Book.
(v) "Imprint": The "Little Tiger Press" imprint.
(c) Co-Publisher shall notify Publisher of the proposed release
dates of each
2 EXHIBIT 10.8, PAGE 2 OF 8
<PAGE> 77
Book. Co-Publisher shall release each Book within three (3) months of delivery
of the Quantity ordered of such Book, unless Co-Publisher is prevented from
doing so by circumstances beyond Co-Publisher's control, in which event
Publisher shall be notified in writing and the period permitted for release
shall be extended by the duration of such circumstances.
(d) Except as may otherwise be specified in this Agreement, all
details of publication, sale and advertisement of each Book, and the number and
destination of free copies, shall be at the sole discretion and expense of
Co-Publisher.
4. FIRM SALES.
(a) Unless otherwise agreed upon by the Publisher and Co-Publisher,
all sales under this Agreement will be firm sales. Firm sales are direct,
outright purchases of Books from Publisher by Co-Publisher, as opposed to
consignment sales. The details of each purchase shall be identified on a
Purchase Order.
The Unit Price of each Book, as offered by Publisher, is based upon the
cost of paper and printing as of the date of the offer relating to such Book. If
such costs have increased by more than 5% at the time the Book goes to print,
one-half of the increase in cost per copy in excess of 5% shall be added to the
Unit Price per copy for such Book. If the increase in cost would not have been
incurred but for a delay in printing caused by Co-Publisher's failure to perform
its obligations under this Agreement, Co-Publisher shall bear the entire
increase in cost.
(b) Co-Publisher shall pay Publisher the total Unit Price for each
Book received, within fifteen (15) days after receipt of the Book by
Co-Publisher.
(c) Publisher shall supply to Co-Publisher, as ordered by
Co-Publisher, 10% additional jackets/covers for each hard cover Book purchased
by Co-Publisher, at no charge to Co-Publisher. The purchase price for
jackets/covers ordered in excess of said 10% shall be 100% of Publisher's direct
out-of-pocket costs for the jackets/covers, payable in full within fifteen (15)
days after receipt by Co-Publisher of the jackets/covers. Extra jackets/covers
sales, like Book sales, will be firm sales - not returnable.
(d) If Co-Publisher requires copies of any Book additional to those
ordered on any Purchase Order, such further copies shall be ordered from
Publisher and supplied to Co-Publisher at a price and on other terms subject to
mutual agreement by the parties.
(e) Legal title to copies of each Book and other materials delivered
to Co-Publisher shall pass to Co-Publisher upon receipt by Co-Publisher of the
Book or other materials. Risk of loss or damage with respect to copies of each
Book or other materials delivered to Co-Publisher shall pass to Co-Publisher
upon receipt by Co-Publisher of the Book or other materials.
(f) Initial and reorder quantities for Books will not be less than
5000 copies
3 EXHIBIT 10.8, PAGE 3 OF 8
<PAGE> 78
per Book, unless otherwise agreed to by the parties.
5. PRODUCTION, PRINTING AND DELIVERY.
(a) Publisher will send Co-Publisher for approval (such approval not
to be unreasonably withheld or delayed), ozalids of each Book.
(b) Subject to timely performance by Co-Publisher of Co-Publisher's
obligations under this Agreement, Publisher shall arrange for the printing of
the Quantity of Books ordered for delivery to Co-Publisher by the Delivery Date,
unless Publisher is prevented from doing so by circumstances beyond Publisher's
control, or unless otherwise mutually agreed.
(c) Delivery to Co-Publisher of up to 10% under or over the Quantity
of any Book shall constitute good delivery, and Co-Publisher shall pay for the
actual number of copies received.
(d) Co-Publisher shall notify Publisher in writing of Co-Publisher's
requirements, if any, with respect to advance copies, extra covers or jackets,
and folded and gathered sheets.
(e) Co-Publisher shall not insert within or on the cover or jacket
of any edition of any Book, any advertisement, other than information about
other Books published by Publisher, without the prior written consent of
Publisher.
(f) Each party will discuss with the other opportunities regarding
co-op and promotional advertising, as those opportunities arise, and the parties
may, but are not obligated to, agree to share the costs thereof.
6. ACCOUNTING MATTERS. All monies due to Publisher shall be paid by
mail or telegraphic transfer to Publisher's bank account. Co-Publisher shall
ensure that all remittances or notifications of remittance shall detail the
names of Co-Publisher and Publisher, the title of the Book(s), and, if
applicable, Publisher's invoice number.
7. FREIGHT. All Books will be shipped C.I.F. to London in care of
Co-Publisher's freight forwarder. Co-Publisher will be responsible for customs
and transportation charges from London to Co-Publisher's facilities.
8. SHIPPING SERVICES. From time to time Publisher may request
Co-Publisher to ship stock of Co-Publisher's books held by Co-Publisher to fill
orders placed by Publisher's other customers. All such orders shall be for
full-case quantities to a single shipping location. Co-Publisher will charge
Publisher, in fulfillment of any such order, the actual cost of shipping plus a
handling charge of 1% of the value of such order. Publisher shall also reimburse
Co-Publisher for any portion of the purchase price paid by Co-Publisher to
Publisher for the Books so sold, and for all of Co-Publisher's out-of-pocket
costs for such Books. Such charges shall
4 EXHIBIT 10.8, PAGE 4 OF 8
<PAGE> 79
be deducted from monthly payments due to Publisher from Co-Publisher under this
Agreement.
9. PACKAGING SPECIFICATIONS. Publisher agrees to package all Books
shipped to Co-Publisher under this Agreement in case packs of 30 copies unless
otherwise mutually agreed to by the parties. Each carton will have the following
information clearly marked on the outside of the carton: Publisher Imprint:
Little Tiger Press; ISBN: ___________; Title:___________; Number of Copies:
__________; Co-Publisher's Product No.:____________.
10. IMPRINT; COPYRIGHT. Co-Publisher shall inform Publisher promptly of
any infringement of the copyright in any Book of which Co-Publisher becomes
aware. Co-Publisher will take all reasonable steps, including registration where
applicable, to protect the copyright in each Book in the territories granted to
Co-Publisher under this Agreement.
11. RESERVED RIGHTS. All rights in each Book, other than those
specifically granted to Co-Publisher under this Agreement, are reserved by
Publisher.
12. TERM; TERMINATION. This Agreement shall be effective immediately
and automatically on the "Contingency Expiration Date," as that term is defined
in that certain Operating Agreement for Little Tiger Press USA, L.L.C., dated of
even date herewith, executed by Futech Educational Products, Inc. and Magi
Publications. This Agreement shall continue thereafter until terminated in any
one of the following ways:
(a) If Co-Publisher is at any time in breach of any of the terms and
conditions of this Agreement, and Co-Publisher fails to cure such breach within
thirty (30) days after receipt by Co-Publisher of written notice from Publisher
specifying the breach and requiring that it be cured.
(b) If Co-Publisher is declared bankrupt or goes into liquidation
(other than solvent voluntary liquidation for the purpose of reconstruction
only), or if a receiver or administrator or administrative receiver is appointed
to the whole or substantially the whole of Co-Publisher's business, or if
Co-Publisher shall make an assignment for the benefit of creditors, then
Publisher may terminate this Agreement if Co-Publisher fails to cure such breach
within thirty (30) days after receipt by Co-Publisher of written notice from
Publisher specifying the breach and requiring that it be cured.
(c) If Co-Publisher ceases to trade as a publisher/distributor or is
for any reason unable to perform and comply with the terms and conditions of
this Agreement.
(d) If Co-Publisher allows any Book to go out of stock (to the
extent that Co-Publisher has less than 50 copies of such Book in stock), and to
remain out of stock for 6 months, then Publisher may terminate this Agreement
with respect to such Book only.
(e) If Co-Publisher shall dispose of all remaining stock of a Book
by remaindering or destruction, then Publisher may terminate this Agreement with
respect to such
5 EXHIBIT 10.8, PAGE 5 OF 8
<PAGE> 80
Book only.
Any termination of this Agreement by either party shall not affect
the obligations of either party under this Agreement to pay the other party
amounts owing in connection with performance under this Agreement prior to the
termination. The termination of this Agreement by either party shall not
prejudice any claim which either party has against the other.
13. ASSIGNMENT. Co-Publisher shall not, without the prior written
consent of Publisher, assign or in any way transfer Co-Publisher's rights
granted hereunder, in whole or in part, nor issue or permit issue of any Book
over any imprint other than the Imprint.
14. NATURE OF RELATIONSHIP. The relationship the parties intend to
create is that of principal and independent contractor, and nothing herein is
intended, nor shall it be construed, to create a relationship of partnership,
joint venture, or employer/employee between the parties. Publisher shall not
have the right to direct the specific daily activities or practices of
Co-Publisher nor the manner in which Co-Publisher conducts Co-Publisher's
affairs.
15. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be given by any of the
following means and shall be deemed to have been received as follows:
(i) If by hand delivery, upon delivery;
(ii) If by pre-paid mail, 48 hours after posting, or if the
intended recipient party is in a country other than that of
the sender, on the seventh day after dispatch (Saturdays,
Sundays and public holidays excluded); or
(iii) If by telex, facsimile or other system which prints the
notice at the receiving end, if the sender has an
acknowledgment from the recipient of its receipt in readable
form, upon receipt of such acknowledgment;
provided, however, that no Notice shall be deemed to have been received unless
addressed to the addresses appearing below, or such other address provided to
the other party by Notice:
If to Co-Publisher:
Magi Publications
22 Manchester Street
London W1M 5PG, England
Facsimile: 011-44-171-486-0926
If to Publisher:
Little Tiger Press USA, L.L.C.
6 EXHIBIT 10.8, PAGE 6 OF 8
<PAGE> 81
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
Notice given on a Saturday, Sunday or public holiday, or outside normal business
hours, shall not be deemed given until commencement of the next normal business
hours.
16. ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and a complete and exclusive statement
of its terms. No prior course of dealings between the parties and no usage of
trade shall be relevant or admissible to supplement, explain, or vary any of the
terms of this Agreement. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement shall not be relevant or
admissible to determine the meaning of this Agreement even though the accepting
or acquiescing party has knowledge of the nature of the performance and an
opportunity to make objection. No representations, understandings, or agreements
have been made or relied upon in the making of this Agreement other than those
specifically set forth herein. This Agreement can be modified only by writing
signed by all of the parties hereto.
17. MISCELLANEOUS. This Agreement contains the entire Agreement between
the parties with respect to the subject matter discussed in this Agreement, and
any prior arrangements or negotiations relating thereto are superseded by this
Agreement. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict laws thereof. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction and venue in any case or controversy arising under
this Agreement or by reason of this Agreement. The parties agree that any
litigation or arbitration arising from the interpretation or enforcement of this
Agreement shall be only in either Maricopa County Superior Court or in the
United States Federal District Court for the District of Arizona, and for this
purpose each party to this Agreement (and each person who shall become a party)
hereby expressly and irrevocably consents to the jurisdiction and venue of such
courts. This Agreement shall be construed according to its fair meaning and
neither for nor against the drafting party. If arbitration or other legal action
is instituted in connection with this Agreement, the prevailing party in such
action shall be entitled to recover from the other party reasonable attorneys'
fees and costs. The parties agree to accept facsimile signatures in counterparts
to this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were originals. The failure of a party
to require the performance of any term of this Agreement, or the waiver by a
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of such term nor be deemed a waiver of any subsequent breach. The
remedies and payments provided for in this Agreement are not exclusive of other
remedies available to the parties. Every provision of this Agreement is intended
to be severable. If any term of provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement. Time is of the essence of each and every
provision of this Agreement. Titles and headings of sections of this Agreement
are for convenience of reference only, are not intended to define, limit or
describe the scope or intent of any provision of this Agreement, and shall not
7 EXHIBIT 10.8, PAGE 7 OF 8
<PAGE> 82
affect the construction of any provision of this Agreement.
DATED the date first hereinabove written.
CO-PUBLISHER: Magi Publications,
a partnership
By______________________________________
Manmohan Singh Bhatia, Partner
PUBLISHER: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Magi Publications,
a partnership, Member
By__________________________________
Manmohan Singh Bhatia, Partner
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By__________________________________
Vincent W. Goett, CEO
8 EXHIBIT 10.8, PAGE 8 OF 8
<PAGE> 83
EXHIBIT 10.9
DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into as of the 5th day of January, 1998, by
and between Little Tiger Press USA, L.L.C., a New York limited liability company
("Publisher") and Futech Educational Products, Inc., an Arizona corporation, to
be operating as "XYZ Distributors" ("Distributor").
R E C I T A L S:
A. Publisher publishes printed materials, and Distributor is in the
business of marketing and distributing published materials.
B. The parties desire to enter into an agreement for distribution by
Distributor of certain materials published by Publisher, all on the terms and
conditions herein set forth.
T E R M S:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL. Publisher hereby grants Distributor the
right of first refusal to purchase from Publisher and distribute in the United
States any and all published materials Publisher desires to have distributed in
the United States (hereinafter individually a "Book" and collectively "Books").
Publisher will supply Distributor with three (3) folded and gathered
sheets, and/or three (3) review copies, of each Book Publisher wants distributed
in the United States, at no cost to Distributor. At the same time, Publisher
will supply Distributor with the title, name of the author and illustrator, Unit
Price (defined below), and the proposed delivery date of the Book.
Distributor shall inform Publisher of Distributor's election whether to
distribute each Book within thirty (30) days after Distributor receives the Book
from Publisher for review, and the other information described in the preceding
paragraph. Publisher will supply Distributor with 130 folded and gathered
sheets, and/or 130 review copies, of each Book Distributor elects to distribute
in the United States, at no cost to Distributor.
Books selected by Co-Publisher for distribution under this Agreement
will be distributed under and with the name and imprint "Little Tiger Press USA,
L.L.C."
If Distributor elects not to distribute any Book offered by Publisher,
then Publisher shall have the right to pursue alternative distribution for such
Book; provided, however, that the terms offered to an alternative distributor
shall not be more favorable than the terms offered by
EXHIBIT 10.9, PAGE 1 OF 9
<PAGE> 84
Publisher to Distributor.
2. APPOINTMENT AND TERRITORY. Publisher hereby grants Distributor the
right to distribute and sell each Book acquired by Distributor under Section 1
above exclusively throughout the United States of America. Distributor's right
to distribute any Book in other territories shall be subject to the prior
written consent of Publisher.
Unless otherwise agreed to in writing by Publisher, Distributor is
excluded from selling any Book to book clubs, or from selling any Book by direct
marketing methods including, but not limited to, mail order, door-to-door,
direct mail, television advertising, or incentive, premium or coupon advertising
methods.
Distributor shall not, without the prior written consent of Publisher,
which consent may be withheld for any reason or no reason, print or authorize
the printing of copies of any Book other than by Publisher.
Distributor shall promote the sale of each Book actively throughout the
territory granted to Distributor under this Agreement.
Except as otherwise called for herein, during the term of this
Agreement, Distributor shall be entitled to market Books acquired pursuant to
this Agreement using the Imprint (defined in Section 3 below).
Publisher agrees to sell to Distributor, and Distributor agrees to
distribute, the 1998 Spring and Fall Front Lists, copies of which are attached
hereto as Exhibit "A" and hereby made a part hereof, at the pricing shown on
said Exhibit.
3. MANNER OF PURCHASING.
(a) Distributor shall have the option to purchase copies of each Book,
on a title-by-title basis, from Publisher, on a returnable basis, on terms for
said purchases as described in Section 4 below. The details of Book orders shall
be set out from time to time on purchase orders (hereinafter "Purchase Orders")
issued by Distributor.
(b) As used in this Agreement, and on any Purchase Order, the following
terms shall have the following meanings:
(i) "Book": One of Publisher's book titles, copies of which
are to be purchased by Distributor, as further described in
Section 1 above.
(ii) "Unit Price": The price to Distributor, inclusive of
royalty and delivery (C.I.F. to Distributor's warehouse in the
State of New York) of each copy of a Book.
2 EXHIBIT 10.9, PAGE 2 OF 9
<PAGE> 85
(iii) "Quantity": The initial quantity of copies of a Book
ordered by Distributor, as specified in a Purchase Order for
such Book.
(iv) "Delivery Date": The date for bulk delivery of the
Quantity of a Book, as specified in a Purchase Order for such
Book.
(v) "Imprint": The "Little Tiger Press" imprint.
(c) Distributor shall notify Publisher of the proposed release dates of
each Book. Distributor shall release each Book within three (3) months of
delivery of the Quantity ordered of such Book, unless Distributor is prevented
from doing so by circumstances beyond Distributor's control, in which event
Publisher shall be notified in writing and the period permitted for release
shall be extended by the duration of such circumstances.
(d) Except as may otherwise be specified in this Agreement, all details
of sale and advertisement of each Book, and the number and destination of free
copies, shall be at the sole discretion and expense of Distributor.
4. RETURNABLE SALES.
(a) Unless otherwise agreed upon by the Publisher and Distributor,
all sales under this Agreement will be returnable sales. The details of each
purchase shall be identified on a Purchase Order.
The Unit Price of each Book, as offered by Publisher, is based upon the
cost of paper and printing as of the date of the offer relating to such Book. If
such costs have increased by more than 5% at the time the Book goes to print,
one-half of the increase in cost per copy in excess of 5% shall be added to the
Unit Price per copy for such Book. If the increase in cost would not have been
incurred but for a delay in printing caused by Distributor's failure to perform
its obligations under this Agreement, Distributor shall bear the entire increase
in cost.
(b) Distributor shall furnish Publisher with monthly sales reports
on a per Book basis, commencing within one (1) month after first distribution of
each Book by Distributor.
(c) Within sixty (60) days after delivery of each Book purchased by
Distributor, Distributor shall pay Publisher the Unit Price of the Book. The
parties intend that the Unit Price for each Book shall be 65% of the suggested
retail price of such Book. Distributor shall be responsible for all credit
checks, and all uncollected credit, for all purchasers of Publisher's books from
Distributor, and Publisher shall accept no responsibility for bad debts incurred
by Distributor.
(d) Publisher shall supply to Distributor, as ordered by
Distributor, 10% additional jackets/covers for each hard cover Book ordered by
Distributor, at no charge to
3 EXHIBIT 10.9, PAGE 3 OF 9
<PAGE> 86
Distributor. The purchase price for jackets/covers ordered in excess of said 10%
shall be 100% of Publisher's direct out-of-pocket costs for the jackets/covers,
payable in full within sixty (60) days after receipt by Distributor of the
jackets/covers. Extra jackets/covers shall be firm sales - not returnable.
(e) Distributor shall, after taking possession of Books purchased on
a returnable basis, offer the Books for sale at prices not less than
Distributor's Unit Price from Publisher for the Books. Distributor shall use its
best efforts to sell the Books.
(f) Distributor shall pay all expenses incident to the receipt,
handling, storage, marketing, advertising, selling, and delivery to customers of
the Books purchased by Distributor, and shall pay all taxes and other charges
assessed and/or levied on said Books while in Distributor's possession,
including sales taxes and Distributor's income taxes, but not including
Publisher's income taxes.
(g) Initial and reorder quantities will not be less than 5000 copies
per Book, unless otherwise agreed to by the parties.
(h) Distributor may return to Publisher any Books purchased by
Distributor on a returnable basis, for full credit. All freight charges for
returned Books shall be paid by Publisher, unless the Books are being returned
as a result of an uncured breach by Distributor under the terms of this
Agreement, or unless Books are being returned as a result of Distributor
terminating this Agreement, in which event Distributor shall pay all said
freight charges.
5. PRODUCTION, PRINTING AND DELIVERY.
(a) Publisher will send Distributor for approval (such approval not
to be unreasonably withheld or delayed), ozalids of each Book.
(b) Subject to timely performance by Distributor of Distributor's
obligations under this Agreement, Publisher shall arrange for the printing of
the Quantity of Books ordered for delivery to Distributor by the Delivery Date,
unless Publisher is prevented from doing so by circumstances beyond Publisher's
control, or unless otherwise mutually agreed.
(c) Delivery to distributor of up to 10% under or over the Quantity
of any Book shall constitute good delivery, and Distributor shall pay for the
actual number of copies received.
(d) Distributor shall notify Publisher in writing of Distributor's
requirements, if any, with respect to advance copies, extra covers or jackets,
and folded and gathered sheets.
(e) Distributor shall not insert within or on the cover or jacket of
any edition of any Book, any advertisement, other than information about other
Books published by Publisher, without the prior written consent of Publisher.
4 EXHIBIT 10.9, PAGE 4 OF 9
<PAGE> 87
6. ACCOUNTING MATTERS.
(a) Distributor shall prepare statements of the sale of each Book
yearly through December 31 of that year, and shall deliver such statements to
Publisher by March 31 of the next year. Such statements shall show clearly the
number of unsold copies of each Book in the possession or under the control of
Distributor at the end of such accounting.
(b) All monies due to Publisher shall be paid by mail or telegraphic
transfer to Publisher's bank account. Distributor shall ensure that all
remittances or notifications of remittance shall detail the names of Distributor
and Publisher, the title of the Book(s), and, if applicable, Publisher's invoice
number.
7. FREIGHT. Except as provided for in subparagraph 4(h) above, all
Books will be shipped C.I.F. to Distributor's warehouse in the State of New
York.
8. SHIPPING SERVICES. From time to time Publisher may request
Distributor to ship stock of Distributor's books held by Distributor to fill
orders placed by Publisher's other customers. All such orders shall be for
full-case quantities to a single shipping location. Distributor will charge
Publisher, in fulfillment of any such order, the actual cost of shipping plus a
handling charge of 1% of the value of such order. Publisher shall also reimburse
Distributor for any portion of the purchase price paid by Distributor to
Publisher for the Books so sold, and for all of Distributor's out-of-pocket
costs for such Books. Such charges shall be deducted from monthly payments due
to Publisher from Distributor under this Agreement.
9. PACKAGING SPECIFICATIONS. Publisher agrees to package all Books
shipped to Distributor under this Agreement in case packs of 30 copies unless
otherwise mutually agreed to by the parties. Each carton will have the following
information clearly marked on the outside of the carton: Publisher Imprint:
Little Tiger Press; ISBN: _________; Title:__________; Number of Copies:
__________; Distributor's Product No.:__________.
10. IMPRINT; COPYRIGHT.
(a) All Books purchased by Distributor from Publisher for
distribution by Distributor shall bear the Imprint.
(b) Distributor shall inform Publisher promptly of any infringement
of the copyright in any Book of which Distributor becomes aware. Any actions to
protect the copyright will be at the Publisher's expense and Distributor shall
take no such action without Publisher's prior written authorization.
11. RESERVED RIGHTS. All rights in each Book, other than those
specifically granted to Distributor under this Agreement, are reserved by
Publisher.
12. TERM; TERMINATION. This Agreement shall be effective immediately and
5 EXHIBIT 10.9, PAGE 5 OF 9
<PAGE> 88
automatically on the "Contingency Expiration Date," as that term is defined in
that certain Operating Agreement for Little Tiger Press USA, L.L.C., dated of
even date herewith, executed by Futech Educational Products, Inc. and Magi
Publications. This Agreement shall continue thereafter until terminated in any
one of the following ways:
(a) If Distributor is at any time in breach of any of the terms and
conditions of this Agreement, and Distributor fails to cure such breach within
thirty (30) days after receipt by Distributor of written notice from Publisher
specifying the breach and requiring that it be cured.
(b) If Distributor is declared bankrupt or goes into liquidation
(other than solvent voluntary liquidation for the purpose of reconstruction
only), or if a receiver or administrator or administrative receiver is appointed
to the whole or substantially the whole of Distributor's business, or if
Distributor shall make an assignment for the benefit of creditors, then
Publisher may terminate this Agreement if Distributor fails to cure such breach
within thirty (30) days after receipt by Distributor of written notice from
Publisher specifying the breach and requiring that it be cured.
(c) If Distributor ceases to trade as a distributor or is for any
reason unable to perform and comply with the terms and conditions of this
Agreement.
(d) If Distributor allows any Book to go out of stock (to the extent
that Distributor has less than 50 copies of such Book in stock), and to remain
out of stock for 6 months, then Publisher may terminate this Agreement with
respect to such Book only.
(e) If Distributor shall dispose of all remaining stock of a Book by
remaindering or destruction, then Publisher may terminate this Agreement with
respect to such Book only.
Notwithstanding the foregoing, or any other provision of this
Agreement, Distributor shall be entitled to use the Imprint in connection with
sales of Books purchased from Publisher until such time as Distributor shall
have exhausted Distributor's stock of said Books, including Books received by
Distributor after a termination of this Agreement from orders placed by
Distributor prior to said termination. Except as so provided, upon termination
of this Agreement Distributor shall immediately cease using the Imprint.
Any termination of this Agreement by either party shall not affect
the obligations of either party under this Agreement to pay the other party
amounts owing in connection with performance under this Agreement prior to the
termination. The termination of this Agreement by either party shall not
prejudice any claim which either party has against the other.
13. ASSIGNMENT. Distributor shall not, without the prior written
consent of Publisher, assign or in any way transfer Distributor's rights granted
hereunder, in whole or in part, nor issue or permit issue of any Book over any
imprint other than the Imprint.
6 EXHIBIT 10.9, PAGE 6 OF 9
<PAGE> 89
14. NATURE OF RELATIONSHIP. The relationship the parties intend to
create is that of principal and independent contractor, and nothing herein is
intended, nor shall it be construed, to create a relationship of partnership,
joint venture, or employer/employee between the parties. Publisher shall not
have the right to direct the specific daily activities or practices of
Distributor nor the manner in which Distributor conducts Distributor's affairs.
15. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be given by any of the
following means and shall be deemed to have been received as follows:
(i) If by hand delivery, upon delivery;
(ii) If by pre-paid mail, 48 hours after posting, or if the
intended recipient party is in a country other than that of
the sender, on the seventh day after dispatch (Saturdays,
Sundays and public holidays excluded); or
(iii) If by telex, facsimile or other system which prints the
notice at the receiving end, if the sender has an
acknowledgment from the recipient of its receipt in readable
form, upon receipt of such acknowledgment;
provided, however, that no Notice shall be deemed to have been received unless
addressed to the addresses appearing below, or such other address provided to
the other party by Notice:
If to Distributor:
XYZ Distributors
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
If to Publisher:
Little Tiger Press USA, L.L.C.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
Notice given on a Saturday, Sunday or public holiday, or outside normal business
hours, shall not be deemed given until commencement of the next normal business
hours.
16. ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and a complete and exclusive statement
of its terms. No prior course of dealings between the parties and no usage of
trade shall be relevant or admissible to supplement, explain, or vary any of the
terms of this Agreement. Acceptance of, or
7 EXHIBIT 10.9, PAGE 7 OF 9
<PAGE> 90
acquiescence in, a course of performance rendered under this or any prior
agreement shall not be relevant or admissible to determine the meaning of this
Agreement even though the accepting or acquiescing party has knowledge of the
nature of the performance and an opportunity to make objection. No
representations, understandings, or agreements have been made or relied upon in
the making of this Agreement other than those specifically set forth herein.
This Agreement can be modified only by writing signed by all of the parties
hereto.
17. MISCELLANEOUS. This Agreement contains the entire Agreement between
the parties with respect to the subject matter discussed in this Agreement, and
any prior arrangements or negotiations relating thereto are superseded by this
Agreement. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict laws thereof. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction and venue in any case or controversy arising under
this Agreement or by reason of this Agreement. The parties agree that any
litigation or arbitration arising from the interpretation or enforcement of this
Agreement shall be only in either Maricopa County Superior Court or in the
United States Federal District Court for the District of Arizona, and for this
purpose each party to this Agreement (and each person who shall become a party)
hereby expressly and irrevocably consents to the jurisdiction and venue of such
courts. This Agreement shall be construed according to its fair meaning and
neither for nor against the drafting party. If arbitration or other legal action
is instituted in connection with this Agreement, the prevailing party in such
action shall be entitled to recover from the other party reasonable attorneys'
fees and costs. The parties agree to accept facsimile signatures in counterparts
to this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were originals. The failure of a party
to require the performance of any term of this Agreement, or the waiver by a
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of such term nor be deemed a waiver of any subsequent breach. The
remedies and payments provided for in this Agreement are not exclusive of other
remedies available to the parties. Every provision of this Agreement is intended
to be severable. If any term of provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement. Time is of the essence of each and every
provision of this Agreement. Titles and headings of sections of this Agreement
are for convenience of reference only, are not intended to define, limit or
describe the scope or intent of any provision of this Agreement, and shall not
affect the construction of any provision of this Agreement.
DATED the date first hereinabove written.
DISTRIBUTOR: Futech Educational Products, Inc., an
Arizona corporation, dba XYZ Distributors
By_______________________________________
Vincent W. Goett, CEO
8 EXHIBIT 10.9, PAGE 8 OF 9
<PAGE> 91
PUBLISHER: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Magi Publications,
a partnership, Member
By___________________________________
Manmohan Singh Bhatia, Partner
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By___________________________________
Vincent W. Goett, CEO
List of Exhibits
1998 Spring and Fall Front List "A"
9 EXHIBIT 10.9, PAGE 9 OF 9
<PAGE> 92
Exhibit "A", Page 1 of 2
LITTLE TIGER PRESS, USA
FRONT LIST AND REPRINT PUBLISHING SCHEDULE SPRING '98
<TABLE>
<CAPTION>
Order Retail Futech/
Title Format Quantity Price LTP Cost Ext Cost XYZ Price W/S Turnover Ex-Works
- ----- ------ -------- ------ -------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
It Could Have Been Worse Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
A Duck So Small Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
You Won't Think of Me at All Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
Beware of the Bears Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
The Lion Who Wanted to Love Hardback 12,000 $14.95 $4.10 49,200 $5.23 62,780 Nov '97
Look Out for the Big Bad Fish Hardback 15,000 $14.95 $3.75 56,260 $5.23 78,450 Dec '97
Tommy Hardback 15,000 $16.95 $4.40 66,000 $5.93 88,950 Dec '97
I Don't Want to Take a Bath! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
I Don't Want to Go to Bed! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
Tim's Animal Stories 96-page H/B 15,000 $16.95 $4.25 63,750 $5.93 88,950 Jan '98
Animals All Around
Laura's Star Reprint** Hardback 50,000 $16.95 $4.40 220,000 $5.93 295,500 June '98
Rumble in the Jungle Reprint** Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 June '98
Magi Various Reprints** Hardback 60,000 $14.95 $3.75 225,000 $5.23 313,800 June '98
PAPERBACK
I Don't Want to Take a Bath! Paperback 25,000 $ 5.95 $1.20 $2.08
Dora's Eggs Paperback 25,000 $ 5.95 $1.20 $2.08
TOTAL 307,000 960,450 1,390,860
</TABLE>
* Price to be finalized
** Quantities, dates and titles to be finalized
<PAGE> 93
Exhibit "A", Page 2 of 2
LITTLE TIGER PRESS, USA
FRONT LIST PUBLISHING SCHEDULE FALL '98
<TABLE>
<CAPTION>
ORDER RETAIL FUTECH/ EX-
TITLE FORMAT QUANTITY PRICE LTP COST EXT COST XYZ PRICE W/S TURNOVER WORKS
- ----- ----------- -------- ------ -------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hurry Santa Hardback 40,000 $14.95 $3.60 144,000 $ 5.23 209,200 June '98
House, Look Out Hardback 10,000 $14.95 $3.75 37,500 $ 5.23 52,300 June '98
One Two Three Oops** Hardback 15,000 $14.95 $3.75 56,250 $ 5.23 78,450 June '98
Little Bunny Bobkin Hardback 15,000 $14.95 $4.10 61,500 $ 5.23 78,450 March '98
Bedtime for Little Hare Hardback 20,000 $14.95 $3.75 75,000 $ 5.23 104,600 June '98
Smudge** Hardback 15,000 $14.95 $3.75 56,250 $ 5.23 78,450 July '98
Commotion in the Ocean Hardback 20,000 $14.95 $4.10 82,000 $ 5.23 104,600 July '98
A New Hardback*** Hardback 15,000 $14.95 $4.10 61,500 $ 5.23 78,450 July '98
Santa's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $ 4.53 113,250 Aug '98
Tiger's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $ 4.53 113,250 Aug '98
Tim's Bear Stories 96 page H/B 15,000 $16.95 $4.25 63,750 $ 5.93 88,950 June '98
Little Tiger Cloth Book 1 Cloth Book 25,000 $19.95 $6.00* 150,000 $ 8.00* 200,000 July '98
Little Tiger Cloth Book 2 Cloth Book 25,000 $19.95 $6.00* 150,000 $ 8.00* 200,000 July '98
PAPERBACK
Beware of the Bears Paperback 25,000 $ 5.95 $1.20 $ 2.08
It Could Have Been Worse Paperback 15,000 $ 5.95 $1.20 $ 2.08
TOTAL 305,000 1,097,750 1,499,950
</TABLE>
- ---------------
* Price to be finalized
** Pub date to be confirmed
*** Titles to be confirmed
<PAGE> 1
Exhibit: 10.10T
SECURITY INTEREST AGREEMENT (#13) September 25, 1992
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including those for $34,000 of
mailing charges for the catalog bound by Perlmuter and $16,000 of general
operating expenses,
WHEREAS the Trudy Corp has to date been unable to secure financing from other
sources for general purpose funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $50,000.00
(fifty thousand dollars and 00/100) for its use for operating purposes.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity; the $34,000 for the catalog should
be repaid by Oct 30, 1992 with the remaining $16,000 due by February 1, 1993.
In such circumstances, Burnham shall have a collateral interest second only to
that of Union Trust (if any), but in any event senior to all trade creditors and
to all other liabilities of the Company unless otherwise stated or stipulated by
legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: 9/28/92
<PAGE> 1
Exhibit: 10.10FD
CREDIT AND SECURITY AGREEMENT
DATED AS OF OCTOBER 30, 1998
FUNDEX GAMES, LTD., a Nevada corporation (the "Borrower"), and NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including, without limitation, the aggregate
unpaid obligations of customers and other account debtors to the
Borrower arising out of the sale or lease of goods or rendition of
services by the Borrower on an open account or deferred payment basis.
"Advance" has the meaning given in Section 2.1.
"Affiliate" or "Affiliates" means Carl E. Voigt, III, Carl E.
Voigt, IV, and any other Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"Authorized Borrower Representative" means any officer or
agent of the Borrower who is designated by an officer of the Borrower
in a writing delivered to the Lender on or after the date hereof as a
person who is authorized to request Advances to the Borrower hereunder.
<PAGE> 2
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Milwaukee, Wisconsin.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such
bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) the sum of
(i) the lesser of (A) 80% of Eligible Accounts
or (B) $2,500,000, plus
(ii) the lesser of (A) the sum of (1) 40% of
Eligible Inventory consisting of parts plus
(2) 60% of Eligible Inventory consisting of
finished goods, or (B) $1,500,000.
"Capital Expenditures" for a period means any expenditure of
money for the lease, purchase or other acquisition of any capital
asset, or for the lease of any other asset whether payable currently or
in the future.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) proceeds of any and all of the foregoing;
(iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any tangible goods;
(v) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods; and (vi) all sums on
deposit in the Special Account.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, NBD Bank and
the Lender.
"Commitment" means the Lender's commitment to make Advances
pursuant to Article II.
2
<PAGE> 3
"Credit Facility" means the credit facility being made available to the
Borrower by the Lender pursuant to Article II.
"Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day of
any month during which a Default or Event of Default has occurred, provided
the Lender has given the Borrower written notice of such Default or Event of
Default, and ending on the date the Lender notifies the Borrower in writing
that such Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent (3%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits and
reserves for Accrued Cooperative Advertising, except the following shall not
in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid thirty (30) days or more
after the due date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether foreign
or domestic (provided, however, that there shall be included in
Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory to
the Lender that (A) the Lender has a first priority perfected security
interest and (B) such Accounts may be enforced by the Lender directly
against such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the
United States of America which are not (A) backed by a bank letter of
credit naming the Lender as beneficiary or assigned to the Lender, in
the Lender's possession and acceptable to the Lender in all respects,
in its sole discretion, (B) covered by a foreign receivables insurance
policy acceptable to the Lender in its sole discretion;
3
<PAGE> 4
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the Lender
or Liberty BIDCO, including, without limitation, any payment or
performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if twenty five percent (25%) or more of the total
amount due under Accounts from such debtor is ineligible under clauses
(i), (ii) or (ix) above; and
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the lower
of cost or market value as determined in accordance with GAAP; provided,
however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises not approved by the Lender in writing;
located outside of the states, or localities, as applicable, in which
the Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed an
agreement with the Lender;
(ii) Supplies, packaging or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, not currently
saleable in the normal course of the Borrower's operations or which has
been owned by the Borrower for more than twelve (12) months;
(v) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof,
4
<PAGE> 5
(vi) Inventory manufactured by the Borrower pursuant to a
license unless (A) with respect to licenses in effect as of the Funding
Date, either (1) less than ninety (90) days have elapsed since the
Funding Date or (2) the applicable licensor has agreed in writing to
permit the lender to exercise its rights and remedies against such
Inventory, (B) with respect to licenses granted after the date hereof,
the applicable licensor has agreed in writing to permit the Lender to
exercise its rights and remedies against such Inventory; or (C) the
Lender is satisfied that it will be able to exercise its rights and
remedies against such Inventory without the consent or permission of
the applicable licensor.
(vii) Inventory that is subject to a security interest in
favor of any Person other than the Lender or Liberty BIDCO; and
(viii) Inventory otherwise deemed ineligible by the Lender in
its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus one percent (1.0%), which annual rate shall change when and as the Base
Rate changes; provided, however, that the Floating Rate shall be reduced by
one-fourth percent (.25%) effective on, in each case, the first day of the
first calendar month following Lender's receipt of Borrower's audited
financial statements for the fiscal year ending December 31, 1999 and for
the fiscal year ending December 31, 2000 if and only if, in each case, both
Borrower's financial statements show that Net Income during such year equals
or exceeds $500,000 and no Event of Default has occurred and is continuing.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
5
<PAGE> 6
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, licenses
and rights under license agreements customer or supplier lists and
contracts, manuals, operating instructions, permits, franchises, the right
to use the Borrower's name, and the goodwill of the Borrower's business.
"Guarantors" means Carl E. Voigt, III and Carl E. Voigt, IV.
"Hazardous Substance" has the meaning given in Section 5.12.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including, but not limited to, all securities, securities entitlements,
securities accounts, commodity contracts, commodity accounts, stock, bonds,
mutual fund shares, money market shares and United States of America
Government securities.
"Liberty BIDCO" means Liberty BIDCO Investment Corporation, a Michigan
business and industrial development corporation.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, NBD Bank and the Lender, of even date herewith.
"Maturity Date" means October 31, 2001.
"Maximum Line" means $2,500,000, unless said amount is reduced pursuant
to Section 2.6, in which event it means the amount to which said amount is
reduced.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"NBD Bank" means NBD Bank, N.A.
6
<PAGE> 7
"Net Income" means fiscal year-to-date after-tax net income, decreased
by the sum of any extraordinary, non-operating or non-cash income recorded
by the Borrower and increased by any extraordinary, non-cash or
non-operating expense or loss recorded by the Borrower, as determined in
accordance with GAAP.
"Norwest Bank Minnesota" means Norwest Bank Minnesota, National
Association.
"Note" means the Borrower's revolving promissory note, payable to the
order of the Lender in substantially the form of EXHIBIT A hereto and any
note or notes issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time.
"Obligations" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises
in a transaction involving the Lender alone or in a transaction involving
other creditors of the Borrower, and whether it is direct or indirect, due
or to become due, absolute or contingent, primary or secondary. liquidated
or unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising
under this Agreement, the Note, or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or
hereafter entered into.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in EXHIBIT C attached hereto.
"Receivables" means each and every right of the Borrower to the payment
of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether
7
<PAGE> 8
such right to payment is or is not already earned by performance, and howsoever
such right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the borrower may at
any time have by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any property of such account
debtor or other obligor; all including but not limited to all present and future
accounts, contract rights, loans and obligations receivable, chattel papers,
bonds, notes and other debt instruments, tax refunds and rights to payment in
the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Lockbox Agreement, and any other document delivered to the
Lender from time to time to secure the Obligations, as the same may
hereafter be amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subordination Agreement" means the Subordination Agreement of even
date herewith to be executed by Liberty BIDCO in the Lender's favor and
acknowledged by the Borrower, and any other Subordination Agreement accepted
from Liberty BIDCO by the Lender and acknowledged by the Borrower from time
to time, as the same may be amended, supplemented or restated from time to
time.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of directors
of such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations after an Event of Default pursuant
to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.14 as the state whose laws shall govern
this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
8
<PAGE> 9
Section 1.2. Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections And
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2. 1. Advances. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make advances to the Borrower from time
to time from the date all of the conditions set forth in Section 4.1 are
satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Advances"). The Lender
shall have no obligation to make an Advance if, after giving effect to such
requested Advance, the sum of the outstanding and unpaid Advances under this
Section 2.1 or otherwise would exceed the Borrowing Base. The Borrower's
obligation to pay the Advances shall be evidenced by the Note and shall be
secured by the Collateral as provided in Article III. Within the limits set
forth in this Section 2. 1, the Borrower may borrow, prepay pursuant to
Section 2.6 and reborrow. The Borrower agrees to comply with the following
procedures in requesting Advances under this Section 2.1:
(a) The Borrower shall make each request for an Advance to the
Lender before 11:00 a.m. (Milwaukee time) of the day of the requested
Advance. Requests may be made in writing or by telephone, specifying
the date of the requested Advance and the amount thereof. Each request
shall be by an Authorized Borrower Representative. Each oral request
for an Advance shall be conclusively presumed to be by an Authorized
Borrower Representative.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Advance by crediting the same to the Borrower's demand deposit account
maintained with NBD Bank unless the Lender and the Borrower shall agree
in writing to another manner of disbursement. Upon the Lender's
request, the Borrower shall promptly confirm each telephonic request
for an Advance by executing and delivering an appropriate confirmation
certificate to the Lender. The Borrower shall repay all Advances even
if the Lender does not receive such confirmation. Any request for an
Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the time of the request.
Section 2.2. Interest; Minimum Interest Charge; Default Interest;
Participations; Usury. Interest accruing on the Note shall be due and
payable in arrears on the first day of each month.
(a) NOTE. Except as set forth in Sections 2.2(c) and 2.2(d),
the outstanding principal balance of the Note shall bear interest at
the Floating Rate.
9
<PAGE> 10
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Section 2.2(a), the Borrower shall pay to the
Lender interest of not less than $60,000 during each year beginning on
the Funding Date And each anniversary thereof (the "Minimum Interest
Charge") during the term of this Agreement, and the Borrower shall pay
any deficiency between the Minimum Interest Charge and the amount of
interest otherwise calculated under Sections 2.2(a) on the date and in
the manner provided in Section 2.4.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(d) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law. Notwithstanding anything to the contrary contained in
any Loan Document, all agreements which either now are or which shall
become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total
liability for payments in the nature of interest, additional interest
and other charges exceed the applicable limits imposed by any
applicable usury laws. If any payments in the nature of interest,
additional interest and other charges made under any Loan Document are
held to be in excess of the limits imposed by any applicable usury
laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total
liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower
and the Lender. This provision shall never be superseded or waived and
shall control every other provision of the Loan Documents and all
agreements between the Borrower and the Lender, or their successors and
assigns.
Section 2.3. Fees.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $5,000
which is due and payable upon the execution of this Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section 2.3(b),
"Unused Amount" means the Maximum Line reduced by outstanding Advances.
The Borrower agrees to pay to the Lender an unused line fee at the rate
of one-fourth percent (.25%) per annum on the average daily Unused
Amount from the date of this Agreement to and including the Termination
Date, due and payable quarterly in
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arrears on the first day of each January, April, July and October and
on the Termination Date.
(b) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections
conducted by the Lender of any Collateral or the Borrower's operations
or business at the rates established from time to time by the Lender AS
ITS AUDIT FEES (which fees are currently $ 1,000 per quarter beginning
January 1, 1999), plus reasonable out-of-pocket costs and expenses, and
during Default Periods all reasonable out-of-pocket costs and expenses
incurred in conducting any such audit or inspection.
(d) MISCELLANEOUS FEES. The Borrower hereby agrees to (i) pay
the Lender for all wire transfer charges and automated clearing house
charges and to (ii) pay overadvance charges of $100 per day; provided,
however, that from the first day of any month during which any Default
Period commences or exists at any time, the daily overadvance charge
(if an overadvance exists) shall be $200.
Section 2.4. Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed
on the basis of actual number of days elapsed in a year of three hundred
sixty (360) days. Interest shall be payable in arrears on the first day of
each month and on the Termination Date.
Section 2.5. Intentionally Left Blank.
Section 2.6. Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise
provided herein, the Borrower may prepay the Advances in whole at any time
or from time to time in part. The Borrower may terminate the Credit Facility
or reduce the Maximum Line at any time if it (i) gives the Lender at least
thirty (30) days prior written notice and (ii) pays the Lender the
termination or line reduction fees in accordance with Section 2.7. Any
reduction in the Maximum Line must be in an amount not less than $100,000 or
an integral multiple thereof. If the Borrower terminates the Credit
Facility, all Obligations shall be immediately due and payable. Upon
termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and
the Security Documents to which the Borrower is entitled by law.
Section 2.7. Termination and Line Reduction Fees. If the Credit
Facility is terminated for any reason as of a date other than the Maturity
Date, the Borrower shall pay the Lender a fee in an amount equal to $5,000
multiplied by the number of months remaining until the Maturity Date;
provided, however, that no termination fee shall be payable if (i) the
Credit Facility is terminated by the Lender in accordance with the
provisions of Section 8.2(a) hereof, (ii) the Lender declares the
Obligations to be due and payable in accordance with Section 8.2(b) hereof,
or (iii) the Credit Facility is terminated on or after the date which
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is eighteen (18) months after the Funding Date on account of refinancing of the
Credit Facility by a Norwest Bank. If the Borrower reduces the Maximum Line, the
Borrower shall pay the Lender a fee in an amount equal to a percentage of the
reduction in the Maximum Line as follows: (i) three percent (3.0%) if the
reduction occurs on or before the first anniversary of the Funding Date; (ii)
two percent (2.0%) if the reduction occurs after the first anniversary of the
Funding Date but on or prior to the second anniversary of the Funding Date; and
(iii) one percent (1.0%) if the reduction occurs after the second anniversary of
the Funding Date.
Section 2.8. Mandatory Prepayment. Without notice or demand, if the sum
of the outstanding principal balance of the Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Advances to the
extent necessary to eliminate such excess. Any payment received by the Lender
under this Section 2.8 or under Section 2.6 may be applied to the Obligations,
in such order and in such amounts as the Lender, in its discretion, may from
time to time determine.
Section 2.9. Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations one (1)
Banking Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) Banking Days before
applying them to the Obligations. Notwithstanding anything in Section 2. 1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make an Advance in an amount equal to
the portion of the Obligations from time to time due and payable.
Section 2.10. Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.11. Use of Proceeds. The Borrower shall use the proceeds of
Advances for repayment of existing indebtedness, for ordinary working capital
purposes and for Capital Expenditures.
Section 2.12. Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within thirty (30) days
after receipt.
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ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1. Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2. Notification of Account Debtors and Other Obligors. The Lender may
at any time after the occurrence of an Event of Default notify any account
debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to the Lender for security and shall be
paid directly to the Lender. The Borrower will join in giving such notice if the
Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3. Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, an), and all policies of insurance now
or at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4. Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
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(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5. License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents of
the Borrower for the purpose of selling, leasing or otherwise disposing of
any or all Collateral during any Default Period.
Section 3.6. Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 43241
Federal Tax Identification No. 35-1846155
Name and address of Secured Party:
Norwest Business Credit, Inc.
100 East Wisconsin Avenue
Suite 1400
Milwaukee, Wisconsin 53202
Federal Tax Identification No. 41-1237652
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Section 3.7. Setoff. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1. Conditions Precedent to the Initial Advances. The Lender's
obligation to make the initial Advances hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) The Collateral Account Agreement, properly executed by the
Borrower and NBD Bank.
(e) The Lockbox Agreement, properly executed by the Borrower
and NBD Bank.
(f) The Subordination Agreement, properly executed by Liberty
BIDCO and acknowledged by the Borrower.
(g) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the
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Security Interest, to the extent the Security Interest is capable of
being perfected by filing.
(h) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(i) A letter from an officer of the Borrower identifying those
individuals who are authorized to initiate and confirm payment orders
and to sign collateral reports.
(j) A current certificate issued by the Secretary of State of
Nevada, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Nevada.
(k) Evidence that the Borrower is duly licensed or qualified
to transact business in Indiana and in all other jurisdictions where
the character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification
necessary.
(1) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in
Article V.
(m) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
(n) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(o) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations, together, in each case, with an
acknowledgment letter executed by such Guarantor, pursuant to which
such Guarantor acknowledges the legal obligations created by his
guaranty.
(p) A waiver of interest, properly executed by the spouse of
each Guarantor.
(q) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.3 and expenses incurred by the
Lender through such date
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and required to be paid by the Borrower under Section 9.6, including
all legal expenses incurred through the date of this Agreement.
(r) Written authorization from the Borrower to pay proceeds of
the Advances to third parties.
(s) A payoff letter from NBD bank and any other party holding
a loan or capitalized lease which will be paid with the proceeds of the
initial Advances.
(t) Such other documents as the Lender in its sole discretion
may require.
Section 4.2. Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and
as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance, which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5. 1. Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Nevada and is duly licensed or
qualified to transact business in Indiana and in all other jurisdictions
where the character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification necessary.
The Borrower has all requisite power and authority, corporate or otherwise,
to conduct its business, to own its properties and to execute and deliver,
and to perform all of its obligations under, the Loan Documents. During its
existence, the Borrower has done business solely under the names set forth
in Schedule 5.1 hereto. The Borrower's chief executive office and principal
place of business is located at the address set forth in Schedule 5.1
hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located
at that location or at one of the other locations set forth in Schedule 5.1
hereto. The Borrower's tax identification number is correctly set forth in
Section 3.6 hereto.
Section 5.2. Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary
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corporate action and do not and will not (i) require any consent or
approval of the borrower's stockholders; (ii) require any authorization,
consent or approval by, or registration, declaration or filing with, or
notice to, any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or
notice as has been obtained, accomplished or given prior to the date hereof;
(iii) violate any provision of any law, rule or regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the Borrower's articles of
incorporation or bylaws; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower is a party or by which
it or its properties may be bound or affected; or (v) result in, or require,
the creation or imposition of any mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance of any nature (other than
the Security Interest) upon or with respect to any of the properties now
owned or hereafter acquired by the Borrower.
Section 5.3. Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms.
Section 5.4. Subsidiaries. The Borrower has no Subsidiaries.
Section 5.5. Financial Condition: No Adverse Change. The Borrower has
heretofore furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 1997, and its unaudited financial statements
for the fiscal year-to-date period ended September 30, 1998 and those
statements fairly present the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods
then ended and were prepared in accordance with GAAP, subject to year-end
audit adjustments, inventory verification and other non-recurring
adjustments to such financial statements not typically made for preparing
interim financial statements. Since the date of the most recent financial
statements, there has been no material adverse change in the Borrower's
business, properties or condition (financial or otherwise).
Section 5.6. Litigation. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any
of its Affiliates before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which, if
determined adversely to the Borrower or any of its Affiliates, would have a
material adverse effect on the financial condition, properties or operations
of the Borrower or any of its Affiliates.
Section 5.7. Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning
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of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 5.8. Taxes. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local
taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may
be, are required to be filed, and the Borrower and its Affiliates have paid
or caused to be paid to the respective taxing authorities all taxes as shown
on said returns or on any assessment received by any of them to the extent
such taxes have become due.
Section 5.9. Titles and Liens. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender
and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as
debtor is on file in any office except to perfect only Permitted Liens.
Section 5. 10. Plans. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate
has received any notice or has any knowledge to the effect that it is not in
full compliance with any of the requirements of ERISA. No Reportable Event
or other fact or circumstance which may have an adverse effect on the Plan's
tax qualified status exists in connection with any Plan. Neither the
Borrower nor any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11. Default. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is
a party or by which it or its property is bound or affected, the breach or
default of which could have a material adverse effect on the Borrower's
financial condition, properties or operations.
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Section 5.12. Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within
twelve (12) months and there is no threat that any such permit will be
withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
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(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13. Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the borrower in
connection with the borrower's request for the credit facilities
contemplated hereby is true and correct in all material respects and, as to
projections, valuations or proforma financial statements, present a good
faith opinion as to such projections, valuations and proforma condition and
results.
Section 5.14. Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents
which is capable of being perfected by filing financing statements. None of
the Collateral or other collateral covered by the Security Documents is or
will become a fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
Section 5.15. Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents
is (or, in the case of all future Collateral or such other collateral, will
be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim, of the account
debtor or other obligor named therein or in the Borrower's records
pertaining thereto as being obligated to pay such obligation.
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower WILL comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6. 1. Reporting Requirements. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be
in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Borrower,
the Borrower's audited financial statements with the unqualified
opinion of independent certified public accountants selected by the
Borrower and acceptable to the Lender, which annual financial
statements shall include the Borrower's balance sheet as at the end of
such
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fiscal year and the related statements of the Borrower's income,
retained earnings and cash flows for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail
and prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; (ii) a report signed
by such accountants stating that in making the investigations necessary
for said opinion they obtained no knowledge, except as specifically
stated, of any Default or Event of Default hereunder and all relevant
facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set
forth in Sections 6.12, 6.13 and 7.10; and (iii) a certificate of the
Borrower's chief financial officer, substantially in the form of
EXHIBIT B, stating (A) that such financial statements have been
prepared in accordance with GAAP, (B) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default
hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and (c) all relevant
facts in reasonable detail to evidence, and the computations as to,
whether the Borrower is in compliance with the requirements set forth
in Sections 6.12, 6.13 and 7.10;
(b) as soon as available and in any event within twenty (20)
days after the end of each month, an unaudited/internal balance sheet
and statements of income and retained earnings of the Borrower as at
the end of and for such month and for the year to date period then
ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments, inventory verification and other
non-recurring adjustments to such financial statements not typically
made for preparing interim financial statements (collectively, the
"Adjustments") and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of EXHIBIT B hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to the Adjustments, (ii) whether such
officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii)
all relevant facts in reasonable detail to evidence, and the
computations as to, whether the Borrower is in compliance with the
requirements set forth in Sections 6.12, 6.13 and 7.10;
(c) within fifteen (15) days after the end of each month or
more frequently if the Lender so requires, agings of the Borrower's
accounts receivable and its accounts payable, an inventory
certification report, and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory and Eligible Inventory as at the end of
such month or shorter time period;
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(d) at least thirty (30) days before the beginning of each
fiscal year of the Borrower, the projected balance sheets and income
statements FOR each month of such year, each in reasonable detail,
representing the Borrower's good faith projections and certified by the
Borrower's chief financial officer as being the most accurate
projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such supporting
schedules and information as the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of $ 10,000;
(f) as promptly as practicable, and in any event not later
than five (5) business days after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(g) as soon as possible, and in any event within thirty (30)
days after the Borrower knows or has reason to know that any Reportable
Event with respect to any Plan has occurred, the statement of the
Borrower's chief financial officer setting forth details as to such
Reportable Event and the action which the Borrower proposes to take
with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within ten ( 10)
days after the Borrower fails to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $ 10,000
individually; (ii) credit memos; (iii) any goods returned to or
recovered by the Borrower; and (iv) any change in the persons
constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
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(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(1) promptly after the sending or filing thereof, copies of
ALL REGULAR and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) as soon as filed with the applicable taxing authorities,
and in any event by not later than April 30th of each year or, if a
valid extension of time to file has been obtained in any such year,
August 30th of such year, copies of the state and federal tax returns
and all schedules thereto and an updated personal financial statement
of each individual Guarantor;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(o) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
Section 6.2. Books and Records: Inspection and Examination. The
Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower's business and
financial condition and such other matters as the Lender may from time to
time request in which true and complete entries will be made in accordance
with GAAP, subject to year-end audit adjustments, inventory verification and
other non-recurring adjustments to such financial statements not typically
made for preparing interim financial statements and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate
and financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss
the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at
any time during ordinary business hours.
Section 6.3. Account Verification. The Lender may at any time and from
time to time (i) send or require the Borrower to send requests for
verification of accounts and (ii) telephone account debtors and other
obligors to verify accounts. The Lender may also at any time after the
occurrence of an Event of Default send or require the Borrower to send
written notices of assignment to account debtors and other obligors.
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Section 6.4. Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
Section 6.5. Payment of Taxes and Other Claims. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest,
prior to the date on which penalties attach thereto, (b) all federal, state
and local taxes required to be withheld by it, and (c) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been made.
Section 6.6. Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Lender's discretion,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except Permitted Liens.
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Section 6.7. Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible
and reputable, in such amounts and against such risks as may from time to
time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which
the Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times maintain business interruption insurance
including coverage for force majeure and keep all tangible Collateral
insured against risks of fire (including so-called extended coverage),
theft, collision (for Collateral consisting of motor vehicles) and such
other risks and in such amounts as the Lender may reasonably request, with
any loss payable to the Lender to the extent of its interest, and all
policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
Section 6.8. Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall
conduct its business in an orderly and efficient manner.
Section 6.9. Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or
assigned by the Borrower.
Section 6.10. Collateral Account.
(a) If, notwithstanding the instructions to debtors to make
payments to the Lockbox, the Borrower receives any payments on
Receivables or other proceeds of Collateral, the Borrower shall deposit
such payments and proceeds into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments and proceeds in
trust for and as the property of the Lender and shall not commingle
such payments with any of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing two (2) Banking Days, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay
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the Lender, or, for items deposited in the Collateral Account, the bank
maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's commercial
account or other account. The Borrower shall be liable as an endorser
on all items deposited in the Collateral Account, whether or not in
fact endorsed by the Borrower.
Section 6.11. Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.5,
6.7 and 6.10, immediately upon the occurrence of such failure, without
notice or lapse of time), the Lender may, but need not, perform or observe
such covenant on behalf and in the name, place and stead of the Borrower
(or, at the Lender's option, in the Lender's name) and may, but need not,
take any and all other actions which the Lender may reasonably deem
necessary to cure or correct such failure (including, without limitation,
the payment of taxes, the satisfaction of security interests, liens or
encumbrances, the performance of obligations owed to account debtors or
other obligors, the procurement and maintenance of insurance, the execution
of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the
Lender on demand the amount of all monies expended and all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred
by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as the Borrower's attorney
in fact (which appointment is coupled with an interest) with the right (but
not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of the Borrower any and
all instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Borrower
under this Section 6.11.
Section 6.12. Minimum Book Net Worth. While any part of the Obligations
remains unpaid, the Borrower shall, unless waived in writing by Lender,
continuously maintain:
(a) from the Funding Date through December 31, 1998, a minimum
Book Net Worth of One Million Two Hundred Thousand Dollars
($1,200,000);
(b) thereafter a minimum Book Net Worth during each fiscal
period from January 1 through December 30 of not less than the Book Net
Worth as of the end of the preceding fiscal year minus Three Hundred
Fifty Thousand Dollars ($350,000); and
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(c) a minimum Book Net Worth as of the end of each fiscal year
after December 31, 1998, of not less than Two Hundred Thousand Dollars
($200,000) more than the Book Net Worth as of the end of the preceding
fiscal year.
Section 6.13. Minimum Net Income. The Borrower will achieve during each
fiscal year ending on or after December 31, 1999 during the term hereof, as
demonstrated on the audited year-end financial statements of the Borrower,
Net Income of not less than $200,000 per fiscal year.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1. Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents;
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding
the lesser of cost or fair market value thereof and so long as no
Default Period is then in existence and none would exist immediately
after such acquisition; and
(e) the liens and security interests in favor of Liberty BIDCO
so long as its liens and security interests in the Collateral are
subordinate to the liens of the Lender on terms satisfactory to the
Lender.
Section 7.2. Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for
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borrowed money or letters of credit issued on the Borrower's behalf, or any
other indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto;
(c) indebtedness relating to liens permitted in accordance
with Section 7.1; and
(d) indebtedness to Liberty BIDCO, so long as such
indebtedness remains subordinate to the Obligations pursuant to the
terms of the Subordination Agreement.
Section 7.3. Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4. Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U. S. corporations rated
"A-1 or "A-2" by Standard & Poor's Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $ 100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation); and
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $10,000.
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(b) The Borrower will not create or permit to exist
any Subsidiary.
Section 7.5. Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6. Sale or Transfer of Assets, Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part
of its assets, or (iii) any Collateral or any interest therein (whether in
one transaction or in a series of transactions) to any other Person other
than (A) the sale of Inventory in the ordinary course of business and (B)
the sale of equipment in any calendar year with an aggregate book value of
not more than $25,000. The Borrower will not liquidate, dissolve or suspend
business operations. The Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate
consideration.
Section 7.7. Consolidation and Merger: Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose
or effect to a consolidation or merger) all or substantially all the assets
of any other Person.
Section 7.8. Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now
owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower
intends to use for substantially the same purpose or purposes as the
property being sold or transferred.
Section 7.9. Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10. Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $ 100,000 in the
aggregate during any fiscal year.
Section 7.11. Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12. Discounts, etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before
or after notice from the Lender) modify,
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amend, subordinate, cancel or terminate the obligation of any account
debtor or other obligor of the Borrower.
Section 7.13. Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14. Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15. Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit
any tangible Collateral or any records pertaining to the Collateral to be
located in any state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to be, but
has not in fact been, filed in order to perfect the Security Interest. The
Borrower will not change its name.
Section 7.16. Organizational Documents. The Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws.
Section 7.17. Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than twenty percent (20%) in any one year, either
individually or for all such persons in the aggregate, or pay any such
increase from any source other than profits earned in the year of payment.
Section 7.18. Change in Ownership. The Borrower will not issue or sell
any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the
Borrower will not permit or suffer to occur the sale, transfer, assignment,
pledge or other disposition of any or all of the issued and outstanding
shares of stock of the Borrower. Notwithstanding the foregoing, (i) so long
as the Guarantors continue to hold in the aggregate a sufficient number of
shares of stock to control shareholder votes, the Borrower may sell up to
three hundred thousand (300,000) shares in the aggregate of the Borrower's
common stock upon the exercise of options issued to the Borrower's employees
pursuant to the Borrower's 1996 Employee Stock Option Plan and up to fifty
thousand (50,000) shares of the Borrower's common stock upon the exercise of
options issued to the Borrower's directors pursuant to the Borrower's 1996
Stock Option Plan for Non-Employee Directors and (ii) the Borrower's stock
may be pledged to Liberty BIDCO in support of the loans by Liberty BIDCO to
the Borrower; provided, however, that the Lender's agreement to such pledge
shall not be deemed or construed to constitute or imply any agreement by the
Lender to the transfer of such stock upon enforcement of such pledge.
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ARTICLE VIII
Events of Default, Rights and Remedies
SECTION 8.1. Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of
creditors; or the. Borrower or any Guarantor shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower
or any such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(f) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(g) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $25,000 and the
continuance of such judgment,
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decree or order unsatisfied and in effect for any period of thirty (30)
consecutive days without a stay of execution;
(h) A "default" or "event of default" as defined therein,
which gives the applicable lender the right to accelerate or demand
payment of indebtedness, occurs under any bond, debenture, note or
other evidence of indebtedness of the Borrower owed to any Person other
than the Lender, or under any indenture or other instrument under which
any such evidence of indebtedness has been issued or by which it is
governed, or a "default" or "event of default" as defined therein,
which gives the applicable lessor the right to terminate such lease,
occurs under any lease of any of the Premises;
(i) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
thirty (30) days after written notice to such effect shall have been
given to the Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect to
any, Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(k) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(1) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(m) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
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(n) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's
guaranty in favor of the Lender, or shall die;
(o) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the
prospect of payment of all or any part of the Obligations or the
performance by the Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of the
Borrower shall occur;
(p) The Borrower shall take or participate in any action which
would be prohibited under the provisions of the Subordination Agreement
or make any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive
under the provisions of the Subordination Agreement; or
(q) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2. Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
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<PAGE> 35
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3. Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten (10) calendar days
before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1. No Waiver: Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2. Amendments, Etc. No amendment, modification or waiver of
any provision of any Loan Document shall be effective unless the same shall be
in writing and signed by the Lender and the Borrower and no consent to any
departure by the Borrower from any provisions of any Loan Document or any
release of a Security Interest shall be effective unless the same shall be in
writing and signed by the Lender. Any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.
Section 9.3. Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States of America mail, and
in the case of notices and demands, registered or certified, return receipt
requested, (c) sent by overnight courier of national reputation, or (d)
transmitted by facsimile, in each case addressed or facsimiled to the party to
whom notice is being given at its address or facsimile number as set forth
below:
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<PAGE> 36
If to the Borrower:
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, Indiana 46241
Facsimile: 317/248-1086
Attention: Carl E. Voigt, IV
With a copy of notices or demands only to:
Much, Shelist, Freed, Denenberg, Ament & Rubenstein, P.C.
200 North LaSalle Street, Suite 2100
Chicago, Illinois 60601-1095
Facsimile: 312/621-1750
Attention: Mitchell S. Roth, Esquire
If to the Lender:
Norwest Business Credit, Inc.
100 East Wisconsin Avenue
Suite 1400
Milwaukee, Wisconsin 53202
Facsimile: 414/224-7442
Attention: Dennis D. Schlesner, Jr.
or, as to each party, at such other address or facsimile number as may hereafter
be designated by such party in a written notice to the other party complying as
to delivery with the terms of this Section; provided, however, that failure of
the Lender to give copies of notices of default or demand to the Borrower's
attorney shall not impair the Lender's right to pursue its rights and remedies.
All such notices, requests, demands and other communications shall be deemed to
have been given on (a) the date received if personally delivered, (b) three (3)
days after when deposited in the mail if delivered by mail, (c) the date
received if sent by overnight courier, or (d) the date of transmission if
delivered by facsimile, except that notices or requests to the Lender pursuant
to any of the provisions of Article II shall not be effective until received by
the Lender.
Section 9.4. Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of
36
<PAGE> 37
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
Section 9.5. Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6. Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including, without limitation, reasonable attorney's
fees, periodic UCC, tax and judgment lien searches, incurred by the Lender in
connection with the Obligations, this Agreement, the Loan Documents and any
other agreement related hereto or thereto, and the transactions contemplated
hereby, including, without limitation, all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.
Section 9.7. Indemnity. In addition to the payment of expenses pursuant
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the
Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including, without limitation, the reasonable fees
and disbursements of
37
<PAGE> 38
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner related to or
arising out of or in connection with the making of the Advances and the
Loan Documents or the use or intended use of the proceeds of the
Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8. Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9. Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10. Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
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<PAGE> 39
Section 9.11. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12. Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13. Lender's Actions. The Lender agrees that at any time
which Lender may, in accordance with this Agreement, act within its "discretion"
or its "sole discretion" or in exercising its right to "consent," Lender shall
exercise good faith and act in a commercially reasonable manner.
Section 9.14. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Wisconsin. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Wisconsin. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Wisconsin in connection with any, controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the Circuit Court of Milwaukee County, Wisconsin, or the United
States District Court, Eastern District of Wisconsin; and (iv) agrees that a
final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST BUSINESS CREDIT, INC. FUNDEX GAMES, LTD.
By: /s/ Terrance O. McKinney By: /s/ Carl E. Voigt, IV
----------------------------- -----------------------------
Terrance O. McKinney Carl E. Voigt, IV
Assistant Vice President President
39
<PAGE> 40
TABLE OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Note
Exhibit B Compliance Certificate
Exhibit C Premises
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
</TABLE>
<PAGE> 1
Exhibit: 10.11FT
DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into as of the 5th day of January, 1998, by
and between Little Tiger Press USA, L.L.C., a New York limited liability company
("Publisher") and Futech Educational Products, Inc., an Arizona corporation, to
be operating as "XYZ Distributors" ("Distributor").
R E C I T A L S:
A. Publisher publishes printed materials, and Distributor is in the
business of marketing and distributing published materials.
B. The parties desire to enter into an agreement for distribution by
Distributor of certain materials published by Publisher, all on the terms and
conditions herein set forth.
T E R M S:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL. Publisher hereby grants Distributor the
right of first refusal to purchase from Publisher and distribute in the United
States any and all published materials Publisher desires to have distributed in
the United States (hereinafter individually a "Book" and collectively "Books").
Publisher will supply Distributor with three (3) folded and gathered
sheets, and/or three (3) review copies, of each Book Publisher wants distributed
in the United States, at no cost to Distributor. At the same time, Publisher
will supply Distributor with the title, name of the author and illustrator, Unit
Price (defined below), and the proposed delivery date of the Book.
Distributor shall inform Publisher of Distributor's election whether to
distribute each Book within thirty (30) days after Distributor receives the Book
from Publisher for review, and the other information described in the preceding
paragraph. Publisher will supply Distributor with 130 folded and gathered
sheets, and/or 130 review copies, of each Book Distributor elects to distribute
in the United States, at no cost to Distributor.
Books selected by Co-Publisher for distribution under this Agreement
will be distributed under and with the name and imprint "Little Tiger Press USA,
L.L.C."
If Distributor elects not to distribute any Book offered by Publisher,
then Publisher shall have the right to pursue alternative distribution for such
Book; provided, however, that the terms offered to an alternative distributor
shall not be more favorable than the terms offered by Publisher to Distributor.
2. APPOINTMENT AND TERRITORY. Publisher hereby grants Distributor the
right to
<PAGE> 2
distribute and sell each Book acquired by Distributor under Section 1 above
exclusively throughout the United States of America. Distributor's right to
distribute any Book in other territories shall be subject to the prior written
consent of Publisher.
Unless otherwise agreed to in writing by Publisher, Distributor is
excluded from selling any Book to book clubs, or from selling any Book by direct
marketing methods including, but not limited to, mail order, door-to-door,
direct mail, television advertising, or incentive, premium or coupon advertising
methods.
Distributor shall not, without the prior written consent of Publisher,
which consent may be withheld for any reason or no reason, print or authorize
the printing of copies of any Book other than by Publisher.
Distributor shall promote the sale of each Book actively throughout the
territory granted to Distributor under this Agreement.
Except as otherwise called for herein, during the term of this
Agreement, Distributor shall be entitled to market Books acquired pursuant to
this Agreement using the Imprint (defined in Section 3 below).
Publisher agrees to sell to Distributor, and Distributor agrees to
distribute, the 1998 Spring and Fall Front Lists, copies of which are attached
hereto as Exhibit "A" and hereby made a part hereof, at the pricing shown on
said Exhibit.
3. MANNER OF PURCHASING.
(a) Distributor shall have the option to purchase copies of each Book,
on a title-by-title basis, from Publisher, on a returnable basis, on terms for
said purchases as described in Section 4 below. The details of Book orders shall
be set out from time to time on purchase orders (hereinafter "Purchase Orders")
issued by Distributor.
(b) As used in this Agreement, and on any Purchase Order, the following
terms shall have the following meanings:
(i) "Book": One of Publisher's book titles, copies of which
are to be purchased by Distributor, as further described in
Section 1 above.
(ii) "Unit Price": The price to Distributor, inclusive of
royalty and delivery (C.I.F. to Distributor's warehouse in the
State of New York) of each copy of a Book.
(iii) "Quantity": The initial quantity of copies of a Book
ordered by Distributor, as specified in a Purchase Order for
such Book.
2
<PAGE> 3
(iv) "Delivery Date": The date for bulk delivery of the
Quantity of a Book, as specified in a Purchase Order for such
Book.
(v) "Imprint": The "Little Tiger Press" imprint.
(c) Distributor shall notify Publisher of the proposed release dates of
each Book. Distributor shall release each Book within three (3) months of
delivery of the Quantity ordered of such Book, unless Distributor is prevented
from doing so by circumstances beyond Distributor's control, in which event
Publisher shall be notified in writing and the period permitted for release
shall be extended by the duration of such circumstances.
(d) Except as may otherwise be specified in this Agreement, all details
of sale and advertisement of each Book, and the number and destination of free
copies, shall be at the sole discretion and expense of Distributor.
4. RETURNABLE SALES.
(a) Unless otherwise agreed upon by the Publisher and Distributor,
all sales under this Agreement will be returnable sales. The details of each
purchase shall be identified on a Purchase Order.
The Unit Price of each Book, as offered by Publisher, is based upon
the cost of paper and printing as of the date of the offer relating to such
Book. If such costs have increased by more than 5% at the time the Book goes to
print, one-half of the increase in cost per copy in excess of 5% shall be added
to the Unit Price per copy for such Book. If the increase in cost would not have
been incurred but for a delay in printing caused by Distributor's failure to
perform its obligations under this Agreement, Distributor shall bear the entire
increase in cost.
(b) Distributor shall furnish Publisher with monthly sales reports
on a per Book basis, commencing within one (1) month after first distribution of
each Book by Distributor.
(c) Within sixty (60) days after delivery of each Book purchased by
Distributor, Distributor shall pay Publisher the Unit Price of the Book. The
parties intend that the Unit Price for each Book shall be 65% of the suggested
retail price of such Book. Distributor shall be responsible for all credit
checks, and all uncollected credit, for all purchasers of Publisher's books from
Distributor, and Publisher shall accept no responsibility for bad debts incurred
by Distributor.
(d) Publisher shall supply to Distributor, as ordered by
Distributor, 10% additional jackets/covers for each hard cover Book ordered by
Distributor, at no charge to Distributor. The purchase price for jackets/covers
ordered in excess of said 10% shall be 100% of Publisher's direct out-of-pocket
costs for the jackets/covers, payable in full within sixty (60) days after
receipt by Distributor of the jackets/covers. Extra jackets/covers shall be firm
sales -
3
<PAGE> 4
not returnable.
(e) Distributor shall, after taking possession of Books purchased on
a returnable basis, offer the Books for sale at prices not less than
Distributor's Unit Price from Publisher for the Books. Distributor shall use its
best efforts to sell the Books.
(f) Distributor shall pay all expenses incident to the receipt,
handling, storage, marketing, advertising, selling, and delivery to customers of
the Books purchased by Distributor, and shall pay all taxes and other charges
assessed and/or levied on said Books while in Distributor's possession,
including sales taxes and Distributor's income taxes, but not including
Publisher's income taxes.
(g) Initial and reorder quantities will not be less than 5000 copies
per Book, unless otherwise agreed to by the parties.
(h) Distributor may return to Publisher any Books purchased by
Distributor on a returnable basis, for full credit. All freight charges for
returned Books shall be paid by Publisher, unless the Books are being returned
as a result of an uncured breach by Distributor under the terms of this
Agreement, or unless Books are being returned as a result of Distributor
terminating this Agreement, in which event Distributor shall pay all said
freight charges.
5. PRODUCTION, PRINTING AND DELIVERY.
(a) Publisher will send Distributor for approval (such approval not
to be unreasonably withheld or delayed), ozalids of each Book.
(b) Subject to timely performance by Distributor of Distributor's
obligations under this Agreement, Publisher shall arrange for the printing of
the Quantity of Books ordered for delivery to Distributor by the Delivery Date,
unless Publisher is prevented from doing so by circumstances beyond Publisher's
control, or unless otherwise mutually agreed.
(c) Delivery to distributor of up to 10% under or over the Quantity
of any Book shall constitute good delivery, and Distributor shall pay for the
actual number of copies received.
(d) Distributor shall notify Publisher in writing of Distributor's
requirements, if any, with respect to advance copies, extra covers or jackets,
and folded and gathered sheets.
(e) Distributor shall not insert within or on the cover or jacket of
any edition of any Book, any advertisement, other than information about other
Books published by Publisher, without the prior written consent of Publisher.
6. ACCOUNTING MATTERS.
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<PAGE> 5
(a) Distributor shall prepare statements of the sale of each Book
yearly through December 31 of that year, and shall deliver such statements to
Publisher by March 31 of the next year. Such statements shall show clearly the
number of unsold copies of each Book in the possession or under the control of
Distributor at the end of such accounting.
(b) All monies due to Publisher shall be paid by mail or telegraphic
transfer to Publisher's bank account. Distributor shall ensure that all
remittances or notifications of remittance shall detail the names of Distributor
and Publisher, the title of the Book(s), and, if applicable, Publisher's invoice
number.
7. FREIGHT. Except as provided for in subparagraph 4(h) above, all
Books will be shipped C.I.F. to Distributor's warehouse in the State of New
York.
8. SHIPPING SERVICES. From time to time Publisher may request
Distributor to ship stock of Distributor's books held by Distributor to fill
orders placed by Publisher's other customers. All such orders shall be for
full-case quantities to a single shipping location. Distributor will charge
Publisher, in fulfillment of any such order, the actual cost of shipping plus a
handling charge of 1% of the value of such order. Publisher shall also reimburse
Distributor for any portion of the purchase price paid by Distributor to
Publisher for the Books so sold, and for all of Distributor's out-of-pocket
costs for such Books. Such charges shall be deducted from monthly payments due
to Publisher from Distributor under this Agreement.
9. PACKAGING SPECIFICATIONS. Publisher agrees to package all Books
shipped to Distributor under this Agreement in case packs of 30 copies unless
otherwise mutually agreed to by the parties. Each carton will have the following
information clearly marked on the outside of the carton: Publisher Imprint:
Little Tiger Press; ISBN: ; Title: ; Number of Copies: ;
Distributor's Product No.: .
10. IMPRINT; COPYRIGHT.
(a) All Books purchased by Distributor from Publisher for
distribution by Distributor shall bear the Imprint.
(b) Distributor shall inform Publisher promptly of any infringement
of the copyright in any Book of which Distributor becomes aware. Any actions to
protect the copyright will be at the Publisher's expense and Distributor shall
take no such action without Publisher's prior written authorization.
11. RESERVED RIGHTS. All rights in each Book, other than those
specifically granted to Distributor under this Agreement, are reserved by
Publisher.
12. TERM; TERMINATION. This Agreement shall be effective immediately
and automatically on the "Contingency Expiration Date," as that term is defined
in that certain Operating Agreement for Little Tiger Press USA, L.L.C., dated of
even date herewith, executed
5
<PAGE> 6
by Futech Educational Products, Inc. and Magi Publications. This Agreement shall
continue thereafter until terminated in any one of the following ways:
(a) If Distributor is at any time in breach of any of the terms and
conditions of this Agreement, and Distributor fails to cure such breach within
thirty (30) days after receipt by Distributor of written notice from Publisher
specifying the breach and requiring that it be cured.
(b) If Distributor is declared bankrupt or goes into liquidation
(other than solvent voluntary liquidation for the purpose of reconstruction
only), or if a receiver or administrator or administrative receiver is appointed
to the whole or substantially the whole of Distributor's business, or if
Distributor shall make an assignment for the benefit of creditors, then
Publisher may terminate this Agreement if Distributor fails to cure such breach
within thirty (30) days after receipt by Distributor of written notice from
Publisher specifying the breach and requiring that it be cured.
(c) If Distributor ceases to trade as a distributor or is for any
reason unable to perform and comply with the terms and conditions of this
Agreement.
(d) If Distributor allows any Book to go out of stock (to the extent
that Distributor has less than 50 copies of such Book in stock), and to remain
out of stock for 6 months, then Publisher may terminate this Agreement with
respect to such Book only.
(e) If Distributor shall dispose of all remaining stock of a Book by
remaindering or destruction, then Publisher may terminate this Agreement with
respect to such Book only.
Notwithstanding the foregoing, or any other provision of this
Agreement, Distributor shall be entitled to use the Imprint in connection with
sales of Books purchased from Publisher until such time as Distributor shall
have exhausted Distributor's stock of said Books, including Books received by
Distributor after a termination of this Agreement from orders placed by
Distributor prior to said termination. Except as so provided, upon termination
of this Agreement Distributor shall immediately cease using the Imprint.
Any termination of this Agreement by either party shall not affect
the obligations of either party under this Agreement to pay the other party
amounts owing in connection with performance under this Agreement prior to the
termination. The termination of this Agreement by either party shall not
prejudice any claim which either party has against the other.
13. ASSIGNMENT. Distributor shall not, without the prior written
consent of Publisher, assign or in any way transfer Distributor's rights granted
hereunder, in whole or in part, nor issue or permit issue of any Book over any
imprint other than the Imprint.
14. NATURE OF RELATIONSHIP. The relationship the parties intend to
create is that of
6
<PAGE> 7
principal and independent contractor, and nothing herein is intended, nor shall
it be construed, to create a relationship of partnership, joint venture, or
employer/employee between the parties. Publisher shall not have the right to
direct the specific daily activities or practices of Distributor nor the manner
in which Distributor conducts Distributor's affairs.
15. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be given by any of the
following means and shall be deemed to have been received as follows:
(i) If by hand delivery, upon delivery;
(ii) If by pre-paid mail, 48 hours after posting, or if the
intended recipient party is in a country other than that of
the sender, on the seventh day after dispatch (Saturdays,
Sundays and public holidays excluded); or
(iii) If by telex, facsimile or other system which prints the
notice at the receiving end, if the sender has an
acknowledgment from the recipient of its receipt in readable
form, upon receipt of such acknowledgment;
provided, however, that no Notice shall be deemed to have been received unless
addressed to the addresses appearing below, or such other address provided to
the other party by Notice:
If to Distributor:
XYZ Distributors
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
If to Publisher:
Little Tiger Press USA, L.L.C.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
Notice given on a Saturday, Sunday or public holiday, or outside normal business
hours, shall not be deemed given until commencement of the next normal business
hours.
16. ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and a complete and exclusive statement
of its terms. No prior course of dealings between the parties and no usage of
trade shall be relevant or admissible to supplement, explain, or vary any of the
terms of this Agreement. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement shall not
7
<PAGE> 8
be relevant or admissible to determine the meaning of this Agreement even though
the accepting or acquiescing party has knowledge of the nature of the
performance and an opportunity to make objection. No representations,
understandings, or agreements have been made or relied upon in the making of
this Agreement other than those specifically set forth herein. This Agreement
can be modified only by writing signed by all of the parties hereto.
17. MISCELLANEOUS. This Agreement contains the entire Agreement between
the parties with respect to the subject matter discussed in this Agreement, and
any prior arrangements or negotiations relating thereto are superseded by this
Agreement. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict laws thereof. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction and venue in any case or controversy arising under
this Agreement or by reason of this Agreement. The parties agree that any
litigation or arbitration arising from the interpretation or enforcement of this
Agreement shall be only in either Maricopa County Superior Court or in the
United States Federal District Court for the District of Arizona, and for this
purpose each party to this Agreement (and each person who shall become a party)
hereby expressly and irrevocably consents to the jurisdiction and venue of such
courts. This Agreement shall be construed according to its fair meaning and
neither for nor against the drafting party. If arbitration or other legal action
is instituted in connection with this Agreement, the prevailing party in such
action shall be entitled to recover from the other party reasonable attorneys'
fees and costs. The parties agree to accept facsimile signatures in counterparts
to this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were originals. The failure of a party
to require the performance of any term of this Agreement, or the waiver by a
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of such term nor be deemed a waiver of any subsequent breach. The
remedies and payments provided for in this Agreement are not exclusive of other
remedies available to the parties. Every provision of this Agreement is intended
to be severable. If any term of provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement. Time is of the essence of each and every
provision of this Agreement. Titles and headings of sections of this Agreement
are for convenience of reference only, are not intended to define, limit or
describe the scope or intent of any provision of this Agreement, and shall not
affect the construction of any provision of this Agreement.
DATED the date first hereinabove written.
DISTRIBUTOR: Futech Educational Products, Inc., an
Arizona corporation, dba XYZ Distributors
By_______________________________________
Vincent W. Goett, CEO
8
<PAGE> 9
PUBLISHER: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Magi Publications,
a partnership, Member
By: /s/ Manmohan Singh Bhatia
--------------------------------
Manmohan Singh Bhatia, Partner
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By: /s/ Vincent W. Goett
--------------------------------
Vincent W. Goett, CEO
List of Exhibits
1998 Spring and Fall Front List "A"
9
<PAGE> 10
Exhibit "A", Page 1 of 2
LITTLE TIGER PRESS, USA
FRONT LIST AND REPRINT PUBLISHING SCHEDULE SPRING '98
<TABLE>
<CAPTION>
ORDER RETAIL FUTECH/
TITLE FORMAT QUANTITY PRICE LTP COST EXT COST XYZ PRICE W/S TURNOVER EX-WORKS
----- ------ -------- ------ -------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
It Could Have Been Worse Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
A Duck So Small Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
You Won't Think of Me at All Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
Beware of the Bears Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
The Lion Who Wanted to Love Hardback 12,000 $14.95 $4.10 49,200 $5.23 62,760 Nov '97
Look Out for the Big Bad Fish Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
Tommy Hardback 15,000 $16.95 $4.40 66,000 $5.93 88,950 Dec '97
I Don't Want to Take a Bath! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
I Don't Want to Go to Bed! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
Tim's Animal Stories 96-page H/B 15,000 $16.95 $4.25 63,750 $6.93 88,950 Jan '98
Animals All Around
Laura's Star Reprint** Hardback 50,000 $16.95 $4.40 220,000 $5.93 296,500 June '98
Rumble in the Jungle Reprint** Hardback 15,000 $14.95 $4.10 61,500 $6.23 78,450 June '98
Magi Various Reprints** Hardback 60,000 $14.95 $3.75 225,000 $6.23 313,800 June '98
PAPERBACK
I Don't Want to Take a Bath! Paperback 25,000 $ 5.95 $1.20 $2.08
Dora's Eggs Paperback 15,000 $ 5.95 $1.20 $2.08
TOTAL 307,000 960,450 1,390,860
</TABLE>
* Price to be finalized
** Quantities, dates and titles to be finalized
<PAGE> 11
Exhibit "A", Page 2 of 2
LITTLE TIGER PRESS, USA
FRONT LIST PUBLISHING SCHEDULE FALL '96
<TABLE>
<CAPTION>
Order Retail Futech/
Title Format Quantity Price LIP Cost Ext Cost XYZ Price W/P Turnover Ex-Works
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hurry Santa Hardback 40,000 $14.95 $3.60 144,000 $5.23 209,200 June '98
Mouse, Look Out Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 June '98
One Two Three Oops** Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 June '98
Little Bunny Bobkin Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 March '98
Bedtime for Little Hare Hardback 20,000 $14.95 $3.75 75,000 $5.23 104,600 June '98
Smudge** Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 July '98
Commotion in the Ocean Hardback 20,000 $14.95 $4.10 82,000 $5.23 104,600 July '98
A New Hardback*** Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 July '98
Santa's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $4.53 113,250 Aug '98
Tiger's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $4.53 113,250 Aug '98
Tim's Bear Stories 96 page H/B 15,000 $16.95 $4.25 63,750 $5.93 88,950 June '98
Little Tiger Cloth Book 1 Cloth Book 25,000 $19.95 $6.00* 150,000 $8.00* 200,000 July '98
Little Tiger Cloth Book 2 Cloth Book 25,000 $19.95 $6.00* 150,000 $8.00* 200,000 July '98
PAPERBACK
Beware of the Bears Paperback 25,000 $ 5.95 $1.20 $2.08
It Could Have Been Worse Paperback 15,000 $ 5.95 $1.20 $2.08
TOTAL 305,000 1,097,750 1,499,950
</TABLE>
* Price to be finalized
** Pub date to be confirmed
*** Titles to be confirmed
<PAGE> 1
Exhibit: 10.11T
SECURITY INTEREST AGREEMENT (#14) October 5, 1992
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including those for $13,000 of
general operating expenses,
WHEREAS the Trudy Corp has to date been unable to secure financing from other
sources for general purpose funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $13,000.00
(thirteen thousand dollars and 00/100) for its use for operating purposes on Oct
2, 1992.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity; the entire $13,000 should be
repaid by February 28, 1993. In such circumstances, Burnham shall have a
collateral interest second only to that of Union Trust (if any), but in any
event senior to all trade creditors and to all other liabilities of the Company
unless otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: Oct. 5, 1992
<PAGE> 1
Exhibit: 10.11FD
BUSINESS LOAN NOTE WITH COVENANTS
August 27, 1998
Farmington Hills, Michigan
Up to $1,000,000.00
For value received, FUNDEX GAMES, LTD., a Nevada corporation (the "Borrower")
promises to pay to LIBERTY BIDCO INVESTMENT CORPORATION, a Michigan Corporation
("BIDCO"), at 30833 Northwestern Highway, Suite 211, Farmington Hills, Michigan
48334-2582, the principal sum of up to One Million Dollars ($1,000,000.00) plus
interest computed on the basis of the actual number of days elapsed in a year of
360 days at the rate of:
Three and One-Half (3-1/2) percentage points above the rate published by
the Wall Street Journal for the first business day of every month as the
"prime" rate per annum ("Note Rate"), until maturity. The "prime" rate
published for the first business day of each month will change the Note
Rate effective for that month and shall be used to calculate the payment
due (whether interest only or principal and interest, as set forth below)
on the last business day of that month.
After maturity, the interest rate on all principal or interest
outstanding, whether by acceleration or otherwise, shall be eight (8%)
percentage points above the Note Rate.
1. PAYMENT OF LOAN PROCEEDS: The proceeds of the loan shall be disbursed to
Borrower as follows:
1.1 Upon execution of this note, $500,000 (net of expenses) shall be
disbursed to Borrower; and
1.2 The remaining $500,000 shall be disbursed to Borrower if each of the
following occur:
A. Borrower shall have simultaneously closed a loan of
at least $1,870,000 and not more than $2,500,000 with a senior
lender ("Senior Lender") reasonably satisfactory to BIDCO; and
B. BIDCO and Senior Lender shall have executed a
Subordination Agreement reasonably satisfactory to BIDCO.
Disbursement may occur at any time on or after closing if all of the
conditions are met. BIDCO is not required to disburse after
September 1, 1999 if the conditions are not met by that time.
No disbursement by BIDCO shall be required, then or at any time in
the future unless such conditions are met. In addition, if Borrower
is not in full compliance
<PAGE> 2
with this note and the other loan documents, then disbursement of
the proceeds shall be subject to the resolution of such
noncompliance. In no event shall BIDCO be obligated to make any
disbursement if an Event of Default hereunder has occurred and is
continuing.
2. PAYMENT: Commencing on the last business day of the month following the
month in which the Closing occurs, the Borrower will pay the following
sums:
FIRST TWELVE MONTHS: Interest only payments based on the Note Rate due on
the last business day of each month.
THIRTEENTH THROUGH SIXTIETH MONTHS: Interest and Principal in equal
monthly installments so as to entirely amortize the principal over sixty
(60) months from the due date of the first payment of principal and
interest, based on the Note Rate, on the last business day of each month,
with the entire outstanding principal due on the sixtieth month. The
monthly installment will be adjusted if the Prime Rate changes.
In all events, payment in full shall be due five (5) years from the date
hereof at which time the entire balance of unpaid principal plus accrued
interest shall be due and payable immediately. Each payment shall be
applied first to outstanding revenue participation fees, then to accrued
interest, then to principal. All payments shall be made to BIDCO at its
office at the above address.
In the event payment is not received by BIDCO on or before the date due,
(or the next business day if the due date is a Saturday, Sunday or legal
holiday) a late fee in the amount of five percent (5%) of the payment
amount due will be immediately payable by the Borrower to BIDCO.
3. PREPAYMENT: This Note may be prepaid without penalty at any time. In the
event of a prepayment, the Revenue Participation Agreement, and Continuing
Security Agreement, of even date entered into by the Borrower and BIDCO,
and the Guaranties executed by certain of Borrower's shareholders, shall
remain in full force and effect until all sums due thereunder have been
paid in full.
4. SECURITY: To secure the payment of this Note and any other present or
future liability of the Borrower to BIDCO, whether several, joint, or
joint and several, the Borrower pledges and grants to BIDCO a first
continuing security interest in all of Borrower's accounts, chattel paper,
instruments and general intangibles, machinery and equipment, inventory
and supplies, all furniture and fixtures and interest in joint ventures or
other entities, as more fully defined in the Continuing Security
Agreement, of even date, and all of its additions, substitutions,
increments, proceeds and products, whether now or later acquired
("Collateral"). Notwithstanding the above, BIDCO's security interest is
subordinate to the "Senior Lender" identified on Exhibit "B", if any.
2
<PAGE> 3
5. REPRESENTATIONS AND WARRANTIES: Borrower represents that (i) it is a
Nevada corporation, and is authorized to execute this Note, which
constitutes valid and binding obligations enforceable against it in
accordance with its terms except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditor's rights generally and subject to general
principles of equity; (ii) all balance sheets, profit and loss statements
and other information furnished to BIDCO, if any, are to the best of
Borrower's knowledge true, accurate and fairly reflect the financial
condition of Borrower, on their effective dates, including known
contingent liabilities of every type; (iii) there has been no material
adverse effect on the financial condition of Borrower since those dates.
6. AFFIRMATIVE COVENANTS: So long as this Note remains outstanding, as
regards its business operations, Borrower will:
6.1 Maintain insurance with financially sound and reputable insurers
covering its properties and business against those casualties and
contingencies and in the types and amounts as shall be in accordance
with sound business practices and industry standards.
6.2 Maintain its existence and business operations as presently in
effect in accordance with all applicable laws and regulations, pay
its debts and obligations when due under normal terms, the
nonpayment of which will not have a material adverse effect on the
financial condition of Borrower, and pay on or before the date they
are last payable without penalty, all taxes, assessments, fees and
other governmental monetary obligations, except as they may be
contested in good faith if they have been properly reflected on its
books and, at BIDCO's request, adequate funds or security has been
pledged to insure payment.
6.3 Maintain proper books of records and accounts in accordance with
generally accepted accounting principles (subject to Section 6.4)
and consistent with financial statements previously submitted to
BIDCO.
6.4 Furnish to BIDCO whatever information, books and records BIDCO may
reasonably request, including at a minimum:
A. Within thirty (30) days after each month, a balance sheet as
of the end of that month, and a statement of profit and loss
and surplus (including a comparison to previously submitted
budgets), for that month and from the beginning of that fiscal
year to the end of that month.
B. Within one hundred twenty (120) days after, and as of the end
of each of its fiscal years, detailed financial and operating
statements, including a balance sheet and a statement of
profit and loss and surplus. The
3
<PAGE> 4
statements shall be audited by Borrower's current independent
certified public accounting firm which has been approved by
BIDCO.
All financial and operating statements submitted to BIDCO shall be
prepared in accordance with generally accepted accounting principles
("G.A.A.P."), applied on a consistent basis, and shall be
accompanied by a Certificate of Compliance, in the form attached as
Exhibit A, executed by an officer of the Borrower. Notwithstanding
the above, statements or records submitted or maintained pursuant to
Sections 6.3 and 6.4A shall be in conformance with G.A.A.P. except
for year-end adjustments, inventory verification and non-recurring
adjustments to such financial statements or records not typically
made for preparing interim financial statements.
6.5 Furnish to BIDCO a written and detailed annual operating budget for
each fiscal year during the Term not less than sixty (60) days prior
to the beginning of the subject fiscal year.
6.6 Furnish BIDCO with copies of all of Borrower's material
correspondence with the Borrower's shareholders, directors,
executive committees and the financial community.
6.7 Cause Carl E. Voigt, IV to remain the President of Borrower.
6.8 Hold Board of Directors meetings no less than one each one hundred
and twenty days and invite BIDCO to each meeting.
6.9 Notify BIDCO in the event that Borrower is or reasonably expects to
be in default of any of the provisions hereof.
6.10 During the term of the loan, purchase a life insurance policy on the
life of Carl E. Voigt, IV, in an amount not less than the
outstanding balance of the loan, and collaterally assign the policy
to BIDCO as additional security for payment of this Note and the
Revenue Participation Agreement. Borrower shall provide a copy of
this insurance policy with a paid receipt to BIDCO prior to the
beginning of each term of the insurance. All proceeds received from
such life insurance by BIDCO shall be applied to any amounts due
from Borrower to BIDCO, including, but not limited to, the
outstanding loan balance, including principal and interest, and
revenue participation payments. Any excess shall be paid to the
Borrower.
7. NEGATIVE COVENANTS: Without the written consent of BIDCO, so long as this
Note remains outstanding, as regards its business operations, Borrower
will not:
4
<PAGE> 5
7.1 Permit the ratio of its current assets to its current liabilities at
any time during the indicated periods to be less than:
Ratio Period
----- ------
0.85:1.00 Closing until December 31, 1998
1.25:1.00 January 1, 1999 and thereafter
7.2 Permit its net worth at any time during the indicated periods to be
less than:
Net Worth Period
--------- ------
$ 900,000 Closing until December 31, 1998
$1,150,000 January 1, 1999 until March 31, 1999
$1,100,000 April 1, 1999 until June 30, 1999
$1,400,000 July 1, 1999 until September 30, 1999
$2,000,000 October 1, 1999 until December 31, 1999
$1,600,000 January 1, 2000 until March 31, 2000
$1,500,000 April 1, 2000 until June 30, 2000
$1,900,000 July 1, 2000 until September 30, 2000
$2,500,000 October 1, 2000 until December 31, 2000
$2,100,000 January 1, 2001 until March 31, 2001
$2,050,000 April 1, 2001 until June 30, 2001
$2,450,000 July 1, 2001 until September 30, 2001
$2,500,000 October 1, 2001 and thereafter
7.3 Permit the ratio of its total liabilities to its total net worth at
any time during the indicated periods to be greater than:
Ratio Period
----- ------
5.00:1.00 Closing until December 31, 1998
3.50:1.00 January 1, 1999 until June 30, 1999
2.50:1.00 July 1, 1999 until December 31, 1999
2.00:1.00 January 1, 2000 until June 30, 2000
1.50:1.00 July 1, 2000 and thereafter
The above ratios and net worth shall be computed on a basis
consistent with financial statements previously submitted to BIDCO
and in conformance with G.A.A.P. (subject to the modification to
G.A.A.P. set forth in Section 6.4) For the purpose of calculation,
net worth shall be reduced by loans to stockholders and related
party receivables.
5
<PAGE> 6
7.4 Acquire, repurchase or retire any shares of any class of its common
stock, or declare or pay dividends or make any other distributions
upon any shares of any class of its common stock, without the
consent of BIDCO, which shall not be unreasonably withheld, except
cash distributions to shareholders provided Borrower is a Subchapter
"S" corporation at the time and the distribution is not greater than
the income tax liability of the shareholders due to Borrower's
Subchapter "S" status.
7.5 Incur, or permit to remain outstanding, debt for borrowed money or
installment obligations, except (i) debt to BIDCO, (ii) unsecured
debt incurred in the ordinary course of business, (iii) debt
disclosed in writing to BIDCO prior to the date hereof, (iv) other
debt accepted by BIDCO in writing including those set forth on
Exhibit "B" hereto and (v) debt incurred for equipment purchases or
other capital expenditures which aggregate less than $50,000 per
calendar year (the "Permitted Debt"). For the purposes of this
covenant, the sale of Borrower's accounts receivable shall be deemed
the incurring of debt for borrowed money.
7.6 Create or permit to exist any lien on any of its property, real or
personal, except: liens granted to the Senior Lender; liens to
secure Permitted Debt (if consented to in writing by BIDCO); liens
to BIDCO; purchase money liens amounting to less than $50,000 per
calendar year; liens incurred in the ordinary course of business
securing current nondelinquent liabilities for taxes, worker's
compensation, unemployment insurance, social security and pension
liabilities, and liens for taxes being contested in good faith.
7.7 Except in the ordinary course of business or with the consent of
BIDCO (which consent shall not be unreasonably withheld), (i)
consolidate with or merge into any corporation or business entity,
or permit any corporation or business entity to merge into it; (ii)
nor convey, lease or sell all or a material portion of its assets or
business, nor lease, purchase or otherwise acquire all or a material
portion of the assets or business of any other person, corporation
or business entity.
7.8 Guarantee or otherwise become or remain secondarily liable on the
undertaking of another, except on endorsement for deposit and
collection in the ordinary course of business.
7.9 Purchase or acquire any securities of, or make any loans or advances
to, or investment in, any person, firm or corporation, except
obligations of the United States Government, open market commercial
paper rated one of the top two ratings by a rating agency of
recognized standing and/or certificates of deposit in commercial
banks.
6
<PAGE> 7
7.10 Create any subsidiary or any other class of common stock other than
the now existing classes of Common Stock or change its fiscal year.
7.11 Enter into any partnership or joint venture, or cause or allow any
shareholder of Borrower to enter into any partnership or joint
venture which shall be related to the activities of the Borrower
except consistent with Borrower's prior practice and which does not
result in a diminution of revenues which would have otherwise have
been received by Borrower.
7.12 Cause or allow Carl E. Voigt, III or Carl E. Voigt, IV to sell,
transfer or otherwise dispose of any of their shares in Common Stock
of the Borrower except the transfer to a revocable living trust for
the primary benefit of the shareholder, or his or her immediate
family, being his or her spouse, lineal descendants or their
spouses, the trustee of which is the shareholder.
7.13 Cause or allow the Borrower to purchase, sell or issue any shares of
any class of its common stock, except employee and director stock
option plans as in existence at the date hereof.
7.14 Amend or revise its Articles of Incorporation or Bylaws such that a
super majority of any class of outstanding common stock is required
for shareholder action.
8. EVENTS OF DEFAULT/ACCELERATION: There shall be a default of this Note, and
this Note and all other liabilities of the Borrower to BIDCO shall
immediately mature and be due and payable, without notice or demand,
unless BIDCO otherwise elects, upon the occurrence of any of the following
events:
8.1 Default in the payment of this Note or any other obligation owing to
BIDCO or material debt to any other creditor, other than unsecured
debt incurred during the ordinary course of business, and such
default continues for a period of ten (10) days without cure.
8.2 Default in the performance of any term or condition of this Note or
in any document given as security for this Note, or in any other
material agreement between the Borrower and any creditor, and such
default continues without cure for a period of ten (10) days.
8.3 Any warranty, representation, or statement made or furnished to
BIDCO by Borrower hereunder or otherwise is untrue in any material
respect.
8.4 If any "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974, as amended) occurs.
7
<PAGE> 8
8.5 The dissolution, termination of existence, suspension of business
(including failure to open for business for more than five (5)
consecutive days), or insolvency of Borrower; or the appointment of
a receiver for any part of the property of Borrower; or the making
of an assignment for the benefit of creditors by Borrower; or the
commencement of bankruptcy or insolvency proceedings by Borrower; or
the commencement of bankruptcy or insolvency proceedings against
Borrower which are not dismissed within sixty (60) days; or the
Borrower admits in writing its inability to pay its debts as they
mature; or death of the President of the Borrower.
8.6 The material loss, theft, damage or destruction, without insurance,
or the encumbrance to or of any material part or all of the
Collateral.
8.7 The entry, placement or issuance of any judgment, levy, lien, writ
of attachment, writ of garnishment, writ of execution or similar
process, against Borrower or any of Borrower's property unless they
do not have a material adverse impact on Borrower's financial
condition.
8.8 The sale of a material part of the Borrower's assets or business,
outside the ordinary course of business, without BIDCO's written
consent which shall not be unreasonably withheld.
8.9 BIDCO shall deem itself insecure in reasonable good faith believing
that the prospect of payment of liabilities or performance under
this Note is materially impaired.
8.10 Any event which results in the acceleration of the maturity of any
debt of Borrower to BIDCO or a material debt to others under any
notice, indenture, agreement or undertaking.
8.11 Failure to observe and perform any of the terms and conditions of
the Revenue Participation Agreement, of even date, entered into by
the Borrower and BIDCO.
9. REMEDIES ON DEFAULT: If either the Principal or Interest amounts of this
Note are not paid at maturity, whether by acceleration or otherwise, BIDCO
shall have all of the rights and remedies provided by any law or
agreement. Further, and without extending the maturity date thereof, or
otherwise limiting the scope or nature of remedies of BIDCO in the event
of a default hereunder, BIDCO shall have the right, but not the
obligation, upon notice to the Borrower, to deem that any or all said due
and unpaid Interest Payments are to be converted to and included as unpaid
principal under the respective Note, and payment of principal and interest
thereon shall become due and payable from the due date according to the
terms of such Note. Any requirement of reasonable notice shall be met if
BIDCO sends the notice to the Borrower at least ten (10) days prior to the
date of sale, disposition or other event giving rise to the required
notice. BIDCO is
8
<PAGE> 9
authorized to cause all or any part of the Collateral to be transferred to
or registered in its name or in the name of any other person, firm or
corporation, with or without designation of the capacity of the nominee.
The Borrower shall be liable for any deficiency remaining after
disposition of any Collateral.
10. MISCELLANEOUS:
10.1 No delay on the part of BIDCO in the exercise of any right or remedy
shall operate as a waiver. No single or partial exercise by BIDCO of
any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or
indulgence by BIDCO of any default shall be effective unless in
writing and signed by BIDCO, nor shall a waiver on one occasion be
construed as a bar to or waiver of any such right on any future
occasion. Any election to waive its right of acceleration shall not
be construed as a bar to or waiver of any right to elect
acceleration on a future occasion. An election by BIDCO to convert
any unpaid interest payment to principal shall not require BIDCO to
make a similar election in respect of subsequent unpaid interest
payments hereunder.
10.2 Any reference to BIDCO shall include any holder of this Note. This
Note is assignable and transferable individually or collectively
upon written notice to the Borrower.
10.3 This Note is governed by Michigan law without giving effect to any
choice or conflict of law provision or rule (whether of Michigan or
any other jurisdiction) that would cause the application of the laws
of any other jurisdiction other than Michigan to apply.
Each of the parties submits to the exclusive jurisdiction of the
United States District Courts for the Southern and Eastern Districts
of Michigan, and if subject matter jurisdiction is not available in
the Oakland County Circuit Court, in any action or proceeding
arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and
determined through such courts. Each party also agrees not to bring
any such action or proceeding arising out of or relating to this
Agreement in any other court. Each of the parties waives any defense
of inconvenient forum to the maintenance of any action or proceeding
so brought.
10.4 The Borrower is liable to BIDCO for all reasonable costs and
expenses, of every kind, incurred in the making or collection of
this Note, including, without limitation, actual attorney fees and
court costs. These costs and expenses shall include, without
limitation, any costs or expenses incurred by BIDCO in any
bankruptcy, reorganization, insolvency or other similar proceeding.
9
<PAGE> 10
10.5 All notices required or permitted under this Note shall be in
writing and personally delivered, sent by certified mail, return
receipt requested or by a reliable overnight delivery service, to
the respective address above, or to any other address required by
the respective party, or by facsimile transmission with confirmation
of receipt, and notice shall be deemed given on the earlier of: a)
three (3) business days after notice is mailed as set forth above;
or b) upon actual receipt.
10.6 If any provision of this agreement is invalid, it shall be
ineffective only to the extent of its invalidity, and the remaining
provisions shall be valid and effective.
10.7 Borrower expressly waives presentment, demand, notice (other than
notice of an event of default if otherwise required by this Note),
protest, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Note.
10.8 At no time shall the interest payable hereunder be deemed to exceed
the maximum interest rate permitted to be paid by the Borrower or
received by BIDCO with respect to the indebtedness represented by
this Note under applicable law (the "Legal Rate"). In the event any
interest is charged or received by BIDCO in excess of the Legal
Rate, the Borrower acknowledges that any such excess interest shall
be the result of an accidental and bona fide error, and such excess
shall first be applied to reduce the principal then unpaid hereunder
(in inverse order of their maturities if principal amounts are due
in installments); second, applied to reduce any obligation for other
indebtedness of the Borrower to BIDCO; and third, any remaining
excess returned to the Borrower.
10.9 If any payment applied to BIDCO to this Note is subsequently set
aside, recovered, rescinded or otherwise required to be returned or
disgorged by BIDCO for any reason (pursuant to bankruptcy
proceedings, fraudulent conveyance statutes or otherwise), this Note
shall be deemed to have continued in existence, notwithstanding the
application, and this Note shall be enforceable as to the payment of
such payment as fully as if BIDCO had not received or applied the
payment.
10.10 Borrowers, on one hand, and BIDCO, on the other hand, acknowledge
that the right to trial by jury is a constitutional one, but that it
may be waived. BIDCO AND BORROWER, AFTER CONSULTING COUNSEL OF THEIR
CHOICE, EACH HEREBY KNOWINGLY AND VOLUNTARILY, WITHOUT COERCION,
WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM.
Neither Borrower nor BIDCO shall be deemed to have given up this
waiver of jury trial unless such relinquishment is in a written
instrument signed by the party to be charged.
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<PAGE> 11
10.11 This Agreement may be amended only in a writing signed by Borrower
and BIDCO.
WITNESS: FUNDEX GAMES, LTD.,
a Nevada corporation,
______________________________ By:______________________________
Carl E. Voigt, IV, President
STATE OF MICHIGAN )
COUNTY OF OAKLAND ) ss.
On this 27th day of August, 1998, before me personally appeared Carl E.
Voigt, IV who acknowledge executing the foregoing instrument on behalf of FUNDEX
GAMES, LTD.
_________________________________
Notary Public, ___________ County
My commission expires: __________
11
<PAGE> 12
TABLE OF EXHIBITS TO
BUSINESS LOAN NOTE DATED AUGUST 27, 1998
Exhibit A - Certificate of Compliance
Exhibit B - Permitted Debt
Exhibit C - Schedule of Equipment Leases
<PAGE> 1
Exhibit: 10.12FT
CONSULTING AGREEMENT
This Agreement, dated January 5, 1998, is made by and between Manmohan Singh
Bhatia ("Consultant") and Little Tiger Press USA, L.L.C., a New York limited
liability company ("Company").
1. APPOINTMENT; DUTIES. Company hereby hires and appoints Consultant
for the performance of services in connection with the publishing by Company of
certain materials to be published by Company, and Consultant hereby accepts such
appointment from Company, during the term of this Agreement, upon the terms and
subject to the conditions set forth below. Consultant shall supervise and as
necessary perform, manage and administer all aspects of Company's publishing
operations. Consultant's duties shall be subject to the direction and control of
the Management Committee of Company. Notwithstanding the foregoing, and not in
limitation of the generality of the foregoing, Consultant's duties shall include
establishing a Chicago office for Company, and substantial efforts toward the
development of United States publication titles to be released in the Spring of
1999.
2. ACTIVITIES RELATING TO THE COMPANY'S BUSINESS. At all times during
the term of this Agreement, Consultant shall devote that portion of his
energies, interest, abilities and productive time to the performance of his
duties and responsibilities hereunder as necessary or appropriate for the
efficient and successful operation of the business of Company. During the term
of this Agreement, and for a period of two (2) years thereafter, Consultant
shall not, without the prior written consent of Company, which consent may be
withheld for any or no reason, directly or indirectly, own, manage, operate,
control, be employed by, participate in, render services to, make loans to, or
be connected in any manner with the ownership, management, operation, or control
of any business operation located in North America, or any other country in
which Company, or any of its subsidiaries, does business or intends to do
business, which business operation publishes hard cover books, soft cover books,
board books, or flap books.
In the event of any actual or threatened breach of the provisions of
this Section, Company shall be entitled to an injunction restraining the actual
or threatened breach. The parties further agree that should Consultant violate
the provisions of this Section, Consultant shall be liable to Company for, in
addition to any amounts pursuant to other remedies available against Consultant,
two (2) times the greater of the amount of profit earned by Consultant as a
result of the violation and the amount of profit which would have been earned by
Company from the activities causing the violation had Company conducted said
activities, plus interest on said greater amount from the date of the violating
activities until paid, as liquidated damages for only Company's loss of
potential profits. Said interest shall be calculated at the lesser of: (i)
eighteen percent (18%) per annum, and (ii) the highest rate of interest
permitted by applicable law. Nothing in this Section shall be construed as
prohibiting Company from pursuing any other available remedies for such breach
or threatened breach, including pursuing a recovery for damages. The parties
agree that the liquidated damages provisions set out above do not constitute a
penalty, but rather reflect the estimate of the parties as to the actual
damages, including loss of profits, Company might or is likely to incur in the
event of a violation of the restrictions appearing herein.
<PAGE> 2
Consultant shall not, during the term of this Agreement and for a
period of two (2) years thereafter, without the prior written consent of
Company, which consent may be withheld for any reason, directly or indirectly
induce, encourage or solicit or assist any person who was or is employed
(whether as employee or as independent contractor) by Company, during the time
period described above in this sentence, to leave Company's employ. If
Consultant has any control over, or responsibility with respect to, the hiring
of employees, agents or consultants at any facility or with any other employer,
Consultant shall do everything in Consultant's power to preclude the hiring of
or retention by such other employer or facility of any individual who was
employed by Company during the period of time described in the beginning of the
proceeding sentence.
Consultant acknowledges and agrees that the restrictions contained in
this Agreement, including but not limited to time period, scope, and
geographical area restrictions, are fair and reasonable and necessary for the
successful operation of Company, that violation of any of them would cause
irreparable injury, and that the restrictions contained herein are not
unreasonably restrictive of Consultant's ability to earn a living. If the scope
of any restriction in this Section is too broad to permit enforcement of such
restriction to its fullest extent, then such restriction shall be enforced to
the maximum extent permitted by law, and the parties hereto consent and agree
that such scope may be modified judicially or by arbitration in any proceeding
brought to enforce such restriction. Consultant acknowledges and agrees that
remedies at law for any breach or violation of the provisions of this Section
would alone be inadequate, and agrees and consents that temporary and permanent
injunctive relief may be granted in connection with such violations, without the
necessity of proof of actual damage, and such remedies shall be in addition to
other remedies and rights Company may have at law or in equity. Consultant
agrees that Company shall not be required to give notice or post any bond in
connection with applying for or obtaining any such injunctive relief.
The parties acknowledge and agree that the covenants in this Section
shall be construed as an agreement independent of any other provision of this
Agreement so that the existence of any claim or cause of action by Consultant
against Company, whether predicated on this Section or otherwise, shall not
constitute a defense to the enforcement of this Section.
This Agreement was specifically bargained for as a material portion of
the formation of Company. Consultant is an owner of Company. The consideration
includes, without limitation, the financial benefits received by Consultant from
said formation.
3. CONFIDENTIALITY AGREEMENTS. The obligations of the Consultant and
the rights of Company set forth herein are in addition to those set forth in a
certain Confidentiality Agreement executed by Consultant (the "Confidentiality
Agreement").
4. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants
to and covenants with Company that: (a) he has furnished to Company a true and
correct copy of any agreements with any prior Company in the securities industry
and is subject to no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the
2
<PAGE> 3
performance of his duties hereunder, or any rights of Company hereunder or under
the Confidentiality Agreement, (b) upon information and belief, there are no
regulatory, self-regulatory, administrative, civil or criminal matters past or
present, affecting the employment of Consultant by Company.
5. COMPENSATION.
(a) Consultant will receive annual compensation of $100,000 (the "Base
Compensation") for each year during the term of this Agreement. Such
compensation shall be payable in equal periodic installments not less frequently
than monthly.
(b) Consultant shall be entitled to additional compensation as follows
if the performance criteria set forth below are satisfied:
(i) If the Gross Sales (defined below) of the Company for the
calendar year 1998 exceed $2,000,000.00, then Consultant shall, if
Consultant is employed by Company under this Agreement on December 31,
1998, be entitled to be paid (by January 31, 1999) an amount equal to
six percent (6%) of the amount by which said Gross Sales exceed
$2,000,000.00. For example, if said Gross Sales are $2,100,000.00, then
the payment would be $6,000.00.
(ii) If the Gross Sales (defined below) of the Company for the
calendar year 1999 exceed $2,000,000.00, then Consultant shall, if
Consultant is employed by Company under this Agreement on December 31,
1999, be entitled to be paid (by January 31, 2000) an amount equal to
three percent (3%) of the amount by which said Gross Sales exceed
$2,000,000.00. For example, if said Gross Sales are $2,100,000.00, then
the payment would be $3,000.00.
In addition to the foregoing, if the Gross Sales of the
Company for the calendar year 1999 exceed $3,000,000.00, then
Consultant shall, if Consultant is employed by Company under this
Agreement on December 31, 1999, receive (by January 31, 2000)
additional compensation in the amount of $100,000.00.
(iii) If the Gross Sales (defined below) of the Company for
the calendar year 2000 exceed the Gross Sales for the calendar year
1999, then Consultant shall, if Consultant is employed by Company under
this Agreement on December 31, 2000, be entitled to be paid (by January
31, 2001) an amount equal to three percent (3%) of the excess of the
Gross Sales for calendar year 2000 over the Gross Sales for the
calendar year 1999. For example, if the Gross Sales for the year 2000
are $3,000,000.00, and the Gross Sales for 1999 were 2,600,000.00, then
the payment would be $12,000.00.
In addition to the foregoing, if the Gross Sales of the
Company for the calendar year 2000 exceed $4,000,000.00, then
Consultant shall, if Consultant is
3
<PAGE> 4
employed by Company under this Agreement on December 31, 2000, receive
(by January 31, 2001) additional compensation in the amount of
$150,000.00.
The term "Gross Sales" as used herein shall mean gross sales minus all
returns and allowances, calculated on an accrual basis.
6. REIMBURSEMENTS. Company shall pay or reimburse Consultant for all
out-of-pocket expenses for travel, meals, hotel accommodations and the like
reasonably incurred by him in accordance with Company's policies and directives
(including any required prior approvals) for such expenses in connection with
the performance of Company's business, each such payment for reimbursement to be
made upon submission of a statement and evidence documenting such expenses as
required by Company.
7. TERM. The term of this Agreement shall commence as specified in Section 15
below, and shall continue in effect until December 31, 2000, or until such time
as terminated as provided in paragraphs 8, 9, 10 and/or 11. Upon termination of
this agreement pursuant to paragraphs 8 or 9, Company's sole obligation to
Consultant shall be to pay all salary and stock options, if any, accrued by him
up to the date of such termination. Upon termination of this Agreement,
Consultant's obligations under the Confidentiality Agreement shall survive.
8. TERMINATION UPON DEATH. In the event of the death of Consultant, the
employment of, and this Agreement with respect to, such deceased Consultant
shall be terminated; provided always that Company shall pay any accrued
compensation as of the date of termination to the legal representative of
Consultant's estate.
9. TERMINATION FOR DISABILITY. Company may terminate the employment of, and
this Agreement with respect to, Consultant if Consultant becomes disabled,
including disability by reason of any emotional or mental disorders, physical
diseases or injuries, and as a result of such disability is unable to work on a
full-time basis for a continuous period of two months or more or any two months
in a twenty-four month period. Upon such termination, Company shall have no
further liability to Consultant hereunder, except to pay any accrued
compensation as of the termination date. Upon such termination, Consultant's
obligation to Company under the Confidentiality Agreement shall survive.
10. TERMINATION FOR CAUSE. Company may terminate the employment of, and this
Agreement with respect to, Consultant if: (a) Consultant breaches his fiduciary
duties to Company or is guilty of fraud or willful malfeasance, (b) Consultant
materially breaches any representation, warranty, covenant or agreement
contained in this Agreement or fails to perform any of the obligations under
this Agreement or duties assigned to him pursuant to this Agreement or otherwise
by Company, (c) Consultant materially misrepresents any statement to Company,
(d) Consultant is convicted of a crime involving moral turpitude or a felony,
(e) Consultant knowingly commits a material violation of any law, rule,
regulation or by-law of a securities exchange or association or other regulatory
or self-regulatory body or agency applicable to any general policy or directive
of Company communicated in writing to Consultant, (f) Consultant
4
<PAGE> 5
fails to follow reasonable instructions and/or policies of Company's Management
Committee, or (g) Consultant terminates this Agreement at any time.
Upon termination of this Agreement pursuant to this paragraph 10,
Company's sole obligation to Consultant shall be to pay all accrued
compensation.
Upon such termination, Consultant's obligation to Company under the
Confidentiality Agreement shall survive.
11. TERMINATION OTHER THAN FOR CAUSE. Company retains the right to terminate
this Agreement and/or Consultant's employment for cause as set forth in
paragraph 10, and notwithstanding anything to the contrary in this Agreement,
Company shall have the right to terminate this Agreement and/or Consultant's
employment hereunder at any time for any reason other than for cause. In such
event, Company shall pay to Consultant all compensation accrued during the term
of the Agreement through the termination date, and Company shall remain
obligated to pay Consultant salary through December 31 of the calendar year in
which the termination occurred, at the level of the Base Compensation at the
time of termination, as the compensation accrues between the termination date
and said December 31 (i.e., it is not payable in one lump sum at the date of
termination). The Base Compensation so payable does not include any compensation
under subparagraph 5(b) above. Consultant's obligation to Company under the
Confidentiality Agreement shall survive.
Consultant shall provide Company at least sixty (60) days notice of
Consultant's termination of this Agreement.
12. SUCCESSORS AND ASSIGNS. The rights and obligations of Company hereunder
shall inure to the benefit of and shall be binding upon the successors and
assigns of Company; provided, however, that Company's obligations or liabilities
hereunder may not be assigned without the prior written approval of Consultant,
except to an affiliate of Company (which assignment shall not release Company
from its obligations to Consultant hereunder) or to a successor to all or
substantially all of Company's assets, business or ownership interests, that
agrees to be bound hereby. This Agreement is personal to the Consultant and may
not be assigned by Consultant.
13. AMENDMENT OR WAIVER. This Agreement may not be amended or modified except by
an agreement in writing duly executed by Consultant and by all of the "Members"
of Company. The failure of Company, on the one hand, or Consultant, on the other
hand, at any time to enforce performance by the other of any provision of this
Agreement shall in no way affect Company's or the Consultant's, as the case may
be, rights thereafter to enforce the same, nor shall the waiver by Company, on
the one hand, or Consultant, on the other hand, of any breach of any provision
hereof be deeded to be a waiver by Company or Consultant, as the case may be, of
any other breach of the same or any other provision hereof.
14. ARBITRATION. Except as set forth in the Confidentiality Agreement, any
controversy or claim arising out of or relating to this Agreement, or the breach
hereof, shall be settled in
5
<PAGE> 6
Arizona by arbitration in accordance with the rules of the American Arbitration
Association. Judgment upon the award of the arbitrator(s) may be entered in any
court having jurisdiction thereof.
15. EFFECTIVE DATE; CONTINGENCIES. The obligations of the parties under this
Agreement are conditional upon the happening of the "Contingency Expiration
Date," as that term is defined in Section 10.1 of that certain Operating
Agreement, dated of even date with this Agreement, relating to the formation of
the Company by Futech Educational Products, Inc. and Magi Publications. The
obligations of the parties under this Agreement, including the obligations of
Consultant to render services and Company to pay compensation, shall commence as
of said Contingency Expiration Date.
16. NATURE OF RELATIONSHIP. The relationship the parties intend to create by
this Agreement is that of principal and independent contractor, and nothing
herein is intended, nor shall it be construed, to create a relationship of
partnership, joint venture, or employer/employee between the parties. Company
shall not have the right to direct the specific activities or practices of
Consultant, nor the manner in which Consultant conducts himself, but Company
will have the right to direct the results of Consultant's efforts expended under
this Agreement. Consultant, as a self-employed individual, shall be responsible
for the payment of Consultant's own State and Federal income tax and
self-employment tax, and acknowledges that Consultant will not be entitled to
unemployment or worker's compensation benefits, holiday pay, sick or vacation
pay, health insurance, credit toward participation in a pension or profit
sharing plan of Company, or any other benefits to which any employees of the
Company may be or become entitled. Company will not withhold, and/or pay, or be
responsible to withhold and/or pay, any such taxes or benefits, or any penalties
or interest thereon.
17. MISCELLANEOUS. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof. This Agreement shall be constructed, interpreted and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict of laws rules thereof. The parties agree that the State of Arizona
shall have sole and exclusive jurisdiction and venue over the parties and any
disputes arising under or otherwise relating to this Agreement. This Agreement
contains all of the terms and conditions agreed to by the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, except those set forth in the Confidentiality Agreement.
DATED the date first hereinabove written.
CONSULTANT: /s/ Manmohan Singh Bhatia
---------------------------------
Manmohan Singh Bhatia
COMPANY: Little Tiger Press USA, L.L.C., a New York
limited liability company
6
<PAGE> 7
By: Futech Educational Products, Inc., an
Arizona corporation, Member
By: /s/ Vincent W. Goett
--------------------------------------
Vincent W. Goett, CEO
By: Magi Publications, partnership, Member
By: /s/ Manmohan Singh Bhatia
-----------------------------------
Manmohan Singh Bhatia, Partner
7
<PAGE> 1
Exhibit: 10.12T
SECURITY INTEREST AGREEMENT (#15) March 12, 1993
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including the Smithsonian Royalty
payment of $25,000 and Joshua Morris for $10,000 as well as for general
operating expenses,
WHEREAS the Trudy Corp has to date been unable to secure financing from other
sources for general purpose funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $45,000.00
(forty five thousand dollars and 00/100) for its use for operating purposes on
March 15, 1993.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity; the entire $45,000 should be
repaid by May 15, 1993. In such circumstances, Burnham shall have a collateral
interest second only to that of Union Trust (if any), but in any event senior to
all trade creditors and to all other liabilities of the Company unless otherwise
stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie William W. Burnham
for Trudy Corp
Dated: 3/15/93
<PAGE> 1
Exhibit: 10.12FD
CONTINUING SECURITY AGREEMENT
Name of Borrower: Address of Borrower's
FUNDEX GAMES, LTD. Chief executive office:
2237 Directors Row
Indianapolis, Indiana 46241
1. GRANT OF SECURITY INTEREST: The undersigned (the "Borrower") grants to
LIBERTY BIDCO INVESTMENT CORPORATION ("BIDCO"), 30833 Northwestern
Highway, Suite 211, Farmington Hills, Michigan 48334-2582, a continuing
security interest in the Collateral indicated below, to secure the payment
of Borrower's Business Loan Note with Covenants to BIDCO of even date
herewith in the amount of One Million Dollars ($1,000,000.00) ("Note") as
well as all other obligations to BIDCO of any kind including, but not
limited to, the Revenue Participation Agreement of even date, entered into
by Borrower and BIDCO (The Note, Revenue Participation Agreement and all
other obligations to BIDCO are referred to collectively as the
"Liabilities") whenever and however such Liabilities may arise or may have
arisen and whether they are several, joint or joint and several.
Liabilities shall also include all interest, and all reasonable costs,
expenses, and actual attorney fees accruing to or incurred by BIDCO in
collecting the Liabilities or in the protection, maintenance or
liquidation of the Collateral.
2. COLLATERAL: It is expressly agreed by Borrower that BIDCO is granted a
security interest in "All Assets" as defined below or as set forth on the
attached Exhibit "A".
3. DESCRIPTION OF COLLATERAL: The Collateral covered by this agreement is all
of the Borrower's property indicated above and defined below, now owned or
hereafter acquired, created or arising, and which may include, but shall
not be limited to, any items listed on any schedule or list attached. Also
included are all proceeds, including but not limited to stock rights,
subscription rights, dividends, stock dividends, stock splits, or
liquidated dividends, and all cash, accounts, chattel paper and general
intangibles arising from the sale, rent, lease, casualty loss or other
disposition of the Collateral, and any Collateral returned to,
repossessed by or stopped in transit by Borrower.
3.1 "All Assets" of Borrower shall include all tangible and intangible
property of Borrower of any kind, including but not limited to,
"Accounts Receivable", "Inventory", "Equipment," "Instruments" and
"Vehicles".
3.2 "Accounts Receivable" shall consist of Accounts, Chattel Paper and
General Intangibles as those terms are defined in the Uniform
Commercial Code. Also included is any right to a refund of taxes
paid at any time to any governmental entity. Also included are
letters of credit, and drafts under them, given in support of
Accounts Receivable.
3.3 "Inventory" shall consist of all property held at any location by or
for Borrower for sale, rent or lease, or furnished or to be
furnished by Borrower under any contract of service, or raw
materials or work in process and their products, or materials used
or consumed in its business and shall include containers and
<PAGE> 2
shelving useful for storing. Inventory is presently located at
Borrower's Chief executive office and as set forth on Exhibit "B."
3.4 "Equipment" shall consist of any goods at any time acquired, owned
or held by Borrower at any location primarily for use in its
business, including, but not limited to, machinery, fixtures,
furniture, furnishings and vehicles, and any accessions, parts,
attachments, accessories, additions, substitutions, replacements and
appurtenances to them or intended for use with them. Equipment is
presently located at Borrower's Chief executive office and as set
forth on Exhibit "B."
3.5 "Instruments" shall consist of Borrower's interest of any kind in
any negotiable instrument or security as defined in the Uniform
Commercial Code, or any other writing which evidences a right of
payment of money and is of a type which is, in the ordinary course
of business, transferred by delivery alone or by delivery with any
necessary endorsement or assignment.
3.6 "Vehicles" shall consist of all vehicles owned by Borrower.
4. WARRANTIES: Borrower represents and warrants to BIDCO, that:
4.1 Borrower will pay the Liabilities secured by this Agreement.
4.2 Borrower is the owner of the Collateral free from any liens,
encumbrances or security interests, except for this security
interest and existing liens disclosed to and accepted by BIDCO in
writing or as set forth in or attached to the Business Loan Note
with Covenants of even date executed by Borrower to BIDCO, and will
defend the Collateral against all claims and demands of all persons
at any time claiming any interest in it.
4.3 Except for liens and encumbrances accepted by BIDCO in writing or
referenced in or attached to the Business Loan Note with Covenants
of even date executed by Borrower to BIDCO, Borrower will keep the
Collateral free of liens, encumbrances and other security interests,
maintain it in good repair, not use it illegally and exhibit it to
BIDCO on demand during normal business hours and upon two (2)
business days notice.
4.4 Borrower will keep the Collateral insured at Borrower's expense
against substantial risk of damage, destruction or theft in an
amount at least equal to the lesser of the value of the Collateral
or the unpaid balance of the Liabilities, with loss payable to BIDCO
as its interest may appear, and Borrower will deliver copies of all
such insurance policies to BIDCO upon request.
4.5 Borrower will not sell or offer to sell or otherwise transfer the
Collateral, nor change the location of the Collateral, without the
written consent of BIDCO, except in the ordinary course of business
or except in an amount not exceeding $50,000 in any calendar year.
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<PAGE> 3
4.6 Borrower will maintain its existence and business operations as
presently in effect in accordance with all applicable laws and
regulations, pay its debts and obligations when due under normal
terms, and timely pay all taxes, assessments, fees and other
governmental monetary obligations, except as they may be contested
in good faith if they have been properly reflected on its books and,
at BIDCO's request, provide evidence of adequate funds or security
has been pledged to insure payment.
4.7 No financing statement or other security instrument covering all or
any part of the Collateral or any proceeds is on file in any public
office, unless BIDCO has approved that filing, and at BIDCO's
request, Borrower will execute one or more financing statements or
other security instruments in form satisfactory to BIDCO and will
pay the cost of filing them in all public offices wherever filing is
deemed by BIDCO to be desirable.
4.8 Borrower will provide any information that BIDCO may reasonably
request, and will permit BIDCO to inspect and copy its books and
records during normal business hours upon at least two (2) business
days advance notice.
4.9 Borrower's Chief executive office is at the address shown above.
5. DEFAULT: Borrower shall be in default under this security agreement upon
the occurrence of any of the following events:
5.1 Default in the payment of any of the Liabilities or other
obligations owing to BIDCO or any other creditor, other than
unsecured debt incurred during the ordinary course of business, and
such default continues for a period of ten (10) days without cure.
5.2 Failure to observe and perform any of the terms and conditions of
this security agreement and such default continues without cure for
a period of ten (10) days.
5.3 Any warranty, representation, or statement made or furnished to
BIDCO by Borrower is untrue in any material respect.
5.4 If any "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974, as amended) occurs.
5.5 The dissolution, termination of existence, suspension of business,
or insolvency of Borrower; or the appointment of a receiver for any
part of the property of Borrower; or the making of an assignment for
the benefit of creditors by Borrower; or the commencement of
bankruptcy or insolvency proceedings by Borrower; or the
commencement of bankruptcy or insolvency proceedings against
Borrower which are not dismissed within sixty (60) days; or the
Borrower admits in writing its inability to pay its debts as they
mature.
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<PAGE> 4
5.6 The loss, theft, damage or destruction, without insurance, or the
encumbrance, to or of any material part or all of the Collateral.
5.7 The entry, placement or issuance of any judgment, levy, lien, writ
of attachment, writ of garnishment, writ of execution or similar
process, against Borrower or any of Borrower's property unless they
do not have a material adverse impact on Borrower's financial
condition.
5.8 The sale of a material part of the Borrower's assets or business,
outside the ordinary course of business, without BIDCO's written
consent which shall not be unreasonably withheld.
5.9 BIDCO shall deem itself insecure in reasonable good faith believing
that the prospect of payment of Liabilities or performance under
this security agreement is materially impaired.
5.10 Any event which results in the acceleration of the maturity of any
debt of Borrower to BIDCO or a material debt to others under any
notice, indenture, agreement or undertaking.
5.11 Failure to observe and perform any of the terms and condition of the
Revenue Participation Agreement, of even date, entered into with
BIDCO.
5.12 Upon default, the Liabilities shall become due and payable
immediately, without notice, unless BIDCO shall otherwise elect.
BIDCO shall have the rights and remedies provided by law or this
agreement, including but not limited to the right to require
Borrower to assemble the Collateral and make it available to BIDCO
at a place to be designated by BIDCO which is reasonably convenient
to both parties, the right to take possession of the Collateral with
or without demand and with or without process of law, and the right
to sell and dispose of it and distribute the proceeds according to
law. In connection with the right of BIDCO to take possession of the
Collateral, BIDCO may take possession of any other items of property
in or on the Collateral at the time of taking possession of the
Collateral, and hold such other items of property temporarily for
Borrower without liability on the part of BIDCO. Any requirement of
reasonable notice shall be met if BIDCO sends notice to Borrower at
least ten (10) days prior to the date of sale, disposition or other
event giving rise to the required notice. Borrower shall be liable
for any deficiency remaining after disposition of the Collateral.
6. ACCOUNTS RECEIVABLE: Borrower acknowledges that if the Collateral includes
"Accounts Receivable" the following shall apply:
6.1 Until BIDCO gives notice to Borrower of a default hereunder,
Borrower will, in the usual course of its business and at its own
cost and expense, but as the agent of BIDCO, demand and receive and
use its best efforts to collect all moneys due or to become due on
the Accounts Receivable. Until BIDCO gives notice to
4
<PAGE> 5
Borrower that it is in default, Borrower may use the funds collected
in the ordinary course of its business. Upon such notice from BIDCO,
the Borrower agrees that all sums of money it receives on the
account of or in payment or settlement of the Accounts Receivable
shall be held by it as trustee for BIDCO without commingling with
any of its funds, and be forthwith delivered to BIDCO with
endorsement to BIDCO's order of any check or similar instrument. It
is agreed that, upon a default by Borrower and upon Borrower's
failure to cure such default within ten (10) days after notice
thereof, BIDCO shall be entitled, in its own name or in the name of
the Borrower or otherwise, but at the expense and cost of Borrower,
to collect, demand, receive, sue for or compromise any and all
Accounts Receivable, and to give good and sufficient releases, to
endorse any checks, drafts, or other orders for the payment of money
payable to the Borrower in payment and, in its discretion, to file
any claims or take any action or proceeding, either in its own name
or in the name of Borrower or otherwise, which BIDCO may deem
necessary or advisable. It is expressly understood and agreed,
however, that BIDCO shall not be required to present or file any
claim or take any other action to collect or enforce the payment of
any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
7. MISCELLANEOUS:
7.1 Where a material portion of the Collateral is located at, used in or
attached to a facility leased by Borrower, Borrower will obtain from
the Lessor a consent to the granting of this security interest and a
subordination of the Lessor's interest in any of the Collateral, in
form acceptable to BIDCO.
7.2 No delay on the part of BIDCO in the exercise of any right or remedy
shall operate as a waiver, no single or partial exercise by BIDCO of
any right or remedy, and no waiver or indulgence by BIDCO of any
default shall be effective unless in writing and signed by BIDCO,
nor shall a waiver on one occasion be construed as a waiver of any
such right on any future occasion.
7.3 All rights of BIDCO shall inure to the benefit of BIDCO's
successors and assigns; and all obligations of Borrower shall bind
Borrower's successors and assigns.
7.4 The terms and provisions of this agreement shall be governed by
Michigan law without giving effect to any choice or conflict of law
provision or rule (whether of Michigan or any other jurisdiction)
that would cause the application of the laws of any other
jurisdiction other than Michigan to apply.
7.5 Each of the parties submits to the exclusive jurisdiction of the
United States District Courts for the Southern and Eastern Districts
of Michigan, and if subject matter jurisdiction is not available the
Oakland County Circuit Court, in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in
respect of the action or proceeding may be heard and determined
through such courts. Each party also agrees not to bring any such
action or proceeding
5
<PAGE> 6
arising out of or relating to this Agreement in any other court.
Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought.
7.6 Until payment of the Liabilities, Borrower grants BIDCO, its
officers, employees or agents, the right, upon at least two (2)
business days advance notice, to inspect the Collateral and
Borrower's books and records. Borrower will furnish BIDCO, at its
demand, reports regarding the Collateral in such form and detail as
are reasonably satisfactory to BIDCO.
7.7 Time is of the essence of this agreement.
7.8 If any provision of this agreement is invalid, it shall be
ineffective only to the extent of its invalidity, and the remaining
provisions shall be valid and effective.
7.9 At its option BIDCO may, but shall be under no duty or obligation
to, discharge taxes, liens, security interests or other encumbrances
at any time levied or placed on the Collateral, pay for insurance on
the Collateral if BIDCO is reasonably insecure with Borrower's
current insurer and after notice to Borrower, and pay for the
maintenance and preservation of the Collateral, and Borrower agrees
to reimburse BIDCO on demand for any payment made or any expense
incurred by BIDCO, with interest at the Note Rate (as such term is
defined in the Note).
7.10 Where notice is required, it shall be in writing and personally
delivered, sent by certified mail, return receipt requested or a
reliable overnight delivery service, to the respective address
above, or to any other address required by the respective party, or
by facsimile transmission with confirmation of receipt, and notice
shall be deemed given on the earlier of: a) three (3) business days
after notice is mailed as set forth above; or b) upon actual
receipt.
7.11 This Agreement may be amended only in a writing signed by Borrower
and BIDCO.
Dated: August 27, 1998 BORROWER:
WITNESS: FUNDEX GAMES, LTD.
/s/ [Illegible] By: /s/ Carl E. Voigt
- -------------------------------- ---------------------------------
Carl E. Voigt, IV, President
6
<PAGE> 1
Exhibit: 10.13FT
CO-PUBLISHING AGREEMENT
(U.S. MATERIALS)
THIS AGREEMENT is entered into as of the 5th day of January, 1998, by
and between Magi Publications, a partnership ("Co-Publisher") and Little Tiger
Press USA, L.L.C., a New York limited liability company ("Publisher").
R E C I T A L S:
A. Publisher publishes printed materials, and Co-Publisher is in the
business of publishing, marketing and distributing printed materials.
B. The parties desire to enter into an agreement for co-publication by
Co-Publisher of certain materials of Publisher, all on the terms and conditions
herein set forth.
TERMS:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL. Publisher hereby grants Co-Publisher the
right of first refusal to co-publish with Publisher and distribute in Europe any
and all published materials Publisher desires to have published/distributed in
Europe (hereinafter individually a "Book" and collectively "Books").
Publisher will supply Co-Publisher with three (3) folded and gathered
sheets, and/or three (3) review copies, of each Book Publisher wants
published/distributed in Europe, at no cost to Co-Publisher. At the same time,
Publisher will supply Co-Publisher with the title, name of the author and
illustrator, Unit Price (defined below), and the proposed delivery date of the
Book.
Co-Publisher shall inform Publisher of Co-Publisher's election whether
to publish each Book within thirty (30) days after Co-Publisher receives the
Book from Publisher for review, and the other information described in the
preceding paragraph. As to each Book Co-Publisher elects to publish,
Co-Publisher shall at the same time inform Publisher in which Countries in
Europe Co-Publisher will Publish the Book. Publisher will supply Co-Publisher
with 130 folded and gathered sheets, and/or 130 review copies, of each Book
Co-Publisher elects to publish in Europe, at no cost to Co-Publisher.
Books selected by Co-Publisher for publication under this Agreement
will be published under and with the name and imprint "Little Tiger Press."
If Co-Publisher elects not to publish in any Country in Europe any Book
offered by Publisher, then Publisher shall have the right to pursue alternative
publication/distribution for such Book in said Country; provided, however, that
the terms offered to an alternative co-
<PAGE> 2
publisher/distributor shall not be more favorable than the terms offered by
Publisher to CoPublisher.
2. APPOINTMENT AND TERRITORY. Publisher hereby grants Co-Publisher the
right to publish, distribute and sell each Book selected by Co-Publisher under
Section 1 above exclusively throughout Europe. Co-Publisher's right to publish
any Book in other territories shall be subject to the prior written consent of
Publisher.
Co-Publisher shall not, without the prior written consent of Publisher,
which consent may be withheld for any reason or no reason, print or authorize
the printing of copies of any Book other than by Publisher.
Co-Publisher shall promote the sale of each Book actively throughout
the territory granted to Co-Publisher under this Agreement.
3. MANNER OF PURCHASING.
(a) Co-Publisher shall have the option to purchase copies of each
Book, on a title-by-title basis, from Publisher, on a firm sale basis, on terms
for said purchases as described in Section 4 below. The details of Book orders
shall be set out from time to time on purchase orders (hereinafter "Purchase
Orders") issued by Co-Publisher.
(b) As used in this Agreement, and on any Purchase Order, the
following terms shall have the following meanings:
(i) "Book": One of Publisher's book titles, copies of which
are to be published/purchased by Co-Publisher, as further
described in Section 1 above.
(ii) "Unit Price": The price to Co-Publisher, inclusive of
royalty and delivery (C.I.F. to London), of each copy of a
Book.
(iii) "Quantity": The initial quantity of copies of a Book
ordered by Co-Publisher, as specified in a Purchase Order for
such Book.
(iv) "Delivery Date": The date for bulk delivery of the
Quantity of a Book, as specified in the Purchase Order for
such Book.
(v) "Imprint": The "Little Tiger Press" imprint.
(c) Co-Publisher shall notify Publisher of the proposed release
dates of each Book. Co-Publisher shall release each Book within three (3) months
of delivery of the Quantity ordered of such Book, unless Co-Publisher is
prevented from doing so by circumstances beyond Co-Publisher's control, in which
event Publisher shall be notified in writing and the period
2
<PAGE> 3
permitted for release shall be extended by the duration of such circumstances.
(d) Except as may otherwise be specified in this Agreement, all
details of publication, sale and advertisement of each Book, and the number and
destination of free copies, shall be at the sole discretion and expense of
Co-Publisher.
4. FIRM SALES.
(a) Unless otherwise agreed upon by the Publisher and Co-Publisher,
all sales under this Agreement will be firm sales. Firm sales are direct,
outright purchases of Books from Publisher by Co-Publisher, as opposed to
consignment sales. The details of each purchase shall be identified on a
Purchase Order.
The Unit Price of each Book, as offered by Publisher, is based upon the
cost of paper and printing as of the date of the offer relating to such Book. If
such costs have increased by more than 5% at the time the Book goes to print,
one-half of the increase in cost per copy in excess of 5% shall be added to the
Unit Price per copy for such Book. If the increase in cost would not have been
incurred but for a delay in printing caused by Co-Publisher's failure to perform
its obligations under this Agreement, Co-Publisher shall bear the entire
increase in cost.
(b) Co-Publisher shall pay Publisher the total Unit Price for each
Book received, within fifteen (15) days after receipt of the Book by
Co-Publisher.
(c) Publisher shall supply to Co-Publisher, as ordered by
Co-Publisher, 10% additional jackets/covers for each hard cover Book purchased
by Co-Publisher, at no charge to Co-Publisher. The purchase price for
jackets/covers ordered in excess of said 10% shall be 100% of Publisher's direct
out-of-pocket costs for the jackets/covers, payable in full within fifteen (15)
days after receipt by Co-Publisher of the jackets/covers. Extra jackets/covers
sales, like Book sales, will be, firm sales - not returnable.
(d) If Co-Publisher requires copies of any Book additional to those
ordered on any Purchase Order, such further copies shall be ordered from
Publisher and supplied to Co-Publisher at a price and on other terms subject to
mutual agreement by the parties.
(e) Legal title to copies of each Book and other materials delivered
to CoPublisher shall pass to Co-Publisher upon receipt by Co-Publisher of the
Book or other materials. Risk of loss or damage with respect to copies of each
Book or other materials delivered to Co-Publisher shall pass to Co-Publisher
upon receipt by Co-Publisher of the Book or other materials.
(f) Initial and reorder quantities for Books will not be less than
5000 copies per Book, unless otherwise agreed to by the parties.
5. PRODUCTION, PRINTING AND DELIVERY
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<PAGE> 4
(a) Publisher will send Co-Publisher for approval (such approval not
to be unreasonably withheld or delayed), ozalids of each Book.
(b) Subject to timely performance by Co-Publisher of Co-Publisher's
obligations under this Agreement, Publisher shall arrange for the printing of
the Quantity of Books ordered for delivery to Co-Publisher by the Delivery Date,
unless Publisher is prevented from doing so by circumstances beyond Publisher's
control, or unless otherwise mutually agreed.
(c) Delivery to Co-Publisher of up to 10% under or over the Quantity
of any Book shall constitute good delivery, and Co-Publisher shall pay for the
actual number of copies received.
(d) Co-Publisher shall notify Publisher in writing of Co-Publisher's
requirements, if any, with respect to advance copies, extra covers or jackets,
and folded and gathered sheets.
(e) Co-Publisher shall not insert within or on the cover or jacket
of any edition of any Book, any advertisement, other than information about
other Books published by Publisher, without the prior written consent of
Publisher.
(f) Each party will discuss with the other opportunities regarding
co-op and promotional advertising, as those opportunities arise, and the parties
may, but are not obligated to, agree to share the costs thereof.
6. ACCOUNTING MATTERS. All monies due to Publisher shall be paid by
mail or telegraphic transfer to Publisher's bank account. Co-Publisher shall
ensure that all remittances or notifications of remittance shall detail the
names of Co-Publisher and Publisher, the title of the Book(s), and, if
applicable, Publisher's invoice number.
7. FREIGHT. All Books will be shipped C.I.F. to London in care of
Co-Publisher's freight forwarder. Co-Publisher will be responsible for customs
and transportation charges from London to Co-Publisher's facilities.
8. SHIPPING SERVICES. From time to time Publisher may request
Co-Publisher to ship stock of Co-Publisher's books held by Co-Publisher to fill
orders placed by Publisher's other customers. All such orders shall be for
full-case quantities to a single shipping location. Co-Publisher will charge
Publisher, in fulfillment of any such order, the actual cost of shipping plus a
handling charge of 1% of the value of such order. Publisher shall also reimburse
Co-Publisher for any portion of the purchase price paid by Co-Publisher to
Publisher for the Books so sold, and for all of Co-Publisher's out-of-pocket
costs for such Books. Such charges shall be deducted from monthly payments due
to Publisher from Co-Publisher under this Agreement.
9. PACKAGING SPECIFICATIONS. Publisher agrees to package all Books
shipped to Co-Publisher under this Agreement in case packs of 30 copies unless
otherwise mutually agreed to
4
<PAGE> 5
by the parties. Each carton will have the following information clearly marked
on the outside of the carton: Publisher Imprint: Little Tiger Press;
ISBN: ___________; Title: ___________; Number of Copies: ___________;
Co-Publisher's Product No.:___________.
10. IMPRINT; COPYRIGHT. Co-Publisher shall inform Publisher promptly of
any infringement of the copyright in any Book of which Co-Publisher becomes
aware. Co-Publisher will take all reasonable steps, including registration where
applicable, to protect the copyright in each Book in the territories granted to
Co-Publisher under this Agreement.
11. RESERVED RIGHTS. All rights in each Book, other than those
specifically granted to Co-Publisher under this Agreement, are reserved by
Publisher.
12. TERM; TERMINATION. This Agreement shall be effective immediately
and automatically on the "Contingency Expiration Date," as that term is defined
in that certain Operating Agreement for Little Tiger Press USA, L.L.C., dated of
even date herewith, executed by Futech Educational Products, Inc. and Magi
Publications. This Agreement shall continue thereafter until terminated in any
one of the following ways:
(a) If Co-Publisher is at any time in breach of any of the terms
and conditions of this Agreement, and Co-Publisher fails to cure such breach
within thirty (30) days after receipt by Co-Publisher of written notice from
Publisher specifying the breach and requiring that it be cured.
(b) If Co-Publisher is declared bankrupt or goes into liquidation
(other than solvent voluntary liquidation for the purpose of reconstruction
only), or if a receiver or administrator or administrative receiver is appointed
to the whole or substantially the whole of Co-Publisher's business, or if
Co-Publisher shall make an assignment for the benefit of creditors, then
Publisher may terminate this Agreement if Co-Publisher fails to cure such breach
within thirty (30) days after receipt by Co-Publisher of written notice from
Publisher specifying the breach and requiring that it be cured.
(c) If Co-Publisher ceases to trade as a publisher/distributor or is
for any reason unable to perform and comply with the terms and conditions of
this Agreement.
(d) If Co-Publisher allows any Book to go out of stock (to the
extent that Co-Publisher has less than 50 copies of such Book in stock), and to
remain out of stock for 6 months, then Publisher may terminate this Agreement
with respect to such Book only.
(e) If Co-Publisher shall dispose of all remaining stock of a Book
by remaindering or destruction, then Publisher may terminate this Agreement with
respect to such Book only.
Any termination of this Agreement by either party shall not affect
the obligations of either party under this Agreement to pay the other party
amounts owing in connection with
5
<PAGE> 6
performance under this Agreement prior to the termination. The termination of
this Agreement by either party shall not prejudice any claim which either party
has against the other.
13. ASSIGNMENT. Co-Publisher shall not, without the prior written
consent of Publisher, assign or in any way transfer Co-Publisher's rights
granted hereunder, in whole or in part, nor issue or permit issue of any Book
over any imprint other than the Imprint.
14. NATURE OF RELATIONSHIP. The relationship the parties intend to
create is that of principal and independent contractor, and nothing herein is
intended, nor shall it be construed, to create a relationship of partnership,
joint venture, or employer/employee between the parties. Publisher shall not
have the right to direct the specific daily activities or practices of
Co-Publisher nor the manner in which Co-Publisher conducts Co-Publisher's
affairs.
15. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be given by any of the
following means and shall be deemed to have been received as follows:
(i) If by hand delivery, upon delivery;
(ii) If by pre-paid mail, 48 hours after posting, or if the
intended recipient party is in a country other than that of
the sender, on the seventh day after dispatch (Saturdays,
Sundays and public holidays excluded); or
(iii) If by telex, facsimile or other system which prints the
notice at the receiving end, if the sender has an
acknowledgment from the recipient of its receipt in readable
form, upon receipt of such acknowledgment;
provided, however, that no Notice shall be deemed to have been received unless
addressed to the addresses appearing below, or such other address provided to
the other party by Notice:
If to Co-Publisher:
Magi Publications
22 Manchester Street
London W1M 5PG, England
Facsimile: 011-44-171-486-0926
If to Publisher:
Little Tiger Press USA, L.L.C.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
6
<PAGE> 7
Notice given on a Saturday, Sunday or public holiday, or outside normal business
hours, shall not be deemed given until commencement of the next normal business
hours.
16. ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and a complete and exclusive statement
of its terms. No prior course of dealings between the parties and no usage of
trade shall be relevant or admissible to supplement, explain, or vary any of the
terms of this Agreement. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement shall not be relevant or
admissible to determine the meaning of this Agreement even though the accepting
or acquiescing party has knowledge of the nature of the performance and an
opportunity to make objection. No representations, understandings, or agreements
have been made or relied upon in the making of this Agreement other than those
specifically set forth herein. This Agreement can be modified only by writing
signed by all of the parties hereto.
17. MISCELLANEOUS. This Agreement contains the entire Agreement between
the parties with respect to the subject matter discussed in this Agreement, and
any prior arrangements or negotiations relating thereto are superseded by this
Agreement. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict laws thereof. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction and venue in any case or controversy arising under
this Agreement or by reason of this Agreement. The parties agree that any
litigation or arbitration arising from the interpretation or enforcement of this
Agreement shall be only in either Maricopa County Superior Court or in the
United States Federal District Court for the District of Arizona, and for this
purpose each party to this Agreement (and each person who shall become a party)
hereby expressly and irrevocably consents to the jurisdiction and venue of such
courts. This Agreement shall be construed according to its fair meaning and
neither for nor against the drafting party. If arbitration or other legal action
is instituted in connection with this Agreement, the prevailing party in such
action shall be entitled to recover from the other party reasonable attorneys'
fees and costs. The parties agree to accept facsimile signatures in counterparts
to this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were originals. The failure of a party
to require the performance of any term of this Agreement, or the waiver by a
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of such term nor be deemed a waiver of any subsequent breach. The
remedies and payments provided for in this Agreement are not exclusive of other
remedies available to the parties. Every provision of this Agreement is intended
to be severable. If any term of provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement. Time is of the essence of each and every
provision of this Agreement. Titles and headings of sections of this Agreement
are for convenience of reference only, are not intended to define, limit or
describe the scope or intent of any provision of this Agreement, and shall not
affect the construction of any provision of this Agreement.
DATED the date first hereinabove written.
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<PAGE> 8
CO-PUBLISHER: Magi Publications,
a partnership
By /s/ Manmohan Singh Bhatia
----------------------------------
Manmohan Singh Bhatia, Partner
PUBLISHER: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Magi Publications,
a partnership, Member
By /s/ Manmohan Singh Bhatia
-------------------------------
Manmohan Singh Bhatia, Partner
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By /s/ Vincent W Goett
-------------------------------
Vincent W Goett, CEO
8
<PAGE> 1
Exhibit: 10.13T
SECURITY INTEREST AGREEMENT (#16) May 19, 1993
WHEREAS the Trudy Corp of 165 Water Street in Norwalk, Ct. (hereafter "Trudy")
is seeking to pay various operating expenses including the NIC International
payment of $39,000 as well as for general operating expenses,
WHEREAS the Trudy Corp has to date been unable to secure financing from other
sources for general purpose funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $15,000.00
(fifteen thousand dollars and 00/100) for its use for operating purposes on May
19, 1993.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 12% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity; the entire $15,000 should be
repaid by Sept 15, 1993. In such circumstances, Burnham shall have a collateral
interest second only to that of Union Trust (if any) and Alice Burnham, but in
any event senior to all trade creditors and to all other liabilities of the
Company unless otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie, VP. William W. Burnham
for Trudy Corp
Dated:
<PAGE> 1
Exhibit: 10.13FD
REVENUE PARTICIPATION AGREEMENT
This Agreement is made as of August 27, 1998 between FUNDEX GAMES,
LTD., a Nevada corporation with an address of 2237 Directors Row, Indianapolis,
Indiana 46241 ("Borrower"), and LIBERTY BIDCO INVESTMENT CORPORATION, a Michigan
corporation, with an address of 30833 Northwestern Highway, Suite 211,
Farmington Hills, Michigan 48334-2582 ("BIDCO").
RECITALS
A. BIDCO has loaned Borrower an amount of One Million Dollars
($1,000,000.00). Borrower has executed a Business Loan Note
with Covenants (the "Note"), a Continuing Security Agreement
and other documents relating thereto (the Note, Continuing
Security Agreement and all other documents related thereto are
referred to collectively as the "Loan Documents"); and
B. As additional consideration for BIDCO making the loan to
Borrower, Borrower has agreed to pay BIDCO revenue
participation fees (the "Revenue Participation Fees") as set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties agree as follows:
1. Term. The term of this Agreement shall commence immediately
and shall terminate upon the later of payment in full of sums due under the Loan
Documents or five (5) years from the date hereof.
2. Revenue Participation Fees.
a. During the term hereof Borrower agrees to pay to
BIDCO Revenue Participation Fees equal to the greater
of the Monthly Minimum Fee for the indicated period
set forth below or one and twenty-five one-hundredths
percent (1.25%) of the Gross Revenues of (i) Borrower
and (ii) any other entity with which Borrower or its
management, directly or indirectly, own or control an
equity interest which is in substantially the same
business to Borrower (collectively, the Revenue
Entities):
<TABLE>
<CAPTION>
Calendar Year Monthly Minimum Fee
------------- -------------------
<S> <C>
1998 $ 4,000.00
1999 5,500.00
2000 7,000.00
2001 8,500.00
2002 10,000.00
2003 11,500.00
</TABLE>
<PAGE> 2
b. The term "Gross Revenues" shall mean all revenues
of any type received by the Revenue Entities directly
or indirectly resulting from operations of its
businesses, whether payment is received in cash,
merchandise, services, income or credit minus
returns, allowances, trade discounts and cash
discounts. No other deductions, offsets or credits
may be made from Gross Revenues for purposes of
calculating the Revenue Participation Fee due
hereunder.
c. The Revenue Participation Fees shall be paid
monthly on or before the fifteenth of the following
month during the term hereof. In the event payment of
the Revenue Participation Fees are not received by
BIDCO on or before the date due, interest shall
accrue on the late payment at twelve percent (12%)
per annum until the Revenue Participation Fees due
and accrued interest are paid in full. In the event
payment of the Revenue Participation Fees are not
received by BIDCO within thirty (30) days after the
date due, interest shall then begin to accrue on the
late payment at the rate of eighteen percent (18%)
per annum until the Revenue Participation Fees due
and accrued interest are paid in full.
d. Upon receipt of the annual audited financial
statements required by Section 6.4(B) of the Note, if
the Gross Revenues upon which the Revenue
Participation Fees are calculated, are shown to be
incorrect, the Borrower shall immediately pay any
shortfall, if any, in Revenue Participation Fees and
if there was an overpayment, Borrower may deduct the
overpayment from its next due payment(s) of Revenue
Participation Fees. However, in no event shall the
recalculated fees in any month be less than the
monthly minimum fees set forth in Section 2.a.
3. Termination. This Agreement may not be terminated prior to
the expiration of its term without the written agreement of the parties. If the
Note is prepaid, the remaining payments hereunder shall be due in their original
amounts for the remainder of the term.
4. Default and Remedies Upon Default. In the event Borrower is
in default of any of the Loan Documents, Borrower shall be in default of this
Agreement. If Borrower shall be in default of this Agreement, BIDCO shall have
all the remedies provided in the Loan Documents.
5. Notices. Any notice to be given hereunder by either party
to the other shall be in writing and personally delivered, sent by certified
mail, return receipt requested or by reliable overnight delivery service, to the
respective address above or to any other address required by the respective
party, or by facsimile transmission with confirmation of receipt, and notice
shall be deemed given on the earlier of: a) three (3) business days after notice
is mailed as set forth above; or, b) upon actual receipt.
6. Deemed Interest. It is not intended by the parties hereto
that the payments due under this Agreement be deemed to constitute "interest" on
the Note or other Loan
2
<PAGE> 3
Documents. However, in the event a Court of competent jurisdiction determines
that the Revenue Participation Fees due and payable hereunder are deemed to be
"interest" arising with respect to the obligations evidenced by the Note and
other Loan Documents, and as a direct result thereof such payments under this
Agreement results in Borrower having paid interest in excess of that permitted
by applicable law, then all excess amounts theretofore collected by BIDCO shall
be credited on the principal balance owing under the Note and remaining Loan
Documents (or, if all sums owing thereunder have been paid in full, refunded to
Borrower), and the amounts thereafter collectible under this Agreement shall
immediately be deemed reduced, without the necessity of the execution of any new
document so as to comply with applicable law and permit the recovery of the
fullest amount otherwise called for hereunder.
7. Security Interest. To secure payment of Borrower's
obligations under this Agreement, Borrower pledges and grants to BIDCO a
continuing security interest in those assets set forth in the Continuing
Security Agreement, of even date, executed by Borrower. This Agreement is also
secured by Guaranties executed by certain of Borrower's shareholders.
8. Jurisdiction. The terms and provisions of this agreement
shall be governed by Michigan law without giving effect to any choice or
conflict of law provision or rule (whether of Michigan or any other
jurisdiction) that would cause the application of the laws of any other
jurisdiction other than Michigan to apply.
Each of the parties submits to the exclusive jurisdiction of
the United States District Courts for the Southern and Eastern Districts of
Michigan, or if subject matter jurisdiction is not available in the Oakland
County Circuit Court in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined through such courts. Each party also agrees not to
bring any such action or proceeding arising out of or relating to this Agreement
in any other court. Each of the parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought.
IN WITNESS WHEREOF, the parties have executed this Agreement upon the
date set forth above.
WITNESS FUNDEX GAMES, LTD.
a Nevada corporation
[ILLEGIBLE] By: /s/ Carl E. Voigt, IV
- ----------------------------- ------------------------------------
Carl E. Voigt, IV, President
LIBERTY BIDCO INVESTMENT CORPORATION,
a Michigan corporation
[ILLEGIBLE] By: /s/ Pearl M. Holforty
- ------------------------------ ------------------------------------
Pearl M. Holforty, President
3
<PAGE> 1
Exhibit: 10.14FT
CO-PUBLISHING AGREEMENT
(U.K. MATERIALS)
THIS AGREEMENT is entered into as of the 5th day of January, 1998, by
and between Magi Publications, a partnership ("Publisher") and Little Tiger
Press USA, L.L.C., a New York limited liability company ("Co-Publisher").
R E C I T A L S:
A. Publisher publishes printed materials, and Co-Publisher is in the
business of publishing, marketing and distributing printed materials.
B. The parties desire to enter into an agreement for co-publication by
Co-Publisher of certain materials of Publisher, all on the terms and conditions
herein set forth.
T E R M S:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL. Publisher hereby grants Co-Publisher the
right of first refusal to co-publish with Publisher and distribute in the United
States any and all published materials Publisher desires to have
published/distributed in the United States (hereinafter individually a "Book"
and collectively "Books").
Publisher will supply Co-Publisher with three (3) folded and gathered
sheets, and/or three (3) review copies, of each Book Publisher wants
published/distributed in North America, at no cost to Co-Publisher. At the same
time, Publisher will supply Co-Publisher with the title, name of the author and
illustrator, Unit Price (defined below), and the proposed delivery date of the
Book.
Co-Publisher shall inform Publisher of Co-Publisher's election whether
to publish each Book within thirty (30) days after Co-Publisher receives the
Book from Publisher for review, and the other information described in the
preceding paragraph. Publisher will supply Co-Publisher with 130 folded and
gathered sheets, and/or 130 review copies, of each Book Co-Publisher elects to
publish in North America, at no cost to Co-Publisher.
Books selected by Co-Publisher for publication under this Agreement
will be published under and with the name and imprint "Little Tiger Press USA,
L.L.C."
If Co-Publisher elects not to publish any Book offered by Publisher,
then Publisher shall have the right to pursue alternative publication/
distribution for such Book; provided, however, that the terms offered to an
alternative co-publisher/distributor shall not be more favorable than the terms
offered by Publisher to Co-Publisher.
2. APPOINTMENT AND TERRITORY. Publisher hereby grants Co-Publisher the
right to
<PAGE> 2
publish, distribute and sell each Book selected by Co-Publisher under Section 1
above exclusively throughout North America. Co-Publisher's right to publish any
Book in other territories shall be subject to the prior written consent of
Publisher.
Co-Publisher shall not, without the prior written consent of Publisher,
which consent may be withheld for any reason or no reason, print or authorize
the printing of copies of any Book other than by Publisher.
Co-Publisher shall promote the sale of each Book actively throughout
the territory granted to Co-Publisher under this Agreement.
Publisher and Co-Publisher agree to co-publish the 1998 Spring and Fall
Front Lists, copies of which are attached hereto as Exhibit "A" and hereby made
a part hereof, at the pricing shown on said Exhibit, and further agree that the
rights to reprints of Publisher's "back list" are covered by and subject to this
Agreement.
3. MANNER OF PURCHASING.
(a) Co-Publisher shall have the option to purchase copies of each Book,
on a title-by-title basis, from Publisher, on a firm sale basis, on terms for
said purchases as described in Section 4 below. The details of Book orders shall
be set out from time to time on purchase orders (hereinafter "Purchase Orders")
issued by Co-Publisher.
(b) As used in this Agreement, and on any Purchase Order, the following
terms shall have the following meanings:
(i) "Book": One of Publisher's book titles, copies of which
are to be published/purchased by Co-Publisher, as further
described in Section 1 above.
(ii) "Unit Price": The price to Co-Publisher, inclusive of
royalty and delivery (C.I.F. to New York), of each copy of a
Book.
(iii) "Quantity": The initial quantity of copies of a Book
ordered by Co-Publisher, as specified in a Purchase Order for
such Book.
(iv) "Delivery Date": The date for bulk delivery of the
Quantity of a Book, as specified in the Purchase Order for
such Book.
(v) "Imprint": The "Little Tiger Press" imprint.
(c) Co-Publisher shall notify Publisher of the proposed release dates
of each Book. Co-Publisher shall release each Book within three (3) months of
delivery of the Quantity ordered of such Book, unless Co-Publisher is prevented
from doing so by circumstances beyond Co-
2
<PAGE> 3
Publisher's control, in which event Publisher shall be notified in writing and
the period permitted for release shall be extended by the duration of such
circumstances.
(d) Except as may otherwise be specified in this Agreement, all details
of publication, sale and advertisement of each Book, and the number and
destination of free copies, shall be at the sole discretion and expense of
Co-Publisher.
4. FIRM SALES.
(a) Unless otherwise agreed upon by the Publisher and Co-Publisher,
all sales under this Agreement will be firm sales. Firm sales are direct,
outright purchases of Books from Publisher by Co-Publisher, as opposed to
consignment sales. The details of each purchase shall be identified on a
Purchase Order.
The Unit Price of each Book, as offered by Publisher, is based upon the
cost of paper and printing as of the date of the offer relating to such Book. If
such costs have increased by more than 5% at the time the Book goes to print,
one-half of the increase in cost per copy in excess of 5% shall be added to the
Unit Price per copy for such Book. If the increase in cost would not have been
incurred but for a delay in printing caused by Co-Publisher's failure to perform
its obligations under this Agreement, Co-Publisher shall bear the entire
increase in cost.
(b) Co-Publisher shall pay Publisher the total Unit Price for each
Book received, within fifteen (15) days after receipt of the Book by
Co-Publisher.
(c) Publisher shall supply to Co-Publisher, as ordered by
Co-Publisher, 10% additional jackets/covers for each hard cover Book purchased
by Co-Publisher, at no charge to Co-Publisher. The purchase price for
jackets/covers ordered in excess of said 10% shall be 100% of Publisher's direct
out-of-pocket costs for the jackets/covers, payable in full within fifteen (15)
days after receipt by Co-Publisher of the jackets/covers. Extra jackets/covers
sales, like Book sales, will be firm sales - not returnable.
(d) If Co-Publisher requires copies of any Book additional to those
ordered on any Purchase Order, such further copies shall be ordered from
Publisher and supplied to Co-Publisher at a price and on other terms subject to
mutual agreement by the parties.
(e) Legal title to copies of each Book and other materials delivered
to Co-Publisher shall pass to Co-Publisher upon receipt by Co-Publisher of the
Book or other materials. Risk of loss or damage with respect to copies of each
Book or other materials delivered to Co-Publisher shall pass to Co-Publisher
upon receipt by Co-Publisher of the Book or other materials.
(f) Initial and reorder quantities for Books will not be less than
5000 copies per Book, unless otherwise agreed to by the parties.
3
<PAGE> 4
5. PRODUCTION, PRINTING AND DELIVERY.
(a) Publisher will send Co-Publisher for approval (such approval not
to be unreasonably withheld or delayed), ozalids of each Book.
(b) Subject to timely performance by Co-Publisher of Co-Publisher's
obligations under this Agreement, Publisher shall arrange for the printing of
the Quantity of Books ordered for delivery to Co-Publisher by the Delivery Date,
unless Publisher is prevented from doing so by circumstances beyond Publisher's
control, or unless otherwise mutually agreed.
(c) Delivery to Co-Publisher of up to 10% under or over the Quantity
of any Book shall constitute good delivery, and Co-Publisher shall pay for the
actual number of copies received.
(d) Co-Publisher shall notify Publisher in writing of Co-Publisher's
requirements, if any, with respect to advance copies, extra covers or jackets,
and folded and gathered sheets.
(e) Co-Publisher shall not insert within or on the cover or jacket
of any edition of any Book, any advertisement, other than information about
other Books published by Publisher, without the prior written consent of
Publisher.
(f) Each party will discuss with the other opportunities regarding
co-op and promotional advertising, as those opportunities arise, and the parties
may, but are not obligated to, agree to share the costs thereof.
6. ACCOUNTING MATTERS. All monies due to Publisher shall be paid by
mail or telegraphic transfer to Publisher's bank account at Barclays Bank,
Heathrow Airport Business Centre, Cardinal Point, Newall Road, Heathrow Airport
(London), Hounslow, TVV6 2AH, England (Account #: 69521277. Sort Code: 20-38-83.
Shift code: BARC GB 22). Co-Publisher shall ensure that all remittances or
notifications of remittance shall detail the names of Co-Publisher and
Publisher, the title of the Book(s), and, if applicable, Publisher's invoice
number.
7. FREIGHT. All Books will be shipped C.I.F. to New York in care of
Co-Publisher's freight forwarder. Co-Publisher will be responsible for customs
and transportation charges from New York to Co-Publisher's facilities.
8. SHIPPING SERVICES. From time to time Publisher may request
Co-Publisher to ship stock of Co-Publisher's books held by Co-Publisher to fill
orders placed by Publisher's other customers. All such orders shall be for
full-case quantities to a single shipping location. Co-Publisher will charge
Publisher, in fulfillment of any such order, the actual cost of shipping plus a
handling charge of 1% of the value of such order. Publisher shall also
reimburse Co-Publisher for any portion of the purchase price paid by
Co-Publisher to Publisher for the Books so sold, and for all of Co-Publisher's
out-of-pocket costs for such Books. Such charges shall
4
<PAGE> 5
be deducted from monthly payments due to Publisher from Co-Publisher under this
Agreement.
9. PACKAGING SPECIFICATIONS. Publisher agrees to package all Books
shipped to Co-Publisher under this Agreement in case packs of 30 copies unless
otherwise mutually agreed to by the parties. Each carton will have the following
information clearly marked on the outside of the carton: Publisher Imprint:
Little Tiger Press; ISBN:_______; Title: _______; Number of Copies: _______;
Co-Publisher's Product No.: _______.
10. IMPRINT; COPYRIGHT. Co-Publisher shall inform Publisher promptly of
any infringement of the copyright in any Book of which Co-Publisher becomes
aware. Co-Publisher will take all reasonable steps, including registration where
applicable, to protect the copyright in each Book in the territories granted to
Co-Publisher under this Agreement.
11. RESERVED RIGHTS. All rights in each Book, other than those
specifically granted to Co-Publisher under this Agreement, are reserved by
Publisher.
12. TERM; TERMINATION. This Agreement shall be effective immediately
and automatically on the "Contingency Expiration Date," as that term is defined
in that certain Operating Agreement for Little Tiger Press USA, L.L.C., dated of
even date herewith, executed by Futech Educational Products, Inc. and Magi
Publications. This Agreement shall continue thereafter until terminated in any
one of the following ways:
(a) If Co-Publisher is at any time in breach of any of the terms and
conditions of this Agreement, and Co-Publisher fails to cure such breach within
thirty (30) days after receipt by Co-Publisher of written notice from Publisher
specifying the breach and requiring that it be cured.
(b) If Co-Publisher is declared bankrupt or goes into liquidation
(other than solvent voluntary liquidation for the purpose of reconstruction
only), or if a receiver or administrator or administrative receiver is appointed
to the whole or substantially the whole of Co-Publisher's business, or if
Co-Publisher shall make an assignment for the benefit of creditors, then
Publisher may terminate this Agreement if Co-Publisher fails to cure such breach
within thirty (30) days after receipt by Co-Publisher of written notice from
Publisher specifying the breach and requiring that it be cured.
(c) If Co-Publisher ceases to trade as a publisher/distributor or is
for any reason unable to perform and comply with the terms and conditions of
this Agreement.
(d) If Co-Publisher allows any Book to go out of stock (to the
extent that Co-Publisher has less than 50 copies of such Book in stock), and to
remain out of stock for 6 months, then Publisher may terminate this Agreement
with respect to such Book only.
(e) If Co-Publisher shall dispose of all remaining stock of a Book
by remaindering or destruction, then Publisher may terminate this Agreement with
respect to such
5
<PAGE> 6
Book only.
Any termination of this Agreement by either party shall not affect
the obligations of either party under this Agreement to pay the other party
amounts owing in connection with performance under this Agreement prior to the
termination. The termination of this Agreement by either party shall not
prejudice any claim which either party has against the other.
13. ASSIGNMENT. Co-Publisher shall not, without the prior written
consent of Publisher, assign or in any way transfer Co-Publisher's rights
granted hereunder, in whole or in part, nor issue or permit issue of any Book
over any imprint other than the Imprint.
14. NATURE OF RELATIONSHIP. The relationship the parties intend to
create is that of principal and independent contractor, and nothing herein is
intended, nor shall it be construed, to create a relationship of partnership,
joint venture, or employer/employee between the parties. Publisher shall not
have the right to direct the specific daily activities or practices of
Co-Publisher nor the manner in which Co-Publisher conducts Co-Publisher's
affairs.
15. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be given by any of the
following means and shall be deemed to have been received as follows:
(i) If by hand delivery, upon delivery;
(ii) If by pre-paid mail, 48 hours after posting, or if the
intended recipient party is in a country other than that of
the sender, on the seventh day after dispatch (Saturdays,
Sundays and public holidays excluded); or
(iii) If by telex, facsimile or other system which prints the
notice at the receiving end, if the sender has an
acknowledgment from the recipient of its receipt in readable
form, upon receipt of such acknowledgment;
provided, however, that no Notice shall be deemed to have been received unless
addressed to the addresses appearing below, or such other address provided to
the other party by Notice:
If to Publisher:
Magi Publications
22 Manchester Street
London W1M 5PG, England
Facsimile: 011-44-171-486-0926
If to Co-Publisher:
Little Tiger Press USA, L.L.C.
6
<PAGE> 7
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018-7247
Facsimile: (602) 808-9863
Notice given on a Saturday, Sunday or public holiday, or outside normal business
hours, shall not be deemed given until commencement of the next normal business
hours.
16. ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and a complete and exclusive statement
of its terms. No prior course of dealings between the parties and no usage of
trade shall be relevant or admissible to supplement, explain, or vary any of the
terms of this Agreement. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement shall not be relevant or
admissible to determine the meaning of this Agreement even though the accepting
or acquiescing party has knowledge of the nature of the performance and an
opportunity to make objection. No representations, understandings, or agreements
have been made or relied upon in the making of this Agreement other than those
specifically set forth herein. This Agreement can be modified only by writing
signed by all of the parties hereto.
17. MISCELLANEOUS. This Agreement contains the entire Agreement between
the parties with respect to the subject matter discussed in this Agreement, and
any prior arrangements or negotiations relating thereto are superseded by this
Agreement. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Arizona, without giving effect to the
conflict laws thereof. The courts of the State of Arizona shall have the sole
and exclusive jurisdiction and venue in any case or controversy arising under
this Agreement or by reason of this Agreement. The parties agree that any
litigation or arbitration arising from the interpretation or enforcement of this
Agreement shall be only in either Maricopa County Superior Court or in the
United States Federal District Court for the District of Arizona, and for this
purpose each party to this Agreement (and each person who shall become a party)
hereby expressly and irrevocably consents to the jurisdiction and venue of such
courts. This Agreement shall be construed according to its fair meaning and
neither for nor against the drafting party. If arbitration or other legal action
is instituted in connection with this Agreement, the prevailing party in such
action shall be entitled to recover from the other party reasonable attorneys'
fees and costs. The parties agree to accept facsimile signatures in counterparts
to this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were originals. The failure of a party
to require the performance of any term of this Agreement, or the waiver by a
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of such term nor be deemed a waiver of any subsequent breach. The
remedies and payments provided for in this Agreement are not exclusive of other
remedies available to the parties. Every provision of this Agreement is intended
to be severable. If any term of provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement. Time is of the essence of each and every
provision of this Agreement. Titles and headings of sections of this Agreement
are for convenience of reference only, are not intended to define, limit or
describe the scope or intent of any provision of this Agreement, and shall not
7
<PAGE> 8
affect the construction of any provision of this Agreement.
DATED the date first hereinabove written.
PUBLISHER: Magi Publications, a partnership
By /s/ Manmohan Singh Bhatia
----------------------------------
Manmohan Singh Bhatia, Partner
CO-PUBLISHER: Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Magi Publications,
a partnership, Member
By /s/ Manmohan Singh Bhatia
-------------------------------
Manmohan Singh Bhatia, Partner
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By /s/ Vincent W. Goett
-------------------------------
Vincent W. Goett, CEO
List of Exhibits
1998 Spring and Fall Front List "A"
8
<PAGE> 9
LITTLE TIGER PRESS, USA
FRONT LIST PUBLISHING SCHEDULE FALL '98
<TABLE>
<CAPTION>
Order Retail Futech/
Title Format Quantity Price LTP Cost Ext Cost XYZ Price W/S Turnover Ex-Works
- ----- ----------- -------- ------ -------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In Could Have Been Worse Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
A Duck So Small Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
You Won't Think of Me at All Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 Dec '97
Beware of the Bears Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
The Lion Who Wanted to Love Hardback 12,000 $14.95 $4.10 49,200 $5.23 62,760 Nov '97
Look Out for the Big Bad Fish Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 Dec '97
Tommy Hardback 15,000 $16.95 $4.40 66,000 $5.93 88,950 Dec '97
I Don't Want to Take a Bath! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
I Don't Want to Go to Bed! Board Book 25,000 $ 6.95 $1.75* 43,750 $2.43 60,750 Jan '98
Tim's Animal Stories 96 page H/B 15,000 $16.95 $4.25 63,750 $5.93 88,950 Jan '98
Animals All Around
Laura's Star Reprint** Hardback 50,000 $16.95 $4.40 220,000 $5.93 296,500 June '98
Rumble in the Jungle Reprint** Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 June '98
Magi Various Reprints** Hardback 60,000 $14.95 $3.75 225,000 $5.23 313,800 June '98
PAPERBACK
I Don't Want to Take a Bath! Paperback 25,000 $ 5.95 $1.20 $2.08
Dora's Eggs Paperback 15,000 $ 5.95 $1.20 $2.08
TOTAL 307,000 960,450 1,390,860
</TABLE>
* Price to be finalized
** Quantities, dates and titles to be finalized
<PAGE> 10
Exhibit "A". Page 2 of 2
LITTLE TIGER PRESS, USA
FRONT LIST PUBLISHING SCHEDULE FALL '98
<TABLE>
<CAPTION>
Order Retail Futech/
Title Format Quantity Price LTP Cost Ext Cost XYZ Price W/S Turnover Ex-Works
- ----- ------ -------- ------ -------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hurry Santa Hardback 40,000 $14.95 $3.60 144,000 $5.23 209,200 June '98
Mouse, Look Out Hardback 10,000 $14.95 $3.75 37,500 $5.23 52,300 June '98
One Two Three Oops** Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 June '98
Little Bunny Bobkin Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 March '98
Bedtime for Little Hare Hardback 20,000 $14.95 $3.75 75,000 $5.23 104,600 June '98
Smudge** Hardback 15,000 $14.95 $3.75 56,250 $5.23 78,450 July '98
Commotion in the Ocean Hardback 20,000 $14.95 $4.10 82,000 $5.23 104,600 July '98
A New Hardback*** Hardback 15,000 $14.95 $4.10 61,500 $5.23 78,450 July '98
Santa's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $4.53 113,250 Aug '98
Tiger's Large Board Book Board Book 25,000 $12.95 $3.20* 80,000 $4.53 113,250 Aug '98
Tim's Bear Stories 96 page H/B 15,000 $16.95 $4.25 63,750 $5.93 88,950 June '98
Little Tiger Cloth Book 1 Cloth Book 25,000 $19.95 $6.00* 150,000 $8.00* 200,000 July '98
Little Tiger Cloth Book 2 Cloth Book 25,000 $19.95 $6.00* 150,000 $8.00* 200,000 July '98
PAPERBACK
Beware of the Bears Paperback 25,000 $ 5.95 $1.20 $2.08
It Could Have Been Worse Paperback 15,000 $ 5.95 $1.20 $2.08
TOTAL 305,000 1,097,750 1,499,950
</TABLE>
* Price to be finalized
** Pub date to be confirmed
*** Titles to be confirmed
<PAGE> 1
Exhibit: 10.14T
SECURITY INTEREST AGREEMENT (#17) March 29, 1995
WHEREAS the Trudy Corp (d/b/a Soundprints) of 165 Water Street in Norwalk, Ct.
(hereafter "Trudy") is seeking to pay various capital expenses including the
Energy Solutions payment of $6,800 to relamp and reballast a large portion of
the building, and
WHEREAS the Trudy Corp has to date been unable to secure financing for low cost,
three year funding, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $4,800.00
(four thousand eight hundred dollars and 00/100) for capital expenditures net of
the $2,000 rebate by South Norwalk Electric on March 29, 1995,
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks inherent
therein. Given that this cash is necessary for the Company to survive, that cash
has great value to Trudy.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 10% per annum. Trudy shall repay Burnham with monthly payments of $154.88 for
a period of thirty six months (totaling $5,575.77 over three years, including
interest of $775.77).
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity; the entire $4,800 should be repaid
by May 1, 1998. In such circumstances, Burnham shall have a collateral interest
second only to that of Union Trust (if any) and Alice Burnham, but in any event
senior to all trade creditors and to all other liabilities of the Company unless
otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ Peter P. Ogilvie ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
Peter P. Ogilvie, VP. William W. Burnham
for Trudy Corp
Dated: March 30, 1995.
<PAGE> 1
Exhibit: 10.14FD
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
ARTICLES OF MERGER
OF
THIRD QUARTER, INC.
WITH AND INTO
FUNDEX GAMES, LTD.
AUG 27 1996
No. C 15272-96
----------
DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
FIRST. Third Quarter, Inc. is a duly organized Indiana corporation
governed under the laws of the State of Indiana ("MERGING CORPORATION"). Fundex
Games, Ltd. is a duly organized Nevada corporation governed under the laws of
the State of Nevada ("SURVIVING CORPORATION").
SECOND. The Plan of Merger has been adopted by both the Merging
Corporation and the Surviving Corporation.
THIRD. The Plan of Merger has been approved by the unanimous written
consent of the shareholders of the Merging Corporation. The Plan of Merger has
been approved by the written consent of the sole stockholder of the Surviving
Corporation.
FOURTH. The future effective date of the merger is August 28, 1996.
IN WITNESS WHEREOF, the undersigned corporation has caused these Articles
of Merger to be executed in its name by Carl E. Voigt, IV, President, and Carl
E. Voigt, III, Secretary, this 22nd day of August, 1996.
FUNDEX GAMES, LTD.
BY: /s/ Carl E. Voigt
-------------------------------
Carl E. Voigt, IV, President
By: /s/ Carl E. Voigt
-------------------------------
Carl E. Voigt, III, Secretary
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On this 22nd day of August, 1996, personally appeared before me, a Notary
Public in and for the State and County aforesaid, Carl E. Voigt, IV and Carl E.
Voigt, III, known to me to be the persons described in and who executed the
foregoing Articles of Merger, and who acknowledged to me that they executed the
same freely and voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year first above written.
/s/ Mitchell Roth
-------------------------------
Notary Public
- ------------------------------
[SEAL] MITCHELL ROTH
MY COMMISSION EXPIRES
JANUARY 20, 1998
- ------------------------------
<PAGE> 2
Plan of Merger ("PLAN")
between
Third Quarter, Inc., an Indiana
corporation (the "MERGED CORPORATION"),
and
Fundex Games, Ltd., a Nevada
corporation (the "SURVIVING CORPORATION")
(both of said corporations are sometimes referred to
jointly as the "CONSTITUENT CORPORATIONS")
ARTICLE I
1.1 The respective Boards of Directors of the Constituent Corporations
deem it advisable for (a) Third Quarter, Inc. to merge with and into Fundex
Games, Ltd. and (b) Fundex Games, Ltd. to be the Surviving Corporation.
1.2 The principal business address of Third Quarter, Inc. is 3750 W. 16th
Street, Indianapolis, Indiana 46222. Third Quarter, Inc. is a corporation duly
organized and governed under the laws of the State of Indiana.
1.3 The principal business address of Fundex Games, Ltd. Is 502 E. John
Street, Carson City, Nevada 89706. Fundex Games, Ltd. is a corporation duly
organized and governed under the laws of the State of Nevada.
1.4 Third Quarter, Inc. is authorized to issue One Hundred Thousand
(100,000) shares of Common Stock, no par value per share, of which One Thousand
(1,000) are issued and outstanding.
1.5 Fundex Games, Ltd., is authorized to issue Nine Million (9,000,000)
shares, consisting of Eight Million (8,000,000) shares of Common Stock, $0.001
par value per share, and One Million (1,000,000) shares of Preferred Stock,
$1.00 par value per share, of which One (1) share of Common Stock is issued and
outstanding. No shares of Preferred Stock are issued and outstanding.
ARTICLE II
At the Effective Time of the Merger (as defined in Article VII below):
2.1 In accordance with the applicable provisions of the Indiana Business
Corporation Law, as amended ("BCL"), the Nevada General Corporation Law, as
amended ("GCL"), and the Nevada Revised Statutes, as amended ("NRS"), Third
Quarter, Inc. shall be merged with and into Fundex Games, Ltd., which shall be
the Surviving Corporation (such merger shall sometimes be called the "MERGER").
2.2 The separate existence of the Merged Corporation shall cease, and the
Surviving Corporation shall have all the rights, privileges, immunities and
powers and be subject to all the duties and liabilities of a corporation
organized under the NRS.
<PAGE> 3
2.3 The Surviving Corporation shall thereupon and thereafter possess all
the rights, privileges, immunities, and franchises as of a public or private
nature, of each of the Constituent Corporations; and all property, real,
personal, and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other causes in action, and all and every other
interest, of or belonging to or due to each of the Constituent Corporations,
shall be taken and deemed to be transferred to and vested in or shall continue
to be vested in the Surviving Corporation without further act or deed; and the
title to any real estate, or any interest therein, vested in any of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger.
2.4 The Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of each of the Constituent Corporations;
and any claim existing or action or proceeding pending by or against any of the
Constituent Corporations may be prosecuted to judgment as if the Merger had not
taken place, or the Surviving Corporation may be substituted in its place, and
neither the rights of creditors nor any liens upon the property of any of the
Constituent Corporations shall be impaired by the Merger.
ARTICLE III
3.1 The Articles of Incorporation of the Surviving Corporation as existing
and constituted immediately prior to the Effective Time of the Merger shall
continue to be and constitute the Articles of Incorporation of the Surviving
Corporation.
3.2 The By-Laws of the Surviving Corporation as existing and constituted
immediately prior to the Effective Time of the Merger shall continue to be and
constitute the By-Laws of the Surviving Corporation.
3.3 The Board of Directors of the Surviving Corporation immediately prior
to the Effective Time of the Merger shall continue to be and constitute the
Board of Directors of the Surviving Corporation.
3.4 The Officers of the Surviving Corporation immediately prior to the
Effective Time of the Merger shall continue to be and constitute the Officers of
the Surviving Corporation.
ARTICLE IV
The mode of carrying the Merger into effect is as follows:
Each issued and outstanding share of Common Stock, no par value per share,
of the Merging Corporation shall be converted into One Thousand (1,000)
shares of Common Stock, $0.001 par value per share, of the Surviving
Corporation; the singular issued and outstanding share of Common Stock,
$0.001 par value per share, of the Surviving Corporation owned by the
Merging Corporation shall be canceled.
2
<PAGE> 4
ARTICLE V
The Surviving Corporation shall pay all expenses of carrying this Plan
into effect and of accomplishing the Merger.
ARTICLE VI
If at any time the Surviving Corporation shall consider or be advised that
any further assignment or assurance in law is necessary or desirable to vest in
the Surviving Corporation the title to any property or rights of the Merging
Corporation, the proper officers and directors of the Merging Corporation shall
execute and make all such proper assignments and assurances in law and do all
things necessary or proper to thus vest such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes of this Plan.
ARTICLE VII
The Merger shall be effected by the filing of (i) Articles of Merger/Share
Exchange with the Indiana Secretary of State, and (ii) Articles of Merger with
the Nevada Secretary of State, after satisfaction of the requirements of the
BCL, the CGL and the NRS. The Effective Time of the Merger shall be August 28,
1996.
3
<PAGE> 1
Exhibit: 10.15FT
MULTIPLE ADVANCE PROMISSORY NOTE
$500,000.00 As of January 5, 1998
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Little Tiger Press
USA, L.L.C., a New York limited liability company ("Maker") to the order of
Futech Educational Products, Inc., an Arizona corporation ("Payee").
1. PAYMENT. For value received, Maker promises to pay, as hereinafter
set forth, without offset, such principal sum, up to a maximum of Five Hundred
Thousand Dollars ($500,000.00), as the holder hereof may advance to or for the
benefit of the undersigned, together with interest to the date paid on a daily
basis for the actual number of days any portion of said principal is
outstanding, calculated at the publicly announced prime rate of interest of Bank
One, Arizona, N.A., as such prime rate may be adjusted from time to time during
the time period this loan is outstanding.
Principal and interest are payable in lawful money of the United States
of America at 2999 North 44th Street, Suite 225, Phoenix, Arizona 85018-7247, or
at such other address as the holder hereof may from time to time designate in
writing, interest only payable monthly on the first day of each month,
commencing on the first day of the first calendar month after the date funds are
first advanced under this Note, with the full outstanding principal payment due
and payable in full on December 31, 2002.
If requested by the holder of this Note at any time, Maker shall pay
payments due hereunder by cash, cashiers check, or money order only, and
payments in other forms may, in the holder's discretion, be refused and not
accepted.
All payments hereunder shall be applied first to interest and then to
principal. The unpaid balance of this obligation at any time shall be the total
amount advanced hereunder by the holder(s) hereof plus accrued interest added to
principal, less the amount of payments made hereon by or for Maker, which
balance may be endorsed hereon from time to time by the holder hereof.
Payee agrees to loan Maker amounts requested by Maker from time to time
up to the maximum amount specified in the first paragraph of this Section 1.
2. PREPAYMENT. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
3. INTEREST. All interest payable pursuant to this Note shall be
computed on the basis
<PAGE> 2
of a 360-day year. In no event shall the aggregate of the interest herein
provided to be paid over the contractual term of the loan exceed the highest
rate to which a borrower and lender may agree in writing under the laws of the
State of Arizona.
4. DEFAULT. If the principal due under this Note, or under any
mortgage, deed of trust, security agreement, or other agreement between maker
and payee pertaining to the indebtedness evidenced hereby shall not be paid
within ten (10) days after it first becomes due, or if Maker fails to comply
with all of the other terms and conditions of this Note or any instrument
securing this Note, and such failure shall continue for twenty (20) days after
notice thereof is given to Maker, then the entire principal sum, accrued
interest, and all other amounts due hereunder shall, at the option of Payee,
become immediately due and payable without further notice.
5. COLLECTION COSTS. Maker agrees to reimburse Payee for all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
in the enforcement or collection of this Note or any judgment obtained hereon.
6. WAIVER, CONSENT, ETC. Except as may be expressly provided to the
contrary in this Note, Maker, sureties, guarantors, and endorsers hereof agree
to be jointly and severally bound, severally waive any homestead or exemption
rights against said debt, severally waive diligence, demand, presentment for
payment, protest, protest and demand, notice of protest, notice of nonpayment,
notice of default, notice of acceleration, and all other notices and demands of
any kind. Maker, sureties, guarantors and endorsers hereof hereby severally
consent to the extension of time for payment of this Note or any installment
hereof, any modification hereof, release from liability of any maker, endorser,
or any other person or entity at any time liable for the payment hereof, and the
modification or release of any collateral at any time held as security for this
Note, without notice and without affecting the liability of any maker,
guarantor, surety or endorser. Maker further waives, to the extent permitted by
law, the right to plead any and all statutes of limitations as a defense to any
demand on this Note.
Delay or failure in exercising any of Payee's rights or options
hereunder shall not constitute a waiver thereof, and any waiver of any rights or
options hereunder shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default. By accepting payment of any sum
hereunder after its due date, the holder hereof shall not waive its rights
either to require prompt payment when due of all other sums hereunder or to
declare a default for failure to make prompt payment. No waiver by the holder of
this Note shall be effective unless it is in writing and signed by such holder.
7. SEVERABILITY. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall, to the fullest extent possible, remain in full force and effect,
and such court shall reform such unenforceable provision so as to give maximum
2
<PAGE> 3
permissible effect to the intentions of the parties as expressed therein.
8. SECURITIES. As security for Maker's performance under this Note,
Maker hereby grants Payee a security interest in any and all assets now owned or
hereafter acquired by Maker. In the event of default by Maker hereunder, Payee
shall have all rights with respect to such collateral as are available to a
secured party under the Uniform Commercial Code in the State of Arizona, as the
same may from time to time be changed. Maker agrees to execute and deliver to
Payee and pay the costs of recording financing statements evidencing this
security agreement and other documents necessary or appropriate to perfect this
security interest, and Maker hereby irrevocably appoints Payee as Maker's
attorney-in-fact for the purpose of executing and filing said financing
statements. Maker shall reimburse Payee for all reasonable costs associated with
such filings.
9. MISCELLANEOUS. The provisions of this Note shall be binding upon
Maker and Maker's personal representatives, successors and assigns, and shall
inure to the benefit of Payee and Payee's successors and assigns. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of Arizona. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Note or by reason of this Note. The parties agree that any litigation or
arbitration arising from the interpretation or enforcement of this Note shall be
only in either Maricopa County Superior Court or in the United States Federal
District Court for the District of Arizona, and for this purpose each party to
this Note (and each person who shall become a party) hereby expressly and
irrevocably consents to the jurisdiction and venue of such courts. This Note
shall be construed according to its fair meaning and neither for nor against the
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Little Tiger Press USA, L.L.C.,
a New York limited liability company
By: Futech Educational Products, Inc.,
an Arizona corporation, Member
By /s/ Vincent W. Goett
-------------------------------
Vincent W. Goett, CEO
By Magi Publication, a Partnership
By /s/ Manmohan Singh Bhatia
-------------------------------
Manmohan Singh Bhatia, Partner
3
<PAGE> 4
ACCEPTED AND AGREED TO
as of the date first shown above, by
the undersigned Payee:
Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
-------------------------------
Vincent W. Goett, CEO
'
4
<PAGE> 1
Exhibit: 10.15T
SECURITY INTEREST AGREEMENT (#18) July 10, 1998
WHEREAS the Trudy Corp of 353 Main Avenue in Norwalk, Ct (hereafter "Trudy") is
seeking to pay $28,900.00 to upgrade its computer system, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, CT is willing to assist Trudy Corp by lending Trudy Corp $28,900.00
(twenty eight thousand nine hundred dollars and 00/100) to purchase the new
computer operating system.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks therein.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed interest
of 8% per annum.
Burnham shall be entitled to perfect his security interest, if and when Trudy is
unable to repay this debt on its maturity; the entire $28,900.00 should be
repaid by July 10, 1999. In such circumstances, Burnham shall have a collateral
interest second only to that of First union (if any) and Alice Burnham, but in
any event senior to all trade creditors and to all other liabilities of the
Company unless otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ W. T. Carney ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
William T. Carney William W. Burnham
Vice President/ CFO for
Trudy Corp
Dated: July 10, 1998
<PAGE> 1
Exhibit: 10.15FD
LEASE AGREEMENT
THIS LEASE is executed this 8th day of January, 1997, by and between DUGAN
REALTY, L.L.C., an Indiana limited liability company ("Landlord"), and FUNDEX
GAMES, LTD., a Nevada corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
Section 1.01. Basic Lease Provisions and Definitions.
A. Leased Premises Address: 2237 Directors Row; Indianapolis, Indiana 46241;
Building No. 33 (the "Building"); located in Park Fletcher Business Park
(the "Park");
B. Rentable Area: approximately 32, 170 square feet;
Landlord shall use commercially reasonable standards, consistently applied,
in determining the Rentable Area and the rentable area of the Building. The
Rentable Area shall include the area within the Leased Premises plus a pro
rata portion of the area covered by the common areas within the Building,
as reasonably determined by Landlord from time to time. Landlord's
determination of Rentable Area made in good faith shall conclusively be
deemed correct for all purposes hereunder, including without limitation
the calculation of Tenant's Proportionate Share and Tenant's Minimum
Annual Rent.
C. Tenant's Proportionate Share: 28.5423%;
D. Minimum Annual Rent:
April 1, 1997 - March 31, 2002 $147,660.36 per year
E. Monthly Rental Installments:
April 1, 1997 - March 31, 2002 $12,305.03 per month
F. Landlord's Share of Expenses: $.43 times the rentable area of the
Building;
G. Term: Five (5) years;
H. Commencement Date: April 1, 1997;
I. Security Deposit: n/a;
J. Guarantor(s): n/a;
K. Broker(s): Duke Realty Services Limited Partnership representing Landlord
and F.C. Tucker representing Tenant;
L. Permitted Use: Warehousing, assembly, automated packaging, and storage
of games and office and related purposes;
<PAGE> 2
M. Address for notices:
Landlord: Dugan Realty, L.L.C.
c/o Duke Realty Services Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
Tenant: Attn: Chip Voigt
Fundex Games, Ltd.
2237 Directors Row
Indianapolis, IN 46241
Address for rental and other payments:
Dugan Realty, L.L.C.
c/o Duke Realty Services Limited Partnership
P.O. Box 66548
Indianapolis, IN 46266
Section 1.02. Leased Premises. Landlord hereby leases to Tenant and
Tenant leases from Landlord, subject to all of the terms and conditions set
forth herein, that portion of the Building described in the Basic Lease
Provisions and outlined on Exhibit A attached hereto (the "Leased Premises").
Landlord also grants to Tenant, together with and subject to the rights granted
from time to time by Landlord to other tenants and occupants of Landlord's
premises, the right to use the common parking area adjoining the Building.
ARTICLE 2 - TERM AND POSSESSION
Section 2.01. Term. The term of this Lease ("Lease Term") shall be the
period of time specified in the Basic Lease Provisions and shall commence on
the Commencement Date described in the Basic Lease Provisions. Upon delivery of
possession of the Leased Premises to Tenant, Tenant shall execute a letter of
understanding acknowledging (i) the Commencement Date of this Lease, and (ii)
that Tenant has accepted the Leased Premises for occupancy and that the
condition of the Leased Premises (including any tenant finish improvements
constructed thereon) and the Building was at the time satisfactory and in
conformity with the provisions of this Lease in all respects. Such letter of
understanding shall become a part of this Lease. If Tenant takes possession of
and occupies the Leased Premises, Tenant shall be deemed to have accepted the
Leased Premises as described above, even though Tenant may not have executed
the letter of understanding.
Section 2.02. Construction of Tenant Improvements. Tenant has personally
inspected the Leased Premises and accepts the same "as is" without
representation or warranty by Landlord of any kind and with the understanding
that Landlord shall have no responsibility with respect thereto except to
construct in a good and workmanlike manner the improvements designated as
Landlord's obligations in the attached Exhibit B, so that the Leased Premises
will be available for Tenant's occupancy by the Commencement Date, unless
prevented by causes beyond Landlord's reasonable control. Such improvements
shall be in accordance with and at the expense of the party indicated on
Exhibit B.
-2-
<PAGE> 3
Section 2.03. Surrender of the Premises. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to
re-enter the Leased Premises without terminating this Lease, Tenant shall
immediately surrender the Leased Premises to Landlord, in broom-clean condition
and in good order, condition and repair, except for ordinary wear and tear and
damage which Tenant is not obligated to repair. Tenant shall also remove its
personal property, trade fixtures and any of Tenant's alterations designated by
Landlord; promptly repair any damage caused by such removal; and restore the
Leased Premises to the condition existing prior to the installation of the items
so removed. If Tenant fails to do so, Landlord may restore the Leased Premises
to such condition at Tenant's expense, and Landlord may cause all of said
property to be removed at Tenant's expense and Tenant hereby agrees to pay all
the costs and expenses thereby reasonably incurred. All property of Tenant which
is not removed within ten (10) days following Landlord's written demand therefor
shall be conclusively deemed to have been abandoned by Tenant, and Landlord
shall be entitled to dispose of such property without thereby incurring any
liability to Tenant. The provisions of this section shall survive the expiration
or other termination of this Lease.
Section 2.04. Holding Over. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant
shall become a tenant from month to month at 125% of the Monthly Rental
Installment in effect at the end of the Lease Term (plus Additional Rent as
provided in Article 3 hereof), and otherwise upon the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by Landlord of
rent after such expiration or earlier termination shall not result in a renewal
of this Lease, and Tenant shall vacate and surrender the Leased Premises to
Landlord upon Tenant being given thirty (30) days prior written notice from
Landlord to vacate.
ARTICLE 3 - RENT
Section 3.01. Base Rent. Tenant shall pay to Landlord as Minimum Annual
Rent for the Leased Premises the sum specified in the Basic Lease Provisions,
payable in equal consecutive Monthly Rental Installments, in advance, without
deduction or offset, beginning on the Commencement Date and on or before the
first day of each and every calendar month thereafter during the Lease Term.
The Monthly Rental Installment for partial calendar months shall be prorated
based on the number of days during the month this Lease was in effect in
relation to the total number of days in such month.
Section 3.02. Additional Rent. In addition to the Minimum Annual Rent
specified in this Lease, Tenant agrees to pay to Landlord for each calendar
year during the Lease Term, as "Additional Rent," Tenant's Proportionate Share
(as described in the Basic Lease Provisions) of all costs, charges and expenses
paid or incurred by Landlord during the Lease Term for Real Estate Taxes and
Operating Expenses for the Building and appurtenant common areas (collectively
"Common Area Charges") to the extent such Common Area Charges exceed Landlord's
Share of Expenses (that is, Common Area Charges minus Landlord's Share of
Expenses, times Tenant's Proportionate Share).
-3-
<PAGE> 4
"Operating Expenses" shall mean all of Landlord's expenses for operation,
repair, replacement and maintenance as necessary to keep the Building and
apputenant common areas in good order, condition and repair (including all
additional direct costs and expenses of operation and maintenance of the
Building which Landlord reasonably determines it would have paid or incurred
during such year if the Building had been fully occupied), including, but not
limited to, management fees; utilities; stormwater discharge fees; license,
permit, inspection and other fees; environmental and pollution testing and
consultation fees related thereto; fees and assessments imposed by any
covenants or owners' association; tools and supplies; security services;
insurance premiums; and maintenance and repair of the driveways and parking
areas (including snow removal), exterior lighting facilities, landscaped areas,
walkways, curbs, drainage strips, sewer lines, exterior walls, foundation,
structural frame, roof and gutters. Operating Expenses shall not include costs
of capital improvements unless such capital improvements are required by any
governmental authority, law or regulation, in which event such capital
expenditure shall be amortized pursuant to generally accepted accounting
principles, and only the amortized portion thereof shall be included in
Operating Expenses each year.
"Real Estate Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Building and
common areas (or against Landlord's business of leasing the Building) by any
authority having the direct or indirect power to tax, together with costs and
expenses of contesting the validity or amount of Real Estate Taxes. If the
property is not separately assessed, then Tenant's liability shall be an
equitable proportion of the real estate taxes for all of the land and
improvements included within the tax parcel assessed. Landlord's reasonable
determination thereof, in good faith, shall be conclusive. The parties hereto
acknowledge that Landlord has obtained six-year tax abatement for the Building,
and in that regard, Tenant hereby agrees to promptly provide to Landlord
throughout the term of the Lease such information concerning salaries, wages,
number of employees and like information as may be required by Landlord in
connection with Landlord's reporting obligations in order to maintain such tax
abatement. Tenant further acknowledges and agrees that the tax abatement has
not been guaranteed to Tenant by Landlord and if such tax abatement is later
lost or revoked for any reason, Tenant shall remain and be responsible for real
estate taxes for the Premises (including on a retroactive basis as of the
Commencement Date of the Lease in the event of a retroactive revocation of any
tax abatement by the tax authorities). The provisions of this Section 3.02
shall survive the expiration or earlier termination of this Lease.
Tenant shall pay, prior to delinquency, all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Leased Premises or elsewhere. Tenant shall
cause such trade fixtures, furniture, equipment and all other personal property
to be assessed and billed separately from the Leased Premises.
Section 3.03. Payment of Additional Rent. Landlord shall be entitled to
estimate the total amount of Additional Rent to
-4-
<PAGE> 5
be paid by Tenant during each calendar year of the Lease Term, whereupon
commencing on the Commencement Date, Tenant shall pay to Landlord each month,
at the same time the Monthly Rental Installment is due, an amount equal to
one-twelfth (1/12) of the estimated Additional Rent for such year. Within a
reasonable time after the end of each calendar year, Landlord shall submit to
Tenant a statement of the actual amount of such Additional Rent and within
forty-five (45) days after receipt of such statement, Tenant shall pay any
deficiency between the actual amount owed and the estimates paid during such
calendar year, or in the event of overpayment, Landlord shall credit the amount
of such overpayment toward the next installments of Minimum Rent; provided,
however, Tenant shall not be entitled to a credit if actual Common Area Charges
are less than Landlord's Share of Expenses. To the extent that the Lease Term
includes any partial calendar years, the Additional Rent included in this
section shall be prorated based upon the number of days in such calendar year
included within the Lease Term divided by 360.
Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur
certain additional unanticipated costs and expenses, including administrative
costs and attorneys' fees, if Tenant fails to timely pay any payment required
hereunder. Therefore, as compensation for such additional expenses, and in
addition to the other remedies available to Landlord hereunder, if any payment
of Minimum Rent or any other sum or charge required to be paid by Tenant to
Landlord hereunder shall become overdue for a period of five (5) business
days, a late charge of seven percent (7%) of the payment so due shall be paid
by Tenant as additional rent. In addition, if Tenant fails to pay within
fifteen (15) business days after the same is due and payable any sum or charge
required to be paid by Tenant to Landlord, such unpaid amount shall bear
interest from the due date thereof to the date of payment at the Prime Rate of
interest plus four percent (4%) per annum.
Section 3.05. Maximum Increase in Operating Expenses. Notwithstanding
anything in this Lease to the contrary:
a) Uncontrollable Expenses. Tenant will be responsible for Tenant's
Proportionate Share of Real Estate Taxes, reasonable costs and expenses of
contesting the validity or amount of Real Estate Taxes; insurance premiums;
snow removal; association dues; management fees (said management fees not to
exceed $.13 per square foot per year) and any other expenses which Landlord
shall determine within its reasonable discretion to be uncontrollable expenses,
without regard to the level of increase in any or all of the above in any year
or other period of time.
b) Controllable Expenses. Tenant's obligation to pay increases in costs
and expenses related to: water and sewer; repair and maintenance of the roof,
landscaping and parking lot; mowing, trash collection, fire protection,
security, and other costs associated with the exterior maintenance of the
Building (herein "Controllable Expenses") shall be limited to a ten percent
(10%) per annum increase over the amount the Controllable Expenses for the
immediately preceding calendar year would have been had the Controllable
Expenses increased at the rate of ten percent (10%) in all previous calendar
years. For purposes of this Lease, the initial prior year's
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Controllable Expenses per square foot shall be Twenty-two Cents ($.22).
ARTICLE 4 - SECURITY DEPOSIT
[Intentionally omitted.]
ARTICLE 5 - USE
Section 5.01. Use of Leased Premises. The Leased Premises are to be used
by Tenant solely as provided in the Basic Lease Provisions, and for no other
purposes without the prior written consent of Landlord, which consent shall not
be unreasonably withheld.
Section 5.02. Covenants of Tenant Regarding Use. In connection with its
use of the Leased Premises, Tenant agrees to do the following:
(a) Tenant shall (i) use and maintain the Leased Premises and conduct its
business thereon in a safe, careful, reputable and lawful manner, (ii) comply
with all laws, rules, regulations, orders, ordinances, directions and
requirements of any governmental authority or agency, now in force or which may
hereafter be in force, including without limitation those which shall impose
upon Landlord or Tenant any duty with respect to or triggered by a change in
the use or occupation of, or any improvement or alteration to, the Leased
Premises, and (iii) comply with and obey all reasonable directions of the
Landlord, including any Rules and Regulations that may be adopted by Landlord
from time to time.
(b) Tenant shall not (i) use the Leased Premises for any unlawful purpose
or act, (ii) commit or permit any waste or damage to the Leased Premises, (iii)
store any inventory, equipment or any other materials within the Park outside
the Leased Premises (except for propane tanks enclosed within a fenced area not
to exceed twenty (20) square feet, so long as such propane tank storage
complies with all laws, rules, etc. as provided in Subparagraph (a) above), or
(iv) do or permit anything to be done in or about the Leased Premises or
appurtenant common areas which constitutes a nuisance or which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them. Landlord shall not be responsible to Tenant
for the nonperformance by any other tenant or occupant of the Building of its
lease or of any Rules and Regulations.
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(c) Tenant shall not overload the floors of the Leased Premises as to
cause damage to the floor. All damage to the floor structure or foundation of
the Building due to improper positioning or storage of items or materials shall
be repaired by Landlord at the sole expense of Tenant, who shall reimburse
Landlord immediately therefor upon demand.
(d) Tenant shall not use the Leased Premises, or allow the Leased Premises
to be used, for any purpose or in any manner which would, in Landlord's opinion,
invalidate any policy of insurance now or hereafter carried on the Building or
increase the rate of premiums payable on any such insurance policy. Should
Tenant fail to comply with this covenant, Landlord may, at its option, require
Tenant to stop engaging in such activity or to reimburse Landlord as Additional
Rent for any increase in premiums charged during the term of this Lease on the
insurance carried by Landlord on the Leased Premises and attributable to the use
being made of the Leased Premises by Tenant.
(e) Tenant may, at its own expense, erect a sign concerning its business
which shall be in keeping with the decor and other signs on the Building,
provided that such sign is first approved by Landlord in writing. Landlord's
approval, if given, may be conditioned upon such criteria as Landlord deems
appropriate to maintain the area in a neat and attractive manner. Tenant agrees
to maintain any sign in good state of repair, and upon expiration of the Lease
Term, Tenant shall promptly remove the sign and repair any resulting damage to
the Leased Premises or Building.
SECTION 5.03. Landlord's rights regarding use. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the appurtenant common areas by
Tenant, its employees, agents, customer and invitees, each of which may be
exercised without notice or liability to Tenant:
(a) Landlord may install such signs, advertisements, notices or tenant
identification information as it shall deem necessary or proper.
(b) Landlord shall have the right at any time to change or otherwise alter
the appurtenant common areas. Landlord may control the appurtenant common areas
in such manner as it deems necessary or proper.
(c) Landlord or Landlord's agent shall be permitted to inspect or examine
the Leased Premises at any reasonable time, and Landlord shall have the right to
make any repairs to the Leased Premises which are necessary for its
preservation; provided, however, that any repairs made by Landlord shall be at
Tenant's expense, except as provided in SECTION 7.02 hereof. If Tenant is not
present to open and permit such entry into the Leased Premises at any time when
such entry is necessary or permitted hereunder, Landlord and its employees and
agents may enter the Leased Premises by means of a master or pass key or
otherwise. Landlord shall incur no liability to Tenant for such entry, nor shall
such entry constitute an eviction of Tenant or a termination of this Lease, or
entitle Tenant to any abatement of rent therefor.
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ARTICLE 6 - UTILITIES AND SERVICES
Tenant shall obtain in its own name and shall pay directly to the
appropriate supplier the cost of all utilities and services serving the Leased
Premises, including but not limited to: natural gas, heat, light, electrical
power, telephone, janitorial service, refuse disposal and other utilities and
services. However, if any services or utilities are jointly metered with other
property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement. Landlord shall not be liable in damages or otherwise for any
failure or interruption of any utility service or other service furnished to the
Leased Premises; and no such failure or interruption shall entitle Tenant to
terminate this Lease or withhold sums due hereunder.
ARTICLE 7 - MAINTENANCE AND REPAIRS
SECTION 7.01. Tenant's responsibility. During the term of this Lease,
Tenant shall, at its own cost and expense, maintain in good condition and repair
the interior of the Leased Premises, including but not limited to the electrical
systems, heating and air conditioning systems, plate glass, floors, windows and
doors, sprinkler and plumbing systems. Tenant, at its expense, shall obtain a
preventative maintenance contract on the heating, ventilating and
air-conditioning systems which shall be subject to Landlord's reasonable
approval. Tenant shall provide Landlord with a copy of the preventive
maintenance contract no later than ninety (90) days after the Commencement date.
The preventive maintenance contract shall provide for the inspection and
maintenance contract shall provide for the inspection and maintenance of the
heating, ventilating and air conditioning system on not less than a semi-annual
basis. Notwithstanding the foregoing, during the initial five (5) year term of
this Lease all capital improvement costs associated with the heating,
ventilating and air conditioning system in excess of Eight Hundred Dollars
($800.00) per year (exclusive of the cost of the preventative maintenance
contract) will be paid by Landlord, provided Tenant maintains a preventive
maintenance contract as required in this Section 7.01 and so long as such costs
are not required due to the negligence, misuse or default of Tenant, its
employees, agents, customers or invitees.
SECTION 7.02. Landlord's responsibility. During the term of the Lease,
Landlord shall maintain in good condition and repair the roof, exterior walls,
foundation and structural frame of the Building and the parking and landscaped
areas, the costs of which shall be included in Operating Expenses; provided,
however, that to the extent any of the foregoing items require repair because of
the negligence, misuse, or default of Tenant, its employees, agents, customers
or invitees, Landlord shall make such repairs at Tenant's expense.
SECTION 7.03. Alterations. Tenant shall not permit structural or
non-structural alterations or additions in or to the Leased Premises unless and
until the plans have been approved by Landlord in writing. As a condition of
such approval, Landlord may require Tenant to remove the alterations and restore
the Leased Premises upon termination of this Lease; otherwise, all such
alterations or improvements, except movable office furniture and equipment and
trade fixtures, shall at
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Landlord's option become a part of the realty and the property of Landlord, and
shall not be removed by Tenant. If Landlord consents to Tenant's
performance of alternations or additions to the Leased Premises, Tenant shall
ensure that all alterations and improvements which are made or necessitated
thereby shall be made in accordance with all applicable laws, regulations and
building codes, in a good and workmanlike manner and in quality equal to or
better than the original construction of the Building. Landlord's approval of
the plans, specifications and working drawings for Tenant's alterations shall
create no responsibility or liability on the part of Landlord for their
completeness, design sufficiency, or compliance with all laws, rules and
regulations of governmental agencies or authorities. Tenant shall indemnify and
save harmless Landlord from all costs, loss or expense in connection with any
construction or installation. No person shall be entitled to any lien directly
or indirectly derived through or under Tenant upon the Leased Premises for any
improvements or fixtures made thereon or installed therein or for or on account
of any labor or material furnished to the Leased Premises or for or on account
of any matter or thing whatsoever; and nothing in this Lease contained shall be
construed to constitute a consent by Landlord to the creation of any lien. If
any lien is filed against the Leased Premises for work claimed to have been
done for, or material claimed to have been furnished to, Tenant, Tenant shall
cause such lien to be discharged of record within thirty (30) days after filing
by bonding or in any other lawful manner. Tenant shall indemnify and save
harmless Landlord from all costs, losses, expenses, and attorneys' fees in
connection with any such lien.
ARTICLE 8 - CASUALTY
Section 8.01. Casualty. In the event of total or partial destruction of
the Building or the Leased Premises by fire or other casualty, Landlord agrees
to promptly restore and repair the Leased Premises at Landlord's expense;
provided, however, that Landlord's obligation hereunder shall be limited to the
reconstruction of such of the tenant finish improvements as were originally
required to be made by Landlord, if any. Any insurance proceeds not used by
Landlord in restoring or repairing the Leased Premises shall be the sole
property of Landlord. Rent shall proportionately abate during the time that the
Leased Premises or part thereof are unusable because of any such damage
thereto. Notwithstanding the foregoing, if the Leased Premises are (i) so
destroyed that they cannot be repaired or rebuilt within one hundred fifty
(150) days from the date on which the insurance claim is adjusted; or (ii)
destroyed by a casualty which is not covered by the insurance required
hereunder or, if covered, such insurance proceeds are not released by any
mortgagee entitled thereto or are insufficient to rebuild the Building and the
Leased Premises; then, in case of a clause (i) casualty, either Landlord or
Tenant may, or, in the case of a clause (ii) casualty, then Landlord may, upon
thirty (30) days written notice to the other party, terminate and cancel this
Lease; and all further obligations hereunder shall thereupon cease and
terminate.
Section 8.02. Fire and Extended Coverage Insurance. During the term of
this Lease, Landlord shall maintain fire and extended coverage insurance on the
Building,, but shall not protect Tenant's property on the Leased Premises; and,
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notwithstanding the provisions of Section 9.01, Landlord shall not be liable
for any damage to Tenant's property, regardless of cause, including the
negligence of Landlord and its employees, agents, and invitees. Tenant hereby
expressly waives any right of recovery against Landlord (or any other tenant of
the Building) for damage to any property of Tenant located in or about the
Leased Premises, however caused, including the negligence of Landlord and its
employees, agents, and invitees; and notwithstanding the provisions of Section
9.01 below, Landlord hereby expressly waives any rights of recovery against
Tenant for damage to the Leased Premises or the Building which is insured
against under Landlord's fire and extended coverage insurance. All insurance
policies maintained by Landlord or Tenant as provided in this Lease shall
contain an agreement by the insurer waiving the insurer's right of subrogation
against the other party to this Lease and agreeing not to acquire any rights of
recovery which the insured has expressly waived prior to loss.
ARTICLE 9 - LIABILITY INSURANCE
Section 9.01. Tenant's Responsibility. Landlord shall not be liable to
Tenant or to any other person for (i) damage to property or injury or death to
persons due to the condition of the Leased Premises, the Building or the
appurtenant common areas, or (ii) the occurrence of any accident in or about
the Leased Premises or the appurtenant common areas, or (iii) any act or
neglect of Tenant or any other tenant or occupant of the Building or of any
other person, unless such damage, injury or death is directly and solely the
result of Landlord's negligence; and Tenant hereby releases Landlord from any
and all liability for the same. Tenant shall be liable for, and shall indemnify
and defend Landlord and hold it harmless from, any and all liability for (i)
any act or neglect of Tenant and any person coming on the Leased Premises or
appurtenant common areas by the license of Tenant, express or implied, (ii) any
damage to the Leased Premises, and (iii) any loss of or damage or injury to any
person (including death resulting therefrom) or property occurring in, on or
about the Leased Premises, regardless of cause, except for any loss or damage
from fire or casualty insured as provided in Section 8.02 and except for that
caused solely and directly by Landlord's negligence. Notwithstanding the
foregoing, Tenant shall bear the risk of any loss or damage to its property as
provided in Section 8.02.
Section 9.02. Tenant's Insurance. Tenant, in order to insure against the
liabilities specified in this Lease, shall at all times during the term of this
Lease carry, at its own expense, one or more policies of general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Comprehensive General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed
operations, products liability, and fire damage: Not less than $1,000,000
Combined Single Limit for both bodily injury and property damage.
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C. Fire and Extended Coverage, Vandalism and Malicious Mischief, and Sprinkler
Leakage insurance, if applicable, for the full cost of replacement of
Tenant's property.
D. Business interruption insurance and/or extra expense coverage.
The insurance policy or policies shall protect Tenant and Landlord as their
interests may appear, naming Landlord and Landlord's managing agent and
mortgagee as additional insureds, and shall provide that they may not be
cancelled on less than thirty (30) days prior written notice to Landlord. Tenant
shall furnish Landlord with Certificates of Insurance evidencing all required
coverage. Should Tenant fail to carry such insurance and furnish Landlord with
such Certificates of Insurance after a request to do so, Landlord shall have the
right to obtain such insurance and collect the cost thereof from Tenant as
additional rent.
ARTICLE 10 -- EMINENT DOMAIN
If all or any substantial part of the Building or appurtenant common areas
shall be acquired by the exercise of eminent domain, Landlord may terminate this
Lease by giving written notice to Tenant within fifteen (15) days after
possession thereof is so taken. If all or any part of the Leased Premises shall
be acquired by the exercise of eminent domain in such a manner that the Leased
Premises shall become unusable by Tenant for the purpose for which it is then
being used, Tenant may terminate this Lease by giving written notice to Landlord
within fifteen (15) days after possession of the Leased Premises or part thereof
is so taken. Tenant shall have no claim against Landlord on account of any such
acquisition for the value of any unexpired lease term remaining after possession
of the Leased Premises is taken. All damages awarded shall belong to and be the
sole property of Landlord; provided, however, that Tenant shall be entitled to
any award expressly made to Tenant by any governmental authority for the cost of
or the removal of Tenant's stock, equipment and fixtures and other moving
expenses.
ARTICLE 11 -- ASSIGNMENT AND SUBLEASE
Tenant shall not assign this Lease or sublet the Leased Premises in whole
or in part without Landlord's prior written consent. In the event of any
assignment or subletting, Tenant shall remain primarily liable to perform all of
the covenants and conditions contained in this Lease, including but not limited
to payment of Minimum Rent and Additional Rent as provided herein. The
acceptance of rent from any other person shall not be deemed to be a waiver of
any of the provisions of this Lease or to be a consent to the assignment of this
Lease or the subletting of the Leased Premises.
Without in any way limiting Landlord's right to refuse to consent to any
assignment or subletting of this Lease, Landlord reserves the right to refuse to
give such consent if in Landlord's discretion and opinion (i) the use of the
Leased Premises is or may be in any way adversely affected; (ii) the business
reputation of the proposed assignee or subtenant is deemed unacceptable; or
(iii) the financial worth of the proposed assignee or subtenant is insufficient
to meet the
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obligations hereunder or is less than that of Tenant. Landlord further
expressly reserves the right to refuse to give its consent to any subletting if
the proposed rent is publicly advertised to be less than the then current rent
for similar premises in the Park. Tenant agrees to reimburse Landlord for
reasonable accounting and attorneys' fees incurred in conjunction with the
processing and documentation of any such requested transfer, assignment,
subletting or any other hypothecation of this Lease or Tenant's interest in and
to the Leased Premises.
Notwithstanding the foregoing, Tenant may assign this Lease or sublease
all or part of the Leased Premises, without Landlord's consent, to any entity
which acquires all or part of Tenant, or which is acquired in whole or in part
by Tenant, or is an affiliate, subsidiary or parent of Tenant, provided that
the financial condition, creditworthiness and business reputation of the
proposed assignee or subtenant are equal to or exceed those of Tenant and
further provided that Tenant gives Landlord thirty (30) days prior written
notice of such assignment or sublease. Tenant shall nevertheless at all times
remain fully responsible and liable for the payment of rent and the performance
and observance of all of Tenant's other obligations under the terms, conditions
and covenants of this Lease.
ARTICLE 12 - TRANSFERS BY LANDLORD
Section 12.01. Sale and Conveyance of the Building. Landlord shall have
the right to sell and convey the Building at any time during the term of this
Lease, subject only to the rights of Tenant hereunder; and such sale and
conveyance shall operate to release Landlord from liability hereunder accruing
after the date of such conveyance.
Section 12.02. Subordination and Estoppel Certificate. Landlord shall
have the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Building by so declaring in such mortgage; and the
recording of any such mortgage shall make it prior and superior to this Lease
regardless of the date of execution or recording of either document. Within ten
(10) days following receipt of a written request from Landlord, Tenant shall
execute and deliver to Landlord, without cost:
(a) any reasonable instrument which Landlord may deem necessary or
desirable to confirm the subordination of this Lease. If Tenant fails or
refuses to do so, Landlord may execute such instrument in the name and as the
act of Tenant.
(b) an estoppel certificate in such form as Landlord may reasonably
request certifying (i) that this Lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification), (ii) the
date to which rent has been paid, (iii) that there are not, to Tenant's
knowledge, any uncured defaults (or specifying such defaults if any are
claimed), and (iv) any other matters or state of facts reasonably required
respecting the Lease or Tenant's occupancy of the Leased Premises. Such
estoppel may be relied upon by Landlord and by any purchaser or mortgagee or
all or any part of the Building. Tenant's failure to deliver such statement
within such period shall be conclusive upon Tenant that this Lease is
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in full force and effect and unmodified and that there are no uncured defaults
in Landlord's performance hereunder.
(c) Notwithstanding the foregoing, if the mortgagee shall take title to the
Leased Premises through foreclosure or deed in lieu of foreclosure, Tenant shall
be allowed to continue in possession of the Leased Premises as provided for in
this Lease so long as Tenant shall not be in default. Tenant shall, in the event
any proceedings are brought to foreclose any such mortgage, attorn to the
purchaser upon any such foreclosure and recognize such purchaser as the landlord
under this Lease.
SECTION 12.03. Lender's rights. Landlord shall have the right, at any time
and from time to time, to notify Tenant in writing that Landlord has placed a
mortgage on the Building, specifying the identity of the Lender ("Lender").
Following receipt of such notice, Tenant agrees to give such Lender a copy of
any notice of default served by Tenant on Landlord. Tenant further agrees that
if Landlord fails to cure any default as provided in Section 13.03 herein,
Lender shall have an additional thirty (30) days within which to cure such
default; provided, however, that if the term, condition, covenant or obligation
to be performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period, such default shall be deemed to have
been cured if Lender commences such performance within said thirty-day period
and thereafter diligently completes the same.
ARTICLE 13 - DEFAULT AND REMEDY
SECTION 13.01. Default. The occurrence of any of the following shall be
deemed an "Event of Default":
(a) Tenant shall fail to pay any Monthly Rental Installment or Additional
Rent within five (5) business days after the same shall be due and payable, or
Tenant shall fail to pay any other amounts due Landlord from Tenant within ten
(10) business days after the same shall be due and payable.
(b) Tenant shall fail to perform or observe any term, condition, covenant
or obligation as required under this Lease for a period of ten (10) business
days after notice thereof from Landlord; provided, however, that if the nature
of Tenant's default is such that more than ten business days are reasonably
required to cure, then such default shall be deemed to have been cured if Tenant
commences such performance within said ten business-day period and thereafter
diligently completes the required action within a reasonable time.
(c) Tenant shall vacate or abandon the Leased Premises for any period, or
fail to occupy the Leased Premises or any substantial portion thereof for a
period of thirty (30) days.
(d) All or substantially all of Tenant's assets in the Leased Premises or
Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); a
petition in bankruptcy, insolvency, or for reorganization or arrangement is
filed by or against Tenant (and Tenant fails to secure a stay or discharge
thereof within sixty (60) days thereafter); Tenant shall be insolvent and unable
to pay its debts as they become due; Tenant makes a general assignment for the
benefit of
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creditors; Tenant takes the benefit of any insolvency action or law; the
appointment of a receiver or trustee in bankruptcy for Tenant or its assets if
such receivership has not been vacated or set aside within thirty (30) days
thereafter; dissolution or other termination of Tenant's corporate charter if
Tenant is a corporation.
Section 13.02. Remedies. Upon the occurrence of any Event of Default,
Landlord shall have the following rights and remedies, in addition to those
allowed by law, any one or more of which may be exercised without further notice
to or demand upon Tenant:
(a) Landlord may re-enter the Leased Premises and cure any default of
Tenant, and Tenant shall reimburse Landlord as additional rent for any costs and
expenses which Landlord thereby incurs; and Landlord shall not be liable to
Tenant for any loss or damage which Tenant may sustain by reason of Landlord's
action, regardless of whether caused by Landlord's negligence or otherwise.
(b) Landlord may terminate this Lease or, without terminating this Lease,
terminate Tenant's right to possession of the Leased Premises as of the date of
such default, and thereafter (i) neither Tenant nor any person claiming under or
through Tenant shall be entitled to possession of the Leased Premises, and
Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord may declare the present value ( as
determined by Landlord) of all rent which would have been due under this Lease
for the balance of the Lease Term to be immediately due and payable, whereupon
Tenant shall be obligated to pay the same to Landlord, together with all loss or
damage which Landlord may sustain by reason of Tenant's default ("Default
Damages"), which shall include without limitation expenses of preparing the
Leased Premises for re-letting, demolition, repairs, tenant finish improvements,
and brokers' and attorneys' fees, it being expressly understood and agreed that
the liabilities and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages the
difference between the rent provided for herein and that provided for in any
lease covering a subsequent re-letting of the Leased Premises, for the period
which would otherwise have constituted the balance of the Lease Term, together
with all of Landlord's Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the breach.
(e) In addition to the defaults and remedies described above, the parties
hereto agree that if Tenant defaults in the performance of any (but not
necessarily the same) term or
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condition of this Lease three (3) or more times during any twelve (12) month
period, regardless of whether such defaults are ultimately cured, then such
conduct shall, at Landlord's option, represent a separate Event of Default.
Tenant acknowledges that (i) Landlord will incur additional unanticipated costs
as a result of such repetitive defaults, including but limited to
administrative costs and legal fees, and (ii) the purpose of this provision is
to adequately compensate Landlord for those costs, which would be difficult to
determine with certainty. Therefore, Tenant agrees to pay to Landlord upon a
default under this habitual default provision the amount of One Thousand
Dollars ($1,000.00) as liquidated damages to cure such default, payable within
forty-five (45) days after written demand therefor to Tenant by Landlord.
Section 13.03. Landlord's Default and Tenant's Remedies. Landlord shall be
in default if it shall fail to perform or observe any term, condition,
covenant or obligation as required under this Lease for a period of thirty
(30) days after written notice thereof from Tenant to Landlord and to Lender,
if any; provided, however, that if the term, condition, covenant or obligation
to be performed by Landlord is of such nature that the same cannot reasonably
be performed within such thirty-day period, such default shall be deemed to
have been cured if Landlord commences such performance within said thirty-day
period and thereafter diligently undertakes to complete the same. Upon the
occurrence of any such default, Tenant may sue for injunctive relief or to
recover damages for any loss resulting from the breach, but Tenant shall not be
entitled to terminate this Lease or withhold, offset or abate any rent due
hereunder.
Section 13.04. Limitation of Landlord's Liability. If Landlord shall fail
to perform or observe any term, condition, covenant or obligation required to
be performed or observed by it under this Lease and if Tenant shall, as a
consequence thereof, recover a money judgment against Landlord (whether
compensatory or punitive in nature), Tenant agrees that it shall look solely to
Landlord's right, title and interest in and to the Building for the collection
of such judgment; and Tenant further agrees that no other assets of Landlord
shall be subject to levy; execution or other process for the satisfaction of
Tenant's judgment and that Landlord shall not be personally liable for any
deficiency.
The references to "Landlord" in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee simple interest in the
Building. In the event of a sale or transfer of such interest (except a mortgage
or other transfer as security for a debt), the "Landlord" named herein, or, in
the case of a subsequent transfer, the transferor, shall, after the date of such
transfer, be automatically released from all liability for the performance or
observance of any term, condition, covenant or obligation required to be
performed or observed by Landlord hereunder; and the transferee shall be deemed
to have assumed all of such terms, conditions, covenants and obligations.
Section 13.05. Nonwaiver of Defaults. Neither party's failure or delay in
exercising any of its rights or remedies or other provisions of this Lease
shall be construed to be a waiver
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<PAGE> 16
thereof or affect its right thereafter to exercise or enforce each and every
such right or remedy or other provision. No waiver of any default shall be
deemed to be a waiver of any other default. Landlord's receipt of less than the
full rent due shall not be construed to be other than a payment on account of
rent then due, nor shall any statement on Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction, and Landlord
may accept such payment without prejudice to Landlord's right to recover the
balance of the rent due or to pursue any other remedies provided in this Lease.
No act or omission by Landlord or its employees or agents during the term of
this Lease shall be deemed an acceptance of a surrender of the Leased Premises,
and no agreement to accept such a surrender shall be valid unless in writing and
signed by Landlord.
Section 13.06. Attorney's Fees. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party obtains a
judgment against the defaulting party, then the defaulting party agrees to
reimburse the non-defaulting party for the attorneys' fees incurred thereby.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
Landlord shall have the right, at its option, upon at least thirty (30)
days' prior written notice to Tenant, to relocate Tenant and to substitute for
the Leased Premises other space in the Building or in the Park, containing at
least as much rentable area as the Leased Premises. Such substituted space shall
be improved by Landlord, at its expense, with improvements at least equal in
quantity and quality (including a comparable sprinkler system) to those in the
Leased Premises. Landlord shall reimburse Tenant for all reasonable expenses
incurred with and caused by such relocation (including telephone installation,
moving of equipment and furniture, and printing of stationery with the Tenant's
new address) within sixty (60) days following receipt from Tenant of invoices or
receipts marked "paid in full." In no event shall Landlord be liable to Tenant
for any consequential damages as a result of any such relocation, including, but
not limited to, loss of business income or opportunity. Upon completion of the
relocation, Landlord and Tenant shall amend this Lease to change the description
of the Leased Premises and any other matters pertinent thereto.
ARTICLE 15 - NOTICE AND PLACE OF PAYMENT
Section 15.01. Notices. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to (i) the party who is to receive such notice at the address
specified in the Basic Lease Provisions and (ii) in the case of a default notice
from Tenant to Landlord, any Lender designated by Landlord. When so mailed, the
notice shall be deemed to have been given as of the date it was mailed. Either
party may change its address by giving written notice thereof to the other
party.
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Section 15.02. Place of Payment. All payments required to be made by
Tenant to Landlord shall be delivered or mailed to Landlord's management agent
at the address specified in the Basic Lease Provisions or any other address
Landlord may specify from time to time by written notice to Tenant.
ARTICLE 16 -- TENANT'S RESPONSIBILITY REGARDING ENVIRONMENTAL LAWS
AND HAZARDOUS SUBSTANCES.
Section 16.01. Definitions.
a. "Environmental Laws" -- All federal, state and municipal laws,
ordinances, rules and regulations applicable to the environmental and
ecological condition of the Leased Premises, including, without limitation, the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended; the Federal Resource Conservation and Recovery Act; the
Federal Toxic Substance Control Act; the Clean Air Act; the Clean Water Act;
the rules and regulations of the Federal Environmental Protection Agency, or
any other federal, state or municipal agency or governmental board or entity
having jurisdiction over the Leased Premises.
b. "Hazardous Substances" -- Includes:
(i) Those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances," "solid waste" or
"infectious waste" in any of the Environmental Laws; and
(ii) Such other substances, materials and wastes which are or become
regulated under applicable local, state or federal law, or which are classified
as hazardous, toxic or infectious under present or future Environmental Laws or
other federal, state, or local laws or regulations.
Section 16.02. Compliance. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws which shall impose any duty upon
Tenant with respect to the use, occupancy, maintenance or alteration of the
Leased Premises. Tenant shall promptly comply with any notice from any source
issued pursuant to the Environmental Laws or with any notice from any insurance
company pertaining to Tenant's use, occupancy, maintenance or alteration of the
Leased Premises, whether such notice shall be served upon Landlord or Tenant.
Section 16.03. Restrictions on Tenant. Tenant shall not cause or permit to
occur:
a. Any violation of the Environmental Laws related to environmental
conditions on, under, or about the Leased Premises, or arising from Tenant's
use or occupancy of the Leased Premises, including, but not limited to, soil
and ground water conditions.
b. The use, generation, release, manufacture, refining, production,
processing, storage or disposal of any Hazardous Substances on, under, or about
the Leased Premises, or the transportation to or from the Leased Premises of
any Hazardous Substances, except as necessary and appropriate for general
office use in which case the use, storage or disposal of such Hazardous
Substances shall be performed in compliance with the
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Environmental Laws and the highest standards prevailing in the industry.
Section 16.04. Notices, Affidavits, Etc.
a. Tenant shall immediately notify Landlord of (i) any violation by
Tenant, its employees, agents, representatives, customers, invitees or
contractors of the Environmental Laws on, under or about the Leased Premises, or
(ii) the presence or suspected presence of any Hazardous Substances on, under or
about the Leased Premises and shall immediately deliver to Landlord any notice
received by Tenant relating to (i) and (ii) above from any source.
b. Tenant shall execute affidavits, representations and the like from
time to time, within five (5) days of Landlord's request therefor, concerning
Tenant's best knowledge and belief regarding the presence of any Hazardous
Substances on, under or about the Leased Premises.
Section 16.05. Landlord's Rights.
a. Landlord and its agent shall have the right, but not the duty, upon
advance notice (except in the case of emergency when no notice shall be
required) to inspect the Leased Premises and conduct tests thereon at any time
to determine whether or the extent to which there has been a violation of
Environmental Laws by Tenant or whether there are Hazardous Substances on, under
or about the Leased Premises. In exercising its rights herein, Landlord shall
use reasonable efforts to minimize interference with Tenant's business but such
entry shall not constitute an eviction of Tenant, in whole or in part, and
Landlord shall not be liable for any interference, loss, or damage to Tenant's
property or business caused thereby.
b. If Landlord, any lender or governmental agency shall ever require
testing to ascertain whether there has been a release of Hazardous Substances
on, under or about the Leased Premises or a violation of the Environmental Laws,
and such requirement arose in whole or in part because of an act or omission on
the part of Tenant, then the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as Additional Rent.
Section 16.06. Tenant's Indemnification. Tenant shall indemnify and hold
harmless Landlord and Landlord's managing agent from any and all claims, loss,
liability, costs, expenses or damage, including attorneys' fees and costs of
remediation, incurred by Landlord in connection with any breach by Tenant of its
obligations under this Article 16. The covenants and obligations of Tenant under
this Article 16 shall survive the expiration or earlier termination of this
Lease.
ARTICLE 17 - MISCELLANEOUS
Section 17.01. Benefit of Landlord and Tenant. This Lease and all of the
terms and provisions hereof shall inure to the benefit of and be binding upon
Landlord and Tenant and their respective successors and assigns.
Section 17.02. Governing Law. This Lease shall be governed in accordance
with the laws of the State of Indiana.
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<PAGE> 19
Section 17.03. Guaranty. [Intentionally Omitted.]
Section 17.04. Force Majeure. Landlord shall be excused for the period of
any delay in the performance of any obligation hereunder when such delay is
occasioned by causes beyond its control, including, but not limited to, war,
invasion or hostility; work stoppages, boycotts, slowdowns or strikes;
shortages of materials, equipment, labor or energy; man-made or natural
casualties; unusual weather conditions; acts or omissions of governmental or
political bodies; or civil disturbances or riots.
Section 17.05. Condition of Premises. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Leased Premises or the Building or with respect to the
suitability or condition of any part thereof for the conduct of Tenant's
business except as provided in this Lease.
Section 17.06. Examination of Lease. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
Section 17.07. Indemnification for Leasing Commissions. The parties
hereby represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are those named in the Basic Lease
Provisions and that no other broker or person is entitled to any leasing
commission or compensation as a result of the negotiation or execution of this
Lease. Each party shall indemnify and hold the other harmless from any and all
liability for the breach of this representation and warranty on its part and
shall pay any compensation to any other broker or person who may be deemed or
held to be entitled thereto.
Section 17.08. Quiet Enjoyment. If Tenant shall perform all of the
covenants and agreements herein provided to be performed by Tenant, Tenant
shall, at all times during the Lease Term, have the quiet enjoyment and
peaceful possession of the Leased Premises without hindrance from Landlord or
any persons lawfully claiming under Landlord, except as may be provided in
Section 12.02 hereunder.
Section 17.09. Severability of Invalid Provisions. If any provision of
this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
Section 17.10. Financial Statements. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent certified and audited financial statements prepared as of the end
of Tenant's fiscal year. Such financial statements shall be
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prepared in conformity with generally accepted accounting principles,
consistently applied.
Section 17.11. Tenant's Representations and Warranties. The undersigned
represents and warrants to Landlord that (i) Tenant is duly organized, validly
existing and in good standing in accordance with the laws of the state under
which it was organized; (ii) all action necessary to authorize the execution of
this Lease has been taken by Tenant; and (iii) the individual executing and
delivering this Lease on behalf of Tenant has been authorized to do so, and
such execution and delivery shall bind Tenant. Tenant, at Landlord's request,
shall provide Landlord with evidence of such authority.
Section 17.12. Representations and Indemnifications. Any representations
and indemnifications of Landlord contained in the Lease shall not be binding
upon (i) any mortgagee having a mortgage presently existing or hereafter placed
on the Building, or (ii) a successor to Landlord which has obtained or is in
the process of obtaining fee title interest to the Building as a result of a
foreclosure of any mortgage or a deed in lieu thereof.
ARTICLE 18 - ADDITIONAL PROVISIONS
Section 18.01. Option to Extend.
A. Grant and Exercise of Option. Provided that (i) Tenant is not then in
default hereunder beyond any applicable cure periods, (ii) the creditworthiness
of Tenant is then acceptable to Landlord, (iii) Tenant originally named herein
remains in possession of and has been continuously operating in the entire
Leased Premises throughout the original five (5) year term of this Lease (the
"Original Term") and (iv) the current use of the Leased Premises is acceptable
to Landlord, Tenant shall have one (1) option to extend the Original Term for
one (1) additional period of three (3) years (the "Extension Term"). The
Extension Term shall be upon the same terms and conditions contained in the
Lease for the Original Term except (i) Tenant shall not have any further option
to extend and (ii) the Minimum Annual Rent shall be adjusted as set forth herein
("Rent Adjustment"). Tenant shall exercise such option by delivering to
Landlord, no later September 30, 2001, written notice of Tenant's desire to
extend the Original Term. Tenant's failure to properly exercise such option
shall waive it. If Tenant properly exercises its option to extend, Landlord
shall notify Tenant of the Rent Adjustment no later than ninety (90) days prior
to the commencement of the Extension Term. Tenant shall be deemed to have
accepted the Rent Adjustment if it fails to deliver to Landlord a written
objection thereto within five (5) business days after receipt thereof. If
Tenant properly exercises its option to extend, Landlord and Tenant shall
execute an amendment to the Lease (or, at Landlord's option, a new lease on the
form then in use for the Building) reflecting the terms and conditions of the
Extension Term.
B. Market Rent Adjustment. The Minimum Annual Rent for the Extension
Term shall be an amount equal to the Minimum Annual Rent then being quoted by
Landlord to prospective new tenants of the Building for space of comparable
size and quality and with similar or equivalent improvements as are found in
the Building, and if none, then in similar buildings in the Park.
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excluding free rent and other concessions; provided, however, that in no event
shall the Minimum Annual Rent during the Extension Term be less than the
highest Minimum Annual Rent payable during the Original Term or greater than
Four Dollars and Ninety-five Cents $4.95 per square foot. The Minimum Monthly
Rent shall be an amount equal to one-twelfth (1/12) of the Minimum Annual Rent
for the Extension Term and shall be paid at the same time and in the same
manner as provided in the Lease.
Section 18.02. Right of First Refusal. Provided that (i) Tenant is not
then in default hereunder beyond any applicable cure periods, (ii) the
creditworthiness of Tenant is then acceptable to Landlord, (iii) Tenant
originally named herein remains in possession of and has been continuously
operating in the entire Leased Premises throughout the Lease Term, and (iv) the
current use of the Leased Premises is acceptable to Landlord, and subject to
any rights of other tenants to the Refusal Space (including the prior right of
first refusal rights of Fisery Solutions, Inc.), Tenant shall have the right of
first refusal ("Refusal Option") to lease the space adjacent to the Leased
Premises crosshatched on the attached Exhibit C ("Refusal Space"), as such
space becomes available for leasing during the Lease Term. The term for the
Refusal Space shall be coterminous with the Lease Term, provided, however, that
the minimum term for the Refusal Space shall be three (3) years and the Lease
Term shall be extended, if necessary, to be coterminous with the term for the
Refusal Space. The Refusal Space shall be offered to Tenant at the rental rate
and upon such other terms and conditions, excluding free rent and other
concessions, as are then being offered by Landlord to a specific third party
prospective tenant for such space, but in no event shall such rental rate be
less than the then current rental rate under this Lease. In the event that the
Refusal Space is not leased to the initial third party prospective tenant, then
this Refusal Option shall remain in effect in the event of an offer to any
other specific third party prospective tenant and the Refusal Space shall again
be offered to Tenant in accordance herewith. Upon notification in writing by
Landlord that the Refusal Space is available, Tenant shall have five (5)
business days in which to notify Landlord in writing of its election to lease
the Refusal Space at such rental rates described above, in which event this
Lease shall be amended to incorporate such Refusal Space. In the event Tenant
declines or fails to elect to lease the Refusal Space, then this Refusal Option
shall automatically terminate and shall thereafter be null and void as to such
space. It is understood and agreed that this Refusal Option shall not be
construed to prevent any tenant in the Building from extending or renewing its
Lease.
Section 18.03. Americans with Disabilities Act. Landlord represents to
Tenant that, as of the Commencement Date of this Lease, the Building will be in
compliance with all material aspects of Title III of the Americans with
Disabilities Act as such law exists on the Commencement Date.
Section 18.04. Contingency. This Lease is specifically contingent upon
Fisery Solutions, Inc., not agreeing to lease the Leased Premises on or before
January 15, 1997.
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Section 18.05. Early Occupancy. Landlord will use good faith efforts to
allow Tenant to take possession of the warehouse portion of the Leased Premises
on February 15, 1997 for fixturing purposes and to take possession of the
office portion on March 1, 1997 for fixturing purposes. Tenant agrees to
coordinate its fixturing with the work of Landlord such that Tenant's work does
not interfere with or delay Landlord's work; provided, however, that neither
Landlord nor any of Landlord's affiliates shall have any responsibility or
liability whatsoever for any injury (including death) to persons or loss or
damage to any of Tenant's leasehold improvements, fixtures, equipment or any
other materials installed or left in the Leased Premises prior to the
Commencement Date. All of the terms and conditions of this Lease will become
effective upon Tenant taking possession of the Leased Premises except for the
payment of Minimum Annual Rent and Additional Rent which will commence on the
Commencement Date.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
LANDLORD:
DUGAN REALTY, L.L.C., an Indiana
limited liability company
By: Duke Realty Limited Partnership,
an Indiana limited partnership,
its member
By: Duke Realty Investments, Inc.,
an Indiana corporation, its
general partner
By: /s/ William E. Linville, III
------------------------------
William E. Linville, III
Vice President
Industrial Group
TENANT:
FUNDEX GAMES, LTD., a Nevada
corporation
By: /s/ Carl E. Voigt IV
-------------------------------
Printed: Carl E. Voigt IV
--------------------------
Title: President
----------------------------
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<PAGE> 23
STATE OF INDIANA )
) SS.
COUNTY OF MARION )
Before me, a Notary Public in and for said County and State, personally
appeared Cam E. Voigt by me known and by me known to be the President of
Fundex Games, Ltd., a Nevada corporation, who acknowledged the execution of
the above and foregoing Lease Agreement for and on behalf of said corporation.
WITNESS my hand and Notarial Seal, this 8th day of January, 1997.
/s/ Carey B. Crafton
-------------------------------
Notary Public
Carey B. Crafton
-------------------------------
(Printed Signature)
[Official Seal of Carey B. Crafton]
May Commission Expires:
------------------------------------
My County of Residence:
------------------------------------
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<PAGE> 24
2237 Directors Row
Indianapolis, IN 46241 Page 1 of 1
Drawing of Floor Plan
BLDG. 33 - PARK FLETCHER
ALL ADDRESSES ARE DIRECTORS ROW
<PAGE> 25
Fundex Games, Ltd. EXHIBIT B
Building #33 TENANT FINISH IMPROVEMENTS
2237 Directors Row March 1, 1997
Indianapolis, Indiana 46241 Page 1 of 1
Landlord will perform, at its cost and expense, the following Tenant Finish
Improvements to the Leased Premises:
1. The Landlord will build out 3,000 square feet of office space at $30.00
per square foot. Any costs in excess of $90,000 will be paid for by the
Tenant.
Construction Drawings will be forwarded to Tenant for Tenant's review and
approval under separate cover (Page 2 of 2).
<PAGE> 26
Fundex Games, Ltd. EXHIBIT C
Building #33 TENANT FINISH IMPROVEMENTS
2237 Directors Row March 1, 1997
Indianapolis, IN 46241 Page 1 of 1
RIGHT OF REFUSAL
January 8, 1997
Drawing of Floor Plan
Fiserv has ongoing BLDG. 33 - PARK FLETCHER
ROFR on adj space ALL ADDRESSES ARE DIRECTORS ROW
<PAGE> 1
Exhibit: 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), which shall be
effective as of January 5, 1998, is by and between Futech Educational Products,
Inc., an Arizona corporation (the "Company"), and Manmohan Singh Bhatia (the
"Shareholder");
RECITALS:
A. The Company and Magi Publications, a partnership ("Magi") are
members of Little Tiger Press USA, LLC, a New York limited liability company
governed by an Operating Agreement dated January 5, 1998 (the "Operating
Agreement").
B. Pursuant to the Operating Agreement, Magi is acquiring shares of the
Company's common stock, no par value.
C. Shareholder shall acquire the shares from Magi as partner of Magi.
D. The shares of the Company's common stock which will or may be
issued pursuant to the Operating Agreement, as described in Recital B, are
referred to in this Agreement as the "Common Stock."
E. The Common Stock will not be registered under the Securities Act of
1933, as amended, or under the securities laws of any state, in reliance upon
exemptions from registration thereunder.
In consideration of the mutual covenants and obligations hereinafter
set forth, the Company and the Shareholder, hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the terms listed in
this Section shall have the meanings set forth below:
(a) "Affiliate" of any Person means any other Person who
either directly or indirectly is in control of, is controlled by or is under
common control with such Person; provided that for purposes of this definition
an investment entity shall be deemed to be controlled by its investment manager,
investment advisor or general partner.
(b) "Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of Phoenix are authorized by law, regulation or executive order to close.
(c) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are effect from time to time.
<PAGE> 2
(d) "Holder" shall mean the Shareholder and his successors,
assigns and transferees (subject to Section 10 hereof). For purposes of this
agreement, the company may deem the registered holder of a Registrable Security
as the Holder thereof (subject to Section 10 hereof).
(e) "Person" shall mean an individual, partnership,
corporation, limited liability company, joint venture, trust or unincorporated
organization, a government or agency or political subdivision thereof or any
other entity.
(f) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference in such prospectus.
(g) "Registrable Securities" shall mean (i) all shares of
Common Stock issued or issuable to the Shareholder pursuant to the Asset
Purchase Agreement as further described in Recital Section B; and (ii) any other
securities issued as a result of or in connection with any stock dividend, stock
split or reverse stock split, combination, recapitalization, reclassification,
merger or consolidation, exchange or distribution in respect of the shares of
Common Stock referred in to (i) above.
(h) "Registration Expenses" shall have the meaning set forth
in Section 6 hereof.
(i) "Registration Statement" shall mean any registration
statement which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein, all
amendments and supplements to such Registration Statement including post
effective amendments, all exhibits and all material incorporated by reference in
such Registration Statement.
(j) "Registration Termination Date" shall mean the earlier to
occur of (i) the date that is five years following the date hereof or (ii) the
first date upon which the Registrable Securities may be sold without limitation
under Rule 144 under the Securities Act (as such Rule may be amended from time
to time), other than the limitations set forth in paragraphs (c), (f) and (h) of
such Rule, as determined by the opinion of counsel to the Company (which shall
be reasonably satisfactory to counsel to the Holders).
(k) "SEC" shall mean the U.S. Securities and Exchange
Commission, or any other U.S. federal agency at the time administering the
Securities Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
<PAGE> 3
(A) in the case of a Registration Statement on Form S-3
(subject to Section 5(c) below), the Registration Termination
Date; or
(B) the date on which all Registrable Securities covered by
such Registration Statement have been sold and the
distribution contemplated thereby has been completed.
(c) Inclusion of Other Securities. The Company, and any other
holder of the Company's securities that has registration rights, may include its
securities in any demand registration effected pursuant to this Section 3;
provided, however, that if the managing underwriter or underwriters of any
Underwritten Offering contemplated thereby advise the Holders in writing that
the total amount or kind of securities which such Holder, the Company or any
such other holder intends to include in such proposed public offering is
sufficiently large to affect the success of the proposed public offering
requested by the Holder or Holders materially and adversely, then the amount or
kind of securities to be offered for the account of the Company or any such
other holder shall be reduced to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters.
(d) Form. Registrations under this Section 3 will be on a form
permitted by the rules and regulations of the SEC selected by the Company;
provided, however, the Company may use Form S-3 if at the time of filing such
Registration Statement the Company is eligible to use such Form.
(e) Manner of Sale. The Company may (but shall have no
obligation to) cause any Registrable Securities that are the subject of a demand
registration pursuant to this Section 3 to be sold in an Underwritten Offering
in which event the Company shall have the right to designate the managing
underwriter or underwriters thereof (which shall be reasonably satisfactory to
the Holders whose Registrable Securities are the subject of such demand
registration).
SECTION 4. Piggyback Registration.
(a) Piggyback Registration. If the Company at any time
proposes to file a registration statement with respect to any class of equity
securities, whether for its own account (other than a registration statement on
Form S-4 or S-8, or any successor or substantially similar form or a
registration statement covering (i) an employee stock option, stock purchase or
compensation plan or securities issued or issuable pursuant to any such plan or
(ii) a dividend reinvestment plan) or for the account of a holder of securities
of the Company pursuant to registration rights granted by the Company (a
"Requesting Securityholder"), then the Company shall in each case give written
notice of such proposed filing to all Holders of Registrable Securities at least
20 Business Days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all
<PAGE> 4
Holders the opportunity to have any or all of the Registrable Securities held by
such Holders included in such registration statement. Each Holder of Registrable
Securities desiring to have his Registrable Securities registered under this
Section 4 shall so advise the Company in writing within 10 Business Days after
the date of receipt of such notice (which request shall set forth the amount of
Registrable Securities for which registration is requested), and the Company
shall include in such Registration Statement all such Registrable Securities so
requested to be included therein; provided, however, that if such Registration
Statement is for an Underwritten Offering, the Holders of Registrable Securities
included therein shall join in the underwriting on the same terms and conditions
as the Company or the Requesting Securityholders except that the Holders of
Registrable Securities shall not be required to give any representations and
warranties relating to the Company, and shall execute any underwriting
agreement, "lock-up" letters or other customary agreements or documents executed
by the Company or the Requesting Securityholders in connection therewith.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
any such proposed public offering advise the Holders in writing that the total
amount or kind of securities which the Holders of Registrable Securities, the
Company, the Requesting Securityholders and any other Persons intended to be
included in such proposed public offering is sufficiently large to affect the
success of such proposed public offering materially and adversely, then the
amount or kind of securities to be offered for the accounts of the Holders of
Registrable Securities shall be reduced pro rata, together with the amount or
kind of securities to be offered for the accounts of any other Persons
requesting registration of securities pursuant to rights similar to the rights
of the Holders under this Section 4, to the extent necessary to reduce the total
amount or kind of securities to be included in such proposed public offering to
the amount or kind recommended by such managing underwriter or underwriters
before the securities offered by the Company or any Requesting Securityholder
are so reduced. Notwithstanding the foregoing, however, the Holders shall have
no right to include any Registrable Securities in an initial public offering of
Company's securities.
(b) No Obligation. Neither the giving of notice by the Company
nor any request by the Holders to register Registrable Securities pursuant to
Section 4(a) shall in any way obligate the Company to file any such Registration
Statement. The Company may, at any time prior to the effective date thereof,
determine not to offer the securities to which Registration Statement relates
and/or withdraw the Registration Statement from the SEC, without liability of
the Company to the Holders.
SECTION 5. Registration Procedures and Other Agreements.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 and, to the extent applicable thereto, Section
4 hereof, the Company will:
(i) prepare and file with the SEC a new Registration
Statement or such amendments and post-effective amendments to an existing
Offering Registration
<PAGE> 5
Statement as may be necessary to keep such Registration Statement effective as
set forth in Section 3(b); provided, however, that no Registration Statement
shall be required to remain in effect after all Registrable Securities covered
by such Registration Statement have been sold and distributed as contemplated by
such Registration Statement;
(ii) notify each selling Holder promptly (1) when a
new Registration Statement, amendment thereto, Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to any
new Registration Statement or posteffective amendment, when it has become
effective, (2) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional information, (3) of the
issuance by the SEC of any comments with respect to any filing, (4) of any stop
order suspending the effectiveness of any Registration Statement or the
initiation or threatening of any proceedings for such purpose, (5) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (6) of the happening of any event which makes any statement of a
material fact made in any Registration Statement, Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in any Registration Statement, Prospectus or any document incorporated
therein by reference in order to make the statements therein (in the case of any
Prospectus, in the light of the circumstances under which they were made) not
misleading; and make every reasonable effort to obtain as promptly as
practicable the withdrawal of any order or other action suspending the
effectiveness of any Registration Statement or suspending the qualification or
registration (or exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(iii) furnish to each selling Holder, without charge,
at least one manually signed or "edgarized" copy and as many conformed copies as
may reasonable be requested, of the then effective Registration Statement and
any post-effective amendment thereto, and one copy of all financial statements
and schedules, all documents incorporated therein by reference and all exhibits
thereto (including those incorporated by reference);
(iv) deliver to each selling Holder, without charge,
as many copies of the then effective Prospectus (including each prospectus
subject to completion) and any amendments or supplements thereto as such Holder
may reasonably request;
(v) use its best efforts to register or qualify under
the securities or blue sky laws of such jurisdictions as the selling Holders
reasonably request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the then effective Registration Statement;
provided, however, that the Company will not be required to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, or (y) subject itself to general taxation in any such jurisdiction, or
(z) register or qualify such Registrable Securities under the securities or blue
sky laws of any jurisdiction in which the Company does not then maintain a
currently effective registration or qualification of any of its securities;
<PAGE> 6
(vi) upon the occurrence of any event contemplated by
clause (6) of Section 5(a)(ii) hereof, as promptly as practicable (in light of
the circumstances causing the occurrence of such event) prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in the light of the circumstances under which they were made, not misleading;
(vii) use reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on each securities
exchange (or quotation system operated by a national securities association) on
which identical securities issued by the Company are then listed, and enter into
customary agreements including, if necessary, a listing application and
indemnification agreement in customary form;
(viii) if the registration is in connection with an
Underwritten Offering, enter into an underwriting agreement with respect to the
Registrable Securities, which agreement shall contain provisions that are
customary in connection with underwritten secondary offerings, including
representations and warranties, opinions of counsel, letters of accountants and
indemnification provisions with underwriters that acquire Registrable
Securities;
(ix) otherwise use its best efforts to comply in all
material respects with all applicable rules and regulations of the SEC relating
to such registration and the distribution of the securities being offered and
make generally available to its securities holders earnings statements
satisfying the provisions of Section 11 (a) of the Securities Act and complying
with Rule 158 of the SEC thereunder;
(x) cooperate and assist in any filings required to
be made with the National Association of Securities Dealers, Inc.; and
(xi) make available for inspection by a
representative of selling Holders and any attorney or accountant retained by
such selling Holders, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's officers,
directors and employees to supply all information reasonably requested by, and
to cooperate fully with, any such representative, underwriter, attorney or
accountant in connection with such registration, and otherwise to cooperate
fully in connection with any due diligence investigation; provided that such
representatives, underwriters, attorneys or accountants enter into a
confidentiality agreement in form and substance reasonably satisfactory to the
Company, prior to the release or disclosure to them of any such information,
records or documents.
<PAGE> 7
(b) Each selling Holder shall furnish to the Company, upon
request, in writing such information and documents as, in the opinion of counsel
to the Company may be reasonably required to prepare properly and file such
Registration Statement in accordance with the applicable provisions of the
Securities Act.
SECTION 6. Registration Expenses. All expenses incident to the Company
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of one
counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of counsel retained by the Holders (which
counsel shall be reasonably satisfactory to the Company), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants (including the expenses
of any special audit or "comfort" letters required by or incident to such
performance or compliance), securities acts liability insurance (if the Company
elects to obtain such insurance), fees and expenses of any special experts
retained by the Company in connection with any registration hereunder and the
fees and expenses of any other Person retained by the Company (all such fees and
expenses being referred to as "Registration Expenses"), shall be borne by the
Company, whether or not any Registration Statement becomes effective.
SECTION 7. Suspension of Sales under Certain Circumstances.
(a) Upon receipt of any notice from the Company that
dispositions under the then current Prospectus must be discontinued and
suspended, whether as a result of an event described in Section 5(a)(ii)(4),(5)
or (6) hereof or otherwise, each Holder will forthwith discontinue and suspend
disposition of Registrable Securities pursuant to such Prospectus until (i) the
Holders are advised in writing by the Company that a new Registration Statement
covering the offer of Registrable Securities has become effective under the
Securities Act, or (ii) the Holders receive copies of a supplemented or amended
Prospectus contemplated by Section 5(a) hereof, or (iii) the Holders are advised
in writing by the Company that the use of the Prospectus may be resumed.
(b) If at any time following the date hereof any of the
Company's shares of Common Stock are to be sold pursuant to an Underwritten
Offering, then for the period commencing 45 days prior to, and expiring 180 days
after, the effective date of such Underwritten Offering, none of the Holders
will effect any public sale or distribution of any Registrable Securities or any
other shares of Common Stock of the Company then owned by such Holders, other
than pursuant to such Underwritten Offering (if any Registrable Securities are
included in such Underwritten Offering).
<PAGE> 8
SECTION 8. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, but without
duplication, each Holder of Registrable Securities, any their respective
officers and directors, if any, and each person who controls such Holder within
the meaning of the Securities Act, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) resulting from any untrue statement of a
material fact in, or any omission of a material fact required to be stated in,
any Registration Statement or in any preliminary or final Prospectus, or any
amendment or supplement thereto, or necessary to make the statements therein (in
the case of a Prospectus in light of the circumstances under which they were
made) not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by any Holder or any
underwriter expressly for use therein; provided that the Company will not be
liable pursuant to this Section 8(a) if such losses, claims, damages,
liabilities or expenses have been caused by the failure of any selling Holder to
deliver a copy of the Registration Statement or Prospectus, or any amendments or
supplements thereto, after the Company has furnished such copies to such Holder.
(b) Indemnification by the Holders of Registrable Securities.
In connection with any Registration Statement covering Registrable Securities of
any Holder, such Holder will furnish to the Company in writing such information
as the Company reasonably requests for use in connection with any such
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, but without duplication, the Company, its
officers, directors, shareholders, employees, advisors and agents, and each
Person who controls the Company (within the meaning of the Securities Act),
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of a material fact in, or any omission of a material fact
required to be stated in, the Registration Statement or in any preliminary or
final Prospectus, or any amendment or supplement thereto, or necessary to make
the statements therein (in the case of a Prospectus in light of the
circumstances under which they were made) not misleading, but only to the extent
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
therein. If the offering to which the Registration Statement relates is an
Underwritten Offering, each Holder agrees to enter into an underwriting
agreement in customary form with such underwriters and to indemnify such
underwriters, their officers and directors, if any, and each Person who controls
such underwriters within the meaning of the Securities Act to the same extent as
hereinabove provided with respect to indemnification by such Holder of the
Company.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified
<PAGE> 9
party; provided, however, that any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in, but not
control, the defense of such claim, but the fees and expenses of such counsel
shall be at the expense of such indemnified Person, unless (A) the indemnifying
party shall have failed to assume the defense of such claim and employ counsel
reasonably, satisfactory to the indemnified party in a timely manner, or (B) in
the reasonable judgment of any such Person, based upon written advice of its
counsel, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing, that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of any such claim as to
which such conflict of interest may exist). The indemnifying party will not be
subject to any liability for any settlement made without its consent. No
indemnified party will be required to consent to the entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of the claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, as well as one local counsel in each relevant jurisdiction.
(d) Contribution. If for any reason the indemnification
provided for in Section 8(a) or 8(b) hereof is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by Sections 8(a) and
8(b) hereof, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
SECTION 9. Current Public Information. The Company agrees that it will
file all reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if
it ceases to be required to file such reports, it will, upon the request of
Holders owning not less than 51% of the Registrable Securities [excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act], make publicly
available other information), and it will take such further action as may
reasonably be required, in each case to the extent required from time to time to
enable the Holders to sell Registrable Securities without registration under the
Securities Act within the limitations of the applicable exemptions provided by
(x) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (y) any similar regulation hereinafter adopted by the SEC.
<PAGE> 10
SECTION 10. No Inconsistent Agreements. The Company has not previously
entered into and shall not in the future enter into any agreement, arrangement
or understanding with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
SECTION 11. Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of (a) the Company and (b) the Holders owning not less than 51% of the
Registrable Securities (excluding any Registrable Securities that have
previously been sold pursuant to a Registration Statement hereunder or Rule 144
under the Securities Act).
SECTION 12. Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile, or air-courier guaranteeing overnight delivery:
(a) If to a Holder of Registrable Securities, at the most
current address for such Holder, as it appears on the books of the Company; and
(b) If to the Company: Futech Educational Products, Inc., 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018, Attention: Chief Executive
Officer; facsimile no. 808-9863, or at such other address as may be designated
from time to time by notice given in accordance with the provisions of this
Section 11.
All such notices and other communications shall be deemed to
have been delivered and received (i) in the case of personal delivery or
facsimile, on the date of such delivery, (ii) in the case of air courier, on the
Business Day after the date when sent, and (iii) in the case of mailing, on the
fifth Business Day following such mailing.
SECTION 13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, transferees and assigns of the
parties hereto; provided, however, that (a) no transferee in any transfer made
in reliance on Rule 144 under the Securities Act shall have any rights as a
Holder under this Agreement; and (b) no Person to whom the Registrable
Securities are transferred shall have any rights under this Agreement as a
Holder unless such Person agrees to be bound by the terms and conditions of this
Agreement.
SECTION 14. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
SECTION 15. Governing Law: Consent to Jurisdiction. This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Arizona without reference to principles of conflict of
laws. The parties to this Agreement
<PAGE> 11
hereby consent to the jurisdiction in personam of the Superior Court of the
State of Arizona, in and for the County of Maricopa or of the United States
District Court for the District of Arizona, in any legal proceeding to enforce
any obligations under this Agreement, and agree that venue in Maricopa County is
not inconvenient.
SECTION 16. Construction. The Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. All terms used in one number or
gender shall be construed to include any other number or gender as the context
may require. Whenever the words "include," "includes," or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 17. Entire Agreement. This Agreement, together with any other
documents and certificates delivered hereunder and the Asset Purchase Agreement,
state the entire agreement of the Company and the Shareholder with respect to
the subject matter hereof, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties and
agreements which have induced this Agreement.
IN WITNESS WHEREOF, the Company and the Shareholder have duly executed
and delivered this agreement as of the date written above.
SHAREHOLDER:
/s/ Manmohan Singh Bhatia
--------------------------------------------
FUTECH EDUCATIONAL PRODUCTS, INC.
By: Vincent W. Goett
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 1
Exhibit: 10.16T
SECURITY INTEREST AGREEMENT (#19) August 5, 1998
WHEREAS the Trudy Corp of 353 Main Avenue in Norwalk, Ct. (hereafter "Trudy)
is seeking to pay operational expenses and fund seasonal working capital
requirements, and
WHEREAS William W. Burnham (hereafter "Burnham") of White Oak Shade Road in New
Canaan, Ct. is willing to assist Trudy Corp by lending Trudy Corp $310,000.00
(three hundred ten thousand dollars and 00/100) to meet these requirements.
NOW THEREFORE, Trudy Corp agrees to provide a security interest to Burnham in
recognition of the value he is providing the Company and the risks therein.
Trudy agrees to give Burnham a collateral interest in all Cash or Securities,
all Accounts Receivable both of Trudy and its subsidiary, Soundprints, all
inventory of whatever kind, and all furniture and fixtures. This security
interest shall be limited to the amount referred to above, plus imputed
interest of 8% per annum.
Burnham shall be entitled to perfect his security interest, if and when, Trudy
is unable to repay this debt on its maturity; the entire $310,000.00 should be
repaid by October 5, 1998. In such circumstances, Burnham shall have a
collateral interest second only to that of First Union (if any) and Alice
Burnham, in any event senior to all trade creditors and to all other liabilities
of the Company unless otherwise stated or stipulated by legislation.
Both parties agree that there may be partial reductions under this agreement as
funds are repaid by Trudy to Burnham; the collateral interest shall be reduced
pro rata.
AGREED: /s/ W. T. Carney ACCEPTED: /s/ William W. Burnham
---------------------- ----------------------
William T. Carney William W. Burnham
Vice President/ CFO for
Trudy Corp.
<PAGE> 1
Exhibit: 10.16FD
AGREEMENT
AGREEMENT made this 21st day of May, 1993, by and between Random Games,
Inc., a Michigan corporation, doing business as Random Games & Toys, with its
principal place of business at 416 West Huron Street, Ann Arbor, Michigan 48103
acting as the agent of Garrett J. Donner and Michael S. Steer, two individuals
(hereinafter collectively referred to as LICENSOR), and Third Quarter
Corporation (Fundex Games) an Indiana corporation with an office at 3750 W. 16th
Street, Indianapolis, Indiana 46222 (hereinafter "LICENSEE").
WITNESSETH:
WHEREAS, LICENSOR warrants and represents that it (or its principal) is
the copyright proprietor and/or patent rights owner or agent of the patent
rights owner and has the authority to sell, grant, convey, or Otherwise exchange
the manufacturing and/or marketing rights to an original product known as "Phase
10 Dice" (hereinafter "Product"), and described in Exhibit "A", attached,
samples of which have been supplied to LICENSEE, and
WHEREAS, LICENSOR desires to have this Product manufactured, promoted,
marketed, and merchandised by an experienced manufacturer, and
WHEREAS, LICENSEE is in the business of manufacturing and marketing and
desires to manufacture and market the Product,
NOW, THEREFORE, in consideration of the premises set forth above and
promises set forth below, LICENSEE and LICENSOR agree as follows:
1 . LICENSOR hereby grants to LICENSEE the exclusive right to manufacture
and/or market the Product and any accessories or other versions of the Product
throughout the World, and in addition, grants LICENSEE the exclusive right to
make, use and sell the subject matter of all patents and patent applications
whether pending or subsequently filed on the Product, and to sublicense such
rights. LICENSOR represents and warrants that it has not granted and shall not
grant the rights to the Product for these territories to any other party during
the term of this Agreement and that LICENSOR owns and controls all rights to the
Product throughout the territories covered by this Agreement. LICENSOR also
represents and warrants that the Product is its own original creative work and
that no adverse claim exists with respect to the Product. All rights not
specifically granted to LICENSEE remain with LICENSOR.
2. LICENSEE agrees to devote its best efforts to preparing the Product for
production, display, and offering for sale no later than the 1994 New York Toy
Fair and to use reasonable efforts to manufacture, promote, and sell the
Product. LICENSEE will provide two dozen production samples of each different
version of the Product to LICENSOR as soon as possible after the first
production run.
3. Any and all trademarks, whether registered or not, used by LICENSEE in
association with the manufacture, advertising, and distribution of the Product
shall remain the property of LICENSEE and their use and the goodwill founded
thereon shall inure to the benefit of LICENSEE and not LICENSOR.
1
<PAGE> 2
4. LICENSEE agrees to pay LICENSOR an advance royalty payment of Two
Thousand Five Hundred Dollars ($2,500.00), within ten (10) days of the execution
of this agreement. This advance royalty payment shall be non-refundable, and
shall be credited and set off against the royalties earned hereunder.
5. LICENSEE agrees to pay LICENSOR a royalty of five percent (5%) of the
net wholesale selling price of all units of any versions of the Product shipped
during each calendar quarter. LICENSEE shall make royalty payments on or before
the 25th day of the month following said quarter on all net shipments made
during the quarter. Such royalty payments shall be accompanied by a statement
setting forth the gross sales, returns, and credits (including cash and trade
discounts, trade allowances and customer allowances). Net wholesale selling
price is defined as LICENSEE's billed price, less cash and trade discounts and
trade allowances and bona fide returns and customer allowances, not to exceed,
in the aggregate, Eight Percent (8%). No cost incurred in the manufacture, sale,
distribution or exploitation of the Product, its improvements, or accessories,
shall be deducted from any royalties payable to LICENSOR.
6. In the case of sales by Letter of Credit (L.C.) LICENSOR shall receive
a royalty of six Percent (6%) of the L..C. selling price for sales of all items
Freight on Board (F.O.B.) from their country of origin. There shall be no
discounts from this price.
7. In the case of premium or advertising specialty sales of the Product,
LICENSEE agrees to pay LICENSOR a royalty of three percent (3%) of the net
wholesale selling price of all units of the Product shipped as a premium or
advertising specialty. The premium or advertising specialty markets are the
markets in which Products may be sold and used for the purpose of increasing the
sale of another item or promoting or publicizing any product or service.
8. As soon as possible LICENSEE shall apply to register claims to
copyright the various versions of the Product. All applications for registration
of claims to copyright shall identify LICENSOR or its designee as the copyright
claimant. At LICENSEE's request, LICENSOR shall execute assignments in favor of
LICENSEE of any and all copyrights relating to the Product without further
consideration. LICENSEE warrants that it will affix copyright notices on the
Product as will protect the Product and LICENSOR acknowledges and accepts that
said copyright notice may be in the name of LICENSEE, but only as LICENSOR's
licensee and not as a copyright owner.
9. Outside of North America, LICENSEE shall have the right to sublicense
the Product for production and sale upon any terms and conditions which it
wishes to grant and establish; provided, however that in the event that LICENSES
does so grant sublicenses on the Product, then and in the event, LICENSEE shall
pay to LICENSOR Fifty Percent (50%) of all monies received by it from such
sublicense or grant or Two and one half Percent (2.5%) of the sublicense's net
sales, whichever is greater. Such royalty shall be due to LICENSOR within
twenty-five (25) days after the close of the calendar quarter in which the
royalty payments are received by LICENSEE.
10. LICENSOR shall have the right to review any sublicensing agreement
with respect to the Product.
2
<PAGE> 3
11. If at the time of the termination of this Agreement there is
outstanding any unexpired sublicense granted hereunder by LICENSEE, LICENSOR
agrees upon request to continue such sublicense throughout the unexpired portion
of its term.
12. LICENSOR shall have the right through its representative, to examine
the books of accounts and sales of LICENSEE at reasonable times, during normal
business hours, to determine the correctness of royalty payments.
13. LICENSOR agrees to indemnify and hold harmless LICENSEE, its officers,
agents, and employees from and against any lawsuit, claim, or demand (and
reasonable attorney's fees related thereto) arising out of the authorized use of
the Product under this Agreement, provided that LICENSOR is given prompt notice
of such claim, and provided that such claims arise out of a breach of one or
more of the warranties made by LICENSOR in Paragraph 1 of this Agreement.
LICENSEE shall be entitled to place all royalties accrued into an escrow fund
from the date of such claim until such time that the claim is settled or
otherwise disposed of. If the judgement or settlement of such claim should be
against LICENSOR, LICENSOR will be liable for all amounts up to the amount of
royalties accrued in escrow. Any excess in such escrow account shall be paid to
LICENSOR. However, LICENSOR shall have no further liability under such claim. If
LICENSOR and LICENSEE are represented by separate counsel, then each shall bear
the cost of its own attorney's fees and costs. In the case of such a demand,
claim or lawsuit, LICENSEE shall have the final decision concerning disposal of
inventory and works in progress.
14. LICENSEE agrees to indemnify and hold harmless LICENSOR, its officers,
agents, and employees from and against any lawsuit, claim, or demand (and
reasonable attorney's fees related thereto) arising out of the breach of any
warranty of LICENSEE herein or the failure of LICENSEE fully to perform any of
its obligations herein set forth, or arising out of any defects or alleged
defects in the Product. This indemnity shall survive termination of this
agreement.
15. LICENSEE shall maintain at its own expense in full force and effect at
all times during which the Product is being sold by LICENSEE at least a One
Million Dollar products liability insurance policy with respect to the Product.
LICENSOR shall be named as an additional insured with LICENSEE on such
policy and such policy shall provide for at least ten days' prior written notice
to LICENSOR of the cancellation or any substantial modification of the policy.
This insurance may be obtained for LICENSOR by LICENSEE in conjunction with a
policy which covers products other than the Product. LICENSEE shall, from time
to time upon reasonable request by LICENSOR, promptly furnish or cause to be
furnished to LICENSOR evidence in form and substance satisfactory to LICENSOR of
the maintenance of the insurance required above, including, but not limited to,
copies of policies, certificates of insurance (with applicable riders and
endorsements) and proof of premium payments.
16. In the case of any infringement or unfair use of the Product by a
third party, the parties shall cooperate with each other in preventing or
stopping such infringement or unfair use.
17. If either party breaches any of its obligations under this Agreement,
the other party shall have the right, without prejudice to any other rights
which it may have, to terminate
3
<PAGE> 4
this Agreement by giving thirty (30) days' notice to the breaching party, and
this notice will automatically become effective unless the breaching party
completely remedies the breach within the thirty-day period.
18. This Agreement shall continue in effect until it is terminated
pursuant to paragraph 17, or the end of one (1) year beyond the date of the last
sale (as per Licensee's invoice date) made by LICENSEE of any one of the
versions of the Product under this contract.
19. This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between the parties.
20. The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver or deprive or
limit that party of the right thereafter to insist upon strict adherence to that
term in the particular instance or that term or any other term of this Agreement
in any instance.
21. No change, modification, or waiver of any of the provisions hereof
shall be valid unless made in writing and signed by both parties.
22. It is understood and agreed that, in the event of an act of
government, war conditions, fire, flood, or other natural disaster, or labor or
manufacturing problems which prevent the performance by LICENSEE of the
provisions of this Agreement, such nonperformance by LICENSEE will not be
considered a breach of this Agreement, and such nonperformance will be excused
while, but no longer than, the conditions described herein prevail.
23. If any provision of this Agreement is for any reason declared to be
invalid, the validity of the remaining provisions shall not be affected thereby.
24. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
25. This Agreement shall be interpreted in accordance with and governed by
the laws of the State of Michigan.
26. All notices, consents and the like required to be given hereunder
shall be invalid unless in writing and sent by registered or certified mail to
the addresses of the parties set forth below, or the such changed addresses as
they shall in writing request:
Random Games & Toys
416 West Huron
Ann Arbor, MI 48103
Third Quarter Corporation (Fundex Games)
3750 W. 16th Street
Indianapolis, IN 46222
4
<PAGE> 5
27. Any controversy or claim arising out of or relating to this Agreement
or the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules, then obtaining, of the American Arbitration
Association before a single arbitrator and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. Such arbitration shall be a
condition precedent to any suit or action on this contract. Arbitration under
this agreement shall he held in the state of Michigan.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement.
LICENSEE: LICENSOR:
Third Quarter Corporation Random Games & Toys
By: /s/ Chip Voigt By: /s/ Michael S. Steer
-------------------------------- ---------------------------------
Title: President Title: Vice President
------------------------------ ---------------------------------
Fed. ID # 38-2047524
----------------------------
By: /s/ Garrett J. Donner
---------------------------------
Garrett J. Donner
Soc. Sec. ###-##-####
---------------------------------
By: /s/ Michael S. Steer
---------------------------------
Michael S. Steer
Soc. Sec. ###-##-####
---------------------------------
5
<PAGE> 1
Exhibit: 10.17FT
ARTICLES OF AMENDMENT
OF
ARTICLES OF ORGANIZATION
OF
GOLD STAR PUBLISHING, LLC.
Pursuant to Arizona Revised Statutes, Section 29-633, Gold Star
Publishing, LLC. (the "Company"), an Arizona limited liability company, amends
its Articles of Organization as follows:
1. The present name of the Company is "Gold Star Publishing,
LLC."
2. The date the original Articles of Organization were filed
with the Arizona Corporation Commission was February 5, 1999.
3. Management of the Company is reserved to the Members.
DATED as of the 1st day of February, 1999.
Futech Interactive Products, Inc.,
an Arizona corporation, Member
By /s/ Mel Sauder
--------------------------------
Mel Sauder, President
1
<PAGE> 1
Exhibit: 10.17T
[FIRST UNION LOGO]
LOAN AGREEMENT
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
Trudy Corporation d/b/a/ TMC Soundprints
353 Main Avenue
Norwalk, Connecticut 06851
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into March 30, 1998, by and
between Bank and Borrower, a Corporation (For profit) organized under the laws
of Delaware.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "Loan") evidenced by one or more promissory notes (whether
one or more, the "Note") as follows:
Line of Credit - in the principal amount of $1,200,000.00 which is evidenced by
the Promissory Note dated March 30, 1998 ("Line of Credit Note"), under which
Borrower may borrow, repay, and reborrow, from time to time, so long as the
total indebtedness outstanding at any one time does not exceed the principal
amount. The Loan proceeds are to be used by Borrower solely to finance
inventory and accounts receivable. Bank's obligation to advance or readvance
under the Line of Credit Note shall terminate if Borrower is in Default under
the Line of Credit Note.
Term Loan - in the principal amount of $250,000.00 which is evidenced by the
Promissory Note dated March 30, 1998. The loan proceeds are to be used by
Borrower solely acquisition of computer equipment and medium term working
capital.
This Agreement also amends and restates in its entirety that certain Loan
Agreement dated July 14, 1997 and applies to govern all of the loans thereby.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As
used in this Agreement as to Borrower, "Subsidiary" shall mean any corporation
of which more than 50% of the issued and outstanding voting stock is owned
directly or indirectly by Borrower. As to Borrower, "Affiliate" shall have the
meaning as defined in 11 U.S.C. Section 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower upon
the terms and subject to the conditions set forth herein, and Bank and Borrower
agree as follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct
and complete. Any such information relating to Borrower's financial condition
will accurately reflect Borrower's financial condition as of the date(s)
thereof, (including all contingent liabilities of every type), and Borrower
further represents that its financial condition has not changed materially or
adversely since the date(s) of such documents.
<PAGE> 2
Authorization; Non-Contravention. The execution, delivery and performance by
Borrower and any guarantor, as applicable, of this Agreement and other Loan
Documents to which it is a party are within its power, have been duly
authorized by all necessary action taken by the duly authorized officers of
Borrower and any guarantors and, if necessary, by making appropriate filings
with any governmental agency or unit and are the legal, binding, valid and
enforceable obligations of Borrower and any guarantors; and do not (i)
contravene, or constitute (with or without the giving of notice or lapse of
time or both) a violation of any provision of applicable law, a violation of
the organizational documents of Borrower or any guarantor, or a default under
any agreement, judgment, injunction, order, decree or other instrument binding
upon or affecting Borrower or any guarantor, (ii) result in the creation or
imposition of any lien (other than the lien(s) created by the Loan Documents)
on any of Borrower's or guarantor's assets, or (iii) give cause for the
acceleration of any obligations of Borrower or any guarantor to any other
creditor. ASSET OWNERSHIP. Borrower has good and marketable title to all of the
properties and assets reflected on the balance sheets and financial statements
supplied Bank by Borrower, and all such properties and assets are free and
clear of mortgages, security deeds, pledges, liens, charges, and all other
encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. DISCHARGE OF LIENS AND TAXES.
Borrower has duly filed, paid and/or discharged all taxes or other claims which
may become a lien on any of its property or assets, except to the extent that
such items are being appropriately contested in good faith and an adequate
reserve for the payment thereof is being maintained. SUFFICIENCY OF CAPITAL.
Borrower is not, and after consummation of this Agreement and after giving
effect to all indebtedness incurred and liens created by Borrower in connection
with the Loan, will not be, insolvent within the meaning of 11 U.S.C. Sec.
101(32). COMPLIANCE WITH LAWS. Borrower is in compliance in all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. Sec. 3617, et
seq.) or narcotics (including 21 U.S.C. Sec. 801, et seq.) and/or any
commercial crimes; all applicable federal, state and local laws and regulations
intended to protect the environment; and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), if applicable. ORGANIZATION AND
AUTHORITY. Each corporate or limited liability company Borrower and any
guarantor, as applicable, is duly created, validly existing and in good
standing under the laws of the state of its organization, and has all powers,
governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted. Each corporate or limited liability
company Borrower and any guarantor, if any, is duly qualified, licensed and in
good standing in each jurisdiction where qualification or licensing is required
by the nature of its business or the character and location of its property,
business or customers, and in which the failure to so qualify or be licensed,
as the case may be, in the aggregate, could have a material adverse effect on
the business, financial position, results of operations, properties or
prospects of Borrower or any such guarantor. NO LITIGATION. There are no
pending or threatened suits, claims or demands against Borrower or any
guarantor that have not been disclosed to Bank by Borrower in writing. ERISA.
Each employee pension benefit plan, as defined in ERISA, maintained by Borrower
meets, as of the date hereof, the minimum funding standards of ERISA and all
applicable regulations thereto and requirements thereof, and of the Internal
Revenue Code of 1954, as amended. No "Prohibited Transaction" or "Reportable
Event" (as both terms are defined by ERISA) has occurred with respect to any
such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank, or its agents, during normal
business hours, access to the books, records and
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<PAGE> 3
such other documents of Borrower as Bank shall reasonably require, and allow
Bank to make copies thereof at Bank's expense. Insurance. Maintain adequate
insurance coverage with respect to its properties and business against loss or
damage of the kinds and in the amounts customarily insured against by companies
of established reputation engaged in the same or similar businesses including,
without limitation, commercial general liability insurance, workers compensation
insurance, and business interruption insurance; all acquired in such amounts and
from such companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER
NOTICES. (a) Notice of Default. Furnish to Bank immediately upon becoming aware
of the existence of any condition or event which constitutes a Default (as
defined in the Loan Documents) or any event which, upon the giving of notice or
lapse of time or both, may become a Default, written notice specifying the
nature and period of existence thereof and the action which Borrower is taking
or proposes to take with respect thereto. (b) Other Notices. Promptly notify
Bank in writing of (i) any material adverse change in its financial condition or
its business; (ii) any default under any material agreement, contract or other
instrument to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any indebtedness owing by Borrower; (iii)
any material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower; and (v) at least 30 days prior thereto, any change
in Borrower's name or address as shown above, and/or any change in Borrower's
structure. COMPLIANCE WITH OTHER AGREEMENTS. Comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Note. PAYMENT OF DEBTS. Pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. REPORTS AND PROXIES. Deliver to Bank, promptly, a copy of
all financial statements, reports, notices, and proxy statements, sent by
Borrower to stockholders, and all regular or periodic reports required to be
filed by Borrower with any governmental agency or authority. OTHER FINANCIAL
INFORMATION. Deliver promptly such other information regarding the operation,
business affairs, and financial condition of Borrower which Bank may reasonably
request. NON-DEFAULT CERTIFICATE FROM BORROWER. Deliver to Bank, with the
Financial Statements required herein, a certificate signed by Borrower, if
Borrower is an individual, or by a principal financial officer of Borrower
warranting that no "Default" as specified in the Loan Documents nor any event
which, upon the giving of notice or lapse of time or both, would constitute such
a Default, has occurred. ESTOPPEL CERTIFICATE. Furnish, within 15 days after
request by Bank, a written statement duly acknowledged of the amount due under
the Loan and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed. JUDGEMENT ENTERED. Permit the entry of any monetary
judgement or the assessment against, the filing of any tax lien against, or the
issuance of any writ of garnishment or attachment against any property of or
debts due Borrower. GOVERNMENT INTERVENTION. Permit the assertion or making of
any seizure, vesting or intervention by or under authority of any government by
which the management of Borrower or any guarantor is displaced of its authority
in the conduct of its respective business or such business is curtailed or
materially impaired. PREPAYMENT OF OTHER DEBT. Retire any long-term debt entered
into prior to the date of this Agreement at a date in advance of its legal
obligation to do so. RETIRE OR REPURCHASE CAPITAL STOCK. Retire or otherwise
acquire any of its capital stock.
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<PAGE> 4
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date
hereof until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing: TANGIBLE NET WORTH. Borrower shall, at all times,
maintain Tangible Net Worth of at least $750,000.00, "Tangible Net Worth"
shall mean the total assets minus total liabilities. For purposes of this
computation, the aggregate amount of any intangible assets of Borrower
including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and brand names, shall be
subtracted from total assets, and total liabilities shall include fully
subordinated debt. TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. Borrower
shall, at all times, maintain a ratio of Total Liabilities, including fully
subordinated debt, divided by Tangible Net Worth of not more than 2.50 to 1.00.
For purposes of this computation, "Total Liabilities" shall mean all
liabilities of Borrower, including capitalized leases and all reserves for
deferred taxes and other deferred sums appearing on the liabilities side of a
balance sheet of Borrower, in accordance with generally accepted accounting
principles applied on a consistent basis.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, reviewed financial statements reflecting
its operations during such fiscal year, including, without limitation, a
balance sheet, profit and loss statement and statement of cash flows, with
supporting schedules; all on a consolidated and consolidating basis and in
reasonable detail, prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year. All
such statements shall be reviewed by an independent certified public accountant
acceptable to Bank. Such statements shall be certified as to their correctness
by a principal financial officer of Borrower.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
45 days after the close of each such period, quarterly agings of accounts
receivable and payable within 15 days after the close of each such period; all
in reasonable detail and prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the preceding
year. Such statements shall be certified as to their correctness by a principal
financial officer of Borrower.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Borrower's
financial condition. Such information shall be true, complete, and accurate
BORROWING BASE. As to the Line of Credit Note in the principal amount of
$1,200,000.00 and the letters of credit in the amount of up to $300,000.00, the
following provisions shall apply:
BORROWING LIMITATION. The maximum principal amount that Borrower may borrow
shall be the lesser of the principal amount stated in the Line of Credit Note
or the maximum principal amount allowed under this addendum (the "Maximum
Principal Amount"), provided, however that the availability created under
Borrowing base must be sufficient to cover any letter of credit exposure in
addition to hard dollar borrowings.
The Maximum Principal Amount shall be an amount equal to 75% of the net amount
of Eligible Accounts, plus 25% of an amount equal to its value of Eligible
Inventory, less the amount of any Reserve required by Bank.
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<PAGE> 5
"Eligible Account" refers to an account receivable not more than 90 days from
the date of the original invoice that arises in the ordinary course of
Borrower's business and meets the following eligibility requirements: (a) the
sale of goods or services reflected in such account is final and such goods and
services have been delivered or provided and accepted by the account debtor
and payment for such is owing; (b) the invoices comprising an account are not
subject to any claims, returns or disputes of any kind; (c) the account debtor
is not insolvent; (d) the account debtor has its principal place of business in
the United States; (e) the account debtor is not an affiliate of Borrower and
is not a supplier to Borrower and the account is not otherwise exposed to risk
of set-off; (f) not more than thirty percent of the original invoices owing
Borrower by the account debtor are more than ninety days from the date of the
original invoice.
"Eligible Inventory" means inventory of raw material and finished goods in
Borrower's possession that is held for use or sale in the ordinary course of
Borrower's business and is not unmerchantable or obsolete and is subject to a
first priority perfected security interest in favor of Bank. The value of the
inventory will be determined by Bank and will be valued at the lower of cost or
market on a first-in, first-out basis. Eligible Inventory may not exceed a
maximum value of $400,000.00 for purposes of borrowing base calculations.
"Reserves" may be required at any time and from time to time by Bank without
prior notice to Borrower in amounts deemed by Bank to be adequate to reserve
against outstanding letter of credit, outstanding bankers acceptances,
Borrower's obligations to Bank or its affiliates or any guarantees or other
contingent debt of Borrower.
REQUIRED REPORTS. Borrower may certify to Bank by the fifteenth day of each
month, the amount of Eligible Accounts and the value of Eligible Inventory as
of the first day of each month, on forms required by Bank together with all
detail and supporting documents requested by Bank. Bank may at any time and
from time to time, during Bank's normal business hours, enter upon any business
premises of Borrower and audit Borrower's accounts and inventory. Bank's
determination of the amount of Eligible Accounts and the value of Eligible
inventory shall at all times be indisputable and deemed correct. The Borrower,
at all times, shall cooperate with Bank without limitation by providing Bank
information and access to Borrower's premises and business records and shall be
courteous to Bank's agents.
CONTINUING REPRESENTATIONS. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Notes, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note ( the "Borrowing Limit"). Borrower agrees to pay any advances in excess of
the Borrowing Limit immediately upon receipt by Borrower of written notice that
the Borrowing Limit has been exceeded.
CONDITIONS PRECEDENT. The obligations of the Bank to make the Loan and any
advances pursuant to this Agreement are subject to the following conditions
precedent: ADDITIONAL DOCUMENTS. Receipt by Bank of such additional supporting
documents as Bank or its counsel may reasonably request.
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<PAGE> 6
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
Trudy Corporation d/b/a TMC Soundprints
Taxpayer Identification Number: 06-1007765
CORPORATE By: /s/ William W. Burnham
SEAL ---------------------------
William W. Burnham, President
First Union National Bank
CORPORATE By: /s/ Robert M. Martin
SEAL ----------------------------
Robert M. Martin, Vice President
Page 6
<PAGE> 1
Exhibit: 10.17FD
ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS
This Assignment of Intellectual Property Rights (this "ASSIGNMENT") is
made as of August 1, 1996 among Carl E. Voigt III, Carl E.Voigt, IV
(collectively the "ASSIGNORS") and Third Quarter Corporation, an Indiana
corporation (the "COMPANY").
RECITALS
A. The Assignors are shareholders and executive officers of the Company, and
have a direct interest in the Company's economic profitability.
B. Pursuant to that certain agreement dated December 18, 1986, among the
Assignors, K&K International, a Michigan corporation (K&K) and Kenneth Johnson
("JOHNSON") the Assignors obtained the rights to market two-playing game
commonly known as "Phase 10" and "Caught-Cha" (the "AGREEMENT"). An executed
copy of the Agreement, without exhibits is set forth on attached and
incorporated SCHEDULE "1" to this Assignment.
C. Pursuant to Section 17 of the Agreement, the Assignors had the right to
assign all or any portion of the rights existing under the Agreement to any
entity in which they collectively owned at least 51%. The Company constitutes
such an entity.
D. In consideration of the Assignors' desire to enhance the profitability of the
Company, and in consideration of the Company agreeing to issue 50,000 shares of
its common, no par value stock to each of the Assignors (for a total issuance of
100,000 shares), the Assignors assigned the rights (except for certain rights
related to hand-held electronic games) to market the "Phase 10" and "Caught-Cha"
playing card game in the United States, pursuant to an oral agreement reached on
November 1, 1991.
E. The parties now desire to memorialize their prior oral understanding in this
written assignment.
CLAUSES
1. ASSIGNMENT OF EXCLUSIVE RIGHTS. Through this instrument, the Assignors sell,
grant, convey and assign to the Company, exclusively for the United States
market, in and for all languages (including but not limited to computer and
human languages whether now existing or subsequently developed) all of the
Assignors' rights, titles and interests in or under the Agreement, including all
rights of the Assignors under all United States, Federal, State or other
"Governmental Authority" (as defined in Section 3 below), copyright, trademark,
trade secret, trade name, service mark, service name, patent, and all other
intellectual property or industrial
<PAGE> 2
property laws or rights of any type or nature concerning the Agreement or the
products identified in the Agreement. The foregoing assignment of rights by the
Assignors to the Company is all inclusive and is without reservation of any
right, title, interest or use in the United States market, whether now existing
or subsequently arising. The parties specifically agree that the Assignors have
retained all rights under the Agreement to market any and all of the products
identified in the Agreement in any market existing throughout the world other
than the United States. Notwithstanding the foregoing, the assignment of rights
hereunder shall not include the rights to manufacture, market and sell hand-held
electronic games based on the Phase 10 Card Game and Phase 10 Dice Game.
2. FURTHER INSTRUMENTS. The parties shall execute, acknowledge and deliver to
the Company, within five (5) days of the Company's request for the same, such
further instruments and documents as the Company may request from time to time
to facilitate registration of any filings or record the transfers made in this
Agreement in any public office, or otherwise to give notice or evidence of the
Company's exclusive rights to exploit the products identified in the Agreement,
to exercise all the rights arising under the Agreement anywhere in the United
States.
3. GOVERNMENTAL AUTHORITY DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings: (i) the term "UNITED STATES"
shall mean the United States of America, and all geographical territories and
subdivisions of the United States of America; (ii) the term "OTHER NATIONS"
shall mean each country, principality or other independent territory and each
subdivision thereof, which is not a part of the United States; (iii) the term
"SUPRA-NATIONAL AUTHORITY" shall mean the European Union, the United Nations,
the World Court, the Commonwealth, the North Atlantic Treaty Organization, the
General Agreement or Tariffs and Trade, the North American Free Trade Agreement
and all other multinational authorities or treaties which have or may have from
time to time jurisdiction over any of the parties to or any performance under
this Assignment; and (iv) the term "GOVERNMENTAL AUTHORITY" shall mean any
subdivision, agency, branch, court, administrative body, legislative body,
judicial body, alternative dispute resolution authority or other governmental
institution of (A) the United States, (B) any state, municipality, county,
parish, subdivision or territory of the United States, (C) all other Nations,
(D) any state, territory, county, province, municipality, parish or other
subdivision of any Other Nations, and (E) all Supra-National Authorities.
4. BINDING EFFECT. This Assignment is binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Assignors and their
successors and assigns. This Assignment supersedes any prior understandings,
written agreements or oral arrangements between the parties which concerns the
subject matter of this Assignment. This Assignment constitutes the complete
understanding among the parties, and no alteration or modification of any this
Assignment's provisions will be valid unless made in a written instrument which
all the parties sign.
2
<PAGE> 3
5. APPLICABLE LAW. The laws of the State of Indiana (other than those pertaining
to conflicts of law) shall govern all aspects of this Assignment, irrespective
of the fact that one or more of the parties now is or may become a resident of a
different state.
/s/ Carl E. Voigt Third Quarter Corporation,
- ---------------------------- an Indiana Corporation
Carl E. Voigt, III
/s/ Carl E. Voigt By: /s/ Carl E. Voigt
- ----------------------------- -----------------------------
Carl E. Voigt, IV Its: President
------------------------
3
<PAGE> 4
AGREEMENT
This Agreement made this 18th day of December, 1986, K & K International,
a Michigan Corporation, herein called K & K and Kenneth Johnson, herein called
Johnson (K & K and Johnson collectively herein called Inventor) and Carl E.
Voigt, III and Carl E. Voigt, IV, called Voigts.
WHEREAS, "Inventor" has developed and begun to market two playing card
games, commonly known as Phase 10 and Caught-Cha and collectively referred to
herein as "the product"; and,
WHEREAS, Voigts are experienced in the development and exploitation of
markets for similar kinds of products; and
WHEREAS, Inventor is desirous of using Voigts' experience and expertise in
increasing the sales volume for the product; and,
WHEREAS, Voigts are desirous of assuming responsibility for all of the
manufacturing and marketing of the product, under such terms and conditions that
follow, and except as may specifically be excluded hereafter.
NOW THEREFORE, it is agreed as follows:
1. Inventor shall retain K-Mart as its exclusive customer. Accordingly,
Inventor shall continue to be responsible for calling upon and servicing the
needs of K-Mart as they relate to the product and arranging for shipping all of
the product that is needed to fulfill the orders of K-Mart and absorbing all
expenses related thereto. Voigts shall manufacture the product sold to K-Mart
and, shall supply the same to K-Mart at the direction of Inventor. Voigts shall
bill all shipping charges directly to Inventor. All gross proceeds arising from
the sale of the product to K-Mart shall be paid by K-Mart to Inventor and Voigts
jointly and forwarded to Bank One, Lafayette, Indiana, for deposit into account
number 1-650011-8, said funds to then be distributed by said bank, twelve
percent (12%) thereof to go to Inventor as his commission, the remainder to
Voigts. The parties shall execute and deliver to said bank and K-Mart joint
written directions to fulfill the terms of this paragraph.
<PAGE> 5
2. Except as otherwise provided in paragraph 1 above, Inventor hereby
grants to Voigts the exclusive right to represent, market or sell the product
throughout the entire world.
3. Voigts shall, at their cost, provide for the manufacture and shipping
of all of the product sold by them, or by such other people or entities
authorized by them. Voigts shall further be responsible for all record keeping
and billing service related to such sale of the product.
4. Voigts shall, during the term of this contract or any extension
thereof, exercise their judgment and best efforts in development and commercial
exploitation of the product. Inventor recognizes that Voigts are and will
continue to be engaged in other business pursuits, some of which involve the
manufacture and/or sale of other game products. Voigts shall not, therefore, be
obligated to devote their entire efforts to the manufacture and sale of the
product but are obligated to devote such amount as may be reasonably required to
develop and service a broader market for the product than now exists. In the
event Voigts, in their discretion, determine that the further marketing of the
product will not be commercially feasible or profitable for Voigts, Voigts may
terminate this Agreement upon sixty (60) days written notice to Inventor.
5. Voigts, in the exercise of their sales, marketing and product
development skills are encouraged by Inventor to improve and modify, for greater
sales, the package design, size and shape, color selection and art work.
6. Inventor shall cooperate with the efforts of Voigts with regard to the
promotion and marketing of the product. Inventor shall, upon reasonable request
of Voigts, participate in such promotions, public relations, presentations,
sales call, productions, seminars, advertisements and the like as are deemed
necessary and appropriate by Voigts, for the purpose of promoting the product.
All travel expenses of Inventor incurred at the request of Voigts shall be paid
by Voigts.
7. The initial term of this contract shall be ten (10) years from the date
hereof. This contract shall automatically renew for successive five (5) year
terms unless otherwise terminated by Voigts by written notice to Inventor no
less than ninety (90) days prior to end of the then current term hereof or
unless otherwise terminated in accordance with other provisions of this
Agreement.
2
<PAGE> 6
8. Inventor grants to Voigts the right to use, copy or reproduce, without
cost to Voigts except for the direct cost of copying or reproduction, all
materials which have been developed and are presently being used in the
manufacturing process for the product, specifically including but not limited to
the plates, films, separations, mechanicals, photography, dies, die drawings and
art work.
9. In consideration for the exclusive rights granted to Voigts hereunder
and the further covenants and promises made to Voigts herein, specifically
including paragraph 11 hereof, Voigts shall pay to Inventor the sum of Sixty
Thousand Dollars ($60,000.00), payable on or before January 5, 1987. In
addition, Voigts shall pay to Inventor a royalty equal to six (6%) percent of
all gross revenue received by Voigts as a result of the sale of the product,
including that sold to K-Mart. Quarterly, beginning no later than sixty (60)
days after the date of receipt by Voigts of the first revenues from the sale of
the product, Voigts shall provide to Inventor an accounting of all sales of the
product and revenues received. Gross revenue is defined as gross selling price
less returns, freight, advertising, promotional allowances and other customary
allowances given to the customer in the toy business. Royalty payments for any
order shall be paid, within thirty (30) days after receipt by Voigts of payment
for said order. Inventor and its accountant or other representative shall have
the right, upon reasonable notice and during business hours, to examine the
books of account and records covering the sales and revenues relating to the
product in such a manner as to not unduly disrupt the normal business activities
of Voigts. Such an audit may take place no more frequently than once per
calendar year and shall be at the expense of Inventor.
10. Inventor warrants that the product and the marketing thereof does not
infringe upon any presently existing patent, copyright or trademark. Inventor
shall, to the extent the same has not already been accomplished, take all
actions necessary to provide maximum protection for the product available under
the patent, copyright or trademark laws. Inventor agrees to indemnify and hold
harmless Voigts, their affiliates, successors and assigns from any and all
liabilities, obligations, losses, damage, penalties, claims, action suits,
costs, expenses and disbursements, including reasonable attorneys fees and
expenses, resulting from any infringement or alleged infringement of the product
upon any existing patent, copyright, trademark or other proprietary right.
3
<PAGE> 7
11. Inventor grants to Voigts a right of first refusal to manufacture and
market any new game related items developed by Inventor from the date of this
Agreement through the termination thereof, all under the same terms and
conditions contained herein and relating to the product.
12. Voigts shall have the right, in furtherance of their rights and
obligations contained in this Agreement to use Inventor's name, logo, trademark
and any and all names, logos or trademarks which are a part of the product,
either directly or indirectly.
13. Voigts acknowledge that Inventor is and shall remain the owner of the
product and that the rights of Voigts with respect to the product are only those
granted by this Agreement.
14. Inventor shall promptly forward to Voigts all inquiries with respect
to the product received from any person or entity except K-Mart or its
employees. Inventor shall further provide to Voigts a list of all customers or
customers contacts made by Inventor to the date hereof with reference to the
product.
15. If at any time during the term of this Agreement or any extension
thereof, Inventor discontinues calling upon, servicing and providing all of
either playing card game to K-Mart, Voigts shall have the right to assume
responsibility for the further development of a market for said playing card
game with K-Mart, the manufacture of the playing card game to suit the needs of
K-Mart, the shipping of the playing card game, the maintenance of all necessary
records and the billing and collecting of the price of said playing card game.
Under such conditions all expenses of manufacture, shipping and billing shall be
the responsibility of Voigts and all gross proceeds from the sale of the playing
card game to K-Mart shall be payable to Voigts and shall be the sole and only
property of Voigts. Voigts shall pay to Inventor a royalty as setforth in
paragraph 9 above based upon gross revenue from K-Mart as a result of the sale
of the playing card game.
16. In the event either party violates the terms of this Agreement, the
other party shall notify the defaulting party of its default, in writing. If
such default has not been cured within thirty (30) days from the date of receipt
of said notice, the non-defaulting party shall have the right to cancel this
Agreement and to exercise any other right it may have at law or equity.
4
<PAGE> 8
17. Neither this Agreement, nor any right or obligation thereunder, shall
be assigned by Voigts without the prior written consent of Inventor, which
consent shall not be unreasonably withheld. Notwithstanding this provision,
Voigts may assign this Agreement to any entity which they, considered together,
have at least a fifty-one (51%) percent ownership interest.
18. Inventor may not assign all or any part of this Agreement or the
rights or obligations thereunder without the prior written consent of Voigts,
which consent shall not be unreasonably withheld. It is understood and agreed by
the parties, that Inventor shall at all times continue to have the full
responsibility for calling on and securing the K-Mart account and if and when
Inventor chooses to discontinue that responsibility, said responsibility may not
be assigned to any third party but the provisions of paragraph 15 shall govern.
19. Voigts shall have the right of first refusal to purchase from Inventor
all right, title and interest in and to either or both playing card games. In
the event Inventor receives a bona fide, written, arms length offer to purchase
either such game, Inventor shall give Voigts written notice of said offer.
Voigts shall have sixty (60) days from the receipt of said notice to agree to
purchase said game upon the same terms and conditions as contained in said
offer. If they do not exercise said right, Inventor may then, within the next
;sixty (60) days conclude a sale pursuant to the terms of said offer. Any such
sale shall not effect the rights of Voigts hereunder and any purchase shall be
bound by the terms hereof. If said sale is not concluded within said sixty (60)
days period, the right of first refusal shall again be effective.
20. The terms and conditions of this contract shall be governed by the
laws of the State of Indiana.
21. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
effecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
5
<PAGE> 9
22. All notices and communications required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered personally or sent by certified mail return receipt requested, post
prepaid, to the parties at the following addresses or to such other address as
either party shall hereafter specify by notice, in writing, to the other party:
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
K & K INTERNATIONAL
By:
- -------------------------------- ---------------------------------
Carl E. Voigt, III
- -------------------------------- ------------------------------------
Carl E. Voigt, IV Kenneth Johnson
6
<PAGE> 1
Exhibit: 10.18FT
TERMINATION AGREEMENT AND AMENDMENT
THIS AGREEMENT is entered into as of the 1st day of February, 1999, by
and between Responsible Kids, L.L.C., an Arizona limited liability company
("RK"), and Futech Interactive Products, Inc., an Arizona corporation
("Futech").
R E C I T A L S:
A. RK and Futech entered into that certain Operating Agreement of Gold
Star Publishing, LLC., dated February 1, 1999 (the "Gold Star Operating
Agreement") in connection with the formation of Gold Star Publishing, LLC., an
Arizona limited liability company ("Gold Star").
B. RK and Futech also entered into that certain Operating Agreement,
dated February 1, 1999 (the "SuperStar Operating Agreement") relating to the
formation of SuperStar Kids' Club, LLC., an Arizona limited liability company
("SuperStar").
C. SuperStar has not conducted any business.
D. RK and Futech desire to terminate the SuperStar Operating
Agreement and the existence of SuperStar, and amend the Gold Star Operating
Agreement, all upon the terms and conditions described below.
NOW, THEREFORE, for valuable consideration received, the
parties hereto agree as follows:
T E R M S:
1. Capitalized terms used in this Agreement shall have the same
meanings given those terms in the Gold Star Operating Agreement.
2. RK and Futech hereby terminate the SuperStar Operating Agreement,
effective the date of this Agreement. To the extent SuperStar has any assets,
those assets are hereby transferred to Gold Star.
3. As a capital contribution additional to the initial capital
contributions of RK made in subparagraph 2.1(a) of the Gold Star Operating
Agreement, RK hereby transfers to the Company all rights currently existing to
the SuperStar Kids' Club web site.
4. The $380,000.00 figure appearing twice in subparagraph 2.1(b), once
in subparagraph 8.3(a)(iv), and once in subparagraph 8.3(b)(iv) of the Gold Star
Operating Agreement is hereby changed to $500,000.00.
1
<PAGE> 2
11. By their signatures below, RK and Futech, as the sole members of
SuperStar and Gold Star, bind SuperStar and Gold Star to the terms of this
Agreement.
12. The parties acknowledge that Exhibits "B" and "C" attached hereto
are the same as Exhibits "B" and "C" attached to the Gold Star Operating
Agreement.
DATED as of the date first hereinabove written.
RK: Responsible Kids, L.L.C., an Arizona limited
liability company
By
------------------------------------------
Joy Berry, Manager
FUTECH: Futech Interactive Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
------------------------------------------
Vincent W. Goett, CEO
ACCEPTED AND AGREED To,
as to all provisions
relating to Joy Berry, by:
- --------------------------
Joy Berry
List of Exhibits:
Roll Out Schedule For Existing Books "B"
Existing Products and Rights "C"
3
<PAGE> 3
ARTICLES OF TERMINATION
Pursuant to A.R.S. Section 29-783, SuperStar Kids' Club, LLC., an
Arizona limited liability company (the "LLC") hereby submits these Articles of
Termination and states as follows:
1. The name of the limited liability company is "SuperStar Kids' Club,
LLC.
2. A Notice of Winding Up disclosing the dissolution of the LLC was
filed with the Corporation Commission on ___________, 1999.
3. All known properties and assets of the LLC have been applied and
distributed pursuant to applicable Arizona Revised Statutes.
DATED as of the _____ day of _________, 1999.
Futech Interactive Products, Inc.,
an Arizona corporation, Member
By /s/ Vincent W. Goett
------------------------------------
Vincent W. Goett, CEO
<PAGE> 1
Exhibit: 10.18T
SECURITY AGREEMENT
March 30, 1998
Trudy Corporation d/b/a TMC Soundprints
353 Main Avenue
Norwalk, Connecticut 06851
(Individually and collectively "Debtor")
First Union National Bank
300 Main Street
Stamford Connecticut 06904
(Hereinafter referred to as the "Bank")
This Security Agreement also amends and restates in its entirety that certain
Security Agreement dated January 2, 1997 and applies to govern all of the loans
and letters of credit thereby.
For value received and to secure payment and performance of the obligations due
Bank under the Application and Agreement for Letter of Credit executed by
Debtor dated March 30, 1998, and any extensions, renewals, modifications or
novations thereof (the "Agreement"), and for value received and to secure the
payment and performance of the Promissory Note executed by the Debtor dated
March 30, 1998, in the original principal amount of $1,200,000.00, payable to
Bank, and any extensions, renewals, modifications or novations thereof and the
Promissory Note executed by the Debtor dated March 30, 1998, in the original
principal amount of $250,000.00, payable to Bank, and any extensions, renewals,
modifications or novations thereof (the "Note"), this Security Agreement and
the other Loan Documents, and any other obligations of Debtor to Bank however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now existing or hereafter arising or acquired, including swap
agreements (as defined in 11 U.S.C. Section 101), future advances, and all
costs and expenses incurred by Bank to obtain, preserve, perfect and enforce
the security interest granted herein and to maintain, preserve and collect the
property subject to the security interest (collectively, "Obligations"), Debtor
hereby grants to Bank a continuing security interest in and lien upon the
following described property, now owned or hereafter acquired, any additions,
accessions, or substitutions thereof and thereto (including but not limited to
investment property and security entitlements), and all cash and non-cash
proceeds and products thereof (collectively, "Collateral"):
All accounts, contract rights, leases, and any other rights of Debtor to
payment for goods sold or leased or for services rendered; furniture;
furnishings; equipment; machinery; accessories; moveable trade fixtures; goods
held for sale or being processed for sale in Debtor's business, including all
raw materials, supplies, and other materials used or consumed in Debtor's
business, goods in process, finished goods, and all other items customarily
classified as inventory; building improvement and construction materials,
supplies and equipment; chattel paper; instruments; documents; all funds on
deposit with Bank and its affiliates; and all general intangibles; as well as
all parts, replacements, substitutions, profits, products and cash and non-cash
proceeds of the foregoing (including insurance and condemnation proceeds payable
by reason of condemnation of or loss or damage thereto) in any form and wherever
located.
Debtor hereby represents and agrees that:
OWNERSHIP. Debtor owns the Collateral or Debtor will purchase and acquire
rights in the Collateral within ten days of the date advances are made under
the Loan Documents. If Collateral is being acquired with the proceeds of an
advance under the Loan Documents, Debtor authorizes Bank to disburse proceeds
directly to the seller of the Collateral. The Collateral is free and clear of
all liens, security interests, and claims except those previously reported in
writing to Bank, and
<PAGE> 2
Debtor will keep the Collateral free and clear from all liens, security
interests and claims, other than those granted to Bank.
NAMES AND OFFICES. There has been no change in the name of Debtor, or the name
under which Debtor conducts business, within the 5 years preceding the date of
execution of this Security Agreement and Debtor has not moved its executive
offices or residence within the 5 years preceding the date of execution of this
Security Agreement except as previously reported in writing to Bank. The
taxpayer identification number of Debtor as provided herein is correct.
TITLE/TAXES. Debtor has good and marketable title to Collateral and will
warrant and defend same against all claims. Debtor will not transfer, sell, or
lease Collateral (except in the ordinary course of business). Debtor agrees to
pay promptly all taxes and assessments upon or for the use of Collateral and on
this Security Agreement. At its option, Bank may discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on
Collateral. Debtor agrees to reimburse Bank, on demand, for any such payment
made by Bank. Any amounts so paid shall be added to the Obligations.
WAIVERS. Debtor waives presentment, demand, protest, notice of dishonor, notice
of default, demand for payment, notice of intention to accelerate, and notice
of acceleration of maturity. Debtor further agrees not to assert against Bank
as a defense (legal or equitable), as a set-off, as a counterclaim, or
otherwise, any claims Debtor may have against any seller or lessor that
provided personal property or services relating to any part of the Collateral.
Debtor waives all exemptions and homestead rights with regard to the
Collateral. Debtor waives any and all rights to notice or to hearing prior to
Bank's taking immediate possession or control of any Collateral, and to any
bond or security which might be required by applicable law prior to the exercise
of any of Bank's remedies against any Collateral.
EXTENSIONS, RELEASES. Debtor agrees that Bank may extend, renew or modify any
of the Obligations and grant any releases, compromises or indulgences with
respect to any security for the Obligations, or with respect to any party
liable for the Obligations, all without notice to or consent of Debtor and
without affecting the liability of Debtor or the enforceability of this
Security Agreement.
NOTIFICATIONS OF CHANGE. Debtor will notify Bank in writing at least 30 days
prior to any change in: (i) Debtor's chief place of business and/or residence;
(ii) Debtor's name or identity; or (iii) Debtor's corporate/organizational
structure. Debtor will keep Collateral at the location(s) previously provided
to Bank until such time as Bank provides written advance consent to a change of
location. Debtor will bear the cost of preparing and filing any documents
necessary to protect Bank's liens.
COLLATERAL CONDITION AND LAWFUL USE. Debtor represents that Collateral is in
good repair and condition and that Debtor shall use reasonable care to prevent
Collateral from being damaged or depreciating. Debtor shall immediately notify
Bank of any material loss or damage to Collateral. Debtor shall not permit any
item of equipment to become a fixture to real estate or an accession to other
personal property. Debtor represents it is in compliance in all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, Collateral, operations, business, and finances, including, without
limitation, any federal or state laws relating to liquor (including 18 U.S.C.
Section 3617, et seq.) or narcotics (including 21 U.S.C. Section 801, et seq.)
and all applicable federal, state and local laws, and regulations intended to
protect the environment.
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<PAGE> 3
RISK OF LOSS AND INSURANCE. Debtor shall bear all risk of loss with respect to
the Collateral. The injury to or loss of Collateral, either partial or total,
shall not release Debtor from payment or other performance hereof. Debtor agrees
to obtain and keep in force casualty and hazard insurance on Collateral naming
Bank as loss payee. Such insurance is to be in form and amounts satisfactory to
Bank. All such policies shall provide to Bank a minimum of 30 days written
notice of cancellation. Debtor shall furnish to Bank such policies, or other
evidence of such policies satisfactory to Bank. Bank is authorized, but not
obligated, to purchase any or all insurance or "Single Interest Insurance"
protecting such interest as Bank deems appropriate against such risks and for
such coverage and for such amounts, including either the loan amount or value of
the Collateral, all at its discretion, and at Debtor's expense. In such event,
Debtor agrees to reimburse Bank for the cost of such insurance and Bank may add
such cost to the Obligations. Debtor shall bear the risk of loss to the extent
of any deficiency in the effective insurance coverage with respect to loss or
damage to any of the Collateral. Debtor hereby assigns to Bank the proceeds of
all such insurance and directs any insurer to make payments directly to Bank.
Debtor hereby appoints Bank its attorney-in-fact, which appointment shall be
irrevocable and coupled with an interest for so long as the Obligations are
unpaid, to file proof of loss and/or any other forms required to collect from
any insurer any amount due from any damage or destruction of Collateral, to
agree to and bind Debtor as to the amount of said recovery, to designate
payee(s) of such recovery, to grant releases to insurer, to grant subrogation
rights to any insurer, and to endorse any settlement check or draft. Debtor
agrees not to exercise any of the foregoing powers granted to Bank without the
Bank's prior written consent.
ADDITIONAL COLLATERAL. If at any time Collateral is unsatisfactory to Bank, then
on demand of Bank, Debtor shall immediately furnish such additional Collateral
satisfactory to Bank to be held by Bank as if originally pledged hereunder and
shall execute such additional security agreements and financing statements as
requested by Bank.
FINANCING STATEMENTS. No financing statement (other than any filed by Bank or
disclosed above) covering any of Collateral or proceeds thereof is on file in
any public filing office. This Security Agreement, or a copy thereof, or any
financing statement executed hereunder may be recorded. On request of Bank,
Debtor will execute one or more financing statements in form satisfactory to
Bank and will pay all costs and expenses of filing the same or of filing this
Security Agreement in all public filing offices, where filing is deemed by Bank
to be desirable. Bank is authorized to file financing statements relating to
Collateral without Debtor's signature where authorized by law. Debtor appoints
Bank as its attorney-in-fact to execute such documents necessary to accomplish
perfection of Bank's security interest. The appointment is coupled with an
interest and shall be irrevocable as long as any Obligations remain outstanding.
Debtor further agrees to take such other actions as might be requested for the
perfection, continuation and assignment, in whole or in part, of the security
interests granted herein. If certificates are issued or outstanding as to any of
the Collateral, Debtor will cause the security interests of Bank to be property
protected, including perfection of notation thereon.
LANDLORD/MORTGAGEE WAIVERS. Debtor shall cause each mortgagee of real property
owned by Debtor and each landlord of real property leased by Debtor to execute
and deliver instruments satisfactory in form and substance to Bank by which such
mortgages or landlord waives its rights, if any, in the Collateral.
STOCK, DIVIDENDS. If, with respect to any security pledged hereunder, a stock
dividend is declared, any stock split made or right to subscribe is issued, all
the certificates for the shares representing such stock dividend, stock split or
right to subscribe will be immediately delivered, duly endorsed, to the Bank as
additional collateral, and any cash or non-cash proceeds and products thereof,
including investment property and security entitlements will be immediately
delivered to Bank. If Debtor has granted to Bank a security interest in
securities, Debtor
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<PAGE> 4
acknowledges that such grant includes all investment property and security
entitlements, now existing or hereafter arising, relating to such securities. In
addition, Debtor agrees to execute such notices and instructions to securities
intermediaries as Bank may reasonably request.
CONTRACTS, CHATTEL PAPER, ACCOUNTS, GENERAL INTANGIBLES. Debtor warrants that
Collateral consisting of contract rights, chattel paper, accounts, or general
intangibles is (i) genuine and enforceable in accordance with its terms except
as limited by law; (ii) not subject to any defense, set-off, claim or
counterclaim of a material nature against Debtor except as to which Debtor has
notified Bank in writing; and (iii) not subject to any other circumstances that
would impair the validity, enforceability, value, or amount of such Collateral
except as to which Debtor has notified Bank in writing. Debtor shall not amend,
modify or supplement any lease, contract or agreement contained in Collateral or
waive any provision therein, without prior written consent of Bank.
ACCOUNT INFORMATION. From time to time, at the Bank's request, Debtor shall
provide Bank with schedules describing all accounts and contracts, including
customers' addresses, credited or acquired by Debtor and at the Bank's request
shall execute and deliver written assignments of contracts and other documents
evidencing such accounts and contracts to Bank. Together with each schedule,
Debtor shall, if requested by Bank, furnish Bank with copies of Debtor's sales
journals, invoices, customer purchase orders or the equivalent, and original
shipping or delivery receipts for all goods sold, and Debtor warrants the
genuineness thereof.
ACCOUNT AND CONTRACT DEBTORS. After a Default occurs, Bank shall have the right
to notify the account and contract debtors obligated on any or all of the
Collateral to make payment thereof directly to Bank and Bank may take control of
all proceeds of any such Collateral, which rights Bank may exercise at any time.
The cost of such collection and enforcement, including attorneys' fees and
expenses, shall be borne solely by Debtor whether the same is incurred by Bank
or Debtor. After a Default occurs, upon demand of Bank, Debtor will, upon
receipt of all checks, drafts, cash and other remittances in payment on
Collateral, deposit the same in a special bank account maintained with Bank,
over which Bank also has the power of withdrawal.
If a Default occurs, no discount, credit, or allowance shall be granted by
Debtor to any account or contract debtor and no return of merchandise shall be
accepted by Debtor without Bank's consent. Bank may, after Default, settle or
adjust disputes and claims directly with account contract debtors for amounts
and upon terms that Bank considers advisable, and in such cases, Bank will
credit the Obligations with the net amounts received by Bank, after deducting
all of the expenses incurred by Bank. Debtor agrees to indemnify and defend Bank
and hold it harmless with respect to any claim or proceeding arising out of any
matter related to collection of Collateral.
GOVERNMENT CONTRACTS. If any Collateral covered hereby arises from obligations
due to Debtor from any governmental unit or organization, Debtor shall
immediately notify Bank in writing and execute all documents and take all
actions demanded by Bank to ensure recognition by such governmental unit or
organization of the rights of Bank in the Collateral.
INVENTORY. So long as no Default has occurred, Debtor shall have the right in
the regular course of business, to process and sell Debtor's inventory, unless
Bank shall hereafter otherwise direct in writing. Upon demand of Bank, Debtor
will, upon receipt of all checks, drafts, cash and other remittances, in payment
of Collateral sold, deposit the same in a special bank account maintained with
Bank, over which Bank also has the power of withdrawal. Debtor shall comply with
all federal, state, and local laws, regulations, rulings, and orders applicable
to Debtor or its assets or business, in all respects. Without limiting the
generality of the previous sentence, Debtor shall comply with all requirements
of the federal Fair Labor Standards Act in the conduct of its business and the
production of inventory. Debtor shall notify Bank immediately of any violation
by Debtor of
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<PAGE> 5
the Fair Labor Standards Act, and a failure of Debtor to so notify Bank shall
constitute a continuing representation that all inventory then existing has
been produced in compliance with the Fair Labor Standards Act.
INSTRUMENTS, CHATTEL PAPER. Any Collateral that is instruments, chattel paper
and negotiable documents will be properly assigned to, deposited with and held
by Bank, unless Bank shall hereafter otherwise direct or consent in writing.
Bank may, without notice, before or after maturity of the Obligations, exercise
any or all rights of collection, conversion, or exchange and other similar
rights, privileges and options pertaining to Collateral, but shall have no duty
to do so.
COLLATERAL DUTIES. Bank shall have no custodial or ministerial duties to
perform with respect to Collateral pledged except as set forth herein; and by
way of explanation and not by way of limitation, Bank shall incur no liability
for any of the following: (i) loss or depreciation of Collateral (unless caused
by its willful misconduct), (ii) its failure to present any paper for payment
or protest, to protest or give notice of nonpayment, or any other notice with
respect to any paper or Collateral or (iii) its failure to present or surrender
for redemption, conversion or exchange any bond, stock, paper or other security
whether in connection with any merger, consolidation, recapitalization, or
reorganization, arising out of the refunding of the original security, or for
any other reason, or its failure to notify any party hereto that Collateral
should be so presented or surrendered.
TRANSFER OF COLLATERAL. The Bank may assign its rights in the Collateral or any
part thereof to any assignee who shall thereupon become vested with all the
powers and rights herein given to the Bank with respect to the property so
transferred and delivered, and the Bank shall thereafter be forever relieved
and fully discharged from any liability with respect to such property so
transferred, but with respect to any property not so transferred the Bank shall
retain all rights and powers hereby given.
SUBSTITUTE COLLATERAL. With prior written consent of Bank, other Collateral may
be substituted for the original Collateral herein in which event all rights,
duties, obligations, remedies and security interests provided for, created or
granted shall apply fully to such substitute Collateral.
INSPECTION, BOOKS AND RECORDS. Debtor will at all times keep accurate and
complete records covering each item of Collateral, including the proceeds
therefrom. Bank, or any of its agents, shall have the right, at intervals to be
determined by Bank and without hindrance or delay, to inspect, audit, and
examine the Collateral and to make extracts from the books, records, journals,
orders, receipts, correspondence and other data relating to Collateral,
Debtor's business or any other transaction between the parties hereto. Debtor
will at its expense furnish Bank copies thereof upon request.
CROSS COLLATERALIZATION LIMITATION. As to any other existing or future consumer
purpose loan made by Bank to Debtor, within the meaning of the Federal Consumer
Credit Protection Act, Bank expressly waives any security interest granted
herein in Collateral that Debtor uses as a principal dwelling and household
goods.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Debtor shall pay all of Bank's
reasonable expenses incurred in enforcing this Agreement and in preserving and
liquidating Collateral, including but not limited to, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether incurred
without the commencement of a suit, in any trial, arbitration, or
administrative proceeding, or in any appellate or bankruptcy proceeding.
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<PAGE> 6
DEFAULT. If any of the following occurs, a default ("Default") under this
Security Agreement shall exist: (i) The failure of timely payment or performance
of any of the Obligations or a default under any Loan Document; (ii) Any breach
of any representation or agreement contained or referred to in this Security
Agreement or other Loan Document; (iii) Any loss, theft, substantial damage, or
destruction of Collateral not fully covered by insurance, or as to which
insurance proceeds are not remitted to Bank within 30 days of the loss; any sale
(except the sale of inventory in the ordinary course of business), lease, or
encumbrance of any Collateral without prior written consent of Bank; or the
making of any levy, seizure, or attachment on or of Collateral which is not
removed within 10 days; or (iv) the death of, appointment of guardian for,
dissolution of, termination of, existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or insolvency proceeding by or against Debtor,
its Subsidiaries or Affiliates ("Affiliate" shall have the meaning as defined in
11 U.S.C. 1011 and "Subsidiary" shall mean any corporation of which more than
50% of the issued and outstanding voting stock is owned directly or indirectly
by Debtor), if any, or any general partner of the holder(s) of the majority
ownership interest in Debtor any party to the Loan Documents.
REMEDIES ON DEFAULT (INCLUDING POWER OF SALE). If a Default occurs, all of the
Obligations shall be immediately due and payable, without notice and Bank shall
have all the rights and remedies of a secured party under the Uniform Commercial
Code. Without limitation thereto, Bank shall have the following rights and
remedies: (i) to take immediate possession of Collateral, without notice or
resort to legal process, and for such purpose, to enter upon any premises on
which Collateral or any part thereof may be situated and to remove the same
therefrom, or, at its option, render the Collateral unusable or dispose of said
Collateral on Debtor's premises; (ii) to require Debtor to assemble the
Collateral and make it available to Bank at a place to be designated by Bank;
(iii) to exercise its right of set-off or bank lien as to any monies of Debtor
deposited in demand checking, time, savings, certificate of deposit or other
accounts of any nature maintained by Debtor with Bank or Affiliates of Bank,
without advance notice, regardless of whether such accounts are general or
special; (iv) to dispose of Collateral, as a unit or in parcels, separately or
such any real property interests also securing the Obligations, in any county or
place to be selected by Bank, at either private or public sale (at which public
sale bank may be the purchaser) with or without having the Collateral physically
present at said sale. Any notice of sale, disposition or any action by Bank
required by law and sent to Debtor at Debtor's address shown above, or at such
other address of Debtor as may from time to time be shown on the records of
Bank, at least 5 days prior to such action, shall constitute reasonable notice
to Debtor. Notice shall be deemed given or sent when mailed postage prepaid to
Debtor's address as provided herein. Bank shall be entitled to apply the
proceeds of any sale or other disposition of the Collateral, and the payments
received by Bank with respect to any of the Collateral, to the Obligations in
such order and manner as Bank may determine. Collateral that is subject to rapid
declines in value and is customarily sold recognized markets may be disposed of
by Bank in a recognized market for such collateral without providing notice of
sale.
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
MISCELLANEOUS. (i) AMENDMENTS AND WAIVERS. No waiver, amendment or modification
of any provision of this Security Agreement shall be valid unless in writing and
signed by an officer of Bank. No waiver by Bank of any Default shall operate as
a waiver of any other Default or of the same Default on a future occasion.
Neither the failure of, nor any delay by, Bank in exercising any right, power or
privilege granted pursuant to this Security Agreement shall operate as a waiver
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<PAGE> 7
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of any other right, power or privilege. (ii) ASSIGNMENT. All
rights of Bank hereunder are freely assignable, in whole or in part, and shall
inure to the benefit of and be enforceable by Bank, its successors, assigns and
affiliates. Debtor shall not assign its rights and interest hereunder without
the prior written consent of Bank, and any attempt by Debtor to assign without
Bank's prior written consent is null and void. Any assignment shall not release
Debtor from the Obligations. This Security Agreement shall be binding upon
Debtor, and the heirs, personal representatives, successors, and assigns of
Debtor. (iii) APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Security
Agreement shall be governed by and construed under the law of the state named in
Bank's address shown above without regard to that state's conflict of laws
principles. If any terms of this Security Agreement conflict with the terms of
any commitment letter or loan proposal, the terms of this Security Agreement
shall control. (iv) JURISDICTION. Debtor irrevocably agrees to non-exclusive
personal jurisdiction in the state named in Bank's address shown above. (v)
SEVERABILITY. If any provision of this Security Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Security Agreement (vi)
NOTICES. Any notices to debtor shall be sufficiently given, if in writing and
mailed or delivered to the address of Debtor shown above or such other address
as provided hereunder; and to Bank, if in writing and mailed or delivered to
Bank's office address shown above or such other address as Bank may specify in
writing from time to time. In the event that the Debtor changes Debtor's mailing
address at any time prior to the date the Obligations are paid in full, Debtor
agrees to promptly give written notice of said change of address by registered
or certified mail, return receipt requested, all charges prepaid. (vii)
CAPTIONS. The captions contained herein are inserted for convenience only and
shall not affect the meaning or interpretation of this Security Agreement or any
provision hereof. The use of the plural shall also mean the singular, and vice
versa. (viii) LOAN DOCUMENTS. The term "Loan Documents" refers to all documents,
whether now or hereafter existing, executed in connection with the Obligations
and may include, without limitation and whether executed by Borrower, Debtor or
others, commitment letters, loan agreements, guaranty agreements, other security
agreements, letters of credit, instruments, financing statements, mortgages,
deeds of trust, deeds to secure debt, and any amendments or supplements
(excluding swap agreements as defined in 11 U.S.C. Section 101). (ix) JOINT AND
SEVERAL LIABILITY. If more than one person has signed this Security Agreement,
such parties are jointly and severally obligated hereunder. (x) BINDING
CONTRACT. Debtor by execution and Bank by acceptance of this Security Agreement,
agree that each party is bound by all terms and provisions of this Security
Agreement.
IN WITNESS WHEREOF, Debtor, on the day and year first written above, has caused
this Security Agreement to be executed under seal.
Trudy Corporation d/b/a TMC Soundprints
Taxpayer Identification Number: 06-1007765
By: /s/ William W. Burnham
CORPORATE -----------------------------------
SEAL William W. Burnham, President
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<PAGE> 8
SCHEDULE A TO UCC
Schedule A to UCC from Trudy Corporation d/b/a TMC Soundprints ("Debtor") and
for the benefit of First Union National Bank ("Secured Party").
Description of Collateral:
All accounts, contract rights, leases, and any other rights of Debtor to payment
for goods sold or leased or for services rendered; furniture; furnishings;
equipment; machinery; accessories; moveable trade fixtures; goods held for sale
or being processed for sale in Debtor's business, including all raw materials,
supplies, and other materials used or consumed in Debtor's business, goods in
process, finished goods, and all other items customarily classified as
inventory; building improvement and construction materials, supplies and
equipment; chattel paper; instruments; documents; all funds on deposit with Bank
and its affiliates; and all general intangibles; as well as all parts,
replacements, substitutions, profits, products and cash and non-cash proceeds of
the foregoing (including insurance and condemnation proceeds payable by reason
of condemnation of or loss or damage thereto) in any form and wherever located.
All products and proceeds (including investment property and security
entitlements) of any of the property described above in any form, and all
proceeds of such products.
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<PAGE> 1
Exhibit: 10.18FD
ADDENDUM TO AGREEMENT
This Addendum to Agreement by and between K & K International, a
Michigan corporation and Kenneth Johnson, herein collectively called "Inventor",
and Carl E. Voigt, III and Carl E. Voigt, IV, herein collectively called
"Voigts".
WHEREAS, Inventor and Voigts entered into an Agreement dated 18th day
of December, 1986, wherein Voigt; obtained exclusive worldwide rights to
manufacture and market certain products created by Inventor; and
WHEREAS, the parties have agreed to a modification of such Agreement.
NOW THEREFORE, in consideration of the mutual covenants of the parties
it is agreed as follows:
1. Voigts agree that the total royalties and commissions paid pursuant
to the terms of paragraph 9 of the original Agreement shall equal or exceed,
during each calendar year of the Agreement, the sum of Thirty Thousand Dollars
($30,000.00).
2. In the event, during any calendar year of this Agreement, the total
payments of royalties and commissions does not equal or exceed Thirty Thousand
Dollars ($30,000.00), Voigts, in their sole discretion, may:
a. Pay to Inventor, on or before February 1 of the year
following the calendar year in question, a sum equal to Thirty Thousand
Dollars ($30,000.00) less the total amount of commissions and royalties
paid during said preceding calendar year; or
<PAGE> 2
b. Elect, in writing, on or before February 1 of the year
following the calendar year in question, to terminate the original
Agreement of December 18, 1986. In the event Voigts choose this option,
Voigts shall have no further rights or obligations under said
Agreement.
In all further respects the parties ratify and confirm the terms of the
original Agreement dated December 18, 1986.
K & K INTERNATIONAL
/s/ Kenneth Johnson By: /s/ Kenneth Johnson
- ------------------------ ------------------------
Kenneth Johnson
/s/ Carl E. Voigt, III /s/ Carl E. Voigt, IV
- ------------------------ ------------------------
Carl E. Voigt, III Carl E. Voigt, IV
2
<PAGE> 1
Exhibit: 10.19FT
NOTICE OF WINDING UP
Pursuant to A.R.S. Section 29-781, SuperStar Kids' Club, LLC., an
Arizona limited liability company (the "LLC") hereby gives its "Notice of
Winding Up" as follows:
1. The name of the limited liability company is "SuperStar Kids' Club,
LLC."
2. The date of filing the initial Articles of Organization was February
5, 1999.
3. Notice is hereby given of the dissolution of the LLC and the
commencement and finalization of winding up of its business and affairs.
DATED as of the ____ day of __________, 1999.
Futech Interactive Products, Inc.,
an Arizona corporation, Member
By /s/ Vincent W. Goett
-------------------------------------
Vincent W. Goett, CEO
<PAGE> 1
Exhibit: 10.19T
MODIFICATION NUMBER TWO
TO LOAN AGREEMENT
Trudy Corporation
353 Main Avenue
Norwalk, Connecticut 06851
(Individually and collectively, "Borrower")
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
THIS AGREEMENT is entered into as of March 1, 1999, by and between Bank and
Borrower.
RECITALS
Bank is the holder of a Promissory Note executed and delivered by Borrower,
dated March 30, 1998, in the original principal amount of $1,200,000.00 (the
"Note"); and certain other Loan Documents, including a Loan Agreement, dated
March 30, 1998 (the "Loan Agreement"); and
Borrower and Bank have agreed to modify the terms of the Loan Agreement.
In consideration of Bank's continued extension of credit and the agreements
contained herein, the parties agree as follows:
AGREEMENT
ACKNOWLEDGMENT OF BALANCE. Borrower acknowledges that the most recent
Commercial Loan Invoice sent to Borrower with respect to the Obligations under
the Note is correct.
MODIFICATIONS.
1. The Section entitled "Borrowing Base" of the Loan Agreement is hereby
amended by deleting the subparagraph referring to "Eligible Accounts" and
"Eligible Inventory" and adding the following in its place and stead:
ELIGIBLE ACCOUNTS: The Maximum Principal Amount shall be an amount equal
to 75% of the new amount of Eligible Accounts, plus 45% of an amount equal to
its value of Eligible Inventory, less the amount of any Reserve required by
Bank.
ELIGIBLE INVENTORY: Eligible Inventory means inventory of raw material
and finished goods in Borrower's possession that is held for use or sale in
the ordinary course of Borrower's business and is not unmerchantable or obsolete
and is subject to a first priority perfected security interest in favor of
Bank. The value of the inventory will be determined by Bank and will be valued
at the lower of cost or market on a first-in, first-out basis. Eligible
Inventory may not exceed a maximum value of $700,000.00 for purposes of
borrowing base calculations.
ACKNOWLEDGMENTS. Borrower acknowledges and represents that the Note and other
Loan Documents, as amended hereby, are in full force and effect without any
defense, counterclaim, right or claim of set-off, that, after giving effect to
this Agreement, no default or event that with the passage of time or giving of
notice would constitute a default under the Loan Documents has occurred; that
all representations and warranties contained in the Loan Documents are true and
correct as of this date; that
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<PAGE> 2
Borrower has taken all necessary action to authorize the execution and delivery
of this Agreement; and that this Agreement is a modification of an existing
obligation and is not a novation.
COLLATERAL. Borrower acknowledges and confirms that there have been no changes
in the ownership of any collateral pledged to secure the Obligations (the
"Collateral") since the Collateral was originally pledged; that the Bank has
existing, valid first priority security interests and liens in the Collateral;
and that such security interests and liens shall secure the Borrower's
Obligations to Bank, including any modification of the Note or Loan Agreement,
and all future modifications, extensions, renewals and/or replacements of the
Loan Documents.
MISCELLANEOUS. This Agreement shall be construed in accordance with and
governed by the laws of the applicable state as originally provided in the Loan
Documents, without reference to that state's conflicts of law principles. This
Agreement and the other Loan Documents constitute the sole agreement of the
parties with respect to the subject matter thereof and supersede all oral
negotiations and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the provisions
hereof shall be effective unless set forth in writing and signed by the parties
hereto. The illegality, unenforceability or inconsistency of any provision of
this Agreement shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this Agreement or
the other Loan Documents. This Agreement and the other Loan Documents are
intended to be consistent. However, in the event of any inconsistencies among
this Agreement and any of the Loan Documents, the terms of this Agreement, and
then the Note, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement. Terms used in this Agreement
which are capitalized and not otherwise defined herein shall have the meanings
ascribed to such terms in the Note.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND
HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between parties hereto (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, a dispute as to
whether a matter is subject to arbitration, claims brought as class actions or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements. SPECIAL RULES. All arbitration hearings shall be conducted in the
city named in the address of Bank first stated above. A hearing shall begin
within 90 days of demand for arbitration and all hearings shall conclude within
120 days of demand for arbitration.
These time limitations may not be extended unless party shows cause for
extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 et seq of the Arbitration Rules shall be
applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties do not waive applicable Federal or state substantive law
except as provided herein. RESERVATION AND LIMITATION OF REMEDIES.
Notwithstanding the preceding binding arbitration provisions, the parties agree
to preserve, without diminution, certain remedies that any party may exercise
before or after an arbitration proceeding is brought. The parties shall have
the right to proceed in any court of proper jurisdiction or by self-help to
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<PAGE> 3
exercise or prosecute the following remedies, as applicable: (i) all rights to
foreclose against any real or personal property or other security by exercising
a power of sale or under applicable law by judicial foreclosure including a
proceeding to confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy proceeding; and
(iv) when applicable, a judgment by confession of judgment. Any claim or
controversy with regard to any party's entitlement to such remedies is a
Dispute. WAIVER OF EXEMPLARY DAMAGES. The parties agree that they shall not
have a remedy of punitive or exemplary damages against other parties in any
Dispute and the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially. WAIVER OF JURY TRIAL. THE PARTIES
ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY
WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the
day and year first above written.
First Union National Bank
CORPORATE By: James [Illegible]
SEAL -------------------------------
James [Illegible] , Vice President
Trudy Corporation
CORPORATE
SEAL By: William W. Burnham
--------------------------------
William W. Burnham, President
<PAGE> 1
Exhibit: 10.19FD
LICENSE AGREEMENT
This "Agreement" is entered into as of November 1, 1995, by and between
Hollywood Ventures Corporation ("HVC"), a California corporation, 9255 Sunset
Boulevard, Suite 405, Los Angeles, California 90069 and ("Licensor) and Third
Quarter Corporation d/b/a Fundex, an Indiana corporation ("Licensee"), 3570 West
16th Street, Indianapolis, Indiana 46222.
WHEREAS, Licensor is the owner of certain rights in the property described
and/or illustrated in Schedule A ("Property") including, but not limited to the
Trademarks listed in Schedule B ("Trademarks");
WHEREAS, Licensee desires to use the Property and/or the Trademarks on or
in connection with the products identified in Schedule C ("Licensed Products")
in the countries identified in Schedule D ("Territory"); and
WHEREAS, Licensor is willing to grant Licensee the right to use the
Property and/or the Trademarks on such Licensed Products.
NOW, THEREFORE, in consideration of their mutual promises, covenants and
conditions contained herein, it is agreed as follows:
1. OWNERSHIPS OF RIGHTS. Licensor is the exclusive owner of the right to
license the Property and Trademarks for use in association with the Licensed
Products in the Territory pursuant to a grant of rights by the owners, Nestor
Productions, Inc. and Big Comfy Corp. With the exception of the rights expressly
licensed hereunder to Licensee, all other rights relating thereto are expressly
reserved by Licensor, Nestor Productions, Inc. and Big Comfy Corp.
2. GRANT OF LICENSE. Licensor grants to Licensee an exclusive,
nontransferable, non-assignable license, without the right to grant
sub-licenses, to use the Property and/or the Trademarks solely on or in
connection with the manufacture, sale, offering for sale, advertising, promotion
and distribution of the Licensed Products and solely within the Territory and,
for this purpose only, to affix the Trademarks on or to packaging, displays,
sales, advertising and promotional materials sold, used or distributed in
connection with the Licensed Products ("Promotional and Packaging Material").
The foregoing notwithstanding, Licensee shall not directly nor indirectly
through any affiliate company in which Licensee or any of its controlling
shareholders, officers or directors own an interest individually or in the
aggregate in excess of ten percent (10%), sell any Licensed Products directly to
consumers, including but not limited to direct response sales, direct sales and
personal appearance sales. Licensee's sales shall be to bona fide retailers or
through bona fide wholesalers which shall sell the Licensed Products only to
retailers. Notwithstanding the foregoing, Licensee shall have the right to
engage a third party to manufacture the Licensed Products.
3. TERM AND OPTIONS. (a) This Agreement shall commence and be effective on
November 1, 1995 ("Effective Date") provided this Agreement has been executed by
both parties and Licensor has received the fully executed Agreement and the
Advance. Thereafter, this Agreement shall continue for an 'Initial Term"
terminating on December 31, 1997, unless terminated prior thereto pursuant to
this Agreement. An Advance of twenty-five thousand dollars ($25,000.00) is
payable upon execution of this Agreement as a non-refundable Advance against
Royalties ("Advance").
(b) If Licensee is in full compliance with this Agreement during the then
Initial Term and Licensee's sales during the Term will have resulted in Royalty
payments remitted to
<PAGE> 2
Licensor of at least one hundred and fifty thousand dollars ($150,000.00),
Licensor agrees to grant to Licensee the option ('Option') to extend the Term
for additional two (2) years provided that Licensee gives Licensor at least
ninety (90) days prior written notice of its intention to exercise such Option.
4. ROYALTY PROVISIONS. (a) Licensee agrees to pay Licensor a 'Royalty" of
eight percent (8%) based upon Net Sales of the Licensed Products.
(b) "Net Sales" shall mean gross sales less actual quantity discounts and
returns actually credited. No deduction shall be made for cash or other
discounts, commissions or uncollectible accounts nor for any costs incurred in
the manufacture, sale, distribution or exploitation of the Licensed Products. A
Royalty shall also be paid by Licensee based on Licensee's usual Net Sales price
on all unbilled Licensed Products distributed by Licensee or any of its
affiliated companies. Licensee has discretion to set pricing; however, all
pricing shall be established by Licensee in a commercially reasonable manner and
all Licensed Products shall be sold by Licensee at competitive prices not
substantially more nor substantially less than the price customarily charged by
Licensee for similar products to unaffiliated businesses.
(c) For the Initial Term, Licensee agrees to pay Licensor a "Guaranteed
Minimum Royalty" of no less than forty-five thousand dollars ($45,000.00), of
which no less than one-quarter (1/4) of the Guaranteed Minimum Royalty shall be
paid to Licensor at the end of each six (6) month period of the Initial Term. If
upon expiration of the first six (6) month period and for each and every six (6)
month period thereafter (or upon termination of this Agreement in the event such
occurs less than six (6) months following the last Guaranteed Minimum Royalty
payment period) the total Royalties paid by Licensee to Licensor are less than
the Guaranteed Minimum Royalty for said six (6) month period, Licensee shall
immediately pay any such deficiency of the Guaranteed Minimum Royalty to
Licensor. Advances previously remitted to Licensor from Licensee for any such
six (6) month period shall be applied as a credit toward the current Guaranteed
Minimum Royalty.
5. STATEMENTS AND PAYMENTS. (a) Licensee shall provide Licensor within
thirty (30) days after the end of each calendar quarter ("Royalty Period") a
complete and accurate statement of its Net Sales for that quarter, said
statement to be certified as accurate by Licensee. Such statements, which shall
be in conformance with the requirements of Licensor, must be submitted whether
or not any Licensed Products have been shipped or Royalties have been earned.
(b) Acceptance. by Licensor of any statement furnished or Royalty paid
shall not preclude Licensor from questioning its correctness and in the event of
inconsistencies or mistakes, they shall be immediately rectified by Licensee.
(c) All payments shall be remitted in United States currency payable to
the order of Hollywood Ventures Corporation and mailed to the HVC address stated
in the preamble or as may be revised hereafter.
(d) Time is of the essence with respect to all payments and interest at
the rate of one and one-half percent (1 1/2%) per month shall accrue on any
amount due Licensor calculated from the date on which payment was due.
(e) Any and all Royalty payments, whether denoted as Advances, as
Guaranteed Minimum Royalty payments or otherwise, shall be non-refundable.
6. AUDIT. Licensee shall keep accurate books of account covering all
transactions relating to this Agreement. Licensor and/or its representatives
shall have the right, at reasonable hours of the day upon reasonable notice, to
examine such books and all other documents and material in the possession,
custody or control of Licensee with respect to this
2
<PAGE> 3
Agreement and to make copies and summaries thereof no more than two (2) times
per twelve (12) month period. In the event an Audit reveals an underpayment,
Licensee shall immediately remit payment in the amount of the underpayment plus
interest calculated at the rate of one and one-half percent (1 1/2%) per month
from the date such Payments were due. In the event such underpayment is greater
than $1,000.00 or five percent (5%) of the reported royalty, whichever is
greater, for any Royalty Period, Licensee shall reimburse Licensor for the cost
and expense of such Audit. All books of account and records of Licensee relating
to this Agreement shall be retained for at least three years after termination
of this Agreement.
7. QUALITY, NOTICES, APPROVALS AND SAMPLES. (a) The quality and style of
the Licensed Products and all Promotional and Packaging Material relating to the
Licensed Products shall be at least as high as the best quality of similar goods
presently sold or distributed by Licensee in the Territory.
(b) All Promotional and Packaging Material and all Licensed Products on
which the Products and/or Trademarks are used shall contain the following legal
notices:
c 1995 Big Comfy Corp.
TM and designate trademark and copyrights of Big Comfy Corp. and are used
under license by (name of Licensee).
All Rights Reserved.
(c) Before commencing the design of the Licensed Products or Promotional
and Packaging Material which have not been previously approved, Licensee shall
submit for Licensor's written approval copies of all preliminary artwork.
Licensor shall have ten (10) business days to respond to submittals. If Licensor
fails to respond within such ten (10) business day period, such failure to
respond shall be deemed to constitute approval of the preliminary artwork.
(d) Prior to the use of any Promotional and Packaging Material and/or the
sale and distribution of the Licensed Products, Licensee shall submit at its
cost, but for Licensor's approval, three (3) complete sets of samples of all
Licensed Products intended to be sold and distributed and three (3) complete
sets of samples of all Promotional and Packaging Material intended to be used,
none of which may be used, sold, or distributed until receipt of written
approval of said samples from Licensor. Licensor shall have ten (10) business
days to respond to submittals. If Licensor fails to respond within such ten (10)
business day period, such failure to respond shall be deemed to constitute
approval of the samples.
(e) Upon commencement of distribution of the Licensed Products, Licensee
shall submit, at its own expense, an additional twenty-four (24) sets of the
above referenced samples.
(f) Thereafter, from time to time, Licensor may require Licensee to submit
at its own cost up to an additional five (5) sets of samples of Licensed
Products and/or Promotional and Packaging Material to monitor the quality for
continued approval.
(g) Licensor shall have the absolute right to inspect the facilities where
any Licensed Products are being manufactured and/or packaged from time to time
without notice.
(h) In the event the above quality standards are not maintained throughout
the Term, Licensor has the right to require Licensee to immediately discontinue
manufacturing, selling and distributing Licensed Products which do not meet such
quality standard.
8. ARTWORK. The form and content of all work relating to the Property and
Trademarks must be approved by Licensor prior to use. Licensor will provide to
Licensee upon request, at Licensee's expense, artwork which Licensee reasonably
requests. All artwork
3
<PAGE> 4
relating to the Property and Trademarks, regardless of who created or
contributed to the works, shall be the sole and exclusive property of Licensor.
9. GOODWILL. Licensee recognizes the value of the goodwill associated with
the Property and Trademarks and acknowledges that each have acquired secondary
meaning. Licensee agrees, during the Term(s) and thereafter, never to attack the
rights of Licensor in such or the validity of this license. Licensee agrees that
its use of the Property and/or Trademarks inures to the benefit of Licensor and
that Licensee shall not acquire any rights in the Property or Trademarks.
10. TRADEMARK AND COPYRIGHT. (a) Licensor may obtain, at its own expense
and in its name, appropriate copyright and trademark protection for the Property
and/or Trademarks and Licensee agrees to cooperate with Licensor in all such
matters.
(b) Licensee agrees that it shall not at any time apply for any
registration of any copyright, trademark or any other designation which would
affect the ownership of the Property and/or Trademarks nor file any document
with any governmental authority to take any action which would affect the
ownership thereof; however, Licensee shall register as a registered
user/licensee, at Licensee's expense, in any country where registration of the
licensee of a trademark or copyright is required.
(c) Licensee agrees that it shall not at any time use or authorize the use
of any trademark, trade name or other designation identical with or
substantially similar to the Trademarks.
(d) Licensee agrees to assist Licensor in the enforcement of Licensor's
rights in the Property and/or Trademarks. With respect to any such claims and
suits, Licensor shall employ counsel of its own choosing and at its own expense
to direct the litigation and any settlement thereof. Licensor shall be entitled,
to receive and retain all amounts awarded as damages, profits or otherwise in
connection with such claims.
11. INDEMNIFICATION. Licensee agrees to defend, indemnify and hold
Licensor harmless against any claims, demands, causes of action and judgment
arising out of Licensees manufacture, sale, offering for sale, distribution,
promotion and/or advertising of Licensed Products. Licensor agrees to defend,
indemnify and hold Licensee harmless against any claims, demands, causes of
action and judgment arising out of any claim by a third party alleging a
violation of said claimant's copyrights or trademarks, provided and to the
extent that Licensee's utilization of the Licensed Products is in compliance
with the rights granted to Licensee herein.
12. INSURANCE. Licensee shall, throughout the Term, obtain and maintain at
its own expense standard product liability insurance, the form of which must be
acceptable to Licensor, naming Licensor as an additional named insured. Such
policy shall provide protection against all claims, demands and causes of action
arising out of any defects or failure to perform, alleged or otherwise, of the
Licensed Products or any use thereof. The amount of coverage shall be a minimum
of $1,000,000 for each claim and $3,000,000 in the aggregate with a deductible
not to exceed $5,000 for each single occurrence for bodily injury and/or
property damage. The policy shall provide for thirty (30) days notice to
Licensor from the insurer in the event of any modification or termination of
such coverage. Licensee shall furnish Licensor a certificate of insurance
evidencing same within thirty (30) days after execution of this Agreement but in
any event, prior to any manufacture and distribution of the Licensed Products.
13. EXPLOITATION BY LICENSEE. (a) Licensee shall commence manufacture,
distribution, and sale of the Licensed Products in commercially reasonable
quantities within six (6) months after the Effective Date and, thereafter, shall
continue to distribute and sell all of the Licensed Products throughout the
Territory on a continuous basis in a commercially reasonable
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<PAGE> 5
manner. Licensee shall spend a minimum of $15,000 during the Term on trade
promotion and point-of-sales materials according to a budget to be mutually
approved by Licensee and Licensor. Licensee shall provide a co-op advertising
fund to its clients in an amount no less than three percent (3%) of Net Sales.
Licensee shall additionally produce new and original sales materials no less
frequently than every twelve (12) months. Licensee shall also consult with
Licensor concerning possible updating of the Licensed Product line on an annual
basis. Any such updating and revisions shall be subject to the approval criteria
stated elsewhere in this Agreement.
(b) Any Property (Character), Trademark or Licensed Product which is not
diligently exploited at any time following the expiration of the initial twelve
(12) months after the Effective Date shall be deemed abandoned by Licensee, and
in such event the license for such Property, Trademark or Licensed Product shall
terminate and revert back to Licensor automatically. In the event of a dispute,
Licensee shall have the burden of establishing that Licensee was diligently
exploiting the Property, Trademark or Licensed Product as required herein.
14. PREMIUMS, PROMOTIONS AND SECONDS. (a) Licensor shall have the sole
right to license third parties to utilize any of the Licensed Products in
connection with premium, giveaway or promotional arrangements. For purposes of
this Agreement a "premium" is a product or a product combined with a service
which is sold or supplied in association with the promotion of another product
or service, or offered in association with the sales promotion activities of
retailers, wholesalers or manufacturers in association with incentive programs.
(b) Licensee shall not sell, distribute or use or permit any third party
to sell, distribute or use any Licensed Products which are damaged, defective,
seconds or otherwise fail to meet the specifications and/or quality control or
notice requirements of this Agreement.
15. TERMINATION. The following are in addition to the termination rights
provided elsewhere in this Agreement:
(a) Immediate Right of Termination. Licensor shall have the right to
immediately terminate this Agreement on written notice should Licensee:
i) Make, sell, offer for sale, use or distribute any Licensed
Product or Promotional or Packaging Material without having the
prior written approval of Licensor or continues to make, sell, offer
for sale, use or distribute such after receipt of notice from
Licensor withdrawing approval of same due to subsequent
non-compliance;
(ii) Fail, after receipt of written notice from Licensor to
immediately discontinue the distribution of sale of Licensed
Products or the use of any Promotional or Packaging Material which
does not contain the appropriate legal legend;
(iii) Subject to any voluntary or involuntary order of any
government agency involving the recall of any of the Licensed
Products;
(iv) Or its controlling shareholders, officers, directors or
employees take any actions in connection with the manufacture, sale,
distribution or advertising of the Licensed Products or the
Promotional and Packaging Material which damages or reflects
adversely upon Licensor, the Property and/or Trademarks;
(v) Breach any of the provisions of this Agreement relating to
the unauthorized assertion of rights in the Property or Trademarks;
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<PAGE> 6
(vi) Fail to make timely payment of Royalties when due or fail
to make timely submission of Royalty statements when due two or more
times during a twelve-month period or fail to pay the Guaranteed
Minimum Royalty; or
(vii) Breach any provision of this Agreement prohibiting
Licensee from directly or indirectly assigning, transferring,
sublicensing or other encumbering of this Agreement or any of its
rights or obligations hereunder.
(b) Right to Terminate on Notice. A party may terminate this
Agreement on thirty (30) days written notice to the other party, under any
of the following circumstances, provided that during the thirty (30) day
period, the defaulting party fails to cure the breach;
(i) Should Licensee fail to commence sale and distribution of
the Licensed Products in all countries in the Territory;
(ii) Should Licensee, after commencing to sell and distribute
Licensed Products, fail to continue to sell and distribute such in
commercially acceptable quantities in all countries in the Territory
for two consecutive Royalty Periods;
(iii) Should Licensee violate any of its obligations under
this Agreement;
(iv) Should Licensee file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, make an assignment for the
benefit of creditors, an arrangement pursuant to any bankruptcy law,
or if Licensee discontinues its business or if a receiver is
appointed for Licensee which is not discharged within thirty (30)
days thereafter;
(v) Should the other party commit a material breach of any
other provision of this Agreement which is not cured within thirty
(30) days after receiving notice from the non-breaching party; or
(vi) Should any Licensed Products be sold by Licensee at
prices which are clearly not competitive prices as such are
customarily charged by Licensee for similar products to unaffiliated
businesses.
16. EFFECT OF TERMINATION. (a) If this Agreement is terminated under
paragraph 15(a), no Licensed Products may be sold or distributed or any
Promotional or Packaging Material used without the prior expressed approval of
Licensor.
(b) Upon termination of this Agreement, notwithstanding anything to the
contrary herein, all Royalties on shipments made shall become immediately due
and payable.
(c) If this Agreement is terminated under provision other than paragraph
15(a), Licensed Products which are on hand or in process at the time the notice
of termination is received or at the time of the expiration of the Agreement, as
the case may be, may continue to be sold or distributed for a sixty (60) day
period, provided that all Royalties with respect to that period are paid and
that Licensor may itself use or license the use of the Property and/or
Trademarks in any manner.
(d) After termination of this Agreement, all rights hereunder shall
revert to Licensor who may license others to use the Property and/or Trademarks
in any way whatsoever. Thereafter, Licensee shall refrain from any further use
of the Property and/or Trademarks and turn over to Licensor all molds and other
materials which reproduce the Licensed Products or shall give Licensor
satisfactory evidence of their destruction, at Licensors sole option. Licensee
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shall be responsible for any damages caused by the unauthorized use of such
molds or reproduction materials which are not turned over or destroyed.
(e) Licensee acknowledges that its failure to cease the manufacture, sale
or distribution of Licensed Products or any class or category thereof at the
time of termination or expiration will result in immediate and irreparable harm
to Licensor and to the rights of any subsequent licensee. Licensee acknowledges
that there is no adequate remedy at law for failure to cease the manufacture,
sale, or distribution and licensee agrees that in the event of such failure,
Licensor shall be entitled to equitable relief by way of injunctive relief and
such other relief as any court with jurisdiction may deem proper.
(f) Within thirty (30) days after termination or expiration of this
Agreement, Licensee shall provide Licensor with a statement indicating the
number and description of the Licensed Products which it had on hand or in the
process of manufacturing as of the expiration or termination. Licensor shall
have the option of conducting a physical inventory to ascertain or verify such.
In the event Licensee refuses to permit Licensor to conduct such physical
inventory, Licensee shall forfeit its rights hereunder to dispose of such
inventory.
17. FAN MAIL. Licensee agrees to include on its packaging of appropriate
Licensed Products, as determined by Licensor, the following message in prominent
position:
Write to your friends on "The Big Comfy Couch" at:
P.O. Box 15338, Beverly Hills, California 90209-1338.
18. PURCHASE OF LICENSED PRODUCTS. Licensor shall have the right to
purchase some or all of the Licensed Products from time to time, at such times
and in such quantities as Licensor desires.
(a) If Licensor desires to purchase Licensed Products for resale
through direct response, direct sales, personal appearances or other means
(other than to retailers or wholesalers to retailers), Licensee agrees to
sell such Licensed Products upon the most favorable terms and at the
lowest wholesale price offered by Licensee to any of its customers,
regardless of quantity requirements, less twenty-five percent (25%).
(b) If Licensor desires to purchase Licensed Products for
promotional purposes only (not for resale), Licensee agrees to sell such
Licensed Products at Licensee's cost plus ten percent (10%), with the
royalty owing to Licensor being waived for these purposes only.
19. NOTICES. All notices or payments required to be sent to either party
shall be in writing at the last known addresses of the parties. Any notice of
breach, default or termination shall be sent by certified mail, return receipt
requested.
20. MISCELLANEOUS. (a) This Agreement does not create a partnership or
joint venture and Licensee shall have no power to obligate or bind Licensor
whatsoever.
(b) This Agreement shall be governed by the law of the State of
California and any claims arising hereunder shall, at Licensor's election, be
maintained in Los Angeles, California.
(c) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver of a subsequent breach or default.
(d) In the event that any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect, such shall not affect any other
provision and this Agreement shall
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be interpreted and construed as if such provision, to the extent invalid,
illegal or unenforceable, had never been part of the Agreement.
(e) This Agreement represents the entire understanding between the parties
with respect to the subject matter and supersedes all previous representations,
understandings or agreements, written or oral, and cannot be modified except by
written instrument.
IN WITNESS WHEREOF, the parties execute this Agreement for the purposes
stated above.
HOLLYWOOD VENTURES CORPORATION
By: /s/ Richard Goldsmith
----------------------------------
(a duly authorized officer)
Name and Title: President
----------------------
(print)
Date: December 7, 1995
--------------------------------
THIRD QUARTER CORPORATION
By: /s/ Carl E. Voigt, IV
----------------------------------
(a duly authorized officer)
Name and Title: President
----------------------
(print)
Date: December 7, 1995
--------------------------------
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SCHEDULE A
The PROPERTY is/are the following specific CHARACTERS associated with the
television series "The Big Comfy Couch": LOONETTE, MOLLY, MAJOR BEDHEAD, GRANNY
GARBANZO, AUNTIE MACASSER, DAD FOLEY, MOM FOLEY, ANDY FOLEY, FUZZY DUSTBUNNY,
WUZZY DUSTBUNNY, and SNICKLEFRITZ.
Note: All character names shall at all times be followed by the phrase:
from "The Big Comfy Couch"
SCHEDULE B
LIST OF TRADEMARKS: The Big Comfy Couch name and logo.
SCHEDULE C
LIST OF LICENSED PRODUCTS: Wooden inlay puzzles, paperboard inlay puzzles,
paperboard boxed puzzles, floor puzzles, and board games. In addition to the
general reservation of rights not expressly granted, Licensor expressly reserves
the right to license the above referenced products with electronics.
SCHEDULE D
LICENSED TERRITORY: The United States and Canada and their respective
territories and possessions.
HOLLYWOOD VENTURES CORPORATION
By: /s/ Richard Goldsmith
----------------------------------
THIRD QUARTER CORPORATION
By: /s/ Carl E. Voigt, IV
----------------------------------
<PAGE> 1
Exhibit: 10.20FT
OPERATING AGREEMENT
OF
GOLD STAR PUBLISHING, LLC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I
FORMATION; NAME; PURPOSE;
PRINCIPAL PLACE
OF BUSINESS; AGENT; TERM; INTENT; DEFINITIONS
Formation 1.1
Name 1.2
Purpose 1.3
Principal Place of Business 1.4
Agent for Service of Process 1.5
Term 1.6
Intent Regarding Partnership Status 1.7
Definitions 1.8
ARTICLE II
CAPITAL CONTRIBUTIONS
Initial Capital Contributions 2.1
Additional Capital Contributions 2.2
Return of Capital Contributions 2.3
ARTICLE III
CAPITAL ACCOUNTS
ARTICLE I
PROFITS OR LOSSES; DISTRIBUTIONS
Interest in Profits or Losses 4.1
Limitation on Liability for Losses 4.2
Chargeable to Members
Distributions 4.3
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE V
MANAGEMENT PROVISIONS
Management 5.1
Major Decisions 5.2
Management or Member Compensation 5.3
Time Devoted to the Company by Berry 5.4
Reimbursement of Expenses 5.5
ARTICLE VI
ADMINISTRATIVE PROVISIONS
Limitation of Liability 6.1
Indemnification of Members by the Company 6.2
Indemnification by Members 6.3
Loans 6.4
Banking 6.5
Books and Records 6.6
Tax Returns 6.7
Accounting Period 6.8
List of Members 6.9
Insurance 6.10
ARTICLE VII
MEETINGS OF MEMBERS
Annual Meeting 7.1
Special Meetings 7.2
Place of Meetings 7.3
Notice of Meetings 7.4
Meeting of All Members 7.5
Adjourned Meetings 7.6
Record Date 7.7
Manner of Acting; Voting 7.8
Voting of Units by Certain Members 7.9
Proxies 7.10
Action by Members Without a Meeting 7.11
Waiver of Notice 7.12
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE VIII
DISSOLUTION; TERMINATION; WITHDRAWAL,
Events Causing Dissolution 8.1
Events Not Causing Dissolution 8.2
Winding Up 8.3
Member Withdrawals 8.4
ARTICLE IX
TRANSFERS BY MEMBERS:
ADDITIONAL MEMBERS
Transfer Restrictions 9.1
Buy/Sell Option 9.2
Section Reserved 9.3
Additional Units; Additional Members 9.4
Section Reserved 9.5
Section Reserved 9.6
Section Reserved 9.7
Distributions and Allocations with Respect to Transferred Units 9.8
ARTICLE X
OPERATIONS
Summary of Operations 10.1
Employment of Members 10.2
Employment of Joy Berry 10.3
Restrictive Covenants for Berry 10.4
Licenses of Fights to Products 10.5
RK's Contribution to the Company of the Name and Logo 10.6
Futech Technology and Marks 10.7
Management Services Fee Paid to Futech 10.8
Company's Use of Futech Facilities 10.9
Restrictive Covenants for RK 10.10
Enforcement of Company's Rights Against Members 10.11
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI
AMENDMENTS
ARTICLE XII
REPRESENTATIONS AND WARRANTIES OF MEMBERS
Representations regarding this investment 12.1
ARTICLE XIII
OTHER PROVISIONS
Partition 13.1
Notices 13.2
Validity 13.3
Headings 13.4
Governing Law 13.5
Jurisdiction 13.6
Successors and Assigns 13.7
Rights and Remedies 13.8
Waiver 13.9
Counterparts 13.10
Additional Acts 13.11
Construction 13.12
Integration 13.13
Time is of the Essence 13.14
Creditors 13.15
Expenses 13.16
Dispute Resolution 13.17
</TABLE>
EXHIBITS
Members; Units; Capital Contributions "A"
Roll Out Schedule For Existing Books (Section 10.5) "B"
Existing Products and Rights (Section 10.5) "C"
iv
<PAGE> 6
OPERATING AGREEMENT
OF
GOLD STAR PUBLISHING, LLC.
This Agreement is made effective February 1, 1999, by the following,
whose names and addresses appear on Exhibit "A" attached hereto, and who with
any future additional members are hereinafter sometimes referred to individually
as "Member" and collectively as the "Members":
Responsible Kids, L.L.C. ("RK")
Futech Interactive Products, Inc.,
an Arizona corporation ("Futech")
WHEREAS, the parties have agreed to form a limited liability company for the
purposes of publishing certain of Joy Berry's juvenile books and products; and
WHEREAS, the parties have agreed that Futech will manage the financial and
business part of the Company, with RK managing the creative function.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the undersigned agree as follows:
ARTICLE I
FORMATION; NAME; PURPOSE; PRINCIPAL
PLACE OF BUSINESS; AGENT; TERM; INTENT; DEFINITIONS
1.1 FORMATION. Pursuant to the Act, the Members have formed or will
form an Arizona limited liability company (the "Company") effective upon the
filing of the Articles of Organization of this Company with the Arizona
Corporation Commission.
1.2 NAME. The Company shall operate under the name "Gold Star
Publishing, LLC." The Company may do business under that name and/or under any
other name or names which the Members select. If the Company does business under
a name other than that set forth in its Articles of Organization, then the
Company shall file a fictitious name certificate or any other documents required
by applicable law.
1.3 PURPOSE. The Company has been formed for the purpose of engaging
in business in the publishing industry, and may conduct any activities relating
thereto.
1.4 PRINCIPAL PLACE OF BUSINESS. The principal place of business of
the Company shall be at 2999 North 44th Street, Suite 225, Phoenix, Arizona
85018, Maricopa County, or at such other place, and with such other places of
business, within the State of Arizona, as may be designated by the Members from
time to time. The registered office of the Company in Arizona shall be 2999
<PAGE> 7
North 44th Street, Suite 225, Phoenix, Scottsdale, Arizona 85018, or such other
address as may be designated by the Members.
1.5 AGENT FOR SERVICE OF PROCESS. The agent for service of process on
the Company is Thomas R. Lofy, whose address is 7054 East Cochise Road, Suite
105, Scottsdale, Arizona 85253, or such other person as may be designated by the
Members from time to time,
1.6 TERM. The Company shall commence effective the date specified in
Section 1.1 above, and shall continue until terminated by law, unless sooner
terminated by law or as hereinafter provided.
1.7 INTENT REGARDING PARTNERSHIP STATUS. It is the intent of the
Members that the Company shall always be operated in a manner consistent with
its treatment as a "partnership" for federal and state income tax purposes. No
Member or Manager shall take any action inconsistent with such intent. The
Company hereby elects to be treated like a partnership for federal and state
income tax purposes.
1.8 DEFINITIONS. The following terms used in this Agreement shall have
the meanings described below:
1.8.1 "Act" shall mean the Arizona Limited Liability Company
Act.
1.8.2 "Affiliate(s)" of another Person shall mean: (a) any
person directly or indirectly owning, controlling, or holding
with power to vote ten percent (10%) or more of the
outstanding voting securities of such other Person; (b) any
Person ten percent (10%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled or
held with power to vote by such other Person; (c) any Person
directly or indirectly controlling, controlled by, or under
common control with such other Person; (d) any officer,
director, manager, member or partner of such other Person; and
(e) if such other Person is an officer, director, manager,
member or partner, any company for which such Person acts in
any such capacity; and (f) any immediate family member of such
other Person.
1.8.3 "Agreement" shall mean this written Operating Agreement,
as the same may be amended from time to time. No other
document or oral agreement among the Members shall be treated
as part of or superseding this Agreement unless it is reduced
to writing and it has been signed by all of the Members.
1.8.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.8.5 "Company" shall mean this Gold Star Publishing, LLC.,
the limited liability company formed pursuant to this
Agreement.
1.8.6 "Majority-In-Interest" shall mean Members owning a
simple majority of the Units.
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1.8.7 "Manager" or "Managers" shall mean any person who
becomes Manager pursuant to this Agreement, including Section
5.1 below.
1.8.8 "Member" shall mean each Person who executes a
counterpart of this Operating Agreement as a Member and each
Person who may hereafter become additional or substituted
Members.
1.8.9 "Person" shall mean any natural person, partnership,
joint venture, corporation, estate, trust, association,
limited liability company, or other legal entity.
1.8.10 "Products" is defined in Section 10.5 below.
1.8.11 "Treasury Regulations" shall mean the federal income
tax regulations promulgated under the Code, as such
regulations may be amended from time to time, including
corresponding provisions of succeeding regulations.
1.8.12 "Unit" shall mean an interest in the Company, as that
term is used in Section 2.1 below and in other provisions of
this Agreement.
ARTICLE II
CAPITAL CONTRIBUTIONS
2.1. INITIAL CAPITAL CONTRIBUTIONS. The initial capital contributions
of the Members are as follows, and the Members shall acquire "Units" for said
contributions as identified on Exhibit "A" attached hereto and hereby made a
part hereof:
(a) As and for its initial capital contributions to the Company, RK
hereby transfers to the Company certain rights as described in Section 10.6
below, and will license rights to the Company as described in Section 10.5
below.
(b) As and for Futech's initial capital contribution to the Company,
Futech hereby agrees to contribute cash to the Company, up to the maximum of
$380,000.00 (in addition to the treatment of the $200,000.00 liability as set
forth in this Section below), as and when necessary for the operations of the
Company within twenty-one months from the date of this Agreement, for the
following purposes:
(i) Purchase of books and other products necessary for
the operation of the Company's business;
(ii) Payment of office rent, salary and employment taxes
for one employee, consulting fees for Joy Berry
("Berry") as described in Section 10.3 below, and
RK's royalty advances as described in subparagraph
10.5 (d) below, and payment of the costs of graphic
support and other necessary resources to operate the
Company's business; and
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(iii) The compilation and fulfillment of a comprehensive
strategy and budget to promote the Company and Berry
on author media tours, and at appearances at trade
shows, on television programs, and in other media.
If Futech's $380,000.00 capital contribution described above is insufficient to
accomplish the purposes described in subparagraphs, (i) through (iii) above
during the first twenty-one months after the date of this Agreement, then Futech
will provide additional funds as loans to the Company. Those loans will be
repayable by the Company, without interest, prior to any distributions being
made from the Company to any Member, and will be repayable by the company in
full in any event by the date which is five years after the date of this
Agreement. Said loans will be evidenced by promissory notes in form reasonably
satisfactory to Futech, and will be secured by first position liens against all
then-existing and thereafter acquired assets of the Company (excepting the
rights Berry or RK license to the Company). All loans by Futech shall be subject
to the approval of Vincent W. Goett, or another representative of Futech if he
is unable or unwilling to act for Futech.
The Company hereby assumes RK's $200,000 line of credit with Founders
Bank. Futech agrees to obtain releases of the personal guaranties of Berry and
James Gough of that line of credit. Futech's capital account will be debited at
formation of the company in the amount of $200,000.00, with an offsetting credit
establishing a liability payable to Founders Bank, all in connection with the
Company's assumption of RK's liability owing to said bank.
2.2 ADDITIONAL CAPITAL CONTRIBUTIONS. The Members shall not be entitled
to make additional capital contributions without the prior written consent of a
majority of the Units. Any additional capital contributions made with said
consent may be, but are not required to be, identified on supplemental schedules
to Exhibit "A." Unless otherwise agreed to by all Members, no interest shall
accrue or be paid on said contributions and no Units shall be issued for the
additional contributions.
2.3 RETURN OF CAPITAL CONTRIBUTIONS. No Member shall, without the prior
written consent of all of the Members (which consent may be withheld for any or
no reason), be entitled to withdraw or demand the return of any part of his/her
capital contribution, except upon dissolution or termination of the Company and
as specifically provided otherwise in this Agreement. Upon dissolution or
termination of the Company, first, all licenses shall revert back to RK, and
next, Futech may withdraw its capital contribution. Third, each Member shall
look to the remaining assets of the Company for distribution according to the
Units. If the Company's property remaining after the reversion of the licenses
and payment and discharge of the debts, obligations, and liabilities of the
Company is insufficient to return the capital contributions of Futech or another
Member, no Member shall have any recourse against the Company or any Member or
Manager, except for gross negligence, malfeasance, bad faith or fraud. The
Company shall not be obligated to pay interest on any capital contribution of
any Member.
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ARTICLE III
CAPITAL ACCOUNTS
An individual capital account shall be maintained for each Member. The
capital interest (and not the Units) of each Member shall consist of the
Member's original contribution increased by the Member's additional
contributions to capital, the Member's share of Company profits transferred to
capital, and the amount of Company liabilities assumed by the Member or that are
secured by any of the Company's property distributed to such Member, and
decreased by the amount of money and fair market value of Company property
distributed to the Member in reduction of the Member's Company capital, the
Member's share of Company losses, and the amount of liabilities of such Member
that are assumed by the Company or that are secured by any property contributed
by such Member to the Company.
The provisions in this Agreement relating to the maintenance of capital
accounts, and with respect to allocations and distributions, are intended to
comply with the Internal Revenue Code and the Treasury Regulations promulgated
thereunder, and shall be interpreted and applied in a manner consistent with
such Regulations. In the event the Members shall determine that it is prudent to
modify the manner in which the capital accounts, or any debits or credits
thereto, or other allocations among the Members, are computed in order to comply
with such Regulations, the Members may make any such modification, provided that
the modification is not likely to have a material effect on the amounts
distributable to any Member upon the dissolution of the Company. The Members
also shall make any appropriate modifications in the event of unanticipated
events (for example, the acquisition by the Company of royalty and gas
properties or the encumbrance of Company property by nonrecourse debt) that
might otherwise cause this Agreement not to comply with the Treasury
Regulations.
ARTICLE IV
PROFITS OR LOSSES; DISTRIBUTIONS
4.1 INTERESTS IN PROFITS OR LOSSES.
(a) Except as may be expressly provided to the contrary in this
Agreement, the net profits or net losses of the Company shall be credited or
charged to the Members in proportion to their Company Units.
(b) In accordance with Internal Revenue Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss and deductions with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members in a manner determined by the Members
so as to take into account any variation between the adjusted basis of such
property to the Company for Federal income tax purposes and the value of said
property at the date of its contribution.
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(c) The Members shall make such other special allocations as are
required in order to comply with any mandatory provision of the applicable
Treasury Regulations or to reflect a Member's economic interest in the Company
determined with reference to such Member's right to receive distributions from
the Company and such Member's obligation to pay its expenses and liabilities.
(d) The Members are aware of the income tax consequences of the
allocations made by this Article and hereby agree to be bound by the provisions
of this Article in reporting their shares of Company income and loss for income
tax purposes.
4.2 LIMITATION ON LIABILITY CHARGEABLE TO MEMBERS. Notwithstanding any
other provision of this Agreement, no Member shall personally be liable for any
of the losses of the Company beyond the Member's capital interest in the
Company.
4.3 DISTRIBUTIONS.
(a) The Members shall, acting reasonably, determine the cash available
for distribution from time to time. Cash or other property available for
distribution (as determined by the Members) shall be distributed among the
Members in proportion to their Units held. Notwithstanding any other provision
in this Agreement, the licenses contributed by Berry and/or RK may only be
distributed to Berry or RK.
(b) Any amounts withheld pursuant to the Code or any provisions of
state or local tax law with respect to any payment or distribution to a Member
from the Company shall be treated as amounts distributed to the Member for whom
the withholding was made.
ARTICLE V
MANAGEMENT PROVISIONS
5.1 MANAGEMENT.
(a) Management Committee. Notwithstanding the fact that the Company is
a "member-run" limited liability company, except as may otherwise be expressly
provided for in this Agreement (including Sections 5.2 and 9.5 below), the
business and affairs of the Company shall be governed in all respects by a
committee (the "Management Committee") which is composed of four members, two of
whom shall be appointed by Futech and two of whom shall be appointed by Berry.
The Management Committee shall be responsible for formulating the policies of
the Company and authorizing all material decisions regarding its operations,
including decisions regarding material capital expenditures and investments
(except for the "Major Decisions" identified in Section 5.2 below). There are
provisions in this Agreement calling for decisions to be made by the Members,
and those provisions do not alter the effect of the provisions in this
subparagraph (a). Except for provisions expressly requiring 100% vote of the
Members, the Management Committee's decisions shall exclusively be deemed to be
the decisions of the Members for all purposes. The Management
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Committee shall exercise all of the discretionary authority granted to the
Members under the provisions of this Agreement, and shall manage and direct the
conduct of the Company's day-to-day business affairs. Specifically, but not in
limitation of the foregoing, the management committee will be responsible for
all decisions relating to product selection, production management, and
expenditures for published materials, and shall set Company customer credit
policies. In the event of any deadlock of the Members of the Management
Committee, the vote of RK shall control to break the deadlock.
Futech hereby appoints Vince Goett and Mel Sauder as Futech's initial
members of the Management Committee, and RK hereby appoints Joy Berry and Jim
Mauri as RK's initial members of the Management Committee. Futech's members of
the Management Committee shall be responsible for all decisions relating to
product management, expenditures, production and finance; and shall set Company
customer credit policy. RK's members of the Management Committee shall be
responsible for product selection, design, presentation and marketing.
Each member of the Management Committee shall devote such time to the
business and affairs of the Company as shall be necessary or appropriate to
properly conduct such business and affairs in accordance with this Agreement and
applicable law. It is expressly understood and agreed that no member of the
Management Committee shall be required (solely as a result of the position held
on the Management Committee) to devote that member's entire business time to
the business and affairs of the Company.
The Management Committee shall be under a fiduciary duty to conduct the
affairs of the Company in the best interests of the Company and its Members,
including the safe keeping of all Company property and the use thereof for the
exclusive benefit of the Company.
(b) Actions of the Management Committee. At any meeting at which a
quorum is present, the Management Committee shall act, except as may otherwise
be provided herein, upon the unanimous vote of the Management Committee, and
such actions shall be binding upon the Members and the Company. Each member of
the Management Committee shall have one vote. The presence, by proxy, in person
or by telephone, at any regular or special meeting of the Management Committee,
of all members of the Management Committee, shall be necessary to constitute a
quorum.
(c) Managers. The members of the Management Committee may from time to
time elect one or more "Managers" who shall, to the extent designated by the
Management Committee, have the primary responsibility for managing and directing
the day-to-day operations of the Company on behalf of the Management Committee.
Managers need not be members of the Management Committee. At any time when a
Manager is acting, such Manager shall have the exclusive right to exercise all
of the discretionary authority granted to the Management Committee under the
provisions of this Agreement and all powers of the Management Committee on
behalf of the Company, except to the extent, if any, such rights and powers are
restricted by the Management Committee when the Manager is appointed or
thereafter.
Any two members of the Management Committee may remove a Manager by
providing
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written notice of the removal to the Manager and the other members of the
Management Committee, and the removal shall be effective immediately unless a
later effective date is provided for in the notice. The appointment of a Manager
must be by a three-to-one vote of the Management Committee. If there shall at
any time be more than one person acting as manager hereunder, then, unless
otherwise designated by unanimous vote of the Management Committee, the
unanimous approval of said persons shall be required for any act of the
"Manager."
The Manager shall be under a fiduciary duty to conduct the affairs of
the Company in the best interests of the Company and its Members, including the
safe keeping of all Company property and the use thereof for the exclusive
benefit of the Company. The Manager shall devote such time and effort as is
necessary for the management of the Company in the conduct of its business in an
efficient, thorough and businesslike manner, devoting appropriate attention to
all matters affecting the conduct of the Company's business.
The fee, if any, paid to the Manager for acting as Manager hereunder
shall be determined by and subject to change from time to time by the unanimous
vote of the Management Committee.
Mel Sauder is hereby appointed as the initial Manager, to serve so long
as he is able and willing to so serve, or until he is replaced or removed
pursuant to the terms of this Agreement.
(d) Meetings of Management Committee. The Management Committee shall
meet at least once every year or more frequently as appropriate. Management
Committee meetings may be held in person, by telephone or videophone conference,
or by use of similar communications equipment. Any action required or permitted
to be taken by the Management Committee may be taken without a meeting if all of
the members of the Management Committee consent thereto in writing.
Special meetings of the Management Committee may be held upon the call
of any member of the Management Committee for any purpose. Written notice of
each regular and special meeting shall be sent or faxed to each member of the
Management Committee not less than forty-eight (48) hours before such meeting.
Notice of any meeting need not be given to any member of the Management
Committee who shall submit, either before or after the meeting, a signed waiver
of notice, or who shall attend the meeting.
(e) Term of Office of Members of Management Committee. Each member of
the Management Committee shall hold office until death, resignation, retirement
or removal by the Member that appointed such member of the Management Committee.
If a vacancy shall occur in the Management Committee, the Member that appointed
such vacating member of the Management Committee may appoint his or her
successor by giving written notice thereof to the other Member and the
Management Committee. If either Member desires to replace its appointee, such
Member may remove or replace such appointee at any time by giving written notice
thereof to the other Member and to the Management Committee.
(f) Compensation of Management Committee. Members of the Management
Committee shall not receive any salaries, fees or other compensation from the
Company for their service on the
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Management Committee, except to the extent approved by the unanimous vote of
all Members of the Company; provided, however, that nothing in this provision
shall prevent the Member that designated the member of the Management Committee
from paying said member of the Management Committee compensation or
reimbursement from the Member's own funds, and not from the funds of or to be
reimbursed by the Company.
(g) Communications. The members of the Management Committee, and the
Manager, shall promptly advise and inform each other of any transaction, notice,
event or proposal, other than in the ordinary course of business of the Company,
of which they may become aware which directly relates to the management and
operation of the Company or to any assets of the Company, to the extent any such
matter does or could materially affect, either adversely or favorably, the
Company, its business or its assets.
5.2 MAJOR DECISIONS. Notwithstanding any other provision of this
Agreement, other than Section 9.5 below, no action shall be taken or sum
expended or obligation incurred by the company with respect to a matter within
the scope of any of the major decisions (the "Major Decisions") affecting the
Company, as defined below, unless such action, expenditure or obligation has
been approved in writing by all of the Members of the Company. "Major Decisions"
shall be the following:
(a) Any amendment to this Agreement or the Company's Articles of
Organization;
(b) Any act in contravention of this Agreement or any undertaking on
behalf of the Company not reasonably related to the purpose of the Company;
(c) Any act which would make it impossible to carry on the business of
the Company, or any act which would violate applicable laws;
(d) The confession of any judgment against the Company;
(e) The execution or delivery of any general assignment for the benefit
of creditors of the Company;
(f) The admission of a person as a Member, except as may otherwise
expressly be provided for in this Agreement;
(g) The borrowing of money on behalf of the Company;
(h) The loaning of any funds to any Member, any Affiliate of any
Member, or any third party;
(i) The guaranteeing of any debt by the Company of any Member, any
Affiliate of a Member, or any third party;
(j) Approval of a plan of merger or consolidation of the Company with
or into one or more other business entities;
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(k) All other decisions relating to the Company for which this
Agreement specifically requires the approval of all Members;
(l) The making of any election required or permitted to be made under
the Code or under the income tax laws of the State of Arizona or any other
state;
(m) The making of any expenditure or incurring of any obligation by or
for the Company in excess of the sum of $100,000.00, except to the extent that
any such expenditure or obligation is a recurring obligation of the Company
previously approved by all of the Members; and
(n) The acquisition, lease, exchange, or other transfer or disposition
of, or encumbrance of, on behalf of the Company, any personal property having a
cost and/or value in excess of $100,000.00, or any real property or interest
therein.
The settlement of any disputes or litigation involving the Company
shall require at least a three-to-one vote of the Management Committee.
5.3 MANAGEMENT OR MEMBER COMPENSATION. Except as may otherwise be
agreed to by all of the Members elsewhere in this Agreement, or elsewhere in
writing, no Member shall seek or be paid any compensation for being a Member in
this Company or for acting in any management capacity in this Company.
5.4 TIME DEVOTED TO THE COMPANY BY BERRY. Joy Berry will devote such
time as is necessary to manage the creative aspects of the Company's business.
5.5 REIMBURSEMENT OF EXPENSES. The Members (and Manager(s)) shall be
reimbursed by the Company for the direct costs and expenses incurred in
performing their responsibilities pursuant to this Agreement; provided, however,
that such expenses shall not be in excess of the amount customarily paid for
like services.
ARTICLE VI
ADMINISTRATIVE PROVISIONS
6.1 LIMITATION OF LIABILITY. Each Member's liability for the debts and
obligations of the Company shall be limited to the maximum extent allowed by
law.
6.2 INDEMNIFICATION OF MEMBERS BY THE COMPANY. The Members shall
perform their duties, if any, under this Agreement with ordinary prudence and in
a manner characteristic of businessmen in similar circumstances. However, no
Member shall have any liability whatsoever to the Company or to any other Member
for loss caused by any act or by the failure to do any act if the loss suffered
arises out of a mistake in the business judgment of the Member, or if the
Member, in good faith, had determined that the action or lack of action giving
rise to the loss was in the best interests of the Company; provided, however,
that a Member shall not be released from liability
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hereunder for any loss caused by the gross negligence, breach of this Agreement,
breach of fiduciary duties, or intentional misconduct of such Member or its
agents, or for acts outside the Member's authority under this Agreement. The
Company, or its receiver or liquidating trustee, shall indemnify, hold harmless
and pay all judgments and claims against a Member arising from any of the
Member's actions or decisions performed or made in good faith within the scope
of the Member's authority under this Agreement, provided that such actions or
decisions do not constitute gross negligence, a breach of this Agreement, a
breach of fiduciary duties, or intentional misconduct on the part of such
Member. This indemnification shall include, without limitation, payment of
reasonable attorneys' fees incurred in connection with the defense of any claim
or proceeding based on any such action or decision, which attorneys' fees shall
be paid as incurred.
6.3 INDEMNIFICATION BY MEMBERS. Each Member (as "Indemnitor") shall
indemnify and hold harmless the Company and the other Members from and against
all claims, demands, actions and rights of action which shall or may arise by
virtue of anything done or omitted to be done by the Indemnitor (directly or
through or by agents, employees or other representatives) which is outside the
scope of, or in breach of, the terms of this Agreement, or which constitutes
gross negligence, breach of fiduciary duties, or intentional misconduct on the
part of such Member. A Member who desires to make a claim against an Indemnitor
under this Section shall notify the Indemnitor of the claim, demand, action or
right of action which is the basis of such claim, and shall give the Indemnitor
a reasonable opportunity to participate in the defense thereof. Failure to give
such notice shall not affect the Indemnitor's obligations hereunder, except to
the extent of any actual prejudice resulting therefrom. The obligations of the
Members under this Section shall survive and be enforceable against them
notwithstanding the dissolution or termination of the Company.
6.4 LOANS.
(a) In addition to obtaining loans from independent lenders, the
Members (with the majority votes of the Units) may loan funds to the Company
and may charge interest thereon, and may cause the Company to borrow from a
Member.
(b) Except as provided for in subparagraph 2.1 (b) above, at all times
during the term of this Agreement: (1) if a Member or Manager owes the Company
money, which debt is not evidenced by a promissory note or other writing, or
(ii) if the Company owes money to a Member or Manager not evidenced by a
promissory note or other writing, then such debt shall be payable upon demand
and shall bear interest and shall be subject to the other provisions described
in subparagraphs 9.7 (b)(ii) B, C, and E, as if a note containing those
provisions had been executed by the party obligated to pay the debt.
(c) No profit distributions shall be made to any Member unless and
until all loans owing by the Company to any Member or any Affiliate of a Member
have been paid in full.
6.5 BANKING. All Company funds shall be deposited in the Company's name
in such bank account or accounts as shall be designated by the Members. All
withdrawals therefrom shall be made upon checks signed by a person(s) selected
by the Members. Approval of all Members shall be required to expend Company
funds of more than One Hundred Thousand Dollars ($100,000.00),
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or to make any financial commitments such as for the leasing of equipment, the
aggregate payments of which shall exceed One Hundred Thousand Dollars
($100,000.00).
6.6 BOOKS AND RECORDS.
(a) The Members shall keep books of account with respect to the
business and affairs of the Company, which books shall be maintained at the
Company's principal office. All members shall at all reasonable times have
access to such books for inspection and/or copying at the expense
of the
requesting Member, after reasonable request is made therefor.
(b) At a minimum, the Company shall keep at its principal place of
business the following records:
(i) A current list of the full name and last known business,
residence, or mailing address of each Member;
(ii) A copy of the Articles of Organization of the Company and
all amendments thereto, together with executed copies of any
powers of attorney pursuant to which any amendment has been
executed;
(iii) Copies of the Company's federal, state, and local income
tax returns and reports, if any, for the three most recent
years; and
(iv) Copies of the Company's currently effective written
Operating Agreement and all amendments thereto, copies of any
prior written operating agreement no longer in effect, copies
of any writings permitted or required with respect to a
Member's obligation to contribute cash, property or services,
and copies of any financial statements of the Company for the
three most recent years.
(c) The Members, at the Company's expense, shall cause annual financial
statements to be prepared by an independent accounting firm chosen by the
Members. Such financial statements shall be prepared in accordance with
generally accepted accounting principles consistently applied and, to the extent
consistent with generally accepted accounting principles, on the same basis as
is used in the preparation of the Company's federal income tax returns. Copies
of such statements shall be furnished to each of the Members no later than
March 31 following the close of the Company's fiscal year.
(d) All Members agree that, within ten (10) days after any Member is no
longer a Member of the Company and is no longer employed by the Company, such
Member shall return to the Company all notes, documents, models, samples,
catalogs, price books, customer cards, forms, lists, and invoices received in
connection with the business of the Company, and all other documents and things
relating to the Company, and all copies thereof, along with a complete list of
all accounts and prospective accounts, including names, addresses, persons
contacted, buying habits, and pending transactions.
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6.7 TAX RETURNS.
(a) All federal, state and local income tax returns of the Company
required to be filed for any taxable year shall be timely prepared and filed by
the Members at the expense of the Company and furnished to the Members as soon
as is practical after the end of the taxable year.
(b) Except as specifically provided otherwise in this Agreement, all
tax elections required or permitted to be made by the Company shall be made by
all of the Members.
6.8 ACCOUNTING PERIOD. The Company's accounting period shall be the
calendar year.
6.9 LIST OF MEMBERS. Upon written request of any Member, the Company
shall provide to such Member a list showing the names, last known addresses and
interests of all Members in the Company.
6.10 INSURANCE. The Company shall carry and maintain in force such
insurance as the Members deem appropriate, the premiums of which shall be a cost
and expense of the Company. All such policies of insurance shall name the
Company, and, if necessary, all of the Members, as named insureds as their
respective interests may appear.
ARTICLE VII
MEETINGS OF MEMBERS
7.1 ANNUAL MEETING. An annual meeting of the Members may be held on the
second Tuesday of March of each year, or at such other time as shall be
determined by the Members, commencing with the year 1999, for the purpose of the
transaction of such business as may come before the meeting.
7.2 SPECIAL MEETING. Special and regular meetings may be held by
telephone or videophone.
7.3 PLACE OF MEETINGS. The Members may designate any place, either
within or outside the State of Arizona, as the place of meeting for any meeting
of the Members; provided, however, that the agreement of all Members shall be
required for a meeting to be held outside of the State of Arizona. If no
designation is made, or if a special meeting is otherwise called, the meeting
shall be held at the principal office of the Company.
7.4 NOTICE OF MEETINGS. Except as provided in Section 7.5 below,
written notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than three
nor more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the person calling the meeting, to each Member
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered two calendar days after being deposited in the United States mail,
addressed to the Member at the Member's address as it appears on the books of
the Company, with postage thereon prepaid. If transmitted by
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way of facsimile, such notice shall be deemed to be delivered on the date of
such facsimile transmission to the fax number, if any, for the respective Member
which has been supplied by such Member to the Company and identified as such
Member's facsimile number.
7.5 MEETING OF ALL MEMBERS. If all of the Members shall meet at any
time and place, either within or outside of the State of Arizona, and consent to
the holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting lawful action may be taken.
7.6 ADJOURNED MEETINGS. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Company may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Member entitled to vote at the meeting.
7.7 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
7.8 MANNER OF ACTING; VOTING. Each Unit shall be entitled to one vote.
Except as provided for in Section 5.1 above, where used in this Agreement, a
"majority" of Members shall mean a majority of the votes which can be cast, and
not the majority of any number of Members. The affirmative vote of a
Majority-In-Interest of the Members shall be the act of the Members, unless the
vote of a greater or lesser proportion or number is otherwise required by the
Act, by the Articles of Organization, or by this Agreement. A spouse of a
Member, with or without a community property interest in the Member's Units,
shall not have the right to vote the Member's Units.
7.9 VOTING OF UNITS BY CERTAIN MEMBERS.
(a) Units belonging to the Company, or to a corporation the majority of
the shares of which are held by the Company, shall not be entitled to vote;
provided, however, that nothing herein shall be construed as limiting the right
of the Company to vote Units held by it in a fiduciary capacity.
(b) A Member whose Units are pledged shall be entitled to vote such
Units until the Units have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the Units so transferred, but
only if allowed by the other provisions of this Agreement.
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(c) If Units stand in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or tenants by community property or otherwise, or if two
or more persons have the same fiduciary relationship with respect to the same
Units, unless the Company is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the effect of (i) if only one votes, his/her acts bind all, (ii) if more
than one votes, the act of the majority so voting binds all, and (iii) if more
than one votes, but the vote is evenly split on any one particular matter, each
fraction may vote the Units in question proportionally.
7.10 PROXIES. At all meetings of Members, a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the other Members of the
Company before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
7.11 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the action
is evidenced by one or more written consents describing the action taken, signed
by each Member and delivered to the Company for inclusion in the minutes or for
filing with the Company records. Action taken under this Section is effective
when said Members have signed the consent, unless the consent specifies a
different effective date. The record date for determining Members entitled to
take action without a meeting shall be the date the first Member signs a written
consent.
7.12 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the Person entitled to such
notice, whether before, at, or after the time stated therein, shall be the
equivalent of the giving of such notice.
ARTICLE VIII
DISSOLUTION; TERMINATION; WITHDRAWAL
8.1 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved only
upon the occurrence of any of the following events:
(a) The written consent or affirmative vote to dissolve of 100% of the
Company Units;
(b) The entry of a judgment of dissolution by a court of competent
jurisdiction or by dissolution by operation of law;
(c) The bankruptcy or receivership of any Member;
(d) The acquisition by any one Person of all of the Units of the
Company; or
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(e) Upon the occurrence of any event which causes a dissolution of the
Company under Arizona law, unless the business of the Company is continued by
the specific consent of all of the remaining Members, given within 90 days after
such event, and there are at least two remaining Members. For purposes of
obtaining the required vote to continue the Company, any Member may cause to be
sent to Members of record, as of a date no more than 20 days prior to the date
fixed by such Members for holding a Company meeting, a notice setting forth the
purpose of the meeting. Reasonable expenses incurred in the continuation, or
attempted continuation, of the Company shall be deemed expenses of the Company.
8.2 EVENTS NOT CAUSING DISSOLUTION. Except as may otherwise be provided
in Section 8.1 above, the Company shall not be terminated or dissolved by the
legal incapacity, death, insanity, withdrawal or expulsion of any Member, by the
assignment of any Member of that Member's Units, or by the admission of a new
Member, or the admission of any additional or substitute Member or Manager, but
the Company shall continue thereafter as the Company with the remaining Members
and any new Members.
As used in this Article VIII, the term "bankruptcy" shall mean: (i) the
voluntary filing of a petition in bankruptcy or petition pursuant to any
insolvency act; (ii) the making of an assignment for the benefit of creditors;
(iii) giving consent to the appointment of a receiver, liquidator, custodian, or
trustee for the whole or any substantial part of the property of the Member;
(iv) the voluntary filing of a petition or answer seeking or consenting to
reorganization under Chapter 11 of Title 11 of the United States Code or state
insolvency statutes; (v) the appointment, by order of a court of competent
jurisdiction, of a receiver, liquidator, custodian, or trustee for a Member for
the whole or any substantial part of his or her property, which appointment
shall not have been discharged within sixty (60) consecutive days thereafter;
(vi) the institution against a Member of any proceeding under Chapter 11 of
Title 11 of the United States Code or any amendment or successor thereto or
under any other applicable law or statute of the United States or any state
(including state insolvency statutes), which proceedings shall not have been
discussed within sixty (60) consecutive days after the institution thereof;
or (vii) if an insolvency petition is filed against a Member and an order for
relief is directed under Chapter 11 of Title 11 of the United States Code.
8.3 WINDING UP. Notwithstanding any other provision of this Agreement,
in the event of dissolution without continuance, and final termination of the
Company:
(a) The Members shall:
(i) Wind up the affairs of the Company;
(ii) Transfer the licenses back to RK;
(iii) Subject to subparagraph (d) below, sell all remaining
Company assets as promptly as is consistent with obtaining;
and
(iv) After paying all liabilities (including all costs of
dissolution), and subject to the right of the Members to set
up cash reserves to meet Company liabilities, distribute the
remaining Company assets to the Members by paying the first
$380,000.00 to Futech,
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or such lesser amount as Futech contributed as capital, and then pursuant to the
relevant provisions of this Agreement.
(b) The Members shall continue to share profits and losses during the
period of liquidation in the same proportions as before dissolution. The
proceeds from liquidation of Company assets remaining after the licenses have
reverted to RK shall to the extent allowed by law be applied as follows in the
following order of priority:
(i) To creditors of the Company, other than Members, in the
order of priority provided by law;
(ii) To Members for unpaid secured loans;
(iii) To Members for unpaid and unsecured loans;
(iv) To the Members in the amounts of and in proportion to
positive balances in their capital accounts with the first
$380,000.00 paid to Futech, or such lesser amount as Futech
contributed to capital; and
(v) To the Members in accordance with Units owned.
(c) Except for the licenses, in the event a distribution of Company
property in kind is made, such property shall either. (i) be transferred and
conveyed to the Members or their assigns so as to vest in each of them, as
tenants-in-common, a percentage interest in the whole of said property equal
to the percentage interest the Members would have received had the foregoing
property not been distributed in kind; or (ii) be transferred and conveyed to
the Members on an asset-by-asset determination, as determined by the Members.
(d) The Company may at its election and at the Company's expense, in
conjunction with a liquidation, provide the Members with a statement which sets
forth the assets and liabilities of the Company as of the date of liquidation
and distribution, along with a schedule of receipts and disbursements made or
expected to be made with respect to the termination of the Company, and such
statement and distributions made in accordance therewith shall be final and
binding upon all persons, except such persons who may file a specific and
detailed written protest thereof within twenty (20) days after said statement is
mailed or delivered to such person. Any protest shall be resolved pursuant to
Section 13.17 below.
(e) In the event of a dissolution and liquidation of the Company, the
liquidation of the assets and discharge of the liabilities may be carried out by
a liquidation trustee or receiver who shall be a bank, trust company, or other
person or firm having experience in managing, liquidating, or otherwise handling
property of the type then owned by the Company. Any such liquidating trustee or
receiver shall be designated by the Members. The liquidating trustee or receiver
shall not be personally liable for the debts of the Company, but otherwise shall
have such obligations and authorities as are given the Members pursuant to the
terms of this Agreement, or as may be agreed between the Company and said
liquidating trustee or receiver.
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commitment for a trading market (and, therefore, liquidity) for their New Futech
Common Stock.
Therefore, I called Mark Briggs and told him the concern. He said it
made sense to him if Futech agreed in the Global Merger Agreement to use its
best efforts (and not to be a condition of the closing) to register the Common
Stock with the SEC and to list for trading on a national securities exchange.
This would make clear to all shareholders of all the companies that there would
be liquidity for their New Futech Common Stock. He suggested that I e-mail the
comment to Thomas Lofy, which I did yesterday.
This helps all shareholders of all companies, including the holders of
Futech Interactive Products, Inc., which includes the two of you.
Bill Burnham told me this morning that he called Vince about this issue
last night and that Vince told him that he agreed and the "best efforts"
language should go into the Global Merger Agreement.
I hope this clarifies matters. Everyone on the Trudy side is committed
to make this global merger work, as shown by our turnaround of all the documents
as quickly as possible.
/s/ Charlie
Charles E. Barnett
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Exhibit: 10.20T
[FIRST UNION LOGO]
LANDLORD SUBORDINATION AND WAIVER
March 30, 1998
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
To induce the Bank to make loans, extensions of credit, or other financial
accommodations ("Loans") to Trudy Corporation d/b/a TMC Soundprints (the
"Borrower"), Noreast Management LLC (the "Landlord") represents and agrees as
follows:
A. PREMISES. The Landlord is the sole owner of the premises known as 353 Main
Avenue, Norwalk, Connecticut 06851 (the "Premises"). The Borrower is the
tenant under a lease (the "Lease") for the Premises dated June 19, 1996.
B. WAIVER AND SUBORDINATION. The Landlord, for itself, its successors and
assigns, waives and subordinates all present and future rights of lien, levy
and distraint, arising out of any present or future provision of law, to any
present or future lien or security interest held by the Bank with respect to
any inventory, machinery, equipment, goods or other property of the Borrower
(the "Encumbered Property") now or hereafter located upon the Premises.
C. DISCLAIMER OF INTEREST. The Landlord disclaims any interest in the
Encumbered Property whether as a fixture, personalty or otherwise and agrees
that it will not become part of the Premises regardless of the nature of the
Encumbered Property or the manner in which it may become affixed to or
incorporated in the Premises.
D. NOTIFICATION OF DEFAULT. Should the Bank notify the Landlord that any Loan
to the Borrower is in default, the Landlord agrees:
1. ACCESS TO PREMISES. That at the direction of the Bank, it will grant to
the Bank's employees and agents access to the Premises and cooperate in
excluding employees and agents of the Borrower from such access.
2. STORAGE OF ENCUMBERED PROPERTY. That the Bank may continue to store the
Encumbered Property on the Premises for a period of up to three (3)
months following the date on which the Bank takes possession of the
Encumbered Property, without the payment of any rent, use or occupation
charge, and may remove the Encumbered Property at any time.
3. SALE OF ENCUMBERED PROPERTY. That the Bank may use the Premises to
conduct a sale of the Encumbered Property and the Landlord will allow
access by potential buyers for the purpose of inspecting or bidding
upon such goods.
E. NOTICE OF TERMINATION. Should the Landlord intend to terminate the Lease or
otherwise take any action which would, if successful, terminate or otherwise
impair the rights of the Borrower or the Bank in the Encumbered Property or
the Premises, the Landlord shall give not less than forty-five (45) days
written notice of such intended action to the Bank by certified mail to the
address set forth above or to such other address as the Bank shall have
given notice to the Landlord. The Bank shall have not less than forty-five
(45) days after receipt of such notice to take such action with respect to
the Encumbered Property as may be available to the Bank to preserve, protect
or realize upon its interest therein. Nothing set forth herein shall be
construed to require the Bank to remove the Encumbered Property from the
Premises or to take any other action.
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IN WITNESS WHEREOF, the parties hereto have executed this Landlord
Subordination and Waiver on the date first above written.
---------------------------------
Name:
Address:
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---------------------------------
Name:
Address:
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Noreast Management LLC
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Corporation or Partnership Name
By: /s/ William W. Burnham
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Name: William W. Burnham
Title: Member
Address: 241 White Oak Square
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New Canaan, CT 06120
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ACCEPTED AND ACKNOWLEDGED:
First Union National Bank
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By:
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Name: Robert M. Martin
Title: Vice President
Address: 300 Main Street
Stamford, Connecticut 06904
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Exhibit: 10.20FD
LICENSE AGREEMENT
This "Agreement" is entered into as of June 1, 1996, by and between
Hollywood Ventures Corporation, a California corporation, 9255 Sunset Boulevard,
Suite 405, Los Angeles, California 90069 ("Licensor") and Third Quarter
Corporation d/b/a Fundex, an Indiana corporation ("Licensee"), 3750 West 16th
Street, Indianapolis, Indiana 46222.
WHEREAS, Licensor is the owner of certain rights in the property described
and/or illustrated in Schedule A ("Property") including, but not limited to the
Trademarks listed in Schedule B ("Trademarks");
WHEREAS, Licensee desires to use the Property and/or the Trademarks on or
in connection with the products identified in Schedule C ("Licensed Products")
in the countries identified m Schedule D ("Territory"); and
WHEREAS, Licensor is willing to grant Licensee the right to use the
Property and/or the Trademarks on such Licensed Products.
NOW, THEREFORE, in consideration of their mutual promises, covenants and
conditions contained herein, it is agreed as follows:
1. OWNERSHIPS OF RIGHTS. Licensor is the exclusive owner of the fight to
license the Property and Trademarks for use in association with the Licensed
Products in the Territory pursuant to a grant of rights by the owners, Nestor
Productions, Inc. and Big Comfy Corp, (the "Owners"). With the exception of the
rights expressly licensed hereunder to Licensee, all other fights relating
thereto are expressly reserved by Licensor, Nestor Productions, Inc. and Big
Comfy Corp.
2. GRANT OF LICENSE. Licensor grants to Licensee an exclusive,
non-transferable, non-assignable license, without the right to grant
sub-licenses, to use the Property and/or the Trademarks solely on or in
connection with the manufacture, sale, offering for sale, advertising, promotion
and distribution of the Licensed Products and solely within the Territory and,
for this purpose only, to affix the Trademarks on or to packaging, displays,
sales, advertising and promotional materials sold, used or distributed in
connection with the Licensed Products ("Promotional and Packaging Material").
The foregoing notwithstanding, Licensee shall not directly nor indirectly
through any affiliate company in which Licensee or any of its controlling
shareholders, officers or directors own an interest individually or in the
aggregate in excess often percent (10%), sell any Licensed Products directly to
consumers, including but not limited to direct response sales, direct sales and
personal appearance sales. Licensee's sales shall be to bona fide retailers or
through bona fide wholesalers which shall sell the Licensed Products only to
retailers.
3. TERM AND OPTIONS. (a) This Agreement shall commence and be effective on
June 1, 1996 ("Effective Date") provided this Agreement has been executed by
both parties and Licensor has received the fully executed Agreement and the
Advance. Thereafter, this Agreement shall continue for an "Initial Term"
terminating on December 31, 1998, unless terminated prior thereto pursuant to
this Agreement. An Advance of ten thousand dollars ($10,000) is payable upon
execution of this Agreement as a non-refundable Advance against Royalties
("Advance").
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(b) If Licensee is in full compliance with this Agreement during the then
Initial Term and Licensee's sales during the Term will have resulted in Royalty
payments remitted to Licensor of at least $200,000, Licensor agrees to grant to
Licensee the option ("Option") to extend the Term for additional two (2) years
provided that Licensee gives Licensor at least ninety (90) days prior written
notice of its intention to exercise such Option.
(c) In the event of the termination or expiration of this Agreement,
Licensor shall have the sole option to grant Licensee an extension option
("Extension Option") to extend the Term of this Agreement for a period up to
July 1, 2001, at Licensor's sole option.
4. ROYALTY PROVISIONS. (a) Licensee agrees to pay Licensor a Royalty of
eight percent (8%) based upon Net Sales of the Licensed Products sold in the
Territory or, if Licensed Products are sold on terms F.O.B. a shipping point
outside of the Territory, a Royalty of ten percent (10%) based upon Net Sales
of the Licensed Products (the "Royalty").
(b) "Net Sales" shall mean gross sales less actual quantity discounts and
returns actually credited. No deduction shall be made for cash or other
discounts, commissions or uncollectible accounts nor for any costs incurred in
the manufacture, sale, distribution or exploitation of the Licensed Products. A
Royalty shall also be paid by Licensee based on Licensee's usual Net Sales price
on all unbilled Licensed Products distributed by Licensee or any of its
affiliated companies. Licensee has discretion to set pricing; however, all
pricing shall be established by Licensee in a commercially reasonable manner and
all Licensed Products shall be sold by Licensee at competitive prices not
substantially more nor substantially less than the price customarily charged by
Licensee for similar products to unaffiliated businesses. Royalties accruing
during any Sell-Off Period shall not be applied against the Advance or the
Guaranteed Minimum Royalty.
(c) For the Initial Term, Licensee agrees to pay Licensor a "Guaranteed
Minimum Royalty" of no less than forty thousand dollars ($40,000), of which no
less than one-half (1/2) of the Guaranteed Minimum Royalty shall be paid to
Licensor at the end of each twelve (12) month period of the Initial Term. If
upon expiration of the first twelve (12) month period and for each and every
twelve (12) month period thereafter (or upon termination of this Agreement in
the event such occurs less than twelve (12) months following the last Guaranteed
Minimum Royalty payment period) the total Royalties paid by Licensee to Licensor
are less than the Guaranteed Minimum Royalty for said twelve (12) month period,
Licensee shall immediately pay any such deficiency of the Guaranteed Minimum
Royalty to Licensor. Advances previously remitted to Licensor from Licensee for
any such twelve (12) month period shall be applied as a credit toward the
current Guaranteed Minimum Royalty.
5. STATEMENTS AND PAYMENTS. (a) Licensee shall provide Licensor within
thirty (30) days after the end of each calendar quarter ("Royalty Period") a
complete and accurate statement of its Net Sales for that quarter, said
statement to be certified as accurate by an officer of Licensee, and
corresponding Royalties owing to the Licensor. Such statements, which shall be
in conformance with the requirements of Licensor (including, but not limited to,
reporting separately by Licensed Product sku by size, licensed character
utilized, etc.), must be submitted whether or not any Licensed Products have
been shipped or Royalties have been earned.
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(b) Acceptance by Licensor of any statement furnished or Royalty paid
shall not preclude Licensor from questioning its correctness and in the event of
inconsistencies or mistakes, they shall be immediately rectified by Licensee.
(c) All payments shall be remitted in United States currency payable to
the order of Hollywood Ventures Corporation and mailed to the HVC address stated
in the preamble or as may be revised hereafter. Any conversion of foreign
currency to United States currency shall be at an exchange rate no less than
offered by Chase Manhattan Bank in New York, New York, on the date of
conversion.
(d) Time is of the essence with respect to all payments and interest at
the rate of one and one-half percent (1 1/2%) per month shall accrue on any
amount due Licensor calculated from the date on which payment was due.
(e) Any and all Royalty payments, whether denoted as Advances, as
Guaranteed Minimum Royalty payments or otherwise, shall be non-refundable,
6. AUDIT. Licensee shall keep accurate books of account covering all
transactions relating to this Agreement. Licensor and/or its representatives
shall have the right, at reasonable hours of the day upon reasonable notice, to
examine such books and all other documents and material in the possession,
custody or control of Licensee with respect to this Agreement and to make copies
and summaries thereof no more than two (2) times per twelve (12) month period.
In the event an Audit reveals an underpayment, Licensee shall immediately remit
payment in the amount of the underpayment plus interest calculated at the rate
of one and one-half percent (1 1/2%) per month from the date such payments were
due. In the event such underpayment is greater than $1,000.00 or five percent
(5%) of the reported royalty, whichever is greater, for any Royalty Period,
Licensee shall reimburse Licensor for the cost and expense of such Audit. All
books of account and records of Licensee relating to this Agreement shall be
retained for at least three years after termination of this Agreement.
7. QUALITY, NOTICES, APPROVALS AND SAMPLES. (a) The quality and style of
the Licensed Products and all Promotional and Packaging Material relating to the
Licensed Products shall be at least as high as the best quality of similar goods
presently sold or distributed by Licensee in the Territory. Each Licensed
Product shall comply with all applicable laws, regulations and established
industry standards. Licensor shall at all times have the right to inspect the
manufacturing facilities of the Licensed Products upon five (5) days notice to
Licensee, and all such facilities shall comply with all applicable laws,
regulations and industry standards.
(b) All Promotional and Packaging Material and all Licensed Products on
which the Products and/or Trademarks are used shall contain the name and address
(at least city and state) of Licensee as well as the following legal notices,
both of which shall be permanently affixed:
c 1996 Big Comfy Corp.
TM and c designate trademark and copyrights of Big Comfy Corp. and are
used under license by (name of Licensee).
All Rights Reserved.
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(c) Before commencing the design of the Licensed Products or Promotional
and Packaging Material which have not been previously approved, Licensee shall
submit for Licensor's written approval copies of all preliminary artwork.
Licensor shall have ten (10) business days to respond to submittals.
(d) Prior to the use of any Promotional and Packaging Material and/or the
sale and distribution of the Licensed Products, Licensee shall submit at its
cost, but for Licensor's approval, three (3) complete sets of samples of all
Licensed Products intended to be sold and distributed and three (3) complete
sets of samples of all Promotional and Packaging Material intended to be used,
none of which may be used, sold, or distributed until receipt of written
approval of said samples from Licensor.
(e) Upon commencement of distribution of the Licensed Products, Licensee
shall submit, at its own expense, an additional twenty-four (24) sets of the
above referenced samples.
(f) Thereafter, from time to time, Licensor may require Licensee to submit
at its own cost up to an additional five (5) sets of samples of Licensed
Products and/or Promotional and Packaging Material to monitor the quality for
continued approval.
(g) Licensor shall have the absolute right to inspect the facilities where
any Licensed Products are being manufactured and/or packaged from time to time
without notice.
(h) In the event the above quality standards are not maintained throughout
the Term, Licensor has the right to require Licensee to immediately discontinue
manufacturing, selling and distributing Licensed Products which do not meet such
quality standard.
(i) Approval or disapproval of Licensed Products shall lie solely in
Licensor's discretion, and any Licensed Product not so approved in writing shall
be deemed unlicensed and shall not be manufactured or sold by Licensee. Any
modification of a Licensed Product, including, but not limited to, change of
materials, color, design or size, must be submitted in advance for Licensor's
written approval. Approval of a Licensed Product which uses particular artwork
does not imply approval of such artwork for use with a different Licensed
Product.
8. ARTWORK. The form and content of all work relating to the Property and
Trademarks must be approved by Licensor prior to use. Licensor will provide to
Licensee upon request, at Licensee's expense, artwork which Licensee reasonably
requests. All artwork relating to the Property and Trademarks, regardless of who
created or contributed to the works, shall be the sole and exclusive property of
Licensor. All Licensed Products not meeting the standard of approved samples
shall be destroyed by Licensee. All Licensed Products not meeting the standard
of approved samples shall be destroyed by Licensee. Licensee shall pay Licensor,
within thirty (30) days of receiving an invoice therefor, for artwork done by
Licensor or third parties under contract to Licensor in the development and
creation of the Licensed Products, display, packaging or promotional material.
9. GOODWILL, Licensee recognizes the value of the good will associated
with the Property, and Trademarks and acknowledges that each have acquired
secondary meaning. Licensee agrees, during the Term(s) and thereafter, never to
attack the rights of Licensor in such or the validity of this license. Licensee
agrees that its use of the Property and/or Trademarks inures to the benefit of
Licensor and that Licensee shall not acquire any rights in
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the Property or Trademarks.
10. TRADEMARK AND COPYRIGHT. (a) Licensor may obtain, at its own expense
and in its name, appropriate copyright and trademark protection for the Property
and/or Trademarks and Licensee agrees to cooperate with Licensor in all such
matters.
(b) Licensee agrees that it shall not at any time apply for any
registration of any copyright, trademark or any other designation which would
affect the ownership of the Property and/or Trademarks nor file any document
with any governmental authority to take any action which would affect the
ownership thereof; however, Licensee shall register as a registered
user/licensee, at Licensee's expense, in any country where registration of the
Licensee of a trademark or copyright is required.
(c) Licensee agrees that it shall not at any time use or authorize the use
of any trademark, trade name or other designation identical with or
substantially similar to the Trademarks. Licensee agrees not to associate the
Property and/or Trademarks with other properties, trademarks, personalities, or
characters without Licensor's written permission.
(d) Licensee agrees to assist Licensor in the enforcement of Licensor's
rights in the Property and/or Trademarks With respect to any such claims and
suits, Licensor shall employ counsel of its own choosing to direct the
litigation and any settlement thereof. Licensor shall be entitled to receive and
retain all amounts awarded as damages, profits or otherwise in connection with
such claims.
11. INDEMNIFICATION. Licensee agrees to defend, indemnify and hold
Licensor, and its parent company, their officers, agents and employees, and the
Owners harmless against any and all liability, claims, demands, suits, loss,
damages, causes of action and judgment, out-of-pocket costs and expenses,
including reasonable attorney's fees, arising out of Licensee's manufacture,
sale, offering for sale, distribution, promotion and/or advertising of the
Licensed Products.
12. INSURANCE. Licensee shall, throughout the Term, obtain and maintain at
its own expense standard product liability insurance, the form of which must be
acceptable to Licensor, naming Licensor named as an additional insured. Such
policy shall provide protection against all claims, demands and causes of action
arising out of any defects or failure to perform, alleged or otherwise, of the
Licensed Products or any use thereof. The amount of coverage shall be a minimum
of $1,000,000 for each claim and $3,000,000 in the aggregate with a deductible
not to exceed $5,000 for each single occurrence for bodily injury and/or
property damage. The policy shall provide for thirty (30) days notice to
Licensor from the insurer in the event of any modification or termination of
such coverage. Licensee shall furnish Licensor a certificate of insurance
evidencing same within thirty (30) days after execution of this Agreement but in
any event, prior to any manufacture and distribution of the Licensed Products.
13. EXPLOITATION BY LICENSEE. (a) Licensee shall commence manufacture,
distribution, and sale of the Licensed Products in commercially reasonable
quantities within six (6) months after the Effective Date and, thereafter, shall
continue to distribute and sell all of the Licensed Products throughout the
Territory on a continuous basis in a commercially reasonable manner. Licensee
shall place at least one full- color print trade advertisement of the entire
Licensed Product line every six (6) months, which advertisement shall be placed
in the highest-circulation trade publication. Licensee shall additionally
produce new and original sales
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materials no less frequently than every twelve (12) months. Licensee shall also
consult with Licensor concerning possible updating of the Licensed Product line
on an annual basis. Any such updating and revisions shall be subject to the
approval criteria stated elsewhere in this Agreement.
(b) Any Property (Character), Trademark or Licensed Product which is not
diligently exploited at any time following the expiration of the initial twelve
(12) months after the Effective Date shall be deemed abandoned by Licensee, and
in such event the license for such Property, Trademark or Licensed Product shall
terminate and revert back to Licensor automatically. In the event of a dispute,
Licensee shall have the burden of establishing that Licensee was diligently
exploiting the Property, Trademark or Licensed Product as required herein.
(e) Any charges, fees or royalties payable for music rights, rights to
fabrications, rights for voices, or any other rights not covered specifically by
this Agreement shall be additional to the Royalty and covered by separate
agreement
14. PREMIUMS, PROMOTIONS AND SECONDS. (a) Licensor shall have the sole
right to license third parties to utilize any of the Licensed Products in
connection with premium, giveaway, purchase-with-purchase promotions,
fund-raisers, sweepstakes or promotional arrangements. For purposes of this
Agreement a "premium" is a product or a product combined with a service which is
sold or supplied in association with the promotion of another product or
service, or offered in association with the sales promotion activities of
retailers, wholesalers or manufacturers in association with incentive programs.
(b) Licensee shall not sell, distribute or use or permit any third party
to sell, distribute or use any Licensed Products which are damaged, defective,
seconds, irregulars or otherwise fail to meet the specifications and/or quality
control or notice requirements of this Agreement. All Licensed Products not
meeting the standard of approved samples shall be destroyed by Licensee.
15. TERMINATION. The following are in addition to the termination rights
provided elsewhere in this Agreement;
(a) Immediate Right of Termination. Licensor shall have the right to
immediately terminate this Agreement on written notice should Licensee:
(i) Make, sell, offer for sale, use or distribute any Licensed
Product or Promotional or Packaging Material without having the
prior written approval of Licensor or continues to make, sell, offer
for sale, use or distribute such after receipt of notice from
Licensor withdrawing approval of same due to subsequent
non-compliance;
(ii) Fail, after receipt of written notice from Licensor to
immediately discontinue the distribution of sale of Licensed
Products or the use of any Promotional or Packaging Material which
does not contain the appropriate legal legend;
(iii) Subject to any voluntary or involuntary order of any
government agency involving the recall of any of the Licensed
Products;
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(iv) Or its controlling shareholders, officers, directors or
employees take any actions in connection with the manufacture, sale,
distribution or advertising of the Licensed Products or the
Promotional and Packaging Material which damages or reflects
adversely upon Licensor, the Property and/or Trademarks;
(v) Breach any of the provisions of this Agreement relating to
the unauthorized assertion of rights in the Property or Trademarks;
(vi) Fail to make timely payment of Royalties when due or fail
to make timely submission of Royalty statements when due two or more
times during a twelve-month period or fail to pay the Guaranteed
Minimum Royalty; or
(vii) Breach any provision of this Agreement prohibiting
Licensee from directly or indirectly assigning, transferring,
sublicensing or other encumbering of this Agreement or any of its
rights or obligations hereunder.
(b) Right to Terminate on Notice. A party may terminate this
Agreement on thirty (30) days written notice to the other party, under any
of the following circumstances, provided that during the thirty (30) day
period, the defaulting party fails to cure the breach;
(i) Should Licensee fail to commence sale and distribution of
the Licensed Products in all countries in the Territory;
(ii) Should Licensee, after commencing to sell and distribute
Licensed Products, fail to continue to sell and distribute such in
commercially acceptable quantities in all countries in the Territory
for two consecutive Royalty Periods;
(iii) Should Licensee violate any of its obligations under
this Agreement;
(iv) Should Licensee file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, make an assignment for the
benefit of creditors, an arrangement pursuant to any bankruptcy law,
or if Licensee discontinues its business or if a receiver is
appointed for Licensee which is not discharged within thirty (30)
days thereafter; or
(v) Should the other party commit a material breach of any
other provision of this Agreement which is not cured within thirty
(30) days after receiving notice from the non-breaching party.
(vi) Should any Licensed Products be sold by Licensee at
prices which are clearly not competitive prices as such are
customarily charged by Licensee for similar products to unaffiliated
businesses.
16. EFFECT OF TERMINATION. (a) If this Agreement is terminated under
paragraph 15(a), no Licensed Products may be sold or distributed or any
Promotional or Packaging Material used without the prior expressed approval of
Licensor.
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(b) Upon termination of this Agreement, notwithstanding anything to the
contrary herein, all Royalties on shipments made shall become immediately due
and payable.
(c) If this Agreement is terminated under provision other than paragraph
15(a), Licensed Products which are on hand or in process at the time the notice
of termination is received or at the time of the expiration of the Agreement, as
the case may be, may continue to be sold or distributed for a sixty (60) day
period ("Sell-Off Period"), provided that all Royalties with respect to that
period are paid and that Licensor may itself use or license the use of the
Property and/or Trademarks in any manner and that Licensee provide Licensor an
inventory of Licensed Products it intends to sell or distribute during such
period.
(d) After termination of this Agreement, all rights hereunder shall revert
to Licensor who may license others to use the Property and/or Trademarks in any
way whatsoever. Thereafter, Licensee shall refrain from any further use of the
Property and/or Trademarks and turn over to Licensor all molds and other
materials which reproduce the Licensed Products or shall give Licensor
satisfactory evidence of their destruction, at Licensor's sole option. Licensee
shall be responsible for any damages caused by the unauthorized use of such
molds or reproduction materials which are not turned over or destroyed.
(e) Licensee acknowledges that its failure to cease the manufacture, sale
or distribution of Licensed Products or any class or category thereof at the
time of termination or expiration will result in immediate and irreparable harm
to Licensor and to the rights of any subsequent licensee. Licensee acknowledges
that there is no adequate remedy at law for failure to cease the manufacture,
sale, or distribution and Licensee agrees that in the event of such failure,
Licensor shall be entitled to equitable relief by way of injunctive relief and
such other relief as any court with jurisdiction may deem proper.
(f) Within thirty (30) days after termination or expiration of this
Agreement, Licensee shall provide Licensor with a statement indicating the
number and description of the Licensed Products which it had on hand or in the
process of manufacturing as of the expiration or termination. Licensor shall
have the option of conducting a physical inventory to ascertain or verify such.
In the event Licensee refuses to permit Licensor to conduct such physical
inventory, Licensee shall forfeit its fights hereunder to dispose of such
inventory.
17. FAN MAIL. Licensee agrees to include on its packaging of appropriate
Licensed Products, as determined by Licensor, the following message in prominent
position:
Write to your friends on "The Big Comfy Couch" at:
P O. Box 15338, Beverly Hills, California 90209-1338.
18. PURCHASE OF LICENSED PRODUCTS. Licensor shall have the right to
purchase some or all of the Licensed Products from time to time, at such times
and in such quantities as Licensor desires.
(a) If Licensor desires to purchase Licensed Products for
promotional purposes only (not for resale), Licensee agrees to sell such
Licensed Products at Licensee's cost plus ten percent (10%), with the
royalty owing to Licensor being waived for these purposes only.
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(b) If Licensor or a third party secured by Licensor desires to
purchase Licensed Products for resale through premium sales, direct
response, direct sales, personal appearances or other means (other than to
retailers or wholesalers to retailers), Licensee agrees to sell such
Licensed Products upon the most favorable terms and at the lowest
wholesale price offered by Licensee to any of its customers, regardless of
quantity requirements, including a Royalty to Licensor of eleven percent
(11%) and an additional sales commission of five percent (5%) payable at
the time the Royalty is due to Licensor.
(c) If Licensor or a third party designated by Licensor desires to
purchase Licensed Products for sales to public television stations only
for their resale to the general public for fundraising purposes, Licensee
agrees to sell such Licensed Products upon the most favorable terms and at
the lowest wholesale price offered by Licensee to any of its customers,
regardless of quantity requirements, including the Royalty owing to
Licensor.
19. NOTICES. All notices or payments required to be sent to either party
shall be in writing at the last known addresses of the parties. Any notice of
breach, default or termination shall be sent by certified mail, return receipt
requested.
20. MISCELLANEOUS; (a) This Agreement does not create a partnership or
joint venture and Licensee shall have no power to obligate or bind Licensor
whatsoever.
(b) This Agreement shall be governed by the law of the State of California
and any claims arising hereunder shall, at Licensor's election, be maintained in
Los Angeles, California.
(c) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver of a subsequent breach or default.
(d) In the event that any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect, such shall not affect any other
provision and this Agreement shall be interpreted and construed as if such
provision, to the extent invalid, illegal or unenforceable, had never been part
of the Agreement.
(e) Licensee's rights hereunder may not be assigned, disposed of, or
transferred, voluntarily or involuntarily, to anyone else without Licensor's
written approval. Without limitation to the previous sentence, a merger of
Licensee into another company or the transfer of a controlling interest in
Licensee shall be deemed a disposal of Licensee's rights hereunder, which, to be
effective, would require Licensor's written approval.
(f) Headings of paragraphs herein are for convenience of reference only
and are without substantive significance.
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(g) This Agreement represents the entire understanding between the parties
with respect to the subject matter and supersedes all previous representations,
understandings or agreements, written or oral, and cannot be modified except by
written instrument.
IN WITNESS WHEREOF, the parties execute this Agreement for the purposes
stated above.
AGREED AND ACCEPTED
HOLLYWOOD VENTURES CORPORATION
By: /s/ Richard Goldsmith
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(a duly authorized officer)
Name and Title: Richard Goldsmith, President & CEO
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(print)
Date: July 24, 1996
AGREED AND ACCEPTED
THIRD QUARTER CORPORATION
By: /s/ Chip Voigt
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(a duly authorized officer)
Name and Title: Chip Voigt, President
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(print)
Date: July 23, 1996
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SCHEDULE A
The PROPERTY is/are the following associated with the television series
"The Big Comfy Couch": THE BIG COMFY COUCH (excluding the fabrication design).
Note: All character names shall at all times be followed by the phrase:
from "The Big Comfy Couch"
SCHEDULE B
LIST OF TRADEMARKS: The Big Comfy Couch name and logo.
SCHEDULE C
LIST OF LICENSED PRODUCTS: An inflatable couch in a size and manner to be
functional as furniture for children to sit on which and in association with
which the Property and/or Trademarks are used. In addition to the general
reservation of rights not expressly granted, Licensor expressly reserves the
right to license the above referenced products with electronics and,
notwithstanding the foregoing, to license other inflatable couches for uses
including, but not limited to, flotation devices.
SCHEDULE D
LICENSED TERRITORY: The United States and Canada and their respective
territories and possessions.
HOLLYWOOD VENTURES CORPORATION
By: /s/ Richard Goldsmith, President & CEO
----------------------------------------
THIRD QUARTER CORPORATION
By: /s/ Chip Voigt
----------------------------------------
<PAGE> 1
Exhibit: 10.21FT
AGREEMENT
THIS IS AN AGREEMENT between FUTECH EDUCATIONAL PRODUCTS, INC. of 2315
North 35th Avenue, Phoenix, Arizona 85009 (hereinafter the "Company") and
STEPHEN I. MCTAGGART, an individual resident in Maricopa County, Arizona
("McTaggart").
WHEREAS:
A. The Company is engaged in the business of developing electronic
books and printed electronic products, and marketing such products and has
developed or otherwise obtained certain confidential information and proprietary
technology related to its business.
B. McTaggart is a founder of the Company, an equity holder in, and
Director of the Company, and has been employed by the Company at various times
in the capacities of President and as Senior Vice President Research and
Development.
C. McTaggart has particular expertise in the design and manufacture of
electronic books and printed electronic products, and has been instrumental in
developing the Company's products, confidential information and proprietary
technology. McTaggart has obtained patents on various inventions employed by the
Company in its products, and has entered into agreements dated March 1990 and
June 14, 1991 (purporting to supersede the March 1990), granting the Company an
exclusive worldwide license under such patents to make, use and sell the
inventions described and claimed therein.
D. The Company is in the process of obtaining further financing, and
negotiating strategic alliances and wishes to ensure that there are no potential
issues pertaining to its past or continuing relationship with McTaggart or its
rights and obligations with respect to the inventions and contributions to
the Company technology that have been made by McTaggart.
ACCORDINGLY, for good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
1.1 The term "Technology" includes, for example, conceptions,
discoveries, technological developments, technical contributions, methods,
processes, compositions, techniques, systems, machines, devices, improvements,
computer software and programs, at a and information (irrespective of whether in
human or machine readable form), inventions (whether or not patentable), works
of authorship, mask works and products.
1.2 The term "Existing Technology" means any and all Technology: (a)
disclosed in an Existing Patent, or (b) in use by the Company before the
effective date of this Agreement; or (c) relating to the business of the Company
( e.g. printed electronic products), and conceived (as evidenced by written
records) before the effective date of this Agreement.
<PAGE> 2
1.3 The term "Existing Patents" means all patents, U.S. or foreign, which have
or will in the future issue based upon, or claiming priority of, applications
filed before the effective date of this Agreement and naming McTaggart as
inventor thereon, including, but not limited to the patents and applications
listed in Schedule 1.3, as well as any continuation, divisional, and
corresponding foreign patent applications and any patents issuing therefrom,
and any reissue or reexamination patents arising therefrom.
2. ASSIGNMENT OF EXISTING TECHNOLOGY AND PATENTS.
2.1 Upon receipt of the payment pursuant to Paragraph 3.1, McTaggart
shall assign to the Company the full and exclusive worldwide right, title, and
interest in and to the Existing Patents and any right he might have in the
Existing Technology, as well as the right to pursue and retain any proceeds from
past infringement or other causes of action.
2.2 McTaggart shall promptly execute and deliver to the Company or its
legal representatives any and all assignment documents, papers, instruments or
affidavits required to effect the assignment and maintenance of the Existing
Patents and Existing Technology as may be necessary or desirable to carry out
the purpose of this Agreement.
2.3 McTaggart shall, upon request of the Company, and without further
remuneration, promptly provide the Company with all pertinent facts, documents,
notes or files relating to the Existing Patents and the Existing Technology, as
may be known and accessible to McTaggart and to testify as to the same in any
interference, litigation or proceeding related thereto.
3. CONSIDERATION
3.1 In addition to stock and other consideration previously provided to
McTaggart by McTaggart the Company, in consideration of the assignment
hereunder, the Company agrees to pay McTaggart the sum of Two Hundred Fifty
Thousand Dollars ($250,000.00) upon execution of this Agreement.
3.2 As additional consideration of the assignment hereunder, and as
consideration for McTaggart's continued assistance and cooperation as set forth
in Paragraphs 2.2 and 2.3 hereof, the Company shall issue to McTaggart a
Promissory Note obligating the Company to pay McTaggart Two Hundred Fifty
Thousand Dollars ($250,000.00) on or before December 31, 1996 in the form of
Exhibit "1" attached hereto.
3.3 As full and complete satisfaction for any and all obligations of
the Company to McTaggart for past royalties relating to the Existing Technology,
the Company agrees to pay McTaggart One Hundred Thousand Dollars ($100,000.00)
upon execution of this Agreement and to issue to McTaggart a Promissory Note
obligating the Company to pay McTaggart One Hundred Thousand Dollars
($100,000.00) on or before December 31, 1996 in the form of Exhibit "2" attached
hereto.
2
<PAGE> 3
3.4 Subject to Paragraph 3, McTaggart hereby forgives, releases and
discharges the Company from any and all liability, arising from the March 1990
Agreement, June 14, 1991 Agreement, or otherwise, for any and all other
royalties, fees, or obligations to pay monies, past or future, to McTaggart with
respect to the Existing Patents and Existing Technology.
4. MCTAGGART'S REPRESENTATIONS.
4.1 Except for those matters disclosed on Schedule 5.1 hereto,
McTaggart represents that he has full title and rights of ownership to the
Existing Patents and Existing Technology being assigned hereunder, free and
clear of any liens, encumbrances or restrictions of any nature whatsoever.
4.2 McTaggart represents to the Company that he has not entered into,
and will not enter into, any agreement or obligation which will prevent his full
compliance with the terms of this Agreement.
5. GENERAL.
5.1 This Agreement is the entire agreement between the parties upon the
subject hereof and supersedes any prior or similar agreements upon the same
subject, and in particular the March 1990 and June 14, 1991 Agreements.
5.2 This Agreement shall inure to the benefit of, be binding upon and
be enforceable by the Company, its nominees, successors, and assigns, and shall
be binding upon and be enforceable by McTaggart his heirs, assigns and legal
representatives.
5.3 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE FEDERAL LAW OF THE UNITED STATES OF AMERICA AND THE INTERNAL LAWS OF
THE STATE OF ARIZONA, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. The
federal and state courts within the State of Arizona will have exclusive
jurisdiction to adjudicate any dispute arising out of this Agreement. Each party
expressly consents to: (a) the personal jurisdiction of the federal and state
courts within the State of Arizona, County of Maricopa; and (b) to be bound by
orders of such courts.
5.4 If any clause or provision of this Agreement is or becomes illegal,
invalid, or unenforceable, the remaining provisions of this Agreement shall be
unimpaired, and the illegal, invalid or unenforceable provision shall be
replaced by a provision, which, being legal, valid and enforceable, comes
closest to the intent of the parties underlying the illegal, invalid or
unenforceable provision.
5.5 This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement on this
day of August, 1996,
Stephen I. McTaggart FUTECH EDUCATIONAL PRODUCTS, INC.
- ------------------------------
/s/ Stephen I. McTaggart By /s/ Vincent W. Goett
----------------------------
Its
----------------------------
CONSENT OF SPOUSE
1. Debra McTaggart, spouse of Steven I. McTaggart, a party to the
foregoing Agreement (the "Agreement"), do hereby confirm that I have read and
understand the Agreement and that I consent to, agree to and ratify all of the
provisions, terms and conditions set forth in the Agreement, and I agree to
execute any and all instruments or documents necessary to carry out said
Agreement, to the extent that I have any interest in the Agreement, the
transactions contemplated therein and the property and assets affected by the
Agreement.
/s/ Debra McTaggart
---------------------------
Debra McTaggart
4
<PAGE> 5
Schedule 1.3 Existing Patents
<TABLE>
<CAPTION>
Patent Number Serial Number Country Filing Date Grant Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
57656 78210811 Taiwan August 21, 1989 September 1, 1990
5,167,508 07/685,278 USA April 15, 1991 December 1, 1992
664,701 17841/92 Australia April 14, 1992 March 19, 1996
2,108,554 Canada April 14, 1992
EP 92911059.1 EPO April 14, 1992
4-510057 Japan April 14, 1992
18887 South Korea April 14, 1992
(Republic of Korea)
178299 925737 Mexico April 14, 1992 June 7, 1995
PCT/US92/03056 PCT April 14, 1992
Not yet received Russian Federation April 14, 1992
92 1 11051.0 China April 14, 1992
886/Del/92 India April 14, 1992
5,417,575 08/137,063 USA April 14, 1992 May 23, 1995
Not yet assigned Kazakhstan Not yet confirmed
5,484,292 07/980,649 USA November 24, 1992 January 16, 1996
PCT/US93/10705 PCT November 11, 1993
08/195,755 USA February 11, 1994
93120335.X China November 24, 1993
1253/Del/93 India November 9, 1993
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Patent Number Serial Number Country Filing Date Grant Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
55940/94 Australia November 4, 1993
2,150,013 Canada November 4, 1993
Not yet assigned EPO November 4, 1993
952545 Finland November 4, 1993
6-513158 Japan November 4, 1993
702092/1995 Korea November 4, 1993
258342 New Zealand November 4, 1993
952042 Norway November 4, 1993
95118875 Russian Federation November 4, 1993
10815 10815 Sri Lanka November 4, 1993 February 23, 1996
08/474,707 USA November 4, 1993
08/554,734 USA November 7, 1995
</TABLE>
6
<PAGE> 7
Schedule 5. 1 LIENS AND ENCUMBRANCES
7
<PAGE> 8
EXHIBIT "1"
8
<PAGE> 9
PROMISSORY NOTE
Due not later than: December 31, 1996
Principal Amount: US$250,000 Phoenix, Arizona
For value received, the undersigned hereby promises to pay to Stephen I.
McTaggart on or before December 31, 1996 the sum of TWO HUNDRED FIFTY THOUSAND
UNITED STATES (US $250,000) DOLLARS with interest accruing from the date hereof
at a rate of ONE (1%) PERCENT per month, compounded monthly, before and after
each of maturity, default and judgment, payable by certified check, cash or bank
draft and delivered to Stephen I. McTaggart at _______________________________ .
The undersigned hereby waives notice of dishonor and presentment.
Dated this ________ of __________ , 1996.
SIGNED, SEALED AND DELIVERED
by FUTECH EDUCATIONAL PRODUCTS, INC.
By /s/ Vince Goett
---------------------------------
Vince Goett, President
9
<PAGE> 10
EXHIBIT "2"
10
<PAGE> 11
PROMISSORY NOTE
Due not later than: December 31, 1996
Principal Amount: US$100,000 Phoenix, Arizona
For value received, the undersigned hereby promises to pay to Stephen I.
McTaggart on or before December 31, 1996 the sum of ONE HUNDRED THOUSAND UNITED
STATES (US$100,000) DOLLARS with interest accruing from the date hereof at a
rate of ONE (1%) PERCENT per month, compounded monthly, before and after each of
maturity, default and judgment, payable by certified check, cash or bank draft
and delivered to Stephen I. McTaggart at _____________________________________ .
The undersigned hereby waives notice of dishonor and presentment.
Dated this 7 of August, 1996.
SIGNED, SEALED AND DELIVERED
by FUTECH EDUCATIONAL PRODUCTS, INC.
By /s/ Vince Goett
---------------------------------
Vince Goett, President
11
<PAGE> 1
Exhibit: 10.21T
[FIRST UNION LOGO]
PROMISSORY NOTE
$1,200,000.00
March 30, 1998
Trudy Corporation d/b/a TMC Soundprints
353 Main Avenue
Norwalk, Connecticut 06851
(Individually and collectively "Borrower")
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that
certain Promissory Note dated July 14, 1997, evidencing an original principal
indebtedness of $1,200,000.00. This Promissory Note is not a novation.
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of One Million Two Hundred Thousand and No/100 Dollars
($1,200,000.00) or such sum as may be advanced and outstanding from time to
time with interest on the unpaid principal balance at the rate and on the terms
provided in this Promissory Note (including all renewals, extensions or
modifications hereof, this "Note").
SECURITY. Borrower has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, personal
property collateral described in that certain Security Agreement of even date
herewith.
INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the rate of Bank's Prime Rate plus 0.25% as that
rate may change from time to time in accordance with changes in the Bank's
Prime Rate ("Interest Rate"). Bank's Prime Rate shall be that rate announced by
Bank from time to time as its Prime Rate and is one of several interest rate
bases used by Bank. Bank lends at rates both above and below Bank's Prime Rate,
and Borrower acknowledges that Bank's Prime Rate is not represented or intended
to be the lowest or most favorable rate of interest offered by Bank.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 3%
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION. (ACTUAL/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Actual/360 Computation
determines the annual effective yield by taking the stated (nominal) rate for a
year's period and then dividing said rate by 360 to determine the daily
periodic rate to be applied for each day in the applicable period. Application
of the Actual/360 Computation produces an annualized effective rate exceeding
that of the nominal rate.
<PAGE> 2
REPAYMENT TERMS. This note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on May 1, 1998, and on the same
day of each month thereafter until fully paid. In any event, all principal and
accrued interest shall be due and payable on April 30, 1999.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal. If a Default occurs, monies may be applied to
the Obligations in any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, and may include, without
limitation, a commitment letter that survives closing, a loan agreement, this
Note, guaranty agreements, security agreements, security instruments, financing
statements, mortgage instruments, letters of credit and any renewals or
modifications, whenever any of the foregoing are executed, but does not include
swap agreements (as defined in 11 U.S.C. Section 101).
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations under any other Loan
Document(s), and all obligations under any swap agreements as defined in 11
U.S.C Section 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note and the late charge shall be the highest amount allowable under such
laws. If no amount is stated thereunder, the late charge shall be 5% of each
payment past due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals, attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal
Page 2
<PAGE> 3
balance of this note or the refunding of excess to be a complete settlement and
acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. FALSE WARRANTY. A warranty or representation made or deemed made in
the Loan Documents or furnished Bank in connection with the loan evidenced by
this Note proves materially false, or if of a continuing nature, becomes
materially false. CROSS DEFAULT. At Bank's option, any default in payment or
performance of any obligation under any other loans, contracts or agreements of
Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the
holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. Section
101, except that the term "debtor" therein shall be substituted by the term
"Borrower" herein; "Subsidiary" shall mean any corporation of which more than
50% of the issued and outstanding voting stock is owned directly or indirectly
by Borrower). CESSATION; BANKRUPTCY. The death of, appointment of guardian for,
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or insolvency proceeding by or against the
Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or
the holder(s) of the majority ownership interests of Borrower, or any party to
the Loan Documents. MATERIAL CAPITAL STRUCTURE OR BUSINESS ALTERATION. Without
prior written consent of Bank, (i) a material alteration in the kind or type of
Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any;
(ii) the sale of substantially all of the business or that of Borrower's
Subsidiaries or Affiliates, if any; (ii) the sale of substantially all of the
business or assets of Borrower, any of Borrower's Subsidiaries or Affiliates or
guarantor or a material portion (10% or more) of such business or assets if such
a sale is outside the ordinary course of business of Borrower, or any of
Borrower's Subsidiaries or Affiliates or any guarantor or more than 50% of the
outstanding stock or voting power of or in any such entity in a single
transaction or a series of transactions; (iii) the acquisition of substantially
all of the business or assets or more than 50% of the outstanding stock or
voting power of any other entity; or (iv) should any Borrower, or any of
Borrower's Subsidiaries or Affiliates or guarantor enter into any merger or
consolidation.
REMEDIES UPON DEFAULT: If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: BANK
LIEN. Foreclose its security interest or lien against Borrower's accounts with
notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this Note and all
other Obligations, and all of the Obligations shall be immediately due and
payable. CUMULATIVE. Exercise any rights and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Borrower's
financial condition. Such information shall be true, complete, and accurate.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower authorizes Bank
to debit its demand deposit account number 2030000971835 or any other account
with Bank (routing number 021101108) designated in writing by Borrower,
beginning May 1, 1998 for any payments due under this Note. Borrower further
certifies that Borrower holds legitimate ownership of this account and
preauthorizes this periodic debit of its right under said ownership.
LOAN AGREEMENT. This Note is subject to the provisions of that certain Loan
Agreement between Bank and Borrower dated March 30, 1998, as modified from time
to time.
Page 3
<PAGE> 4
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may
advance and readvance under this Note respectively from time to time until the
maturity hereof (each an "Advance" and together the "Advances"), so long as the
total indebtedness outstanding at any one time does not exceed the principal
amount stated on the face of this Note. Bank's obligation to make Advances under
this Note shall terminate if Borrower is in Default or a representation in any
of the Loan Documents is false or has become false. As of the date of each
proposed Advance, Borrower shall be deemed to represent that each
representation made in the Loan Documents is true as of such date. 30-DAY
PAYOUT. During the term of the Note, Borrower agrees to pay down the outstanding
balance to a maximum of $100.00 for 30 consecutive days annually.
WAIVERS AND AMENDMENTS No waivers, amendments or modifications of this Note
and other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default shall operate as a waiver of
any other Default or the same Default on a future occasion. Neither the failure
nor any delay on the part of Bank in exercising any right, power, or remedy
under this Note and other Loan Documents shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice or dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Not for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
other person liable under this Note or other Loan Documents, all without notice
to or consent of each Borrower or each person who may be liable under this Note
or other Loan Documents and without affecting the liability or any person who
may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. Assignment. This note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents shall prohibit Bank from pledging or assigning this Note or any of the
Loan Documents or any interest therein to any Federal Reserve Bank. Borrower
shall not assign its rights and interests hereunder without the prior written
consent of Bank, and any attempt by Borrower to assign without Bank's prior
written consent is null and void. Any assignment shall not release Borrower from
the Obligations. APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other
Loan Documents shall be governed by and construed under the laws of the state
named in the address of the Bank first shown above without regard to that
state's conflict of laws principles. If the terms of this Note should conflict
with the terms of the loan agreement or any commitment letter that survives
closing, the terms of this Note shall control. BORROWER'S Accounts. Except as
prohibited by law, Borrower grants Bank a security interest in all of Borrower's
accounts with Bank and any of its affiliates. JURISDICTION. Borrower irrevocably
agrees to non-exclusive personal jurisdiction in the state in which the office
of Bank first shown above is located. SEVERABILITY If any provision of this Note
or of the other Loan Documents shall be prohibited or invalid under applicable
law, such provision shall be ineffective but only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note or other such document. NOTICES. Any
notices to Borrower shall be sufficiently given, if in writing and mailed or
delivered to the Borrower's address shown above or such other address as
provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's
office address shown above or such other address as Bank may specify in writing
from time to tome. In the event that Borrower changes Borrower's address at any
time prior to the date the Obligations are paid in full, Borrower agrees to
promptly give written notice of said change of address by registered or
page 4
<PAGE> 5
certified mail, return receipt requested, all charges prepaid. PLURAL; CAPTIONS.
All references in the Loan Documents to Borrower, guarantor, person, document or
other nouns of reference mean both the singular and plural form, as the case may
be, and the term "person" shall mean any individual, person or entity. The
captions contained in the Loan Documents are inserted for convenience only and
shall not affect the meaning or interpretation of the Loan Documents. BINDING
CONTRACT. Borrower by execution of and Bank by acceptance of this Note agree
that each party is bound to all terms and provisions of this Note. ADVANCES.
Bank in its sole discretion may make other Advances under this Note pursuant
hereto. POSTING OF PAYMENTS. All payments received during normal banking hours
after 2:00 p.m. local time at the office of Bank first shown above shall be
deemed received at the opening of the next banking day. JOINT AND SEVERAL
OBLIGATIONS. Each Borrower is jointly and severally obligated under this Note.
FEES AND TAXES. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at closing
or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Disputes") between or among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000.00 All applicable statutes of limitation shall apply to any Dispute.
A judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with an arbitration proceeding or after
an arbitration action is brought. Bank and Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power
of sale granted under Loan Documents or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in
a Dispute.
Page 5
<PAGE> 6
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS NOTE ARE COMMERCIAL TRANSACTIONS AND HEREBY
VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
Trudy Corporation d/b/a/ TMC Soundprints
Taxpayer Identification Number: 06-1007765
CORPORATE By: /s/ William W. Burnham
SEAL -------------------------------
William W. Burnham, President
Page 6
<PAGE> 1
Exhibit: 10.22FT
[FUTECH EDUCATIONAL PRODUCTS, INC. LOGO]
March 27, 1997
Our Technology Speaks For Itself.
Vincent W. Goett
CEO, Chairman, President
------------------------
2999 N. 44th Street, Suite 225
Phoenix, AZ 85018-7247
Tel. 602-908-8765
Fax 602-208-9950
Stephen and Debra McTaggart
179 Niblick Rd. #347
Paso Robles CA 93445
Transmitted via facsimile to 305-528-7379
Re: Agreement to amend payment terms of patent-related and royalty promissory
notes
Dear Stephen and Debra,
This letter will serve to amend the payment terms of the following
documents:
1. Promissory Note obligating Futech to pay you $250,000.00 on or before
December 31, 1996 for patent related issues and obligations;
2. Promissory Notes obligating Futech to pay you $100,000.00 on or before
December 31, 1996 for past royalties.
Futech recognizes that it still currently has an obligation to pay you a
total of $350,000.00. We are proposing to pay you $200,000.00 of the
$350,000.00 on or before April 2, 1997. The $200,000.00 will be applied as
follows:
- $150,000.00 towards the $250,000.00 balance in item 1, above:
- $ 50,000.00 towards the $100,000.00 in item 2, above.
The remaining $150,000.00 will then be paid no later than five (5) months after
the execution of this document or sooner if possible.
By your signatures below you are acknowledging your acceptance of this new
payment schedule. I look forward to receiving your signed copy back at your
earliest convenience.
Sincerely,
/s/ Vincent W. Goett
---------------------------------
Vincent W. Goett
Chairman and CEO
We, as evidenced by our signatures below, are acknowledging that we have read,
understand and agree to the change to the payment terms as outlined above.
/s/ Stephen I. McTaggart /s/ Debra McTaggart
- --------------------------------- ----------------------------------
Stephen I. McTaggart Debra McTaggart
<PAGE> 1
Exhibit: 10.22T
[FIRST UNION LOGO]
PROMISSORY NOTE
$250,000.00 March 30, 1998
Trudy Corporation d/b/a TMC Soundprints
353 Main Avenue
Norwalk, Connecticut 06851
(Individually and collectively "Borrower")
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00)
or such sum as may be advanced and outstanding from time to time with interest
on the unpaid principal balance at the rate and on the terms provided in this
Promissory Note (including all renewals, extensions or modifications hereof,
this "Note").
SECURITY. Borrower has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, personal
property collateral described in that certain Security Agreement of even date
herewith.
INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the rate of 8.75% ("Interest Rate").
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 3%
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION. (ACTUAL/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Actual/360 Computation
determines the annual effective yield by taking the stated (nominal) rate for a
year's period and then dividing said rate by 360 to determine the daily
periodic rate to be applied for each day in the applicable period. Application
of the Actual/360 Computation produces an annualized effective rate exceeding
that of the nominal rate.
PREPAYMENT COMPENSATION. Principal may be prepaid in whole or in part at any
time; provided, however, that if principal is paid before it is due under this
Note, whether voluntary, mandatory, upon acceleration or otherwise, such
prepayment shall include a fee equal to 1% of the amount prepaid for each one
year period (or portion thereof) remaining on the term of the loan, up to a
maximum prepayment fee of 5% of the amount prepaid.
Any prepayment in whole or in part shall include accrued interest and all
other sums then due under any of the Loan Documents. No partial prepayment
shall affect the obligation of Borrower to make any prepayment of principal or
interest due under this Note on the due dates specified.
<PAGE> 2
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of principal and interest in the amount of $6,207.44 commencing on May
1, 1998, and on the same day of each month thereafter until fully paid. In any
event, all principal and accrued interest shall be due and payable on April 30,
2002.
SCHEDULED PAYMENT ADJUSTMENT (FOR VARIABLE INTEREST RATE LOANS ONLY). At Bank's
option and with notice to Borrower, the scheduled payment amount will increase
as is necessary (i) to pay all accruals of interest for the period and previous
periods and (ii) to maintain principal repayment according to the amortization
that would have occurred if the Interest Rate in effect on the date of this
Note had remained constant. The increased payment amount shall remain in effect
for as long as the original scheduled payment amount is insufficient to pay
accrued interest and principal and shall be further adjusted upward or downward
to reflect changes in the variable interest rate. The scheduled payment amount
will not be reduced below the original scheduled payment amount.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, and any letters of credit issued
pursuant to any loan agreement executed in connection with this Note, any
applications for such letters of credit and any other documents executed in
connection therewith, and may include, without limitation, a commitment letter
that survives closing, a loan agreement, this Note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any renewals or modifications, whenever any
of the foregoing are executed, but does not include swap agreements (as defined
in 11 U.S.C. Section 101).
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations under any other Loan
Document(s), and all obligations under any swap agreements as defined in 11
U.S.C. Section 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying late charge
shall not be deemed a waiver of Bank's right to collect such late charge or to
collect a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office or Bank first shown above is located, the
late charge of the state where the real property is located shall apply to this
Note and the late charge shall be the highest amount allowable under such laws.
If no amount is stated thereunder, the late charge shall be 5% of each payment
past due for 10 or more days.
Page 2
<PAGE> 3
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default (however denominated) under this Note
or any other Loan Documents. False Warranty. A warranty or representation made
or deemed made in the Loan Documents or furnished Bank in connection with the
loan evidenced by this Note proves materially false, or if a continuing nature,
becomes materially false. Cross Default. At Bank's option, any default in
payment or performance of any obligation under any other loans, contracts or
agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general
partner of or the holder(s) of the majority ownership interests of Borrower
with Bank or its affiliates ("Affiliate" shall have the meaning as defined in
11 U.S.C. Section 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock
is owned directly or indirectly by Borrower). Cessation; Bankruptcy. The death
of, appointment of guardian for, dissolution of, termination of existence of,
loss of good standing status by, appointment of a receiver for, assignment for
the benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against the Borrower, its Subsidiaries or Affiliates, if any,
or any general partner of or the holder(s) of the majority ownership interests
of Borrower, or any party to the Loan Documents. Material Capital Structure or
Business Alteration. Without prior written consent of Bank, (i) a material
alteration in the kind or type of Borrower's business or that of Borrower's
Subsidiaries or Affiliates, if any; (ii) the sale of substantially all of the
business or assets of Borrower, any of Borrower's Subsidiaries or Affiliates or
guarantor or a material portion (10% or more) of such business or assets if
such a sale is outside the ordinary course of business of Borrower, or any of
Borrower's Subsidiaries or Affiliates or any guarantor or more than 50% of the
outstanding stock or voting power of or in any such entity in a single
transaction or a series of transactions; (iii) the acquisition of substantially
all of the business or assets or more than 50% of the outstanding stock or
voting power of any other entity; or (iv) should any Borrower, or any
Borrower's Subsidiaries or Affiliates or guarantor enter into any merger or
consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: Bank
Lien. Foreclose its security interest or lien against Borrower's accounts
without notice. Acceleration Upon Default. Accelerate the maturity of this Note
and all other Obligations, and all of the Obligations shall be immediately due
and payable. Cumulative. Exercise any rights and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity.
Page 3
<PAGE> 4
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower authorizes Bank
to debit its demand deposit account number 2030000971835 or any other account
with Bank (routing number 021101108) designated in writing by Borrower,
beginning May 1, 1998 for any payments due under this Note. Borrower further
certifies that Borrower holds legitimate ownership of this account and
preauthorizes this periodic debit as part of its right under said ownership.
LOAN AGREEMENT. This Note is subject to the provisions of that certain Loan
Agreement between Bank and Borrower dated ------------, 1998 as modified from
time to time.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
other person liable under this Note or other Loan Documents, all without notice
to or consent of each Borrower or each person who may be liable under this Note
or other Loan Documents and without affecting the liability of Borrower or any
person who may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents shall prohibit Bank from pledging or assigning this Note or any of the
Loan Documents or any interest therein to any Federal Reserve Bank. Borrower
shall not assign its rights and interest hereunder without the prior written
consent of Bank, and any attempt by Borrower to assign without Bank's prior
written consent is null and void. Any assignment shall not release Borrower from
Obligations. Applicable Law; Conflict Between Documents. This Note and other
Loan Documents shall be governed by and construed under the laws of the state
named in Bank's address shown above without regard to that state's conflict of
laws principles. If the terms of this Note should conflict with the terms of the
loan agreement or any commitment letter that survives closing, the terms of this
Note shall control. Borrower's Accounts. Except as prohibited by law, Borrower
grants Bank a security interest in all of Borrower's accounts with Bank and any
of its affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive
personal jurisdiction in the state named in Bank's address shown above.
Severability. If any provision of this Note or of the other Loan Documents shall
be prohibited or invalid under applicable law, such provision shall be
ineffective but only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note or other such document. Notices. Any notices to Borrower shall be
sufficiently given, if in writing and mailed or delivered to the Borrower's
address shown above or such other address as provided hereunder, and to Bank, if
in
Page 4
<PAGE> 5
writing and mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time. In the event
that Borrower changes Borrower's address at any time prior to the date the
Obligations are paid in full, Borrower agrees to promptly give written notice
of said change of address by registered or certified mail, return receipt
requested, all charges prepaid. PLURAL; CAPTIONS. All references in the Loan
Documents to Borrower, guarantor, person, document or other nouns of reference
mean both the singular and plural form, as the case may be, and the term
"person" shall mean any individual, person or entity. The captions contained in
the Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. BINDING CONTRACT. Borrower by
execution of and Bank by acceptance of this Note agree that each party is bound
to all terms and provisions of this Note. ADVANCES. Bank in its sole discretion
may make other Advances under this Note pursuant hereto. POSTING OF PAYMENTS.
All payments received during normal banking hours after 2:00 p.m. local time at
the office of Bank first shown above shall be deemed received at the opening of
the next banking day. JOINT AND SEVERAL OBLIGATIONS. Each Borrower is jointly
and severally obligated under this Note. FEES AND TAXES. Borrower shall
promptly pay all documentary, intangible recordation and/or similar taxes on
this transaction whether assessed at closing or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan
Documents ("Disputes") between or among parties to this Note shall be resolved
by binding arbitration as provided herein. Institution of a judicial proceeding
by a party does not waive the right of that party to demand arbitration
hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration,
claims brought as class actions, claims arising from Loan Documents executed in
the future, or claims arising out of or connected with the transaction
reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000.00. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney. Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with an arbitration proceeding or after
an arbitration action is brought. Bank and Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power
of sale granted under Loan Documents or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment.
Page 5
<PAGE> 6
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS NOTE ARE COMMERCIAL TRANSACTIONS AND HEREBY
VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
Trudy Corporation d/b/a TMC Soundprints
Taxpayer Identification Number: 06-1007765
CORPORATE By: /s/ William W. Burnham
SEAL ----------------------------------------------
William W. Burnham, President
Page 6
<PAGE> 1
Exhibit: 10.23FT
AGREEMENT
FOR
PURCHASE AND SALE
OF
ASSETS
THIS AGREEMENT is made as of the 29th day October 1997, by and between
Newtech Consulting, Inc., an Arizona corporation ("Seller") and Futech
Educational Products, Inc., an Arizona corporation ("Buyer").
R E C I T A L S:
A. Seller owns the intellectual and other property identified on
Exhibit "A" attached hereto and hereby made a part hereof (collectively the
"Assets").
B. Seller hereby sells to Buyer, and Buyer hereby purchases from
Seller, the Assets, in accordance with the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
T E R M S:
1. Purchase and Sale. Seller hereby sells to Buyer, and Buyer hereby
purchases from Seller, the Assets, including all rights of Seller relating
thereto.
2. Purchase Price. The purchase price for the Assets shall be the sum
of $2,000,000.00, payable pursuant to a Promissory Note in the form of Exhibit
"B" attached hereto and hereby made a part hereof, plus 3,000,000 shares of
common stock of Buyer. Simultaneously with the execution of this Agreement,
Buyer shall execute and deliver to Seller: (i) said Promissory Note, and (ii) a
UCC-1 Financing Statement evidencing the lien against Buyer's assets granted in
Section 8 of said Promissory Note, in form sufficient for filing with the
Arizona Secretary of State. Simultaneously with the execution of this Agreement,
Buyer will issue to Seller 3,000,000 shares of Buyers common stock.
3. Representations and Warranties. Seller hereby represents and
warrants as follows:
3.1 Authority. Seller has the power and authority to enter
into and perform its obligations under this Agreement, and the Board of
Directors of Seller has approved, authorized, and ratified the
execution and delivery of this Agreement, and of the documents herein
required to consummate the transaction contemplated herein.
3.2 Liens. The Assets are free and clear of any and all liens
and encumbrances.
<PAGE> 2
Agreement for Purchase and Sale of Assets
Page 2
3.3 Litigation. To the knowledge of Seller, there is no
litigation, proceedings, or investigation pending or threatened against
Seller or the Assets.
3.4 Judgements Against Seller and/or Assets. Neither Seller
nor the Assets are any governmental investigation, no such
investigation has been threatened, and there are no judgments against
Seller or the Assets.
3.5 Patents. There is no litigation pending or threatened with
respect to the patents included in the Assets, there is no outstanding
order, judgment, decree or stipulation affecting the validity or
enforceability of said patents, there exits no outstanding notices of
infringement given by Seller regarding the patents, there are no
pending interferences or other contested proceedings pending, or that
are in the process of being instituted, in the United States Patent
Office or in the courts, relating to said patents, and, to the best
knowledge of Seller, none of the patents are presently being infringed.
4. Governing Law: Jurisdiction. The courts of the State of Arizona
shall have the sole and exclusive jurisdiction and venue in any case or
controversy arising under this Agreement or by reason of this Agreement. The
parties agree that any litigation or arbitration arising from the interpretation
or enforcement of this Agreement shall be only in either Maricopa County
Superior Court or in the United States Federal District Court for the District
of Arizona, and for this purpose each party to this Agreement (and each person
who shall become a party) hereby expressly and irrevocably consents to the
jurisdiction and venue of such courts.
5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
6. Entire Agreement. Except as otherwise set forth herein, this
Agreement constitutes the entire agreement between the parties which respect to
the subject matter hereof, and supersedes all prior understandings, if any, with
respect thereto.
7. Further Assurances. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm any
agreement contained herein in the manner contemplated hereby.
8. Modification. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
9. Severability. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be
<PAGE> 3
Agreement for Purchase and Sale of Assets
Page 3
deemed severed from this Agreement, and the remaining parts hereof shall remain
in full force and effect as fully as though such invalid, illegal or
unenforceable portion had never been a part of this Agreement.
10. Counterparts, Facsimile Signatures. This Agreement may be executed
by the parties in one or more counterparts, and any number of counterparts
signed in the aggregate by the parties shall constitute a single instrument. The
parties authorize and agree to accept facsimile signatures in counterparts to
this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were original signatures.
11. Attorney's Fees. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement, or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party(s) of such action or
proceeding shall be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorneys' fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
12. Paragraph Titles and Headings. The titles and headings of sections
of this Agreement are for the convenience of reference only, and are not
intended to define, limit, or describe the scope or intent of any provision of
this Agreement, and shall not affect the construction of any provision of this
Agreement.
13. Miscellaneous. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
SELLER: Newtech Consulting, Inc.
an Arizona corporation
By /s/ Stephen McTaggart
------------------------------------
Stephen McTaggart, President
<PAGE> 4
Agreement for Purchase and Sale of Assets
Page 4
BUYER: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
------------------------------------
Vincent W. Goett, Chairman & CEO
List of Exhibits:
Assets Transferred "A"
Promissory Note "B"
<PAGE> 5
EXHIBIT A
NEWTECH, INC.
PATENTS PENDING:
Gameboard ?? U.S. PCT and EPO filings ??
---- ----
Race Track ?? U.S. only ??
---- ----
Printed Speakers ?? U.S. provisional stage ??
---- ----
Printed Batteries ?? U.S. provisional stage ??
---- ----
DISCLOSURE PHASE
Calendar ??
----
Scroll Toy ??
----
Musical Chairs ??
----
Tri-fold gameboard ?? May be filed under a CIP with gameboard above.
----
(Bubba, School House format) ??
----
SEARCHES PENDING
Doll House ??
----
Piano Keyboard ??
----
<PAGE> 6
EXHIBIT "B"
(PROMISSORY NOTE)
<PAGE> 1
Exhibit: 10.23T
LEASE AGREEMENT
between
NOREAST MANAGEMENT LLC
and
TMC/SOUNDPRINTS, INC.
NORWALK, CONNECTICUT June 19, 1996
<PAGE> 2
LEASE AGREEMENT
This Lease Agreement is entered into this th day of March, 1996 by and between
Noreast Management LLC with an office at 353 Main Avenue, Norwalk, Connecticut
06851-1552 (hereinafter referred to as "Lessor") and TMC/Soundprints Inc., a
division of Trudy Corporation, with an office at 165 Water Street, South
Norwalk, Connecticut 06854 (hereinafter referred to as "Lessee").
1. Description of the Premises
Lessor leases to Lessee the entire building, approximately 26,000
square feet, located at 353 Main Avenue, Norwalk, Connecticut 06851
(the "building") together with the entire parking lot consisting of
approximately 65 parking spaces (such building, parking lot, and the
remainder of the land upon which the building sits, hereinafter
referred to as the "premises").
2. Representations and Warranties
The Lessor represents and warrants that it is a duly constituted and
validly existing limited liability corporation organized under the laws
of Connecticut and has power to enter into and perform this Lease
Agreement. This Agreement constitutes a valid and legally binding
obligation of the Lessor, enforceable according to its terms. Neither
the execution and delivery of this Lease Agreement, the consummation of
the transactions contemplated hereby, nor the fulfillment by the Lessor
of or compliance by the Lessor with the terms and conditions hereof is
prevented or limited by or conflicts with or results in a breach of any
provision contained in the partnership agreement which creates and
establishes the Lessor.
The Lessee represent and warrants that it is a duly constituted and
validly existing corporation, organized under the laws of the State of
Delaware and has power to enter into and perform this Lease Agreement.
This Agreement constitutes a valid and legally binding obligation to
the Lessee, enforceable according to its terms. Neither the execution
and delivery of this Lease Agreement, the consummation of the
transactions contemplated hereby, nor the fulfillment by the Lessee of
or compliance by the Lessee with the terms and conditions hereof is
prevented or limited by or conflicts with or results in a breach of the
Certificate of Incorporation and By-laws of the Lessee.
3. Compliance with Laws
(a) Lessee shall, at Lessee's sole cost and expense, promptly comply
with all present and future laws, orders, and regulations of all state,
federal, municipal and local governments, departments, commissions, and
boards and any direction of any public officer pursuant to law with
respect to the building and premises if arising out of Lessee's use or
manner of use of the premises or the building. Without limiting the
foregoing, Lessee agrees that (i) it has not prior to the execution of
this lease conducted or permitted, and will not at any time during the
term of this lease conduct or permit, any operations or activity on the
premises which results in the discharge of hazardous waste (as defined
in any applicable Federal or Connecticut statute or
2
<PAGE> 3
regulation) on the premises or the pollution (as defined in any
applicable Federal or Connecticut statute or regulation) of surface
water, ground water or soil on the premises, (ii) it has not prior to
the execution of this lease conducted or permitted, and will not at any
time during the term of this Lease conduct or permit, any operations or
activity on the premises which result in the premises constituting an
"establishment" as defined in the Connecticut Transfer Act, (iii) it
has not prior to the execution of this lease permitted and will not
will not at any time during the term of this Lease permit, the presence
or installation of asbestos containing materials on the premises, and
(iv), should any of the foregoing covenants be breached, it will
remediate the contamination in satisfaction of all applicable Federal
and Connecticut statutes and regulations. Lessee shall not do or permit
any renovations or alterations to the premises or any act or thing to
be done in or to the premises which is contrary to law, including all
applicable laws, regulations and codes of the City of Norwalk and any
other governmental entity with jurisdiction over the premises, relating
to building, renovating or altering the premises and to public health
and safety, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by
Lessee for the benefit of the Lessor. Lessee represents and warrants
that all renovations and alterations made heretofore to the premises
have been, and that all renovations and alterations made hereunder will
be, in compliance with all such applicable laws, regulations and codes.
Lessee shall not bring or permit to be brought or kept in or on the
premises, any inflammable, combustible, or explosive fluid, material,
chemical, or substance, with the exception of routine chemicals used in
office cleaning and machinery maintenance, or cause or permit any odors
of cooking or other process, or any unusual or other objectionable
odors to permeate from the premises. Lessee agrees to indemnify and
hold Lessor harmless against, and to pay all costs, expenses, fines,
penalties, or damages, which may be imposed upon the Lessor or which
the Lessor may suffer by reason of Lessee's breach of any provision of
this Article 3.
(b) Lessee shall perform and observe the terms and conditions to be
performed on the part of the Lessee under the provisions of this Lease
Agreement. Payment of rent shall be in accordance with Paragraph 10 of
this Lease. Lessee shall not commit or permit to be committed on the
premises by Lessee or any other person any act or omission which shall
violate any material term or condition of the Lease.
4. Subordination
This Lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to
all renewals, modifications, consolidations, replacements, and
extensions of any such underlying leases and mortgages. This clause
shall be self-operative and no further instrument of subordination
shall be required by any ground or underlying Lessor or by any
mortgagee, affecting any lease or the real property of which the
demised premises are a part. In confirmation of such subordination,
Lessee shall execute promptly any certificate that Lessor may request.
3
<PAGE> 4
5. Eminent Domain
If the whole or any part of the demised premises shall be acquired by
Eminent Domain for any public or quasi public use or purpose, then and
in that event, the term of this Lease shall cease and terminate from
the date of title vesting in such proceeding and Lessee shall have no
claim for the value of any unexpired term of said Lease.
6. Destruction
(a) If the leased premises or any part thereof shall be damaged by fire
or other casualty, Lessee shall give immediate notice thereof to Lessor
and this Lease shall continue in full force and effect except as
hereinafter set forth.
(b) If the leased premises are partially or totally damaged or rendered
partially or totally unusable by fire or other casualty, Lessee shall
give immediate notice thereof to Lessor and this Lease shall continue
in full force and effect, and the damage thereto shall be repaired, or
the premises shall be fully restored and rebuilt, by and at the expense
of the Lessee.
(c) Nothing contained above shall relieve Lessee from liability that
may exist as a result of damage from fire or other casualty.
7. Assignment
Lessee, for itself, its heirs, executors, administrators, legal
representatives, successors and assigns expressly covenants that it
shall not assign, mortgage, or encumber this agreement, nor sublet, or
suffer or permit the leased premises or any part thereof to be used by
others, without prior written consent of Lessor in each instance; which
consent will not be unreasonably withheld. If this Lease be assigned,
or if the leased premises or any part thereof be sublet or occupied by
anybody other than the Lessee, Lessor may, after default by Lessee,
collect rent from the assignee, sub-tenant, or occupant as tenant. In
no event, however, shall Lessee be relieved of its obligation to pay
the full amount of rent due under this Lease. The consent by Lessor to
an assignment or subletting shall not in any wise be construed to
relieve Lessee from obtaining the express written consent of Lessor to
any further assignment or subletting.
8. Examination of Premises and Repairs
(a) Neither Lessor nor Lessor's agents have made any representations or
promises with respect to the building, the land upon which it is
erected or the leased premises, the rents, expenses of operation, or
any other matter or thing affecting or related to the premises except
as herein expressly set forth and no rights, easements or licenses are
acquired by Lessee by implication or otherwise except as expressly set
forth in the provisions of this Lease. The Lessee has inspected the
building and the leased premises and is thoroughly acquainted with
their condition, and agrees to take the Premises in "as is" condition
after certain repairs and improvements are effected at the expense of
the Lessor. Lessee further acknowledges that the taking of possession
of the leased premises by Lessee shall be conclusive evidence that the
said
4
<PAGE> 5
premises and the building of which the same form a part, were in good
and satisfactory condition at the time such possession was so taken.
(b) Lessee, unless herein specified to the contrary, shall maintain all
portions of the building, both exterior and interior. Throughout the
term of this Lease, Lessee shall take good care of the leased premises
and the fixtures and appurtenances therein, and at its sole cost and
expense, make all non-structural repairs thereto as and when needed to
preserve them in good working order and condition. Lessee shall also,
at its sole cost and expense, make all structural building repairs
related to Lessee's occupancy. All such repairs shall be made in
accordance with all applicable laws, regulations and codes of the City
of Norwalk and any other governmental entity with jurisdiction over the
premises. If the leased premises be or become infested with vermin,
Lessee shall at Lessee's expense, cause the same to be exterminated
from time to time to the satisfaction of the Lessor. Except as
specifically provided elsewhere in the Lease Agreement, there shall be
no allowance to the Lessee for the diminution of rental value and no
liability on the part of the Lessor by reason of inconvenience,
annoyance or injury to business arising from Lessor, Lessee or others
making or failing to make any repairs, alterations, additions, or
improvements in or to any portion of the building, or in or to the
leased premises or the fixtures, appurtenances or equipment thereof.
The provisions of this Paragraph 8 (b) with respect to the making of
repairs shall not apply in the case of fire or other casualty which are
dealt with elsewhere.
9. Term
The Premises are leased for an eight (8) year term commencing on July
1, 1996 and ending June 30, 2004 unless sooner terminated as
hereinafter provided.
10. Rent
(a) In consideration of the premises, the Lessee agrees to pay to the
Lessor as rent for the premises $110,000.00 per annum (equivalent to
$4.15 per square foot per annum). All rent shall due and payable in
advance in equal monthly installments of $9,166.67, on the 1st day of
each and every calendar month during said term at 353 Main Avenue,
Norwalk, CT 06851-1552, or at such other place, as the Lessor may
designate. Monthly rental for any partial month shall be prorated at
the rate of 1/30th of monthly rental per day.
(b) The Lessee shall be responsible for cleaning and daily maintenance
of the leased premises and surrounding property including payment for
trash removal, pallet disposal, graffiti removal, snow plowing and
removal, sanding of ice on the parking lot and sidewalks, cutting of
grass, and maintenance of planting beds, shrubs and trees.
(c) The Lessee shall pay local property taxes due and owing on the
property as of the date of this lease. Further, the Lessee shall be
responsible for all real property taxes. Lessee shall pay promptly such
sum upon written notification from Lessor.
(d) Lessee shall pay all utility bills, and fire and security alarm
service bills.
5
<PAGE> 6
(e) The lessee shall be responsible for day to day maintenance on the
building, including repairs to the facility, the heating and cooling
system, window repair, plumbing, and the like. The lessor shall be
responsible for repair of the roof.
11. Use
Lessee shall use and occupy the premises only for office use, storage,
light assembly and other uses normally connected therewith and for
other purposes that will not impair the appearance, character, or
reputation of the building and premises.
12. Alterations. Additions and Improvements
Lessee shall not make any alterations, additions, or improvements on or
to the premises without first obtaining the written consent of Lessor,
which consent shall not be unreasonably withheld. Any work, performed
by Lessee shall be at Lessee's expense, and Lessee shall use
contractors or mechanics first approved by Lessor, which approval shall
not be unreasonably withheld. All fixtures and all paneling,
partitions, railing and like installations, installed in the premises
at any time by Lessee shall, upon installation, become the property of
Lessor and shall remain upon and be surrendered with the leased
premises unless Lessor, by notice to Lessee no later than twenty days
prior to the date fixed as the termination of the Lease, elects to
relinquish Lessor's rights thereto and to have them removed by Lessee,
in which event, the same shall be removed from the premises by Lessee
on or before the expiration of the Lease, at Lessee's expense. Nothing
contained in this provision shall prevent Lessee from removing all
office furniture or machines, equipment, and trade fixtures customarily
used in the business of the Lessee. Notwithstanding the foregoing, at
the expiration of the term of this Lease, any alterations, additions or
improvements shall be removed at Lessee's expense, if so requested by
Lessor, and Lessee shall repair and restore any damage to the leased
premises or the building due to such removal. Lessee agrees that all
work performed under this Article 12 shall be in compliance with all
applicable laws, including all applicable laws, regulations, and codes
of the City of Norwalk and any other governmental entity with
jurisdiction over the premises.
13. Access to Premises
(a) Lessor or Lessor's agents shall have the right (but shall not be
obligated) to enter the leased premises in any emergency at any time,
and, at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Lessor may deem necessary
and reasonably desirable to any portion of the building or which Lessor
may elect to perform, in the premises, following Lessee's failure to
make repairs or perform any work which Lessee is obligated to perform
under this Lease, or for the purpose of complying with laws,
regulations, and other directions of governmental authorities. Lessee
shall promptly reimburse Lessor for Lessor's costs and expenses,
including the value of the time spent by Lessor's employees, in making
such repairs, replacements and improvements.
(b) Throughout the term hereof, Lessor shall have the right to enter
the leased premises at reasonable hours for the purpose of showing
the same to prospective purchasers or mortgagees of the building, and
during the last six months of the term for the purpose of showing the
same
6
<PAGE> 7
to prospective tenants and may, during said six (6) month period, place
upon the premises the usual notice "to let" and "for sale" which
notices Lessee shall permit to remain without molestation.
14. Brokerage
Lessee represents that in the negotiation of this Lease, it has dealt
with no brokers.
Lessor represents that in the negotiation of this Lease, it has dealt
with no brokers.
15. Indemnification and Insurance
Lessor or its agents shall not be liable for any injury to persons or
damage to property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain, ice, or snow or leaks from any
part of the building of which the leased premises are a part or from
pipes, appliances or plumbing works or from the roof, street, or
sub-surface or from any other place or by dampness or by any other
cause of whatsoever nature unless through the gross negligence of
Lessor, its agents, servants, or employees. Lessee shall, during the
entire term hereof, keep in full force and effect with a reputable
insurance company a policy of general public liability and property
damage insurance in standard form in favor of Lessor and Lessee against
claims for bodily injury or death or property damage occurring in or
upon the leased premises, effective from the date Lessee enters into
possession of the leased premises. Such insurance shall be in the
amount of not less than $5,000,000 combined single limit coverage for
bodily injury and property damage issued by carriers acceptable to the
Lessor. Certificate(s) evidencing such insurance coverage listing
Noreast Management LLC as Additional Insured, respects being building
owner and landlord, shall be delivered to Lessor not later than the
commencement of the term of this Lease and annually thereafter and
shall contain a clause that the insurer will not cancel or materially
change the insurance without first giving the Lessor thirty days prior
written notice.
Lessee shall, during the entire term hereof, keep in full force and
effect with a reputable insurance company, (i) a fire and all other
perils insurance policy in standard form, providing replacement cost
coverage of the building (which coverage shall be no less than
$2,700,000) and in an amount sufficient to avoid penalty under any
co-insurance clause, and (ii) a loss of rent insurance policy, in
standard form, providing for coverage of not less than $500,000 per
annum. Noreast Management LLC shall be named as Additional Insured,
respects being building owner and landlord, in both policies described
at (i) and (ii), above. Certificate(s) of insurance evidencing such
coverage shall be delivered to Lessor not later than the commencement
of the term of this Lease and annually thereafter and shall contain a
clause that the insurer will not cancel or materially change the
insurance without first giving the Lessor thirty days prior written
notice.
Lessee shall indemnify and save harmless Lessor, its partners and
agents against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses, including reasonable attorneys'
fees, paid, suffered, or incurred by Lessor, its partners and agents,
as a result of (i) any breach by Lessee, Lessee's agents, contractors,
employees, invitees, or licensees, of any
7
<PAGE> 8
covenant, condition, representation or warranty contained in this
Lease, or (ii) the negligence of the Lessee, Lessee's agents,
contractors, employees, invitees, or licensees, or (iii) any injury to
persons or damage to property resulting from any of the causes set
forth in the first sentence of the first paragraph of this Article 17.
In case any action is brought against Lessor, its partners or agents,
by reason of any such claim, Lessee, upon written notice from Lessor,
will at Lessee's expense, resist or defend such action or proceeding by
Counsel of Lessee's choosing and Lessor's consent shall not be
unreasonably withheld. Lessee shall conduct the defense of such action
or proceeding, including settlement thereof, in good faith and in a
manner protective of Lessor's interest. No settlement of any such
action or proceeding may be made without Lessor's consent, which shall
not unreasonably be withheld.
16. Notices
In every instance where it shall be necessary or desirable for the
Lessor to serve any notice or demand upon Lessee, such notice or demand
shall be deemed sufficiently given or made if in writing and mailed to
Lessee by registered or certified United States mail, postage prepaid,
or overnight nationally recognized carrier addressed to Lessee at the
Premises. Any notice by Lessee to Lessor must be sent by registered or
certified United States mail, postage prepaid, or overnight nationally
recognized carrier. Each party may by written notice designate an
alternative address for service of notice. All notices shall be sent to
the addresses below:
If to Lessee: TMC/Soundprints Inc.
353 Main Avenue
Norwalk, CT 06851-1552
If to Lessor: Noreast Management LLC
35") Main Avenue
Norwalk, CT 06851-1551
17. Default
(a) If the Lessee shall fail to pay the monthly rental charge when due
and such default shall not have been fully cured within fifteen (15)
business days of such due date, or if Lessee defaults in the prompt and
full performance of any other material provision of this Lease and said
default is not corrected within thirty (30) days after written notice
from Lessor to Lessee of said default, then and in any such event the
Lessor may, upon five (5) days written notice, terminate this Lease and
Lessee's right to possession thereunder, and Lessor may re-enter the
premises. In such event, this Lease shall end and expire as fully and
completely as if the expiration of such five (5) day period were the
date herein definitely fixed for the end and expiration of this Lease
and the term thereof and Lessee shall remain liable as hereinafter
8
<PAGE> 9
provided.
(b) If Lessee becomes insolvent, or if there shall be filed by or
against Lessee in any court pursuant to any statute either of the
United States or of any state a petition in bankruptcy or insolvency or
for the reorganization or for the appointment of a receiver or trustee
of all or a portion of Lessee's property, and within thirty (30) days
thereof Lessee fails to secure a discharge thereof or if Lessee makes
an assignment for the benefit of creditors, this Lease shall ipso facto
be canceled and terminated. In which event neither Lessee nor any
person claiming through or under Lessee or by virtue of any statute or
of an order of any court shall be entitled to possession of the leased
premises and Lessor, in addition to the rights and remedies given
herein and by virtue of any other provision elsewhere in this Lease or
by virtue of any statute or rule of law, may retain as liquidated
damages any rent, security, deposit or moneys received by it from
Lessee or others in behalf of Lessee upon the execution hereof.
(c) Lessee expressly waives any right of redemption. Notwithstanding
any re-entry, the liability of Lessee for the rent shall not be
extinguished for the balance of the term thereof.
(d) In the event of a termination of this Lease, Lessor shall be
entitled to recover from the Lessee or Lessee's legal representatives,
as liquidated damages, the sum of (a) the rent then due and additional
rent payable for the remainder of the term of this Lease, and (b) all
reasonable expenses of Lessor incurred in recovering possession of the
premises and relating to the same including reasonable costs of
repairing and renovating the Premises, rent discounts and concessions
for future tenants, and reasonable attorney's and broker's fees, less
(c) the net amount if any, of the rents collected on account of the
subsequent lease or leases of the leased premises for each month of the
period which would otherwise have constituted the balance of the term
of this Lease. The failure of Lessor to re-let the Premises or any part
or parts thereof shall not release or affect Lessee's liability for
damages. In no event shall Lessee be entitled to receive any excess of
net rent collected over the sums payable by Lessee to Lessor hereunder.
Lessor agrees to use its best efforts to mitigate any damage which may
be payable by Lessee pursuant to this subparagraph.
18. Lessee's Obligations under Lease
Lessee warrants to Lessor that it has and will comply in all respects
in the prompt and full performance of all of Lessee's obligations under
the Lease, and shall continue during the term of this Lease to pay to
Lessor the rent as required under this Lease.
19. Successors and Assigns
The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Lessor and Lessee and their respective
heirs, distributees, executors, administrators, successors, and except
as otherwise provided in this Lease, their assigns.
The undersigned Lessee acknowledges that this Lease is made for
commercial purposes and waives any right of notice and hearing under
Section 52-278(a) and 52-278(n) of the Connecticut General Statutes, as
now or hereafter amended, or any successor act thereto, and
9
<PAGE> 10
authorizes the attorney for Lessor to issue a writ for prejudgment
remedy without court order. The undersigned Lessee acknowledges being
engaged primarily in commercial pursuits and that this Lease is made in
connection with the undersigned's business activities.
20. Holding Over
Any holding over at the expiration of this Lease with the consent of
the Lessor shall be on a month-to-month basis, which tenancy may
thereafter be terminated as provided by the laws of the State of
Connecticut. During any holdover tenancy, Lessee shall pay the same
rate of rental on a monthly basis as is in effect at the time of
termination of this Lease, unless otherwise agreed upon, and both
parties shall be bound by all the terms and conditions of this Lease.
21. Costs of Litigation
Subject to Section 24 hereof, if any legal action is instituted to
enforce this Lease, the prevailing party shall be entitled to recover
reasonable attorneys' fees and court costs from the other party. If
Lessee defaults in the observance or performance of any material term
or covenant of this Lease, then, unless otherwise provided for in this
Lease, Lessor may immediately or at any time thereafter and without
notice perform the obligation of Lessee thereunder and if Lessor, in
connection therewith or in connection with any default by Lessee in the
covenant to pay rent hereunder, makes any expenditures for legal fees,
in instituting, prosecuting, or defending any actions or proceeding,
such sums so paid or obligations incurred with interest and costs shall
be deemed additional rent hereunder and shall be paid by Lessee within
five (5) days of rendition of any bill or statement therefor, and if
Lessee's lease term shall have expired at the time of such
expenditures, such sums shall be recoverable by Lessor as damages.
22. Termination and Surrender
Lessee shall surrender the premises on the last day of the term of the
Lease. Lessor shall have the right to place and maintain on the
premises "For Rent" and "For Sale" signs during the last six (6) months
of the term of this Lease. Lessee shall, at the expiration of the
Lease, surrender the keys to the premises to Lessor.
23. Severability
If any provision of this Lease or any application thereof shall be
invalid or unenforceable, the remainder of this Lease and any other
application of such provision shall not be affected thereby.
10
<PAGE> 11
24. Quiet Enjoyment
Upon due performance by Lessee of its covenants and agreements under
this Lease, Lessor covenants the Lessee shall and may at all times
peaceably and quietly have, hold, and enjoy the leased premises during
the Lease term. Notwithstanding anything in the Agreement to the
contrary, if this covenant of quiet enjoyment is breached and Lessee is
made a party to any legal proceedings affecting its right of possession
or if Lessee is unable to use and enjoy the leased premises due to the
action of the Connecticut Development Authority, Chase Bank of
Connecticut (the Trustee), or any action constituting bondholder
eviction. Lessor shall reimburse Lessee for all reasonable attorneys'
fees and other expenses incurred by it in defending its right to this
Lease and for all losses, damages, and other expenses arising out of
any such breach of this covenant of quiet enjoyment. Notwithstanding
anything in this Lease Agreement to the contrary, Lessee may apply all
such fees, expenses, losses, and damages to the rent due or to become
due.
25. Headings
The Article headings are for convenience and reference only and shall
not be used to limit or otherwise affect the meaning of any provision
of this Lease.
26. Governing Law
This Lease shall be construed in accordance with and governed by the
laws of the State of Connecticut.
27. Relationship of Parties
Lessor and Lessee shall not be considered or deemed to be joint
venturers or partners and neither shall have the power to bind or
obligate the other except as set forth herein.
28. Modification
No changes, additions, or interlineation made to this Lease shall be
binding unless initialed by both parties.
29. Entire Agreement
This Lease supersedes all agreements previously made between the
parties relating to this subject matter, other than the Lease currently
effective, between the parties, covering a portion
11
<PAGE> 12
of the premises. With the exception of the currently effective Lease,
there are no other understandings or agreements between them.
IN WITNESS WHEREOF, Lessor and Lessee have signed this Lease this __th day of
June, 1996.
TMC/SOUNDPRINTS INC. NOREAST MANAGEMENT LLC
/s/ Peter P. Ogilvie /s/ William W. Burnham
- ----------------------------- -----------------------------------
Peter P. Ogilvie William W. Burnham
Vice President, Finance Member
Date: 6/19/96 Date: 6/19/96
------------------------ ------------------------------
12
<PAGE> 1
Exhibit: 10.24FT
PROMISSORY NOTE
$2,000,000.00 As of 29th October, 1999
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Futech Educational
Products, Inc. an Arizona corporation ("Maker") to the order of Newtech
Consulting, Inc., an Arizona corporation ("Payee").
1. Payment. For value received, Maker promises to pay to Payee or
Payee's order without offset, the principal sum of Two Million Dollars
($2,000,000.00), in full, on the earlier to occur of (i) one day after the
closing of Maker's Initial Public Offering (the "IPO Closing") or (ii) April 30,
1998. Interest will not be charged on outstanding principal unless the principal
is not paid in full as described in the preceding sentence, in which event the
principal will accrue interest calculated at ten percent (10%) per annum.
Principal and interest are payable in lawful money of the United States
of America at 2025 9th Street, Los Osos, California 93402, or at such other
address as the holder hereof made from time to time designate in writing. At
Maker's election, Maker may from time to time designate in writing. At Maker's
election, Maker may pay the amount due under this Note by transferring to Payee
Futech Stock with value equal to the amount due hereunder, valued as of the IPO
Closing at the opening purchase price, payable at the IPO Closing or as soon as
is practicable thereafter. The term "Futech Stock" as used herein means the
publicly traded common stock of Maker (or Maker's successor), after the closing
of the Initial Public Offering of said stock, subject to all of the terms and
restrictions of the Initial Public Offering.
All payments made hereunder shall be applied to interest and principal
in that order. If requested by Payee or the holder of this Note at any time,
Maker shall pay payments due hereunder by cash, cashier's check, or money order
only, and payments in other forms may, in the holder's discretion, be refused
and not accepted.
2. Prepayment. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
3. Interest. All interest payable pursuant to this Note shall be
computed on the basis of a 360-day year. In no event shall the aggregate of the
interest herein provided to be paid over the contractual term of the loan exceed
the highest rate to which a borrower and lender may agree in writing under the
laws of the State of Arizona.
<PAGE> 2
4. Default. If the principal due under this Note, or under any
mortgage, deed of trust, security agreement, or other agreement between Maker
and Payee pertaining to the indebtedness evidenced hereby shall not be paid when
due, or if Maker fails to comply with all of the other terms and conditions of
this Note or any instrument securing this Note, then the entire principal sum,
accrued interest, and all other amounts due hereunder shall, at the option of
Payee, become immediately due and payable without further notice.
5. Collection Costs. Maker agrees to reimburse Payee for all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
in the enforcement or collection of this Note or any judgment obtained hereon.
6. Waiver, Consent, Etc. Maker sureties, guarantors and endorsers
hereof agree to be jointly and severally bound, severally waive any homestead or
exemption rights against said debt, severally waive diligence, demand,
presentment for payment, protest, protest and demand, notice of protest, notice
of nonpayment, notice of default, notice of acceleration, and all other notices
and demands of any kind. Maker, sureties, guarantors and endorsers hereof hereby
severally consent to the extension of time for payment of this Note or any
installment hereof, any modification hereof, release from liability of any
maker, endorser, or any other person or entity at any time liable for the
payment hereof, and the modification or release of any collateral at any time
held as security for this Note, without notice and without affecting the
liability of any maker, guarantor, surety or endorser. Maker further waives, to
the extent permitted by law, the right to plead any and all statutes of
limitations as a defense to any demand on this Note.
Delay or failure in exercising any of Payee's rights or options
hereunder shall not constitute a waiver thereof, and any waiver of any rights or
options hereunder shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default. By accepting payment of any sum
hereunder after its due date, the holder hereof shall not waive its rights
either to require prompt payment when due of all other sums hereunder or to
declare a default for failure to make prompt payment. No waiver by the holder of
this Note shall be effective unless it is in writing and signed by such holder.
7. Severability. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall, to the fullest extent possible, remain in full force and effect,
and such court shall reform such unenforceable provision so as to give maximum
permissible effect to the intentions of the parties as expressed therein.
8. Security. As security for Maker's performance under this Note, Maker
hereby grants Payee a security interest in the assets transferred by Payee to
Maker pursuant to that certain Agreement for Purchase and Sale of Assets, dated
of even date with this Note, executed by Maker and Payee, including but not
limited to the assets identified on Exhibit "A"
2
<PAGE> 3
attached hereto and hereby made a part hereof. In the event of default by Maker
hereunder, Payee shall have all rights with respect to such collateral as are
available to a secured party under the Uniform Commercial Code in the State of
Arizona, as the same may from time to time be changed. Maker agrees to execute
and deliver to Payee and pay the costs of recording financing statements
evidencing this security agreement and other documents necessary or appropriate
to perfect this security interest, and Maker hereby irrevocably appoints Payee
as Maker's attorney-in-fact for the purpose of executing and filing said
financing statements. Maker shall reimburse Payee for all reasonable costs
associated with such filings.
9. Miscellaneous. The provisions of this Note shall be binding upon
Maker and Maker's personal representatives, successors and assigns, and shall
inure to the benefit of Payee and Payee's successors and assigns. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of Arizona. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Note or by reason of this Note. The parties agree that any litigation or
arbitration arising from the interpretation or enforcement of this Note shall be
only in either Maricopa County Superior Court or in the United States Federal
District Court for the District of Arizona, and for this purpose each party to
this Note (and each person who shall become a party) hereby expressly and
irrevocably consents to the jurisdiction and venue of such courts. This Note
shall be construed according to its fair meaning and neither for nor against the
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
------------------------------
Vincent W. Goett, CEO
List of Exhibits:
Asset List "A"
3
<PAGE> 4
EXHIBIT A
NEWTECH, INC.
PATENTS PENDING:
Gameboard ??? U.S., PCT and EPO filings ???
----- -----
Race Track ??? U.S. only ???
----- -----
Printed Speakers ??? U.S. provisional stage ???
----- -----
Printed Batteries ??? U.S. provisional stage ???
----- -----
DISCLOSURE PHASE
Calendar ???
-----
Scroll Toy ???
-----
Musical Chairs ???
-----
Tri-fold gameboard ??? May be filed under a CIP with gameboard above.
-----
(Bubba, School House formats) ???
-----
SEARCHES PENDING
Doll House ???
-----
Piano Keyboard ???
-----
<PAGE> 5
PROMISSORY NOTE
$2,000,000.00 As of 29th October, 199?
Phoenix, Arizona
THIS NOTE is made as of the date stated above by Futech Educational
Products, Inc. an Arizona corporation ("Maker") to the order of Newtech
Consulting, Inc., an Arizona corporation ("Payee").
1. Payment. For value received, Maker promises to pay to Payee or
Payee's order, without offset, the principal sum of Two Million Dollars
($2,000,000.00), in full, on the earlier to occur of (i) one day after the
closing of Maker's Initial Public Offering (the "IPO Closing"), or (ii) April
30, 1998. Interest will not be charged on outstanding principal unless the
principal is not paid in full as described in the preceding sentence, in which
event the principal will accrue interest calculated at ten percent (10%) per
annum.
Principal and interest are payable in lawful money of the United States
of America at 2025 9th Street, Los Osos, California 93402, or at such other
address as the holder hereof may from time to time designate in writing. At
Maker's election, Maker may pay the amount due under this Note by transferring
to Payee Futech Stock with value equal to the amount due hereunder, valued as of
the IPO Closing at the opening purchase price, payable at the IPO Closing or as
soon as is practicable thereafter. The term "Futech Stock" as used herein means
the publicly traded common stock of Maker (or Maker's successor), after the
closing of the Initial Public Offering of said stock, subject to all of the
terms and restrictions of the Initial Public Offering.
All payments made hereunder shall be applied to interest and principal
in that order. If requested by Payee or the holder of this Note at any time,
Maker shall pay payments due hereunder by cash, cashier's check, or money order
only, and payments in other forms may, in the holder's discretion, be refused
and not accepted.
2. Prepayment. Maker has the privilege, at any time, to prepay the
whole or any part of the unpaid balance hereof without penalty or forfeiture.
3. Interest. All interest payable pursuant to this Note shall be
computed on the basis of a 360-day year. In no event shall the aggregate of the
interest herein provided to be paid over the contractual term of the loan exceed
the highest rate to which a borrower and lender may agree in writing under the
laws of the State of Arizona.
<PAGE> 6
4. Default. If the principal due under this Note, or under any
mortgage, deed of trust, security agreement, or other agreement between Maker
and Payee pertaining to the indebtedness evidenced hereby shall not be paid when
due, or if Maker fails to comply with all of the other terms and conditions of
this Note or any instrument securing this Note, then the entire principal sum,
accrued interest, and all other amounts due hereunder shall, at the option of
Payee, become immediately due and payable without further notice.
5. Collection Costs. Maker agrees to reimburse Payee for all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
in the enforcement or collection of this Note or any judgment obtained hereon.
6. Waiver, Consent. Etc. Maker, sureties, guarantors, and endorsers
hereof agree to be jointly and severally bound, severally waive any homestead or
exemption rights against said debt, severally waive diligence, demand,
presentment for payment, protest, protest and demand, notice of protest, notice
of nonpayment, notice of default, notice of acceleration, and all other notices
and demands of any kind. Maker, sureties, guarantors and endorsers hereof hereby
severally consent to the extension of time for payment of this Note or any
installment hereof, any modification hereof, release from liability of any
maker, endorser, or any other person or entity at any time liable for the
payment hereof, and the modification or release of any collateral at any time
held as security for this Note, without notice and without affecting the ability
of any maker, guarantor, surety or endorser. Maker further waives, to the extent
permitted by law, the right to plead any and all statutes of limitations as a
defense to any demand on this Note.
Delay or failure in exercising any of Payee's rights or options
hereunder shall not constitute a waiver thereof, and any waiver of any rights or
options hereunder shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default. By accepting payment of any sum
hereunder after its due date, the holder hereof shall not waive its rights
either to require prompt payment when due of all other sums hereunder or to
declare a default for failure to make prompt payment. No waiver by the holder of
this Note shall be effective unless it is in writing and signed by such holder.
7. Severability. If any provision of this Note or any application of
such provision shall be declared by a court of competent jurisdiction to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other application of such provision nor the balance of the provisions hereof
which shall to the fullest extent possible, remain in full force and effect, and
such court shall reform such unenforceable provision so as to give maximum
permissible effect to the intentions of the parties as expressed therein.
8. Security. As security for Maker's performance under this Note, Maker
hereby grants Payee a security interest in the as transferred by Payee to Maker
pursuant to that certain Agreement for Purchase and Sale of Assets, dated of
even date with this Note, executed by Maker and Payee, including but not limited
to the assets identified on Exhibit "A"
2
<PAGE> 7
attached hereto and hereby made a part hereof. In the event of default by Maker
hereunder Payee shall have all rights with respect to such collateral as are
available to a secured party under the Uniform Commercial Code in the State of
Arizona, as the same may from time to time be changed. Maker agrees to execute
and deliver to Payee and pay the costs of recording financing statements
evidencing this security agreement and other documents necessary or appropriate
to perfect this security interest, and Maker hereby irrevocably appoints Payee
as Maker's attorney-in-fact for the purpose of executing and filing said
financing statements. Maker shall reimburse Payee for all reasonable costs
associated with such filings.
9. Miscellaneous. The provisions of this Note shall be binding upon
Maker and Maker's personal representative successors and assigns, and shall
inure to the benefit of Payee and Payee's successors and assigns. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of Arizona. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Note or by reason of this Note. The parties agree that any litigation or
arbitration arising from the interpretation or enforcement of this Note shall be
only in either Maricopa County Superior Court or in the United States Federal
District Court for the District of Arizona, and for this purpose each party to
this Note (and each person who shall become a party) hereby expressly and
irrevocably consents to the jurisdiction and venue of such courts. This Note
shall be construed according to its fair meaning and neither for nor against the
drafting party. Time is of the essence of this Note and each and every term and
provision hereof.
DATED the date first hereinabove written.
Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
-------------------------------
Vincent W. Goett, CEO
List of Exhibits:
Asset List "A"
3
<PAGE> 8
EXHIBIT A
NEWTECH, INC.
PATENTS PENDING:
Gameboard S.I.M. U.S., PCT and EPO filings S.I.M.
Race Track S.I.M. U.S. only S.I.M.
Printed Speakers S.I.M. U.S. provisional stage S.I.M.
Primed Batteries S.I.M. U.S. provisional stage S.I.M.
DISCLOSURE PHASE
Calendar S.I.M.
Scroll Toy S.I.M.
Musical Chairs S.I.M.
Tri-fold gameboard S.I.M. May be filed under a CIP with gameboard above.
(Bubba, School House formats) S.I.M.
SEARCHES PENDING
Doll House S.I.M.
Piano Keyboard S.I.M.
<PAGE> 1
Exhibit: 10.24T
[THE NATURE CONSERVANCY LETTERHEAD]
December 5, 1994
William W. Burnham
President
Soundprints
165 Water Street
P.O. Box 679
Norwalk, CT 06856
Dear Bill:
This letter of understanding describes our roles in the Soundprints/Nature
Conservancy merchandise licensing program. I trust that it accurately reflects
our discussions and outlines the terms of the arrangement between The Nature
Conservancy, a District of Columbia non profit corporation with its principal
business address at 1815 North Lynn Street, Arlington, Virginia 22209
(hereinafter "TNC"), and Soundprints, a Connecticut publishing corporation
with its principal business address at 165 Water Street, P.O. Box 679, Norwalk,
CT 06856 (hereinafter "SP") .
I. LICENSE.
TNC hereby grants to Soundprints an exclusive license throughout the United
States, its territories and possessions, to use the name and logo of TNC on
merchandise and on promotional materials for said merchandise in accordance with
the following terms of this Agreement.
(a) TNC name and logo shall be used on the merchandise, merchandise
hangtags and in SP's catalogs, brochures, inserts and promotional
materials.
(b) All merchandise and promotional materials shall be approved by TNC and
consistent with the mission and tax-exempt charitable purposes of TNC. All
merchandise will be sold with a panel displaying TNC's name and logo, the
mission of TNC, a description of the subject matter of the merchandise, and
the payment to TNC from each item sold, an acceptable wording of which is
set out in Attachment A.
(c) SP agrees to abide by TNC's visual identity style summarized in
Attachment B when showing Conservancy name and logo on all merchandise and
materials.
1
<PAGE> 2
(d) For the purposes of this agreement, merchandise is defined as: (1) a
set that comprises a story book, audio cassette and stuffed toy animal for
pre-school children; (2) a set that comprises a story book and audio
cassette for pre-school children; and (3) a set that comprises a story book
and stuffed toy animal for pre-school children. This agreement does not
pertain to the sale of individual merchandise items listed above.
(e) SP acknowledges that TNC owns certain marks, for which details are set
out in Attachment C to this Agreement, namely the trademark, service mark
and collective membership mark THE NATURE CONSERVANCY, the service mark and
collective membership mark THE NATURE CONSERVANCY and Design of Oak Leaf.
The marks of TNC that are identified in this agreement are owned by TNC in
the United States. SP recognizes and acknowledges TNC's ownership of said
marks and the validity of those marks and every registration thereof set
forth in Attachment C are registered trademarks under applicable law. SP
agrees that it shall not use, nor permit the use of, TNC name, logo or
other property of TNC in connection with any other materials, advertising,
products or services without the prior written approval of TNC. SP agrees
that it shall not, at any time during the term of this Agreement or
subsequent to the expiration or termination of this Agreement for any
reason, challenge or participate in any challenge to TNC's ownership of the
marks, the validity of the marks or the registrations thereof, or TNC's
exclusive right to use the marks.
(f) SP shall not, during the term of this Agreement, enter into a similar
arrangement with any other non-profit organization which arrangement might
reasonably be perceived to imply an affiliation between the TNC and said
other non-profit organization, without the TNC's prior consent.
II. TERM.
This agreement is effective upon execution of the contract until January 1,
2000. Either party may withdraw from this Agreement in the event that one party
engages in activities or is involved in any controversy which the other party
reasonably believes will be damaging to its reputation or inconsistent with its
philosophy. Prior to the exercise of such right the party will give thirty (30)
days written notice and an opportunity to cure. At the conclusion of this
contract, TNC and SP will negotiate a renewal option.
2
<PAGE> 3
III. ROYALTIES.
SP agrees to direct toward TNC 5% of every unit of merchandise sold. The dates
of payment are set out below.
SP agrees to pay TNC a minimum, non-refundable guaranteed royalty of $42,000.
The guaranteed royalty will be applied towards the 5% royalty rate. Royalty
checks should be addressed to:
Nigel Homer
National Merchandise Manager
The Nature Conservancy
1815 North Lynn St.
Arlington, VA 22209
IV. PAYMENT SCHEDULE.
<TABLE>
<CAPTION>
Guaranteed
Minimum
Royalty Due
<S> <C>
Upon execution of this contract $ 8,000
June 30, 1995 $ 5,000
January 1, 1996 $ 5,000
January 1, 1997 $ 6,000
January 1, 1998 $ 6,000
January 1, 1999 $ 6,000
January 1, 2000 $ 6,000
-------
Total guaranteed minimum royalty $42,000
</TABLE>
V. TNC DISCOUNTS.
SP agrees to sell its merchandise to TNC at a minimum discount of 5% from its
regularly published wholesale price. The 5% royalty payment set forth in section
III. of this agreement shall apply to sales made to TNC.
VI. ACCOUNTING.
SP shall maintain complete and accurate records containing all information
required for computation and verification of amounts to be remitted to TNC
pursuant to this Agreement. Authorized representatives of TNC shall have the
right to examine these records, by appointment, during normal business hours.
VII. EXPENSES; NO JOINT VENTURE.
SP agrees to furnish at its sole expense all labor, materials,
3
<PAGE> 4
and services required to produce and distribute the merchandise, inserts,
promotional displays and other related promotional materials. Nothing in this
Agreement or in its performance shall be construed to create an
employer-employee relationship, partnership, agency, joint venture, or joint
employer relationship between the parties.
VIII. APPROVAL.
SP shall submit in writing, via an overnight carrier, all merchandise designs,
audio and visual mechanicals, and final copy for promotional and other materials
pertaining to TNC for review and prior written approval no less than ten
business days before publication to:
Roberto Roca
Chief Zoologist, Latin America & Caribbean Division
The Nature Conservancy
1815 North Lynn St.
Arlington, VA 22209
IX. WARRANTIES; INDEMNIFICATIONS; INSURANCE.
(a) SP warrants to TNC that it has all rights in and to the products
necessary to perform its obligations under this Agreement. TNC warrants to
SP that it has all rights necessary to perform its obligations under this
Agreement. TNC and SP each agree to ensure that all activities pursuant to
this arrangement are in compliance with federal, state, and local laws,
including, but not limited to, applicable commercial co-venture
regulations. TNC and SP each further agree to ensure that all activities
pursuant to this arrangement are in compliance with the requirements and/or
voluntary guidelines of such charitable rating services as may be
designated by TNC, including, but not limited to, those of the National
Charities Information Bureau ("NCIB") and those of the Council of Better
Business Bureaus Philanthropic Advisory Service ("CBBB PAS").
(b) SP shall defend, indemnify, and hold harmless TNC from any claim,
dispute, demand, suit, obligation, liability or recovery against TNC which
is related to SP's activities under this Agreement, including, but not
limited to, claims based on governmental compliance, copyright, trademark,
or patent product infringement, product liability, and any other claims
arising out of SP's activities with respect to the design, production,
promotion, distribution or sale of
4
<PAGE> 5
the merchandise.
(c) TNC shall be named as an additional, named insured party in SP's
Commercial Liability Insurance Policy covering, among other risks,
Products/Completed Operations and Advertising Injury risks, which shall be
maintained by SP during the term of this Agreement for an amount of not
less than One Million ($1,000,000.00) Dollars. Proof of such insurance
coverage, acceptable in form and content to TNC, shall be furnished upon
request of TNC.
X. ENTIRE AGREEMENT.
This letter sets forth the entire understanding of the parties concerning the
Soundprints/Nature Conservancy merchandise licensing program and may be modified
only by an agreement, in writing, executed by both parties.
If these terms and conditions are acceptable to you, please have an authorized
party sign both copies and return one to me. You may retain the other copy for
your records.
Agreed to and Accepted:
Soundprints The Nature Conservancy
by: by:
/s/ William W. Burnham /s/ Michael J. Coda
- ----------------------------- -----------------------------
William W Burnham, President Michael J. Coda, Vice
President, Marketing
12/6/94 December 5, 1994
- ----------------------------- -----------------------------
Date Date
<PAGE> 6
ATTACHMENT A
ACCEPTABLE WORDING FOR ROYALTY INFORMATION TO APPEAR ON LICENSED PRODUCTS,
HANGTAGS, FLYERS, INSERTS, BROCHURES, CATALOGS AND ALL PROMOTIONAL MATERIALS
5% of the manufacturer's net wholesale price of this [PRODUCT] will be
donated to The Nature Conservancy, an international non-profit conservation
organization committed to preserving the plants, animals and natural
communities that represent the diversity of life on Earth by protecting the
land and water they need to survive. For more information or to join The
Nature Conservancy, call 1-800-628-6860.
6
<PAGE> 7
ATTACHMENT C
The following are the marks of The Nature Conservancy
a) THE NATURE CONSERVANCY
Registration #: 1,486,182
Registration date: April 26, 1988
Trademark, service mark, collective membership mark
Goods: CLOTHING, NAMELY, NECKTIES, HATS, SCARVES, TEE SHIRTS AND
SWEATSHIRTS
Services: CHARITABLE FUNDRAISING SERVICES IN THE FIELD OF CONSERVATION OF
NATURAL RESOURCES AND PRESERVATION OF ENDANGERED SPECIES; CONSULTING
SERVICES CONCERNING CONSERVATION OF NATURAL RESOURCES AND
PRESERVATION OF ENDANGERED SPECIES
Membership: INDICATING MEMBERSHIP IN AN ORGANIZATION WORKING IN THE FIELD OF
CONSERVATION OF NATURAL RESOURCES AND PRESERVATION OF ENDANGERED
SPECIES
b) THE NATURE CONSERVANCY AND DESIGN OF OAK LEAF
Registration #: 1,591,260
Registration date: April 10, 1990
Service mark and collective membership mark
Services: CHARITABLE FUNDRAISING SERVICES IN THE FIELD OF CONSERVATION OF
NATURAL RESOURCES AND PRESERVATION OF ENDANGERED SPECIES; CONSULTING
SERVICES CONCERNING CONSERVATION OF NATURAL RESOURCES AND
PRESERVATION OF ENDANGERED SPECIES
Membership: INDICATING MEMBERSHIP IN AN ORGANIZATION WORKING IN THE FIELD OF
CONSERVATION OF NATURAL RESOURCES AND PRESERVATION OF ENDANGERED
SPECIES
7
<PAGE> 1
Exhibit: 10.25FT
AGREEMENT
FOR
PURCHASE AND SALE
OF
ASSETS
THIS AGREEMENT is made as of the 31st day of December, 1997, by and
between Newtech Consulting, Inc., an Arizona corporation ("Seller") and Futech
Educational Products, Inc., an Arizona corporation ("Buyer").
RECITALS:
A. Seller owns the intellectual and other property identified on
Exhibit "A" attached hereto and hereby made a part hereof (collectively the
"Assets").
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Assets, in accordance with the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
TERMS:
1. PURCHASE AND SALE. Seller hereby sells to Buyer, and Buyer hereby
purchases from Seller, the Assets, including all rights of Seller relating
thereto, upon the terms and conditions hereinafter set forth.
2. PURCHASE PRICE. The purchase price for the Assets is as follows:
2.1 Three hundred thousand dollars ($300,000), payable in cash
upon execution of this Agreement;
2.2 Six million (6,000,000) shares of the common stock of
Buyer (to be issued to Seller simultaneously with the execution of this
Agreement); and
2.3 The assumption of liabilities as set out in Section 3
below.
3. ASSUMPTION of LIABILITIES. As part of, and in addition to the
other purchase price identified in Section 2 above, Buyer hereby assumes and
agrees to pay any and all liabilities of Seller to the extent of, and only to
the extent of, a maximum amount of $25,000.00. Seller remains liable for all
other debts of Seller.
4. TERMINATION OF CONSULTANT AGREEMENT. Seller and Buyer entered in
that certain Consulting Agreement, dated August, 1996, wherein, among other
things, Seller agreed to render consulting services to Buyer relating to the
design, creation, development, testing and/or
<PAGE> 2
Agreement for Purchase and Sale of Assets
Page 2
support services for certain of Buyer's then-existing and future technology.
Seller and Buyer agree that, without the necessity of any additional
documentation, said Consulting Agreement agree is hereby terminated, and the
parties shall have no obligations under said Consulting Agreement, except for
any obligations which by the terms of the Consulting Agreement survive
termination.
5. TERMINATION OF EMPLOYMENT AGREEMENT. Seller and Stephen I. McTaggert
("McTaggert") entered into that certain Employment Agreement, dated August, 7,
1996, wherein, among other things, the Parties and McTaggart by his signature
appearing below, hereby agree that, without the necessity of any additional
documentation, said Employment Agreement is hereby terminated, and the parties
thereto shall have no obligations under said Employment Agreement, except for
any obligations which by the terms of the Employment Agreement survive
termination.
6. REPRESENTATIONS AND WARRANTIES. Seller hereby represents and
warrants as follows:
6.1 Authority. Seller has the power and authority to enter
into and perform its obligations under this Agreement, and the Board of
Directors of Seller has approved, authorized, and ratified the
execution and delivery of this Agreement, and of the documents herein
required to consummate the transaction contemplated herein.
6.2 Liens. The Assets are free and clear of any and all liens
and encumbrances.
6.3 Litigation. To the knowledge of Seller, there is no
litigation, proceeding, or investigation pending or threatened against
Seller or the Assets.
6.4 Judgements Against Seller and/or Assets. Neither Seller
nor the Assets are under any governmental investigation, no such
investigation has been threatened, and there are no judgments against
Seller or the Assets.
6.5 Patents. There is no litigation pending or threatened with
respect to the patents included in the Assets, there is no outstanding
order, judgment, decree or stipulation affecting the validity or
enforceability of said patents, there exists no outstanding notices of
infringement given by Seller regarding the patents, there are no
pending interferences or other contested proceedings pending, or that
are in the process of being instituted, in the United States Patent
Office or in the courts, relating to said patents, and to the best
knowledge of Seller, none of the patents are presently being infringed.
7. GOVERNING LAW; JURISDICTION. The courts of the State of Arizona
shall have the sole and exclusive jurisdiction and venue in any case or
controversy arising under this Agreement or by reason of this Agreement. The
parties agree that any litigation or arbitration
<PAGE> 3
Agreement for Purchase and Sale of Assets
Page 3
arising from the interpretation or enforcement of this Agreement shall be only
in either Maricopa County Superior Court or in the United States Federal
District Court for the District of Arizona, and for this purpose each party to
this Agreement (and each person who shall become a party) hereby expressly and
irrevocably consents to the jurisdiction and venue of such courts.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
9. ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Agreement constitutes the entire agreement between the parties which respect to
the subject matter hereof, and supersedes all prior understandings, if any, with
respect thereto.
10. FURTHER ASSURANCES. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm any
agreement contained herein in the manner contemplated hereby.
11. MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
12. SEVERABILITY. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal or unenforceable portion had never been a part of this
Agreement.
13. COUNTERPARTS, FACSIMILE SIGNATURES. This Agreement may be executed
by the parties in one or more counterparts, and any number of counterparts
signed in the aggregate by the parties shall constitute a single instrument. The
parties authorize and agree to accept facsimile signatures in counterparts to
this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were original signatures.
14. ATTORNEY'S FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement, or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party(s) of such action or
proceeding shall be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorneys' fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
15. PARAGRAPH TITLES AND HEADINGS. The titles and headings of sections
of this Agreement are for the convenience of reference only, and are not
intended to define, limit, or
<PAGE> 4
Agreement for Purchase and Sale of Assets
Page 4
describe the scope or intent of any provision of this Agreement, and shall not
affect the construction of any provision of this Agreement.
16. MISCELLANEOUS. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
SELLER: Newtech Consulting, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
----------------------------------
Vincent W. Goett, Secretary
By /s/ Stephen I. McTaggart
----------------------------------
Stephen I. McTaggart, President
BUYER: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Vincent W. Goett
----------------------------------
Vincent W. Goett, President
ACCEPTED AND AGREED TO
as of the date first herein above written,
as to the termination of the Employment Agreement
as described in Section 5 above, by:
/s/ Stephen I. McTaggart
- ------------------------------
Stephen I. McTaggart
List of Exhibits:
Assets Transferred "A"
<PAGE> 5
EXHIBIT "A"
(ASSETS TRANSFERRED)
All assets, of any type or nature, owned by Seller, other than Seller's
$2,000,000.00 promissory note receivable payable by Buyer, Seller's stock
ownership in Buyer, the cash to be received by Seller under Section 2.1 of this
Agreement, Seller's loan receivable from Stephen I. McTaggart, Seller's loan
receivable from Vincent W. Goett, and Seller's cash (petty cash and all accounts
receivable).
<PAGE> 1
Exhibit: 10.25J
April 15, 1999
Janex International, Inc.
Gentlemen:
In connection with the re-issuance of our report on our audit of the 1997
financial statements of Janex International, Inc. ("Janex" or the "Company"),
and our consent to the inclusion of such report in the Company's Form 10-KSB and
its ongoing filings with the Securities and Exchange Commission, you agree to
indemnify and hold BDO Seidman, LLP, ("BDO") harmless from any and all
liabilities, costs or expenses of any nature whatsoever, including legal fees
incurred by us in defending ourselves in a lawsuit brought because of such
re-issuance.
BDO agrees that it will promptly notify Janex of any filed or threatened claim
within ten (10) days of such threat or receipt of notice of the commencement of
an action. BDO further agrees that Janex may assume the defense of any such
action with counsel reasonably satisfactory to BDO to be chosen by Janex. After
such notice, Janex will not be liable to BDO for any legal fees subsequently
incurred by BDO unless counsel employed by Janex to represent BDO reasonably
concludes that there exists a conflict of interest that prevents such counsel
from representing BDO.
Such indemnification is void and any advanced funds will be returned to Janex if
a court, after adjudication, finds us liable for malpractice.
Very truly yours,
/s/ BDO Seidman, LLP
BDO Seidman, LLP
The foregoing is accepted:
By: /s/Fred B. Gretsch Date: April 28, 1999
Its: Chief Financial Officer, Treasurer and Secretary
<PAGE> 1
Exhibit: 10.25T
SI Contract #RC9-721033-0000
ACK # 527-8300-1007-5920-0604
SMITHSONIAN/SOUNDPRINTS AGREEMENT
LICENSE AGREEMENT made this 17th day of June, 1997, between the
SMITHSONIAN INSTITUTION (herein called "Smithsonian") an educational, non-profit
organization established by the Congress of the United States in 1846 (20 U.S.C.
41 et seq.) and having its principal offices at 1000 Jefferson Drive, S.W.,
Washington, D.C. 20560 and SOUNDPRINTS, (herein called "SOUNDPRINTS", a division
of Trudy Corporation, (formally licensed with Smithsonian as Trudy Corporation,
a corporation having its principal place of business at 353 Main Avenue,
Norwalk, Connecticut 06851.
WHEREAS Smithsonian is desirous of encouraging the development of
quality products which are uniquely related to Smithsonian and its collections
and which are in keeping with the dignity, history, and traditions of
Smithsonian, and which will enable Smithsonian to further its mandate "for the
increase and diffusion of knowledge among men"; and
WHEREAS SOUNDPRINTS is a leading manufacturer of children's illustrated
storybooks with accompanying toys and audio tapes, children's plush toys and
accompanying illustrated storybooks and audio tapes in the toy and children's
storybook industry and desires to develop quality products which are inspired by
Smithsonian and its collections, and which are in keeping with the dignity,
history and traditions of Smithsonian; and
WHEREAS SOUNDPRINTS desires to acquire the right to utilize the name
and the trademark of Smithsonian upon and in connection with said products; and
WHEREAS Smithsonian has the rights to said name, it having devolved
under the will of James Smithson, benefactor, and been designated by the
Congress of the United States as the official name of the Institution, and being
well known and recognized by the general public mind with the same Smithsonian,
and it being registered accordingly in the United States Patent and Trademark
Office; and,
WHEREAS SOUNDPRINTS and Smithsonian entered into an agreement dated
August 11, 1988 (SI Contract # RPC-700038-0002), and whereby both Parties intend
this Agreement, as set forth below, to supercede that agreement and any other
existing contracts or other agreed upon terms and conditions between the
parties;
NOW, THEREFORE, in consideration of the premises and mutual Agreements
herein contained, the parties agree with each other as follows:
1. GRANT OF LICENSE Smithsonian grants to SOUNDPRINTS for the term of this
Agreement, subject to the terms and conditions herein contained, a personal and
non-transferable
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license to utilize the name "Smithsonian Institution," and "Smithsonian" (herein
called the Name") but only for the products and purposes set forth herein.
SOUNDPRINTS shall use the license granted hereunder solely in connection with
the design, development, manufacture, marketing, distribution and sale (herein
called "development") of the products specified in Schedule A (herein such
products are called "Smithsonian Products") under the SOUNDPRINTS label.
Smithsonian agrees not to issue to any other party a license to use its
name in connection with the production or sale of products which in its judgment
would directly compete against the products specified herein without first
conferring with SOUNDPRINTS.
COSTS Except as expressly stated in Section II with regard to indemnification
expenses and Section 13 with regard to copyright and/or trademark expenses, it
is understood that all costs associated with the development of Smithsonian
Products, whether approved or disapproved at any stage by Smithsonian, shall be
borne by SOUNDPRINTS, and Smithsonian has no responsibility for any such costs.
APPROVALS Prior to the start of the approval process, Smithsonian shall provide
SOUNDPRINTS the proper bibliographic resource and reference materials for the
artist and author, prior to the start of each development project. When deemed
necessary by Smithsonian, the conversations between the appropriate curator and
the SOUNDPRINTS' artist shall be instituted. All such materials shall be subject
to the terms of the Trademark and Design Protection Agreement set forth in
Schedule D.
a. All manufacturing shall be fine quality and comply with the highest
product specifications, standards, and quality control procedures. SOUNDPRINTS
agrees to furnish Smithsonian with samples of Smithsonian Products in their
consecutive planned stages of development for inspection and judgment of
accuracy, quality, style and appropriateness by editorial and other Smithsonian
staff. No Smithsonian Product will be manufactured or sold by SOUNDPRINTS until
Smithsonian has given written approval at each appropriate stage. There will be
a minimum of seven (7) production stages for the Smithsonian to approve prior to
the approval of the final sample of each product, including, but not limited to,
approval of the concept, preliminary draft manuscripts, sketches, final
manuscript, cover art and, final art. A mutually agreed upon timetable for
concept and design approvals is set forth in Schedule B and is hereby
incorporated into this contract. This schedule incorporates the time necessary
to allow SOUNDPRINTS' production schedule and to ensure proper review and
comment by Smithsonian's curatorial staff. Smithsonian agrees not to
unreasonably withhold approval or reasonably delay notice of disapproval to
SOUNDPRINTS at any stage in conformance with the agreed upon schedules. Approval
of the final sample by Smithsonian will be the last stage of approval. All final
finished samples approved by Smithsonian will be retained unchanged by
SOUNDPRINTS and they may be inspected by Smithsonian at any time during the term
of this agreement or within two (2) years thereafter. Any deviation in quality
from the approved schedule shall be grounds for Smithsonian to terminate this
agreement. This procedure will be
2
<PAGE> 3
followed for each Smithsonian Product before its manufacture or sale, whichever
comes first.
b. SOUNDPRINTS shall submit for Smithsonian's prior written approval:
galleys, drafts, and samples of all packaging, advertising and marketing devices
associated with each Smithsonian Product. SOUNDPRINTS also shall provide, based
on material supplied by Smithsonian, appropriate educational/informational
textual material with each Smithsonian product sold. Final text shall be
approved in writing by Smithsonian before final production may begin.
c. SOUNDPRINTS agrees that the Name possesses a special, unique and
extraordinary character. If at any time Smithsonian deems that the continued
development, manufacture or sale of any Smithsonian Product will harm, bring
into disrepute, or affect the integrity of the Name, or is not in keeping with
the dignity, history and traditions of the Smithsonian Institution, Smithsonian
shall have the right to withdraw its approval previously given. SOUNDPRINTS
shall be afforded the right to dispose of its remaining inventory of the item in
question for a period of six (6) months accordingly to the terms of Section 17
herein.
d. Except as otherwise provided herein, SOUNDPRINTS shall not refer to
Smithsonian or any of its museums, organizations, or facilities in any manner or
through any medium, whether written, oral, or visual, for any purpose
whatsoever, including but not limited to advertising, marketing, promotion,
publicity or on any letterhead by any company.
4. PRODUCT SPECIFICATION
a. Smithsonian encourages SOUNDPRINTS and all of its licensees to
manufacture Smithsonian Products in the United States of America or its
Territories in keeping with the spirit and intent of the Buy American Act (41
USCS Sections 10a et seq.). In the event that Smithsonian Products will be
manufactured in whole or in part offshore, SOUNDPRINTS will provide Smithsonian
written justification for such action, and proof that SOUNDPRINTS has adequately
researched the feasibility of U.S. production.
b. It is understood that SOUNDPRINTS shall manufacture Smithsonian
Products in its current contracted factories, plants, or workshops. Any agency
or sublicense, and/or any change in country of manufacture must be approved
based on a prior written request by SOUNDPRINTS and prior written approval by
Smithsonian. In the event that SOUNDPRINTS subcontracts elements of Smithsonian
Products, SOUNDPRINTS agrees that, prior to any product development or
manufacture by a third party, it will execute a Trademark and Design Protection
Agreement (a sample of such and suggested wording is incorporated into Schedule
D) which, among other things, will expressly prohibit said third party from
using the name and/or names of any Smithsonian offices, bureaus and/or
Smithsonian trademarks. In addition, such agreement will prohibit any third
party from exploiting in any manner its association with the Smithsonian, its
collections, products, or components or derivatives thereof. Each of the above
mentioned Trademark and Design Protection Agreements shall be kept on file
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<PAGE> 4
by SOUNDPRINTS.
c. SOUNDPRINTS agrees that every Smithsonian Product shall bear an
appropriate identification to avoid confusion in the public mind between the
reproduction and the original artifact. The form and use of this identification
must be approved, in advance, by Smithsonian.
d. SOUNDPRINTS further represents and warrants that Smithsonian
Products have not been and shall not be produced or manufactured, in whole or in
part by convict, forced or child labor. SOUNDPRINTS shall provide Smithsonian
with any guarantee of compliance in such form as Smithsonian may from time to
time designate, with respect to Smithsonian Products, as required or permitted
under any law, rule or regulation of the United States and any other countries
where Smithsonian Product is produced or delivered.
5. TERRITORY SOUNDPRINTS shall be entitled to use the License granted hereunder
worldwide.
6. LICENSE PERIOD
a. The License granted hereunder shall be effective as of August 13,
1996 and terminate as of September 30, 2002, unless sooner terminated in
accordance with the terms and conditions of this Agreement (herein called
"License Period").
b. Within sixty (60) days of termination of the License Period and
notwithstanding termination as provided in Paragraph 17, if SOUNDPRINTS is
interested in continuing the manufacture and sale of then approved Smithsonian
Products without further development of new Smithsonian Products and provides
written notification to Smithsonian of such, Smithsonian agrees to enter into
good faith negotiations to allow for continued sale of those products under a
new agreement.
7. DISTRIBUTION
a. SOUNDPRINTS shall sell Smithsonian Products through the same
channels of distribution through which the SOUNDPRINTS lines are distributed,
which are limited to the following: Wholesale and Retail Book Distributors,
Wholesale and Retail Gift and Toy Distributors, Schools and Libraries, School
book fairs and clubs, Museums and Aquariums, SOUNDPRINTS' and other Direct Mail
Order Catalogs, Speciality Retailers, Book Clubs, Wholesale Clubs and Mass
Merchandisers. Any additional channels will require prior written approval by
Smithsonian.
b. If SOUNDPRINTS sublicenses with any other entity for the sale,
promotion, or premium of Licensed Products in the United States or abroad, it
shall obtain the Smithsonian's prior written approval of such sublicensee and
shall not proceed with such arrangement until it
4
<PAGE> 5
received the Smithsonian's written approval.
c. At Smithsonian's request, SOUNDPRINTS shall sell Smithsonian Products to
Smithsonian at prices charged to SOUNDPRINTS' most favored unaffiliated
customers, but only for retail sale by Smithsonian directly to consumers.
d. SOUNDPRINTS will not use Smithsonian Products for promotional activities,
combination sales, as premiums, or giveaways, or for any similar method of
merchandising without the prior written consent of Smithsonian.
e. SOUNDPRINTS shall promptly provide Smithsonian, at no charge, no more than
twelve (12) copies of all Smithsonian Products for purposes such as quality
control, museum collections, trademark registration and other related needs.
Immediately upon conclusion of the approval and manufacturing process (as
outlined in paragraph 3. a.) SOUNDPRINTS shall ship three (3) copies of each
Smithsonian Product for archival purposes. These copies must be received by
Smithsonian Product Development and Licensing prior to any shipments to the
public.
8 PAYMENTS
Non-refundable Advance Against Royalties. Minimum Annual Guaranteed Royalty
Payment SOUNDPRINTS agrees to pay Smithsonian the amount(s) specified in
Schedule C, hereto annexed, as a minimum annual guaranteed royalty payment
(herein called "Guarantee") and/or non-refundable advance against royalties,
any or both of which shall be paid in accordance with the payment plan attached
hereto in Schedule C and hereby incorporated into this contract.
Royalty Compensation:
i. The term "sales proceeds" shall mean gross or invoiced sales of
Smithsonian products less discounts and returns actually made or allowed, but no
deduction shall be made for uncollectable accounts. No costs incurred in the
development, promotion, or sale of Smithsonian products shall be deducted from
any Royalty Compensation payable by SOUNDPRINTS.
ii. SOUNDPRINTS agrees to pay Smithsonian a sum equal to the
percentage(s), specified in Schedule C, of all sales proceeds received by
SOUNDPRINTS or any affiliated, associated or subsidiary company for Smithsonian
Products covered by this Agreement, including but not limited to sales made by
SOUNDPRINTS to Smithsonian, although only one Royalty shall be paid for each
item. (Such amount is herein called "Royalty Compensation"). Said payments shall
be remitted by SOUNDPRINTS concurrently with each of the periodic statements
required below.
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<PAGE> 6
c. Procedure. Payments should be mailed to the following address:
Smithsonian Institution
Product Development & Licensing
Box 0554
Washington, DC 20073-0554
All payments and correspondence regarding this License shall be addressed as
above, and make reference to the Smithsonian Institution Contract Number on the
first page of this Agreement.
9.PERIODIC STATEMENTS
a. Within thirty (30) days after the end of each calendar quarter, as
defined in Schedule C, SOUNDPRINTS will furnish to Smithsonian complete and
accurate statements, certified to be accurate by an officer of SOUNDPRINTS
showing the number, description and gross sales price and itemizing the
allowable deductions from the gross sales price of each Smithsonian Product
distributed and/or sold by SOUNDPRINTS during the preceding calendar quarter.
Such statements shall be furnished to Smithsonian whether or not any of the
Smithsonian Products have been sold during the preceding calendar quarter
identified by the month in which such statements are due.
b. Receipt or acceptance by Smithsonian of any of the statements
furnished pursuant to this Agreement or of any sums paid hereunder shall not
preclude Smithsonian from questioning the correctness thereof at any time, and
in the event that any inconsistencies or mistakes are discovered in such
statements or payments, they shall immediately be rectified and the appropriate
payments made by SOUNDPRINTS. In the event that Smithsonian has a reasonable
basis for needing an independently certified statement, which need cannot
otherwise be met, and upon demand of Smithsonian, SOUNDPRINTS shall, but not
more than one (1) time in any twelve (12) month period, furnish to Smithsonian a
detailed statement by an independent certified public accountant, showing the
number, description, gross sales price, itemized deductions from gross sales
price and net sales price of each Smithsonian Product distributed and/or sold by
SOUNDPRINTS up to the date of Smithsonian's demand. If, the accounting errors
are found to be more than 3% of total sales SOUNDPRINTS shall pay for the
accounting. If the error is less than 3% of sales, Smithsonian shall pay for the
audit.
c. Statements should be mailed to the following address:
Director
Product Development & Licensing
Smithsonian Institution
955 L'Enfant Plaza, Suite 8000
Washington, DC 20024
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<PAGE> 7
10. BOOKS AND RECORDS SOUNDPRINTS shall keep accurate books of account and
records covering all transactions relating to the license hereby granted;
Smithsonian and its duly authorized representatives shall have the right at all
reasonable hours of the day to an examination of, including the right to make
extracts from and copies of, said books of account and records and of all other
documents and material in the possession or under the control of SOUNDPRINTS
with respect to the subject matter and the terms of this Agreement. To
facilitate inspection by Smithsonian of SOUNDPRINTS's books and records with
respect to the amounts due Smithsonian, SOUNDPRINTS will designate an individual
identification number which will be used exclusively in connection with
Smithsonian Products. SOUNDPRINTS shall retain duplicates of all invoices to its
customers for Smithsonian products. Smithsonian agrees that it will conduct no
more than one (1) examination pursuant to the terms of this Agreement during any
twelve (12) month period that this Agreement is in effect. All books of account
and records shall be kept available for at least two (2) years after the
termination of this License, or any renewal thereof, and SOUNDPRINTS agrees to
permit inspection by Smithsonian during, such two (2) year period under the
conditions stated above.
11. INDEMNIFICATION/HOLD HARMLESS
a. Smithsonian hereby indemnifies SOUNDPRINTS and shall hold it
harmless:
i. Against any claims or suits asserting any proprietary
rights in an artifact or image from Smithsonian collections or which SOUNDPRINTS
has reproduced pursuant to this Agreement, but only to the extent of
SOUNDPRINTS' out-of-pocket costs; and
ii. Against any judgements or settlements arising out of use
by SOUNDPRINTS of the Name as authorized in this Agreement, but only to the
extent of such authorized use and only to the extent of SOUNDPRINTS' actual
out-of-pocket costs including reasonable outside attorneys' fees; and provided
further that SOUNDPRINTS shall give prompt written notice to Smithsonian of any
such claim or suit, and provided further that Smithsonian shall have the option
to undertake and conduct the defense of any suit so brought. Nothing contained
in this subparagraph, or elsewhere in this Agreement, shall create any liability
on the part of Smithsonian for any other claims or suits against SOUNDPRINTS.
b. SOUNDPRINTS shall assist Smithsonian, to the extent necessary, in
the protection of any of Smithsonian's right to the Name, and Smithsonian, if it
so desires, may commence or prosecute at its own expense any claims or suits in
its own name or in the name of SOUNDPRINTS or join SOUNDPRINTS as a party
thereto. SOUNDPRINTS shall notify Smithsonian in writing of any infringements or
imitations by others of the Name on articles the same as and/or similar to the
Smithsonian Products. In the event that Smithsonian does not take action against
an infringer, SOUNDPRINTS may do so at its own expense and Smithsonian will
cooperate with SOUNDPRINTS in prosecuting any such action, provided, however,
that SOUNDPRINTS shall have given Smithsonian thirty (30) days written notice of
its intention to do so and Smithsonian shall not have objected thereto in
writing in that period, it being
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<PAGE> 8
understood that Smithsonian shall have the final determination whether or not
any action shall be taken on account of such infringements or imitations.
c. SOUNDPRINTS hereby agrees to indemnify, defend, and hold Smithsonian
harmless from any claim or suit arising or alleging to arise out of or from the
development of Smithsonian Products under the SOUNDPRINTS name, excepting claims
for which Smithsonian is indemnifying SOUNDPRINTS.
12.1NSURANCE
a. During the term of this Contract, SOUNDPRINTS shall secure and
maintain at a minimum the following amount of insurance coverage:
Commercial General Liability, including products liability, in
the minimum amount of three million ($3,000,000) dollars per
occurrence.
b. Insurance coverage must be procured from companies earning a minimum
rating of B+6 in Best's Reports. Policies evidencing the above coverage shall
include Smithsonian as an additional insured and shall include or provide for
insurance coverage for liability assumed under this Contract. All such insurance
policies shall contain a minimum thirty (30) day notice requirement to
Smithsonian prior to cancellation. As evidence that SOUNDPRINTS has the
original certificates of insurance or true copies of the policies shall be
required coverage, presented to Smithsonian for review on a yearly basis.
Smithsonian may also request copies of the policies for further review and
evaluation. Before the expiration or cancellation of any insurance policy
required hereunder, SOUNDPRINTS shall mail to Smithsonian certificates of
insurance evidencing renewal or replacement coverage sufficient to satisfy its
obligations under this Section. If Smithsonian does not receive this evidence of
insurance coverage within a reasonable time after this contract is signed,
and/or if SOUNDPRINTS fails to maintain the required insurance during the term
of this Contract, Smithsonian shall provide written notice of its intention to
cancel this Agreement unless this breach is remedied within five (5) business
days. If the breach is not remedied within five (5) business days, Smithsonian
may cancel this Agreement. If Smithsonian cancels pursuant to this provision,
Smithsonian shall not incur any liability or penalty. Upon receipt of written
notice of such cancellation, SOUNDPRINTS shall make all remaining payments due
and owing to Smithsonian, including but not limited to royalties, under this
Contract.
13.COPYRIGHT AND TRADEMARK
a. Trademark. SOUNDPRINTS agrees to cause an appropriate statutory
notice of trademark registration to be affixed to or imprinted on each
Smithsonian Product wherever the federally registered trademarks, Smithsonian
and/or Smithsonian Institution are first used. Such notice shall be in one of
the following forms:
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i. (R) placed on the right hand "shoulder" of the trademark
and/or
ii. "This trademark is owned by the Smithsonian Institution
and is registered in the U.S. Patent and Trademark Office".
Such trademark notice shall appear close to the trademark and shall be
affixed to or imprinted on each Product or associated materials (i.e. including
but not limited to hang tags and informational tags) the first time the
registered trademarks, "Smithsonian" or "Smithsonian Institution" appear on the
product and/or associated materials.
The Smithsonian logo shall not be changed, altered, moved, manipulated
or incorporated into another design and it shall stand separate and on its own.
SOUNDPRINTS agrees to submit an attachment sample containing the Smithsonian
logo and the SOUNDPRINTS logo before completion of the product design stage.
Smithsonian agrees that SOUNDPRINTS may affix its own trademark to
Smithsonian Product(s), subject to Smithsonian's prior written approval before
completion of the product design stage.
b. Copyright.
i. Plush Toys. It is agreed that Smithsonian shall be the
exclusive copyright owner of the Smithsonian Products that consist of those
plush toys developed with the assistance of the curatorial staff as set forth in
Schedule A.
ii. Storybooks and Audio Tapes. It is further agreed that
Smithsonian and SOUNDPRINTS shall hold joint copyright on all completed
Smithsonian Products that consist of interactive toys that are developed with
the assistance of the Smithsonian curatorial staff, published storybooks and
audio tapes; except that copyright in the illustrations for the storybooks shall
be retained by the Artist as set forth below in subparagraph 13.b.iii.
iii. Original Artwork, It is agreed that the artist(s) engaged
by SOUNDPRINTS to create original artwork for the development of Smithsonian
Products ("Artwork") may retain copyrights in that Artwork. Further, it is
agreed that SOUNDPRINTS shall obtain in writing from the artist(s): (i) the
right to use the Artwork in accordance with this Agreement, including a
non-exclusive license for the Smithsonian to reproduce and to create derivative
works of the Artwork for other products developed for the Smithsonian in
addition to the Smithsonian Products and (ii) the agreement that the artist will
not use or license others to use the Artwork for merchandise of any kind for the
duration of this Agreement. If the Smithsonian reproduces the Artwork or creates
derivative works for products other than Smithsonian Products, Smithsonian
agrees to pay a minimum royalty to SOUNDPRINTS to be agreed upon in writing at
the time of such use.
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iv. Other Materials, Except as set forth above in
subparagraph 13.b.iii, Smithsonian shall hold sole copyright in all materials
related to the development of Smithsonian Products, including without
limitation, designs, sketches, tracings, draft and finished artwork, packaging,
advertisements, instructions and descriptive or textual materials.
SOUNDPRINTS agrees to cause an appropriate copyright notice to appear
on all copyrightable materials produced as a result of this agreement, including
but not limited to, the product itself and any and all advertising, packaging
and/or promotional materials relating to the product. Such copyright notice may
not be removed for any purpose, including without limitation, for the purpose of
using the Smithsonian Product or associated materials for any other purposes
other than outlined in this agreement. Such copyright notice shall be in a form
similar to the following:
(C) 1997 Smithsonian Institution
SOUNDPRINTS shall secure and maintain United States copyright
registration in the name of Smithsonian. SOUNDPRINTS shall submit proper samples
and/or forms of the copyrighted material for copyright deposit purposes with the
United States Library of Congress. SOUNDPRINTS shall be responsible for any and
all costs associated with such registration and deposit.
c. Good will. SOUNDPRINTS recognizes the great value of the prestige,
publicity and good will associated with the Name, and in such connection,
acknowledges that such good will exclusively belongs to Smithsonian and that
the Name has acquired a secondary meaning in the mind of the purchasing public
as a source of museum services and museum products.
14. DISPOSAL OF SECONDS In the event a Product under a Smithsonian license fails
to pass SOUNDPRINTS's normal quality control inspection, or otherwise deviates
from the standards of the industry, SOUNDPRINTS will not offer for sale and will
destroy this substandard Smithsonian Product. Upon prior written consent of
Smithsonian, SOUNDPRINTS may dispose of such products by selling them at a
reduced price, provided that all references to the Name are removed from such
products and product packaging prior to sale. A royalty shall be paid to
Smithsonian on the sale of such products, based on the discounted sales price
charged by SOUNDPRINTS.
i. If the parties mutually agree to discontinue production of
a particular Smithsonian Product and SOUNDPRINTS owns a surplus of such
Smithsonian Product, such Product will be designated as a remainder. Smithsonian
Retail (or other Smithsonian entities) shall be offered first right of refusal
for purchase of the abovementioned remainders at a royalty rate outlined in
SCHEDULE C: ROYALTIES. If the Smithsonian declines to purchase the
abovementioned remainders, SOUNDPRINTS may dispose of them subject to payment of
royalties as set forth in SCHEDULE C.
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<PAGE> 11
15. SPECIFIC UNDERTAKINGS OF SOUNDPRINTS During the term of the License Period
and thereafter SOUNDPRINTS agrees that:
a. It will not attack Smithsonian's rights in and to the Name and any
copyright or trademark pertaining thereto, nor will it attack the validity of
the License granted hereunder. It will not harm, misuse or bring into disrepute
the name and, in the development of Smithsonian Product, will assist Smithsonian
in preserving the integrity of the Name. This obligation shall continue
indefinitely following expiration of the license;
b. It will ensure that the development of Smithsonian Products proceeds
in an ethical manner in keeping with the dignity and traditions of the
Smithsonian and in accordance with the terms and intent of this Agreement;
c. It agrees not to discriminate in its business practice including but
not limited to hiring, marketing, sub-contracting and wholesaling on the basis
of race, creed, color, religion, sex, age, national origin, handicap or for any
other reason prohibited by Federal or applicable state law.
16. TERMINATION
a. Breach. Smithsonian may terminate this Agreement at any time if the
continued manufacture or sale of any Smithsonian Products will harm or bring
into disrepute the Name or the reputation and integrity of the Smithsonian.
b. Material Breach. Smithsonian may terminate this Agreement in the
event of a material breach by SOUNDPRINTS provided that SOUNDPRINTS has been
given thirty (30) days written notice of such breach, the nature of the breach
has been identified, and SOUNDPRINTS has failed to cure, or to attempt to cure,
the asserted breach to the satisfaction of Smithsonian within the notice period.
c. Default. It is understood that SOUNDPRINTS will commence in good
faith with the development of Smithsonian Products and will actively continue
with the development, manufacture and sale of the Licensed Products in
accordance with Schedule B. If SOUNDPRINTS fails to have manufactured, marketed,
distributed or sold any Smithsonian Products in any two (2) consecutive calendar
quarters during the License Period, Smithsonian shall have the right, in
addition to all other remedies available to it, to terminate this Agreement upon
thirty (30) days prior written notice. If the Licensed Products consist of more
than one (1) product and most but not all of such products are not actively
distributed and/or sold during any two (2) consecutive quarters, Smithsonian may
terminate the Agreement entirely or only as to those certain products not being
distributed and/or sold by SOUNDPRINTS. The effective date of such termination
shall be thirty (30) days following receipt of the notice by SOUNDPRINTS.
d.Bankruptcy/Cessation of Business. In the event SOUNDPRINTS enters
into
11
<PAGE> 12
proceedings relating to bankruptcy, whether voluntary or involuntary,
SOUNDPRINTS agrees to furnish, by certified mail, written notification of the
bankruptcy to the Contracting Officer. This notification shall be furnished
within five (5) days of the initiation of the proceedings relating to bankruptcy
filing. This notification shall include the date on which the bankruptcy
petition was filed, the name and location of the court where the petition was
filed and the Smithsonian Institution Contract Number as it appears on the
first page of this Agreement. This obligation remains in effect until final
payment is made under this Agreement. Upon receipt of such notice, and subject
to such approvals as may be required by the bankruptcy court and/or trustee in
bankruptcy, Smithsonian shall have the first and exclusive right to purchase
part or all of SOUNDPRINTS's remaining Smithsonian Products. If Smithsonian
chooses not to purchase the remaining Smithsonian Products, SOUNDPRINTS may
dispose of the remainder consistent with the terms and conditions of this
Agreement and/or the terms and conditions of any arrangement ordered by the
court and/or trustee.
e. Transfer. Smithsonian may terminate this Agreement effective
immediately, at its sole option, if SOUNDPRINTS sells or otherwise disposes of
substantially all of its business or assets to a third party, or control of
SOUNDPRINTS is transferred, or present management of SOUNDPRINTS is changed, or
no longer is involved directly in the day-to-day supervision of SOUNDPRINTS's
performance under this Agreement unless SOUNDPRINTS shall have first obtained
Smithsonian's prior written permission (which will not be reasonably withheld)
to such transfer and/or changes.
f. Excusable Delay. If by reason of the laws, regulations, acts,
demands, orders, or interpositions of any government or any subdivision or agent
thereof; or by acts of God, strike, fire, flood, weather, explosion, accidents,
war, rebellion, insurrection, terrorism or any other cause beyond the control of
either party whether similar or dissimilar to the foregoing SOUNDPRINTS shall be
delayed or prevented from performing this Agreement, such delay or failure to
perform shall be excused during the continuance of and to the extent of such
cause, and the contract period for performance shall be extended for a period
equal to the duration of such cause. If such delay exceeds ninety (90) days,
either party hereto may terminate this Agreement, and all rights and obligations
hereunder shall cease, except that SOUNDPRINTS shall be responsible for all sums
due and owing as of the date of delay.
17. CONDUCT UPON TERMINATION
a. Notice. Upon receipt of a notice of termination from Smithsonian,
SOUNDPRINTS shall cease the manufacture, sale, promotion and distribution of the
Licensed Products immediately, except for the sell-off period as specified in
paragraph b of this section. SOUNDPRINTS shall deliver to Smithsonian within
thirty (30) days of the date of termination a statement indicating the number
and description of Smithsonian Products on hand or in process of being
manufactured at the time of termination.
b. Sell-off. SOUNDPRINTS has the right to dispose of the remaining
inventory for six
12
<PAGE> 13
(6) months following the date of termination, including the right to use
promotional materials developed prior to termination, but only for purposes
directly relating to disposal of remaining inventory. If SOUNDPRINTS intends to
dispose of remaining inventory at a discounted price, SOUNDPRINTS shall notify
Smithsonian in advance and afford Smithsonian the opportunity to buy part or all
such inventory at the reduced price and no royalties would be due on such sales.
If Smithsonian declines to buy the inventory, SOUNDPRINTS may sell it at the
discounted price, provided it pays royalties in accordance with the provisions
of Section 8 of this Agreement. Smithsonian shall have the right to conduct
physical inventories during the six (6) month disposal period following
termination of this Agreement and during normal business hours upon five days
prior written notice to SOUNDPRINTS.
c. Use of Name. Upon termination or expiration of this Agreement,
SOUNDPRINTS shall cease to use the Name and shall not exploit in any manner its
association with Smithsonian, except as authorized during the sell-off period.
These provisions shall survive termination and expiration of this Agreement.
d. Production Materials. All production materials, including molds,
casts, dyes, plates, film or other photographic material, or similar production
necessities containing the Name and first created as a result of this license
shall, at the termination, expiration or other conclusion of this Agreement,
be destroyed or returned to Smithsonian as specified by Smithsonian.
e. Payment. In the event the License granted hereunder is terminated
for any reason, SOUNDPRINTS shall pay immediately to Smithsonian any royalties
accrued (based on sales to date of Smithsonian Products) and unpaid as of the
effective date of such termination and, further, shall pay royalties on Licensed
Products sold during the six (6) month sell-off period in accordance with the
royalty provision of this Agreement. In addition, in the event SOUNDPRINTS
terminates this Agreement for any reason or Smithsonian terminates this
Agreement because of default or violation of the material terms of this
Agreement by SOUNDPRINTS, SOUNDPRINTS shall be obligated to pay Smithsonian the
entire amount of the minimum annual guaranteed royalty payment for entire year
in which the default or termination occurred.
f. Rights. Upon termination or expiration of this Agreement, all rights
granted hereunder shall revert to Smithsonian.
18. CONDUCT UPON EXPIRATION OR RENEWAL OF THE LICENSE PERIOD Smithsonian shall
send a notice of expiration or renewal to SOUNDPRINTS approximately sixty (60)
days prior to expiration of the license period. Upon receipt of either notice,
SOUNDPRINTS shall have fourteen (14) days from receipt of the notice to respond
in writing. Smithsonian may grant such renewal in its sole discretion and may
propose modifications of this Agreement as it deems appropriate. Except as
modified by the parties, the terms and conditions applicable during the renewal
term shall be the same as those contained herein. In the event SOUNDPRINTS fails
to respond within the specified period of time or Smithsonian declines to
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<PAGE> 14
grant renewal, the Agreement shall be deemed terminated and the rights and
obligations of SOUNDPRINTS shall be governed by Section 17 above.
19. RESERVATION OF RIGHTS Notwithstanding any provision contained herein to the
contrary, Smithsonian may license others, including but not limited to firms,
individuals, co-partnerships or corporations to use the Name and trademarks in
connection with other products and, except as specifically granted herein, the
Smithsonian reserves all rights pertaining to the Name and trademarks.
20. AUTHORIZED REPRESENTATIVES
a. Contracting Officer -- For the purposes of liaison and direction in
contractual interpretation matters, dispute resolution, or for modification of
this Agreement, SOUNDPRINTS shall deal with and Smithsonian shall be represented
by the Smithsonian Contracting Officer or his special designee.
b. Contracting Officer's Representative -- For purposes of liaison,
providing guidance and direction in daily operational matters, granting
approvals or withholding same, and for general contract coordination as detailed
herein, the Smithsonian Institution Contracting Officer shall be represented by
Director, Product Development & Licensing.
c. Licensee's Representative -- ("Licensee") For purposes of liaison
and direction in daily operational matters, Licensee shall be represented by
William Burnham, or his or her representative. The Licensee's Representative
shall be responsible for informing the staff of SOUNDPRINTS working on
Smithsonian Products about each and every provision of this contract,
including, but not limited to, Section 3, Approvals.
d. Substitution of Representative -- Smithsonian and Licensee shall
each have the right to change their representatives and designees set forth
herein by providing notice pursuant to Paragraph 21 below. They shall also
advise one another in writing of any substitution for said representatives.
21. NOTICES All correspondence, notices, royalty payments and all other written
communications related to this Agreement in any way shall be delivered by U.S.
certified mail, postage prepaid, return receipt requested, or a similar carrier
requiring signature and receipt.
22. NOTICE. All notices which shall be required to be sent by Smithsonian to
SOUNDPRINTS shall be sent to the following address:
SOUNDPRINTS
353 Main Avenue
Norwalk, Connecticut 06851
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<PAGE> 15
All notices which shall be required to be sent by SOUNDPRINTS to Smithsonian
shall be sent to:
For Contract Coordination: For Contract Matters:
Director Contracting Officer
Product Development & Licensing Office of Contracting and Property Mgmt
Smithsonian Institution Smithsonian Institution
955 L'Enfant Plaza, Suite 8000 955 L'Enfant Plaza, Suite P-114
Washington, DC 20024 Washington, DC 20560
With copy to:
Office of the General Counsel
Smithsonian Institution
1000 Jefferson Drive
Washington, DC 20560
By providing notice pursuant to this paragraph, either party to this Agreement
may change the individuals and/or the address(es) for correspondence, notices,
or royalties that are to be sent.
23. NO PARTNERSHIP This Agreement does not constitute and shall not be construed
as constituting a partnership or joint venture between Smithsonian and
SOUNDPRINTS. Neither party shall have the right to obligate or bind the other in
any manner whatsoever and nothing herein contained shall give or is intended to
give any rights of any kind to any third persons.
24. NO ASSIGNMENT This Agreement and all rights and obligations herein are
personal to SOUNDPRINTS and shall not be assigned without Smithsonian's prior
written consent.
25. DISCLAIMER OF IMPLIED WAIVERS The failure of Smithsonian to insist upon the
strict performance by SOUNDPRINTS of any of the terms of this Agreement, or the
acceptance by Smithsonian of any payments, even partial payments, from
SOUNDPRINTS with knowledge of any default or breach thereof, shall not be
construed as a waiver by Smithsonian of its right to insist at any subsequent
time upon the full performance of any of the terms of this Agreement.
26. CONSTRUCTION This Agreement shall be construed in accordance with the laws
of the District of Columbia regardless of its place of execution or
performance.
27. DISPUTE RESOLUTION Any dispute under this Agreement not resolved by the
representatives of the contracting parties shall be resolved by mediation and
any issues still in dispute following good faith mediation shall be resolved in
Washington, D.C. in accordance with the rules of the American Arbitration
Association in effect on the latest date of the signing of the Agreement, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
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<PAGE> 16
28. NECESSARY SIGNATURES AND CONSENT This Agreement and attached Schedules A
through D constitute the complete understanding of the parties. This Agreement
shall not be deemed effective, final or binding upon Smithsonian or SOUNDPRINTS
until signed by each of them at the appropriate places at the conclusion of the
annexed schedules.
29. SEVERABILITY The terms of this Agreement are severable. If any term or
provision is declared invalid, it shall not affect the remaining terms which
shall continue to be binding.
30. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the
parties and supersedes all previous agreements in this matter. There are no
other written or oral agreements, representations or understandings with respect
to the subject matter of this Agreement. This Agreement and its terms may be
amended, modified, or waived only by written agreement, signed by the authorized
representative of SOUNDPRINTS and the Contracting Officer, Smithsonian
Institution. This Agreement may not be assigned by either party without the
written consent of the other. Schedules incorporated into this Agreement per
Sections 1, 3, 4, 8, 9, 16, and 17 above, begin following this page.
IN WITNESS WHEREOF, THE PARTIES hereto have signed this Agreement in duplicate
originals as of the day and year above written.
SMITHSONIAN INSTITUTION SOUNDPRINTS
/s/ Ronald. F. Cuffe for /s/ William Burnham
- ------------------------ ------------------------
John Cobert William Burnham
Contracting Officer President
June 17, 1997 June 20, 1997
- ------------------------ ------------------------
Date Date
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<PAGE> 17
SCHEDULE A: SMITHSONIAN PRODUCTS
1. As used herein the following words will have these definitions:
REPRODUCTION: A reproduction is a product which is an exact copy of
the original.
ADAPTATION: An adaptation is a product which is a modification and/or
derivative of the original. Through flexible interpretation of the artifact, the
resulting product will have an appearance similar to the original, but may
differ in terms of one or more of the following: function, material, type of
manufacture and/or size or color.
CREATION: A creation is a product resulting from the use of the
Smithsonian Institution's collections and its mission as a source of inspiration
and/or as a reference point. Such an item need not focus on a particular object
in the collections, but rather might be a reflection of the collections as a
whole.
2. Smithsonian Products licensed hereunder
a. The Smithsonian Products will be limited to the following:
children's illustrated storybooks with accompanying toys and audio tapes,
children's plush toys and accompanying illustrated storybooks and audio tapes
developed in conjunction with the following museums: Anacostia Museum, National
Postal Museum, National Museum of Natural History, National Museum of American
History, National Portrait Gallery, National Air & Space Museum.
b. Smithsonian Products will include the following products
(reference number - description), and as photographed in the most recent
SOUNDPRINTS trade catalogue:
Smithsonian Wild Heritage Collection:
1090 - Mountain Goat - 14" toy.
1690 - Wild And Free - 8" toy, 16" toy, book, paper back book, tape.
3001 - Tassel's Mission - 7" toy, 10" toy, book, tape.
3003 - Summer Coat, Winter Coat - 8" toy (white & tan), 11" toy (white & tan),
book, paper back book, tape.
3008 - Heart Of The Arctic - 6" toy, 11" toy, book, tape.
3011 - The Horse's Return to America - 9" toy, 13" toy, book, paper back book,
tape.
3012 - Swan Flyway - 8" toy, 13" toy, book, paper back book, tape.
3013 - Prairie Dog Town - 8 " toy, 11" toy, book, paper back book, tape.
3014 - Puffin's Homecoming - 8" toy, 11" toy, book, paper back book, tape.
3015 - Little Porcupine's Winter Den - 7" toy, 9" toy, book, paper back book,
tape.
3016 - Jackrabbit and the Prairie Fire - 7" toy, 14" toy, book, paper back book,
tape.
3017 - Seasons of a Red Fox - 8" toy, 14' toy, book, paper back book, tape.
3020 - Black Bear Cub - 6" toy, 11" toy, book, paper back book, tape.
3022 - Round-Tailed Muskrat - 8" toy.
3026 - Coyote Pup - 14" toy.
3027 - Grey Wolf Pup - 8" toy, 14" toy, book, paper back book, tape.
3028 - Puma Range - 6" toy, 12" toy, book, paper back book, tape.
3029 - Beaver Stream - 9" toy, 16" toy, book, tape.
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<PAGE> 18
2404 - Stegosaurus - 16" toy, 12" toy, mini toy.
2405 - Triceratops toy.
2406 - Tyrannosaurus - 12" toy.
2407 - Apatosaurus (Brontosaurus) - l7" toy, 15" toy.
2410 - Pterodactyl - 17" toy.
2412 - Wooly Mammoth - 15" toy.
2414 - Stegosaurus toy.
2415 - Triceratops - 16" toy, 12" toy, mini toy.
2416 - Tyrannosaurs - 12'toy, 16" toy.
2417 - Apotosaurus - 17" toy.
Smithsonian Oceanic Collection:
4001 - Dolphin's First Day - 7" toy, 14" toy, book, micro book, tape.
4002 - Seal Pup Grows UP - 7" toy, 14" toy, book, micro book, tape.
4003 - Manatee Winter - 6" toy, 15" toy, book, micro book, tape.
4004 - Orca Song - 6" toy, 13" toy, book, micro book, tape.
4005 - Otter On His Own - 7" toy, 14" toy, book, micro book, tape.
4006 - Great White Shark - 8" toy, 15" toy, book, micro book, tape.
4007 - Sea Turtle Journey - 7" toy, 12" toy, book, tape.
4008 - Coral Reef Hideaway -13" toy, book, tape.
4009 - Little Walrus Warning - plush toy, 12" plush toy, book, tape.
4010 - Lobster's Secret - book.
4011 - The Ice's Edge (The story of a Harp Seal pup) - 13" toy, book.
4012 - Beluga Passage - 12" toy, book, tape.
4057 - Sea Turtle Journey - micro book.
4058 - Coral Reef Hideaway - 7" toy, micro book.
4059 - Little Walrus Warning - micro book.
4060 - Lobster's Secret - 8'plush toy, 16" plush toy, micro book.
4061 - The Ice's Edge (The story of a Harp Seal pup) - micro book, tape, 6' toy.
4062 - Beluga Passage - 6' toy, micro book.
Smithsonian's Backyard Series:
5002 - Skunk at Hemlock Circle - 12'toy, book, tape.
5007 - Robin At Hickory Street - 6" toy, 12" toy, book, micro book, tape.
5008 - Raccoon At Clear Creek Road - 6" toy, 12" toy, book, micro book, tape.
5009 - Ladybug at Orchard Avenue - 9" toy, book, tape.
5010 - Screech Owl at Midnight Hollow - 10" toy, book, tape.
5011 - Armadillo at Riverside Road - 13" toy, book, tape.
5012 - Daddy Longlegs at Birch Lane - 6" toy, book, tape.
5051 - Chipmunk At Hollow Tree Lane - 6" toy, 9" toy, book, micro book, tape.
5052 - Skunk at Hemlock Circle - 6" toy, micro book.
5060 - Screech Owl at Midnight Hollow - 6" toy, micro book.
5061 - Armadillo at Riverside Road - 3.5" toy, micro book.
5052 - Skunk- at Hemlock Circle - 6" toy, 12" toy, book, micro book, tape.
5053 - Fawn At Woodland Way - 6" toy, 12" toy, book, micro book, tape.
5054 - Woodchuck At Blackberry Road - 6" toy, 10" toy, book, micro book, tape.
5055 - Cottontail At Clover Crescent - 6" toy, 12" toy, book, micro book, tape.
5056 - Grey Squirrel At Pacific Avenue - 6" toy, 10" toy, book, micro book,
tape.
5059 - Ladybug at Orchard Avenue - 6" toy, micro book.
5062 - Daddy Longlegs at Birch Lane - micro book, 3.5" toy.
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<PAGE> 19
Smithsonian Odyssey Series:
6001 - One Giant Leap - 11" stuffed Astronaut with voice module,
hardcover book, paperback book, tape.
6002 - The Great Wonder - 6" square X 5' tall modular pyramid, hardcover book,
paperback book, tape.
6003 - The Last Rail - 16" X 20" puzzle, hardcover book, paperback book, tape.
6004 - A Golden Age - 1940's reproduction radio, hardcover book,
paperback book, tape.
c. Any change to these (this) product(s) must be made by amendment and
signed by the parties. Each Smithsonian Product will be accompanied by
appropriate textual material provided and/or approved by Smithsonian.
3. The minimum number of new Smithsonian Products produced each year
(as defined in SCHEDULE C: ROYALTY PAYMENTS) shall be as follows:
A minimum of four (4) to six (6) storybook and toy combinations for a total 42
titles for the period beginning, October 1, 1995 through September 30, 2002.
19
<PAGE> 20
SCHEDULE B: CONCEPT AND DESIGN APPROVALS
Approval Stages
CONCEPT
PRELIMINARY DRAFT MANUSCRIPT
SKETCHES
FINAL MANUSCRIPT
COVER ART
FINAL ART
A production and approval schedule shall be submitted by SOUNDPRINTS for each
new proposed title. This schedule shall be submitted a minimum of six (6) months
prior to the proposed start of development of Smithsonian Products. The
appropriate Smithsonian curator shall agree to SOUNDPRINTS production and
approval schedule prior to the start of the development of Smithsonian Products.
20
<PAGE> 21
SCHEDULE C: ROYALTY COMPENSATION
ROYALTIES
SOUNDPRINTS shall pay Smithsonian the percentage of sales
proceeds listed below as royalty payment. Sales proceeds shall be defined by
Paragraph 8 (b) above, and royalties shall be payable within thirty (30) days of
the end of the calendar quarter. For the purposes of this contract, quarters are
defined as ending September 30, December 31, March 31 and June 30.
- - 5% (five percent) - on wholesale sales of all toys (plush and
otherwise)
- - 5% (five percent) - on wholesale sales of toy/book and or tape
combinations
- - 5% - (five percent) - on books alone
- - 5% (five percent) of all retail/direct response sales (based on the
retail price)
- - 5% (five percent) - on remainders (as defined in Paragraph 14. DISPOSAL
OF SECONDS).
MINIMUM ANNUAL GUARANTEED ROYALTY PAYMENT
SOUNDPRINTS guarantees that it will pay to Smithsonian NO LESS THAN THE
AMOUNTS PER YEAR LISTED BELOW, for the life of this Agreement. In the event that
the annual royalties paid by SOUNDPRINTS do not meet or exceed the guarantee in
any given year, SOUNDPRINTS is obligated to pay Smithsonian the difference
between the sum of amounts paid and the annual guarantee. Annual guarantee
settlement to be made on or before the end date of the contractual year as
listed below.
<TABLE>
<CAPTION>
Defined years: Annual Guarantee:
- -------------- -----------------
<S> <C>
October 1, 1995 through September 30, 1996 $ 80,000
October 1, 1996 through September 30, 1997 $ 85,000
October 1, 1997 through September 30, 1998 $ 90,000
October 1, 1998 through September 30, 1999 $ 95,000
October 1, 1999 through September 30, 2000 $100,000
October 1, 2000 through September 30, 2001 $105,000
October 1, 2001 through September 30, 2002 $110,000
</TABLE>
21
<PAGE> 22
SCHEDULE D: TRADEMARK AND DESIGN PROTECTION AGREEMENT
RE: Sample/Purchase Orders and Manufacturing Contracts for:
Dear Sir or Madam:
Our company may be entering into Sample/Purchase Order Contract or
other manufacturing arrangements with you in the near future and would like to
take this opportunity to call to your attention the basis upon which we will
enter such arrangements.
Pursuant to our agreements, we may be providing you with certain
designs and art work and requisitions for finished items (including samples),
piece goods and trim, packaging, business materials or labels, among other
things. By accepting our instructions, orders, or contracts, your firm agrees
that it has only a limited, non-transferable right to use any trademarks,
characters, designs, names, symbols, and/or other materials copyrighted, or
owned by the Smithsonian Institution or any of its affiliates. You agree that
such Material shall not be used by your firm at any time for any purpose other
than that for which they were placed in your trust, i.e. in fulfillment of
sample/purchase orders and/or manufacturing arrangements, and you shall exercise
due diligence so that they are not made available to third parties. No rights
shall remain in your firm or its employees or agents as to such material of
Smithsonian and you agree that to the extent your firm may acquire any rights to
said material, such rights shall revert to Smithsonian, or its affiliates, as
the case may be, without any further act of the parties hereunder. All materials
containing the aforementioned Material will be returned promptly at any time
Smithsonian requests such return, but in any event no later than when the
finished product is shipped to SOUNDPRINTS.
Please place the acknowledgment signature of two (2) of your executive
officers in the space provided below and return one signed copy of this letter
to the undersigned as soon as possible. Thank you for your cooperation.
Respectfully yours,
By:________________________ By:________________________
Title:_____________________ Title:_____________________
[SPECIMEN ONLY -- DO NOT SIGN)
22
<PAGE> 23
SMITHSONIAN INSTITUTION
WASHINGTON, D. C. 20560
S.I. Contract #RPC-700038-0002
AMENDMENT #2 Fund #121830038
WHEREAS the SMITHSONIAN INSTITUTION and TRUDY CORPORATION (herein
called TMC/SOUNDPRINTS) entered into a Licensing Agreement on August 11, 1988
(Fund #21830038; Contract PC #700038), for the Development of Licensed Products;
and
WHEREAS both parties now deem it of mutual interest and benefit to
amend the said License Agreement;
NOW, THEREFORE, the parties hereby amend the said License Agreement as
follows:
Paragraph 6: License Period
Amend to extend the license period from January 31, 1994 to January 31,
1997
SCHEDULE C: ROYALTY COMPENSATION:
MINIMUM ANNUAL GUARANTEED ROYALTY PAYMENT
TMC/SOUNDPRINTS guarantees that it will pay to SMITHSONIAN no less than
$40,000 per year, for the life of this agreement. In the event that the annual
royalties paid by TMC/SOUNDPRINTS do not meet or exceed the guarantee in any
given year, TMC/SOUNDPRINTS is obligated to pay SMITHSONIAN the difference
between the sum of amounts paid and the annual guarantee. Annual guarantee
settlement shall be made within thirty (30) days of the Anniversary date of this
agreement.
Unless "years" are defined differently below, each "year" shall be
defined as ending on the anniversary date of this Agreement.
All other terms and conditions of said license agreement remain unchanged and in
full force and effect.
SMITHSONIAN INSTITUTION TRUDY CORP./SOUNDPRINTS
/s/ Robert Perkins /s/
- --------------------------- ---------------------------
Robert Perkins Name Vice President
Contracting Officer
7-21-93 6/4/93
- --------------------------- ---------------------------
Date Date
<PAGE> 1
Exhibit: 10.26FT
AGREEMENT
FOR
REASSIGNMENT
OF
PROMISSORY NOTE
THIS AGREEMENT is entered into as of the 21st day of January 1998, by
and between Futech Educational Products, Inc., an Arizona corporation
("Futech"), Newtech Consulting, Inc., an Arizona corporation ("Newtech") and
Vincent W. Goett, a married man dealing with his sole and separate property
("Goett"). Collectively, Futech, Newtech and Goett, will be known as the
"Parties."
RECITALS:
A. Newtech sold all of its intellectual and other property to
Futech under two separate agreements (see Exhibits A and B for
"Agreement for Purchase and Sale of Assets" dated October 29,
1997 and January 20, 1998 respectively).
B. Futech purchased Newtech's property for the sum of the
following:
1. $2 million promissory note ("Note");
2. $300,000.00 cash;
3. 9 million shares of the common stock of Futech;
4. Maximum of $25,000.00 in Newtech liabilities.
C. Goett is acknowledged as 50% owner of Newtech and entered into
a Stock Redemption Agreement with Newtech on January 20, 1998
(see Exhibit C) whereby Goett redeems his total ownership in
Newtech for $300,000.00 in cash, 5 million shares of the
common stock of Futech and 50% of the $2 million Note.
D. The Parties collectively desire to reassign the original $2
million Note so that $1 million will be due and owing from
Futech directly to Newtech and Goett each.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, and intending to be legally bound, the
Parties hereto agree as follows:
TERMS:
1. Reassignment of $2 million Note
1.1 The Parties agree that under the same terms and
conditions of the original Note (see Exhibit A), that
the Note shall be reassigned and divided equally
between Newtech and Goett. Newtech and Goett shall
receive equal interest and consideration by Futech in
everything related to principal, interest, collateral
and security as it relates to the Note.
1.2 Newtech and Goett agree that the same terms and
conditions of the original Stock Redemption Agreement
(Exhibit C) apply.
<PAGE> 2
2. Representations and Warranties
2.1 All representations and warranties from the original
agreements, Exhibits A, B and C, shall apply without
exception or modification.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
21st day of January, 1998.
"Futech"
/s/ Vincent W. Goett
- ------------------------------
Print Name and Title
"Newtech"
/s/ Vincent W. Goett
- ------------------------------
Print Name and Title
"Goett"
/s/ Vincent W. Goett
- ------------------------------
Print Name and Title
<PAGE> 3
Resolution and Reconciliation
For and Between
Vincent W. Goett and Futech Interactive Products, Inc.
This Agreement, which is effective January 22, 1998, documents the
reconciliation and agreement to finalize specific accounts related to loan and
payroll activities between Vincent W. Goett ("Goett") and Futech Interactive
Products. Inc. ("Futech").
1. As of December 31, 1997 the following audited and reconciled amounts existed
on Futech's accounting records:
<TABLE>
<CAPTION>
Debit Credit
----- ------
<S> <C> <C>
02388 - Due to Vince Goett $1,157,432.72
02100 - Accrued Salaries and Wages (a) $675.000.00
</TABLE>
(a) All due and owing Goett less applicable state and federal payroll taxes:
<TABLE>
<S> <C>
Gross Salary $675.000.00
Total Payroll Taxes -323,620.82
-----------
Net Due to Goett $351,379.18
===========
</TABLE>
2. As of January 21, 1998, Vincent W. Goett was owed $1,000,000.00 (One
million dollars) for his portion of the sale of Newtech Consulting
Inc.'s assets to Futech through a reassignment of a promissory note.
3. It is the desire of Goett and Futech to net the balances for the
aforementioned items as follows:
<TABLE>
<S> <C>
Promissory Note - Due to Vincent W. Goett $1,000,000.00
Net Payroll - Due to Vincent W. Goett 351,379.18
Total Due to Vincent W. Goett $1.351,379.18
Less: Due from Vincent W. Goett (02388) 1,157,432.72
-------------
Net Due to Vincent W. Goett $ 191,946.46
=============
</TABLE>
"Futech" "Goett"
/s/ Vincent W. Goett /s/ Vincent W. Goett
- ---------------------------- -------------------------------
<PAGE> 1
Exhibit: 10.26T
[Smithsonian Institution Letterhead]
March 3, 1999
Mr. William Burnham
President
Soundprints
353 Main Avenue
Norwalk, CT 06851-1552
Re: Consent to Assignment for S.I. Licensing Agreement
#RC9-721003-0001.
Dear Mr. Burnham:
Enclosed please an executed Consent to Assignment which allows Soundprints to
assign the above-referenced license agreement on the condition that the new
company, Futech, accepts all rights and obligations without limitation.
If you have any questions or concerns, please do not hesitate to call. Good
luck with the merger.
Sincerely,
/s/ Sherylle Mills
- --------------------------------
Sherylle Mills, Esq.
Contract Negotiator
<PAGE> 1
Exhibit: 10.27FT
CONSULTING AGREEMENT
This Consulting Agreement ("Contract") is entered into this 28th day of January,
1998 (the "Effective Date") by and between FUTECH EDUCATIONAL PRODUCTS, INC. an
Arizona corporation, having offices at 2999 North 44th Street, Phoenix, Arizona
85018 ("FUTECH"), and Stephen McTaggart., a Married man ("Consultant").
In consideration of the mutual premises, covenants and undertakings set forth
herein, the parties hereby agree as follows:
I. DEFINITIONS.
1.1 "TECHNOLOGY", as used in this Contract, means concepts, designs,
manufacturing methods, processes, flow charts, algorithms, computer hardware and
software, models, prototypes, automations, designs, "know how", data and
technical information whether in human or machine readable form, inventions
(whether or not patentable), works of authorship, mask works, products, and
related information and things developed by (or on behalf of) Consultant, alone
or in conjunction with others.
1.2 "CONFIDENTIAL INFORMATION" of a Providing Party, as used in this Contract,
means any and all Technology and/or information related to the products or
operations of the Providing Party, including but not limited to trade secrets,
"know how", business practices, financial and marketing information, the
identities of customers, vendors, suppliers, subcontractors, consultants, and
the existence or terms of contracts or agreements to which the Providing Party
is a party, (including all details and information contained in this Contract)
which is provided to the Recipient Party, or to which the Recipient Party
otherwise obtains access, pursuant to or as a result of this Contract Except
such information which: (a) at the time of this Contract is clearly publicly and
openly known; (b) after the date of this Contract becomes publicly and openly
known through no fault of the Recipient Party; (c) comes into the Recipient
Party's possession and lawfully obtained by the Recipient Party from a source
other than from the Providing Party, and not subject to any obligation of
confidentiality or restrictions on use; (d) is approved for release by written
authorization of the Providing Party
1.3 "FIELD OF PUBLISHING", and "PUBLISHING FIELD" as used in this Contract,
means books, sound pads, sound games (games that contain a book component
incorporating the Technology or are part of a book incorporating Technology) and
puzzles for children
II. SCOPE OF WORK.
2.1 Consultant shall employ its best efforts to perform the design, creation,
development, testing and/or support services requested by FUTECH for
modifications of and improvements to its existing technology and products, and
development of new technology and products applicable to the Field of Publishing
(the "Consulting Services"). Consultant shall deliver to FUTECH any related work
product (the
<PAGE> 2
"Deliverables") as may be set forth in a Description of Work from time-to-time
In the form of Exhibit "A" attached hereto. Consultant shall devote adequate
resources to continuing product development and modifications of and
improvements to FUTECH's existing technology and products, and development of
new technology and products applicable to the Field of Publishing to maximize
exploitation of
2.2. FUTECH shall provide Consultant access to, and use of, FUTECH's
Confidential information, Technology, products, facilities, and equipment to the
extent necessary for Consultant to fulfill its obligations under this Contract,
and solely for use in connection with Consultant's performance of Consulting
Services under this Contract. Consultant shall not employ or retain any other
person or entity to perform Consulting Services in connection with this Contract
without FUTECH's prior written consent. Any such person or entity employed or
retained by Consultant shall agree in writing to be bound to the terms of this
Contract. Consultant (and persons employed or retained by Consultant) shall
comply with FUTECH's rules and policies regarding access to, and use of, its
Confidential Information, facilities and equipment.
2.3 Except as provided in Section 1.2 or in Description of Work, Consultant
shall provide at its expense for its use all other facilities, services,
personnel, equipment, materials and supplies used in connection with this
Contract, and Consultant shall pay any and all expenses incidental to its
performance of this Contract. Consultant shall perform Consulting Services
hereunder in a timely and professional manner, using state-of-the-art
information, technology and materials, as appropriate. All tasks performed and
Deliverables provided by Consultant hereunder shall be completed in a
workman-like manner, and shall conform to relevant industry standards and to
all other specifications and standards set forth in any Description of Work.
2.4 Consultant shall not remove anything comprising or embodying Confidential
Information of FUTECH, whether created or developed by Consultant or FUTECH,
from FUTECH's premises without FUTECH's express written consent.
2.5 Consultant shall perform Consulting Services hereunder at FUTECH's premises
or at such other location as may be agreed upon by the parties.
III. PROJECT SCHEDULE ACCEPTANCE: CHANGES.
3.1 Consultant shall perform all Consulting Services and deliver all
Deliverables according to any project schedule set forth in any Description of
Work.
3.2 Acceptance testing of Consulting Services and Deliverables, if necessary,
shall be conducted by FUTECH to ensure compliance with the specifications and
acceptance criteria set forth in any Description of Work. During testing and
until Consultant's work has been accepted by FUTECH, Consultant shall continue
to perform Consulting Services as
<PAGE> 3
requested by FUTECH and make all necessary modifications and corrections to
Deliverables within the scope of work described in any Description of Work.
3.3 Upon acceptance by FUTECH of the Consulting Services and Deliverables,
Consultant shall deliver to FUTECH any Deliverables and other materials
comprising or embodying Technology including, if applicable, fully-commented
source code and final copies of related software in machine-readable and
executable object code and all related documentation. If applicable, Consultant
shall submit to FUTECH preliminary drafts of all required documentation for
review and approval by FUTECH according to the schedule set forth in any
Description of Work.
3.4 Consultant acknowledges that FUTECH may change the specifications and
project schedule set forth in any Description of Work from time to time upon
timely notice to Consultant. Consultant shall use its best efforts to abide by,
and to perform in accordance with, such changed specifications and project
schedule.
IV. RIGHTS TO TECHNOLOGY,
4.1 Subject to the terms and conditions of this Contract, Consultant hereby
grants to FUTECH, for the term of this Contract, a worldwide, paid-up, exclusive
license, with right of sublicense, under any and all intellectual property
rights it may have or hereafter acquire, to make, have made, use, and sell,
products in the Field of Publishing incorporating, embodying, or comprising
Technology, and to use the Technology in connection with making such products in
the Field of Publishing.
4.2 No license to intellectual property rights of FUTECH are granted to
Consultant under this Contract, except insofar as necessary for Consultant to
perform hereunder. Consultant shall not take any action, or make any omission,
which tends to impair or diminish FUTECH's rights in its intellectual property.
4.3 Consultant shall, during the term of this Contract, as appropriate, promptly
communicate to FUTECH all Technology which relates to this Contract made or
conceived by Consultant acting alone or in conjunction with others.
4.4 During the term of this Contract, in addition to the license of Paragraph
4.1, FUTECH shall have a Right of First Refusal with respect to all Technology
(whether or not in the Field of Publishing), as follows:
(a) Before Consultant offers rights to Technology to any third party, such
rights to Technology shall initially be offered to FUTECH. The initial offer to
FUTECH, unless earlier rejected, shall remain open for a period of not less than
fifteen (15) days.
(b) If the response to the initial offer is a counter-offer, and the counter
offer is rejected, before any proposed agreement with any third party on terms
not clearly more favorable to Consultant than the counter-offer is entered, the
proposed agreement shall be
<PAGE> 4
provided to FUTECH, who shall then have a period of three (3) business days from
receipt of such proposed agreement in which to match the terms of the proposed
agreement.
(c) If a proposed agreement is provided to FUTECH in the form of a letter of
intent, failure to exercise the right to match the terms on the basis of the
letter of intent shall be deemed an express waiver of the right with respect to
any definitive agreement conforming to the letter of intent.
4.5 At FUTECH's request and expense, during the term of this Contract,
Consultant shall obtain, maintain, perfect, and protect intellectual property
rights in the Technology, including maintaining confidentiality, and/or filing,
prosecuting, maintaining and enforcing Patent rights in the Technology, as
appropriate. Futech may, at its sole discretion, decline to pay the costs of
obtaining, prosecuting or maintaining patent protection of an item of Technology
in one or more countries. If Futech declines to pay the costs of obtaining,
prosecuting or maintaining patent protection of an item of Technology in one or
more countries, Consultant may pursue and maintain such patent protection at its
own expense, and such item of Technology shall be excluded from the License and
Right of First Refusal hereunder with respect to those countries.
V. CONTRACT PRICE PAYMENT.
5.1 FUTECH shall pay to Consultant a flat fee of $300,000 per year, together
with any adjustments or other consideration described in any Description of Work
(the "Contract Price") for the Consulting Services and Deliverables provided
under this Contract. FUTECH shall pay the Contract Price in equal monthly
installments.
5.2 Consultant shall be solely responsible for income, franchise, employment
withholding or other taxes based upon Consultant's income or gross receipts.
5.3 All cash payments shall be by FUTECH's check payable to Consultant's order.
Consultant shall not assign or encumber its rights or obligations under this
Contract without FUTECH's prior written consent.
VI. INDEMNIFICATION.
6.1 Consultant shall indemnify and hold FUTECH harmless from all expenses,
liabilities and damages, including attorneys' fees, relating to any willful or
negligent act or omission or any breach of this Contract by Consultant or anyone
acting at its direction.
VII. NO CONFLICTING AGREEMENTS.
<PAGE> 5
7.1 Consultant represents and warrants that it has not entered (and agrees that
it will not enter) into any agreement (including but not limited to an
employment or non-competition agreement), whether express, implied, oral or
written, which poses an impediment to Consultant's performance under this
Contract.
VIII. CONFIDENTIALITY NON-COMPETITION
8.1 During the term of this Contract and thereafter, neither party shall use or
disclose to any third party, except as provided herein, Confidential Information
of the other party. The parties acknowledges that any unauthorized disclosure or
use of Confidential Information will cause irreparable injury to the Party
providing the Confidential Information. Consultant acknowledges, however, that
Futech (and its sublicensees) are authorized to make, have made, use, and sell,
products in the Field of Publishing incorporating, embodying, or comprising
Technology. To the extent that Technology is, pursuant to this Contract and in
good faith, and with due concern for maintaining confidentiality to the extent
possible, embodied or reflected in a product sold or otherwise distributed to
the public by Futech or its sublicensee, and such products may inherently
disclose, or make accessible by reverse engineering, that which is to that point
otherwise Confidential Information, such disclosure is authorized.
8.2 Consultant acknowledges that in order for Consultant to perform its services
under this Contract FUTECH will impart to Consultant significant Confidential
Information. Consultant further acknowledges that Futech is participating in a
Joint Venture (JV) with a third party (Golden Books Publishing Company), that
Futech is granting a sublicense to the JV, and is undertaking certain
obligations in connection with those transactions which are intended to be
fulfilled through this Contract. To protect the integrity of FUTECH's
Confidential Information, and in recognition of the obligations undertaken by
FUTECH in reliance on the services to be provided hereunder and rights and
licenses granted herein, Consultant shall not, without prior written consent
from FUTECH's President, perform or engage to perform consulting services for
any manufacturer or supplier of a product or service in the Field of Publishing,
or that otherwise directly relate to the subject matter hereof, at any time
during the term of this Contract and for a period one year thereafter. In
furtherance of the limitations under this Section 8.2, Consultant shall notify
FUTECH not less than one month prior to Consultant engaging to provide
consulting services for any such third party; provided, however, that no such
notice shall be required beyond one year after termination of this Contract.
8.3 Details of this Contract, including all matters discussed in any Description
of Work, constitute Confidential Information, and are not to be discussed with
persons other than FUTECH's President and other FUTECH employees designated by
FUTECH's President. Consultant shall not publicize its contractual relationship
with FUTECH or the nature of its work for FUTECH, and shall not use FUTECH's
name for reference or other purposes, without the prior written consent of
FUTECH.
8.4 Articles VI (Indemnification), and VIII (Confidentiality; Non-competition)
shall survive termination (for any reason) of this Contract.
<PAGE> 6
8.5 At any time upon FUTECH'S request, all documents and things which relate to
or embody Confidential Information, including all copies thereof, then in
Consultant's possession or control, or the possession or control of its
employees, agents or subcontractors, whether prepared by Consultant or others,
and all equipment and materials provided or paid for by FUTECH, shall be
promptly delivered to FUTECH. Upon termination of this Contract, Consultant
agrees to promptly return all documents and things which relate to or embody
Confidential Information, and Consultant shall not retain any copies thereof.
8.6 The parties agree that a violation of any of the provisions of Article IV
(Rights to Technology) , Article VII (No Conflicting Agreements) or this Article
VIII (Confidentiality; Non-competition) will cause irreparable injury to the
aggrieved party and that the aggrieved party shall be entitled, in addition to
any other rights and remedies it may have, at law or in equity, to injunctive
relief enjoining and restraining such violations or threatened violations.
IX. TERM AND TERMINATION.
9.1 This Contract shall be for a term of three (3) years from the date hereof,
and shall automatically renew for a period of two (2) years (the "Renewal Term")
if neither party provides written notice to the other of its intent not to renew
at least ninety (90) days prior to expiration of the initial term.
9.2 FUTECH shall have the right to terminate this Contract at any time with
Cause - (as hereafter defined) upon notice to Consultant. If termination is
without Cause, FUTECH shall provide Consultant with ten (10) days written notice
of termination. A termination shall be with "Cause" if any of the following
events of default occur:
(a) Consultant materially breaches or defaults in performance of its obligations
under this Contract; or
(b) Consultant becomes bankrupt, insolvent, or makes an assignment for the
benefit of creditors, reorganizes or files any application or petition seeking
relief under any federal or state law generally affecting the rights of
creditors that makes FUTECH insecure in the protection of its Confidential
Information unless FUTECH shall receive adequate assurances of future
performance that include protection of the Confidential Information; or
(c) FUTECH determines, in its sole discretion, that Consultant is unable to
fulfill its obligations under this Contract and, upon request, Consultant is
unable to provide reasonable assurances of future performance.
9.3 Consultant shall have no right to suspend performance or terminate this
Contract in the event of any breach or default, or alleged breach or default, by
FUTECH. In the event of a claim by Consultant that FUTECH has breached or
otherwise defaulted on its
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<PAGE> 7
obligations hereunder, FUTECH and consultant shall negotiate in good faith to
cure such alleged breach or default to the satisfaction of each party. If FUTECH
and Consultant are unable to resolve such dispute after negotiating in good
faith, Consultant's remedies shall be limited to seeking an award of damages
pursuant to Article IX.
9.4 If this Contract is terminated Consultant shall be paid for work
performed prior to termination.
X. CHOICE OF LAW, DISPUTE RESOLUTION
10.1 This Agreement is made under, and shall be governed by and construed in
accordance with the laws of the United States and the internal laws of the State
of Arizona, without reference to principles of conflicts of law. Any controversy
or claim arising out of or relating to this Agreement shall be settled in
accordance with the binding dispute resolution procedure set forth in this
Article X (the "Dispute Resolution Procedure"):
10.2 The parties shall arbitrate disputes in accordance with the Arbitration
Rules of the American Arbitration Association (AAA) insofar as they are not
modified by the following provisions. In the event that these modifications are
in conflict with the rules then in effect of the AAA, these modifications shall
take precedence.
10.3 All controversies or claims arising out of or relating to this Contract, or
the breach thereof, shall be subject to resolution pursuant to this section.
However, judicial proceedings may be brought without need for prior arbitration:
by either party, for interim relief pending resolution pursuant to this section
of the Contract; or by Consultant for nonpayment by Futech of undisputed fees.
10.4 To initiate the Dispute Resolution Procedure, the aggrieved party shall
first provide written notice to the other party specifying the issues in dispute
and its position on those issues and identifying, with particularity, the
individuals believed to be most directly involved in the dispute, all
individuals believed to have personal knowledge of facts pertinent to the
dispute, and all relevant documents and things. Such notice must be given while
the Contract is in effect or within three years after the termination of this
Contract, or the aggrieved party's right to redress is entirely waived.
10.5 Within 14 days of receipt of the notice, the receiving party shall make
written response specifying its position on the issues in dispute, and
identifying, with particularity, the individuals believed to be most directly
involved in the dispute, all individuals believed to have personal knowledge of
facts pertinent to the dispute, and all relevant documents and things. The
parties shall in good faith attempt to negotiate a solution to the controversy
for a further period of 14 days after the written response. If no written
response is filed or the dispute is not resolved during the negotiation period,
the aggrieved party shall file a demand for arbitration in writing with the
other party and with the AAA.
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<PAGE> 8
10.6 The initiation of arbitration by written notice as specified above shall
toll any statute of limitations or time limitation on damages applicable to the
dispute. The parties will continue to comply with all provisions and
requirements of this Agreement pending the outcome of arbitration.
10.7 The dispute shall be submitted to and a decision rendered by a single
neutral arbitrator who is (a) agreeable to both parties, or (b) if agreement
cannot be reached within 21 days of initiation of the proceedings, chosen
pursuant to AAA rules, from a panel of arbitrators familiar with U.S. Federal
Rules of Civil Procedure and Federal Rules of Evidence, and the design and
manufacture of technology based products (the "Arbitrator"). Except as otherwise
provided herein, all decisions and awards shall be made by the Arbitrator.
10.8 It shall be the Arbitrator's responsibility to exert management initiative
and control over the arbitration, including discovery and scheduling, so that a
just decision is reached as quickly as possible and at minimum expense to the
parties. The Arbitrator will manage and schedule proceedings, make orders and
issue subpoenas for discovery, establish protective orders to maintain
confidentiality of proprietary information, decide discovery and evidentiary
disputes, and shall enforce his orders by assessing costs and/or fines and/or by
directing findings on issues where appropriate. Final decisions of the
Arbitrator shall be binding. Any time period set forth herein may be shortened,
or extended by agreement of the parties and the arbitrator.
10.9 After the arbitration notice has been filed, the parties shall, before the
hearing thereof, cooperate in discovery and mandatory disclosure of all matters
relevant to such dispute, to the extent and in the manner provided by the
Federal Rules of Civil Procedure, including making their employees, agents, and
experts available for depositions. Discovery and disclosure shall be completed
within three months after filing of the notice of arbitration.
10.10 Within thirty (30) days of the close of the discovery period or such other
time period as agreed to by the parties and Arbitrator, the panel shall meet and
hold a hearing in Phoenix, Arizona, or such other location agreed to by the
parties and the Arbitrator. The panel shall meet and hold a hearing in Phoenix,
Arizona, or such other location agreed to by the parties and the Arbitrator.
Either party and/or the Arbitrator can by written notice at least five (5)
working days in advance of the hearing require attendance at the hearing of any
individual having personal knowledge of facts pertinent to the dispute. The
hearing shall, in general, be governed by the U.S. Federal Rules of Civil
Procedure and Federal Rules of Evidence, except that the signed written
statements submitted by the parties shall be used in Lieu of direct testimony.
10. 11 Within 10 working days of the end of the hearing, each party may serve on
each other and the arbitrator a post-hearing brief of no more than 15 pages in
length. Within 10 working days of service of the other party's post hearing
brief, a party may file a reply brief. The reply brief shall be limited to 5
pages in length and shall address only the issues and arguments raised in the
other party's post hearing brief.
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<PAGE> 9
10.12 The arbitrator shall consider the record, and parties' briefs and, within
20 working days of the hearing, provide to the parties, by express courier, a
tentative ruling (the "Tentative Ruling"). The Tentative Ruling shall be in
writing and shall state the arbitrator's decision and with particularity, the
arbitrator's reasoning for the decision. No issues or arguments that are not
fairly presented in the record shall be considered by the arbitrator. The
decision shall be based solely upon the evidentiary record and the Tentative
Ruling shall not raise issues or arguments not addressed in by the parties.
10.13 Either party may, if it desires, within 10 working days of receipt of the
Tentative Ruling, serve on the Arbitrator and on the other party, by express
courier, a statement of exceptions ("Statement of Exceptions"). The Statement of
Exceptions shall be limited to 10 pages in length and shall address only issues
and arguments raised in Tentative Ruling or omitted in the Tentative ruling but
raised in the parties' position statements and relevant to the decision.
10.14 If the other party serves a Statement of Exceptions, a party may, within 5
working days of receipt of the Statement of Exceptions, serve, by express
courier, on the arbitrator and on the other party, a response (the "Response").
The Response shall be limited to 10 pages in length and shall address only the
issues and arguments raised in the Statement of Exceptions.
10.15 Upon written request of any party, or the Arbitrator, served on both
parties and the Arbitrator as applicable by facsimile or express courier, within
5 working days of receipt of the Tentative Ruling, a hearing shall be held
(which may be by telephone conference call upon agreement of the parties) within
20 working days of the request. At such a hearing, if held, only issues or
arguments that are fairly presented in the Statement of Exceptions and/or
Response shall be considered, and no new evidence shall be considered. Unless
otherwise agreed by the parties, the hearing shall be conducted as follows:
(a) First the party submitting the Statement of Exceptions, and then the
Responding party, in secession, shall make an oral presentation of its position
and rebuttal of the other party's position. No issues or arguments That are not
fairly presented in the Statement of Exceptions and/or Response shall be raised
or made, and no reference to shall be made to any new evidence. Each
presentation shall be limited to 15 minutes.
(b) A period, limited to one half hour, shall then be provided for the
arbitrator to ask questions regarding party's positions.
10.16 The arbitrator shall consider the Statement of Exceptions and Response,
if any, and, within 40 working days of service of the Tentative Ruling, render a
Final Ruling and a written award. The final ruling shall state the arbitrator's
decision and with particularity, the arbitrator's reasoning for the decision,
and may comprise as much or as little of the Tentative Ruling as the arbitrator
deems appropriate. The written award shall specify the final judgment of the
Arbitrator without any reasons in support of the award. The award
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<PAGE> 10
shall be final and binding on the parties as to each other. The Arbitrator shall
have the power to award any remedy provided under the applicable laws. Judgment
upon the award maybe entered and enforced in any court having jurisdiction
thereof at the request of either party.
10.17 The party demanding arbitration shall pay the arbitration management fees
of the AAA. Initially, the parties shall each pay 50% of the fees of the
Arbitrator, and shall each bear their own costs of arbitration. However, at the
time of the award, the Arbitrator shall direct the losing party to pay the other
party its reasonable legal fees and other costs of arbitration unless the
circumstances call for a different result.
XI. ASSIGNMENT: RELATIONSHIP OF PARTIES.
11.1 Neither party may not assign or subcontract this Contract without the prior
written consent of the other party.
11.2 Consultant is acting as an independent contractor in its performance under
this Contract. Neither Consultant nor any of its employees shall represent that
it is an employee or agent of FUTECH in performing hereunder.
XII. NOTICES.
12.1 AU notices arid other written communications required to be given under
this Contract shall be in writing and shall be deemed to have been duly given if
delivered to the addressee in person, mailed by registered or certified mail,
return receipt requested, or transmitted via telecopy to the number below:
If to Consultant:
Stephen McTaggart.
Fax: 805-407-3536
If to FUTECH: FUTECH EDUCATIONAL PRODUCTS, INC.
2999 N. 44th Street #225
Phoenix, Arizona 85018
Attn: Vince Goett, President
Fax:(602) 808-8765
Either party may change the address at which notice is to be given by notifying
the other party in writing. Notices shall be deemed delivered upon delivery, if
personally delivered, three (3) days after deposit in the United States mail, if
mailed, and upon receipt of acknowledgment, if delivered by telecopy.
XIII. MISCELLANEOUS.
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<PAGE> 11
13.1 Entire Agreement. This Contract constitutes the full and entire
understanding and agreement between the parties with regard to the subject
hereof and this Contract supersedes, merges and renders void every other prior
written and/or oral understanding or agreement relating to the subject hereof
among or between the parties hereto.
13.2 Amendment. This Contract shall not be altered or amended except by a
written agreement signed by the parties hereto.
13.3 Severability. In the event any term or provision of this Contract is
declared to be invalid or illegal for any reason, this Contract shall remain in
full force and effect and the same shall be interpreted as though such invalid
and illegal provision were not a part thereof The remaining provisions shall be
construed to preserve the intent and purpose of this Contract and the parties
shall negotiate in good faith to modify the provisions held to be invalid or
illegal to preserve each party's anticipated benefits thereunder.
13.4 Titles and Subtitles. The titles of articles and sections of this Contract
are for convenience of reference only and are not to be considered in construing
this Contract.
13.5 Counterparts. This Contract may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
13.6 Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to FUTECH shall impair any such right, power or remedy of
FUTECH, nor shall it be construed to be a waiver of any breach or default under
this Contract, or an acquiescence therein, or in any similar breach or default
thereafter occurring; nor shall any delay or omission to exercise any right,
power or remedy or any waiver of any single breach or default be deemed a waiver
of any other right, power or remedy or breach or default theretofore or
thereafter occurring. All remedies either under this Contract or by law
otherwise afforded to FUTECH shall be cumulative and not alternative.
13.7 IN WITNESS WHEREOF, the parties hereto have executed this Contract as
of the date first written above.
FUTECH EDUCATIONAL PRODUCTS, INC
<PAGE> 12
By /s/ Vince Goett
Vince Goett, President
FUTECH
By /s/ Stephen McTaggart
Stephen McTaggart, Secretary
CONSULTANT
EXHIBIT "A"
<PAGE> 13
DESCRIPTION OF WORK
1. Description of Work and Deliverables:
A. Consultant shall perform the following work:
(1) Brochure Project Phase I incorporating
foam board.
(2) Scroll Toy Prototype Project
B. In connection with the above-referenced work, Consultant shall
deliver the following to FUTECH:
Description Date of Delivery
----------- ----------------
(1) New Circuitry Design Feb. 14th 1998
(2) PLB Prototype Boards Feb. 14th 1998
(3) Interactive Voice Script Feb. 14th 1998
(4) 4 Workable Prototypes for inspection Feb. 14th 1998
(5) Vanilla models - Scott Leuthold to attach art work and Dress up.
C. Consultant's work shall conform to the following
specifications and will be accepted by FUTECH only upon
compliance with such specifications:
II. Removal of Documents from FUTECH's Premises:
<PAGE> 14
Services"). Subject to its obligations to maintain them in confidence as
provided in the attached Agreement, Consultant is authorized to remove the
following confidential documents, equipment and/or information from FUTECH's
premises:
(2)
(3)
(4)
(5)
Consultant is authorized to use the foregoing documents and information at the
following location, and without the prior written consent of FUTECH, such
documents and information may not be removed to any other location:
[Note to FUTECH: Insert name and address of Consultant's place of business or
other location where Consultant is permitted to use FUTECH's Confidential
Information.]
III. Modifications (if any) to Contract Prices
14
<PAGE> 1
Exhibit: 10.27T
TRUDY CORPORATION
1987 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of TRUDY CORPORATION, and of its affiliated
corporations upon whose judgment, initiative and efforts the Corporation
depends for the successful conduct of its business, to acquire a closer
identification of their interests with those of the Corporation by providing
them with a more direct stake in its welfare, thereby stimulating their
efforts on the Corporation's behalf and strengthening their desire to remain
with the Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.5 "Corporation" means TRUDY CORPORATION, a Delaware corporation, or its
successor.
<PAGE> 2
2.6 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after March 1,
1987.
2.7 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish.
2.8 "Plan" means this 1987 Stock Option Plan.
2.9 "Incentive Stock Option" means an option which qualifies as an
incentive stock option as defined in Section 422A of the Code, as amended.
2.10 Non-Qualified Option means any option not intended to qualify as an
incentive stock option.
2.11 "Stock" means the Common Stock, $.01 par value, of the Corporation or
any successor, including any adjustments in the event of changes in capital
structure of the type described in Article IX.
ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan shall be administered by the Board
of Directors of the Corporation. The Board may, from time to time, delegate any
of its functions under this plan to one or more committees.
3.2 Powers. The Board of Directors shall have full and final authority to
operate, manage and administer the Plan on behalf of the Corporation. This
authority includes, but is not limited to:
-2-
<PAGE> 3
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of the instruments evidencing
Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the incentive
features of the Plan, and otherwise to prescribe regulations for
interpretation, management and administration of the Plan,
(e) The power to delegate responsibility for Plan operation, management
and administration on such terms, consistent with the Plan, as the Board may
establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but not limited
to, banks, insurance companies, brokerage firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of the
Corporation, the Board shall have full and final authority in its discretion:
(a) to determine the number of shares of Stock subject to each Option, (b)
to determine the time or times at which Options will be granted, (c) to
determine the Option price of the shares of Stock subject to each Option, which
price shall be not less than the minimum price specified in Article V of this
-3-
<PAGE> 4
Plan, and (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V.
In no event may the Company grant an Employee Incentive Stock Options that
are first exercisable during any one calendar year to the extent the aggregate
fair market value of the Stock (determined at the time the options are granted)
exceeds $100,000.
ARTICLE IV
Eligibility
4.1 Eligible Employees. All Employees, (including Directors who are
employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this plan.
4.2 Consultants, Directors and Other Non-Employees. Any Consultant,
Director (who is not an employee) and any other non-employee is eligible to be
granted Non-Qualified Option Awards under the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employee to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An Employee who has been granted an Award may be
granted one or more additional Awards, if the Board so determines.
-4-
<PAGE> 5
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 45,000,000 shares. The shares to be delivered
upon exercise of Options under this Plan shall be made available, at the
discretion of the Board, either from authorized but unissued shares or from
previously issued and reacquired shares of Stock held by the Corporation as
treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an Option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, such shares shall thereafter be available for the granting of other
Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder shall
be for such period as the Board shall determine. In the case of Incentive Stock
Options granted hereunder, the term shall not exceed ten years from the date of
granting thereof. Each Option shall be subject to earlier termination as
provided in Sections 6.3, 6.4 and 6.5.
-5-
<PAGE> 6
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but
in no event less than par value), provided than no Incentive Stock Option shall
be granted hereunder to any Employee if at the time of grant, the Employee,
directly or indirectly, owns Stock possessing more than 10% of the combined
voting power of all classes of stock of the Corporation and its Affiliated
Corporations unless the Incentive Stock Option price equals not less than 110%
of the fair market value of the shares covered thereby at the time the
Incentive Stock Option is granted.
5.5 Non-Transferability of Options. No Option granted under this Plan
shall be transferrable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
ARTICLE VI
Exercise of Option
6.1 Exercise. Each Option granted under this Plan shall be exercisable on
such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing
such Option.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such
-6-
<PAGE> 7
election and of the number of shares he or she has elected to purchase and
shall at the time of exercise tender the full purchase price of the shares he
or she has elected to purchase. The purchase price can be paid partly or
completely in shares of the Corporation's stock. Until such person has been
issued a certificate or certificates for the shares so purchased, he or she
shall possess no rights of a record holder with respect to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, and employee of
the Corporation or an Affiliated Corporation) shall be affected by any change
of duties or position of the optionee (including transfer to or from an
Affiliated Corporation), so long as he or she continued to be an Employee. If
the optionee shall cease to be an Employee for any reason other than death,
such Option shall thereafter be exercisable only to the extent of the purchase
rights, if any, which have accrued as of the date of such cessation; provided
that (i) the Board may provide in the instrument evidencing any Option that the
Board may in its absolute discretion, upon any such cessation of employment,
determine (but be under no obligation to determine) that such accrued purchase
rights shall be deemed to include additional shares covered by such Option and,
(ii) unless the Board shall otherwise provide in the instrument evidencing any
Option, upon any such cessation of employment, such remaining
-7-
<PAGE> 8
rights to purchase shall in any event terminate upon the earlier of (a) the
expiration of the original term of the Option or (b) where such cessation of
employment is on account of long-term disability, the expiration of one year
from the date of such cessation of employment and, otherwise, the expiration of
three months from such date.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution (the
"personal representative"), the right to exercise any Options theretofore
granted, may, unless otherwise provided by the Board in any instrument
evidencing any Option, exercise such Options at any time prior to one year from
the date of death; provided, that such Option or Options shall expire in all
event no later than the last day of the original term of such Option; provided,
further, that any such exercise shall be limited to the purchase rights which
have accrued as of the date when the optionee ceased to be an Employee, whether
by death or otherwise, unless the Board provides in the instrument evidencing
such Option that, in the discretion of the Board, additional shares covered by
such Option may become subject to purchase immediately upon the death of the
optionee.
6.5 Previously Granted Incentive Stock Options. No Incentive Stock
Option shall be exercisable by any optionee while there is outstanding any
Incentive Stock Option which was previously granted to such optionee to purchase
Stock in the Corporation.
-8-
<PAGE> 9
shall be deemed to be outstanding until such Incentive Stock Option shall have
been exercised in full or shall have expired by reason of lapse of time.
ARTICLE VII
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for
any purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
ARTICLE VIII
Amendment, Suspension or Termination
of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted under Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article IX relation to capital changes, the
number of shares as to which Options may be granted pursuant to Article V;
-9-
<PAGE> 10
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the Plan.
Awards granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE IX
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject to
adjustment in the event of changes in the outstanding Stock of the Corporation
by reason of Stock dividends, Stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of an Award to the same extent as would
affect an actual share of Stock issued and outstanding on the effective date of
such change. Such adjustment to outstanding Options shall be made without
change in the total price applicable to the unexercised total price applicable
to the unexercised portion of such Options, and a corresponding adjustment in
the applicable Option price per share shall be made. In the event of any such
change, the aggregate number and classes of shares for which Options may
thereafter be granted under Section 5.1 of this Plan may be appropriately
adjusted or determined by the Board so as to reflect such change.
-10-
<PAGE> 11
ARTICLE X
Effective Date and Term of the Plan
The Plan shall become effective on March 1, 1987. The Plan shall continue
until such time as it may be terminated by action of the Board; provided,
however, that no Options may be granted under this Plan on or after the tenth
anniversary of the effective date hereof.
-11-
<PAGE> 1
Exhibit: 610.28.01
[FUTECH Letterhead]
PROMISSORY NOTE
$1,130,000.00 Phoenix, Arizona
6/1/1995
For the value, the undersigned ("Maker") promises to pay to Vincent W.
Goett or order ("Holder"), the total sum of One Million One Hundred Thirty
Thousand Dollars ($1,130,000.00) ("Principal Balance"). The Principal Balance
consists of a loan principal of Eight Hundred Fifty Thousand Dollars
($850,000.00) ("Loan") and a financing fee of Two Hundred Eighty Thousand
Dollars (%280,000.00) ("Fee"). Interest shall accrue from the date hereof until
paid in full at the rate of ten percent (10%) per annum. ("Note Rate"). The
entire principal balance and accrued interest shall be due and payable on or
before three (3) months from the date of this Note, or September 1, 1995
("Maturity"). Interest will continue to accrue on any unpaid Principal Balance
after Maturity and interest payments will be made to Holder on a quarterly basis
at the Note Rate plus six percent (6%).
Payment of this Note shall be in lawful money of the United States of
America at such address as Holder designates.
Notices are effective on personal delivery, or three (3) days after deposit
in the U.S. mail, postage prepaid, certified mail, sent to the address below.
Maker agrees to pay all collection costs. Collection costs include, without
limitation, reasonable attorneys' fees if this Note is placed in the hand of
attorneys for collection or suit, together with all court costs and other
expenses so incurred by Holder. Any sums not paid within ten (10) days after its
due date shall accrue interest at the rate of six percent (6%) greater than the
Note Rate until the default is cured.
This Note shall be governed by and construed in accordance with Arizona
law.
Dated as set forth above.
FUTECH EDUCATIONAL PRODUCTS, INC.
By: /s/ Shawn L. Lechter
-----------------------------
[ARIZONA STATE SEAL]
Its: President
- --------------------------------- -----------------------------
OFFICIAL SEAL ("Maker")
CONNIE CORBETT
Notary Public - State of Arizona
MARICOPA COUNTY
My Comm. Exp. Apr. 24, 1999 Attested by: /s/ Charles M. Foley
- --------------------------------- --------------------
Its: CFO
Attested by: /s/ Vincent W. Goett
--------------------
Its: CEO
STATE OF ARIZONA
COUNTY OF MARICOPA
The foregoing instrument was acknowledged before me this 1 day of June, 1995.
My commission expires 4/24/99 Connie Corbett
--------------------------
Notary Public
<PAGE> 1
Exhibit: 10.29FT
FINANCING AGREEMENT
DATE: August 1, 1995
REPUBLIC ACCEPTANCE CORPORATION
2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
We propose the following arrangement with you for borrowing from you based upon
the loan value of our "accounts" and our "inventory" (as those terms are defined
in the Uniform Commercial Code) secured by a security interest in accounts,
inventory, equipment and other collateral, as granted to you by the Security
Agreement between us of even date herewith (the "Security Agreement").
SECTI0N I. (LOAN AGREEMENT)
At our request, you in your sole discretion may advance to us (a) up to
seventy percent (70%) (or any greater or lesser percentage, at your absolute
discretion) of the net amount of accounts which are listed on current schedules
provided by us which are deemed eligible for advance by you ("Eligible
Accounts", which term shall exclude, without limitation, all accounts derived
from consignment sales), provided that the maximum aggregate amount advanced
against Eligible Accounts and outstanding from time to time shall not exceed
$7,000,000; plus (b) up to forty-five percent (45%) (or any greater or lesser
percentage, at your absolute discretion) of inventory which is listed on a
current schedule provided by us which is deemed eligible for advance by you
("Eligible Inventory") consisting of "Stock Inventory" (as such term is defined
in the glossary attached hereto as Exhibit A), provided that the maximum
aggregate amount advanced against Eligible Inventory consisting of Stock
Inventory and outstanding from time to time shall not exceed $2,800,000; plus
(c) (subject to clause (s) of Section VI below) up to ten percent (10%) (or any
greater or lesser percentage, at your absolute discretion) of Eligible Inventory
consisting of "Slow Moving Inventory" (as such term is defined in the glossary
attached hereto as Exhibit A), provided that the maximum aggregate amount
advanced against Eligible Inventory consisting of Slow Moving Inventory and
outstanding from time to time shall not exceed $30,000; plus (d) up to
twenty-five (25%) (or any greater or lesser percentage, at your absolute
discretion) of Eligible Inventory consisting of "Returned Inventory" (as such
term is defined in the glossary attached hereto as Exhibit A), provided that the
maximum aggregate amount advanced against Eligible Inventory consisting of
Returned Inventory and outstanding from time to time shall not exceed $150,000;
plus (e) (subject to clause (s) of Section VI below) up to twenty-five percent
(25%) (or any greater or lesser percentage, at your absolute discretion) of
Eligible Inventory consisting of "Western Inventory" (as such term is defined in
the glossary attached hereto as Exhibit A), provided that the maximum aggregate
amount advanced against Eligible Inventory consisting of Western Inventory and
outstanding from time to time shall not exceed $250,000, which limit shall
decline by $100,000 on October 1, 1995 and then $50,000 per month on the first
day of each month thereafter until January 1, 1996, at which time no further
advances will be made against Western Inventory; plus (f) up to twenty percent
(20%) (or any greater or lesser percentage, at your absolute discretion) of
Eligible Inventory or Eligible Accounts consisting of "On Account Collateral"
(as such term is defined in the glossary attached hereto as Exhibit A), provided
that the maximum aggregate amount advanced against On Account Collateral and
outstanding from time to time shall not exceed $300,000; provided, however, that
notwithstanding the preceding clauses (b) through (f), the maximum aggregate
amount advanced against all Eligible Inventory and outstanding from time to time
shall not exceed $2,800,000, and provided further, that notwithstanding the
preceding clauses (a) through (f), the maximum aggregate amount advanced against
all Eligible Accounts and all Eligible Inventory and outstanding from time to
time shall not exceed $7,000,000. Loans for additional sums requested by us may
be made at your sole discretion based upon your valuation of other collateral or
other factors. All amounts advanced shall be due on demand. Nothing set forth in
this Financing Agreement (this "Agreement"), the Security Agreement or any other
agreement between you and us shall in any way limit your discretion to make or
not make loans to us hereunder or your right at any time to demand payment of
our obligations to you hereunder. In furtherance of and not in limitation of the
foregoing, we understand that you may from time to time impose reserves against
Eligible Accounts and/or Eligible Inventory, which reserves will have the effect
of reducing the percentage rates set forth above.
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 1 of 7
<PAGE> 2
You may from time to time furnish us with a statement of account. Any
such statement shall be conclusive on us unless written objections thereto
calling your attention to any differences we have are received by you within 60
days after the statement is mailed or delivered to us.
SECTION II. (CHARGES)
(A) We agree to pay interest on the net balance owed to you at the
close of each day computed on the basis of actual days elapsed and a year of 360
days which is equal to the reference rate of interest publicly announced from
time to time by First Bank National Association (the "Reference Rate") plus an
additional amount (the "Increment") of three and three-quarters percent (3.75%).
If our audited financial statements for our 1995 fiscal year show a net profit
after distributions permitted by Section VI(i) of this Agreement, of more than
$200,000, the foregoing interest rate will be reduced to the Reference Rate plus
an Increment of three and one-half percent (3.50%), effective on the first
calendar day of the second month following your receipt of such financial
statements. If our audited financial statements for our 1996 fiscal year show a
net profit after distributions permitted by Section VI(i) of this Agreement of
more than $500,000, the foregoing interest rate will be reduced to the Reference
Rate plus an Increment of three and one-quarter percent (3.25%), effective on
the first calendar day of the second month following your receipt of such
financial statements. If we are in material default or breach of any provision
of this Agreement or any other agreement between us, we agree to pay interest on
the net balance owed to you at the close of each day computed on the basis of
actual days elapsed and a year of 360 days which is equal to the Reference Rate
plus an Increment which is double the amount of the Increment which would
otherwise then be in effect. As used in this clause (A), the term "material"
conclusively includes without limitation, any default or breach which exists for
a period of more than ten days, provided, however, that the ten-day period shall
not imply that a material default or breach cannot exist before the expiration
of such ten-day period. Moreover, the reference to a material default or breach
shall not affect the demand, uncommitted nature of our borrowings from you, and
we understand, acknowledge and agree that you may at any time cease making such
borrowings available to us and that you may at any time demand payment in full
of all of the liabilities, obligations and indebtedness we owe you.
(B) There will be a minimum interest charge net to you of $15,000 per
month (the "Minimum Charge") for the first twenty-four (24) months from the date
of this Agreement until such time that this Agreement is terminated. We further
agree that if we give notice to you of the termination of this Agreement under
Section VIII hereof at any time prior to twenty-four (24) months from the date
of this Agreement, we will pay to you at the time of termination a prepayment
charge in an amount equal to the Minimum Charge for each month remaining from
the time of termination until the date twenty-four (24) months after the date of
this Agreement as additional compensation for your costs of entering into this
Agreement, provided, however, that if such termination occurs after the first
twelve (12) months after the date of this Agreement, and such termination
results from any of your affiliates providing us with a credit facility
replacing the credit governed by this Agreement, no such prepayment charge will
be due.
(C) We further agree to pay you a fee in an amount of $1,000 per
examination for not more than four examinations of our assets in each
twelve-month period, plus your out-of-pocket costs and expenses incurred in
connection with such examinations, provided, however that the four examination
limit shall not apply if we are in default or breach of any provision of this
Agreement or any other agreement between us. Such fee, costs and expenses will
be due and payable to you upon our receipt of your invoice therefor.
(D) We further agree to pay you a closing fee of $10,000.00 upon
execution of this Agreement.
(E) We further agree to pay you an annual management fee of $10,000.00
upon execution of this Agreement and upon each anniversary of the date of this
Agreement while this Agreement is in effect. We further agree that if we give
notice to you of the termination of this Agreement under Section VIII hereof at
any time prior to twelve (12) months from the date of this Agreement, we will
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 2 of 7
<PAGE> 3
pay to you at the time of termination an additional prepayment charge in an
amount equal to the management fee which otherwise would be payable on the
first anniversary of the date of this Agreement.
(F) We further agree to pay you a wire transfer charge of $15.00 per
wire transfer of loan advances to our account.
SECTION III. (LISTING ACCOUNTS)
(A) Prior to or concurrently with our initial borrowing hereunder, and
within ten days after the end of each month thereafter, we shall furnish you a
list and aging of all accounts owned by us, in form satisfactory to you; and
weekly or at other intervals mutually agreed upon, we will deliver to you a list
of all accounts created or acquired by us since our previous list and aging of
accounts.
(B) Prior to or concurrently with our initial borrowing hereunder, and
within ten days after the end of each month thereafter, we will furnish you with
a list of our inventory, in form satisfactory to you, setting forth the value of
such inventory at the lower of cost or market, together with written reports,
certified as correct by one of our officers, showing all sales of merchandise,
returns and allowances, collections, and all miscellaneous charges and credits
affecting the collateral. Each inventory list must set forth the required
information as to each of the following categories of inventory: Stock
Inventory, Slow Moving Inventory, Returned Inventory, Western Inventory and On
Account Inventory.
(C) Prior to or concurrently with our initial borrowing hereunder, and
within ten days after the end of every second month thereafter, an inventory
aging by individual book or product title, grouped by publisher or vendor and
the return policy in effect for each such publisher or vendor.
(D) Prior to or concurrently with our initial borrowing hereunder, and
within ten days after the end of each month thereafter, we shall furnish you
with (i) an aging of all accounts owned by us, and (ii) an aging of all of our
accounts payable, all in form satisfactory to you.
(E) We warrant that, except as may be disclosed in the lists of
accounts furnished to you: each billing correctly states the subject matter and
terms of sale; the merchandise conforms thereto and is in all respects
acceptable to the customer; the date of billing is not prior to shipment; the
account is not subject to any dispute, defense, offset or counterclaim; the
account debtor is not a subsidiary or affiliated company; and that we have no
reason to believe the account will not be paid in the regular course of
business. We will notify you promptly of any events, circumstances or
communications which make the foregoing representation inaccurate, if such
events, circumstances or communications involve more than $10,000 in the
aggregate in any one month.
SECTION IV. (CUSTODY AND INSPECTION OF RECORDS, HANDLING OF COLLECTIONS)
(A) Subject to the rights granted to you in paragraph 4 of the Security
Agreement, all ledger sheets or cards, invoices, shipping records,
correspondence, and other writings relating to accounts shall, until delivered
to you or removed by you from our premises, be kept on our premises without cost
to you in appropriate containers in safe places.
(B) Collection of accounts and all other amounts due to us shall be
subject to the provisions of paragraph 4 of the Security Agreement concerning
the lockbox and collateral account. Any such collections that may come into our
possession shall be held by us in trust for you, and shall not be mingled with
any other funds. We shall remit all such collections to you in kind, duly
endorsed, on the same day if practical, otherwise on the following business day.
You will credit all collections deposited into the collateral account when they
have been so deposited and we have notified you of the same (subject to final
collection thereof). You will, however, at the end of each month, charge our
account an amount which is equal to the amounts of all checks credited to our
account during such month, time two days worth of interest. You will deposit
into the collateral account all collections remitted by
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 3 of 7
<PAGE> 4
us to you in kind when they have been so deposited (subject to final collection
thereof), after allowing two days for collection of checks.
(C) You may remove from our premises all books and records,
correspondence, documents and files relating to accounts; and you may without
cost or expense to you use such of our personnel, supplies, space and equipment
at our place of business as you may desire for the handling of collections. We
will pay any and all internal, office and out of pocket expenses and cost of
collection (including reasonable attorney fees) incurred by you in your handling
of or effort to enforce collections.
(D) We will permit you or your representatives, at all reasonable
times, to examine or inspect our assets, wherever located, and to examine,
inspect and copy our books and records pertaining to our assets and our business
and financial condition.
SECTION V. (REPORTS)
We will furnish or cause to be furnished to you from time to time such
information concerning our business, assets, liabilities and financial condition
as you may reasonably request, including, without limitation, (a) on or before
the thirtieth day of each month, financial statements of the prior month
(including, at minimum, certified balance sheets, income statements and cash
flow statements) certified as correct by one of our officers; (b) annually,
within 105 days of our fiscal year end at our expense, (i) our complete audited
financial statements (including, at a minimum, a balance sheet, an income
statement and a cash flow statement), certified by an independent certified
public accountant satisfactory to you, and (ii) a personal financial statement
for Gary R. Billings; (c) upon issuance, copies of all public accountants'
reports rendered to us while we are indebted to you; (d) within five days after
the due date, proof of payment or deposit, when due, of all withholding and
F.I.C.A. taxes owing by us from time to time; and (e) within 30 days of filing,
the federal income tax return of Gary R. Billings.
SECTION VI. (WARRANTIES, REPRESENTATIONS AND COVENANTS)
We warrant, represent to and covenant with you that we shall not: (a)
permit any levy, attachment or restraint to be made affecting any of our assets;
(b) permit any receiver, trustee or assignee for the benefit of creditors to be
appointed to take possession of any or all of our assets. Except with your prior
written consent, we shall not: (c) other than in the ordinary course of our
business, sell, lease or otherwise dispose of or transfer any of our assets; (d)
merge or consolidate with any other corporation; (e) acquire any other
corporation; (f) enter into any transaction not in the usual course of our
business; (g) make any investment in the securities of any person, association,
firm, entity or corporation other than securities of the United States of
America; (h) guarantee or otherwise become in any way liable with respect to the
obligations of any person, association, firm, entity or corporation except by
endorsement of instruments or items of payment for deposit to our general
account or which are transmitted or turned over to you on account of our
obligations; (i) pay or declare any dividends upon our capital stock, except for
such dividends in any one fiscal year as are necessary to satisfy the federal
income tax liabilities of our shareholders for the previous fiscal year, which
tax liabilities are directly attributable to our earnings during such preceding
fiscal year; (j) redeem, retire, purchase or otherwise acquire directly or
indirectly any of our capital stock; (k) make any change in our capital
structure or in any of our business objectives, purposes and operations which
might in any way adversely affect our ability to repay our obligation; (l) make
any distribution of our property or assets; (m) incur any debts outside of the
ordinary course of our business except renewals or extensions of existing debts
and interest thereon; (n) make any loan, advance, contribution or payment of
money or goods to any subsidiary, affiliated or parent corporation or to any
officer, director or stockholder (except compensation for services rendered or
loans not to exceed $10,000 in the aggregate at any one time outstanding); (o)
encumber, pledge, assign or permit to be created a lien or security interest in
any collateral subject to your security interest; (p) set up, rent, purchase,
lease or otherwise establish any retail outlet for our merchandise not in
existence on the date of this Agreement. We further covenant with you that: (q)
if there is filed in our pending litigation against Western Publishing, any
pleading seeking any court action relating to a settlement thereof, we will give
you contemporaneous written notice thereof; (r) any and all proceeds recovered
in connection with said litigation, whether received pursuant to a settlement, a
judgment or otherwise, will immediately be used by us first to reduce
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 4 of 7
<PAGE> 5
advances with respect to Western Inventory, and then to reduce advances with
respect to Slow Moving Inventory; and (s) immediately after the consummation of
any portion of such settlement or the partial satisfaction of any such judgment,
Western Inventory and Slow Moving Inventory shall cease to be Eligible
Inventory. All covenants, representations and warranties set forth in this
agreement and in any other agreements executed by us in connection herewith and
all terms, conditions, provisions and agreements to be performed by us pursuant
to this agreement and such other agreements shall survive the execution and
delivery of such agreements and the making or payment of any loans hereunder.
SECTION VII. (MISCELLANEOUS)
(A) We agree that you may from time to time, for your convenience,
segregate or apportion the collateral for purposes of determining the amounts
and maximum amounts of loans and advances which may be made hereunder.
Nevertheless, your security interest in all such collateral, and any other
collateral rights, interests and properties which may now or hereafter be
available to you, shall secure and may be applied to the payment of any and all
loans, advances and other indebtedness secured by your security interest, in any
order or manner of application and without regard to the method by which you
determine to make loans hereunder.
(B) We hereby irrevocably make, constitute and appoint you, or any
person whom you may designate, our true and lawful attorney with power to
receive, open and dispose of all mail addressed to us; to endorse our name on
any notes, acceptances, checks, drafts, money orders or other means of payment
that may come into your possession as payment of or upon accounts or other
collateral; to endorse our name on any invoice, freight or express bill or bill
of lading relating to any collateral; to sign our name to drafts against account
debtors, to assignments and verification of accounts and notices thereof to
account debtors, and to documents of title covering any Collateral, and to do
all other things necessary or proper to carry out the intent of this agreement.
(C) At your request, we will deliver customers' monthly statements to
you for examination and for mailing in our stamped addressed envelope. From time
to time, you may verify directly with customers the amounts owing, or at your
request, we or our independent accountants will do so and deliver the results to
you in any manner satisfactory to you.
(D) We agree that any bank participating with you in loans to us
hereunder may exercise any and all rights of banker's lien or set-off with
respect to such participation as fully as if such participant had lent directly
to us the amount of such participation.
(E) We agree to reimburse you for all reasonable attorney fees, filing
fees, and other out-of-pocket expenses (including but not limited to travel
expenses) you may incur in connection with the negotiation and administration of
this agreement or any related agreements, preparation of documents relating
thereto, perfecting any security interest or lien granted thereby, inspecting
our books, records, premises, business and operations, or enforcing any of our
obligations to you arising under and any of your rights and remedies under or in
connection with this or any other agreement between us. If you elect, you may
treat the amount of any such expense as a loan to us and add the amount to the
net balance owed to you hereunder.
(F) This agreement shall bind and inure to the benefit of you and us
and your and our respective successors and assigns. This agreement, and all
assignments of collateral shall be construed pursuant to the laws of the State
of Minnesota.
SECTION VIII. (TERMINATION)
This agreement shall continue in effect until terminated upon at least
30 days' prior written notice delivered by certified mail by either party to the
other. Termination shall not impair or affect your rights and your obligations
existing as of the time of termination.
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 5 of 7
<PAGE> 6
SECTION IX. (WAIVER OF JURY TRIAL JURISDICTION)
(A) BY OUR EXECUTION AND DELIVERY HEREOF, AND BY YOUR ACCEPTANCE
HEREOF, EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT OF A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, OR
ARISING FROM ANY CREDIT RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT,
AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
(B) WE HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY MINNESOTA
STATE OR FEDERAL COURT SITTING IN HENNEPIN OR RAMSEY COUNTY, MINNESOTA, OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. WE HEREBY
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT WE MAY EFFECTIVELY DO SO, THE DEFENSE
OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. WE
AGREE THAT A JUDGMENT, FINAL BY APPEAL OR EXPIRATION OF TIME TO APPEAL WITHOUT
BEING TAKEN, IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.
REPUBLIC ACCEPTANCE CORPORATION XYZ GROUP, INC., a/k/a XYZ DISTRIBUTORS
Secured Party Debtor
By /s/ D E Shoemaker By /s/ Gary R. Billings
------------------------------ -----------------------------------
Title Account Executive Title President
-------------------------- ---------------------------------
By /s/ Carol Cypert
---------------------------------
Title Controller
---------------------------------
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 6 of 7
<PAGE> 7
Exhibit A to Financing Agreement
Glossary of Terms
"On Account Collateral" means (i) inventory which has been returned to us by our
customers, but is not Returned Inventory, or (if) accounts reflecting the sale
of such inventory, but not both.
"Returned Inventory" means inventory which has been returned to us by our
customers which has been inspected by us and which is carried on our books and
records for an amount which includes a deduction for any damage noted during
such inspection.
"Slow Moving Inventory" means such inventory as may be agreed upon from time to
time by you and us to constitute Slow Moving Inventory, but which is not Western
Inventory.
"Stock Inventory" means all inventory other than On Account Inventory, Returned
Inventory, Slow Moving Inventory and Western Inventory, and which meets the
following standards: (i) it is new and unused, (if) it is not unsaleable in the
marketplace due to age or quality or any other reason, and (iii) it is in good
condition.
"Western Inventory" means all inventory acquired by us from Western Publishing.
REPUBLIC ACCEPTANCE 10/94 Financing Agreement Page 7 of 7
<PAGE> 1
Exhibit: 10.30FT
AMENDMENT TO
FINANCING AGREEMENT
This Amendment to Financing Agreement, dated as of July 25, 1996
("Amendment"), is made by and between XYZ GROUP, INC., a/k/a XYZ DISTRIBUTORS, a
Wisconsin corporation (the "Borrower") and REPUBLIC ACCEPTANCE CORPORATION, a
Minnesota corporation ("Republic").
WHEREAS, the Borrower and Republic have entered into a Financing
Agreement dated as of August 1, 1995 (the "Agreement"); and
WHEREAS, the obligations and indebtedness of the Borrower to Republic
under the Agreement are secured, inter alia, by a Security Agreement dated as of
August 1, 1995 between the Borrower and Republic (the "Security Agreement"); and
WHEREAS, Republic and the Borrower desire to amend the Agreement in
order to amend certain of the provisions therein, upon the terms and conditions
set forth herein,
NOW THEREFORE, in consideration of the premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree to be bound as follows:
Section 1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement.
Section 2. Amendments.
2.01 Section I of the Agreement is hereby amended to read as
follows:
At our request, you in your sole discretion may
advance to us (a) up to seventy percent (70%) for the period
of August 1 through January 31 for each calendar year and up
to eighty percent (80%) for the period of February 1 through
July 31 for each calendar year (or any greater or lesser
percentage, at your absolute discretion) of the net amount of
accounts which are listed on current schedules provided by us
which are deemed eligible for advance by you ("Eligible
Accounts," which term shall exclude, without limitation, all
accounts derived from consignment sales), provided that the
maximum aggregate amount advanced against Eligible Accounts
and outstanding from time to time shall not exceed $7,000,000;
plus (b) up to forty-five percent (45%) for the period of
August 1 through January 31 for each calendar year and up to
fifty percent (50%) for the period of February 1 through July
31 for each calendar year (or any greater or lesser
percentage, at your absolute
<PAGE> 2
discretion) of inventory which is listed on a current schedule
provided by us which is deemed eligible for advance by you
("Eligible Inventory") consisting of "Stock Inventory" (as
such term is defined in the glossary attached hereto as
Exhibit A), provided that the maximum aggregate amount
advanced against Eligible Inventory consisting of Stock
Inventory and outstanding from time to time shall not exceed
$2,800,000; plus (c) up to twenty percent (20%) (or any
greater or lesser percentage, at your absolute discretion) of
Eligible Inventory consisting of "Returned Inventory" (as such
term is defined in the glossary attached hereto as Exhibit A,
provided that the maximum aggregate amount advanced against
Eligible Inventory consisting of Returned Inventory and
outstanding from time to time shall not exceed $150,000; plus
(d) up to twenty percent (20%) (or any greater or lesser
percentage, at your absolute discretion) of Eligible Inventory
or Eligible Accounts consisting of "On Account Collateral" (as
such term is defined in the glossary attached hereto as
Exhibit A), provided that the maximum aggregate amount
advanced against On Account Collateral and outstanding from
time to time shall not exceed $300,000; provided, however,
that notwithstanding the preceding clauses (b) through (d),
the maximum aggregate amount advanced against all Eligible
Inventory and outstanding from time to time shall not exceed
$2,800,000, and provided further, that notwithstanding the
preceding clauses (a) through (d), the maximum aggregate
amount advanced against all Eligible Accounts and all Eligible
Inventory and outstanding from time to time shall not exceed
$7,000,000. Loans for additional sums requested by us may be
made at your sole discretion based upon your valuation of
other collateral or other factors. All amounts advanced shall
be due on demand. Nothing set forth in this Financing
Agreement (this "Agreement"), the Security Agreement or any
other agreement between you and us shall in any way limit your
discretion to make or not make loans to us hereunder or your
right at any time to demand payment of our obligations to you
hereunder. In furtherance of and not in limitation of the
foregoing, we understand that you may from time to time impose
reserves against Eligible Accounts and/or Eligible Inventory,
which reserves will have the effect of reducing the percentage
rates set forth above.
2.02 Section II (A) of the Agreement is hereby amended to read
as follows:
We agree to pay interest on the net balance owed to
you at the close of each day computed on the basis of actual
days elapsed and a year of 360 days which is equal to the
reference rate of interest publicly announced from time to
time by First Bank National Association (the
-2-
<PAGE> 3
"Reference Rate") plus an additional amount (the "Increment")
of three and one-quarter percent (3.25%). If our audited
financial statements for our 1996 fiscal years show a net
profit after distributions permitted by Section VI (i) of this
Agreement, of more than $500,000, the foregoing interest rate
will be reduced to the Reference Rate plus an increment of two
and three-quarters percent (2.75%), effective on the first
calendar day of the month following your receipt of such
financial statements. If we are in material default or breach
of any provision of this Agreement or any other agreement
between us, we agree to pay interest on the net balance owed
to you at the close of each day computed on the basis of
actual days elapsed and a year of 360 days which is equal to
the Reference Rate plus an Increment which is double the
amount of the Increment which would otherwise then be in
effect. As used in this clause (a), the term "material"
conclusively includes without limitation, any default or
breach which exists for a period of more than ten days,
provided, however, that the ten-day period shall not imply
that a material default or breach shall not affect the demand,
uncommitted nature of our borrowings from you, and we
understand, acknowledge and agree that you may at any time
cease making such borrowings available to us and that you may
at any time demand payment in full of all of the liabilities,
obligations and indebtedness we owe you.
2.03 Section II (B) of the Agreement is hereby
amended to read as follows:
There will be a minimum interest charge net to you of
$15,000 per month (the "Minimum Charge") for the first
thirty-six (36) months from the date of the Agreement (August
1, 1995), until such time that this Agreement is terminated.
We further agree that if we give notice to you of the
termination of this Agreement under Section VIII hereof at any
time prior to thirty-six (36) months from the date of this
Agreement, we will pay to you at the time of termination a
prepayment charge in an amount equal to the Minimum Charge for
each month remaining from the time or termination until the
date thirty-six (36) months after the date of this Agreement
as additional compensation for your costs of entering into
this Agreement, provided, however, that if such termination
occurs after the first twelve (12) months after the date of
this Agreement, and such termination results from any of your
affiliates providing us with a credit facility replacing the
credit governed by this Agreement, no such prepayment charge
will be due.
Section 3. Conditions to Effectiveness of Amendment. This Amendment
shall not become effective until, and shall become effective as the date first
written above when, each of the following provisions shall have been fulfilled:
-3-
<PAGE> 4
3.01 Republic shall have received this Amendment, duly
executed by the Borrower;
3.02 Republic shall have received a copy of the resolutions of
the Board of Directors of the Borrower ratifying and authorizing the execution,
delivery and performance of this Amendment, certified as true and accurate by
the Borrower's Secretary or Assistant Secretary;
3.03 Republic shall have received a consent to the execution
and delivery of this Amendment by the Borrower and reaffirmation of related
undertakings in the form of Exhibit A hereto, duly executed by each of Gary R.
Billings; and
3.04 Republic shall have received such other documents as
Republic may reasonably request.
Section 4. Acknowledgments. The Borrower acknowledges and agrees that
its obligations to Republic under the Agreement and exist and are owing without
offset, defense or counterclaim assertable by the Borrower against Republic. The
Borrower further acknowledges and agrees that its obligations to Republic under
the Agreement, as amended, constitute "Obligations" within the meaning of the
Security Agreement and are secured by the Security Agreement, as amended.
Section 5. Effect of Amendments; Representations and Warranties; No
Waiver. Republic and the Borrower agree that after this Amendment becomes
effective, the Agreement, as hereby amended, shall remain in full force and
effect. The Borrower warrants and represents that on and as of the date hereof
and after giving effect to this Amendment, (i) all of the representations and
warranties contained in the Agreement are correct and complete, as of the date
hereof, and (ii) there will exist no Event of Default under the Security
Agreement on such date. The Borrower represents and warrants that the Borrower
has all power and legal right and authority to enter into this Amendment.
Section 6. Incorporation of Agreement and Other Loan Documents by
Reference; Ratification of Loan Documents Except as expressly modified under
this Amendment, all of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants and representations of
the Borrower under the Agreement, the Security Agreement, and any and all other
documents and agreements entered into with respect to the obligations under the
Agreement (collectively, the "Loan Documents") are incorporated herein by
reference and are hereby ratified and affirmed in all respects by the Borrower.
All references in the Agreement to "this Agreement," "herein," "hereof," and
similar references, and all
-4-
<PAGE> 5
references in the other Loan Documents to the "Agreement," shall be deemed to
refer to the Agreement, as amended by this Amendment.
Section 7. Merger and Integration, Superseding Effect. This Amendment,
from and after the date hereof, embodies the entire agreement and understanding
between the parties hereto.
Section 8. Governing Law. This Amendment is governed by the laws of the
State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Accounts Receivable Financing Agreement to be executed as of the date and year
first above written.
XYZ GROUP, INC., a/k/a XYZ
DISTRIBUTORS
By /s/ Gary R. Billings
-----------------------
Its President
-------------------
REPUBLIC ACCEPTANCE CORPORATION
By /s/ Charles Vollen
-----------------------
Its Regional Manager
-------------------
-5-
<PAGE> 6
EXHIBIT A TO AMENDMENT TO ACCOUNTS
RECEIVABLE FINANCING AGREEMENT
July 25, 1996
Republic Acceptance Corporation
2338 Central Avenue Northeast
Suite 200
Minneapolis, MN 55418
Re: Consent to Amendment to Financing Agreement dated as of July __, 1996
(the "Amendment") by and between Republic Acceptance Corporation
("Republic") and XYZ Group, Inc., a/k/a XYZ Distributors (the
"Company") and Reaffirmation of related Undertakings
Ladies and Gentlemen:
This will confirm that:
a) The undersigned hereby consents to the terms of the Amendment and to
the execution and delivery of the Amendment by the Company; and
b) The obligations and indebtedness of the Company under the Financing
Agreement dated August 1, 1995 between Republic and the Company, as amended by
the Amendment (collectively, the "Financing Agreement"), constitute the
obligations and indebtedness of the Company within the meaning of, and are
guaranteed pursuant to, that Guaranty of Payment for Existing and/or Future
Indebtedness of the undersigned dated August 1, 1995 (the "Guaranty"), and all
of the terms, covenants and conditions of the Guaranty remain in full force and
effect.
/s/ Gary R. Billings
--------------------
Gary R. Billings
<PAGE> 1
Exhibit: 10.31FT
GUARANTY OF PAYMENT FOR
EXISTING AND/OR FUTURE INDEBTEDNESS
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which is hereby acknowledged, which includes but is not limited to the extension
of credit or other financial accommodations by Republic Acceptance Corporation
(hereinafter referred to as "Republic") to XYZ Group, Inc., a/k/a XYZ
Distributors (hereinafter "second party"), whether previously, presently, or
prospectively, the undersigned hereby jointly and severally guaranty to
Republic, its successors and assigns, the full and prompt payment, performance,
and discharge of any and all existing and/or future indebtedness, liabilities or
other obligations of second party to Republic (the "Guaranteed Obligations").
The undersigned hereby jointly and severally guaranty to pay the Guaranteed
Obligations, on demand, together with interest thereon, and also all costs and
expenses of any kind incurred including reasonable attorneys' fees. The
undersigned hereby agree that this obligation shall in no way be impaired or
affected by any change or modification of any agreement or agreements between
Republic and second party. The obligations of the undersigned hereunder shall be
secured by all liens or security interests (if any) granted by the undersigned
to Republic.
This Agreement is intended as a continuing Guaranty and shall remain in
full force and effect and apply to all present and future Guaranteed Obligations
until written notice of revocation is received by Republic, provided that such
notice shall not discharge the undersigned from any liability with respect to
Guaranteed Obligations existing at the time of the receipt of such revocation,
any Guaranteed Obligations arising under a commitment of Republic existing at
the time of the receipt of such revocation, or any Guaranteed Obligations
arising in connection with the enforcement by Republic of its rights and
remedies with respect to any guaranteed indebtedness or liability.
The undersigned waive(s): Notice of acceptance hereof; notice of
creation, existence, or acquisition of any Guaranteed Obligations; notice of
adverse change in second party's financial condition or of any other fact which
might materially affect our risk; notice of default by second party or any other
obligor; any right or subrogation to any of the rights of Republic against
second party, any other guarantor, maker or endorser; all rights to any
reimbursement, contribution, recourse and indemnity therefrom; any right to
enforce any remedy which Republic now has or may hereafter have against second
party, and any other guarantor, maker or endorser; any benefit of, and any other
right to participate in, any collateral or other security, or any guaranty now
or hereafter held by Republic; presentment, demand, protest, and all other
notices and formalities which lawfully may be waived. Republic shall not be
required to pursue any other remedies before making demand of any or all
guarantors under this Agreement, especially it shall not be required to exhaust
its remedies against any obligor including, but not limited to, the second party
and any other guarantors under this Agreement, and it shall not be required to
resort to or exhaust the collateral and other securities, for the Guaranteed
Obligations.
The liability of each of the undersigned is direct and unconditional
and shall not be discharged or impaired by any of the following:
1. The extension, renewal or other change in the manner, place or
terms of payment of any of the Guaranteed Obligations;
2. The release of, or agreement not to sue, any person against whom any
of the undersigned has, to the knowledge of Republic, a right of
recourse, or the agreement to suspend the right to enforce against such
person the instrument or collateral or otherwise discharge of such
person. "Such person" referred to above shall include but not be
limited to any of the undersigned, the second party, or any other party
liable, in any way, for payment of such indebtedness to Republic;
3. The addition of one or more additional guarantors of the Guaranteed
Obligations;
4. The impairment of any collateral for the Guaranteed Obligations,
including but not limited to the release of such collateral or the
release or non-perfection of any or all security interest with respect
to such collateral.
5. Any bankruptcy, insolvency or other similar proceeding with respect
to the second party or any other person liable on the Guaranteed
Obligations, or any discharge granted therein or otherwise granted
under applicable law.
<PAGE> 2
This Guaranty and waiver shall bind and extend to the benefit of the
respective parties, their heirs, executors, administrators, successors and
assigns, and shall be construed and interpreted according to the laws of
Minnesota. EACH OF THE UNDERSIGNED BY THE EXECUTION AND DELIVERY HEREOF BY THE
UNDERSIGNED, AND REPUBLIC BY ITS ACCEPTANCE HEREOF HEREBY EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS GUARANTY, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL
BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE UNDERSIGNED HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT
SITTING IN HENNEPIN OR RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE UNDERSIGNED HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT THE UNDERSIGNED MAY EFFECTIVELY DO SO, THE DEFENSE
OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
The undersigned agree to execute and deliver promptly and cause to be
executed and delivered promptly (but in no event later than sixty days after the
date of this Guaranty) in favor of Republic, to secure the Guaranteed
Obligations, a second mortgage (the "Second Mortgage") on certain vacant
lakefront real property located in Waukesha County, Wisconsin (the "Real
Property"), and promptly to deliver or cause to be delivered to Republic the
following documents relating to the Property: a current survey, a current
appraisal, a commitment for a lender's title insurance policy insuring the lien
of the Second Mortgage and such other agreements, instruments and/or documents
as Republic may request. The undersigned further agree to take such further
actions as may be necessary to vest in Republic a perfected, second priority
mortgage lien on the Real Estate, which actions shall include, without
limitation, the payment by the undersigned of all recording fees, taxes, title
insurance premiums and other costs and expenses in connection with the
foregoing. The undersigned also agrees that so long as this Guaranty is in
effect, the undersigned will not further encumber the Real Property. Finally,
the undersigned acknowledges that the foregoing requirements are conditions
subsequent to the extension of credit or other financial accommodations by
Republic to the second party.
IN WITNESS WHEREOF, we have hereunto set our hands and seal this first day of
August, 1995.
IN THE PRESENCE OF:
/s/ illegible /s/ Gary R. Billings
- ------------------------ -------------------------------
Gary R. Billings, a/k/a Joe Billings, individually
<PAGE> 3
SECRETARY'S CERTIFICATE
RESOLVED, that the President, any Vice President, the Secretary, the Controller
and any other officer of XYZ Group, Inc., a/k/a XYZ Distributors, a Wisconsin
corporation, by one or more of such officers, be and they each are hereby
authorized and empowered on behalf of this corporation: to obtain from Republic
Acceptance Corporation (hereinafter called "Republic") loans and advances in
such amounts and on such terms and conditions as such officer or agent deems
proper; to execute notes and other evidences of this corporation's indebtedness
with respect thereto; to enter into financing and other agreements with Republic
relating to the terms and conditions upon which any such loans and advances may
be obtained and to the collateral security to be furnished by this corporation
therefore; from time to time to modify, supplement or amend any such collateral
security; from time to time to pledge, assign, guaranty, mortgage, consign,
grant security interest in and otherwise transfer to Republic as collateral
security for any and all debts and obligations of this corporation to Republic,
whenever and however arising, any and all accounts and other forms of
obligations receivable, choses in action, merchandise inventories, warehouse
receipts, machinery, equipment, land, buildings and other real, personal or
mixed property now or hereafter belonging to or acquired by this corporation;
for said purposes to execute and deliver any and all assignments, schedules,
transfers, endorsements, contracts, guarantees, agreements, designations,
consignments, deeds of trust, mortgages, instruments of pledge or other
instruments in respect thereof and to make remittances and payments in respect
thereof by checks, drafts, or otherwise; and to do and perform all other acts
and things deemed by such officer or agent necessary, convenient or proper to
carry out any of the foregoing; hereby ratifying, approving and confirming all
that any said officers or agents have done or may do in the premises.
I, Carol Cypert, do hereby certify that I am the Secretary of XYZ Group, Inc.,
a/k/a XYZ Distributors, a corporation organized and existing under and by virtue
of the laws of the State of Wisconsin, having its chief executive office and
principal place of business in the City of Wauwatosa, Wisconsin; that I am the
keeper of the corporate records of said corporation; that the foregoing is a
true and correct copy of the resolution duly adopted and ratified at a special
meeting of the Board of Directors of said corporation duly convened and held in
accordance with its bylaws and the laws of said State at the office of said
corporation on the 4 day of August 1995, or by unanimous written action of the
Directors dated on said date, and that the same has not in any way been
modified, repealed or rescinded but is in full force and effect.
I do further certify that the following are the names and specimen signatures of
the officers and agents of said corporation, so empowered and authorized,
namely:
President:
Gary R. Billings, a/k/a Joe Billings /s/ Gary R. Billings
--------------------------------
(Signature)
Controller: Carol Cypert /s/ Carol Cypert
--------------------------------
(Signature)
Secretary: Carol Cypert /s/ Carol Cypert
--------------------------------
(Signature)
Executed this first day of August, 1995. /s/ Carol Cypert
--------------------------------
(Signature)
Carol Cypert
--------------------------------
(Type in Name)
Secretary, XYZ Group, Inc.,
a/k/a/ XYZ Distributors
<PAGE> 1
Exhibit: 10.32FT
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. FOR VALUE RECEIVED the undersigned hereby assigns, transfers and sets over
to Republic Acceptance Corporation of Minneapolis, Minnesota, its
successors and assigns (herein called the "Assignee"), Policy No. 8555342
issued by New England Mutual Life Insurance Company (herein called the
"Insurer") and any supplementary contracts issued in connection therewith
(said policy and contracts being herein called the "Policy"), upon the
life of Gary R. Billings, a/k/a Joe Billings., c/o XYZ Group, Inc., 12221
West Feerick Street, Wauwatose, WI 53222-2117 and all claims, options,
privileges, rights, title and interest therein and thereunder (except as
provided in Paragraph C hereof), subject to all the terms and conditions
of the Policy and to all superior liens, if any, which the Insurer may
have against the Policy. The undersigned by this instrument jointly and
severally agree and the Assignee by the acceptance of this assignment
agrees to the conditions and provisions herein set forth.
B. It is expressly agreed that, without detracting from the generality of the
foregoing, the following specific rights are included in this assignment
and pass by virtue hereof:
1. The sole right to collect from the Insurer the net proceeds of the
Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive the surrender value
thereof at any time provided by the terms of the Policy and at such
other times as the Insurer may allow;
3. The sole right to obtain one or more loans or advances on the Policy,
either from the Insurer or, at any time, from other persons, and to
pledge or assign the Policy as security for such loans or advances;
4. The sole right to collect and receive all distributions or shares of
surplus, dividend deposits or additions to the Policy now or hereafter
made or apportioned thereto, and to exercise any and all options
contained in the Policy with respect thereto; provided, that unless
and until the Assignee shall notify the Insurer in writing to the
contrary, the distributions or shares of surplus, dividend deposits
and additions shall continue on the plan in force at the time of
this assignment; and
5. The sole right to exercise all nonforfeiture rights permitted by the
terms of the Policy or allowed by the Insurer and to receive all
benefits and advantages derived therefrom.
C. It is expressly agreed that the following specific rights, so long as the
Policy has not been surrendered, are reserved and excluded from this
assignment and do not pass by virtue hereof:
1. The right to collect from the Insurer any disability benefit payable
in cash that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary;
3. The right to elect any optional mode of settlement permitted by the
Policy or allowed by the Insurer;
but the reservation of these rights shall in no way impair the right of
the Assignee to surrender the Policy completely with all its incidents or
impair any other right of the Assignee hereunder, and any designation or
change of beneficiary or election of a mode of settlement shall be made
subject to this assignment and to the rights of the Assignee hereunder.
D. The assignment is made and the Policy is to be held as collateral security
for any and all liabilities of the undersigned, or any of them, to the
Assignee, either now existing or that may hereafter arise in the ordinary
course of business between any of the undersigned and the Assignee (all of
which liabilities secured or to become secured are herein called
"Liabilities").
E. The Assignee covenants and agrees with the undersigned as follows:
1. That any balance of sums received hereunder from the Insurer
remaining after payment of the then existing Liabilities, matured or
unmatured, shall be paid by the Assignee to the persons entitled
thereto under the terms of the Policy had this assignment been
executed;
2. That the Assignee will not exercise either the right to surrender the
Policy or (except for the purpose of paying premiums) the right to
obtain policy loans from the Insurer, until there has been default
in any of the Liabilities or a failure to pay any premium when due,
nor until twenty days after the Assignee shall have mailed, by
first-class mail, to the undersigned at the addresses last supplied
in writing to the Assignee specifically referring to this assignment,
notice of intention to exercise such right; and
- --------------------------------------------------------------------------------
REPUBLIC ACCEPTANCE 10/94 Assignment of Life Insurance Page 1 of 3
<PAGE> 2
3. That the Assignee will upon request forward without unreasonable
delay to the Insurer the Policy for endorsement of any designation or
change of beneficiary or any election of an optional mode of
settlement.
F. The Insurer is hereby authorized to recognize the Assignee's claims to
rights hereunder without investigating the reason for any action taken by
the Assignee, or the validity or the amount of the Liabilities or the
existence of any default therein, or the giving of any notice under
Paragraph E(2) above or otherwise, or the application to be made by the
Assignee of any amounts to be paid to the Assignee. The sole signature of
the Assignee shall be sufficient for the exercise of any rights under the
Policy assigned hereby and the sole receipt of the Assignee for any sums
received shall be a full discharge and release therefor to the Insurer.
Checks for all or any part of the sums payable under the Policy and
assigned herein, shall be drawn to the exclusive order of the Assignee if,
when, and in such amounts as may be, requested by the Assignee.
G. The Assignee shall be under no obligation to pay any premium, or the
principal of or interest on any loans or advances on the Policy whether or
not obtained by the Assignee, or any other charges on the Policy, but any
such amounts so paid by the Assignee from its own funds, shall become a
part of the Liabilities hereby secured, shall be due immediately, and
shall draw interest at a rate fixed by the Assignee from time to time not
exceeding 6% per annum.
H. The exercise of any right, option, privilege or power given herein to the
Assignee shall be at the option of the Assignee, but (except as restricted
by Paragraph E(2) above) the Assignee may exercise any such right, option,
privilege or power without notice to, or assent by, or affecting the
liability of, or releasing any interest hereby assigned by the undersigned,
or any of them.
I. The Assignee may take or release other security, may release any party
primarily or secondarily liable for any of the Liabilities, may grant
extensions, renewals or indulgences with respect to the Liabilities, or
may apply to the Liabilities in such order as the Assignee shall
determine, the proceeds of the Policy hereby assigned or any amount
received on account of the Policy by the exercise of any right permitted
under this assignment, without resorting to regard to other security.
J. In the event of any conflict between the provisions of this assignment and
provisions of the note or other evidence of any Liability, with respect to
the Policy or rights of collateral security therein, the provisions of
this assignment shall prevail.
K. Each of the undersigned declares that no proceedings in bankruptcy are
pending against him and that his property is not subject to any assignment
for the benefit of creditors.
Signed and sealed this first day of August, 1995
GARY R. BILLINGS, a/k/a Joe Billings
/s/ [Illegible Signature] /s/ Gary R. Billings
- ------------------------------------ ------------------------------------
Witness Insured
/s/ Carol Cypert c/o XYZ Group, Inc.
- ------------------------------------ 12221 West Feerick Street
Wauwatosa, WI 53222-2117
- --------------------------------------------------------------------------------
REPUBLIC ACCEPTANCE 10/94 Assignment of Life Insurance Page 2 of 3
<PAGE> 3
XYZ GROUP, INC.
/s/ [??????????] /s/ Gary R. Billings
- ------------------------------------ ----------------------------------(L.S.)
Witness Owner
/s/ Carol Cypert 12221 West Feerick Street
- ------------------------------------ Wauwatosa, WI 53222-2117
REPUBLIC ACCEPTANCE CORPORATION
/s/ [??????????] /s/ D E Shoemaker
- ------------------------------------ ----------------------------------(L.S.)
Witness Assignee
/s/ Carol Cypert 2338 Central Avenue Northeast
- ------------------------------------ Minneapolis, MN 55418
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF WISCONSIN )
)SS:
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this 4th day of
August, 1995, by Gary R. Billings, a/k/a/ Joe Billings individually and by Gary
R. Billings as President of XYZ Group, Inc.
WITNESS my hand and official seal,
My commission expires: 09/17/95
------------
/s/ Kathleen Fiedler
-----------------------------------
Notary Public
ACKNOWLEDGEMENT OF INSURER
The undersigned insurer hereby acknowledges receipt of a copy of the
foregoing Assignment and confirms that such Assignment was recorded and filed
by the insurer on , 1995.
--------------------------
[NAME OF INSURANCE COMPANY]
By
-------------------------------
Its
---------------------------
- --------------------------------------------------------------------------------
REPUBLIC ACCEPTANCE 10/94 Assignment of Life Insurance Page 3 of 3
<PAGE> 1
Exhibit: 10.33FT
SUBORDINATION AGREEMENT
(Debt and Security)
THIS SUBORDINATION AGREEMENT, dated as of August 1, 1995 by and between Republic
Acceptance Corporation, a Minnesota corporation (the "Senior Lender"), Gary R.
Billings, a/k/a Joe Billings, an individual (the "Subordinated Lender"), and XYZ
Group, Inc., a/k/a XYZ Distributors, a Wisconsin corporation (the "Company").
A. The Company and the Senior Lender have entered into a Financing
Agreement dated as August 1, 1995 (as the same may hereafter be amended,
supplemented, extended, restated or otherwise modified from time to time, the
"Credit Agreement").
B. Pursuant to the terms of the Credit Agreement, the Lender has
agreed to extend credit accommodations to the Company (the "Senior Debt").
C. The Senior Debt is secured by a Security Agreement dated as of
August 1, 1995 pursuant to which the Company granted to the Senior Lender a
security interest in and to all personal property of the Company.
D. The Company is obligated and indebted to the Subordinated Lender,
inter alia, for credit extended by the Subordinated Lender to the Company as
evidenced by two promissory notes as follows: (i) promissory note dated as of
July 10, 1995 in the principal amount of $250,000.00, and (ii) promissory note
dated as of December 31, 1994 in the principal amount of $532,637.00
(collectively the "Subordinated Debt").
E. The Subordinated Debt is secured by a security interest in and to
certain personal property of the Company.
F. It is a condition precedent to the obligation of the Senior Lender
to extend credit accommodations to the Company pursuant to the Credit Agreement
that the Subordinated Lender and the Company execute and deliver this
Subordination Agreement to the Senior Lender.
G. The Subordinated Lender and the Company each find it advantageous,
desirable and in their respective best interests to comply with the requirement
that it execute and deliver this Subordination Agreement to the Senior Lender.
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Senior Lender, Subordinated Lender and the Company agree
as follows:
1. Subordination of Debt.
(a) The Subordinated Lender and the Company covenant and agree
that the obligations of the Company with respect to any payment of principal,
interest or other amounts payable with respect to the Subordinated Debt are and
shall be subordinate, to the extent and in the manner hereinafter set forth, for
right of payment and subject to the prior payment or provision for payment in
full of all principal, interest or other amounts payable with respect to the
Senior Debt, and all amendments, renewals, extensions and refundings of the
Senior Debt; provided however that as long as none of the events described in
Sections 1(b) or 1(c) have occurred, the Subordinated Lender shall be entitled
to receive and retain all regularly scheduled payments of interest (up to a
maximum interest rate of fifteen percent) on the Subordinated Debt (but the
Subordinated Lender shall not accept, nor shall the Company make, any prepayment
on the Subordinated Debt, nor amend the payment schedule or the interest rate
under the Subordinated Debt, without the prior written consent of the Senior
Lender).
<PAGE> 2
(b) Upon the maturity of the Senior Debt by lapse of time,
demand, acceleration or otherwise (including without limitation upon any
assignment, transfer or sale of all or substantially all of the Company's
business), all principal thereof and interest due thereon shall first be paid
in full, or such payment duly provided for in cash or in a manner satisfactory
to the holder of the Senior Debt, before any payment is made on account of the
principal of or interest on the Subordinated Debt.
(c) Whether or not Senior Debt is due, upon receipt by the
Subordinated Lender and the Company of written notice from Senior Lender that no
payment may be made by the Company to the Subordinated Lender, the Subordinated
Lender shall not accept, and the Company shall not make, any payment of
principal or interest of Subordinated Debt. The determination to so notify the
Company and the Subordinated Lender shall be in Senior Lender's sole and
absolute discretion.
(d) In the event that, contrary to the provisions of Sections
1(b) or 1(c) hereof, any payment or distribution of assets of the Company of any
character, whether in cash, securities or other property, is received by the
Subordinated Lender before the Senior Debt is paid in full, such payment or
distribution will be held in trust for the benefit of, and will be paid over or
delivered to, the holder of the Senior Debt (or its duly authorized
representative) until the Senior Debt has been paid in full, after giving effect
to the concurrent payment or distribution (or provision therefor) to the holder
of the Senior Debt. Under no circumstances, however, shall the Subordinated
Lender be obligated to turn over any scheduled interest payment on the
Subordinated Debt that is received by the Subordinated Lender pursuant to
Section 1(a) and prior to the occurrence of the earliest event specified in
Sections 1(b) or 1(c) to occur.
(e) Subject to the payment in full of the Senior Debt, the
Subordinated Lender shall be subrogated to the rights of the holder of the
Senior Debt to receive payments or distribution of cash, property or securities
of the Company applicable to the Senior Debt until all amounts owing on the
Subordinated Debt shall be paid in full, and, as between the Company, its
creditors other than the holder of the Senior Debt, and the Subordinated Lender,
it being understood that the provisions of this Section 1 are and are intended
solely for the purpose of defining the relative rights of the Subordinated
Lender, on the one hand, and the holder of the Senior Debt, on the other hand.
(f) No right of any present or future holder of the Senior
Debt to enforce subordination as provided in this Section 1 will at any time in
any way be prejudiced or impaired by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Subordination Agreement, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
2. Subordination of Security Interest.
(a) The Company and the Subordinated Lender hereby agree that,
regardless of any priority otherwise available to the Subordinated Lender by law
or by agreement, any security interest which the Subordinated Lender may now
hold or may now or at any time hereafter acquire in any or all of the assets of
the Company (the "Collateral"), together with all proceeds thereof, is, shall be
and shall remain fully subordinate for all purposes to the security interest of
the Senior Lender in the Collateral.
(b) The Subordinated Lender will not exercise any collection
rights with respect to the Collateral, will not take possession of, sell or
dispose of, or otherwise deal with, the Collateral, and will not exercise or
enforce any right or remedy which may be available to the Subordinated
2
<PAGE> 3
Lender with respect to the Collateral upon default, without the prior written
consent of the Senior Lender.
(c) The Senior Lender may exercise collection rights, may take
possession of, sell or dispose of, and otherwise deal with, the Collateral, and
may exercise and enforce any right or remedy available prior to or after the
occurrence of any default, all without notice to or consent by anyone. The
Senior Lender may apply the proceeds of the Collateral to any indebtedness
secured by the Senior Lender's above-described security interest, in any order
of application.
(d) In the event that the Company determines to sell
Collateral and the Senior Lender consents thereto, the Subordinated Lender shall
execute and deliver unconditional releases of its security interests in the
Collateral to be sold if requested by the Company.
(e) Neither the Subordinated Lender nor the Senior Lender (i)
makes any representation or warranty concerning the Collateral or the validity,
perfection or (except as to the subordination accomplished hereby) priority of
any security interest therein, or (ii) shall have any duty to preserve, protect,
care for, insure, take possession of, collect, dispose of or otherwise realize
upon any of the Collateral.
3. Bankruptcy Issues.
(a) In the event of any insolvency, bankruptcy or similar
proceeding relating to the Company or its property, any Voluntary liquidation,
dissolution or other winding up of the Company, or any assignment for the
benefit of its creditors or any other marshalling of its assets, the Senior Debt
shall first be paid in full before any payment or distribution is made on
account of the Subordinated Debt, and to that end the holder of the Senior Debt
shall be entitled to receive for application and payment thereof any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceeding in
respect of the Subordinated Debt, including any such payment or distribution
which may be payable or deliverable by virtue of the provisions of any
indebtedness which is subordinate and junior in right of payment to the
Subordinated Debt, except securities which are subordinate in right of payment
to the payment of the Senior Debt. In order to enable the Senior Lender to
enforce the foregoing rights in any bankruptcy, insolvency or similar action or
proceedings, the Senior Lender is hereby irrevocably authorized and empowered in
its discretion to make and present for or on behalf of the Subordinated Lender
such proof of claims or claims against the Company on account of the
Subordinated Debt as the Senior Lender may deem expedient and proper, and to
vote such claims in any such proceedings and to receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the
same may be paid or issued and to apply the same on account of the Senior Debt.
The Subordinated Lender agrees to and does hereby assign all such claims to the
Senior Lender, and the Subordinated Lender further agrees to execute such
instruments as may be required by the Senior Lender to enable the Senior Lender
to enforce any and all such claims and collect any and all dividends or other
payments or disbursements which may be made on account of the Subordinated Debt.
(b) If Company becomes the subject of proceedings under the
Bankruptcy Code and if the Senior Lender desires to permit the use of cash
collateral or to provide financing to Company under either Section 363 or
Section 364 of Title 11 of the United States Code (the "Bankruptcy Code") the
Subordinated Lender agrees that adequate notice of such financing to the
Subordinated Lender shall have been provided if the undersigned receives notice
two (2) Business Days prior to the entry of any order approving such cash
collateral usage or financing. Notice of a proposed financing or use of cash
collateral shall be deemed given upon the sending of such notice by telegraph,
telecopy or hand delivery to the undersigned at the address indicated on the
signature page hereof. All allocations of
3
<PAGE> 4
payments between the Senior Lender and the Subordinated Lender shall continue to
be made after the filing of a petition under the Bankruptcy Code on the same
basis that the payments were to be allocated prior to the date of such filing.
The Subordinated Lender agrees not to assert any right it may have to "adequate
protection" of its interest in any security for the Subordinated Debt in any
bankruptcy proceeding, or to seek to have its claims in such bankruptcy
proceeding treated as "secured claims" under Section 506(a) of the Bankruptcy
Code, without the prior written consent of the Senior Lender. To the extent that
the Senior Lender receives payments on, or proceeds of any collateral for, the
Senior Debt which are subsequently avoided, invalidated, declared to be
fraudulent or preferential, set aside and/or required to be prepaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds received, the Senior Debt, or part thereof, intended to be satisfied
shall be revived and continue in full force and effect as if such payments or
proceeds had not been received by the Senior Lender.
4. Instrument Legend. Any agreement or instrument evidencing
the Subordinated Debt and/or the security interest held by the Subordinated
Lender, or any portion thereof, which has been or is hereafter executed by the
Company will, on the date hereof or the date of execution, be inscribed with a
legend conspicuously indicating that payment thereof or the security interest
held by the Subordinated Lender, as the case may be, is subordinated to the
claims or the security interests of the Senior Lender pursuant to the terms of
this Agreement. A copy of any such agreement or instrument will be delivered to
the Senior Lender within five (5) Business Days after the date hereof or the
date of its execution, and the original thereof will be immediately delivered to
the Senior Lender upon request therefor by the Senior Lender after the
occurrence of an Event of Default.
5. Transfer of the Subordinated Debt. The Subordinated Lender
warrants and represents that it has not previously assigned any interest in the
Subordinated Debt, and that no other party owns an interest in the Subordinated
Debt. The Subordinated Lender further covenants and agrees that it will not
assign or transfer the Subordinated Debt or its security interest in the
Collateral to any other person without the prior written consent of the Senior
Lender. Such consent will be conditioned upon satisfactory proof that any
purchaser or transferee of, or successor to, the Subordinated Debt or any
security interest of the Subordinated Lender in any or all of the Collateral has
been given detailed written notice of the subordination accomplished hereby,
prior to the time of purchase, transfer or succession, and agrees to be bound by
the same on terms satisfactory to the Senior Lender.
6. Rights Unimpaired. Nothing contained in this Agreement is
intended to or shall impair, as between the Company, its creditors other than
the holder of the Senior Debt, and the Subordinated Lender, the obligation of
the Company, which is absolute and unconditional, to pay to the Subordinated
Lender the principal of and interest on the Subordinated Debt as and when the
same shall become due and payable in accordance with its terms, or affect the
relative rights of the Subordinated Lender and creditors of the Company other
than the holder of the Senior Debt, nor shall anything herein prevent the
Subordinated Lender from exercising all remedies otherwise permitted by
applicable law upon default under the Subordinated Debt (other than the right to
foreclose on the Collateral), subject to the rights, if any, under this
Agreement of the holder of the Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
7. Termination of Agreement. Upon irrevocable payment in full
of the Senior Debt, this Agreement shall terminate, provided that if any payment
received by the Senior Lender and applied to the Senior Debt is subsequently set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Company or any other obligor), the Senior Debt to which such payment was
applied shall for the purposes of this Agreement be deemed to have continued in
existence, notwithstanding such application, and this Agreement shall be
enforceable as to such Senior Debt as fully as if such application had never
been
4
<PAGE> 5
made. References in this Agreement to amounts "irrevocably paid" or to
"irrevocable payment" refer to payments that cannot be set aside, recovered,
rescinded or required to be returned for any reason.
8. Information Concerning Financial Condition of Company.
Subordinated Lender warrants and agrees that it is the responsibility of the
Subordinated Lender to keep informed of the financial condition of the Company,
any and all endorsers and any and all guarantors of the Subordinated Debt and of
all other circumstances bearing upon the risk of nonpayment of the Senior Debt
and/or the Subordinated Debt that diligent inquiry would reveal. The
Subordinated Lender hereby agrees that the Senior Lender shall have no duty to
advise the Subordinated Lender of information known to the Senior Lender
regarding such condition or any such circumstances. In the event the Senior
Lender, in its sole discretion, undertakes, at any time or from time to time, to
provide any such information to the Subordinated Lester, the Senior Lender shall
be under no obligation to (i) to provide any such information to the undersigned
on any subsequent occasion, (ii) to undertake any investigation not a part of
its regular business routine, or (iii) to disclose any information which,
pursuant to its usual practices, the Senior Lender wishes to maintain
confidential. The undersigned hereby agrees that all payments received by the
Senior Lender may be applied, reversed, and reapplied, in whole or in part, to
any of the Senior Debt, as the Senior Lender, in its sole discretion, deems
appropriate and assents to any extension or postponement of the time of payment
of the Senior Debt or to any other indulgence with respect thereto, to any
substitution, exchange or release of collateral which may at any time secure the
Senior Debt and to the addition or release of any Person primarily or
secondarily liable therefor.
9. Waiver of Jury Trial: Jurisdiction. (a) THE SUBORDINATED
LENDER BY THE EXECUTION AND DELIVERY HEREOF BY THE SUBORDINATED LENDER, AND THE
SENIOR LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY EXPRESSLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY CREDIT
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
(b) THE SUBORDINATED LENDER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR
RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED DEBTOR HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT THE SUBORDINATED LENDER MAY EFFECTIVELY DO SO, THE DEFENSE
OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
10. Miscellaneous. This Agreement is made under the laws of
the State of Minnesota. It cannot be waived or changed, except by a writing
signed by the party to be bound thereby. The headings of the sections of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement. All notices and other communications
required or permitted under this Agreement shall be in writing and shall be
delivered, or mailed first class postage prepaid, registered or certified mail,
to the parties at the addresses appearing under their signatures, or such other
address as any party may specify by written notice to the other parties. All
such notices and other communications shall for all purposes of this Agreement
be treated as being effective or having been given if delivered upon receipt or,
if sent by mail as provided above, upon the earlier of receipt or the fifth
(5th) day following the date of deposit in the United States Mail.
5
<PAGE> 6
IN WITNESS WHEREOF, the Company, the Subordinated Lender and the Senior
Lender have caused this Agreement to be signed on the date first dated above.
XYZ GROUP, INC., a/k/a XYZ Distributors
By /s/ Gary R. Billings
-------------------------------------
Its President
---------------------------------
Address: 12221 West Feerick Street
Wauwatosa, WI 53222-2117
/s/ Gary R. Billings
--------------------------------------
Gary R. Billings, a/k/a Joe Billings
Address:
REPUBLIC ACCEPTANCE CORPORATION
By /s/ D.E. Shoemaker
-------------------------------------
Its Acct. Executive
---------------------------------
Address: 2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
6
<PAGE> 1
Exhibit: 10.34FT
SUBORDINATION AGREEMENT
(Debt)
THIS SUBORDINATION AGREEMENT, dated as of August 1, 1995 by and between
Republic Acceptance Corporation, a Minnesota corporation (the "Senior Lender"),
Gary R. Billings, as legal guardian for Allison Billings, a minor (the
"Subordinated Lender"), and XYZ Group, Inc., a/k/a XYZ Distributors, a Wisconsin
corporation (the "Company").
A. The Company and the Senior Lender have entered into a Financing
Agreement dated as of August 1, 1995 (as the same may hereafter be amended,
supplemented, extended, restated or otherwise modified from time to time, the
"Credit Agreement").
B. Pursuant to the terms of the Credit Agreement, the Lender has agreed
to extend credit accommodations to the Company (the "Senior Debt").
C. The Senior Debt is secured by a Security Agreement dated as of
August 1, 1995 pursuant to which the Company granted to the Senior Lender a
security interest in and to all personal property of the Company.
D. The Company is obligated and indebted to the Subordinated Lender,
inter alia, for credit extended by the Subordinated Lender to the Company, as
evidenced by a promissory note dated as of December 31, 1994 in the principal
amount of $74,218.59 (the "Subordinated Debt").
E. It is a condition precedent to the obligation of the Senior Lender
to extend credit accommodations to the Company pursuant to the Credit Agreement
that the Subordinated Lender and the Company execute and deliver this
Subordination Agreement to the Senior Lender.
F. The Subordinated Lender and the Company each find it advantageous,
desirable and in their respective best interests to comply with the requirement
that it execute and deliver this Subordination Agreement to the Senior Lender.
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Senior Lender, Subordinated Lender and the Company agree
as follows:
1. Subordination of Debt.
(a) The Subordinated Lender and the Company covenant and agree that
the obligations of the Company with respect to any payment of principal,
interest or other amounts payable with respect to the Subordinated Debt are and
shall be subordinate, to the extent and in the manner hereinafter set forth, for
right of payment and subject to the prior payment or provision for payment in
full of all principal, interest or other amounts payable with respect to the
Senior Debt, and all amendments, renewals, extensions and refundings of the
Senior Debt; provided however that as long as none of the events described in
Sections 1(b) or 1(c) have occurred, the Subordinated Lender shall be entitled
to receive and retain all regularly scheduled payments of interest (up to a
maximum interest rate of fifteen percent) on the Subordinated Debt (but the
Subordinated Lender shall not accept, nor shall the Company make, any prepayment
on the Subordinated Debt, nor amend the payment schedule or the interest rate
under the Subordinated Debt, without the prior written consent of the Senior
Lender).
(b) Upon the maturity of the Senior Debt by lapse of time, demand,
acceleration or otherwise (including without limitation upon any assignment,
transfer or sale of all or substantially all of the Company's business), all
principal thereof and interest due thereon shall first be paid in full, or
<PAGE> 2
such payment duly provided for in cash or in a manner satisfactory to the holder
of the Senior Debt, before any payment is made on account of the principal of or
interest on the Subordinated Debt.
(c) Whether or not Senior Debt is due, upon receipt by the
Subordinated Lender and the Company of written notice from Senior Lender that no
payment may be made by the Company to the Subordinated Lender, the Subordinated
Lender shall not accept, and the Company shall not make, any payment of
principal or interest of Subordinated Debt. The determination to so notify the
Company and the Subordinated Lender shall be in Senior Lender's sole and
absolute discretion.
(d) In the event that, contrary to the provisions of Sections 1(b)
or 1(c) hereof, any payment or distribution of assets of the Company of any
character, whether in cash, securities or other property, is received by the
Subordinated Lender before the Senior Debt is paid in full, such payment or
distribution will be held in trust for the benefit of, and will be paid over or
delivered to, the holder of the Senior Debt (or its duly authorized
representative) until the Senior Debt has been paid in full, after giving effect
to the concurrent payment or distribution (or provision therefor) to the holder
of the Senior Debt. Under no circumstances, however, shall the Subordinated
Lender be obligated to turn over any scheduled interest payment on the
Subordinated Debt that is received by the Subordinated Lender pursuant to
Section 1(a) and prior to the occurrence of the earliest event specified in
Sections 1(b) or 1(c) to occur.
(e) Subject to the payment in full of the Senior Debt, the
Subordinated Lender shall be subrogated to the rights of the holder of the
Senior Debt to receive payments or distribution of cash, property or securities
of the Company applicable to the Senior Debt until all amounts owing on the
Subordinated Debt shall be paid in full, and, as between the Company, its
creditors other than the holder of the Senior Debt, and the Subordinated Lender,
it being understood that the provisions of this Section 1 are and are intended
solely for the purpose of defining the relative rights of the Subordinated
Lender, on the one hand, and the holder of the Senior Debt, on the other hand.
(f) No right of any present or future holder of the Senior Debt to
enforce the provisions of this Subordination Agreement will at any time in any
way be prejudiced or impaired by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Subordination Agreement, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
2. No Security Interest. The Company and the Subordinated Lender
represent and warrant that the Subordinated Debt is unsecured, and the Company
and the Subordinated Lender agree that the Company will not grant, and the
Subordinated Lender will not accept from the Company or from any person liable
for all or any part of the Senior Debt, any lien or other security therefor. The
Subordinated Lender further agrees that in the event that the Subordinated
Lender does obtain any such lien or security for the Subordinated Debt, at the
request of the Senior Lender, the subordinated Lender shall execute and deliver
to the Senior Lender such termination statements or releases as the Senior
Lender shall reasonably request to release the security interest or lien of the
Subordinated Lender against such property.
3. Bankruptcy Issues.
(a) In the event of any insolvency, bankruptcy or similar proceeding
relating to the Company or its property, any voluntary liquidation, dissolution
or other winding up of the Company, or any assignment for the benefit of its
creditors or any other marshalling of its assets, the Senior Debt shall first be
paid in full before any payment or distribution is made on account of the
Subordinated Debt, and to that end the holder of the Senior Debt shall be
entitled to receive for application and
2
<PAGE> 3
payment thereof any payment or distribution of any kind or character, whether in
cash or property or securities, which may be payable or deliverable in any such
proceeding in respect of the Subordinated Debt, including any such payment or
distribution which may be payable or deliverable by virtue of the provisions of
any indebtedness which is subordinate and junior in right of payment to the
Subordinated Debt, except securities which are subordinate in right of payment
to the payment of the Senior Debt. In order to enable the Senior Lender to
enforce the foregoing rights in any bankruptcy, insolvency or similar action or
proceedings, the Senior Lender is hereby irrevocably authorized and empowered in
its discretion to make and present for or on behalf of the Subordinated Lender
such proof of claims or claims against the Company on account of the
Subordinated Debt as the Senior Lender may deem expedient and proper, and to
vote such claims in any such proceedings and to receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the
same may be paid or issued and to apply the same on account of the Senior Debt.
The Subordinated Lender agrees to and does hereby assign all such claims to the
Senior Lender, and the Subordinated Lender further agrees to execute such
instruments as may be required by the Senior Lender to enable the Senior Lender
to enforce any and all such claims and collect any and all dividends or other
payments or disbursements which may be made on account of the Subordinated Debt.
(b) If Company becomes the subject of proceedings under the
Bankruptcy Code and if the Senior Lender desires to permit the use of cash
collateral or to provide financing to Company under either Section 363 or
Section 364 of Title 11 of the United States Code (the "Bankruptcy Code") the
Subordinated Lender agrees that adequate notice of such financing to the
Subordinated Lender shall have been provided if the undersigned receives notice
two (2) Business Days prior to the entry of any order approving such cash
collateral usage or financing. Notice of a proposed financing or use of cash
collateral shall be deemed given upon the sending of such notice by telegraph,
telecopy or hand delivery to the undersigned at the address indicated on the
signature page hereof. All allocations of payments between the Senior Lender and
the Subordinated Lender shall continue to be made after the filing of a petition
under the Bankruptcy Code on the same basis that the payments were to be
allocated prior to the date of such filing. The Subordinated Lender agrees not
to assert any right it may have to "adequate protection" of its interest in any
security for the Subordinated Debt in any bankruptcy proceeding, or to seek to
have its claims in such bankruptcy proceeding treated as "secured claims" under
Section 506(a) of the Bankruptcy Code, without the prior written consent of the
Senior Lender. To the extent that the Senior Lender receives payments on, or
proceeds of any collateral for, the Senior Debt which are subsequently avoided,
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be prepaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Senior Debt, or part
thereof, intended to be satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been received by the Senior
Lender.
4. Instrument Legend. Any agreement or instrument evidencing the
Subordinated Debt, or any portion thereof, which has been or is hereafter
executed by the Company will, on the date hereof or the date of execution, be
inscribed with a legend conspicuously indicating that payment thereof is
subordinated to the claims of the Senior Lender pursuant to the terms of this
Agreement. A copy of any such agreement or instrument will be delivered to the
Senior Lender within five (5) Business Days after the date hereof or the date of
its execution, and the original thereof will be immediately delivered to the
Senior Lender upon request therefor by the Senior Lender after the occurrence of
an Event of Default.
5. Transfer of the Subordinated Debt. The Subordinated Lender warrants
and represents that it has not previously assigned any interest in the
Subordinated Debt, and that no other party owns an interest in the Subordinated
Debt. The Subordinated Lender further covenants and agrees that it will not
assign or transfer the Subordinated Debt to any other person without the prior
written consent of the Senior Lender. Such consent will be conditioned upon
satisfactory proof that any purchaser or
3
<PAGE> 4
transferee of, or successor to, the Subordinated Debt has been given detailed
written notice of the subordination accomplished hereby, prior to the time of
purchase, transfer or succession, and agrees to be bound by the same on terms
satisfactory to the Senior Lender.
6. Rights Unimpaired. Nothing contained in this Agreement is intended
to or shall impair, as between the Company, its creditors other than the holder
of the Senior Debt, and the Subordinated Lender, the obligation of the Company,
which is absolute and unconditional, to pay to the Subordinated Lender the
principal of and interest on the Subordinated Debt as and when the same shall
become due and payable in accordance with its terms, or affect the relative
rights of the Subordinated Lender and creditors of the Company other than the
holder of the Senior Debt, nor shall anything herein prevent the Subordinated
Lender from exercising all remedies otherwise permitted by applicable law upon
default under the Subordinated Debt, subject to the rights, if any, under this
Agreement of the holder of the Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
7. Termination of Agreement. Upon irrevocable payment in full of the
Senior Debt, this Agreement shall terminate, provided that if any payment
received by the Senior Lender and applied to the Senior Debt is subsequently set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Company or any other obligor), the Senior Debt to which such payment was
applied shall for the purposes of this Agreement be deemed to have continued in
existence, notwithstanding such application, and this Agreement shall be
enforceable as to such Senior Debt as fully as if such application had never
been made. References in this Agreement to amounts "irrevocably paid" or to
"irrevocable payment" refer to payments that cannot be set aside, recovered,
rescinded or required to be returned for any reason.
8. Information Concerning Financial Condition of Company. The
Subordinated Lender warrants and agrees that it is the responsibility of the
Subordinated Lender to keep informed of the financial condition of the Company,
any and all endorsers and any and all guarantors of the Subordinated Debt and of
all other circumstances bearing upon the risk of nonpayment of the Senior Debt
and/or the Subordinated Debt that diligent inquiry would reveal. The
Subordinated Lender hereby agrees that the Senior Lender shall have no duty to
advise the Subordinated Lender of information known to the Senior Lender
regarding such condition or any such circumstances. In the event the Senior
Lender, in its sole discretion, undertakes, at any time or from time to time, to
provide any such information to the Subordinated Lender, the Senior Lender shall
be under no obligation to (i) to provide any such information to the undersigned
on any subsequent occasion, (ii) to undertake any investigation not a part of
its regular business routine, or (iii) to disclose any information which,
pursuant to its usual practices, the Senior Lender wishes to maintain
confidential. The undersigned hereby agrees that all payments received by the
Senior Lender may be applied, reversed, and reapplied, in whole or in part, to
any of the Senior Debt, as the Senior Lender, in its sole discretion, deems
appropriate and assents to any extension or postponement of the time of payment
of the Senior Debt or to any other indulgence with respect thereto, to any
substitution, exchange or release of collateral which may at any time secure the
Senior Debt and to the addition or release of any Person primarily or
secondarily liable therefor.
9. Waiver of Jury Trial; Jurisdiction. (a) THE SUBORDINATED LENDER BY
THE EXECUTION AND DELIVERY HEREOF BY THE SUBORDINATED LENDER, AND THE SENIOR
LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY CREDIT
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT,
4
<PAGE> 5
AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
(b) THE SUBORDINATED LENDER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR
RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED DEBTOR HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT THE SUBORDINATED LENDER MAY EFFECTIVELY DO SO, THE DEFENSE
OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
10. Miscellaneous. This Agreement is made under the laws of the State
of Minnesota. It cannot be waived or changed, except by a writing signed by the
party to be bound thereby. The headings of the sections of this Agreement have
been inserted for convenience of reference only and do not constitute a part of
this Agreement. All notices and other communications required or permitted under
this Agreement shall be in writing and shall be delivered, sent by telefacsimile
or mailed first class postage prepaid, registered or certified mail, to the
parties at the addresses appearing under their signatures, or such other address
as any party may specify by written notice to the other parties. All such
notices and other communications shall for all purposes of this Agreement be
treated as being effective or having been given if delivered upon receipt or, if
sent by mail as provided above, upon the earlier of receipt or the fifth (5th)
day following the date of deposit in the United States Mail.
IN WITNESS WHEREOF, the Company, the Subordinated Lender and the Senior
Lender have caused this Agreement to be signed on the date first dated above.
XYZ GROUP, INC., a/k/a XYZ DISTRIBUTORS
BY /s/ Gary R. Billings
-----------------------------------
Its President
------------------------------
Address: 122221 West Feerick Street
Wauwatosa, WI 53222-2117
/s/ Gary R. Billings
---------------------------------------
Gary R. Billings, as legal-guardian
for Allison Billings, a minor
Address:
REPUBLIC ACCEPTANCE CORPORATION
By /s/ D.E. Shoemaker
------------------------------------
Its Account Executive
------------------------------
Address: 2338 Central Avenue NE,
Suite 200
Minneapolis, MN 55418
5
<PAGE> 6
AMENDMENT TO
SUBORDINATION AGREEMENT
This Amendment to Subordination Agreement, dated as of July 25, 1996
("Amendment"), is made by and between XYZ GROUP, INC., a/k/a XYZ DISTRIBUTORS, a
Wisconsin corporation (the "Company"), GARY R. BILLINGS, as legal guardian for
ALLISON BILLINGS, a minor (the "Subordinated Lender") and REPUBLIC ACCEPTANCE
CORPORATION, a Minnesota corporation (the "Senior Lender").
WHEREAS, the Company, the Subordinated Lender and the Senior Lender
have entered into a Subordination Agreement dated as of August 1, 1995 (the
"Agreement"); and
WHEREAS, the obligations and indebtedness of the Company to the Senior
Lender are secured, inter alia, by a Security Agreement dated as of August 1,
1995 between the Company and the Senior Lender (the "Security Agreement"); and
WHEREAS, the Senior Lender, the Subordinated Lender and the Company
desire to amend the Agreement in order to amend certain of the provisions
therein, upon the terms and conditions set forth herein,
NOW THEREFORE, in consideration of the premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree to be bound as follows:
Section 1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement.
Section 2. Amendments.
2.01 Section I (a) of the Agreement is hereby amended to read
as follows:
(a) The Subordinated Lender and the Company covenant and
agree that the obligations of the Company with respect to any
payment of principal, interest or other amounts payable with
respect to the Subordinated Debt are and shall be subordinate, to
the extent and in the manner hereinafter set forth, for right of
payment and subject to the prior payment or provision for payment
in full of all principal, interest or other amounts payable with
respect to the Senior Debt, and all amendments, renewals,
extensions and refundings of the Senior Debt; provided however
that as long as none of the events described in Sections 1 (b) or
1 (c) have occurred, the Subordinated Lender shall be
<PAGE> 7
entitled to receive and retain all regularly scheduled payments
of interest (up to a maximum interest rate of fifteen percent)
on the Subordinated Debt (but the Subordinated Lender shall
not accept, nor shall the Company make, any prepayment on the
Subordinated Debt, nor amend the payment schedule or the
interest rate under the Subordinated Debt, without the prior
written consent of the Senior Lender). Provided however that
the Company may make principal payments to the Subordinated
Lender in an amount not to exceed $18,750 per month for the
months and during the months of September 1996, October 1996,
November 1996 and December 1996, but not to exceed the sum of
$74,218, provided none of the events described in Sections 1
(b) or 1 (c) have occurred and provided that no event of
default has occurred under the Credit Agreement or the
Security Agreement.
Section 3. Conditions to Effectiveness of Amendment. This
Amendment shall not become effective until, and shall become effective as the
date first written above when, each of the following provisions shall have been
fulfilled:
3.01 The Senior Lender shall have received this Amendment,
duly executed by the Company and the Subordinated Lender;
3.02 The Senior Lender shall have received a copy of the
resolutions of the Board of Directors of the Company ratifying and authorizing
the execution, delivery and performance of this Amendment, certified as true and
accurate by the Borrower's Secretary or Assistant Secretary;
3.03 The Senior Lender shall have received such other
documents as the Senior Lender may reasonably request.
Section 4. Acknowledgments. The Company acknowledges and agrees
that its obligations to the Senior Lender under the Credit Agreement exist and
are owing without offset, defense or counterclaim assertable by the Company
against the Senior Lender.
Section 5. Effect of Amendments; Representations and Warranties;
No Waiver. The Senior Lender, the Subordinated Lender and the Company agree that
after this Amendment becomes effective, the Agreement, as hereby amended, shall
remain in full force and effect. The Company and Subordinated Lender warrant and
represent that on and as of the date hereof and after giving effect to this
Amendment, all of the representations and warranties contained in the Agreement
are correct and complete, as of the date hereof. The Company warrants and
represents that there will exist no Event of Default under the Credit Agreement
or under the Security Agreement on such date. The Company and the Subordinated
-2
<PAGE> 8
Lender represent and warrant that the each for itself has all power and legal
right and authority to enter into this Amendment.
Section 6. Incorporation of Agreement and Other Loan Documents by
Reference; Ratification of Loan Documents. Except as expressly modified under
this Amendment, all of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants and representations of
the Company under the Agreement, the Security Agreement, and any and all other
documents and agreements entered into with respect to the obligations under the
Agreement (collectively, the "Loan Documents") are incorporated herein by
reference and are hereby ratified and affirmed in all respects by the Borrower.
All references in the Agreement to "this Agreement," "herein," "hereof," and
similar references, and all references in the other Loan Documents to the
"Agreement," shall be deemed to refer to the Agreement, as amended by this
Amendment.
Section 7. Merger and Integration, Superseding Effect. This
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto.
Section 8. Governing Law. This Amendment is governed by the laws
of the State of Minnesota.
[The remainder of this page is intentionally left blank]
-3-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Subordination Agreement to be executed as of the date and year first above
written.
XYZ GROUP, INC., a/k/a XYZ
DISTRIBUTORS
By /s/ Gary R. Billings
------------------------------------
Its President
------------------------------------
GARY R. BILLINGS, as legal guardian for
ALLISON BILLINGS, a minor
By /s/ Gary R. Billings
------------------------------------
Gary R. Billings
REPUBLIC ACCEPTANCE CORPORATION
By /s/ Charles Vollen
------------------------------------
Its Regional Manager
----------------------------------
-4-
<PAGE> 1
Exhibit: 10.35FT
LOAN AGREEMENT
$1,000,000.00 Phoenix, Arizona
This LOAN AGREEMENT is made as of this 12th day of December, 1995, by
and between RODERICK L. TURNER, GARRY GOETT and VINCENT W. GOETT ("Lender")
and FUTECH EDUCATIONAL PRODUCTS, INC. ("Borrowers").
RECITALS:
A. Borrower has requested from Lender a loan ("Loan") in the amount of
up to $1,000,000.00 (One Million and 00/100 dollars) to provide, among other
things, working capital and equipment for Borrower's operations.
B. Subject to the terms and conditions of this Agreement, Lender has
agreed to make the Loan to Borrower.
IN CONSIDERATION OF THE FOREGOING, Borrower and Lender hereby agree as
follows:
ARTICLE I
1.1 AGREEMENT TO BORROW. Borrower agrees to borrow from Lender and,
subject to the terms of this Agreement, Lender agrees to loan to Borrower the
maximum principal amount of One Million Dollars ($1,000,000.00) ("Loan Amount").
Notwithstanding the foregoing, Lender is not obligated to advance the entire
Loan Amount to Borrower, but Borrower is obligated to borrow the entire Loan
Amount. Lender from time to time shall advise Borrower when funds are available
for borrowing. Upon receipt of that notice, Borrower is obligated to borrow the
funds up to the Loan Amount. Lender shall, however, advance no less than the
Loan Amount in full provided Borrower complies with its obligations hereunder.
1.2 THE NOTE. The loan shall be evidenced by a Master Promissory Note
("Note") in the form attached as Exhibit "A".
1.3 SECURITY FOR THE LOAN. The Loan shall be secured by a second
position security interest in all Borrower's equipment, furnishings, inventory,
work in process, intangibles and other collateral. All documents signed by
Borrower in connection with the Loan, collectively are referred to as the "Loan
Documents". All collateral described herein is referred to as the "Collateral".
1.4 USE OF LOAN. The Loan Amount shall be used only for Borrower's
operations.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. To induce Lender to
execute this Agreement and make the Loan, Borrower hereby represents and
warrants to Lender as follows:
<PAGE> 2
(a) Borrower is a corporation duly incorporated and in good
standing in the laws of the State of Arizona, has the corporate authority to own
the Collateral and to transact Borrower's business, and is duly authorized to
execute and deliver this Agreement and to perform this Agreement and its
obligations under all Loan Documents.
(b) This Agreement is, and the Loan Documents when executed and
delivered will become, the valid and binding obligations of Borrower; subject,
however, to the limitations imposed by reorganization, bankruptcy and other
similar laws affecting the enforcement of creditor's rights generally.
(c) All financial statements delivered to Lender in connection
with this Loan have been prepared in conformity with generally accepted
accounting principles and are true, correct and complete in all material
respects.
(d) All consents, licenses and permits and all other
authorizations or approvals required of Borrower to allow Borrower to conduct
its business have been obtained or will be obtained before the Loan Amount is
disbursed.
(e) No litigation or proceedings are pending, or, to the best of
Borrower's knowledge, are threatened, against Borrower (i) which will affect
Borrower's ability to perform its obligations pursuant to and as contemplated by
the terms and provisions of this Agreement and the Loan Documents, or (ii) which
could reasonably be expected to have a material adverse affect on Borrower's
operations.
(f) To the best of Borrower's knowledge, all federal, state or
local laws, rules and regulations relating to the Borrower's business and the
Property have been complied with, including, but not limited to, all
environmental laws.
(g) The Collateral is free and clear of all liens and
encumbrances.
2.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties in this Agreement shall survive closing of the Loan and shall be true
and correct as of each Loan advance.
ARTICLE III
CONDITIONS TO CLOSING
3.1 CONDITIONS. As set forth above, Lender shall have no obligation to
fund the entire Loan Amount and, in any event, shall not fund any of the Loan
Amount until the requirements of this Loan Agreement have been satisfied and
each of the following conditions have been performed and have occurred in
Lender's sole discretion.
3.2 LOAN AGREEMENT. This Agreement has been executed and delivered to
the Lender, together with all Loan Documents required by Lender to effect the
Loan.
3.3 ORGANIZATIONAL DOCUMENTS. Borrower has furnished Lender
Certificates of Good Standing (or the equivalent) for Borrower, copies of its
Articles of Incorporation and Bylaws, and such Borrower authorizations and
resolutions as may be required by Lender.
3.4 FINANCIAL INFORMATION. Borrower shall have furnished Lender with
such financial information as Lender requires and there has been no material
adverse change in Borrower's operations after the date of that information.
<PAGE> 3
(a) if any payment of principal or interest due under any Note is
not paid on its date, or if any other payment due under any Loan Document is not
made when due;
(b) if any of Borrower's representations warranties made herein
are false or if Borrower makes any material misrepresentation to Lender in
connection with the Loan;
(c) if Borrower fails to observe and perform any term, covenant,
promise or agreement on Borrower's part to be observed and performed under this
Agreement or any Loan Document;
(d) if Borrower shall not be able to pay its debts or if Borrower
admits its inability to pay its debts as those debts become due; makes an
assignment for the benefit of creditors or any petition is filed to appoint a
custodian, receiver, trustee for it or for a substantial part of its assets;
commences any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt dissolution of liquidation laws of any jurisdiction whether
now or hereinafter in effect; has any such petition or application filed or any
such proceeding commenced against it; or indicates, by any act or omission, its
consent to, approval of or participation in any application, proceeding or order
for relief or the appointment of a custodian, receiver or trustee for all or any
part of its assets, or suffers any such custodian, receivership or trustee to
continue undercharged for a period of sixty days (60) or more;
(e) the termination or suspension, whether voluntarily or
otherwise, of Borrower's usual business, except only by labor dispute or act of
God;
(f) a material adverse change in the financial condition or
operations of Borrower;
(g) a judgment is entered against Borrower which has become final
and is no longer appealable which judgment either has not been satisfied within
thirty days after the date of finality or which may have a material adverse
affect upon Borrower's financial condition or the Collateral;
(h) any action or proceeding is commenced to establish, assert,
perfect, foreclose or enforce any claim, encumbrance, deficiency, tax assessment
or tax lien on or with respect to any of the Collateral;
(i) if a levy is made or a receiver appointed for, all or any
part of the Collateral;
(j) if Borrower defaults in the payment of any sum due Lender or
fails to perform any obligation to Lender under any other loan from Lender to
Borrower and fails to cure the default within the applicable grace period, if
any;
(k) the material damage or destruction of any Collateral by any
casualty not covered by appropriate insurance, unless Borrower promptly deposits
with Lender sufficient funds to repair and replace the Collateral; or
(l) any sale or transfer of all or any portion of the Collateral
other than in the ordinary course of business.
5.2 REMEDIES. Upon the occurrence of any Event of Default, Lender, in
its sole discretion, may exercise any or all of the following rights and
remedies:
(a) declare immediately due and payable, without notice or
demand, all monies advanced under the Note and any other Loan Documents, or such
other notes and other loan documents Lender shall elect in its sole discretion,
which are then unpaid. accelerate payment thereof, and exercise all rights and
remedies available under the Note and Loan Documents, at law, in equity or
otherwise;
<PAGE> 4
(b) withhold any further advances;
(c) take and enter into possession of any or all of the
Collateral;
(d) foreclose its liens, security interests, assignments or
exercise any powers of sale contained therein or in the Loan Documents;
(e) obtain the appointment of receiver of the business and assets
of the Borrower;
(f) institute appropriate proceedings for injunctive relief
(including specific performance of the obligations of Borrower);
(g) terminate this Agreement by written notice to Borrower;
(h) exercise any other remedy or right provided or permitted
under this Agreement or the Loan Documents; or
(i) set off any indebtedness from Lender to Borrower whether or
not then due and set off any other properties of Borrower held by Lender and
apply that amount or such other property toward the Loan or any other
liabilities of Borrower to Lender. The rights and remedies provided in this
Agreement may be exercised by Lender without presentment, demand, protest or
notice to Borrower (to the extent permitted by law) and shall be in addition to
and not in substitution of the rights and remedies which would otherwise by
vested in Lender to recover damages or otherwise in the Event of Default.
ARTICLE VI
MISCELLANEOUS
6.1 AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by Lender and Borrower.
6.2 WAIVER. Lender's failure to exercise or delay in exercising any
remedy, right, power or privilege under this Agreement shall not operate as a
waiver thereof. No waiver by Lender shall be valid unless in written signed by
Lender and then only to the extent specifically set forth in that writing.
ARTICLE VII
GENERAL PROVISIONS
7.1 CAPTIONS. The captions and headings of various Articles and
Sections of this Agreement and Exhibits are for convenience only.
<PAGE> 5
7.2 NOTICES. Any notice, demand, request or other communication given
hereunder shall be in writing and shall be deemed to have been given properly if
hand delivered or if mailed (effective upon mailing) by United States registered
or certified mail, postage prepaid, return requested, addressed as follows:
If to Borrower: Futech Educational Products, Inc.
2315 North 35th Avenue
Phoenix, Arizona 85009-1417
If to Lender: Vincent W. Goett
6400 North 48th Street
Paradise Valley, Arizona 85253-4076
or to such other address as the party to be served with notice may have
furnished in writing to the other party
7.3 GOVERNING LAW. This Agreement shall be construed, interpreted and
governed by Arizona law.
7.4 DISCLAIMER BY LENDER. This Agreement is made for the sole benefit
of Borrower and Lender (and Lender's successors and assigns), and no other
person or persons shall have any benefits, rights or remedies under or by reason
of this Agreement. Lender shall not be liable to any customers, contractors,
employees, supplier, laborer, distributor or other party for any debts or claims
accruing in favor of any such parties against Borrower or others. Borrower is
not and shall not be an agent of the Lender for any purpose. Lender, by making
the Loan or any action taken pursuant to any of the Loan Documents, shall not be
deemed a partner or a joint venturer with Borrower.
7.5 RIGHT OF LENDER TO MAKE ADVANCES TO CURE BORROWER'S DEFAULTS. If
Borrower fails to perform in a timely fashion any of Borrower's covenants,
agreements or obligations contained in this Agreement or the Loan Documents,
Lender may (but is not required to) perform any of such covenants, agreements
and obligations. Loan proceeds advanced by Lender in the exercise of its
reasonable judgment that the advance is needed to discharge those obligations of
the Borrower shall be deemed obligatory advances hereunder and any amounts
expended (whether by disbursement of undisbursed Loan proceeds or otherwise) by
Lender in so doing, shall constitute additional indebtedness evidenced and
secured by the note and the other Loan Documents.
7.6 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement
and of every part hereof.
7.7 SUCCESSORS AND ASSIGN. This Agreement shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors and
assigns.
7.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
THE UNDERSIGNED BORROWER HEREBY ACKNOWLEDGES THAT VINCENT W. GOETT,
BORROWER'S CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD, IS THE DULY
ACKNOWLEDGED AND APPOINTED LENDER REPRESENTATIVE.
Borrower and Lender have executed this Agreement as of the day and year
first set forth above.
<PAGE> 6
"Borrower"
/s/ Vincent W. Goett
- ----------------------------------
Vincent W. Goett, CEO and Chairman
Futech Educational Products, Inc.
2315 N 35 Avenue
Phoenix, AZ 85009-1417
Attested by: Charles M. Foley 4/29/96
------------------------------ --------------
Date
Its: Chief Financial Officer
-----------------------------
"Lender"
/s/ Vincent W. Goett [OFFICIAL SEAL
- --------------------------------------- CONNIE CORBETT
Vincent W. Goett, Lender Representative Notary Public
6400 N. 48th Street State of Arizona]
Paradise Valley, AZ. 85253-4076
State of Arizona
County of Maricopa
The foregoing instrument was acknowledged before me this 12 day of
December 1995, by Vincent Goett the CEO of FUTECH EDUCATIONAL PRODUCTS, INC., on
behalf of the corporation.
In witness whereof, I hereunto set my hand and official seal
/s/ Connie Corbett
-------------------------------------
Notary Public
My commission expires:
4/24/99
- ----------------------
The foregoing instrument was acknowledged before me this 12 day of Dec. 1995,
by Vincent Goett the of LENDER, on behalf of the LENDER
In witness whereof, I hereunto set my hand and official seal.
/s/ Connie Corbett
--------------------------------------
Notary Public
My commission expires:
4/24/99
- ----------------------
[OFFICIAL SEAL
CONNIE CORBETT
Notary Public
State of Arizona]
<PAGE> 1
Exhibit: 10.36FT
MASTER PROMISSORY NOTE
Borrower: FUTECH EDUCATIONAL PRODUCTS, INC.
2315 North 35th Avenue
Phoenix, Arizona 85009-1417
Lender: RODERICK L. TURNER, GARRY GOETT and VINCENT W. GOETT
6400 North 48th Street
Paradise Valley, Arizona 85253-4076
Principal Amount: $1,000,000.00 Date of Note: December 12, 1995
PROMISE TO PAY. FUTECH EDUCATIONAL PRODUCTS, INC. ("Borrower") promises to pay
to RODERICK L. TURNER, GARRY GOETT and VINCENT W. GOETT ("Lender"), or order, in
lawful money of the United States of America, the principal amount of One
Million Dollars ($1,000,000.00) ("Loan Amount"), or so much thereof as may be
advanced by Lender from time to time together with interest on the unpaid
principal balance from the date hereof until maturity all in accordance with the
terms of the Loan Agreement dated the same date as this Note. Each advance made
by Lender shall be evidenced by a notation on the attached certificate. This
Note matures one (1) years from the date of this note, or December 11, 1996
("Maturity Date").
STOCK. Borrower also agrees to compensate the Lender with a maximum of Three
Million Five Hundred Thousand Shares (3,500,000) of the Borrower's common stock.
The calculation for the number of shares to be transferred to the Lender is
Seven Shares (7) of common stock for every One Dollar ($1.00) borrowed
(principal only). For example, if the Borrower borrows $500,000.00 (Five Hundred
Thousand and 00/100 dollars), the Lender will receive 3,500,000 shares of the
Borrower's common stock. The shares shall be issued per the Lender's
instructions and will be issued no later than Ninety Days (90) following the
outstanding loan principal reaching $500,000.00 or by December 11, 1996,
whichever event occurs the earliest.
PAYMENT. Interest is calculated on each individual borrowing amount from the day
it was borrowed. Interest is calculated monthly and is due and payable to the
Lender by the 15th of the following month. Interest shall be calculated at a
rate of ten percent (10%) per annum. Borrower will pay Lender at Lender's
address shown above or at such other place as Lender may designate in writing.
Unless otherwise agreed or required by applicable law, payments will be applied
first to unpaid collection costs and late charges, then to accrued unpaid
interest, and finally to principal.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due.
LATE CHARGE; DEFAULT INTEREST. If a payment is 10 days or more late, Borrower
may be charged an additional six percent (6%) interest per annum.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender; (c) any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect; (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced
<PAGE> 2
take any of Borrower's property on or in which Lender has a lien or security
interest, including a garnishment of any of Borrower's accounts with Lender; or
(f) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay at maturity, Lender may elect to increase the interest rate on this Note
to the greater of eighteen percent (18%). Lender may hire or pay someone else to
help collect this Note if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums
provided by law.
COLLATERAL. As security for Borrower's obligations in this Note, Borrower has
granted to Lender a security interest in personal property.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew, extend (repeatedly and for any length of time) or modify this loan,
or release any party or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
This note has been delivered to Lender and accepted by Lender in the State of
Arizona. If there is a lawsuit, Borrower agrees on Lender's request to submit to
the jurisdiction of the courts of Maricopa County, the State of Arizona. This
Note shall be governed by and construed in accordance with Arizona law.
Borrower:
FUTECH EDUCATIONAL PRODUCTS, INC.
By: /s/ Vincent W. Goett
- ---------------------------------------
Its: C.E.O.
- ---------------------------------------
State of Arizona
County of Maricopa
The foregoing instrument was acknowledged before me this 12 day of December
1995, by Vincent W. Goett the CEO of FUTECH EDUCATION PRODUCTS, INC., on behalf
of the corporation.
In witness whereof, I hereunto set my hand and official seal
/s/ Connie Corbett
---------------------------------------
Notary Public
My commission expires:
4/24/99
- -----------------------
[OFFICIAL SEAL
CONNIE CORBETT
Notary Public -
State of Arizona]
<PAGE> 3
CERTIFICATE OF BORROWING
<TABLE>
<CAPTION>
DATE LOAN AMOUNT TOTAL LOAN AMOUNT
<S> <C> <C>
/ /199 (see attached computer list)
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
/ /199
- -- -- - ------------------ ----------------------
------------------ ----------------------
TOTAL
================== =====================
</TABLE>=
<PAGE> 4
GTG Loans to Futech Education Product
12/1/95 Through 4/30/96
<TABLE>
<CAPTION>
Date Num Description Memo Category Clr Amount
- ------- ---- ----------------- ------------ -------------- --- -----------
INCOME/EXPENSE
EXPENSES
Loan Receivable:
----------------
Futech Educational Prods.
------------------------
<S> <C> <C> <C> <C> <C> <C>
12/12/95 LOAN Futech Educational Loan per agre Loan Receivable X -500,000.00
12/19/95 M001 Futech Educational Loan per agre Loan Receivable X -100,000.00
1/ 4/96 M002 Futech Educational Loan per agre Loan Receivable X -25,000.00
1/12/96 M003 Futech Educational Loan per agre Loan Receivable X -15,000.00
1/15/96 M004 Futech Educational Loan per agre Loan Receivable X -20,000.00
1/19/96 M005 Futech Educational Loan per agre Loan Receivable X -20,000.00
1/23/96 M006 Futech Educational Loan per agre Loan Receivable X -20,000.00
2/15/96 M007 Futech Educational Loan per agre Loan Receivable X -75,000.00
2/20/96 1101 Futech Educational Loan per agre Loan Receivable X -50,000.00
2/26/96 1102 Futech Educational Loan per agre Loan Receivable X -25,000.00
2/27/96 1103 Futech Educational Loan per agrm Loan Receivable X -11,000.00
2/27/96 1104 Futech Educational Loan per agrm Loan Receivable X -25,000.00
3/ 5/96 1105 Futech Educational Loan per agrm Loan Receivable X -25,000.00
3/ 6/96 1106 Futech Educational Loan per agrm Loan Receivable X -25,000.00
3/15/95 1107 Futech Educational Loan per agrm Loan Receivable X -7,500.00
-----------
Total Futech Educational Prods. -993,500.00
-----------
Total Loan Receivable -993,500.00
-----------
TOTAL EXPENSES -993,500.00
-----------
TOTAL INCOME/EXPENSE -993,500.00
===========
</TABLE>
<PAGE> 1
Exhibit: 10.37FT
SHAREHOLDER LOAN
AND
MASTER PROMISSORY NOTE
FOR CREDIT LINE AGREEMENT
VGFEP-25.DOC
$2,500,000.00 DATE: JANUARY 1, 1997
THIS IS AN AGREEMENT between VINCENT W GOETT ("SHAREHOLDER"), currently employed
as Chairman, Chief Executive Officer and President of Futech Educational
Products, Inc. and residing at 6400 N 48th Street, Paradise Valley, Arizona
85253-4076 and FUTECH EDUCATIONAL PRODUCTS, INC. ("FUTECH") residing at 2999 N
44 Street, Suite 225, Phoenix, Arizona, 85018-7472.
WHEREAS:
A. Futech desires to extend to Shareholder, as of January 1, 1997, the
opportunity to draw on available excess working capital funds up to a maximum
loan amount of $2,500,000.00 (Two million five hundred thousand dollars)
("LOAN").
B. Shareholder, as of January 1, 1997, desires to have access to the
Loan made available by Futech.
C. Shareholder and Futech agree to the following terms and conditions
regarding the Loan:
1. Interest shall be calculated on a monthly basis on the
outstanding Loan balance at a rate equal to the prime lending
rate plus 1% compounded daily. This rate shall be determined as
of the last working day of each calendar month.
2. The Loan will mature 5 (Five) years from this date which will be
December 31, 2001 ("MATURITY"). All principal and interest will
be due upon Maturity.
3. Shareholder is granted the option to renew the loan for an
additional period not to exceed 3 (Three) years. Shareholder
must inform Futech, in writing, 60 days prior to Maturity if
Shareholder is going to exercise the option.
4. Shareholder may prepay, without penalty, all outstanding
principal plus interest.
5. If any payment obligation under this Note is not paid when due,
the Shareholder promises to pay all costs of collection,
including reasonable attorney fees, whether or not a lawsuit is
commenced as part of the collection process.
6. If any of the following events of default occur, this Note and
any other obligations of the Shareholder to the Futech, shall
become due immediately, without demand or notice:
1) the failure of the Shareholder to pay the principal and any
accrued interest in full on or before the Due Date;
2) the death of the Shareholder(s);
3) the filing of bankruptcy proceedings involving the
Shareholder as a Debtor;
4) the application for appointment of a receiver for the
Shareholder;
<PAGE> 2
5) the making of a general assignment for the benefit of the
Shareholder's creditors;
6) the insolvency of the Shareholder; or the misrepresentation
by the Shareholder to the Futech for the purpose of
obtaining or extending credit;
7) the termination of the Shareholder as an employee of Futech;
8) the complete or partial reduction in the Shareholder's
holdings of Futech's common stock below the current pledge
amount (see 9. below)
9. This Note is secured by a pledge of Shareholder's holdings of
Futech common stock. Initially, the Shareholder pledges 4 (four)
shares of Futech common stock for every $1.00 (One dollar) in
loans. If, and when, Futech stock becomes publicly traded, the
number of shares pledged by the Shareholder will be based on
current share prices reviewed on a periodic basis as determined
by Futech.
10. Other Terms and Conditions:
1. If any one or more of the provisions of this Note are
determined to be unenforceable, in whole or in part, for any
reason, the remaining provisions shall remain fully
operative.
2. All payments of principal and interest on this Note shall be
paid in the legal currency of the United States. Shareholder
waives presentment for payment, protest, and notice of
protest and nonpayment of this Note.
3. No renewal or extension of this Note, delay in enforcing any
right of the Futech under this Note, or assignment by Futech
of this Note shall affect the liability of the Shareholder.
All rights of Futech under this Note are cumulative and may
be exercised concurrently or consecutively at Futech's
option.
ACCORDINGLY, for good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. Effective immediately, Futech will allow the Shareholder to draw,
out of excess working capital funds, an amount not to exceed the
Loan amount.
2. GENERAL
2.1 This Agreement is the entire agreement between the parties upon the
subject hereof and supersedes any prior or similar agreements upon
the same subject.
2.2 This Agreement shall inure to the benefit of, be binding upon and be
enforceable by Shareholder, its nominees, successors, and assigns,
and shall be binding upon and be enforceable by Futech, its
nominees, successors, and assigns and legal representatives.
<PAGE> 3
2.3 This Agreement shall be governed by and construed in accordance with
the Federal law of the United States of America and the internal
laws of the State of Arizona, without reference to the principles of
conflicts of law.
2.4 This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this agreement this the
day of , 19 .
"Shareholder"
/s/ Vincent W. Goett
- ---------------------------------------
Vincent W. Goett
"Futech"
/s/ Vincent W. Goett
- ---------------------------------------
- ---------------------------------------
(Name and Title)
"Futech" (in witness of)
/s/ Charles M. Foley 1-2-97
- ---------------------------------------
Charles M. Foley, CFO
- ---------------------------------------
(Name and Title)
<PAGE> 1
Exhibit: 10.38FT
Vincent W. Goett
2999 N 44 ST., #225 * Phoenix Arizona 85018-7247
602.808.9888, telephone * 602.808.9863, facsimile
Date: February 26, 1997
To: Futech Educational Products, Inc. Company:
From: Vincent W. Goett
Subject: Final resolution on loan due and owing Goett-Turner-Goett
Dear Futech Educational Products, Inc.,
As of December 11, 1996 Futech ("Borrower") owed to me, Roderick Turner
and Garry Goett ("Lender") a total of $1,055,476.20 (One million fifty-five
thousand four hundred seventy-six dollars and twenty cents) in principal and
interest (see attached schedule "GTG Loans and Interest Calculation for Futech
Educational Products, Inc."). I have also attached a copy of the Promissory Note
which outlines the terms and conditions of this borrowing.
We, the Lenders, are willing to forego receipt of the payment in full
in exchange for receiving 3,518,254 (Three million five hundred eighteen
thousand two hundred fifty-four) shares of Futech common stock. This was
calculated on the basis of exchanging the full amount due at $0.30 (Thirty
cents) per share. This, in addition to the original 3,500,000 (Three million
five hundred thousand) shares, would give us a total of 7,018,254 (Seven million
eighteen thousand two hundred fifty-four) shares for this borrowing arrangement.
We believe that this is a fair and equitable resolution to this
arrangement for both parties. By your acceptance below and the issuance of the
shares (to be determined) to us, we can mark this debt paid-in-full.
Sincerely,
Vincent W. Goett
"I have read, understood and agree to the aforementioned payment arrangement for
the obligation due and owning Vincent W. Goett, Roderick Turner and Garry Goett
by Futech Educational Products, Inc.".
/s/ Vincent W. Goett 2/26/97
- --------------------------------------------- -----------------------
Vincent W. Goett Date
Chairman and CEO, Futech Educational Products
<PAGE> 2
GTG Loans and Interest Calculation for Futech Educational Products, Inc.
From 12/12/95 through 12/11/96
<TABLE>
<CAPTION>
CUMULATIVE LOAN INTEREST TOTAL
DRAW DRAW DRAW MATURITY THROUGH PRINCIPAL
DATE CHECK # AMOUNT AMOUNT DATE MATURITY(a) & INTEREST
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/12/95 LOAN $ 550,000.00 $550,000.00 12/11/96 $55,000.00 $ 605,000.00
12/19/95 M001 100,000.00 650,000.00 12/11/96 9,808.22 109,808.22
1/4/96 M002 25,000.00 675,000.00 12/11/96 2,342,47 27,342.47
1/12/96 M003 15,000.00 690,000.00 12/11/96 1,372,60 16,372.60
1/15/96 M004 20,000.00 710,000.00 12/11/96 1,813.70 21,813.70
1/19/96 M005 20,000.00 730,000.00 12/11/96 1,791.78 21,791.78
1/23/96 M006 20,000.00 750,000.00 12/11/96 1,769.86 21,769.86
2/15/96 M007 75,000.00 825,000.00 12/11/96 6,164.38 81,164.38
2/20/96 1101 50,000.00 875,000.00 12/11/96 4,041.10 54,041.10
2/26/96 1102 25,000.00 900,000.00 12/11/96 1,979.45 26,979.45
2/27/96 1103 11,000.00 911,000.00 12/11/96 867.95 11,867.95
2/27/96 1104 25,000.00 936,000.00 12/11/96 1,972.60 26,972.60
3/5/96 1105 25,000.00 961,000.00 12/11/96 1,924.66 26,924.66
3/6/96 1106 25,000.00 986,000.00 12/11/96 1,917.81 26,917.81
3/15/96 1107 7,500.00 993,500.00 12/11/96 556.85 8,056.85
-------------------------- --------------------------
Totals $(993,500.00) $993,500.00 $93,323.42 $1,086,823.42
========================== ==========
</TABLE>
LESS: INTEREST PAYMENTS BY FUTECH(b)
<TABLE>
<CAPTION>
DATE CHECK $ AMOUNT
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
8/19/96 5448 -7,965.28
9/17/96 1199 -7,965.28
10/31/96 5572 -7,708.33
12/27/96 1230 -7,708.33 -31,347.22
-----------------
Net Principal and Interest Futech owes to GTG at 12/11/96 $1,055,476.20
=============
</TABLE>
<TABLE>
<CAPTION>
Conversion Calculation of Principal and Interest into Futech Common Stock
- ---------------------------------------------------------------------------------
<S> <C> <C>
Total Principal and Interest Due from Futech $1,055,476.20
Conversion value of $0.30/common share of Futech stock $ 0.30
# OF SHARES TO BE ISSUED TO GOETT-TURNER-GOETT IN FULL -------------
PAYMENT OF PRINCIPAL AND INTEREST DUE BY FUTECH 3,518,254
=============
</TABLE>
Footnotes
- ---------
(a) Interest is calculated at 10% interest per annum from the draw date through
the maturity date.
(b) Per the loan agreement between Futech and Goett-Turnet-Goett, Futech was to
have made monthly interest payments at 10% per year. Due to cash flow problems,
these payments were not made; however, Futech did directly make some of the
monthly interest payments to Bank of America for the GTG loan.
<PAGE> 1
Exhibit: 10.39FT
PROMISSORY NOTE
$350,000.00 Date: 4/2/97, 1997
TERMS
For value received, the undersigned FUTECH EDUCATIONAL PRODUCTS, INC. (the
"Promisor") promises to pay to the order of VINCENT W. GOETT (the "Payee"), at
6400 N 48 Street, Paradise Valley, Arizona 85253, (or at such other place as the
Payee may designate in writing) the sum of $350,000.00 with a one-time fee of
$35,000.00 upon maturity.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 18.00 percent annually until paid. The Payee may elect to not have interest
accrue.
PAYMENT SCHEDULE
It is understood by the Payee that the Promisor is in the process of receiving
a $1 million loan from a third party. It is anticipated that the $1 million in
funds will be received on or before April 15, 1997. Once the Promisor receives
the $1 million loan proceeds the unpaid principal and the one-time fee are
immediately due and payable to Payee.
If the anticipated $1 million loan is not funded, the unpaid principal and
one-time fee will be due Thirty (30) days after the funds were first received by
the Promisor. If, upon maturity, the full amount of $385,000.00 is not received
by Payee interest will begin to accrue at an annual rate of 18% and shall be
payable in monthly installments until the full remaining balance is received by
the Payee. All payments on this Note shall be applied first in payment of
accrued interest and any remainder in payment of principal. Monthly payments are
due by the 15th of the succeeding month.
LATE PAYMENT PENALTIES
If any installment is not paid when due, the remaining unpaid balance and
accrued interest shall become due immediately at the option of the Payee.
PREPAYMENT OPTION
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
COSTS TO COLLECT UNPAID BALANCE
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
DEFAULT EVENTS
If any of the following events of default occur, this Note and any other
obligations of the Promisor to the Payee, shall become due immediately, without
demand or notice:
(1) the failure of the Promisor to pay the principal and any accrued interest in
full on or before the Due Date;
<PAGE> 2
DEFAULT EVENTS (contd.)
2) the death of the Promisor(s) or Payee(s);
3) the filing of bankruptcy proceedings involving the Promisor as a Debtor;
4) the application for appointment of a receiver for the Promisor;
5) the making of a general assignment for the benefit of the Promisor's
creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit.
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment, or any other disposition of any assets pledged as security for the
payment of this Note, or if there is a default in any security agreement which
secures this Note.
If any of the above defaults apply to one Promisor, all Promisors shall be
deemed in default of this Note regardless of whether all Promisors are directly
involved in the default.
SECURITY PLEDGE
This Note is secured by a pledge of all of Futech's tangible and intangible
assets to include, but not be limited to: fixed assets, patent rights and
ownership, existing revenue-producing contractual agreements (e.g. Golden Books
Family Entertainment, L. L. C.), etc., dated on or before 12/31/97, 1997. The
Payee is not required to rely an the above security for the payment of this Note
in the case of default, but may proceed directly against the Promisor.
OTHER TERMS AND CONDITIONS
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State of
ARIZONA.
Signed this 2 day of April, 1997, at Futech
---
Futech Educational Products, Inc.
/s/ Vincent W. Goett
- ----------------------------
Vincent W. Goett
Chairman and CEO
<PAGE> 1
Exhibit: 10.40FT
STOCK OPTION AND LOAN AGREEMENT
This Stock Option and Loan Agreement is made and entered into on the
date hereinafter set forth, by and between Roderick L. Turner ("Lender") and
FUTECH EDUCATIONAL PRODUCTS, INC., an Arizona corporation (*Corporation").
RECITALS:
A. The corporation is a corporation organized and validly existing
under the laws of the State of Arizona and is authorized to issue up to a total
of seventy-five million shares of common capital stock without par value.
B. Lender has agreed to make a loan to corporation in the amount of
Three Hundred Fifty Thousand Dollars ($350,000.00) pursuant to the following
terms, which includes Lender's ability to convert all or any part of the loan
amount due Lender to shares of the Corporation's common stock.
AGREEMENT:
For valuable consideration, the parties hereby agree as follows:
1. RECITALS INCORPORATION. The Recitals set forth above are hereby
incorporated by reference.
2. PAYMENT. On or before 4/2/97, Leader shall loan to the
Corporation the sum of Three Hundred Fifty Thousand ($350,000.00). Upon receipt
of the funds, Corporation promises to pay to Lender the principal amount of
Three Hundred Fifty Thousand ($350,000.00) together with interest at the rate of
ten percent (10%) per annum from the date the funds are received until paid in
full. The loan must be paid in full no later than ninety (90) days after the
expiration of the Option Period plus interest. No payments of principal are due.
Quarterly interest payments are due within 15 days of the end of each calendar
quarter described as March 31, June 30, September 30 and December 31.
3. STOCK OPTION. In lieu of repayment of all or any part of the
outstanding principal and interest of the loan, at any time and from time to
time up until two years after the date the loan proceeds are received by
Corporation ("Option Period"), Lender may elect to receive up to a maximum
aggregate of Eight Hundred Forty thousand (840,000) shares ("Shares") of
Corporation common stock at the rate of 50/100 Dollars ($0.50) per share. Each
such Share the Lender elects to receive shall reduce the amount Corporation owes
Lender in like amount. For example, if Lender elects to receive 50,000 shares of
Corporation common stock at the rate of $0.50 per share, the outstanding balance
due Lender shall be reduced by $25,000 on the date the Shares are received by
Lender. In the event Lender does not exercise the option to acquire all Shares
at expiration of option period, then Lender will receive payment of the
outstanding principal loan balance if any. Upon receipt of the Shares, all
rights incidental thereto, including, but not limited to, voting rights, rights
to dividends and liquidation proceeds, shall pass unconditionally to Lender.
(a) The Corporation agrees that if further dilution from the currently
authorized 75 million shares of Corporation's common stock occurs, Lender will
be eligible to receive a proportionately higher number of shares equal to the
percentage increase in dilution. For example, if an additional 7.5 million
shares were authorized this would equal a further 10% dilution to the
shareholders. Lender would be eligible to convert his shares at Lender's current
maximum aggregate plus an additional 10% of the shares thereby keeping his
percentage of ownership equal.
<PAGE> 2
4. LEGEND. Any Shares acquired hereunder shall bear a conspicuous
legend stating that the Shares have not been registered under the Securities Act
of 1933, as amended ("Act"), and referring to certain restrictions on transfer
or encumbrance of the Shares.
5. REGISTRATION RIGHTS. The Corporation does not intend to file a
registration statement under the Act. Instead, the Corporation intends to
rely on the "private placement" exemption contained in Section 4(2) of the Act.
6. REPRESENTATIONS OF LENDER. Lender represents, warrants and covenants
as follows:
a. Lender is familiar with the business and affairs of the
Corporation and realizes an investment in the Shares involves a high degree of
risk.
b. Lender has been advised that there will be no public market
for the Shares, it may not be possible to readily liquidate his/her investment;
the shares have not been registered or qualified under Federal or State laws
governing the issuance of securities; and the Corporation has no intention of
registering the Shares or reporting under the Act or any comparable or related
Federal or State law.
c. Lender acknowledges that the issuance of stock hereunder is
a private transaction, and hereby waives all claim and causes of action of any
kind or nature relating to any subsequent assertion that this transaction is not
private.
d. Lender acknowledges that his/her overall commitment to
investments which are not readily marketable is not disproportionate to his/her
net worth, and his/her investment in the Shares will not cause such overall
commitment to become excessive; that Lender has adequate means of providing for
his/her current needs and personal contingencies, and has no need for liquidity
of this investment; that Lender has evaluated the risk of investing in the
Corporation; that Lender is aware of the financial risks and possible financial
hazards of purchasing the Shares and he/she has carefully considered these risks
and hazards; and that Lender is able to bear the economic risk of the
investment, including the possibility of a complete loss thereof
e. The Shares are being acquired solely for the purpose of
investment; are not being purchased for distribution, subdivision, sale or
fractionalization thereof to the public generally; Lend has no contract,
undertaking, agreement or arrangement with any person to sell, transfer or
pledge to anyone else the Shares or any part the Lender has no present plans to
enter into such contract, undertaking, agreement or arrangement, and Lender is
the sole party in interest of the Shares and as such is vested with all legal
and equitable rights in such shares.
f. Lender agrees the Corporation will restrict the
transferability of the Shares and will cause the certificate evidencing the
Shares to bear a legend stating such reasonable and agreed upon restrictions
against transfer. In this regard, Lender will notify the Corporation within
thirty days of any sale or transfer of the Shares and will cause the purchaser
to execute a Stock Agreement in form acceptable to Corporation prior to any sale
or transfer.
g. Lender acknowledges that all documents, records and books
pertaining to this investment have been made available for inspection by Lender,
his or her attorney, accountant and/or agent for purchase. Lender and/or his/her
representative have had the opportunity to ask questions of, and receive answers
from, the officers of the Corporation concerning the operation of the
Corporation's business, and to obtain any additional information which the
officers of the Corporation possess or can acquire without unreasonable effort
or expense which is necessary to verify the accuracy of the information
requested and given to Lender. Lender is purchasing the Shares without being
furnished any offering literature or prospectus.
<PAGE> 3
h. Lender acknowledges that he/she has obtained disclosure of
the financial information of the Corporation, that he/she is aware of the fact
that the debts of the Corporation currently exceed his/her investment, that
lawsuits have been threatened and commenced regarding alleged outstanding
liabilities.
i. Lender has been advised that this is a start-up corporation
in its early stages of development and marketing. Further, Lender has been
advised that he/she should retain an attorney to represent his/her individual
interest and provide proper counseling as to the risks and proper analysis of
the investment. Lender acknowledges that he/she is not relying on the law firm
of Ridenour, Swenson, Cleere & Evans, P.C. for advice or counsel in this matter
and that said law firm is merely documenting the acquisition of the Shares.
7. CONSTRUCTION. Where the context of this Agreement requires, the
singular shall be construed as masculine and feminine pronouns, and vice versa.
This Agreement shall be construed according to its fair meaning and neither for
nor against any party hereto.
8. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. This Agreement has been
delivered to Lender and accepted by Lender in the State of Arizona. If there is
a lawsuit, both parties agree to submit to the jurisdiction of the courts of
Maricopa County, the State of Arizona. This Agreement shall be governed by and
construed in accordance with Arizona law. The prevailing party in any action to
enforce the terms of this Agreement shall be entitled to recover its reasonable
attorneys' fees and court costs.
DATED TO BE EFFECTIVE 4/2/97, 1997.
By: /s/ Roderick L. Turner
Its:
Roderick L. Turner
36 Cornwell Beach Road
Sands Point NY 11050
"Lender"
FUTECH EDUCATIONAL PRODUCTS, INC.
an Arizona corporation
By: Vincent W. Goett
Its: CEO
"Corporation"
Amendment
The Corporation agrees to inform Lender of all pending stock sales on a timely
basis from the date of execution of this Stock Option and Loan Agreement.
<PAGE> 4
<TABLE>
<CAPTION>
Rod & Terry
Outstanding Optional Option Shares Option Shares Interest Rod & Terry
Loan Shares Exercised at $0.50 Received Cash Flow
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Opening Balance 350,000 840,000 -- -- -- (350,000)
1. End Year 1 Transaction 140,000 420,000 420,000 (210,000) 70,000 (350,000)
2. End Year 2 Transaction -- -- 420,000 (210,000) 70,000 (350,000)
---------------------------------------------------------------------------------------
TOTAL - 840,000 SHARES AT $350,000 CASH COST OR $0.42 PER SHARE
---------------------------------------------------------------------------------------
2a. End Year 2 40,000 0 200,000 (100,000) 70,000 (350,000)
---------------------------------------------------------------------------------------
TOTALS - 620,000 SHARES AT $350,000 ($40,000)=$310,000 AT $0.50 PER SHARE
</TABLE>
1. Presume 420,000 shares exercised at $0.50 year ending 1st year.
2. Presume 420,000 shares exercised at $0.50 year ending 2nd year.
2a. Presume 200,000 shares exercised at $0.50 year ending 2nd year.
Page 1
<PAGE> 1
PROMISSORY NOTE
$1,000,000.00 Date: April 25, 1997
TERMS
- -----
For value received, the undersigned FUTECH EDUCATIONAL PRODUCTS, Inc. (the
"Promisor") promise pay to the order of RODERICK TURNER AND VINCENT W. GOETT
(the "Payee"), at 36 Cornwell Beach Road Sands Point, NY 11050, (or at such
other place as the Payee may designate in writing) the sum of $1,000,000.00 with
interest from April 25, 1997, on the unpaid principal at the rate of 10.00
percent annually.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 18.00 percent annually until paid.
In addition to the repayment of principal and interest, Promisor also will issue
to Payee 2,000,000 shares of Promisor's common stock immediately upon full and
final receipt of the $1,000,000.00 from Payee. The shares shall be issued as
follows:
Roderick Turner 1,000,000 shares
Melissa Turner Goett 1,000,000 shares
PAYMENT SCHEDULE
- ----------------
The unpaid principal and accrued interest shall be payable by Promisor in
quarterly installments of interest only beginning on April 30, 1997, and
continuing until April 30, 1998, (the "Due Date"), at which time the remaining
unpaid principal and interest shall be due in full. All payments on this Note
shall be applied first in payment of accrued interest and any remainder in
payment of principal.
LATE PAYMENT PENALTIES
- ----------------------
If any installment is not paid by Promisor when due, the remaining unpaid
balance and accrued Interest shall become due immediately at the option of the
Payee.
PREPAYMENT OPTION
- -----------------
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
COSTS TO COLLECT UNPAID BALANCE
- -------------------------------
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the action process.
<PAGE> 2
DEFAULT EVENTS
- --------------
If any of the following events of default occur, this Note and any other
obligations of the Promisor to Payee, shall become due immediately, without
demand or notice:
1) the failure of the Promisor to pay the principal and any accrued interest in
full on or before the Due Date;
2) the death of the Promisor(s) or Payee(s);
3) the filing of bankruptcy proceedings involving the Promisor as a Debtor;
4) the application for appointment of a receiver for the Promisor;
5) the making of a general assignment for the benefit of the Promisor's
creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment, or any other disposition of any assets pledged as security for the
payment of this Note, or if there is a default in a security agreement which
secures this Note.
If any of the above defaults apply to one Promisor, all Promisors shall be
deemed in default of this Note regardless of whether all Promisors are directly
involved in the default.
SECURITY PLEDGE
- ---------------
This Note is secured by a pledge of all of Futech's tangible and intangible
assets to include, but not be limited to: fixed assets, patent rights and
ownership, existing revenue-producing contractual agreements (e.g. Golden Books
Family Entertainment L.L.C.), etc., dated on or before April 12, 1997 The Payee
is not required to rely on the above security for the payment of this Note in
the case of default, but may proceed directly against the Promisor.
OTHER TERMS AND CONDITIONS
- --------------------------
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
<PAGE> 3
This Note shall be construed in accordance with the laws of the State of
ARIZONA.
Signed this 25 day of April, 1997 at
corporate offices
- --------------------------------.
Futech Educational Products, Inc.
By: /s/ Vincent W. Goett
------------------------------
Vincent W. Goett
Chairman and CEO
====End of Document====
<PAGE> 1
Exhibit: 10.42FT
ADDENDUM 1
TO PROMISSORY NOTE
FOR $1 MILLION LOANED TO FUTECH EDUCATIONAL PRODUCTS, INC.
BY RODERICK TURNER AND VINCENT W. GOETT
ON APRIL 25,1997
April 25, 1997 Phoenix Arizona
This Addendum 1 is made and entered into on the date set forth above, by and
between, Roderick Turner and Vincent W. Goett ("Payee") and Futech Educational
Products, Inc. ("Promisor"). This Addendum 1 relates to a specific Promissory
Note (see Exhibit A) entered into by and between Payee and Promisor on April 25,
1997. The purpose of this Addendum 1 is to arrange for additional security for
the Payee in the event specific actions are either voluntarily taken by Promisor
or are involuntarily forced upon the Promisor during the period of two years
from the date of execution of the Promissory Note.
RECITAL:
- --------
Subject to the terms and conditions of this Addendum 1:
1. As outlined in Exhibit A Promisor and Payee entered into an agreement on
April 25, 1997 whereby the Payee would provide a $1 million loan to Promisor
for repayment in quarterly installments of interest and payment in full on the
due date of April 30, 1998. Promisor also is obligated to issue two million
shares of its common stock to Payee or person(s) designated by Payee.
2. Payee desires to reserve the right to convert all shares of common stock
either received or promised from Promisor for additional debt in the Promisor in
the event of one or more of the following events occurring within the first two
years from the execution of the Promissory Note:
1. Promisor either voluntarily or involuntarily files for bankruptcy or
other type of protection from its creditors;
2. Promisor has one or more judgments or potential judgments served on
Promisor totaling $100,000.00 (One hundred thousand dollars U. S.) or
more.
3. Promisor desires to provide additional security to Payee in the form of an
unrestricted ability to convert any and all equity to be issued to the Payee to
debt in the Promisor per Recital 2.
4. Payee and Promisor mutually desire that if the right to convert is exercised
by Payee, that all shares will be converted to debt at the value of $0.75
(Seventy-five cents) per share. Interest shall accrue on this debt per the same
terms and conditions of the Promissory note.
<PAGE> 2
NOW, THEREFORE, in consideration of the Addendum 1, covenants, and undertakings
contained below, it is mutually agreed as follows:
1. Promisor agrees to allow the Payee to convert to debt any and all common
shares of stock to be issued or that have been issued per the Promissory note at
$0.75 per share if any of the events occur per Recital 2 in its entirety.
2. Payee agrees to notify Promisor of his desire to convert the shares to
debt on or before April 25, 1999. This notification must be done in writing, be
signed by all parties belonging to Payee and be sent to Promisor's business
address of 2999 N. 44th Street, Suite 225, Phoenix, Arizona 85018 unless
otherwise notified.
REPRESENTATIONS OF PAYEE
- ------------------------
Payee represents, warrants and covenants as follows:
1. Payee is familiar with the business and affairs of Promisor and realizes
an investment in the shares involves a high degree of risk.
2. Payee has been advised that there will be no public market for the
shares; it may not be able to readily liquidate its investment, the shares have
not been registered or qualified under Federal or State laws governing the
issuance of securities; and Promisor has no current intention of registering the
shares or reporting under the Act or any comparable or related Federal or State
law.
3. Payee is an accredited investor and acknowledges that its overall
commitment to investments which are not readily marketable is not
disproportionate to its net worth, and its investment in the shares will not
cause such overall commitment to become excessive; that Payee has adequate means
of providing for its current needs and personal contingencies, and has no need
for liquidity of this investment; that Payee has evaluated the risk of investing
in Promisor; that Payee is aware of the financial risks and possible financial
hazards of purchasing the shares and it has carefully considered these risks of
the investment, including the possibility of a complete loss thereof.
4. Payee agrees the stock is subject to a Stock Restrictions and Sale
Agreement. The shares acquired under this Addendum 1 shall be subject to that
Stock Restrictions and Sale Agreement, as it may be amended from time to time.
SURVIVAL
- --------
1. The representations, warranties and covenants contained in the section
Representations of Payee shall survive transfer of the shares.
ATTORNEYS' FEES
- ---------------
1. The prevailing party in any action to enforce the terms and conditions
hereof shall be entitled to recover its reasonable attorneys' fees and court
costs.
<PAGE> 3
CONSTRUCTION
- ------------
1. Where the context of this Addendum 1 requires, the singular shall be
construed as the plural, and neuter pronouns shall be construed as masculine and
feminine pronouns, and vice versa. This Addendum 1 shall be construed according
to is fair meaning and neither for nor against any party hereto. This Addendum 1
shall be governed by and construed in accordance with Arizona law.
Dated this the 25th day of the month of April
------------,
19
--
Futech Educational Products, Inc. ("Promisor")
/s/ Vincent W. Goett
- ----------------------
Vincent W. Goett
Chairman an CEO
Vincent W. Goett ("Payee")
/s/ Vincent W. Goett
- ----------------------
Vincent W. Goett
<PAGE> 4
EXHIBIT A
PROMISSORY NOTE
$1,000,000.00 Date: April 25, 1997
TERMS
- -----
For value received, the undersigned FUTECH EDUCATIONAL PRODUCTS, INC. (the
"Promisor") promises pay to the order of RODERICK TURNER AND VINCENT W. GOETT
(the "Payee"), at 36 Cornwell Beach Road, Sands Point, NY 11050, (or at such
other place as the Payee may designate in writing) the sum of $ 1,000,000.00
with interest from April 25, 1997, on the unpaid principal at the rate of 10.00
percent annually.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 18.00 percent annually until paid.
In addition to the repayment of principal and interest, Promisor also will issue
to Payee 2,000,000 shares of Promisor's common stock immediately upon full and
final receipt of the $1,000,000.00 from Payee. The shares shall be issued as
follows:
Roderick Turner 1,000,000 shares
Melissa Turner Goett 1,000,000 shares
PAYMENT SCHEDULE
- ----------------
The unpaid principal and accrued interest shall be payable by Promisor in
quarterly installments of interest only beginning on April 30, 1997, and
continuing until April 30, 1998, (the "Due Date"), at which time the remaining
unpaid principal and interest shall be due in full. All payments on this Note
shall be applied first in payment of accrued interest and any remainder in
payment of principal.
LATE PAYMENT PENALTIES
- ----------------------
If any installment is not paid by Promisor when due, the remaining unpaid
balance and accrued interest shall become due immediately at the option of the
Payee.
PREPAYMENT OPTION
- -----------------
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
COSTS TO COLLECT UNPAID BALANCE
- -------------------------------
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs for collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
<PAGE> 5
DEFAULT EVENTS
- ---------------
If any of the following events of default occur, this Note and any other
obligations of the Promisor to the Payee, shall become due immediately, without
demand or notice:
1) the failure of the Promisor to pay the principal and any accrued interest in
full on or before the Due Date;
2) the death of the Promisor(s) or Payee(s);
3) the filing of bankruptcy proceedings involving the Promisor as a Debtor,
4) the application for appointment of a receiver for the Promisor;
5) the making of a general assignment for the benefit of the Promisor's
creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment, or any other disposition of any assets pledged as security for the
payment of this Note, or if there is a default in any security agreement which
secures this Note.
If any of the above defaults apply to one Promisor, all Promisors shall be
deemed in default of this Note regardless of whether all Promisors are directly
involved in the default.
SECURITY PLEDGE
- ---------------
This Note is secured by a pledge of all of Futech's tangible and intangible
assets to include, but not be limited to: fixed assets, patent rights and
ownership, existing revenue-producing contractual agreements (e.g. Golden Books
Family Entertainment, L.L.C.), etc., dated on or before April 12, 1997. The
Payee is not required to rely on the above security for the payment of this Note
in the case of default, but may proceed directly against the Promisor.
OTHER TERMS AND CONDITIONS,
- ---------------------------
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or payment by Payee of this Note shall affect the liability of
the Promisor. All rights of the Payee under this Note are cumulative and may be
exercised concurrently or consecutively at the Payee's option.
<PAGE> 6
This Note shall be construed in accordance with the laws of the State of
ARIZONA.
Signed this 25 day of April, 1997,at
Corporate Offices
- -----------------------------------
Futech Educational Products, Inc.
By: /s/ Vincent W. Goett
--------------------------------
Vincent W. Goett
Chairman and CEO
<PAGE> 1
Exhibit: 10.43FT
ADDENDUM 2
TO PROMISSORY NOTE
FOR $1 MILLION LOANED TO FUTECH EDUCATIONAL PRODUCTS, INC.
BY RODERICK TURNER AND VINCENT W. GOETT
ON APRIL 25,1997
RTFEP1Ma.doc
September 2, 1997 Phoenix, Arizona
This Addendum 2 is made and entered into on the date set forth above, by and
between, Roderick Turner and Vincent W. Goett ("Payee") and Futech Educational
Products, Inc. ("Promisor"). This Addendum 2 relates to a specific Promissory
Note (see Exhibit A) and its related Addendum 1 (see Exhibit B) entered into by
and between Payee and Promisor on April 25, 1997. The purpose of this Addendum 2
is to arrange for an additional amount to be loaned by Payee to Promisor and the
resulting repayment of principal, interest and shares of common stock.
RECITAL:
- --------
Subject to the terms and conditions of this Addendum 2:
1. As outlined in Exhibit A Promisor and Payee entered into an agreement on
April 25, 1997 whereby the Payee would provide a $1.0 million loan to Promisor
for repayment in quarterly installments of interest and payment in full on the
due date of April 30, 1998.
2. Promisor is currently in need of additional financial resources from Payee in
the amount of $ 2.0 million. Payee desires to arrange for an additional credit
line amount of $2.0 million to be loaned to Promisor on an as-needed basis.
3. Payee and Promisor mutually agree that the same repayment terms and schedule
will apply as in the original promissory note (Exhibit A).
4. In addition to the additional $2.0 million in principal that will be due and
owing the Payee from Promisor, the Promisor agrees to provide an additional 4.0
million shares of Promisor's common stock. The stock will be payable to Vincent
W. and Melissa Turner Goett in the amount of 4.0 million shares per the original
payment terms and conditions.
NOW, THEREFORE, in consideration of the Addendum 2, covenants, and
undertakings contained below, it is mutually agreed as follows:
1. Payee agrees to arrange for and provide to Promisor an additional $2.0
million credit line per the terms and conditions of the original Promissory
Note.
<PAGE> 2
2. Promisor agrees to receive an additional $2.0 million in loans from Payee and
to repay all monies due per the terms and conditions of the original Promissory
Note. The only exceptions are that the Promisor will provide an additional 4
million of its common shares to the Payee in equal amounts to Vincent W. and
Melissa Turner Goett upon full and final receipt of the additional $2.0 million
from Payee and that a 10% loan origination fee ($300,000; three hundred
thousand dollars) will be paid upon receipt of $2.0 million from Payee to
Promisor.
REPRESENTATIONS OF PAYEE
- ------------------------
Payee represents, warrants and covenants as follows:
1. Payee is familiar with the business and affairs of Promisor and realizes
an investment in the shares involves a high degree of risk.
2. Payee has been advised that there will be no public market for the
shares; it may not be able to readily liquidate its investment, the shares have
not been registered or qualified under Federal or State laws governing the
issuance of securities; and Promisor has no current intention of registering the
shares or reporting under the Act or any comparable or related Federal or State
law.
3. Payee is an accredited investor and acknowledges that its overall
commitment to investments which are no readily marketable is not
disproportionate to its net worth, and its investment in the shares will not
cause such overall commitment to become excessive; that Payee has adequate means
of providing for its current needs and personal contingencies, and has no need
for liquidity of this investment; that Payee has evaluated the risk of investing
in Promisor; that Payee is aware of the financial risks and possible financial
hazards of purchasing the shares and it has carefully considered these risks of
the investment, including the possibility of a complete loss thereof.
4. Payee agrees the stock is subject to a Stock Restrictions and Sale
Agreement. The shares acquired under this Addendum 2 shall be subject to that
Stock Restrictions and Sale Agreement, as it may be amended from time to time.
SURVIVAL
- --------
1. The representations, warranties and covenants contained in the section
Representations of Payee shall survive transfer of the shares.
ATTORNEYS' FEES
- ---------------
1. The prevailing party in any action to enforce the terms and conditions
hereof shall be entitled to recover its reasonable attorneys' fees and court
costs.
CONSTRUCTION
- ------------
1. Where the context of this Addendum 2 requires, the singular shall be
construed as the Plural, and neuter pronouns shall be construed as masculine and
feminine pronouns, and vice versa. This Addendum 2 shall be construed according
to is fair meaning and neither for nor against any party hereto. This Addendum 2
shall be governed by and construed in accordance with Arizona law.
<PAGE> 3
Dated this the 2 day of the month of September, 1997.
--- --------- --
Futech Educational Products, Inc. ("Promisor")
/s/ Vincent W. Goett
- -----------------------
Vincent W. Goett
Chairman and CEO
Roderick Turner and Vincent W. Goett ("Payee")
/s/ Vincent W. Goett
- -----------------------
Vincent W. Goett
<PAGE> 4
PROMISSORY NOTE
---------------
RTFEP_1M.doc
$1,000,000.00 Date: April 25, 1997
TERMS
- -----
For value received, the undersigned FUTECH EDUCATIONAL PRODUCTS, INC. (the
"Promisor") promises pay to the order of RODERICK TURNER AND VINCENT W. GOETT
(the "Payee" at 36 Cornwell Beach Rd, Sands Point, NY 11050, (or at such other
place as the Payee may designate in writing) the sum of $ 1,000,000.00 with
interest from April 25, 1997, on the unpaid principal at the rate of 10.00
percent annually.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 18.00 percent annually until paid.
In addition to the repayment of principal and interest, Promisor also will issue
to Payee 2,000,000 shares of Promisor's common stock immediately upon full and
final receipt of the $1,000,000.00 from Payee. The shares shall be issued as
follows:
Roderick Turner 1,000,000 shares
Melissa Turner Goett 1,000,000 shares
PAYMENT SCHEDULE
- ----------------
The unpaid principal and accrued interest shall be payable by Promisor in
quarterly installments of interest only beginning on April 30, 1997, and
continuing until April 30, 1998, (the "Due Date"), at which time the remaining
unpaid principal and interest shall be due in full. All payments on this Note
shall be applied first in payment of accrued interest and any remainder in
payment of principal.
LATE PAYMENT PENALTIES
- ----------------------
Any installment is not paid by Promisor when due, the remaining unpaid balance
and accrued interest shall become due immediately at the option of the Payee.
REPAYMENT OPTION
- ----------------
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
COSTS TO COLLECT UNPAID BALANCE
- -------------------------------
Any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
<PAGE> 5
DEFAULT EVENTS
- --------------
If any of the following events of default occur, this Note and any other
obligations of the Promisor to Payee, shall become due immediately, without
demand or notice:
1) the failure of the Promisor to pay the principal and any accrued interest in
full on or before the Due Date;
2) the death of the Promisor(s) or Payee(s);
3) the filing of bankruptcy proceedings involving the Promisor as a Debtor;
4) the application for appointment of a receiver for the Promisor,
5) the making of a general assignment for the benefit of the Promisor's
creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment, or any other disposition of any assets pledged as security for the
payment of this Note, or if there is a default in any security agreement which
secures this Note.
If any of the above defaults apply to one Promisor, all Promisors shall be
deemed in default of this Note regardless of whether all Promisors are directly
involved in the default.
SECURITY PLEDGE
- ---------------
This Note is secured by a pledge of all of Futech's tangible and intangible
assets to include, but not be limited to: fixed assets, patent rights and
ownership, existing revenue-producing contractual agreements (e.g. Golden Books
Family Entertainment, L.L.C.), etc., dated on or before April 12, 1997. The
Payee is not required to rely on the above security for the payment of this Note
in the case of default, but may proceed directly against the Promisor.
OTHER TERMS AND CONDITIONS
- --------------------------
Any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of Note.
The renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or payment by Payee of this Note shall affect the liability of
the Promisor. All rights of the Payee under Note are cumulative and may be
exercised concurrently or consecutively at the Payee's option.
<PAGE> 6
This Note shall be construed in accordance with the laws of the State of
ARIZONA.
Signed this 25 day of April, 1997, at
corporate offices .
- --------------------------------------
Futech Educational Products, Inc.
By: /s/ Vincent W. Goett
-----------------------------------
Vincent W. Goett
Chairman and CEO
<PAGE> 1
Exhibit: 10.44FT
PROMISSORY NOTE
$250,000.00 Date: October 29, 1997
TERMS
- -----
For value received, the undersigned Futech Educational Products, Inc. (the
"Promisor") promises to pay to the order of Roderick Turner and Vincent W. Goett
(the "PAYEE"), AT 36 CORNWELL BEACH Road, Sands Point, NY 11050, (or at such
other place as the Payee may designate in writing) the sum of $250,000.00 with
interest from October 29, 1997, on the unpaid principal at the rate of 10%
annually.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 18% annually until paid.
In addition to the repayment of principal and interest, Promisor also will issue
to Payee 500,000 shares of Promisor's common stock immediately upon full and
final receipt of the $250,000 for Payee. The shares shall be issued as follows:
Vincent W. and Melissa Turner Goett 500,000 shares
A 10% financing fee to Payee will be payable immediately upon each and every
draw against the $250,000. The maximum amount of the financing fee will be
$25,000 (Twenty five thousand and 00/100 dollars).
PAYMENT SCHEDULE
- ----------------
The unpaid principal and accrued interest shall be payable by Promisor in
quarterly installments of interest only beginning on October 31, 1997 and
continuing until December 31, 1997, (the "Due Date"), at which time the
remaining unpaid principal and interest shall be due in full. All payments on
this Note shall be applied first in payment of accrued interest and any
remainder in payment of principal.
LATE PAYMENT PENALTIES
- ----------------------
If any installment is not paid by Promisor when due, the remaining unpaid
balance and accrued interest shall become due immediately at the option of the
Payee.
PREPAYMENT OPTION
- -----------------
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no repayment penalty.
COSTS TO COLLECT UNPAID BALANCE
- -------------------------------
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
DEFAULT EVENTS
- --------------
If any of the following events of default occur, this Note and any other
obligations of the Promisor to the Payee, shall become due immediately, without
demand or notice:
1) the failure of the Promisor to pay the principal and any accrued interest in
full on or before the Date;
2) the death of the Promisor(s) or Payee(s);
3) the filing of bankruptcy proceedings involving the Promisor as a Debtor;
4) the application for appointment of a receiver for the Promisor;
<PAGE> 2
5) the making of a general assignment for the benefit of the Promisor's
creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit.
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment or any other disposition of any assets pledged as security for the
payment of this Note, or if there is a default in security agreement which
secures this Note.
If any of the above defaults apply to one Promisor, all Promisors shall be
deemed in default of this Note regardless of whether all Promisors are directly
involved in the default.
SECURITY PLEDGE
- ---------------
This Note is secured by a pledge of all of Futech's tangible and intangible
assets to include, but not limited to: fixed assets, patent rights and
ownership, existing revenue-producing contractual agreements (e.g. Golden Books
Family Entertainment, L.L.C.), etc., dated on or before December 31, 1997. The
Payee is not required to rely on the above security for the payment of this Note
in the case of default, but may proceed directly against the Promisor.
OTHER TERMS AND CONDITIONS.
- ---------------------------
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State of
Arizona.
Signed this 29th day of October, 1997, at Futech Educational Products, Inc.
By: /s/ Vincent W. Goett
-----------------------
Vincent W. Goett
Chairman and CEO
<PAGE> 1
Exhibit: 10.45FT
FINANCING AGREEMENT
THIS FINANCING AGREEMENT, dated as of March 31, 1998, is by and between
FUTECH INTERACTIVE PRODUCTS, INC., an Arizona corporation (the "Borrower"), and
U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC., a Minnesota corporation (the
"Lender").
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following
terms shall have the following respective meanings:
"Accounts": Each and every right to payment of Borrower, whether such
right to payment arises out of a sale or lease of goods by Borrower, or other
disposition of goods or other property of Borrower, out of a rendering of
services by Borrower, out of a loan by Borrower, out of damage to or loss of
goods in the possession of a railroad or other carrier or any other bailee, out
of overpayment of taxes or other liabilities of Borrower, or which otherwise
arises under any contract or agreement, or from any other cause, whether such
right to payment now exists or hereafter arises and whether such right to
payment is or is not yet earned by performance and howsoever such right to
payment may be evidenced, together with all other rights and interest (including
all liens and security interests) which Borrower may at any time have by law or
agreement against any account debtor (as defined in the Uniform Commercial Code
in effect in the State of Minnesota) or other obligor obligated to make any such
payment or against any of the property of such account debtor or other obligor;
specifically (but without limitation), the term includes all present and future
instruments, documents, chattel papers, accounts and contract rights of
Borrower.
"Accounts Advance": As defined in Section 2.1.
"Advance": An Accounts Advance.
"Affiliate": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent or
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"Assignment of Patents": That Assignment of Patents to be executed by
the Borrower in form and substance satisfactory to the Lender.
"Assignment of Trademarks": That Assignment of Trademarks to be
executed by the Borrower in form and substance satisfactory to the Lender.
"Borrowing Base Certificate": As defined in Section 2.2.
"Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of where the Lender is located).
<PAGE> 2
"Change in Control": The occurrence, after the Closing Date, of any of
Vincent W. Goett not owning, directly or indirectly, securities of the Borrower
representing 26% of the securities of the borrower entitled to vote in the
election of directors.
"CLOSING DATE": The date of this Agreement: provided that all the
conditions precedent to the making of the initial Advance, as set forth in
Article III, have been, or, on such Closing Date, will be, satisfied. The
Borrower shall give the Lender not less than one Business Day's prior notice of
the day selected as the Closing Date.
"Eligible Accounts": Accounts owned by the Borrower which the Lender,
in its sole and absolute discretion, deems eligible for Advances, but which, at
a minimum, are subject to a first priority perfected security interest in favor
of the Lender and not subject to any assignment, claim or Lien other than the
Lien in favor of the Lender and other Liens consented to by the Lender in
writing, but specifically excluding (a) Accounts which are not earned; (b)
accounts which are unpaid more than ninety (90) days after the original invoice
date; (c) Accounts owed by debtors 10% or more of whose Accounts owed are
otherwise ineligible; (d) Accounts representing progress billings, or
retainages, or for work covered by any payment or performance bond; (e) Accounts
owed by any of the Borrower's Affiliates; (f) Accounts owed by debtors not
located in the United States, unless supported by a letter of credit issued by a
U.S. bank in favor of the Borrower which has been delivered to the Lender; (g)
Accounts as to which any warranty or representation contained in any security
agreement or other agreement of the Borrower with or given to the Lender with
respect to any such Receivable is untrue in any material respect; (h) Accounts
as to which the account debtor has disputed liability, or made any claim with
respect to any other Receivable due from such account debtor to the Borrower;
(i) Accounts subject to setoff; (j) Accounts as to which the account debtor has
filed a petition for bankruptcy or any other petition for relief under the
Bankruptcy Code, assigned any assets for the benefit of creditors, or if any
petition or other application for relief under the Bankruptcy Code has been
filed against the account debtor, or if the account debtor has failed, suspended
business, become insolvent, or has had or suffered a receiver or a trustee to be
appointed for all or a significant portion of its assets or affairs; (k)
Accounts owed by any government or government agency; (l) Accounts evidenced by
a promissory note or other instrument; and (m) Accounts as to which the Lender
believes that collection of any such Receivable is insecure or that any such
Receivable may not be paid by reason of the account debtor's financial inability
to pay.
"GAAP": Generally accepted accounting principles 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, which are applicable to the circumstances as of any date of
determination.
"Guarantor": Vincent W. Goett.
"Guaranty": That Guaranty to be executed by the Guarantor in form and
substance satisfactory to the Lender.
"Inventory": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wherever located which are or may at any time be
leased by the Borrower to a lessee, held for sale or lease, furnished under any
contract of service or held as raw materials, work in process, or supplies or
materials used or consumed in the Borrower's business, or which are held for use
in connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, and all goods, the sale or other disposition of which
has given rise to a Receivable, which are returned to and/or repossessed and/or
stopped in transit by the Borrower or
-2-
<PAGE> 3
the Lender, or at any time hereafter in the possession or under the control of
the Borrower or the Lender, or any agent or bailee of either thereof, and all
documents of title or other documents representing the same.
"Landlord's Waiver": The Waiver to be executed by Concord Equities,
Inc. and Del Monico Investments, Inc. in form and substance satisfactory to the
Lender.
"Loan Documents": This Agreement, the Security Agreement, the Guaranty,
and any documents described in Section 3.1(a).
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Person": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Private Placement": An initial public offering or private placement
currently pending with Salomon Smith Barney for which as much as $35,000,000 is
anticipated being received by the Borrower before June 1, 1998.
"Reference Rate": The rate of interest from time to time publicly
announced by U.S. Bancorp as its "reference rate"; U.S. Bancorp may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate hereunder which is based on the Reference Rate,
such interest rate shall change as and when the Reference Rate changes.
"Security Agreement": That Security Agreement to be executed by the
Borrower in form and substance satisfactory to the Lender.
"Subordination Agreement": Those Subordination Agreements to be
executed by the Borrower, the Lender and Vince W. Goett, Roderick Turner and
Stephen McTaggert in form and substance satisfactory to the Lender.
Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 Other Definitional Terms, Terms of Construction. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or". All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all necessary definitions and related
provisions from such other agreements. All covenants, terms, definitions and
other provisions from other agreements
-3-
<PAGE> 4
incorporated into this Agreement by reference shall survive any termination of
such other agreements until the obligations of the Borrower under this Agreement
are irrevocably paid in full.
ARTICLE II
----------
TERMS OF LENDING
Section 2.1 The Advances. On the terms and subject to the conditions
hereof, at the Borrower's request, the Lender, in its absolute and sole
discretion and without any commitment to do so, may make available to the
Borrower Advances of up to eighty percent (80%) of the net amount of Eligible
Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion, not
to exceed a maximum amount of $4,000,000 (the "Accounts Advances").
Loans for additional sums requested by the Borrower may be made at the Lender's
sole discretion based upon the Lender's valuation of the Borrower's collateral
or other factors. The Borrower acknowledges and agrees that the Lender may from
time to time, for the Lender's convenience, segregate or apportion the
Borrower's collateral for purposes of determining the amounts and maximum
amounts of Advances which may be made hereunder. Nevertheless, the Lender's
security interest in all such collateral, and any other collateral rights,
interests and properties which may now or hereafter be available to the Lender,
shall secure and may be applied to the payment of any and all Advances and other
indebtedness secured by the Lender's security interest, in any order or manner
of application and without regard to the method by which the Lender determines
to make Advances hereunder.
Section 2.2 Procedure for Advances; Wire Transfer Fees. Any request by
the Borrower for an Advance shall be in writing and must be given so as to be
received by the Lender not later than 10:30 a.m. Central time on the requested
Advance date, or such later time as may be acceptable to the Lender in its sole
discretion. Each request for an Advance shall be irrevocable and shall be deemed
a representation by the Borrower that on the requested Advance date and after
giving effect to such Advance the applicable conditions specified in Article III
have been and will continue to be satisfied and the representations and
warranties set forth in Article IV will continue to be true. Each request for an
Advance shall specify the requested Advance date (which must be a Business Day)
and the amount of such Advance. Each request for an Advance shall be accompanied
by a Borrowing Base Certificate signed by a duly authorized officer of the
Borrower in form and substance satisfactory to the Lender (the "Borrowing Base
Certificate"). If the Lender determines, in its absolute and sole discretion, to
make the requested Advance, the Lender will wire transfer to the Borrower's
Account on the requested Advance date the amount of the requested Advance. The
Borrower will pay to the Lender a wire transfer fee of $20.00 per wire transfer
of any Advance to the Borrower's account.
Section 2.3 Interest Rates and Interest Payments. Interest shall accrue
on the unpaid balance of the Advances at a floating rate per annum equal to the
sum of the Reference Rate plus 2.5% provided, however that if the Private
Placement is not completed by June 1, 1998 then interest shall accrue from June
1, 1998 and thereafter at a floating rate per annum equal to the sum of the
Reference Rate plus 5% (the "Applicable Rate") and shall be due and payable
monthly in arrears on the last day of each calendar month; and provided further
that upon the occurrence and during the continuance of any failure by the
Borrower to comply with any agreement or covenant of the Borrower under any Loan
Document, the unpaid balance of the Advances shall thereafter bear interest at a
floating rate equal to the sum of (a) the Applicable Rate, plus (b) 2% and shall
be due and payable on demand.
-4-
<PAGE> 5
Section 2.4 Repayment and Prepayment.
ALL ADVANCES SHALL BE DUE AND PAYABLE ON DEMAND. NOTHING SET FORTH IN
THIS AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER AGREEMENT BETWEEN THE
BORROWER AND THE LENDER SHALL IN ANY WAY LIMIT THE LENDER'S RIGHT TO DEMAND
PAYMENT OF THE ADVANCES IN WHOLE OR IN PART.
Section 2.5 Computation. Interest on the Advances shall be computed on
the basis of actual days elapsed and a year of 360 days.
Section 2.6 Annual Fee. The Borrower shall pay to the Lender an annual
fee in an amount equal to one-half of one percent (.50%) of the maximum
aggregate amount of the Advances (the "Annual Fee"). The Annual Fee shall be
payable in advance on the Closing Date and on each anniversary of the date of
this Agreement.
Section 2.7 Success Fee. The Borrower shall pay to the Lender a success
fee in an amount equal to $200,000 immediately upon Borrower's receipt of funds
from the Private Placement. The success fee shall be waived in the event that
the Advances are refinanced with Lender at market rates upon Borrower's receipt
of funds from the Private Placement.
ARTICLE III
-----------
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent. No Advances shall be made hereunder
except upon the prior or simultaneous fulfillment of each of the following
conditions:
3.l(a) Documents. The Lender shall have received the following:
(i) This Agreement executed by a duly authorized officer (or
officers) of the Borrower and dated the Closing Date.
(ii) A copy of the corporate resolutions of the Borrower authorizing
the execution, delivery and performance of this Agreement and containing an
incumbency certificate showing the names and titles, and bearing the
signatures of, the officers of the Borrower authorized to execute this
Agreement, certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Borrower.
(iii) A copy of the Articles of Incorporation of the Borrower with
all amendments thereto, certified by the appropriate governmental official
of the jurisdiction of its incorporation as of a date not more than ten days
prior to the Closing Date.
(iv) A certificate of good standing for the Borrower in the
jurisdiction of its incorporation, certified by the appropriate governmental
officials as of a date not more than ten days prior to the Closing Date.
(v) A copy of the bylaws of the Borrower, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the Borrower.
(vi) The Security Agreement, duly executed by the Borrower.
-5-
<PAGE> 6
(vii) An initial Borrowing Base Certificate.
(viii) The Guaranty, duly executed by the Guarantor.
(ix) Evidence of insurance required to be maintained under Section
5.3, naming the Lender as loss payee in form and substance satisfactory to
the Lender.
(x) The opinion of counsel to the Borrower covering such matters as
the Lender may request.
(xi) The duly executed Subordination Agreements.
(xii) The Landlord's Waivers, duly executed by Concord Equities,
Inc. and Del Monico Investments, Inc.
(xiii) The Collateral Assignment of Patents, duly executed by the
Borrower.
(xiv) The Assignment of Patents, duly executed by the Borrower.
(xv) The Collateral Assignment of Trademarks, duly executed by the
Borrower.
(xvi) The Assignment of Trademarks, duly executed by the Borrower.
3.1(b) Other Matters. All organizational and legal proceedings relating
to the Borrower and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Lender and its counsel, and the Lender shall have received
all information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper Borrower or
governmental authorities.
3.1(c) Fees and Expenses. The Lender shall have received all fees and
other amounts due and payable by the Borrower on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Lender payable
pursuant to Section 8.2.
3.1(d) Perfection. The Security Agreement and/or any and all financing
statements with respect thereto shall have been appropriately filed to the
satisfaction of the Lender; the Lender shall have received UCC searches, patent
and trademark searches and/or other Lien searches satisfactory to the Lender;
and the priority and perfection of the Lien created thereby shall have been
established to the satisfaction of the Lender.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 Organization, Standing Etc. The Borrower is a corporation
duly incorporated and validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now
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conducted, to enter into this Agreement and to perform its obligations hereunder
and thereunder. This Agreement has been duly authorized by all necessary
corporate action and when executed and delivered will be the legal and binding
obligations of the Borrower. The execution and delivery of this Agreement will
not violate the Borrower's Articles of Incorporation or bylaws or any law
applicable to the borrower. No governmental consent or exemption is required in
connection with the Borrower's execution and delivery of this Agreement.
Section 4.2 Financial Statements and No Material Adverse Change. The
Borrower's audited financial statements as at December 31, 1997 and its
unaudited financial statements as at January 31, 1998, as heretofore furnished
to the Lender, have been prepared in accordance with GAAP. The Borrower has no
material obligation or liability not disclosed in such financial statements, and
there has been no material adverse change in the condition of the Borrower since
the dates of such financial statements.
Section 4.3 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if determined adversely to the Borrower, would have, a
material adverse effect on the condition of the Borrower. The Borrower is not in
violation of any law or regulation (including environmental laws and regulations
and laws relating to employee benefit plans) where such violation could
reasonably be expected to impose a material liability on the Borrower.
Section 4.4 Taxes. The Borrower has filed all federal, state and local
tax returns required to be Filed and has paid or made provision for the payment
of all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property (other than taxes, fees or
charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).
Section 4.5 Subsidiaries. The Borrower has no subsidiaries.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
the Borrower's other obligations to the Lender under this Agreement shall have
been paid in full, unless the Lender shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Borrower will furnish
to the Lender:
5.1(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower (except fiscal year end 1997 in
which year Borrower shall furnish to Lender within 120 days after the end of
each fiscal year), financial statements of the Borrower consisting of at least
statements of income, cash flow and changes in stockholders' equity, and a
balance sheet as at the end of such year, setting forth in each case in
comparative form corresponding figures from the previous annual audit, certified
without qualification by independent certified public accountants selected by
the Borrower and acceptable to the Lender.
5.1(b) As soon as available and in any event within 30 days
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<PAGE> 8
after the end of each fiscal month, unaudited financial statements for the
Borrower for such month and for the period from the beginning of such fiscal
year to the end of such month, substantially similar to the annual audited
statements.
5.1(c) Concurrently with each request for an Advance, and in any
event not less than weekly a Borrowing Base Certificate.
5.1(d) As soon as practicable and in any event within ten days of
the end of each month, (i) a listing of all accounts, together with an aging of
all accounts and a reconciliation of such accounts against the listing submitted
pursuant hereto for the immediately preceding month including addresses and
phone numbers of each account debtor, and (ii) a listing of all accounts
payable, together with an aging of all accounts payable all in form and
substance satisfactory to the Lender.
5.1(e) Within 30 days of filing, copies of all state and federal tax
returns filed by the Guarantor and within 90 days of fiscal year end together an
updated personal financial statement of the Guarantor in form and substance
satisfactory to the Lender.
5.1(f) Within five days after the due date, proof of payment or
deposit, when due, of all withholding and F.I.C.A. taxes owing by the Borrower
from time to time, in form and substance satisfactory to the Lender by a payroll
service satisfactory to the Lender and whose services the Borrower shall at all
times retain.
5.1(g) At least weekly and as Lender may request, information
regarding the status of the Private Placement.
5.1(h) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Lender may
reasonably request.
Section 5.2 Corporate Existence. The Borrower will maintain its
corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each Jurisdiction
where failure so to qualify would permanently preclude the Borrower from
enforcing its rights with respect to any material asset or would expose the
Borrower to any material liability.
Section 5.3 Insurance. The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated, including without limitation such insurance as
may be required under the Security Agreement.
Section 5.4 Payment of Taxes and Claims. The Borrower will file all tax
returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid. might result in the creation of a Lien
upon its property.
Section 5.5 Inspection. The Borrower will permit any Person designated
by the Lender to visit and inspect any of the properties, books and financial
records of the Borrower, to examine and to make copies of the books of accounts
and other financial records of the Borrower, and to discuss the affairs,
finances and accounts of the Borrower with its officers at such reasonable times
and intervals as the Lender may designate. The Borrower shall also allow the
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<PAGE> 9
Lender and its agents to CONDUCT periodic collateral audits of the Borrower's
assets at such intervals as the Lender may choose, and the Borrower shall pay to
Lender a fee in the amount of $750 per day per collateral audit, plus
out-of-pocket costs and expenses incurred in connection with such collateral
audits, (provided that so long as no Event of Default (as that term is defined
in the Security Agreement) has occurred under the Security Agreement and is
continuing, the Borrower shall not be required to pay for more than four (4)
collateral audits in any calendar year).
Section 5.6 Maintenance of Properties. The Borrower will maintain
its properties in good condition, repair and working order, and supplied with
all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
Section 5.7 Books and Records. The Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs.
Section 5.8 Compliance. The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.
Section 5.9 Notice of Litigation. The Borrower will give prompt
written notice to the Lender of the commencement of any action, suit or
proceeding affecting the Borrower.
Section 5.10 Plans. The Borrower will maintain any employee benefit
plans in compliance with all material requirements of applicable laws and
regulations.
Section 5.11 Reaffirmation of Guaranties. When so requested by the
Lender from time to time, the Borrower will promptly cause the Guarantor or any
other Persons who have guaranteed the obligations of the Borrower hereunder or
any part thereof to execute and deliver to the Lender reaffirmations of their
respective guaranties in such form as the Lender may require.
Section 5.12 Special Agreements Regarding Accounts.
5.12(a) Collection of Accounts and all other amounts due to the
Borrower shall be subject to the provisions of paragraphs 5 and 6 of the
Security Agreement concerning the Lockbox and Collateral Account (as those terms
are defined in the Security Agreement). The Borrower shall provide to the Lender
a daily collection report of all Accounts collected. All collections received in
the Collateral Account and reported to Republic before 8:00 a.m. (Central time)
on any Business Day that is a Monday through Thursday, or before 2:00 p.m.
(Central time) on any Business Day that is a Friday, shall be applied to the
payment of the Advances (in such order of application as the Lender may
determine) on the day so received, or otherwise on the next business day;
provided however, that for purposes of determining the interest due and payable
on the unpaid balance of the Advances under Section 2.3, all collections
received in the Collateral Account shall be applied to the unpaid balance of the
Advances when such collections become finally collected funds after allowing not
less than two (2) Business Days for collection. At Lender's request, the
Borrower will deliver all customer billing statements to the Lender for
examination and for mailing in the Borrower's stamped and addressed envelopes.
5.12(b) Subject to the rights granted to the Lender in paragraph 5
of the Security Agreement. all ledger sheets or cards, invoices, shipping
records, correspondence, and other writings relating to accounts shall, until
delivered to the Lender or removed by the Lender from the Borrower's premises,
be kept on the Borrower's premises without cost to the Lender in appropriate
containers in safe places.
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<PAGE> 10
5.12(c) Upon the Lender's demand for payment, the Lender may remove
from the Borrower's premises all books and records, correspondence, documents
and files relating to accounts; and the Lender may without cost or expense to
the Lender use such of the Borrower's personnel, supplies, space and equipment
at the Borrower's place of business as the Lender may desire for the handling of
collections. The Borrower will pay any and all out of pocket expenses and cost
of collection (including reasonable attorney fees) incurred by the Lender in the
Lender's handling of or effort to enforce collections.
5.12(d) The Borrower warrants that, except as may be disclosed in
the lists of Accounts furnished to the Lender: each customer billing statement
correctly states the subject matter and terms of sale; the merchandise conforms
thereto and is in all respects acceptable to the customer; the date of the
billing statement is not prior to the date of shipment; the Account is not
subject to any dispute, defense, offset or counterclaim; the account debtor is
not a subsidiary or affiliated company; and the Borrower has no reason to
believe the Account will not be paid in the regular course of business. The
Borrower will notify the Lender promptly of any event, circumstance or
communication with respect to any Account that is inconsistent with the
foregoing representation.
ARTICLE VI
----------
NEGATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
the Borrower's other obligations to the Lender under this Agreement shall have
been paid in full, unless the Lender shall otherwise consent in writing:
Section 6.1 Merger. The Borrower will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), except
any merger or consolidation that occurs as a result of the Private Placement.
Section 6.2 Sale of Assets. The Borrower will not sell, transfer, lease
or otherwise convey all or any substantial part of its assets except for sales
and leases of inventory in the ordinary course of business.
Section 6.3 Dividends. The Borrower will not pay any dividends or
otherwise make any distributions on, or redemptions of, any of its outstanding
stock,
Section 6.4 Investments. The Borrower will not make any loans, advances
or extensions of credit to any other Person (except for trade and customer
accounts receivable for inventory sold or services rendered in the ordinary
course of business and payable in accordance with customary trade terms) or
purchase or acquire any stock or other debt or equity securities of or any
interest in any other Person or any integral part of any business or the assets
comprising such business or part thereof, except for:
6.4(a) Investments in readily marketable direct obligations issued
or unconditionally guaranteed by the United States government or any agency
thereof and supported by the full faith and credit of the United States.
6.4(b) Certificates of deposit or bankers' acceptances issued by any
commercial Bank organized under the laws of the United States or any State
thereof which has (i) combined capital and surplus of at least $100,000,000, and
(ii) a credit rating with respect to its
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<PAGE> 11
unsecured indebtedness from a nationally recognized rating service that is
satisfactory to the Lender.
6.4(c) Commercial paper given the highest rating by a nationally
recognized rating service.
6.4(d) Repurchase agreements relating to securities of the kind
described in Section 6.4 (a).
6.4(e) Other readily marketable investments in debt securities
which are reasonably acceptable to the Lender.
6.4(f) Travel advances to officers and employees in the ordinary
course of business.
6.4(g) Investments directly arising out of the purchase of the
assets of Gick Publishing, Inc.
Any investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower.
Section 6.5 Indebtedness. The Borrower will not borrow any money or
issue any bonds, debentures or other debt securities or otherwise become
obligated on any interest-bearing indebtedness except for the Advances under
this Agreement, assumed out of the purchase of the assets of Gick Publishing,
Inc. and except for existing indebtedness as disclosed on the most recent
financial statement of the Borrower referred to in Section 4.1.
Section 6.6 Liens. The Borrower will not create, incur, assume or
suffer to exist any Lien, or enter into any arrangement for the acquisition of
any property through conditional sale, lease-purchase or other title retention
agreements except:
6.6(a) Liens granted to the Lender.
6.6(b) Liens existing on the date of this Agreement and disclosed
in those UCC or other Lien searches referred to in Section 3.1(d).
6.6(c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower.
6.6(d) Liens for taxes, fees, assessments and governmental
charges not delinquent.
6.6(e) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens arising in the ordinary course of business,
for sums not due.
6.6(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.6(g) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower.
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<PAGE> 12
Section 6.7 Contingent Obligations. The Borrower will not guarantee or
otherwise become liable on the indebtedness of any other Person.
Section 6.8 Change in Control. The Borrower will not allow a Change in
Control to occur except arising out of the purchase of the assets of Gick
Publishing, Inc.
ARTICLE VII
-----------
TERMINATION BY BORROWER
This agreement shall continue in effect until terminated upon not less
than 30 days' prior written notice delivered by the Borrower certified mail to
Lender by certified mail. Termination shall not impair or affect the Lender's
rights existing as of the time notice of Termination is given. Borrowers
obligations with respect to payment of any Termination fee shall be fixed and
owing as of date such notice is given and not when such notice becomes
effective.
In the event that the Borrower gives notice to the Lender of the
termination of this Agreement under Section VII hereof at any time prior to the
180 days after the Closing Date, the Borrower will pay to the Lender a
prepayment charge, as additional compensation for the Lender's costs of entering
into this Agreement, in the amount of 1% of the maximum aggregate amount of the
Advances unless the outstanding amount of Borrower's obligations hereunder are
refinanced in full by an affiliate of U.S. Bancorp, or are paid out in full by
the Private Placement and the Success Fee is paid in full to Lender.
ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 8.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender) in connection with the negotiation,
preparation, approval, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of this Agreement including all fees
due Lender incurred pursuant to this Agreement. The obligations of the Borrower
under this Section shall survive any termination of this Agreement. In the event
such costs, fees or expenses are not promptly paid by Borrower on demand Lender
may set off the amount of any such costs, fees or expenses from funds available
to Borrower. If the Borrower elects, the Borrower may treat the amount of any
such costs, fees or expenses as an Advance hereunder.
Section 8.3 Waivers, etc. No failure on the part of the Lender to
exercise and no delay in exercising any power or right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any power or
right preclude any other or further exercise thereof or the
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<PAGE> 13
exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.
Section 8.4 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Lender under Article II hereof shall be deemed to have been
given only when received by the Lender.
Section 8.5 Successors and Assigns; Disposition of Loans. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participations in, or otherwise dispose of any portion of the
Advances to banks or other financial institutions. The Lender may disclose any
information regarding the Borrower in the Lender's possession to any prospective
buyer or participant.
Section 8.6 Offset. The Borrower hereby irrevocably authorizes the
Lender to set off all sums owing by the Borrower to the Lender against all
deposits and credits of the Borrower with, and any and all claims of the
Borrower against, the Lender. The Borrower further agrees that any bank
participating with the Lender in Advances hereunder may exercise any and all
rights of setoff with respect to such participation as fully as if such
participant had lent directly to the Borrower the amount of such participation.
Section 8.7 Governing Law and Construction. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF.
Section 8.8 Consent to Jurisdiction. AT THE OPTION OF THE LENDER, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND
VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 8.9 Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
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<PAGE> 14
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE ADVANCES AND ANY OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
Section 8.10 Indemnification. The Borrower hereby agrees to defend,
protect, indemnify and hold harmless the Lender and its affiliates and the
directors, officers, employees, attorneys and agents of the Lender and its
affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise: (a) by reason of,
relating, to or in connection with the execution, delivery, performance or
enforcement of any Loan Document, any commitments relating thereto, or any
transaction contemplated by any Loan Document; or (b) by reason of, relating to
or in connection with any credit extended or used under the Loan Documents or
any act done or omitted by any Person, or the exercise of any rights or remedies
thereunder, including the acquisition of any collateral by the Lender by way of
foreclosure of the Lien thereon, deed or bill of sale in lieu of such
foreclosure or otherwise; provided, however, that the Borrower shall not be
liable to any Indemnitee for any portion of such claims, damages, liabilities
and expenses resulting from such Indemnitee's negligence or willful misconduct.
In the event this indemnity is unenforceable as a matter of law as to a
particular matter or consequence referred to herein, it shall be enforceable to
the full extent permitted by law.
Section 8.11 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.12 Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 8.13 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
FUTECH INTERACTIVE PRODUCTS, INC.
By
-----------------------------------------------
Print Name
---------------------------------------
Title
--------------------------------------------
Borrower's Address:
2999 North 44th
Suite 225
Phoenix, AZ 85018-7247
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC.
By
-----------------------------------------------
Print Name
---------------------------------------
Title
--------------------------------------------
Lender's Address:
2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
Fax: (612) 782-1801
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<PAGE> 16
SCHEDULE I
to
Security Agreement
Locations of Equipment and Inventory
as of Date of Security Agreement
2999 North 44th
Suite 225
Phoenix, AZ 85018-7247
9 Studebaker Drive
Irvine California 92618
<PAGE> 1
Exhibit: 10.46FT
COLLATERAL ASSIGNMENT OF PATENTS
THIS COLLATERAL ASSIGNMENT OF PATENTS (the "Assignment"), dated as of
March 31, 1998, is by and between FUTECH INTERACTIVE PRODUCTS, INC., an Arizona
corporation (the "Assignor") and U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC.,
a Minnesota corporation (the "Assignee").
WITNESSETH
WHEREAS, the Assignor and the Assignee have entered into a Financing
Agreement of even date herewith (the "Financing, Agreement"), pursuant to which
the Assignee has agreed to extend certain credit accommodations to the Assignor
under the terms and conditions set forth therein (all terms capitalized and used
herein without being defined shall have the meaning given them in the Financing
Agreement);
WHEREAS, the Assignor has pledged and granted to the Assignee a
security interest in the property described in a Security Agreement of even date
herewith (the "Security Agreement") by and between Assignor and Assignee which
property includes general intangibles, including, without limitation,
applications for patents, applications for trademarks, trade names, copyrights,
patents, inventions and trade secrets;
WHEREAS, the Assignor owns the patents set forth in Exhibit A attached
hereto, and the patents so listed are registered or application has been made
for such registration as noted in Exhibit A in the United States Patent and
Trademark Office; and
WHEREAS, in order to induce the Assignee to enter into the Financing
Agreement and extend the credit accommodations to the Assignor thereunder, and
in order to secure the payment and performance of (a) all indebtedness,
liabilities and obligations of the Assignor to the Assignee of every kind,
nature or description under the Financing Agreement, including the Assignor's
obligation on any promissory note or notes under the Financing Agreement and any
note or notes hereafter issued in substitution or replacement thereof, (b) all
liabilities of the Assignor under this Agreement, the Security Agreement or any
other Loan Document, and (c) any and all liabilities and obligations of the
Assignor to the Assignee of every kind, nature and description, whether direct
or indirect or hereafter acquired by the Assignee from any Person, absolute or
contingent, regardless of how such liabilities arise or by what agreement or
instrument they may be evidenced, and in all of the foregoing cases whether due
or to become due, and whether now existing or hereafter arising or incurred (the
"Liabilities"), the Assignor is willing to enter into this Assignment.
NOW, THEREFORE, in consideration of the premises and to induce the
Assignee to extend credit accommodations under the Financing Agreement, the
parties hereto agree as follows:
1. The Assignor does hereby assign all of its right, title and
interest in and to all of the present United States patents and the
registrations and applications therefor owned by the Assignor (the "Patents"),
including but not limited to those set forth on Exhibit A, and including,
without limitation, all proceeds thereof together with the right to recover for
past, present and future infringements, all rights corresponding thereto
throughout the world and all renewals and extensions thereof, said Patents to be
held and enjoyed by the Assignee, for its own use and behalf, and for its legal
representatives, successors and assigns, as fully and entirely as the same would
have been held by the Assignor had this Assignment not been made. The foregoing
<PAGE> 2
assignment shall be effective only upon the occurrence of an Event of Default
under the Security Agreement and upon written notice by the Assignee to the
Assignor of the acceptance by the Assignee of this Assignment; unless and until
the acceptance of this Assignment, this Assignment shall have no effect. After
the occurrence and continuation of an Event of Default under the Security
Agreement, the Assignee shall be entitled to transfer the Patents pursuant to an
Assignment of Patents substantially in the form of Exhibit B. Assignor hereby
irrevocably authorizes the Assignee to date these undated Assignments of Patents
and otherwise complete such Assignment at time of transfer.
2. The Assignor hereby covenants and warrants that:
(a) except for applications pending, to the best of the
Assignor's knowledge, the Patents listed on Exhibit A have been duly
issued and are registered and subsisting and have not been adjudged
invalid or unenforceable in whole or in part;
(b) to the best of the Assignor's knowledge, each of the
Patents listed on Exhibit A is valid and enforceable;
(c) no claim has been made to the Assignor or, to the
knowledge of the Assignor, to any other person, that any of the Patents
or use of the inventions described therein does or may violate the
rights of any third person and no claim has been made by the Assignor
that any other person is infringing upon the rights of the Assignor
under the Patents;
(d) the Assignor has the unqualified right to enter into this
Assignment and perform its terms;
(e) the Assignor will be, until the Liabilities shall have
been satisfied in full and the Loan Documents shall have been
terminated, in compliance with statutory notice requirements relating
to the Patents;
(f) to the best of Assignor's knowledge, the Assignor is the
sole and exclusive owner of the entire and unencumbered right, title
and interest in and to each of the Patents listed on Exhibit A, free
and clear of any liens, charges and encumbrances, including without
limitation, licenses and covenants by the Assignor not to sue third
persons;
(g) the Patents listed on Exhibit A are all of the United
States Patents and applications therefor now owned by the Assignor; and
(h) the Assignor will, at any time upon request, communicate
to the Assignee, its successors and assigns, any facts relating to the
Patents or the history thereof as may be known to the Assignor or its
officers, employees and agents, and cause such officers, employees and
agents to testify as to the same in any infringement or other
litigation at the request of the Assignee.
3. The Assignor agrees that, until the rights of the Assignee
in the Patents are terminated pursuant to Section 6, it will not enter into any
agreement that is in conflict with its obligations under this Assignment.
4. If, before the Liabilities shall have been satisfied in
full, the Assignor shall obtain rights to any new patent, or become entitled to
the benefit of any patent application,
2
<PAGE> 3
registration or any renewal or extension of any patent registration, such shall
be included in the definition of "Patents" as used in this Assignment (except
for purposes of Section 2 hereof), Section I hereof shall automatically apply
thereto, and the Assignor shall give to the Assignee prompt notice thereof in
writing. The Assignor authorizes the Assignee to modify this Assignment by
amending Exhibit A to include any future patent.
5. The Assignor agrees not to sell, assign or encumber its
interest in, or grant any license with respect to, any of the Patents, except
for the licenses listed on Exhibit C attached hereto.
6. The Assignor agrees that it will authorize, execute and
deliver to Assignee all documents requested by Assignee to facilitate the
purposes of this Assignment, including, but not limited to, documents required
to record Assignee's interest in any appropriate office in any domestic or
foreign jurisdiction. At such time as the Financing Agreement and the other Loan
Documents shall have been terminated in accordance with their terms, the
Assignee shall on demand of the Assignor execute and deliver to the Assignor all
termination statements and other instruments as may be necessary or proper to
terminate this Assignment and assign to the Assignor all the Assignee's rights
in the Patents, subject to any disposition thereof which may have been made by
the Assignee pursuant hereto or pursuant to the Loan Documents.
7. The Assignor shall have the duty, through counsel
reasonably acceptable to the Assignee, (i) to prosecute diligently any pending
Patent application as of the date of this Assignment or thereafter until the
Financing Agreement and the Loan Documents shall have been terminated in
accordance with their terms; provided, that the Assignor may abandon any such
application upon thirty days' written notice to the Assignee, (ii) to make
application on those patentable inventions, products and processes which are
unregistered but capable of being registered and which a prudent person would
reasonably cause to be registered and (iii) to preserve and maintain all rights
in all Patents which a prudent person would reasonably preserve and maintain.
Any expenses incurred in connection with applications that constitute Patents
shall be borne by the Assignor. The Assignor shall not abandon any application
presently pending that constitutes a Patent without the written consent of the
Assignee.
8. The Assignee shall have the right but shall in no way be
obligated to bring suit in its own name to enforce or to defend the Patents and
any license thereunder if the Assignor has failed to bring such suit in
circumstances in which a prudent person would have brought such suit. The
Assignor shall at the request of the Assignee do any and all lawful acts and
execute any and all proper documents required by the Assignee in aid of such
enforcement or defense (including, without limitation, participation as a
plaintiff or defendant in any proceeding) and, if Assignor has failed to bring
such suit in circumstances in which a prudent person would have brought such
suit, the Assignor shall promptly, upon demand, reimburse and indemnify the
Assignee for all reasonable costs and expenses incurred by the Assignee in the
exercise of its rights under this Section.
9. This Assignment shall also serve to evidence the security
interest in the Patents granted by the Assignor to the Assignee pursuant to the
Security Agreement.
10. No course of dealing between the Assignor and the
Assignee, failure to exercise, nor any delay in exercising, on the part of the
Assignee, with respect to any right, power or privilege hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
3
<PAGE> 4
11. All of the Assignee's rights and remedies with respect to
the Patents, whether established hereby, by any other agreements or by law shall
be cumulative and may be exercised singularly or concurrently.
12. This Assignment is subject to modification only by a
writing signed by the parties, except as provided in Section 4 hereof.
13. This Assignment shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
14. Upon payment in full of all Liabilities (other than
Assignor's unmatured indemnity obligations under any Loan Document) and the
expiration of any obligation of the Assignee to extend credit accommodations to
the Assignor, this Assignment shall terminate and all rights to the Patents
shall revert to the Assignor.
15. THIS ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
(WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF) OF (I) THE
UNITED STATES OF AMERICA AS TO RIGHTS AND INTERESTS HEREUNDER WHICH ARE
REGISTERED OR FOR THE REGISTRATION OF WHICH APPLICATION IS PENDING WITH THE
UNITED STATES PATENT AND TRADEMARK OFFICE AND (II) THE STATE OF MINNESOTA IN ALL
OTHER RESPECTS. WHENEVER POSSIBLE, EACH PROVISION OF THIS ASSIGNMENT AND ANY
OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING
HERETO SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER
APPLICABLE LAW, BUT IF ANY PROVISION OF THIS ASSIGNMENT OR ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO SHALL BE HELD
TO BE PROHIBITED OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE
INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
ASSIGNMENT OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED
HEREBY OR RELATING HERETO. IN THE EVENT OF ANY CONFLICT WITHIN, BETWEEN OR AMONG
THE PROVISIONS OF THIS ASSIGNMENT, ANY OTHER LOAN DOCUMENT OR ANY OTHER
STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR RELATING
HERETO OR THERETO, THOSE PROVISIONS GIVING THE ASSIGNEE THE GREATER RIGHT SHALL
GOVERN.
4
<PAGE> 5
IN WITNESS WHEREOF, the Assignor has executed this instrument.
FUTECH INTERACTIVE PRODUCTS, INC.
By /s/ Vincent W. Goett
Title CEO
Signature Page to Collateral Assignment of Patents
5
<PAGE> 6
EXHIBIT A TO
COLLATERAL ASSIGNMENT OF PATENTS
UNITED STATES PATENTS
<TABLE>
<CAPTION>
Title Patent No./App. No. Issue Date Filing Date
- ----- ------------------- ---------- -----------
<S> <C> <C> <C>
Gick
Decorative Novelty Articles 5,735,453 4/7/98 11/14/95
Futech
Method of combining audio
and visual indicia 5,609,488 3/11/97 2/14/94
Apparatus for combining
audio and visual indicia 5,484,292 1/16/96 11/24/92
Electronic book 5,417,575 5/23/95 4/14/92
Electronic book 5,167,508 12/1/92 4/14/91
</TABLE>
A-1
<PAGE> 7
EXHIBIT B TO
COLLATERAL ASSIGNMENT OF PATENTS
ASSIGNMENT OF PATENTS
WHEREAS, FUTECH INTERACTIVE PRODUCTS, INC., an Arizona
corporation (hereinafter "Assignor"), is the owner by assignment of the entire
right, title and interest in and to certain United States Letters Patent,
together with the invention(s) disclosed therein.
WHEREAS, , of
(hereinafter "Assignee"), is desirous of acquiring the entire right, title, and
interest in and to the aforesaid Letters Patent, together with the invention(s)
disclosed therein, any and all causes of action and rights of recovery for past
infringements of said Letters Patent, and all of the rights vested in said
Assignor herein by virtue of the instruments of assignment and/or by virtue of
other instruments pursuant to which Assignor became vested with said ownership,
including the right, title, and interest in and to any and all improvements
acquired pursuant to the terms of said instruments of assignment.
NOW, THEREFORE, for good and valuable consideration received
by Assignor from Assignee, the receipt in full of which is hereby acknowledged,
1. Said Assignor hereby sells, assigns, transfers and conveys
unto said Assignee the entire right, title and interest in and to said Letters
Patent of the United States together with the invention(s) disclosed therein,
including each and every Letters Patent which is granted on any application
which is a division, substitution or continuation of said Letters Patent, and in
and to each and every reissue or extension of said Letters Patent.
2. Said Assignor further sells, assigns, transfers and conveys
unto said Assignee the entire right, title and interest in and to any and all
causes of action and rights of recovery for past infringement of the Letters
Patent herein assigned.
3. The terms, covenants and provisions of this Assignment
shall inure to the benefit of Assignee, its successors, assigns, and/or legal
representatives, and shall be binding upon said Assignor, its successors,
assigns and/or other legal representatives.
4. Said Assignor hereby irrevocably authorizes U.S. Bancorp
Republic Commercial Finance, Inc. to date this undated Assignment and otherwise
complete the Assignment at the time of transfer.
IN WITNESS WHEREOF, said has executed and
delivered this instrument this day of , 19 .
FUTECH INTERACTIVE PRODUCTS, INC.
By
Title
B-1
<PAGE> 8
EXHIBIT C TO
COLLATERAL ASSIGNMENT OF PATENTS
PATENT LICENSES
<TABLE>
<S> <C>
Licensee Date License Expires
- -------- --------------------
Golden Books Family Entertainment, Inc. 8/14/2001
888 Seventh Ave.
NY, NY 10106-4100
</TABLE>
C-1
<PAGE> 9
ASSIGNMENT OF PATENTS
WHEREAS, FUTECH INTERACTIVE PRODUCTS, INC., an Arizona
corporation (hereinafter "Assignor"), is the owner by assignment of the entire
right, title and interest in and to certain United States Letters Patent,
together with the invention(s) disclosed therein.
WHEREAS, , of
(hereinafter "Assignee"), is desirous of acquiring the entire right, title, and
interest in and to the aforesaid Letters Patent, together with the invention(s)
disclosed therein, any and all causes of action and rights of recovery for past
infringements of said Letters Patent, and all of the rights vested in said
Assignor herein by virtue of the instruments of assignment and/or by virtue of
other instruments pursuant to which Assignor became vested with said ownership,
including the right, title, and interest in and to any and all improvements
acquired pursuant to the terms of said instruments of assignment.
NOW, THEREFORE, for good and valuable consideration received
by Assignor from Assignee, the receipt in full of which is hereby acknowledged,
1. Said Assignor hereby sells, assigns, transfers and conveys
unto said Assignee the entire right, title and interest in and to said Letters
Patent of the United States together with the invention(s) disclosed therein,
including each and every Letters Patent which is granted on any application
which is a division, substitution or continuation of said Letters Patent, and in
and to each and every reissue or extension of said Letters Patent.
2. Said Assignor further sells, assigns, transfers and conveys
unto said Assignee the entire right, title and interest in and to any and all
causes of action and rights of recovery for past infringement of the Letters
Patent herein assigned.
3. The terms, covenants and provisions of this Assignment
shall inure to the benefit of Assignee, its successors, assigns, and/or legal
representatives, and shall be binding upon said Assignor, its successors,
assigns and/or other legal representatives.
4. Said Assignor hereby irrevocably authorizes U.S. Bancorp
Republic Commercial Finance, Inc. to date this undated Assignment and otherwise
complete this Assignment at the time of transfer.
IN WITNESS WHEREOF, said CEO, has executed and delivered
this instrument this 31st day of March, 1998.
FUTECH INTERACTIVE PRODUCTS,
INC.
By /s/ Vincent W. Goett
Title /s/ CEO
<PAGE> 1
Exhibit: 10.47FT
COLLATERAL ASSIGNMENT OF TRADEMARKS
THIS COLLATERAL ASSIGNMENT OF TRADEMARKS (the "Assignment"), dated as
of March 31, 1998 is by and between FUTECH INTERACTIVE PRODUCTS, INC., a
Minnesota corporation (the "Assignor") and U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC., a Minnesota corporation (the "Assignee").
WITNESSETH
WHEREAS, the Assignor and the Assignee have entered into a Financing
Agreement of even date herewith (the "Financing Agreement"), pursuant to which
the Assignee has agreed to extend certain credit accommodations to the Assignor
under the terms and conditions set forth therein (unless otherwise defined
herein, all capitalized term used herein shall have the meaning given such terms
in the Financing Agreement);
WHEREAS, the Assignor has pledged and granted to the Assignee a
security interest in the property described in a Security Agreement of even date
herewith (the "Security Agreement") by and between Assignor and Assignee which
property includes general intangibles, including, without limitation,
applications for patents, applications for trademarks, trade names, copyrights,
patents, inventions and trade secrets;
WHEREAS, the Assignor owns certain businesses which have adopted and
used the trademarks and trade names set forth in Exhibit A attached hereto, and
the trademarks so listed are registered or application has been made for such
registration as noted in Exhibit A in the United States Patent and Trademark
Office; and
WHEREAS, in order to induce the Assignee to enter into the Financing
Agreement and the Security Agreement and extend the credit accommodations to the
Assignor thereunder, and in order to secure the payment and performance of (a)
all indebtedness, liabilities and obligations of the Assignor to the Assignee of
every kind, nature or description under the Financing Agreement, (b) all
liabilities of the Assignor under this Agreement or any other Loan Document, and
(c) any and all liabilities and obligations of the Assignor to the Assignee of
every kind, nature and description, whether direct or indirect or hereafter
acquired by the Assignee from any Person, absolute or contingent, regardless of
how such liabilities arise or by what agreement or instrument they may be
evidenced, and in all of the foregoing cases whether due or to become due, and
whether now existing or hereafter arising or incurred (the "Liabilities"), the
Assignor is willing to enter into this Assignment.
NOW, THEREFORE, in consideration of the premises and to induce the
Assignee to extend credit accommodations under the Financing Agreement, the
parties hereto agree as follows:
1. The Assignor does hereby assign all of its right, title and interest
in and to all of the present trademarks, trade names and servicemarks and the
registrations and applications therefor owned by the Assignor (the
"Trademarks"), including but not limited to those set forth on Exhibit A, and
including, without limitation, all proceeds thereof together with the right to
recover for past, present and future infringements, all rights corresponding
thereto throughout the world and all renewals and extensions thereof, together
with the goodwill of the business associated with said Trademarks, said
Trademarks to be held and enjoyed by the Assignee for its own use and
<PAGE> 2
behalf, and for its legal representatives, successors and assigns, as fully and
entirely as the same would have been held by the Assignor had this Assignment
not been made. The foregoing assignment shall be effective only upon the
occurrence of an Event of Default under the Security Agreement and upon written
notice by the Assignee to the Assignor of the acceptance by the Assignee of this
Assignment; unless and until the acceptance of this Assignment, this Assignment
shall have no effect. After the occurrence and continuation of an Event of
Default under the Security Agreement, the Assignee shall be entitled to transfer
the Trademarks pursuant to an Assignment of Trademarks substantially in the form
of Exhibit B. The Assignor hereby irrevocably authorizes the Assignee to date
undated Assignments of Trademarks and otherwise complete such Assignment at the
time of transfer.
2. The Assignor hereby covenants and warrants that:
(a) except for applications pending, to the best of the
Assignor's knowledge, the Trademarks listed on Exhibit A have been duly
issued and are registered and subsisting and have not been adjudged
invalid or unenforceable in whole or in part;
(b) to the best of the Assignor's knowledge, each of the
Trademarks and listed on Exhibit A is valid and enforceable;
(c) no claim has been made to the Assignor or, to the
knowledge of the Assignor, to any other person, that use of any of the
Trademarks does or may violate the rights of any third person and no
claim has been made by the Assignor that any other person is infringing
upon the rights of the Assignor under the Trademarks;
(d) the Assignor has the unqualified right to enter into this
Assignment and perform its terms;
(e) the Assignor will be, until the Liabilities shall have
been satisfied in full and the Loan Documents shall have been
terminated, in substantial compliance with statutory notice
requirements relating to its use of the Trademarks;
(f) to the best of the Assignor's knowledge, the Assignor is
the sole and exclusive owner of the entire and unencumbered right,
title and interest in and to each of the Trademarks listed on Exhibit
A, free and clear of any liens, charges and encumbrances, including
without limitation, licenses and covenants by the Assignor not to sue
third persons;
(g) the Trademarks listed on Exhibit A are all of the United
States Trademarks Registrations and applications therefor now owned by
the Assignor; and
(h) the Assignor will, at any time upon request, communicate
to the Assignee, its successors and assigns, any facts relating to the
Trademarks or the history thereof as may be known to the Assignor or
its officers, employees and agents, and cause such officers, employees
and agents to testify as to the same in any infringement or other
litigation at the request of the Assignee.
3. The Assignor agrees that, until the rights of the Assignee
in the Trademarks are terminated pursuant to Section 6, it will not enter into
any agreement that is in conflict with its obligations under this Assignment.
2
<PAGE> 3
4. If, before the Liabilities shall have been satisfied in full, the
Assignor shall obtain rights to any new trademark, trade name or servicemark, or
become entitled to the benefit of any trademark application, registration,
trademark, trade name or servicemark or any renewal or extension of any
trademark registration, such shall be included in the definition of "Trademarks"
as used in this Assignment (except for purposes of Section 2 hereof), Section 1
hereof shall automatically apply thereto, and the Assignor shall give to the
Assignee prompt notice thereof in writing. The Assignor authorizes the Assignee
to modify this Assignment by amending Exhibit A to include any future trademark
or trade name.
5. The Assignor agrees not to sell, assign or encumber its interest in,
or grant any license with respect to, any of the Trademarks, except for the
licenses listed on Exhibit C attached hereto.
6. The Assignor agrees that it will authorize, execute and deliver to
Assignee all documents requested by Assignee to facilitate the purposes of this
Assignment, including, but not limited to, documents required to record
Assignee's interest in any appropriate office in any domestic or foreign
jurisdiction. At such time as the Financing Agreement and the other Loan
Documents shall have been terminated in accordance with their terms, the
Assignee shall on demand of the Assignor execute and deliver to the Assignor all
termination statements and other instruments as may be necessary or proper to
terminate this Assignment and assign to the Assignor all the Assignee's rights
in the Trademarks, subject to any disposition thereof which may have been made
by the Assignee pursuant hereto or pursuant to the Loan Documents.
7. The Assignor shall have the duty, through counsel reasonably
acceptable to the Assignee, (i) to prosecute diligently any pending Trademark
application as of the date of this Assignment or thereafter until the Financing
Agreement and the Loan Documents shall have been terminated in accordance with
their terms; provided, that the Assignor may abandon any such application upon
thirty days' written notice to the Assignee, (ii) to make application on those
trademarks and trade names which are unregistered but capable of being
registered and which a prudent person would reasonably cause to be registered
and (iii) to preserve and maintain all rights in all Trademarks which a prudent
person would reasonably preserve and maintain. Any expenses incurred in
connection with applications that constitute Trademarks shall be borne by the
Assignor. The Assignor shall not abandon any application presently pending that
constitutes a Trademark without the written consent of the Assignee.
8. The Assignee shall have the right but shall in no way be obligated
to bring suit in its own name to enforce or to defend the Trademarks and any
license thereunder if the Assignor has failed to bring such suit in
circumstances in which a prudent person would have brought such suit. The
Assignor shall at the request of the Assignee do any and all lawful acts and
execute any and all proper documents required by the Assignee in aid of such
enforcement or defense (including, without limitation, participation as a
plaintiff or defendant in any proceeding) and, if Assignor has failed to bring
such suit in circumstances in which a prudent person would have brought such
suit, the Assignor shall promptly, upon demand, reimburse and indemnify the
Assignee for all reasonable costs and expenses incurred by the Assignee in the
exercise of its rights under this Section.
9. This Assignment shall also serve to evidence the security interest
in the Trademarks granted by the Assignor to the Assignee pursuant to the
Security Agreement.
10. No course of dealing between the Assignor and the Assignee, failure
to exercise, nor any delay in exercising, on the part of the Assignee, with
respect to any right, power
3
<PAGE> 4
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
11. All of the Assignee's rights and remedies with respect to the
Trademarks, whether established hereby, by any other agreements or by law shall
be cumulative and may be exercised singularly or concurrently.
12. This Assignment is subject to modification only by a writing signed
by the parties, except as provided in Section 4 hereof.
13. This Assignment shall inure to the benefit of and be binding upon
the respective successors and permitted assigns of the parties.
14. Upon payment in full of all Liabilities (other than Assignor's
unmatured indemnity obligations under any Loan Document) and the expiration of
any obligation of the Assignee to extend credit accommodations to the Assignor,
this Assignment shall terminate and all rights to the Trademarks shall revert to
the Assignor.
15. THIS ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
(WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF) OF (I) THE
UNITED STATES OF AMERICA AS TO RIGHTS AND INTERESTS HEREUNDER WHICH ARE
REGISTERED OR FOR THE REGISTRATION OF WHICH APPLICATION IS PENDING WITH THE
UNITED STATES PATENT AND TRADEMARK OFFICE AND (II) THE STATE OF MINNESOTA IN ALL
OTHER RESPECTS. WHENEVER POSSIBLE, EACH PROVISION OF THIS ASSIGNMENT AND ANY
OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING
HERETO SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER
APPLICABLE LAW, BUT IF ANY PROVISION OF THIS ASSIGNMENT OR ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO SHALL BE HELD
TO BE PROHIBITED OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE
INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
ASSIGNMENT OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY
OR RELATING HERETO. IN THE EVENT OF ANY CONFLICT WITHIN, BETWEEN OR AMONG THE
PROVISIONS OF THIS ASSIGNMENT, ANY OTHER LOAN DOCUMENT OR ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR RELATING HERETO OR
THERETO, THOSE PROVISIONS GIVING THE ASSIGNEE THE GREATER RIGHT SHALL GOVERN.
4
<PAGE> 5
IN WITNESS WHEREOF, the Assignor has executed this instrument.
FUTECH INTERACTIVE PRODUCTS, INC.
By /s/ Vincent W. Goett
------------------------------
Title CEO
---------------------------
5
<PAGE> 6
EXHIBIT A TO
COLLATERAL ASSIGNMENT
OF TRADEMARKS
UNITED STATES TRADEMARKS
<TABLE>
<CAPTION>
Mark Serial/Registration No. Registration Date Filing Date
- ---- ------------------------ ----------------- -----------
<S> <C> <C> <C>
Talking Pages 75/432,307 2/11/98
International Class 28
Supplemental Register 1,923,092 9/26/95 8/30/93
Class 28
Futech 75/431,875 2/10/98
International Class 16
75/382,546 (Pending) 10/31/97
Class 16
Our Technology 75/199,891 (Pending) 11/15/96
Speaks For Itself Class 16
75/199,890 (Pending) 11/15/96
Class 28
Better Than A 2,082,289
Letter
Kinda Like A Card 75/212,891 Notice Of Allowance 12/13/96
10/21/97
</TABLE>
A-1
<PAGE> 7
EXHIBIT B TO
COLLATERAL ASSIGNMENT OF TRADEMARKS
ASSIGNMENT OF TRADEMARKS
This Assignment having an effective date of _____________, 19_ is made
by and between FUTECH INTERACTIVE PRODUCTS, INC., located and doing business at
2999 North 44th, Suite 225, Phoenix, Arizona 85018-7247 ("Assignor") and
_______________________, a ____________________ corporation, located and doing
business at __________________ ("Assignee").
WHEREAS, Assignor has adopted and owns certain trademarks which are
registered in the U.S. Patent and Trademark Office or which are the subject of a
pending application in the U.S. Patent and Trademark Office (hereinafter the
"Marks") and,
WHEREAS, Assignee is desirous of acquiring the Marks and registration
therefor.
NOW THEREFORE, in consideration of and in exchange for good and
valuable consideration, the receipt of which is hereby acknowledged, Assignor
does hereby sell, assign and transfer unto Assignee, and its successors and
assigns, all of its right, title and interest in and to the Marks, and the
registrations and applications therefor, together with that part of the good
will of the business connected with the use of and symbolized by the Marks, and
including Assignor's entire right, title and interest in and to any and all
causes of action and rights of recovery for past infringement of the Marks.
Assignor hereby covenants that it has full right to convey the entire interest
herein assigned, and that it has not executed, and will not execute, any
agreements inconsistent herewith. Assignor hereby irrevocably authorizes U.S.
Bancorp Republic Commercial Finance, Inc. to date this undated Assignment and
otherwise complete this Assignment at the time of transfer.
IN WITNESS WHEREOF, the parties have executed this assignment as of the
dates identified below.
FUTECH INTERACTIVE PRODUCTS, INC.
Date:______________________________ By_______________________________
Title____________________________
_______________________(Assignee)
Date:______________________________ By_______________________________
Title:___________________________
B-1
<PAGE> 8
EXHIBIT C TO
COLLATERAL ASSIGNMENT
OF TRADEMARKS
EXISTING LICENSES
Licensee Date License Expires
None
C-1
<PAGE> 9
ASSIGNMENT OF TRADEMARKS
This Assignment having an effective date of March 31, 1998 is made by
and between FUTECH INTERACTIVE PRODUCTS, INC., located and doing business at
2999 North 44th, Suite 225, Phoenix, Arizona 85018-7247 ("Assignor")
and , a corporation, located and
------------------------- -------------------
doing business at ("Assignee").
---------------------
WHEREAS, Assignor has adopted and owns certain trademarks which are
registered in the U.S. Patent and Trademark Office or which are the subject of a
pending application in the U.S. Patent and Trademark Office (hereinafter the
"Marks") and,
WHEREAS, Assignee is desirous of acquiring the Marks and registration
therefor.
NOW THEREFORE, in consideration of and in exchange for good and
valuable consideration, the receipt of which is hereby acknowledged, Assignor
does hereby sell, assign and transfer unto Assignee, and its successors and
assigns, all of its right, title and interest in and to the Marks, and the
registrations and applications therefor, together with that part of the good
will of the business connected with the use of and symbolized by the Marks, and
including Assignor's entire right, title and interest in and to any and all
causes of action and rights of recovery for past infringement of the Marks.
Assignor hereby covenants that it has full right to convey the entire interest
herein assigned, and that it has not executed, and will not execute, any
agreements inconsistent herewith. Assignor hereby irrevocably authorizes U.S.
Bancorp Republic Commercial Finance, Inc. to date this undated Assignment and
otherwise complete this Assignment at the time of transfer.
IN WITNESS WHEREOF, the parties have executed this assignment as of the
dates identified below.
FUTECH INTERACTIVE PRODUCTS, INC.
Date: 3/31/98 By /s/ Vincent W. Goett
----------------------------- ------------------------------
Title CEO
---------------------------
(Assignee)
----------------------
Date: By
----------------------------- ------------------------------
Title
---------------------------
<PAGE> 1
Exhibit: 10.48FT
PERSONAL GUARANTEE AGREEMENT
AND
PROMISSORY NOTE
V. W. GOETT AND FUTECH INTERACTIVE PRODUCTS
MARCH 31, 1998 PHOENIX, ARIZONA
This Personal Guarantee Agreement and Promissory Note ("Agreement") is
made and entered into on the date set forth above, by and between, VINCENT W.
GOETT ("GUARANTOR") AND FUTECH INTERACTIVE PRODUCTS, INC. ("PROMISOR"). The
following is the basis for this Agreement:
- U. S. BANCORP ("PAYEE") is providing $4 million in operating
capital ("Loan") to Promisor.
- The Guarantor is personally guaranteeing $3.6 million of the
Loan in order to help Promisor secure the Loan.
- The purpose of this Agreement is for the Guarantor to receive
benefit from the risk of personally guaranteeing $3.6 million
of the Loan.
TERMS
For value received (i.e. Guarantor's pledge of personal assets toward the
repayment of the Loan), Promisor agrees to provide to Guarantor, at 6400 N 48
Street, Paradise Valley, Arizona 85253, (or at such other place as the Guarantor
may designate in writing) the following:
- The sum of $360,000.00 as a shareholder advance/loan as
approved by the Shareholder Loan and Master Promissory Note
for Credit Line Agreement dated January 1, 1997. This amount
shall be payable to Guarantor immediately upon receipt of the
Loan proceeds.
- 7.2 million stock options of Promisor's common stock. The
options are granted at an exercise price of $0.05 per share,
become exercisable one year from the execution date of this
Agreement and expire five years from the exercise date. The
stock options will be issued to Vincent W. and Melissa Turner
Goett.
A. Promisor and Guarantor agree to the following terms and conditions
regarding the Loan:
1. Promisor may prepay, without penalty, all outstanding
principal to Payee.
2. If any payment obligation under this Agreement is not paid
when due, the Promisor promises to pay all costs of
collection, including reasonable attorney fees, whether or not
a lawsuit is commenced as part of the collection process.
3. If Guarantor is required to pay all or part any of the
aforementioned obligation on part of Promisor, Guarantor has
the following options for repayment:
- receiving cash in the amount of principal plus 10%
annual interest payable quarterly, or,
- converting all or part of principal and interest into
shares of Promisor's common stock at a conversion
rate of 20 shares for every one dollar. The only
restriction is the Promisor's number of unencumbered
shares available for distribution.
<PAGE> 2
4. If any of the following events of default occur, this
Agreement and any other obligations of the Promisor to
Guarantor, shall become due immediately, without demand or
notice:
- the failure of the Promisor to pay the principal and
any accrued interest in full on or before the Due
Date;
- the filing of bankruptcy proceedings involving the
Promisor as a Debtor;
- the application for appointment of a receiver for the
Promisor;
- the making of a general assignment for the benefit of
the Promisor's creditors; the insolvency of the
Promisor; or the misrepresentation by the Promisor to
Payee for the purpose of obtaining or extending
credit;
B. Other Terms and Conditions:
1. If any one or more of the provisions of this Agreement are
determined to be unenforceable, in whole or in part, for any
reason, the remaining provisions shall remain fully operative.
2. All payments of principal and interest on this Agreement shall
be paid in the legal currency of the United States.
3. Promisor waives presentment for payment, protest, and notice
of protest and nonpayment of this Agreement.
4. No renewal or extension of this Agreement, delay in enforcing
any right of Guarantor under this Agreement, or assignment by
Guarantor of this Agreement shall affect the liability of the
Promisor.
5. All rights of Guarantor under this Agreement are cumulative
and may be exercised concurrently or consecutively at
Guarantor's option.
REPRESENTATIONS OF GUARANTOR
Guarantor represents, warrants and covenants as follows:
1. Guarantor is familiar with the business and affairs of Promisor and
realizes an investment in the shares involves a high degree of risk.
2. Guarantor has been advised that there will be no public market for
the shares; it may not be able to readily liquidate its investment; the shares
have not been registered or qualified under Federal or State laws governing the
issuance of securities; and Promisor has no current intention of registering the
shares or reporting under the Act or any comparable or related Federal or State
law.
3. Guarantor is an accredited investor and acknowledges that its
overall commitment to investments which are not readily marketable is not
disproportionate to its net worth; and its investment in the shares will not
cause such overall commitment to become excessive; that Guarantor has adequate
means of providing for its current needs and personal contingencies, and has no
need for liquidity of this investment; that Guarantor has evaluated the risk of
investing in Promisor; that Guarantor is aware of the financial risks and
possible financial hazards of purchasing the shares and it has carefully
considered these risks of the investment, including the possibility of a
complete loss thereof.
<PAGE> 3
4. Guarantor agrees the stock is subject to a Stock Restrictions and
Sale Agreement. The shares acquired under this Agreement shall be subject to
that Stock Restrictions and Sale Agreement, as it may be amended from time to
time.
GENERAL
This Agreement is the entire agreement between the parties upon the subject
hereof and supersedes any prior or similar agreements upon the same subject.
This Agreement shall be governed by and construed in accordance with the Federal
law of the United States of America and the internal laws of the State of
Arizona, without reference to the principles of conflicts of law.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
"Promisor"
/s/ Vincent W. Goett, CEO
- -----------------------------------------
Futech Interactive Products, Inc.
"Futech" (in witness of)
/s/ Fred B. Gretsch
- -----------------------------------------
FRED B. GRETSCH, CFO
- -----------------------------------------
(Name and Title)
===== This Agreement consists of a total of 3 pages =====
<PAGE> 4
or to such other address and/or telefacsimile number as any party may provide to
the other in accordance with this Section.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof (i.e.,
EMPLOYEE's employment by EMPLOYER) and supersedes all prior or contemporaneous
offers, understandings or agreements in regard thereto, including without
limitation that employment agreement between EMPLOYEE and EMPLOYER dated August
7, 1996, which is hereby terminated.
21. Modification of Agreement. No modification or addition to
this Agreement shall be valid unless in writing, specifically referring to this
Agreement and signed by all parties hereto.
22. Waiver. No waiver of any rights under this Agreement shall
be valid unless in writing and signed by the party to be charged with such
waiver. No waiver of any term or condition contained in this Agreement shall be
deemed or construed as a further or continuing waiver of such term or condition,
unless the waiver specifically provides otherwise.
23. Contracts. Notwithstanding any provisions to the contrary
in this Agreement, EMPLOYEE shall not enter into any contracts or agreements,
written or oral, for or on behalf of EMPLOYER without EMPLOYER's prior written
consent.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 14
day of January, 1998.
EMPLOYER: EMPLOYEE:
Futech Educational Products, Inc.,
an Arizona corporation
By: /s/ Vincent Goett /s/ Vincent Goett
-------------------------------- -------------------------
Vincent Goett
Printed Name: Vincent W. Goett
----------------------
Title: CEO
-----------------------------
11
<PAGE> 1
Exhibit: 10.49FT
PROMISSORY NOTE
FOR $1.5 MILLION LOAN
TO FUTECH INTERACTIVE PRODUCTS, INC.
FROM RODERICK L. TURNER AND VINCENT W. GOETT
May 5, 1998 Phoenix, Arizona
This Agreement is made and entered into on the date set forth above, by
and between, RODERICK L. TURNER ("TURNER") and VINCENT W. GOETT ("GOETT")
(jointly known as "PAYEE") and FUTECH INTERACTIVE PRODUCTS, INC. ("PROMISOR").
The purpose of this Agreement is to arrange for the following:
- $1.5 million in additional operating loans from Payee to
Promisor
- Shareholder advances/loans to compensate Payee for
subordinating loans due Payee
- Promisor's common stock for compensation for providing
additional operating loans
RECITAL:
Subject to the terms and conditions of this Agreement:
1. Payee desires and is willing to provide a $1.5 million loan ("Loan")
to Promisor for repayment in quarterly installments of PRINCIPAL AND
INTEREST at an annual interest rate of 10%. The term of the loan is
for 24 months starting on the first day of the first succeeding month
after the loan is received by Promisor.
2. Upon maturity, Promisor will repay principal and interest calculated
as of that date. If full payment of the Loan is not made at that time,
interest will continue to accrue at an annual rate of interest of 16%.
There is no penalty for prepayment of the loan.
3. Payee reserves the right to convert all or a portion or the
outstanding principal and interest due and owing to shares of common
stock of Promisor. The conversion rate will be 20 shares of the
Promisor's common stock for every one dollar of principal plus
interest outstanding. The Payee may elect to exercise this conversion
option at anytime prior to the maturity date of the Loan or up to 180
days after the Loan's maturity date if the Promisor has not been able
to fulfill the outstanding obligation monetarily. The only restriction
is the Promisor's number of unencumbered shares available for
distribution.
3 In addition to the additional $1.5 million in principal that will be
due and owing the Payee from Promisor, the Promisor agrees to provide
to Payee the following:
1. 3.0 million stock options of Promisor's common stock. The options
are granted at an exercise price of $0.05 per share, they become
exercisable one year from the execution date of this Agreement and they
expire five years from the exercise date. The stock options will be
issued as follows:
1
<PAGE> 2
- 1.5 million stock options to Vincent W. and Melissa Turner
Goett.
- 1.5 million stock options to Roderick L. Turner.
4. The sum of $500,000.00 will be provided to Goett as a shareholder
advance/loan as approved by the Shareholder Loan and Master Promissory
Note for Credit Line Agreement dated January 1, 1997. This amount shall
be payable to Goett immediately upon receipt of the Loan proceeds. This
advance/loan is for Goett's personal subordination of all existing debt
related to U.S. Bankcorp. In return for this subordination, U.S.
Bankcorp is willing to issue a total of $16 million in loans for
Promisor's operating needs. The $16 million is comprised of $12 million
in secured debt and $4 million in debt personally guaranteed by Goett.
5. Promisor desires to receive Loan under all the repayment terms and
conditions.
NOW, THEREFORE, in consideration of the Agreement, covenants, and
undertakings contained below, it is mutually agreed as follows:
1. Payee agrees to arrange for and provide to Promisor a $1.5 million loan
per the terms and conditions previously stated.
2. Promisor agrees to receive an additional $1.5 million in loans from
Payee and to repay all monies, stock options and shareholder
advances/loans due per the terms and conditions of this Agreement.
REPRESENTATIONS OF PAYEE
Payee represents, warrants and covenants as follows:
1. Payee is familiar with the business and affairs of Promisor and
realizes an investment in the shares involves a high degree of risk.
2. Payee has been advised that there will be no public market for the
shares; it may not be able to readily liquidate its investment; the shares have
not been registered or qualified under Federal or State laws governing the
issuance of securities; and Promisor has no current intention of registering the
shares or reporting under the Act or any comparable or related Federal or State
law.
3. Payee is an accredited investor and acknowledges that its overall
commitment to investments which are not readily marketable is not
disproportionate to its net worth; and its investment in the shares will not
cause such overall commitment to become excessive; that Payee has adequate means
of providing for its current needs and personal contingencies, and has no need
for liquidity of this investment; that Payee has evaluated the risk of investing
in Promisor; that Payee is aware of the financial risks and possible financial
hazards of purchasing the shares and it has carefully considered these risks of
the investment, including the possibility of a complete loss thereof.
4. Payee agrees the stock is subject to a Stock Restrictions and Sale
Agreement. The shares acquired under this Agreement shall be subject to that
Stock Restrictions and Sale Agreement, as it may be amended from time to time.
2
<PAGE> 3
SURVIVAL
The representations, warranties and covenants contained in the section
Representations of Payee shall survive the transfer of the shares.
ATTORNEYS' FEES
The prevailing party in any action to enforce the terms and conditions hereof
shall be entitled to recover its reasonable attorneys' fees and court costs.
CONSTRUCTION
Where the context of this Agreement requires, the singular shall be construed as
the plural, and neuter pronouns shall be construed as masculine and feminine
pronouns, and vice versa. This Agreement shall be construed according to its
fair meaning and neither for nor against any party hereto. This Agreement shall
be governed by and construed in accordance with Arizona law.
Futech Interactive Products, Inc. ("Promisor")
/s/ Vincent W. Goett
- ---------------------
Vincent W. Goett
Chairman and CEO
=== This Agreement consists of a total of 3 pages ===
3
<PAGE> 1
Exhibit: 10.50FT
PROMISSORY NOTE AGREEMENT
FOR $1.0 MILLION CREDIT LINE
TO FUTECH INTERACTIVE PRODUCTS, INC.
FROM RODERICK L. TURNER AND VINCENT W. GOETT
June 24, 1998 Phoenix, Arizona
This Agreement is made and entered into on the date set forth above, by
and between, RODERICK L. TURNER ("TURNER") and VINCENT W. GOETT ("GOETT")
(jointly known as "PAYEE") and FUTECH INTERACTIVE PRODUCTS, INC. ("PROMISOR").
The purpose of this Agreement is to arrange for a short-term operating
loan/credit line by Payee to Promisor and the resulting repayment of principal,
interest and shares of common stock.
RECITAL:
Subject to the terms and conditions of this Agreement:
1. Payee desires and is willing to provide up to a $1.0 million credit
line ("LOAN") to Promisor for repayment of PRINCIPAL AND INTEREST at an
annual interest rate of 10%. The term of the loan is for 6 months
starting on the first day of the first succeeding month after the loan
is received by Promisor.
2. Upon maturity, Promisor will repay principal and interest calculated as
of that date. If full payment of the Loan is not made at that time,
interest will continue to accrue at an annual rate of interest of 16%.
There is no penalty for prepayment of the loan.
3. Payee reserves the right to convert all or a portion or the outstanding
principal and interest due and owing to shares of common stock of
Promisor. The conversion rate will be 20 shares of the Promisor's
common stock for every one dollar of principal plus interest
outstanding. The Payee may elect to exercise this conversion option at
anytime prior to the maturity date of the Loan or up to 180 days after
the Loan's maturity date if the Promisor has not been able to fulfill
the outstanding obligation monetarily. The only restriction is the
Promisor's number of unencumbered shares available for distribution.
4. In addition to the $1.0 million in principal plus accrued interest that
will be due and owing by Promisor to the Payee, or as designated by
Payee, the Promisor agrees to provide the following:
- 2.0 million stock options for the purchase of Promisor's
common stock. The options are granted at an exercise price of
$0.05 per share, the options become exercisable one year from
the execution date of this Agreement and expire five years
from the exercise date. The share options will be issued to
Palmilla Management Trust.
1
<PAGE> 2
5. The sum of $100,000.00 will be provided to Goett as a shareholder
advance/loan as approved by the Shareholder Loan and Master Promissory
Note for Credit Line Agreement dated January 1, 1997. This amount shall
be payable to Goett immediately upon receipt of the Loan proceeds.
6. Promisor desires to receive Loan under all the repayment terms and
conditions.
NOW, THEREFORE, in consideration of the Agreement, covenants, and undertakings
contained below, it is mutually agreed as follows:
1. Payee agrees to arrange for and provide to Promisor a $1.0 million loan
per the terms and conditions previously stated.
2. Promisor agrees to receive the $1.0 million loan from Payee and to
repay all monies, stock options and shareholder advances/loans per the
terms and conditions of this Agreement.
REPRESENTATIONS OF PAYEE
Payee represents, warrants and covenants as follows:
1. Payee is familiar with the business and affairs of Promisor and
realizes an investment in the shares involves a high degree of risk.
2. Payee has been advised that there will be no public market for the
shares; it may not be able to readily liquidate its investment; the shares have
not been registered or qualified under Federal or State laws governing the
issuance of securities; and Promisor has no current intention of registering the
shares or reporting under the Act or any comparable or related Federal or State
law.
3. Payee is an accredited investor and acknowledges that its overall
commitment to investments which are not readily marketable is not
disproportionate to its net worth; and its investment in the shares will not
cause such overall commitment to become excessive; that Payee has adequate means
of providing for its current needs and personal contingencies, and has no need
for liquidity of this investment; that Payee has evaluated the risk of investing
in Promisor; that Payee is aware of the financial risks and possible financial
hazards of purchasing the shares and it has carefully considered these risks of
the investment, including the possibility of a complete loss thereof.
4. Payee agrees the stock is subject to a Stock Restrictions and Sale
Agreement. The shares acquired under this Agreement shall be subject to that
Stock Restrictions and Sale Agreement, as it may be amended from time to time.
SURVIVAL
The representations, warranties and covenants contained in the section
Representations of Payee shall survive the transfer of the shares.
2
<PAGE> 3
ATTORNEYS' FEES
The prevailing party in any action to enforce the terms and conditions hereof
shall be entitled to recover its reasonable attorneys' fees and court costs.
CONSTRUCTION
Where the context of this Agreement requires, the singular shall be construed as
the plural, and neuter pronouns shall be construed as masculine and feminine
pronouns, and vice versa. This Agreement shall be construed according to its
fair meaning and neither for nor against any party hereto. This Agreement shall
be governed by and construed in accordance with Arizona law.
Futech Interactive Products, Inc. ("Promisor")
/s/ Vincent W. Goett
- ---------------------
Vincent W. Goett
Chairman and CEO
=== This Agreement consists of a total of 3 pages ===
3
<PAGE> 1
Exhibit: 10.51FT
FIRST AMENDMENT TO FINANCING AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AGREEMENT (this "Amendment"), made
and entered into as of July 29, 1998, is by and between FUTECH INTERACTIVE
PRODUCTS, INC., an Arizona corporation (the "Borrower") and U.S. BANCORP
REPUBLIC COMMERCIAL FINANCE, INC., a Minnesota corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Financing
Agreement dated as of March 31, 1998 (the "Financing Agreement"); and
2. The Borrower desires to amend certain provisions of the
Agreement, and the Lender has agreed to make such amendments, subject to the
terms and conditions set forth in this Amendment.
3. The Borrower has purchased substantially all of the assets
and assumed certain liabilities of XYZ Group Inc. a Wisconsin corporation.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
covenant and agree to be bound as follows:
SECTION 1. CAPITALIZED TERMS. Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to them in the
Financing Agreement, unless the context shall otherwise require.
SECTION 2. AMENDMENTS. The Financing Agreement is hereby
amended as follows:
2.1 DEFINITIONS. The definitions of "Advance" contained in
Section 1. 1 of the Financing Agreement are amended in their entirety as
follows:
"Advance(s)": An Accounts Advance, an Inventory Advance, an
Over Advance, and/or an Additional Over Advance, as the context may
require.
Section 1. 1 of the Financing Agreement is further amended by
adding the definitions of "Eligible Inventory," "Inventory Advance,"
"Over Advance," and "Additional Over Advance" in correct alphabetical
order:
"Additional Over Advance": As defined in Section 2.1 (d).
"Eligible Inventory": Inventory of the Borrower which the
Lender, in its sole and absolute discretion, deems eligible for
Advances, but which meets the following minimum requirements: (a) it is
owned by the Borrower, is subject to a first priority perfected
security interest in favor of the Lender, and is not subject to any
assignment, claim or Lien other than (i) a Lien in favor of the Lender
and (ii) Liens consented to by the Lender in writing; (b) it consists
of raw materials or finished product (not including work in process and
supplies); (c) if held for sale or lease or furnishing under contracts
of service, it is (except as the Lender may otherwise consent in
writing) new and unused; (d) except as the Lender may otherwise
consent, it is not stored with a bailee, warehouseman or similar
<PAGE> 2
party; if so stored with the Lender's consent, such bailee,
warehouseman or similar party has issued and delivered to the Lender,
in form and substance acceptable to the Lender, such documents and
agreements as the Lender may require, including without limitation,
warehouse receipts therefor in the Lender's name; (e) it is not goods
in transit, except for goods in transit shipped ocean freight, which
goods may be subject to normal and customary liens that attach in favor
of the carrier of such goods; (f) the Lender has determined, in its
sole and absolute discretion, that it is not unacceptable due to age,
type, category, quality and/or quantity; (g) it is not held by the
Borrower on consignment and is not subject to any other repurchase or
return agreement; (h) it is not held by a customer of the Borrower or
any other Person on consignment; (i) it complies with all standards
imposed by any governmental agency having regulatory authority over
such goods and/or their use, manufacture or sale; and (j) the
warranties, representations and covenants contained in any security
agreement or other agreement of the Borrower with or given to the
Lender relating directly or indirectly to the Borrower's Inventory are
applicable to it without exception.
"Inventory Advance": As defined in Section 2.1 (b).
"Over Advance": As defined in Section 2.1(c).
2.2 THE ADVANCES. Section 2.1 of the Financing Agreement is
amended in its entirety as follows:
Section 2.1 The Advances. On the terms and subject to the
conditions hereof, at the Borrower's request, the Lender, in its
absolute and sole discretion and without any commitment to do so, may
make the following Advances available to the Borrower:
2.1(a) up to seventy-five percent (75%) of the net amount of
Eligible Accounts which are listed in the Borrower's most current
Borrowing Base Certificate and which are deemed eligible for advances
by the Lender, or such greater or lesser percentage at the Lender's
sole and absolute discretion, not to exceed a maximum amount of
$12,000,000 (the "Accounts Advances");
2.1(b) up to fifty percent (50%) of the net of Eligible
Inventory which is listed in the Borrower's most current Borrowing Base
Certificate and which is deemed eligible for advances by the Lender, or
such greater or lesser percentage at the Lender's sole and absolute
discretion, not to exceed a maximum amount of $5,000,000 (the Inventory
Advances"), provided that the aggregate outstanding amount of Accounts
Advances and Inventory Advances shall not exceed $12,000,000.
2.1(c) from July 22, 1998 through December 31, 1998 up to
$2,000,000, or such greater or lesser amount at Lender's sole and
absolute discretion (the "Over Advances").
2.1(d) from July 22, 1998 until December 31, 1998, up to
$2,000,000, or such greater or lesser amount at Lender's sole and
absolute discretion (the "Additional Over Advance).
Loans for additional sums requested by the Borrower may be made at the
Lender's sole discretion based upon the Lender's valuation of the
Borrower's collateral or other factors. The Borrower acknowledges and
agrees that the Lender may from time to time, for the
2
<PAGE> 3
Lender's convenience, segregate or apportion the Borrower's collateral
for purposes of determining the amounts and maximum amounts of Advances
which may be made hereunder. Nevertheless, the Lender's security
interest in all such collateral, and any other collateral rights,
interests and properties which may now or hereafter be available to the
Lender, shall secure and may be applied to the payment of any and all
Advances and other indebtedness secured by the Lender's security
interest, in any order or manner of application and without regard to
the method by which the Lender determines to make Advances hereunder.
2.3 INTEREST RATES AND INTEREST PAYMENTS Section 2.3 of the
Financing Agreement is amended in its entirety as follows:
Section 2.3 Interest Rates and Interest Payments. Interest
shall accrue on the unpaid balance of the Advances at a floating rate
per annum equal to the sum of the Reference Rate plus 2.5% (the
"Applicable Rate") and shall be due and payable monthly in arrears on
the last day of each calendar month; and provided further that upon the
occurrence and during the continuance of any failure by the Borrower to
comply with any agreement or covenant of the Borrower under any Loan
Document, the unpaid balance of the Advances shall thereafter bear
interest at a floating rate equal to the sum of (a) the Applicable
Rate, plus (b) 2% and shall be due and payable on demand; and provided
further that the minimum amount of interest payable per annum shall not
be less than (i) $100,000 on the Accounts Advances and Inventory
Advances; plus (ii) $20,000 on the Over Advances until repayment of the
Over Advances occurs due to the occurrence of the Private Placement;
plus (iii) $20,000 on the Additional Over Advances until repayment of
the Over Advances occurs due to the occurrence of the Private
Placement.
2.4 ANNUAL FEE. Section 2.6 of the Financing Agreement is
amended in its entirety as follows:
2.6 Annual Fee. The Borrower shall pay to the Lender an annual
fee in an amount equal to twenty-one hundreds of one percent (.21%) of
the maximum aggregate amount of the Accounts Advances (the "Annual
Fee"). The Annual Fee shall be payable in advance on the Closing Date
and on each anniversary of the date of this Agreement.
2.5 SUCCESS FEE. Section 2.7 of the Financing Agreement is
deleted.
2.6 ARTICLE VII. Article VII of the Financing Agreement is
amended in its entirety as follows:
ARTICLE VII
TERMINATION BY BORROWER
This agreement shall continue in effect until terminated upon
not less than 30 days' prior written notice delivered by the Borrower
certified mail to Lender by certified mail. Termination shall not
impair or affect the Lender's fights existing as of the time notice of
Termination is given. Borrowers obligations with respect to payment of
any Termination fee shall be fixed and owing as of date such notice is
given and not when such notice becomes effective.
3
<PAGE> 4
In the event that the Borrower gives notice to the Lender of
the termination of this Agreement under Section VII hereof at any time
prior to March 31, 2000, the Borrower will pay to the Lender a
prepayment charge, as additional compensation for the Lender's costs of
entering into this Agreement, in the amount of (a) 1% of the maximum
aggregate amount of the Advances if the notice of termination occurs
prior to December 31, 1998 (unless the Over Advances and Additional
Over Advances are paid out in full by the Private Placement in which
event the prepayment charge shall be equal to 1% of the maximum
aggregate amount of the Accounts Advances); or (b) 1% of the maximum
aggregate amount of the Accounts Advances if the notice of termination
occurs after December 31, 1998, but before March 31, 2000, unless the
outstanding amount of Borrower's obligations hereunder are refinanced
in full by an affiliate of U.S. Bancorp.
SECTION 3. EFFECTIVENESS OF AMENDMENTS. The amendments
contained in this Amendment shall become effective upon delivery by the Borrower
of, and compliance by the Borrower with, the following:
3.1 This Amendment, duly executed by the Borrower.
3.2 A copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Amendment certified as true and accurate by its Secretary or Assistant
Secretary, along with a certification by such Secretary or Assistant
Secretary (i) certifying that there has been no amendment to the
Articles of Incorporation or Bylaws of the Borrower since true and
accurate copies of the same were delivered to the Lender with a
certificate of the Secretary of the Borrower dated March 31, 1998, and
(ii) identifying each officer of the Borrower authorized to execute
this Amendment and any other instrument or agreement executed by the
Borrower in connection with this Amendment, and certifying as to
specimens of such officer's signature and such officer's incumbency in
such offices as such officer holds.
3.3 Certified copies of all documents evidencing any necessary
corporate action or consent with respect to this Amendment.
3.4 A Guaranty duly executed by the Guarantor which shall
replace and supersede the existing Guaranty of Guarantor.
3.5 The Borrower shall have paid a Closing fee of $25,000.
3.6 The Borrower shall have satisfied such other conditions as
specified by the Lender or counsel to the Lender, including payment of
all unpaid legal fees and expenses incurred by the Lender through the
date of this Amendment in connection with the Financing Agreement.
SECTION 4. REPRESENTATIONS; ACKNOWLEDGMENTS. The Borrower
hereby represents that on and as of the date hereof and after giving effect to
this Amendment (a) all of the representations and warranties contained in the
Financing Agreement, and in any and all other Loan Documents of the Borrower,
are true, correct and complete in all respects as of the date hereof as though
made on and as of such date, except for changes permitted by the terms of the
Financing Agreement, and (b) the Borrower is in compliance with all covenants
and agreements of the Borrower as set forth in the Financing Agreement and in
any and all other Loan Documents of the Borrower. The Borrower represents and
warrants that the Borrower has the power and legal right and authority to enter
into this Amendment and has duly authorized as appropriate the execution
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<PAGE> 5
and delivery of this Amendment and other agreements and documents executed and
delivered by the Borrower in connection herewith or therewith by proper
corporate action. The Borrower acknowledges and agrees that its obligations to
the Lender under the Financing Agreement exist and are owing without offset,
defense or counterclaim assertable by the Borrower against the Lender. The
Borrower further acknowledges and agrees that its obligations to the Lender
under the Financing Agreement, as amended, constitute "Obligations" within the
meaning of the Security Agreement and are secured by the Security Agreement, as
amended.
SECTION 5. AFFIRMATION, FURTHER REFERENCES. Except as
expressly modified under this Amendment, all of the terms, conditions,
provisions, agreements, requirements, promises, obligations, duties, covenants
and representations of the Borrower under the Financing Agreement, the Security
Agreement, and any and all other Loan Documents entered into with respect to the
obligations under the Financing Agreement are incorporated herein by reference
and are hereby ratified and affirmed in all respects by the Borrower. All
references in the Financing Agreement to "this Agreement," "herein," "hereof,"
and similar references, and all references in the other Loan Documents to the
"Agreement," shall be deemed to refer to the Agreement, as amended by this
Amendment.
SECTION 6. MERGER AND INTEGRATION, SUPERSEDING EFFECT. This
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersedes and has merged into it
all prior oral and written agreements on the same subjects by and between the
parties hereto with the effect that this Amendment, shall control with respect
to the specific subjects hereof and thereof.
SECTION 7. SEVERABILITY. Whenever possible, each provision of
this Amendment and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto shall be interpreted in such
manner as to be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited, invalid or unenforceable under the
applicable law, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition, invalidity or unenforceability, without
invalidating or rendering unenforceable the remainder of such provision or the
remaining provisions of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.
SECTION 8. SUCCESSORS. This Amendment shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
SECTION 9. LEGAL EXPENSES. The Borrower agrees to reimburse
the Lender, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses of Dorsey & Whitney,
counsel for the Lender) incurred in connection with the Financing Agreement,
including in connection with the negotiation, preparation and execution of this
Amendment and all other documents negotiated, prepared and executed in
connection with this Amendment, and in enforcing the obligations of the Borrower
under the Financing Agreement, as amended by this Amendment, which obligations
of the Borrower shall survive any termination of the Financing Agreement.
SECTION 10. HEADINGS. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
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<PAGE> 6
SECTION 11. COUNTERPARTS. This Amendment may be executed in
several counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts shall
be regarded as one and the same document, and either party to this Amendment may
execute any such agreement by executing a counterpart of such agreement.
SECTION 12. GOVERNING LAW. The Amendment Documents shall be
governed by the internal laws of the State of Minnesota, without giving effect
to conflict of law principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date and year first above written.
FUTECH INTERACTIVE PRODUCTS, INC.
By /s/ Vincent W. Goett
--------------------------------
Title C.E.O.
-----------------------------
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC.
By
--------------------------------
Title
-----------------------------
6
<PAGE> 7
GUARANTY
THIS GUARANTY, dated as of July 29, 1998 is made and given by
VINCENT W. GOETT (the "Guarantor"), in favor of U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC., a Minnesota corporation ("Lender").
RECITALS
A. Lender has extended and/or may from time to time hereafter
extend credit accommodations to Futech Interactive Products, Inc. (the
"Borrower").
B. In connection with those credit accommodations Lender has
required that this Guaranty be executed and delivered by the Guarantor.
C. Guarantor is the chairman of the Borrower and owns
approximately 26% of the outstanding common stock of Borrower.
D. Guarantor previously entered in to a Guaranty of the
obligations of Borrower, which is to be replaced by this Guaranty.
E. The Guarantor expects to derive benefits from the extension
of credit accommodations to the Borrower by Lender and finds it advantageous,
desirable and in their best interests to execute and deliver this Guaranty to
Lender.
NOW, THEREFORE, In consideration of the credit accommodations
to be extended to the Borrower and for other good and valuable consideration,
the Guarantor hereby covenants and agrees with Lender as follows:
Section 1. Defined Terms. As used in this Guaranty, the
following terms shall have the meaning indicated:
"Borrower" shall have the meaning indicated in Recital A.
"Guarantor" shall have the meaning indicated in the opening
paragraph hereof.
"Obligations" shall mean any and all liabilities and
obligations of the Borrower to Lender for or relating to the Over Advances or
Additional Over Advances under the Financing Agreement between Borrower and
Lender dated March 31, 1998 as amended by that First Amendment to Financing
Agreement dated as of July 22, 1998 and as may be further amended (the
"Financing Agreement"), of every kind, nature and description whether due or to
become due, and whether now existing or hereafter arising or incurred.
"Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, joint venture, firm,
association, trust, unincorporated organization, government or governmental
agency or political subdivision or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Lender" shall have the meaning indicated in the opening
paragraph hereof.
Section 2. The Guaranty. The Guarantor hereby absolutely and
unconditionally guarantees to Lender the payment when due (whether by demand, at
a scheduled due date, or otherwise) and performance of the Obligations.
<PAGE> 8
Section 3. Maximum Liabilities. The maximum liability of the
Guarantors under this Guaranty shall not exceed at any time the lesser of (a)
$4,000,000 or (b) all obligations of the Borrower for or relating to the Over
Advances or Additional Over Advances; and in either event plus all interest
thereon, plus all of Lender's costs, expenses and attorneys' fees incurred in
connection with or relating to (a) the collection of the obligations; (b) the
collection and sale of any collateral for the Obligation or this Guaranty, or
(c) the enforcement of this Guaranty, attorneys' fees whether or not there is a
lawsuit, and if there is a lawsuit, any fees and costs for trial and appeals.
Section 4. Continuing Guaranty. This Guaranty is an absolute,
unconditional and continuing guaranty of payment and performance of the
Obligations, and the obligations of the Guarantor hereunder shall not be
released, in whole or in part, by any action or thing which might, but for this
provision of this Guaranty, be deemed a legal or equitable discharge of a surety
or guarantor, other than irrevocable payment and performance in full of the
Obligations. No notice of the Obligations to which this Guaranty may apply, or
of any renewal or extension thereof need be given to the Guarantor and none of
the foregoing acts shall release the Guarantor from liability hereunder. The
Guarantor hereby expressly waives (a) demand of payment, presentment, protest,
notice of dishonor, nonpayment or nonperformance on any and all forms of the
obligations; (b) notice of acceptance of this Guaranty and notice of any
liability to which it may apply; (c) all other notices and demands of any kind
and description relating to the Obligations now or hereafter provided for by any
agreement, statute, law, rule or regulation; and (d) any and all defenses of the
Borrower pertaining to the Obligations except for the defense of discharge by
payment. The Guarantor shall not be exonerated with respect to the Guarantor's
liabilities under this Guaranty by any act or thing except irrevocable payment
and performance of the Obligations, it being the purpose and intent of this
Guaranty that the Obligations constitute the direct and primary obligations of
the Guarantor and that the covenants, agreements and all obligations of the
Guarantor hereunder be absolute, unconditional and irrevocable. The Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage, deed of trust or security agreement securing all or any part of the
Obligations, whether or not the liability of the Borrower or any other Person
for such deficiency is discharged pursuant to statute, judicial decision or
otherwise. The acceptance of this Guaranty by Lender is not intended and does
not release any liability previously existing of any guarantor or surety of any
indebtedness of the Borrower to Lender.
Section 5. Other Transactions. Lender is expressly authorized
(a) to exchange, surrender or release with or without consideration any or all
collateral and security which may at any time be placed with it by the Borrower
or by any other Person, or to forward or deliver any or all such collateral and
security directly to the Borrower for collection and remittance or for credit,
or to collect the same in any other manner without notice to the Guarantor; and
(b) to amend, modify, extend or supplement any note or other instrument
evidencing the Obligations or any part thereof and any other agreement with
respect to the Obligations, waive compliance by the Borrower or any other Person
with the respective terms thereof and settle or compromise any of the
Obligations without notice to the Guarantor and without in any manner affecting
the absolute liabilities of the Guarantor hereunder. No invalidity, irregularity
or unenforceability of all or any part of the Obligations or of any security
therefor or other recourse with respect thereto shall affect, impair or be a
defense to this Guaranty. The liabilities of the Guarantor hereunder shall not
be affected or impaired by any failure, delay, neglect or omission on the part
of Lender to realize upon any of the Obligations of the Borrower to Lender, or
upon any collateral or security for any or all of the Obligations, nor by the
taking by Lender of (or the failure to take) any other guaranty or guaranties to
secure the Obligations, nor by the taking by Lender of (or the failure to take
or the failure to perfect its security interest in or other lien on) collateral
or security of any kind. No act or
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<PAGE> 9
omission of Lender, whether or not such action or failure to act varies or
increases the risk of, or affects the rights or remedies of the Guarantor, shall
affect or impair the obligations of the Guarantor hereunder. The Guarantor
acknowledges that this Guaranty is in effect and binding without reference to
whether this Guaranty is signed by any other Person or Persons, that possession
of this Guaranty by Lender shall be conclusive evidence of due delivery hereof
by the Guarantor and that this Guaranty shall continue in full force and effect,
both as to the Obligations then existing and/or thereafter created,
notwithstanding the release of or extension of time to any other guarantor of
the Obligations or any part thereof.
Section 6. Actions Not Required. The Guarantor hereby waives
any and all right to cause a marshalling of the assets of the Borrower or any
other action by any court or other governmental body with respect thereto or to
cause Lender to proceed against any security for the Obligations or any other
recourse which Lender may have with respect thereto and further waives any and
all requirements that Lender institute any action or proceeding at law or in
equity, or obtain any judgment, against the Borrower or any other Person, or
with respect to any collateral security for the Obligations, as a condition
precedent to making demand on or bringing an action or obtaining and/or
enforcing a judgment against, the Guarantor upon this Guaranty. The Guarantor
further acknowledges that time is of the essence with respect to the Guarantor's
obligations under this Guaranty. Any remedy or right hereby granted which shall
be found to be unenforceable as to any Person or under any circumstance, for any
reason, shall in no way limit or prevent the enforcement of such remedy or right
as to any other Person or circumstance, nor shall such unenforceability limit or
prevent enforcement of any other remedy or right hereby granted.
Section 7. No Subrogation. Notwithstanding any payment or
payments made by the Guarantor hereunder, the Guarantor waives all rights of
subrogation to any of the rights of Lender against the Borrower or any other
Person liable for payment of any of the Obligations or any collateral security
or guaranty or right of offset held by Lender for the payment of the
Obligations, and the Guarantor waives all rights to seek any recourse to or
contribution or reimbursement from the Borrower or any other Person liable for
payment of any of the Obligations in respect of payments made by the Guarantor
hereunder, until such time that the Obligations are irrevocably paid in full.
Section 8. Application of Payments. Any and all payments upon
the Obligations made by the Guarantor or by any other Person, and/or the
proceeds of any or all collateral or security for any of the Obligations, may be
applied by Lender on such items of the Obligations as Lender may elect.
Section 9. Recovery of Payment. If any payment received by
Lender and applied to the Obligations is subsequently set aside, recovered,
rescinded or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the Borrower or any
other obligor), the Obligations to which such payment was applied shall for the
purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such Obligations as fully as if such application had never been made. References
in this Guaranty to amounts "irrevocably paid" or to "irrevocable payment" refer
to payments that cannot be set aside, recovered, rescinded or required to be
returned for any reason.
Section 10. Borrower's Financial Condition. The Guarantor is
familiar with the financial condition of the Borrower, and the Guarantor has
executed and delivered this Guaranty based on the Guarantor's own judgment and
not in reliance upon any statement or representation of Lender. Lender shall
have no obligation to provide the Guarantor with any advice whatsoever or
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<PAGE> 10
to inform the Guarantor at any time of Lender's actions, evaluations or
conclusions on the financial condition or any other matter concerning the
Borrower.
Section 11. Remedies. All remedies afforded to Lender by
reason of this Guaranty are separate and cumulative remedies and it is agreed
that no one of such remedies, whether or not exercised by Lender, shall be
deemed to be in exclusion of any of the other remedies available to Lender and
no one of such remedies shall in any way limit or prejudice any other legal or
equitable remedy which Lender may have hereunder and with respect to the
Obligations. Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to Lender.
Section 12. Bankruptcy of the Borrower. The Guarantor
expressly agrees that the liabilities and obligations of the Guarantor under
this Guaranty shall not in any way be impaired or otherwise affected by the
institution by or against the Borrower or any other Person of any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or any other
similar proceedings for relief under any bankruptcy law or similar law for the
relief of debtors and that any discharge of any of the Obligations pursuant to
any such bankruptcy or similar law or other law shall not diminish, discharge or
otherwise affect in any way the obligations of the Guarantor under this
Guaranty, and that upon the institution of any of the above actions, such
obligations shall be enforceable against the Guarantor.
Section 13. Costs and Expenses. The Guarantor will pay or
reimburse Lender on demand for all out-of-pocket expenses (including in each
case all reasonable fees and expenses of counsel) incurred by Lender arising out
of or in connection with the enforcement of this Guaranty against the Guarantor
or arising out of or in connection with any failure of the Guarantor to fully
and timely perform the obligations of the Guarantor hereunder.
Section 14. Waivers and Amendments. This Guaranty can be
waived, modified, amended, terminated or discharged only explicitly in a writing
signed by Lender. A waiver so signed shall be effective only in the specific
instance and for the specific purpose given.
Section 15. Notices. Any notice or other communication to any
party in connection with this Guaranty shall be in writing and shall be sent by
manual delivery, telegram, telex, facsimile transmission, overnight courier or
United States mail (postage prepaid) addressed to such party at the address
specified on the signature page hereof, or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered, from
the date of sending thereof if sent by telegram, telex or facsimile
transmission, from the first business day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.
Section 16. Guarantor Acknowledgements. The Guarantor hereby
acknowledges that (a) counsel has advised the Guarantor in the negotiation,
execution and delivery of this Guaranty, (b) Lender has no fiduciary
relationship to the Guarantor, the relationship being solely that of debtor and
creditor, and (c) no joint venture exists between the Guarantor and Lender.
Section 17. Continuing Guaranty. This Guaranty shall (a)
remain in full force and effect until irrevocable payment in full of the
Obligations and the expiration of the obligations, if any, of Lender to extend
credit accommodations to the Borrower, (b) be binding upon the Guarantor, its
successors and assigns and (c) inure to the benefit of, and be enforceable by,
Lender and its successors, transferees, and assigns.
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<PAGE> 11
Section 18. Reaffirmation. The Guarantor agrees that when so
requested by Lender from time to time it will promptly execute and deliver to
Lender a written reaffirmation of this Guaranty in such form as Lender may
require.
Section 19. Financial Statements. Tax Returns. The Guarantor
agrees that it will deliver to Lender copies of all state and federal tax
returns filed by the Guarantor, together with an updated personal financial
statement of the Guarantor in form and substance satisfactory to the Lender, as
may be required of the Borrower by Lender or as may otherwise be requested of
the Guarantor by Lender.
Section 20. Revocation. Notwithstanding any other provision
hereof, the Guarantor may revoke this Guaranty prospectively as to future
transactions by written notice to that effect actually received by Lender. No
such revocation shall release, impair or affect in any manner any liability
hereunder with respect to Obligations created, contracted, assumed or incurred
prior to receipt by Lender of written notice of revocation, or Obligations
created, contracted, assumed or incurred after receipt of such notice pursuant
to any contract entered into by Lender prior to receipt of such notice, or any
renewals or extensions thereof, theretofore or thereafter made, or all other
costs, expenses and attorneys' fees arising from such Obligations.
Section 21. Governing Law and Construction. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF. Whenever possible, each provision of this Guaranty and any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be interpreted in such manner as to be effective and valid under such
applicable law, but, if any provision of this Guaranty or any other statement,
instrument or transaction contemplated hereby or relating hereto shall be held
to be prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty or any other statement, instrument or transaction contemplated hereby
or relating hereto.
Section 22. Consent to Jurisdiction. AT THE OPTION OF LENDER,
THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT
SITTING IN HENNEPIN COUNTY, MINNESOTA, MINNESOTA; AND THE GUARANTOR CONSENTS TO
THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS GUARANTY,
LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 23. Waiver of Jury Trial. EACH OF THE GUARANTOR AND
LENDER, BY ITS ACCEPTANCE OF THIS GUARANTY, IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL
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<PAGE> 12
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 24. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 25. General. All representations and warranties
contained in this Guaranty or in any other agreement between the Guarantor and
Lender shall survive the execution, delivery and performance of this Guaranty
and the creation and payment of the Obligations. Captions in this Guaranty are
for reference and convenience only and shall not affect the interpretation or
meaning of any provision of this Guaranty.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
as of the date first above written.
/s/ Vincent W. Goett
-----------------------------------
VINCENT W.GOETT
Address:
6400 North 48th Street
Paradise Valley, AZ 85253
Address for Lender:
U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC.
2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
Fax: (612) 782-1801
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<PAGE> 1
Exhibit: 10.52FT
THE CHASE MANHATTAN BANK
[CHASE LOGO] Promissory Note
New York, N.Y.
$2,000,000.00 August 10, 1998
On August 9, 1999 (insert specific date or "DEMAND"), for value
received, the undersigned hereby promises to pay to the order of THE CHASE
MANHATTAN BANK (hereinafter the "Bank") at its office at 1211 Avenue of the
Americas, New York, N.Y.
Two Million ******************************************************* DOLLARS
- ----------------------------------------------------------------------------
with interest payable on November 9, 1998 (specific date) and the 9th day of
each quarter (quarter, month, etc.) thereafter (and at maturity) at a per annum
rate of 1/2% above the Bank's Prime Rate (which shall be the rate of interest
as is publicly announced at the Bank's principal office from time to time as its
Prime Rate), adjusted as of the date of each such change. The foregoing rate
shall be computed for the actual number of days elapsed on the basis of a
360-day year, but in no event shall be higher than the maximum permitted under
applicable law. Interest on any past due amount, whether at the due date thereof
or by acceleration, shall be paid at a rate of one percent per annum in excess
of the above stated rate, but in no event higher than the maximum permitted
under applicable law. Time for payment extended by law shall be included in the
computation of interest.
The undersigned hereby grants to the Bank a lien on, security interest
in and right of set-off against all moneys, securities and other property of the
undersigned and the proceeds thereof now or hereafter delivered to remain with
or in transit in any manner to the Bank, its correspondents or its agents from
or for the undersigned, whether for safekeeping, custody, pledge, transmission,
collection or for any other purpose, or coming into possession, control or
custody of the Bank, Chase Securities Inc., or any other affiliate of the Bank
in any way, and, also, any balance of any deposit account and credits of the
undersigned with, and any other claims of the undersigned against, the Bank,
Chase Securities Inc., or any other affiliate of the Bank at any time existing
(all of which are hereinafter collectively called "Collateral"), as collateral
security for the payment of this note and all other liabilities and obligations
now or hereafter owed by the undersigned to the Bank, contracted with or
acquired by the Bank, whether joint, several, direct, indirect, absolute,
contingent, secured, unsecured, matured or unmatured (all of which are hereafter
collectively called "Liabilities"), hereby authorizing the Bank at any time or
times, without notice or demand, to apply any such Collateral or any proceeds
thereof to any of such Liabilities in such amounts as it in its sole discretion
may select, either contingent, unmatured or otherwise and whether any other
collateral security therefor is deemed adequate or not. Undersigned authorizes
the Bank to deliver to others a copy of this note as written notification of the
undersigned's transfer of a security interest in the Collateral. The Bank
further is authorized at any time or times, without demand or notice to the
undersigned, to transfer to or register in the name of its nominee or nominees
all or any part of the Collateral and to exercise any and all rights, power and
privileges (except that prior to an Event of Default the Bank shall not have the
right to vote or to direct the voting of any Collateral). The collateral
security and other rights described herein shall be in addition to any other
collateral security described in any separate agreement executed by the
undersigned.
In the event of: default in the prompt payment of any Liabilities;
default in any other indebtedness of the undersigned (which, for the purposes of
this sentence, means the undersigned or any guarantor, surety or endorser of, or
any person or entity which has pledged any of its property to secure, any
Liabilities); complete or partial liquidation or suspension of any business of
the undersigned; dissolution, merger, consolidation or reorganization of the
undersigned; death of or loss of employment by any individual or any member of
any partnership (if the undersigned is an individual or a partnership); failure
to furnish any financial information or to permit inspection of any books or
records at the Bank's request; a representation, warranty or statement of the
undersigned proving false in any material respect when made or furnished;
general assignment for the benefit of creditors or insolvency of the
undersigned; commencement of any proceeding supplementary to any execution
relating to any judgment against the undersigned; attachment, distrait, levy,
execution or final judgment against the undersigned or against the property of
the undersigned; assignment by the undersigned of any equity in any of the
Collateral without the written consent of the Bank; appointment of a receiver,
conservator, rehabilitator or similar officer for the undersigned, or for any
property of the undersigned; tax assessment by the United States Government or
any state or political subdivision thereof against the undersigned; the taking
of possession of, or assumption of control over, all or any substantial part of
the property of the undersigned by the United States Government, or any state or
political subdivision thereof, foreign government (de facto or de jure) or any
agency of any thereof; calling of a meeting of creditors, assignment for the
benefit of creditors or bulk sale or notice thereof; any mortgage, pledge of or
creation of a security interest in any assets without the consent of the holder
of this note; filing of a petition in bankruptcy, commencement of any proceeding
under any bankruptcy or debtor's law (or similar law analogous in purpose or
effect) for the relief, reorganization, composition, extension, arrangement or
readjustment of any of the obligations by or against the undersigned; then, and
in any of those events (each, an "Event of Default"), all Liabilities, although
otherwise unmatured or contingent, shall for with become due and payable without
notice or demand and notwithstanding anything to the contrary contained herein
or in any other instrument. Further, acceptance of any payments shall not waive
or affect any prior demand or acceleration of these Liabilities, and each such
payment made shall be applied first to the payment of accrued interest, then to
the aggregate unpaid principal or otherwise as determined by the Bank in its
sole discretion. The undersigned hereby irrevocably consents to the in personam
jurisdiction of the federal and/or state courts located within the State of New
York over controversies arising from or relating to this note or the Liabilities
and IRREVOCABLY WAIVES TRIAL BY JURY and the right to interpose any counterclaim
or offset of any nature in any such litigation. The undersigned further
irrevocably waives presentment, demand, protest, notice of dishonor and all
other notices or demands of any kind in connection with this note or any
Liabilities. The undersigned shall be jointly and severally liable hereon.
The Bank may, at its option, at any time when in the judgment of the
Bank the Collateral is inadequate or the Bank deems itself insecure, or upon or
at any time after the occurrence of an Event of Default, proceed to enforce
payment of the same and exercise any of or all rights and remedies afforded the
Bank by the Uniform Commercial Code (the "Code") or otherwise possessed by the
Bank. Any requirement of the Code for reasonable notice to the undersigned shall
be deemed to have been complied with is such notice is mailed, postage prepaid,
to the undersigned and such other persons entitled to notice, at the addresses
shown on the records of the Bank at least four (4) days prior to the time of
sale, disposition or other event requiring notice under the Code.
The undersigned agrees to pay to the Bank, as soon as incurred, all
costs and expenses incidental to the care, preservation, processing, sale or
collection of or realization upon any of or all the Collateral or incurred in
connection with the enforcement or collection of this note, or in any way
relating to the rights of the Bank hereunder, including reasonable inside or
outside counsel fees and expenses. Each and every right and remedy hereby
granted to the Bank or allowed to it by law shall be cumulative and not
exclusive and each may be exercised by the Bank from time to time and as often
as may necessary. The undersigned shall have the sole responsibility for
notifying the Bank in writing that the undersigned wishes to take advantage of
any redemption, conversion or other similar right with respect to any of the
Collateral. The Bank may
<PAGE> 2
release any party (including any partner or any undersigned) without notice to
any of the undersigned, whether as co-makers, endorsers, guarantors, sureties,
assigns or otherwise, without affecting the liability of any of undersigned
hereof or any partner of any undersigned hereof.
Upon any transfer of this note, the undersigned hereby waiving notice of
any such transfer, the Bank may deliver the Collateral or any part thereof to
the transferee who shall thereupon become vested with all the rights herein or
under applicable law given to the Bank with respect thereto and the Bank shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the manner; but the Bank shall retain all rights hereby given
to it with respect to any Liabilities and Collateral not so transferred. No
modification or waiver of any of the provisions of this note shall be effective
unless in writing, signed by the Bank, and only to the extent therein set forth;
nor shall any such waiver be applicable except in the specific instance for
which given. This agreement sets forth the entire understanding of the parties,
and the undersigned acknowledges that no oral or other agreements, conditions,
promises, understanding, representations or warranties exist in regard to the
obligations hereunder, except those specifically set forth herein.
If the undersigned is a partnership, the agreement herein contained shall
remain in force and applicable, notwithstanding any changes in the individuals
composing the partnership or any release of any partner or partners and their
partners shall not thereby be released from any liability. If this note is
signed by more than one party, the terms "undersigned", as used herein, shall
include mean the "undersigned and each of them" and each undertaking herein
contained shall be their joint and several undertaking, provided, however, that
in the phrases "of the undersigned", "by the undersigned", "against the
undersigned", "for the undersigned", "to the undersigned", and "on the
undersigned", the term "undersigned" shall mean the "undersigned or any of
them"; and the Bank may release or exchange any of the Collateral belonging to
any of the parties hereto and it may renew or extend any of the liabilities of
any of them and may take additional advances or extensions of credit to any of
them or release or fail to set off any deposit account or credit to any of them
or grant other indulgences to any of them, all from time to time, before or
after maturity hereof, with or without further notice to or assent form any of
the other parties hereto. Each reference herein to the Bank shall be deemed to
include its successors, endorsees and assigns, in whose favor the provisions
hereof shall also insure. Each reference herein to the undersigned shall be
deemed to include the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned, all of whom shall be bound by the
provisions hereof.
The provisions of this note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York, and, as to interest rates, applicable Federal law.
/s/ Melissa Turner Goett /s/ Vincent W. Goett
- ------------------------------------ ------------------------------------
Melissa Turner Goett Vincent W. Goett
Address: Address:
--------------------------- ---------------------------
<PAGE> 1
Exhibit: 10.53FT
PROMISSORY NOTE AGREEMENT
FOR $2.0 MILLION LOAN
TO FUTECH INTERACTIVE PRODUCTS, INC.
FROM MELISSA TURNER GOETT AND VINCENT W. GOETT
8/10/1998 Phoenix, Arizona
This Agreement is made and entered into on the date set forth above, by
and between, MELISSA TURNER GOETT ("MTG") and VINCENT W. GOETT ("GOETT")
(jointly known as "PAYEE") and FUTECH INTERACTIVE PRODUCTS, INC. ("PROMISOR").
The purpose of this Agreement is to arrange for a short-term operating loan by
Payee to Promisor and the resulting repayment of principal, interest and shares
of common stock.
RECITAL:
Subject to the terms and conditions of this Agreement:
1. Payee desires and is willing to provide up to a $2.0 million loan
("Loan") to Promisor for repayment of PRINCIPAL AND INTEREST at an
annual interest rate of 10%. The term of the loan is for 12 months
starting on the first day of the first succeeding month after the loan
is received, in part or in full, by Promisor.
2. Upon maturity, Promisor will repay principal and interest calculated as
of that date. If full payment of the Loan is not made at that time,
interest will continue to accrue at an annual rate of interest of 16%.
There is no penalty for prepayment of the loan.
3. Payee reserves the right to convert all or a portion or the outstanding
principal and interest due and owing to shares of common stock of
Promisor. The conversion rate will be 20 shares of the Promisor's
common stock for every one dollar of principal plus interest
outstanding. The Payee may elect to exercise this conversion option at
anytime prior to the maturity date of the Loan or up to 180 days after
the Loan's maturity date if the Promisor has not been able to fulfill
the outstanding obligation monetarily. The only restriction is the
Promisor's number of unencumbered shares available for distribution.
4. In addition to the $2.0 million in principal plus accrued interest that
will be due and owing by Promisor to the Payee, or as designated by
Payee, the Promisor agrees to provide 8.0 million options for the
purchase of Promisor's common stock. The options are granted at an
exercise price of $0.05 per share, the options become exercisable one
year from the execution date of this Agreement and expire five years
from the exercise date. The stock options will be issued to Palmilla
Management Trust ("PMT").
5. The sum of $200,000.00 will be provided to Goett as a shareholder
advance/loan as approved by the Shareholder Loan and Master Promissory
Note for Credit Line Agreement dated January 1, 1997. This amount shall
be payable to Goett immediately upon receipt of the Loan proceeds.
6. Promisor desires to receive Loan under all the repayment terms and
conditions.
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NOW, THEREFORE, in consideration of the Agreement, covenants, and
undertakings contained below, it is mutually agreed as follows:
1. Payee agrees to arrange for and provide to Promisor a $2.0 million loan
per the terms and conditions previously stated.
2. Promisor agrees to receive the $2.0 million loan from Payee and to
repay all monies, stock options and shareholder advances/loans per the
terms and conditions of this Agreement.
REPRESENTATIONS OF PAYEE AND PALMILLA MANAGEMENT TRUST
Payee and PMT represent, warrant and covenant as follows:
1. Payee and PMT are familiar with the business and affairs of Promisor
and realize an investment in the shares involves a high degree of risk.
2. Payee and PMT have been advised that there will be no public market
for the shares; it may not be able to readily liquidate its investment, the
shares have not been registered or qualified under Federal or State laws
governing the issuance of securities; and Promisor has no current intention of
registering the shares or reporting under the Act or any comparable or related
Federal or State law.
3. Payee and PMT are accredited investors and acknowledge that its
overall commitment to investments which are not readily marketable is not
disproportionate to its net worth; and its investment in the shares will not
cause such overall commitment to become excessive; that Payee and PMT have
adequate means of providing for its current needs and personal contingencies,
and has no need for liquidity of this investment; that Payee and PMT have
evaluated the risk of investing in Promisor; that Payee and PMT are aware of the
financial risks and possible financial hazards of purchasing the shares and it
has carefully considered these risks of the investment, including the
possibility of a complete loss thereof.
4. Payee and PMT agree the stock is subject to a Stock Restrictions and
Sale Agreement. The shares acquired under this Agreement shall be subject to
that Stock Restrictions and Sale Agreement, as it may be amended from time to
time.
SURVIVAL
The representations, warranties and covenants contained in the section
Representations of Payee and PMT shall survive the transfer of the shares.
ATTORNEYS' FEES
The prevailing party in any action to enforce the terms and conditions
hereof shall be entitled to recover its reasonable attorneys' fees and court
costs.
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<PAGE> 3
CONSTRUCTION
Where the context of this Agreement requires, the singular shall be
construed as the plural, and neuter pronouns shall be construed as masculine and
feminine pronouns, and vice versa. This Agreement shall be construed according
to its fair meaning and neither for nor against any party hereto. This Agreement
shall be governed by and construed in accordance with Arizona law.
Futech Interactive Products, Inc. ("Promisor")
/s/ Vincent W. Goett
- -------------------------------
Vincent W. Goett
Chairman and CEO
This Agreement consists of a total of 3 pages
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<PAGE> 1
Exhibit: 10.54FT
[LOGO BANK OF AMERICA] Business Loan Agreement
This Agreement dated as of December 1, 1998 is between Bank of America National
Trust and Savings Association (the "Bank") and Futech Interactive Products, Inc.
(the "Borrower").
1. AMOUNT AND TERMS.
1.1 LINE OF CREDIT AMOUNT. During the availability period described below, the
Bank will provide a line of credit to the Borrower. The amount of the line of
credit (the "Commitment") is Seven Million and No/100 Dollars ($7,000,000.00).
This is a revolving line of credit with a within line facility for letters of
credit. During the availability period, the Borrower may repay principal amounts
and reborrow them.
The Borrower agrees not to permit the outstanding principal balance of the line
of credit plus the outstanding amounts of any letters of credit, including
amounts drawn on letters of credit and not yet reimbursed, to exceed the
Commitment.
1.2 AVAILABILITY. The line of credit is available between the date of this
Agreement and December 1, 2000 (the "Expiration Date") unless the Borrower is in
default.
1.3 INTEREST RATE.
The interest rate is the Reference Rate plus 1.00 percentage point(s).
The Reference Rate is the rate of interest publicly announced from time to time
by the Bank in San Francisco, California, as its Reference Rate. The Reference
Rate is set by the Bank based on various factors, including the Bank's costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans to its
customers at, above or below the Reference Rate. Any change in the Reference
Rate shall take effect at the opening of business on the day specified in the
public announcement of a change in the Bank's Reference Rate.
1.4 REPAYMENT.
(a) The Borrower will pay interest on January 1, 1999 and on the first day of
each month thereafter until payment in full of any principal outstanding under
this line of credit. (b) The Borrower will repay in full all principal and any
unpaid interest or other charges outstanding under this line of credit no later
than the Expiration Date
1.5 LETTERS OF CREDIT. This line of credit may be used for financing standby
letters or commercial letters of credit with a maximum maturity of December 1,
2000.
The amount of letters of credit outstanding at any one time (including amounts
drawn on letters of credit and not yet reimbursed) may not exceed One Million
and No/100 Dollars ($1,000,000.00) for standby and commercial letters of credit.
The Borrower agrees: (a) any sum drawn under a letter of credit may, at the
option of the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described elsewhere in
this Agreement. (b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters of credit. (c) the
issuance of any letter of credit and any amendment to a letter of credit is
subject to the Bank's written approval and must be in form and content
satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Commercial Letter of
Credit or Application and Agreement for Standby Letter of Credit. (e) to pay any
issuance and/or other fees that the Bank notifies the Borrower will be charged
for issuing and processing letters of credit for the Borrower. (f) to allow the
Bank to automatically charge its checking account for applicable fees,
discounts, and other charges.
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<PAGE> 2
2. FEES AND EXPENSES.
2.1 (a) LOAN FEE. The Borrower agrees to pay a Seventy Thousand and No/100
Dollar ($70,000.00) fee due upon execution of this Agreement.
(b) UNUSED COMMITMENT FEE. The Borrower agrees to pay a fee on any difference
between the Commitment and the amount of credit it actually uses, determined by
the weighted average loan balance maintained during the specified period. The
fee will be calculated at 1/8% per year.
This fee is due on February 28, 1999 and on the last day of each May, August,
November, and February until the expiration of the availability period.
2.2 REIMBURSEMENT COST. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 TELEPHONE AND TELEFAX AUTHORIZATION. (a) The Bank may honor telephone or
telefax instructions for advances or repayments or the issuance of letters of
credit given by any one of the individual signer(s) of this Agreement or a
person or persons authorized in writing by any one of the signer(s) of this
Agreement. (b) Advances will be deposited in and repayments will be withdrawn
from the Borrower's account number _____________________, or such other of the
Borrower's accounts with the Bank as designated in writing by the Borrower. (c)
The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection with
any act resulting from telephone instructions it reasonably believes are made by
any individual authorized by the Borrower to give such instructions. This
indemnity and excuse will survive this Agreement's termination.
3.2 INTEREST CALCULATION. All interest and fees, if any, will be computed on the
basis of a 360 day year and the actual number of days elapsed. This results in
more interest or a higher fee than if a 365-day year is used,
3.3 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Reference Rate plus 5.00 percentage points.
This may result in compounding of interest.
3.4 DEFAULT RATE. Upon the occurrence and during the continuation of any default
under this Agreement, advances under this Agreement will at the option of the
Bank bear interest at a rate per annum which is 5.00 percentage points higher
than the rate of interest otherwise provided under this Agreement. This will not
constitute a waiver of any default.
4. CONDITIONS The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrower under this Agreement.
4.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by the
Borrower (and any guarantors) of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
4.2 GUARANTIES. Guaranties signed by F. Keith Withycombe and Patricia A.
Withycombe and Vincent W. Goett and Melissa Turner Goett on the Bank's standard
form in an amount as may be acceptable, from time to time, to the Bank.
5. REPRESENTATIONS AND WARRANTIES When the Borrower signs this Agreement, and
until the Bank is repaid in full, the Borrower makes the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation. (a) The Borrower is a corporation duly
formed and existing under the laws of the state where organized. (b) This
Agreement, and any instrument or agreement required hereunder, are within the
Borrower's powers, have been duly authorized, and do not conflict with any of
its organizational papers. (c) This Agreement, and each other agreement or
document executed and delivered to the Bank in connection with this
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<PAGE> 3
Agreement. is a legal, valid and binding agreement of the Borrower, enforceable
against the Borrower in accordance with its terms, and any instrument or
agreement required hereunder, when executed and delivered, will be similarly
legal, valid, binding and enforceable. (d) In each state in which the Borrower
does business, it is properly licensed, in good standing, and, where required,
in compliance with fictitious name statutes. (e) This Agreement does not
conflict with any law, agreement, or obligation by which the Borrower is bound.
(f) All financial and other information that has been or will be supplied to the
Bank is: (i) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantors) financial condition. (ii) in form and content
required by the Bank. (iii) in compliance with all government regulations that
apply. (g) There is no lawsuit, tax claim or other dispute pending or threatened
against the Borrower, which, if lost, would impair the Borrower's financial
condition or ability to repay the loan, except as have been disclosed in writing
to the Bank prior to the date of this Agreement (h) The Borrower possesses all
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable it to conduct the business in which it is now engaged. (i)
There is no event which is, or with notice or lapse of time or both would be, a
default under this Agreement. (j) The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
(k) on the basis of a comprehensive review and assessment of Borrower's systems
and equipment and inquiry made of Borrower's material suppliers, vendors and
customers Borrower's management is of the view that the "Year 2000 problem"
(that is, the inability of computers, as well as embedded microchips in
non-computing devices, to perform properly date-sensitive functions with respect
to certain dates prior to and after December 31, 1999), including costs of
remediation, will not result in a material adverse change in the operations,
business properties, condition (financial or otherwise) of Borrower. Borrower
has developed feasible contingency plans to adequately ensure uninterrupted and
unimpaired business operation in the event of failure of its own or a third
party's systems or equipment due to the Year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure.
6. COVENANTS The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full:
6.1 USE OF PROCEEDS. To use the proceeds of the credit only for working capital
financing and the issuance of standby letters of credit.
6.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be
audited by a Certified Public Accountant ("CPA") acceptable to the
Bank.
(b) Each guarantor's annual budgeted statement of sources and uses of
cash flows within 90 days of each calendar year end. These financial
statements may be guarantor prepared.
(c) Each guarantor's annual financial statements in form satisfactory to
the Bank within 90 days of each calendar year end. These financial
statements may be guarantor prepared.
(d) Copies of each guarantor's federal income tax return (with all forms
K-1 attached) within 30 days of filing, together with a statement of
any contributions made by the guarantor to any subchapter S
corporation or trust, and copies of any extensions of the filing
date.
(e) Within 60 days of each quarter end, the Borrower shall provide to the
Bank copies of statements from depository institutions or brokerage
firms, or other evidence acceptable to the Bank of the Borrowers
liquid assets.
6.3 LIQUIDITY. Guarantors shall each maintain liquid assets equal to at least
Fourteen Million and No/100 Dollars ($14,000,000.00) (includes the liquidity
requirement as contained in the Second Amendment to the Individual Loan
Agreement between Vincent W. Goett and Melissa A. Goett and Bank of America
National Trust and Savings Association, dated 1998,
paragraph 7.6). "Liquid assets" means the following assets of the Guarantor's:
(a) cash and certificates of deposit; (b) U.S. treasury bills and other
obligations of the federal government; (c) readily marketable securities
(including commercial paper, but excluding restricted stock and stock subject to
the provisions of Rule 144 of the Securities and Exchange Commission); (c) for
F. Keith Withycombe and Patricia A.
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<PAGE> 4
Withycombe, directly owned operating partnership units in equity residential
properties; and (d) for Vincent W. Goett and Melissa Turner Goett, Futech stock,
options and notes.
If more than 25% of the value of the Guarantors' liquid assets is represented by
margin stock, the Borrower will provide the Bank a Form U-1 Purpose Statement,
and the Bank and the Borrower will comply with the restrictions imposed by
Regulation U of the Federal Reserve, which may require a reduction in the amount
of credit provided to the Borrower.
6.4 OTHER DEBTS (BORROWER AND GUARANTORS). Not to have outstanding or incur any
direct or contingent debts or lease obligations (other than those to the Bank),
or become liable for the debts of others without the Bank's written consent.
This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal
trade credit. (b) Endorsing negotiable instruments received in the usual course
of business. (c) Obtaining surety bonds in the usual course of business. (d)
Debts and lines of credit in existence on the date of this Agreement disclosed
in writing to the Bank. (e) F. Keith Withycombe will not create, incur, assume
or become liable in any manner for any indebtedness (as surety or guarantor for
the debt for another, or otherwise) other than to Bank, in excess of Ten Million
and No/100 Dollars ($10,000,000.00) in aggregate, excluding permanent secured
financing of real estate property. (f) Vincent W. Goett will not create, incur,
assume or become liable in any manner for any indebtedness (as surety or
guarantor for the debt for another, or otherwise) other than to Bank, in excess
of: Three Million and No/100 Dollars ($3,000,000.00) in aggregate, excluding
permanent secured real estate property.
6.5 OTHER LIENS (BORROWER AND GUARANTORS). Not to create, assume, or allow any
security interest or lien (including judicial liens) on property the Borrower
now or later owns, except: (a) Deeds of trust and security agreements in favor
of the Bank. (b) Liens for taxes not yet due. (c) Liens outstanding on the date
of this Agreement disclosed in writing to the Bank. (d) Additional liens for F.
Keith Withycombe, which together with the debts permitted under preceding
paragraph 6.4 (e), secure obligations in a total principal amount not exceeding
Ten Million and No/100 Dollars ($10,000,000.00). (e) Additional liens for
Vincent W. Goett, which together with the debts permitted under the preceding
paragraph 6.4 (0, secure obligations in a total principal amount not exceeding
Three Million and No/100 Dollars ($3,000,000.00).
6.6 NOTICES TO BANK. To promptly notify the Bank in writing of: (a) any lawsuit
over Fifty Thousand and No/100 Dollars ($50,000.00) against the Borrower (or any
guarantor). (b) any substantial dispute between the Borrower (or any guarantor)
and any government authority. (c) any failure to comply with this Agreement. (d)
any material adverse change in the Borrower's (or any guarantor's) financial
condition or operations. (e) any change in the Borrower's name, legal structure,
place of business, or chief executive office if the Borrower has more than one
place of business.
6.7 CHANGE OF OWNERSHIP. Guarantors not to cause, permit, or suffer any change,
direct or indirect, in the Borrower's capital ownership.
6.8 BOOKS AND RECORDS. To maintain adequate books and records.
6.9 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
6.10 COMPLIANCE WITH LAWS. To comply with the laws, (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
6.11 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
6.12 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
6.13 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
6.14 INSURANCE. To maintain insurance as is usual for the business it is in.
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<PAGE> 5
6.15 ADDITIONAL NEGATIVE COVENANTS (BORROWER AND GUARANTORS). Not to, without
the Bank's written consent: (a) engage in any business activities substantially
different from the Borrower's present business: (b) liquidate or dissolve the
Borrower's business; (c) enter into any consolidation, merger, pool, joint
venture, syndicate, or other combination: (d) acquire or purchase a business or
its assets; or (e) sell or otherwise dispose of any assets for less than fair
market value or enter into any sale and leaseback agreement covering any of its
fixed or capital assets, except guarantors' annual charitable/trust
contributions not to exceed Ten Million and No/100 Dollars ($10,000,000.00) for
F. Keith Withycombe and Three Million and No/100 Dollars ($3,000,000.00) for
Vincent W. Goett in total when combined with the preceding paragraphs 6.4 (e)
and (f) and 6.5 (d) and (e).
7. DEFAULT If any of the following events occur, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event of default occurs under
the paragraph entitled "Bankruptcy" below with respect to the Borrower, the
entire debt outstanding under this Agreement will automatically be due
immediately.
7.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
7.2 FALSE INFORMATION. The Borrower (or any guarantor) has given the Bank false
or misleading information or representations.
7.3 DEATH. The Borrower (or any guarantor) dies; if the Borrower is a
corporation, any principal officer or majority stockholder dies.
7.4 BANKRUPTCY. The Borrower (or any guarantor or general partner of the
Borrower) files a bankruptcy petition, a bankruptcy petition is filed against
the Borrower (or any guarantor or general partner of the Borrower), or the
Borrower (or any guarantor or general partner of the Borrower) makes a general
assignment for the benefit of creditors.
7.5 RECEIVERS. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
7.6 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
7.7 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's
(or any guarantor's) financial condition, properties or prospects, or ability to
repay the extensions of credit under this Agreement.
7.8 CROSS-DEFAULT. Any default occurs under any agreement in connection with any
credit the Borrower (or any guarantor) has obtained from anyone else or which
the Borrower (or any guarantor) has guaranteed.
7.9 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
7.10 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or guarantor) has with the Bank or any affiliate of the Bank.
7.11 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions of,
or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article
8. ENFORCING THIS AGREEMENT; MISCELLANEOUS
8.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
8.2 ARIZONA LAW. This Agreement is governed by Arizona law.
8.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the
Bank's successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent.
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8.4 ARBITRATION. (a) Unless expressly prohibited by law, any controversy or
claim between or among the parties, including but not limited to those arising
out of or relating to this Agreement or any agreements or instruments relating
hereto or delivered in connection herewith and any claim based on or arising
from an alleged tort, shall at the request of any party be determined by
arbitration. The arbitration shall be conducted in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrator(s) shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief. (b) No
provision of this paragraph shall limit the right of any party to this Agreement
to exercise self-help remedies such as setoff, to foreclose against or sell any
real or personal property collateral or security, or to obtain provisional or
ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration or other proceeding. The exercise of a
remedy does not waive the right of either party to resort to arbitration. At the
Bank's option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or by judicial
foreclosure of the deed of trust or mortgage.
8.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable, the
rest of the Agreement may be enforced. The Bank retains all rights, even if it
makes a loan after default. If the Bank waives a default, it may enforce a later
default. Any consent or waiver under this Agreement must be in writing.
8.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement.
8.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this paragraph, "attorneys' fees" includes the allocated costs of
in-house counsel.
8.8 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively: (a) represent the sum of the
understandings and agreements between the Bank and the Borrower concerning this
credit, and (b) replace any prior oral or written agreements between the Bank
and the Borrower concerning this credit; and (c) are intended by the Bank and
the Borrower as the final, complete and exclusive statement of the terms agreed
to by them. In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail.
8.9 USURY LAWS. This paragraph covers the transactions described in this
Agreement and any other agreements with the Bank or its affiliates executed in
connection with this Agreement, to the extent they are subject to the Arizona
usury laws (the "Transactions"). The Borrower understands and believes that the
Transactions comply with the Arizona usury laws. However, if any interest or
other charges paid or payable in connection with the Transactions are ever
determined to exceed the maximum amount permitted by law, the Borrower agrees
that:
(a) the amount of interest or other charges payable by the Borrower
pursuant to the Transactions shall be reduced to the maximum amount
permitted by law; and
(b) any excess amount previously collected from the Borrower in connection
with the Transactions which exceeded the maximum amount permitted by
law will be credited against the then outstanding principal balance. If
the outstanding principal balance has been repaid in full, the excess
amount paid will be refunded to the Borrower.
6
<PAGE> 7
All fees, charges, goods, things in action or any other sums or things of value,
other than interest at the interest rate described in this Agreement, paid or
payable by the Borrower (collectively the "Additional Sums"), that may be deemed
to be interest with respect to the Transactions, shall, for the purpose of any
laws of the State of Arizona that may limit the maximum amount of interest to be
charged with respect to the Transactions, be payable by Borrower as, and shall
be deemed to be, additional interest. For such purposes only, the agreed upon
and "contracted for rate of interest" of the Transactions shall be deemed to be
increased by the rate of interest resulting from the Additional Sums.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
/s/ Deborah L. Kelly
- ------------------------------------
By: Deborah L. Kelly, Vice President
Address where notices to the Bank
are to be sent:
101 North 1st Avenue
Phoenix, Arizona 85003
FUTECH INTERACTIVE PRODUCTS, INC.
/s/ Vincent W. Goett
- ----------------------------------
By: Vincent W. Goett, President
Address where notices to Borrower
are to be sent:
2999 North 44th Street, Suite #225
Phoenix, Arizona 85018
7
<PAGE> 8
[LOGO BANK OF AMERICA] CORPORATE RESOLUTIONS TO OBTAIN CREDIT
RESOLVED, that this corporation, Futech Interactive Products, Inc., may:
1 borrow money from Bank of America National Trust and Savings
Association and any other subsidiary or affiliate of BankAmerica
Corporation (collectively, "Bank");
2. obtain for the account of this corporation commercial and standby
letters of credit issued by Bank;
3. obtain for the account of this corporation Bank's acceptance of drafts
and other instruments; and
4. discount with or sell to Bank notes, acceptances, drafts, receivables
and other evidences of indebtedness, and assign or otherwise transfer
to Bank any security interest or lien for such obligations;
from time to time, in such amount or amounts as in the judgment of the
Authorized Officers (as hereinafter defined) this corporation may require (the
credit facilities described in the first part of this resolution are
collectively referred to herein as the "Credit Facilities"); provided, however,
that the aggregate principal amount outstanding at any one time under the Credit
Facilities authorized by this resolution shall not exceed the sum of Seven
Million and No/100 Dollars ($7,000,000.00), which sum shall be in addition to
such other amount or amounts as otherwise may be authorized.
RESOLVED FURTHER, that the Authorized Officers are hereby authorized and
directed, as security for any obligation or obligations of this corporation to
Bank, whether arising pursuant to these Resolutions or otherwise, to grant in
favor of Bank a security interest in or lien on any real or personal property
belonging to or under the control of this corporation.
RESOLVED FURTHER, that
1. If only one signature is obtained, any one of the following:
a. Vincent W. Goett, President
b.
c.
d.
2. If two signatures are obtained, any one of the following:
a.
b.
c.
d.
together with any one of the following:
e.
f.
g.
h.
of this corporation, acting individually or in any combination as may be set
forth above (the "Authorized Officers"), are hereby authorized and directed, in
the name of this corporation, to execute and deliver to Bank, and Bank is
requested to accept:
a. the notes, credit agreements, advance account agreements, acceptance
agreements, letter of credit applications and agreements, purchase
agreements or other instruments, agreements and documents which
evidence the obligations of this corporation under the Credit
Facilities obtained or to be obtained pursuant to these resolutions;
b. any and all security agreements, deeds of trust, mortgages, financing
statements, fixture filings or other instruments, agreements and
documents with respect to any security interest or lien authorized to
be given
1
<PAGE> 9
pursuant to these resolutions; and
c. any other instruments, agreements and documents as Bank may require and
the Authorized Officers may approve.
RESOLVED FURTHER, that the Authorized Officers are hereby authorized and
directed, in the name of this Corporation, to endorse, assign to Bank, and
deliver to Bank, any and all notes, acceptances, drafts, receivables and other
evidences of indebtedness discounted with or sold to Bank, together with any
security interest or lien for such obligations, and to guarantee the payment of
the same to Bank.
RESOLVED FURTHER, that any and all of the instruments, agreements and documents
referred to above may contain such recitals, covenants, agreements and other
provisions as Bank may require and the Authorized Officers may approve, and the
execution of such instruments, agreements and documents by the authorized
officers shall be conclusive evidence of such approval, and that the Authorized
Officers are authorized from time to time to execute renewals or extensions of
any and all such instruments, agreements and documents.
RESOLVED FURTHER, that Bank is authorized to act upon the foregoing resolutions
until written notice of revocation is received by Bank, and that the authority
hereby granted shall apply with equal force and effect to the successors in
office of the Authorized Officers.
CORPORATE SECRETARY'S CERTIFICATE
I, Fred B. Gretsch, Secretary of Futech Interactive Products, Inc., a
corporation organized and existing under the laws of the State of Arizona (the
"Corporation"), hereby certify that the foregoing is a full, true and correct
copy of resolutions of the Board of Directors of the Corporation, duly and
regularly adopted by the Board of Directors of the Corporation in all respects
as required by law and the by-laws of the Corporation on November 24, 1998, at a
meeting at which a quorum of the Board of Directors of the Corporation was
present and the requisite number of such directors voted in favor of said
resolutions, or by the unanimous consent in writing of all members of the Board
of Directors of the Corporation to the adoption of said resolutions.
I further certify that said resolutions are still in full force and effect and
have not been amended or revoked, and that the specimen signatures appearing
below are the signatures of the officers authorized to sign for the Corporation
by virtue of such resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as Secretary of the Corporation,
and affixed the corporate seal of the Corporation (if required by the laws of
the jurisdiction in which the Corporation is incorporated), on
?????? , 1998.
- ----------
AUTHORIZED SIGNATURES:
/s/ Vincent W. Goett
- ---------------------------
Vincent W. Goett, President
/s/ Fred B. Gretsch
- ---------------------------------
Fred B. Gretsch, Secretary of
Futech Interactive Products, Inc.
An Arizona Corporation
Affix Corporate Seal Here
<PAGE> 10
[LOGO BANK OF AMERICA]
F.R. U-1
This form is required by law
(15 U.S.C. 78g and 78w; 12 CFR 221).
O.M.B. No. 7100-0115
Approval Expires July 31, 1998
Board of Governors of the Federal Reserve System
Statement of Purpose for an Extension of Credit Secured by Margin Stock
Bank of America National Trust and Savings Association
(FEDERAL RESERVE FORM U-1)
Instructions:
(1) This form must be completed when a bank extends credit secured directly
or indirectly, in whole or in part, by any margin stock.
(2) The term "margin stock" is defined in Regulation U (12 CFR 221) and
includes, principally: (1) stocks that are registered on a national
securities exchange or that are on the Federal Reserve Board's List of
OTC Margin Stocks; (2) debt securities (bonds) that are convertible
into margin stocks; and (3) shares of mutual funds, unless 95 per cent
of the assets of the fund are continuously invested in U.S. government,
agency, State, or municipal obligations.
(3) Please print or type (if space is inadequate, attach separate sheet).
PART I To be completed by borrower(s)
(1) What is the amount of the credit being extended? $7,000,000.00
(2) Will any part of this credit be used to purchase or carry margin stock?
[ ] Yes [X] No
If the answer is "no," describe the specific purpose of the credit:
Proceeds of the credit will be used for working capital financing and
the issuance of standby letters of credit.
I (we) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and complete, and that the
margin stock and any other securities collateralizing this credit are authentic,
genuine, unaltered, and not stolen, forged, or counterfeit.
Date:
Futech Interactive Products, Inc.
Signed: /s/ Vincent W. Goett
- ---------------------------------
Vincent W. Goett, President
THIS FORM SHOULD NOT BE SIGNED IN BLANK
A Borrower who falsely certifies the purpose of a
credit on this form or otherwise willfully or
intentionally evades the provisions of Regulation U
will also violate Federal Reserve Regulation X, "Rules Governing Borrowers
Who Obtain Securities Credit"
1
<PAGE> 11
PART II To be completed by bank only if the purpose of the credit is to purchase
or carry margin stock (Part 1(2) answered "yes").
(1) List the margin stock securing this credit: do not include debt
securities convertible into margin stock. The maximum loan value of
margin stock is per cent of its current market value under the
current Supplement to Regulation U.
<TABLE>
<CAPTION>
Date and source
Market Price of valuation Total market
No. of Shares Issue per share (see note below) value per issue
------------- ----- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
(2) List the debt securities convertible into margin stock securing this
credit. The maximum loan value of such debt securities is per
cent of the current market value under the current Supplement to
Regulation U.
<TABLE>
<CAPTION>
Date and source
of valuation Total market
Principal Amount Issue Market Price (see note below) value per issue
---------------- ----- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
(3) List other collateral including non-margin stock securing this credit.
<TABLE>
<CAPTION>
Date and source
of valuation Good faith
Describe Briefly Market Price (see note below) loan value
---------------- ------------ ---------------- ----------
<S> <C> <C> <C>
</TABLE>
Note: Bank need not complete "Date and source of valuation" if the market value
was obtained from regularly published information in a journal of general
circulation.
2
<PAGE> 12
PART III To be signed by a bank officer in all instances
I am a duly authorized officer of the bank and understand that this
credit secured by margin stock may be subject to the credit restrictions of
Regulation U. I have read this form and any attachments, and I have accepted the
customer's statement in Part I in good faith as required by Regulation U**, and
I certify that to the best of my knowledge and belief, all the information given
is true, accurate, and complete. I also certify that if any securities that
directly secure the credit are not or will not be registered in the name of the
borrower or its nominee, I have or will cause to have examined the written
consent of the registered owner to pledge such securities. I further certify
that any securities that have been or will be physically delivered to the bank
in connection with this credit have been or will be examined, that all
validation procedures required by bank policy and the Securities Exchange Act of
1934 (section 17(f) as amended) have been or will be performed, and that I am
satisfied to the best of my knowledge and belief that such securities are
genuine and not stolen or forged and their faces have not been altered.
Date
By: Deborah L. Kelly, Vice President
**To accept the customer`s statement in good faith, the officer of the bank must
be alert to the circumstances surrounding the credit and, if in possession of
any information that would cause a prudent person not to accept the statement
without inquiry, must have investigated and be satisfied that the statement is
truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party.
This Form must be retained by the Bank for at Least Three Years
after the Credit is Extinguished
3
<PAGE> 13
[LOGO BANK OF AMERICA] CONTINUING GUARANTY
Borrowers: Futech Interactive Products, Inc.
Guarantors: Vincent W. Goett and
Melissa Turner Goett
(1) For valuable consideration, the undersigned ("Guarantors") jointly and
severally unconditionally guarantee and promise to pay to Bank of
America National Trust and Savings Association and any other subsidiary
or affiliate of BankAmerica Corporation which has extended or may
hereafter extend credit to Borrowers (each a "Bank"), or order, on
demand, in lawful money of the United States, any and all indebtedness
of Futech Interactive Products, Inc. ("Borrowers") to Bank. The word
"indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of
Borrowers or any one or more of them, heretofore, now, or hereafter
made, incurred or created, whether voluntary or involuntary and however
arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated
or unliquidated, determined or undetermined, and whether Borrowers may
be liable individually or jointly with others, or whether recovery upon
such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable.
(2) The liability of Guarantors under this Guaranty (exclusive of liability
under any other guaranties executed by Guarantors) shall not exceed at
any one time the total of (a) Seven Million and No/100 Dollars
($7,000,000.00), for the principal amount of the indebtedness and (b)
all interest, fees, and other costs and expenses relating to or arising
out of the indebtedness or such part of the indebtedness as shall not
exceed the foregoing limitation. Bank may permit the indebtedness of
Borrowers to exceed Guarantors' liability, and may apply any amounts
received from any source, other than from Guarantors, to the
unguaranteed portion of Borrowers' indebtedness. This is a Continuing
Guaranty relating to any indebtedness, including that arising under
successive transactions which shall either continue the indebtedness or
from time to time renew it after it has been satisfied. Any payment by
Guarantors shall not reduce their maximum obligation hereunder, unless
written notice to that effect be actually received by Bank at or prior
to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of the
obligations of Borrowers, and a separate action or actions may be
brought and prosecuted against Guarantors whether action is brought
against Borrowers or whether Borrowers be joined in any such action or
actions and regardless of whether a trustee's sale is held under any
deed of trust securing the indebtedness or regardless of whether a
judicial foreclosure sale is held if any deed of trust securing the
indebtedness is judicially foreclosed as a mortgage. Guarantors waive
the benefit of any statute of limitations affecting their liability
hereunder.
(4) Guarantors authorize Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before
or after revocation hereof, to (a) renew, compromise, extend,
accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including
increase or decrease of the rate of interest thereon; (b) receive and
hold security for the payment of this Guaranty or the indebtedness
guaranteed, and exchange, enforce, waive, release, fail to perfect,
sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine, except to the extent specifically prohibited
by law; and (d) release or substitute any one or more of the endorsers
or guarantors.
(5) Guarantors waive any right to require Bank to (a) proceed against
Borrowers; (b) proceed against or exhaust any security held from
Borrowers; or (c) pursue any other remedy in Bank's power whatsoever.
Guarantors waive any defense arising by reason of any disability or
other defense of Borrowers, or the cessation from any cause whatsoever
of the liability of Borrowers, or any claim that Guarantors'
obligations exceed or are more burdensome than those of Borrowers.
Guarantors waive any benefit of the provisions of Arizona Revised
Statutes Sections 12-1641 and 12-1642 et seq., and Rule 17(f) of the
Arizona Rules of Civil Procedures, which set forth certain rights and
obligations among guarantors, debtors and creditors, to the extent
applicable. Guarantors waive any right of subrogation, reimbursement,
indemnification, and contribution (contractual,
1
<PAGE> 14
any or otherwise), including without limitation, any claim or right of
subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or any
successor statute, arising from the existence or performance of this Guaranty
and Guarantors waive any fight to enforce any remedy which Bank now has or may
hereafter have against Borrowers, and waive any benefit of, and any right to
participate in, any security now or hereafter held by Bank. Bank may foreclose,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the indebtedness, and, even though the foreclosure may destroy or
diminish Guarantors' rights against Borrowers, Guarantors shall be liable to
Bank for any part of the indebtedness remaining unpaid after the foreclosure.
Guarantors waive any benefit of any statutory provision limiting the right of
Bank to recover a deficiency judgment, or to otherwise proceed, against any
person or entry obligated for payment of the indebtedness, after any judicial
foreclosure sale or trustee's sale of any collateral securing the indebtedness
including, without limitation, the benefits, if any, of Arizona Revised Statutes
Section 33-814, except to the extent otherwise required by law. Guarantors waive
any homestead or exemption rights. Guarantors waive all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new or additional indebtedness.
(6) Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from Borrowers such information concerning
Borrowers' financial conditions or business operations as Guarantors
may require, and that Bank has no duty at any time to disclose to
Guarantors any information relating to the business operations or
financial conditions of Borrowers.
(7) In addition to Bank's rights of setoff, to secure all of Guarantors'
obligations hereunder, Guarantors assign and grant to Bank a security
interest in all moneys, securities and other property of Guarantors now
or hereafter in the possession of Bank, and all deposit accounts of
Guarantors maintained with Bank, and all proceeds thereof. Upon default
or breach of any of Guarantors' obligations to Bank, Bank may apply any
deposit account to reduce the indebtedness, and may foreclose any
collateral as provided in the Uniform Commercial Code and in any
security agreements between Bank and Guarantors.
(8) Any obligations of Borrowers to Guarantors, now or hereafter existing,
including but not limited to any obligations to Guarantors as subrogees
of Bank or resulting from Guarantors' performance under this Guaranty,
are hereby subordinated to the indebtedness. Such obligations of
Borrowers to Guarantors if Bank so requests shall be enforced and
performance received by Guarantors as trustees for Bank and the
proceeds thereof shall be paid over to Bank on account of the
indebtedness of Borrowers to Bank, but without reducing or affecting in
any manner the liability of Guarantors under the provisions of this
Guaranty.
(9) This Guaranty may be revoked at any time by Guarantors in respect to
future transactions, unless there is a continuing consideration as to
such transactions which Guarantors do not renounce. Such revocation
shall be effective upon actual receipt by Bank at the address shown
below of written notice of revocation. Revocation shall not affect any
of Guarantors' obligations or Bank's rights with respect to
transactions which precede Bank's receipt of such notice, regardless of
whether or not the indebtedness related to such transactions, before or
after revocation, has been renewed, compromised, extended, accelerated,
or otherwise changed as to any of its terms, including time for payment
or increase or decrease of the rate of interest thereon, and regardless
of any other act or omission of Bank authorized hereunder. Revocation
by any one or more of Guarantors shall not affect any obligations of
any nonrevoking Guarantors. If this Guaranty is revoked, returned, or
canceled, and subsequently any payment or transfer of any interest in
property by Borrowers to Bank is rescinded or must be returned by Bank
to Borrowers, this Guaranty shall be reinstated with respect to any
such payment or transfer, regardless of any such prior revocation,
return, or cancellation.
(10) Where any one or more of Borrowers are corporations or partnerships it
is not necessary for Bank to inquire into the powers of Borrowers or of
the officers, directors, partners or agents acting or purporting to act
on their behalf, and any indebtedness made or created in reliance upon
the professed exercise of such powers shall be guaranteed hereunder.
(11) Bank may, without notice to Guarantors and without affecting
Guarantors' obligations hereunder, assign the indebtedness and this
Guaranty, in whole or in part. Guarantors agree that Bank may disclose
to any prospective purchaser and any purchaser of all or part of the
indebtedness any and all information in Bank's possession concerning
Guarantors, this Guaranty and any security for this Guaranty.
(12) Guarantors agree to pay all attorneys' fees, the allocated costs of
Bank's in-house counsel, and all other costs
2
<PAGE> 15
and expenses which may be incurred by Bank in the enforcement of this Guaranty,
including without limitation all costs and necessary disbursements in any legal
action or arbitration proceeding.
(13) Any married person who signs this Guaranty hereby expressly agrees that
recourse may be had against such person's separate property and
community property to the extent permitted by law for all obligations
under this Guaranty.
(14) Where there is but a single Borrower, or where a single Guarantor
executes this Guaranty, then all words used herein in the plural shall
be deemed to have been used in the singular where the context and
construction so require; and when there is more than one Borrower named
herein, or when this Guaranty is executed by more than one Guarantor,
the words "Borrowers" and "Guarantors" respectively shall mean all and
any one or more of them.
(15) This Guaranty shall be governed by and construed according to the laws
of the State of Arizona, to the jurisdiction of which the parties
hereto submit.
(16) (a) Any controversy or claim between or among the parties, including
but not limited to those arising out of or relating to this Guaranty or
any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged
tort, shall at the request of any party be determined by arbitration.
The arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Guaranty, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give
effect to statutes of limitation in determining any claim. Any
controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award
may be entered in any court having jurisdiction. The institution and
maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the
right of any party, including the plaintiff, to submit the controversy
or claim to arbitration if any other party contests such action for
judicial relief.
(b) No provision of this paragraph shall limit the right of any party
to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court
of competent jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not
waive the right of either party to resort to arbitration. At Bank's
option, foreclosure under a deed of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of
trust or mortgage or by judicial foreclosure.
Executed this 3 day of December, 1998.
-----------------
/s/ Vincent W. Goett
- --------------------------------------
Vincent W. Goett, Guarantor
6400 North 48th Street
Paradise Valley, Arizona 85253
Soc. Sec. No. or I.D. No.: ###-##-####
/s/ Melissa Turner Goett
- --------------------------------------
Melissa Turner Goett, Guarantor
6400 North 48th Street
Paradise Valley, Arizona 85253
Soc. Sec. No. or I.D. No.: ###-##-####
Address for notices to Bank:
Bank of America National Trust and Savings
Association
Private Banking, #9311
101 North 1st Avenue
Phoenix, Arizona 85003
3
<PAGE> 16
[LOGO] BANK OF AMERICA Continuing Guaranty
Borrowers: Futech Interactive Products, Inc.
Guarantors: F. Keith Withycombe and
Patricia A. Withycombe
(1) For valuable consideration, the undersigned ("Guarantors") jointly and
severally unconditionally guarantee and promise to pay to Bank of
America National Trust and Savings Association and any other subsidiary
or affiliate of BankAmerica Corporation which has extended or may
hereafter extend credit to Borrowers (each a "Bank"), or order, on
demand, in lawful money of the United States, any and all indebtedness
of Futech Interactive Products, Inc. ("Borrowers") to Bank. The word
"indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of
Borrowers or any one or more of them, heretofore, now, or hereafter
made, incurred or created, whether voluntary or involuntary and however
arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated
or unliquidated, determined or undetermined, and whether Borrowers may
be liable individually or jointly with others, or whether recovery upon
such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable.
(2) The liability of Guarantors under this Guaranty (exclusive of liability
under any other guaranties executed by Guarantors) shall not exceed at
any one time the total of (a) Seven Million and No/100 Dollars
($7,000,000.00), for the principal amount of the indebtedness and (b)
all interest, fees, and other costs and expenses relating to or arising
out of the indebtedness or such part of the indebtedness as shall not
exceed the foregoing limitation. Bank may permit the indebtedness of
Borrowers to exceed Guarantors' liability, and may apply any amounts
received from any source, other than from Guarantors, to the
unguaranteed portion of Borrowers' indebtedness. This is a Continuing
Guaranty relating to any indebtedness, including that arising under
successive transactions which shall either continue the indebtedness or
from time to time renew it after it has been satisfied. Any payment by
Guarantors shall not reduce their maximum obligation hereunder, unless
written notice to that effect be actually received by Bank at or prior
to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of the
obligations of Borrowers, and a separate action or actions may be
brought and prosecuted against Guarantors whether action is brought
against Borrowers or whether Borrowers be joined in any such action or
actions and regardless of whether a trustee's sale is held under any
deed of trust securing the indebtedness or regardless of whether a
judicial foreclosure sale is held if any deed of trust securing the
indebtedness is judicially foreclosed as a mortgage. Guarantors waive
the benefit of any statute of limitations affecting their liability
hereunder.
(4) Guarantors authorize Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before
or after revocation hereof, to (a) renew, compromise, extend,
accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including
increase or decrease of the rate of interest thereon; (b) receive and
hold security for the payment of this Guaranty or the indebtedness
guaranteed, and exchange, enforce, waive, release, fail to perfect,
sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine, except to the extent specifically prohibited
by law; and (d) release or substitute any one or more of the endorsers
or guarantors.
(5) Guarantors waive any right to require Bank to (a) proceed against
Borrowers; (b) proceed against or exhaust any security held from
Borrowers; or (c) pursue any other remedy in Bank's power whatsoever.
Guarantors waive any defense arising by reason of any disability or
other defense of Borrowers, or the cessation from any cause whatsoever
of the liability of Borrowers, or any claim that Guarantors'
obligations exceed or are more burdensome than those of Borrowers.
Guarantors waive any benefit of the provisions of Arizona Revised
Statutes Sections 12-1641 and 12-1642 et seq., and Rule 17(f) of the
Arizona Rules of Civil Procedures, which set forth certain rights and
obligations among guarantors, debtors and creditors, to the extent
applicable. Guarantors waive any right of subrogation, reimbursement,
indemnification, and contribution (contractual,
1
<PAGE> 17
(12) Guarantors agree to pay all attorneys' fees, the allocated costs of
Bank's in-house counsel, and all other costs and expenses which may be
incurred by Bank in the enforcement of this Guaranty, including without
limitation all costs and necessary disbursements in any legal action or
arbitration proceeding.
(13) Any married person who signs this Guaranty hereby expressly agrees that
recourse may be had against such person's separate property and
community property to the extent permitted by law for all obligations
under this Guaranty.
(14) Where there is but a single Borrower, or where a single Guarantor
executes this Guaranty, then all words used herein in the plural shall
be deemed to have been used in the singular where the context and
construction so require; and when there is more than one Borrower named
herein, or when this Guaranty is executed by more than one Guarantor,
the words "Borrowers" and "Guarantors" respectively shall mean all and
any one or more of them.
(15) This Guaranty shall be governed by and construed according to the laws
of the State of Arizona, to the jurisdiction of which the parties
hereto submit.
(16) (a) Any controversy or claim between or among the parties, including
but not limited to those arising out of or relating to this Guaranty or
any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged
tort, shall at the request of any party be determined by arbitration.
The arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Guaranty, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give
effect to statutes of limitation in determining any claim. Any
controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award
may be entered in any court having jurisdiction. The institution and
maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the
right of any party, including the plaintiff, to submit the controversy
or claim to arbitration if any other party contests such action for
judicial relief.
(b) No provision of this paragraph shall limit the right of any party
to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court
of competent jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not
waive the right of either party to resort to arbitration. At Bank's
option, foreclosure under a deed of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of
trust or mortgage or by judicial foreclosure.
Executed this 3rd day of December, 1998.
/s/ F. Keith Withycombe
- --------------------------------------
F. Keith Withycombe, Guarantor
6237 North 59th Place
Paradise Valley, Arizona 85253
Soc. Sec. No. or I.D. No.: ###-##-####
/s/ Patricia A. Withycombe
- --------------------------------------
Patricia A. Withycombe, Guarantor
6237 North 59th Place
Paradise Valley, Arizona 85253
Soc. Sec. No. or I.D. No.: ###-##-####
Address for notices to Bank:
Bank of America National Trust and Savings
Association
Private Banking, #9311
101 North 1st Avenue
Phoenix, Arizona 85003
3
<PAGE> 1
Exhibit: 10.55FT
GUARANTOR AGREEMENT
BY AND BETWEEN
VINCENT W. GOETT AND FUTECH INTERACTIVE PRODUCTS
RELATING TO $7 MILLION LINE OF CREDIT
12/03/1998 PHOENIX, ARIZONA
This Guarantor Agreement ("Agreement") is made and entered into on the date set
forth above, by and between, VINCENT W. GOETT ("GUARANTOR") and FUTECH
INTERACTIVE PRODUCTS, INC. ("PROMISOR"). Collectively, "Goett" and "Futech" will
be known as the "PARTIES".
The purpose of this Agreement is for the Guarantor to receive benefit from the
risk of personally guaranteeing $7.0 million line of credit.
RECITALS
1. On December 3, 1998 Goett, along with another guarantor, Withycombe,
entered into a Subordination, Priority and Security Agreement
("Subordination Agreement") with Futech (see Exhibit A). As part of the
Subordination Agreement, Goett is guaranteeing a $7 million line of
credit.
2. Goett, as it relates to the Subordination Agreement, is to receive
warrants to acquire 21,000,000 shares of common stock of Futech at a
price of $0.05 per share. Goett, at his sole discretion, will determine
the name(s) in which these shares will be issued.
3. Futech is willing and desires to additionally provide to Goett for his
guarantee as it relates to the foregoing a shareholder advance/loan of
$300,000.00 ("Advance") as approved by the Shareholder Loan and Master
Promissory Note for Credit Line Agreement dated January 1, 1997. This
Advance will be payable no earlier than January 1, 1999 and will be
made available to Goett at his discretion anytime after that date based
on the availability of funds.
4. Goett is willing to receive the Advance and agrees to abide by the
terms and conditions outlined in Recital 3 above.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be bound, the Parties hereto agree as
follows:
TERMS
Goett agrees to accept the Advance and will not request any funds until after
December 31, 1998 and will draw payments against the Advance based on Futech's
available cash and working capital needs.
Representations of Guarantor
Guarantor represents, warrants and covenants as follows:
1. Guarantor is familiar with the business and affairs of Promisor and
realizes an investment in the shares involves a high degree of risk.
<PAGE> 2
2. Guarantor has been advised that there will be no public market for
the shares; it may not be able to readily liquidate its investment; the shares
have not been registered or qualified under Federal or State laws governing the
issuance of securities; and Promisor has no current intention of registering the
shares or reporting under the Act or any comparable or related Federal or State
law.
3. Guarantor is an accredited investor and acknowledges that its
overall commitment to investments which are not readily marketable is not
disproportionate to its net worth; and its investment in the shares will not
cause such overall commitment to become excessive; that Guarantor has adequate
means of providing for its current needs and personal contingencies, and has no
need for liquidity of this investment; that Guarantor has evaluated the risk of
investing in Promisor; that Guarantor is aware of the financial risks and
possible financial hazards of purchasing the shares and it has carefully
considered these risks of the investment, including the possibility of a
complete loss thereof.
4. Guarantor agrees the stock is subject to a Stock Restrictions and
Sale Agreement. The shares acquired under this Agreement shall be subject to
that Stock Restrictions and Sale Agreement, as it may be amended from time to
time.
GENERAL
This Agreement is the entire agreement between the parties upon the subject
hereof and supersedes any prior or similar agreements upon the same subject.
This Agreement shall be governed by and construed in accordance with the Federal
law of the United States of America and the internal laws of the State of
Arizona, without reference to the principles of conflicts of law.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
"Promisor" "Guarantor"
/s/ Vincent W. Goett, CEO /s/ Vincent W. Goett
- ------------------------------------ -----------------------------------
Futech Interactive Products, Inc. Vincent W. Goett
"Futech" (in witness of)
/s/ Fred B. Gretsch Fred B. Gretsch, CFO
- ------------------------------------- -----------------------------------
(Name and Title)
This document consists of a total of 2 pages
<PAGE> 1
Exhibit: 10.56FT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
FUTECH INTERACTIVE PRODUCTS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 4,000,000 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: December 3, 1998
This certifies that, for value received:
Name: Robert J. Rosepink
Address: 7373 N. Scottsdale Road, Suite D102
Scottsdale, Arizona 85258
Telephone: 602-443-1280
is entitled to purchase from Futech Interactive Products, Inc., an Arizona
corporation (the "Company"), having its principal office at 2999 North 44th
Street, Suite 225, Phoenix, Arizona 85018, Four Million (4,000,000) fully paid
and nonassessable shares of Common Stock, no par value, of the Company (the
"Common Stock"), subject to the terms set forth herein, at an exercise price of
Five Cents ($0.05) per share, subject to adjustment as provided elsewhere herein
(the "Warrant Price"). The holder of this Warrant shall be referred to herein as
the "Warrantholder" or the "Holder."
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section 3, the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms
<PAGE> 2
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Section 3, and all other provisions of this Warrant with
respect to the Common Stock shall apply on like terms to any such other shares
or other securities or property. Subject to the foregoing, and unless the
context requires otherwise, all references herein to "Common Stock" shall, in
the event of an adjustment pursuant to Section 3, be deemed to refer as well to
any other securities or property then obtainable as a result of such
adjustments.
2. Exercise of Warrant. The purchase rights represented by this
Warrant may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on the
date of this Warrant (the "Commencement Date") and expiring at 5:00 p.m.,
Arizona Time, December 3, 2008 (the "Expiration Date"), or if such date is a day
on which federal or state chartered banking institutions are authorized by law
to close, then on the next succeeding day which shall not be such a day, upon
presentation of this Warrant at the principal office of the Company, or at the
office of its stock transfer agent, if any, with the purchase form attached
hereto duly completed and signed, and upon payment to the Company in cash or by
certified check or bank draft of an amount equal to the number of shares being
so purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of common stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any of the events described above, had such Warrant
been exercised immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this paragraph (a)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
2
<PAGE> 3
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section 3,
no fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section 3
to the Warrant Price or to the number of shares or other securities obtainable
upon exercise of this Warrant, this Warrant may continue to state the Warrant
Price and the number of shares obtainable upon exercise, as the same price and
number of shares stated herein.
4. Merger; Change in Control.
(a) Change in Control shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule l3d-3
under said Act), directly or indirectly, of securities of the Company
representing one-third or more of the total voting power represented by the
Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Common Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Common
Stock of the surviving entity) at least two-thirds of the total voting power
represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
3
<PAGE> 4
(b) In the event of a merger, consolidation or reorganization
with another corporation in which the Company is not the surviving corporation,
the Company (subject to the approval of the Board) or the board of directors of
any corporation assuming the obligations of the Company hereunder shall take
action pursuant to either clause (i) or (ii) below:
(i) Appropriate provision may be made for the
protection of this Warrant by the substitution on an equitable basis of
appropriate shares of the surviving corporation, provided that the excess of the
aggregate fair market value (as determined by the Company) of the shares subject
to this Warrant immediately before such substitution over the exercise price
hereof is not more than the excess of the aggregate fair market value of the
substituted shares made subject to purchase immediately after such substitution
over the exercise price thereof; or
(ii) Appropriate provision may be made for the
cancellation of this Warrant. In such event, the Company, or the corporation
assuming the obligations of the Company hereunder, shall pay the Holder an
amount of cash (less normal withholding taxes) equal to the excess of the
highest fair market value per share of the Common Stock during the 60-day period
immediately preceding the merger, consolidation or reorganization over the
exercise price, multiplied by the number of shares subject to this Warrant
(whether or not then exercisable).
(c) Upon a Change in Control, this Warrant (provided that it
has been outstanding for at least six months) shall accelerate so that the
Holder shall have the right, at all times until the expiration or earlier
termination of this Warrant, to exercise the unexercised portions of this
Warrant.
5. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant;
4
<PAGE> 5
(b) All Common Stock that may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof, and
(c) All original issue taxes payable with respect to the
issuance of shares upon the exercise of the rights represented by this Warrant
will be borne by the Company but in no event will the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Warrant.
7. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
8. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the
laws of descent and distribution and, during Holder's lifetime, it may only be
exercised by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Securities Act, the Holder will, if requested by the
Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may
5
<PAGE> 6
place a "stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in paragraph 7(d) below.
(d) Holder acknowledges that Holder understands the meaning
and legal consequences of this Section 7, and the Holder hereby agrees to
indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (i) the inaccuracy of any representation or
the breach of any warranty of Holder contained in, or any other breach of, this
Warrant Agreement, (ii) any transfer of any of this Warrant or the shares of
stock issuable hereunder in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of this Warrant or any of said shares of
stock not in accordance with this Warrant Agreement or (iv) any untrue statement
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
10. No Guarantee of Employment. This Agreement shall in no way restrict
any right (which might otherwise exist) of the Company or any of its
subsidiaries to terminate Holder's employment at any time.
11. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
6
<PAGE> 7
12. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
13. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
14. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courtier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018, or such other address as
the Company shall have designated by written notice to such registered owner as
herein provided. All notices required hereunder shall be in writing and shall be
deemed received when delivered personally, one business day after delivery to a
nationally recognized commercial overnight courier service, or two business days
after mailing when mailed by certified or registered mail to the Company or the
Warrantholder.
15. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
16. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of December 3, 1998.
FUTECH INTERACTIVE PRODUCTS, INC.
By: /s/ Vincent W. Goett
----------------------
Name: Vincent W. Goett
--------------------
Title: CEO/Chairman
-------------------
8
<PAGE> 9
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase ______ shares of
Common Stock of Futech Interactive Products, Inc., evidenced by the within
Warrant, according to the terms and conditions thereof, and herewith makes
payment of the purchase price in full. The undersigned requests that
certificate(s) for such shares shall be issued in the name set forth below.
Dated: [NAME OF HOLDER]
By____________________________
(Signature)
Name:_________________________
(Please Print)
Address:______________________
______________________________
______________________________
Employer Identification No.,
Social Security No.
or other identifying number:
______________________________
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
9
<PAGE> 1
Exhibit: 10.57FT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
FUTECH INTERACTIVE PRODUCTS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 21,000,000 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: December 3, 1998
This certifies that, for value received:
Name: Palmilla Management Trust
Address: 2999 North 44th St. Suite 225
Phoenix, Arizona 85018
Telephone: 602-808-9888
is entitled to purchase from Futech Interactive Products, Inc., an Arizona
corporation (the "Company"), having its principal office at 2999 North 44th
Street, Suite 225, Phoenix, Arizona 85018, Twenty-One Million (21,000,000) fully
paid and nonassessable shares of Common Stock, no par value, of the Company (the
"Common Stock"), subject to the terms set forth herein, at an exercise price of
Five Cents ($0.05) per share, subject to adjustment as provided elsewhere herein
(the "Warrant Price"). The holder of this Warrant shall be referred to herein as
the "Warrantholder" or the "Holder."
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section 3, the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms
<PAGE> 2
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Section 3, and all other provisions of this Warrant with
respect to the Common Stock shall apply on like terms to any such other shares
or other securities or property. Subject to the foregoing, and unless the
context requires otherwise, all references herein to "Common Stock" shall, in
the event of an adjustment pursuant to Section 3, be deemed to refer as well to
any other securities or property then obtainable as a result of such
adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on the
date of this Warrant (the "Commencement Date") and expiring at 5:00 p.m.,
Arizona Time, December 3, 2008 (the "Expiration Date"), or if such date is a day
on which federal or state chartered banking institutions are authorized by law
to close, then on the next succeeding day which shall not be such a day, upon
presentation of this Warrant at the principal office of the Company, or at the
office of its stock transfer agent, if any, with the purchase form attached
hereto duly completed and signed, and upon payment to the Company in cash or by
certified check or bank draft of an amount equal to the number of shares being
so purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any of the events described above, had such Warrant
been exercised immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this paragraph (a)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
2
<PAGE> 3
(b) Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Warrant Price
shall be adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of shares
of Common Stock purchasable upon the exercise of this Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of shares
of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section 3, no
fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section 3 to the
Warrant Price or to the number of shares or other securities obtainable upon
exercise of this Warrant, this Warrant may continue to state the Warrant Price
and the number of shares obtainable upon exercise, as the same price and number
of shares stated herein.
4. Merger: Change in Control.
(a) Change in Control shall be deemed to have occurred if (i) any
"person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
one-third or more of the total voting power represented by the Company's then
outstanding Common Stock, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
3
<PAGE> 4
(b) In the event of a merger, consolidation or reorganization with
another corporation in which the Company is not the surviving corporation, the
Company (subject to the approval of the Board) or the board of directors of any
corporation assuming the obligations of the Company hereunder shall take action
pursuant to either clause (i) or (ii) below:
(i) Appropriate provision may be made for the protection of this
Warrant by the substitution on an equitable basis of appropriate shares of the
surviving corporation, provided that the excess of the aggregate fair market
value (as determined by the Company) of the shares subject to this Warrant
immediately before such substitution over the exercise price hereof is not more
than the excess of the aggregate fair market value of the substituted shares
made subject to purchase immediately after such substitution over the exercise
price thereof; or
(ii) Appropriate provision may be made for the cancellation of this
Warrant. In such event, the Company, or the corporation assuming the obligations
of the Company hereunder, shall pay the Holder an amount of cash (less normal
withholding taxes) equal to the excess of the highest fair market value per
share of the Common Stock during the 60-day period immediately preceding the
merger, consolidation or reorganization over the exercise price, multiplied by
the number of shares subject to this Warrant (whether or not then exercisable).
(c) Upon a Change in Control, this Warrant (provided that it has been
outstanding for at least six months) shall accelerate so that the Holder shall
have the right, at all times until the expiration or earlier termination of this
Warrant, to exercise the unexercised portions of this Warrant.
5. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by the
Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant;
4
<PAGE> 5
(b) All Common Stock that may be issued upon exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof; and
(c) All original issue taxes payable with respect to the issuance of
shares upon the exercise of the rights represented by this Warrant will be borne
by the Company but in no event will the Company be responsible or liable for
income taxes or transfer taxes upon the transfer of any Warrant.
7. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
8. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the laws of
descent and distribution and, during Holder's lifetime, it may only be exercised
by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon the
exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition thereto,
if such transfer is not made pursuant to an effective registration statement
under the Securities Act, the Holder will, if requested by the Company, deliver
to the Company (i) an investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee to the impression of the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement by
such transferee that the Company may
5
<PAGE> 6
place a "stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in paragraph 7(d) below.
(d) Holder acknowledges that Holder understands the meaning and
legal consequences of this Section 7, and the Holder hereby agrees to indemnify
and hold harmless the Company, its representatives and each officer and director
thereof from and against any and all loss, damage or liability (including all
attorneys' fees and costs incurred in enforcing this indemnity provision) due to
or arising out of (i) the inaccuracy of any representation or the breach of any
warranty of Holder contained in, or any other breach of, this Warrant Agreement,
(ii) any transfer of any of this Warrant or the shares of stock issuable
hereunder in violation of the Securities Act, the Securities Exchange Act of
1934, as amended, or the rules and regulations promulgated under either of such
acts, (iii) any transfer of this Warrant or any of said shares of stock not in
accordance with this Warrant Agreement or (iv) any untrue statement or omission
to state any material fact in connection with the investment representations or
with respect to the facts and representations supplied by the Holder to counsel
to the Company upon which its opinion as to a proposed transfer shall have been
based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered pursuant to the provisions
of that Act or an opinion of counsel to the Company is obtained
stating that such disposition is in compliance with an available
exemption from such registration."
10. No Guarantee of Employment. This Agreement shall in no way
restrict any right (which might otherwise exist) of the Company or any of its
subsidiaries to terminate Holder's employment at any time.
11. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
6
<PAGE> 7
12. Binding Effect This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
13. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
14. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018, or such other address as
the Company shall have designated by written notice to such registered owner as
herein provided. All notices required hereunder shall be in writing and shall be
deemed received when delivered personally, one business day after delivery to a
nationally recognized commercial overnight courier service, or two business days
after mailing when mailed by certified or registered mail to the Company or the
Warrantholder.
15. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
16. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
effective as of Dec. 3, 1998.
FUTECH INTERACTIVE PRODUCTS, INC.
By: /s/ Vincent W. Goett
------------------------------
Name: Vincent W. Goett
----------------------------
Title: CEO/Chairman
---------------------------
8
<PAGE> 9
PURCHASE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase_________shares
of Common Stock of Futech Interactive Products, Inc., evidenced by the within
Warrant, according to the terms and conditions thereof, and herewith makes
payment of the purchase price in full. The undersigned requests that
certificate(s) for such shares shall be issued in the name set forth below.
Dated: [NAME OF HOLDER]
By
--------------------------------------
(Signature)
Name:
------------------------------------
(Please Print)
Address:
---------------------------------
Employer Identification No., Social
Security No. or other identifying number:
-----------------------------------------
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
9
<PAGE> 1
Exhibit: 10.58FT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
FUTECH INTERACTIVE PRODUCTS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 21,000,000 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: December 3, 1998
This certifies that, for value received:
Name: F. Keith Withycombe and Patricia A. Withycombe (husband
and wife)
Address: 6237 North 59th Place
Paradise Valley, Arizona 85253
Telephone: 602-905-7156
is entitled to purchase from Futech Interactive Products, Inc., an Arizona
corporation (the "Company"), having its principal office at 2999 North 44th
Street, Suite 225, Phoenix, Arizona 85018, Twenty-One Million (21,000,000) fully
paid and nonassessable shares of Common Stock, no par value, of the Company (the
"Common Stock"), subject to the terms set forth herein, at an exercise price of
Five Cents ($0.05) per share, subject to adjustment as provided elsewhere herein
(the "Warrant Price"). The holder of this Warrant shall be referred to herein as
the "Warrantholder" or the "Holder,"
1. "Common Stock". If at any time, as a result of an adjustment made
pursuant to Section 3, the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or
<PAGE> 2
property so obtainable shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 3, and all other provisions of
this Warrant with respect to the Common Stock shall apply on like terms to any
such other shares or other securities or property. Subject to the foregoing, and
unless the context requires otherwise, all references herein to "Common Stock"
shall, in the event of an adjustment pursuant to Section 3, be deemed to refer
as well to any other securities or property then obtainable as a result of such
adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on the
date of this Warrant (the "Commencement Date") and expiring at 5:00 p.m.,
Arizona Time, December 3, 2008 (the "Expiration Date"), or if such date is a day
on which federal or state chartered banking institutions are authorized by law
to close, then on the next succeeding day which shall not be such a day, upon
presentation of this Warrant at the principal office of the Company, or at the
office of its stock transfer agent, if any, with the purchase form attached
hereto duly completed and signed, and upon payment to the Company in cash or by
certified check or bank draft of an amount equal to the number of shares being
so purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any of the events described above, had such Warrant
been exercised immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this paragraph (a)
2
<PAGE> 3
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Warrant Price
shall be adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of shares
of Common Stock purchasable upon the exercise of this Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of shares
of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section 3, no
fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section 3 to the
Warrant Price or to the number of shares or other securities obtainable upon
exercise of this Warrant, this Warrant may continue to state the Warrant Price
and the number of shares obtainable upon exercise, as the same price and number
of shares stated herein.
4. Merger: Change in Control.
(a) Change in Control shall be deemed to have occurred if (i) any
"person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
one-third or more of the total voting power represented by the Company's then
outstanding Common Stock, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the
3
<PAGE> 4
Company of (in one transaction or a series of transactions) all or substantially
all the Company's assets.
(b) In the event of a merger, consolidation or reorganization with
another corporation in which the Company is not the surviving corporation, the
Company (subject to the approval of the Board) or the board of directors of any
corporation assuming the obligations of the Company hereunder shall take action
pursuant to either clause (i) or (ii) below:
(i) Appropriate provision may be made for the protection of this
Warrant by the substitution on an equitable basis of appropriate shares of the
surviving corporation, provided that the excess of the aggregate fair market
value (as determined by the Company) of the shares subject to this Warrant
immediately before such substitution over the exercise price hereof is not more
than the excess of the aggregate fair market value of the substituted shares
made subject to purchase immediately after such substitution over the exercise
price thereof; or
(ii) Appropriate provision may be made for the cancellation of this
Warrant. In such event, the Company, or the corporation assuming the obligations
of the Company hereunder, shall pay the Holder an amount of cash (less normal
withholding taxes) equal to the excess of the highest fair market value per
share of the Common Stock during the 60-day period immediately preceding the
merger, consolidation or reorganization over the exercise price, multiplied by
the number of shares subject to this Warrant (whether or not then exercisable).
(c) Upon a Change in Control, this Warrant (provided that it has been
outstanding for at least six months) shall accelerate so that the Holder shall
have the right, at all times until the expiration or earlier termination of this
Warrant, to exercise the unexercised portions of this Warrant.
5. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by the
Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant;
4
<PAGE> 5
(b) All Common Stock that may be issued upon exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof; and
(c) All original issue taxes payable with respect to the issuance of
shares upon the exercise of the rights represented by this Warrant will be borne
by the Company but in no event will the Company be responsible or liable for
income taxes or transfer taxes upon the transfer of any Warrant.
7. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
8. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the laws of
descent and distribution and, during Holder's lifetime, it may only be exercised
by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon the
exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition thereto,
if such transfer is not made pursuant to an effective registration statement
under the Securities Act, the Holder will, if requested by the Company, deliver
to the Company (i) an investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee to the impression of the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement by
such transferee that the Company may
5
<PAGE> 6
place a "stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in paragraph 7(d) below.
(d) Holder acknowledges that Holder understands the meaning and
legal consequences of this Section 7, and the Holder hereby agrees to indemnify
and hold harmless the Company, its representatives and each officer and director
thereof from and against any and all loss, damage or liability (including all
attorneys' fees and costs incurred in enforcing this indemnity provision) due to
or arising out of (i) the inaccuracy of any representation or the breach of any
warranty of Holder contained in, or any other breach of, this Warrant Agreement,
(ii) any transfer of any of this Warrant or the shares of stock issuable
hereunder in violation of the Securities Act, the Securities Exchange Act of
1934, as amended, or the rules and regulations promulgated under either of such
acts, (iii) any transfer of this Warrant or any of said shares of stock not in
accordance with this Warrant Agreement or (iv) any untrue statement or omission
to state any material fact in connection with the investment representations or
with respect to the facts and representations supplied by the Holder to counsel
to the Company upon which its opinion as to a proposed transfer shall have been
based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered pursuant to the provisions
of that Act or an opinion of counsel to the Company is obtained
stating that such disposition is in compliance with an available
exemption from such registration."
10. No Guarantee of Employment. This Agreement shall in no way restrict
any right (which might otherwise exist) of the Company or any of its
subsidiaries to terminate Holder's employment at any time.
11. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
6
<PAGE> 7
12. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
13. Company's Notice of Certain Events. So long AS this warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
14. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 2999
North 44th Street, Suite 225, Phoenix, Arizona 85018, or such other address as
the Company shall have designated by written notice to such registered owner as
herein provided. All notices required hereunder shall be in writing and shall be
deemed received when delivered personally, one business day after delivery to a
nationally recognized commercial overnight courier service, or two business days
after mailing when mailed by certified or registered mail to the Company or the
Warrantholder.
15. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
16. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
effective as of 12-3-98 1998.
----------------------------------
FUTECH INTERACTIVE PRODUCTS, INC.
By: /s/ Vincent W. Goett
------------------------------
Name: Vincent W. Goett
----------------------------
Title: CEO
---------------------------
8
<PAGE> 9
PURCHASE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase shares
----------
of Common Stock of Futech Interactive Products, Inc., evidenced by the within
Warrant, according to the terms and conditions thereof, and herewith makes
payment of the purchase price in full. The undersigned requests that
certificate(s) for such shares shall be issued in the name set forth below.
Dated: [NAME OF HOLDER]
By
-------------------------------------
(Signature)
Name:
-----------------------------------
(Please Print)
Address:
--------------------------------
--------------------------------
--------------------------------
Employer Identification No., Social Security
No. or other identifying number:
--------------------------------------------
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
9
<PAGE> 1
Exhibit: 10.59FT
MASTER PROMISSORY NOTE AGREEMENT
FOR LOAN AND/OR CREDIT LINE AGREEMENTS
BY AND BETWEEN FUTECH INTERACTIVE PRODUCTS, INC. AND
VINCENT W. GOETT AND RODERICK L. TURNER
$8,000,000 DATE: DECEMBER 15, 1998
THIS IS AN AGREEMENT between FUTECH INTERACTIVE PRODUCTS, INC.
("Promisor") residing at 2999 N 44 Street, Suite 225, Phoenix, Arizona,
85018-7472 and VINCENT W. GOETT ("GOETT") AND RODERICK L. TURNER ("TURNER")
(Goett and Turner are severally and jointly known as "Payee(s)"). The purpose of
this Agreement is to restructure the maturity terms and conditions of currently
existing loans and/or credit line agreements between the parties totaling a
principal amount of $8 million "Principal"). This Agreement is based on the
recent consolidation and restructuring of loans performed by The Chase Manhattan
Private Bank ("Chase") for the Payees and seeks to match the repayment maturity
terms under the restructured loans between Chase and Payees.
RECITALS:
- ---------
Subject to the terms and conditions of this Agreement:
1. Payees restructured various loans and credit agreements with Chase as
of December 14, 1998. The total amount of restructured loans and/or
credit agreements was $9.850 million. Of the $9.850 million, $8.0
million are direct obligations between Promisor and Payees and are
known as the Principal for purposes of this Agreement.
2. Promisor and Payees mutually and severally agree that as of the
Agreement date above, Promisor owes Payees a total of $8 million in
principal per the terms of the restructured loans/credit agreements
between Payees and Chase. This Principal consists of $5.5 million in
obligations from 1997 and early 1998, $1.5 million in loans as of May
5, 1998 and a $1.0 million credit line agreement as of June 24, 1998.
This Principal balance does not reflect the total indebtedness by
Promisor to Payees either individually or jointly.
3. The new maturity date between Payees and Chase is December 15, 1999.
4. Promisor and Payee(s), jointly and severally, desire to restructure
and extend the original maturity date on the Principal balance of $8.0
million to reflect a new maturity date of December 15, 1999.
5. Promisor desires to provide Payee(s) with additional stock options in
consideration for Payees' willingness to extend the maturity date to
December 15, 1999. Promisor will provide to Payee(s) or their
designee(s), 8.0 (eight million) options of Promisor's common stock.
The options are granted at an exercise price of $0.05 per share, the
options become exercisable one year from the execution date of this
Agreement and expire five years from the exercise date. The stock
options will be initially issued to:
- Palmilla Management Trust, 4 million options
- R. Turner, 4 million options
<PAGE> 2
ATTORNEYS' FEES
- ---------------
The prevailing party in any action to enforce the terms and conditions
hereof shall be entitled to recover its reasonable attorneys' fees and court
costs.
GENERAL
- -------
1. This Agreement is the entire agreement between the parties' upon the
subject hereof and supersedes any prior or similar agreements upon the same
subject
2. This Agreement shall inure to the benefit of, be binding upon and be
enforceable by Payee(s), its nominees, successors, and assigns, and shall
be binding upon and be enforceable by Futech, its nominees. successors, and
assigns and legal representatives.
3. This Agreement shall be governed by and construed in accordance with the
Federal law of the United States of America and the internal laws of the
State of Arizona, without reference to the principles of conflicts of law.
4. This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this agreement this the 15th day
of December, 1998
"Goett" (Payee) "Turner" (Payee)
/s/ Vincent W. Goett /s/ Roderick L Turner
- ------------------------ ---------------------------
Vincent W. Goett Roderick L Turner
"Futech" (Promisor) "Futech" (in witness of)
/s/ Fred B. Gretsch /s/ Fred B. Gretsch
- ------------------------ ---------------------------
Fred B. Gretsch, CFO Fred B. Gretsch, CFO
- ------------------------ ---------------------------
(Name and, Title) (Name and, Title)
This Agreement consists of a total of 3 pages
<PAGE> 1
Exhibit: 10.60FT
[LOGO] CHASE
COLLATERAL AGREEMENT
[THIRD PARTY]
In consideration of one of more loans, letters of credit or other
financial accommodations extended by THE CHASE MANHATTAN BANK or any of its
subsidiaries or affiliates (the "Bank"), to Roderick L. Turner and Vincent W.
Goett (the "Obligor") the undersigned and the Bank agree as follows:
1. DEFINITIONS.
"Collateral" means: (1) the Deposits, Securities and Account Assets
(as defined below) that are listed on Exhibit A; (11) all additions to, and
proceeds, renewals, investments, reinvestments and substitutions of, the
foregoing, whether or not listed on Exhibit A; (iii) all certificates, receipts
and other instruments evidencing any of the foregoing. Notwithstanding anything
to the contrary in this Agreement, "Collateral shall not include any securities
issued by an affiliate of the Bank, including any of the VISTA family of funds.
"Deposits" means the deposits of the undersigned with the Bank
(whether or not held in trust, or in any custody, subcustody, safekeeping,
investment management accounts, or other accounts of the undersigned with the
Bank).
"Securities" means the stocks, bonds and other instruments and
securities (whether or not held in trust or in any custody, subcustody,
safekeeping, investment management accounts or other accounts of the undersigned
with the Bank or any other custodian, trustee or Clearing System or held by any
party as a financial intermediary or securities intermediary (the
"Intermediary").
"Account Assets" means all Deposits, Securities, securities
entitlements and any other assets held in trust, or in any custody, subcustody,
safekeeping, investment management accounts, or other accounts of the
undersigned with the Bank or any other custodian, trustee or Clearing System or
held by any Intermediary (all of which shall be considered "financial assets"
under the UCC).
"Clearing System" means the Depository Trust Company ("DTC") Cedel
Bank, societe anonyme, the Euroclear system and such other clearing or
safekeeping system that may from time to time be used in connection with
transactions relating to or the custody of any Securities, and any depository
for any of the foregoing.
"Liabilities" means indebtedness, obligations and liabilities of any
kind of the Obligor or of the undersigned to the Bank, now or in the future,
absolute or contingent, direct or indirect, Joint or several, due or not due,
arising by operation of law or otherwise, and costs and expenses incurred by the
Bank in connection with the Collateral, this Agreement or any Liability
Document.
"Liability Document" means any instrument, agreement or document
evidencing or delivered in connection with the Liabilities.
"UCC" means the Uniform Commercial Code in effect in the State of
New York. Unless the context otherwise requires, all terms used in this
Agreement which are defined in the UCC will have the meanings stated in the UCC.
<PAGE> 2
2. GRANT OF SECURITY INTEREST.
As security for the payment of all the Liabilities, the undersigned
pledges, transfers and assigns to the Bank and grants to the Bank a security
interest in and night of setoff against, the Collateral.
3. AGREEMENTS OF THE UNDERSIGNED AND RIGHTS OF THE BANK.
The undersigned agrees as follows and irrevocably authorizes the Bank to
exercise the rights listed below, at its option, for its own benefit, either in
its own name or in the name of the undersigned, and appoints the Bank as its
attorney-in-fact to take all action permitted under this Agreement.
(a) DEPOSITS: The Bank may: (i) renew the Deposits on terms and for
periods the Bank deems appropriate; (ii) demand, collect, and receive payment of
any monies or proceeds due or to become due under the Deposits; (iii) execute
any instruments required for the withdrawal or repayment of the Deposits; (iv)
in all respects deal with the Deposits as the owner; provided that, as to (ii)
through (iv), until the occurrence of a Default, the Bank will only take that
action if, in its judgment, failure to take that action would impair its rights
under this Agreement.
(b) SECURITIES: The Bank may: (i) transfer to the account of the Bank any
Securities whether in the possession of, or registered in the name of, any
Clearing System or held otherwise; (ii) transfer to the account of the Bank with
any Federal Reserve Bank any Securities held in book entry form with any such
Federal Reserve Bank; and (iii) transfer to the name of the Bank or its nominee
any Securities registered in the name of the undersigned and held by the Bank
and complete and deliver any necessary stock powers or other transfer
instruments; provided that until the occurrence of a Default, the Bank will only
take that action if, in its judgment, failure to take that action would impair
its rights under this Agreement or if such Securities are held in a custody,
investment management or similar account.
The undersigned grants to the Bank an irrevocable proxy to vote any and
all Securities and give consents, waivers and ratifications in connection with
those Securities; provided that until the occurrence of a Default the Bank will
only take that action if, in its Judgment, failure to take that action would
impair its rights under this Agreement.
All payments, distributions and dividends in securities, property or cash
shall be paid directly to and, at the discretion of the Bank, retained by the
Bank and held by it, until applied as provided in this Agreement, as additional
Collateral; provided that until the occurrence of a Default, interest on
Deposits and cash dividends on Securities paid in the ordinary course will be
paid to the undersigned.
(c) GENERAL: The Bank may, in its name, or in the name of the undersigned:
(i) execute and file financing statements under the UCC or any other filings or
notices necessary or desirable to create, perfect or preserve its security
interest, all without notice (except as required by applicable law and not
waivable) and without liability except to account for property actually received
by it; (ii) demand, sue for, collect or receive any money or property at any
time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable with respect to, any item of the
Collateral (but shall be under no obligation to do so); (iii) make any
notification (to the issuer of any certificate or Security, or otherwise,
including giving any notice of exclusive control to the Intermediary) or take
any other action in connection with the perfection or preservation of its
security interest or any enforcement of remedies, and retain any documents
evidencing the title of the undersigned to any item of the Collateral; (iv)
issue entitlement orders with respect to any of the Collateral.
2
<PAGE> 3
The undersigned agrees that it will not file or permit to be filed any
financing or like statement with respect to the Collateral in which the Bank is
not named as the sole secured party, consent or be a party to any securities
account control agreement or other similar agreement with any Intermediary (an
"Account Control Agreement") to which the Bank is not also a party or sell,
assign, or otherwise dispose of, grant any option with respect to, or pledge, or
otherwise encumber the Collateral. At the request of the Bank the undersigned
agrees to do all other things which the Bank may deem necessary or advisable in
order to perfect and preserve the security interest and to give effect to the
rights granted to the Bank under this Agreement or enable the Bank to comply
with any applicable laws or regulations. Notwithstanding the foregoing, the Bank
does not assume any duty with respect to the Collateral and is not required to
take any action to collect, preserve or protect its or the undersigned's rights
in any item of the Collateral. The undersigned releases the Bank and agrees to
hold the Bank harmless from any claims, causes of action and demands at any time
arising with respect to this Agreement, the use or disposition of any item of
the Collateral or any action taken or omitted to be taken by the Bank with
respect thereto.
The rights granted to the Bank pursuant to this Agreement are in addition
to the rights granted to the Bank in any custody, investment management, trust,
Account Control Agreement or similar agreement. In case of conflict between the
provisions of this Agreement and of any other such agreement, the provisions of
this Agreement will prevail.
4. LOAN VALUE OF THE COLLATERAL.
The undersigned agrees that at all times the amount of the Liabilities may
not exceed the aggregate Loan Value of the Collateral. The undersigned will, at
the Bank's option, either supplement the Collateral or make, OR CAUSE TO BE
MADE, any payment under the Liabilities to the extent necessary to ensure
compliance with this provision or the Bank may liquidate Collateral to the
extent necessary to ensure compliance with this provision. "Loan Value" means
the value assigned by the Bank from time to time, in its sole reasonable
discretion, to each item of the Collateral.
5. CURRENCY CONVERSION.
For calculation purposes. any currency in which the Collateral is
denominated (the "Collateral Currency") will be converted into the currency of
the Liabilities (the "Liability Currency") at the spot rate of exchange for the
purchase of the Liability Currency with the Collateral Currency quoted by the
Bank at such place as the Bank deems appropriate (or, if no such rate is quoted
on any relevant date, estimated by the Bank on the basis of the Bank's last
quoted spot rate) or another prevailing rate that the Bank deems more
appropriate.
6. REPRESENTATIONS AND WARRANTIES.
The undersigned represents and warrants: (a) the undersigned is the sole
owner of the Collateral; (b) the Collateral is free of all encumbrances except
for the security interest in favor of the Bank created by this Agreement; (c) no
authorizations, consents or approvals and no notice to or filing with any
governmental authority or regulatory body is required for the execution and
delivery of this Agreement or the exercise by the Bank of its rights and
remedies; (d) the execution, delivery and performance of this Agreement will not
violate any provisions of applicable law, regulation or order and will not
result in the breach of, or constitute a default, or require any consent under,
any agreement, instrument or document to which the undersigned is a party or by
which it or any of its property may be bound or affected; (e) as to Deposits and
Account Assets, the undersigned has not withdrawn, canceled, been repaid or
redeemed all or any part of any Deposits or Account Assets and there is no such
pending application; (f) as to Securities, the Securities have been duly
authorized and are fully paid and non-assessable, there are no restrictions on
pledge of the Securities by the undersigned nor on sale of the Securities by the
Bank (whether pursuant to securities laws or regulations or shareholder, lock-up
or other similar agreements) and the Securities are fully marketable by the Bank
as pledgee, without regard to any holding period, manner of sale, volume
limitation, public information or notice requirements; (g) if the undersigned is
a corporation, partnership,
3
<PAGE> 4
limited liability company, limited liability partnership or trust, it is duly
organized and validly existing under the laws of the jurisdiction of its
organization. it has full power and authority to execute, deliver and perform
this Agreement, the execution, delivery and performance have been duly
authorized, will not conflict with any provisions of its governing instruments
and the Agreement is a legal, valid and binding obligation of the undersigned,
enforceable against it is accordance with its terms.
7. DEFAULT.
Each of the following is a default ("Default"):
(i) any sum payable on any of the Liabilities is not paid when due; (ii)
any representation and warranty of the undersigned or any party liable on or for
any of the Liabilities (including but not limited to the Obligor, a "Liability
Party") in this Agreement or in any Liability Document shall prove to have been
incorrect in any material respect on or after the date hereof; (iii) the
undersigned or any Liability Party fails to perform or observe any term,
covenant, or condition under this Agreement or under any Liability Document;
(iv) any indebtedness of the undersigned or any Liability Party or interest or
premium thereon is not paid when due (whether by scheduled maturity,
acceleration, demand or otherwise); (v) the undersigned or any Liability Party:
(a) is generally not, or is unable to, or admits in writing its inability to,
pay its debts as its debts become due; (b) makes an assignment for the benefit
or creditors, or petitions or applies to any tribunal for the appointment of a
custodian, receiver or trustee for its or a substantial part of its assets; (c)
commences any proceeding under any law relating to bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation; (d) has any such
petition filed, or any such proceeding has been commenced against it, in which
an adjudication is made or order for relief is entered or which remains
undismissed for a period of 30 days; (e) has a receiver, custodian or trustee
appointed for all or a substantial part of its property; or (f) takes any action
effectuating, approving or consenting to any of the events described in this
section (v); (vi) the undersigned or any Liability Party shall die, dissolve or
for any reason cease to be in existence or merge or consolidate; or if the
undersigned or any Liability Party is a partnership, limited liability
partnership or limited liability company, any general partner, partner or
member, respectively, shall die, dissolve or for any reason cease to be in
existence or cease to be a partner or member, as the case may be, or shall merge
or consolidate; (vii) the undersigned or any Liability Party is involved in a
proceeding relating to, or which may result in, a forfeiture of all or a
substantial part of the undersigned's or any Liability Party's assets or a
material judgment is entered against the undersigned or any Liability Party;
(viii) there is, the opinion of the Bank, a material adverse change in the
business, prospects or financial condition of the undersigned or any Liability
Party; THEN, unless and to the extent that the Bank otherwise elects, the Bank
will be entitled to exercise any of the rights and remedies under this
Agreement.
8. REMEDIES.
On a Default, the Bank will have the rights and remedies under the UCC and
the other rights granted to the Bank under this Agreement and may exercise its
rights without regard to any premium or penalty from liquidation of any
Collateral and without regard to the undersigned's basis or holding period for
any Collateral.
The Bank may sell in the Borough of Manhattan, New York City, or
elsewhere, in one or more sales or parcels, at the price as the Bank deems best,
for cash or on credit or for other property, for immediate or future delivery,
any item of the Collateral, at any broker's board or at public or private sale,
in any reasonable manner permissible under the UCC (except that, to the extent
permissible under the UCC, the undersigned waives any requirements of the UCC)
and the Bank or anyone else may be the purchaser of the Collateral and hold it
free from any claim or right including, without limitation, any equity of
redemption of the undersigned, which right the undersigned expressly waives.
The Bank may also, in its sole discretion: (i) convert any part of the
Collateral Currency into the Liability Currency; (ii) hold any monies or
proceeds representing the Collateral in a cash collateral account in the
Liability
4
<PAGE> 5
Currency or other currency that the Bank reasonably selects; (iii) invest such
monies or proceeds on behalf of the undersigned; and (iv) apply any portion of
the Collateral, first, to all costs and expenses of the Bank, second, to the
payment of interest on the Liabilities and any fees or commissions to which the
Bank may be entitled, third, to the payment of principal of the Liabilities,
whether or not then due, and fourth, to the undersigned.
The undersigned will pay to the Bank all expenses (including reasonable
attorneys' fees and legal expenses incurred by the Bank and the allocated costs
of its in-house counsel) in connection with the exercise of any of the Bank's
rights or obligations under this Agreement or the Liability Documents. The
undersigned will take any action requested by the Bank to allow it to sell or
dispose of the Collateral. Notwithstanding that the Bank may continue to hold
Collateral and regardless of the value of the Collateral, the applicable
Liability Party will remain liable for the payment in full of any unpaid balance
of the Liabilities.
9. JURISDICTION.
The undersigned consents to the non-exclusive jurisdiction of the State
and Federal courts sitting in the City of New York and agrees that suit may be
brought against the undersigned in those courts or in any other jurisdiction
where the undersigned or any of its assets may be found, and the undersigned
irrevocably submits to the Jurisdiction of those courts. The undersigned
consents to the service of process by mailing copies of process to the
undersigned at its most recent mailing address in the records of the Bank. The
undersigned further agrees that any action or proceeding brought against the
Bank may be brought only in a New York State or United States Federal court
sitting in New York County.
The undersigned agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit or proceeding in such state and hereby waives any defense on the basis of
an inconvenient forum. Nothing herein shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the undersigned or its
property in the courts of any other jurisdiction.
10. WAIVER OF JURY TRIAL.
THE UNDERSIGNED AND THE BANK EACH WAIVE ANY RIGHT TO JURY TRIAL.
11. NOTICES.
Unless otherwise agreed in writing, notices may be given to the Bank and
the undersigned at their telecopier numbers (confirmed by telephone to their
telephone numbers) or addresses listed on the signature page of this Agreement,
or such other telecopier (and telephone) number or addresses communicated in
writing by either party to the other. Notices to the Bank are effective on
receipt.
12. UNCONDITIONAL OBLIGATIONS.
The undersigned's obligations under this Agreement are unconditional
without regard to: (i) any lack of validity or enforceability of any of the
Liabilities or any agreement or instrument relating to the Liabilities; (ii) any
change in the time, manner or place of payment of, or in any other term of any
of the Liabilities or any other amendment or waiver of, any agreement or
instrument relating to the Liabilities; (iii) any release, exchange, perfection
or non-perfection of any item of the Collateral or any release or amendment or
waiver of, any guaranty, subordination or other credit support for any of the
Liabilities; (iv) the release or discharge in full or in part of any Obligor;
(v) any other circumstance that might otherwise constitute a defense or
discharge of the Obligor or a guarantor of the Liabilities or a party agreeing
to subordinate its claim to the Liabilities; or (vi) any law, regulation or
order now or later in effect affecting the Liabilities or any agreement or
instrument relating to any of the Liabilities.
5
<PAGE> 6
13. MISCELLANEOUS.
(a) The Bank may assign any of the Collateral and any of its interests in
this Agreement (and may assign the Liabilities to any party) and will be fully
discharged from all responsibility as to the assigned Collateral. That assignee
will have all the powers and rights of the Bank hereunder, but only as to the
assigned Collateral.
(b) No amendment or waiver of any provision of this Agreement nor consent
to any departure by the undersigned will be effective unless it is in writing
and signed by the undersigned and the Bank and will be effective only in that
specific instance and for that specific purpose. No failure on the part of the
Bank to exercise, and no delay in exercising, any night will operate as a waiver
or preclude any other or further exercise or the exercise of any other right.
(c) The rights and remedies in this Agreement are cumulative and not
exclusive of any rights and remedies which the Bank may have under law or under
other agreements or arrangements with the undersigned or any Liability Party.
(d) The provisions of this Agreement are intended to be severable. If for
any reason any provision of this Agreement is not valid or enforceable in whole
or in part in any jurisdiction, that provision will, as to that jurisdiction, be
ineffective to the extent of that invalidity or unenforceability without in any
manner affecting the validity or enforceability in any other jurisdiction or the
remaining provisions of this Agreement.
(e) The term "undersigned" will include all signatories, if more than one,
and the terms, covenants and conditions and the representations and warranties
will be joint and several. The term "undersigned" will also include the heirs,
executors, administrators, assigns and successors of the undersigned.
(f) The undersigned hereby waives presentment, notice of dishonor and
protest of all instruments included in or evidencing the Liabilities or the
Collateral and any other notices and demands, whether or not relating to those
instruments.
6
<PAGE> 7
(g) This Agreement is governed by and construed according to the laws of
the State of New York.
IN WITNESS WHEREOF, the undersigned has signed this Agreement this ___ day of
______, ______.
ACCEPTED:
The Chase Manhattan Bank
By: _________________________________
Name:
Title:
ADDRESS FOR NOTICES TO THE BANK:
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, New York 10036
Attn: Amy Bergner
Telecopier:
Telephone:
By: /s/ Roderick L Turner
Roderick L Turner
Address for notices:
_________________________________
_________________________________
_________________________________
Telecopier:
Telephone:
7
<PAGE> 8
EXHIBIT A
DESCRIPTION OF THE COLLATERAL
1. DEPOSITS
Type of Location
Deposit (NY,
(CD, TD, IBF-NY, Contract or Issue or Maturity Principal
etc.) etc.) Certificate No. Opening Date Date Amount
- ------- ----- --------------- ------------ ---- ------
Savings NY 9/18/98 $369M
967311276
2. STOCKS, BONDS AND OTHER INSTRUMENTS AND SECURITIES
Nature of Security Number of Face Amount Certificate
or Obligation Name of Issuer Units (if Applicable) Number
-------------- -------------- ----- --------------- ------
3. ALL ASSETS HELD OR TO BE HELD IN THE FOLLOWING CUSTODY OR SUBCUSTODY
ACCOUNTS, SAFEKEEPING ACCOUNTS, INVESTMENT MANAGEMENT ACCOUNTS AND/OR OTHER
ACCOUNT WITH INTERMEDIARY:
Type of Account Account Number Entity/Location
- --------------- -------------- ---------------
Custody 5564870 Chase/NY
8
<PAGE> 9
[LOGO] CHASE
COLLATERAL AGREEMENT
[THIRD PARTY]
In consideration of one of more loans, letters of credit or other
financial accommodations extended by THE CHASE MANHATTAN BANK or any of its
subsidiaries or affiliates (the "Bank"), to Roderick L. Turner and Vincent W.
Goett (the "Obligor") the undersigned and the Bank agree as follows:
1. DEFINITIONS.
"Collateral" means: (i) the Deposits, Securities and Account Assets
(as defined below) that are listed on Exhibit A; (ii) all additions to, and
proceeds, renewals, investments, reinvestments and substitutions of, the
foregoing, whether or not listed on Exhibit A; (iii) all certificates, receipts
and other instruments evidencing any of the foregoing. Notwithstanding anything
to the contrary in this Agreement, "Collateral shall not include any securities
issued by an affiliate of the Bank, including any of the VISTA family of funds.
"Deposits" means the deposits of the undersigned with the Bank
(whether or not held in trust, or in any custody, subcustody, safekeeping,
investment management accounts, or other accounts of the undersigned with the
Bank).
"Securities" means the stocks, bonds and other instruments and
securities (whether or not held in trust or in any custody, subcustody,
safekeeping, investment management accounts or other accounts of the undersigned
with the Bank or any other custodian, trustee or Clearing System or held by any
party as a financial intermediary or securities intermediary (the
"Intermediary").
"Account Assets" means all Deposits, Securities, securities
entitlements and any other assets held in trust, or in any custody, subcustody,
safekeeping, investment management accounts, or other accounts of the
undersigned with the Bank or any other custodian, trustee or Clearing System or
held by any Intermediary (all of which shall be considered "financial assets"
under the UCC).
"Clearing System" means the Depository Trust Company ("DTC") Cedel
Bank, societe anonyme, the Euroclear system and such other clearing or
safekeeping system that may from time to time be used in connection with
transactions relating to or the custody of any Securities, and any depository
for any of the foregoing.
"Liabilities" means indebtedness, obligations and liabilities of any
kind of the Obligor or of the undersigned to the Bank, now or in the future,
absolute or contingent, direct or indirect, joint or several, due or not due,
arising by operation of law or otherwise, and costs and expenses incurred by the
Bank in connection with the Collateral. this Agreement or any Liability
Document.
"Liability Document" means any instrument, agreement or document
evidencing or delivered in connection with the Liabilities.
"UCC" means the Uniform Commercial Code in effect in the State of
New York. Unless the context otherwise requires, all terms used in this
Agreement which are defined in the UCC will have the meanings stated in the UCC.
<PAGE> 10
2. GRANT OF SECURITY INTEREST.
As security for the payment of all the Liabilities, the undersigned
pledges, transfers and assigns to the Bank and grants to the Bank a security
interest in and right of setoff against, the Collateral.
3. AGREEMENTS OF THE UNDERSIGNED AND RIGHTS OF THE BANK.
The undersigned agrees as follows and irrevocably authorizes the Bank to
exercise the rights listed below, at its option, for its own benefit, either in
its own name or in the name of the undersigned, and appoints the Bank as its
attorney-in-fact to take all action permitted under this Agreement.
(a) Deposits: The Bank may: (i) renew the Deposits on terms and for
periods the Bank deems appropriate; (ii) demand, collect, and receive payment of
any monies or proceeds due or to become due under the Deposits; (iii) execute
any instruments required for the withdrawal or repayment of the Deposits; (iv)
in all respects deal with the Deposits as the owner; provided that, as to (ii)
through (iv), until the occurrence of a Default, the Bank will only take that
action if, in its judgment, failure to take that action would impair its rights
under this Agreement.
(b) SECURITIES: The Bank may: (i) transfer to the account of the Bank any
Securities whether in the possession of, or registered in the name of, any
Clearing System or held otherwise; (ii) transfer to the account of the Bank with
any Federal Reserve Bank any Securities held in book entry form with any such
Federal Reserve Bank; and (iii) transfer to the name of the Bank or its nominee
any Securities registered in the name of the undersigned and held by the Bank
and complete and deliver any necessary stock powers or other transfer
instruments; provided that until the occurrence of a Default, the Bank will only
take that action if, in its judgment, failure to take that action would impair
its rights under this Agreement or if such Securities are held in a custody,
investment management or similar account.
The undersigned grants to the Bank an irrevocable proxy to vote any and
all Securities and give consents, waivers and ratifications in connection with
those Securities; provided that until the occurrence of a Default the Bank will
only take that action if, in its judgment, failure to take that action would
impair its rights under this Agreement.
All payments, distributions and dividends in securities, property or cash
shall be paid directly to and, at the discretion of the Bank, retained by the
Bank and held by it, until applied as provided in this Agreement, as additional
Collateral; provided that until the occurrence of a Default, interest on
Deposits and cash dividends on Securities paid in the ordinary course will be
paid to the undersigned.
(c) GENERAL: The Bank may, in its name, or in the name of the undersigned:
(i) execute and file financing statements under the UCC or any other filings or
notices necessary or desirable to create, perfect or preserve its security
interest, all without notice (except as required by applicable law and not
waivable) and without liability except to account for property actually received
by it; (ii) demand, sue for, collect or receive any money or property at any
time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable with respect to, any item of the
Collateral (but shall be under no obligation to do so); (iii) make any
notification (to the issuer of any certificate or Security, or otherwise,
including giving any notice of exclusive control to the Intermediary) or take
any other action in connection with the perfection or preservation of its
security interest or any enforcement of remedies, and retain any documents
evidencing the title of the undersigned to any item of the Collateral; (iv)
issue entitlement orders with respect to any of the Collateral.
2
<PAGE> 11
The undersigned agrees that it will not file or permit to be filed any
financing or like statement with respect to the Collateral in which the Bank is
not named as the sole secured party, consent or be a party to any securities
account control agreement or other similar agreement with any Intermediary (an
"Account Control Agreement") to which the Bank is not also a party or sell,
assign, or otherwise dispose of, grant any option with respect to, or pledge, or
otherwise encumber the Collateral. At the request of the Bank the undersigned
agrees to do all other things which the Bank may deem necessary or advisable in
order to perfect and preserve the security interest and to give effect to the
rights granted to the Bank under this Agreement or enable the Bank to comply
with any applicable laws or regulations. Notwithstanding the foregoing, the Bank
does not assume any duty with respect to the Collateral and is not required to
take any action to collect, preserve or protect its or the undersigned's rights
in any item of the Collateral. The undersigned releases the Bank and agrees to
hold the Bank harmless from any claims, causes of action and demands at any time
arising with respect to this Agreement, the use or disposition of any item of
the Collateral or any action taken or omitted to be taken by the Bank with
respect thereto.
The rights granted to the Bank pursuant to this Agreement are in addition
to the rights granted to the Bank in any custody, investment management, trust,
Account Control Agreement or similar agreement. In case of conflict between the
provisions of this Agreement and of any other such agreement, the provisions of
this Agreement will prevail.
4. LOAN VALUE OF THE COLLATERAL.
The undersigned agrees that at all times the amount of the Liabilities may
not exceed the aggregate Loan Value of the Collateral. The undersigned will, at
the Bank's option, either supplement the Collateral or make, OR CAUSE TO BE
MADE, any payment under the Liabilities to the extent necessary to ensure
compliance with this provision or the Bank may liquidate Collateral to the
extent necessary to ensure compliance with this provision. "Loan Value" means
the value assigned by the Bank from time to time, in its sole reasonable
discretion, to each item of the Collateral.
5. CURRENCY CONVERSION.
For calculation purposes, any currency in which the Collateral is
denominated (the "Collateral Currency") will be converted into the currency of
the Liabilities (the "Liability Currency") at the spot rate of exchange for the
purchase of the Liability Currency with the Collateral Currency quoted by the
Bank at such place as the Bank deems appropriate (or, if no such rate is quoted
on any relevant date, estimated by the Bank on the basis of the Bank's last
quoted spot rate) or another prevailing rate that the Bank deems more
appropriate.
6. REPRESENTATIONS AND WARRANTIES.
The undersigned represents and warrants: (a) the undersigned is the sole
owner of the Collateral; (b) the Collateral is free of all encumbrances except
for the security interest in favor of the Bank created by this Agreement; (c) no
authorizations, consents or approvals and no notice to or filing with any
governmental authority or regulatory body is required for the execution and
delivery of this Agreement or the exercise by the Bank of its rights and
remedies; (d) the execution, delivery and performance of this Agreement will not
violate any provisions of applicable law, regulation or order and will not
result in the breach of, or constitute a default, or require any consent under,
any agreement, instrument or document to which the undersigned is a party or by
which it or any of its property may be bound or affected; (e) as to Deposits and
Account Assets, the undersigned has not withdrawn, canceled, been repaid or
redeemed all or any part of any Deposits or Account Assets and there is no such
pending application; (f) as to Securities, the Securities have been duly
authorized and are fully paid and non-assessable, there are no restrictions on
pledge of the Securities by the undersigned nor on sale of the Securities by the
Bank (whether pursuant to securities laws or regulations or shareholder, lock-up
or other similar agreements) and the Securities are fully marketable by the Bank
as pledgee, without regard to any holding period, manner of sale, volume
limitation, public information or notice requirements; (g) if the undersigned is
a corporation, partnership,
3
<PAGE> 12
limited liability company, limited liability partnership or trust, it is duly
organized and validly existing under the laws of the jurisdiction of its
organization, it has full power and authority to execute, deliver and perform
this Agreement, the execution, delivery and performance have been duly
authorized, will not conflict with any provisions of its governing instruments
and the Agreement is a legal, valid and binding obligation of the undersigned,
enforceable against it is accordance with its terms.
7. DEFAULT.
Each of the following is a default ("Default"):
(i) any sum payable on any of the Liabilities is not paid when due; (ii)
any representation and warranty of the undersigned or any party liable on or for
any of the Liabilities (including but not limited to the Obligor, a "Liability
Party") in this Agreement or in any Liability Document shall prove to have been
incorrect in any material respect on or after the date hereof, (iii) the
undersigned or any Liability Party fails to perform or observe any term,
covenant, or condition under this Agreement or under any Liability Document;
(iv) any indebtedness of the undersigned or any Liability Party or interest or
premium thereon is not paid when due (whether by scheduled maturity,
acceleration, demand or otherwise); (v) the undersigned or any Liability Party:
(a) is generally not, or is unable to, or admits in writing its inability to,
pay its debts as its debts become due; (b) makes an assignment for the benefit
or creditors, or petitions or applies to any tribunal for the appointment of a
custodian, receiver or trustee for its or a substantial part of its assets; (c)
commences any proceeding under any law relating to bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation; (d) has any such
petition filed, or any such proceeding has been commenced against it, in which
an adjudication is made or order for relief is entered or which remains
undismissed for a period of 30 days; (e) has a receiver, custodian or trustee
appointed for all or a substantial part of its property; or (f) takes any action
effectuating, approving or consenting to any of the events described in this
section (v); (vi) the undersigned or any Liability Party shall die, dissolve or
for any reason cease to be in existence or merge or consolidate; or if the
undersigned or any Liability Party is a partnership, limited liability
partnership or limited liability company, any general partner, partner or
member, respectively, shall die, dissolve or for any reason cease to be in
existence or cease to be a partner or member, as the case may be, or shall merge
or consolidate; (vii) the undersigned or any Liability Party is involved in a
proceeding relating to, or which may result in, a forfeiture of all or a
substantial part of the undersigned's or any Liability Party's assets or a
material judgment is entered against the undersigned or any Liability Party;
(viii) there is, in the opinion of the Bank, a material adverse change in the
business, prospects or financial condition of the undersigned or any Liability
Party; THEN, unless and to the extent that the Bank otherwise elects, the Bank
will be entitled to exercise any of the rights and remedies under this
Agreement.
8. REMEDIES.
On a Default, the Bank will have the rights and remedies under the UCC and
the other rights granted to the Bank under this Agreement and may exercise its
rights without regard to any premium or penalty from liquidation of any
Collateral and without regard to the undersigned's basis or holding period for
any Collateral.
The Bank may sell in the Borough of Manhattan, New York City, or
elsewhere, in one or more sales or parcels, at the price as the Bank deems best,
for cash or on credit or for other property, for immediate or future delivery,
any item of the Collateral, at any broker's board or at public or private sale,
in any reasonable manner permissible under the UCC (except that, to the extent
permissible under the UCC, the undersigned waives any requirements of the UCC)
and the Bank or anyone else may be the purchaser of the Collateral and hold it
free from any claim or right including, without limitation, any equity of
redemption of the undersigned, which right the undersigned expressly waives.
The Bank may also, in its sole discretion: (i) convert any part of the
Collateral Currency into the Liability Currency; (ii) hold any monies or
proceeds representing the Collateral in a cash collateral account in the
Liability
4
<PAGE> 13
Currency or other currency that the Bank reasonably selects; (iii) invest such
monies or proceeds on behalf of the undersigned; and (iv) apply any portion of
the Collateral, first, to all costs and expenses of the Bank, second, to the
payment of interest on the Liabilities and any fees or commissions to which the
Bank may be entitled, third, to the payment of principal of the Liabilities,
whether or not then due, and fourth, to the undersigned.
The undersigned will pay to the Bank all expenses (including reasonable
attorneys' fees and legal expenses incurred by the Bank and the allocated costs
of its in-house counsel) in connection with the exercise of any of the Bank's
rights or obligations under this Agreement or the Liability Documents. The
undersigned will take any action requested by the Bank to allow it to sell or
dispose of the Collateral. Notwithstanding that the Bank may continue to hold
Collateral and regardless of the value of the Collateral, the applicable
Liability Party will remain liable for the payment in full of any unpaid balance
of the Liabilities.
9. JURISDICTION.
The undersigned consents to the non-exclusive jurisdiction of the State
and Federal courts sitting in the City of New York and agrees that suit may be
brought against the undersigned in those courts or in any other jurisdiction
where the undersigned or any of its assets may be found, and the undersigned
irrevocably submits to the jurisdiction of those courts. The undersigned
consents to the service of process by mailing copies of process to the
undersigned at its most recent mailing address in the records of the Bank. The
undersigned further agrees that any action or proceeding brought against the
Bank may be brought only in a New York State or United States Federal court
sitting in New York County.
The undersigned agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit or proceeding in such state and hereby waives any defense on the basis of
an inconvenient forum. Nothing herein shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the undersigned or its
property in the courts of any other jurisdiction.
10. WAIVER OF JURY TRIAL.
THE UNDERSIGNED AND THE BANK EACH WAIVE ANY RIGHT TO JURY TRIAL.
11. NOTICES.
Unless otherwise agreed in writing, notices may be given to the Bank and
the undersigned at their telecopier numbers (confirmed by telephone to their
telephone numbers) or addresses listed on the signature page of this Agreement,
or such other telecopier (and telephone) number or addresses communicated in
writing by either party to the other. Notices to the Bank are effective on
receipt.
12. UNCONDITIONAL OBLIGATIONS.
The undersigned's obligations under this Agreement are unconditional
without regard to: (i) any lack of validity or enforceability of any of the
Liabilities or any agreement or instrument relating to the Liabilities; (ii) any
change in the time, manner or place of payment of, or in any other term of any
of the Liabilities or any other amendment or waiver of, any agreement or
instrument relating to the Liabilities; (iii) any release, exchange, perfection
or non-perfection of any item of the Collateral or any release or amendment or
waiver of, any guaranty, subordination or other credit support for any of the
Liabilities; (iv) the release or discharge in full or in part of any Obligor;
(v) any other circumstance that might otherwise constitute a defense or
discharge of the Obligor or a guarantor of the Liabilities or a party agreeing
to subordinate its claim to the Liabilities; or (vi) any law, regulation or
order now or later in effect affecting the Liabilities or any agreement or
instrument relating to any of the Liabilities.
5
<PAGE> 14
13. MISCELLANEOUS.
(a) The Bank may assign any of the Collateral and any of its interests in
this Agreement (and may assign the Liabilities to any party) and will be fully
discharged from all responsibility as to the assigned Collateral. That assignee
will have all the powers and rights of the Bank hereunder, but only as to the
assigned Collateral.
(b) No amendment or waiver of any provision of this Agreement nor consent
to any departure by the undersigned will be effective unless it is in writing
and signed by the undersigned and the Bank and will be effective only in that
specific instance and for that specific purpose. No failure on the part of the
Bank to exercise, and no delay in exercising, any right will operate as a waiver
or preclude any other or further exercise or the exercise of any other right.
(c) The rights and remedies in this Agreement are cumulative and not
exclusive of any rights and remedies which the Bank may have under law or under
other agreements or arrangements with the undersigned or any Liability Party.
(d) The provisions of this Agreement are intended to be severable. If for
any reason any provision of this Agreement is not valid or enforceable in whole
or in part in any jurisdiction, that provision will, as to that jurisdiction, be
ineffective to the extent of that invalidity or unenforceability without in any
manner affecting the validity or enforceability in any other jurisdiction or the
remaining provisions of this Agreement.
(e) The term "undersigned" will include all signatories, if more than one,
and the terms, covenants and conditions and the representations and warranties
will be joint and several. The term "undersigned" will also include the heirs,
executors, administrators, assigns and successors of the undersigned.
(f) The undersigned hereby waives presentment, notice of dishonor and
protest of all instruments included in or evidencing the Liabilities or the
Collateral and any other notices and demands, whether or not relating to those
instruments.
6
<PAGE> 15
(g) This Agreement is governed by and construed according to the laws of
the State of New York.
IN WITNESS WHEREOF, the undersigned has signed this Agreement this ___ day of
______, ______.
ACCEPTED:
The Chase Manhattan Bank
By: ___________________________
Name:
Title:
ADDRESS FOR NOTICES TO THE BANK:
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, New York 10036
Attn: Amy Bergner
Telecopier:
Telephone:
By: /s/ Terry C. Turner
Terry C. Turner
Address for notices:
___________________________
___________________________
___________________________
Telecopier:
Telephone:
7
<PAGE> 16
EXHIBIT A
DESCRIPTION OF THE COLLATERAL
1. DEPOSITS
Type of Location
Deposit (NY,
(CD, TD, IBF-NY, Contract or Issue or Maturity Principal
etc.) etc.) Certificate No. Opening Date Date Amount
----- ----- --------------- ------------ ---- ------
Savings NY 9/18/98 $386M
967311284
2. STOCKS, BONDS AND OTHER INSTRUMENTS AND SECURITIES
Nature of Security Number of Face Amount Certificate
or Obligation Name of Issuer Units (if Applicable) Number
------------- -------------- ----- --------------- ------
3. ALL ASSETS HELD OR TO BE HELD IN THE FOLLOWING CUSTODY OR SUBCUSTODY
ACCOUNTS, SAFEKEEPING ACCOUNTS, INVESTMENT MANAGEMENT ACCOUNTS AND/OR OTHER
ACCOUNT WITH INTERMEDIARY:
Type of Account Account Number Entity/Location
--------------- -------------- ---------------
8
<PAGE> 17
[LOGO] CHASE
COLLATERAL AGREEMENT
[THIRD PARTY]
In consideration of one of more loans, letters of credit or other
financial accommodations extended by THE CHASE MANHATTAN BANK or any of its
subsidiaries or affiliates (the "Bank"), to Roderick L. Turner and Vincent W.
Goett (the "Obligor") the undersigned and the Bank agree as follows:
1. DEFINITIONS.
"Collateral" means: (i) the Deposits, Securities and Account Assets
(as defined below) that are listed on Exhibit A; (ii) all additions to, and
proceeds, renewals, investments, reinvestments and substitutions of, the
foregoing, whether or not listed on Exhibit A; (iii) all certificates, receipts
and other instruments evidencing any of the foregoing. Notwithstanding anything
to the contrary in this Agreement, "Collateral shall not include any securities
issued by an affiliate of the Bank, including any of the VISTA family of funds.
"Deposits" means the deposits of the undersigned with the Bank
(whether or not held in trust, or in any custody, subcustody, safekeeping,
investment management accounts, or other accounts of the undersigned with the
Bank).
"Securities" means the stocks, bonds and other instruments and
securities (whether or not held in trust, or in any custody, subcustody,
safekeeping, investment management accounts or other accounts of the undersigned
with the Bank or any other custodian, trustee or Clearing System or held by any
party as a financial intermediary or securities intermediary (the
"Intermediary").
"Account Assets" means all Deposits, Securities, securities
entitlements and any other assets held in trust, or in any custody, subcustody,
safekeeping investment, management accounts, or other accounts of the
undersigned with the Bank or any other custodian, trustee or Clearing System or
held by any Intermediary (all of which shall be considered "financial assets"
under the UCC).
"Clearing System" means the Depository Trust Company ("DTC") Cedel
Bank, societe anoyme, the Euroclear system and such other clearing or
safekeeping system that may from time to time be used in connection with
transactions relating to or the custody of any Securities, and any depository
for any of the foregoing.
"Liabilities" means indebtedness, obligations and liabilities of any
kind of the Obligor or of the undersigned to the Bank, now or in the future,
absolute or contingent, direct or indirect, joint or several, due or not due,
arising by operation of law or otherwise, and costs and expenses incurred by the
Bank in connection with the Collateral, this Agreement or any Liability
Document.
"Liability Document" means any instrument, agreement or document
evidencing or delivered in connection with the Liabilities.
"UCC" means the Uniform Commercial Code in effect in the State of
New York. Unless the context otherwise requires, all terms used in this
Agreement which are defined in the UCC will have the meanings stated in the UCC.
<PAGE> 18
2. GRANT OF SECURITY INTEREST.
As security for the payment of all the Liabilities, the undersigned
pledges, transfers and assigns to the Bank and grants to the Bank a security
interest in and right of setoff against, the Collateral.
3. AGREEMENTS OF THE UNDERSIGNED AND RIGHTS OF THE BANK.
The undersigned agrees as follows and irrevocably authorizes the Bank to
exercise the rights listed below, at its option, for its own benefit, either in
its own name or in the name of the undersigned, and appoints the Bank as its
attorney-in-fact to take all action permitted under this Agreement.
(a) DEPOSITS: The Bank may: (i) renew the Deposits on terms and for
periods the Bank deems appropriate; (ii) demand, collect, and receive payment of
any monies or proceeds due or to become due under the Deposits; (iii) execute
any instruments required for the withdrawal or repayment of the Deposits; (iv)
in all respects deal with the Deposits as the owner; provided that, as to (ii)
through (iv), until the occurrence of a Default, the Bank will only take that
action if, in its Judgment, failure to take that action would impair its rights
under this Agreement.
(b) SECURITIES: The Bank may: (i) transfer to the account of the Bank any
Securities whether in the possession of, or registered in the name of, any
Clearing System or held otherwise; (ii) transfer to the account of the Bank with
any Federal Reserve Bank any Securities held in book entry form with any such
Federal Reserve Bank; and (iii) transfer to the name of the Bank or its nominee
any Securities registered in the name of the undersigned and held by the Bank
and complete and deliver any necessary stock powers or other transfer
instruments; provided that until the occurrence of a Default, the Bank will only
take that action if, in its judgment, failure to take that action would impair
its rights under this Agreement or if such Securities are held in a custody,
investment management or similar account.
The undersigned grants to the Bank an irrevocable proxy to vote any and
all Securities and give consents, waivers and ratifications in connection with
those Securities; provided that until the occurrence of a Default the Bank will
only take that action if, in its judgment, failure to take that action would
impair its rights under this Agreement.
All payments, distributions and dividends in securities, property or cash
shall be paid directly to and, at the discretion of the Bank, retained by the
Bank and held by it, until applied as provided in this Agreement, as additional
Collateral; provided that until the occurrence of a Default, interest on
Deposits and cash dividends on Securities paid in the ordinary course will be
paid to the undersigned.
(c) GENERAL: The Bank may, in its name, or in the name of the undersigned:
(i) execute and file financing statements under the UCC or any other filings or
notices necessary or desirable to create, perfect or preserve its security
interest, all without notice (except as required by applicable law and not
waivable) and without liability except to account for property actually received
by it; (ii) demand, sue for, collect or receive any money or property at any
time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable with respect to, any item of the
Collateral (but shall be under no obligation to do so); (iii) make any
notification (to the issuer of any certificate or Security, or otherwise,
including giving any notice of exclusive control to the Intermediary) or take
any other action in connection with the perfection or preservation of its
security interest or any enforcement of remedies, and retain any documents
evidencing the title of the undersigned to any item of the Collateral; (iv)
issue entitlement orders with respect to any of the Collateral.
2
<PAGE> 19
The undersigned agrees that it will not file or permit to be filed any
financing or like statement with respect to the Collateral in which the Bank is
not named as the sole secured party, consent or be a party to any securities
account control agreement or other similar agreement with any Intermediary (an
"Account Control Agreement") to which the Bank is not also a party or sell,
assign, or otherwise dispose of, grant any option with respect to, or pledge, or
otherwise encumber the Collateral. At the request of the Bank the undersigned
agrees to do all other things which the Bank may deem necessary or advisable in
order to perfect and preserve the security interest and to give effect to the
rights granted to the Bank under this Agreement or enable the Bank to comply
with any applicable laws or regulations. Notwithstanding the foregoing, the Bank
does not assume any duty with respect to the Collateral and is not required to
take any action to collect, preserve or protect its or the undersigned's rights
in any item of the Collateral. The undersigned releases the Bank and agrees to
hold the Bank harmless from any claims, causes of action and demands at any time
arising with respect to this Agreement, the use or disposition of any item of
the Collateral or any action taken or omitted to be taken by the Bank with
respect thereto.
The rights granted to the Bank pursuant to this Agreement are in addition
to the rights granted to the Bank in any custody, investment management, trust,
Account Control Agreement or similar agreement. In case of conflict between the
provisions of this Agreement and of any other such agreement, the provisions of
this Agreement will prevail.
4. LOAN VALUE OF THE COLLATERAL.
The undersigned agrees that at all times the amount of the Liabilities may
not exceed the aggregate Loan Value of the Collateral. The undersigned will, at
the Bank's option, either supplement the Collateral or make, OR CAUSE TO BE
MADE, any payment under the Liabilities to the extent necessary to ensure
compliance with this provision or the Bank may liquidate Collateral to the
extent necessary to ensure compliance with this provision. "Loan Value" means
the value assigned by the Bank from time to time, in its sole reasonable
discretion, to each item of the Collateral.
5. CURRENCY CONVERSION.
For calculation purposes, any currency in which the Collateral is
denominated (the "Collateral Currency") will be converted into the currency of
the Liabilities (the "Liability Currency") at the spot rate of exchange for the
purchase of the Liability Currency with the Collateral Currency quoted by the
Bank at such place as the Bank deems appropriate (or, if no such rate is quoted
on any relevant date, estimated by the Bank on the basis of the Bank's last
quoted spot rate) or another prevailing rate that the Bank deems more
appropriate.
6. REPRESENTATIONS AND WARRANTIES.
The undersigned represents and warrants: (a) the undersigned is the sole
owner of the Collateral; (b) the Collateral is free of all encumbrances except
for the security interest in favor of the Bank created by this Agreement; (c) no
authorizations, consents or approvals and no notice to or filing with any
governmental authority or regulatory body is required for the execution and
delivery of this Agreement or the exercise by the Bank of its rights and
remedies; (d) the execution, delivery and performance of this Agreement will not
violate any provisions of applicable law, regulation or order and will not
result in the breach of, or constitute a default, or require any consent under,
any agreement, instrument or document to which the undersigned is a party or by
which it or any of its property may be bound or affected; (e) as to Deposits and
Account Assets, the undersigned has not withdrawn, canceled, been repaid or
redeemed all or any part of any Deposits or Account Assets and there is no such
pending application; (f) as to Securities, the Securities have been duly
authorized and are fully paid and non-assessable, there are no restrictions on
pledge of the Securities by the undersigned nor on sale of the Securities by the
Bank (whether pursuant to securities laws or regulations or shareholder, lock-up
or other similar agreements) and the Securities are fully marketable by the Bank
as pledgee, without regard to any holding period, manner of sale, volume
limitation, public information or notice requirements; (g) if the undersigned is
a corporation, partnership,
3
<PAGE> 20
limited liability company, limited liability partnership or trust, it is duly
organized and validly existing under the laws of the jurisdiction of its
organization, it has full power and authority to execute, deliver and perform
this Agreement, the execution, delivery and performance have been duly
authorized, will not conflict with any provisions of its governing instruments
and the Agreement is a legal, valid and binding obligation of the undersigned,
enforceable against it is accordance with its terms.
7. DEFAULT.
Each of the following is a default ("Default"):
(i) any sum payable on any of the Liabilities is not paid when due; (ii)
any representation and warranty of the undersigned or any party liable on or for
any of the Liabilities (including but not limited to the Obligor, a "Liability
Party") in this Agreement or in any Liability Document shall prove to have been
incorrect in any material respect on or after the date hereof; (iii) the
undersigned or any Liability Party fails to perform or observe any term,
covenant, or condition under this Agreement or under any Liability Document;
(iv) any indebtedness of the undersigned or any Liability Party or interest or
premium thereon is not paid when due (whether by scheduled maturity,
acceleration, demand or otherwise); (v) the undersigned or any Liability Party:
(a) is generally not, or is unable to, or admits in writing its inability to,
pay its debts as its debts become due; (b) makes an assignment for the benefit
or creditors, or petitions or applies to any tribunal for the appointment of a
custodian, receiver or trustee for its or a substantial part of its assets; (c)
commences any proceeding under any law relating to bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation; (d) has any such
petition filed, or any such proceeding has been commenced against it, in which
an adjudication is made or order for relief is entered or which remains
undismissed for a period of 30 days; (e) has a receiver, custodian or trustee
appointed for all or a substantial part of its property; or (f) takes any action
effectuating, approving or consenting to any of the events described in this
section (v); (vi) the undersigned or any Liability Party shall die, dissolve or
for any reason cease to be in existence or merge or consolidate; or if the
undersigned or any Liability Party is a partnership, limited liability
partnership or limited liability company, any general partner, partner or
member, respectively, shall die, dissolve or for any reason cease to be in
existence or cease to be a partner or member, as the case may be, or shall merge
or consolidate; (vii) the undersigned or any Liability Party is involved in a
proceeding relating to, or which may result in, a forfeiture of all or a
substantial part of the undersigned's or any Liability Party's assets or a
material judgement is entered against the undersigned or any Liability Party;
(viii) there is, in the opinion of the Bank, a material adverse change in the
business, prospects or financial condition of the undersigned or any Liability
Party; THEN, unless and to the extent that the Bank otherwise elects, the Bank
will be entitled to exercise any of the rights and remedies under this
Agreement.
8. REMEDIES.
On a Default, the Bank will have the rights and remedies under the UCC and
the other rights granted to the Bank under this Agreement and may exercise its
rights without regard to any premium or penalty from liquidation of any
Collateral and without regard to the undersigned's basis or holding period for
any Collateral.
The Bank may sell in the Borough of Manhattan, New York City, or
elsewhere, in one or more sales or parcels, at the price as the Bank deems best,
for cash or on credit or for other property, for immediate or future delivery,
any item of the Collateral, at any broker's board or at public or private sale,
in any reasonable manner permissible under the UCC (except that, to the extent
permissible under the UCC, the undersigned waives any requirements of the UCC)
and the Bank or anyone else may be the purchaser of the Collateral and hold it
free from any claim or right including, without limitation, any equity of
redemption of the undersigned, which right the undersigned expressly waives.
The Bank may also, in its sole discretion: (i) convert any part of the
Collateral Currency into the Liability Currency; (ii) hold any monies or
proceeds representing the Collateral in a cash collateral account in the
Liability
4
<PAGE> 21
Currency or other currency that the Bank reasonably selects; (iii) invest such
monies or proceeds on behalf of the undersigned; and (iv) apply any portion of
the Collateral, first, to all costs and expenses of the Bank, second, to the
payment of interest on the Liabilities and any fees or commissions to which the
Bank may be entitled, third, to the payment of principal of the Liabilities,
whether or not then due, and fourth, to the undersigned.
The undersigned will pay to the Bank all expenses (including reasonable
attorneys' fees and legal expenses incurred by the Bank and the allocated costs
of its in-house counsel) in connection with the exercise of any of the Bank's
rights or obligations under this Agreement or the Liability Documents. The
undersigned will take any action requested by the Bank to allow it to sell or
dispose of the Collateral. Notwithstanding that the Bank may continue to hold
Collateral and regardless of the value of the Collateral, the applicable
Liability Party will remain liable for the payment in full of any unpaid balance
of the Liabilities.
9. JURISDICTION.
The undersigned consents to the non-exclusive jurisdiction of the State
and Federal courts sitting in the City of New York and agrees that suit may be
brought against the undersigned in those courts or in any other jurisdiction
where the undersigned or any of its assets may be found, and the undersigned
irrevocably submits to the jurisdiction of those courts. The undersigned
consents to the service of process by mailing copies of process to the
undersigned at its most recent mailing address in the records of the Bank. The
undersigned further agrees that any action or proceeding brought against the
Bank may be brought only in a New York State or United States Federal court
sitting in New York County.
The undersigned agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit or proceeding in such state and hereby waives any defense on the basis of
an inconvenient forum. Nothing herein shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the undersigned or its
property in the courts of any other jurisdiction.
10. WAIVER OF JURY TRIAL.
THE UNDERSIGNED AND THE BANK EACH WAIVE ANY RIGHT TO JURY TRIAL.
11. NOTICES.
Unless otherwise agreed in writing, notices may be given to the Bank and
the undersigned at their telecopier numbers (confirmed by telephone to their
telephone numbers) or addresses listed on the signature page of this Agreement,
or such other telecopier (and telephone) number or addresses communicated in
writing by either party to the other. Notices to the Bank are effective on
receipt.
12. UNCONDITIONAL OBLIGATIONS.
The undersigned's obligations under this Agreement are unconditional
without regard to: (i) any lack of validity or enforceability of any of the
Liabilities or any agreement or instrument relating to the Liabilities; (ii) any
change in the time, manner or place of payment of, or in any other term of any
of the Liabilities or any other amendment or waiver of, any agreement or
instrument relating to the Liabilities; (iii) any release, exchange, perfection
or non-perfection of any item of the Collateral or any release or amendment or
waiver of, any guaranty, subordination or other credit support for any of the
Liabilities; (iv) the release or discharge in full or in part of any Obligor;
(v) any other circumstance that might otherwise constitute a defense or
discharge of the Obligor or a guarantor of the Liabilities or a party agreeing
to subordinate its claim to the Liabilities; or (vi) any law, regulation or
order now or later in effect affecting the Liabilities or any agreement or
instrument relating to any of the Liabilities.
5
<PAGE> 22
13. Miscellaneous.
(a) The Bank may assign any of the Collateral and any of its interests in
this Agreement (and may assign the Liabilities to any party) and will be fully
discharged from all responsibility as to the assigned Collateral. That assignee
will have all the powers and rights of the Bank hereunder, but only as to the
assigned Collateral.
(b) No amendment or waiver of any provision of this Agreement nor consent
to any departure by the undersigned will be effective unless it is in writing
and signed by the undersigned and the Bank and will be effective only in that
specific instance and for that specific purpose. No failure on the part of the
Bank to exercise, and no delay in exercising, any right will operate as a waiver
or preclude any other or further exercise or the exercise of any other right.
(c) The rights and remedies in this Agreement are cumulative and not
exclusive of any rights and remedies which the Bank may have under law or under
other agreements or arrangements with the undersigned or any Liability Party.
(d) The provisions of this Agreement are intended to be severable. If for
any reason any provision of this Agreement is not valid or enforceable in whole
or in part in any jurisdiction, that provision will, as to that jurisdiction, be
ineffective to the extent of that invalidity or unenforceability without in any
manner affecting the validity or enforceability in any other jurisdiction or the
remaining provisions of this Agreement.
(e) The term "undersigned" will include all signatories, if more than one,
and the terms, covenants and conditions and the representations and warranties
will be joint and several. The term "undersigned" will also include the heirs,
executors, administrators, assigns and successors of the undersigned.
(f) The undersigned hereby waives presentment, notice of dishonor and
protest of all instruments included in or evidencing the Liabilities or the
Collateral and any other notices and demands, whether or not relating to those
instruments.
6
<PAGE> 23
(g) This Agreement is governed by and construed according to the laws of
the State of New York.
IN WITNESS WHEREOF, the undersigned has signed this Agreement this ___ day of
______, ______.
ACCEPTED:
The Chase Manhattan Bank
By: __________________________________
Name:
Title:
ADDRESS FOR NOTICES TO THE BANK:
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, New York 10036
Attn: Amy Bergner
Telecopier:
Telephone:
By: /s/ T. Valdetaire Turner
T. Valdetaire Turner
Address for notices:
__________________________________
__________________________________
__________________________________
Telecopier:
Telephone:
7
<PAGE> 24
EXHIBIT A
DESCRIPTION OF THE COLLATERAL
1. DEPOSITS
Type of Location
Deposit (NY,
(CD, TD, IBF-NY, Contract or Issue or Maturity Principal
etc.) etc.) Certificate No. Opening Date Date Amount
----- ----- --------------- ------------ ---- ------
2. STOCKS, BONDS AND OTHER INSTRUMENTS AND SECURITIES
Nature of Security Number of Face Amount Certificate
or Obligation Name of Issuer Units (if Applicable) Number
------------- -------------- ----- --------------- ------
3. ALL ASSETS HELD OR TO BE HELD IN THE FOLLOWING CUSTODY OR SUBCUSTODY
ACCOUNTS, SAFEKEEPING ACCOUNTS, INVESTMENT MANAGEMENT ACCOUNTS AND/OR OTHER
ACCOUNT WITH INTERMEDIARY:
Type of Account Account Number Entity/Location
- --------------- -------------- ---------------
Custody 5402671 Chase/NY
8
<PAGE> 1
Exhibit: 10.61FT
SUBORDINATION, PRIORITY
AND
SECURITY AGREEMENT
THIS AGREEMENT is made as of December 3, 1998, by and among Futech
Interactive Products, Inc., an Arizona corporation ("Futech"), Vincent W. Goett
("Goett"), and F. Keith Withycombe and Patricia A. Withycombe, husband and wife
("Withycombe").
R E C I T A L S:
A. Bank of America ("Lender") and Futech entered into a loan dated
December 3, 1998 (the "Financing Agreement").
B. Goett and Withycombe executed a Guaranty, dated December 3, 1998
(the "Guaranty"), in favor of Lender in connection with the Financing Agreement.
Goett and Withycombe are sometimes hereinafter collectively referred to as the
"Guarantors." In the Guaranty, the Guarantors guaranteed certain debts of Futech
owing to Lender.
C. The parties hereto desire to set out in writing their agreement
regarding the Guaranty, the Financing Agreement, and certain related matters.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
T E R M S:
1. FUTECH'S OBLIGATION: SECURITY AGREEMENT. Futech hereby agrees to
indemnify, defend and hold Guarantors harmless from and against any and all
claims, of any type or nature, including but not limited to attorneys' fees and
costs, incurred by Guarantors in connection with the Guaranty.
As collateral security for said obligation, Futech hereby grants to
each Guarantor a security interest in any and all assets now owned or hereafter
acquired by Futech. In the event of default by Futech of its obligations under
this Section, Guarantors shall have all rights with respect to such collateral
as are available to a secured party under the Uniform Commercial Code in the
State of Arizona, or in any other state as necessary or appropriate in
connection with the collateral held, as the same may from time to time be
changed. Futech agrees to execute and deliver to Guarantors and pay the costs of
filing and/or recording financing statements evidencing this security agreement,
and any other documents necessary or appropriate to perfect this security
interest.
2. PRIORITY. Notwithstanding any other provision of this Agreement, or
any other document to which the parties hereto are bound, the parties agree that
the following priority shall apply to the security interests described below
encumbering Futech's assets, as of the date of this Agreement:
(a) The first priority shall be the lien of Lender.
<PAGE> 2
(b) The second priority shall be the liens of Guarantors
described herein. Proceeds to the Guarantors shall be paid to and shared between
the Guarantors in proportion to the amounts paid by the Guarantors on the
guaranteed debt. For example, if Goett pays $200,000.00 on the Guaranty and
Withycombe pays $100,000.00 on the Guaranty, then amounts collected by
Guarantors in reimbursement of obligations paid under the Guaranty shall be for
the benefit of Goett and Withycombe 2/3 and 1/3, respectively, until the full
$300,000.00 is repaid to Guarantors.
(c) The third priority shall be for other security interests
of Goett against Futech's assets existing as of the date of this Agreement.
Each party to this Agreement hereby unconditionally subordinates said
party's lien to the other liens identified above as being prior to said lien, to
the extent necessary to accomplish the priority of liens as described above.
3. EQUAL CONTRIBUTIONS BY GUARANTORS. Guarantors hereby agree that
should either Guarantor be obligated to pay any amount or incur any expense in
connection with the Guaranty, then the Guarantors shall share equally in payment
of said amount, including but not limited to attorneys' fees and costs.
4. WARRANTS.
(a) Withycombe-$6,000,000 Working Capital Loan. As part of the
consideration for Withycombe executing that portion of the Guaranty relating to
the $6,000,000.00 working capital loan, effective immediately and automatically
upon execution by Withycombe of the Guaranty, Futech shall be obligated to issue
to Withycombe, as soon as is practicable, warrants in the form of Exhibit "A"
attached hereto and hereby made a part hereof, for Withycombe to acquire
18,000,000 shares of common stock of Futech at a price of $.05 per share. The
common stock acquired by Withycombe under this provision shall contain all of
the rights and restrictions applicable to the common stock of Futech. Futech
makes and has made no representation or warranty as to the value of Futech's
stock, such value being Withycombe's risk.
(b) Goett-$6,000,000 Working Capital Loan. As part of the
consideration for Goett executing that portion of the Guaranty relating to the
$6,000,000.00 working capital loan, effective immediately and automatically upon
execution by Goett of the Guaranty, Futech shall be obligated to issue to Goett,
as soon as is practicable, warrants in the form of Exhibit "A" attached hereto
and hereby made a part hereof, for Goett to acquire 18,000,000 shares of common
stock of Futech at a price of $.05 per share. The common stock acquired by Goett
under this provision shall contain all of the rights and restrictions applicable
to the common stock of Futech. Futech makes and has made no representation or
warranty as to the value of Futech's stock, such value being Goett's risk.
(c) Withycombe-$1,000,000 Letters of Credit. As part of the
consideration for Withycombe executing that portion of the Guaranty relating to
the issuance of documentary letters of credit, effective immediately and
automatically upon execution by Withycombe of the Guaranty, Futech shall be
obligated to issue to Withycombe, as soon as is practicable, warrants in the
form of Exhibit "A" attached hereto and hereby made a part hereof, for
Withycombe to acquire 3,000,000 shares of common stock of Futech at a price of
$.05 per share. The common stock acquired by Withycombe under this provision
shall contain all of the rights and restrictions applicable to the
2
<PAGE> 3
common stock of Futech. Futech makes and has made no representation or warranty
as to the value of Futech's stock, such value being Withycombe's risk.
(d) Goett-$1,000,000 Letters of Credit. As part of the
consideration for Goett executing that portion of the Guaranty relating to the
issuance of documentary letters of credit, effective immediately and
automatically upon execution by Goett of the Guaranty, Futech shall be obligated
to issue to Goett, as soon as is practicable, warrants in the form of Exhibit
"A" attached hereto and hereby made a part hereof, for Goett to acquire
3,000,000 shares of common stock of Futech at a price of $.05 per share. The
common stock acquired by Goett under this provision shall contain all of the
rights and restrictions applicable to the common stock of Futech. Futech makes
and has made no representation or warranty as to the value of Futech's stock,
such value being Goett's risk.
(e) Rosepink-Facilitation Fee. As the consideration for
Robert Rosepink ("Rosepink") facilitating the Bank of America loan transaction,
effective immediately and automatically at the closing of the Bank of America
loan transaction, Futech shall be obligated to issue to Rosepink, as soon as is
practicable, warrants in the form of Exhibit "A" attached hereto and hereby made
a part hereof, for Rosepink to acquire 4,000,000 shares of common stock of
Futech at a price of $.05 per share. The common stock acquired by Rosepink under
this provision shall contain all of the rights and restrictions applicable to
the common stock of Futech. Futech makes and has made no representation or
warranty as to the value of Futech's stock, such value being Rosepink's risk.
(f) Withycombe-Representations and Warranties. Withycombe
hereby makes the representations and warranties set out on Exhibit "B" attached
hereto and hereby made a part hereof. On said Exhibit "B," Withycombe is
referred as the "Subscriber," Futech is referred to as the "Company," and the
warrants described herein and the Futech stock to be acquired by Withycombe
under this Agreement are referred to as the "Shares."
Withycombe acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and agrees
to indemnify and defend and hold harmless Futech, and Futech's directors,
officers, agents, employees and attorneys, from and against any and all claims,
loss, damage, liability, cost or expense, including attorneys' fees and courts
costs, due to or arising out of or connected directly or indirectly with or to
any breach of any such representation or warranty made by Withycombe.
Withycombe's representations and warranties appearing herein
are made as of the date hereof and as of the date of exercise of the warrants.
Withycombe's act of exercising the warrants shall constitute Withycombe's
confirmation of the representations and warranties appearing herein as of the
date of the exercise.
(g) Goett-Representations and Warranties. Goett hereby makes
the representations and warranties set out on Exhibit "B" attached hereto and
hereby made a part hereof. On said Exhibit "B," Goett is referred as the
"Subscriber," Futech is referred to as the "Company," and the warrants described
herein and the Futech stock to be acquired by Goett under this Agreement are
referred to as the "Shares."
Goett acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and agrees
to indemnify and defend and hold
3
<PAGE> 4
harmless Futech, and Futech's directors, officers, agents, employees and
attorneys, from and against any and all claims, loss, damage, liability, cost or
expense, including attorneys' fees and courts costs, due to or arising out of or
connected directly or indirectly with or to any breach of any such
representation or warranty made by Goett.
Goett's representations and warranties appearing herein are
made as of the date hereof and as of the date of exercise of the warrants.
Goett's act of exercising the warrants shall constitute Goett's confirmation of
the representations and warranties appearing herein as of the date of the
exercise.
5. DIRECTOR'S SEAT. Simultaneously with the execution of this
Agreement, Futech will deliver to Withycombe a Voting Agreement in the form of
Exhibit "C" attached hereto and hereby made a part hereof.
6. MISCELLANEOUS. This Agreement constitutes the entire understanding
and agreement of the parties as to the matters set forth in this Agreement. No
alteration or amendment of this Agreement shall be effective unless made in
writing and signed by all of the parties hereto. If arbitration or other legal
action is instituted under this Agreement, then the prevailing party in such
action shall be entitled to recover from the other party(s) to the action
reasonable attorneys' fees and costs. The titles and headings of the Sections of
this Agreement are for the convenience of reference only, and shall not affect a
construction of any provision of this Agreement. There are no oral promises,
conditions, representations, understandings, interpretations, or terms of any
kind as conditions or inducements to the execution hereof, or otherwise in
effect among the parties, except as may otherwise expressly be provided for
herein. If any provision of this Agreement shall be held to any extent to be
invalid or unenforceable, then the remaining terms and conditions of this
Agreement shall be valid and shall be enforceable to the fullest extent
permitted by law. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Agreement or by reason of this Agreement. The parties agree that any litigation
or arbitration arising from the interpretation or enforcement of this Agreement
shall be only in either Maricopa County Superior Court or in the United States
Federal District Court for the District of Arizona, and for this purpose each
party to this Agreement (and each person who shall become a party) hereby
expressly and irrevocably consents to the jurisdiction and venue of such courts.
This Agreement may be executed by the parties in one or more counterparts, and
any number of counterparts signed in the aggregate by the parties shall
constitute a single instrument. The parties authorize and agree to accept
facsimile signatures in counterparts to this Agreement, and that said facsimile
signatures shall for all purposes be binding upon the parties as if the same
were original signatures. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the party(s) to be bound by the modification or waiver. Any rule
of construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply to the interpretation of this Agreement or any
amendment hereto. This Agreement has been reached by negotiation and shall
therefore not be construed against the drafting party. No waiver of any
agreement or provision contained herein shall be deemed a waiver of any
preceding or succeeding breach thereof or of any other agreement or provision
herein contained.
DATED the date first hereinabove written.
FUTECH: Futech Interactive Products, Inc.,
an Arizona corporation
4
<PAGE> 5
BY: /s/ Vincent W. Goett
-------------------------------
Vincent W. Goett, CEO
GOETT: /s/ Vincent W. Goett
-----------------------------------
Vincent W. Goett
WITHYCOMBE: /s/ F. Keith Withycombe
-----------------------------------
F. Keith Withycombe
/s/ Patricia A. Withycombe
-----------------------------------
Patricia A. Withycombe
Rosepink Representations and Warranties:
Rosepink hereby makes the representations and warranties set out on
Exhibit "B" attached hereto and hereby made a part hereof. On said Exhibit "B,"
Rosepink is referred as the "Subscriber," Futech is referred to as the
"Company," and the warrants described herein and the Futech stock to be acquired
by Rosepink under this Agreement are referred to as the "Shares."
Rosepink acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and agrees
to indemnify and defend and hold harmless Futech, and Futech's directors,
officers, agents, employees and attorneys, from and against any and all claims,
loss, damage, liability, cost or expense, including attorneys' fees and courts
costs, due to or arising out of or connected directly or indirectly with or to
any breach of any such representation or warranty made by Rosepink.
Rosepink's representations and warranties appearing herein are made as
of the date hereof and as of the date of exercise of the warrants. Rosepink's
act of exercising the warrants shall constitute Rosepink's confirmation of the
representations and warranties appearing herein as of the date of the exercise.
/s/ Robert J. Rosepink
- -----------------------------
Robert J. Rosepink
List of Exhibits
Form of Warrant "A"
Representations and Warranties "B"
Voting Agreement "C"
5
<PAGE> 6
EXHIBIT "B"
Subscriber hereby represents, warrants and acknowledges to the
Company as follows:
1. The Shares will be acquired by Subscriber for Subscriber's own
account and not with the view to, or for resale in connection with, any
distribution, public offering or transfer thereof within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), and Subscriber is not,
directly or indirectly, participating in an underwriting of any such
distribution, offering, or transfer.
2. Subscriber understands that the Shares have not been registered
under the 1933 Act by reason of issuance in transactions exempt from the
registration and prospectus delivery requirements of the 1933 Act pursuant to
Section 4(2) thereof.
3. Subscriber understands that the Shares have not been registered
under the 1933 Act or any state securities laws, that they are "restricted
securities" in the hands of Subscriber with the meaning of the Act, and that any
future sale of the Shares will be regulated by the Act and applicable state
securities laws. Subscriber understands that the Shares may not be sold,
transferred or otherwise disposed of without registration under the 1933 Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering the Shares, or an available exemption from registration under
the 1933 Act, the Shares must be held indefinitely.
4. Subscriber will not sell or otherwise transfer or dispose of any of
the Shares: (A) except in strict compliance with (1) the provisions of the
Agreement to which this Exhibit is attached, and (2) the restrictions on
transfer described herein, and (B) unless such securities are (X) registered
under the 1933 Act, and any applicable state securities laws, or (Y) Subscriber
represents that such securities may be sold in reliance on an exemption from
such registration requirements.
5. No federal or state agency, including the Securities and Exchange
Commission or the securities regulatory agency of any state, has approved or
disapproved the Shares, passed upon or endorsed the merits of the Shares, or
made any finding or determination as to the fairness of the Shares for private
investment.
6. The investment in the Shares is being made in reliance on specific
exemptions from the registration requirements of federal and state securities
laws, and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements and understandings set
forth herein in order to establish such exemptions.
7. Subscriber agrees to deliver to the Company, if requested by the
Company, an investment letter in customary form.
8. Based on personal knowledge and experience in financial and business
matters in general, Subscriber understands the nature of this investment, is
fully aware of
<PAGE> 7
and familiar with the business operations of the Company, and is able to
evaluate the merits and risks of an investments in the Shares.
9. Subscriber has been given the opportunity to ask questions about the
Company and has been granted access to all information, financial and otherwise,
with respect to the Company which has been requested, has examined such
information, and is satisfied with respect to the same.
10. Subscriber has been encouraged to rely upon the advice of
Subscriber's legal counsel and accountants or other financial advisors with
respect to the tax and other considerations relating to the acquisition of the
Shares.
11. Subscriber, in determining to acquire the Shares, has relied solely
upon: (A) the advice of Subscriber's legal counsel and accountants or other
financial advisers with respect to the tax, economic and other consequences
involved in acquiring the Shares, and (B) Subscriber's own independent
evaluation of the business, operations and prospects of the Company and the
merits and risks of the acquisition of the Shares.
12. Subscriber has been advised and understands that this investment
is, by its nature, very speculative.
13. Subscriber has sufficient income and net worth such that Subscriber
does not contemplate being required to dispose of any portion of the investment
in the Shares to satisfy any existing or expected undertaking or indebtedness.
Subscriber is able to bear the economic risks of an investment in the Shares,
including, without limiting the generality of the foregoing, the risk of losing
all or any part of the investment and probable inability to sell or transfer the
Shares for an indefinite period of time.
14. Subscriber is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated by the Securities and Exchange Commission, as
presently in effect.
15. The investment in the Shares has been privately proposed to
Subscriber without the use of general solicitation or advertising.
16. Subscriber understands that the certificates representing the
Shares may bear restrictive legends as to the restricted nature of such
securities and may bear a legend substantially in the following form, and agrees
to will hold the Shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR
INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND
APPLICABLE STATE
2
<PAGE> 8
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE
HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO
THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY).
3
<PAGE> 1
Exhibit: 10.62FT
CASH ADVANCE CONVERSION AGREEMENT
BY AND BETWEEN
RODERICK L. TURNER
AND
FUTECH INTERACTIVE PRODUCTS, INC.
3/1/1999 (Corrected) Phoenix, Arizona
This Cash Advance Conversion Agreement ("Conversion Agreement") is made
and entered into on the date set forth above, by and between Roderick L. Turner
("Lender") and Futech Interactive Products, Inc., an Arizona corporation
("Corporation")
RECITALS:
A. The Lender and Corporation entered into a Cash Advance Conversion Agreement
("Original Agreement") as of August 3, 1998 (See Exhibit A). Under the terms and
conditions of the Original Agreement the Corporation borrowed a total of
$300,000.00 (Three hundred thousand dollars) from Lender.
B. It was the intent of the Original Agreement to extend to Lender the ability
to convert all or any part of the loan amount due Lender to shares of the
Corporation's common stock.
C. Corporation desires to allow Lender to convert all amounts due and owing at a
per share conversion rate of $0.15 per share.
D. Lender is willing and agrees to convert all principal plus interest due and
owing from the corporation as of March 1, 1999 for common shares of Corporation
at the conversion rate of $0.15 per share. The total due and owing to Lender is
$314,601.37 which equates to a total of 2,097,342.4700 common shares of the
Corporation.
AGREEMENT:
For valuable consideration, the parties hereby agree as follows:
1. RECITALS INCORPORATION. The Recitals set forth above are hereby
incorporated by reference.
2. CONVERSION. Corporation agrees to issue the shares of common stock
to Lender within 30 days of receipt of the fully executed Conversion Agreement.
Lender and Corporation agree that the receipt of the share certificate(s) by
Lender will constitute full and final payment by Corporation and that no further
liability by either party to the other will exist with regard to the Original
Agreement.
<PAGE> 2
constitute full and final payment by Corporation and that no further liability
by either party to the other will exist with regard to the Original Agreement.
3. LEGEND. Any Shares acquired hereunder shall bear a conspicuous
legend stating that the Shares have not been registered under the Securities Act
of 1933, as amended ("Act"), and referring to certain restrictions on transfer
or encumbrance of the Shares.
4. REGISTRATION RIGHTS. The Corporation does not intend to file a
registration statement under the Act. Instead, the Corporation intends to rely
on the "private placement" exemption contained in Section 4(2) of the Act.
5. REPRESENTATIONS OF LENDER. Lender represents, warrants and
covenants as follows:
a. Lender is familiar with the business and affairs of the
Corporation and realizes an investment in the Shares involves a high degree of
risk.
b. Lender has been advised that there will be no public market
for the Shares; it may not be possible to readily liquidate his/her investment;
the shares have not been registered or qualified under Federal or State laws
governing the issuance of securities; and the Corporation has no intention of
registering the Shares or reporting under the Act or any comparable or related
Federal or State law.
c. Lender acknowledges that the issuance of stock hereunder is
a private transaction, and hereby waives all claims and causes of action of any
kind or nature relating to any subsequent assertion that this transaction is not
private.
d. Lender acknowledges that his/her overall commitment to
investments which are not readily marketable is not disproportionate to his/her
net worth, and his/her investment in the Shares will not cause such overall
commitment to become excessive; that Lender has adequate means of providing for
his/her current needs and personal contingencies, and has no need for liquidity
of this investment; that Lender has evaluated the risk of investing in the
Corporation; that Lender is aware of the financial risks and possible financial
hazards of purchasing the Shares and he/she has carefully considered these risks
and hazards; and that Lender is able to bear the economic risk of the
investment, including the possibility of a complete loss thereof.
e. The Shares are being acquired solely for the purpose of
investment; are not being purchased for distribution, subdivision, sale or
fractionalization thereof to the public generally; Lender has no contract,
undertaking, agreement or arrangement with any person to sell, transfer or
pledge to anyone else the Shares or any part thereof, Lender has no present
plans to enter into such contract,
<PAGE> 3
undertaking, agreement or arrangement, and Lender is the sole party in interest
of the Shares and as such is vested with all legal and equitable rights in such
shares.
f. Lender agrees the Corporation will restrict the
transferability of the Shares and will cause the certificate evidencing the
Shares to bear a legend stating such reasonable and agreed upon restrictions
against transfer. In this regard, Lender will notify the Corporation within
thirty days of any sale or transfer of the Shares and will cause the purchaser
to execute a Stock Agreement in form acceptable to Corporation prior to any sale
or transfer.
g. Lender acknowledges that all documents, records and books
pertaining to this investment have been made available for inspection by Lender,
his or her attorney, accountant and/or agent for purchase. Lender and/or his/her
representative have had the opportunity to ask questions of, and receive answers
from, the officers of the Corporation concerning the operation of the
Corporation's business, and to obtain any additional information which the
officers of the Corporation possess or can acquire without unreasonable effort
or expense which is necessary to verify the accuracy of the information
requested and given to Lender. Lender is purchasing the Shares without being
furnished any offering literature or prospectus.
h. Lender acknowledges that he/she has obtained disclosure of
the financial information of the Corporation, that he/she is aware of the fact
that the debts of the Corporation currently exceed his/her investment, that
lawsuits have been threatened and commenced regarding alleged outstanding
liabilities.
i. Lender has been advised that this is a start-up corporation
in its early stages of development and marketing. Further, Lender has been
advised that he/she should retain an attorney to represent his/her individual
interest and provide proper counseling as to the risks and proper analysis of
the investment.
6. CONSTRUCTION. Where the context of this Agreement requires, the
singular shall be construed as masculine and feminine pronouns, and vice versa.
This Agreement shall be construed according to its fair meaning and neither for
nor against any party hereto.
7. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. This Agreement has been
delivered to Lender and accepted by Lender in the State of Arizona. If there is
a lawsuit, both parties agree to submit to the jurisdiction of the courts of
Maricopa County, the State of Arizona. This Agreement shall be governed by and
construed in accordance with Arizona law. The prevailing party in any action to
enforce the terms of this Agreement shall be entitled to recover its reasonable
attorneys' fees and court costs.
<PAGE> 4
"LENDER"
By: /s/ Roderick L. Turner
-------------------------
Its:
------------------------
FUTECH INTERACTIVE PRODUCTS, INC.,
an Arizona corporation ("Corporation")
By: /s/ Vincent W. Goett
-------------------------
Its: C.E.O.
------------------------
===== This Agreement consists of a total of 4 (four) pages =====
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
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<TOTAL-REVENUES> 7,888,836
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<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] MAR-31-1999
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[PP&E] 3,233,507
[DEPRECIATION] 2,155,084
[TOTAL-ASSETS] 26,510,809
[CURRENT-LIABILITIES] 32,556,905
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 750,000
[COMMON] 21,968,081
[OTHER-SE] (35,309,177)
[TOTAL-LIABILITY-AND-EQUITY] 26,510,809
[SALES] 2,518,276
[TOTAL-REVENUES] 2,518,276
[CGS] 2,065,621
[TOTAL-COSTS] 2,447,113
[OTHER-EXPENSES] 723,055
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[INTEREST-EXPENSE] 676,732
[INCOME-PRETAX] (2,717,514)
[INCOME-TAX] 0
[INCOME-CONTINUING] (2,717,514)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (2,717,514)
[EPS-BASIC] (0.03)
[EPS-DILUTED] (0.03)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<S> <C>
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<CURRENT-LIABILITIES> 2,684,072
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0
569,022
<COMMON> 12,803,327
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<TOTAL-REVENUES> 3,129,700
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<INTEREST-EXPENSE> 260,533
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<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (1,283,340)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
[ARTICLE] 5
[CURRENCY] U.S. DOLLARS
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] MAR-31-1999
[EXCHANGE-RATE] 1
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[TOTAL-LIABILITY-AND-EQUITY] 1,033,052
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0000815098
<NAME> TRUDY CORPORATION
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<S> <C>
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0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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[PERIOD-START] JAN-01-1999
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[ALLOWANCES] (34,127)
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[INCOME-TAX] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
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0
0
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<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] MAR-31-1999
[CASH] 349
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[INVENTORY] 1,311,412
[CURRENT-ASSETS] 2,343,149
[PP&E] 1,129,345
[DEPRECIATION] 655,757
[TOTAL-ASSETS] 2,838,817
[CURRENT-LIABILITIES] 2,574,736
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 10,000
[OTHER-SE] 128,849
[TOTAL-LIABILITY-AND-EQUITY] 2,838,817
[SALES] 1,256,848
[TOTAL-REVENUES] 1,256,848
[CGS] 736,611
[TOTAL-COSTS] 1,433,838
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 46,666
[INCOME-PRETAX] (223,656)
[INCOME-TAX] 800
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] (224,456)
[NET-INCOME] 0
[EPS-BASIC] 0
[EPS-DILUTED] 0
</TABLE>
