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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from: Not applicable
Commission File No. 0-17927
JANEX INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
COLORADO 84-1034251
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2999 N. 44TH STREET, SUITE 225 85018
PHOENIX, ARIZONA 85018-7247 (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (602) 808-8765
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
As of May 18, 2000, the issuer had 9,098,750 shares of its common stock, no par
value, and 5,000,000 shares of its preferred stock, no par value, issued and
outstanding (plus an additional minimum of 12,000,000 shares of Common Stock
committed for issuance). See footnote 1 to the Company's financial statements
included with this report.
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JANEX INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
CONSOLIDATED BALANCE SHEETS...............................................1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED).........................2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED).........................3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)....................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION............................................9
PART II OTHER INFORMATION.................................................11
ITEM 5. OTHER INFORMATION.................................................11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................14
SIGNATURES.................................................................16
</TABLE>
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000
December 31, 1999 (Unaudited)
----------------- --------------
<S> <C> <C>
ASSETS (All Collateralized)
Current assets:
Cash and cash equivalents ........................ $ 3,920 $ 8,712
Accounts receivable, net of allowance of $22,942
at December 31, 1999 and March 31, 2000 ........ 55,978 61,934
Inventories ...................................... -- --
Other current assets ............................. 84,306 77,052
------------ ------------
Total current assets ................................. 144,204 147,698
Property and equipment, net .......................... 3,025 2,093
Intangible assets, net ............................... 270,662 261,589
------------ ------------
Total assets ......................................... $ 417,891 $ 411,380
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Note payable - bank .............................. $ 256,943 $ 256,943
Due to Futech Interactive Products, Inc. ......... 1,630,192 1,650,452
Accounts payable ................................. 1,033,671 1,058,327
Accrued expenses ................................. 546,155 684,849
------------ ------------
Total current liabilities ............................ 3,466,961 3,650,571
Shareholders' deficit:
Class A convertible preferred stock, no par value:
Authorized shares - 5,000,000
Issued and outstanding shares - 5,000,000 at
December 31, 1999 and March 31, 2000,
Respectively ................................... 569,022 569,022
Common stock, no par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 18,098,750 and
11,698,750 at December 31, 1999 and March 31,
2000, respectively ............................. 12,803,507 18,874,457
Common stock issuable - 10,000,000 at March 31,
2000 (minimum) ................................. -- --
Additional paid-in capital ....................... 554,517 554,517
Accumulated deficit .............................. (16,976,116) (23,237,187)
------------ ------------
Total shareholders' deficit .......................... (3,049,070) (3,239,191)
------------ ------------
Total liabilities and shareholders' deficit .......... $ 417,891 $ 411,380
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
1
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-------------- --------------
1999 2000
-------------- --------------
<S> <C> <C>
Net Sales .................................... $ 222,346 $ 2,530
Royalty Income ............................... -- 5,956
Cost of Sales ................................ (187,037) (430)
Royalty Expense .............................. (5,355) --
------------ ------------
Gross margin ............................ 29,954 8,056
Operating Expenses:
Selling, general and
administrative ........................ 154,928 178,774
Stock based compensation ................ -- 6,070,950
Depreciation and amortization ........... 73,408 10,005
------------ ------------
Loss from operations ......................... (198,382) (6,251,673)
------------ ------------
Other income (expense)
Interest expense ........................ (5,520) (7,398)
Other income (expense) .................. 409 --
------------ ------------
Total other income (expense) ................. (5,111) (7,398)
------------ ------------
Loss before income tax ....................... (203,493) (6,259,071)
Income tax provision ......................... (4,725) (2,000)
------------ ------------
Net Loss ..................................... $ (208,218) $ (6,261,071)
============ ============
Loss per common share ........................ $ (0.01) $ (0.33)
============ ============
Weighted average number of Common
shares outstanding ........................... 18,098,750 18,920,728
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
2
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 2000
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................. $ (208,218) $(6,261,071)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Stock based compensation ............................. -- 6,070,950
Depreciation ......................................... 45,686 932
Amortization ......................................... 27,722 9,073
Changes in operating assets and liabilities:
Accounts receivable .................................. (38,348) (5,956)
Inventories .......................................... 96,065 --
Other current assets ................................. (79,548) 7,254
Accounts payable ..................................... (236,146) 24,656
Accrued expenses ..................................... (233,442) 138,694
----------- -----------
Net cash used in operating activities ..................... (626,229) (15,468)
INVESTING ACTIVITIES
Product development costs ................................. (24,168) --
----------- -----------
Net cash used in investing activities ..................... (24,168) --
FINANCING ACTIVITIES
Increase in due to Futech ................................. 605,718 20,260
----------- -----------
Net cash provided by financing activities ................. 605,718 20,260
----------- -----------
Net increase in cash and cash equivalents ................. (44,679) 4,792
Cash and cash equivalents at beginning of period .......... 62,412 3,920
----------- -----------
Cash and cash equivalents at end of period ................ $ 17,733 $ 8,712
=========== ===========
Supplemental cash flow Information:
Cash paid for interest .................................... $ 5,321 $ 3,858
----------- -----------
Cash paid for income taxes ................................ $ 4,725 --
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
3
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Janex International, Inc. ("Company") and its subsidiaries are in the
business of developing, marketing and selling toys and functional children's
products which are manufactured by subcontractors. Janex sells its products
primarily to U.S.-based retailers and their Hong Kong subsidiaries.
The accompanying consolidated financial statements are unaudited, but, in the
opinion of Company management, contain all adjustments necessary to present
fairly the financial position of the Company at March 31, 2000, the results of
operations for the three months ended March 31, 2000 and 1999, and the changes
in cash flows for the three months ended March 31, 2000 and 1999. These
adjustments are of a normal recurring nature. The consolidated balance sheet as
of December 31, 1999 is taken from the Company's audited financial statements.
Some of the information and footnote disclosures normally included in financial
statements that are prepared in accordance with generally-accepted accounting
principles have been condensed or omitted under the rules and regulations of the
Securities and Exchange Commission. However, Company management believes that
the disclosures contained in the financial statements are adequate to make the
information presented not misleading. For further information, refer to the
consolidated financial statements and notes included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with
the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany 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 the 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, are recorded as comprehensive income. At December 31, 1999 and
March 31, 2000, the adjustment was not significant.
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.
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 as of
March 31, 2000. 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 its products, an increase in revenues and the achievement
of operating profits and positive cash flow. The Company will also require
additional financial resources from Futech Interactive Products, Inc.
("Futech"), or from other sources to provide near-term operating cash to enable
the Company to execute its plans to move toward profitability. Management
believes that future financings, the planned acquisitions (described in Item 5.
Other Information of this Form 10-QSB), and additional sales to be generated
from new product lines that are being developed, will be sufficient to allow the
Company to continue in operation.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending December 31, 2000.
4
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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.
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 are 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, 2000, 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.
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.
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
receivables are generally secured by a letter of credit. The Company
maintains an allowance for potential credit losses and such losses
have been within management's expectations.
5
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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. To the extent the fair market value of the common stock
at date of grant exceeds the option price, compensation expense is
recorded.
Deferred expense on stocks 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.
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 by dividing net loss
(profits) by the weighted average number of common shares outstanding.
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. For purposes of calculating loss per share, weighted
average outstanding shares includes the minimum 10,000,000 shares and
an additional 2,000,000 compensation shares issuable to related
parties upon an increase to 65,000,000 in the number of the Company's
authorized but unissued shares. See Part II Other Information, Item 5
Other Information, in this Form 10-QSB.
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.
6
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PENSION PLAN
The Company has a 401(k) Plan for the benefit of the employees of the
Company. Under the provisions of the 401(k) Plan, employees may make
contributions on a tax-deferred basis to their 401(k) accounts, 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 401(k) Plan. Such contributions are allocated
between members of the 401(k) Plan based on a pre-stated formula.
Employer contributions vest with 401(k) Plan participants at the rate
of 20% per year, beginning in year two and ending in year six of
employment. The Company did not make contributions to the 401(k) Plan
for 1999 and 2000.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued several
pronouncements. Of such pronouncements, only two may have future
applicability, Statement of Financial Accounting Standards (SFAS) No.
132 "Employers Disclosures about Pensions and other Postretirement
Benefits," effective June 15, 2000, and No. 137 "Accounting for
Derivative Instruments and Hedging Activities," effective June 15,
2000. The current financial statements would not have been impacted by
these pronouncements as the Company has not participated in derivative
transactions and a 401(k) Plan.
SHAREHOLDERS' DEFICIT
Stock Based Compensation
In March 2000, the Company granted options to purchase 2,150,000
shares at an exercise price of $.001 per share. 1,600,000 of such
options have been exercised as of March 31, 2000. The remaining
unexercised options at March 31, 2000 (550,000) were held by two
employees of the Company. The difference between the option price and
the fair market value of the common stock at the date of grant was
$2,069,350, which was charged to operations. Accordingly, common stock
increased by $2,070,950 ($2,069,350 + $1,600). Of the 1,600,000 shares
which have been exercised, 725,000 shares were exercised by employees
of the Company and 200,000 were exercised by a major shareholder of
the Company. The options that were not exercised were issued to
employees of the Company, one of whom exercised options for 500,000 of
the 725,000 shares.
Sec Part II, Item 5. Other Information, of this Form 10-QSB, for a
description of the transaction in which Palmilla Ventures Limited
Partnership, a related party, for itself and on behalf of certain
other related parties, surrendered to the Company 10,000,000 shares of
the Company's common stock. The 10,000,000 shares (minimum) and the
2,000,000 compensation shares issuable by the Company are deemed
issued and outstanding for purposes of computing loss per share, and
the 2,000,000 shares are treated as issued and outstanding for all
purposes.
Accumulated Deficit
Accumulated deficit increased to the extent of the Company's net loss
of $6,261,071.
4. SUBSEQUENT EVENTS
In May 2000, the Company issued options to purchase 950,000 shares of common
stock, at an exercise price of $.001 per share, as follows: 400,000 were
issued to the Company's chief executive officer, 300,000 were issued to the
Company's chief operating officer, and 250,000 were issued to the chief
financial officer (interim). The Company inadvertently issued options to
purchase 600,000 shares of common stock in excess of the maximum number
issuable under the Company's 2000 combination Stock Option Plan. Such options
have been exercised. Accordingly, in May 2000, the Company amended
outstanding options to reduce the number of options issuable by 600,000 and
the parties whose options were amended have agreed to return the 600,000
shares to the Company in exchange for the exercise price paid. The Company
intends to re-issue such options to such persons upon an increase in the
number of shares available under the Company's 2000 Combination Stock Option
Plan or adoption of a new plan.
On May 16, 2000, Golden Books Family Entertainment, Inc., as plaintiff
("Golden Books"), served the Company with a Second Amended Complaint which
names Futech Interactive Products, Inc. ("Futech"), Vincent W. Goett
("Goett"), and the Company as defendants. The Company was not named in the
original complaint or the first amended complaint. The case is pending in the
United States Bankruptcy court for the Southern District of New York
(Bankruptcy case No. 99-10030). The proceeding originally commenced in June
1999. The Second Amended Complaint alleges, among other things, (i) that
Futech is indebted to Golden Books in the amount of $1 million under a
promissory note dated August 14, 1996 ("Note"), (ii) that Futech has
defaulted on its obligations under the Note, (iii) that Goett has personally
guaranteed performance of Futech's obligations under the Note, (iv) that
Goett in January 2000 caused Futech to transfer all or virtually all of its
assets to the Company, and (v) that the transfer was made by Goett and Futech
knowingly with intent to deplete Futech of assets and that the Company
accepted the transfer knowingly and with intent to assist Goett and Futech in
depleting Futech of assets and thereby rendering it judgement-proof or, in
the alternative, that Futech, on or about January 2000, transferred to the
Company Futech's Interactive Books division and all of the assets and
liabilities thereof. On the basis of the foregoing, the Second Amended
Complaint alleges that Futech, Goett and the Company (or in the alternative
Goett and the Company) are jointly and severably liable for the $1 million
under the Note, plus interest, costs and reasonable attorney's fees.
The Second Amended Complaint also alleges (i) that Futech transferred its
assets to the Company with intent to hinder, delay or defraud Golden Books in
pursuit of its claim against Futech, (ii) that such transfer was made without
receiving a reasonably equivalent value for the transfer, (iii) that Futech
was insolvent at the time of transfer (or became insolvent as a result), (iv)
that the transfer included all or substantially all of Futech's assets to the
Company, (v) that the transfer of Futech assets to the Company was a
"fraudulent conveyance" under Arizona law, and (vi) that Goett conspired with
Futech and Janex to effect the asset transfer with the intent and for the
purpose of hindering, delaying and defrauding Futech's creditors, including
rendering Futech judgement proof, and that such conduct was malicious and
intended to injure Golden Books.
Based on the foregoing, Golden Books claims it is entitled to garnishment,
avoidance of the transfer, and attachment or other provisional remedy and $1
million, plus interest and punitive damages.
As described in Item 5. Other Information, in Part II of this Form 10-QSB, in
February 2000, the Company entered into an agreement, as amended, to acquire
the assets of Futech. The Company also entered into an agreement in February
2000 to acquire from Futech the website okid.com and related assets. However,
these asset purchases have not been consummated and are expressly conditioned
upon, among other things, the approval of Futech's creditors. Since the
Company has not completed the acquisition of Futech's assets, the Company
believes that it has strong defenses against the foregoing claims and intends
to vigorously defend against them. Although the Company believes it has
strong defenses, no assurance can be given as to the outcome of the
litigation, which could have a material adverse effect on the Company.
7
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5. 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. A
summary of the Company's operations by geographical area for the three months
ended March 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
UNITED STATES HONG KONG ELIMINATIONS CONSOLIDATED
------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Net sales:
Customers .............. $ 119,354 $ 102,992 $ -- $ 222,346
Intercompany ........... -- -- -- --
Total revenue ............... $ 119,354 102,992 -- 222,346
Operating income (loss) ..... (156,504) (41,878) -- (198,382)
Interest expense ............ (5,319) (201) -- (5,520)
Depreciation and amortization (24,887) (48,521) -- (73,408)
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
UNITED STATES HONG KONG ELIMINATIONS CONSOLIDATED
------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
2000
Net sales:
Customers .............. $ 2,530 $ -- $ -- $ 2,530
Intercompany ........... -- -- -- --
Royalties received $ 5,956 -- -- $ 5,956
Total revenue ............... $ 8,486 -- -- $ 8,486
Operating loss .............. (6,251,523) (11,962) -- (6,251,523)
Interest expense ............ (7,398) -- -- (7,398)
Depreciation and
amortization .............. (9,083) (922) -- (10,005)
</TABLE>
8
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The Company has during the quarter ended March 31, 2000 entered into agreements
to license technology and acquire several companies with complimentary products
in an effort to promote growth in the Company's core business and revenues.
For a description of these planned acquisitions, see Part II Other Information,
Item 5. Other Information, in this Form 10-QSB.
Although we expect to realize revenues if we consummate the acquisitions, we
also expect that our operating expenses will dramatically increase. Although we
plan to carefully review operating expenses with a view to reducing them,
wherever possible, we expect that interest expense on debt assumed (estimated
$13 million) in connection with the acquisitions will approximate $1,200,000 per
year. Each of the companies we plan to acquire has incurred, in the past and
continues to incur, significant losses and negative cash flow. We cannot assure
you that we will be able to reduce expenses or that the acquired companies will
become profitable. Accordingly, we expect to continue to incur significant
losses for the foreseeable future.
CONSOLIDATED RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999:
NET LOSS
The Company's net loss for the quarter ended March 31, 2000 increased by
$6,051,853 over the comparable prior period. Such increase is principally
attributable to a non cash charge to operations of $6,070,950 related to stock
based compensation expense.
NET SALES
For the three months ended March 31, 2000, net sales decreased by $219,816 to
$2,530, as compared to net sales of $222,346 for the three months ended March
31, 1999. The decrease in net sales is due to several factors. The focus of
Company management during the first quarter on the acquisition of several
complimentary businesses has had an adverse effect on sales performance, as
management's attention was not directed to selling product. In addition, the
Company's shortage of operating capital has adversely affected the Company's
sales and marketing activities and its ability to acquire inventory, all of
which has adversely affected sales. Unless and until the Company consummates the
planned acquisitions, the Company does not expect it will realize any
significant sales during the year ending December 31, 2000. The planned
acquisitions may not be consummated.
At March 31, 2000, the Company had no backlog of unfilled orders, compared to a
backlog of approximately $400,000 at March 31, 1999. The decrease in backlog is
due to the decrease in sales activity described above.
GROSS MARGIN
Gross margin is equal to net sales plus royalty income, less cost of sales and
royalty expense.
For the three months ended March 31, 2000, gross margin was $8,056, as compared
to a gross margin of $29,954 for the three months ended March 31, 1999.
9
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ROYALTY EXPENSE AND INCOME
For the three months ended March 31, 2000, there was no royalty expense, as
compared to $5,355, or 2% of net sales, for the three months ended March 31,
1999. The decrease in royalty expense for the three months ending March 31, 2000
was a result of the very substantial reduction in sales for the three months
ending March 31, 2000. The Company received royalties of $5,956 during this
period, generated from a new licensing agreement with Fundex Games, Ltd.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
For the three months ended March 31, 2000, selling, general and administrative
expenses increased by $23,826 to $178,754, as compared to $154,928 for the three
months ended March 31, 1999.
The increase in selling, general and administrative expenses was due to
increased expenses of approximately $100,000 for the costs of legal, financial,
and advisory services related to SEC compliance, partially offset by a reduction
of recurring operating expenses.
STOCK BASED COMPENSATION
For the three months ended March 31, 2000, the Company incurred stock based
compensation (non cash) in the amount of approximately $6,000,000. These charges
relate to stock options granted and stock issuable to related parties as
compensation for surrendering their shares to the Company. See Part II, Other
Information, Item 5, Other Information, for a description of the transaction in
which certain related parties surrendered their shares to the Company.
LIQUIDITY AND CAPITAL RESOURCES
We continue to experience a severe working capital deficiency and negative cash
flow. We currently have no cash and are unable to meet our financial obligations
as they become due. Our working capital deficiency was $3,239,191, including
indebtedness to a related party of approximately $1,650,452, at March 31, 2000,
compared to $3,322,668 at March 31, 1999. At this time, we are not generating
any significant revenue, but are incurring substantial costs and expenses to
fund our operations. We expect that our working capital deficiency will increase
significantly as a result of completing the planned acquisitions. We also expect
the completion of the acquisitions will exacerbate our cash flow problems.
Based on current cash on hand, we need to raise additional funds immediately. We
plan to reduce the working capital deficiency by raising additional capital in
the form of either debt or equity financings. Further, as described above, we
plan to carefully review operating expenses, with a view to reducing them,
wherever possible. We cannot assure you that we will raise sufficient funds to
reduce the working capital deficiency or fund our operations. If we are unable
to raise sufficient capital in a timely fashion to reduce the working capital
deficit and fund continuing operations, our business will be adversely affected
and we will not be able to continue as a going concern.
Our auditors' report as at December 31, 1999 indicates that certain factors
raise substantial doubt about our ability to continue as a going concern. Our
auditors issued a going concern opinion because we:
- have experienced a significant decline in revenues;
- have negative net worth and working capital; and
- have recurring losses.
Based upon our current budget and business planning, we believe that we will
need approximately $10 million of additional capital to fund our planned
operations over the next twelve months and that we will need to raise or
generate such amount during the next twelve months to eliminate our auditors'
going concern opinion. We cannot be sure that we will be able to internally
generate or raise sufficient funds to continue our operations, or that our
auditors will not issue another going concern opinion.
Our ultimate ability to continue as a going concern depends on: (1) the market
acceptance of our products; (2) our generating sufficient operating profits; (3)
creation of a sustainable positive cash flow; and (4) obtaining additional
financial resources to provide near term operating cash.
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Our operating activities used $15,488 for the three months ended March 31, 2000,
as compared to $626,229 for the three months ended March 31, 1999. The decrease
in cash used by our operating activities is primarily attributable to an
increase of $163,350 in accounts payable and accrued expenses in the current
quarter, compared to a decrease of $469,588 in accounts payable and accrued
expenses in the prior quarter. The increase in accounts payable and accrued
expenses reflects lack of operating capital.
Our financing activities generated $20,260 during the three months ended March
31, 2000, compared to $605,718 during the same period in 1999. The decrease in
cash generated from financing activities is a result of decreased advances from
Futech.
As of March 31, 2000, subject to the availability of operating capital and
assuming the completion of the planned acquisitions discussed under Part II,
Other Information, Item 5, Other Information, we plan to make capital
expenditures over the next twelve months of up to $1,500,000 to fund new product
development, including initial licensing charges and tooling. In addition, if we
complete the acquisition of WWW.OKID.COM and related assets, we also anticipate
that we will expend approximately $3,300,000 for Web site development and
marketing over the next twelve months. If we complete our planned acquisitions,
we expect the combined companies to have significantly more employees then we
currently have.
INFLATION
We do not believe that inflation has had a significant impact on our costs and
profits during the past two years.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this report that are subject to a
number of risks and uncertainties, including without limitation, those described
below and other risks and uncertainties indicated from time to time in our
filings with the SEC. These forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include the information concerning possible or
assumed future results of operations. Also, when we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. Readers should understand that the following
important factors, in addition to those discussed in the referenced SEC filings,
could affect our future financial results, and could cause actual results to
differ materially form those expressed in our forward-looking statements:
* the implementation of our growth strategy;
* the effects of the planned acquisition and new relationships with
complementary companies;
* the integration of acquisitions;
* the availability of additional capital;
* variations in stock prices and interest rates;
* fluctuations in quarterly operating results; and
* other risks and uncertainties described in our filings with the SEC.
We make no commitment to disclose any revisions to forward-looking statements,
or any facts, events or circumstances after the date hereof that may bear upon
forward-looking statements.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 16, 2000, Golden Books Family Entertainment, Inc., as plaintiff
("Golden Books"), served the Company with a Second Amended Complaint which
names Futech Interactive Products, Inc. ("Futech"), Vincent W. Goett
("Goett"), and the Company as defendants. The Company was not named in the
original complaint or the first amended complaint. The case is pending in the
United States Bankruptcy court for the Southern District of New York
(Bankruptcy case No. 99-10030). The proceeding originally commenced in June
1999. The Second Amended Complaint alleges, among other things, (i) that
Futech is indebted to Golden Books in the amount of $1 million under a
promissory note dated August 14, 1996 ("Note"), (ii) that Futech has
defaulted on its obligations under the Note, (iii) that Goett has personally
guaranteed performance of Futech's obligations under the Note, (iv) that
Goett in January 2000 caused Futech to transfer all or virtually all of its
assets to the Company, and (v) that the transfer was made by Goett and Futech
knowingly with intent to deplete Futech of assets and that the Company
accepted the transfer knowingly and with intent to assist Goett and Futech in
depleting Futech of assets and thereby rendering it judgement-proof or, in
the alternative, that Futech, on or about January 2000, transferred to the
Company Futech's Interactive Books division and all of the assets and
liabilities thereof. On the basis of the foregoing, the Second Amended
Complaint alleges that Futech, Goett and the Company (or in the alternative
Goett and the Company) are jointly and severably liable for the $1 million
under the Note, plus interest, costs and reasonable attorney's fees.
The Second Amended Complaint also alleges (i) that Futech transferred its
assets to the Company with intent to hinder, delay or defraud Golden Books in
pursuit of its claim against Futech, (ii) that such transfer was made without
receiving a reasonably equivalent value for the transfer, (iii) that Futech
was insolvent at the time of transfer (or became insolvent as a result), (iv)
that the transfer included all or substantially all of Futech's assets to the
Company, (v) that the transfer of Futech assets to the Company was a
"fraudulent conveyance" under Arizona law, and (vi) that Goett conspired with
Futech and Janex to effect the asset transfer with the intent and for the
purpose of hindering, delaying and defrauding Futech's creditors, including
rendering Futech judgement proof, and that such conduct was malicious and
intended to injure Golden Books.
Based on the foregoing, Golden Books claims it is entitled to garnishment,
avoidance of the transfer, and attachment or other provisional remedy and $1
million, plus interest and punitive damages.
As described in Item 5. Other Information, in this Part II, in February 2000,
the Company entered into an agreement, as amended, to acquire the assets of
Futech. The Company also entered into an agreement in February 2000 to
acquire from Futech the website okid.com and related assets. However, these
asset purchases have not been consummated and are expressly conditioned upon,
among other things, the approval of Futech's creditors. Since the Company has
not completed the acquisition of Futech's assets, the Company believes that
it has strong defenses against the foregoing claims and intends to vigorously
defend against them. Although the Company believes it has strong defenses, no
assurance can be given as to the outcome of the litigation, which could have
a material adverse effect on the Company.
ITEM 5. OTHER INFORMATION.
During the quarter ended March 31, 2000, the Company adopted a Combination
Stock Option Plan ("Plan") which permits the issuance of options to purchase
up to 2,500,000 shares of Common Stock. During the current quarter, the
Company issued options to purchase an aggregate 2,150,000 shares of Common
Stock at an exercise price of $.001 per share, including options for 200,000
shares issued to a greater than 5% shareholder. In May 2000, options to
purchase an additional 925,000 shares were issued, at an exercise price of
$.001 per share, to three of the Company's officers, two of whom are major
stockholders, and options to purchase an aggregate 600,000 shares were
terminated. The Company intends to re-issue such options for 600,000 shares
at such time as the number of shares covered by the Company's Plan is
increased or the Company adopts a new plan.
The Company has during the quarter ended March 31, 2000 entered into agreements
to license technology and acquire several companies with complimentary products
in an effort to promote growth in the Company's core business and revenues.
On January 19, 2000, the Company signed a non-binding letter of intent to
acquire 100% of the capital stock of WebShare, Inc. ("WebShare"), a San
Diego-based company that provides lead generation services to the timeshare
vacation resort industry through its subsidiary, ResorTravel.com. The
transaction is subject to, among other things, the negotiation, execution and
delivery of definitive agreements and approval of the board of directors.
In January, 2000, the Company entered into a license agreement ("License
Agreement") with Futech Interactive Products, Inc. ("Futech"). Under the License
Agreement, Futech granted the Company an exclusive license of the technology
related to the "Toynet" system of interactive talking toys. The License
Agreement may be terminated by either party upon 60 days written notice, without
penalty. The License Agreement specifies a royalty rate of 10% for non-licensed
product and 5% for licensed product. The License Agreement terminates upon
consummation of the Company's acquisition of the Futech Assets (defined below)
pursuant to the Futech Agreement (defined below).
On February 17, 2000, the Company signed a non-binding memorandum of
understanding to acquire 63.88% of the issued and outstanding common stock of
Trudy Corporation ("Trudy"), a public company, from its major shareholders
(reduced to 52% to reflect subsequent sales by the majority stockholder). Trudy
is a Norwalk, Connecticut-based designer, manufacturer, and distributor of high
quality specialty publishing products, with a library of more than eighty books
under the Soundprints imprint. The transaction is subject to, among other
things, the negotiation, execution and delivery of definitive agreements and
approval of the board of directors.
In February 2000, the Company entered into an agreement, as amended (the "Futech
Agreement"), with Futech, pursuant to which the Company would acquire all the
assets of Futech (other than those related to the website WWW.OKID.COM) ("Futech
Assets") and assume certain Futech liabilities. Vincent Goett, President and
Chief Executive Officer of the Company, is a major stockholder and creditor of
Futech. Under the Futech Agreement, in exchange for the Futech Assets, the
Company would issue Futech 16,000,000 shares of the Company's common stock. The
Company would be obligated to issue additional shares of common stock in the
event that the market price per share of the Company's common stock is less than
$1.00 at closing and has not reached a price of $1.00 per share during the 24
months following the closing. In addition, the Company has agreed to assume up
to $10 Million of Futech's obligations to a certain bank. Futech has agreed to
cancel approximately $1.6 Million in debt owed by the Company to Futech. This
transaction is subject to, among other conditions, approval of Futech's board of
directors, stockholders and creditors, as well as the approval of the Company's
board of directors and stockholder approval of an increase in the number of the
Company's authorized but unissued shares.
In addition, in February 2000, the Company entered into an agreement, as amended
(the "oKid Agreement"), with Futech to purchase the URL domain name and related
website, WWW.OKID.COM, and related assets (the "oKid Assets"). Under the oKid
Agreement, the Company will acquire the oKid Assets for 4,000,000 shares of the
Company's common stock, subject to increase as described above with respect to
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the Company's purchase of the Futech Assets. This transaction is subject to,
among other conditions, approval of the board of directors of Futech and the
Company, approval of Futech's creditors, and stockholder approval of an increase
in the number of the Company's authorized but unissued shares.
On March 24, 2000, the Company entered into a Merger Agreement, as amended
("Merger Agreement"), with DaMert Company ("DaMert"), a Berkeley,
California-based designer, manufacturer, and distributor of specialty toy
products. Pursuant to the Merger Agreement, DaMert Company would be merged
with and into a wholly-owned subsidiary of the Company. Under the Merger
Agreement, the Company would issue 2,650,000 shares of the Company's common
stock as consideration for the Merger. By virtue of the Merger, the Company
will succeed to the business, assets and liabilities of DaMert Company. The
Company would be obligated to issue additional shares of common stock in the
event that the market price per share of the common stock is less than $2.00
at closing and has not reached a price of $2.00 per share during the 24
months following the closing. In addition, the Company has agreed to issue
64,425 shares of common stock to a major stockholder of DaMert Company in
satisfaction of approximately $129,000 of debt owing to such stockholder by
DaMert Company. The number of shares is subject to increase as described
above. This transaction is subject to, among other conditions, approval of
each party's board of directors and stockholders.
There can be no assurance that any of the foregoing acquisitions will be
consummated.
Because the Company did not have sufficient authorized but unissued shares of
common stock to execute its business and financial plans, in March 2000,
Palmilla Ventures Limited Partnership, of which Vincent Goett is a general
partner, agreed to surrender to the Company an aggregate of 10 million shares of
the Company's common stock so that such shares could be restored to the status
of authorized but unissued shares of common stock. Of the aggregate 10 million
shares surrendered, 1,159,952 (6.0% of the outstanding common stock prior to
surrender) were being held for the benefit of Dan Lesnick, Chief Operating
Officer and a Director of the Company, 2,182,417 (11.4% of the outstanding
common stock prior to surrender) were being held for the benefit of Mr. and Mrs.
Howard Moore, and 1,657,631 (8.6% of the outstanding common stock prior to
surrender) were being held for the benefit of Mr. Les Friedland, the Company's
former president.
Under this Agreement, as soon as possible following an increase to 65 million in
the number of the Company's authorized but unissued shares, the Company will
return the 10 million shares surrendered and will issue the surrendering
shareholders, PRO RATA, based on the number of shares surrendered, an aggregate
of 2 million additional shares of common stock as compensation for surrendering
their shares to the Company.
In addition, if the price of the Company's common stock is lower when the 10
million replacement shares are issued, than it was on the date the shares were
surrendered, the surrendering shareholders will be issued additional shares, PRO
RATA, based on the number of shares surrendered, such that the total replacement
shares issued is equal in value on the replacement date to the value of the
shares surrendered on the date of surrender. For example, if the value of 10
million shares on the date of surrender was $15 Million and the market price of
the Company's common stock on the replacement date was $1.00, the surrendering
shareholders would be issued 15 million shares of common stock on the
replacement date to replace the $15 Million in value surrendered at the
surrender date.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits have been or are being filed
herewith, and are numbered in accordance with Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION
2.1 Global Merger Agreement dated June 4, 1999 and incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K filed with the
Commission June 15, 1999. (1)
2.2 Termination Agreement dated as of December 1, 1999 relating to Global
Merger Agreement. (1)
2.3 Termination, Release and Settlement Agreement dated December 1999. (1)
2.4 Agreement for Purchase and Sale of Assets between Futech Interactive
Products, Inc. and the Company dated February 25, 2000, as amended by
the First Amendment thereto dated April 28, 2000.
2.5 Agreement for Purchase and Sale of oKid Assets between Futech
Interactive Products, Inc. and the Company dated February 25, 2000, as
amended by the First Amendment thereto dated April 28, 2000.
2.6 Merger Agreement between, among others, the Company and DaMert Company
dated March 2000, as amended by the First Amendment thereto dated May
10, 2000.
3.1 Articles of Incorporation. (2)
3.2 Amendment No. 1 to Articles of Incorporation. (3)
3.3 Statement of Resolution Establishing Series for Shares. (3)
3.4 Amendment No. 2 to Articles of Incorporation. (3)
3.5 Bylaws of the Company. (4)
3.6 Articles of Amendment to Articles of Incorporation, dated August 11,
1994 and filed on August 16, 1994. (5)
4.1 Specimen Common Stock Certificate. (3)
10.1 Lease Agreement between With Design in Mind International, Inc., a
Colorado corporation and Warner Center Business Park Properties III,
L.P. for premises located at 21700 Oxnard Street, Suite 1610, Woodland
Hills, CA 91367 dated January 6, 1994. (6)
10.26 Indemnification Agreement wherein the Company is indemnifying its
former accountants BDO Seidman, LLP for claims arising out of the
reissuance of the Company's 1997 financial statements. (7)
10.27 Letter Agreement between Palmilla Ventures Limited Partnership and the
Company dated March 9, 2000, as supplemented by a Letter Agreement
dated April 15, 2000.
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16 Letter of BDO Seidman, LLP. (8)
16.1 Letter of Ernst & Young, LLP. (9)
21 Subsidiaries of the Registrant. (1)
27 Financial Data Schedule
99.1 2000 Combination Stock Option Plan. (10)
- ------------------
(1) Filed as an Exhibit with the same exhibit number to the Company's Form
10-KSB for the year ended December 31, 1999 and incorporated by this
reference.
(2) Incorporated by reference to Exhibit 3(a) to the Company's Registration
Statement on Form 8-A, filed with the Commission on August 15, 1989 and
declared effective on September 1, 1989.
(3) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form S-1 filed August 8, 1990.
(4) Incorporated by reference to Exhibit 3(b) to the Company's Registration
Statement on Form 8-A, filed with the Commission on August 15, 1989 and
declared effective on September 1, 1989.
(5) Incorporated by reference to an exhibit to the Company's Registration
Statement filed with the Commission December 20, 1994.
(6) Incorporated by reference to an exhibit to the Company's Form 10-KSB
for the fiscal year ended December 31, 1993.
(7) Incorporated by reference to an exhibit to the Company's Form 10-K SB
for the year ended December 31, 1998.
(8) Incorporated by reference to Exhibit 16 to the Company's Form 8-K filed
with the Commission of March 10, 1999.
(9) Incorporated by reference to Exhibit 16 to the Company's Form 8-K filed
with the Commission on April 28, 2000.
(10) Incorporated by reference to Exhibit 99.1 to the Company's Form
S-8 Registration Statement filed with the Commission on March 24, 2000.
(b) Reports on Form 8-K - Not applicable.
15
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
JANEX INTERNATIONAL, INC.
Registrant
By: /s/ Vincent W. Goett
Date: May 18, 2000 ------------------------------------
Vincent W. Goett
President
Chief Executive Officer, Director
By: /s/ Charles M. Foley
Date: May 18, 2000 ------------------------------------
Charles M. Foley
Chief Financial Officer (Interim)
Treasurer and Secretary
16
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EXHIBIT 2.4
FIRST AMENDMENT
TO
AGREEMENT FOR PURCHASE AND SALE OF OKID ASSETS
THIS AMENDMENT, which is effective immediately upon execution by all
parties, is made as of the 28th day of April, 2000, by and between Futech
Interactive Products, Inc., an Arizona corporation ("Seller"), and oKID.com,
Inc., a Delaware corporation ("Buyer").
R E C I T A L S:
A. The parties identified above, together with Vincent W. Goett entered
into an Agreement for Purchase and Sale of oKID Assets, Dated February 25, 2000
(the "Sale Agreement"). Capitalized terms used in this Amendment shall have the
same meanings given those terms in the Sale Agreement.
B. The parties desire to amend the Sale Agreement on the terms and
conditions hereinafter set forth.
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. Section 2.1.1 of the Sale Agreement is hereby deleted in its
entirety.
2. Section 2.1.2 of the Sale Agreement is hereby deleted in its
entirety and replaced with the following:
2.1.2 Four Million (4,000,000) shares of Buyer's common
stock. Buyer will use its best efforts to register said shares
under the Securities Act within 150 days after the Closing. If a
Registration Statement is not effective within 150 days after the
Closing, then for each 30 day period thereafter during which the
Registration Statement is not effective, Buyer will issue Seller
an additional 10,000 shares of Buyer's common stock. Seller will
not sell during any 3 month period more than the greater of: (i)
5% of Buyer's outstanding common stock, and (ii) 200% of the
average weekly reported trading volume during the 4 weeks
preceding the sale.
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Notwithstanding the foregoing, if the publicly traded price of
Buyer's common tock is not at least $1.00 per share on the date
of the Closing, and said stock does not reach said price
(adjusted as necessary to take into account transactions such as
stock splits) within twenty-four (24) months thereafter, then
Buyer shall issue additional shares of Buyer's common stock to
Seller, as soon as is practicable after the date which is
twenty-four (24) months after the date of Closing, and the number
of shares to be so issued shall be calculated as follows: divide
(x) the difference between (i) $4,000,000.00 and (ii) the highest
publicly traded closing price of Buyer's common stock during the
24 month period from the Closing through the date which is 24
months thereafter, times the 4,000,000 shares of stock issued
pursuant to this Section (including the value of all splits and
other rights relating thereto), by (y) the publicly traded
closing price on the date which is 24 months after the date of
the Closing.
Seller agrees, and will confirm said agreement by executing one
or more documents so confirming, in form and with content
acceptable to Buyer, that: (A) the stock to be issued under this
Agreement will be a restricted security, issued pursuant to one
or more exemptions to the registration requirements of the
Securities Act; (B) Buyer's obligation to issue the stock is
subject to Buyer determining to Buyers' satisfaction that these
transactions are in compliance with the Securities Act and all
other applicable federal and state laws; and (C) Seller will
execute such documents as are necessary and/or appropriate to
insure compliance with applicable federal and state laws. Buyer
obtaining documentation as to the foregoing shall be a condition
to the obligation of Buyer to close the Transaction, or to issue
the stock.
3. Section 2.2 of the Sale Agreement is hereby deleted in its
entirety.
4. Section 3.1.1 of the Sale Agreement is hereby deleted in its
entirety and replaced with the following:
3.1.1 Seller's obligations under the contracts identified on
EXHIBIT 3.1.1-1 attached hereto (said assumptions shall include
only obligations arising after and relating to the time period
after the Closing). Any all contracts relating to the Website
shall be deemed to be included on EXHIBIT 3.1.1-1, as well as on
EXHIBIT 1.11.
EXHIBIT 3.1.1-2 is no longer part of the Sale Agreement. There are no
liabilities of Seller which Buyer is assuming other than as called for on
EXHIBIT 3.1.1-1.
5. Section 2.5 of the Sale Agreement is hereby deleted in its
entirety.
6. The following is hereby added at the end of Section 3.3 of the
Sale Agreement:
The parties understand and agree that Buyer has no obligation to
pay any debt of Seller, other than as expressly called for in
Section 3.1.1 of this Agreement.
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7. New Sections 5.8 and 5.9 are hereby added to Section 5 of the
Sale Agreement, as follows:
5.8 Approval of the Transaction by all of Buyer's creditors; and
5.9 Approval by the shareholders of Buyer of an amendment to
Buyer's governing documents authorizing an increase in the
authorized number of shares of stock of Buyer to 125,000,000.
8. The date in Section 6 of the Sale Agreement is hereby changed
to "May 19, 2000, or as soon thereafter as is practicable.".
9. Except as expressly called for in this Amendment, the Sale Agreement
continues unmodified and in full force and effect.
10. This Amendment 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 Amendment, and that said
facsimile signatures shall for all purposes be binding upon the parties as if
the same were originals.
DATED the date first hereinabove written.
SELLER: Futech Interactive Products, Inc., an Arizona
corporation
By /S/ VINCENT W. GOETT
------------------------------------
Vincent W. Goett, President
BUYER: oKID.com, Inc., a Delaware corporation
By /S/ VINCENT W. GOETT
------------------------------------
Vincent W. Goett, President
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The undersigned was originally a party to the Sale Agreement, and
hereby consents to this Amendment, as of the date first hereinabove written.
Since the undersigned is no longer part of the transaction, any further
amendments shall not require the signature of the undersigned.
GOETT:
/s/ Vincet W. Goett
-------------------------------------------------
Vincent W. Goett
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AGREEMENT
FOR
PURCHASE AND SALE
OF
OKID ASSETS
THIS AGREEMENT is made as of the 25th day of February, 2000, by and
between Futech Interactive Products, Inc., an Arizona corporation ("SELLER"),
oKID.com, Inc., a Delaware corporation ("BUYER"), and Vincent W. Goett
("GOETT").
R E C I T A L S:
A. Seller owns certain rights relating to the name "oKID.com," and the
website operated under that name.
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, said rights, all in accordance with the terms and conditions set forth
below (the "TRANSACTION").
C. Goett owns certain rights to acquire stock of Seller, and is willing
to release those rights in exchange for a portion of the ownership of Buyer.
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 The oKID.com website (the "Website"), all software rights
relating thereto, all graphics rights and artwork rights relating
thereto, including all original artwork and all copies thereof, all
rights to the animated characters appearing on the Website, and all
licenses and other agreements with third parties relating to the
Website
1.2 All furniture and computer equipment used by Seller's
staff in connection with the creation, operation and maintenance of the
Website (other than that leased under the Equipment Leases (defined
below)), including but not limited to the assets identified on
EXHIBIT 1.2 attached hereto (all of the foregoing are collectively
referred to below as the "FIXED ASSETS").
1.3 All of Seller's interest in the leases identified on
EXHIBIT 1.3 attached hereto (the "EQUIPMENT LEASES.")
1.4 All rights to the trade name "oKID" and all names used for
animated characters appearing on the Website, along with any and all
trademarks, service marks,
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logos and designs relating hereto, including all internet domain names
used in connection with the Website.
1.5 Any and all deposits received from third parties in
connection with contracts relating to the Website.
1.6 All of Seller's books and records (or copies thereof),
computer programs, software, drawings, financial and tax information
(or copies thereof), and all customer and vendor files, as the same
relate to the Assets.
1.7 All patents, copyrights, trade secrets, customer and
supplier lists, promotional materials, and other intangible rights used
in connection with the operation of the Website, including but not
limited to those described on EXHIBIT 1.7 attached hereto.
1.8 The phone numbers and all phone and other advertising
associated with the Website, excluding however phone numbers not used
exclusively for the Website.
1.9 All of Seller's internet addresses used by the Website.
1.10 All warranties and all warranty claims of Seller relating
to the Website.
1.11 All other assets associated with the Website, including
but not limited to those identified on EXHIBIT 1.11 attached hereto.
2. PURCHASE PRICE AND MANNER OF PAYMENT.
2.1 The purchase price for the Assets shall, subject to
adjustments as described below, be and be payable as follows:
2.1.1 Eight Million Two Hundred Fifty Thousand
Dollars ($8,250,000.00), payable with interest on the
outstanding balance calculated at the rate of six percent
(6%) per annum, from the Closing until paid in full, with
principal and interest being payable in full on the date
which is six (6) months after the Closing. This Agreement
shall at the Closing and without further act being required,
act as a security agreement wherein Buyer grants Seller a
security interest in the Assets as collateral for payment of
said amount. Buyer will provide Seller at the Closing with an
executed UCC-1 Financing Statement evidencing said lien.
Seller will subordinate the debt described in this Section
2.1.1 to one or more liens securing new or replacement asset
financing of Buyer, created after the Closing. If Buyer
consummates a public offering or a private offering before
the debt described in this Section 2.1.1 is paid in full,
then Seller may at its election participate in the offering
by converting its debt then owed under this Section 2.1.1
into equity, at a conversion rate based on 100% of the value
of the stock acquired in the conversion.
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2.1.2 Two Million (2,000,000) shares of Janex Stock
(defined below), which will be stock newly issued at the
Closing (additional to shares currently issued), and will be
issued at the Closing to Seller.
The term "JANEX STOCK" as used herein means the publicly
traded common stock of Buyer, subject to all terms and restrictions
relating thereto.
2.2 Buyer may offset amounts paid by Buyer for debts of Seller
against the amount due by Buyer to Seller as described in Section 2.1.1
above. At the Closing, Seller will provide Buyer with a certified
affidavit listing all of Seller's creditors and the balances owing to
the creditors (all creditors shall be listed, including any with
disputed claims). To the extent of the payments payable under Section
2.1.1 above, Buyer may pay the creditors on said list the amounts owing
as shown on said list, updated to the dates of payment, except that
amounts owing on disputed claims will be paid by Buyer to Thomas R.
Lofy ("HOLDER") to be held by Holder in escrow in Holder's Bar Trust
Account for the benefit of Buyer and Seller until Buyer and Seller
agree as to the amounts to be paid to the creditors or until a Court
orders distribution of the amounts so held.
Holder shall deposit the amount received under this Section
into an interest bearing account. Interest earned in the account will
be applied in the same manner as principal is applied as called for in
this Section.
Holder shall be relived 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.
Seller and Buyer agree to indemnify and defend and hold
Holder harmless against all claims, demands or damages, including
attorneys' 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.
Solely at Holder's election, Holder may resign as Holder by
sending written 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 Holder. All documents and monies 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.
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2.2 Buyer may offset amounts paid by Buyer for debts of Seller
against the amount due by Buyer to Seller as described in Section 2.1.1
2.3 The purchase price shall be allocated in accordance with
EXHIBIT 2.3 attached hereto.
2.4 The purchase price includes assumption of liabilities as
set out in Section 3 below.
2.5 Goett will as soon as is practicable after the Closing
release, and transfer to Seller, the rights (to acquire Seller's
stock) which are described on EXHIBIT 2.5 attached hereto. Goett
agrees to execute such additional documents as are appropriate to
effect such release and transfer, but this document shall
automatically and without further act being required constitute such
release and transfer, effective at and only at the Closing. Goett
shall as soon as is practicable after the Closing be issued common
stock of Buyer representing ten percent (10%) of the capital stock of
Buyer.
3. LIABILITIES.
3.1 Buyer at the Closing will assume only the following of
Seller's obligations (the assumed obligations being referred to in this
Agreement as the "ASSUMED LIABILITIES"):
3.1.1 Seller's obligations under the contracts
identified on EXHIBIT 3.1.1-1 attached hereto and Seller's
obligations under the other liabilities which are identified
on EXHIBIT 3.1.1-2 attached hereto (unless otherwise
designated on EXHIBIT 3.1.1-1 or EXHIBIT 3.1.1-2, said
assumptions shall include only obligations arising after and
relating to the time period after the Closing).
3.2 All liabilities of Seller other than those 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. Without limiting the generality of the
foregoing, it is expressly understood and agreed that Buyer is not
assuming any tort liability, any environmental liability, any
contractual liability for contracts not disclosed to and agreed upon by
Buyer, or any liability to or for employees or employee benefits. The
indemnities set forth in this Section shall survive the Closing.
3.3 Buyer may offset against the purchase price any and all
liabilities associated with the Assets which are not expressly assumed
by Buyer but which Buyer pays.
3.4 The following expenses associated with the Website and
other assets transferred hereby will be prorated to the close of
escrow: phone expenses, advertising expense, insurance premiums on any
insurance transferred to Buyer, personal property taxes, and other
normal operating expenses for the Website. If any of said expense
allocations or credits cannot be determined by the parties at the
Closing, then the parties will calculate the prorations and credits as
soon as practicable thereafter and pay each other any amounts owing as
a result thereafter within five (5) days after the determination is
made.
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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 the lessors under the Equipment Leases.
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 Website 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 Wbsite from and
after the Closing. The indemnities set forth in this Section shall
survive the Closing.
4. INTERIM EVENTS. Seller agrees that Seller will take no action prior
to the Closing, other than in the ordinary course of business, which would or
might have a material adverse effect upon the financial condition of Seller, or
the value of the Website, 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 relating to the Website.
5. 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):
5.1 Buyer obtaining from the lessors of the Equipment Leases
their consents to the transfer of those leases to Buyer on terms
acceptable to Buyer;
5.2 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 Website;
5.3 Seller having maintained the Assets in the same condition
as of the date of this Agreement (subject to ordinary wear and tear
only);
5.4 Seller having conducted the operations of the Website
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;
5.5 The operations of the Website not having changed in a
material and adverse manner between the date of this Agreement and the
date of Closing;
5.6 There being no governmental investigations or suits
pending or threatened with respect to the operations of the Website,
except as may otherwise be agreed to in writing by Buyer;
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5.7 Buyer obtaining from the lenders under the debts to be
assumed by Buyer under this Agreement their consents to the transfer of
those debts to Buyer on terms acceptable to Buyer.
6. CLOSING. The closing of the Transaction (the "Closing") shall occur
on March 3, 2000 at 10:00 a.m. M.S.T. at Buyer's business. The Transaction shall
be consummated without the use of an independent escrow company.
7. RESTRICTIVE COVENANTS.
(a) Seller agree not to, without the prior written consent of
Buyer, which consent may be withheld for any or no reason, for a
period of 3 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 operating
a website which is competitive with the Website.
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
shall be construed as prohibiting Buyer from pursuing any other
available remedies for such breach or threatened breach, including
pursuing a recovery for damages.
(b) Seller shall not, 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 Seller to work on creation or maintenance of the Website during the
two years preceding the Closing, to leave the employ of Buyer, if Buyer
hires said person after the Closing.
(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 Website, 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 shall be modified judicially or by
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<PAGE>
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.
(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 Seller against Buyer, whether predicated on this
Section or otherwise, shall not constitute a defense to the enforcement
of this Section.
8. DUE DILIGENCE INVESTIGATION. Buyer shall have until the 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 financial viability and value of the Assets. 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 included in the definition of "Assets" as used in this
Agreement to verify that it is in an acceptable state of repair, (iii) all
agreements to which Seller is a party relating to the Website, 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 may, in Buyer's sole discretion, terminate this
Agreement at any time prior to the Closing 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 Assets, and to provide whatever information and documents
Buyer reasonably deems necessary or appropriate to the making of an informed
decision regarding the Transaction.
9. ACCESS TO CUSTOMER FILES AND OTHER RECORDS. For a period of three
(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
is or may become a party, then Seller 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.
10. REPRESENTATIONS AND WARRANTIES. Seller hereby represents and
warrants as follows, as of the date hereof and as of the date of the Closing:
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10.1 AUTHORITY. As of the date of execution of this Agreement,
Seller has the power and authority to enter into and perform its
obligations under this Agreement.
10.2 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 Website, which
statements fairly present what they purport to present as of their
respective dates.
10.3 TAXES. All federal and state income, excise, franchise,
payroll, property, sales, and other tax returns required to be filed by
or with respect to Seller's 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 as Buyer shall request.
10.4 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, Seller's business has been
conducted only in the ordinary course, there have been no material
adverse changes in the financial condition or operations of Seller's
business, 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 said business.
10.5 LIENS. 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 and
encumbrances.
10.6 LITIGATION. To the knowledge of Seller or Shareholder,
there is no litigation, proceeding, or investigation pending against
Seller, and Seller has no reasonable grounds to know any basis for such
litigation, proceeding or investigation.
10.7 LICENSES. Seller has any and all licenses, permits, and
contracts necessary and/or appropriate to operate the Website in the
manner in which the Website is currently operated.
10.8 HAZARDOUS MATERIALS. Seller has not dealt in any manner
with any hazardous or toxic materials or waste.
10.9 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 Assets as called for in this Agreement.
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10.10 JUDGMENTS AGAINST SELLER AND/OR ASSETS. Seller is not
under any governmental investigation, no such investigation has been
threatened, and there are no judgments against Seller or the Assets.
10.11 COMPLETE SALE. The assets to be transferred under this
Agreement are all of the assets used by Seller in the operation of the
Website, other than the Excluded Assets.
10.12 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.
10.13 DISCLOSURE MATERIALS. The financial condition of Seller
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 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 Seller's assets and financial
standing.
10.14 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, including but not limited
to the Equipment Leases.
10.15 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.
10.16 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 relating to the Website, without adverse changes in the
account terms.
10.17 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.
10.18 LOSSES. There are no unrealized or anticipated losses on
any commitment or contract of Seller.
The representations and warranties in this Section shall survive the Closing of
the Transaction.
11. This Section is intentionally omitted.
13
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12. BULK SALE PROVISIONS. At Buyer's option, the parties will comply
with any and all bulk sale laws applicable to the Transaction. Seller warrants
and covenants to pay and discharge when due all claims of creditors which could
be asserted against Buyer by reason of any non-compliance with applicable bulk
sales laws to the extent that such liabilities are not specifically assumed by
Buyer under this Agreement.
13. 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.
14. 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 claims incurred in connection with such fees or commissions.
15. 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.
16. 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, but may not be assigned by Seller.
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.
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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: Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
If to Buyer: oKID.com, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
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. PUBLICITY. Seller and Buyer agree that no public release or
announcement concerning the Transaction shall be issued by any party prior to
the Closing without the prior consent (which consent shall not be unreasonably
held) of the other party, except: (i) any document utilized in connection with
Buyer's financing for the Transaction; and (ii) as such release or announcement
may be required by law, in which case the party required to make the release or
announcement shall allow the other party reasonable time to comment on such
release or announcement in advance of such issuance. Buyer shall have the sole
right to determine what, if any, public announcement shall be made after the
Closing; provided, however, that Buyer will prior to the release of its initial
public announcement, deliver a copy thereof to Seller for Seller's review and
comment.
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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. The Exhibits attached hereto are
incorporated into and are part of this Agreement. The parties agree that the
Assets constitute unique property, that there is no adequate remedy at law for
the damage which might be sustained for the failure of a party to this Agreement
to consummate the Transaction, and, accordingly, that each party hereto shall be
entitled to the remedy of specific performance to enforce such consummation. The
parties agree that time is of the essence of each and every provision of this
Agreement.
DATED the date first hereinabove written.
SELLER: Futech Interactive Products, Inc., an Arizona corporation
By /S/ VINCENT W. GOETT
--------------------------------
Vincent W. Goett, President
BUYER: oKID.com, Inc., a Delaware corporation
By /S/ VINCENT W. GOETT
--------------------------------
Vincent W. Goett, President
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LIST OF EXHIBITS:
----------------
List of Specific Furniture, Fixtures and Equipment 1.2
Assumed Leases 1.3
List of Specifically Included Intellectual Property Rights 1.7
List of Specifically Listed Other Assets 1.11
Purchase Price Allocation 2.3
Goett's Rights to Acquire Seller's Stock 2.5
Assumed Contracts 3.1.1-1
Other Assumed Liabilities 3.1.1-2
17
<PAGE>
EXHIBIT 1.2
(LIST OF SPECIFIC FURNITURE, FIXTURES AND EQUIPMENT)
18 Exhibit 1.2, Page 1 of 1
<PAGE>
EXHIBIT 1.3
(ASSUMED LEASES)
19 Exhibit 1.3, Page 1 of 1
<PAGE>
EXHIBIT 1.7
(LIST OF SPECIFICALLY INCLUDED INTELLECTUAL PROPERTY RIGHTS)
20 Exhibit 1.7, Page 1 of 1
<PAGE>
EXHIBIT 1.11
(LIST OF SPECIFICALLY LISTED OTHER ASSETS)
21 Exhibit 1.11, Page 1 of 1
<PAGE>
EXHIBIT 2.3
(PURCHASE PRICE ALLOCATION)
22 Exhibit 2.3, Page 1 of 1
<PAGE>
EXHIBIT 2.3
(PURCHASE PRICE ALLOCATION)
23 Exhibit 2.3, Page 1 of 1
<PAGE>
EXHIBIT 2.5
(GOETT'S RIGHTS TO ACQUIRE SELLER'S STOCK)
24 Exhibit 2.5, Page 1 of 1
<PAGE>
EXHIBIT 3.1.1-1
(ASSUMED CONTRACTS)
25 Exhibit 3.1.1-1, Page 1 of 1
<PAGE>
EXHIBIT 3.1.1-2
(OTHER ASSUMED LIABILITIES)
26 Exhibit 3.1.1-2, Page 1 of 1
<PAGE>
EXHIBIT 2.5
FIRST AMENDMENT
TO
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AMENDMENT, which is effective immediately upon execution by all
parties, is made as of the 28th day of April, 2000, by and between Futech
Interactive Products, Inc., an Arizona corporation ("Seller"), and Janex
International, Inc., a Delaware corporation ("Buyer").
R E C I T A L S:
A. The parties identified above entered into an Agreement for Purchase
and Sale of Assets, Dated February 25, 2000 (the "Sale Agreement"). Capitalized
terms used in this Amendment shall have the same meanings given those terms in
the Sale Agreement.
B. The parties desire to amend the Sale Agreement on the terms and
conditions hereinafter set forth.
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. Section 2.1.1 of the Sale Agreement is hereby deleted in its
entirety.
2. Section 2.1.2 of the Sale Agreement is hereby deleted in its
entirety and replaced with the following:
2.1.2 Sixteen Million (16,000,000) shares of Buyer's
common stock. Buyer will use its best efforts to register said
shares under the Securities Act within 150 days after the
Closing. If a Registration Statement is not effective within
150 days after the Closing, then for each 30 day period
thereafter during which the Registration Statement is not
effective, Buyer will issue Seller an additional 10,000 shares
of Buyer's common stock. Seller will not sell during any 3
month period more than the greater of: (i) 5% of Buyer's
outstanding common stock, and (ii) 200% of the average weekly
reported trading volume during the 4 weeks preceding the sale.
Notwithstanding the foregoing, if the publicly traded price of
Buyer's common tock is not at least $1.00 per share on the
date of the Closing, and said stock does not
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reach said price (adjusted as necessary to take into account
transactions such as stock splits) within twenty-four (24)
months thereafter, then Buyer shall issue additional shares
of Buyer's common stock to Seller, as soon as is practicable
after the date which is twenty-four (24) months after the
date of Closing, and the number of shares to be so issued
shall be calculated as follows: divide (x) the difference
between (i) $16,000,000.00 and (ii) the highest publicly
traded closing price of Buyer's common stock during the 24
month period from the Closing through the date which is 24
months thereafter, times the 16,000,000 shares of stock
issued pursuant to this Section (including the value of all
splits and other rights relating thereto), by (y) the
publicly traded closing price on the date which is 24 months
after the date of the Closing.
Notwithstanding the foregoing, Five Million (5,000,000) shares
of Buyer's stock to be issued to Seller as called for above
shall be held by Buyer and not issued to Seller until two (2)
years after the Closing. Buyer may deduct from the number of
shares to be issued one share for each $1.00 of liability
(including interest thereon) owing from Seller to Buyer at any
time prior to the expiration of said two (2) year period
(unless said debt is paid in some other manner), and said
liability shall be reduced and deemed paid at the rate of
$1.00 per share of stock so deducted from the number of shares
to be issued. The liabilities for which said deductions may be
made include any and all liabilities of any kind, including
but not limited to liabilities for indemnification as called
for in this Agreement.
Seller agrees, and will confirm said agreement by executing
one or more documents so confirming, in form and with content
acceptable to Buyer, that: (A) the stock to be issued under
this Agreement will be a restricted security, issued pursuant
to one or more exemptions to the registration requirements of
the Securities Act; (B) Buyer's obligation to issue the stock
is subject to Buyer determining to Buyers' satisfaction that
these transactions are in compliance with the Securities Act
and all other applicable federal and state laws; and (C)
Seller will execute such documents as are necessary and/or
appropriate to insure compliance with applicable federal and
state laws. Buyer obtaining documentation as to the foregoing
shall be a condition to the obligation of Buyer to close the
Transaction, or to issue the stock.
3. Section 2.2 of the Sale Agreement is hereby deleted in its entirety.
4. Section 3.1.1 of the Sale Agreement is hereby deleted in its
entirety and replaced with the following:
3.1.1 Seller's obligations under the contracts
identified on EXHIBIT 3.1.1-1 attached hereto (said
assumptions shall include only obligations arising after and
relating to the time period after the Closing).
EXHIBIT 3.1.1-2 is no longer part of the Sale Agreement. There are no
liabilities of Seller which Buyer is assuming other than as called for on
EXHIBIT 3.1.1-1 or in new Section 3.1.2 appearing below.
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5. A new Section 3.1.2 is hereby added to Section 3 of the Sale
Agreement, as follows:
3.1.2 Seller's obligations to U.S. Bank, not to exceed in the
aggregate however the sum of $10,000,000.00. As part of the
consideration for this transaction and for Buyer assuming the
U. S. Bank debt, the open account debt owing by Buyer to
Seller as of the Closing (in the approximate amount of
$1,645,000.00) will as of the Closing, without additional
documentation or consideration being required, be and be
deemed for all purposes to be fully paid and forever
discharged.
6. The following is hereby added at the end of Section 3.3 of the Sale
Agreement:
The parties understand and agree that Buyer has no obligation
to pay any debt of Seller, other than as expressly called for
in Sections 3.1.1 and 3.1.2 of this Agreement.
7. New Sections 5.12 and 5.13 are hereby added to Section 5 of the Sale
Agreement, as follows:
5.12 Approval of the Transaction by all of Buyer's creditors; and
5.13 Approval by the shareholders of Buyer of an amendment to
Buyer's governing documents authorizing an increase in the
authorized number of shares of stock of Buyer to 125,000,000.
8. The date in Section 6 of the Sale Agreement is hereby changed
to August 30, 2000.
9. Except as expressly called for in this Amendment, the Sale Agreement
continues unmodified and in full force and effect.
10. This Amendment 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 Amendment, and that said
facsimile signatures shall for all purposes be binding upon the parties as if
the same were originals.
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DATED the date first hereinabove written.
SELLER: Futech Interactive Products, Inc., an Arizona corporation
By /S/ VINCENT W. GOETT
--------------------------------
Vincent W. Goett, President
BUYER: Janex International, Inc., a Delaware corporation
By /S/ VINCENT W. GOETT
--------------------------------
Vincent W. Goett, President
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AGREEMENT
FOR
PURCHASE AND SALE
OF
ASSETS
THIS AGREEMENT is made as of the 25th day of February, 2000, by and
between Futech Interactive Products, Inc., an Arizona corporation ("SELLER"),
and Janex International, Inc., a Colorado corporation ("BUYER").
R E C I T A L S:
A. Seller owns and operates a business (the "BUSINESS") which, among
other things, owns and licenses to third parties certain intellectual property
rights and manufactures, markets, distributes and sells toys, games, books,
stationery and other products under the tradename "Futech Interactive Products."
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") (the assets
identified on EXHIBIT 1 attached hereto (the "EXCLUDED ASSETS") are not included
in the assets sold pursuant to this Agreement).
1.1 All furniture, fixtures, vehicles, machinery and equipment
used in connection with the operation of the Business (other than that
leased under the Equipment Leases (defined below)), including but not
limited to the assets identified on EXHIBIT 1.1 attached hereto (all of
the foregoing are collectively referred to below as the "FIXED
ASSETS").
1.2 All notes receivable, accounts receivable, prepaid items,
supplies and all other property currently used by Seller in connection
with the operation of the Business.
1.3 All finished and unfinished goods, work-in-process,
inventories, and materials of Seller.
1.4 All of Seller's interest in the leases identified on
EXHIBIT 1.4 attached hereto (the "EQUIPMENT LEASES.")
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1.5 All rights to the trade names "Futech Interactive
Products" and any and all other trade names used by Seller in
connection with the Business, along with any and all trademarks,
service marks, logos and designs relating hereto, including all
internet domain names used in the Business. As soon as practicable
after the Closing, Seller will change its corporate name to eliminate
the use of any of the names transferred to Buyer.
1.6 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.
1.7 All of Seller's books and records (or copies thereof),
computer programs, software, drawings, financial and tax information
(or copies thereof), and all customer and vendor files.
1.8 All contracts and other accounts which remain unperformed
as of the Closing.
1.9 All other contracts, licenses, accounts and other general
intangibles currently held by Seller.
1.10 All patents, copyrights, trade secrets, customer and
supplier lists, promotional materials, and other intangible rights
used in connection with the operation of the Business, including but
not limited to those described on EXHIBIT 1.10 attached hereto.
1.11 The phone numbers and all phone and other advertising
associated with the Business.
1.12 All warranties and all warranty claims of Seller.
1.13 All assets of the Business, including but not limited to
those identified on EXHIBIT 1.13 attached hereto.
2. PURCHASE PRICE AND MANNER OF PAYMENT.
2.1 The purchase price for the Assets shall, subject to
adjustments as described below, be and be payable as follows:
2.1.1 Thirteen Million Four Hundred Thousand Six
Hundred Dollars ($13,400,600.00), payable with interest on the
outstanding balance calculated at the rate of six percent (6%)
per annum, from the Closing until paid in full, with principal
and interest being payable in full on the date which is
eighteen (18) months after the Closing. This Agreement shall
at the Closing and without further act being required, act as
a security agreement wherein Buyer grants Seller a security
interest in the Assets as collateral for payment of said
amount. Buyer will provide Seller at the Closing with an
executed UCC-1 Financing Statement evidencing said lien.
Seller will subordinate the debt described in this Section
2.1.1 to one or more liens securing new or replacement asset
financing of Buyer, created
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after the Closing. If Buyer consummates a public offering or
a private offering before the debt described in this Section
2.1.1 is paid in full, then Seller may at its election
participate in the offering by converting its debt then owed
under this Section 2.1.1 into equity, at a conversion rate
based on 100% of the value of the stock acquired in the
conversion.
2.1.2 Seven Million Six Hundred Twenty-Four Thousand
(7,624,000) shares of Janex Stock (defined below), which will
be stock newly issued at the Closing (additional to shares
currently issued), and will be issued at the Closing to
Seller.
The term "JANEX STOCK" as used herein means the publicly
traded common stock of Buyer, subject to all terms and restrictions
relating thereto.
2.2 The amount described in Section 2.1.1 above shall be paid
as follows:
(a) At the Closing, Seller will provide Buyer with a
certified affidavit listing all of Seller's creditors and the
balances owing to the creditors (all creditors shall be
listed, including any with disputed claims). To the extent of
the cash payable under Section 2.1.1, at the Closing Buyer
shall pay the creditors on said list the amounts owing as
shown on said list, except for the following: (i) debts
assumed by Buyer under Section 3 below need not be paid at the
Closing; (ii) amounts owing on disputed claims will be paid by
Buyer to Thomas R. Lofy ("HOLDER") to be held by Holder in
escrow in Holder's Bar Trust Account for the benefit of Buyer
and Seller until Buyer and Seller agree as to the amounts to
be paid to the creditors or until a Court orders distribution
of the amounts so held.
Holder shall deposit the amount received under this
Section into an interest bearing account. Interest earned in
the account will be applied in the same manner as principal is
applied as called for in this Section.
Holder shall be relived 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.
Seller and Buyer agree to indemnify and defend and
hold Holder harmless against all claims, demands or damages,
including attorneys' fees, expenses, and liabilities that
Holder may incur or sustain in connection with this Agreement
or
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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.
Solely at Holder's election, Holder may resign as
Holder by sending written 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 Holder. All documents
and monies 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.
(b) The remainder shall be paid in full in cash
equivalent at the Closing, in accordance with the Schedule of
Sources and Uses of Funds attached hereto as EXHIBIT 2.2.
2.3 The purchase price shall be allocated in accordance with
EXHIBIT 2.3 attached hereto.
2.4 The purchase price includes assumption of liabilities as
set out in Section 3 below.
3. LIABILITIES.
3.1 Buyer at the Closing will assume only the following of
Seller's obligations (the assumed obligations being referred to in this
Agreement as the "ASSUMED LIABILITIES"):
3.1.1 Seller's obligations under the contracts
identified on EXHIBIT 3.1.1-1 attached hereto and Seller's
obligations under the other liabilities which are identified
on EXHIBIT 3.1.1-2 attached hereto (unless otherwise
designated on EXHIBIT 3.1.1-1 or EXHIBIT 3.1.1-2, said
assumptions shall include only obligations arising after and
relating to the time period after the Closing).
3.2 All liabilities of Seller other than those 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. Without limiting the generality of the
foregoing, it is expressly understood and agreed that Buyer is not
assuming any tort liability, any environmental liability, any
contractual liability for contracts not disclosed to and agreed upon by
Buyer, or any liability to or for employees or employee benefits. The
indemnities set forth in this Section shall survive the Closing.
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 pays.
3.4 The following expenses of the Business will be prorated to
the close of escrow: utilities and phone expenses, advertising expense,
insurance premiums on any
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insurance transferred to Buyer, personal property taxes, and other
normal operating expenses of the Business. If any of said expense
allocations or credits cannot be determined by the parties at the
Closing, then the parties will calculate the prorations and credits as
soon as practicable thereafter and pay each other any amounts owing as
a result thereafter within five (5) days after the determination is
made.
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 the lessors under the Equipment Leases.
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.
4. INTERIM EVENTS. Seller agrees that Seller will take no action prior
to the Closing, other than in the ordinary course of 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.
5. 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):
5.1 Buyer obtaining from the lessors of the Equipment Leases
their consents to the transfer of those leases to Buyer on terms
acceptable to Buyer;
5.2 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;
5.3 Seller having maintained the Assets in the same condition
as of the date of this Agreement (subject to ordinary wear and tear
only);
5.4 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;
5.5 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;
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5.6 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;
5.7 Approval for the Transaction by the Board of Directors and
the shareholders of Buyer;
5.8 Buyer's approval of an appraisal of Seller's intellectual
property rights, with Seller to obtain and pay the costs of that
appraisal;
5.9 Buyer's approval of Seller's most recent Financial
Statements prior to the Closing;
5.10 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; and
5.11 Buyer obtaining from the lenders under the debts to be
assumed by Buyer under this Agreement their consents to the transfer of
those debts to Buyer on terms acceptable to Buyer.
Seller's obligation to close the Transaction shall be conditioned upon
Seller obtaining, by _____________, 2000, approval of the Transaction from
Seller's shareholders and Seller's lenders.
6. CLOSING. The closing of the Transaction (the "Closing") shall occur on April
1, 2000 at 10:00 a.m. M.S.T. at the Business. The Transaction shall be
consummated without the use of an independent escrow company.
7. RESTRICTIVE COVENANTS.
(a) Seller agree not to, without the prior written consent of
Buyer, which consent may be withheld for any or no reason, for a period
of 3 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 within the
United States of America, 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
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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
shall be construed as prohibiting Buyer from pursuing any other
available remedies for such breach or threatened breach, including
pursuing a recovery for damages.
(b) Seller 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.
(c) Seller shall not, 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.
(d) 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 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.
(e) 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 against Buyer, whether predicated on this
Section or otherwise, shall not constitute a defense to the enforcement
of this Section.
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8. DUE DILIGENCE INVESTIGATION. Buyer shall have until the 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 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, for the three previous years, for the purpose of
conducting due diligence investigations. Buyer may, in Buyer's sole discretion,
terminate this Agreement at any time prior to the Closing 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.
9. ACCESS TO CUSTOMER FILES AND OTHER RECORDS. For a period of three (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 is or may
become a party, then Seller 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.
10. REPRESENTATIONS AND WARRANTIES. Seller hereby represents and warrants as
follows, as of the date hereof and as of the date of the Closing:
10.1 AUTHORITY. As of the date of execution of this Agreement,
Seller has the power and authority to enter into and perform its
obligations under this Agreement, the Board of Directors of Seller has
recommended and resolved that the Transaction is to move forward
subject to shareholder approval, and the Board of Directors of Seller
have authorized and ratified the execution and delivery of this
Agreement. As of the Closing, all of the foregoing are true, and the
shareholders of Seller have approved the Transaction, and the Board of
Directors of Seller has approved of the documents herein required to
consummate the Transaction.
10.2 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.
10.3 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
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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.
10.4 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 against) which materially adversely affects the
financial condition or operations of the Business.
10.5 LIENS. 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 and
encumbrances.
10.6 LITIGATION. To the knowledge of Seller or Shareholder,
there is no litigation, proceeding, or investigation pending against
Seller or the Business, and Seller has no reasonable grounds to know
any basis for such litigation, proceeding or investigation.
10.7 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.
10.8 HAZARDOUS MATERIALS. The Business has not dealt in any
manner with any hazardous or toxic materials or waste.
10.9 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.
10.10 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.
10.11 COMPLETE SALE. The assets to be transferred under this
Agreement are all of the assets used by Seller in the operation of the
Business, other than the Excluded Assets.
10.12 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.
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10.13 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 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.
10.14 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, including but not limited
to the Equipment Leases.
10.15 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.
10.16 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.
10.17 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 _______ (__) days past due.
10.18 INVENTORY. Seller's 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.
10.19 LOSSES. There are no unrealized or anticipated losses on
any commitment or contract of Seller.
10.20 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, none of Seller's patents are being presently
infringed.
10.21 RECEIVABLES. All accounts receivable arose in the
regular course of business, and, to the best knowledge to Seller, are
collectable and subject to no defenses or counterclaims.
14
<PAGE>
The representations and warranties in this Section shall survive the Closing of
the Transaction.
11. SELLER'S CORPORATE NAME. At the Closing, Seller will deliver to Buyer
appropriate executed originals of an Amendment to Seller's Articles of
Incorporation changing Seller's corporate name to a name which does not contain
the words "Futech Interactive Products" and is not a deceptively similar name.
Such executed documents shall be in the number and in such form as are
acceptable for filing with the Arizona Corporation Commission, and shall be
accompanied by Seller's check in the appropriate amount necessary for filing and
publishing said documents.
12. BULK SALE PROVISIONS. At Buyer's option, the parties will comply with any
and all bulk sale laws applicable to the Transaction. Seller warrants and
covenants to pay and discharge when due all claims of creditors which could be
asserted against Buyer by reason of any non-compliance with applicable bulk
sales laws to the extent that such liabilities are not specifically assumed by
Buyer under this Agreement.
13. 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.
14. 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 claims incurred in connection with such fees or commissions.
15. 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.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon andinure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, but may not be assigned by Seller.
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.
15
<PAGE>
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: Futech Interactive Products, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
If to Buyer: Janex International, Inc.
2999 North 44th Street, Suite 225
Phoenix, Arizona 85018
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. PUBLICITY. Seller and Buyer agree that no public release or announcement
concerning the Transaction shall be issued by any party prior to the Closing
without the prior
16
<PAGE>
consent (which consent shall not be unreasonably held) of the other party,
except: (i) any document utilized in connection with Buyer's financing for the
Transaction; and (ii) as such release or announcement may be required by law, in
which case the party required to make the release or announcement shall allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance. Buyer shall have the sole right to determine what, if
any, public announcement shall be made after the Closing; provided, however,
that Buyer will prior to the release of its initial public announcement, deliver
a copy thereof to Seller for Seller's review and comment.
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. The Exhibits attached hereto are
incorporated into and are part of this Agreement. The parties agree that the
Assets and the Business as a going concern constitute unique property, that
there is no adequate remedy at law for the damage which might be sustained for
the failure of a party to this Agreement to consummate the Transaction, and,
accordingly, that each party hereto shall be entitled to the remedy of specific
performance to enforce such consummation. The parties agree that time is of the
essence of each and every provision of this Agreement.
DATED the date first hereinabove written.
SELLER: Futech Interactive Products, Inc., an Arizona corporation
By /S/ VINCENT W. GOETT
------------------------------------
Vincent W. Goett, President
BUYER: Janex International, Inc., a Colorado corporation
By /S/ VINCENT W. GOETT
------------------------------------
Vincent W. Goett, President
17
<PAGE>
LIST OF EXHIBITS:
Excluded Assets 1
List of Specific Furniture, Fixtures and Equipment 1.1
Assumed Leases 1.4
List of Specifically Included Intellectual Property Rights 1.10
List of Specifically Listed Other Assets 1.13
Schedule of Sources and Uses of Funds 2.2
Purchase Price Allocation 2.3
Assumed Contracts 3.1.1-1
Other Assumed Liabilities 3.1.1-2
18
<PAGE>
EXHIBIT 1
(EXCLUDED ASSETS)
N/A
19 Exhibit 1, Page 1 of 1
<PAGE>
EXHIBIT 1.1
(LIST OF SPECIFIC FURNITURE, FIXTURES AND EQUIPMENT)
20 Exhibit 1.1, Page 1 of 1
<PAGE>
EXHIBIT 1.4
(ASSUMED LEASES)
STONERIDGE OF PEWAUKEE, L.L.C. AND FUTECH INTERACTIVE PRODUCTS, INC.
N16 W23390 STONERIDGE DRIVE
WAUKESHA WI 53188
(SEE ATTACHED)
21 Exhibit 1.4, Page 1 of 1
<PAGE>
EXHIBIT 1.10
(LIST OF SPECIFICALLY INCLUDED INTELLECTUAL PROPERTY RIGHTS)
(SEE ATTACHED)
22 Exhibit 1.10, Page 1 of 1
<PAGE>
EXHIBIT 1.13
(LIST OF SPECIFICALLY LISTED OTHER ASSETS)
1. Any real estate leases to which Seller is a party, and any leasehold
improvements affixed to the real estate and not subject to removal by
Seller.
2. Any contracts with third parties to which Seller is a party, other than
those identified on EXHIBIT "3.1.1-1" attached hereto.
3. Seller's cash.
23 Exhibit 1.13, Page 1 of 1
<PAGE>
EXHIBIT 2.2
(SCHEDULE OF SOURCES OF USES OF FUNDS)
(SEE ATTACHED)
24 Exhibit 2.2, Page 1 of 1
<PAGE>
EXHIBIT 2.3
(PURCHASE PRICE ALLOCATION)
Furniture, fixtures and equipment Note #1
Inventory $_________
Accounts Receivable Note #2
Goodwill The Balance
Note 1: ____________________.
Note 2: The net face amount of the accounts receivable acquired, as of the
Closing.
25 Exhibit 2.3, Page 1 of 1
<PAGE>
EXHIBIT 3.1.1-1
(ASSUMED CONTRACTS)
(SEE ATTACHED)
26 Exhibit 3.1.1-1, Page 1 of 1
<PAGE>
EXHIBIT 3.1.1-2
(OTHER ASSUMED LIABILITIES)
N/A
27
<PAGE>
EXHIBIT 2.6
FIRST AMENDMENT
TO
MERGER AGREEMENT
THIS AMENDMENT is made as of the 10th day of May 2000, by and between
Janex International, Inc., a Colorado corporation ("Janex"), DaMert Company, a
California corporation ("DaMert"), DaMert Toys and Games, Inc., a California
corporation ("New DaMert Sub") (collectively the "Merging Companies") and those
shareholders of DaMert identified on the signature pages of this Amendment (the
"Shareholders").
R E C I T A L S:
A. The parties identified above, together with Vincent W. Goett into a
Merger Agreement, Dated March 24, 2000 (the "Merger Agreement"). Capitalized
terms used in this Amendment shall have the same meanings given those terms in
the Merger Agreement.
B. The parties desire to amend the Merger Agreement on the terms and
conditions hereinafter set forth.
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. Section B of Exhibit 1.6 to the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
Two Million Six Hundred Fifty Thousand (2,650,000) shares of
Janex common stock (150,000 of said shares are to be issued to
CorDev Corporation). Janex will use its best efforts to
register the shares issued to DaMert shareholders under the
Securities Act within 150 days after the Closing. If a
Registration Statement is not effective within 150 days after
the Closing, then for each 30 day period thereafter during
which the Registration Statement is not effective, Janex will
issue DaMert shareholders an additional 15,000 shares of Janex
common stock. DaMert shareholders will not sell during any 3
month period more than the greater of: (i) 5% of Janex's
outstanding common stock, and (ii) 200% of the average weekly
reported trading volume during the 4 weeks preceding the sale.
1
<PAGE>
Notwithstanding the foregoing, if the publicly traded price of
the Janex common tock is not at least $2.00 per share on the
date of the Closing, and said stock does not reach said price
(adjusted as necessary to take into account transactions such
as stock splits) within twenty-four (24) months thereafter,
then Janex shall issue additional shares of Janex common stock
to the DaMert shareholders, as soon as is practicable after
the date which is twenty-four (24) months after the date of
Closing, and the number of shares to be so issued shall be
calculated as follows: divide (x) the difference between (i)
$5,300,000 and (ii) the highest publicly traded closing price
of Janex's common stock during the 24 month period from the
Closing through the date which is 24 months thereafter, times
the 2,650,000 shares of stock issued pursuant to this Section
(including the value of all splits and other rights relating
thereto), by (y) the publicly traded closing price on the date
which is 24 months after the date of the Closing.
Each party receiving Janex stock agrees, and will
confirm said agreement by executing one or more documents so
confirming, in form and with content acceptable to Janex,
that: (A) the stock will be a restricted security, issued
pursuant to one or more exemptions to the registration
requirements of the Securities Act; and (B) the party
receiving the stock will execute such documents as are
necessary and/or appropriate to insure compliance with
applicable federal and state laws. Janex obtaining
documentation as to the foregoing shall be a condition to
the obligation of Janex to close the Merger.
Exhibits 1.6A, 1.6B and 1.6C are hereby deleted from
the Merger Agreement in their entirety.
2. Section B of Exhibit 6.14 to the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
DaMert has entered into an agreement with CorDev Corporation
(Bob Oliver) relating to the sale of DaMert. The amount paid
to CorDev will be paid in shares of Janex common stock, which
will be paid out of the consideration due DaMert.
3. The $5.50 per share figure in Section 1.6 of the Merger
Agreement is hereby changed to $2.00 per share.
2
<PAGE>
4. Section B of Exhibit 2.10 to the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
1. Janex shall by the time of the Closing do the
following:
(i) Obtain releases of Fred DaMert and Gail Patton
DaMert of their personal guaranties of all
obligations under that certain real property lease,
dated July 27, 1995 for the premises located at 1609
Fourth Street, Berkeley, California.
(ii) Either: (A) Payoff the debt obligations of
DaMert Company to AMRESCO Financial I, L.P.,
consisting of a credit facility of $2,500,000.00and
an additional loan of $300,000.00 or (B) assume said
debt obligations and provide Fred DaMert and Gail
Patton DaMert with fully executed releases signed by
appropriate representative from AMRESCO of Fred
DaMert's and Gail Patton DaMert's personal guaranties
of said obligations.
(iii) Repay to Fred DaMert the debts owing to him by
DaMert in the aggregate principal amount of $128,849,
together with all interest and other charges due
thereon, by Buyer issuing Fred DaMert 64,425 shares
of Buyer's common stock. Fred DaMert agrees that said
stock shall constitute full repayment of said debt.
Fred DaMert will not sell during any 3 month period
more than the greater of: (i) 5% of Janex's
outstanding common stock, and (ii) 200% of the
average weekly reported trading volume during the 4
weeks preceding the sale.
Notwithstanding the foregoing, if the publicly traded
price of the Janex common stock is not at least $2.00
per share on the date of the Closing, and said stock
does not reach said price (adjusted as necessary to
take into account transactions such as stock splits)
within twenty-four (24) months thereafter, then Janex
shall issue additional shares of Janex common stock
to the Fred DaMert, as soon as is practicable after
the date which is twenty-four (24) months after the
date of Closing, and the number of shares to be so
issued shall be calculated as follows: divide (x) the
difference between (i) $128,849 and (ii) the highest
publicly traded closing price of Janex's common stock
during the 24 month period from the Closing through
the date which is 24 months thereafter, times the
64,425 shares of stock issued pursuant to this
Section (including the value of all splits and other
rights relating thereto), by (y) the publicly traded
closing price on the date which is 24 months after
the date of the Closing.
3
<PAGE>
2. Janex upon execution of this Agreement shall and hereby
does without limitation, indemnify, defend and hold DaMert and/or its
Shareholders and guarantors harmless from any and all obligations,
liabilities, losses, costs and expenses, including reasonable
attorneys' fees incurred by any of them in connection therewith,
of DaMert, its Shareholders and guarantors owing to ARMESCO
Financial I, L.P., and its successors and assigns, and from all
obligations under that certain real property lease, dated July 27,
1995 for the premises located at 1609 Fourth Street, Berkeley,
California.
5. Julie Nunn is no longer an employee of DaMert. All references to
Julie Nunn in the Merger Agreement (including its Exhibits) are hereby deleted,
and neither Janex or NewDaMertSub shall have any obligations as a result of the
Merger Agreement owing to Julie Nunn.
6. Section 1.9 of the Merger Agreement is hereby deleted in its
entirety, Section 1.10 of the Merger Agreement is hereby deleted in its
entirety, the words "(including all information required to be included in the
Proxy Statements and the Registration Statement)" appearing in Section 1.12 of
the Merger Agreement are hereby deleted in their entirety, and any and all other
references to Form S-4 and/or proxy materials are hereby deleted from the Merger
Agreement (including its Exhibits).
7. The Closing Date appearing in Section 1.2 of the Merger
Agreement is hereby changed from March 20, 2000, to July 31, 2000.
8. Section B Exhibit 2.8.1, paragraph 1., item [6] is amended to read
$130,000 and paragraph 2., item [6] is amended to read $125,000.
9. Vincent W. Goett is no longer a party to the Merger Agreement. He
shall not be a "Shareholder" for purposes of the Merger Agreement, including as
to any representations or warranties, or any other provisions of the Merger
Agreement. He is released from any and all obligations under the Merger
Agreement.
10. New DaMert Sub will be a Delaware corporation, not a California
corporation.
11. Except as expressly called for in this Amendment, the Merger
Agreement continues unmodified and in full force and effect.
12. This Amendment 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 originals
4
<PAGE>
DATED the date first written above.
JANEX: Janex International, Inc., a Colorado corporation
By /s/ Vincent W. Goett
----------------------------------------------
Vincent W. Goett, President
DaMERT: DaMert Company, a California corporation
By /s/ Frederick A. DaMert
----------------------------------------------
Frederick A. DaMert, Chairman
SHAREHOLDERS:
DaMert: /s/ Frederick A. DaMert
----------------------------------------------
Frederick A. DaMert, Trustee of the DaMert
Trust, UTD September 28, 1998
/s/ Gail Patton DaMert
----------------------------------------------
Gail Patton DaMert, Trustee of the DaMert
Trust, UTD September 28, 1998
Janex: /s/ Vincent W. Goett
----------------------------------------------
Vincent W. Goett
The undersigned was originally a party to the Merger Agreement, and
hereby consents to this Amendment, as of the date first hereinabove written.
Since the undersigned is no longer part of the transaction, any further
amendments shall not require the signature of the undersigned.
GOETT:
/s/ Vincent W. Goett
----------------------------------------------
Vincent W. Goett
5
<PAGE>
JANEX INTERNATIONAL, INC.
MERGER AGREEMENT
MARCH, 2000
DAMERT COMPANY
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
ARTICLE I
THE MERGER
<S> <C>
The Merger .......................................................... 1.1
Effective Time ...................................................... 1.2
Effect of the Merger ................................................ 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 ......................................... 2.4
Confidentiality ..................................................... 2.5
Interim Events ...................................................... 2.6
401(k) Plan ......................................................... 2.7
Employment Agreements ............................................... 2.8
Indemnification ..................................................... 2.9
Indemnification of DaMert Obligations ............................... 2.10
Expenses and Costs of Merger ........................................ 2.11
Restrictive Covenants ............................................... 2.12
Other Agreements .................................................... 2.13
Other Discussions ................................................... 2.14
Best Efforts to Register Stock ...................................... 2.15
</TABLE>
i
<PAGE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
OF
EACH MERGING COMPANY
AND
ITS SHAREHOLDERS
<TABLE>
<S> <C>
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
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 Companys' 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
</TABLE>
ii
<PAGE>
ARTICLE IV
CONDITIONS OF MERGER
<TABLE>
<S> <C>
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 .................................................. 4.2
</TABLE>
ARTICLE V
TERMINATION, AMENDMENT AND WAIVER
<TABLE>
<S> <C>
Termination ......................................................... 5.1
Effect of Termination................................................ 5.2
Amendment ........................................................... 5.3
Waiver .............................................................. 5.4
</TABLE>
ARTICLE VI
GENERAL PROVISIONS
<TABLE>
<S> <C>
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
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
LIST OF EXHIBITS
List of Directors and Officers of Janex ............................. 1.5
Merger Consideration and Conversion of Stock Options ................ 1.6
Form of Promissory Notes Constituting Merger Consideration ..... 1.6-A
Pledge Agreement ............................................... 1.6-B
Security Agreement ............................................. 1.6-C
Votes Required for Merger Approval .................................. 1.11
Terms of Employment Agreements ...................................... 2.8.1
Form for Employment Agreements
(including Exhibits "A" and "B" thereto) ........................ 2.8.2
Employment Agreement and Bonus Agreement for Nunn ................... 2.8.3
Form of Employment Agreement for DaMert Managers .................... 2.8.4
Provisions Regarding Shareholder Loans and Guarantees ............... 2.10
Other Agreements .................................................... 2.13
Disclosure Schedules
Disclosure Schedule of Janex International, Inc. ............... 3-A
Janex Disclosure Regarding Stock Options, Warrants, etc .... 3A-3.2
Janex Disclosure Regarding Outstanding Liabilities ......... 3A-3.19
Janex Disclosure Regarding Employees ....................... 3A-3.22
Disclosure Schedule of DaMert Company .......................... 3-B
DaMert Disclosure Regarding Employees ...................... 3B-3.22
DaMert Disclosure Regarding Bank Accounts .................. 3B-3.26
DaMert Disclosure Regarding Patents ........................ 3B-3.28
DaMert Disclosure Regarding Customers and Suppliers ........ 3B-3.29
Allowed Excess Liabilities .......................................... 3.36
Form of Legal Opinion ............................................... 4.1.7
Special Conditions .................................................. 4.2
Surviving Provisions of Letter of Intent ............................ 6.4
Mailing List for Notices ............................................ 6.12
Brokerage Fees Payable .............................................. 6.14
</TABLE>
iv
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is entered into as of the ___
day of March, 2000, by and among Janex International, Inc., a Colorado
corporation ("JANEX"), DaMert Company, a California corporation ("DAMERT"),
DaMert Toys and Games, Inc., a California corporation ("New DaMert Sub")
(collectively, the "MERGING COMPANIES"), and those shareholders of Janex and
DaMert identified on the signature pages of this Agreement (the "Shareholders").
Upon the terms and subject to the conditions of this Agreement, DaMert
will merge with and into New DaMert Sub, with New DaMert Sub being the surviving
corporation and a wholly owned subsidiary of Janex. The parties intend that said
Merger (the "MERGER") 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 Merger is 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 parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with applicable law, at the Effective Time
DaMert will merge with and into New DaMert Sub. As a result of the Merger, the
separate corporate existence of DaMert will cease and New DaMert Sub will
continue as the surviving corporation of this Merger.
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 Merger 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
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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 Merger (the
"CLOSING") will be held at the offices of Janex, at 2999 North 44th Street,
Suite 225, Phoenix, Arizona 85018-7247, or elsewhere in the Phoenix Metropolitan
area at a location selected by Janex. If Janex is not ready, willing and able to
close the Merger by March 20, 2000, then DaMert and/or the Shareholders of
DaMert, thereafter at their sole discretion, may terminate this Agreement by
notifying Janex in writing of said election to terminate this Agreement. Unless
and until DaMert and/or the Shareholders of DaMert elect to terminate this
Agreement, the Agreement shall remain in full force and effect.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
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, all the property rights,
privileges, powers and franchises of DaMert will vest in New DaMert Sub, and all
debts, liabilities and duties of DaMert will become the debts, liabilities and
duties of New DaMert Sub. Further, at the Effective Time, Janex and New DaMert
Sub shall and do hereby without limitation, indemnify, defend, and hold harmless
DaMert and/or its Shareholders and guarantors from any and all existing
obligations of DaMert, to and only to the extent the same have been disclosed to
Janex in this Agreement, or in the DaMert financial statements previously
delivered to Janex, or otherwise in writing.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS. At and after the Effective
Time, the Articles of Incorporation and the Bylaws of New DaMert Sub, as in
effect immediately prior to the Effective Time, will continue to be the Articles
of Incorporation and the Bylaws of the corporation surviving the Merger. The
parties acknowledge and agree that the Articles of Incorporation, Bylaws and
other corporate documents of Janex may at the election of Janex be revised to
change the name of Janex to "oKID, Inc.," whether as part of the Merger or
otherwise.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors and
officers of Janex and New DaMert Sub will be the persons listed on EXHIBIT 1.5,
each to hold office in accordance with the charter documents of Janex and New
DaMert Sub, 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 Merger 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 Merging Companies (other than
shares of DaMert, if any, owned by Janex, 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
Janex, or shares of common stock of Janex specified in or determined in
accordance with EXHIBIT 1.6 (collectively, the "MERGER CONSIDERATION"). Any and
all options to acquire capital stock of DaMert issued and outstanding at the
Effective Time will be converted into options to acquire common stock of Janex
to and only to the extent and as specified in or determined in accordance with
EXHIBIT 1.6.
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As of the Effective Time, and except as otherwise provided in Section
1.7 below, the outstanding securities of DaMert will no longer be outstanding
and will automatically be canceled and retired and will cease to exist, and each
holder of a certificate representing any shares of DaMert will cease to have any
rights with respect to those shares, except the right to receive the
consideration, without interest, issuable for those shares upon the surrender of
such certificate in accordance with Section 1.8.
The Merging Companies and the Shareholders have agreed upon values of
the stock of Janex for purposes of determining the number of shares to be issued
under this Agreement as consideration for the Merger, and also as consideration
under the Employment Agreements, if any, described in this Agreement. No
representation or warranty has been made by Janex, or any other person or
entity, as to the value of the Janex 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 Janex stock is to be issued, Janex may, in its discretion,
issue fractional shares, or may pay cash in lieu of issuing fractional shares
based upon a value of $5.50 per share, or may issue only whole shares by
rounding what would be fractional shares up to the nearest whole share. Also,
Janex 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 Janex stock issued pursuant to this Agreement, including any stock
issued pursuant to Employment Agreements referred to herein, if any, 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 Janex, in any "piggy-back" or
other registration rights which may be made available, between the Closing and
one year thereafter, to any shareholder of Janex.
1.7 SHARES OF DISSENTING HOLDERS. This Section was intentionally
omitted.
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, Janex shall deposit with American
Securities Transfer & Trust, Inc. or such other bank or trust company selected
by Janex (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 Janex, in amounts equal to the Merger
Consideration due at the Closing, calculated in accordance with EXHIBIT 1.6.
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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 of a certificate or certificates which immediately prior to
the Closing Date represented outstanding shares of DaMert (the "OLD
CERTIFICATES") which were converted into the right to receive a share of the
Merger Consideration pursuant to Section 1.6 above:
(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 Janex 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 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 above, 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 DaMert, 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 Janex an affidavit and personal indemnity (or a bond in a
reasonably sufficient amount) with reference to the circumstances of such loss
or destruction as Janex 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 DaMert 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 DaMert after the Closing Date. If, after
the Closing Date, Old Certificates are presented to Janex or its transfer agent
for any reason, such Old Certificates will be canceled and exchanged as provided
in this Agreement.
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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 Janex upon demand
by Janex, and any holders of Old Certificates who have not complied with this
Section 1.8 will then look only to Janex 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 Janex to be
issued in connection with the Merger. 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.
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 Merger. 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 Merger and will take all
other action necessary or advisable to secure the vote or consent of
stockholders required by applicable law to approve the Merger.
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1.11 VOTE REQUIRED. Each of the Merging Companies and its Shareholders
represent and warrant 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 Merger.
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 Merger; and
(iii) make all necessary filings, and thereafter make
any other required submissions, with respect to this Agreement
and the Merger 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.
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 Merger as set out in this Agreement.
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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 Merger, 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 DaMert Sub, 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 DaMert Sub 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 Company(s), including UCC-1 searches, which it may deem necessary or
appropriate to ascertain the financial viability and value of the other Merging
Company(s). 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 Company(s), in order to authenticate and audit
all financial information provided to it;
(ii) all equipment and machinery used in the operations of the
other Merging Company(s) to verify that it is in an acceptable
state of repair;
(iii) all material agreements to which the other Merging
Company(s) are parties; and
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(iv) all facilities and physical operations of the other
Merging Company(s), including facilities warehousing
inventory.
Each Merging Company will be given access to the other Merging
Company'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.
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 Company(s). Each Merging Company agrees to
aid the other Merging Company(s) in the investigations and evaluations of the
operations and financial condition of the Merging Company and its 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
Merger, 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 Merger is 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 Janex 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. Janex shall take all actions necessary immediately
after the Closing of the Merger either: (i) to roll over DaMert's 401(k) Plan or
similar employee benefit plans, if any, into its 401(k) Plan; or (ii) to
continue DaMert'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 Merger, Janex shall execute and deliver Employment
Agreements with the persons and on the terms described on EXHIBIT 2.8.1, if any.
The Employment Agreements will be in the form of EXHIBIT 2.8.2, EXHIBIT 2.8.3
and EXHIBIT 2.8.4 except as modified as called for on EXHIBIT 2.8.1
2.9 INDEMNIFICATION. Janex shall indemnify and hold harmless DaMert,
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 DaMert in
respect of the Merger, except for claims of breach of this Agreement by the
indemnified party.
2.10 INDEMNIFICATION OF DAMERT OBLIGATIONS. The amount and terms of
certain loans and obligations of DaMert, its Shareholders and/or guarantors as
identified on EXHIBIT 2.10 shall be treated as stated thereon.
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Janex shall, simultaneously with the Closing, obtain releases of the
personal guaranties of Fred DaMert and Gail Patton DaMert and assume debts owing
by DaMert to Frederick DaMert as specified in EXHIBIT 2.10.
2.11 EXPENSES AND COSTS OF MERGER. Janex shall pay and be responsible
for all reasonable costs and expenses (including, without limitation, legal,
accounting, auditing, stock transfer agent, cash and securities disbursing
agent, SEC fees and due diligence) of DaMert regarding the Merger.
2.12 RESTRICTIVE COVENANTS.
2.12.1 The DaMert Shareholders shall not, except as
representatives of and as directed by Janex, without the prior written
consent of Janex, 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 Janex (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 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, Janex 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 DaMert Shareholders shall not at any time, without
the prior written consent of Janex, 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 Janex, to any person or entity: (i) the names
of customers of Janex or the business, or the names of other persons or
entities having business dealings with Janex or the Business, or (ii)
any of the business methods or confidential information of Janex 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 DaMert Shareholder prior to the
receipt thereof from the other DaMert and/or Janex; (ii) is available
or becomes available
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to the public through no fault of the DaMert Shareholder; or (iii) is
received by the DaMert Shareholder from a third party having the right
to disclose it.
2.12.3 The DaMert Shareholders shall not, at any time within
two (2) years after the Closing, without the prior written consent of
Janex, 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 Janex.
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 Janex'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 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 DaMert Shareholder against Janex, whether
predicated on this Section or otherwise, shall not constitute a defense
to the enforcement of this Section.
2.13 OTHER AGREEMENTS. Certain additional agreements are described on
EXHIBIT 2.13.
2.14 OTHER DISCUSSIONS. Up to the time of Closing, DaMert may seek or
otherwise initiate discussions with any other prospective acquirer of the stock,
assets or business of DaMert, assist or participate in any due diligence in
connection with any such transaction, and/or seek or otherwise initiate
discussions with any other company governing the purchase by DaMert of the
capital stock or assets of such other company or concerning a merger, share
exchange, consolidation or similar transaction involving DaMert and such other
company.
2.15 BEST EFFORTS TO REGISTER STOCK. After the Closing, Janex shall use
its best efforts to register the Janex common stock with the SEC on Form 8-A and
list the common stock on a national securities exchange.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
OF EACH MERGING COMPANY AND ITS SHAREHOLDERS
The following representations, warranties and indemnities are being made as
of March 1, 2000 by each Merging Company, and the Merging Company's Shareholders
(only those shareholders included in the defined term "Shareholders"), to the
other Merging Company(s) and its/their shareholders (not including just those
shareholders included in the defined term "Shareholders"); provided, however,
that, 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.
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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 other Merging Company(s). 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 ss.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 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.
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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 Janex 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.
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,
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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 Janex.
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
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defaults or events that, with the giving of notice or the passage of 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.
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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 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 Merger, 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.
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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
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
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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 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 Company(s)
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.
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3.28 INTELLECTUAL PROPERTY.
(a) The Merging Company has provided the other Merging Company(s) 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 Company(s) 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.
3.29 CUSTOMERS AND SUPPLIERS. The Merging Company has provided the other
Merging Company(s) 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 Company(s) 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
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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 Company(s) with respect to all filings that any of the Merging Companies
make in connection with the Merger 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 the others and their 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 each of
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.
Nothing contained in this Section 3.36 or Exhibit 3.36 shall in any way
affect or diminish the indemnification rights provided in Section 1.3, Section
2.10 and Exhibit 2.10 of this Agreement.
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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 Merger 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, 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 Merger or the conversion of any Merging Company's equity
securities into Janex's stock, promissory notes and cash pursuant to the Merger,
or (ii) seeking to restrain, prohibit or limit the exercise of full rights of
ownership or operation by Janex 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
Janex 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
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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.
4.2 SPECIAL CONDITIONS. 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
Closing as described in Section 1.2 above. This Agreement may be terminated at
any time prior to the Closing, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of any Merging
Company, by mutual written consent of each Merging Company and its Shareholders.
If the Closing has not occurred within thirty (30) days after the date of this
Agreement, time being of the essence, by reason of failure of either party to
meet the conditions specified in Article IV above, then this Agreement may be
terminated by any Merging Company, 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.
24
<PAGE>
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 Merger.
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 Merger 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
25
<PAGE>
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, it 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
6.4.
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. 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
26
<PAGE>
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 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 6.12 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.
27
<PAGE>
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.
JANEX: Janex International, Inc., a Colorado corporation
By /s/ Vincent W. Goett
----------------------------------------------
Vincent W. Goett, President
DaMERT: DaMert Company, a California corporation
By /s/ Frederick A. DaMert
-----------------------------------------------
Frederick A. DaMert, Chairman
SHAREHOLDERS:
DaMert: /s/ Frederick A. DaMert
--------------------------------------------
Frederick A. DaMert, Trustee of the DaMert
Trust, UTD September 28, 1998
/s/ Gail Patton DaMert
--------------------------------------------
Gail Patton DaMert, Trustee of the DaMert
Trust, UTD September 28, 1998
Janex: /s/ Vincent W. Goett
--------------------------------------------
Vincent W. Goett
<PAGE>
EXHIBIT 10.27
April 15, 2000
Janex International, Inc.
2999 N. 44th Street
Suite 225
Phoenix, AZ 85018
Ladies and Gentlemen:
This letter supplements the letter dated March 9, 2000 (the "Letter")
between Palmilla Ventures Limited Partnership and the Company regarding the
subject matter hereof. The undersigned Palmilla Ventures Limited Partnership in
March 1999 (the "Partnership") surrendered to the Company 10,000,000 shares
("Shares") of common stock of the Company, no par value ("Common Stock").
Of the 10,000,000 shares surrendered by the Partnership to the Company,
5,000,000 shares were beneficially owned by the Partnership, 1,159,952 shares
were being held by the Partnership for the benefit of Daniel Lesnick, 2,182,417
shares were being held by the Partnership for the benefit of Mr. and Mrs. Howard
Moore, and 1,657,631 shares were being held for the benefit of Mr. Les Friedland
(the Partnership, Mr. Lesnick, Mr. and Mrs. Howard Moore, and Mr. Friedland are
hereinafter collectively referred to as the "Lenders"). The 2,000,000
compensation shares issuable to the Partnership pursuant to the Letter shall be
issued by the Company directly to the Lenders PRO RATA based on the number of
shares surrendered by or on behalf of each Lender in relation to the total
number of shares (10,000,000). For example, the Partnership would be entitled to
one million shares (5,000,000/10,000,000 x 2,000,000) and Mr. Friedland would be
entitled to 331,526 shares (1,657,631/10,000,000 x 2,000,000). In addition, the
shares of Common Stock (minimum 10,000,000) issuable to the Partnership pursuant
to the Letter in replacement of the Shares shall be issued by the Company
directly to the Lenders PRO RATA based on the number of shares surrendered by or
on behalf of each Lender in relation to the total number of shares. For example,
in the event that 15,000,000 shares were issued in replacement of the Shares,
7,500,000 shares would be issued to the Partnership (5,000,000/10,000,000 x
15,000,000) and 1,739,928 shares would be issued by the Company directly to Mr.
Lesnick (1,159,952/10,000,000 x 15,000,000).
In the example in paragraph 2 of the Letter, the number of replacement
shares that would be issued would be 20,000,000; that is $20,000,000 divided by
$1.00.
The Company agrees to indemnify the Lenders (including partners) for any
taxes arising out of the transaction contemplated by this agreement, other than
taxes related to the 2,000,000 compensation shares issuable to the Lenders
hereunder.
1
<PAGE>
Except as supplemented hereby, the Letter remains in full force and
effect.
If the foregoing meets with your approval, kindly confirm your agreement
by executing this letter agreement where indicated below and returning a copy to
each Lender.
Very truly yours,
PALMILLA VENTURES LIMITED PARTNERSHIP
/s/ Vincent Goett
-----------------------------------------------
By: Vincent Goett, its general partner
/s/ Melissa Goett
-----------------------------------------------
By: Melissa Goett, its general partner
/s/ Daniel Lesnick
------------------------------------------------
Daniel Lesnick
/s/ Les Friedland
------------------------------------------------
Les Friedland
/s/ Howard Moore
------------------------------------------------
Howard Moore
/s/ Helene Moore
------------------------------------------------
Helene Moore
AGREED AND ACCEPTED
Janex International, Inc.
By: /s/ Vincent Goett
----------------------------------------------
Vince Goett, Chief Executive Officer,
duly authorized
2
<PAGE>
March 9, 2000
Janex International, Inc.
2999 N. 44th Street
Suite 225
Phoenix, AZ 85018
Ladies and Gentlemen:
This letter supercedes the letter dated March 3, 2000 between Vincent
Goett and the Company regarding the subject matter hereof. The undersigned (the
"Partnership") understands that Janex International, Inc. (the "Company") does
not currently have sufficient authorized but unissued shares of common stock to
execute its business and financial plans. You have requested that the
Partnership surrender to the Company 10,000,000 shares of common stock of the
Company, no par value ("Common Stock"), and the Partnership is willing to do so
on the terms and conditions set forth in this letter agreement.
The Partnership agrees to surrender to the Company 10,000,000 shares of
Common Stock (the "Shares") so that such shares can be restored to the status of
authorized but unissued shares. In consideration of the Partnership surrendering
the Shares to the Company, promptly following amendment of the Company's charter
to increase to 65,000,000 the number of authorized shares of Common Stock, the
Company shall issue to the Partnership, as compensation for surrendering the
Shares, 2,000,000 shares of Common Stock. Further, in addition to the foregoing
compensation, the Company shall issue to the Partnership 10,000,000 shares of
Common Stock, in replacement of the Shares, provided that, if the "Average Price
of the Common Stock" on the date such replacement shares are issued to the
Partnership is less than the "Average Price of the Common Stock" on the date the
Partnership surrendered the Shares to the Company, then the number of shares to
be issued to the Partnership in replacement of the Shares shall be equal to that
number of shares determined by the quotient of (i) the product of 10,000,000 and
the "Average Price of the Common Stock" on the date the Partnership surrendered
the Shares to the Company, DIVIDED BY (ii) the "Average Price of the Common
Stock" on the date the replacement shares are to be issued to the Partnership.
For example, if the "Average Price of the Common Stock" is $2.00 on the date the
Partnership surrenders the Shares to the Company, and the "Average Price of the
Common Stock" on the date the replacement shares are to be issued to the
Partnership is $1.00, then, the number of replacement shares to be issued to the
Partnership shall be 16,000,000; that is, $16,000,000.00 divided by $1.00. For
purposes of this letter agreement, "Average Price of the Common Stock" means the
average closing price of the Common Stock during the preceding five trading
days, as quoted on the NASD OTC Bulletin Board (or such other exchange or
quotation system on which the Common Stock is then listed or quoted).
3
<PAGE>
The Company agrees to indemnify the Partnership and its partners for any
taxes arising out of the transaction contemplated by this agreement, other than
taxes related to the 2,000,000 compensation shares issuable to the Partnership
hereunder.
If the foregoing meets with your approval, kindly confirm your agreement
by executing this letter agreement where indicated below and returning a copy to
the Partnership, whereupon the Partnership will surrender the Shares to the
Company.
Very truly yours,
PALMILLA VENTURES LIMITED PARTNERSHIP
/s/ Vincent Goett
-----------------------------------------------
By: Vincent Goett, its general partner
/s/ Melissa Goett
-----------------------------------------------
By: Melissa Goett, its general partner
AGREED AND ACCEPTED
Janex International, Inc.
By: /s/ Chuck Foley
---------------------------------------
Chuck Foley, Chief Financial Officer,
duly authorized
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