UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20659
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly period ended December 31, 1996
Commission File Number 0-25030
PLAY CO. TOYS & ENTERTAINMENT CORP.
(Exact Name of Registrant as specified in its charter)
Delaware 94-3024222
(State or other jurisdiction of ( I.R.S. Employer ID No.)
incorporation or organization) .
550 Rancheros Drive, San Marcos, California 92069
(Address of principle executive offices) (Zip Code)
(619) 471-4505
(Registrant's telephone number, including area code)
<PAGE>
(Former name, former address and formal fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Common Stock, $.01 par value: 11,700,558 shares outstanding as of December
31, 1996.
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS
Condensed balance sheet as of December 31, 1996. 3
Condensed statements of operations for the
three and nine months ended December 31, 1996 and 1995. 4
Condensed statements of cash flows for
the nine months ended December 31, 1996 and 1995. 5
Notes to condensed financial statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. 8
PART II. OTHER INFORMATION
Item 5. Other Information 13
Signatures 14
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLAY CO. TOYS & ENTERTAINMENT CORP.
CONDENSED BALANCE SHEET
December 31, 1996
(Unaudited)
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ASSETS:
Current Assets
Cash $177,040
Merchandise inventories 5,630,995
accounts receivable 196,297
------------------
Total Current Assets 6,004,332
Property and equipment, net 2,010,625
Other assets 628,414
-------------------
Total Assets $8,643,371
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $3,324.923
Line of credit 3,482,476
Accrued and other liabilities 516,151
-------------------
Total Current Liabilities 7,323,550
Deferred rent 184,969
Stockholders' equity 1,134,852
-------------------
Total Liabilities & Stockholders' Equity $8,643,371
============
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See accompanying notes to condensed financial statements.
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
CONDENSED STATEMENT OF OPERATIONS
December 31, 1996
(Unaudited)
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<CAPTION>
Three Months Ended December 31, Nine Months Ended December 31,
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $9,374,441 $10,216,633 $16,225,561 $18,322,223
--------- ----------- ----------- ----------
Cost of sales 6,633,783 7,315,199 11,273,998 12,743,778
Operating expenses 2,927,897 2,571,776 6,727,055 7,069,114
Interest & financing expense 227,486 144,740 593,572 326,291
-------- ------- -------- --------
Total costs & expenses 9,789,166 10,031,715 18,594,625 20,139,183
---------- ---------- ---------- ----------
Net income (loss) $(414,725) $184,918 $(2,369,064) $(1,816,960)
========= ======== ======== ========
Net income (loss)
per common share $(0.04) $0.05 $(0.46) $(0.47)
========= ======== ======== ========
Weighed average number of
common shares and share
equivalents 11,700,558 3,863,530 5,130,788 3,863,530
======== ======== ======= =======
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,369,064) $(1,816,960)
Adjustments to reconcile net loss to net
Adjustment to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 525,824 258,480
Preferred stock issued for financing charges 16,000 0
Preferred stock issued for financing charges 16,000 0
Change in assets and liabilities:
Merchandise inventories 628,089 2,019,510
Accounts receivable (161,024) 175,461
Other current assets 9,436 92,454
Accounts payable 446,740 (471,615)
Accrued and other liabilities 232,537 310,307
Deferred rent liability (12,968) 187,663
Net cash (used for) provided by operating activities (684,430) 755,300
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (447,951) (315,967)
Amounts from stockholder 0 17,788
Net cash used for investing activities (447,951) (298,179)
--------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on bank line of credit 79,451 (374,490)
Repayments of long-term debt and capital lease obligations 0 (42,045)
Proceeds from issuance of preferred stock 1,234,000 0
Payment of accrued dividends 0 (15,931)
Redemption of preferred stock (87,680) (122,368)
-------------- --------------
Net cash provided by (used for) financing activities 1,225,771 (554,834)
-------------- --------------
<PAGE>
Net increase (decrease) in cash 93,390 (97,714)
Cash at beginning of period 83,650 249.925
------------- ---------------
Cash at end of period $177,040 $152,211
======= ========
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
NOTE 1.
The interim accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information,
refer to the audited financial statements for the year ended March 31, 1996.
Operating results for the three and nine months ended December 31, 1996 are not
necessarily indicative of the results of operations that may be expected for the
year ended March 31, 1997.
NOTE 2.
On June 20, 1996, the Company's majority stockholder, American Toys, Inc.
("American Toys"), which name was changed to U.S. Wireless Corporation as of
October 12, 1996, which owned 2,548,930 or approximately 66.0% of the 3,863,530
issued and outstanding shares of the Company's common stock, par value $.01 per
share the ("Common Stock") outstanding as of such date, executed a written
consent authorizing the Company to amend its Certificate of incorporation such
that (i) the Company's Series D Preferred Stock shall be convertible into
1,157,028 shares of the Company's Common Stock based on the average closing bid
price for the ninety (90) day period from March 31, 1996 to May 30, 1996 and
(ii) the Company's Series E Preferred Stock shall be separated into two classes,
1,900,000 shares of which shall be designated the Class I Series E Preferred
Stock, which shares shall be convertible at any time into twenty shares of the
Company's Common Stock, par value $.01 per share and the remaining 100,000
shares of which
<PAGE>
shall be designated the Class II Series E Preferred Stock, which shares will be
convertible two (2) years from issuance into twenty shares of the Company's
Common Stock.
On August 8, 1996, with written consent of the Corporation's majority
shareholder, the Company further amended its Certificate of Incorporation to
increase the number of authorized shares of Capital Stock from 30,000,001 to
42,000,001, consisting of 40,000,000 shares of Common Stock, par value $.01 per
share, 2,000,000 shares of preferred stock, par value $.01 per share, 1,900,000
shares designated Series E Class I Preferred stock and 100,000 shares designated
as Series E Class II Preferred stock, and 1 share of Series D Preferred Stock.
On October 10, 1996, EACC exercised its option to purchase 500,000 shares of the
Series E Class I Preferred Stock for an aggregate $500,000.
In November 1996, EACC exercised its option to purchase 300,000 shares of the
Series E Class I Preferred stock for an aggregate $300,000.
In January 1997, EACC exercised its option to purchase 1,200,000 shares of the
Series E Class I Preferred stock for an aggregate $1,200,000
NOTE 3.
On January 16, 1997, the Company acquired inventory, the assignment of three
leases, store and corporate office fixtures, the Corporate name and logo, and
certain prepaid items from a specialty toy chain, Toys International, pursuant
to an Asset Purchase Agreement
The aggregate price of $1,024,184 comprises of $927,000 which represents the
original cost of the inventory, $32,184 for certain prepaid expenses, and
$65,000 for the balance of the assets. In addition, the Company paid $400,000 as
additional rent to the landlord of one of the new locations. In connection
therewith, the Company was assigned the leases of the three retail locations for
the remaining terms of the lease which expire at various dates between
<PAGE>
January 31, 1998 and January 31, 2004 as well as certain operating contracts.
The Company paid cash for all amounts except for $265,000 which was in the form
of two no interest bearing notes payable; one for $200,000 which requires eight
quarterly installments of $25,000 beginning April 16, 1997; and the second note
for $65,000 which requires three consecutive monthly payments of $11,667
beginning February 16, 1997 with two final payments of $15,000 on each of May
16, 1997 and June 16, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
For the three months ended December 31, 1996 compared to the three months ended
December 31, 1995.
Sales for the three months ended December 31, 1996 decreased to $9,374,441 from
$10,216,633. This represents a decrease of $842,193 or approximately 8.2%.
Retail store sales for the three months ended December 31, 1996 decreased by
approximately 5.8% from the sales level achieved for the three months ended
December 31, 1995. The Company operated 18 retail locations during each of the
three month periods ended December 31, 1996, as compared to 19 retail locations
during each of the three month periods ended December 31, 1995. Wholesale sales
decreased 47.7% to $313,753 for the three month period ended December 31,1996
from $599,513 for the three month period ended December 31, 1995.
<PAGE>
Gross profit increased slightly to 29.24% for the three months ended December
31, 1996, from 28.34% for the three months ended December 31, 1995.
Operating expenses increased to $2,927,897 (or 31.23% of net sales) from
$2,571,776 (or 25.17% of net sales). Such increase of approximately $356,121 or
12.16% is primarily attributable to increased advertising expense, increased
legal and accounting fees, and the costs incurred for remodeling three retail
locations.
Interest and financing expense for the three months period ended December 31,
1996 increased to $227,486 from $144,740 for the three month period ended
December 31, 1995. The interest for the three month period ending December 31,
1996 was incurred from borrowings on the Company's line of credit and
amortization of loan costs totaling $53,686.
For the nine months ended December 31, 1996 compared to the nine months ended
December 31, 1995.
Sales for the nine months ended December 31, 1996 decreased to $16,225,561 from
$18,322,223. This represents a decrease of $2,096,662 or approximately 11.4%.
Approximately $565,000 of the decrease in sales is directly attributable to the
decreased sales of Milk Cap game products and the reduction of two retail
locations. Additionally, retail store sales for the nine months ended December
31, 1996 decreased by approximately 8.4% from the sales level achieved for the
nine months ended December 31, 1995. The Company operated 18 and 20 retail
locations during the nine month periods ended December 31, 1996 and 1995.
Wholesale sales of non-milk cap game products decreased 13.4% to $740,207 for
the nine month period ended December 31, 1996 from $854,500 for the nine month
period ended December 31, 1995.
Gross profit increased slightly to 30.52% for the nine months ended December 31,
1996 from 30.44% for the nine months ended December 31, 1995.
Operating expenses decreased to $6,727,055 (or 41.45% of net sales) from
$7,069,114 (or 38.58% of net sales). Such decrease of approximately $342,059 or
4.83%, is primarily attributable to decreased payroll expense due to the reduced
head count of personnel and decreased supplies and expenses required for the
milk-cap game program.
<PAGE>
Interest and financing expense for the nine months period ended December 31,
1996 increased to $593,572 from $326,291 for the nine month period ended
December 31, 1995. The interest for the nine month period ending December 31,
1996 was incurred from borrowings on the Company's bank financing agreement and
amortization of loan costs totaling $161,058.
LIQUIDITY AND CAPITAL RESOURCES
On February 1, 1996, the Company entered into a "Loan and Security Agreement"
(the "Loan Agreement") with Congress Financial Corporation ("Congress"). Funds
drawn on February 7, on the loan agreement of $2,000,000 were used to repay the
amounts due under a previous line of credit arrangement with Imperial Bank,
effectively terminating that borrowing arrangement. The Loan Agreement provides
for maximum borrowings of $7,000,000 based on the "Cost Value of Eligible
Inventory" as defined in the Loan Agreement. The only material financial
covenant in the Loan Agreement is the requirement that the Company maintain at
all times an adjusted net worth of not less than $500,000. The Loan Agreement
requires the payment of a quarterly service fee of $8,750, is secured by
substantially all assets of the Company and is further collateralized by the
$2,000,000 letter of credit originally provided for the benefit of Imperial
Bank. Interest on outstanding balances is charged at prime plus 1.5%. The Loan
Agreement matures February 1, 1998. Congress can extend the Loan Agreement for
an additional year at its option. The balance outstanding under the Loan
Agreement totaled $3,482,476 as of December 31, 1996.
Sources of funds to repay obligations as described above, are typically
generated from sales during the peak selling season from October to December of
each year.
Approximately 45 to 49% of the Company's annual sales are generated during the
months of October through December due to the significant seasonality of the toy
industry. Vendors generally extend terms during the balance of the year. Vendors
are generally repaid in December and January of each year, at a time when
inventory levels are significantly reduced.
At December 31, 1996, the Company had a working capital deficit of $1,319,218.
Trends Affecting Liquidity, Capital Resources and Operations.
The Company's sales efforts are aimed primarily at a defined geographic segment,
consisting of individuals in the southern California area. The Company's future
financial performance will depend upon continued demand for toy items by
individuals within southern California. Such demand is dependent to a great
degree upon general economic conditions within this geographic
<PAGE>
market area, the Company's ability to lease favorable locations for new stores,
to purchase product at favorable prices on favorable terms, changes in consumer
preferences and its ability to compete in the industry.
The toy and hobby retail industry faces a number of potentially adverse business
conditions including price and gross margin pressure and market consolidation
and domination. The domination of the toy industry by Toys R Us has resulted in
increased price competition among various toy retailers and declining gross
margins for such retailers. Moreover, the domination of Toys R Us has resulted
in liquidation or bankruptcy of many toy retailers throughout the United States
including the southern California market.
During August and November 1996, the Company remodeled three of its existing
stores to include an educational toy department at an aggregate cost of
$228,557. The cost of which was included in operating expenses for the nine
months ended December 31, 1996. In November 1996, the Company also added one
additional retail location using the new educational toy concept at a cost of
$156,654, the cost of which was included in operating expenses for the three
months ended December 31, 1996. Adding this new format allows the Company to
compete with other educational toy stores, plus the mixture of educational toys
and promotional toys gives the customer a broader selection of merchandise. The
Company knows of no other retailer who has successfully married the two
concepts. The Company expects to generate increased revenues and higher gross
margins, however, there is no assurance that such will be realized..
The above mentioned remodeled locations include computer terminals allowing
customers to try out new computer educational programs, and a theater featuring
movies available for sale in the location is operational throughout the day.
Allowing the customer and child to have a "hands on" experience before
purchasing the merchandise, plus the higher gross margins on educational toys is
expected to increase revenues and improve overall gross margins. Remodeling the
locations cost approximately $76,000 per store and the Company expects to
convert most of its remaining stores to this format during 1997 and 1998.
Financing for the remaining conversions is expected to come in the form of
capital leases.
The Company's inclusion of educational sections is expected to have a material
impact on the Company's operations and liquidity during the next two years. As
noted above, the Company expects revenues to increase from the implementation of
this concept, however, additional funds
<PAGE>
other than generated from operations may be necessary to remodel additional
locations. No other source of funds has been identified at this time.
On January 16, 1997, the Company acquired inventory, the assignment of three
leases, store and corporate office fixtures, the Corporate name and logo, and
certain prepaid items from a specialty toy chain, Toys International, pursuant
to an Asset Purchase Agreement.
The aggregate price of $1,024,184 comprises of $927,000 which represents the
original cost of the inventory, $32,184 for certain prepaid expenses, and
$65,000 for the balance of the assets. In addition, the Company paid $400,000 as
additional rent to the landlord of one of the new locations In connection
therewith, the Company was assigned the leases of the three retail locations for
the remaining terms of the lease which expire at various dates between January
31, 1998 and January 31, 2004 as well as certain operating contracts. The
Company paid cash for all amounts except for $265,000 which was in the form of
two no interest bearing notes payable; one for $200,000 which requires eight
quarterly installments of $25,000 beginning April 16, 1997; and the second note
for $65,000 which requires three consecutive monthly payments of $11,667
beginning February 16, 1997 with two final payments of $15,000 on each of May
16, 1997 and June 16, 1997.
The three locations are located in up-scale shopping malls located in southern
California. Each location carries specialty toy and collectible items which
typically command a higher gross profit that the traditional promotional toy
lines carried by the Company. The Toys International locations also stock a
number of promotional items which are also carried at Play Co. locations but
have historically been sold at a higher mark-up. Management expects the
operations of these three locations will be enhanced by reducing overhead
expenses associated with the operations and additional purchase discounts that
are expected to be obtained on promotional merchandise already carried by the
Company that is also currently sold in the Toys International locations.
The Company's operating history has been characterized by narrow profit margins
and, accordingly, the Company's earnings will depend significantly on its
ability to purchase its product on favorable terms, to obtain store locations on
favorable terms, to retail a large volume and variety of products efficiently
and to provide quality support services. The Company's prices are, in part,
based on market surveys of its competitors prices, primarily those of Toys R Us.
As a result, aggressive pricing policies, such as those used by Toys R Us, have
resulted in the Company reducing its retail prices on many items, thereby
reducing the available profit margin. Moreover, increases in expenses or other
charges to income may have a material adverse effect on the Company's results of
operations. There can be no assurance that the Company will be able to generate
sufficient revenues or have sufficient controls over expenses and other charges
to increase profitability.
<PAGE>
The Company has prepared cash flow forecasts for the fiscal year ended March 31,
1998 which management believes, together with available financial institution
and manufacturer credit lines will be sufficient to meets its capital
requirements for the fiscal year ended March 31, 1998. However, the Company may
also require additional capital to redesign current and future retail locations
to incorporate its plans to focus on the educational toy market as well as to
meet short-term cash flow needs that arise during the year. In that regard, Mr.
Ilan Arbel has represented his willingness and ability to provide additional
working capital to the Company should such be necessary. The Company is also
continuing its search for capital equipment financing, however, while potential
creditors have been met with, no such funding has yet been arranged and there is
no assurance that such will be arranged.
Immediately after the Christmas season, the Company begins purchasing inventory
which has been depleted as a result of seasonal sales patterns. Thus, although
significant reductions in accounts payable are made in January, accounts payable
levels are expected to immediately increase as a result of new inventory
purchases.
As of March 31, 1996, the Company has net operating loss ("NOL") carryforwards
of approximately $5,000,000 and $3,000,000 for federal and California income tax
purposes. The federal NOL's are available to offset future taxable income
through March 31, 2011 while the California NOLs are available through March 31,
2001. Such NOLs could have a positive effect on the Company's cash flow in
future profitable years resulting from reduced income tax liabilities. Losses
from operations for the three months ended June 30, 1996 increase the Federal
and California NOLs available to offset future income. However, the utilization
of such NOLs may be subject to limitation under the Tax Reform Act of 1986
should ownership changes, such as those resulting from the exercise of stock
purchase options to acquire common stock as well as the issuance of Series D and
Series E Preferred Stock, into shares of Common Stock, result in a cumulative
greater than 50% ownership change during the three year testing period.
Inflation and Seasonality.
During the past few years, inflation in the United States has been
relatively stable. In management's opinion, this is expected to continue for the
foreseeable future. However, should
<PAGE>
the American economy again experience double digit inflation rates, as has been
the case in the past, the impact on prices could adversely affect the Company's
operations.
The Company's business is highly seasonable with a large portion of its revenues
being derived during the months of October through December. Accordingly, the
Company is required to obtain substantial short-term borrowing during the first
three quarters of the calendar year in order to purchase inventory for capital
and for operational expenditures. The Company's past history of negative cash
flows during the fiscal year are partially the result of its seasonal business
nature. The Company's cash flows are negative for most months prior to the
Christmas season. Thus the Company's negative cash flow for all months except
October through December are being serviced via the Company's line of credit and
special credit terms with vendors. Historically, the Creditors extending special
credit terms have been repaid in December and in the fourth fiscal quarter.
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings:
N O N E
Item 2 Changes in Securities:
N O N E
Item 3 Defaults Upon Senior Securities:
N O N E
Item 4 Submission of Matters to a Vote of Security Holders:
N O N E
Item 5 Other Information:
N O N E
Item 6. Exhibits and Reports on Form 8K.
Exhibit 10.75 - Asset Purchase Agreement, for the purchase of
Toys International. To be filed by amendment.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 12th day of January , 1997.
PLAY CO. TOYS & ENTERTAINMENT CORP.
BY: /S/Richard L. Brady
Richard L. Brady
President
BY: /s/ Angela Burnett
Angela R Burnett
Chief Financial Officer
<PAGE>
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item I, of this Form 10-QSB and is qualified in its
entirety by reference such financial statements.
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<CAPTION>
<S> <C>
PERIOD-TYPE 9-MOS
FISCAL-YEAR-END 3/31
PERIOD-END DEC-31-1996
CASH 177,040
SECURITIES 196,297
ALLOWANCES 5,630,995
CURRENT-ASSets 6,004,332
PP&E 4,764,302
DEPRECIATION 2,753,677
TOTAL-ASSETS 8,643,371
CURRENT-LIABILITIES 7,323,550
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 1,134,852
TOTAL-LIABILITIES-AND-EQUITY 8,643,371
SALES 16,225,561
CgS 11,273,998
TOTAL-COSTS 18,594,625
OTHER-EXPENSES 6,727,055
LOSS-PROVISION 0
INTEREST-EXPENSE 593,572
INCOME-PRETAX (2,369,064)
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
NET-INCOME (2,369,064)
EPS-PRIMARY (.46)
EPS-DILUTED (.00)
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
PLAY CO. TOYS & ENTERTAINMENT CORP.
AND
TOYS INTERNATIONAL
<PAGE>
TABLE OF CONTENTS
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Page
1. Definitions 1
2. Basic Transaction 6
(a) Purchase and Sale of Assets 6
(b) Assumption of Liabilities 6
(c) Purchase Price 7
(d) The Closing 7
a. Deliveries at the Closing 7
b. Guarantees 8
c. Sales, Use and Other Taxes 9
d. Corporate Office 9
3. Representations and Warranties of the Seller
(a) Organization of the Seller 10
(b) Authorization of Transaction 10
(c) Noncontravention 10
(d) Brokers' Fees 10
(e) Title to Assets 10
(f) Inventory 11
(g) Undisclosed Liabilities 11
(h) Ordinary Course of Business 11
(i) Legal Compliance 11
(j) Tax Matters 11
(k) Real Property 11
(l) Intellectual Property 12
(m) Assigned Contracts and Open Purchase Orders 12
(n) Litigation 13
(o) Condition of Acquired Assets; Limited Warranties 13
(p) Disclosure 13
4. Representations and Warranties of the Buyer
(a) Organization of the Buyer 13
(b) Authorization of Transaction 13
(c) Noncontravention 13
<PAGE>
(d) Brokers' Fees 14
(e) Investigation 14
(f) Net Worth and Financial Positions 14
5. Remedies for Breach of this Agreement
e. Survival of Representations and Warranties 14
f. Indemnification by Seller 14
g. Indemnification by Buyer 15
h. Conditions of Indemnification for Third-Party Claims 15
i. Subrogation 16
(f) Exclusive Remedies 16
(g) Limitations on Amount and Manner of Payment of Seller's 16
Indemnification Obligations
6. Miscellaneous
(a) Press Releases and Public Announcements 17
(b No Third-Party Beneficiaries 17
(c) Entire Agreement 17
(d) Succession and Assignment 18
(e) Counterparts 18
(f) Headings 18
(g) Notices 18
(h) Governing Law 19
(i) Amendments and Waivers 19
(j) Severability 19
(k) Expenses 19
(l) Construction 19
(m) Incorporation of Exhibits and Schedules 20
(n) Submission to Jurisdiction 20
(o) Attorney's Fees 20
(p) Access to Books and Records 20
(q) Cooperation After Closing 20
(r) Daily Sales Records 21
(s) Post Closing Adjustment 21
EXHIBITS
Exhibit A= List of Excluded Assets
Exhibit B = Agreement with Beneficiaries and the Trust
Exhibit C = Bill of Sale, Assignment and Assumption Agreement
Exhibit D = Listing of Prepaid Items and Deposits
Exhibit E = Copies of Buyer's Notes and Guarantee
<PAGE>
Exhibit F = Assignment and Assumption Agreements of Leases Exhibit
G = Opinion of Seller's Counsel
Exhibit H = Assignment of Seller's Service Mark Registrations
Exhibit I = Opinion of Buyer's Counsel
Exhibit J = Consulting Agreement between Buyer and Gayle Hoepner
Exhibit K = Security Agreement between Buyer and Seller
Exhibit L = Subordination Agreement between Seller and Europe American Capital
Corp.
Exhibit M = Subordination Agreement between Seller and Congress Financial
Corporation (Western)
SCHEDULES
1. 3(e)(i)
2. 3(g)
3. 3(k)(ii)
4. 3(l)(i)
5. 3(l)(ii)
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
Agreement entered into on January 16, 1997 by and between Play Co. Toys &
Entertainment Corp., a Delaware corporation, with its principal offices located
at 550 Rancheros Drive, San Marcos, California 92069 (the "Buyer"), and Toys
International, a California corporation, with its principal offices located at
2900 Bristol Street, Suite A- 208, Costa Mesa, California 92626 (the "Seller").
The Buyer and the Seller are referred to collectively herein as the "Parties."
Whereas, Seller is a Corporation wholly owned by the Gayle Hoepner Family
Trust (the "Trust"), a revocable trust, organized under the laws of the State of
California, of which Gayle Hoepner and Constance R. Hoepner (the
"Beneficiaries") and their issue are the beneficiaries and Gayle and Constance
R. Hoepner are the sole trustees; and
Whereas, Buyer desires to acquire substantially all the assets of Seller,
which Seller has agreed to sell pursuant to the terms and conditions set forth
herein; and
Whereas, Buyer shall not assume any liabilities or obligations of Seller,
except for the liabilities and obligations stated herein; and
Whereas, the Seller and the Buyer have agreed to waive compliance with the
provisions of the California Uniform Commercial Code Bulk Sales laws, and the
Trust and the Beneficiaries have agreed to personally guarantee that the
Inventory delivered to the Stores on or before January 5, 1997 is or shall be
fully paid for, there being no outstanding Liabilities with respect thereto for
which Buyer shall be liable, as provided for in the Agreement with Beneficiaries
and Trust as defined below.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. Definitions.
"Acquired Assets" means all Seller's right, title, and interest in and to
the following assets: (a) the Leases inclusive of all improvements, furniture,
fixtures, and fittings thereon, (b) all Inventory, (c) the prepaid items and
deposits listed in Exhibit D, (d) the Assigned Contracts, (e) tangible personal
property located at the Stores and Corporate Office (such as machinery, computer
and other office equipment and supplies), (f) Seller's Intellectual Property
(including Seller's corporate name) and all rights with respect thereto,
remedies against infringements thereof, and rights to protection of interests
<PAGE>
therein under the laws of all jurisdictions, (g) transferable approvals,
permits, licenses, orders, registrations, certificates, variances, and similar
rights obtained from governments and governmental agencies, (h) to the extent
relevant to the other Acquired Assets, books, records, ledgers (inclusive of
copies of the ledgers referencing all outstanding purchase orders, invoices and
all registers with respect to all outstanding and issued gift certificates),
files, documents, correspondence, lists, plats, architectural plans, drawings,
and specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials, (i) computer reports
showing the daily sales records for the Stores for the past three years and up
to the Closing Date; (j) the prior 12 months of billing received from the
landlords of the Stores for estimated taxes and other payments required under
the Leases; provided, however, that the Acquired Assets shall not include the
following "Excluded Assets": (i) the items listed in Exhibit A annexed hereto,
(ii) cash and cash equivalents; (iii) accounts receivable and notes receivable
of the Seller, and prepaid items and deposits not listed in Exhibit D; (iv)
rights to or claims for credits and refund obligations arising prior to the
Closing Date; (v) claims against third parties arising with respect to events
prior to the Closing; (vi) insurance policies and rights thereunder; (vii)
purchase orders, sale orders, and other agreements and contracts not a part of
the Assigned Contracts; (viii) any books, records, cash register receipts and
documents needed for the preparation of Seller's tax returns or in the event of
any audit thereof (subject to the Buyer's right to make copies of such documents
at its expense, under the supervision of the Beneficiaries); (ix) the personnel
files of the Seller's employees, except with respect to the Forms I-9's and
W-2's, a copy of which Seller has provided to the Buyer at least 48 hours prior
to the Closing; (x) the corporate charter, qualifications to conduct business as
a foreign corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals, minute books,
stock transfer books, blank stock certificates, and other documents relating to
the organization, maintenance, and existence of the Seller as a corporation; and
(xi) any of the rights of the Seller under this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Sec. 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
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"Agreement With Beneficiaries and the Trust" means the Agreement with the
Beneficiaries and the Trust entered into concurrently herewith and attached
hereto as Exhibit B.
"Assigned Contracts" means, collectively, the personal property leases,
purchase orders, sale orders, and other agreements and contracts listed or
described in Schedule 3(e)(i).
"Assumed Liabilities" means Liabilities of the Seller on or after the
Closing Date, including, without limitation (a) the Liabilities of the Seller
under the Leases and the Assigned Contracts arising or relating to the period on
and after the Closing Date; (b) the obligation to accept all returns, for sales
made or shipped prior to the Closing Date in the Ordinary Course of Business,
for exchange, repair or replacement including providing refunds or store
credits, providing however, that Seller had no Knowledge any such product was
defective when sold; (c) honoring all credits and discount privileges issued to
customers in the Ordinary Course of Business by Seller in the form of gift
certificates (for not more than $7,500.00), Seller's birthday gift certificates
(not more than $100.00) and frequent buyer's clubs; provided, however, that the
Assumed Liabilities shall not include (i) any Liability of the Seller for
income, transfer, sales, use, and other Taxes arising in connection with the
consummation of the transactions contemplated hereby, except as otherwise
provided in Section 2(g), (ii) any Liability of the Seller for the unpaid Taxes
of any Person under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise,
(iii) any obligation of the Seller to indemnify any Person (including any of the
Beneficiaries) by reason of the fact that such Person was a director, officer,
employee, or agent of the Seller (iv) any Liability of the Seller for costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby or (v) any Liability or obligation of the Seller under this
Agreement.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Beneficiaries" means Gayle Hoepner and Constance R. Hoepner.
"Buyer" has the meaning set forth in the preface above.
"Buyer's Notes" have the meaning set forth in ss.2(c) below.
<PAGE>
"Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP.
"Closing" has the meaning set forth in ss.2(d) below.
"Closing Date" has the meaning set forth in ss.2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Corporate Office" means the Seller's office located at 2900 Bristol
Street, Suite A208, Costa Mesa, CA 92626.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" means, with respect to any Losses, the Party seeking
indemnity hereunder.
"Indemnifying Party" means, with respect to any Losses, the Party from whom
indemnity is sought hereunder.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
re-issuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and
<PAGE>
renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d)
all mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation) owned by Seller, except with
respect to the computer software designed for the Seller's business and other
software not owned by Seller, Seller's rights thereto shall be included in the
Assigned Contracts, (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Inventory" means the Seller's inventory inclusive of packaging materials.
"Inventory Value" means the value of the Inventory as specified in ss.2(c)
below.
"Knowledge" means actual knowledge of the Party, by any of its officers,
directors or stockholders without obligation or duty to investigate, except that
with respect to references to the Leases, "Knowledge" requires reasonable
investigation as to Seller's compliance with respect to the material terms
thereof.
"Leases" means the three leases to the Stores, referred to in schedule
3(k)(ii) annexed hereto.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Losses" means any and all costs and expenses, damages and losses actually
incurred by the Indemnified Party, in connection with all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, obligations, Taxes, liens, including
court costs and reasonable attorneys' fees and expenses (subject in each case to
the limitations set forth in Section 5 of this Agreement), net of (i) tax
benefits (taken by Indemnified Party at its sole discretion), savings or
reductions, and (ii) any insurance proceeds, in either case to which the
Indemnified Party is entitled by virtue of such costs, expenses, damages and
losses.
<PAGE>
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Purchase Price" has the meaning set forth in ss.2(c) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) liens for Taxes not yet due and
payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (b) purchase money liens and liens securing rental
payments under capital lease arrangements, and (c) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"Seller" has the meaning set forth in the preface above.
"South Coast Plaza Lease" means the Lease listed as item 1 in Schedule
3(k)(ii).
"Stores" means the premises subject to the Leases.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock,
<PAGE>
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Trust" means the Gayle Hoepner Family Trust, a revocable trust organized
under the laws of the State of California, which wholly owns the Seller and of
which the Beneficiaries are the sole trustees.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and conditions
of this Agreement, the Buyer hereby purchases from the Seller, and the Seller
hereby sells, assigns, transfers, conveys, and delivers to the Buyer, all of the
Acquired Assets for the consideration and payment terms as specified in ss.2(c)
below.
(b) Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyer hereby assumes and becomes responsible for all of
the Assumed Liabilities. The Buyer will not assume or have any responsibility,
however, with respect to any other obligation or Liability of the Seller not
included within the definition of Assumed Liabilities.
(c) Purchase Price. The Buyer hereby pays to the Seller an aggregate of (i)
$65,000, (ii) the "Inventory Value", which the Parties have determined to be
$_____, and (iii) the prepaid items and deposits listed in Exhibit D equal to
$____, which shall be paid as follows:
(i) $65,000 shall be paid by the delivery at the Closing of a promissory
note in the principal amount of $65,000, bearing no interest (except pursuant to
certain default provisions), payable in three monthly installments of $11,667
commencing February 16, 1997, and two monthly installment of $15,000 on each of
May 16, 1997 and June 16, 1997, in the form annexed hereto as Exhibit E. The
initial installment payment due February 16, 1997 shall be adjusted to reflect
the post closing adjustment referred to in ss.6(s) below.
<PAGE>
(ii) The Inventory Value, less $200,000 which shall be paid by the delivery
of a promissory note in the principal amount of $200,000, bearing no interest
(except pursuant to certain default provisions), payable in quarter-annual
installments of $25,000 commencing the quarter beginning April 16, 1997, in the
form annexed hereto as Exhibit E.
(iii) The prepaid items and deposits.
(iv) The promissory notes referred to in ss.2(c)(i) and (ii) above are
collectively referred to as the "Buyer's Notes".
(v) Buyer's Notes. Each holder desiring to transfer a Buyer's Note first
must furnish the Buyer with (1) a written opinion of counsel asserting that the
transfer is in compliance with the Securities Act, in form and substance
reasonably acceptable to the Buyer, from counsel reasonably satisfactory to the
Buyer to the effect that the holder may transfer the Buyer Note as desired
without registration under the Securities Act and (2) a written undertaking
executed by the desired transferee to the Buyer in form and substance reasonably
acceptable to the Buyer agreeing to be bound by the recoupment provisions and
the restrictions on transfer contained herein. Notwithstanding, no opinion or
undertaking shall be required in order to transfer the Buyer's Notes to the
Trust or Beneficiaries upon the dissolution of the Seller. Each Buyer's Note
will be imprinted with the following legend:
"This Note has not been registered under the Securities Act of 1933 (the
"Securities Act"), or under the provisions of any applicable state securities
laws, but has been issued pursuant to the term and conditions of an Asset
Purchase Agreement (the "Agreement") dated January 16, 1997 between the issuer
of this Note and Toys International, in reliance on statutory exemptions under
the Securities Act, and under any applicable state securities laws. This Note
may not be sold, pledged, transferred or assigned except pursuant to the
provisions of Subparagraph 1 of this Note. The payment of principal and interest
on this Note is subject to certain recoupment provisions set forth in the
Agreement as referred to in Paragraph 5 herein."
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") is taking place at the offices of Seller's Counsel on
the date hereof (the "Closing Date"). The Closing shall be deemed to have
occurred at 11:59 p.m. on the Closing Date.
<PAGE>
j. Deliveries at the Closing. The following are delivered at the Closing:
(i) The Seller hereby delivers to the Buyer:
1. the Acquired Assets;
2. the Agreement with Beneficiaries and Trust as annexed hereto as Exhibit
B, executed by the Beneficiaries and the Trust;
3. executed Assignment and Assumption Agreements for the Leases, annexed
hereto as Exhibit F;
4. an executed assignment of Seller's Service Mark Registrations annexed
hereto as Exhibit H;
5. original executed copies of a UCC termination statement, terminating the
UCC-1 financing statement of Bank of America NT&SA's (B of A) Security Interest
in the Acquired Assets.
6. a Bill of Sale, Assignment and Assumption Agreement annexed hereto as
Exhibit C;
7. an Opinion of Seller'scounsel annexed hereto as Exhibit G;
8. delivery of all consents as may be required under any of the Assigned
Contracts;
9. all information required under the Schedules referenced herein, dated as
of the Closing Date;
10. copies of the prior 12 months of billing received from the landlords of
the Stores for estimated taxes and other payments required under the Leases.
11. Executed Consulting Agreement of Gayle Hoepner as annexed hereto as
Exhibit J.
12. The Subordination Agreements annexed hereto as Exhibits L and M
executed concurrently herewith;
13. An officer's certificate certifying as to the Seller's by-laws, board
resolutions and shareholder resolutions;
14. certified articles of incorporation and good standing certificates of
the Seller in California;
15. Security Agreement annexed hereto as Exhibit K;
16. Incumbency Certificate of Seller; and
17. Duly executed Certificate of Amendment to the Certificate of
Incorporation of the Seller changing its name, together with the appropriate
state filing fee.
<PAGE>
i) The Buyer hereby delivers to the Seller;
18. the consideration specified in ss.2(c) above;
19. the Agreement with Beneficiaries and Trust;
20. executed Assignment and Assumption Agreements for the Leases;
21. evidence confirming that the payment of the Total Cost pursuant to
Section 10 of the South Coast Plaza Lease has been made;
22. the California reseller certificate;
23. opinion of Buyer's counsel;
24. Certificate of the Secretary of the Guarantor certifying as to the
Guarantor's certificate of incorporation, by-laws and Resolutions of the Board
of Directors of the Guarantor, authorizing the guarantee on the Buyer's Notes,
together with an Incumbency certificate;
25. an executed Consulting Agreement as annexed hereto as Exhibit J.
26. an executed Bill of Sale, Assignment and Assumption;
27. Security Agreement annexed hereto as Exhibit K;
28. UCC-1 Financing Statement;
29. Guaranty annexed hereto as a part of Exhibit E;
30. Secretary's Certificate;
31. California and Delaware good standing certificates.
(f) Guarantees, Security Agreement and Subordination Agreements. Payment of
the Buyer's Notes is guaranteed by Mister Jay Fashions International, Inc., in
accordance with the guarantee annexed to the Buyer's Notes, annexed hereto as
Exhibit E. In addition, the Buyer's Notes are secured by all of the assets of
the Buyer, evidenced by a Security Agreement as annexed hereto as Exhibit K. The
security interest shall be subordinate to all obligations owed to Congress
Financial Corporation (Western) and senior to the obligations owed by Buyer to
Europe American Capital Corp., as provided for in the Subordination Agreements
annexed hereto as Exhibits L and M, respectively. The Trust and Beneficiaries
shall guarantee that all the Inventory delivered to the Stores on or before
January 5, 1997 is or shall be fully paid for, there being no outstanding
Liabilities with respect thereto for which Buyer shall be liable, as provided
for in the Agreement with Beneficiaries and Trust.
<PAGE>
(g) Sales, Use and other Taxes. The Buyer and the Seller shall cooperate in
preparing and filing use and sales tax returns relating to the purchase of the
assets located in the Stores and Corporate Office, excluding any Inventory, all
of which is valued at $65,000. Each of the Buyer and the Seller shall file, in a
timely manner, Forms 8594 with respect to the purchase. Each of the Parties, as
well as the Beneficiaries and Trust, covenants and agrees not to take an
inconsistent position in connection with a Tax Return or audit or examination by
a taxing authority or otherwise, with the statements made and agreed to herein.
The Buyer shall furnish the Seller with a form of reseller certificate that
complies with the requirements of the California Taxation and Revenue Code and
other applicable state taxation laws. The Buyer shall pay any and all sales or
use taxes with regard to the sale of the Acquired Assets.
(h) Corporate Office. Certain of the Acquired Assets are located in the
Corporate Office, the lease for which is not an Assigned Contract or an Assumed
Liability. For a period of no more than 90 days after the Closing Date the Buyer
shall not, except at the Seller's request, move from the Corporate Office any
Acquired Assets which are located at the Corporate Office on the Closing Date,
not including any Acquired Assets originally located in any of the Stores as to
which the Buyer may remove such Acquired Assets immediately after the Closing.
Seller shall not damage any of the Acquired Assets located in the Corporate
Office during the period such assets remain in the Corporate Office. During such
time period, the Buyer shall have daily access to such Acquired Assets during
normal business hours. The computer and system which is connected to the Stores'
operations may be used by the Seller and any of its officers, Karen Zak, Scott
Bower, Diane Crandall, and any employee or consultant of Seller approved by
Buyer in advance, which individual shall have signed a non-disclosure agreement,
but only for the purpose of preparing final post-closing sales and income tax
returns and other filings required by law; financial statements and reports and
other similar matter or information pertinent to Seller's dissolution and
winding-up. The Seller shall be allowed to use the supplies in the Corporate
Office (eg. paper, pens, staples, paper clips and other similar items), however,
Buyer shall be under no obligation to replenish such supplies. The Seller shall
order and have installed its own phone line at its own cost as of the Closing
Date. The Buyer shall observe all reasonable rules and regulations relating to
the Corporate Office as the Seller may promulgate from time to time and shall
not damage the Corporate Office in any way. Within 7 days after delivery of
written notice by the Seller, the Buyer shall remove all Acquired Assets from
the Corporate Office. Seller shall provide Buyer with reasonable access to the
Corporate Office to remove the Acquired Assets. If the Buyer fails to remove all
of the Acquired Assets from the Corporate Office within such time period,
assuming Seller provides reasonable access, the Seller may remove the Acquired
Assets to a warehouse at the Buyer's expense or in the event that the lease term
for the Corporate
<PAGE>
Office has expired or been terminated, then on the day prior to the last day of
occupancy of the Corporate Office, assuming notice as provided herein has been
given to the Buyer, the Seller may dispose of the remaining Acquired Assets at
the Buyer's expense. During the term when the Acquired Assets shall remain in
the Corporate Office, the Buyer shall pay for its own office and administrative
expenses and supplies, however, Buyer shall not be responsible to pay any rent.
3. Representations, Warranties and Certain Post-Closing Covenants of
the Seller. The Seller represents and warrants to the Buyer that the statements
contained in this ss.3 are correct and complete as of the date of this
Agreement, except as set forth in the disclosure schedule accompanying this
Agreement (the "Disclosure Schedule"). The Disclosure Schedule is arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this ss.3. In addition, the Seller hereby agrees to perform certain post-Closing
acts.
(a) Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California. The Seller does not have any Subsidiaries and does not own the
securities of any other company. The outstanding capital stock of the Seller is
wholly-owned by the Trust.
(b) Authorization of Transaction. The Seller, Trust and Beneficiaries
have full corporate power and authority (as applicable) to execute and deliver
this Agreement and all other agreements (the "Other Seller's Agreements")
required to be delivered by or on behalf of Seller, the Trust and/or the
Beneficiaries and to perform its and their obligations hereunder and thereunder.
Without limiting the generality of the foregoing, the board of directors of the
Seller and the trustees on behalf of the Trust have duly authorized the
execution, delivery, and performance of this Agreement and the Other Seller's
Agreements by the Seller. This Agreement and the Other Seller's Agreements
constitute the valid and legally binding obligations of the Seller, the Trust
and the Beneficiaries, as applicable, enforceable in accordance with their terms
and conditions, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, and other similar laws and equitable principles
relating to or limiting creditors' rights generally.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement
<PAGE>
and the Other Seller's Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in ss.2 above), will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is subject or any provision of the charter or bylaws of the Seller or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets), except that (1) each Lease
requires delivery of a notice and executed assignment and assumption document to
the lessor thereunder, (2) there are certain third party consents required in
connection with the assignment to the Buyer of certain of the Assigned
Contracts. Except as provided for herein the Seller does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement and the Other
Seller's Agreements (including the assignments and assumptions referred to in
ss.2 above).
(d) Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement, for which the Buyer could become
liable or obligated.
(e) Title to Assets. The Seller has good and marketable title, free and
clear of all Security Interests, to, or a valid leasehold interest in the
Acquired Assets, inclusive of but not exclusively, the Assigned Contracts.
Except for the Assigned Contracts described in items 1 and 3 of Schedule 3(e)(i)
correct and complete copies of each Assigned Contract (as amended to date) are
annexed hereto as Schedule 3(e)(i). The Seller has not assigned, sublet or
granted any rights to any of the Acquired Assets, inclusive of but not
exclusively, its Leases, Intellectual Property and Assigned Contracts.
(f) Inventory. The Seller has good and marketable title to the
Inventory, free and clear of any Security Interests, substantially all of which
has been paid for in full. Seller acknowledges it is solely responsible for
paying for all Inventory delivered to the Stores on or before January 5, 1997.
The only such Inventory for which Seller has not yet paid in full is Inventory
for which: (1) Seller has not received an invoice from the vendor; (2) payment
is not yet due under the vendor's terms and conditions of sale; or (3) Seller is
entitled to vendor credits or rebates in amounts not yet notified by the vendor
to Seller. Seller has authority to transfer the Inventory to the Buyer, as
provided herein, there being are no third party consents or notices required.
Within 14 days of the Closing Date the
<PAGE>
Seller shall send correspondence to all of its vendors, notifying them of the
change in ownership of the Stores and requesting that all credits and rebates
due to Seller be immediately applied and final invoices be forwarded. Seller
agrees to pay the amounts due on all invoices received for Inventory delivered
before January 5, 1997 on or prior to June 30, 1997, except with respect to
matters for which an action has been commenced. Notwithstanding the above, the
Seller shall pay for all undisputed amounts in the invoices for the Inventory
delivered before January 5, 1997 on or before the later of 30 days from the
Closing Date or 30 days from receipt of an invoice.
(g) Undisclosed Liabilities. Except for the Assumed Liabilities and
claim listed in Schedule 3(g), the Seller does not have any Knowledge of any
Basis for any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against Seller giving rise to any Liability with
respect to the Acquired Assets.
(h) Ordinary Course of Business. From November 23, 1996 through the
date of this Agreement, the Seller has not engaged in any transaction which
would materially adversely affect the Acquired Assets taken as a whole.
(i) Legal Compliance. The Seller does not have any Knowledge, that (i)
it or any of its respective predecessors and Affiliates have not complied in all
material respects with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
and (ii) any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply, which failure would materially adversely
affect the Acquired Assets or the Buyer's rights thereto taken as a whole.
(j) Tax Matters.
(i) There are no Security Interests or Basis for a Security Interest, on
any of the Acquired Assets which arose in connection with any failure (or
alleged failure) of the Seller to pay any Tax.
(ii) The Seller has withheld and paid all Taxes required to have
<PAGE>
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party,
which if not paid would adversely affect the Acquired Assets or the Buyer's
ability to purchase same.
(k) Real Property.
(i) The Seller does not own any real property.
(ii) Schedule 3(k)(ii) lists all real property leased to the
Seller. The Seller has delivered to the Buyer correct and complete
copies of the Leases there being no amendments thereto except as
annexed hereto. With respect to each Lease the representations and
warranties made by Seller in the Assignment and Assumption Agreement
are incorporated herein by this reference and expressly made subject to
the terms of this Agreement including all the provisions of ss.5. In
addition:
(A) the Leases are legal, valid, binding,
enforceable, and in full force and effect to the Seller and to
the Knowledge of Seller, the other Party thereto;
(B) there are no disputes, oral agreements, or
forbearances in effect as to any Lease;
(C) the Seller has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold of any Lease, nor has the Seller
granted any rights to enter or use the leased premises to any
third parties, other than, in either case pursuant to the
Lease agreements;
(l) Intellectual Property.
(i) The Seller owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the business of the Seller as presently
conducted as listed in Schedule 3(l)(i) hereto. An unaffiliated company
used the name Toys International, which to the Knowledge of Seller has
ceased as reflected in Schedule 3(l)(ii).
(ii) To the Seller's Knowledge, except as annexed as Schedule
3(l)(ii), neither the Seller not any third party has claimed, or
threatened, that either the
<PAGE>
Seller or a third party has interfered with, violated, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the other party.
(m) Assigned Contracts and Open Purchase Orders. Except as may be
listed on Schedule 3(e)(i), as of the Closing Date Seller does not have
outstanding purchase orders to purchase Inventory for the Stores, except which
meet all of the following criteria; (1) the orders were made in the Ordinary
Course of Business, (2) the orders do not aggregate more than $100,000 and (3)
all goods ordered are readily merchantable. The Seller has used its best
efforts, except such efforts shall not require the Seller to pay a fee for such
cancellation, to cancel all open purchase orders requested by Buyer. As of the
Closing Date each Assigned Contract constitutes the legal, valid, binding and
enforceable obligation of the Seller and, to the Knowledge of Seller, the other
party thereto. Seller has no Knowledge of and has not received written notice of
any existing material default by the Seller under such Assigned Contract, or any
event which, with notice, lapse of time or both, would constitute a material
default by Seller under such Assigned Contract or permit termination,
modification or acceleration of any provisions of such Assigned Contract. To the
Seller's Knowledge, there is no existing material default by a third party to
any Assigned Contract, nor has there occurred any event which, with notice,
lapse of time or both, would constitute a material default by such third party
under such Assigned Contract. No party to any Assigned Contract has repudiated
any provision of such Assigned Contract.
a. Litigation. To Seller's Knowledge, there is no litigation or proceeding
pending or threatened in writing with respect to any of the Acquired Assets or
which questions the validity of any action taken by the Seller pursuant to or in
connection with the transactions contemplated by this Agreement.
(o) Condition of Acquired Assets; Limited Warranties. Except as
otherwise expressly provided in this Agreement, the Seller makes no
representation or warranties whatsoever to the Buyer, express or implied,
concerning the Acquired Assets or the business of the Seller, including but
not limited to any representation or warranty as to the value, quality,
quantity, condition, merchantability, design, suitability, usability,
<PAGE>
salability, obsolescence, working order, compliance with law, validity or
enforceability. All Acquired Assets are sold "AS IS, WHERE IS". The Buyer
acknowledges that it has had an opportunity to inspect the Acquired Assets.
(p) Disclosure. The representations and warranties contained in this
ss.3 do not contain any untrue statement of a material fact. All information
required to be disclosed herein by this Agreement concerning the Seller has been
disclosed.
4. Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this ss.4 are
correct and complete as of the date of this Agreement, except as set forth in
the Disclosure Schedule.
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in California.
(b) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and all other agreements required to be delivered by or on behalf
of the Buyer (the "Other Buyer's Agreements"), and to perform its obligations
hereunder and thereunder. This Agreement and the Other Buyer's Agreements
constitute the valid and legally binding obligations of the Buyer, enforceable
in accordance with their terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement and the Other Buyer's Agreements, nor the consummation of the
transactions contemplated hereby and thereby (including the assignments and
assumptions referred to in ss.2 above), will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which it is
bound or to which any of its assets is subject. The Buyer does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement and the Other Buyer's
Agreements (including the assignments and assumptions referred to in ss.2
above).
(d) Brokers' Fees. The Buyer has no Liability or obligation to pay any fees
or
<PAGE>
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement and the Other Buyer's Agreements for which the
Seller could become liable or obligated.
(e) Investigation. The Buyer has conducted a review and inventory of
the Acquired Assets and agrees to acquire same "As Is". In executing this
Agreement, except as stated herein, the Buyer is relying on its own
investigation and on the provisions of this Agreement, and not on any other
statements, representations, warranties or assurances of any kind at any time
made by or purportedly on behalf of Seller.
(f) Net Worth and Financial Positions. Immediately prior to and giving
effect to the Closing, the Buyer has a net worth of at least one million
dollars. As of the Closing Date, the Buyer, together with the revenues it
reasonably anticipates generating through its operations, reasonably believes
that it will have the funds necessary to (i) provide for the payment, when due,
of the debts and liabilities of its business in the Ordinary Course of Business
for a period of one year following the Closing Date, and (ii) satisfy all of its
obligations under this Agreement.
5. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of one year, provided however,
that the survival period shall be two years from the Closing Date with respect
to any Liability regarding the Leases and Inventory. Upon the expiration of a
representation and warranty survival period pursuant to this Section, unless
written notice of a claim based on such representation and warranty specifying
the facts on which the claim is based shall have been delivered to the
Indemnifying Party prior to such expiration, such representation and warranty
shall be deemed to be of no further force or effect, as if never made, and no
claim or action may be brought based thereon, whether for indemnification,
breach of contract, tort or under any other legal theory.
(b) Indemnification By Seller. Subject to the limitations set forth in this
ss.5 as to the
<PAGE>
amount and manner of payment of indemnification obligations hereunder, the
Seller does hereby indemnify and hold Buyer harmless from and against any
Losses sustained by Buyer as a result of (i) any untrue representation,
breach of warranty or non-fulfillment of any covenant or agreement by
Seller contained herein,(ii) Liabilities under the Leases prior to the
Closing Date or (iii) Seller's Liability on the Inventory delivered to the
Stores on or before January 5, 1997 and purchased by the Buyer, in all
cases provided that Buyer shall have given written notice to the Seller of
any claim for indemnification prior to the expiration of the applicable
survival period set forth in ss.5(a) hereof.
(c) Indemnification By Buyer. The Buyer does hereby indemnify and hold
the Seller harmless from and against any Losses sustained by Seller, as a result
of (i) any untrue representation, breach of warranty or non-fulfillment of any
covenant or agreement by Buyer contained herein, (ii) the failure of the Buyer
to pay, perform and discharge when due any of the Assumed Liabilities, (iii) the
actions or omissions of the Buyer and its representatives at the Corporate
Office or (iv) the conduct of the Buyer's business (including without
limitation, the business conducted at the Stores) after the Closing.
(d) Conditions of Indemnification for Third-Party Claims. The
respective obligations and liabilities of the Indemnifying Party to the
Indemnified Party under this Section 5 with respect to third party claims only
shall be subject to the following terms and conditions:
(i) Notice. Within 15 days after receipt of notice of
commencement of any action or the assertion of any claim by a third party (but
in any event at least 10 days before the deadline for any responsive pleading),
the Indemnified Party shall give the Indemnifying Party written notice thereof
together with a copy of such claim, process or other legal pleading. Any delay
on the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder to the extent the
Indemnifying Party has been prejudiced thereby.
(ii) Assumption of Defense. The Indemnifying Party shall have
the right to defend the Indemnified Party against the third party claim using
counsel and other representatives of its own choosing who are reasonably
satisfactory to the Indemnified Party. The Indemnifying Party shall exercise
such right by delivering to the Indemnified Party a written notice (a "Notice of
Assumption of Defense") of such exercise by the 15th day after receipt of the
Indemnified Party's notice (or, if earlier, by the 5th day preceding the
deadline for any responsive pleading). If the Indemnifying Party delivers the
Notice of Assumption of Defense in a timely manner and conducts the defense of
such third party claim, the Indemnifying Party shall have sole control over the
defense and settlement of
<PAGE>
such claim; provided, however, that (1) the Indemnified Party may retain at its
sole cost and expense separate counsel to participate in the defense of such
claim and (2) the Indemnifying Party shall not, without the consent of the
Indemnified Party, which shall not be unreasonably withheld, consent to the
entry of any judgment or enter into any settlement with respect to the third
party claim which does not include a complete release of the Indemnified Party
with respect to all Liability for such third party claim. Notwithstanding the
provisions of this ss.5(d), in the event the Seller is the Indemnifying Party,
such party shall not have any right to consent to the entry of any judgment or
enter into any settlement with respect to the third party claim except for which
such settlement or judgment provides solely for the payment of a sum certain and
that sum certain is not in excess of the limitations referred to in ss.5(g). The
Indemnifying Party shall not be liable for any amounts paid in settlement of a
third party claim by the Indemnified Party for which the Indemnifying Party has
delivered a timely Notice of Assumption of Defense and against which the
Indemnifying Party has conducted the defense, unless such Indemnifying Party
consents to such settlement.
(iii) Failure to Assume and Conduct Defense. If the
Indemnifying Party does not deliver a timely Notice of Assumption of Defense and
thereafter conduct the defense against the third party claim, the Indemnified
Party shall have the right, upon further written notice to the Indemnifying
Party, to defend against, consent to the entry of any judgment with respect to,
or enter into any settlement with respect to such third party claim as the
Indemnified Party reasonably deems appropriate, at the expense of the
Indemnifying Party; provided, however, that the Indemnified Party shall not
consent to any judgment or enter into any settlement with respect to such third
party claim until at least 5 business days after delivering to the Indemnifying
Party a copy of the proposed judgment or settlement; and provided further, that
the Indemnifying Party shall have the right to assume the defense of such claim
with counsel of its own choosing at anytime prior to the settlement, compromise
or final determination of such claim.
(iv) Cooperation. In connection with any third party claim,
the Indemnified Party will cooperate with all reasonable requests of the
Indemnifying Party.
(e) Subrogation. If the Indemnifying Party makes any payment under this
Section 5 in respect of any Losses, the Indemnifying Party shall be subrogated,
to the extent of
<PAGE>
such payment, to the rights of the Indemnified Party against any insurer or
third party with respect to such Losses.
(f) Exclusive Remedies. The remedies provided in this ss.5 shall be the
exclusive remedy for monetary damages (whether at law or in equity), and are in
lieu of any statutory, common law, equitable or other remedy any Party may have
for breaches of this Agreement or for indemnification. Without limiting the
generality of the foregoing, the Buyer hereby expressly waives any right of
setoff it may have against amounts otherwise owed to the Seller pursuant to this
Agreement or the Buyer Notes except as otherwise expressly provided below.
(g) Limitations on Amount and Manner of Payment of Seller's Indemnification
Obligations.
(i) Buyer shall have no right of recovery against Seller
pursuant to the indemnification provisions under this ss.5 until the aggregate
amount of all Losses equals $7,500, except that there is no minimum requirement
with respect to any Liabilities on the Inventory delivered to the Stores on or
before January 5, 1997 and then to the extent of all such Losses, subject only
to the limitations set forth in this ss.5, including clause (v) below.
(ii) In the event that (1) a claim is settled or a judgment
entered in accordance with ss.5(d) above and (2) Seller expressly acknowledges
Buyer's right to indemnification or (3) whereby pursuant to an arbitration
proceeding referred to in 5(g)(iv) Buyer has been determined by final
arbitration award to have the right to indemnification by Seller, then, the
aggregate amount of the Losses of Buyer (subject to clause (v) below) shall be
recoverable by either payment by Seller to Buyer in full within 30 days of such
settlement or order, thereof of the amount due, unless said payment is due prior
thereto, or by decreasing the principal amount and accrued interest on the
Buyer's Notes, the full amount of the Losses (subject to clause (v) below).
(iii) In the event that either (a) Seller does not agree that
Buyer has the right to indemnification, pending arbitration as described in ss.
5(g)(iv), (b)Seller does not elect to defend against the third party claim as
provided for in ss.5(d) or (c) the claim is not resolved within 30 days of the
notice provision
of ss.5(d)(i), then Buyer may make timely payments of the Buyer's Notes, with
respect to the full amount of the Losses claimed by the third party, into an
interest bearing escrow account with Buyer's attorney, and provide Seller with
detailed and ongoing notification of such escrow and payment(s) pending
settlement or adjudication of any such claim. The escrow shall be held during
the arbitration process referred to below and (1)
<PAGE>
terminated and the funds turned over to the Seller if the arbitrator does
not find that the Buyer has the right to indemnification or (2) held pending the
settlement or adjudication of any claim for which Buyer has the right to
indemnification. If the arbitrator determines that Buyer is not entitled to
indemnification, Seller shall receive the interest earned on the money in escrow
while the money was in escrow. If the arbitrator determines that Buyer is
entitled to indemnification, Buyer shall receive the interest earned on the
lesser of (A) the amount in escrow or (B) the Losses actually incurred by Buyer,
Seller having the right to receive any remaining interest. Upon determination by
the arbitrator of the issue of indemnification the successful party shall have
the right to interest earned on the escrow account.
(iv) In the event that the issue of the right to
indemnification is not agreed on between the Parties, such matter shall be
settled at the request of either party by binding arbitration in Orange County,
California before and in accordance with the then existing Commercial
Arbitration Rules (the "Rules") of the American Arbitration Association ("AAA").
There shall be one arbitrator agreed to by the parties or, if the parties cannot
agree on an arbitrator within 30 days of demand for arbitration, appointed by
the AAA pursuant to the Rules. The parties shall pay their own attorney's fees
and share the other costs of arbitration equally, subject to final appointment
by the arbitrator. The arbitrator shall apply the law set forth herein to govern
this Agreement and shall have the power to award any remedy available at law or
in equity except punitive damages. Any award rendered pursuant to such
arbitration shall be final and binding on the parties hereto, and judgment on
such award may be entered in any court having jurisdiction thereof.
(v) The aggregate amount of the liability of Seller hereunder
for indemnification shall be as follows: (1) there is no maximum Liability as to
amounts owed with respect to the Inventory delivered to the Stores on or before
January 5, 1997, all of which Seller shall be liable for, (2) Seller's liability
with respect to the Leases shall be limited to $265,000 for the first year of
the survival period and decrease on a quarterly basis thereafter at the rate of
$66,250 per quarter for the balance of the survival period (3) with respect to
everything except the Leases and Inventory Seller's liability shall be limited
initially to $265,000 and decrease at a rate related to the repayment of the
Buyer's Notes for the one-year survival period referred to in ss.5(a). Seller's
liability for any and all claims under clauses (2) and (3) of this ss.5(v) shall
in no event exceed an aggregate of $265,000.
<PAGE>
6. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the
disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights, remedies, obligations or Liabilities upon any Person other than the
Parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitute the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; however, the Seller may assign all of its rights and
delegate all of its duties to the Trust and/or the Beneficiaries, provided that,
the Seller is not relieved from liability pursuant to the terms and conditions
of this Agreement and the Other Seller's Agreements, except upon the dissolution
of Seller. The Buyer may assign or transfer its rights and interests hereunder
to one or more of its Affiliates having a post-transfer combined net tangible
book worth of at least $1,000,000 and designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if five business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below. Any
Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
To the Seller:
c/o Gayle and Constance R. Hoepner
3631 Seaview Avenue
Corona del Mar, CA 92625
With a copy to:
Jeffrey M. Weiner, Esq.
Kimball & Weiner LLP
555 S. Flower Street, Suite 4540
Los Angeles, CA 90071
To the Buyer:
Play Co. Toys & Entertainment Corp.
550 Rancheros Drive
San Marcos, CA 92069
With a copy to:
David S. Klarman, Esq.
Klarman & Associates
2694 Bishop Drive, Suite 213
San Ramon, CA 94583
<PAGE>
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
(i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer and
the Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Except with respect to the inventory valuation performed
prior to the Closing, which expense shall be borne jointly by the parties
hereto, each of the Buyer, the Seller, the Beneficiaries and the Trust will bear
his or its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact
<PAGE>
that the Party is in breach of the first representation, warranty, or covenant.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Submission to Jurisdiction. Each of the Parties submits to the
exclusive jurisdiction of any state or federal court sitting in Orange County,
California in any action or proceeding arising out of or relating to this
Agreement (except as set forth in ss.5(g)(iv)) and agrees that all claims in
respect of the action or proceeding (except as set forth in ss.5(g)(iv)) shall
be heard and determined only in any such court. Each of the Parties waives any
defense of inconvenient forum, lack of jurisdiction or other objections based on
jurisdiction or venue to the maintenance of any action or proceeding so brought
and waives any bond, surety, or other security that might be required of any
other Party with respect thereto.
(o) Attorney's Fees. If any litigation or arbitration is commenced between
the Parties or their Affiliates or representatives concerning any provision of
this Agreement, the prevailing Party shall be entitled to recover its reasonable
attorneys' fees and expenses of counsel and court or arbitration costs incurred
by reason of such litigation, subject to the limits set forth in ss.5.
(p) Access to Books and Records. The Buyer and Seller shall maintain for
five years after the Closing Date all original books, records, files, documents,
paper and agreements pertaining to the Acquired Assets, the Assumed Liabilities
or otherwise to the business conducted at the Stores before Closing. After the
Closing, the Parties shall provide each other and their representatives during
ordinary business hours and upon reasonable notice, with reasonable access to
such original documents and the requesting party shall pay any out of pocket
expenses thereof. If, at anytime during such five year period, a Party proposes
to dispose of any such original documents, such Party shall first offer in
writing to deliver the same to the other Party at the expense of such Party. If
the Party fails to respond to such offer within 90 days of its receipt, the
other Party may dispose of such documents.
(q) Cooperation After Closing. After the Closing, the Parties shall provide
such
<PAGE>
cooperation as the requesting Party or its counsel may reasonably request
in connection with (i) any proceedings now or hereafter pending or threatened
and to which such Party is involved and (ii) any Liabilities. Such cooperation
shall include without limitation (1) making available at the reasonable request
of the requesting Party or its counsel, and permitting such Party and its
counsel to make and retain copies, of any and all documents in the possession or
otherwise available to the other Party; and (2) making available upon the
reasonable request of the requesting Party or its counsel, employees and other
persons within the control of or available to the other Party to consult with
and assist the requesting Party and its counsel and to prepare for and testify
truthfully in connection with any proceedings, including depositions, trials and
arbitration proceedings. The requesting Party shall reimburse the other Party
for the other Party's reasonable out-of-pocket costs incurred pursuant to this
Section. Seller shall provide to Buyer, upon reasonable notice access to all
daily cash register receipts and related documents. After the Closing, in the
event that Buyer uses any vendor credits transferred from Seller to Buyer, Buyer
shall pay to the Seller the actual value discount, which liability shall only
come due when the credit is recognized. Buyer shall promptly deliver to Seller
all mail and packages for Seller delivered to the Stores after the Closing
(including invoices for Inventory delivered to the Stores on or before January
5, 1997).
(r) Daily Sales Records. Within 10 days of the Closing Date, Seller shall
deliver to Buyer a computer printout showing the daily sales records for the
Stores for the three years immediately preceding the Closing Date.
(s) Post Closing Adjustment. The initial installment of the $65,000 Buyer's
Note shall be decreased by the cost of inventory sold by the Stores on the
Closing Date, using the same formula used in valuing the Inventory purchased by
Buyer.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
Play Co. Toys & Entertainment Corp.
By:___________________________
Richard Brady, President
