EXHIBIT 10.1
ASSET PURCHASE AND SALE AGREEMENT
BY AND AMONG
JP-PA (HK) LIMITED,
JPI/V ACQUISITION CORP.,
JAKKS PACIFIC, INC.,
PLAY ALONG, INC.,
PA DISTRIBUTION, INC.,
PLAY ALONG (HONG KONG) LIMITED,
▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇,
AND
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Dated as of June 10, 2004
TABLE OF CONTENTS
Page
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1. Definitions.............................................................................1
1.1 "Action".........................................................................1
1.2 "Adjusted Gross Profit"..........................................................1
1.3 "AdvanTech"......................................................................2
1.4 "Affiliate"......................................................................2
1.5 "Agreement"......................................................................2
1.6 "Arbitrating Accountants"........................................................2
1.7 "Assets".........................................................................2
1.8 "Assumed Contracts"..............................................................2
1.9 "Assumed Obligations"............................................................2
1.10 "Base"...........................................................................2
1.11 "Blue Sky Laws"..................................................................2
1.12 "Cash Component".................................................................2
1.13 "▇▇▇▇▇▇▇"........................................................................2
1.14 "Closing"........................................................................2
1.15 "Closing Balance Sheet"..........................................................2
1.16 "Closing Date"...................................................................2
1.17 "Closing Net Worth"..............................................................2
1.18 "Closing Purchase Price".........................................................2
1.19 "COBRA"..........................................................................3
1.20 "Code"...........................................................................3
1.21 "Company"........................................................................3
1.22 "Company Plan"...................................................................3
1.23 "Confidentiality Agreement"......................................................3
1.24 "Contracts"......................................................................3
1.25 "dollars" and "$"................................................................3
1.26 "Domain Names"...................................................................3
1.28 "Earn-out Period"................................................................3
1.29 "EBITDA".........................................................................3
1.30 "Effective Date".................................................................4
1.31 "Effective Time".................................................................4
1.32 "Employee Plan"..................................................................4
1.33 "Employment Agreement"...........................................................4
1.34 "Encumbrances"...................................................................4
1.35 "Environmental Laws".............................................................4
1.36 "ERISA"..........................................................................4
1.37 "ERISA Affiliate"................................................................4
1.38 "Estimated Purchase Price".......................................................4
1.39 "Exchange Act"...................................................................4
1.40 "Excluded Assets"................................................................4
1.41 "Excluded Liabilities"...........................................................4
1.42 "Financial Statements"...........................................................4
1.43 "First Review Period Adjustment".................................................4
1.44 "FTC"............................................................................4
i
TABLE OF CONTENTS (CONTINUED)
1.45 "GAAP"...........................................................................4
1.46 "Government Entity"..............................................................5
1.47 "Hazardous Materials"............................................................5
1.48 "HK Assets"......................................................................5
1.49 "HK Assumed Contracts"...........................................................5
1.50 "HK Assumed Obligations".........................................................5
1.51 "HK Business"....................................................................5
1.52 "HK Effective Date of Employment"................................................5
1.53 "HK Financial Statements"........................................................5
1.54 "HK Hired Employees".............................................................5
1.55 "HK Offer Employee"..............................................................5
1.56 "HK Purchase Price"..............................................................5
1.57 "HSR Act"........................................................................5
1.58 "Hong Kong SAR"..................................................................5
1.59 "Indemnified Party"..............................................................5
1.60 "Indemnifying Party".............................................................5
1.61 "IRS"............................................................................5
1.62 "JAKKS"..........................................................................5
1.63 "JAKKS Common Stock".............................................................5
1.64 "JAKKS Guaranty".................................................................5
1.65 "JAKKS HK".......................................................................6
1.66 "JAKKS HK Scheme"................................................................6
1.67 "JAKKS Preferred Stock"..........................................................6
1.68 "JAKKS SEC Reports"..............................................................6
1.69 "JAKKS Shares"...................................................................6
1.70 "JAKKS US".......................................................................6
1.71 "▇▇▇"............................................................................6
1.72 "Justice Department".............................................................6
1.73 "Law"............................................................................6
1.74 "▇▇▇▇▇▇▇▇".......................................................................6
1.75 "Master MPF Scheme"..............................................................6
1.76 "Material Adverse Change" or "Material Adverse Effect"...........................6
1.77 "Net Sales"......................................................................6
1.78 "Net Worth"......................................................................6
1.79 "Net Worth Adjustment"...........................................................7
1.80 "New JAKKS HK Scheme"............................................................7
1.81 "Non-competition Agreement"......................................................7
1.82 "Notice of Claim"................................................................7
1.83 "OSHA"...........................................................................7
1.84 "PA Distribution"................................................................7
1.85 "PA Hong Kong"...................................................................7
1.86 "PA Hong Kong Scheme"............................................................7
1.87 "Permits"........................................................................7
1.88 "Permitted Liens"................................................................7
1.89 "Person".........................................................................7
ii
TABLE OF CONTENTS (CONTINUED)
1.90 "Play Along Business"............................................................8
1.91 "Play Along Products"............................................................8
1.92 "Post-Closing Payment"...........................................................8
1.93 "Post-Closing Statement".........................................................8
1.94 "Prime Rate".....................................................................8
1.95 "Product Liability"..............................................................8
1.96 "Purchase Price Adjustment"......................................................8
1.97 "Purchaser"......................................................................8
1.98 "Real Property"..................................................................8
1.99 "Related Documents"..............................................................8
1.100 "Registrar"......................................................................8
1.101 "Registration Rights Agreement"..................................................8
1.102 "Review Period"..................................................................9
1.103 "SEC"............................................................................9
1.104 "Securities Act".................................................................9
1.105 "Seller".........................................................................9
1.106 "Sellers' Review Period".........................................................9
1.107 "Stockholder"....................................................................9
1.108 "Stockholders Guaranty"..........................................................9
1.109 "Target Closing Net Worth".......................................................9
1.110 "Taxes"..........................................................................9
1.111 "Tax Return".....................................................................9
1.112 "Third Party Claim"..............................................................9
1.113 "Trade Right"....................................................................9
1.114 "US Assets"......................................................................9
1.115 "US Assumed Contracts"...........................................................9
1.116 "US Assumed Obligations"........................................................10
1.117 "US Business"...................................................................10
1.118 "US Effective Date of Employment"...............................................10
1.119 "US Financial Statements".......................................................10
1.120 "US Hired Employees"............................................................10
1.121 "US Offer Employee".............................................................10
1.122 "US Purchase Price".............................................................10
1.123 "Value of JAKKS Stock"..........................................................10
1.124 "WARN Act"......................................................................10
2. Sale and Purchase of Assets............................................................10
2.1 Transfer of Assets..............................................................10
2.2 Closing Payments................................................................13
2.3 Purchase Price Adjustments......................................................14
2.4 Earn-out........................................................................16
3. Representations and Warranties of the Stockholders.....................................18
3.1 Ownership.......................................................................18
3.2 Sellers' Authority..............................................................19
3.3 Consents and Approvals..........................................................19
iii
TABLE OF CONTENTS (CONTINUED)
3.4 No Conflict or Violation........................................................19
3.5 Litigation......................................................................19
3.6 Investment Representation.......................................................19
4. Representations and Warranties of the Stockholders and Sellers concerning Sellers and
the Play Along Business.....................................................................19
4.1 Organization, Existence and Corporate Authority.................................20
4.2 Capitalization; Ownership of Other Entities.....................................20
4.3 Consents and Approvals..........................................................20
4.4 No Conflict.....................................................................20
4.5 Extent of Assets................................................................21
4.6 Personal Property...............................................................21
4.7 Title to Real Property..........................................................21
4.8 Financial Statements............................................................22
4.9 Indebtedness; Undisclosed Liabilities; Adverse Factors..........................23
4.10 Absence of Material Changes.....................................................23
4.11 Tax Matters.....................................................................25
4.12 Accounts Receivable and Inventory...............................................27
4.13 Contracts.......................................................................27
4.14 Environmental Matters...........................................................28
4.15 Intellectual Property...........................................................29
4.16 Compliance with Laws............................................................30
4.17 Litigation......................................................................30
4.18 Employment......................................................................30
4.19 Insurance.......................................................................34
4.20 Brokers.........................................................................34
4.21 Bulk Sales Laws.................................................................34
4.22 Product Liability...............................................................34
4.23 Fair Trading....................................................................35
4.24 Permits.........................................................................35
4.25 Investment Representation.......................................................35
4.26 Customers and Suppliers.........................................................35
4.27 OSHA Matters....................................................................35
4.28 Bank Accounts...................................................................36
4.29 Disclosure......................................................................36
5. Representations and Warranties of Purchasers and JAKKS.................................36
5.1 Authority Relative to Agreement.................................................36
5.2 Capitalization..................................................................36
5.3 No Conflict.....................................................................37
5.4 Litigation......................................................................37
5.5 Consents and Approvals..........................................................37
5.6 Availability of Funds...........................................................37
5.7 JAKKS Shares....................................................................37
5.8 SEC Filings.....................................................................37
5.9 Absence of Certain Changes or Events............................................38
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TABLE OF CONTENTS (CONTINUED)
5.10 Brokers.........................................................................38
5.11 Disclosure......................................................................38
6. Closing................................................................................38
6.1 Closing and Effective Time......................................................38
6.2 Actions of Stockholders and Sellers at Closing..................................38
6.3 Actions by Purchasers and JAKKS at Closing......................................41
7. Certain Additional Covenants...........................................................42
7.1 Post-Closing Access to Information..............................................42
7.2 Preservation and Access to Records Pertaining to the Assets After the Closing...43
7.3 Litigation Cooperation..........................................................43
7.4 Allocation of Closing Purchase Price............................................43
7.5 Additional Covenants relating to Employees and Employee Benefits................44
7.6 Delivery of Property Received by Sellers or Purchasers After Closing............47
7.7 JAKKS Appointed Attorney for Sellers............................................47
7.8 Payment of Liabilities..........................................................47
7.9 Taxes...........................................................................47
7.10 Third Party Consents............................................................48
7.11 Intellectual Property Matters...................................................49
7.12 Post-Closing Management of Play Along Business..................................49
7.13 Securities Law Filings..........................................................51
7.14 Transfer of Domain Names........................................................51
7.15 Company Name....................................................................51
7.16 Access Codes and Combinations...................................................51
7.17 Guaranty........................................................................51
8. Indemnification........................................................................52
8.1 By Sellers and Stockholders.....................................................52
8.2 By Purchasers and JAKKS.........................................................52
8.3 Limitations.....................................................................53
8.4 Procedural Matters..............................................................54
9. Additional Provisions..................................................................56
9.1 Successors and Assigns, Assignability, Beneficiaries............................56
9.2 Notices.........................................................................56
9.3 Amendments and Waivers..........................................................57
9.4 Severability....................................................................58
9.5 Exhibits........................................................................58
9.6 Integration and Entire Agreement................................................58
9.7 Counterparts and Headings.......................................................58
9.8 Survival........................................................................58
9.9 Expenses........................................................................58
9.10 Interpretations.................................................................59
9.11 Further Assurances..............................................................59
9.12 Confidentiality.................................................................59
v
TABLE OF CONTENTS (CONTINUED)
9.13 Risk of Loss....................................................................60
9.14 Public Announcements............................................................60
9.15 Remedies Cumulative; Specific Performance.......................................60
9.16 Drafting........................................................................60
9.17 Governing Law...................................................................60
9.18 JURISDICTION; WAIVER OF JURY TRIAL..............................................60
LIST OF EXHIBITS
Exhibit A Form of Employment Agreement
Exhibit B Form of Non-competition Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Opinion of ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
and ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Exhibit E Form of Opinion of Feder, Kaszovitz, Isaacson, Weber,
▇▇▇▇▇, Bass & Rhine LLP and Eccles & ▇▇▇
LIST OF SCHEDULES
Schedule 2.1(b) Excluded Assets
Schedule 2.1(c)(i)(B) HK Assumed Obligations
Schedule 2.1(c)(ii)(B) US Assumed Obligations
Schedule 2.2 Cash Component Allocation
Schedule 2.4 Post-Closing Payments Schedule
Schedule 3.1 Beneficial Ownership; Voting Trusts and Proxies
Schedule 4.2 Capitalization
Schedule 4.3 Sellers' Consents & Approvals
Schedule 4.4 Sellers' Conflicts
Schedule 4.6(a) Personal Property
Schedule 4.7(a) Real Property
Schedule 4.8(a) US Financial Statements
Schedule 4.8(b) HK Financial Statements
Schedule 4.9 Indebtedness; Undisclosed Liabilities
Schedule 4.10 Adverse Changes
Schedule 4.13(a) Contracts
Schedule 4.13(b) Related Transactions
Schedule 4.15(a) Trade Rights
Schedule 4.17 Sellers' Litigation
Schedule 4.18(a) Labor Matters
Schedule 4.18(b) Employee Plans
Schedule 4.18(c) Employees and Consultants; Company Manuals
Schedule 4.19 Sellers' Insurance
Schedule 4.26(a) Sellers' Customers
Schedule 4.26(b) Sellers' Suppliers
vi
TABLE OF CONTENTS (CONTINUED)
Schedule 4.27 OSHA Matters
Schedule 4.28 Bank Accounts
Schedule 5.2 JAKKS Capitalization
Schedule 6.2(l) Estimated Purchase Price Allocation
Schedule 6.3(b) Allocation of JAKKS Shares
Schedule 7.5(a) US Offer Employees
Schedule 7.5(f) HK Offer Employees
Schedule 7.12(a) Play Along Business Projections
Schedule 9.2 Stockholders' Addresses
vii
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of
June 10, 2004 (the "Effective Date"), is by and among JP-PA (HK) LIMITED, a Hong
Kong limited liability company ("JAKKS HK"), JPI/V ACQUISITION CORP., a Delaware
corporation ("JAKKS US" and, together with JAKKS HK, the "Purchasers"), both of
which are direct or indirect wholly-owned subsidiaries of JAKKS Pacific, Inc., a
Delaware corporation ("JAKKS"), JAKKS, PLAY ALONG, INC., a Delaware corporation
(the "Company"), PA DISTRIBUTION, INC., a Delaware corporation ("PA
Distribution"), PLAY ALONG (HONG KONG) LIMITED, a Hong Kong limited liability
company ("PA Hong Kong" and, together with the Company and PA Distribution, the
"Sellers"), ▇▇▇ ▇▇▇▇▇▇▇ (hereafter referred to as "▇▇▇"), ▇▇▇▇▇▇▇ ▇▇▇▇
(hereafter referred to as "▇▇▇▇▇▇▇"), and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (hereafter referred to
as "▇▇▇▇▇▇▇▇" and, together with ▇▇▇ and ▇▇▇▇▇▇▇, the "Stockholders").
W I T N E S S E T H :
WHEREAS, Sellers own and operate the Play Along Business; and
WHEREAS, Purchasers desire to purchase and Sellers desire to sell the
Play Along Business and substantially all of the assets with respect to the Play
Along Business, upon the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, Sellers and the Stockholders have determined in good faith that
it is in the best interests and to the benefit of Sellers, and in furtherance of
their respective purposes, that Sellers sell the Play Along Business and
substantially all of the assets with respect to the Play Along Business to
Purchasers.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Definitions. Capitalized terms used herein shall have the meanings
ascribed to them in this Article 1 unless such terms are defined elsewhere in
this Agreement.
1.1 "Action" means any action, suit, bankruptcy proceeding,
arbitration, mediation, inquiry, demand, claim, complaint, proceeding, dispute,
investigation, whether in law or in equity and whether threatened or pending.
1.2 "Adjusted Gross Profit" for any Review Period means the Net
Sales for that Review Period less cost of goods and advertising expenses,
including co-op and promotional allowances, and license royalties payable in
respect of product sales, including unrecouped royalty guarantees and advances
all when paid and applied in accordance with GAAP to an accounting period. For
the avoidance of doubt, the parties agree that, except as provided by Section
7.12(a), no adjustment shall be made to Adjusted Gross Profit for any one-time
payment made by Sellers, Purchasers or JAKKS to any licensor(s) under the
Assumed Contracts in connection with obtaining the consent of such licensor(s)
to the assignment of one or more Assumed Contracts to Purchasers pursuant to
this Agreement. Further, the parties agree that no
adjustment shall be made to Adjusted Gross Profit as a result of any
post-Closing adjustments made by Purchasers to Sellers' pre-Closing financial
accounting treatment of royalty advances.
1.3 "AdvanTech" shall have the meaning set forth in Section
4.18(c).
1.4 "Affiliate" means, as to the Person in question, any Person
that controls, is controlled by, or is under common control with, the Person in
question; and the term "control" means possession of the power to direct or
cause the direction of the management and policies of a Person whether through
ownership of voting securities, by contract, or otherwise.
1.5 "Agreement" shall have the meaning set forth in the
introductory paragraph.
1.6 "Arbitrating Accountants" shall have the meaning set forth in
Section 2.3(a)(iii)(B).
1.7 "Assets" shall have the meaning set forth in Section 2.1(a).
1.8 "Assumed Contracts" means the HK Assumed Contracts and the US
Assumed Contracts.
1.9 "Assumed Obligations" means the HK Assumed Obligations and
the US Assumed Obligations.
1.10 "Base" means $52,600,000.
1.11 "Blue Sky Laws" means the laws of any state, the District of
Columbia, or any territory or other jurisdiction in the United States governing
the offer and/or sale of securities in such jurisdiction.
1.12 "Cash Component" means $70,202,000.
1.13 "▇▇▇▇▇▇▇" shall have the meaning set forth in the preamble
to this Agreement.
1.14 "Closing" shall have the meaning set forth in Section 6.1.
1.15 "Closing Balance Sheet" shall have the meaning set forth in
Section 2.3(a)(i).
1.16 "Closing Date" shall have the meaning set forth in Section
6.1.
1.17 "Closing Net Worth" shall have the meaning set forth in
Section 2.3(a)(i).
1.18 "Closing Purchase Price" means the Estimated Purchase Price
as adjusted by the Purchase Price Adjustments.
2
1.19 "COBRA" means the Consolidated Omnibus Reconciliation Act of
1985, as amended.
1.20 "Code" means the Internal Revenue Code of 1986, as amended.
1.21 "Company" shall have the meaning set forth in the preamble
to this Agreement.
1.22 "Company Plan" shall have the meaning set forth in Section
7.5(c).
1.23 "Confidentiality Agreement" shall have the meaning set forth
in Section 9.12.
1.24 "Contracts" has the meaning set forth in Section 4.13(a).
1.25 "dollars" and "$" shall mean currency of the United States
of America.
1.26 "Domain Names" means the domain names ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇,
▇▇▇▇▇▇.▇▇▇, ▇▇▇▇▇.▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and ▇▇▇▇▇▇▇.▇▇▇ registered with Network
Solutions, Inc.
1.27 "Earn-out Objection Notice" shall have the meaning set forth
in Section 2.4(g).
1.28 "Earn-out Period" means the period beginning on the
Effective Time and ending on December 31, 2007.
1.29 "EBITDA" means the combined earnings from continuing
operations from the sale of Play Along Products before interest, income taxes,
depreciation and amortization of assets, each of such items calculated in
accordance with GAAP and on a basis consistent with the Financial Statements, of
(a) Sellers during the period commencing January 1, 2004 up to the Effective
Time and (b) Purchasers and its Affiliates during the period commencing as of
the Effective Time through December 31, 2004. For the avoidance of doubt, the
parties agree that, except as provided by Section 7.12(a), no adjustment shall
be made to EBITDA for any (i) one-time payment made by Sellers, Purchasers or
JAKKS to any licensor(s) under the Assumed Contracts in connection with
obtaining the consent of such licensor(s) to the assignment of one or more
Assumed Contracts to Purchasers pursuant to this Agreement, (ii) fees charged or
▇▇▇▇-ups added by JAKKS or its Affiliates to any expenses incurred by JAKKS or
its Affiliates with respect to the Play Along Business, or (iii) expenses
incurred by JAKKS or its Affiliates except for expenses directly related to the
Play Along Business that are incurred pursuant to Section 7.12. Further, the
parties agree that no adjustment shall be made to EBITDA as a result of any (i)
post-Closing adjustments made by Purchasers to Sellers' pre-Closing financial
accounting treatment of royalty advances, or (ii) the fees and expenses of
Sellers and Purchasers relating to the transactions contemplated by this
Agreement referred to in Section 9.9.
1.30 "Effective Date" shall have the meaning set forth in the
introductory paragraph.
3
1.31 "Effective Time" has the meaning set forth in Section 6.1.
1.32 "Employee Plan" shall have the meaning set forth in Section
4.18(b).
1.33 "Employment Agreement" has the meaning set forth in Section
6.2(g).
1.34 "Encumbrances" means any and all mortgages, pledges,
security interests, encumbrances, community property interests, conditions,
equitable interests, options, warrants, attachments, rights of first refusal,
preemptive, conversion, put, call or other claim or rights, restrictions on use,
voting, receipt of income, transfer (other than restrictions imposed by federal
and state securities laws) or exercise of any other attribute of ownership or
liens or charges of any kind or nature whatsoever.
1.35 "Environmental Laws" has the meaning set forth in Section
4.14(a).
1.36 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.37 "ERISA Affiliate" means any Person which, by reason of its
relationship with Sellers, is required to be aggregated with Sellers under
Sections 414(b), 414(c) or 414(m) of the Code, or which, together with Sellers,
is a member of a controlled group within the meaning of Section 4001(a) of
ERISA.
1.38 "Estimated Purchase Price" means the aggregate combined
value of the Cash Component payable at Closing and the JAKKS Shares to be
delivered at Closing.
1.39 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
1.40 "Excluded Assets" shall have the meaning set forth in
Section 2.1(b).
1.41 "Excluded Liabilities" shall have the meaning set forth in
Section 2.1(d).
1.42 "Financial Statements" shall have the meaning set forth in
Section 4.8(b).
1.43 "First Review Period Adjustment" shall have the meaning set
forth in Section 2.3(b).
1.44 "FTC" means the Federal Trade Commission.
1.45 "GAAP" means generally accepted accounting principles in
effect on the date hereof as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or as may be accepted generally by the accounting profession of
the United States.
4
1.46 "Government Entity" means any United States or foreign,
federal, state or local court or tribunal or administrative, governmental or
regulatory body, agency, commission, division, department, board, bureau, public
body, instrumentality or other authority.
1.47 "Hazardous Materials" shall have the meaning set forth in
Section 4.14(b).
1.48 "HK Assets" shall have the meaning set forth in Section
2.1(a)(i).
1.49 "HK Assumed Contracts" means the written or oral contracts,
leases, licenses, agreements, arrangements, commitments, instruments or
understandings included among the HK Assets.
1.50 "HK Assumed Obligations" shall have the meaning set forth in
Section 2.1(c)(i).
1.51 "HK Business" means the Play Along Business as conducted by
and through PA Hong Kong.
1.52 "HK Effective Date of Employment" shall have the meaning set
forth in Section 7.5(f).
1.53 "HK Financial Statements" shall have the meaning set forth
in Section 4.8(b).
1.54 "HK Hired Employees" shall have the meaning set forth in
Section 7.5(f).
1.55 "HK Offer Employee" shall have the meaning set forth in
Section 7.5(f).
1.56 "HK Purchase Price" means the amount of the Closing Purchase
Price allocated to the HK Assets in accordance with Section 7.4 hereof.
1.57 "HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
1.58 "Hong Kong SAR" shall have the meaning set forth in Section
4.18(c).
1.59 "Indemnified Party" shall have the meaning set forth in
Section 8.4(a).
1.60 "Indemnifying Party" shall have the meaning set forth in
Section 8.4(a).
1.61 "IRS" means U.S. Internal Revenue Service.
1.62 "JAKKS" shall have the meaning set forth in the introductory
paragraph.
1.63 "JAKKS Common Stock" means the common stock, par value $.001
per share, of JAKKS.
1.64 "JAKKS Guaranty" shall have the meaning set forth in Section
7.17(a).
5
1.65 "JAKKS HK" shall have the meaning set forth in the
introductory paragraph.
1.66 "JAKKS HK Scheme" shall have the meaning set forth in
Section 7.5(g)(i).
1.67 "JAKKS Preferred Stock" means the preferred stock, par value
$.001 per share, of JAKKS.
1.68 "JAKKS SEC Reports" shall have the meaning set forth in
Section 5.7.
1.69 "JAKKS Shares" means 749,005 shares of JAKKS Common Stock.
1.70 "JAKKS US" shall have the meaning set forth in the
introductory paragraph.
1.71 "▇▇▇" shall have the meaning set forth in the preamble to
this Agreement.
1.72 "Justice Department" means the United States Department of
Justice.
1.73 "Law" means any statute, rule, regulation or ordinance of
any Government Entity.
1.74 "▇▇▇▇▇▇▇▇" shall have the meaning set forth in the preamble
to this Agreement.
1.75 "Master MPF Scheme" means a master trust scheme registered
pursuant to Section 21 of the Mandatory Provident Fund Schemes Ordinance
(Chapter 485 of the Laws of Hong Kong).
1.76 "Material Adverse Change" or "Material Adverse Effect" means
a material adverse effect on or change in the business, assets, liabilities,
revenues, costs and expenses, income before provision for income taxes,
operations or condition, financial or otherwise, of Sellers taken as a whole or
JAKKS and its Affiliates taken as a whole, as the case may be. In determining
whether any individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such effect, a Material
Adverse Effect shall be deemed to have occurred if the cumulative effect of such
event and all other then existing events would result in a Material Adverse
Effect.
1.77 "Net Sales" means the invoiced amount of all Play Along
Products sold following the Effective Time, less the sum of all freight invoiced
to customers; sales taxes; credits for returns, shortages and trade discounts
and allowances, including defective and markdown allowances but specifically
excluding co-op and promotional allowances, all with respect to the Play Along
Products.
1.78 "Net Worth" means, on a combined basis, Sellers' total
assets less Sellers' total liabilities, determined in accordance with GAAP (or
accounting principles generally
6
accepted in Hong Kong in the case of PA Hong Kong) on a basis consistent with
that applied in prior periods.
1.79 "Net Worth Adjustment" shall have the meaning set forth in
Section 2.3(a)(i).
1.80 "New JAKKS HK Scheme" shall have the meaning set forth in
Section 7.5(g)(ii).
1.81 "Non-competition Agreement" means the non-competition
agreement, substantially in the form attached to this Agreement as Exhibit B.
1.82 "Notice of Claim" shall have the meaning set forth in
Section 8.4(a).
1.83 "OSHA" means the Occupational Safety and Health Act, as
amended, and the rules and regulations promulgated thereunder and any similar
Laws or regulations of any foreign, state or local jurisdiction.
1.84 "PA Distribution" shall have the meaning set forth in the
introductory paragraph.
1.85 "PA Hong Kong" shall have the meaning set forth in the
introductory paragraph.
1.86 "PA Hong Kong Scheme" means the mandatory provident fund
scheme of PA Hong Kong established under the HSBC Mandatory Provident Fund
SuperTrust, which is a Master MPF Scheme.
1.87 "Permits" means all franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances, and
other similar permits or rights obtained by Sellers from any Government Entity
and all pending applications therefor.
1.88 "Permitted Liens" mean (a) statutory liens for Taxes to the
extent that the payment thereof is not past due or to the extent the taxpayer is
contesting such Taxes in good faith through appropriate proceedings, (b)
statutory or common law liens to secure landlords, lessors or renters under real
or personal property leases or rental agreements to the extent that no payment
or performance under any such lease or rental agreement is in default, arrears
or is otherwise past due, (c) deposits or pledges made in connection with, or to
secure payment of, workers' compensation, unemployment insurance or old age
pension programs mandated under applicable Laws, (d) statutory or common law
liens in favor of carriers, warehousemen, mechanics and materialmen, statutory
or common law liens to secure claims for labor, materials or supplies and other
like liens, which secure obligations to the extent the payment thereof is not in
arrears or otherwise past due, and (e) other imperfections of title and
Encumbrances that do not, individually or in the aggregate, impair the continued
use and operation of the Assets.
1.89 "Person" means and includes an individual, a partnership, a
joint venture, an association, a corporation, a trust, an unincorporated
organization, a limited liability company or partnership, and a Government
Entity.
7
1.90 "Play Along Business" means the business of designing,
producing, marketing, selling and distributing Play Along Products as conducted
by the Sellers, comprising of the HK Business and the US Business.
1.91 "Play Along Products" means (i) Sellers' products as of the
Effective Date, together with any products that have been sold or marketed by
Sellers at any time prior to the Effective Date (unless such products are among
the Excluded Assets), (ii) any other products sold by Purchasers during the
Earn-out Period that are improvements to or modifications of such products,
(iii) new products developed, acquired or licensed by Purchasers during the
Earn-out Period (unless such products have been developed or acquired by JAKKS
and/or its Affiliates (other than Purchasers) or licensed from JAKKS and/or its
Affiliates (other than Purchasers); provided, that, JAKKS and Purchasers (acting
reasonably and in good faith) may agree that a percentage of sales and
corresponding expenses applicable to that product be included in Net Sales for
purposes of computing Purchasers' Adjusted Gross Profit or EBITDA, as the case
may be, in any Review Period) and (iv) any products sold by JAKKS and/or any of
its Affiliates pursuant to licenses that are Assumed Contracts or improvements
or modifications to such products or which are new products of Purchasers as
described in clause (iii) above or improvements or modifications to such new
products.
1.92 "Post-Closing Payment" shall have the meaning set forth in
Section 2.4(a).
1.93 "Post-Closing Statement" shall have the meaning set forth in
Section 2.4(f).
1.94 "Prime Rate" shall mean the rate of interest publicly
announced from time to time by Citibank, N.A., as its prime rate in effect at
its principal office in the City of New York.
1.95 "Product Liability" means a liability arising out of death,
personal injury or damage to property caused by a defective product or service.
1.96 "Purchase Price Adjustment" means the post-Closing
adjustment to the Estimated Purchase Price to be made pursuant to Section 2.3.
1.97 "Purchaser" means each of JAKKS HK and JAKKS US who,
collectively, shall be referred to herein as the "Purchasers."
1.98 "Real Property" shall have the meaning set forth in Section
4.7(a).
1.99 "Related Documents" shall have the meaning set forth in
Section 3.2.
1.100 "Registrar" means Network Solutions, Inc.
1.101 "Registration Rights Agreement" means the registration
rights agreement, substantially in the form attached to this Agreement as
Exhibit C, providing for the registration under the Securities Act of the JAKKS
Shares delivered at the Closing.
8
1.102 "Review Period" means each consecutive twelve (12) month
period ending on each of December 31, 2004, 2005, 2006 and 2007.
1.103 "SEC" means the U.S. Securities and Exchange Commission.
1.104 "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.105 "Seller" means each of the Company, PA Distribution and PA
Hong Kong which, collectively, shall be referred to herein as the "Sellers."
1.106 "Sellers' Review Period" shall have the meaning set forth
in Section 2.4(g).
1.107 "Stockholder" means each of ▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ who,
collectively, shall be referred to herein as the "Stockholders."
1.108 "Stockholders Guaranty" shall have the meaning set forth in
Section 7.17(b).
1.109 "Target Closing Net Worth" means $2,000,000.
1.110 "Taxes" means any and all taxes, levies or other like
assessments, charges or fees (including estimated taxes, charges and fees),
including, without limitation, income, corporation, add-on minimum, ad valorem,
advance corporation, gross receipts, transfer, excise, property, real estate
taxes and assessments, sales, use, value-added, license, payroll, employment,
severance, pay as you earn, withholding on amounts paid by or to the relevant
party, social security and franchise or other governmental taxes or charges,
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof; and such term shall include any interest,
penalties or additions to tax attributable to such taxes. Such term also shall
include any interest, fines or penalties levied as a result of failure to file a
Tax Return or the delinquent filing of any Tax Return.
1.111 "Tax Return" means any report, return, statement or other
written information required to be supplied to a taxing authority in connection
with Taxes.
1.112 "Third Party Claim" shall have the meaning set forth in
Section 8.4(b).
1.113 "Trade Right" means a patent, claim of copyright,
trademark, trade name, brand name, service ▇▇▇▇, logo, symbol, trade dress or
design, or representation or expression of any thereof, or registration or
application for registration thereof, or any other invention, trade secret,
technical information, know-how or other proprietary right or intellectual
property.
1.114 "US Assets" shall have the meaning set forth in Section
2.1(a)(ii).
1.115 "US Assumed Contracts" means the written or oral contracts,
leases, licenses, agreements, arrangements, commitments, instruments or
understandings included among the US Assets.
9
1.116 "US Assumed Obligations" shall have the meaning set forth
in Section 2.1(c)(ii).
1.117 "US Business" means the Play Along Business as conducted by
and through the Company and PA Distribution.
1.118 "US Effective Date of Employment" shall have the meaning
set forth in Section 7.5(a).
1.119 "US Financial Statements" shall have the meaning set forth
in Section 4.8(a).
1.120 "US Hired Employees" shall have the meaning set forth in
Section 7.5(a).
1.121 "US Offer Employee" shall have the meaning set forth in
Section 7.5(a).
1.122 "US Purchase Price" means the amount of the Closing
Purchase Price allocated to the US Assets in accordance with Section 7.4 hereof.
1.123 "Value of JAKKS Stock" means the average closing sale price
per share of JAKKS Common Stock as reported on the Nasdaq National Market over
the last twenty (20) trading days preceding (but not including) the Closing
Date.
1.124 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as amended.
2. Sale and Purchase of Assets.
2.1 Transfer of Assets. On the basis of the representations and
warranties of the parties and subject to the terms and conditions set forth in
this Agreement:
(a) Purchase and Sale of Assets. On the Closing Date, (i)
PA Hong Kong, as beneficial owner, agrees to, and the Stockholders agree to
cause PA Hong Kong to, sell and transfer to JAKKS HK, and JAKKS HK agrees to
purchase from PA Hong Kong all of the assets, properties, privileges, claims and
rights that are owned, used or held for use in connection with, or that are
otherwise related to or required for the conduct of, the HK Business, as a going
concern, of every kind, nature and description, wherever located, whether such
assets, properties and rights are real, personal or mixed, tangible or
intangible, whether or not any of such assets, properties, privileges, claims
and rights have any value for accounting purposes or are carried or reflected on
or specifically referred to in the HK Financial Statements, as such assets shall
exist on the Closing Date (the "HK Assets"), and (ii) the Company and PA
Distribution agree to, and the Stockholders agree to cause the Company and PA
Distribution to, sell and transfer to JAKKS US, and JAKKS US agrees to purchase
from the Company and PA Distribution all of the assets, properties, privileges,
claims and rights that are owned, used or held for use in connection with, or
that are otherwise related to or required for the conduct of, the US Business,
as a going concern, of every kind, nature and description, wherever located,
whether such assets, properties and rights are real, personal or mixed, tangible
or intangible, whether or not any of such assets, properties, privileges, claims
and rights have any value for accounting purposes or are carried or
10
reflected on or specifically referred to in the U.S. Financial Statements, as
such assets shall exist on the Closing Date (the "US Assets" and, together with
the HK Assets, the "Assets"), in the case of all such Assets, free and clear of
all Encumbrances except for Permitted Liens, excluding the Excluded Assets (as
defined in Section 2.1(b) below), such purchase and sale being deemed to be
effective at the Effective Time, including the following:
(i) all tangible assets and properties owned, used
or held for use by Sellers, including machinery and equipment, tools, furniture,
office equipment, furnishings and fixtures and machinery and equipment under
order or construction;
(ii) all inventories, including finished goods,
work-in-progress, raw materials, accessories, packaging, manufacturing,
administrative and other supplies on hand, goods held for sale or to be
furnished under the Assumed Contracts and other inventories owned, used or held
for use by Sellers in connection with the Play Along Products;
(iii) all cash, cash equivalents, investments,
investment securities and certificates of deposit of Sellers;
(iv) all billed and unbilled accounts receivable
and all notes receivable of Sellers;
(v) all credits, prepaid expenses, deferred
charges, advance payments, security deposits and deposits owned, used or held
for use by Sellers;
(vi) all Trade Rights, including the name "Play
Along";
(vii) all Domain Names of Sellers;
(viii) all websites of Sellers and all related
property technologies and other related assets;
(ix) any and all written or oral contracts, leases,
licenses, agreements, arrangements, commitments, instruments or understandings
pertaining to the Assets;
(x) all Permits;
(xi) all of Sellers' books, records, ledgers,
files, documents (including originally executed copies of written contracts,
customer and supplier lists (past, present or future), correspondence,
memoranda, forms, lists, plats, architectural plans, drawings and
specifications, copies of documents evidencing Trade Rights, new product
development materials, creative materials, advertising and promotional
materials, studies, reports, sales and purchase correspondence, books of account
and records relating to the employees, photographs, quality control records and
procedures, equipment maintenance records, manuals and warranty information,
research and development files, in each case, whether in hard copy, electronic
or magnetic format;
(xii) all rights or choses in action arising out of
occurrences before or after the Closing Date, including third party warranties
and guarantees and all related
11
claims, credits, rights of recovery and set-off and other similar contractual
rights, as to third Persons held by or in favor of Sellers; and
(xiii) all rights to insurance and condemnation
proceeds relating to the damage, destruction, taking or other impairment of the
Assets or the Play Along Business.
(b) Excluded Assets. Anything to the contrary in Section
2.1(a) notwithstanding, the Assets shall exclude and the Purchasers shall not
purchase any assets, properties, privileges, claims and rights, if any, of
Sellers identified on Schedule 2.1(b) (collectively, the "Excluded Assets").
(c) Assumed Obligations.
(i) Effective as of the Effective Time, PA Hong
Kong shall assign, and the Stockholders shall cause PA Hong Kong to assign, and
JAKKS HK shall assume and agree to discharge as of the Effective Time, only the
following liabilities and obligations (collectively, the "HK Assumed
Obligations") in respect of the HK Business:
(A) All liabilities of PA Hong Kong
reflected on the Closing Balance Sheet and all current liabilities of PA Hong
Kong incurred in the ordinary course of business since March 31, 2004; and
(B) All other obligations listed on Schedule
2.1(c)(i)(B) or Sellers' other disclosure schedules to this Agreement, except as
those obligations may relate to the Excluded Assets or to liabilities and/or
obligations that are specifically excluded under this Agreement and/or the
schedules hereto.
(ii) Effective as of the Effective Time, the
Company and PA Distribution shall assign, and the Stockholders shall cause the
Company and PA Distribution to assign, and JAKKS US shall assume and agree to
discharge as of the Effective Time, only the following liabilities and
obligations (collectively, the "US Assumed Obligations") in respect of the US
Business:
(A) All liabilities of the Company and PA
Distribution reflected on the Closing Balance Sheet and all current liabilities
of the Company and PA Distribution incurred in the ordinary course of business
since March 31, 2004; and
(B) All other obligations listed on Schedule
2.1(c)(ii)(B) or Sellers' other disclosure schedules to this Agreement, except
as those obligations may relate to the Excluded Assets or to liabilities and/or
obligations that are specifically excluded under this Agreement and/or the
schedules hereto.
(d) Excluded Liabilities. Notwithstanding anything to the
contrary contained herein, Sellers shall retain and not assign and Purchasers
shall not assume any debts, obligations or liabilities of Sellers (A) not
expressly assumed pursuant to Section 2.1(c) hereof or (B) expressly excluded in
the schedules to this Agreement (collectively, the "Excluded Liabilities"). The
Stockholders and Sellers shall continue to be obligated to pay, perform and
12
discharge the Excluded Liabilities and shall hold Purchasers and JAKKS and their
respective Affiliates harmless from such Excluded Liabilities. Notwithstanding
anything to the contrary contained in this Agreement or in the schedules hereto,
the Excluded Liabilities shall include:
(i) To the extent not reflected on the Closing
Balance Sheet or disclosed on Schedule 4.9, all current and long-term debt of
Sellers existing as of the Closing;
(ii) All general liability for Actions commencing
prior to the Effective Time that are not reflected on the Closing Balance Sheet
or disclosed on Schedule 4.17 if the facts underlying the Action constitute a
breach of a representation or warranty made under this Agreement;
(iii) To the extent not reflected on the Closing
Balance Sheet or disclosed on Schedules 4.18(a), (b) or (c), all obligations or
liabilities (including liabilities or obligations under ERISA or COBRA that may
result from any inaccuracy, misrepresentation or breach of the representations
and warranties contained in Section 4.18), in respect of any employee pension or
benefit plan or program (including any Employee Plan), except as such
obligations and liabilities pertain to the HK Assumed Contracts, the Company
Plan or any other Employee Plan assumed by JAKKS US pursuant to Section 7.5(d),
or any obligations or liabilities to AdvanTech as set forth in Section 7.5(f);
(iv) Any environmental liabilities, conditions or
obligations that arise from Sellers' disposal or release of any Hazardous
Materials on, at or underlying Sellers' Real Property prior to the Effective
Time or that Sellers have knowledge of with respect to the Real Property or to
Sellers' knowledge, any other real property that any Seller or any of its
Affiliates directly or indirectly owns, leases or occupies or in respect of
which such Person has any interest or contingent interest;
(v) To the extent not reflected on the Closing
Balance Sheet or disclosed on Schedules 4.18(a), (b) or (c) or otherwise
pertaining to the Assumed Contracts, all obligations or liabilities in respect
of any employees, consultants, agents, contractors or advisors pursuant to any
oral or written consulting, employment, agency, independent contractor, change
in control, severance or similar agreement or arrangement, accrued sick leave or
paid-time off obligations; and
(vi) To the extent not reflected on the Closing
Balance Sheet or otherwise disclosed on Schedule 4.11(a), any liability for
Taxes, whether or not accrued, assessed or currently due and payable, of the
Stockholders or Sellers, whether or not related to the ownership or use of the
Assets for the purposes of or so accruing, being asserted, or becoming due in
respect of or in connection with the Play Along Business, for any Tax period (or
portion thereof) ending on or prior to the Closing Date, including any liability
of the Stockholders or Sellers as members of an affiliated group pursuant
Treasury Regulation Section 1502-6(a) of the Code.
2.2 Closing Payments. On the Closing Date and in partial
consideration for the Assets, Purchasers shall distribute the Cash Component of
the Estimated Purchase Price by means of wire transfers of immediately available
funds by 2:00 p.m., New York City time
13
directly to Sellers, with each Seller receiving that percentage of the Cash
Component as is set forth on Schedule 2.2, which percentage corresponds to the
percentage that the HK Assets or US Assets, as the case may be, represent of the
Assets in their entirety based on the purchase price allocation agreed to by the
parties and set forth on Schedule 6.2(l) hereto.
2.3 Purchase Price Adjustments.
(a) Net Worth Adjustment.
(i) Within forty-five (45) days after the Closing
Date, Sellers' shall provide to Purchasers and JAKKS at Sellers' expense (A)
Sellers' combined balance sheet, prepared in a manner consistent with the
Financial Statements, as of the close of business on the Closing Date (the
"Closing Balance Sheet"), (B) a statement of the legal and accounting expenses
relating to the transactions contemplated by this Agreement paid by (or to be
paid by) Sellers' in connection with the Closing or the determination of the Net
Worth Adjustment, (C) a statement of Sellers' combined Net Worth, prepared in a
manner consistent with the Financial Statements, as of the close of business on
the Closing Date (the "Closing Net Worth"), (D) based on the foregoing item, a
computation of the difference, if any, between Sellers' Closing Net Worth and
the Target Closing Net Worth, and (E) a computation of the Closing Purchase
Price as determined by Sellers in accordance with this Section 2.3(a) (the "Net
Worth Adjustment").
(ii) Purchasers shall provide Sellers, their
respective accountants and other personnel preparing the Closing Balance Sheet
and statement of Sellers' Closing Net Worth with access at Purchasers' principal
offices, at all times upon reasonable notice during normal business hours, to
Purchasers' personnel, properties, and books and records pertaining to the
Assets for purposes of preparing the Closing Balance Sheet and Closing Net Worth
statement. Purchasers and JAKKS shall have the right to audit the preparation of
the Closing Balance Sheet and/or Closing Net Worth statement, and shall have
reasonable access to the workpapers of the accountants and other personnel of
Sellers preparing the Closing Balance Sheet and statement of Sellers' Closing
Net Worth. During the thirty (30) days immediately following the receipt by
Purchasers and JAKKS of the items set forth in Section 2.3(a)(ii), Purchasers
and JAKKS and their respective accountants shall be entitled to review such
items and any working papers, trial balance and similar materials relating
thereto prepared by Sellers, their accountants or other personnel.
(iii) (A) If Purchasers or JAKKS do not accept the
Closing Balance Sheet or Sellers' computation of the Closing Purchase Price
and/or the Net Worth Adjustment (including any entries, figures or computations
on the Closing Balance Sheet, Closing Net Worth statement and any other figures
or computations used in determining the Closing Purchase Price or the Net Worth
Adjustment), Purchasers shall give written notice to Sellers within thirty (30)
days after delivery thereof. Notwithstanding the foregoing or anything contained
herein to the contrary, to the extent that Purchasers or JAKKS require
additional written documentation and information that is reasonably necessary
for them to evaluate Sellers' computation of the Closing Purchase Price and/or
the Net Worth Adjustment, Purchasers' and JAKKS' review period shall be extended
for an additional ten (10) business days from their receipt of such additional
written documentation and information. The notice shall set forth in
14
reasonable detail the basis for Purchasers' and JAKKS's objections to the
Closing Balance Sheet, Closing Purchase Price and/or the Net Worth Adjustment.
(B) If Purchasers or JAKKS do not object
within such thirty (30) day period, the Closing Balance Sheet, Closing Purchase
Price and the Net Worth Adjustment shall be deemed accepted and approved by
Purchasers and JAKKS. If Purchasers or JAKKS shall raise any objections within
the thirty (30) day period, the parties shall attempt to resolve the matter or
matters in dispute. If the matters in dispute cannot be resolved by the parties
within sixty (60) days after delivery of Purchasers' or JAKKS' objections, the
specific matters in dispute shall be submitted to BDO ▇▇▇▇▇▇▇, LLP (the
"Arbitrating Accountants"), which firm shall make a final and binding
determination as to such matter or matters. The Arbitrating Accountants shall
deliver to the parties their written determination regarding the matters
submitted to them within sixty (60) days, which determination shall be binding
and conclusive upon all parties with respect to the Closing Balance Sheet and
calculation of the Closing Purchase Price and/or the Net Worth Adjustment. Any
such determination shall not require Sellers to alter the Financial Statements.
(C) Fees and expenses of the Arbitrating
Accountants shall be paid 50% by the Purchasers and 50% by Sellers.
(iv) If Sellers' Closing Net Worth is less than the
Target Closing Net Worth, then Sellers shall pay Purchasers the excess of the
Target Closing Net Worth over the Closing Net Worth. If Sellers fail to make any
payment required by this clause (iv) within the time frame established by
Section 2.3(c) below, then Sellers also shall pay interest at the Prime Rate on
the amount of such payment for the period from the date such payment was due
through (but excluding) the actual date of such payment to Purchasers.
(b) First Review Period Adjustment.
(i) If during the 2004 Review Period of the
Earn-out Period, Purchasers do not achieve Adjusted Gross Profit equal to at
least 110% of the Base, then JAKKS, on behalf of Purchasers, shall be entitled
to claim and receive from Sellers and Stockholders (on a joint and several
basis) as an adjustment to the Estimated Purchase Price (the "First Review
Period Adjustment" and, together with the Net Worth Adjustment, the "Purchase
Price Adjustments") an amount equal to the amount that corresponds to the
difference expressed as a percentage between Adjusted Gross Profit attained
during the 2004 Review Period and the Base as set forth on the following Table;
provided, that, in no event shall the First Review Period Adjustment paid to
JAKKS exceed $10.0 million.
--------------------------------------------------------------------------------
FIRST REVIEW PERIOD (CALENDAR YEAR 2004)
--------------------------------------------------------------------------------
FIRST REVIEW PERIOD
ADJUSTED GROSS PROFIT ADJUSTMENT AMOUNT
--------------------------------------------------------------------------------
equal to or greater than 110% of the Base $0
--------------------------------------------------------------------------------
less than 110% of the Base but equal to or greater than 109%
of the Base $2,000,000
--------------------------------------------------------------------------------
less than 109% of the Base but equal to or greater than 108%
of the Base $3,000,000
--------------------------------------------------------------------------------
less than 108% of the Base but equal to or greater than 107%
of the Base $4,000,000
--------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
FIRST REVIEW PERIOD (CALENDAR YEAR 2004)
--------------------------------------------------------------------------------
FIRST REVIEW PERIOD
ADJUSTED GROSS PROFIT ADJUSTMENT AMOUNT
--------------------------------------------------------------------------------
less than 107% of the Base but equal to or greater than 106%
of the Base $5,000,000
--------------------------------------------------------------------------------
less than 106% of the Base but equal to or greater than 105%
of the Base $6,000,000
--------------------------------------------------------------------------------
less than 105% of the Base but equal to or greater than 104%
of the Base $7,000,000
--------------------------------------------------------------------------------
less than 104% of the Base but equal to or greater than 103%
of the Base $8,000,000
--------------------------------------------------------------------------------
less than 103% of the Base but equal to or greater than 102%
of the Base $9,000,000
--------------------------------------------------------------------------------
less than 102% of the Base $10,000,000
--------------------------------------------------------------------------------
(ii) The procedures set forth in Section 2.4(g)
through (i) below shall control in the event of any disagreement among the
parties over the Post-Closing Statement delivered by Purchasers for the 2004
Review Period and Purchasers' calculation of the First Review Period Adjustment.
(c) Payment of Purchase Price Adjustments. Any payment
pursuant to this Section 2.3 shall be made by Sellers within five (5) business
days after acceptance of any Purchase Price Adjustment by the parties or, in the
case of written notice of objection by Purchasers or Sellers, as the case may
be, within five (5) business days after any Purchase Price Adjustment is finally
determined as provided above. In the event Sellers fail to make any payments
required under this Section 2.3, Purchasers shall have the right to set-off the
amounts owing against any Post-Closing Payment payable to Sellers hereunder.
2.4 Earn-out.
(a) If, during the 2004 Review Period of the Earn-out
Period, EBITDA equals at least $41.0 million, Purchasers shall pay Sellers an
amount (each a "Post-Closing Payment" and, collectively, the "Post-Closing
Payments") equal to one-half of the dollar amount of EBITDA attained during the
2004 Review Period in excess of $41.0 million; provided, that, in no event shall
any Post-Closing Payment for calendar 2004 exceed $10.0 million. Sellers
acknowledge and agree that if a Post-Closing Payment is made by Purchasers for
the 2004 Review Period, the dollar amounts payable for the remainder of the
Earn-out Period shall be adjusted such that for each subsequent Review Period,
the maximum Post-Closing Payment payable shall equal 1/3rd of the difference
between $30.0 million and the amount of the 2004 Post-Closing Payment, with a
corresponding percentage reduction in the payments payable at each of the lower
thresholds of each remaining Review Period. For example, if in the 2004 Review
Period EBITDA of $65.0 million is achieved and Sellers therefore receive a $10.0
million Post-Closing Payment, the maximum Post-Closing Payment for each
subsequent Review Period would be $6,666,667 and the payments for each of the
lower thresholds would be reduced on a corresponding percentage basis, such that
the lowest Post-Closing Payment payable to Sellers would be $1,333,333. If
instead, however, EBITDA for the 2004 Review Period is only $49.0 million and
Sellers therefore receive a Post-Closing Payment of $4.0 million for the First
Review Period, the maximum Post-Closing Payment for each of the following Review
Periods would be $8,666,667 and the payments for each of the lower thresholds
would be reduced on a
16
corresponding percentage basis, such that the lowest Post-Closing Payment
payable to Sellers would be $1,733,333.
(b) If, during the 2005 Review Period of the Earn-out
Period, Adjusted Gross Profit with respect to the Play Along Products is equal
to at least 112% of the Base, Purchasers shall pay Sellers a Post-Closing
Payment equal to the amount that corresponds to the aggregate percentage
increase in Adjusted Gross Profit from the Base attained during the 2005 Review
Period as set forth on Table A of Schedule 2.4.
(c) If, during the 2006 Review Period of the Earn-out
Period, Adjusted Gross Profit with respect to the Play Along Products is equal
to at least 122% of the Base, Purchasers shall pay Sellers a Post-Closing
Payment equal to the amount that corresponds to the aggregate percentage
increase in Adjusted Gross Profit from the Base attained during the 2006 Review
Period as set forth on Table B of Schedule 2.4.
(d) If, during the 2007 Review Period of the Earn-out
Period, Adjusted Gross Profit with respect to the Play Along Products is equal
to at least 132% of the Base, Purchasers shall pay Sellers a Post-Closing
Payment equal to the amount that corresponds to the aggregate percentage
increase in Adjusted Gross Profit from the Base attained during the 2007 Review
Period as set forth on Table C of Schedule 2.4.
(e) Subject to the completion of the Sellers' Review
Period and any exercise by Purchasers of their set-off rights described in
Section 2.3(c) above, each Post-Closing Payment shall be made within ninety (90)
days after the end of the applicable Review Period triggering Purchasers'
obligations hereunder and shall be payable by wire transfer to Sellers in
accordance with the written instructions of Sellers previously given to
Purchasers pursuant to Section 2.2. For the avoidance of doubt, if it is
reasonably likely that the Sellers' Review Period will extend beyond ninety (90)
days after the end of the applicable Review Period, then Purchasers within such
ninety (90) day period shall pay that portion of a Post-Closing Payment that is
not disputed by Purchasers and Sellers. Subject to Purchasers' set-off rights
described in Section 2.3(c) above, if Purchasers fail to make any Post-Closing
Payment (or undisputed portion thereof) within the time frame established above,
then Purchasers also shall pay interest at the Prime Rate on the amount of such
Post-Closing Payment (or undisputed portion thereof) for the period from the
date such payment was due through (but excluding) the actual date of such
payment to Sellers. In no event shall Purchasers or JAKKS be obligated to make
Post-Closing Payments aggregating in excess of Thirty Million Dollars
($30,000,000) plus any late payment interest that may have accrued as referred
to above, and payment of the foregoing amount by Purchasers pursuant to the
terms hereof shall relieve Purchasers and JAKKS of any further obligations under
this Section 2.4.
(f) Within sixty (60) days following the end of each
Review Period during the Earn-out Period, Purchasers shall (i) prepare or cause
to be prepared a statement setting forth the EBITDA or Adjusted Gross Profit, as
the case may be, which shall be calculated in accordance with GAAP, for that
Review Period and the percentage increase in Adjusted Gross Profit from the Base
for that Review Period (each a "Post-Closing Statement") and (ii) deliver or
cause to be delivered to Sellers the Post-Closing Statement.
17
(g) During the ten (10) business days immediately
following the receipt by Sellers of a Post-Closing Statement (the "Sellers'
Review Period"), Sellers and their respective accountants and attorneys shall be
entitled to review such items and any working papers, trial balance and similar
materials relating thereto prepared by Purchasers, their accountants or other
personnel. Notwithstanding the foregoing, to the extent that Sellers require
additional written documentation and information that is reasonably necessary
for Sellers to evaluate a Post-Closing Statement, the Sellers' Review Period
shall be extended for an additional ten (10) business days from Sellers' receipt
of such additional written documentation and information. If Sellers in good
faith disagree with any Post-Closing Statement, Sellers may deliver to
Purchasers, within the Sellers' Review Period, a notice (the "Earn-out Objection
Notice") setting forth in reasonable detail (i) the amounts with which Sellers
disagree and the basis for such disagreement and (ii) Sellers' proposed
corrections to the Post-Closing Statement. Sellers shall be deemed to have
agreed with all amounts contained in the Post-Closing Statement to which no
specific objection has been made. If Sellers do not deliver an Earn-out
Objection Notice prior to the expiration of Sellers' Review Period, Sellers
shall be deemed to agree in all respects with Purchasers' calculation of the
Adjusted Gross Profit and the percentage increase in Adjusted Gross Profit from
the Base for that Review Period, and those respective amounts and percentages as
set forth in the Post-Closing Statement shall be final and binding upon Sellers
and Purchasers.
(h) If an Earn-out Objection Notice is properly and timely
delivered, Sellers and Purchasers shall negotiate in good faith with each other
to resolve the disputed amounts set forth in the Earn-out Objection Notice. If
the parties are unable to resolve the disputed amounts set forth in the Earn-out
Objection Notice within five (5) calendar days after Sellers' delivery of the
Earn-out Objection Notice to Purchasers, the parties shall cause the Arbitrating
Accountants to promptly review this Agreement and the disputed amounts in the
Post-Closing Statement for the purpose of calculating the Adjusted Gross Profit
and the percentage increase in Adjusted Gross Profit from the Base for that
Review Period. In making any such calculations, the Arbitrating Accountants
shall consider only those amounts in the Post-Closing Statement as to which the
Stockholders' Representative has, in the Earn-out Objection Notice, disagreed.
(i) The Arbitrating Accountants shall deliver to Sellers
and Purchasers, as promptly as practicable, but no later than five (5) calendar
days after the Arbitrating Accountants are engaged, a written report setting
forth its calculation of the disputed amounts and percentages. Upon such
delivery, such report and the calculations set forth therein shall be final and
binding upon Sellers and Purchasers. The cost of such review and report shall be
borne equally by Sellers and Purchasers.
2.5 Certain Adjustments. Notwithstanding anything set forth in
this agreement, computations made to determine the Post-Closing Payments under
Section 2.4, "Net Worth", "EBITDA", "Net Sales", "Closing Net Worth" and "Target
Closing Net Worth" shall not include expenses relating to (i) bonuses that are
disclosed on Schedule 4.10 paid to any employees of Sellers (including the
Stockholders); or (ii) post-closing adjustment made by Purchasers to Sellers'
pre-closing financial accounting treatment of royalty advances or other funds
expended by Sellers in the ordinary course of business.
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3. Representations and Warranties of the Stockholders. The Stockholders,
jointly and severally, represent and warrant to Purchasers and JAKKS as follows:
3.1 Ownership. Each Stockholder holds of record and owns
beneficially that number of shares of capital stock in each Seller set forth
opposite his name on Schedule 3.1, free and clear of any Encumbrances. Except as
set forth on Schedule 3.1, no Stockholder is a party to any voting trust, proxy,
or other agreement, commitment or understanding with respect to the voting,
dividend rights or disposition of any shares of capital stock of any Seller.
3.2 Sellers' Authority. Each Stockholder has the power and
authority to execute and deliver this Agreement and all other agreements,
documents, certificates and instruments required to be executed and delivered
pursuant hereto (collectively, the "Related Documents") by him and to perform
his respective obligations contemplated by this Agreement and the Related
Documents. This Agreement and each Related Document to which any Stockholder is
a party have been duly executed and delivered by each Stockholder and this
Agreement and those Related Documents constitute the valid, binding and
enforceable obligations of the Stockholders, subject to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally, from time to time, in effect and to general equitable
principles.
3.3 Consents and Approvals. No filing with, and no permit,
authorization, license, consent or approval of, any Government Entity or any
other Person, other than the FTC and Justice Department under the HSR Act, is
necessary for the execution, delivery and performance of this Agreement or the
Related Documents by any Stockholder and the consummation of the transactions
contemplated by this Agreement and the Related Documents.
3.4 No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement or any Related Document by any Stockholder, nor
the consummation by any Stockholder of the transactions contemplated hereby or
thereby, nor compliance by the Stockholders with any of the provisions hereof or
thereof, will (i) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, vesting, payment, exercise, acceleration,
suspension, revocation or modification) under, any of the terms, conditions or
provisions of any note, credit agreement, bond, mortgage, deed of trust,
security interest, indenture, lease, license, contract, agreement, plan or other
instrument or obligation to which any Stockholder is a party or by which he or
any of his properties or assets may be bound or affected, or (ii) violate any
judgment, order, writ, injunction, decree, statute, rule or regulation
applicable to any Stockholder or any of his properties or assets, except for
such violations, breaches, defaults, or rights of termination, cancellation,
acceleration, creation, imposition, suspension, revocation or modification as to
which requisite waivers or consents have been obtained prior to Closing and
copies of which have been delivered to Purchasers.
3.5 Litigation. There is no Action pending or, to the knowledge
of any Stockholder, threatened against or affecting any Stockholder, that could
reasonably be expected to impair his ability to perform his obligations
hereunder or under the Related Documents or the transactions contemplated by
this Agreement and the Related Documents.
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3.6 Investment Representation. Each Stockholder is an "accredited
investor" within the definition set forth in Rule 501(a) under the Securities
Act. Any JAKKS Shares acquired by the Stockholders following the distribution of
same by Sellers shall be acquired by the Stockholders for their own account, for
investment and not with a view to, or in connection with, or with any present
intention of, any resale or other disposition thereof.
4. Representations and Warranties of the Stockholders and Sellers
concerning Sellers and the Play Along Business. The Stockholders and Sellers,
jointly and severally, represent and warrant to Purchasers and JAKKS as follows
concerning Sellers and the Play Along Business:
4.1 Organization, Existence and Corporate Authority. Each Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it was incorporated or organized and has the
corporate power and authority and all necessary government licenses, permits,
authorizations and approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted and has been conducted over
the past twelve (12) months. Each Seller is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified, individually or in the aggregate, would not have a Material
Adverse Effect.
4.2 Capitalization; Ownership of Other Entities. Schedule 4.2
sets forth the designations and numbers of all authorized and outstanding
capital stock, equity securities, membership interests or other securities of
each Seller, together with the name of the holder of record of such capital
stock, equity interests, membership interests or other securities. Except for
the securities set forth on Schedule 4.2, no Seller has any capital stock or
other equity securities outstanding. Except as set forth on Schedule 4.2, there
are no subscriptions, options, warrants, preemptive rights, or other rights of
any kind to purchase or otherwise receive (upon conversion, exchange or
otherwise) any capital stock or other equity securities of any Seller. Except as
set forth on Schedule 4.2, no Seller is a party to any voting trust, proxy or
other agreement, commitment or understanding with respect to the voting,
dividend rights or disposition of any of its respective capital stock or
membership interests. Sellers do not own, and do not have any agreements,
commitments or understandings to acquire, any capital stock or other securities
or any direct or indirect equity or ownership interest in any other Person.
4.3 Consents and Approvals. Except as set forth on Schedule 4.3,
no filing with, and no permit, authorization, license, consent or approval of,
any Government Entity or any other Person, other than the FTC and Justice
Department under the HSR Act, is necessary for the execution, delivery and
performance of this Agreement or the Related Documents by any Seller and the
consummation of the transactions contemplated by this Agreement and the Related
Documents.
4.4 No Conflict. Except as set forth on Schedule 4.4, neither the
execution, delivery or performance of this Agreement or any Related Document,
nor the consummation of the transactions contemplated hereby or thereby, (i)
conflicts with or results in any breach of any provisions of the articles of
incorporation, bylaws or other comparable governing document of
20
any Seller, (ii) results in a violation or breach of, or constitutes (with or
without due notice or lapse of time or both) a default (or gives rise to any
right of termination, cancellation, vesting, payment, exercise, acceleration,
suspension, revocation or modification) under, any of the terms, conditions or
provisions of any note, credit agreement, bond, mortgage, deed of trust,
security interest, indenture, Contract, plan or other obligation to which any
Seller is a party or by which any of their respective properties or assets may
be bound or affected, (iii) violates any order, writ, injunction, decree or Law
applicable to Sellers or any of their respective properties or assets, (iv)
results in the creation or imposition of any Encumbrance on any asset of
Sellers' or (v) causes the suspension, revocation or modification of any permit,
license, governmental authorization, consent or approval necessary for any
Seller to conduct its business as currently conducted and as conducted over the
past twelve (12) months, except, in the case of clauses (ii), (iii), (iv) and
(v), for such violations, breaches, defaults or rights of termination,
cancellation, acceleration, creation, imposition, suspension, revocation or
modification as to which requisite waivers or consents have been obtained by
each Seller, as applicable, on or prior to Closing and copies of which have been
delivered to Purchaser.
4.5 Extent of Assets. The Assets include, without limitation, all
of the real (immovable) and personal (movable) property, intangible
(incorporeal) property, rights and other assets of every kind and nature
whatsoever owned, leased or used by Sellers for the conduct of the Play Along
Business as currently conducted and as conducted during the past twelve (12)
months, excluding the Excluded Assets. The Assets, excluding the Excluded
Assets, constitute all the Assets necessary or desirable to design, produce,
manufacture, market, sell or distribute the Play Along Products. Sellers are the
legal and beneficial owners or lessees, as the case may be, of the Assets free
and clear of all Encumbrances other than the Permitted Liens and Sellers have
the full right, power and authority to sell, transfer, assign, convey and
deliver all of the Assets to Purchasers.
4.6 Personal Property.
(a) Schedule 4.6(a) sets forth with respect to the Assets
and the Play Along Products (i) all items of personal property owned by Sellers,
except for items having an original cost of less than $10,000, and (ii) all
leases of personal property of Sellers, except where the aggregate annual rental
value of that lease is less than $17,500. Sellers have good and valid title to
all of the personal property purported to be owned by them free and clear of all
Encumbrances, except Permitted Liens. Sellers have delivered or made available
to Purchasers and JAKKS true and complete copies of all leases and other
agreements or documents affecting the personal property leased by Sellers and
pertaining to the Assets and the production of the Play Along Products, all of
which are valid and binding agreements of Sellers.
(b) Each item of personal property owned or leased by
Sellers, including all equipment which is currently used in the Play Along
Business and production of the Play Along Products is in Sellers' possession and
taking into account the age of such equipment, is in reasonably satisfactory
operating condition and repair, adequate for the uses and purposes for which it
is being used or intended, and is available for immediate use in the operation
of the Play Along Business, and, except as would be natural taking into account
the age of such equipment, none of such equipment requires maintenance or
repairs other than ordinary, routine maintenance and repairs.
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4.7 Title to Real Property.
(a) Schedule 4.7(a) lists all real property currently
owned or leased by Sellers and indicates all such real property to be conveyed
or assigned to Sellers by another Person prior to the Closing (the "Real
Property"). The Real Property is the only real property used in the operation of
the Play Along Business and none of the Real Property is owned by Sellers,
Stockholders or any of their respective Affiliates. Except as set forth on
Schedule 4.7(a), the sale of the Assets to Purchasers and the consummation of
the transactions contemplated by this Agreement do not require the consent of
any of the landlords under the Real Property.
(b) Sellers have delivered to Purchasers true and correct
copies of all leases, together with all amendments and modifications thereof,
listed in Schedule 4.7(a), all of which are binding on Sellers, and with respect
to which Sellers, are current in their rent payments and are not otherwise in
default in any material respect.
(c) Sellers' present use of the Real Property is in
substantial conformity with all applicable Laws and with all deed restrictions,
and no Seller has received any notice of violation or alleged violation thereof.
(d) There are no material capital expenditures required to
be made by Purchasers in connection with the Real Property in order to comply
with all applicable Laws. No portion of the Real Property has suffered any
damage by fire or other casualty which heretofore has not been repaired or
restored and fully paid-for.
(e) All requisite certificates of occupancy and other
licenses, permits or authorizations with respect to the buildings, structures,
facilities (including any improvements thereto) on the Real Property and the
occupancy and use thereof have been obtained and are currently in effect.
(f) There are reasonable means of ingress and egress from
public roads to each parcel of Real Property.
(g) The Real Property has access to such Utilities as are
necessary for such property's occupation and use for the Play Along Business.
4.8 Financial Statements.
(a) Sellers have delivered to Purchasers copies of the
Company's and PA Distribution's respective audited financial statements for the
fiscal years ended March 3l, 2003 and December 3l, 2003 as well as the Company's
and PA Distribution's respective unaudited balance sheets and related unaudited
statements of profit and loss and changes in stockholders' equity for their most
recently completed fiscal quarters (collectively, the "US Financial
Statements"). The U.S. Financial Statements are attached hereto as Schedule
4.8(a). The US Financial Statements were prepared in accordance with the books
and records of the Company and PA Distribution, fairly present in all material
respects their respective financial position and results of operations at and
for the periods indicated, and were prepared in accordance with GAAP applied
consistently with prior periods except as otherwise noted in
22
footnotes to the US Financial Statements (subject, in the case of unaudited
statements, to year-end adjustments and to the absence of footnotes).
(b) Sellers have delivered to Purchasers copies of PA Hong
Kong's audited financial statements for the fiscal years ended March 3l, 2002
and December 3l, 2003, as well as PA Hong Kong's unaudited balance sheet and
related unaudited statement of profit and loss and changes in stockholders'
equity for its most recently completed fiscal quarter (collectively, the "HK
Financial Statements" and together with the US Financial Statements, the
"Financial Statements"). The HK Financial Statements are attached hereto as
Schedule 4.8(b). The HK Financial Statements show a true and fair view in all
material respects of the state of affairs of PA Hong Kong as at such dates and
the results of PA Hong Kong for the financial years ended on such dates and have
been prepared and audited in accordance with the standards, principles and
practices specified in the HK Financial Statements applied on a consistent basis
and subject thereto in accordance with the law and applicable accounting
standards, principles and practices generally accepted in Hong Kong and have
been prepared on a basis consistent with the basis upon which all audited
Financial Statements of PA Hong Kong have been prepared in respect of the three
years ended December 31, 2003.
(c) Sellers' revenues received from the Care Bears(R), Cat
In The Hat(R), Curly Qs(TM), Teletubbies(R), Lord of the Rings(R) and The Dog(R)
product lines for each of the twelve month periods ended March 31, 2002 and
March 31, 2003, the nine month period ended December 31, 2003 and the three
month period ended March 31, 2004 are as stated in the deliverable furnished to
Purchasers at Closing pursuant to Section 6.2(r).
4.9 Indebtedness; Undisclosed Liabilities; Adverse Factors.
Schedule 4.9 sets forth all of Sellers' outstanding indebtedness for borrowed
money, whether secured or unsecured. Except as set forth on Schedule 4.9, no
Seller is a party to any loan agreement or the maker or obligor under any
promissory note or other similar undertaking, including, without limitation, any
guaranty, for the repayment of borrowed money or the performance of any other
obligation. Sellers have no liabilities of any kind whatsoever, either accrued,
absolute, contingent, determined or determinable or otherwise, and to Sellers'
and Stockholders' knowledge no existing condition, situation or set of
circumstances has occurred that could reasonably result in such liabilities,
except for liabilities reflected or reserved against in the Financial
Statements, Schedules 2.1(c)(i)(B) and 2.1(c)(ii)(B), and current liabilities
incurred in the ordinary course of business since March 31, 2004.
Notwithstanding the liabilities and obligations reflected in the Financial
Statements and except as set forth on Schedule 4.9, as of the date of this
Agreement the Stockholders have no obligation or liability of any nature to
Sellers or any of their Affiliates. Except as set forth on Schedule 4.9, there
are no Actions for indemnification asserted by any Person against any Seller
under any Law or agreement or pursuant to the articles of incorporation or
bylaws or corresponding articles of organization of any Seller, and the Sellers
have no knowledge any facts or circumstances that might give rise to the
assertion of any such Action. The Sellers have no knowledge of any event,
condition, set of facts or circumstances, which is reasonably likely to have a
Material Adverse Effect that they have not disclosed to Purchasers.
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4.10 Absence of Material Changes. Except as set forth on Schedule
4.10, since December 31, 2003, Sellers have conducted the Play Along Business in
the ordinary course, and there has not been and the Sellers do not have
knowledge of:
(a) any Material Adverse Change;
(b) any damage, destruction or loss to any of the Assets
that affects the Play Along Business;
(c) any declaration, setting aside or payment of any cash
or noncash dividend or any other distribution with respect to any Seller's
capital stock or membership interest or any direct or indirect redemption,
purchase or other acquisition by any Seller of any such stock or interest, other
than amounts necessary for the Stockholders to pay their income Taxes on the
profits of PA Hong Kong through Closing, which amounts are set forth on Schedule
4.10;
(d) any obligation or liability incurred, discharged or
satisfied, other than current liabilities incurred, discharged or satisfied in
the ordinary course of business;
(e) with the exception of the transactions contemplated by
this Agreement and the Related Documents, any sale, transfer, lease, license,
Encumbrance or other disposition of any Asset other than in the ordinary course
of business;
(f) with the exception of the transactions contemplated by
this Agreement and the Related Documents, any action taken by any Seller to
amend, terminate or waive any material right belonging to that Seller other than
in the ordinary course of business;
(g) with the exception of the transactions contemplated by
this Agreement and the Related Documents, any rights transferred or granted
under any concessions, leases, licenses, or other Contracts (excluding purchase
orders issued or received in the ordinary course of business) to any Trade
Rights owned or licensed by Sellers;
(h) any wage or salary increase to any officer or employee
or any amendment to or adoption of an Employee Plan (as defined in Section
4.18(b) herein) not previously disclosed to Purchasers other than in the
ordinary course of business, except as set forth in Schedule 4.10;
(i) any single investment, capital contribution, capital
expenditure or any commitment for any capital expenditure in excess of $25,000
outside of the ordinary course of business;
(j) with the exception of this Agreement and the Related
Documents, any transaction, Contract or commitment entered into by any Seller
other than in the ordinary course of business;
(k) any loss of one or more suppliers, manufacturers,
distributors or customers, which is reasonably likely to have an adverse effect
on current year production or sales, except as set forth on Schedule 4.10;
24
(l) any Action pending or threatened, which relates to any
Seller or any of the Assets, the outcome of which could reasonably be expected
to have a Material Adverse Effect, except as set forth on Schedule 4.10;
(m) (i) the incurrence of any indebtedness for borrowed
money, other than borrowings under existing credit facilities and existing
indebtedness owing to Sellers, (ii) the making of any loans or advances to any
other Person, other than routine advances to employees consistent with past
practice or (iii) the assumption, guarantee or endorsement (whether directly,
contingently otherwise) for the obligations of any other Person, other than any
assumption, guarantee or endorsement undertaken by one Seller for another Seller
in the ordinary course of business;
(n) any compromise or settlement of, or the taking of any
material action with respect to, any Action;
(o) the entrance into or amendment of any employment,
consulting, severance, or similar agreement with any Person other than in the
ordinary course of business, except with respect to new hires in the ordinary
course of business or as set forth on Schedule 4.10;
(p) any material change in any of their respective methods
of accounting or accounting practice or policy, except as required by any
changes in GAAP or applicable Law;
(q) the entrance into any agreement the purpose of which
is to restrain, limit, or impede Purchasers' ability to conduct the Play Along
Business following the Closing;
(r) the entrance into any other agreements, commitments or
contracts which create liabilities other than in the ordinary course of
business;
(s) except as otherwise disclosed in this Agreement, the
authorization or commitment by any Seller to make any capital expenditures other
than those capital expenditures incurred by Sellers in the ordinary course of
business;
(t) the cancellation or termination of any insurance
policy covering the Assets other than in the ordinary course of business; or
(u) the maintenance of Sellers' respective books and
records in a manner inconsistent with past business practices, except to be in
compliance with GAAP or applicable Laws.
4.11 Tax Matters.
(a) (i) Except as set forth on Schedule 4.11(a), Sellers
have filed on a timely basis (taking into account any extensions received from
the relevant taxing authorities) all Tax Returns that are or were required to be
filed on or prior to the date hereof with the appropriate taxing authorities in
all jurisdictions in which such Tax Returns are or were required to be filed,
and all such Tax Returns are true, correct and complete in all material
respects; (ii) all
25
Taxes due for the periods covered by such Tax Returns have been fully paid,
deposited or adequately provided for on the Financial Statements or are being
contested in good faith by appropriate proceedings; (iii) there are no
Encumbrances as a result of any unpaid Taxes upon any of the Assets and no basis
exists for the imposition of any such Encumbrances other than liens for Taxes
not yet due and payable; and (iv) no claim has ever been made by an authority in
a jurisdiction where Sellers do not file Tax Returns that they are or may be
subject to taxation by that jurisdiction.
(b) Neither the Company nor PA Distribution is a "foreign
person" within the meaning of Section 1445 of the Code.
(c) None of the US Assets is "tax exempt use property"
within the meaning of Section 168(h) of the Code.
(d) Sellers have withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid (or deemed to have
been paid) or owing by any Seller to any employee, independent contractor,
creditor, or other third party in respect of the period prior to the Closing
Date.
(e) To Sellers' knowledge, there are no federal, state,
local or foreign audits or other administrative proceedings or court proceedings
presently pending with regard to any Taxes or Tax Returns of any Seller.
(f) There are no deficiencies against any Seller as a
result of any IRS or other Government Entity examination that have not been
resolved in full and no Seller has granted any requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessment of any Taxes for which any Seller may be liable.
(g) No Seller has been a member of an affiliated group of
corporations filing a consolidated federal income Tax Return other than that
group of which the Company is the parent. No Seller has any liability for the
Taxes of any Person under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(h) Correct and complete copies of all (i) Tax Returns,
for taxable periods ending after March 31, 2001 and (ii) examination reports and
statements of deficiencies assessed against or agreed to by any Seller since
January 1, 2000 have been made available to Purchasers for their review.
(i) No Seller has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(j) The Company and PA Distribution have disclosed on
their respective United States federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Section 6662 of the Code.
26
(k) No Seller is a party to any tax sharing, tax indemnity
or other agreement or arrangement relating to Taxes with any Person.
(l) No Seller is or was a member of any affiliated,
consolidated or unitary group for Tax purposes.
(m) PA Hong Kong has properly and punctually filed all Tax
Returns and provided all information required for Taxation purposes and none of
such Tax Returns is disputed by the Hong Kong Inland Revenue Department or any
other Government Entity and PA Hong Kong is not aware that any dispute is
likely, or any event has occurred which would or might give rise to payment of
any Taxes.
(n) PA Hong Kong has duly and punctually paid all Taxes
that it has become liable to pay and is under no liability to pay any penalty or
interest in connection with any claim or demand for Taxation and has not paid
any Tax that it was and is not properly due to pay.
(o) Sellers accept and confirm that full particulars and
provisions relating to the Tax liabilities of PA Hong Kong have been disclosed
to Purchasers and JAKKS.
(p) Full and sufficient provisions or reserves have been
made in the HK Financial Statements for all Taxes liable to be assessed on PA
Hong Kong or for which PA Hong Kong is accountable in respect of income, profits
or gains earned, accrued or received on or before the date of the HK Financial
Statements and full provision has been made in the HK Financial Statements for
deferred Taxes, if any, in accordance with accounting principles generally
accepted in Hong Kong.
4.12 Accounts Receivable and Inventory. Except as set forth on
Schedule 4.12, the accounts receivable of Sellers reflected on the latest
Financial Statements and those existing at Closing are valid and genuine and, to
Sellers' knowledge, arose from bona fide transactions in the ordinary course of
the Play Along Business. All inventories of consumable items reflected in the
Financial Statements do not include any items in any material amount that are
below standard quality, damaged, obsolete or of a quantity or quality not usable
or suitable in the ordinary course of business of Sellers, except for changes in
such inventories occurring subsequent to December 31, 2003 in the ordinary
course of business.
4.13 Contracts.
(a) Schedule 4.13(a) contains a list of all material
unexpired written or oral contracts, leases, licenses, agreements, arrangements,
commitments, instruments or understandings pertaining to the Assets (each a
"Contract" and collectively, the "Contracts"), other than Contracts entered into
in the ordinary course of business or which may be terminated with less than
thirty (30) days' notice without, in the aggregate, any material obligations
being incurred. For purposes of this Section 4.13, a Contract is material if it
involves either the remaining payment or the remaining receipt of goods,
services or money with a value in excess of $25,000. All Contracts are in full
force and effect and are valid and binding obligations of Sellers, enforceable
in accordance with their terms except as their enforceability may be limited
27
by bankruptcy, insolvency, moratorium, or other Laws relating to or affecting
creditors' rights generally, and the exercise of judicial discretion in
accordance with general equitable principles. Except as set forth in Schedule
4.13(a), the Contracts are included among the Assumed Contracts to be assigned
to Purchasers at Closing. No default and no event that with the giving of
notice, the passage of time or both would constitute an event of default has
occurred and is continuing with respect to any of the Contracts (whether by any
Seller or, to the knowledge of the Sellers, by any other party to such
Contracts). Except as set forth in Schedule 4.13(a), as of the Closing, no
Seller is a party to any loan agreement or the maker or obligor under any
promissory note or other similar undertaking, including, without limitation, any
guaranty, for the repayment of borrowed money or the performance of any other
obligation.
(b) Except as set forth on Schedule 4.13(b), no Seller is
a party to any Contract with any Stockholder or any of their respective
Affiliates. Except as set forth in Schedule 4.13(b), no current or former
officer or director (including their respective family members), member,
manager, employee or shareholder or any Affiliate of a Seller is presently or,
in the last three years has been, (i) a party to any transaction with any Seller
other than on an arms-length basis (including, but not limited to, any Contract
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such officer or director
(including their respective family members), employee or shareholder or
Affiliate thereof, or (ii) the direct or indirect owner of an interest in any
Person which is a present (or potential) competitor, supplier, manufacturer,
distributor or customer of any Seller, nor does any such Person receive income
from any source other than any Seller which relates to, or should properly
accrue to, that Seller. Except as set forth on Schedule 4.13(b), all loans made
by any Seller to any shareholder, member, manager, employee, officer or director
(including their respective family members) and all loans made by any
shareholder, member, manager, employee, officer or director (including their
respective family members) to any Seller have been fully repaid to or by the
Sellers, as the case may be, without discount and with accrued interest at or
before Closing.
4.14 Environmental Matters.
(a) No Seller has received any notice of any violation (or
claimed violation) of any applicable United States or foreign federal, state or
local Laws, orders, writs, injunctions, judgments, decrees, awards or
restrictions (including, without limitation, applicable Laws, orders or
restrictions relating to zoning, land use, safety, health, conservation, waste
management, environmental matters, hazardous substances or pollution controls)
(collectively, "Environmental Laws") of any Government Entity having
jurisdiction over Sellers, or the Real Property or any Action, either instituted
or planned to be instituted, regarding any of the Environmental Laws which has
not been remedied or cured.
(b) To the best of Sellers' knowledge, their respective
operations are in compliance with all applicable Environmental Laws, including
laws relating to the release, discharge, emission, storage, treatment, handling
or disposal of any hazardous, toxic, radioactive, infectious or harmful
substances or materials, including asbestos and petroleum, including crude oil
or any of its fractions or any material prohibited or regulated by any
Environmental Law (collectively, "Hazardous Materials"). There has been no
spill, leak, discharge, escape, leaching, dumping or release of Hazardous
Materials at the Real Property while Sellers have held
28
leasehold title to the Real Property and Sellers have no knowledge of any such
events occurring at the Real Property prior to their leasing same.
(c) Sellers do not have or currently use, store, treat,
dispose or otherwise handle Hazardous Materials except in compliance with all
applicable Environmental Laws.
(d) To the knowledge of Sellers, no underground storage
tanks are located at the Real Property.
(e) To the knowledge of Sellers, there is no written
Action or other written notice by any Person alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or civil or criminal penalties) arising out of or
relating from (i) the presence or release into the environment of any Hazardous
Materials on the Real Property or (ii) circumstances forming the basis of any
violation of any Environmental Law.
4.15 Intellectual Property.
(a) Schedule 4.15(a) sets forth, with respect to each
Trade Right owned by Sellers and registered with any Government Entity or for
which an application has been filed with any Government Entity, (i) a brief
description of such Trade Right, and (ii) the names of the jurisdictions covered
by the applicable registration or application. Except as set forth on Schedule
4.15(a), Sellers do not own any unregistered Trade Rights. Schedule 4.15(a)
identifies and provides a brief description of each Trade Right licensed to
Sellers by any Person (except for any Trade Right that is licensed to Sellers
under any third party software license generally available to the public at a
cost of less than $10,000), and identifies the license agreement under which
such Trade Right is being licensed to Sellers. Sellers have good, valid and
marketable title to all of the owned Trade Rights identified in Schedule
4.15(a), free and clear of all Encumbrances, and have a valid right to use all
of the licensed Trade Rights identified in Schedule 4.15(a). All of the Trade
Rights identified in Schedule 4.15(a) are valid and subsisting and in full force
and effect, are free from any claim of abandonment for non-use or dedication to
the public domain, and have not been claimed or adjudged invalid or
unenforceable in whole or in part. Except as set forth in Schedule 4.15(a),
Sellers are not obligated to make any payment to any Person for the use of any
Trade Rights. Except as set forth on Schedule 4.15(a), Sellers have not
developed jointly with any other Person any Trade Rights with respect to which
such other Person has any rights. Except as set forth in Schedule 4.15(a), the
Company and the Sellers have not granted and are not obligated to grant any
Encumbrance or license in respect to any Trade Right to any Person other than
Purchasers. All documents necessary to establish each Seller's interests in the
Trade Rights are in their possession and all formalities in relation thereto
have been met. All registrable Trade Rights have been registered and all
formalities in relation thereto are correct, complete and up to date.
(b) Each of the Sellers has used commercially reasonable
efforts to employ measures and precautions necessary to protect and maintain the
confidentiality and secrecy of all owned or licensed Trade Rights (except Trade
Rights whose value would be
29
unimpaired by public disclosure) and Sellers are not aware that any
confidentiality in relation to any Trade Right has been compromised.
(c) Except as set forth on Schedule 4.15(a), none of the
Trade Rights owned or used by Sellers or, to the knowledge of Sellers, licensed
by Sellers currently infringes or conflicts with any Trade Rights owned, used or
licensed by any other Person. Sellers are not infringing, misappropriating or
making any unlawful use of, and no Seller has, at any time infringed,
misappropriated or made any unlawful use of, or, to the knowledge of Sellers,
received any notice or other communication of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Trade Rights
owned, used or licensed by any other Person. To the best knowledge of the
Sellers, no other Person is infringing, misappropriating or making any unlawful
use of, and no Trade Rights owned, used or licensed by any other Person infringe
or conflict with, any Trade Rights owned, used or licensed by any Seller.
(d) (i) Each Trade Right owned or used by Sellers conforms
in all material respects with any specification or documentation with respect
thereto; and (ii) no Seller has received any notice or other communication of
any claim by any customer or other Person alleging that any Trade Right owned or
used by any Seller (including each product extension, modification or derivative
thereof that has ever been licensed, sold or otherwise made available by any
Seller to any customer or potential customer) or the use thereof does not
conform in all material respects with any such specification or documentation,
and, to the best knowledge of the Sellers, there is no basis for any such claim.
(e) The Assets include all the Trade Rights necessary to
conduct the Play Along Business in the manner in which such business is being
conducted as of the date of this Agreement and has been conducted over the past
twelve (12) months. Except as set forth on Schedule 4.15(a), (i) to Sellers'
knowledge, none of the Trade Rights are licensed to any Person (other than
Sellers) on an exclusive basis, and (ii) there is no covenant not to compete or
Contract limiting any Seller's ability to exploit fully any of their owned or
licensed Trade Rights or to transact business in any market or geographical area
or with any Person.
4.16 Compliance with Laws. Sellers are in compliance with all
applicable Laws, including OSHA, and all applicable judgments, orders or decrees
of any court or other Government Entity relating to or affecting the Assets or
the operation of the Play Along Business.
4.17 Litigation. Except as set forth on Schedule 4.17, there is
no Action pending or, to the knowledge of any Seller, threatened against or
affecting the Assets, whether involving or relating to Product Liability or
compliance with OSHA or otherwise, or any basis in fact therefor known to
Sellers against or involving the Assets, whether involving or relating to
Product Liability or compliance with OSHA or otherwise, whether at law or in
equity. Moreover, except as set forth on Schedule 4.17, to Sellers' knowledge
there is no Action pending or threatened against or affecting any Seller, the
outcome of which could reasonably be expected to impair the ability of any
Seller to perform their respective obligations hereunder or under the Related
Documents or the transactions contemplated by this Agreement and the Related
Documents.
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4.18 Employment.
(a) Labor Matters.
(i) Each Seller is in compliance with all
applicable Laws regarding employment and employment practices, terms and
conditions of employment, wages and hours and is not and has not engaged in any
unfair labor practice.
(ii) No Seller is a party or otherwise subject to
any collective bargaining or any other agreements governing the wages, hours and
terms of employment of its employees. There is no (A) unfair labor practice
complaint against any Seller pending before the National Labor Relations Board
or any comparable foreign labor board, including the Hong Kong Labour Tribunal,
(B) labor strike, slowdown, work-to-rules, go-slows, or work stoppage (official
or unofficial) actually occurring or, to the knowledge of the Sellers,
threatened against any Seller, nor has there been during the period of six years
immediately preceding the Closing Date, (C) representation petition respecting
any Seller's employees pending before the National Labor Relations Board or any
comparable foreign labor board, including the Hong Kong Labour Tribunal, (D)
pending grievance or arbitration proceeding arising out of or under collective
bargaining agreements applicable to any Seller or (E) union organizational
campaign in progress currently with respect to any Seller's employees, nor has
there ever been such an organizational campaign.
(iii) No Seller has (A) recognized or received a
demand for recognition of any collective bargaining representative with respect
to any proposed collective bargaining agreement or (B) experienced any primary
work stoppage or other organized work stoppage involving its employees in the
past two years.
(iv) No current employee has given or has been
given notice to terminate his office or employment or will be entitled to give
notice as a result of the provisions of this Agreement.
(v) Except as set forth on Schedule 4.18(a), there
is not outstanding, threatened or intimated any Action against any Seller on the
part of any Person who has been or is an employee (or the dependant of any such
Person) or any actual or known liability to make any payment to any such Person
and none of the provisions of this Agreement, including the identity of
Purchasers or JAKKS, so far as Sellers' are aware is likely to lead to any such
dispute.
(vi) Each Seller has in relation to its employees
(and so far as relevant to its former employees) complied with: (A) all
obligations imposed on it by applicable Law and all employee manuals or Sellers'
practices relevant to the relations between it and its employees or it and any
recognized trade union and has maintained current, accurate and suitable records
regarding the service agreements and terms and conditions of employment of each
of its employees (including without limitation records kept and returns lodged
in relation to statutory sick pay); (B) all obligations to maintain adequate and
suitable records regarding the service of each of its employees; (C) all
collective agreements, recognition agreements and the conditions of service of
its employees; and (D) all relevant orders and awards made under any relevant
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statute, regulation or code of conduct and practice affecting the conditions of
service of its employees.
(vii) Except as set forth on Schedule 4.18(a),
there is no person current or provisionally employed by any Seller who now has
or may in the future have a right to return to work (whether for reasons
connected with maternity leave, leave for family or domestic reasons or absence
due to illness or incapacity or otherwise) or a right to be reinstated or
re-engaged by any Seller or any other compensation.
(viii) No employee of any Seller is subject to any
disciplinary action or engaged in any grievance procedure and there is no matter
or fact giving rise to the same.
(ix) Except as set forth on Schedules 4.13(b) and
4.18(a), there are no loans outstanding from any Seller to any of the employees
of any of them.
(x) PA Hong Kong has in relation to its employees
(and so far as relevant to its former employees) maintained and complied with
all requirements and obligations under the provisions of the Hong Kong Mandatory
Provident Fund Schemes Ordinance and the relevant codes of conduct and practice
and has subscribed to properly registered provident fund schemes for its
employees. PA Hong Kong has maintained current, accurate and suitable records of
the registered mandatory provident fund schemes, and complete and accurate
copies of the schemes, rules and all other documents, records and materials
relating to the establishment and operation of the registered mandatory
provident fund schemes will be part of the records of the Play Along Business
transferred to Purchasers on the Closing Date.
(xi) PA Hong Kong has obtained and maintained in
relation to its employees (and so far as relevant to its former employees) valid
employees' compensation insurance required under the provisions of the
Employees' Compensation Ordinance and has maintained current, accurate and
suitable records of the employees' compensation insurance policies. Complete and
accurate copies of the employees' compensation insurance policies and the Notice
of Insurance will be part of the records of the Play Along Business transferred
to Purchasers on the Closing Date.
(b) Employee Benefits. Schedule 4.18(b) contains a true
and correct list of each "employee benefit plan" as such term is defined in
Section 3(3) of ERISA, whether or not subject to the provisions of ERISA, or any
other employment, consulting, collective bargaining, equity-based compensation
bonus, deferred compensation, stock option, stock purchase, golden parachute,
severance, vacation, dependent care, employee assistance, fringe benefit, death
benefit or other compensatory or employment-related plan, contract, policy,
agreement or arrangement which is not an "employee benefit plan" as defined in
Section 3(3) of ERISA (each an "Employee Plan") under which any current or
former employee or other personnel of any Seller (or their dependents) is
covered or in respect of which any Seller has or reasonably could be expected to
have any liability, directly or indirectly, which will not have been satisfied
in full at the time of the Closing.
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(i) With respect to each Employee Plan, Sellers
have delivered to Purchaser true and complete copies of each contract, plan
document, summary plan description and other written material governing or
describing the Employee Plan and/or any related funding arrangements; and, where
applicable, the last annual report (5500 series) filed with the IRS or the
Department of Labor, the most recent balance sheet and financial statements,
actuarial reports and valuations, and the most recent determination letter
issued by the IRS.
(ii) Each Employee Plan has been maintained and
administered in all material respects in accordance with its terms and in
compliance with the provisions of applicable Law, including the Code and ERISA.
All contributions, insurance premiums, benefits and other payments required to
be made to or under each Employee Plan have been made or provided for before the
Closing Date. With respect to each Employee Plan, (A) no application, proceeding
or other matter is pending before the IRS, the Department of Labor or any other
Government Entity; (B) no Action (other than routine claims for benefits) is
pending or, to the knowledge of Sellers, threatened; (C) to the knowledge of the
Sellers, no facts exist which could give rise to an Action which, if asserted,
could result in a material liability or expense to any Seller; and (D) to the
knowledge of the Sellers, no prohibited transaction as defined in Section 4975
of the Code has occurred with respect to any Employee Plan.
(iii) With respect to each funded Employee Plan
which is intended to be qualified under Section 401(a) of the Code, (A) a
favorable IRS determination or opinion letter is currently in effect and, to the
knowledge of Sellers and Stockholders, nothing has occurred that would adversely
affect Sellers' ability to rely on such letter, and (B) there has been no
termination or partial termination within the meaning of Section 411(d)(3) of
the Code.
(iv) No Employee Plan (A) is or was covered by
Title IV of ERISA or by Section 302 of ERISA or Section 412 of the Code or (B)
is or has been a Multiemployer Pension Plan within the meaning of Section 3(37)
of ERISA. Neither Sellers, nor any ERISA Affiliate has incurred nor could incur
any liability, direct or indirect, contingent or otherwise, under Title IV of
ERISA or Section 302 of ERISA or Sections 412 or 4980B of the Code. No Employee
Plan provides health or death benefits (whether or not insured) to any current
or former employee or other personnel beyond the termination of their employment
or other services (other than COBRA). Except as identified on Schedule 4.18(b),
each Employee Plan may be unilaterally terminated and/or amended by Sellers at
any time without liability or penalty.
(v) The consummation of the transactions
contemplated by this Agreement and the Related Documents will not (either alone
or in conjunction with another event, such as a termination of employment or
other services) entitle any employee or other Person to receive severance or
other compensation that would not otherwise be payable absent the consummation
of the transactions contemplated by this Agreement and the Related Documents or
cause the acceleration of the time of payment or vesting of any award or
entitlement under any Employee Plan. No payment or benefit which will or may be
made by Sellers will be characterized as an "excess parachute payment" within
the meaning of Section 280G of the Code or will fail to be deductible by virtue
of Section 280G of the Code.
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(c) Employees. Schedule 4.18(c) contains a complete and
accurate list of all directors, officers, managers, employees and consultants of
Sellers, specifying their names and job designations, start date, the total
annual amount paid or payable as compensation to each such Person, and the basis
of such compensation, whether fixed or commission, or a combination of fixed and
commission, and the accrued benefits, including accrued sick leave and paid
time-off, for such Persons as of such date. None of the Persons identified on
Schedule 4.18(c) has had any breaks in service for purposes of determining years
of service under the applicable Employee Plan since the commencement of their
respective employment arrangements with Sellers. Each of Sellers' employees in
the United States is an "at-will" employee, and there are no employment,
commission or compensation Contracts of any kind between any Seller on the one
hand and any of their respective employees on the other hand except as disclosed
in Schedule 4.18(c). All of the Company's and PA Distribution's employees are
leased through AdvanTech Solutions VII, Inc ("AdvanTech"). True and complete
copies of employment and supervisory manuals, employment and supervisory
policies, and written information generally provided to employees (such as
applications or notices), have been provided to Purchaser. Each of the Company's
and PA Distribution's employees is legally permitted to work in the United
States and the State of Florida, and the Company and PA Distribution have
verified that each employee for whom a Form I-9 was required on his or her date
of hire has on file at the Company or PA Distribution, as the case may be, a
valid Form I-9 and a copy of each US Offer Employee's Form I-9 will be part of
the records of the Play Along Business transferred to Purchasers on the Closing
Date. Each of PA Hong Kong's employees is legally permitted to work in the Hong
Kong Special Administrative Region ("Hong Kong SAR") by reason of having either
a permanent right of residence in Hong Kong SAR or holding a valid working
permit issued by the Immigration Department, Government of the Hong Kong SAR.
4.19 Insurance. The Assets have been continuously insured by
Sellers since the date of their acquisition by Sellers, either through the
purchase of insurance from a third party insurance company or through a
self-insurance trust established by Sellers. Schedule 4.19 sets forth a complete
and accurate list and brief description of all insurance policies currently held
by Sellers with respect to the Assets and any self-insurance trust. The
description of the insurance policies provided in Schedule 4.19 shall include a
statement specifying the name of the insurer, the amount of coverage and any
applicable deductibles, the type of insurance, the policy numbers, and the
expiration date of such policies. Except as set forth on Schedule 4.19, such
insurance policies are in full force and effect. Sellers are not delinquent with
respect to any premium payments thereon nor are Sellers in default or breach
with respect to any material provision contained in any such insurance policies.
Sellers have not received, and Sellers have no knowledge of, any notice or
request, formal or informal, from any insurance company identifying any defects
in the Assets that would have a Material Adverse Effect on the insurability of
the Assets. Sellers have not been refused any insurance, nor has their coverage
been limited by an insurance carrier to which they have applied for insurance.
4.20 Brokers. No broker, finder, or investment banker is entitled
to any brokerage, finder's, or other fee or commission in connection with the
transaction contemplated by this Agreement based upon arrangements made by or on
behalf of the Stockholders, or any Seller.
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4.21 Bulk Sales Laws. Sellers have complied with all applicable
U.S. or foreign bulk sales or similar laws in connection with the transactions
contemplated by this Agreement.
4.22 Product Liability. To the Knowledge of Sellers and
Stockholders, Sellers have not manufactured, sold or supplied any product or
service which is, was, or will become, faulty or defective or which does not
comply with any warranty or representation, express or implied, made by or on
behalf of any Seller in respect of it or with all Laws, standards and
requirements applicable to it or which was sold or supplied on such terms that
any Seller accepts an obligation to service or repair or replace such product
after delivery.
4.23 Fair Trading. Except for the transactions contemplated by
this Agreement and the Related Documents, no agreement, practice or arrangement
carried on by any Seller or to which any Seller is or has prior to the date of
this Agreement been a party infringes, or is or ought to or ought to have been
registered in accordance with, any competition, restrictive trade practice,
anti-trust, fair trading or consumer protection law or legislation applicable in
any jurisdiction in which any Seller has assets or carries on or intends to
carry on business or in which the activities of any Seller may have an effect.
4.24 Permits. Sellers have all material Permits necessary for the
proper and effective carrying on of the Play Along Business in the manner in
which the Play Along Business is now carried on. All such material Permits are
valid and subsisting and Sellers know of no reason why any of them should be
suspended, cancelled or revoked whether in connection with the sale to
Purchasers or otherwise.
4.25 Investment Representation. Each Seller is an "accredited
investor" within the definition set forth in Rule 501(a) under the Securities
Act and no Seller was organized for the specific purpose of acquiring the JAKKS
Shares. Each Seller is acquiring the JAKKS Shares for its own account, for
investment and not with a view to, or in connection with, or with any present
intention of, any resale or other disposition thereof. Any distribution(s) of
the JAKKS Shares acquired by Sellers shall be effected in compliance with the
Securities Act and Blue Sky Laws and in a manner so as to preserve at all times
Purchasers' and JAKKS' exemption therefrom pursuant to Rule 506 under the
Securities Act.
4.26 Customers and Suppliers.
(a) Schedule 4.26(a) hereto sets forth a list of each
customer of Sellers that accounted for more than 5% of the net sales of Sellers
in any of the calendar years 2002, 2003 or 2004 (through March, 2004). Except as
set forth on Schedule 4.26(a), Sellers have no knowledge which might reasonably
indicate that any of the customers listed on Schedule 4.26(a) intends to cease
purchasing or dealing with Sellers, nor do Sellers have any knowledge that leads
any of them to believe that any such customer intends to alter in any material
respect the amount of purchases or the extent of dealings with Purchasers or
would alter in any material respect its purchases or dealings in the event of
the consummation of the transactions contemplated hereby.
(b) Schedule 4.26(b) indicates the value of goods and
services (based on invoice price) supplied to Sellers by the top 10 suppliers
and vendors of goods and services to
35
Sellers during the period from January 1, 2003 to March 31, 2004. Except as set
forth on Schedule 4.26(b), Sellers have no knowledge which might reasonably
indicate that any of the suppliers and vendors listed on Schedule 4.26(b)
intends to cease selling or rendering services to, or dealing with, Sellers, nor
do Sellers have any knowledge that leads any of them to believe that any such
supplier or vendor intends to alter in any material respect the amount of sales
or service or the extent of dealings with Purchasers or would alter in any
material respect its sales or service or dealings in the event of the
consummation of the transactions contemplated hereby.
4.27 OSHA Matters. No Seller has received any citation from the
Occupational Safety and Health Administration or any comparable Government
Entity or any Government Entity inspector setting forth any respect in which the
facilities or operations of Sellers are not in compliance with OSHA, which
non-compliance has not been corrected or remedied and any applicable fines
and/or penalties paid in full to the satisfaction of such Government Entity or
inspector. Schedule 4.27 hereto sets forth a list of all citations heretofore
issued to Sellers under OSHA and correspondence from and to OSHA and any OSHA
inspectors during the past five years.
4.28 Bank Accounts. Schedule 4.28 contains a complete and correct
list of all deposit accounts and safe deposit boxes of Sellers, all powers of
attorney in connection with such accounts, and the names of all Persons
authorized to draw thereon or to have access thereto.
4.29 Disclosure. To the knowledge of Sellers and Stockholders, no
representation or warranty by any Stockholder or Seller in this Agreement, the
Related Documents or any exhibit or schedule hereto or thereto, contains an
untrue statement of material fact, or omits to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
5. Representations and Warranties of Purchasers and JAKKS. Purchasers
and JAKKS represent and warrant to Sellers as follows:
5.1 Authority Relative to Agreement. Each Purchaser and JAKKS is
a corporation validly existing and in good standing under the Laws of the
jurisdiction in which it was incorporated or organized and each Purchaser and
JAKKS has the corporate power and authority to execute and deliver this
Agreement and the Related Documents to be executed and delivered by it and to
perform its obligations under this Agreement and those Related Documents. The
execution, delivery and performance of this Agreement and those Related
Documents by Purchasers and JAKKS, including, in the case of Purchasers, the
purchase of the Assets from Sellers, have been duly authorized by all necessary
corporate action on the part of Purchasers and JAKKS, and no other corporate
proceedings of Purchasers and JAKKS are necessary to authorize the execution,
delivery and performance of this Agreement and those Related Documents by
Purchasers and JAKKS. This Agreement and each Related Document to which
Purchasers and JAKKS are a party has been duly executed and delivered by
Purchasers and JAKKS, and this Agreement and those Related Documents constitute
the valid, binding and enforceable obligations of Purchasers and JAKKS, subject
to applicable bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally from time to time in effect and to general
equitable principles.
36
5.2 Capitalization. As of the date hereof, the authorized capital
stock of JAKKS consists of 105,000,000 shares, consisting of 100,000,000 shares
of JAKKS Common Stock and 5,000,000 shares of JAKKS Preferred Stock. As of the
close of business on June 8, 2004, 25,342,813 shares of JAKKS Common Stock and
no shares of JAKKS Preferred Stock were issued and outstanding. No other capital
stock of JAKKS is issued or outstanding. Each of JAKKS US and JAKKS HK is a
wholly-owned (direct or indirect) subsidiary of JAKKS. All issued and
outstanding shares of JAKKS Common Stock are duly authorized, validly issued,
fully paid and non-assessable and were issued free of preemptive rights and in
compliance with applicable corporate and securities Laws. Except as set forth on
Schedule 5.2 attached hereto, as of the date of this Agreement there are no
outstanding rights, reservations of shares, subscriptions, warrants, puts,
calls, unsatisfied preemptive rights, options or other agreements of any kind
relating to any of the capital stock or any other security of JAKKS, and there
is no authorized or outstanding security of any kind convertible into or
exchangeable for any such capital stock or other security. There are no
restrictions upon the transfer of or otherwise pertaining to the securities
(including, but not limited to, the ability to pay dividends thereon) of JAKKS
or the ownership thereof.
5.3 No Conflict. Neither the execution and delivery of this
Agreement and the Related Documents to which any Purchaser and/or JAKKS is a
party, the consummation or performance by Purchasers and JAKKS of the
transactions contemplated by this Agreement and those Related Documents, nor the
compliance by Purchasers and JAKKS with any of the provisions of this Agreement
and those Related Documents will (i) violate or breach the certificate of
incorporation or bylaws of Purchasers or JAKKS or any judgment, order or decree,
rule or regulation of any court or administrative agency to which Purchasers or
JAKKS is a party or by which Purchasers or JAKKS is bound, or (ii) require the
consent or authorization of, or approval by, or notice to any party to any
material contract or agreement, except for such consents, authorizations,
approvals, or notices that (assuming the power and authority of the consenting
entity and the authority and capacity of the person signing on its behalf), have
been obtained or made.
5.4 Litigation. To Purchasers' or JAKKS's knowledge, there is no
Action in writing pending against Purchasers or JAKKS or any significant
subsidiary of JAKKS or their respective officers, directors or employees in
their capacity as such, or as a fiduciary with respect to any Employee Plan of
JAKKS, that would be required to be described in any JAKKS SEC Report that is
not so described.
5.5 Consents and Approvals. No filing or registration with,
notification to and no permit, authorization, consent or approval of, any
Government Entity is required to be obtained by Purchasers or JAKKS in
connection with their execution and delivery of this Agreement or their
consummation of the transactions contemplated hereby, except (i) approval of the
FTC and Justice Department under the HSR Act, (ii) such filings, registrations,
notifications, permits, authorizations, consents or approvals that result from
the specific legal or regulatory status of Sellers or as a result of any other
facts that specifically relate to the Play Along Business and/or the Assets, and
(iii) such other filings, registrations, notifications, permits, authorizations,
consents or approvals the failure of which to be obtained, made or given
37
would not, individually or in the aggregate, materially impair the ability of
Purchasers and JAKKS to consummate the transactions contemplated hereby.
5.6 Availability of Funds. Purchasers have cash, or the ability
to obtain cash by means of credit facilities with financially responsible third
parties, in an amount sufficient to enable them to perform all of their
respective obligations hereunder, including, without limitation, payment of the
Closing Purchase Price.
5.7 JAKKS Shares. The JAKKS Shares have been duly authorized and,
when delivered at the Closing, will be validly issued, fully paid and
non-assessable, will be free and clear of any Encumbrances, and, except as the
sale, pledge or other disposition thereof is limited by the provisions of the
Securities Act and other applicable Blue Sky Laws, will have been issued in
accordance with the Securities Act and other applicable Blue Sky Laws.
5.8 SEC Filings. Since January 1, 2001, JAKKS has filed all
forms, reports and documents required to be filed by JAKKS with the SEC. All
such required forms, reports and documents are referred to herein as the "JAKKS
SEC Reports." As of their respective dates, the JAKKS SEC Reports (i) are true
and correct in all material respects, as of the dates filed with the SEC, (ii)
were prepared in all material respects in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (iii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except to
the extent corrected prior to the date of this Agreement by a subsequently filed
JAKKS SEC Report. The financial statements of JAKKS set forth in the JAKKS SEC
Reports have been prepared in accordance with GAAP.
5.9 Absence of Certain Changes or Events. Except as set forth in
the JAKKS SEC Reports, since December 31, 2003 there has not been, to the
knowledge of JAKKS or Purchasers, any event or occurrence that would have a
Material Adverse Effect.
5.10 Brokers. No broker, finder, or investment banker (other than
Southwest Securities, Inc.) is entitled to any brokerage, finder's, or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Purchasers or JAKKS.
5.11 Disclosure. To the knowledge of JAKKS or Purchasers, no
representation or warranty by JAKKS or Purchasers in this Agreement, the Related
Documents or any exhibit or schedule hereto or thereto, contains an untrue
statement of material fact, or omits to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading.
6. Closing.
6.1 Closing and Effective Time. The consummation of the sale and
purchase of the Assets contemplated by this Agreement (the "Closing") is taking
place at the offices of
38
Feder, Kaszovitz, Isaacson, Weber, ▇▇▇▇▇, Bass & Rhine LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, on the date hereof (the "Closing Date"),
concurrently with the execution and delivery of this Agreement by all parties
hereto. All acts, deliveries and confirmations comprising the Closing,
regardless of chronological sequence, shall be deemed to occur contemporaneously
and simultaneously upon the occurrence of the last act, delivery or confirmation
of such Closing, and none of such acts, deliveries or confirmations shall be
effective unless and until the last of the same shall have occurred. The Closing
shall be effective as of 12:01 a.m., local time, on the calendar day immediately
following the Closing Date (the "Effective Time").
6.2 Actions of Stockholders and Sellers at Closing. At the
Closing, Sellers shall deliver the following to Purchasers, each in form and
substance satisfactory to Purchasers:
(a) Bills of Sale and Assignment. Documents of transfer
and assignment, duly executed by Sellers, conveying to Purchasers good and
marketable title to all of the US Assets, and documents of assignment, duly
executed by Sellers, conveying to Purchasers all of Sellers' right, title and
interest in and to all of the HK Assets, other than those HK Assets, title to
which is transferred by delivery of possession under Section 6.2(b), subject
only to Permitted Liens and the Assumed Liabilities.
(b) Delivery of Assets. Possession of those HK Assets
title to which is transferable by delivery.
(c) Estoppel Certificate. An estoppel certificate duly
executed by the third party lessor of each real property lease included among
the Assets for which Purchasers request an estoppel certificate.
(d) Good Standing Certificates. A certificate of existence
and good standing of each Seller from their respective jurisdictions of
incorporation or organization, dated a date reasonably proximate to the Closing
Date.
(e) FIRPTA Affidavits. Affidavits of the Company and PA
Distribution complying in all respects with Section 1445(b)(2) of the Code.
(f) Required Consents. Evidence that the Stockholders and
Sellers have (i) made or obtained all notices, reports, and other filings
required to be made prior to Closing by Sellers or the Stockholders with, and
all licenses, permits, consents, approvals, authorizations, qualifications or
orders required to be obtained prior to Closing by Sellers or the Stockholders
from, any Government Entity or other Person in connection with the execution and
delivery of this Agreement and the Related Documents and the consummation of the
transactions contemplated hereby and thereby shall have been made or obtained;
(ii) amended in a manner that is reasonably satisfactory to Purchasers and
JAKKS, PA Hong Kong's Contracts with Those Characters From Cleveland, Inc. with
respect to the "Classic" Care Bears(R) property and the "New" Care Bears(R)
property; (iii) filed with the United States Patent and Trademark Office a bona
fide Petition to Revive, an Allegation of Use with proper specimen and an
Extension of Time to Allege Use with respect to the Curly Q(TM) property and
paid all fees necessary to
39
maintain such filings; and (iv) filed with the appropriate Government Entity in
Hong Kong an application for the Play Along(TM) ▇▇▇▇ in classes 16 and 28.
(g) Employment Agreements. An employment agreement
executed by each Stockholder (collectively, the "Employment Agreements") in
favor of JAKKS US in substantially the form attached to this Agreement as
Exhibit A.
(h) Closing Certificates. A certificate, dated the Closing
Date, signed by the President or a director of each Seller (i) certifying as to
the incumbency of the officers or directors of that Seller executing this
Agreement or any Related Document; and (ii) attaching a certified copy of the
resolutions duly adopted by that Seller's board of directors and stockholders,
in a form satisfactory to Purchaser, approving the execution, delivery and
performance of this Agreement and the Related Documents to which that Seller is
a party and the consummation of the transactions contemplated by this Agreement
and those Related Documents.
(i) Release of Encumbrances. Proof that all Encumbrances
on the Assets resulting from or relating to PA Hong Kong's $12.0 million banking
facility with The Hong Kong and Shanghai Banking Corporation Limited and PA
Distribution's May, 2001 Factoring Agreement with HSBC Business Credit (USA)
Inc. have been or will be released, discharged and terminated except for the
Encumbrances with respect to deposits securing the letters of credit described
in Section 6.2(j) below.
(j) Letters of Credit. Evidence that PA Hong Kong has
secured all subsisting letters of credit as listed in Schedule 2.1(c)(i)(B) to
expire on a date after Closing with deposits of cash that are part of the HK
Assets and PA Hong Kong will provide reasonable assistance to JAKKS HK to enable
JAKKS HK to assume all interests, benefits, obligations and responsibilities in
respect of such letters of credit.
(k) Stockholder Approval. Evidence that the requisite
approval of each Seller's stockholders has been obtained with respect to the
transactions contemplated by this Agreement and the Related Documents.
(l) Purchase Price Allocation. An allocation of the
Estimated Purchase Price among the Assets, which allocation shall be set forth
on Schedule 6.2(l) hereto and agreed to by Purchasers and Sellers prior to the
Closing.
(m) Non-competition Agreement. A Non-competition Agreement
executed by each Stockholder in favor of JAKKS US.
(n) Receipt. A receipt signed by Sellers, evidencing
Sellers' receipt of the Estimated Purchase Price as payment for the Assets.
(o) Registration Rights Agreement. The Registration Rights
Agreement executed by each Stockholder in favor of JAKKS.
40
(p) Opinions of Counsel. Purchasers and JAKKS shall have
received from each of ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP and ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ an
opinion, dated the Closing Date and addressed to Purchasers and JAKKS, in
substantially the form of Exhibit D attached hereto.
(q) Product Lines Certificate. A certificate itemizing the
revenues derived from Sellers' key product lines as set forth in Section 4.8(c).
(r) Charter Amendments. An amendment to the certificate of
incorporation or comparable governing document of each Seller, duly executed and
in suitable form for filing with the Secretary of State of the State of Delaware
or comparable Government Entity changing the name of each Seller to one that
does not include the words "Play Along" or words similar thereto.
(s) Domain Names. A letter executed by Sellers directing
the Registrar to change the administrative contact, billing contact, and
technical contact for the Domain Names to Purchasers, or to such other entity as
is directed by Purchasers (a current printout of a Registrar WHOIS database
query provided to Feder, Kaszovitz, Isaacson, Weber, ▇▇▇▇▇, Bass & Rhine LLP by
Sellers shall be sufficient evidence of the successful transfer of the Domain
Names to Purchasers).
(t) Books and Records. All available original or true and
correct copies of all documents, books, records, forms and files relating to the
Assets.
(u) Distributions Certificate. A certificate, dated the
Closing Date, signed by the President and Chief Financial Officer of each Seller
certifying the aggregate dollar amount of any distributions, including payments
of compensation, made by that Seller to ▇▇▇▇▇, ▇▇▇ or ▇▇▇▇▇▇▇ or any relative or
Affiliate of ▇▇▇▇▇, ▇▇▇ or ▇▇▇▇▇▇▇ since December 31, 2003 and identifying each
specific distribution so made and the dollar amount attributable to that
distribution.
(v) Bank Accounts. All resolutions and other documents
required in order to change the Persons authorized to draw on or have access to
the deposit accounts and safe deposit boxes identified on Schedule 4.28 only to
the Persons designated by Purchasers.
(w) Such other certificates, instruments, letters and
documents as may reasonably be requested by Purchasers.
6.3 Actions by Purchasers and JAKKS at Closing. At the Closing,
Purchasers and JAKKS shall deliver the following to Sellers (or to such Persons
as may be directed by Sellers in writing):
(a) Payment. The Cash Component of the Estimated Closing
Price as partial payment for the Assets, which sum shall be paid as set forth in
Section 2.2 hereof.
(b) Certificates for JAKKS Shares. The certificates
representing the JAKKS Shares deliverable at the Closing, which JAKKS shares
shall be allocated among the
41
Sellers as set forth on Schedule 6.3(b). Each certificate for JAKKS Shares
issued at Closing shall bear the following legend:
"Any transfer or other disposition of the shares represented by this
certificate is subject to the provisions of a Registration Rights
Agreement, dated as of June 10, 2004, among JAKKS Pacific, Inc. (the
"Corporation"), ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇. The
shares of stock represented by this Certificate have not been registered
under the United States Securities Act of 1933, as amended (the "Act"),
and may be transferred only if (i) registered under the Act and the
requirements of any state having jurisdiction are complied with or (ii)
the transfer is exempt from such registration and state requirements and
counsel reasonably acceptable to the Corporation has delivered to the
Corporation a written opinion reasonably acceptable to the Corporation
setting forth the basis for such exemption."
(c) Assumption Agreement. One or more assumption
agreements, in form reasonably satisfactory to Sellers, duly executed by JAKKS
US and/or JAKKS HK, as appropriate, pursuant to which JAKKS US and/or JAKKS HK
assumes the future payment and performance of the Assumed Obligations.
(d) Certified Resolutions. A certified copy of resolutions
duty adopted by the Board of Directors of Purchasers and JAKKS approving the
execution, delivery and performance of this Agreement and the Related Documents
to which Purchasers and JAKKS are a party and the consummation of the
transactions contemplated by this Agreement and those Related Documents.
(e) Receipt. A receipt signed by Purchasers evidencing
Purchasers' receipt of the Assets.
(f) Closing Certificates. A certificate signed by a duly
authorized officer of each Purchaser and JAKKS (i) certifying as to the
incumbency of the officers executing this Agreement or any Related Document; and
(ii) attaching a certified copy of the resolutions duly adopted by their board
of directors (or equivalent governing body), in a form satisfactory to Sellers,
approving the execution, delivery and performance of this Agreement and the
Related Documents to which they are a party and the consummation of the
transactions contemplated by this Agreement and those Related Documents.
(g) Employment Agreements. The Employment Agreements
executed by JAKKS US in favor of the Stockholders.
(h) Registration Rights Agreement. The Registration Rights
Agreement executed by JAKKS in favor of the Stockholders.
(i) Non-competition Agreement. The Non-competition
Agreements executed by JAKKS US in favor of the Stockholders.
(j) Opinions of Counsel. Sellers shall have received from
each of Feder, Kaszovitz, Isaacson, Weber, ▇▇▇▇▇, Bass & Rhine LLP and Eccles &
▇▇▇ an opinion,
42
dated the Closing Date and addressed to Sellers, in substantially the form
attached hereto as Exhibit E.
(k) AdvanTech Service Agreement. JAKKS US shall have
entered into a service agreement with AdvanTech with respect to the US Hired
Employees that, with the exception of its term, is substantially similar to the
AdvanTech service agreements in effect with Sellers prior to Closing.
(l) Paychex Adoption Agreement. JAKKS shall have entered
into an adoption agreement with Paychex to become the administrator of the
Company Plan as of the Effective Time.
(m) Such other certificates, instruments and documents as
may reasonably be requested by Sellers.
7. Certain Additional Covenants.
7.1 Post-Closing Access to Information. Sellers and Purchasers
acknowledge that subsequent to Closing each party may need access to information
or documents in the control or possession of the other party (or their
Affiliates) for the purposes of, among others, concluding the transactions set
forth herein, audits, compliance with governmental requirements and regulations,
the prosecution or defense of Third Party Claims and collection of accounts
receivable and payment of accounts payable. Accordingly, Sellers and Purchaser
agree that for a period of seven (7) years after Closing (and such longer period
of time as indemnification obligations exist under Article 8), each will, at the
expense of the requesting party and upon written request, make available during
normal business hours to the other's agents, independent auditors and/or
Government Entities such documents and information as may be available relating
to the Assets, the Excluded Assets, the Assumed Obligations and the Excluded
Liabilities for periods prior and subsequent to Closing to the extent necessary
to facilitate the matters described above.
7.2 Preservation and Access to Records Pertaining to the Assets
After the Closing. After the Closing, Purchasers shall, in the ordinary course
of business and as required by Law, keep and preserve all employee records and
other records of the Sellers' operations existing as of the Closing and which
constitute a part of the Assets delivered to Purchasers at Closing; provided
that, Purchasers, at any time after the seventh anniversary of the Closing Date,
upon not less than sixty (60) days' prior written notice to the Company, on
behalf of Sellers, may dispose of such records in its possession relating to the
Assets or any of the transactions contemplated herein, in accordance with
Purchasers' record retention policies and applicable Law; provided further, that
the Company, on behalf of Sellers, may, at its own cost and expense, retain, or
make arrangements for the retention of, such records to which they would have a
right of access under this Section 7.2, if the Company, on behalf of Sellers,
notifies Purchasers in writing that Sellers desire to retain such records. Upon
reasonable notice during normal business hours at the sole cost and expense of
Sellers and upon Purchasers' receipt of appropriate consents and authorizations,
Purchasers shall afford to the representatives of the Company, on behalf of
Sellers, including its counsel and accountants, full and complete access to, and
copies of, the records transferred to Purchaser at the Closing. Any access to
the records of the Assets or
43
Purchasers' personnel granted to the Company, on behalf of Sellers, in this
Agreement shall be upon the condition that any such access shall be conducted in
a manner by the Company so as not to materially interfere with the business
operations of Purchasers.
7.3 Litigation Cooperation. After the Closing and subject to the
provisions of Article 8 hereof, upon prior reasonable written request and with
the reimbursement of reasonable out-of-pocket expenses paid by the party making
the request, each party shall cooperate with the other in furnishing
information, testimony and other assistance in connection with any Actions, Tax
audits, or arrangements involving any of the parties hereto (other than in
connection with disputes between the parties hereto) and based upon contracts,
arrangements or acts of any party or any of their Affiliates that were in effect
or occurred on or prior to Closing or that related to the Assets, including,
without limitation, arranging discussions with, and the calling as witnesses of,
officers, directors, employees, agents and representatives of the parties
hereto.
7.4 Allocation of Closing Purchase Price. After the Closing, the
parties shall cooperate in good faith to agree on a fair and reasonable
allocation of the Closing Purchase Price among the Assets, which allocation
shall take into account Schedule 6.2(l) hereto, as required by Section 1060 of
the Code and Treasury Regulations promulgated thereunder and any applicable
foreign law. If the parties do not reach agreement on such allocation within ten
(10) Business Days from the Closing Date, the specific matters in dispute among
the parties regarding such allocation shall be submitted to the Arbitrating
Accountants, which firm shall make a final and binding determination as to such
matter or matters. The Arbitrating Accountants shall deliver to the parties
their written determination regarding the matters submitted to them within ten
(10) Business Days, which determination shall be binding and conclusive upon all
parties with respect to the allocation of the Closing Purchase Price. Fees and
expenses of the Arbitrating Accountants shall be paid 50% by Purchasers and 50%
by Sellers. Upon determination of the allocation of the Closing Purchase Price
in accordance with this Section 7.4, Sellers and Purchasers shall file all
required information and tax returns (and any amendments thereto) in a manner
consistent with this Section 7.4 and comply with the information reporting
requirements of Section 1060 of the Code and Treasury Regulations promulgated
thereunder and any applicable foreign law. If, contrary to the intent of the
parties hereto as expressed in this Section 7.4, any U.S. or foreign taxing
authority makes or proposes an allocation different from that contained in this
Section 7.4, Sellers and Purchasers shall cooperate with each other in good
faith to contest such taxing authority's allocation (or proposed allocation);
provided, however, that, after consultation with the party adversely affected by
such allocation (or proposed allocation), another party hereto may file such
protective claims or returns as may reasonably be required to protect its
interests. JAKKS agrees to indemnify and hold harmless each of the Sellers from
any Losses arising out of or resulting from any reallocation of the Closing
Purchase Price among the Assets that is required by any U.S. or foreign taxing
authority.
7.5 Additional Covenants relating to Employees and Employee
Benefits.
(a) Employment of U.S. Employees. As of or prior to the
Closing, but subject to the consummation of the transactions contemplated by
this Agreement, JAKKS US shall offer full-time or temporary employment to (or
cause AdvanTech to offer or continue full-time or temporary employment of, and
obtain from AdvanTech pursuant to the service agreement referred to in Section
6.3(k) the services of) each of the individuals who is co-
44
employed by the Company and PA Distribution, other than the Stockholders who are
entering into the Employment Agreements, on the Closing Date and identified on
Schedule 7.5(a) hereto (each, a "US Offer Employee"), in accordance with the
following provisions: (i) the date on which the employment by Purchasers (or
first receipt by Purchasers through AdvanTech of the services of) each US Offer
Employee who accepts such offer of employment shall become effective (the "US
Effective Date of Employment") shall be the first day after the Closing Date
(each such US Offer Employee who becomes so employed by (or whose services are
supplied by AdvanTech to) JAKKS US hereinafter being referred to as a "US Hired
Employee" from and after the US Effective Date of Employment), (ii) the initial
salary and base wage compensation payable to each US Hired Employee as of the US
Effective Date of Employment shall be not less than the amount set forth on
Schedule 4.18(c) for such US Hired Employee, (iii) JAKKS US shall (or shall
cause AdvanTech to) provide the US Hired Employees with employee benefits that
are, in the aggregate, comparable to those benefits provided to similarly
situated employees of JAKKS, (iv) JAKKS US shall (or shall cause AdvanTech to)
credit for purposes of such employee benefits (including vacation and all other
terms and conditions of employment dependent in whole or in part on service or
seniority) all applicable service of such US Hired Employees with the Company
and PA Distribution, and (v) for each US Offer Employee on leave of absence as
of the Closing Date, or who was terminated prior to the Closing Date subject to
reemployment or reinstatement rights in effect as of the Closing Date, JAKKS US
shall (or shall cause AdvanTech to) reemploy or reinstate such US Offer Employee
as a US Hired Employee to the same extent as the Company or PA Distribution
would be required to reemploy or reinstate such individual but for the
transaction contemplated by this Agreement.
(b) The Company's and PA Distribution's Obligations. Prior
to Closing, the Company and PA Distribution shall provide written notice, which
notice shall be subject to JAKKS US's prior review and approval, to all of their
respective employees indicating that their employment by the Company and PA
Distribution, as the case may be, shall terminate at the close of business on
the Closing Date; provided, that, with respect to employees employed or
co-employed by AdvanTech such notice may be provided by, or be subject to the
prior review and approval of, AdvanTech.
(c) Purchasers' Obligations. At Closing, JAKKS US shall
undertake those activities as may be required by Paychex to complete the
transfer to JAKKS of sponsorship of the Play Along, Inc. 401(k) Profit Sharing
Plan (the "Company Plan") as of the Effective Time, and shall assume the rights
and obligations of sponsor and employer under any other Employee Plan (if any)
sponsored by the Company and PA Distribution (other than an Employee Plan (A)
maintained by AdvanTech or (B) to the extent that it is for the benefit of any
or all of the Stockholders or their respective dependents) immediately prior to
the Closing Date. Nothing in this subsection (d) shall restrict the right of
JAKKS US or JAKKS to amend, merge, or terminate the Company Plan or any other
Employee Plan (if any) assumed as set forth above, at any time after the
Closing.
(d) WARN. Since JAKKS US agrees to offer employment to all
of the US Offer Employees, the actions to be taken hereunder with respect to the
Company and PA Distribution's employees are not anticipated to create any
liability or obligation with respect to the WARN Act, and the Company and PA
Distribution will have no obligation to provide the
45
Hired Employees and appropriate state and local government units with notice
under the WARN Act. In the event that an issue arises under the WARN Act as a
result of JAKKS US's actions following the Closing Date, JAKKS US agrees to
indemnify and hold the Company and PA Distribution harmless for any and all
liability, defense costs and attorneys' fees, as well as backpay, that the
Company and PA Distribution may incur in connection with claims or litigation
relating to the WARN Act.
(e) AdvanTech Obligations. JAKKS US shall assume from
Sellers, the Company and PA Distribution all liability, responsibility and
obligations for obligations to AdvanTech or employees (including unemployment
compensation and COBRA continuation coverage to the extent such obligations
arise under the service agreements between AdvanTech and Sellers), if any, that
would otherwise be a liability of Sellers, the Company or PA Distribution under
Sections 8(D) and 8(E) of the AdvanTech service agreements in effect with
Sellers, the Company or PA Distribution immediately prior to Closing in the
event of termination of such AdvanTech service agreements.
(f) HK Employees. As of or prior to the Closing, PA Hong
Kong and JAKKS HK shall jointly inform each of the individuals who is employed
by PA Hong Kong and identified on Schedule 7.5(f) hereto (each, a "HK Offer
Employee") of the sale of the Assets hereby agreed and will issue a joint letter
in accordance with the following provisions: (i) giving notice of termination of
his employment with PA Hong Kong with effect from the first day after the
Closing Date (the "HK Effective Date of Employment"), and (ii) containing an
offer by JAKKS HK of re-engagement with immediate effect of each HK Offer
Employee on terms no less favorable than the existing terms of employment;
provided, that, the initial salary and base wage compensation payable to each HK
Hired Employee as of the HK Effective Date of Employment shall be not less than
the amount set forth in Schedule 4.18(c) for such HK Hired Employee. Each such
HK Offer Employee who becomes so employed by JAKKS HK hereinafter being referred
to as a "HK Hired Employee" from and after the HK Effective Date of Employment.
(g) HK Retirement Scheme.
(i) If all HK Offer Employees accept the offer of
employment made by JAKKS HK and become HK Hired Employees pursuant to Section
7.5(f) hereof, then, (A) in respect of such HK Hired Employees and subject to
the agreement of the trustee of the PA Hong Kong Scheme, PA Hong Kong agrees to
assign to JAKKS HK, and JAKKS HK agrees to assume, all the rights, obligations
and liabilities of PA Hong Kong under the PA Hong Kong Scheme with effect from
the HK Effective Date of Employment (and for the purpose of this Section, the PA
Hong Kong Scheme shall be referred to as the "JAKKS HK Scheme" after the
assignment); (B) for the purpose of the participation of each HK Hired Employee
under the ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇ agrees that the years of service of the HK
Hired Employee with JAKKS HK shall include the years of service of such HK Hired
Employee with PA Hong Kong; and (C) JAKKS HK agrees to execute such documents as
may be necessary to give effect to the assignment provided herein.
(ii) If there is any HK Offer Employee who does not
accept the offer of employment made by JAKKS HK under Section 7.5(f) hereof,
then, JAKKS HK
46
undertakes to establish its own mandatory provident fund scheme (the "New JAKKS
HK Scheme") by participating in a Master MPF Scheme and enroll the HK Hired
Employees as members of the New JAKKS HK Scheme with effect from the HK
Effective Date of Employment. JAKKS HK further agrees and undertakes that the
terms of the retirement benefits provided to the HK Hired Employees under New
JAKKS HK Scheme shall be no less favorable than those provided under the PA Hong
Kong Scheme. For the purpose of the participation of each HK Hired Employee
under the New JAKKS HK Scheme, JAKKS HK agrees that the years of service of the
HK Hired Employee with JAKKS HK shall include the years of service of such HK
Hired Employee with PA Hong Kong, and JAKKS HK shall procure the trustee of the
JAKKS HK Scheme to give effect to the same.
(h) No Rights to Employees. Notwithstanding any provision
herein, no term of this Agreement shall be deemed to create any contract between
any Purchaser or JAKKS and any employee that gives the employee the right to be
retained in the continued employment of any Purchaser or any related employer.
The representations, warranties, covenants and agreements contained herein are
for the sole benefit of the parties hereto, and employees and former employees
of Sellers (other than the Stockholders) are not intended to be and shall not be
construed as beneficiaries hereof.
7.6 Delivery of Property Received by Sellers or Purchasers After
Closing. Sellers agree that they will transfer or deliver to Purchasers,
promptly after the receipt thereof, any cash or other property which any Seller
receives after the Closing Date in respect of any Assets transferred or intended
to be transferred to Purchasers under this Agreement. In addition, Purchasers
agree that they will transfer or deliver to the Company, on behalf of Sellers,
promptly after receipt thereof, any property which Purchasers receive after the
Closing Date in respect of any Excluded Assets not transferred or intended to be
transferred to Purchasers under this Agreement.
7.7 JAKKS Appointed Attorney for Sellers. Sellers, effective at
the Closing Date, hereby constitute and appoint JAKKS, its successors and
assigns, the true and lawful attorney of Sellers, in the name of either JAKKS or
Sellers (as JAKKS shall determine in its sole discretion) but for the benefit of
JAKKS: (i) to institute and prosecute all proceedings which JAKKS may deem
proper in order to collect, assert or enforce any claim, right or title of any
kind in or to the Assets as provided for in this Agreement; and (ii) to defend
or compromise any and all Actions, in respect of any of the Assets, and to do
all such acts and things in relation thereto as JAKKS shall deem advisable;
provided, that, in no event shall this appointment apply with respect to the
indemnification matters set forth in Article 8. Sellers acknowledge that the
foregoing powers are coupled with an interest and shall be irrevocable. JAKKS
shall be entitled to retain for its own account any amounts collected pursuant
to the foregoing powers, including any amounts payable as interest in respect
thereof. JAKKS agrees to act in good faith in seeking to collect, assert or
enforce any Action against any third party in accordance with this Section 7.7.
7.8 Payment of Liabilities. Following the Closing Date,
Purchasers and Sellers agree to discharge in accordance with their terms the
Assumed Obligations and the Excluded Liabilities, respectively.
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7.9 Taxes.
(a) Tax Returns Through Closing Date. Sellers shall
prepare and file on a timely basis all Tax Returns relating to the Assets with
respect to all periods through and to the Closing Date and shall pay or cause to
be paid when due all Taxes relating to the Assets for such periods, except as
otherwise assumed by Purchasers pursuant to this Agreement.
(b) Subsequent Liability. If, subsequent to the Closing
Date, any liability for Taxes relating to the Assets or the conduct of Sellers
and/or the Stockholders is imposed on Purchasers and/or JAKKS with respect to
any period prior to and including the Closing Date, then, Sellers and
Stockholders, unless the liability is reflected on the Closing Balance Sheet, is
disclosed on Schedule 4.11(a) or otherwise relates to any additional Taxes (but
specifically excluding any related interest, fines or penalties) levied with
respect to PA Hong Kong's business operations as reflected in its fiscal 2003
and March, 2004 Tax Returns, shall, jointly and severally, indemnify and hold
Purchasers and JAKKS harmless, from and against, and shall pay, the full amount
of, such Tax liability (as well as reasonable attorneys', accountants' or other
fees and disbursements of Purchasers and JAKKS incurred in determination thereof
or in connection therewith as provided in Section 8.4), or Sellers shall, at
their sole expense and in their reasonable discretion, settle any Tax claim that
may be the subject of indemnification under this Section 7.9(b) at such time and
on such terms as they shall deem appropriate or assume the entire defense
thereof; provided, that, Sellers shall not in any event take any position in
such settlement or defense that subjects Purchasers, JAKKS or their Affiliates
to any civil fraud or any civil or criminal penalty. If, subsequent to the
Closing Date, any additional liability for Taxes (but specifically excluding any
related interest, fines or penalties) is imposed on PA Hong Kong concerning its
business operations as reflected in its fiscal 2003 and March, 2004 Tax Returns,
then JAKKS HK shall indemnify and hold PA Hong Kong harmless, from and against,
and shall pay, the full amount of, such additional Tax liability (with the
exception of any related interest, fines or penalties) but PA Hong Kong shall be
solely responsible for any reasonable attorneys', accountants' or other third
party fees and disbursements incurred by JAKKS HK (in consultation with PA Hong
Kong) in the settlement or defense of such matter. Notwithstanding the
foregoing, Sellers shall not consent, without the prior written consent of
Purchasers and JAKKS, to any change in the treatment of any item which would, in
any manner whatsoever, adversely affect the tax liability of Purchasers, JAKKS
or their Affiliates for a period subsequent to the Closing Date.
(c) Certain Taxes. Except for any Taxes and fees payable
with respect to the issuance of the JAKKS Shares at Closing, which Taxes and
fees shall be the responsibility of JAKKS, all transfer, documentary, sales,
use, stamp, registration and other such Taxes and fees (including any penalties
and interest) incurred in connection with the consummation of the transactions
contemplated by this Agreement shall be paid by Sellers when due. Sellers will,
at their own expense, file all necessary Tax Returns and other documentation
with respect to all such transfer, documentary, sales, use, stamp, registration
and other Taxes and fees, and, if required by applicable Law, Purchasers will
join in the execution of any such Tax Returns and other documentation.
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7.10 Third Party Consents.
(a) In the event that as of the Closing Date any required
consents, approvals and waivers have not been obtained by the parties, the
Stockholders, Purchasers and Sellers will cooperate and use their respective
commercially reasonable efforts to obtain as promptly as practicable following
Closing all consents, approvals and waivers which have not been obtained as of
the Closing Date required by third Persons to transfer the Assumed Contracts in
a manner that will avoid any default, conflict or termination of rights under
the Assumed Contracts. Notwithstanding anything to the contrary in this
Agreement, nothing in this Section 7.10(a) shall require the Stockholders,
Purchasers or Sellers to expend any material sum, make a material financial
commitment or grant or agree to any material concession to any third Person to
obtain any such consent, approval or waiver.
(b) In the event that any and all consents, approvals or
waivers necessary for the assignment, transfer or novation of any Assumed
Contract, or any claim, right or benefit arising thereunder or resulting
therefrom, or consents relating to sale of substantially all of the Assets,
shall not have been obtained prior to the Closing Date, then as of the Closing,
this Agreement, to the extent permitted by Law, shall constitute full and
equitable assignment by Sellers to Purchasers of all of Sellers' right, title
and interest in and to, and all of Sellers' obligations and liabilities as of
the Effective Time under, such Assumed Contract, and Purchasers shall each be
deemed Sellers' agent for purposes of completing, fulfilling and discharging the
Assumed Obligations under any Assumed Contract. The parties shall take all
reasonably necessary steps and actions to provide Purchasers with the benefits
of such Contracts, and to relieve Sellers of the performance and other
obligations thereunder arising after the Effective Time. Purchasers agrees to
pay, perform and discharge, and Purchasers agree to indemnify Sellers against
and hold Sellers harmless from, all obligations and liabilities of Sellers
relating to such performance or failure to perform under such Contracts arising
after the Effective Time. To the extent required in order to obtain a consent,
approval or waiver to the transfer of any Contract described in Section 7.10(a),
JAKKS agrees to pay, perform and discharge all obligations and liabilities of
Sellers relating to such performance or failure to perform under any such
Contract arising after the Effective Time.
(c) In the event Sellers shall be unable to make the
equitable assignment described in Section 7.10(b), or if such attempted
assignment would give rise to any right of termination, or would otherwise
adversely affect the rights of Sellers or Purchasers under such Contract, or
would not assign all of Sellers' rights thereunder at the Closing, Sellers and
Purchasers shall continue to cooperate and use all reasonable efforts to provide
Purchasers with all such rights. To the extent that any such consents and
waivers are not obtained, or until the impediments to such assignments are
resolved, Sellers shall use all reasonable efforts to (i) provide to Purchasers,
at their request, the benefits of any such Contract, (ii) cooperate in any
lawful arrangement designed to provide such benefits to Purchasers, and (iii)
enforce, at the request of and for the account of Purchasers, any rights of
Sellers arising from any such Contract against any third Person, including the
right to elect to terminate in accordance with the terms thereof upon the advise
of Purchasers. To the extent that Purchasers are provided the benefits of any
Contract referred to herein (whether from Sellers or otherwise), Purchasers
shall perform the obligations of Sellers thereunder, and Purchasers agree to
pay, perform and discharge, and
49
Purchasers agree to indemnify Sellers against and hold Sellers harmless from,
all obligations and liabilities of Sellers relating to such performance or
failure to perform (but only to the extent such obligations or liabilities arise
solely from acts of Purchaser after the Effective Time).
7.11 Intellectual Property Matters. The Stockholders'
Representative will promptly perform all acts and execute all documents,
irrevocable powers of attorney, certificates, affidavits, instruments and
agreements, including instruments of assignment in forms suitable for recording
with the United States Patent and Trademark Office, The United States Register
of Copyrights or any corresponding foreign office or agency, requested by the
Purchaser at any time to evidence, maintain, record, perfect, document or
enforce the Purchaser's interest in the Trade Rights set forth on Schedule
4.15(a) or otherwise in furtherance of the provisions of this Agreement and the
transactions contemplated hereby.
7.12 Post-Closing Management of Play Along Business
(a) During the Earn-out Period, provided that as of the
end of the most recently completed Review Period there is no decline in the
Adjusted Gross Profit as compared to the end of the prior Review Period (except
with respect to the Adjusted Gross Profit for the 2004 Review Period, which will
be compared to the Base), JAKKS and Purchasers, acting in good faith, shall (i)
operate and permit the Stockholders as employees of JAKKS or a Purchaser to
operate the Play Along Business in the manner substantially similar to the
manner that the Play Along Business was operated during the twenty-four month
period prior to the Effective Date (unless those practices are unreasonable and
not consistent with prudent business practices), subject to the other provisions
of Sections 7.12(a) and (b), and (ii) make funds, personnel and resources
available on a timely basis so that the covenant in clause (i) above can be
accomplished in a reasonable manner consistent with the amount and nature of
same as a percentage of sales that were expended or used in the operation of the
Play Along Business as operated as of the Closing Date or as set forth in the
projections attached as Schedule 7.12(a), and (iii) not take any action (other
than actions enforcing JAKKS' or a Purchaser's rights under any other agreement
between them and Sellers or Stockholders) that would have the reasonably
foreseeable consequence of reducing the Stockholders' ability as employees of
JAKKS or a Purchaser to operate the Play Along Business and Sellers' ability to
receive the Post-Closing Payments, and (iv) cause Purchasers to be maintained as
separate wholly-owned subsidiaries of JAKKS, which will be operated independent
of any other subsidiary of JAKKS and shall only sell Play Along Products. For
the avoidance of doubt and notwithstanding anything in this Agreement or the
Related Documents to the contrary, the parties agree that, to the extent Sellers
have not obtained at Closing one or more consents to assignment required under
any of the Assumed Contracts, JAKKS and Purchasers shall be under no obligation
during the Earn-out Period to pay any consideration (whether in the form of a
one-time payment, increased royalty rate or guarantee or otherwise) or make any
other concession necessary to obtain the consent to assignment required under
those Assumed Contracts unless Purchasers and Stockholders agree that such
consideration or the economic effect of such concession shall become an
adjustment to EBITDA and/or Adjusted Gross Profit. During the Earn-out Period,
none of JAKKS or Purchasers will take any of the following actions without the
prior written approval of a majority of the Stockholders: (i) sell, lease or
otherwise dispose of all or a material portion of the consolidated assets of
Purchasers; or (ii) effect any transaction that would be a consolidation or
50
merger of Purchasers with or into any other corporation or corporations or the
sale, transfer or assignment of securities of Purchasers, unless the obligations
of JAKKS and Purchasers in this Section 7.12(a) are assumed by the transferee or
successor or surviving entity.
(b) Notwithstanding the restrictions on JAKKS and
Purchasers in Section 7.12(a), (i) each of Sellers and Stockholders acknowledge
that they will work with JAKKS and Purchasers to implement reasonable operating
efficiencies to the extent possible by consolidating certain general and
administrative, legal, accounting, warehousing and shipping functions and
overseas operations that are duplicated by JAKKS' and/or its Affiliates and
Seller's staff; provided, that, the implementation of any suggested change by
JAKKS and/or Purchasers pursuant to this Section 7.12(b), other than a change to
outside legal or accounting firms, shall be subject to the consent of a majority
of the Stockholders, which consent shall not be unreasonably withheld or delayed
(the reasonableness of the granting or denial of such consent shall be
determined by whether the requested change would interfere in a material manner
with the maximization of Adjusted Gross Profit during the Earn-out Period);
provided, further, that the foregoing consent of the Stockholders shall be
required only for so long as there is no decline in the Adjusted Gross Profit as
of the end of the most recently completed Review Period as compared to the end
of the prior Review Period (except with respect to the Adjusted Gross Profit for
the 2004 Review Period, which will be compared to the Base), and (ii) such
restrictions shall not be applied in a manner that would interfere with JAKKS'
ability to implement such internal controls that satisfy the requirements of the
legislation known as the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, the term "internal
controls" being used in the same manner as under such legislation, or with
JAKKS' ability to fulfill its reporting requirements under the Securities Act
and Exchange Act.
7.13 Securities Law Filings. Sellers and the Stockholders shall,
and shall cause the accountants of Sellers' to, cooperate with JAKKS and its
accountants in the provision of such information and documents as may be
reasonably required in order to complete any filings required under the Exchange
Act or other United States securities laws or Blue Sky Laws relating to the
transactions contemplated by this Agreement. JAKKS shall reimburse Sellers'
accountants for all reasonable fees and expenses incurred by them in providing
such cooperation.
7.14 Transfer of Domain Names. Sellers shall respond
affirmatively to the request from the Registrar for the transfer of the Domain
Names within 24 hours of its receipt by Sellers, and provide all required
documentation in accordance therewith. Sellers do hereby covenant and agree with
Purchasers to provide, execute, or send such other information, electronic mail
messages, instruments or other documents and to take such other and further
actions as may be necessary or appropriate to accomplish the transfer of the
Domain Names upon Purchasers' reasonable request. Sellers do hereby covenant and
agree with Purchasers that Purchasers may take control of the Domain Names
immediately upon transfer by Registrar.
7.15 Company Name. Sellers expressly agree that, on and after the
Closing Date, no Seller shall have any right, title or interest in any trade
names, trademarks, identifying logos or service marks employing the words "Play
Along," or any variation thereof or any other trademarks, service marks, product
line names, trade dress or other Trade Rights included among the Assets or
confusingly similar thereto. Each Seller agrees that without the prior written
consent of Purchasers, neither it nor any of its Affiliates shall make any use
of the name "Play
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Along" or any variation thereof from and after the Closing Date. Each Seller
shall provide to Purchasers at Closing, for that Seller and each of its
subsidiaries, a certified copy of the board and stockholder resolutions
effectuating a name change as well as a fully executed amendment to its
Certificate of Incorporation (or equivalent document). Purchasers shall be
authorized to file such amendments on the Sellers' behalf at any time after the
Closing.
7.16 Access Codes and Combinations. Immediately following the
Closing, Sellers and Stockholders shall cooperate with and notify Purchasers
with regard to all source and access codes to computers that are included among
the Assets and that Sellers are licensed and authorized to divulge, combinations
to safe(s) and the location of keys to safe deposit boxes, and vehicles, if any,
concerning the Play Along Business.
7.17 Guaranty.
(a) JAKKS unconditionally guarantees the full and prompt
payment and performance, when due, and at all times thereafter, of all
obligations of Purchasers to Sellers or Stockholders under this Agreement and to
fund the respective financial obligations of Purchasers under each Stockholder's
Employment Agreement as well as the Related Documents to the extent JAKKS is not
a primary obligor thereunder ("JAKKS Guaranty"). This is a guaranty of payment
and performance and is not a guaranty of collection. JAKKS's obligations under
the JAKKS Guaranty will not be limited or abrogated by the waiver, consent,
extension, forbearance or granting of any indulgence by Sellers or Stockholders
with respect to any provision or obligation under the Agreement. JAKKS hereby
waives any requirement of law that Sellers must exhaust any remedy against
Purchasers before proceeding against JAKKS.
(b) Each of the Stockholders unconditionally guarantees
the full and prompt payment and performance, when due, and at all times
thereafter, of all obligations of Sellers under this Agreement ("Stockholders
Guaranty"). This is a guaranty of payment and performance and is not a guaranty
of collection. Each of the Stockholder's obligations under the Stockholders
Guaranty will not be limited or abrogated by the waiver, consent, extension,
forbearance or granting of any indulgence by Purchasers or JAKKS with respect to
any provision or obligation under the Agreement. Each of the Stockholders hereby
waives any requirement of law that Purchasers and/or JAKKS must exhaust any
remedy against Sellers before proceeding against all or any of the Stockholders.
8. Indemnification.
8.1 By Sellers and Stockholders. In addition to their respective
indemnification obligations set forth elsewhere in this Agreement, Sellers and
Stockholders, jointly and severally, will, subject to Sections 8.3 and 9.8,
defend, indemnify and hold harmless each Purchaser, JAKKS and their respective
Affiliates, officers, directors, stockholders, employees, agents and successors
and assigns from and against any and all damages, losses, liabilities, expenses
(including reasonable fees and disbursements of counsel), Actions, Encumbrances
and other obligations whatsoever (individually a "Loss" and, collectively,
"Losses"), arising out of, resulting from or otherwise relating to (i) any
inaccuracy, misrepresentation or breach of any of their respective
representations and warranties in this Agreement, the schedules or exhibits
hereto or in the Related Documents delivered by Sellers
52
and/or Stockholders pursuant to this Agreement, with the exception of the
representations and warranties set forth in Sections 4.5 and 4.9, (ii) any
breach of any of their respective covenants and agreements in this Agreement,
the schedules or exhibits hereto or in the Related Documents delivered by
Sellers and/or Stockholders pursuant to this Agreement, (iii) any inaccuracy,
misrepresentation or breach of their respective representations and warranties
in Sections 4.5 and 4.9 of this Agreement, and (iv) the Excluded Assets or
Excluded Liabilities.
8.2 By Purchasers and JAKKS. In addition to their respective
indemnification obligations set forth elsewhere in this Agreement, Purchasers
and JAKKS, jointly and severally, will, subject to Sections 8.3 and 9.8, defend,
indemnify and hold harmless Sellers and Stockholders and their respective
Affiliates, officers, directors, stockholders, employees, agents, successors and
assigns from and against any and all Losses arising out of, resulting from or
otherwise relating to (i) any inaccuracy, misrepresentation or breach of any of
Purchasers' and JAKKS' representations and warranties in this Agreement, the
schedules or exhibits hereto or in the Related Documents delivered by Purchasers
and/or JAKKS pursuant to this Agreement, with the exception of the
representations and warranties set forth in Sections 5.7 and 5.8, (ii) any
breach of any of their respective covenants and agreements in this Agreement,
the schedules or exhibits hereto or in the Related Documents delivered by
Purchasers and/or JAKKS pursuant to this Agreement, including any of the
obligations or duties to or in relation to the employment of any of the HK Offer
Employees or HK Hired Employees following Closing (including any liability
arising out of the termination or dismissal of any HK Offer Employees or out of
any change of employer occurring by virtue of this Agreement), (iii) the
termination of employment of the HK Offer Employees with PA Hong Kong and the
transfer of their employment from PA Hong Kong to JAKKS HK, (iv) the transfer
and assignment of the PA Hong Kong Scheme (as defined in Section 7.5(g)) from PA
Hong Kong to JAKKS HK, and/or the transfer and assignment of any employee
benefits plan of the HK Offer Employees from PA Hong Kong to JAKKS HK, (v) any
inaccuracy, misrepresentation or breach of their respective representations and
warranties in Sections 5.7 and 5.8 of this Agreement, (vi) the Assumed
Obligations, and (vii) any Third Party Claims pertaining to Product Liability
and the Play Along Products except to the extent such Losses result from any
inaccuracy, misrepresentation or breach of the representations and warranties
set forth in Section 4.22.
8.3 Limitations.
(a) The Sellers and Stockholders shall be obligated to
indemnify for Losses (determined without regard to any materiality qualification
contained in any representation, warranty or covenant giving rise to a claim for
indemnity hereunder) arising out of, resulting from or otherwise relating to any
of the events described in clause (i) of Section 8.1 only to the extent that the
aggregate amount of such Losses exceed Two Million Dollars ($2,000,000). The
Purchasers and JAKKS shall be obligated to indemnify for Losses (determined
without regard to any materiality qualification contained in any representation,
warranty or covenant giving rise to a claim for indemnity hereunder) arising out
of, resulting from or otherwise relating to any of the events described in
clause (i) of Section 8.2 only to the extent that such Losses exceed Two Million
Dollars ($2,000,000).
(b) In no event shall the aggregate indemnification
liability of Sellers and Stockholders pursuant to Section 8.1 exceed the sum of
$43,000,000; provided, however,
53
that such limitation shall not apply to any obligation to indemnify for Losses
from Actions brought on the basis of intentional misrepresentation or fraud or
Losses arising out of, resulting from or otherwise relating to the Excluded
Assets or Excluded Liabilities. In no event shall the aggregate indemnification
liability of Purchasers and JAKKS pursuant to Section 8.2 exceed $43,000,000;
provided, however, that such limitation shall not apply to any obligation to
indemnify for Losses from Actions brought on the basis of intentional
misrepresentation or fraud or Losses arising out of, resulting from or otherwise
relating to the Assumed Obligations.
(c) The amount of any Losses for which indemnification is
provided under this Agreement (whether pursuant to this Article 8 or otherwise)
shall be limited to the net after-tax effect of actual damages and shall be
reduced by the amount of any insurance proceeds received by the Indemnified
Party pursuant to any insurance policy as a result of the Losses giving rise to
such indemnification payment. Notwithstanding anything herein to the contrary,
in the absence of intentional misrepresentation or fraud no party shall be held
liable for consequential, special or punitive damages.
(d) In the event of the breach of any representation,
warranty, covenant or agreement contained in this Agreement, the schedules and
exhibits hereto or in the Related Documents, other than the right to bring an
action for intentional misrepresentation or fraud, the sole and exclusive right
and remedy of the parties hereto for money damages shall be a claim for
indemnification (i) pursuant to this Article 8 and/or (ii) as provided by the
specific covenant or agreement at issue.
8.4 Procedural Matters.
(a) A party intending to claim indemnification under this
Agreement (whether pursuant to this Article 8 or otherwise) ("Indemnified
Party") must notify, in writing, the party from whom indemnification is sought
("Indemnifying Party") promptly after learning of any Loss, Action or any other
fact which, if true, would entitle the Indemnified Party to indemnification
under this Agreement (the "Notice of Claim"); provided, however, the Indemnified
Party's failure to give prompt notice shall not constitute a defense (in whole
or in part) to any claim by the Indemnified Party against the Indemnifying Party
for indemnification, except and only to the extent that such failure shall have
caused or materially increased such liability or materially and adversely
affected the ability of the Indemnifying Party to defend against or reduce its
liability.
(i) A Notice of Claim shall set forth (A) a brief
description of the nature of the potential or actual Loss and (B) to the extent
then feasible the total amount of Loss anticipated (including any costs or
expenses that have been or may be reasonably incurred in connection therewith).
Payment of the amount of actual Loss due the Indemnified Party as set forth in a
Notice of Claim shall be made by the Indemnifying Party no later than the
thirtieth (30th) day after the date of the Notice of Claim (or such later date
as the Indemnifying Party receives written notice that an actual Loss has
occurred), unless the provisions of subsection 8.4(a)(ii) are applicable.
(ii) If the Indemnifying Party (acting reasonably)
shall reject any Loss as to which a Notice of Claim is sent by the Indemnified
Party, the Indemnifying Party
54
shall give written notice of such rejection to the Indemnified Party within
thirty (30) days after receipt of the Notice of Claim. Upon such rejection, the
parties shall attempt in good faith to resolve any disagreement, and payment of
the amount of actual Loss shall be made by the Indemnifying Party within five
(5) days of mutual resolution of any disagreement. If any such disagreement
remains unresolved as of the forty-fifth (45th) day after receipt of the Notice
of Claim, the dispute shall be determined by an independent third party selected
jointly by Purchasers and Sellers, and the decision of such third party shall,
in the absence of manifest error, be final and binding on all parties. If the
Notice of Claim is determined by such third party to be proper, payment of the
amount of Loss due the Indemnified Party as set forth in the Notice of Claim
shall be made by the Indemnifying Party no later than the fifth (5th) business
day after such determination is rendered.
(b) As a condition precedent to any claim by an
Indemnified Party for indemnification under this Agreement for any Action
instituted by a third party the liability or the costs or expenses of which are
Losses (a "Third Party Claim"), the Indemnified Party must tender the defense of
the Third Party Claim to the Indemnifying Party in the Notice of Claim. The
Indemnifying Party may undertake the defense of the Third Party Claim with
counsel reasonably acceptable to the Indemnified Party by notice to the
Indemnified Party not later than thirty (30) days after receiving notice of such
Third Party Claim.
(c) The Indemnifying Party's failure to confirm to the
Indemnified Party that it will undertake such defense shall be deemed to be a
waiver by the Indemnifying Party of its right to undertake the defense of that
Third Party Claim. If, however, the Indemnifying Party undertakes the defense of
a Third Party Claim, the Indemnified Party will, at the Indemnifying Party's
expense, (i) reasonably cooperate with the Indemnifying Party and its counsel in
the investigation and defense of that Third Party Claim and (ii) have the right
to participate in such investigation and defense; provided, that, the
Indemnifying Party will control the negotiation, tactics, trial, appeals and
other matters and proceedings related to that claim, except that the
Indemnifying Party will not, without the prior written consent of the
Indemnified Party, require the Indemnified Party to take or refrain from taking
any action, or make any public statement, which the Indemnified Party reasonably
considers to be against its interest, or consent to any settlement that requires
the Indemnified Party to make any payment that is not fully indemnified by the
Indemnifying Party under this Agreement.
(d) If the Indemnifying Party does not undertake the
defense of any Third Party Claim, the Indemnified Party, at the expense of the
Indemnifying Party, may undertake the defense of that claim with counsel of its
choosing and the Indemnifying Party in that event shall reasonably cooperate
with the Indemnified Party and its counsel in the investigation and defense of
that Third Party Claim, but the Indemnified Party will control such
investigation and defense at the expense of the Indemnifying Party.
(e) Notwithstanding anything contained in this Section 8.4
to the contrary, if both the Indemnifying Party and the Indemnified Party are
named as parties or subject to such Third Party Claim and either such party
determines with advice of counsel that a material conflict of interest between
such parties may exist in respect of such Third Party Claim, the Indemnifying
Party may decline to assume the defense on behalf of the Indemnified Party or
the Indemnified Party may retain the defense on its own behalf, and, in either
such case, after
55
notice to such effect is duly given hereunder to the other party, the
Indemnifying Party shall be relieved of any obligation to assume the defense on
behalf of the Indemnified Party, but shall be required to pay the out-of-pocket
legal costs and expenses (such as reasonable attorneys' fees and disbursements)
of such defense; provided, however, that the Indemnifying Party shall not be
liable for such expenses on account of more than one separate firm of attorneys
(and, if necessary, local counsel) at any time representing such Indemnified
Party in connection with any Third Party Claim or separate Third Party Claim in
the same jurisdiction arising out of or based upon substantially the same
allegations or circumstances.
(f) The Indemnified Party and the Indemnifying Party agree
to make available to each other, their counsel and other representatives, all
information and documents available to them that relate to any Third Party
Claim, and to render to each other such assistance as may reasonably be
requested to ensure the proper and adequate defense of such Third Party Claim.
(g) Each Indemnified Party shall take commercially
reasonable actions to mitigate Losses, including pursuing insurance claims and
Third Party Claims, and shall reasonably consult and cooperate with each
Indemnifying Party with a view towards mitigating Losses, in connection with
claims for which an Indemnified Person seeks indemnification hereunder.
9. Additional Provisions.
9.1 Successors and Assigns, Assignability, Beneficiaries. This
Agreement will be binding upon and will inure to the benefit of Sellers,
Purchasers and JAKKS and their respective successors and permitted assigns.
Neither this Agreement nor any obligation hereunder will be assignable except
with the prior written consent of Purchasers and Sellers. Notwithstanding the
preceding sentence, Purchasers and JAKKS may assign all or any part of their
respective rights and obligations under this Agreement to one or more
Affiliates, except as provided in Section 7.12. Nothing in this Agreement,
express or implied, is intended to confer on any Person (other than the parties
or their respective successors and permitted assigns) any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.2 Notices. All notices which are required by or may be given
pursuant to the terms of this Agreement must be in writing and must be delivered
personally, sent by certified mail, return receipt requested, postage prepaid,
facsimile (with written confirmation of transmission) provided, that, notice is
also sent via first class, postage prepaid, mail, or sent for next-day delivery
by a nationally recognized overnight delivery service as follows:
If to Sellers: Play Along, Inc. (to be changed to
EFG Toys, Inc.)
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
56
with a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Stockholders: To their respective addresses as set
forth on Schedule 9.2.
with a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Purchasers or JPI/V Acquisition Corp.
JAKKS: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
JP-PA (HK) Limited
▇▇▇▇ ▇▇▇, ▇-▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
Attn: Company Secretary
Tel. No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
JAKKS Pacific, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇, Kaszovitz, Isaacson, Skala, Weber,
Bass & Rhine LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
57
Any of the addresses set forth above may be changed from time to time by written
notice from the party requesting the change.
Such notices and other communications will be treated for all purposes
of this Agreement as being effective immediately if delivered personally or by
facsimile (with written confirmation of transmission), or five days after
mailing by certified mail, return receipt requested, first class postage
prepaid, or one day after deposit for next business day delivery by a nationally
recognized overnight delivery service.
9.3 Amendments and Waivers. The waiver, amendment or modification
of any provision of this Agreement or any right, power or remedy under this
Agreement, whether by agreement of the parties hereto or by custom, course of
dealing or trade practice, will not be effective unless in writing and signed by
the party or parties against whom enforcement of such waiver, amendment or
modification is sought. Except as otherwise provided in this Agreement, no
failure or delay by any party in exercising any right, power or remedy with
respect to any of the provisions of this Agreement will operate as a waiver of
such provisions or any other provisions.
9.4 Severability. If any provision of this Agreement or the
application of any such provision is held to be prohibited or unenforceable in
any jurisdiction, such provision will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability. The remaining provisions
of this Agreement will remain in full force and effect, and any such prohibition
or unenforceability in any jurisdiction will not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto will
use their best efforts to replace the provision that is contrary to law with a
legal one approximating to the extent possible the original intent of the
parties.
9.5 Exhibits. The schedules and exhibits that are attached to and
referred to in this Agreement are incorporated in and are an integral part of
this Agreement.
9.6 Integration and Entire Agreement. This Agreement and the
Related Documents set forth the entire understanding between the parties,
supersede all previous and contemporaneous written or oral negotiations,
commitments, understandings, and agreements relating to the subject matter of
this Agreement and the Related Documents and merge all prior and contemporaneous
discussions between or among the parties or any of their respective Affiliates.
9.7 Counterparts and Headings. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, including
by facsimile, each of which will be deemed an original, but all of which
together shall constitute one and the same agreement. All headings and captions
are inserted for convenience of reference only and will not affect the meaning
or interpretation of any provision in this Agreement.
9.8 Survival. All representations and warranties of Stockholders,
Sellers, Purchasers and JAKKS made in this Agreement and the Related Documents
will survive the Closing for a period of twenty (20) months following the
Closing Date. Notwithstanding the
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foregoing, (i) the representations and warranties contained in Section 4.5 will
survive without time limit, and (ii) the representations and warranties
contained in Sections 4.11, 4.14, 4.18, 5.2 and 5.8 will survive until six (6)
months after the expiration of the applicable statutes of limitation relating to
claims with respect thereto. Notwithstanding anything to the contrary contained
herein, any representation or warranty in respect of which indemnity may be
sought under Article 8 shall survive the time at which it would otherwise
terminate pursuant to this Section 9.8, if the Notice of Claim with respect to
the inaccuracy or breach giving rise to such right to indemnity shall have been
given to the Indemnifying Party prior to such time. This Section 9.8 shall not
limit any covenant or agreement of the parties hereto which by its terms
contemplates performance after the Effective Time.
9.9 Expenses. Stockholders and Sellers, jointly and severally,
and Purchasers and JAKKS will each pay the fees and expenses of their respective
counsel, accountants and other experts incident to the negotiation and
preparation of this Agreement, the schedules and exhibits hereto and the Related
Documents; provided, that, Purchasers shall pay up to $500,000 of the legal and
accounting expenses of Sellers relating to the transactions contemplated by this
Agreement to the extent that the Closing Net Worth equals or exceeds the Target
Closing Net Worth.
9.10 Interpretations. As used herein, the words "ordinary course"
or "ordinary course of business" means the ordinary course of commercial
operations customarily engaged in by Sellers consistent with past practices and
specifically does not include (i) the incurrence of any material liability for
any tort or any breach of or default under any Contract or Law, (ii) the failure
to meet obligations of Sellers as they become due or payable or (iii) any
actions or omissions by Sellers taken or not taken in contemplation of the
marketing or sale of the Play Along Business or Assets or any part thereof, or
of any merger, consolidation, tender offer or other business combination
involving all or any Seller. The qualification or limitation of any statement
made herein to a party's "knowledge" or to a matter "known" to a party refers to
such party's actual knowledge after reasonable inquiry and with respect to
Sellers, knowledge shall only refer to the actual knowledge after reasonable
inquiry of ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, which reasonable
inquiry as to matters pertaining to Sellers' internal affairs and operations
shall be limited to the senior sales, licensing, financial and accounting
employees of each Seller and general manager of PA Hong Kong. As used herein
"including" shall be deemed to be followed by "including, without limitation,"
and shall not be construed to limit any general statement that it follows to the
specific or similar items or matters immediately following it. As used herein,
words such as "herein," "hereinafter," "hereof," and "hereunder" refer to this
Agreement as a whole and not merely to a subdivision in which such words appear
unless the context otherwise requires. Any reference in this Agreement to gender
shall include all genders, and words imparting the singular number only shall
include the plural and vice versa, unless the context otherwise requires.
9.11 Further Assurances. Each party hereto shall execute and
cause to be delivered to each other party hereto such instruments, powers of
attorney, and other documents, and shall take such other actions, as such other
party may reasonably request (prior to, at or after the Closing) for the purpose
of carrying out or evidencing any of the transactions contemplated by this
Agreement.
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9.12 Confidentiality. Except as required by Law, the parties
hereto shall hold, and shall cause their respective officers and authorized
representatives and agents to hold, any non-public information obtained from the
other parties hereto in confidence to the extent required by, and in accordance
with the provisions of, the Non Disclosure Agreement, dated January 14, 2004,
between the Sellers and JAKKS (the "Confidentiality Agreement"). Moreover, on
and at all times after the Closing Date, the Stockholders and Sellers shall keep
confidential, and shall not use or disclose to any other Person, any non-public
document or other non-public information in their possession that relates to the
Play Along Business, the Assets, Purchasers or JAKKS. Notwithstanding any other
express or implied agreement to the contrary, the parties hereto agree that each
of them and each of their employees, representatives and other agents may
disclose to any and all Persons, without limitation of any kind, the tax
treatment and tax structure of the transaction and all materials of any kind
(including opinions or other tax analyses) that are provided to any of them
relating to such tax treatment and tax structure, except where confidentiality
is reasonably necessary to comply with U.S. federal or state securities laws.
For purposes of this paragraph, the terms "tax treatment" and "tax structure"
have the meanings specified in Treasury Regulation section 1.6011-4(c).
9.13 Risk of Loss. The risk of loss or damage to any of the
Assets subject hereto shall remain with Sellers until the Effective Time, and
Sellers shall maintain their respective insurance policies covering the Assets
through the Effective Time. All insurance proceeds (or rights thereto)
attributable to the damage, destruction or casualty loss of any of the Assets
prior to the Effective Time shall be included among the Assets assigned to
Purchasers at Closing.
9.14 Public Announcements. No Seller shall issue, or permit any
of its agents or Affiliates to issue, any press releases or otherwise make, or
permit any of their respective agents or Affiliates to make, any public or other
statements, with respect to this Agreement, the Related Documents and the
transactions contemplated hereby and thereby without the prior written consent
of Purchasers.
9.15 Remedies Cumulative; Specific Performance. Except as set
forth in Article 8, the rights and remedies of the parties hereto shall be
cumulative (and not alternative). The parties to this Agreement agree that, in
the event of any breach or threatened breach by any party to this Agreement of
any covenant, obligation or other provision set forth in this Agreement for the
benefit of any other party to this Agreement, such other party shall be entitled
(in addition to any other remedy that may be available to it) to (i) a decree or
order of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision, and (ii) an
injunction restraining such breach or threatened breach.
9.16 Drafting. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement. The parties stipulate,
therefore, that the rule of construction that ambiguities are to be resolved
against the drafting party will not be employed in the interpretation of this
Agreement to favor any party against the other.
9.17 Governing Law. This Agreement will be construed, governed
and enforced in accordance with the internal laws of the State of New York
without regard to the conflicts of law principles thereof.
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9.18 JURISDICTION; WAIVER OF JURY TRIAL. EACH OF THE PARTIES
HERETO HEREBY (I) IRREVOCABLY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION
WITH ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY AND (II) WAIVES ANY OBJECTION TO VENUE IN THE
COUNTY OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
JPI/V ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
Chairman and Chief Executive
Officer
JP-PA (HK) LIMITED
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
Director
JAKKS PACIFIC, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
Chairman and Chief Executive
Officer
PA DISTRIBUTION, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
PLAY ALONG, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
PLAY ALONG (HONG KONG) LIMITED
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
/s/ ▇▇▇ ▇▇▇▇▇▇▇
------------------------------
▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
S 2.4-1