1
ASSET PURCHASE AGREEMENT
Dated as of May 2, 1997
by and among
ODDZON/CAP TOYS, INC.
HASBRO, INC.,
and
CAP TOYS, INC.,
ODDZON PRODUCTS, INC., and
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
2
LIST OF EXHIBITS
Exhibit A - Barbour Employment Agreement
Exhibit B - Bubble Gum Tape Dispenser Agreement
Exhibit C - CAP ▇▇▇▇ of Sale, Assignment and Assumption Agreement
Exhibit D - Escrow Agreement
Exhibit E - Letter Agreement Regarding Escrow Fund
Exhibit F - OddzOn ▇▇▇▇ of Sale, Assignment and Assumption Agreement
Exhibit G - OddzOn Shareholder Agreement
Exhibit H - Opening Balance Sheet
Exhibit I - Osher Employment Agreement
Exhibit J - Termination Agreement by CAP of ▇▇▇▇ ▇▇▇▇▇
Exhibit K - Termination Agreement by OddzOn of ▇▇▇▇ ▇▇▇▇▇▇▇
Exhibit L - Occupancy Agreement
Exhibit M - Termination of Buying Agency Agreements with Tri ▇▇▇▇ International
(Hong Kong) Limited
Exhibit N - Service Agreement between Tri ▇▇▇▇ International (Hong Kong) Limited
and Buyer
Exhibit O - Opinion of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇ & Handler, LLP
Exhibit P - Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
Exhibit Q - Opinion of Senior Vice President/General Counsel of Buyer
1
3
TABLE OF CONTENTS
Page #
1. Certain Definitions.............................................. 1
2. Purchase of Assets............................................... 11
2.1 Agreement to Purchase and Sell Assets. ................. 11
2.2 Assets to be Acquired................................... 11
2.3 Limited Liabilities to be Assumed....................... 18
2.4 Non-Assumption of Other Liabilities..................... 23
3. Purchase Price and Certain Other Payments........................ 23
3.1 Purchase Price.......................................... 23
3.2 Payment of Purchase Price............................... 24
3.3 Purchase Price Adjustments.............................. 24
3.4 Method of Payment....................................... 27
3.5 Allocation of Purchase Price............................ 27
3.6 Escrow.................................................. 27
4. The Closing...................................................... 28
4.1 Time and Place of Closing............................... 28
4.2 Exchange of Documents................................... 28
4.3 Possession of Assets.................................... 30
5. Representations and Warranties of Sellers and ▇▇▇▇............... 31
5.1 Corporate Organization and Authority.................... 31
5.2 Corporate Authorization................................. 31
5.3 No Violation or Conflict................................ 32
5.4 Consents, Approvals, Permits and
Authorizations.......................................... 32
5.5 Financial Statements.................................... 33
5.6 Leased Real Property.................................... 34
5.7 No Encumbrances......................................... 35
5.8 Assigned Contracts...................................... 35
5.9 Compliance with Applicable Laws and
Regulations; Environmental Matters...................... 36
5.10 Taxes................................................... 37
5.11 Litigation.............................................. 37
5.12 Intellectual Property................................... 38
i
4
5.13 Conduct of Business From and After the
Balance Sheet Date...................................... 40
5.14 Employees............................................... 42
5.15 Insurance............................................... 43
5.16 Employee Benefit Plans.................................. 44
5.17 Worker's Compensation; Unemployment
Insurance............................................... 45
5.18 Condition of Assets..................................... 45
5.19 Receivables............................................. 45
5.20 Inventory............................................... 45
5.21 Assets Not in the Possession of Sellers................. 46
5.22 Suppliers and Customers................................. 46
5.23 Included Assets......................................... 46
5.24 Undisclosed Liabilities................................. 47
5.25 Disclosure; Accuracy of Schedules....................... 47
5.26 Brokers or Finders...................................... 47
5.27 Books and Records....................................... 47
6. Representations and Warranties of Buyer and Hasbro............... 48
6.1 Corporate Organization.................................. 48
6.2 Corporate Authorization................................. 48
6.3 No Violation or Conflict................................ 48
6.4 Consents, Approvals or Authorizations................... 49
6.5 Brokers or Finders...................................... 49
7. Investigation by Buyer........................................... 50
8. Covenants........................................................ 50
8.1 Preservation of Seller.................................. 50
8.2 Sales and Transfer Taxes................................ 51
8.3 Further Assurances...................................... 51
8.4 Post-Closing Access; Preservation of Records............ 52
8.5 Reasonable Efforts...................................... 52
8.6 Environmental Matters................................... 52
8.7 Notification of Certain Matters......................... 52
8.8 Accounts Receivable..................................... 53
8.9 Creditors............................................... 56
8.10 Change of Name.......................................... 56
8.11 Performance of Non-Assumed Liabilities and
Assumed Liabilities..................................... 56
8.12 Notice to Vendors and Suppliers......................... 57
8.13 No Shopping............................................. 57
8.15 Covenant Not To Compete; Business
Information............................................. 58
ii
5
8.16 Post-Closing Deliveries................................. 60
8.17 Other Payments Received by Sellers or ▇▇▇▇.............. 60
8.18 Negative Actions........................................ 60
8.19 Intellectual Property Matters........................... 60
9. Employee Matters................................................. 60
9.1 Offer of Employment..................................... 60
9.2 Payments of Benefits by Seller.......................... 61
9.3 No Employment Contracts................................. 61
9.4 Worker's Compensation................................... 61
9.5 Unemployment Compensation............................... 62
9.6 Buyer as Successor Employer............................. 62
9.7 Notices................................................. 62
9.8 Salary Raises........................................... 62
10. Conditions Precedent to the Obligation of Buyer.................. 63
10.1 Representations and Warranties.......................... 63
10.2 Covenants and Agreements................................ 63
10.3 Instruments of Sale or Assignment....................... 63
10.4 No Adverse Order or Injunction.......................... 63
10.5 Judicial, Governmental or Regulatory
Approvals; Consents to Assignment of Assets............. 63
10.6 Permits................................................. 64
10.7 Environmental Laws...................................... 64
10.8 Delivery of Documents................................... 64
10.9 Employment Agreements....................................... 64
11. Conditions Precedent to the Obligation of Sellers and ▇▇▇▇....... 65
11.1 Representations and Warranties.......................... 65
11.2 Covenants and Agreements................................ 65
11.3 Instruments of Assumption............................... 65
11.4 No Adverse Order or Injunction.......................... 65
11.5 Judicial, Governmental or Regulatory Approvals.......... 66
11.6 Delivery of Documents................................... 66
12. Intentionally Omitted............................................ 66
13. Waiver of Bulk Transfer.......................................... 66
14. Survival of Representations, Warranties and Covenants............ 66
iii
6
15. Indemnification and Right of Set-Off............................. 67
15.1 Indemnification by Sellers and Russ .................... 67
15.2 Indemnification by Buyer................................ 68
15.3 Liability with Respect to Products...................... 69
15.4 Liability with Respect to Environmental
Matters................................................. 70
15.5 Notice of Circumstances................................. 71
15.6 Survival of Indemnification Obligations................. 72
16. Termination...................................................... 72
16.1 Ability to Terminate.................................... 72
16.2 Effect of Termination................................... 73
17. Costs Incident to Preparation of Agreement....................... 73
18. Parties in Interest.............................................. 73
19. Miscellaneous.................................................... 73
19.1 Assignment; Successors and Assigns...................... 73
19.2 Notices................................................. 74
19.3 Waiver; Remedies........................................ 76
19.4 Entire Agreement........................................ 77
19.5 Amendment............................................... 77
19.6 Counterparts............................................ 77
19.7 Governing Law........................................... 77
19.8 Jurisdiction/Venue...................................... 77
19.9 Exhibits and Schedules.................................. 77
19.10 Captions................................................ 77
19.11 Publicity............................................... 77
19.12 Severability............................................ 78
iv
7
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of May 2, 1997 by and among CAP
TOYS, INC., an Ohio corporation ("CAP"), ODDZON PRODUCTS, INC., a California
corporation ("OddzOn") (CAP and OddzOn are each referred to individually as a
"Seller" and collectively as the "Sellers"), ▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC., a
New Jersey corporation ("▇▇▇▇"), ODDZON/CAP TOYS, INC., a Delaware corporation
formerly known as HIAC VIII Corp. ("Buyer") and HASBRO, INC., a Rhode Island
corporation ("Hasbro").
W I T N E S S E T H:
WHEREAS, each Seller is engaged in the development, manufacture,
purchase and sale of toys and games and, with respect to CAP, interactive candy
products;
WHEREAS, ▇▇▇▇ is the holder of all of the issued and outstanding
shares of each Seller;
WHEREAS, Hasbro is the holder of all of the issued and outstanding
shares of Buyer; and
WHEREAS, Buyer desires to purchase and Sellers desire to sell
substantially all of the property, assets and goodwill of Sellers and Buyer
desires to assume and Sellers desire to transfer certain liabilities of Sellers,
all upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual
agreements hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer, ▇▇▇▇▇▇▇, ▇▇▇▇
and Hasbro hereby agree as follows:
1. Certain Definitions. The following terms, as used herein, shall have the
meanings set forth below and those terms defined in the preamble and recitals
above shall have the meanings ascribed thereto:
1.1 "Ancillary Buyer Documents" shall have the meaning set forth in
Section 6.2 hereof.
8
1.2 "Ancillary Seller Documents" shall have the meaning set forth in
Section 5.2 hereof.
1.3 "Assets" means the CAP Assets and the OddzOn Assets.
1.4 "Assigned Contracts" means the CAP Assigned Contracts and the
OddzOn Assigned Contracts.
1.5 "Assumed Liabilities" shall have the meaning set forth in
Section 2.3.1 hereof.
1.6 "Balance Sheets" means the unaudited balance sheet of each
Seller as at the Balance Sheet Date and the unaudited combined balance sheet of
the Sellers as at the Balance Sheet Date, copies of which are attached hereto as
Schedule 5.5.
1.7 "Balance Sheet Date" means December 31, 1996.
1.8 "Barbour Employment Agreement" means that certain Employment
Agreement between the Buyer and ▇▇▇▇ ▇▇▇▇▇▇▇, substantially in the form of
Exhibit A hereto.
1.8.1 "Bubble Gum Tape Dispenser Agreement" means that certain
Agreement of even date herewith among the parties hereto relating to the Bubble
Gum Tape Dispenser product, substantially in the form of Exhibit B hereto.
1.9 "Business" means the business conducted by either or both
Sellers or any predecessor person or entity relating to the development,
manufacture, purchase and sale of toys and games and, with respect to CAP,
interactive candy products.
1.10 "Buyer Group" shall have the meaning set forth in Section
15.1.1.
1.11 "Buyer's Auditors" means KPMG Peat Marwick LLP.
1.12 "Buyer's Proposed Calculations" shall have the meaning set
forth in Section 3.3.4 hereof.
1.13 "CAP Assets" shall have the meaning set forth in Section 2.2.1
hereof.
2
9
1.14 "CAP Assigned Contracts" shall have the meaning set forth in
Section 2.2.1(d) hereof.
1.15 Intentionally Omitted.
1.16 "CAP ▇▇▇▇ of Sale, Assignment and Assumption Agreement" means
that certain ▇▇▇▇ of Sale, Assignment and Assumption Agreement by and between
CAP and the Buyer substantially in the form of Exhibit C attached hereto.
1.17 "CAP Equipment" shall have the meaning set forth in Section
2.2.1(i) hereof.
1.18 "CAP Excluded Assets" shall have the meaning set forth in
Section 2.2.2 hereof.
1.19 "CAP Insignificant Contracts" shall have the meaning set forth
in Section 2.2.1(d) hereof.
1.20 "CAP Intellectual Property" shall have the meaning set forth in
Section 2.2.1(g) hereof.
1.21 "CAP Inventions" shall have the meaning set forth in Section
2.2.1(k) hereof.
1.22 "CAP Inventory" shall have the meaning set forth in Section
2.2.1(a) hereof.
1.23 "CAP Permits" shall have the meaning set forth in Section
2.2.1(h) hereof.
1.24 "CAP Premises" shall have the meaning set forth in Section
2.2.1(f) hereof.
1.25 "CAP Prepaid and Other Assets" shall have the meaning set forth
in Section 2.2.1(e) hereof.
1.26 "CAP Products" shall have the meaning set forth in Section
2.2.1(c) hereof.
1.27 "CAP Real Estate Leases" shall have the meaning set forth in
Section 2.2.1(f) hereof.
1.28 "Closing" means the closing of the sale of the Assets in
accordance with this Agreement.
3
10
1.29 "Closing Balance Sheet" shall have the meaning set forth in
Section 3.3.2 hereof.
1.30 "Closing Date" shall have the meaning set forth in Section 4.1
hereof.
1.31 "Code" means the Internal Revenue Code of 1986, as amended.
1.32 "Collected Receivables" means the amount collected or deemed
collected by Buyer pursuant to Section 8.8 hereof from the Closing Date up to
the nine month anniversary of the Closing Date.
1.33 "Computer Programs" means (i) any and all computer programs
consisting of sets of statements or instructions to be used directly or
indirectly in computer software and firmware, (ii) databases and compilations,
whether machine readable or otherwise, (iii) all of the foregoing (x) including,
without limitation, all versions thereof, all screen displays and designs
therefor, and all component modules of source code or object code or natural
language code therefor and (y) whether recorded on paper, magnetic media or
other electronic or non-electronic device, (iv) all descriptions, flow-charts
and other work product used to design, plan, organize and develop any of the
foregoing, and (v) all documentation including, without limitation, user manuals
and training materials, relating to any of the foregoing, in each case except
for those computer programs set forth on Schedule 1.33 hereof.
1.34 "condition of Sellers" means the assets, liabilities,
properties, business, results of operations and condition (financial or
otherwise) of either Seller or the applicable Seller.
1.35 "Confidentiality Agreement" means that certain Confidentiality
Agreement between ▇▇▇▇ and Hasbro dated September 20, 1996.
1.36 "contracts and other agreements" means all contracts,
agreements, indentures, notes, bonds, loans, instruments, leases, mortgages,
licenses, commitments or other binding arrangements (written or oral).
4
11
1.37 "Control Payables" means accounts payable of either Seller
which are accounted for in ▇▇▇▇' computer system.
1.38 "Employee Benefit Plans" shall have the meaning set forth in
Section 5.16 hereof.
1.39 "Encumbrance" means any lien, mortgage, security interest,
pledge, charge, easement, right of avoidance, imperfection of title, adverse
claim, claim of possession, right of way or other restriction or encumbrance.
1.40 "Environmental Contamination" shall have the meaning set forth
in Section 15.4.1 hereof.
1.41 "Environmental Laws" means all federal, state, and local laws,
statutes, ordinances, rules, regulations and orders relating to pollution,
damage to or protection of the environment, including but not limited to, the
federal Clean Air Act, the federal Clean Water Act, the federal Comprehensive
Environmental Response, Compensation and Liability Act, the federal Resource
Conservation and Recovery Act, and similar state laws, and any amendments
thereto.
1.42 "Environmental Liabilities" shall have the meaning set forth in
Section 15.4.1 hereof.
1.43 "Equipment" means the CAP Equipment and the OddzOn Equipment.
1.44 "Escrow Agent" means Citibank, N.A.
1.45 "Escrow Agreement" means that certain Escrow Agreement among
Buyer, ▇▇▇▇▇▇▇, ▇▇▇▇, Hasbro and the Escrow Agent substantially in the form of
Exhibit D hereto.
1.46 "Escrow Fund" means the monies held in escrow pursuant to the
Escrow Agreement.
1.47 "Estimated Net Tangible Assets" shall have the meaning set
forth in Section 3.3.1 hereof.
1.48 "Excluded Assets" means the CAP Excluded Assets and the OddzOn
Excluded Assets.
5
12
1.49 "Final Adjustment" shall have the meaning set forth in Section
3.3.6 hereof.
1.50 "GAAP" means United States Generally Accepted Accounting
Principles, consistently applied by each Seller in accordance with their
respective accounting practices subsequent to acquisition by ▇▇▇▇, together with
any consolidating adjustments applied by ▇▇▇▇ in accordance with its accounting
practices.
1.51 "government or regulatory body" means any government or
political subdivision thereof, whether Federal, state, local or foreign, or any
agency or instrumentality of any such government or political subdivision.
1.52 "Hazardous Substance" means any pollutants, toxic substances,
hazardous wastes or hazardous substances defined in or regulated under any
Environmental Laws.
1.53 "Hong Kong Employees" means those employees set forth on
Schedule 9.1 hereof.
1.54 "HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended.
1.55 "Insignificant Contracts" means the CAP Insignificant Contracts
and the OddzOn Insignificant Contracts.
1.56 "Initial Adjustment" shall have the meaning set forth in
Section 3.3.1 hereof.
1.57 "Intellectual Properties" means the CAP Intellectual Property
and the OddzOn Intellectual Property.
1.58 "Inventions" means the CAP Inventions and the OddzOn
Inventions.
1.59 "Inventory" means the CAP Inventory and the OddzOn Inventory.
1.60 "knowledge" means facts, circumstances and conditions that are,
or should reasonably be, known to the officers of the relevant party after due
investigation; provided, however, that with respect to the activities of CAP
prior to its acquisition on October 1, 1993 and with respect to the activities
6
13
of OddzOn prior to its acquisition on September 30, 1994, Sellers' and ▇▇▇▇'
knowledge shall include only that knowledge acquired by either Seller or ▇▇▇▇
during the due diligence conducted in connection with such acquisition and no
further due diligence or investigation is required.
1.61 "Laws" means laws, regulations, rules, orders, judgments,
decrees and other requirements imposed by Federal, state, local and foreign
governmental authorities applicable to either Seller in the operation or
ownership of such Seller's Business and the Assets, including, without
limitation, all such laws, regulations, rules, orders, judgments, decrees and
other requirements relating to matters of environmental protection, pollution,
sanitation, conservation, hazardous substances, pollutants or contaminants and
to matters of antitrust, trade, employment, labor, non-discrimination, safety
and health, and zoning and building codes.
1.62 "Letter Agreement" means that certain Letter Agreement among
Buyer, ▇▇▇▇▇▇▇, ▇▇▇▇ and Hasbro of even date herewith contemplating the deposits
into and disbursements from the Escrow Fund, substantially in the form of
Exhibit E hereto.
1.63 "Litigation" means any legal or administrative action, suit,
investigation or other proceeding by or before any court, arbitrator, stock
exchange, administrative agency or government or regulatory body.
1.64 "Losses" means all losses, expenses, claims, demands, costs,
charges, obligations, liabilities, damages or deficiencies, including, without
limitation, interest, penalties, attorneys' fees and disbursements and any
losses that may result from the granting of injunctive relief in any suit,
action or proceeding, less any insurance proceeds actually collected with
respect to the same.
1.65 "Material Adverse Effect" means an effect which would,
individually or in the aggregate, be materially adverse to the party to which it
refers.
1.66 "Net Fixed Assets" means the book value of all fixed assets
included in the Assets, after all depreciation and amortization and other
appropriate reserves and write downs for obsolete, damaged, malfunctioning or
nonfunctioning fixed assets, all in accordance with GAAP.
7
14
1.67 "Net Inventory" means the value of all Inventory after
appropriate reserves and write downs for: defective raw materials, work in
process and finished goods; excess raw materials, work in process and finished
goods; and obsolete raw materials, work in process and finished goods, all in
accordance with GAAP.
1.68 "Net Prepaid and Other Assets" means the value of the Prepaid
and Other Assets after all appropriate reserves and write downs, all in
accordance with GAAP.
1.69 "Net Receivables" means the value of the Receivables after
appropriate reserves and allowances for doubtful accounts, estimated returns and
defective products, price reductions, discounts and other credits, all in
accordance with GAAP.
1.70 "Net Tangible Assets" means the Tangible Assets minus total
liabilities assumed by Buyer.
1.71 "Non-Assumed Liabilities" shall have the meaning set forth in
Section 2.4 hereof.
1.72 "Non-Control Payables" means accounts payable of either Seller
other than those which are accounted for in ▇▇▇▇' computer system.
1.73 "OddzOn Assets" shall have the meaning set forth in Section
2.2.4 hereof.
1.74 "OddzOn Assigned Contracts" shall have the meaning set forth in
Section 2.2.4(d) hereof.
1.75 "OddzOn ▇▇▇▇ of Sale, Assignment and Assumption Agreement"
means that certain ▇▇▇▇ of Sale, Assignment and Assumption Agreement between
OddzOn and the Buyer substantially in the form of Exhibit F attached hereto.
1.76 "OddzOn Equipment" shall have the meaning set forth in Section
2.2.4(i) hereof.
1.77 "OddzOn Excluded Assets" shall have the meaning set forth in
Section 2.2.5 hereof.
8
15
1.78 "OddzOn Insignificant Contracts" shall have the meaning set
forth in Section 2.2.4(d) hereof.
1.79 "OddzOn Intellectual Property" shall have the meaning set forth
in Section 2.2.4(g) hereof.
1.80 "OddzOn Inventions" shall have the meaning set forth in Section
2.2.4(k) hereof.
1.81 "OddzOn Inventory" shall have the meaning set forth in Section
2.2.4(a) hereof.
1.82 "OddzOn Permits" shall have the meaning set forth in Section
2.2.4(h) hereof.
1.83 "OddzOn Premises" shall have the meaning set forth in Section
2.2.4(f) hereof.
1.84 "OddzOn Prepaid and Other Assets" shall have the meaning set
forth in Section 2.2.4(e) hereof.
1.85 "OddzOn Products" shall have the meaning set forth in Section
2.2.4(c) hereof.
1.86 "OddzOn Real Estate Leases" shall have the meaning set forth in
Section 2.2.4(f) hereof.
1.87 "OddzOn Shareholder Agreement" means that certain Agreement
dated as of the date hereof, substantially in the form of Exhibit G hereto,
among the parties hereto relating to that certain Asset Purchase Agreement dated
September 30, 1994 among old OddzOn Products, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇
Button, which Asset Purchase Agreement is a Non-Assumed Liability.
1.88 "Opening Balance Sheet" means the unaudited combined balance
sheet of Sellers as of September 30, 1996 set forth on Exhibit H hereto.
1.89 "Osher Employment Agreement" means that certain Employment
Agreement between the Buyer and ▇▇▇▇ ▇▇▇▇▇, substantially in the form of Exhibit
I hereto.
1.90 "Permits" means the CAP Permits and the OddzOn Permits.
9
16
1.91 "Post-Closing Adjustment" shall have the meaning set forth in
Section 3.3.5 hereof.
1.92 "Premises" means the CAP Premises and the OddzOn Premises.
1.93 "Prepaid and Other Assets" means the CAP Prepaid and Other
Assets and the OddzOn Prepaid and Other Assets.
1.94 "Products" means the CAP Products and the OddzOn Products.
1.95 "person" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, government or regulatory body or
other entity.
1.96 "Product Liability Event" means any occurrence or event which
results or is alleged to have resulted in injury or death to any person or
damage to or destruction of property (including loss of use) or other damage
regardless of when such injury, death or damage takes place which (a) was caused
by or allegedly caused by any hazard or alleged hazard or defect or alleged
defect in manufacture, design, materials or workmanship, including, without
limitation, any failure or alleged failure to warn of any hazard, defect or
alleged hazard or alleged defect, of or in a product and/or (b) is asserted or
claimed to give rise to liability by operation of law, whether in strict
liability, tort, breach of warranty or otherwise, with respect to a product.
1.97 "Purchase Orders" means the rights of Sellers under all
purchase orders to vendors which purchase orders are set forth on Schedules
2.2.1(d) and 2.2.4(d) and are still open as of the Closing Date, together with
all additional purchase orders to vendors entered into within five business days
prior to, and at any time subsequent to, the preparation of such Schedules and
prior to the Closing Date, in each case, which are (i) consistent with the
business plan for either Seller, (ii) relating to a Product which the Business
plans to offer to sell in 1997 or in 1998, (iii) in the case of purchase orders
for Inventory, within the quantity forecasted for such Product in the business
plan, and (iv) either entered into in the ordinary course of business or
specifically consented to by Buyer pursuant to Section 8.1.6.
10
17
1.98 "Purchase Price" means the price as set forth in Section 2.1
hereof.
1.99 "Real Estate Leases" means the CAP Real Estate Leases and the
OddzOn Real Estate Leases.
1.100 "Receivables" means all rights of each Seller to payment for
goods sold in the ordinary course of business, all sums of money or other
proceeds due or becoming due thereon, all instruments pertaining thereto, all
guarantees and security therefor (including, without limitation, letters of
credit), all goods giving rise thereto and the rights of such Seller pertaining
to such goods, including the right of stoppage in transit, and all related
insurance (in any such case whether or not reserved against or written off).
1.101 "Release" means any intentional or unintentional release,
discharge, spill, leaking, pumping, pouring, emitting, emptying, injection,
disposal or dumping into the environment.
1.102 "Remaining Disputed Items" shall have the meaning set forth in
Section 3.3.4 hereof.
1.103 "Seller Group" shall have the meaning set forth in Section
15.2.1.
1.104 "Sellers' Auditors" means Coopers & ▇▇▇▇▇▇▇ L.L.P.
1.105 "Sellers' Proposed Calculations" shall have the meaning set
forth in Section 3.3.3 hereof.
1.106 "Tangible Assets" means all of the Net Inventory, Net
Receivables, Net Prepaid and Other Assets and other Net Fixed Assets of each of
CAP and OddzOn.
1.107 "Taxes" means taxes of any kind to the extent properly due and
payable to any taxing authority of the United States (Federal, state or local)
or any other country or jurisdiction including, without limitation, (a) income,
gross receipts, ad valorem, value added, sales, use, service, franchise,
profits, real or personal property, capital stock, license, payroll,
withholding, employment, social security, workers compensation, unemployment
compensation, utility,
11
18
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer and gains taxes, (b) customs duties, imposts, charges, levies, or other
assessments of any kind, (c) interest, penalties, and additions to tax imposed
with respect to the above taxes, and (d) any damages, costs, expenses, fees or
other liability arising from such Tax or Taxes.
1.108 "Transaction" shall have the meaning set forth in Section 8.13
hereof.
Unless otherwise defined, all accounting terms used in this
Agreement shall have the meaning assigned to such terms under United States
Generally Accepted Accounting Principles.
2. Purchase of Assets.
2.1 Agreement to Purchase and Sell Assets. Subject to the terms and
conditions set forth in this Agreement, the Sellers shall sell to the Buyer at
the Closing and the Buyer shall purchase from the Sellers at the Closing all of
the Assets for the aggregate amount of One Hundred Sixty Six Million Six Hundred
Fifty Thousand dollars ($166,650,000) (the "Purchase Price"), subject to
adjustment as set forth in Section 3.3 hereof and payable as provided in Article
3 hereof.
2.2 Assets to be Acquired.
2.2.1 Subject to the terms and conditions set forth herein,
and in reliance upon the representations and warranties contained herein, on the
Closing Date, CAP shall sell, convey, assign, transfer and deliver, and Buyer
shall purchase and acquire all assets of CAP, except for the Excluded Assets
(the assets so to be purchased and acquired, collectively, the "CAP Assets").
The CAP Assets shall include, but not be limited to, the following assets of
CAP:
(a) all inventories of CAP wherever located, including
finished goods, work-in-process and raw materials used in the
production thereof and all packaging materials in connection
therewith and all other inventory of CAP (the "CAP Inventory");
(b) all Receivables of CAP;
(c) all of CAP's products, ideas, concepts and all rights
thereto for current products and products in
12
19
development by CAP (but excluding all such products, ideas, concepts
and all rights exclusively related to the CAP Excluded Assets),
including, but not limited to, those products described on attached
Schedule 2.2.1(c) (the "CAP Products");
(d) all of Cap's contracts, leases of personal property,
agreements, equipment and machinery leases, whether oral or written,
including, without limitation, open Purchase Orders and open sale
orders, agreements with sales representatives, license agreements,
any arrangements providing for any guarantee in favor of CAP and all
guarantees or indemnities which CAP may have from any customers or
suppliers, and all supplier agreements of any type (but excluding
all such agreements or contracts, orders or any arrangements of any
other type exclusively related to the CAP Excluded Assets);
notwithstanding anything contained in the introductory paragraph to
this Section 2.2.1 to the contrary, only (i) those that are
specifically set forth on Schedule 2.2.1(d) and (ii) individual
unrelated contracts and other agreements not set forth on Schedule
2.2.1(d) but which require payments by CAP of less than $10,000 per
year which are entered into in the ordinary course of business (the
"CAP Insignificant Contracts") are hereinafter collectively referred
to as the "CAP Assigned Contracts";
(e) prepaid assets and expenses of CAP as to which Buyer will
receive the benefits of after Closing which, notwithstanding
anything contained in the introductory paragraph to this Section
2.2.1 to the contrary, are agreed to by Buyer and CAP and are
specifically set forth on Schedule 2.2.1(e) hereto and excluding
prepaid assets exclusively related to CAP Excluded Assets (the "CAP
Prepaid and Other Assets");
(f) the leases for all of CAP's premises including, without
limitation, the leases for the premises at 26201 and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ and the premises at The Toy Center, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ at which CAP conducts its Business
(collectively, the "CAP Premises") all as more particularly
described in Schedule 2.2.1(f) hereto (the "CAP Real Estate
Leases");
13
20
(g) all of CAP's existing patents, patent applications,
trademarks (including common law trademarks and trade names and any
and all rights in trade dress), trademark applications and
registrations, trade names, including, without limitation, the marks
and name "CAP TOYS" and "CT GIFTS", all variants thereof, trade
styles, logos, service marks, service names, and all goodwill
associated therewith, copyrights, copyright applications and
registrations and inventions (including, but not limited to, all
such items more particularly described in Schedule 2.2.1(g)),
advertising and promotional materials, designs, sketches and art
work together with all commercial and technical trade secrets,
engineering, production and other designs, drawings, specifications,
formula, technology, Computer Programs and software, processes,
know-how, confidential information and other proprietary property,
rights and interests of CAP, used, useful or usable in CAP's
Business which intellectual property as described above includes all
rights to use the property described in the CAP Assigned Contracts,
but excludes any intellectual property which relates exclusively to
the CAP Excluded Assets (hereinafter collectively referred to as the
"CAP Intellectual Property");
(h) all of CAP's governmental licenses, permits, variances,
franchises, notices, authorizations and approvals which relate to
CAP's Business including, without limitation, those for all CAP
Equipment and CAP Intellectual Property, from any government or
regulatory body, to the extent assignable under applicable law, all
as more particularly set forth on Schedule 2.2.1(h) (hereinafter
collectively referred to as the "CAP Permits");
(i) all machinery, equipment, furniture and fixtures,
improvements, computer hardware and software, tools, dies, molds,
printing plates, parts, accessories, supplies, plant and office
equipment and other property owned by CAP and used or usable in the
conduct of CAP's Business, including, without limitation, those
items described more fully on Schedule 2.2.1(i) hereto (the "CAP
Equipment"), together with any rights or claims of CAP arising out
14
21
of any express or implied warranty by the manufacturers or sellers
of any such assets or any component part thereof, including any
claims for past breaches of any such warranties, but excluding any
and all equipment, rights or claims exclusively related to the CAP
Excluded Assets;
(j) originals or copies of all existing financial, accounting
and operating data and records relating to CAP's Business,
including, without limitation, all books, records, notes, sales and
sales promotional data, advertising materials, designs, sketches,
product archives, art work, credit information, cost and pricing
information, advertising data, blueprints, customer and supplier
lists, business plans, reference catalogs, payroll and personnel
records and other similar property, rights, and information
reasonably expected to be useful in the continuing operations of
CAP's Business or relating to any Assumed Liabilities arising from
CAP's Business, it being understood that data and records not
delivered to Buyer shall be a CAP Excluded Asset;
(k) all existing inventions, whether or not now reduced to
practice, which CAP has made which relate in any way, shape, form or
manner to any CAP Intellectual Property used by CAP in CAP's
Business, including, without limitation, all improvements on the
inventions, patents, patent applications or variations thereof which
are the subject of such patents, patent applications or variations,
whether or not such improvements or variations are infringements of
the patents or patent applications or inventions assigned hereunder
(collectively, the "CAP Inventions"); and
(l) any and all goodwill and going concern value of CAP's
Business and CAP.
2.2.2 Notwithstanding the foregoing, the CAP Assets shall not
include the properties, assets and rights of CAP set forth on Schedule 2.2.2
hereto (collectively, the "CAP Excluded Assets").
2.2.3 CAP shall deliver or cause to be delivered to Buyer such
deeds, bills of sale, endorsements,
15
22
assignments and other good and sufficient instruments of transfer, conveyance
and assignment in such form as Buyer or Buyer's counsel shall reasonably request
to effect or evidence the sale, conveyance, assignment, transfer and delivery of
the CAP Assets to Buyer.
2.2.4 Subject to the terms and conditions set forth herein,
and in reliance upon the representations and warranties contained herein, on the
Closing Date, OddzOn shall sell, convey, assign, transfer and deliver, and Buyer
shall purchase and acquire all assets of OddzOn, except for the OddzOn Excluded
Assets, (the assets so to be purchased and acquired, collectively, the "OddzOn
Assets"). The OddzOn Assets shall include, but not be limited to, the following
assets of OddzOn:
(a) all inventories of OddzOn wherever located, including
finished goods, work-in-process and raw materials used in the
production thereof and all packaging inventory of OddzOn and all
other inventory of OddzOn (the "OddzOn Inventory");
(b) all Receivables of OddzOn;
(c) all of OddzOn's products, ideas, concepts, inventions and
all rights thereto for current products and products in the process
of development by OddzOn (but excluding all such products, ideas,
concepts and all rights exclusively related to the OddzOn Excluded
Assets), including, but not limited to those products described on
attached Schedule 2.2.4(c) ("OddzOn Products");
(d) all of OddzOn's contracts, leases of personal property,
agreements, equipment and machinery leases, whether oral or written,
including, without limitation, open Purchase Orders and open sale
orders, agreements with sales representatives, license agreements,
any arrangements providing for any guarantee in favor of OddzOn and
all guarantees or indemnities which OddzOn may have from any
customers or suppliers, and all supplier agreements of any type, but
excluding all such agreements or contracts, orders or any
arrangements of any other type exclusively related to the Excluded
Assets, notwithstanding anything contained in the introductory
paragraph to this Section 2.2.4 to the
16
23
contrary, only (i) those that are set forth on Schedule 2.2.4(d) and
(ii) individual unrelated contracts and other agreements not set
forth on Schedule 2.2.4(d) but which require payments by OddzOn of
less than $10,000 per year which are entered into in the ordinary
course of business (the "OddzOn Insignificant Contracts") are
hereinafter collectively referred to as the "OddzOn Assigned
Contracts";
(e) all prepaid assets and expenses of OddzOn as to which
Buyer will receive the benefits of after Closing which,
notwithstanding anything contained in the introductory paragraph to
this Section 2.2.4 to the contrary, are agreed to by Buyer and
OddzOn and are specifically set forth on Schedule 2.2.4(e) hereto
and excluding prepaid assets exclusively related to OddzOn Excluded
Assets (the "OddzOn Prepaid and Other Assets");
(f) the leases for all of OddzOn's premises including the
leases for the premises at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ and the premises at The Toy Center, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ at which OddzOn conducts its Business, exclusive of the
premises occupied by OddzOn at the ▇▇▇▇ distribution center located
in Petaluma, California (collectively, the "OddzOn Premises") all as
more particularly described in Schedule 2.2.4(f) hereto (the "OddzOn
Real Estate Leases");
(g) all of OddzOn's existing patents, patent applications,
trademarks (including common law trademarks and trade names and any
and all rights in trade dress), trademark applications and
registrations, trade names, including, without limitation, the marks
and names "Koosh" and "OddzOn", all variants thereof, trade styles,
logos, service marks, service names, and all goodwill associated
therewith, copyrights, copyright applications and registrations and
inventions (including, but not limited to, all such items more
particularly described in Schedule 2.2.4(g)), advertising and
promotional materials, designs, sketches and art work together with
all commercial and technical trade secrets, engineering, production
and other designs, drawings, specifications, formula,
17
24
technology, Computer Programs, processes, know-how, confidential
information and other proprietary property, rights and interests of
OddzOn used, useful or usable in OddzOn's Business which
intellectual property as described above includes all rights to use
the property described in the OddzOn Assigned Contracts, but
excludes any intellectual property which relates exclusively to the
OddzOn Excluded Assets (hereinafter collectively referred to as the
"OddzOn Intellectual Property");
(h) all of OddzOn's governmental licenses, permits, variances,
franchises, notices, authorizations and approvals which relate to
OddzOn's Business including, without limitation, those for all
OddzOn Equipment and OddzOn Intellectual Property, from any
government or regulatory body, to the extent assignable under
applicable law, all as more particularly set forth on Schedule
2.2.4(h) (hereinafter collectively referred to as the "OddzOn
Permits");
(i) all machinery, equipment, furniture and fixtures,
improvements, computer hardware and software, tools, dies, molds,
printing plates, parts, accessories, supplies, plant and office
equipment and other property owned by OddzOn and used, useful or
usable in the conduct of OddzOn's Business, including, without
limitation, those items described more fully in Schedule 2.2.4(i)
hereto (the "OddzOn Equipment"), together with any rights or claims
of OddzOn arising out of any express or implied warranty by the
manufacturers or sellers of any such assets or any component part
thereof, including any claims for past breaches thereof but
excluding any and all equipment, rights or claims exclusively
related to the OddzOn Excluded Assets;
(j) originals or copies of all existing financial, accounting
and operating data and records relating to OddzOn's Business,
including, without limitation, all books, records, notes, sales and
sales promotional data, advertising materials, designs, sketches,
product archives, art work, credit information, cost and pricing
information, advertising data, blueprints, customer and supplier
lists, business
18
25
plans, reference catalogs, payroll and personnel records and other
similar property, rights, and information reasonably expected to be
useful in the continuing operations of OddzOn's Business or relating
to any Assumed Liabilities arising from OddzOn's Business, it being
understood that data and records not delivered to Buyer shall be an
OddzOn Excluded Asset;
(k) all existing inventions, whether or not now reduced to
practice, which OddzOn has made which relate in any way, shape, form
or manner to the product sold under the ▇▇▇▇ "Koosh" or any other
OddzOn Intellectual Property used by OddzOn in OddzOn's Business,
including, without limitation, all improvements on the inventions,
patents, patent applications or variations thereof which are the
subject of such patents, patent applications or variations, whether
or not such improvements or variations are infringements of the
patents or patent applications or inventions assigned hereunder
(collectively, the "OddzOn Inventions"); and
(l) any and all goodwill and going concern value of OddzOn's
Business and OddzOn.
2.2.5 Notwithstanding the foregoing, the OddzOn Assets shall
not include the properties, assets and rights of OddzOn set forth on Schedule
2.2.5 hereto (collectively, the "OddzOn Excluded Assets").
2.2.6 OddzOn shall deliver or cause to be delivered to Buyer
such deeds, bills of sale, endorsements, assignments and other good and
sufficient instruments of transfer, conveyance and assignment in such form as
Buyer or Buyer's counsel shall reasonably request to effect or evidence the
sale, conveyance, assignment, transfer and delivery of the OddzOn Assets to the
Buyer.
2.2.7 Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
contract or other agreement, including, without limitation, any Insignificant
Contract, or any right to be assigned to Buyer pursuant to the provisions hereof
if an assignment or attempted assignment of the same without the consent of the
other party or parties thereto would constitute a breach thereof or in any way
impair the rights of Buyer
19
26
thereunder. Each Seller shall use its reasonable efforts and Buyer shall
cooperate in all reasonable respects with each Seller to obtain all consents and
waivers and to resolve all impracticalities of assignments or transfers
necessary to convey to Buyer the Assets. Notwithstanding anything contained in
this Agreement to the contrary, all costs incurred in connection with obtaining
consents to the Assigned Contracts shall be borne by Sellers, including, but not
limited to, (i) any fees payable to Disney Enterprises, Inc. in exchange for any
consent, and (ii) the difference between the royalty amount guaranteed not to
exceed $40,000 to MCA/Universal Merchandising, Inc. or its successor under the
license agreement relating to "Babe" and the amount of royalties actually due to
MCA/Universal pursuant to such license agreement but for such guaranty, whether
such license agreement is entered into before or after the Closing Date. If any
consent is not obtained or if an attempted assignment would be ineffective or
would impair Buyer's rights under any Assigned Contract or any right to be
assigned to Buyer pursuant to the provisions hereof so that Buyer would not
receive all such rights, and Buyer waives its condition to Closing relating
thereto insofar as such consent has not been obtained prior to Closing, Sellers
shall use their reasonable efforts to provide or cause to be provided to Buyer
the full benefits of any such Assigned Contract or any right to be assigned to
Buyer pursuant to the provisions hereof and, to the extent Buyer receives the
benefits of such Assigned Contract, Buyer shall bear the burdens associated with
such Assigned Contract. Each Seller shall promptly pay or cause to be paid to
Buyer when received all monies received by such Seller from and after the
Closing Date with respect to any such Assigned Contract or any right to be
assigned to Buyer pursuant to the provisions hereof.
2.3 Limited Liabilities to be Assumed.
2.3.1 Subject to the terms and conditions set forth herein,
Buyer agrees that, at the Closing, it will assume and thereafter pay, perform or
discharge, as the case may be, only the following obligations and liabilities
(and no other obligations or liabilities) (the "Assumed Liabilities"):
(a) all obligations and liabilities of Sellers as of the
Closing Date under the Assigned Contracts (and where ▇▇▇▇ has
guaranteed the performance or payment by either Seller of such
Seller's obligations under any Assigned Contract or where ▇▇▇▇ is
directly obligated
20
27
thereunder, Buyer shall be substituted for ▇▇▇▇ as guarantor or
direct obligor thereunder); provided, however, that there shall be
excepted from such obligations and liabilities, and Buyer shall not
assume, any obligation or liability of Sellers (A) that arises as a
result of a breach by a Seller of any Assigned Contract prior to the
Closing Date, (B) that relates to any obligation, liability, event
or circumstance existing or occurring prior to, or arising out of
any set of facts existing or occurring prior to, the Closing Date
(except for such obligations or liabilities as are assumed by the
Buyer pursuant to Section 2.3.1(b), (c), (d) or (e) below, subject
to the limitations of Section 2.3.2 hereof), (C) that arises from or
relates to any Product Liability Event relating either to products
shipped by the Business prior to the Closing Date or finished goods
manufactured by, or on behalf of, either Seller prior to the Closing
Date and included in the Assets, or (D) that arises from or relates
to any guaranty by either or both Sellers of any obligation or
liability of ▇▇▇▇ or any affiliate thereof;
(b) all obligations and liabilities arising out of the
operation of the Assets or the Business by the Buyer on and after
the Closing Date, including, without limitation, all obligations and
liabilities in connection with Product Liability Events existing
after the Closing Date and relating to products that are
manufactured or shipped by, or on behalf of, Buyer on or after the
Closing Date except that Buyer shall have no liability with respect
to Product Liability Events relating to Inventory of finished goods
purchased from either Seller pursuant to this Agreement;
(c) all obligations and liabilities of Sellers under the
Purchase Orders including any letters of credit issued in connection
therewith which letters of credit will either be assumed by Buyer or
substituted by Buyer with a new letter of credit, it being
understood and agreed as follows:
(i) Sellers shall provide Buyer with an updated list of
Purchase Orders as soon as practicable but in no event later
than ten (10) business days
21
28
after the Closing which list shall contain all Purchase Orders
not previously included on Schedule 2.2.1(d) or Schedule
2.2.4(d); and
(ii) In the event Buyer determines that any Purchase Order
included in the list delivered pursuant to Section 2.3.1(c)(i)
is not a Purchase Order within the definition of such term
contained in this Agreement, it shall so notify Sellers in
writing within ten (10) business days of receipt of such list
and the parties hereby agree to conduct discussions in good
faith in attempts to resolve such dispute within a reasonable
time after notification of such dispute to Sellers in
accordance with this Section;
(d) all payables accrued as payables in accordance with
Sellers' past practices which are directly related to the Business
conducted by Sellers as of the Closing Date (including, without
limitation, any payables of either Seller for coupon or other
promotional programs but not including any payables of either Seller
for income taxes, Excluded Assets, environmental or product
liability matters, non-Assigned Contracts or payables from either
Seller to ▇▇▇▇ or any affiliate of ▇▇▇▇) and which have not been
accumulated by Russ or either Seller prior to the Closing Date by
not paying such payables in the ordinary course of business. The
payables referred to in the preceding sentence shall be either (i)
Control Payables reflected on a report delivered to the Buyer within
one week after the Closing which report shall be accompanied by all
underlying documentation relating to such Control Payables, or (ii)
Non-Control Payables it being understood and agreed, with respect to
the Non-Control Payables, as follows:
(A) from and after the Closing Date, promptly upon receipt by
either Seller or ▇▇▇▇ of a Non-Control Payable which such
Seller or ▇▇▇▇, as the case may be, believes is a payable to
be paid by Buyer pursuant to this Section 2.3.1(d), such
Seller or ▇▇▇▇, as the case may be, shall forward such
Non-Control Payable to Buyer;
22
29
(B) from and after the Closing Date, upon receipt by Buyer of
each Non-Control Payable forwarded from either Seller or ▇▇▇▇
pursuant to Section 2.3.1(d)(ii)(A) above or received from a
third party, Buyer shall determine whether such Non-Control
Payable is a payable to be paid by Buyer pursuant to this
Section 2.3.1(d);
(C) in the event Buyer determines such Non-Control Payable is
not a payable to be paid by Buyer pursuant to this Section
2.3.1(d), Buyer shall return or forward, as the case may be,
the Non-Control Payable to the Seller named thereon together
with a written statement that such payable is not to be paid
by Buyer pursuant to the terms of this Section 2.3.1(d);
(D) in the event Buyer determines such Non-Control Payable is
a payable to be paid by Buyer pursuant to this Section 2.3.1
(d), Buyer shall forward, within a reasonable time after
receipt thereof, copies of such Non-Control Payables received
from a third party to the Seller named thereon; and
(E) in the event any Non-Control Payable received by Buyer
which was either forwarded from either Seller or ▇▇▇▇ pursuant
to Section 2.3.1(d)(ii)(A) above or received from a third
party relates both to the conduct of Business pre-Closing and
post-Closing, Buyer shall determine the amount of each such
payable relating to the Business conducted by the Sellers
prior to the Closing and shall notify Sellers thereof.
Buyer shall, within a reasonable time after payment of any payable
pursuant to this Section 2.3.1(d), forward evidence of such payment
to the Seller named on such payable. Any payables (and any
determination made pursuant to this Section 2.3.1(d)) shall be
subject to the audit and Purchase Price adjustment process set forth
in Section 3.3 hereof and if, upon conclusion of the audit procedure
set forth in such Section, it is determined (i) that any payable
shall not be included in the Closing Balance Sheet, Sellers shall
continue to
23
30
be responsible to pay such payable, such payable shall not be an
Assumed Liability and there shall be no Purchase Price adjustment
therefor, it being understood that if Buyer shall pay any such
payable which should not be included in the Closing Balance Sheet,
such payable shall be a Non-Assumed Liability and any Losses arising
therefrom by Buyer shall be indemnified by Sellers and ▇▇▇▇ in
accordance with Article 15 hereof, or (ii) that any payable not
previously paid by Buyer pursuant to this Section 2.3.1(d) is to be
included in the Closing Balance Sheet, such payable shall be an
Assumed Liability and the Purchase Price shall be adjusted therefor.
(e) all liabilities and obligations of Sellers accrued in
accordance with Sellers' past practices which (i) are directly
related to the Business conducted by Sellers as of the Closing Date
(including, without limitation, any accrued liabilities or
obligations of either Seller for coupon or other promotional
programs but not including any accrued liabilities or obligations of
either Seller for income taxes, Excluded Assets, environmental or
product liability matters, non-Assigned Contracts or liabilities or
obligations from either Seller to ▇▇▇▇ or any affiliate of ▇▇▇▇),
(ii) have not been accumulated by Russ or either Seller prior to the
Closing Date by not accruing such liabilities or obligations in the
ordinary course of business, and (iii) are reflected on a report
delivered to Buyer within thirty (30) days after the Closing which
report shall be accompanied by all underlying documentation relating
to such accrued liabilities or obligations. Any liabilities or
obligations assumed pursuant to this Section 2.3.1(e) shall be
subject to the audit and Purchase Price adjustment process set forth
in Section 3.3 hereof and if, upon conclusion of the audit procedure
set forth in such Section, it is determined (i) that any liability
or obligation shall not be included in the Closing Balance Sheet,
Sellers shall continue to bear such liability or obligation, such
liability or obligation shall not be an Assumed Liability and there
shall be no Purchase Price adjustment therefor, it being understood
that if Buyer shall discharge or satisfy any such accrued liability
or obligation which should not be included in the
24
31
Closing Balance Sheet, such accrued liability or obligation shall be
a Non-Assumed Liability and any Losses arising therefrom by Buyer
shall be indemnified by Sellers and ▇▇▇▇ in accordance with Article
15 hereof, or (ii) that any liability or obligation not previously
assumed by Buyer pursuant to this Section 2.3.1(e) is to be included
in the Closing Balance Sheet, such liability or obligation shall be
an Assumed Liability and the Purchase Price shall be adjusted
therefor.
2.3.2 Any and all payables, liabilities or obligations paid by
Buyer pursuant to Section 2.3.1(d) or Section 2.3.1(e) above shall be included
as a liability on the Closing Balance Sheet for purposes of calculating the Net
Tangible Assets and Buyer shall not be deemed to assume either any liability for
any amount in excess of the specific amount shown on the Closing Balance Sheet
or any general liability relating to the category of payable, liability or
obligation paid or assumed, it being understood by the parties that Buyer is
paying or assuming such payable, liability or obligation as a convenience to
Sellers and on the condition that the amount of such payable, liability or
obligation is treated in accordance with this Section 2.3.2. For example, in the
event Assumed Liabilities includes accrued vacation which is accrued for any
period prior to the Closing Date, Buyer shall not pay or assume any general
liability for accrued vacation or any other employee benefits of Sellers other
than the obligation to pay the amount of accrued vacation specifically set forth
on the Closing Balance Sheet.
2.3.3 Buyer shall execute and deliver to Sellers such written
instruments of assumption to effect or evidence its assumption of the Assumed
Liabilities in such form as Sellers' counsel shall reasonably request.
2.4 Non-Assumption of Other Liabilities. Other than the Assumed
Liabilities, Buyer does not assume, and shall in no event be liable for, any
claims, liabilities, damages, debts or obligations of Sellers, whether accrued,
absolute, matured, contingent or otherwise now existing or hereinafter arising
(the "Non-Assumed Liabilities"). The fact that representations, warranties and
disclosures are made in this Agreement and the Schedules hereto regarding
certain matters including, but not limited to, employee benefits, product
liability and the environment, does not in any way render such matters or
25
32
disclosures Assumed Liabilities unless such matters or disclosures are
specifically assumed in Section 2.3 hereof. Sellers shall retain all liabilities
and obligations with respect to the Non-Assumed Liabilities and shall hold Buyer
harmless therefrom and indemnify Buyer therefor as provided in Article 15 below.
3. Purchase Price and Certain Other Payments.
3.1 Purchase Price. In consideration for the sale, conveyance,
assignment, transfer and delivery of the Assets, Buyer shall:
3.1.1 pay to Sellers One Hundred Sixty Six Million Six Hundred
Fifty Thousand dollars ($166,650,000), as adjusted pursuant to the provisions of
Section 3.3 (the "Purchase Price"), for the Assets, payable as set forth below
in Section 3.2; and
3.1.2 assume the Assumed Liabilities.
3.2 Payment of Purchase Price. At the Closing:
3.2.1 Buyer shall pay to Sellers One Hundred Fifty Five
Million Three Hundred Fifty Thousand dollars ($155,350,000) of the Purchase
Price, as adjusted pursuant to the provisions of Section 3.3, by wire transfer
in immediately available funds to an account or accounts designated by Sellers
in writing.
3.2.2 Eleven Million Three Hundred Thousand dollars
($11,300,000) (the "Deferred Payment") of the Purchase Price shall be paid by
the Buyer to the Escrow Agent pursuant to the terms of the Escrow Agreement.
3.3 Purchase Price Adjustments. The Purchase Price is subject to a
dollar for dollar adjustment, upward or downward, based upon the change in the
Net Tangible Assets of Sellers which change shall be calculated as follows:
3.3.1 If, on the Closing Date, Sellers estimate in good faith
that the amount of Net Tangible Assets as of the Closing Date (the "Estimated
Net Tangible Assets") is less than $45,965,940, the Purchase Price payable at
the Closing shall be reduced by the amount, if any, by which the Estimated Net
26
33
Tangible Assets is less than $45,965,940 (the "Initial Adjustment").
3.3.2 Within ninety (90) days after the Closing Date, Sellers
shall prepare and deliver to the Buyer a balance sheet audited by Sellers'
Auditors (except for Net Receivables which shall be valued in good faith by
Sellers in accordance with GAAP and reported upon to Buyer by Sellers' Auditors
in accordance with "Agreed Upon Procedures", which will include procedures
mutually agreed upon by Buyer, Sellers and Sellers' Auditors regarding
determination of the sales cutoff as of the Closing Date) (the "Closing Balance
Sheet") showing the Net Tangible Assets of Sellers as of the close of business
on the Closing Date, immediately prior to giving effect to the Closing. The
Closing Balance Sheet shall be prepared in accordance with GAAP. Inventory
included on the Closing Balance Sheet shall be included at its value determined
in accordance with GAAP and in accordance with a physical inventory conducted by
▇▇▇▇▇▇▇, ▇▇▇▇ or its affiliates on or around the Closing Date, which Buyer,
Hasbro and Buyer's Auditors shall have the right to observe. Sellers' Auditors
shall have access, during regular business hours and upon the reasonable request
of Sellers or Sellers' Auditors, to all books, records and documents relating to
the Business as carried on prior to the Closing Date for the purpose of
preparing the Closing Balance Sheet. Following delivery of the Closing Balance
Sheet by Sellers, Sellers shall, and shall cause Sellers' Auditors to, cooperate
with Buyer, Hasbro and Buyer's Auditors in connection with their review of the
Closing Balance Sheet and shall permit Buyer, Hasbro and/or Buyer's Auditors to
review all work papers, schedules and calculations used in the preparation
thereof and, upon reasonable request by Sellers' Auditors, Buyer, Hasbro and/or
Buyer's Auditors, as the case may be, shall execute a non-disclosure agreement
relating to such work papers, schedules and calculations as may be reasonably
requested by Sellers' Auditors.
3.3.3 Upon delivery by the Sellers of the Closing Balance
Sheet, the Sellers shall also deliver a certificate certifying (A) that the
Closing Balance Sheet was prepared on the basis described in Section 3.3.2 above
and (B) the Sellers' calculations, based on the Closing Balance Sheet (the
"Sellers' Proposed Calculations") of the Net Tangible Assets as of the Closing
Date.
27
34
3.3.4 Within forty five (45) days after the latest of receipt
of the Closing Balance Sheet, the accompanying certificate and the date on which
Sellers' Auditors make available to Buyer, Hasbro and Buyer's Auditors the work
papers and other information pursuant to Section 3.3.2 above (provided Buyer's,
Hasbro's or Buyer's Auditor's request for such work papers and other information
is made within a reasonable time after receipt of the Closing Balance Sheet and
accompanying certificate and, in the event such request is not made within such
reasonable time period, the forty five (45) day time period shall be extended
for fifteen (15) business days after delivery of the work papers and other
information pursuant to such request), the Buyer shall provide the Sellers with
written notice of its agreement or disagreement with the Closing Balance Sheet
(which disagreement may include disagreement as to the inclusion or exclusion of
any payable or accrued liability or obligation pursuant to Section 2.3.1(d) and
Section 2.3.1(e), respectively) and the accuracy of any of the Sellers' Proposed
Calculations which notice shall describe any such disagreement in reasonable
detail. During such forty five (45) day period, the Buyer shall have the right
to direct the Buyer's Auditors, at the Buyer's expense, to review and test the
Closing Balance Sheet. If the Buyer, after such review and test, disagrees with
the Sellers' Proposed Calculations, Buyer shall propose its alternative
calculations (the "Buyer's Proposed Calculations") within such forty-five (45)
day period. If the Sellers do not accept the Buyer's Proposed Calculations, they
shall so notify Buyer within twenty-five (25) days after receipt of Buyer's
Proposed Calculations which notice shall describe any disagreement in reasonable
detail. If within forty five (45) days after the date of the Sellers' rejection
of the Buyer's Proposed Calculations, the Buyer and the Sellers cannot mutually
agree on the amount of Net Tangible Assets, the Buyer and the Sellers shall
mutually select another firm of independent certified accountants (which shall
be another one of the "Big 6" accounting firms other than Sellers' Auditors or
Buyer's Auditors) to resolve the remaining disputed items (the "Remaining
Disputed Items") by conducting its own review of the Closing Balance Sheet and
thereafter selecting either the Buyer's Proposed Calculations of the Remaining
Disputed Items or the Sellers' Proposed Calculations of the Remaining Disputed
Items or an amount in between the two. Each of the Buyer and the Sellers agrees
that it shall be bound by such other accounting firm's determination of the
Remaining Disputed Items. The fees and expenses of such accounting firm shall be
paid 50% by the Buyer and 50% by the Sellers.
28
35
3.3.5 Upon the determination pursuant to Section 3.3.4 of the
Closing Balance Sheet and amount of Net Tangible Assets as of the Closing Date,
the Purchase Price shall be recalculated pursuant to the provisions of this
Section 3.3.5. If (i) the Net Tangible Assets on the final Closing Balance Sheet
is less than $45,965,940, the Purchase Price shall be reduced by the amount, if
any, by which the Net Tangible Assets shown on the final Closing Balance Sheet
is less than $45,965,940, or (ii) the Net Tangible Assets on the final Closing
Balance Sheet is greater than $47,648,377, the Purchase Price shall be increased
by the amount, if any, by which the Net Tangible Assets shown on the final
Closing Balance Sheet is greater than $47,648,377. No adjustment shall be made
to the Purchase Price in the event that the Net Tangible Assets shown on the
final Closing Balance Sheet is between $45,965,940 and $47,648,377. If the
Purchase Price as adjusted pursuant to this Section 3.3.5 (the "Post-Closing
Adjustment") is greater than the Purchase Price as adjusted pursuant to the
Initial Adjustment, the Buyer shall pay the amount of such excess to Sellers in
accordance with Section 3.4 hereof. If the Purchase Price as adjusted pursuant
to the Post-Closing Adjustment is lower than the Purchase Price as adjusted
pursuant to the Initial Adjustment, the Sellers shall pay the amount of such
difference to Buyer in accordance with Section 3.4 hereof. The Post-Closing
Adjustment is subject to subsequent adjustment as provided in Section 3.3.6
below.
3.3.6 On the nine month anniversary of the Closing Date, the
Net Tangible Assets amount shall be recalculated using the Collected Receivables
amount plus any payments made by Sellers to Buyer for returned Receivables
pursuant to Section 8.8.1 in lieu of the Net Receivables amount previously used
in the calculation of Net Tangible Assets. The Purchase Price shall then be
recalculated pursuant to the formula contained in Section 3.3.5 using the new
Net Tangible Assets amount calculated pursuant to this Section 3.3.6. If the
Purchase Price as adjusted pursuant to this Section 3.3.6 (the "Final
Adjustment") is greater than the Purchase Price as adjusted pursuant to the
Post-Closing Adjustment, the Buyer shall pay the amount of such excess to the
Sellers in accordance with Section 3.4 hereof. If the Purchase Price as adjusted
pursuant to the Final Adjustment is lower than the Purchase Price as adjusted
pursuant to the Post-Closing Adjustment, the Sellers shall pay the amount of
such difference to the Buyer in accordance with Section 3.4 hereof.
29
36
3.4 Method of Payment. Unless otherwise specified herein, all
payments to be made by either Buyer or Sellers pursuant to Section 3 of this
Agreement shall be made into and distributed out of the Escrow Fund in
accordance with the provisions of the Letter Agreement and the Escrow Agreement.
Each Seller, Buyer, Hasbro and ▇▇▇▇ hereby agree that, each time an adjustment
is to be to made pursuant to this Section 3, it shall execute a joint letter of
instruction for submission to the Escrow Agent indicating (i) the amount of
money, if any, to be deposited into the Escrow Fund by either Buyer or Sellers
pursuant to the Letter Agreement, (ii) the amount of money to be distributed by
the Escrow Agent, if any, calculated in accordance with the provisions of this
Section 3 and the Letter Agreement, and (iii) the party to whom such
distribution shall be made, determined in accordance with the provisions of this
Section 3 and the Letter Agreement.
3.5 Allocation of Purchase Price. The amounts payable pursuant to
this Agreement shall be allocated as set forth on Schedule 3.5 hereto among the
various assets comprising the Assets. Such allocation shall be made in
accordance with Section 1060 of the Code and the regulations promulgated
thereunder. The parties shall make all tax reports and returns consistent with
the allocation. Each party shall promptly notify the other if the Internal
Revenue Service or any other taxing authority proposes to reallocate the
Purchase Price. The Sellers' and the Buyer's Tax Identification Numbers are set
forth on Schedule 3.5(b) hereto.
3.6 Escrow. On the Closing Date, ▇▇▇▇▇▇▇, ▇▇▇▇, Buyer, Hasbro and
the Escrow Agent shall enter into the Escrow Agreement, providing for the terms
of the escrow under which the Deferred Payment will be held and released. The
cost of the escrow will be paid jointly and severally by the Buyer and the
Sellers, provided that as between the Buyer and the Sellers, 50% of such amount
shall be paid by Buyer and 50% shall be paid by Sellers.
4. The Closing.
4.1 Time and Place of Closing. The Closing shall take place at the
offices of ▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇,
not later than the later of (i) 10:00 a.m. local time on May 2, 1997, or (ii)
the tenth business day following receipt by the parties of all approvals by
government
30
37
or regulatory bodies required for consummation of the transactions contemplated
hereby, unless otherwise agreed to in writing by the parties hereto (such time
and date of the Closing being herein called the "Closing Date"). Each of the
parties agrees to use its reasonable best efforts to assure that the Closing
will occur no later than May 2, 1997. Notwithstanding the foregoing, any
provision of this Agreement which provides for an accounting with respect to the
assets and/or liabilities of the Business at Closing or on the Closing Date
shall be measured as of the close of business on the Closing Date.
4.2 Exchange of Documents. At the Closing, subject to all of the
terms and conditions of this Agreement:
4.2.1 The Buyer shall pay the Purchase Price less the Initial
Adjustment as provided in Article 3 hereof.
4.2.2 CAP and Buyer shall execute and deliver a CAP ▇▇▇▇ of
Sale, Assignment and Assumption Agreement transferring to Buyer all of the CAP
Assets and pursuant to which Buyer assumes all of the Assumed Liabilities, and
CAP shall deliver all consents to such assignments and assumptions received from
appropriate third parties;
4.2.3 OddzOn and Buyer shall execute and deliver an OddzOn
▇▇▇▇ of Sale, Assignment and Assumption Agreement transferring to Buyer all of
OddzOn's interest in the OddzOn Assets and pursuant to which Buyer assumes all
of the Assumed Liabilities, and OddzOn shall deliver all consents to such
assignments and assumptions received from appropriate third parties;
4.2.4 CAP shall deliver assignments from CAP assigning to
Buyer all right, title and interest in and to the CAP Intellectual Properties;
4.2.5 OddzOn shall deliver assignments from OddzOn assigning
to Buyer all right, title and interest in and to the OddzOn Intellectual
Properties;
4.2.6 Each Seller, ▇▇▇▇, Buyer, Hasbro and the Escrow Agent
shall execute and deliver the Escrow Agreement;
4.2.7 Each of CAP and OddzOn shall be deemed to have delivered
the executed originals or, if the executed
31
38
originals are not otherwise available, copies of the executed originals, of the
Assigned Contracts to the Buyer to the extent located at the principal offices
of CAP and OddzOn respectively, but any executed originals of any Assigned
Contracts which are located on ▇▇▇▇' premises shall be delivered to Buyer as
soon after the Closing as practicable but in no event later than thirty (30)
days after the Closing Date;
4.2.8 Each Seller shall deliver to Buyer and Hasbro
resolutions of the Board of Directors of such Seller, certified by such Seller's
Secretary, evidencing the authority of such Seller to execute, deliver and
perform this Agreement;
4.2.9 ▇▇▇▇ shall deliver to Buyer and Hasbro resolutions of
its Board of Directors or the Executive Committee thereof, certified by its
Secretary, evidencing ▇▇▇▇' authority to execute, deliver and perform this
Agreement;
4.2.10 Buyer shall deliver to each Seller and ▇▇▇▇ resolutions
of its Board of Directors, certified by its Secretary, evidencing Buyer's
authority to execute, deliver and perform this Agreement;
4.2.11 Hasbro shall deliver to each Seller and ▇▇▇▇
resolutions of its Board of Directors, certified by its Secretary, evidencing
Hasbro's authority to execute, deliver and perform this Agreement;
4.2.12 Intentionally Omitted.
4.2.13 CAP shall deliver a termination of its employment
agreement with ▇▇▇▇ ▇▇▇▇▇ and OddzOn shall deliver a termination of its
employment agreement with ▇▇▇▇ ▇▇▇▇▇▇▇, substantially in the form of Exhibits J
and K respectively;
4.2.14 Buyer and ▇▇▇▇ shall have entered into an agreement for
the use by Buyer from and after the Closing of the portion of the warehouse
located in Petaluma, California currently used by OddzOn (the "Occupancy
Agreement"), substantially in form of Exhibit L hereto;
4.2.15 CAP shall deliver a Termination of the Buying Agency
Agreement between CAP and Tri ▇▇▇▇ International (Hong Kong) Limited, dated May
31, 1995, which termination shall be effective as of the Closing Date, shall
specify that there are
32
39
no further obligations of either party thereunder as of the Closing Date and
shall be substantially in form of Exhibit M hereto;
4.2.16 OddzOn shall deliver a Termination of the Buying Agency
Agreement between OddzOn and Tri ▇▇▇▇ International (Hong Kong) Limited, dated
May 31, 1995, which termination shall be effective as of the Closing Date, shall
specify that there are no further obligations of either party thereunder as of
the Closing Date and shall be substantially in form of Exhibit M hereto;
4.2.17 Tri ▇▇▇▇ International (Hong Kong) Limited and Buyer
shall execute and deliver a Service Agreement regarding the services to be
provided by Tri ▇▇▇▇ International (Hong Kong) Limited to Buyer or its
affiliates or subsidiaries, substantially in the form of Exhibit N hereto (the
"Service Agreement");
4.2.18 Each Seller, ▇▇▇▇, Buyer and Hasbro shall execute and
deliver the Letter Agreement;
4.2.19 Each Seller, ▇▇▇▇, Buyer and Hasbro shall execute and
deliver the OddzOn Shareholder Agreement;
4.2.20 Each Seller, ▇▇▇▇, Buyer and Hasbro shall execute and
deliver the Bubble Gum Tape Dispenser Agreement; and
4.2.21 Each party shall deliver to the other party such other
certificates or documents as may be reasonably requested by the other party or
by its counsel.
4.3 Possession of Assets. Promptly following the consummation of the
transfer, each Seller, through its respective officers, agents and employees,
will put Buyer and its designated affiliates into full possession and enjoyment
of all Assets other than actual, physical possession of those Assets listed on
Schedule 4.3 hereto which assets are in the possession of suppliers of such
Seller; provided, however, that within one business day after the Closing Date
such Seller shall have delivered to Buyer evidence of such Seller's written
notice to such suppliers that the Assets are owned by Buyer as of the Closing
Date and shall be treated from and after the Closing Date in accordance with
instructions from Buyer.
33
40
5. Representations and Warranties of Sellers and Russ.
Each Seller and ▇▇▇▇ hereby jointly and severally represent
and warrant to Buyer as follows:
5.1 Corporate Organization and Authority. OddzOn is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of California and CAP is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Ohio. ▇▇▇▇ is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New Jersey. Each Seller is qualified to do business only in its state
of incorporation and each Seller's failure to qualify in any other jurisdiction
will not have a Material Adverse Effect on such Seller, such Seller's Business
or the Assets. ▇▇▇▇ is the sole record and beneficial owner of all of the issued
and outstanding shares of capital stock of each Seller. There are no outstanding
obligations of either Seller or ▇▇▇▇ to issue or sell any capital stock or other
securities of either Seller (including any securities convertible into or
exchangeable for, or options or other rights to acquire, such capital stock or
other securities). Each Seller has full corporate power and authority to carry
on the Business as it is currently conducted and to own, lease and operate its
Assets where and in the manner in which such Assets are now owned, leased or
operated. Except as set forth on Schedule 5.1(b) hereto, Sellers do not own any
equity interest in any other entity and the Business has not been conducted
through any direct or indirectly owned subsidiary or affiliate of either Seller
or ▇▇▇▇.
5.2 Corporate Authorization. Each Seller and ▇▇▇▇ has full corporate
power and authority to execute, deliver and perform this Agreement and all other
agreements, instruments and documents to be executed and delivered by such party
in connection herewith (collectively, the "Ancillary Seller Documents") and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been and all Ancillary Seller Documents have been or will be, on or prior to the
Closing Date, duly authorized, executed, delivered and approved by all necessary
and proper corporate action of each Seller and ▇▇▇▇. The transactions
contemplated by this Agreement and all Ancillary Seller Documents have been
approved by the sole shareholder of each Seller. This Agreement constitutes a
legal, valid and binding obligation of each Seller and ▇▇▇▇, and each Ancillary
34
41
Seller Document to be delivered in connection herewith, when executed and
delivered, will constitute a legal, valid and binding obligation of each Seller
and ▇▇▇▇; and this Agreement and each Ancillary Seller Document will be
enforceable against each Seller and ▇▇▇▇ in accordance with their respective
terms, subject to (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally (including, without
limitation, any applicable laws relating to fraudulent conveyances) and (b)
equitable principles of general applicability.
5.3 No Violation or Conflict. Except as set forth on Schedule 5.3,
neither the execution and delivery of this Agreement or any Ancillary Seller
Document by either Seller and/or ▇▇▇▇ nor the consummation of the transactions
contemplated hereby or thereby will violate, conflict with, result in the breach
or modification of, or default under, or accelerate the performance required by,
any of the terms, conditions or provisions of the Certificate of Incorporation
or other charter document or By-Laws of either Seller or ▇▇▇▇, or any term,
provision, covenant or condition of any contracts and other agreements to which
either Seller or ▇▇▇▇ is a party or to which either Seller's or ▇▇▇▇' assets are
subject, or any order, ruling, injunction, decree, judgment, arbitration award
or stipulation or any Law to which either Seller or ▇▇▇▇ or any of its or their
assets are subject, or which would result in the creation or imposition of any
Encumbrance thereunder upon any of the Assets or give to any person any interest
or right, including any right of acceleration, termination or cancellation in or
with respect to or otherwise have a Material Adverse Effect, individually or in
the aggregate, on the Assets (including, without limitation, the Assigned
Contracts, Real Estate Leases and Permits) or the business operations or
condition of Sellers. Neither ▇▇▇▇ nor either Seller is a party to any contract
or other agreement with any person other than Buyer or Hasbro concerning any
Transaction (as hereinafter defined) involving either Seller other than
confidentiality and similar agreements entered into prior to the date hereof
copies of which shall be delivered to Buyer promptly following the Closing.
5.4 Consents, Approvals, Permits and Authorizations.
5.4.1 Except as set forth on Schedule 5.4 hereto, and except
as set forth in Section 5.4.4, no consent, approval or authorization of, filing
or registration with, or
35
42
notification to, any judicial, government or regulatory body is required in
connection with the execution and delivery of this Agreement or any Ancillary
Seller Document by either Seller or ▇▇▇▇ or the consummation by either Seller or
▇▇▇▇ of the transactions contemplated hereby and by the Ancillary Seller
Documents including, without limitation, the assignment by Sellers, and
assumption by Buyer of the Permits, or for the continuation by Buyer of the
Business after the Closing in the same manner as presently conducted or proposed
to be conducted by Sellers, other than consents, approvals or authorizations the
failure to obtain which would not, individually or in the aggregate, have a
Material Adverse Effect on the condition of Sellers.
5.4.2 Schedules 2.2.1(h) and 2.2.4(h) set forth and Sellers
hold all permits that are material to or necessary for the conduct of the
Business.
5.4.3 Except as set forth on Schedule 5.4 hereto, no consent,
approval or authorization of any person is required in connection with the
execution or delivery of this Agreement or any Ancillary Seller Document by
either Seller or ▇▇▇▇ or the consummation by either Seller or Russ of any of the
transactions contemplated hereby or by any Ancillary Seller Document, including,
without limitation, the assignment by Sellers, and assumption by Buyer of the
Assigned Contracts or for the continuation by Buyer of the Business after the
Closing in the same manner as presently conducted or proposed to be conducted by
Sellers, other than consents, approvals or authorizations the failure to obtain
which would not, individually or in the aggregate, have a Material Adverse
Effect on the condition of Sellers.
5.4.4 ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ has filed a Notification and Report
Form for Certain Mergers and Acquisitions, with respect to the acquisition of
the Assets by Hasbro, with the Antitrust Division of the Department of Justice
and the Bureau of Competition of the Federal Trade Commission. The applicable
waiting period under the HSR Act has expired and ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ has not
received any requests for additional information relating to such filings.
5.5 Financial Statements. The unaudited balance sheets of each
Seller and the unaudited combined balance sheets of Sellers, in each case as at
December 31, 1995 and December 31,
36
43
1996, and the related individual and combined statements of income for the years
then ended, are attached hereto as Schedule 5.5(a) and are the financial
statements that were included within the audited financial statements of ▇▇▇▇
for such periods. Except as set forth on Schedule 5.5(b), each of such balance
sheets and the Opening Balance Sheet is complete and fairly presents the
individual or combined financial position, as the case may be, of the Sellers as
at the date thereof and the related statements of income are complete and fairly
present the individual or combined results of Sellers' operations, as the case
may be, for the periods referred to therein in all material respects, in each
case in conformity with GAAP. Each of such financial statements and the Opening
Balance Sheet was prepared from the books, accounts and financial records of the
Sellers. Except as set forth on Schedule 5.5(c) hereto, each combined balance
sheet and the Opening Balance Sheet makes full and adequate provision for all
obligations or liabilities (fixed and contingent) of Sellers required to be
reserved against on such balance sheet in accordance with GAAP as of the
respective dates thereof.
5.6 Leased Real Property.
5.6.1 The lists of Real Estate Leases set forth on Schedule
2.2.1(f) and Schedule 2.2.4(f) are true, complete and accurate, and Sellers have
delivered to Buyer a true and complete copy of each Real Estate Lease. Neither
Seller is in default nor does any breach by either Seller exist under any Real
Estate Lease, nor has any event occurred which, with the giving of notice or the
lapse of time or both, would constitute a default by either Seller under any
Real Estate Lease, nor has either Seller received any notices concerning any of
the foregoing, other than those defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on the condition of Sellers. To the
knowledge of each Seller and ▇▇▇▇, no landlord which is a party to any Real
Estate Lease has committed any event of default thereunder, and no event has
occurred which with the passage of time or the giving of notice or both would
result in the occurrence of such an event of default. Except as set forth on
Schedule 5.6(a), each Seller has complied in all material respects with the
provisions of each Real Estate Lease and no waiver or indulgence has been
granted by any of the parties thereto. Each Real Estate Lease is valid and in
full force and effect and upon assignment thereof to Buyer (assuming all
necessary consents have been obtained) will give
37
44
Buyer the same rights enjoyed thereunder by the Seller party thereto. Except as
set forth on Schedule 5.6(b), each of the Real Estate Leases listed on Schedule
2.2.1(f) and/or Schedule 2.2.4(f) is assignable by the Seller which is a party
thereto to Buyer without the consent of the other parties thereto.
5.6.2 There is neither pending, nor is either Seller or Russ
aware of, any threatened condemnation, eminent domain or similar proceeding with
respect to the Premises which would have a Material Adverse Effect on the
condition of Sellers.
5.6.3 The Premises and the activities which have been
conducted by Sellers thereon, comply in all material respects with all
applicable Laws.
5.7 No Encumbrances.
5.7.1 Except as set forth on Schedule 5.7.1 hereof, and except
in regard to any CAP Excluded Assets, CAP owns in fee and has and will convey to
Buyer good and marketable title to the personal properties included in the CAP
Assets, free and clear of all Encumbrances.
5.7.2 Except as set forth on Schedule 5.7.2 hereof, and except in
regard to any OddzOn Excluded Assets, OddzOn owns in fee and has and will convey
to Buyer good and marketable title to the personal properties included in the
OddzOn Assets, free and clear of all Encumbrances.
5.8 Assigned Contracts.
5.8.1 The lists of Assigned Contracts set forth on Schedule
2.2.1(d) and Schedule 2.2.4(d) are true, complete and accurate, and the Sellers
have delivered to Buyer a true and complete copy of each written Assigned
Contract and a true and complete description of each oral Assigned Contract. All
contracts, other than Insignificant Contracts, relating to the Sellers' Business
are included on Schedule 2.2.1(d) and/or Schedule 2.2.4(d).
5.8.2 Each of the Assigned Contracts was entered into in the
ordinary and usual course of the Business. Neither Seller is in default in any
material respect nor does any material breach by either Seller exist under any
Assigned Contract, nor has any event occurred which, with the giving of
38
45
notice or the lapse of time or both, would constitute a material default by
either Seller under any Assigned Contract nor has either Seller received any
notices concerning any of the foregoing. To each Seller's and to ▇▇▇▇'
knowledge, except as set forth on Schedule 5.8(a), no other party to any
Assigned Contract has caused any material default thereunder, and no event has
occurred which with the passage of time or the giving of notice or both would
result in the occurrence of such a material default. Except as set forth on
Schedule 5.8(a), each Seller has complied in all material respects with the
provisions of each Assigned Contract to which such Seller is a party and no
waiver or indulgence has been granted thereunder by any of the parties thereto.
Each Assigned Contract is valid and in full force and effect and upon assignment
thereof to Buyer (assuming all necessary consents have been obtained) will give
Buyer the same rights enjoyed thereunder by the Seller a party thereto. Except
as set forth on Schedule 5.8(b), each of the Assigned Contracts, other than
Insignificant Contracts, is assignable by the Seller that is a party thereto to
Buyer without the consent of the other parties thereto. With respect to each
Assigned Contract between a Seller and any sales representative, sales agent or
distributor (domestic or foreign), Schedule 5.8(c) sets forth (i) the sales
volume of such sales representative, sales agent or distributor for the calendar
years ended December 31, 1995 and 1996, (ii) the names and addresses of the
sales representatives, agents and distributors, (iii) the states and countries
included within their respective territories, (iv) the channels of distribution
within their respective territory, (v) specific customers to which they are
assigned, if applicable, and (vi) the date such sales representative, sales
agent or distributor began to act as such with respect to the Business. Schedule
5.8(d) contains a true, complete and accurate list of all agreements between
either Seller and customers, distributors and any other third parties which
provide for the consignment of products by either Seller and/or the repurchase
of unsold product by either Seller, including repurchases by means of exchange
for and/or the granting of credits towards the purchase of new products.
5.9 Compliance with Applicable Laws and Regulations;
Environmental Matters.
5.9.1 Except as disclosed by Sellers to Buyer on Schedule
5.9.1, since January 1, 1992, and with respect to periods prior to October 1,
1993 with respect to CAP and September 30, 1994 with respect to OddzOn to the
knowledge of
39
46
Sellers and ▇▇▇▇, the Business has complied in all material respects with all
Laws, including but not limited to Environmental Laws. Each Seller has made all
requisite disclosures to the U.S. Customs Service.
5.9.2 Schedule 5.9.2 hereto lists all notices to either Seller
of environmental violations or environmental claims and all reports made by
either Seller to Federal, state and local environmental agencies since January
1, 1992, and with respect to periods prior to October 1, 1993 with respect to
CAP and September 30, 1994 with respect to OddzOn to the knowledge of Sellers
and ▇▇▇▇, and all reports concerning the environmental condition of the Premises
or the compliance by either Seller or the Business with Environmental Laws.
Sellers have delivered to Buyer true and correct copies of all such notices,
claims and reports. Except as set forth on Schedule 5.9.2, since January 1,
1992, and with respect to periods prior to October 1, 1993 with respect to CAP
and September 30, 1994 with respect to OddzOn to the knowledge of Sellers and
▇▇▇▇:
(a) Neither Seller has conducted or operated, nor does either
Seller currently conduct or operate, nor has the Business ever been
conducted or operated, nor is the Business currently conducted or
operated, on any real property, wherever located which contains, nor
does either Seller have any responsibility or liability under
Environmental Laws for, any waste storage areas, drum storage areas,
surface impoundments, incinerators, land fills, tanks, lagoons,
ponds, waste piles, or deep well injection systems used for the
purpose of treatment, storage or disposal of Hazardous Substances;
(b) Neither Seller nor the Business has transported for off
site disposal any Hazardous Substance or entered into any contract
or agreement, or otherwise arranged, for the transportation,
storage, or disposal of any such Hazardous Substance at any off site
location;
(c) There has been no spill, Release or discharge by either
Seller or the Business of any Hazardous Substance resulting from the
operation of any of the Assets or the conduct of the Business which
would (i) constitute or have constituted a violation of
Environmental Law, or (ii) give rise to any
40
47
Environmental Liabilities or obligation by the Business or such
Seller, its assigns or its successors in interest to effect any
environmental cleanup or remediation; and
(d) No federal, state or local government or agency has
asserted or created any Encumbrance upon any or all of the Assets or
the Premises as a result of any use, spill, Release, discharge or
cleanup of any Hazardous Substance nor has any such use, spill,
Release, discharge or cleanup occurred which could result in the
assertion or creation of such an Encumbrance.
5.9.3 Each Seller holds all required environmental permits and
is operating the Business in substantial compliance with all Environmental Laws.
5.10 Taxes. There are no Encumbrances for Taxes upon the Assets.
Except as provided in Section 8.2, there are and by reason of the consummation
of the transactions contemplated hereby there will be no Tax liabilities of
either Seller and/or ▇▇▇▇ which could result in any transferee liability to
Buyer or could result in an Encumbrance on the Assets.
5.11 Litigation. Except as set forth on Schedule 5.11(a), neither
Seller is engaged in or a party to any Litigation against, relating to or
affecting such Seller, the Business, the Assets or the transactions contemplated
hereby, and to the knowledge of any Seller or ▇▇▇▇, no such Litigation has been
threatened which could reasonably be expected to have a Material Adverse Effect
on the condition of Sellers or the ability of Sellers to consummate the
transactions contemplated hereby. Except as set forth on Schedule 5.11(b), there
are no outstanding orders, injunctions, awards, rulings, decrees, judgments or
stipulations to which either Seller is a party or by which either Seller, the
Business or the Assets are bound, by or with any court, arbitrator,
administrative agency or government or regulatory body, any of which orders,
rulings, decrees, judgments or stipulations relate to either Seller, the
Business or the Assets or challenge or otherwise relate to the transactions
contemplated by this Agreement. Schedule 5.11(c) sets forth a true, complete and
accurate list of all Litigation since January 1, 1992 (but only to the knowledge
of Sellers and ▇▇▇▇ with respect to periods prior to October 1, 1993 with
41
48
respect to CAP and September 30, 1994 with respect to OddzOn) involving either
Seller, the Business and/or the Assets (including, but not limited to, the
Products and the Intellectual Property). Except as set forth on Schedule
5.11(d), since January 1, 1992 (but only to the knowledge of Sellers and ▇▇▇▇
with respect to periods prior to October 1, 1993 with respect to CAP and
September 30, 1994 with respect to OddzOn) no product liability claims with
respect to either Seller's products have been filed under either Seller's
insurance policies and neither Seller is nor has either Seller been a party to
any Litigation relating to any product liability claims and, to any Seller's or
▇▇▇▇' knowledge, no such Litigation is threatened. Except as set forth on
Schedule 5.11(e), there have been no voluntary recalls for safety, labeling,
health or any other reasons or required product recalls or notifications with
respect to the Products made by any government or regulatory body and there is
no basis for any such recalls. Except as set forth on Schedule 5.11(f), all
prior recalls have been fully completed and all credits have been issued to
customers in connection therewith.
5.12 Intellectual Property.
5.12.1 Except as set forth on Schedule 5.12.1, CAP owns, or is
licensed or otherwise has the right to use, the CAP Intellectual Property free
and clear of any payment or Encumbrance, and no event has occurred which, with
notice or the passage of time, or both, would allow any party to exercise any
right of reversion with respect to any CAP Intellectual Property.
5.12.2 Except as set forth on Schedule 5.12.2, OddzOn owns, or
is licensed or otherwise has the right to use, the OddzOn Intellectual Property
free and clear of any payment or Encumbrance, and no event has occurred which,
with notice or the passage of time, or both, would allow any party to exercise
any right of reversion with respect to any OddzOn Intellectual Property.
5.12.3 Except as set forth on Schedule 5.12.3, no former or
present employee, officer or director of either Seller holds any right, title or
interest, directly or indirectly, in whole or in part, in or to any Intellectual
Property.
5.12.4 A complete and correct listing of all patents, patent
applications, registered trademarks, trademark
42
49
applications, registered copyrights and copyright applications included in the
Intellectual Property is set forth on Schedule 2.2.1(g) with respect to CAP and
Schedule 2.2.4(g) with respect to OddzOn, exclusive of any immaterial or
insignificant licenses which are generally available in the open market.
5.12.5 Except as set forth on Schedule 5.12.5, all filings
necessary prior to the Closing Date to maintain the pendency of all trademark
applications, and to maintain the validity of all trademarks which have been
registered with the appropriate government or regulatory body, have been
properly made; provided, however, that this representation and warranty shall
not imply registration has been made for all trademarks used by Sellers.
5.12.6 Schedule 5.12.6 hereto sets forth a complete and
accurate list of all of the material Computer Programs that are owned, licensed,
leased or otherwise used by either Seller in connection with the operation of
the Business of such Seller, as currently conducted and as currently
contemplated to be conducted, and identifies whether such Computer Program is
owned, licensed, leased or otherwise used, as the case may be. Except as set
forth on Schedule 5.12.6 hereto, all Computer Programs listed on Schedule 5.12.6
were developed (i) by employees of the Seller within the scope of their
employment or (ii) as "works-made-for-hire", as that term is defined under
Section 101 of the United States copyright laws, pursuant to written agreements.
With respect to all Computer Programs owned by either Seller, such Seller has
taken or caused to be taken reasonable steps to obtain and retain valid and
enforceable intellectual property rights therein.
5.12.7 No trade secret, proprietary source code, know-how or
any other confidential information relating to either Seller or the Business has
been disclosed or authorized to be disclosed to any third party other than
manufacturers or licensors of products for either Seller, unless covered by a
non-disclosure agreement (but only to the knowledge of Sellers and ▇▇▇▇ with
respect to periods prior to October 1, 1993 with respect to CAP and September
30, 1994 with respect to OddzOn).
5.12.8 Except as set forth on Schedule 5.12.8(a), there is no
claim or demand of any person, or any proceedings which are pending, or any
unasserted claims or threatened proceedings of which either Seller or ▇▇▇▇ is
aware,
43
50
which challenge the rights of either Seller in any of the Intellectual Property,
and no such claims or demands have been made and no such proceedings have been
pending since January 1, 1992 (but only to the knowledge of Sellers and ▇▇▇▇
with respect to periods prior to October 1, 1993 with respect to CAP and
September 30, 1994 with respect to OddzOn). Except as set forth on Schedule
5.12.8(b), none of the Intellectual Property is subject to any outstanding
order, ruling, decree, injunction, restriction, judgment or stipulation by any
court, arbitrator, administrative agency or government or regulatory body, and
neither Seller has received notice of any, and there is no, proceeding to
subject any Intellectual Property thereto which is pending or, to the knowledge
of any Seller or ▇▇▇▇, threatened. Except as set forth on Schedule 5.12.8(c), no
Product made, used, sold or imported by Sellers prior to the Closing Date, no
process used by Sellers prior to the Closing Date in connection with any of the
Products, and no use of any of the Intellectual Property in connection with any
of the Products sold by Sellers prior to the Closing Date infringes or has
infringed the Intellectual Property rights of others. Further, to the best of
each Seller's and ▇▇▇▇' knowledge without independent investigation, no new
Product under development by either Seller, or developed but not yet sold, as of
the Closing Date, no process used by Sellers in connection therewith and no
contemplated use by Sellers of any of the Intellectual Property rights in
connection therewith will infringe the Intellectual Property rights of others.
Except as set forth on Schedule 5.12.8(d), neither Seller nor Russ is aware of
any infringing products currently on the market or contemplated by any third
party. Schedule 5.12.8(d) sets forth the identities and/or a description of all
persons who, to each Seller's and ▇▇▇▇' knowledge, are or may be currently
infringing upon or appropriating any Intellectual Property. Except as set forth
on Schedule 5.12.8(e), each Seller has paid and/or filed, as the case may be,
all of its patent maintenance fees and all trademark declarations, renewals and
fees which were due and/or payable prior to the Closing Date. Each Seller has
taken all actions necessary to preserve its rights in, and to enable it to
transfer to Buyer, all pending patent and/or trademark applications.
5.13 Conduct of Business From and After the Balance Sheet
Date. Except as set forth on Schedule 5.13 hereto, from and after the Balance
Sheet Date there has not been a change in either Seller which has had a Material
Adverse Effect on the condition of Sellers. Without limiting the generality of
the
44
51
foregoing, except as set forth on Schedule 5.13, from and after the Balance
Sheet Date, each Seller has caused such Seller's Business to be conducted only
in the ordinary course and has not (with respect to such Seller's Business):
5.13.1 incurred or entered into any agreement or commitment
which resulted or will result in an expenditure exceeding $10,000, other than in
the ordinary course of business;
5.13.2 made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable or to become
payable to any director, officer, employee, distributor, sales representative or
agent of such Seller, or agreed or orally promised to pay, conditionally or
otherwise, any bonus, extra compensation, pension, retirement, allowance,
severance, retiree health or vacation pay or other employee benefit, to any such
director, officer, employee, distributor, sales representative or agent of such
Seller;
5.13.3 sold, transferred, leased or otherwise disposed of any
of its assets, other than Inventory in the ordinary course of the Business
consistent with such Seller's practice for the comparable period in the
immediately preceding year and sales of other items in the ordinary course of
business for an amount not in excess of $10,000 for any one transaction or
series of related transactions, or waived or released any rights with respect to
the Business or the Assets, or disclosed any confidential business information
to any prospective buyer other than Buyer and Hasbro;
5.13.4 amended in any material respect, transferred or granted
any rights under, or terminated any Assigned Contract, Real Estate Lease or
Permit, or terminated, transferred or granted any rights with respect to any
Intellectual Property;
5.13.5 incurred, assumed, created, paid or guaranteed any
loan, liability or other obligation other than in the ordinary course of the
Business;
5.13.6 subjected any of the Assets to any Encumbrance other
than in the ordinary course of the Business or created or consented to any
Encumbrance;
45
52
5.13.7 suffered any damage, destruction or casualty loss, or
suffered the occurrence of any events which, individually or in the aggregate,
have had, or might reasonably be expected to have, a Material Adverse Effect on
the condition of Sellers;
5.13.8 changed any accounting practices or policies or
restated any historical financial information; or
5.13.9 entered into any contract or other agreement (other
than this Agreement or any arrangement provided for or contemplated in this
Agreement) to take any of the types of action described in this Section 5.13.
5.14 Employees. There is no labor strike, lockout, work stoppage,
work slowdown or representation proceeding pending or threatened against or
involving either Seller or involving the Hong Kong Employees. To each Seller's
and ▇▇▇▇' knowledge, no union or other labor organization is seeking to
organize, or be recognized as a collective bargaining representative for, any
employees of either Seller. Except as set forth on Schedule 5.14(a), and except
for oral arrangements (which may be modified or terminated at any time) with its
employees at-will, who may be terminated with or without cause, neither Seller
is a party to any contract for the employment of any employee employed by either
Seller or collective bargaining agreement relating to any employee with respect
to either Seller nor is Russ or any affiliate of ▇▇▇▇ a party to any contract
for the employment of any Hong Kong Employees. Except as listed on Schedule
5.14(b), there are no disputes presently subject to any grievance procedure,
arbitration or Litigation under such agreements, nor is there any default, or
any event which solely by notice and/or passage of time will become a default,
under any such agreements, by either Seller, ▇▇▇▇ or any affiliate of ▇▇▇▇ or
any other party thereto. Except as set forth on Schedule 5.14(b)(i), no employee
of either Seller and no Hong Kong Employee has delivered written or, to the
knowledge of either Seller or Russ, oral notice of his or her intention to
resign or retire. Schedule 5.14(c) hereto sets forth the name, taxpayer
identification number and salary or wages and vacation pay as of the date hereof
with respect to each employee of each Seller and each Hong Kong Employee. Each
Seller, and with respect to the Hong Kong Employees, Russ or any affiliate of
▇▇▇▇, has withheld and has paid, or will promptly pay when due, all amounts
required by Law or contract to be withheld from the wages or salaries of the
46
53
employees and is not liable for any arrears of wages or any Taxes or penalties
for failure to comply with any of the foregoing or for payment to any trust or
other fund or to any authority with respect to unemployment compensation, Social
Security or other benefits for employees. Neither Seller, and with respect to
Hong Kong Employees, neither ▇▇▇▇ nor any affiliate of Russ, has engaged in any
unfair labor practice or discriminated on the basis of race, age, sex or
otherwise in its employment terms, conditions or practices with respect to its
employees or employee benefits, and, except as listed on Schedule 5.14(d) there
are no pending or, to the knowledge of Sellers and Russ, threatened unfair labor
practice or discrimination charges or any other Litigation relating to
employment or applications for employment at either Seller or relating to the
Hong Kong Employees. Except as set forth on Schedule 5.14(e), each employee of
each Seller is a lawful resident of the United States with full authority to
hold such jobs in compliance with all applicable Laws (including, but not
limited to, United States immigration Laws). Neither Seller nor, with respect to
the Hong Kong Employees, ▇▇▇▇ or any affiliate of ▇▇▇▇, nor, to any Seller's or
▇▇▇▇' knowledge without any independent investigation, any subcontractor of
either Seller (including, but not limited to, any subcontractor located in the
People's Republic of China), utilizes slave, prison or child labor with respect
to the Products in violation of applicable Law.
5.15 Insurance. Schedule 5.15 sets forth a true and complete list of
all policies of insurance in force relating to each Seller (including its
employees), the Business or the Assets setting forth the applicable underwriter,
type of coverage, policy number and policy periods. All such policies set forth
on Schedule 5.15 are in full force and effect; all premiums with respect thereto
covering all periods up to and including the date as of which this
representation is being made have been paid; and no notice of cancellation or
termination has been received with respect to any such policy. Each Seller and
▇▇▇▇ shall maintain such insurance policies relating to it and such policies
shall continue in full force and effect up to and including the Closing Date.
Neither Seller has failed to give any notice or present any claim of which it
has knowledge under any insurance policy in due and timely fashion, and there
are no claims by either Seller against any of such policies as to which any
insurance company is denying liability or defending under a reservation of
rights clause. Except as set forth in Schedule 5.15(a), neither Seller has
received notice of, and to each Seller's and ▇▇▇▇' knowledge
47
54
there are no, outstanding requirements or written recommendations by any
insurance company that issued a policy which requirement or written
recommendations have been received by CAP since October 1, 1993 or received by
OddzOn since September 30, 1994 or by any Board of Fire Underwriters or other
body exercising similar functions or by any government or regulatory body
requiring or recommending in writing any repairs to any part of the Premises or
other work to be done or requiring or recommending in writing any equipment or
facilities to be installed at or on any of the Premises.
5.16 Employee Benefit Plans. Schedule 5.16 sets forth each pension,
retirement, profit-sharing, deferred compensation, employee reimbursement, stock
bonus, phantom stock or other similar plan; each medical, vision, dental or
other health plan; each life insurance plan; each employment agreement; each
severance agreement or arrangement; each salary continuation program; and any
other employee benefit plan, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Benefit Plan"), which
constitutes an obligation or liability of either Seller and/or which either
Seller maintains, sponsors, contributes to or is required to contribute to on
behalf of any current or former employees, officers, directors or agents (or
their beneficiaries) of such Seller, or under which current or former employees,
officers, directors or agents (or their beneficiaries) of such Seller are
eligible to receive benefits, (collectively, the "Employee Benefit Plans"). Each
Seller has made available to Buyer complete and correct copies of all Employee
Benefit Plans together with the most recent report on Form 5500 including
schedules thereto for each Employee Benefit Plan required to file such report.
All ERISA Benefit Plans have been operated and maintained in compliance in all
respects with the provisions of ERISA, the Code and the rules and regulations
promulgated thereunder. There is no pending or, to the knowledge of Sellers and
▇▇▇▇, threatened litigation relating to the Employee Benefit Plans. All
contributions required to be made on or prior to the Closing Date under the
terms of any Employee Benefit Plan have been or will be made. There is not, and
as of the Closing Date there will not be any, accumulated funding deficiency
within the meaning of Section 412 of the Code, whether or not waived with
respect to any ERISA Benefit Plan. No plan has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA and Section 4975 of the Code)
with respect to which either Seller
48
55
could incur any tax or liability for which an exemption has not been received
from the Department of Labor and/or the Internal Revenue Service, as applicable.
No "reportable event" (as that term is defined in Section 4043 of ERISA) for
which the 30 day reporting requirement has not been waived has occurred with
respect to any Employee Pension Benefit Plan subject to Title IV of ERISA which
would subject either Seller or any of the Assets to any liability. Neither
Seller currently or has ever participated in or has incurred, and neither Seller
will, as a result of the transactions contemplated herein incur, any unpaid
withdrawal liability under any "multiemployer" plan as described under Section
4001(a)(3) of ERISA. Neither Seller has in the past and does not presently
discriminate with respect to any Employee Benefit Plan in violation of
applicable Law (including, without limitation, ERISA).
5.17 Worker's Compensation; Unemployment Insurance. Except as
disclosed on Schedule 5.17(a), CAP is an employer in good standing under Ohio
unemployment insurance and worker's compensation laws. Except as disclosed on
Schedule 5.17(b), OddzOn is an employer in good standing under California
unemployment insurance and worker's compensation laws. The worker's compensation
and unemployment insurance ratings and contributions of each Seller are set
forth on Schedule 5.17(c) hereto. Except as set forth on Schedule 5.17(a), (b)
or (c), neither Seller nor ▇▇▇▇ has any knowledge of any proposed increase
therein or knows of any conditions or circumstances which might result in such
increase.
5.18 Condition of Assets. The Premises and the Equipment transferred
to Buyer will on the Closing Date be maintained in the ordinary course of
business and in good working order, ordinary wear and tear excepted. Except as
set forth on Schedule 5.18, neither Seller has within the past three years made
any, and there are no pending, material claims against suppliers or
manufacturers of any of the Assets with respect to breach of warranty or quality
or condition of the Assets.
5.19 Receivables. Each Receivable represents a valid obligation due
to a Seller from a creditworthy customer or is secured by a letter of credit
payable within 90 days after shipment and issued by a creditworthy financial
institution, in each case arising from the sale of goods by a Seller made in the
ordinary course of the Business or has been appropriately reserved for on the
Balance Sheets. Schedule 5.19(a) hereto
49
56
identifies all Receivables which are overdue by more than 30 days or to any
Seller's or ▇▇▇▇' knowledge disputed in any way. None of the Receivables have
been sold, bartered, factored or assigned in any way or are subject to any
Encumbrance. The gross amount with respect to each Receivable represents the
aggregate of the invoice amounts from the Sellers to each customer. Schedule
5.19(b) sets forth each Seller's 1996 and 1997 sales policies, including all
royalty and commission arrangements with distributors, wholesalers and
retailers.
5.20 Inventory. All Inventory delivered to the Buyer on the Closing
Date shall, when delivered to Buyer, consist principally of finished goods and
components and shall be in good and merchantable condition, in conformity with
applicable voluntary Toy Manufacturing Standards of the Toy Manufacturer's
Association and shall be suitable and usable or salable in the ordinary course
of the Business as conducted by Sellers and for the purposes for which intended
or shall be appropriately reserved for on the Balance Sheet in accordance with
GAAP. Without limiting the generality of the foregoing, if the Inventory
includes any defective materials or obsolete items, they will be included on the
Closing Balance Sheet at their value as determined in accordance with GAAP,
which value may be zero. All items of Inventory have been, and as of the Closing
will have been, either acquired directly by the Sellers or by the Sellers
through ▇▇▇▇ or its affiliates, in each case, in the ordinary course of business
from unaffiliated third parties or manufactured in the ordinary course of
business by Sellers, in each case consistent with past practices.
5.21 Assets Not in the Possession of Sellers. Schedule 4.3 sets
forth a complete list of all Assets which are in the possession of any vendors
(including, without limitation, advertising agencies, warehousemen and
mold-makers), suppliers, employees and other persons other than Sellers,
including an accurate description of any such Assets sufficient to identify them
to Buyer. The names, addresses and telephone numbers of the persons in
possession of any of such Assets are set forth on Schedule 4.3.
5.22 Suppliers and Customers. Schedule 5.22(a) sets forth all
suppliers and the ten largest customers of each Seller. Except as set forth on
Schedule 5.22(b), no single supplier or customer is materially important to the
Business of either Seller. The relationships of Sellers with their respective
50
57
suppliers and customers are good commercial working relationships and no
supplier or customer of either Seller (a) has canceled or otherwise terminated,
or threatened in writing to cancel or otherwise terminate, its relationship with
a Seller the result of which has, or is expected by either Seller to have, a
Material Adverse Effect on the condition of Sellers or (b) has during the last
12 months decreased materially, or threatened to decrease or limit materially,
its services, supplies or material to a Seller or its usage or purchase of the
services or products of a Seller, as the case may be, the result of which has,
or is expected by either Seller to have, a Material Adverse Effect on the
condition of Sellers. Neither Seller nor ▇▇▇▇ has any knowledge that any such
supplier or customer intends to cancel or otherwise modify its relationship with
either Seller or to decrease materially or limit its services, supplies or
materials to either Seller or its usage or purchase of the services or products
of either Seller, and the acquisition of the Assets by Buyer will not, to the
knowledge of either Seller or ▇▇▇▇, have a Material Adverse Effect on the
relationship with any such supplier or customer.
5.23 Included Assets. Except as set forth on Schedule 5.23 hereto,
the Assets to be transferred to Buyer by each Seller on the Closing Date include
(i) all assets necessary to enable Buyer to operate the Business in
substantially the same manner as the Business has been operated by such Seller
at all times since January 1, 1995 except for products no longer being offered
or which are in the process of being sold out, and (ii) substantially all of the
assets used in the Business (other than in each case the Excluded Assets).
5.24 Undisclosed Liabilities. There are no liabilities or
obligations whether accrued, absolute, contingent or otherwise that may be
asserted against either Seller whether with respect to the Assets or the
Business or otherwise, except for liabilities and obligations which are
disclosed in this Agreement and Schedules hereto or liabilities incurred in the
ordinary course of business since December 31, 1996. Such liabilities and
obligations whether disclosed or non-disclosed, except for the Assumed
Liabilities, shall constitute Non-Assumed Liabilities.
5.25 Disclosure; Accuracy of Schedules. No representation or
warranty of either Seller or ▇▇▇▇ contained in this Agreement and no Schedules
attached hereto and no schedule, instrument, certificate or other document to be
delivered at the Closing by either Seller or ▇▇▇▇ contains or will contain any
51
58
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading. Notwithstanding the fact that any Asset being sold by a Seller and
purchased by Buyer pursuant to this Agreement is not listed on a Schedule to
this Agreement, the parties will cooperate in the conveyance of that Asset to
the Buyer in accordance with the terms of this Agreement.
5.26 Brokers or Finders. Except for ▇▇▇▇▇▇▇▇ Wertheim & Co.
Incorporated whose fees are the sole responsibility of Russ, no broker or finder
has been involved in this transaction on behalf of either Seller or ▇▇▇▇ and no
party will be obligated to pay any other brokers' or finders' fees in connection
with this transaction as a consequence of any action or inaction on Sellers' or
▇▇▇▇' part.
5.27 Books and Records. The books of account and other financial and
corporate records of each Seller relating to the Business which are included in
the Assets are in all material respects complete and correct, are maintained in
accordance with such Seller's past business practices, and are accurately
reflected in the financial statements of such Seller.
6. Representations and Warranties of Buyer and Hasbro.
Buyer hereby represents and warrants to each Seller as follows:
6.1 Corporate Organization. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Hasbro is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Rhode Island. Buyer either is, or
as soon as practicable after the Closing will be, qualified to do business as a
foreign corporation in California, New York and Ohio and, to the extent Buyer is
qualified to do business in any of such jurisdictions as of the Closing Date,
Buyer will be in good standing in such jurisdictions as of the Closing Date.
Buyer has full corporate power and authority to carry on its business as it is
currently conducted and to own, lease and operate its assets where and in the
manner in which such assets are now owned, leased or operated by the Buyer.
52
59
6.2 Corporate Authorization. Each of Buyer and Hasbro has full
corporate power and authority to execute, deliver and perform this Agreement and
all other instruments and documents to be executed and delivered by such party
in connection herewith (collectively, the "Ancillary Buyer Documents") and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been, and all Ancillary Buyer Documents have been or will be, duly authorized,
executed and approved by all necessary and proper corporate action of each of
Buyer and Hasbro. This Agreement constitutes a legal, valid and binding
obligation of each of Buyer and Hasbro, and all Ancillary Buyer Documents, when
executed and delivered, will constitute legal, valid and binding obligations of
each of Buyer and Hasbro enforceable against such party in accordance with their
respective terms, subject to (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally (including,
without limitation, any applicable laws relating to fraudulent conveyances) and
(b) equitable principles of general applicability.
6.3 No Violation or Conflict. Neither the execution and delivery of
this Agreement or any Ancillary Buyer Document by either Buyer or Hasbro nor the
consummation of the transactions contemplated hereby or thereby will violate,
conflict with, result in the breach of or accelerate the performance required by
any of the terms, conditions or provisions of the Articles of Incorporation or
other charter documents or By-Laws of either Buyer or Hasbro or any term,
provision, covenant or condition of any contracts and other agreements to which
either Buyer or Hasbro is a party or any order, ruling, injunction, decree,
judgment, arbitration award or stipulation or any Law to which either Buyer or
Hasbro or any of their assets are subject, or which would result in the creation
or imposition of any Encumbrance thereunder upon any of the properties or assets
of either Buyer or Hasbro or give to any person any interest or right, including
any right of acceleration, termination or cancellation which would have a
Material Adverse Effect, individually or in the aggregate, on either Buyer's or
Hasbro's ability to consummate the transactions contemplated hereby.
6.4 Consents, Approvals or Authorizations.
6.4.1 Except as set forth in Section 6.4.3 hereof, no consent,
approval or authorization of, filing or registration with, or notification to,
any judicial, government
53
60
or regulatory body is required in connection with the execution and delivery of
this Agreement or any Ancillary Buyer Document by either Buyer or Hasbro or the
consummation by either Buyer or Hasbro of the transactions contemplated hereby,
other than consents, approvals or authorizations the failure to obtain which
would not, individually or in the aggregate, have a Material Adverse Effect on
Buyer or Hasbro, as the case may be.
6.4.2 No consent, approval or authorization of any person is
required in connection with the execution or delivery of this Agreement or any
Ancillary Buyer Document by either Buyer or Hasbro or the consummation by either
Buyer or Hasbro of any of the transactions contemplated hereby or thereby, other
than consents, approvals or authorizations the failure to obtain which would
not, individually or in the aggregate, have a Material Adverse Effect on Buyer
or Hasbro, as the case may be.
6.4.3 Hasbro has filed a Notification and Report Form for
Certain Mergers and Acquisitions, with respect to the acquisition of the Assets
by Hasbro, with the Antitrust Division of the Department of Justice and the
Bureau of Competition of the Federal Trade Commission. The applicable waiting
period under the HSR Act has expired and Hasbro has not received any requests
for additional information relating to such filings.
6.5 Brokers or Finders. No broker or finder has been involved in
this transaction on behalf of Buyer or Hasbro and no party will be obligated to
pay any brokers' or finders' fees in connection with this transaction as a
consequence of any action or inaction on Buyer's or Hasbro's part.
7. Investigation by Buyer.
Until the Closing Date and subject to the terms of the
Confidentiality Agreement, Buyer and Hasbro, through their respective agents and
employees, may conduct such investigation of the Business and the financial and
legal condition of the Business and the Sellers as Buyer or Hasbro may
reasonably determine. During the course of such investigation, each Seller
agrees to use reasonable efforts to cause the facilities, books, records,
personnel, accountants, distributors, sales representatives and agents of
Sellers to be made available for review or interviews, as the case may be, by
such agents and employees of Buyer and Hasbro during normal business hours on
54
61
reasonable notice, and to provide or cause to be provided to Buyer or Hasbro
such other information with respect to Sellers as Buyer or Hasbro shall
reasonably request; provided, however, that such requests shall not unreasonably
interfere with the normal operations of Sellers. All requests for information by
Buyer and Hasbro shall be made to such person or persons as may be designated by
Sellers or Russ in writing.
8. Covenants.
8.1 Preservation of Seller. Between the date hereof and the earlier
of the termination of this Agreement or the close of business on the Closing
Date, except as otherwise agreed to in writing by Buyer or otherwise expressly
contemplated by this Agreement:
8.1.1 Sellers will maintain, preserve and insure the Assets
consistent with past practice in the ordinary course of business;
8.1.2 Sellers and ▇▇▇▇ will comply with all applicable Laws,
the compliance with which is required for consummation of the transactions
contemplated by this Agreement;
8.1.3 Sellers will conduct their business operations only in
the ordinary course, except that Sellers may sell Excluded Assets without the
prior consent of Buyer;
8.1.4 Seller will not transfer, lease or otherwise dispose of
any of its assets other than Inventory in the ordinary course of business or
sales of other items in the ordinary course of business not in excess of $10,000
for any one transaction or series of related transactions, consistent with such
Seller's practice for the comparable period in the immediately preceding year;
8.1.5 Sellers will use reasonable efforts to preserve and
protect all Permits;
8.1.6 Sellers will not enter into, amend, or undertake
contracts or obligations (other than Insignificant Contracts) without the prior
approval of Buyer or permit by failing to take any action within their control
any ownership or other rights in or to the Assets to lapse or become void or
unenforceable, if such entry into, amendment or undertaking of
55
62
such contracts or obligations or lapse, voiding or unenforceability of such
rights would have a Material Adverse Effect on the condition of Sellers;
8.1.7 From the date hereof through the Closing Date, Sellers
shall notify Buyer promptly of any requests made to either Seller or ▇▇▇▇ for
additional information or documentary materials by any government or regulatory
body in connection with the transactions contemplated hereby; and
8.1.8 Consistent with efficient and economical management,
retain the services of the present employees, distributors, sales
representatives and agents of Sellers and preserve the business relationships
with customers, suppliers and others.
8.2 Sales and Transfer Taxes. All transfer taxes imposed upon the
transfer of the Assets and any fees payable in connection with such transfer
shall be paid by the party upon whom the payment obligation therefor is imposed
by law. Each party shall execute and deliver to the other at Closing all
applicable and properly completed sales/use tax exemption certificates as any
party may reasonably request and prepare, including, but not limited to, sale
for resale exemption certificates for the transfer of any Inventory purchased by
Buyer for resale.
8.3 Further Assurances. From time to time after the Closing, at
Buyer's request and without further consideration (except reimbursement for
out-of-pocket costs), Sellers and/or Russ shall execute and deliver or cause to
be executed and delivered such other and further instruments of conveyance,
assignment and transfer, and take or cause to be taken such other action, as
Buyer may reasonably require for the more effective conveyance and transfer of
the Assets to Buyer and the fulfillment of Sellers' obligations hereunder. From
time to time after the Closing, at either Seller's or ▇▇▇▇' request and without
further consideration (except reimbursement for out-of-pocket costs), Buyer will
execute and deliver or cause to be executed and delivered such other and further
instruments of assumption and take such other action as either Seller or ▇▇▇▇
may reasonably require for the more effective assumption by Buyer of the Assumed
Liabilities and the fulfillment of Buyer's obligations hereunder. Buyer shall
cooperate with Sellers as Sellers may reasonably request in connection with any
recall
56
63
commenced prior to the Closing Date, including, without limitation, by accepting
returns of products, issuing appropriate credits and applying such credits
against reserves reflected on the Closing Balance Sheet (without charging
Sellers any fees other than reimbursement for Buyer's out-of-pocket costs in
connection with accepting such returned products and forwarding such returned
products to Sellers or ▇▇▇▇ or disposing of such returned products as directed
by ▇▇▇▇ or Sellers) and providing information relating to such returned products
to Sellers in a timely manner so that Sellers can make all required or
appropriate filings with regulatory agencies.
8.4 Post-Closing Access; Preservation of Records. From and after the
Closing Date, each party shall make available to the other and their respective
agents and employees all books, records and documents and, to the extent within
such party's control, such party's employees as appropriate, relating to the
Business as carried on prior to the Closing Date (and, to the extent relevant to
any amounts payable following the Closing pursuant to Article 8 or 9 after the
Closing Date) during regular business hours as may be reasonably requested by
such other party; provided, however, that access to such books, records and
documents shall not unreasonably interfere with the normal operation of such
party by such persons. Each party shall preserve all records and documents
relating to the Business as carried on prior to the Closing Date in good order
for a period of five (5) years from the Closing Date.
8.5 Reasonable Efforts. Each Seller, ▇▇▇▇, Buyer and Hasbro shall
use their reasonable efforts to cause to be fulfilled the conditions to their
respective obligations set forth in Sections 10 and 11 hereto.
8.6 Environmental Matters. From the date hereof to the Closing Date,
neither Seller shall store on or Release from or permit to be stored on or
Released from the Premises any sewage or other Hazardous Substance except in
compliance with Environment Laws and the Business shall be operated in
compliance with all Environmental Laws in all material respects.
8.7 Notification of Certain Matters. From the date hereof to the
Closing Date, Sellers and Buyer each agree to give prompt notice to each other
of (a) the occurrence, or failure to occur, of any event the occurrence or
failure of which would be likely to cause any representation or warranty
contained in this
57
64
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Closing, and (b) any failure on its part to comply with
or satisfy any covenant, condition precedent or agreement to be complied with or
satisfied by it hereunder prior to the Closing Date. In particular, between the
date of this Agreement and the Closing, each party shall give notice to the
other promptly upon becoming aware of (a) any material inaccuracy in a
representation or warranty made by the party providing notice and set forth in
Section 5 or Section 6, as the case may be, or in any Schedule hereto or (b) any
event or state of facts which, if it had occurred or existed on or prior to the
date of this Agreement, would have caused any such representation or warranty to
be inaccurate in any material respect. Any such notice shall describe such
inaccuracy, event or state of facts in reasonable detail. Any information
included in any such notice shall constitute a representation or warranty as
though made in Section 5 or Section 6 hereof, as the case may be, but shall not
affect the conditions to Buyer's and Sellers' obligations contained in Section
10 or 11, as the case may be, that the representations and warranties of the
other party shall be true on and as of the date of this Agreement and as of the
Closing as though made at such time (without modification by any notice provided
pursuant to this Section ).
8.8 Accounts Receivable.
8.8.1 For a period of nine months following the Closing, Buyer
shall act as Sellers' attorney-in-fact and agent for the collection of
Receivables, and each Seller hereby constitutes and appoints Buyer the true and
lawful attorney-in-fact of such Seller, with full power of substitution, in the
name of and on behalf of such Seller, for such purpose. Buyer shall use
reasonable efforts, consistent with its or its affiliates' current practice (not
including the retention of any collection agency or the commencement of
litigation), to collect the Receivables. Receipts from customers (other than
C.O.D. and prepaid orders shipped by Buyer) shall be applied to such customers'
oldest Receivables outstanding unless such amount has been disputed, otherwise
designated by the customer, or sold on a C.O.D. basis, and in the event amounts
owed by such customer are in dispute, receipts from such customers shall not be
applied until the dispute has been resolved. Notwithstanding the foregoing, in
the event of any dispute with respect to a Receivable, Buyer shall not
compromise, settle, authorize credits or commence litigation with respect to
such disputed Receivable
58
65
without the prior consent of the Chief Financial Officer of ▇▇▇▇, it being
understood, however, that in the event a chargeback or credit has been
specifically reserved for such account on the Opening Balance Sheet or the
Closing Balance Sheet, Buyer can resolve the dispute to the extent of such
reserve without seeking such consent. Buyer shall report to ▇▇▇▇ as to the
collection of Receivables periodically, but not less frequently than every
thirty (30) days, and will promptly notify ▇▇▇▇ of any disputes with respect to
Receivables. On request, Buyer shall provide ▇▇▇▇ with reasonable information
available to Buyer with respect to any such dispute. In the event there is a
dispute with respect to any Receivable and either (i) the Chief Financial
Officer of ▇▇▇▇ does not consent to Buyer compromising, settling, authorizing
credits or commencing litigation, or (ii) such consent is obtained but Buyer is
unable to resolve such dispute, Buyer shall, at the request of either Seller or
Russ, return such Receivable to Sellers at such time as such consent is denied
or such dispute is unable to be resolved, as the case may be. In the event (i)
either Seller or ▇▇▇▇ requests the return of one or more Receivables, and (ii)
the aggregate amount of Receivables returned upon such requests from the Closing
Date until the date of the then current requested return (including the
Receivables to be returned pursuant to the then current request) exceeds the
reserve established for the Receivables on the Closing Balance Sheet (the amount
of such excess is referred to as the "Excess"), an adjustment shall be
calculated at the time of such return and each subsequent time a Receivable is
returned. The adjustment shall be calculated by deducting the amount of the
Excess from the Net Receivables amount on the Closing Balance Sheet and
recalculating the Net Tangible Assets. If the newly calculated amount of the Net
Tangible Assets exceeds $47,648,377, Sellers shall pay to Buyer in cash the
amount of each Receivable returned at the request of either Seller or ▇▇▇▇ in
accordance with this Section 8.8.1 immediately upon such return until the amount
of Net Tangible Assets as adjusted pursuant to this Section 8.8.1 equals
$47,648,377 and once the amount of Net Tangible Assets as adjusted pursuant to
this Section 8.8.1 is less than $45,965,940, the Sellers shall pay to Buyer in
cash the amount of each Receivable returned in accordance with this Section
8.8.1 immediately upon such return, it being understood that Sellers shall not
pay Buyer the amount of any Receivable returned in accordance with this Section
8.8.1 so long as the amount of Net Tangible Assets as recalculated pursuant to
this Section 8.8.1 is between $45,965,940 and $47,648,377. On the nine month
anniversary of the Closing Date, Buyer shall return to Russ any
59
66
uncollected Receivables, the Final Adjustment shall be calculated in accordance
with Section 3.3.6 and any sums due to either party with respect to such Final
Adjustment shall be paid in accordance with Section 3.4. On and after the
Closing Date, Buyer may endorse and deposit all checks payable to either Seller
as payment for a Receivable into Buyer's own bank accounts; provided, however,
that Buyer will remit to Sellers any payments made or sent to Buyer with respect
to any Receivables returned to Sellers in accordance with this Section 8.8.1.
8.8.2 Except with respect to any payments received on account
of Receivables returned to either Seller or Russ pursuant to Section 8.8.1
above, any payments received by either Seller or Russ from the Closing Date up
to the nine month anniversary of the Closing Date on account of Receivables
shall be promptly forwarded to Buyer.
8.8.3 For purposes of determining the amount actually
collected by Buyer for the Receivables through the nine month anniversary of the
Closing Date, the following shall apply:
(a) all customer inventory markdowns of any particular product
line resulting from disputes with customers shall be first allocated
to the most recently sold inventory of such product line (i.e., the
total number of units of the product line marked down must exceed
the total number of units of that product line shipped by Buyer
through the date of such dispute before it is deemed to reduce the
amount of Receivables collected), unless the markdown can be
specifically identified to a product that was shipped prior to the
Closing Date and in that instance the markdown will be applied to
that specific product;
(b) unless the return can be specifically identified to a
product that was shipped prior to or after the Closing Date, in
which case the return will be applied to that specific product, all
returns of inventory (including any destroyed defectives in the
field) for the period from the Closing Date through December 31,
1997 by customers shall be allocated to inventory related to the
Receivables if Receivables from such customer are still outstanding
at the time of the return and then only to the extent of such
outstanding Receivable and all returns of inventory
60
67
(including destroyed defectives in the field) after December 31,
1997 shall be deemed to be related to sales of inventory by Buyer
post-Closing;
(c) an agreement with a customer, to which ▇▇▇▇ has consented
pursuant to Section 8.8.1, to substitute new merchandise in exchange
for a requested markdown or return of inventory which would be
deemed to be shipped pre-Closing Date pursuant to this Section 8.8.3
shall be deemed to reduce the amount of Receivables collected by the
amount of Buyer's cost of such inventory and not by the wholesale
price of such inventory; and
(d) an agreement with a customer for rebates or other payments
based on sales for a period including sales prior to and after the
Closing Date shall reduce the amount of Receivables collected by an
amount determined by multiplying the amount of the rebate or other
payments by a fraction the numerator of which is the amount of
Sellers' sales to such customers prior to the Closing Date for such
period and in the case of sales of the Buyer the amount of Buyer's
sales to such customer during such period from the Closing Date and
the denominator is the aggregate sales of Sellers and Buyer during
such period.
8.8.4 Notwithstanding the foregoing, if Buyer provides any
inventory used in satisfying the markdowns allowances in the Assigned Contracts,
then the amount of Collected Receivables shall be reduced by the amount of
Buyer's cost of such inventory.
8.9 Creditors. Until the Closing Date, Sellers shall pay in full
when due, in accordance with and at times consistent with Sellers' customary
practices, all amounts owed to any creditor of the Business except when claiming
an offset in good faith and shall, at or prior to the Closing, pay in full any
creditors holding Encumbrances on the Assets or otherwise cause such creditors
to release such Encumbrances on the Assets (other than UCC-1 informational
filings on leased personal property) and shall provide to Buyer evidence of such
releases including, where applicable, any UCC-3 termination statements.
8.10 Change of Name. Promptly upon Closing, each Seller shall change
its respective corporate name so as to remove
61
68
any references to the names "Cap Toys" and "OddzOn" and such changed names shall
be sufficiently dissimilar to "Cap Toys" and "OddzOn" such that they will not be
likely to be confused with such names. In addition, promptly upon Closing
Sellers shall cease using any fictional or alternate name or Intellectual
Property which Sellers have in the past utilized, and Sellers and ▇▇▇▇ shall
execute all documents deemed reasonably appropriate by Buyer to enable Buyer to
utilize any such fictional, alternate name or Intellectual Property. In no event
shall the foregoing apply to the names "▇▇▇▇", "▇▇▇▇ ▇▇▇▇▇▇" or any variant
thereof.
8.11 Performance of Non-Assumed Liabilities and Assumed Liabilities.
Following the Closing, Sellers shall perform in a timely manner all of their
respective obligations, as and when required, in connection with the Non-Assumed
Liabilities and Buyer shall perform in a timely manner all of its obligations,
as and when required, in connection with the Assumed Liabilities. Without
limiting the generality of the foregoing, it is hereby understood and agreed as
follows:
8.11.1 in order to obtain the consent of third parties to the
assignment of certain Assigned Contracts, Buyer may assume at the time of the
Closing and Hasbro may guaranty certain obligations and liabilities of ▇▇▇▇ or
either Seller in separate documents with such third parties which obligations
and liabilities are not Assumed Liabilities pursuant to this Agreement.
Notwithstanding any such assumption by Buyer and/or guaranty by Hasbro, such
obligations and liabilities shall remain Non-Assumed Liabilities for purposes of
this Agreement and any Losses by Buyer or Hasbro relating to such Non-Assumed
Liabilities shall be indemnified by Sellers and ▇▇▇▇ in accordance with Article
15 hereof.
8.11.2 certain third parties to Assigned Contracts may not
release ▇▇▇▇ or either Seller as guarantor or direct obligor thereunder and ▇▇▇▇
or either Seller may therefore remain liable for certain obligations or
liabilities thereunder. Notwithstanding any such liability on the part of ▇▇▇▇
or either Seller, any obligations and liabilities under such Assigned Contracts,
to the extent they are Assumed Liabilities under Section 2.3.1, shall remain
Assumed Liabilities for purposes of this Agreement and any Losses by ▇▇▇▇ or
either Seller relating to such Assumed Liabilities shall be indemnified by Buyer
and Hasbro in accordance with Article 15 hereof.
62
69
8.12 Notice to Vendors and Suppliers. Each Seller hereby agrees to
notify each vendor (including, without limitation, advertising agencies,
warehousemen and moldmakers), supplier and other person other than Sellers or
Sellers' employees who are in possession of any Assets advising such vendor,
supplier or other person that, as of the Closing Date, the Assets will be owned
by Buyer and shall be treated from and after the Closing Date in accordance with
instructions from Buyer.
8.13 No Shopping. Between the date hereof and the Closing Date,
neither Sellers nor Russ shall, directly or indirectly, through any subsidiary,
director, officer, employee, advisor, agent or otherwise, except in connection
with the acquisition contemplated hereby, (i) solicit, initiate or encourage the
submission of proposals or offers from any person relating to any merger,
acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the assets of, or any equity interest in, either Seller
or any business combination involving either Seller (a "Transaction"), or
participate in any negotiation regarding, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek a Transaction, and (ii) except in the
ordinary course of business or with the prior written consent of Buyer,
disclose, directly or indirectly, to any person any information concerning
either Seller's business and properties or afford to any person access to the
properties, books or records of either Seller. Each Seller and ▇▇▇▇ shall
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties other than Buyer conducted heretofore with respect
to any Transaction.
8.14 Customs Disclosures.
8.14.1 OddzOn hereby agrees (i) to make a Prior Disclosure and
Voluntary Tender of Duties (the "Prior Disclosure") in accordance with 19 C.F.R
Section 162.74, (ii) to make any additional disclosures pursuant to such
regulations which may be required, and (iii) to tender any duties due relating
to such Prior Disclosure or additional disclosures in a timely manner.
8.14.2 OddzOn hereby agrees that the Prior Disclosure shall comply
with all Laws applicable thereto.
63
70
8.14.3 The Prior Disclosure referred to in Section 8.14.1
above shall be with regard to the full value of any assists that should have
been declared by Sellers to the U.S. Customs Service and OddzOn hereby agrees to
tender any duties owed based upon the full value of the assists provided.
8.15 Covenant Not To Compete; Business Information. As an inducement
and necessary incident to Buyer's acquisition of the Assets, each Seller and
▇▇▇▇ agrees that:
8.15.1 For a period of two (2) years following the Closing
Date, neither Seller nor ▇▇▇▇ shall, without the express prior written consent
of Buyer, directly or indirectly, anywhere in the world, whether for themselves
or for any other person, and whether as a proprietor, principal, shareholder
(other than the holder of not more than three percent (3%) of the stock of a
corporation whose shares are publicly traded), lender, partner, agent, director,
officer, employee, consultant, independent contractor, joint venturer or in any
other capacity whatsoever, at any time during the period of time described
above, enter into or engage in competition with Buyer or any affiliate of Buyer,
in a business involving products directly competitive with the products being
offered or under development by either Seller on or prior to the Closing Date.
Nothing contained in this Section 8.15.1 shall prevent ▇▇▇▇ from continuing its
current business or from generally competing in the toy business.
8.15.2 Each Seller and Russ agree from and after the Closing
Date to preserve the confidentiality of all confidential information related to
the Business, including, without limitation, all trade secrets, customer lists,
identity of suppliers and distributors, methods of production and all
confidential Intellectual Property.
8.15.3 Each Seller and ▇▇▇▇ agrees that, for a period of five
(5) years from the Closing Date, they shall not, directly or indirectly, induce
or attempt to induce, or assist others in inducing or attempting to induce any
key employee of either Seller prior to or on the Closing Date who is then
employed by Buyer or Hasbro to terminate his or its relationship with Buyer or
Hasbro, as the case may be, or in any other manner to interfere with the
relationship between Buyer or Hasbro, as the case may be, and any such person.
Nothing contained in this Section 8.15.3 shall restrict each Seller's and ▇▇▇▇'
ability to
64
71
make a general solicitation to the public, including a newspaper advertisement,
which comes to the attention of any such employee through no special effort by
either Seller or Russ.
8.15.4 Buyer and Hasbro shall be entitled to specific
performance, injunctive, and other equitable relief for the enforcement of the
provisions of this Section 8.15 by a court of competent jurisdiction, it being
acknowledged and agreed by each Seller and ▇▇▇▇ that any breach or threatened
breach hereof will cause irreparable injury to Buyer or Hasbro, as the case may
be, for which money damages alone will not provide an adequate remedy. The
rights and remedies set forth in this Section 8.15 shall be in addition to, and
not in lieu of, any other rights and remedies available to Buyer or Hasbro, as
the case may be, at law or in equity. If any provisions of this Section 8.15
should be adjudicated to be invalid or unenforceable, such provision shall be
deemed deleted herefrom with respect, and only with respect, to the operation of
such provision in the particular jurisdiction in which such adjudication was
made; provided, however, that to the extent any such provision may be made valid
and enforceable in such jurisdiction by limitations on the scope of the
activities, geographical area or time period covered, such provision shall
instead be deemed limited to the extent, and only to the extent, necessary to
make such provision enforceable to the fullest extent permissible under the laws
and public policies applied in such jurisdiction.
8.16 Post-Closing Deliveries. In addition to any other post-closing
deliveries specified herein, the parties shall deliver the following:
8.16.1 Each Seller shall deliver to Buyer the post-closing
information set forth in Section 2.3.1(c)(i) (relating to Purchase Orders),
Section 2.3.1(d)(i) (relating to Control Payables), Section 2.3.1(d)(ii)(A)
(relating to Non-Control Payables) and Section 2.3.1(e) (relating to accrued
liabilities and obligations) with respect to such Seller's Business within the
time period specified therein for each such delivery; and
8.16.2 Buyer shall deliver to Sellers the post-closing
information set forth in Section 2.3.1(d)(ii)(C), (D) and (E) (relating to
Non-Control Payables) within the time period specified therein.
65
72
8.17 Other Payments Received by Sellers or Russ. Except as otherwise
contemplated by Section 8.8 hereof, any payments received by either Seller or
Russ on or after the Closing Date on account of royalties or other amounts
related to the Business and arising from any of the Assets shall be promptly
forwarded to Buyer.
8.18 Negative Actions. No party will voluntarily take, and each
party will use reasonable efforts not to permit or suffer to be taken, any
action which would cause or tend to cause the conditions upon the obligations of
the parties hereto to consummate the transactions contemplated hereby not to be
fulfilled; including, without limitation, voluntarily taking, causing to be
taken, and failing to use reasonable efforts not to permit or suffer to be taken
or to exist any action, condition or thing that would cause the representations
and warranties made by such party herein not to be true, correct and accurate as
of the Closing.
8.19 Intellectual Property Matters. Notwithstanding anything in this
Agreement to the contrary, any and all Losses incurred by Sellers or ▇▇▇▇ with
respect to pre-closing liabilities relating to (i) any opposition by ▇▇▇▇▇▇▇▇,
Inc. to CAP's intent-to-use trademark application for the ▇▇▇▇ "Mega Jammers",
(ii) CAP's opposition to trademark application serial no. 74/592,354 filed by
CAPS Productions, Inc. for the ▇▇▇▇ "CAPS", and/or (iii) the litigation
disclosed in item 1 of Schedule 5.11(a) hereto, shall be Assumed Liabilities for
purposes of this Agreement.
9. Employee Matters.
9.1 Offer of Employment. Except as set forth on Schedule 9.1(a), at
the Closing, Buyer shall offer to hire all of Sellers' employees identified on
Schedule 5.14(c) hereof other than those employees who are no longer employed at
the close of business on the Closing Date by the Seller who employed such person
on the date the schedules were prepared as of and, no later than at the
termination of the Service Agreement, Buyer shall offer to hire the employees of
▇▇▇▇ or an affiliate of Russ employed in Hong Kong or China and identified on
Schedule 9.1 hereof who are still employed by such party at such time, in each
case, at no less than their then existing salaries and with benefits that, in
the aggregate, are similar to those then received by such employees.
66
73
9.2 Payments of Benefits by Sellers. Sellers shall retain liability
for and shall pay or cause to be paid when due, whether before or after the
Closing Date, to or for the benefit of all employees employed by Sellers (and
their eligible dependents) in the Business during all periods prior to and
including the Closing Date under the Employee Benefit Plans all employee
benefits payable up to and including the Closing Date, including without
limitation, (i) all sickness, accident and hospital claims, and (ii) all amounts
in respect of service with Sellers prior to and including the Closing Date in
accordance with the terms and conditions of any of Sellers' pension, severance,
profit-sharing, bonus and phantom stock plans.
9.3 No Employment Contracts. Except for the Osher Employment
Agreement, the ▇▇▇▇▇▇▇ Employment Agreement and the other employment agreements
included on Schedule 4.2.13 hereto, and without derogating from Buyer's covenant
to Sellers contained in Section 9.1 hereof, nothing in this Agreement,
including, without limitation, this Article 9, shall establish an employment
contract between Buyer or Hasbro and any employees of Sellers or constitute the
creation of a right of a third party beneficiary or in any way constitute a
waiver of or limitation on the employment-at-will relationship between Buyer and
any employee of the Business employed by Buyer or a waiver or limitation on
Buyer's right to terminate the employment of any employee of the Business who
may be subsequently employed by Buyer. Nothing contained in this Agreement shall
be deemed to be an obligation on the part of Buyer to continue any particular
benefit program, in whole or in part, and Buyer may amend, modify, terminate or
rescind, in whole or in part, and at any time and from time to time, any benefit
program.
9.4 Worker's Compensation. CAP shall be responsible for payment of
any premiums, premium deposits, interest, claims losses, retrospective
adjustments and other amounts required to be paid to comply with the Ohio
workmen's compensation law for periods of coverage prior to and including the
Closing Date, regardless of when the determination is made that such payment is
required, including, without limitation, all payments relating to injuries or
occupational diseases which occurred prior to and including the Closing Date.
CAP shall remain responsible for any and all liability incurred pursuant to the
Ohio Disabled Employees Relief Fund for any injuries or occupational diseases
which occurred prior to and including the Closing Date. OddzOn shall be
responsible for payment of any premiums, premium
67
74
deposits, interest, claims losses, retrospective adjustments and other amounts
required to be paid to comply with the California workmen's compensation law for
periods of coverage prior to and including the Closing Date, regardless of when
the determination is made that such payment is required, including, without
limitation, all payments relating to injuries or occupational diseases which
occurred prior to and including the Closing Date.
9.5 Unemployment Compensation. Each Seller agrees that it will
remain liable for and will assume the administration and defense of any claims
filed by former employees of such Seller arising prior to or on the Closing Date
(including the claims of any employees of such Seller who are not employed by
Buyer) and that such Seller will be responsible for payment of any sums due by
such Seller to the California Department of Labor or the Ohio Department of
Labor, as the case may be, as of the Closing Date.
9.6 Buyer as Successor Employer. Each Seller agrees, if requested by
Buyer, to consent to the designation of Buyer as successor employer for purposes
of employment insurance, payroll taxes or contribution ratings and payroll
credits under state and federal law and/or workers compensation contribution
premium ratings under applicable state law.
9.7 Notices. Each Seller will timely give all notices required by
Law or agreement to be given to employees in connection with the sale of its
Business. These notices shall include, but shall not be limited to, notices
required, if any, under the Worker Adjustment and Retraining Notification Act
and other similar statutes and regulations.
9.8 Salary Raises. Buyer agrees that, after the Closing, it shall
implement the salary raises set forth on Schedule 9.8 hereof retroactive to
January 1, 1997, it being understood that CAP shall reimburse Buyer for the
amount of such raises relating to the period of time from January 1, 1997
through the Closing Date plus the amount of social security, unemployment or
other Taxes paid by Buyer in connection with such payment on behalf of CAP.
10. Conditions Precedent to the Obligation of Buyer and Hasbro.
68
75
The obligation of Buyer and Hasbro to consummate the transactions
contemplated hereby shall be subject to the satisfaction, or waiver in writing
by Buyer and Hasbro, on or prior to the Closing Date, of each of the following
conditions:
10.1 Representations and Warranties. The representations and
warranties of each Seller and of ▇▇▇▇ set forth in this Agreement shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though all such representations and warranties had been made
on and as of such date and there shall have been delivered to Buyer and Hasbro
certificates to that effect, dated the Closing Date, signed by an appropriate
officer of each Seller and ▇▇▇▇, as the case may be.
10.2 Covenants and Agreements. Each and all of the covenants and
agreements of each Seller and ▇▇▇▇ to be performed or complied with prior to the
Closing pursuant to this Agreement shall have been duly performed and complied
with in all material respects or duly waived and there shall have been delivered
to Buyer and Hasbro certificates to that effect, dated the Closing Date, signed
by an appropriate officer of each Seller and ▇▇▇▇, as the case may be.
10.3 Instruments of Sale or Assignment. Each Seller shall have
delivered to Buyer such bills of sale, endorsements, assignments, stock powers,
and instruments of transfer, assignment and conveyance as shall be reasonably
required by Buyer for the transfer to Buyer of all of Sellers' right, title and
interest to and in the Assets, free and clear of all Encumbrances (other than
UCC-1 informational filings on leased personal property).
10.4 No Adverse Order or Injunction. There shall not be in effect on
the Closing Date any judgment, decree or order issued by any court of competent
jurisdiction which prohibits the consummation by Sellers or Buyer of the
transactions contemplated hereby.
10.5 Judicial, Governmental or Regulatory Approvals; Consents to
Assignment of Assets.
10.5.1 All judicial, governmental or regulatory consents,
approvals or authorizations necessary to consummate the
69
76
transactions contemplated by this Agreement shall have been obtained prior to
the Closing.
10.5.2 All consents required for the valid assignment to Buyer
of any Asset shall have been obtained by Sellers and delivered to Buyer on such
terms as shall be acceptable to Buyer in its reasonable discretion and shall be
in full force and effect.
10.6 Permits. Buyer shall have received all material licenses,
permits, authorizations and approvals necessary to operate the Business in
compliance with all Laws, including, but not limited to, Environmental Laws.
10.7 Environmental Laws. Each Seller and the Business shall have
complied fully with any requirement under any Environmental Laws to provide
notice, obtain governmental approval or take any other action in connection with
the consummation of the transactions contemplated hereby.
10.8 Delivery of Documents. Sellers and ▇▇▇▇ shall have delivered,
or caused to be delivered, to Buyer and Hasbro the documents identified in
Section 4.2 hereof to be delivered to such party by Sellers and/or Russ. In
addition to the foregoing, Sellers and ▇▇▇▇ shall have delivered or caused to be
delivered to Buyer the following:
10.8.1 evidence of release of all Encumbrances on the Assets
held by lenders, creditors or other third parties (other than UCC-1
informational filings on leased personal property);
10.8.2 copies of Sellers' written notices to suppliers pursuant to
Section 4.3 and Section 8.12 hereof;
10.8.3 the opinion of ▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler,
LLP, counsel to Sellers and ▇▇▇▇, substantially in the form of Exhibit O hereto;
and
10.8.4 the opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to
Sellers and ▇▇▇▇, substantially in the form of Exhibit P hereto.
10.9 Employment Agreements.
70
77
10.9.1 Buyer and ▇▇▇▇▇▇▇ shall have entered into the ▇▇▇▇▇▇▇
Employment Agreement; and
10.9.2 Buyer and Osher shall have entered into the Osher
Employment Agreement.
11. Conditions Precedent to the Obligation of Sellers and ▇▇▇▇.
The obligation of Sellers and ▇▇▇▇ to consummate the
transactions contemplated hereby shall be subject to the satisfaction, or waiver
in writing by Sellers and ▇▇▇▇, on or prior to the Closing Date, of each of the
following conditions:
11.1 Representations and Warranties. The representations and
warranties of Buyer and Hasbro set forth in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though all such representations and warranties had been made on and as
of such date and there shall have been delivered to Sellers and ▇▇▇▇ a
certificate to that effect, dated the Closing Date, signed by an appropriate
officer of Buyer and Hasbro.
11.2 Covenants and Agreements. Each and all of the covenants and
agreements of Buyer and Hasbro to be performed or complied with prior to the
Closing pursuant to this Agreement shall have been duly performed and complied
with in all material respects or duly waived and there shall have been delivered
to Sellers and ▇▇▇▇ a certificate to that effect, dated the Closing Date, signed
by an appropriate officer of Buyer and Hasbro.
11.3 Instruments of Assumption.
11.3.1 Buyer shall have delivered to Sellers such instruments
of assumption as shall be reasonably required by Sellers for the assumption by
Buyer of the Assumed Liabilities.
11.3.2 Buyer and Hasbro shall have executed and delivered such
assumption and/or guaranty documents, as the case may be, with respect to
Assigned Contracts and Assumed Liabilities as any third party may reasonably
request in connection with its consent to the assignment thereto which
assumption documents are reasonably acceptable to Buyer and Hasbro; provided,
however, that any such assumption by Buyer and
71
78
any such guaranty by Hasbro shall be subject to the provisions of Section 8.11
hereof.
11.4 No Adverse Order or Injunction. There shall not be in effect on
the Closing Date any judgment, decree or order issued by any court of competent
jurisdiction which prohibits the consummation by Sellers of the transactions
contemplated hereby.
11.5 Judicial, Governmental or Regulatory Approvals. All judicial,
governmental or regulatory consents, approvals or authorizations necessary to
consummate the transactions contemplated by this Agreement shall have been
obtained prior to the Closing.
11.6 Delivery of Documents. Buyer and Hasbro shall have delivered,
or caused to be delivered, to Sellers and ▇▇▇▇ the documents identified in
Section 4.2 hereof to be delivered by such party. In addition to the foregoing,
the Buyer shall have delivered or caused to be delivered to Sellers and ▇▇▇▇ the
opinion of the Senior Vice President-Corporate Legal Affairs and Secretary of
Hasbro, substantially in the form of Exhibit Q hereto.
12. Intentionally Omitted.
13. Waiver of Bulk Transfer.
Buyer and Sellers agree to waive compliance with any applicable bulk
sales statutes. Any and all liabilities arising out of any bulk sales laws
applicable to the transactions contemplated by this Agreement shall constitute a
Non-Assumed Liability for the purposes of this Agreement, except to the extent
that Buyer has assumed a specific liability pursuant to Section 2.3 hereof.
14. Survival of Representations, Warranties and Covenants.
Each and every representation and warranty of ▇▇▇▇▇▇▇, ▇▇▇▇, Buyer
or Hasbro contained in this Agreement, in any Schedule or in any certificate or
instrument delivered pursuant hereto or in connection herewith shall survive the
Closing until three (3) years after the Closing Date except that the
representations, warranties and covenants contained in Section 5.12 (relating to
Intellectual Property) shall survive the Closing until six (6) years after the
Closing Date and the
72
79
representations, warranties and covenants contained in Sections 5.7.1 and 5.7.2
(relating to title to the Assets except to the extent relating to Intellectual
Property) shall continue in full force and effect forever. Each and every
covenant of ▇▇▇▇▇▇▇, ▇▇▇▇, Buyer or Hasbro contained in this Agreement or in any
certificate or instrument delivered pursuant hereto or in connection herewith,
including, but not limited to, the covenant of Sellers to discharge all
Non-Assumed Liabilities and the covenant of Buyer to discharge all Assumed
Liabilities, shall survive forever, except as otherwise expressly limited in
this Agreement to a specified period of time.
15. Indemnification and Right of Set-Off.
15.1 Indemnification by Sellers and ▇▇▇▇ .
15.1.1 Except as limited herein, each Seller and ▇▇▇▇, jointly
and severally, agrees to indemnify, defend and hold harmless Buyer and Hasbro
and each parent, subsidiary and affiliate of each of Buyer and Hasbro,
including, without limitation, their employees, directors, officers, and
stockholders (hereinafter collectively referred to as the "Buyer Group") from
and against any and all Losses, including without limitation, any customs
duties, imposts, charges, levies or other assessments of any kind, actually
incurred by any member of the Buyer Group based upon, arising out of or
otherwise in respect of (A) any breach of any covenant or agreement of either
Seller or ▇▇▇▇ contained in this Agreement, the Escrow Agreement or any other
Ancillary Seller Document, (B) the breach of any of either Seller's or ▇▇▇▇'
representations and warranties contained in this Agreement, in any Exhibit or
Schedule hereto, the Escrow Agreement or in any other Ancillary Seller Document,
(C) any obligations or liabilities (fixed or contingent) which are Non-Assumed
Liabilities, (D) any pending or threatened Litigation set forth on any Schedule
to this Agreement, or (E) liabilities to be borne by Sellers or ▇▇▇▇ pursuant to
Sections 15.3 and 15.4 hereof. Notwithstanding any provision contained herein to
the contrary, Sellers and ▇▇▇▇ shall have no obligation to indemnify Buyer
hereunder for any Assumed Liability and, to avoid double counting, any payables
or accrued liabilities or obligations taken into account in the calculation of
Net Tangible Assets, it being understood that the payables and accrued
liabilities and obligations set forth on the Closing Balance Sheet pursuant to
Sections 2.2.1(d) and (e), respectively, will be included as Assumed Liabilities
only to the extent set forth on the Closing
73
80
Balance Sheet and any liability for any amount in excess of the specific amounts
shown on the Closing Balance Sheet and any general liability relating to the
category of payable, liability or obligation paid or assumed by Buyer remains a
Non-Assumed Liability and any Losses arising therefrom by the Buyer Group shall
be indemnified by Sellers and ▇▇▇▇ in accordance with this Article 15.
15.1.2 Sellers and ▇▇▇▇ shall have no indemnification
obligations with respect to (i) the matters described in Section 15.1.1(B), or
(ii) those covenants in this Agreement to be performed by Sellers or ▇▇▇▇ which
by their terms expire on or prior to the Closing Date, until the total of all
Buyer Group's Losses with respect to such matters exceeds $500,000 and then only
for the amount by which such Buyer Group Losses exceeds $500,000. The total
liability hereunder of Sellers and ▇▇▇▇ for indemnification with respect to (i)
the matters described in Section 15.1.1(B), and (ii) those covenants in this
Agreement to be performed by Sellers or ▇▇▇▇ which by their terms expire on or
prior to the Closing Date, shall not exceed the Purchase Price. Notwithstanding
anything to the contrary set forth herein, the limitations set forth in this
Section 15.1.2 shall not apply to any post-closing adjustment pursuant to
Section 3.3.
15.1.3 Buyer may, at its option, without waiver of any other
rights, set off its Losses against the Deferred Payment held by the Escrow Agent
and/or any other amounts which, pursuant to the terms of this Agreement or any
Ancillary Seller Document or Ancillary Buyer Document, are required to be paid
by Buyer to or on behalf of either Seller and/or Russ. Such right of set-off
shall in no way limit or restrict any right of Buyer to commence an action
against either Seller and/or ▇▇▇▇ in the event that such damage or loss exceeds
the amount set off by Buyer pursuant hereto.
15.2 Indemnification by Buyer.
15.2.1 Except as limited herein, each of Buyer and Hasbro,
jointly and severally, agrees to indemnify, defend and hold harmless Sellers and
▇▇▇▇ and each parent, subsidiary and affiliate of each Seller and ▇▇▇▇,
including, without limitation, their respective employees, directors, officers,
and stockholders (hereinafter collectively referred to as the "Seller Group")
from and against any and all Losses actually incurred by
74
81
any member of the Seller Group which are based upon, or arise out of or
otherwise in respect of (i) any breach of any covenant or agreement of either
Buyer or Hasbro contained in this Agreement, the Escrow Agreement or any other
Ancillary Buyer Document, (ii) the Assumed Liabilities, (iii) the breach of
either of Buyer's or Hasbro's representations and warranties contained in this
Agreement, any Exhibit or Schedule hereto, the Escrow Agreement or any other
Ancillary Buyer Document, or (iv) liabilities to be borne by Buyer pursuant to
Sections 15.3 and 15.4 hereof.
15.2.2 Buyer and Hasbro shall have no indemnification
obligations with respect to (i) the matters described in Section 15.2.1(iii), or
(ii) those covenants in this Agreement to be performed by Buyer or Hasbro which
by their terms expire on or prior to the Closing Date, until the total of all
Seller Group's Losses with respect to such matters exceeds $500,000 and then
only for the amount by which such Seller Group Losses exceeds $500,000. The
total liability hereunder of Buyer and Hasbro for indemnification with respect
to (i) the matters described in Section 15.2.1(iii), and (ii) those covenants in
this Agreement to be performed by Buyer or Hasbro which by their terms expire on
or prior to the Closing Date, shall not exceed the Purchase Price.
Notwithstanding anything to the contrary set forth herein, the limitations set
forth in this Section 15.2.2 shall not apply to any post-closing adjustment
pursuant to Section 3.3.
15.3 Liability with Respect to Products.
15.3.1 The Sellers and ▇▇▇▇ have the exclusive liability for
all Losses arising from claims with respect to Product Liability Events relating
to products, including, without limitation, the Products (a) shipped by, or on
behalf of, the Business or either Seller or their affiliates prior to the
Closing Date, (b) which were finished goods Inventory as of the Closing Date, or
(c) which relate to Excluded Assets whether sold or manufactured before or after
the Closing Date.
15.3.2 Buyer shall cause vendors to permanently ▇▇▇▇ Products
manufactured by, or on behalf of, Buyer or its affiliates after the Closing Date
so as to indicate that they have been so manufactured, it being understood that
the Koosh Ball products can not feasibly be marked in such manner. For purposes
of determining liability for Losses arising from a Product Liability Event
relating to a Koosh Ball product, and in
75
82
the event there is no way to determine within twenty five (25) business days
after receipt of notice of the Product Liability Event whether such Koosh Ball
product was shipped by, or on behalf of Sellers prior to the Closing Date or
included in the finished goods Inventory of Sellers as of the Closing Date, any
occurrence or event of the type described in the definition of Product Liability
Event that relates to a Koosh Ball product and that occurs within nine months
after the Closing Date shall be deemed attributable to a Koosh Ball product that
was either shipped by Sellers prior to the Closing Date or included in the
finished goods Inventory of Sellers as of the Closing Date and any such
occurrence or event that occurs after the nine month anniversary of the Closing
Date shall be deemed to be attributable to a Koosh Ball product manufactured and
shipped by Buyer. In the event of any dispute as to whether a product other than
a Koosh Ball product was either shipped by, or on behalf of, the Business or
either Seller or their affiliates prior to the Closing Date or included in the
finished goods Inventory of Sellers as of the Closing Date, Buyer shall inform
Sellers as to the marking of such product by, or on behalf of Buyer, and any
changes in such marking since the Closing Date.
15.3.3 From and after the Closing Date for a period of five
years, each party will maintain insurance policies with reputable insurance
carriers, and reinsurers as required, in an aggregate amount adequate to insure
the other against its liability for the Product Liability Events assumed
hereunder, but in no event shall such aggregate amount be less than $25,000,000.
Each Seller, ▇▇▇▇, and Buyer shall (i) name the other party hereto as an
additional insured under such policies of insurance, (ii) deliver or cause to be
delivered to the other party copies of certificates of insurance evidencing the
above policies, and (iii) give the other party 30 days' written notice prior to
cancellation of any such policy.
15.3.4 Each party shall indemnify the other for any Losses
arising out of or relating to a Product Liability Event which the indemnified
party incurs and which is not the indemnified party's obligation pursuant to the
provisions of this Section 15.3.
15.4 Liability with Respect to Environmental Matters.
15.4.1 Each Seller and ▇▇▇▇, jointly and severally, shall
indemnify, defend and hold harmless the Buyer
76
83
Group from and against all Losses (including, but not limited to, testing, site
evaluation, remediation, expert witnesses and consultants fees and expenses)
which may be made, assessed against, or otherwise incurred by any of the members
of the Buyer Group and which arise out of any violation by the Business or
either Seller of applicable environmental permits and/or Environmental Laws
involving any use, emission, discharge, Release, threatened Release, disposal or
arrangement for disposal of pollutants, toxic substances, contaminants, oil,
hazardous wastes, Hazardous Substances or other wastes or materials
("Environmental Contamination"), or otherwise relating to the protection of the
environment or health and safety ("Environmental Liabilities"), which relate to
conditions, events or circumstances existing or occurring prior to, or arising
out of any set of facts existing or occurring prior to, the Closing Date,
whether or not such Environmental Liabilities or violations are discovered
before the Closing Date.
15.4.2 Buyer shall promptly notify each Seller upon receipt of
notice or other discovery of any Environmental Contamination or violations for
which Sellers and ▇▇▇▇ have an indemnification obligation pursuant to Section
15.1.1 or 15.4.1 hereof. Upon receipt of such notification, or in the event
Buyer notifies either Seller or ▇▇▇▇ of actions which it believes should be
taken by such Seller and ▇▇▇▇ to prevent or mitigate an environmental condition,
claim, or violation covered by the indemnity contained in Section 15.1.1 or
15.4.1, such Seller and ▇▇▇▇ shall respond within a reasonable time and in a
reasonable, prudent and responsible manner and Buyer shall give such access to
such Seller and ▇▇▇▇ as shall be reasonably requested by Russ in order to
evaluate the condition and the nature and source thereof and to take
preventative or mitigating action as may be reasonable, prudent and responsible;
provided, however, that such action does not unreasonably interfere with Buyer's
conduct of its business. In the event that such Seller and ▇▇▇▇ fail to act
within a reasonable time to correct such condition, claim or violation, or in
the event that the circumstances do not permit delay, Buyer may undertake
reasonable curative or preventative actions which shall be promptly reimbursed
by Sellers and ▇▇▇▇ as provided in this Agreement.
15.4.3 For a period of five years following the Closing,
Sellers and ▇▇▇▇ agree to have Buyer named as an additional insured on each
insurance policy which may cover any
77
84
other liabilities or responsibilities described in this Section 15.4.
15.5 Notice of Circumstances. Promptly after receipt by any Seller
or by Buyer of notice of any action, proceeding, claim or potential claim (any
of which is hereinafter individually referred to as a "Circumstance"), which
could give rise to a right to indemnification pursuant to any provisions of this
Agreement, such party (the "Indemnified Party") shall give the party who may
become obligated to provide indemnification hereunder (the "Indemnifying Party")
written notice describing the Circumstance in reasonable detail. If notice of a
Circumstance is not given to the Indemnifying Party within a sufficient period
of time or in sufficient detail to apprise the Indemnifying Party of the nature
of the Circumstance (in each instance taking into account the facts and
circumstance known by the Indemnified Party with respect to such Circumstance),
the Indemnifying Party shall not be liable to the Indemnified Party to the
extent that the Indemnifying Party's position is actually prejudiced as a result
thereof. The Indemnifying Party shall not compromise or settle any Circumstance
except with the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld or delayed. The Indemnifying Party shall be
entitled to assume the defense of any Circumstance for which the Indemnified
Party is seeking indemnification. If any Indemnifying Party shall undertake to
defend any such Circumstance in accordance with the foregoing, the Indemnified
Party agrees to cooperate fully with the Indemnifying Party and its counsel
(which counsel will be reasonably acceptable to the Indemnified Party) in the
defense against such Circumstance. All costs and expenses incurred in connection
with such cooperation shall be borne by the Indemnifying Party. Once the
Indemnifying Party assumes the defense in accordance with the foregoing, it
shall have no obligation for attorneys' fees subsequently incurred by the
Indemnified Party unless the named parties include both the Indemnified Party
and the Indemnifying Party and the Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnifying Party such
that representation by the same counsel would represent a conflict of interest
under the appropriate professional standards. In any event, the Indemnified
Party shall have the right at its own expense to participate in the defense of
such Circumstance. Under no circumstances shall the Indemnified Party compromise
or settle any Circumstance for which
78
85
it was seeking indemnification without the written consent of the Indemnifying
Party which consent shall not be unreasonably withheld or delayed.
15.6 Survival of Indemnification Obligations. The indemnification
obligations for all claims relating to breaches of representations, warranties
and covenants shall survive the Closing and shall be enforceable with respect to
Losses for which a notice of Circumstance has been delivered prior to the
expiration, if any, of the representation, warranty or covenant on which the
Indemnified Party's claim is based. No party shall have any indemnification
obligation with respect to Losses for which a notice of Circumstance has not
been delivered prior to the expiration, if any, of the representation, warranty
or covenant on which the Indemnified Party's claim is based.
16. Termination.
16.1 Ability to Terminate. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing Date:
16.1.1 by mutual written consent of the ▇▇▇▇▇▇▇, ▇▇▇▇, Buyer
and Hasbro;
16.1.2 by Buyer and Hasbro, by notice to Sellers and Russ at
any time, if one or more of the conditions specified in Article 10 hereof is not
satisfied or becomes impossible to satisfy and such condition has not been
waived by Buyer and Hasbro;
16.1.3 by Sellers and ▇▇▇▇, by notice to Buyer and Hasbro at
any time, if one or more of the conditions specified in Article 11 is not
satisfied or becomes impossible to satisfy and such condition has not been
waived by Sellers and ▇▇▇▇; or
16.1.4 by either ▇▇▇▇ or Buyer if the Closing has not occurred
on or before May 2, 1997.
16.2 Effect of Termination. If this Agreement shall be terminated
pursuant to the provisions of Section 16.1 above, all further obligations of
Buyer, Hasbro, Sellers and ▇▇▇▇ under this Agreement shall terminate and there
shall be no liability of any party hereto or its shareholders, directors or
officers except
79
86
for intentional and material breaches of covenants which give rise to such
termination, except for those further obligations of Buyer, Hasbro, Sellers and
▇▇▇▇ under this Section 16.2, Section 5.26, Section 6.5 and Article 17 hereof,
and the Confidentiality Agreement, each of which shall survive any termination
hereof.
17. Costs Incident to Preparation of Agreement.
Each of the parties hereto shall pay, without right of reimbursement
from the other, all costs incurred by it incident to the preparation, execution
and delivery of this Agreement and the performance of its obligations hereunder,
whether or not the transactions contemplated by this Agreement are consummated,
including, without limitation, fees and disbursements of legal counsel,
accountants and consultants employed by the respective parties hereto in
connection with the transactions contemplated by this Agreement.
18. Parties in Interest.
This Agreement is binding upon and is for the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement is
not made for the benefit of any person, firm, corporation or other entity not a
party hereto and no person, firm, corporation or other entity other than the
parties hereto or their respective successors and permitted assigns shall
acquire or have any right, remedy or claim under or by virtue of this Agreement.
19. Miscellaneous.
19.1 Assignment; Successors and Assigns. Except as otherwise
provided in this Section 19.1, no party to this Agreement shall convey, assign
or otherwise transfer any of its rights or obligations under this Agreement
without the express written consent of the other parties hereto in their sole
and absolute discretion. Following the Closing, any Seller may assign to ▇▇▇▇
all of its rights, and Russ or any successor to Russ or acquiror of all or
substantially all of ▇▇▇▇' assets may assume such Seller's obligations, under
this Agreement without the consent of Buyer. Buyer may assign, in whole or in
part, its rights and obligations hereunder to any subsidiary, affiliate or
parent of Buyer without the consent of Sellers or ▇▇▇▇. No assignment of any
rights or obligations under this Agreement shall relieve the assigning party of
its obligations hereunder.
80
87
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
19.2 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telecopy, or sent, postage prepaid, by registered, certified or
express mail, or reputable overnight courier service and shall be deemed given
when so delivered by hand, or telecopied, or if mailed, four days after mailing
(one business day in the case of express mail or overnight courier service) as
follows:
If to Buyer:
ODDZON/CAP TOYS, INC.
c/o Hasbro, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.:(▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice Chairman
with copies to:
Hasbro, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Senior Vice President-Corporate Legal
Affairs and Secretary
▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Richard Crystal, Esq.
If to Hasbro:
Hasbro, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.:(▇▇▇)▇▇▇-▇▇▇▇
81
88
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice Chairman
with copies to:
Hasbro, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Senior Vice President-Corporate Legal
Affairs and Secretary
▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Richard Crystal, Esq.
If to CAP:
Cap Toys Inc.
c/o ▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: President
with copies to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
82
89
If to OddzOn:
OddzOn Products, Inc.
c/o ▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: President
with copies to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to ▇▇▇▇:
▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: President
with copies to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Box 10
Woodbridge, New Jersey 07095-0958
83
90
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 19.2 by any party hereto to the other
parties hereto.
19.3 Waiver; Remedies. No delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which the parties hereto may otherwise have at law or in equity.
19.4 Entire Agreement. This Agreement and all agreements executed
and delivered in connection herewith shall constitute the entire agreement among
the parties with respect to the subject matter hereof and this Agreement
supersedes all prior agreements or understandings of the parties relating
thereto except that the Confidentiality Agreement shall remain in full force and
effect.
19.5 Amendment. This Agreement may be modified or amended only by
written agreement of the parties hereto.
19.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
19.7 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within such state without giving effect to
conflicts of law principles thereof.
19.8 Jurisdiction/Venue. Buyer, Sellers and ▇▇▇▇ agree and consent
to personal and subject matter jurisdiction in New York and venue in the United
States District Court for New York
84
91
in the Southern District of New York or, if such court has and can obtain no
jurisdiction over the legal action at issue, the Supreme Court for the County of
New York for any and all legal actions brought to enforce the terms of this
Agreement.
19.9 Exhibits and Schedules. All Exhibits and Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein.
19.10 Captions. All section titles or captions contained in this
Agreement or in any Exhibit or Schedule referred to herein, and the table of
contents to this Agreement are for convenience only, shall not be deemed a part
of this Agreement and shall not affect the meaning or interpretation of this
Agreement. All references herein to numbered sections are to sections of this
Agreement.
19.11 Publicity. No press release or announcement concerning the
existence of this Agreement or transactions contemplated hereby shall be issued
by any party without the prior written consent of the other party, except as
such release or announcement may (i) be required by law, rule or regulation
(including applicable Federal and state securities laws, rules and regulations
and applicable stock exchange rules) or (ii) be made by Buyer if the identity of
Sellers is not disclosed, provided that in each case the party making the
release or announcement shall allow the other party reasonable time to comment
on such release or announcement in advance of such issuance.
19.12 Severability. Any provision of this Agreement which is invalid
or unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
85
92
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
86
93
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
ODDZON/CAP TOYS, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
HASBRO, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
ODDZON PRODUCTS, INC.
By /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
CAP TOYS, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
87
94
Title: President
88
95
The undersigned hereby guarantees the payment and performance of the obligations
when due of each Seller under this Agreement and further guarantees the
performance and payment when due by any entity under its control of such
entity's obligations under this Agreement and any Ancillary Seller Documents,
including, but not limited to the obligations of ▇▇▇▇ ▇▇▇▇▇▇ & Co. (West), Inc.
under the Occupancy Agreement. This guaranty shall not be impaired by, and the
undersigned hereby consents to, any modification, supplement, extension or
amendment of this Agreement or any Ancillary Seller Document to which this
guaranty applies to which the parties thereto may hereafter agree, provided that
the foregoing shall not eliminate any requirement that ▇▇▇▇ sign any
modification of this Agreement or any Ancillary Seller Document which, pursuant
to the terms hereof or thereof, requires ▇▇▇▇' consent in order for such
modification, supplement, extension or amendment to become effective.
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: President
The undersigned hereby guarantees the payment and performance of the obligations
when due of Buyer under this Agreement and further guarantees the payment and
performance when due by Buyer of Buyer's obligations under any Ancillary Buyer
Documents. This guaranty shall not be impaired by, and the undersigned hereby
consents to, any modification, supplement, extension or amendment of this
Agreement or any Ancillary Buyer document to which this guaranty applies to
which the parties thereto may hereafter agree, provided that the foregoing shall
not eliminate any requirement that Hasbro sign any modification of this
Agreement or any Ancillary Buyer Document which, pursuant to the terms hereof or
thereof, requires Hasbro's consent in order for such modification, supplement,
extension or amendment to become effective.
89
96
HASBRO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
90
97
Exhibit B
AGREEMENT
This AGREEMENT, dated as of May 2, 1997, by and among CAP TOYS,
INC., an Ohio corporation ("CAP"), ODDZON PRODUCTS, INC., a California
corporation ("OddzOn") (CAP and OddzOn shall be collectively referred to herein
as "Sellers"), ▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC., a New Jersey corporation ("▇▇▇▇"),
ODDZON/CAP TOYS, INC., a Delaware corporation formerly known as HIAC VIII CORP.
("Buyer") and HASBRO, INC., a Rhode Island corporation ("Hasbro").
WHEREAS, CAP entered into that certain License Agreement with
I.D.E.A., Inc. and Razz-A-Mattazza Corp., dated July 1, 1996 (the "License
Agreement"), for the Bubble Gum Tape Dispenser (the "Product");
WHEREAS, Basic Fun, Inc. ("Basic Fun") sued CAP for patent
infringement of Basic Fun's patent for a power gum dispenser;
WHEREAS, the parties hereto are entering into an Asset Purchase
Agreement of even date herewith (the "Purchase Agreement") pursuant to which the
Sellers are selling to Buyer substantially all of their respective assets and
Buyer is assuming certain Assumed Liabilities, including the License Agreement;
WHEREAS, the parties hereto wish to define their agreement with
respect to the potential liability of CAP relating to the Product; and
WHEREAS, this Agreement is being entered into in consideration of
Buyer and Hasbro not including the Product within the Excluded Assets under the
Purchase Agreement; and
WHEREAS, terms which are capitalized and not otherwise defined
herein shall have the meaning ascribed thereto in the Purchase Agreement.
98
NOW, THEREFORE, the parties hereto agree as follows:
1. In addition to any indemnification obligations of Sellers and
▇▇▇▇ to Buyer and Hasbro pursuant to Article 15 of the
Purchase Agreement, each Seller and ▇▇▇▇ hereby, jointly and
severally, and without any restrictions as to minimum or
maximum indemnification obligations, agrees to indemnify,
defend and hold harmless the Buyer Group from and against any
and all Losses, including but not limited to, Losses from any
willful infringement relating to the Product, based upon,
arising out of or otherwise in respect of (i) Buyer's failure
to pay the royalties payable under the License Agreement
directly to I.D.E.A., Inc. and Razz-A-Mattazza Corp. and (ii)
the litigation captioned Basic Fun, Inc. v. CAP Toys, Inc.,
Case No. 97-2051 (the "Basic Fun Litigation"), in each case
with respect to the manufacture, use, sale, importation,
distribution or advertising by or on behalf of Buyer or Hasbro
of the existing inventory of the Product as of the date of
this Agreement and finished goods inventory of the Product
produced from raw materials and work in process on hand as of
the date hereof. Sellers and ▇▇▇▇ agree that Buyer's royalty
obligation with respect to the Product, other than as set
forth in Section 8 hereof, shall not exceed 3%.
2. Notwithstanding anything contained herein to the contrary,
Buyer hereby agrees to pay to Russ in a timely manner the 3%
royalty amount as described in the License Agreement including
all royalties pursuant to the License Agreement accrued but
unpaid by CAP on the date hereof.
3. In the event Buyer and Hasbro are enjoined either in
connection with the License Agreement or in connection with
the Basic Fun Litigation from selling the Product, all items
reflected on the Closing Balance Sheet relating to the
Product, including without limitation, all finished goods,
2
99
raw materials and work in process then in inventory or
subsequently returned to Buyer or Hasbro after the injunction,
and all tooling and prepaid expenses, shall, upon the written
demand of Buyer or Hasbro, be immediately repurchased by CAP
or ▇▇▇▇ at the value of such items as reflected on the Closing
Balance Sheet.
4. Sellers and/or ▇▇▇▇ shall continue to handle the Basic Fun
Litigation and shall further assume the defense of any event
which may lead to an indemnifiable obligation hereunder (each
event, including the Basic Fun Litigation, shall be referred
to herein as an "Event"). Once the Sellers and/or ▇▇▇▇ assume
the defense of such Event they shall have no obligation for
attorneys' fees subsequently incurred by the Buyer or Hasbro
unless (i) the named parties include (x) Buyer and/or Hasbro
and (y) Sellers and/or ▇▇▇▇, and Buyer and/or Hasbro shall
have been advised by counsel that there may be one or more
legal defenses available to it which are different from or
additional to those available to the Sellers and/or ▇▇▇▇ such
that representation by the same counsel would represent a
conflict of interest under the appropriate professional
standards (such defenses to be referred to herein as
"Additional Defenses"), or (ii) the defense of such Event is
later abandoned by Sellers and ▇▇▇▇. In any event, Buyer
and/or Hasbro shall have the right at its own expense to
participate in the defense of such Event after the defense is
assumed by Sellers and/or Russ. Under no circumstances shall
the Buyer and/or Hasbro settle any Event for which it is
seeking indemnification hereunder without the written consent
of the Sellers and/or ▇▇▇▇ which consent shall not be
unreasonably withheld. If the Sellers and/or ▇▇▇▇ assume the
defense of an Event, no compromise or settlement of such
claims may be effected by Sellers and/or Russ without the
Buyer's and/or Hasbro's consent, which consent will not
unreasonably be withheld, unless (i) there is no finding or
admission of any violation
3
100
of any law, agreement or other duty, (ii) the sole relief
provided is monetary damages that are paid in full by the
Sellers and/or ▇▇▇▇, and (iii) there are no obligations
whatsoever on the part of Hasbro or Buyer or any other
affiliate of Hasbro to do or provide anything other than as
set forth in this Agreement. In the event (i) neither Seller
nor ▇▇▇▇ assumes the defense of an Event, (ii) the defense of
an Event is later abandoned by Sellers and ▇▇▇▇, or (iii)
there are Additional Defenses, Sellers and ▇▇▇▇ shall make an
additional deposit into the Escrow Fund in an amount
sufficient to indemnify the Buyer Group for any Losses any
member of the Buyer Group may incur in connection with
defending against liability for such Event, whether disclosed
or undisclosed.
5. Each of Buyer and Hasbro agrees that it will cooperate with
Russ, as ▇▇▇▇ may reasonably request, in dealing with any
Event that may arise with respect to the Product. ▇▇▇▇ shall
bear all out-of-pocket costs and expenses incurred by Buyer
and Hasbro in connection with the performance of their
obligations under this Section.
6. Upon any member of the Buyer Group incurring any Losses
hereunder and providing notice thereof to Sellers and ▇▇▇▇ in
accordance with Section 19.2 of the Purchase Agreement, each
of the parties hereto agrees that it shall, unless such Losses
are disputed by Sellers or Russ in good faith, execute a joint
letter of instruction for submission to the Escrow Agent
instructing the Escrow Agent to distribute money from the
Escrow Fund in accordance with the provisions of such joint
letter of instruction.
7. On the third anniversary date of the Purchase Agreement each
of the parties hereto agrees to execute a joint letter of
instruction for submission to the Escrow Agent instructing the
Escrow Agent to distribute to Sellers any portion of the
Escrow Fund deposited pursuant to the
4
101
Purchase Agreement which then remains in the Escrow Fund
except for any amount as to which notice of Losses has been
provided by Buyer or Hasbro to Sellers and ▇▇▇▇ prior to such
anniversary date. For purposes of this Section 7, a notice of
Loss shall be deemed to have been given to Sellers and Russ
for any Losses relating to (i) the Basic Fun Litigation unless
it has been fully resolved prior to such anniversary date, and
(ii) claims relating to the Product made by licensors of the
Product prior to the third anniversary date unless ▇▇▇▇ provides Buyer and
Hasbro with evidence that such claims have been fully resolved prior to such
anniversary date.
8. Nothing contained herein shall affect Buyer's obligations
after the date hereof under the License Agreement, dated July
1, 1996, with Amurol Confections Company, concerning the
Product.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
ODDZON/CAP TOYS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
HASBRO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
5
102
CAP TOYS, INC.
/s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
By:_______________________
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
ODDZON PRODUCTS, INC.
/s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
By:_______________________
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
/s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
By:_______________________
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
6
103
EXHIBIT D
ESCROW AGREEMENT
ESCROW AGREEMENT dated May 2, 1997 among Cap Toys, Inc., an Ohio
corporation ("CAP"), with its principal place of business at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, OddzOn Products, Inc., a California
corporation ("OddzOn"), with its principal place of business at ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (CAP and OddzOn are each referred to
individually as a "Seller" and collectively as the "Sellers"), ▇▇▇▇ ▇▇▇▇▇▇ and
Company, Inc., a New Jersey corporation ("▇▇▇▇"), with its principal place of
business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, Hasbro, Inc., a Rhode
Island corporation ("Hasbro"), with its principal place of business at ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, OddzOn/Cap Toys, Inc., a Delaware
corporation ("Buyer"), with its principal place of business at ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (▇▇▇▇▇▇▇, ▇▇▇▇, Buyer and Hasbro are
sometimes collectively referred to in this Agreement as the "Depositors"), and
Citibank, N.A., a national banking association with its headquarters in New York
City, New York (the "Escrow Agent").
RECITALS
A. Depositors have entered into an Asset Purchase Agreement of even date
herewith (the "Purchase Agreement") for the sale by Sellers to Buyer of
substantially all of their respective assets.
B. Pursuant to Sections 15.1.1, 15.3.4 and 15.4.1 of the Purchase
Agreement, Sellers and ▇▇▇▇ agreed to indemnify and hold harmless the Buyer
Group from any and all Losses actually incurred by any or all of them based upon
or arising out of or otherwise in respect of certain events set forth in such
sections in the Purchase Agreement.
C. Pursuant to Section 3.2.2 of the Purchase Agreement, an escrow account
is to be established as a mechanism through which certain post-closing
adjustments to the Purchase Price and the above-referenced indemnification
obligations will be made and satisfied.
104
D. Depositors have entered into an Agreement of even date herewith (the
"OddzOn Letter Agreement") pursuant to which Sellers and Russ agree to indemnify
and hold harmless the Buyer Group from any and all Earnout Losses (as defined in
the OddzOn Letter Agreement) incurred by any or all of the members of the Buyer
Group based upon or arising out of or otherwise in respect of certain events
relating to the Earnout (as such terms is defined in the OddzOn Letter
Agreement).
E. Pursuant to Paragraph 1 of the OddzOn Letter Agreement, Buyer or Hasbro
is to deposit certain amounts into an escrow account which, in addition to the
other amounts held in escrow pursuant to this Agreement, secure the
indemnification obligations described in Paragraph D above.
F. Depositors have entered into an Agreement of even date herewith (the
"Bubble Gum Tape Agreement") regarding potential liabilities of CAP relating to
the Bubble Gum Tape Dispenser product.
G. Pursuant to the Bubble Gum Tape Agreement, the amounts held in escrow
pursuant to this Escrow Agreement secure the indemnification obligations
described in the Bubble Gum Tape Agreement.
Any term capitalized in this Agreement and not otherwise defined
herein or specifically referenced as defined in another document shall have the
meaning ascribed thereto in the Purchase Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Establishment of Escrow Account. Buyer and/or Hasbro will
deliver to the Escrow Agent the aggregate amount of Eleven Million Three Hundred
Thousand Dollars ($11,300,000) out of the Purchase Price (as such amount may be
increased or decreased from time to time and any investments thereof referred to
herein as the "Escrow Account"). The Escrow Account shall be held, administered
and disposed of by the Escrow Agent in accordance with the terms and conditions
hereinafter set forth.
2
105
Section 2. Investment of Escrow Account; Distribution of Interest.
(a) The Escrow Agent shall act as custodian of the Escrow Account
and shall from time to time and without unreasonable delay invest and reinvest
the Escrow Account and other proceeds in any of the investments set forth below
as all Depositors may from time to time elect by notice in writing to the Escrow
Agent by any of their authorized officers set forth opposite such party's name
on Exhibit A hereto (the "Authorized Officer"). Any party may change the
Authorized Officers by sending notice thereof to the other parties hereto in
accordance with Section 5(f) hereof. In the event all of the Depositors do not
provide notice to the Escrow Agent as provided above, the Escrow Account shall
be invested in the Citibank Insured Money Market Deposit Account.
(1) Any U.S. Government or U.S. Government Agency security (with a
maturity date not to exceed ninety (90) days from the date of
purchase);
(2) Any commercial paper rated A1/P1 or better;
(3) Any certificate of deposit or time deposit in any bank with a
long-term debt rating of A or better from Moody's or Standard
& Poor's; or
(4) The Citibank Insured Money Market Deposit Account.
In addition, the Escrow Agent shall from time to time and without unreasonable
delay invest and reinvest the Escrow Account and other proceeds in such other
investments agreed upon by the Depositors, reasonably acceptable to the Escrow
Agent and specifically designated to the Escrow Agent in writing from time to
time by all Depositors by any of their Authorized Officers.
The Escrow Agent shall have the power to sell or liquidate the foregoing
investments whenever the Escrow Agent shall be required to release funds from
the Escrow Account pursuant to Section 3. The Escrow Agent shall have no
responsibility for any investment losses resulting from the investment,
reinvestment or liquidation of the Escrow Account in accordance with the
provisions of this Agreement.
3
106
(b) Any interest or other income received on such investments and
reinvestments of the Escrow Account shall become part of the Escrow Account.
Section 3. Release of the Escrow Account.
(a) The Escrow Agent shall release the Escrow Account or any portion
thereof in accordance with (i) joint written instructions signed by an
Authorized Officer of each of the Depositors directing the Escrow Agent to
release the Escrow Account or any portion thereof as set forth therein, or (ii)
the terms of an order, judgment or decree ordering the release of the Escrow
Account or any portion thereof, accompanied by a legal opinion of counsel of the
party requesting such release reasonably satisfactory to the Escrow Agent to the
effect that such order, judgment or decree represents a final adjudication of
the rights of the parties by a court of competent jurisdiction, and that the
time for appeal from such order, judgment or decree has expired without an
appeal having been perfected.
(b) Promptly upon receipt of the joint written instructions referred
to in Section 3(a)(i) above, or the order, judgment or decree and opinion of
counsel referred to in Section 3(a)(ii) above (and in no event later than two
business days following any such receipt unless a later date is specified in
such instructions), the Escrow Agent shall release the Escrow Account or any
portion thereof in accordance therewith.
(c) In addition to the amount of the disbursement to be released
pursuant to this Section 3, the Escrow Agent shall release to the party entitled
to such disbursement the amount of any interest or other income received on the
investment of the Escrow Account and allocable to such portion of the Escrow
Account so released.
(d) This Agreement will terminate upon the release of the entire
Escrow Account pursuant to this Section 3.
Section 4. Language Concerning the Escrow Agent. To induce the
Escrow Agent to act hereunder, it is further agreed by the Depositors and the
Escrow Agent that:
(a) The Escrow Agent shall not be under any duty to give the Escrow
Account held by it hereunder any greater degree
4
107
of care than it gives its own similar property and shall not be required to
invest any funds held hereunder except as directed in this Escrow Agreement.
Uninvested funds held hereunder shall not earn or accrue interest. Anything to
contrary in the foregoing notwithstanding, the Escrow Account shall be held by
the Escrow Agent in a separate account.
(b) This Escrow Agreement expressly sets forth all the duties of the
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Agreement against the Escrow
Agent. The Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Escrow Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the Depositors shall jointly and severally indemnify
and hold harmless the Escrow Agent (and any successor Escrow Agent) from and
against any and all losses, liabilities, claims, actions, damages and expenses,
including reasonable attorneys' fees and disbursements, arising out of and in
connection with this Escrow Agreement. If the Escrow Agent becomes aware that it
may incur any such loss, liability, claim, damage or expense, the Escrow Agent
shall promptly notify the Depositors in writing, and the Depositors shall have
the right, to the extent practicable, to assume the defense or take other action
to minimize the amount of such loss, liability, claim, damage or expense,
including the employment of counsel and the payment of all expenses. In the
event the Depositors elect to assume the defense of any action, the Escrow Agent
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, and the fees and expenses of such counsel
shall be paid by the Depositors if the named parties to any such action or
proceeding include both the Escrow Agent and any Depositor and the Escrow Agent
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
such Depositor. Without limiting the foregoing, the Escrow Agent shall in no
event be liable in connection with its investment or reinvestment of any cash
held by it hereunder in good faith, in accordance with the terms hereof,
including without limitation any liability for any delays (not resulting from
its gross negligence or willful
5
108
misconduct) in the investment or reinvestment of the Escrow Account, or any loss
of interest incident to any such delays.
(d) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity or the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted, in good faith, in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrow
Account deposited hereunder but is serving as escrow holder only and having only
possession thereof. The Depositor receiving a disbursement from the Escrow
Account shall pay or reimburse the Escrow Agent upon request for any transfer
taxes or other taxes relating to the portion of the Escrow Account so disbursed
which are incurred in connection herewith and shall indemnify and hold harmless
the Escrow Agent from any amount that it is obligated to pay in the way of such
taxes. Any payments of income from this Escrow Account shall be subject to
withholding regulations then in force with respect to United States taxes. The
parties hereto will provide the Escrow Agent with appropriate W-9 forms for tax
I.D. number certifications, or W-8 forms for non-resident alien certifications.
It is understood that the Escrow Agent shall be responsible for income reporting
only with respect to income earned on investment of funds which are a part of
the Escrow Account and is not responsible for any other reporting. This
paragraph and paragraph (c) shall survive notwithstanding any termination of
this Escrow Agreement or the resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectibility of any security or other document or
instrument held by or delivered to it.
6
109
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by giving at least thirty (30) days written notice to the
Depositors and then delivering the Escrow Account to any successor escrow agent
jointly designated by all Depositors in writing, or to any court of competent
jurisdiction, whereupon the Escrow Agent shall be discharged of and from any and
all further obligations arising in connection with this Escrow Agreement except
for such obligations or liabilities arising prior to its resignation. The
resignation of the Escrow Agent will take effect on the earlier of (a) the
appointment of a successor by all Depositors or the deposit of the Escrow
Account into a court of competent jurisdiction or (b) the day which is 30 days
after the date of delivery of its written notice of resignation to the other
parties hereto. If at that time the Escrow Agent has not received a designation
of a successor escrow agent, the Escrow Agent's sole responsibility after that
time shall be to safekeep the Escrow Account until receipt of a designation of
successor escrow agent by all Depositors or a joint written disposition
instruction by all Depositors or a Final Order of a Court of competent
jurisdiction as to the disposition of the Escrow Account.
(j) The Depositors may remove the Escrow Agent (and any successor
escrow agent) at any time by giving thirty (30) days written notice to such
Escrow Agent signed by all Depositors. Such removal shall take effect upon
delivery of the Escrow Account to a successor escrow agent designated in writing
by all Depositors, and the Escrow Agent shall thereupon be discharged from all
obligations under this Agreement and shall have no further duties or
responsibilities in connection herewith other than such obligations or
liabilities arising prior to its removal. The Escrow Agent shall deliver the
Escrow Account without unreasonable delay after receiving the Depositors'
designation of a successor escrow agent.
(k) In the event of any disagreement between the Depositors
resulting in adverse claims or demands being made in connection with the Escrow
Account, or in the event that the Escrow Agent in good faith is in doubt as to
what action it
7
110
should take hereunder, the Escrow Agent shall be entitled to retain the Escrow
Account until the Escrow Agent shall have received (i) a final non-appealable
order of a Court of competent jurisdiction directing delivery of the Escrow
Account or (ii) a written agreement executed by all Depositors directing
delivery of the Escrow Account, in which event the Escrow Agent shall disburse
the Escrow Account in accordance with such order or agreement. Any court order
shall be accompanied by a legal opinion by counsel for the presenting party
reasonably satisfactory to the Escrow Agent to the effect that said order is
final and nonappealable. The Escrow Agent shall act on such Court order and
legal opinions or agreement without further question. In lieu of the foregoing,
the Escrow Agent may petition (by means of an interpleader action or any other
appropriate method) any Court of competent jurisdiction for instructions with
respect to such dispute or uncertainty, and pay into such Court the amount of
the Escrow Account equal to the amount of such dispute or uncertainty for
holding and disposition in accordance with the instructions of such Court.
(l) The Escrow Agent's compensation for the services to be rendered
by the Escrow Agent hereunder in the amount of $6,000 annually plus
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Escrow Agent in performance of its duties hereunder (including
reasonable fees, expenses and disbursements of its counsel) shall be paid
jointly and severally by the Buyer and Sellers, provided that as between the
Buyer and Sellers, 50% of such amount shall be paid by Buyer and 50% shall be
paid by Sellers. Any fees or expenses of the Escrow Agent or its counsel which
are not paid as provided for herein may be taken from any property held by the
Escrow Agent hereunder.
(m) No printed or other matter in any language (including without
limitation prospectuses, notices, reports and promotional material) which
mentions the Escrow Agent's name in connection with this escrow arrangement or
the rights, powers, or duties of the Escrow Agent shall be issued by the other
parties hereto or on such parties' behalf unless the Escrow Agent shall first
have given its specific written consent thereto.
(n) The Depositors authorize the Escrow Agent, for any securities
held hereunder, to use the services of any United States central securities
depository it deems appropriate,
8
111
including, but not limited to, the Depositary Trust Company and the Federal
Reserve Book Entry System.
Section 5. Miscellaneous.
(a) The Escrow Agent shall furnish to the Depositors monthly
itemized summaries of the Escrow Account, including all interest or other income
received on the investments of the Escrow Account and all disbursements from the
Escrow Account.
(b) By executing this Agreement, each Seller hereby grants to ▇▇▇▇
an irrevocable power of attorney to execute on its behalf any and all
communications, instruments or other documents pursuant to this Escrow
Agreement. Without limiting the generality of the foregoing, in connection with
any joint written instructions to be given hereunder, the signature by any
Authorized Officer of ▇▇▇▇ pursuant to this power of attorney shall be deemed a
signature by an Authorized Officer of both Sellers for purposes of this
Agreement.
(c) The parties hereto hereby irrevocably submit to the jurisdiction
of any New York State or federal court sitting in the Borough of Manhattan in
New York City in any action or proceeding arising out of or relating to this
Escrow Agreement and the parties hereby irrevocably agree that all claims in
respect of such action or proceeding arising out of or relating to this Escrow
Agreement shall be heard and determined in such New York State or federal court.
The parties hereby consent to and grant to any such court jurisdiction over the
persons of such parties and over the subject matter of any such dispute and
agree that delivery or mailing of any process or other papers in the manner
provided herein, or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof.
(d) This Escrow Agreement shall be binding upon and inure solely to
the benefit of the parties hereto and their respective successors and assigns,
heirs, administrators and representatives and shall not be enforceable by or
inure to the benefit of any third party except as provided in paragraphs 4(i)
and 4(j) with respect to a resignation by or removal of the Escrow Agent. No
party may assign any of its rights or obligations under this Escrow Agreement
without the written consent of the other parties. This Escrow Agreement shall be
construed in accordance with and governed by the internal laws of
9
112
the State of New York (without reference to its rule as to conflicts of law).
(e) This Escrow Agreement may only be modified by a writing signed
by all of the parties hereto, and no waiver hereunder shall be effective unless
in a writing signed by the party to be charged.
(f) All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered, unless otherwise
indicated, by hand or sent by confirmed telecopy (such confirmation to consist
of the electronic confirmation of the completed facsimile transmission), or
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or reputable overnight courier service and shall be deemed given when
so delivered by hand, or telecopied, or if mailed as set forth above, four days
after mailing (one business day in the case of overnight courier service), as
follows (provided that notices to the Escrow Agent shall not be deemed given
until actual receipt thereof by the Escrow Agent):
If to the Escrow Agent:
Citibank, N.A.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No. (▇▇▇)▇▇▇-▇▇▇▇
Attention: Escrow Administration
If to OddzOn:
OddzOn Products, Inc.
c/o ▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No. (▇▇▇)▇▇▇-▇▇▇▇
Attention: President
10
113
with copies to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to CAP:
Cap Toys, Inc.
c/o ▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with copies to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
11
114
If to ▇▇▇▇:
▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No. (▇▇▇)▇▇▇-▇▇▇▇
Attention: President
with copies to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to Buyer:
OddzOn/Cap Toys, Inc.
c/o Hasbro, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice Chairman
with copies to:
Hasbro, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Senior Vice President-Corporate Legal
Affairs and Secretary
12
115
▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Richard Crystal, Esq.
If to Hasbro:
Hasbro, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice Chairman
with copies to:
Hasbro, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Senior Vice President-Corporate Legal
Affairs and Secretary
▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Richard Crystal, Esq.
(g) The invalidity, illegality or unenforceability of any provision
of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision; and if any provision is held to be
unenforceable as a matter of law, the other provisions shall not be affected
thereby and shall remain in full force and effect.
(h) This Agreement may be executed in any number of counterparts and
by facsimile, and each of such counterparts shall be deemed an original but all
of such counterparts together shall constitute a single instrument.
13
116
IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to
be executed by duly authorized officers as of the day and year first written
above.
ODDZON/CAP TOYS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
HASBRO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
ODDZON PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President
CAP TOYS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Executive Vice President
14
117
CITIBANK, N.A.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
The undersigned hereby guarantees the performance of the obligations of the
Sellers under this Agreement.
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Executive Vice President
The undersigned hereby guaranties the performance of the obligations of the
Buyer under this Agreement.
HASBRO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
15
118
EXHIBIT A
AUTHORIZED OFFICERS
Party Authorized Officer
(Name and Title)
Hasbro, Inc. ▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice Chairman
▇▇▇▇ ▇. ▇'▇▇▇▇▇, Executive Vice President and
Chief Financial Officer
OddzOn/Cap Toys, Inc. ▇▇▇▇▇▇ ▇▇▇▇▇▇, Executive Vice President
▇▇▇▇ ▇. ▇'▇▇▇▇▇, Executive Vice President and
Chief Financial Officer
Cap Toys, Inc. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
▇. ▇▇▇▇▇ ▇▇▇▇▇, Vice President
▇▇▇▇ ▇▇▇▇▇▇▇▇, Vice President
OddzOn Products, Inc. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
▇. ▇▇▇▇▇ ▇▇▇▇▇, Vice President
▇▇▇▇ ▇▇▇▇▇▇▇▇, Vice President
▇▇▇▇ ▇▇▇▇▇▇ and Company, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
Inc. ▇. ▇▇▇▇▇ ▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇▇▇▇, Executive Vice President
16
119
EXHIBIT E
AGREEMENT
This AGREEMENT is entered into as of the 2nd day of May, 1997 among
HASBRO, INC., a Rhode Island corporation ("Hasbro"), ODDZON/CAP TOYS, INC., a
Delaware corporation formerly known as HIAC VIII CORP. ("Buyer"), CAP TOYS,
INC., an Ohio corporation ("CAP"), ODDZON PRODUCTS, INC., a California
corporation ("OddzOn") (CAP and OddzOn are collectively referred to herein as
"Sellers"), and ▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC., a New Jersey corporation
("▇▇▇▇").
WHEREAS, the parties hereto are parties to that certain Asset
Purchase Agreement, dated as of May 2nd, 1997 (the "Purchase Agreement");
WHEREAS, pursuant to the Purchase Agreement an Escrow Fund is
simultaneously being created and the parties hereto wish to set forth the
procedure for deposits into and withdrawals from the Escrow Fund;
WHEREAS, the parties hereto are simultaneously entering into an
Agreement (the "OddzOn Letter Agreement") relating to certain earnouts payable
by OddzOn to the old OddzOn Products, Inc. pursuant to that certain Asset
Purchase Agreement among OddzOn, formerly known as RBCACQ, Inc., old Oddzon
Products, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ Button, dated September 30, 1994; and
WHEREAS, the parties hereto are simultaneously entering into an
Agreement (the "Bubble Gum Tape Dispenser Agreement") regarding potential
liabilities of CAP relating to the Bubble Gum Tape Dispenser product.
NOW, THEREFORE, the parties hereto agree as follows:
1. Subject to the provisions of Section 4, upon completion of the
Post-Closing Adjustment contemplated by Section 3.3.5 of the
Purchase Agreement, each of the parties hereto agrees that it
shall deposit money into, and/or execute a joint letter of
instruction for submission to the
120
Escrow Agent instructing the Escrow Agent to distribute money
from, the Escrow Fund, in accordance with the provisions of
and calculations contained in this Paragraph 1.
(a) If the disbursement is to be made to the Sellers, the Buyer
shall deposit into the escrow account the amount of the disbursement
and the Escrow Agent shall release to the Sellers from the Escrow
Fund the full amount of the disbursement;
(b) If the disbursement is to be made to the Buyer and exceeds
$2,500,000 the Escrow Agent shall release to Buyer from the Escrow
Fund the full amount of the disbursement and the Sellers shall
deposit into the escrow account the amount by which the disbursement
exceeds $2,500,000;
(c) If the disbursement is to be made to the Buyer and is less than
$2,500,000, the Escrow Agent shall release to Buyer from the Escrow
Fund the full amount of the disbursement and the Sellers need not
then deposit any additional amount into the escrow account; and
(d) If the calculation contained in Section 3.3.5 of the Purchase
Agreement does not result in a payment to be made by either Buyer or
Sellers, no disbursement will be made from the Escrow Fund pursuant
to the Post-Closing Adjustment.
2. Subject to the provisions of Section 4, upon completion of the
Final Adjustment contemplated by Section 3.3.6 of the Purchase
Agreement, each of the parties hereto agrees that it shall
deposit money into, and/or execute a joint letter of
instruction for submission to the Escrow Agent instructing the
Escrow Agent to distribute money from, the Escrow Fund, in
accordance with the provisions of and calculations contained
in this Paragraph 2.
(a) If the disbursement is to be made to the Sellers, the Buyer
shall deposit into the escrow account the amount of the disbursement
and the Escrow Agent shall release to the Sellers from the Escrow
Fund the full
2
121
amount of the disbursement plus the resulting amount by which the
then-current Escrow Fund exceeds $5,000,000;
(b) If the disbursement is to be made to the Buyer and exceeds the
amount by which the then-current Escrow Fund exceeds $5,000,000, the
Escrow Agent shall release to the Buyer from the Escrow Fund the
full amount of the disbursement and the Sellers shall deposit into
the escrow account the amount of such excess;
(c) If the disbursement is to be made to the Buyer and is less than
the amount by which the then-current Escrow Fund exceeds $5,000,000,
the Escrow Agent shall release the full amount of the disbursement
to the Buyer from the Escrow Fund and shall release to the Sellers
from the Escrow Fund the resulting amount by which the Escrow Fund
exceeds $5,000,000, calculated after giving effect to the
aforementioned release to Buyer in accordance with this clause 2(c);
(d) If there is no disbursement to be made pursuant to the Final
Adjustment, the Escrow Agent shall release to the Sellers from the
Escrow Fund the amount by which the then-current balance of the
Escrow Fund exceeds $5,000,000.
3. Notwithstanding the foregoing, if any claim for
indemnification is made from the date of this Agreement until
the date of the disbursement described in Paragraph 2 above,
nothing will be distributed to Sellers from the Escrow Fund
without the agreement of all of the parties hereto and joint
written instructions executed by all of the parties hereto and
sent to the Escrow Agent.
4. When calculating the amount of the Escrow Fund for purposes of
this Agreement, any amounts deposited into or maintained in
the Escrow Fund pursuant to the OddzOn Letter Agreement shall
be excluded from the amount deemed to be in the Escrow Fund.
5. On the third anniversary date of the Purchase Agreement each
of the parties hereto agrees to
3
122
execute a joint letter of instruction for submission to the
Escrow Agent instructing the Escrow Agent to distribute to
Sellers all amounts then in the Escrow Fund except for (i) any
amounts as to which a timely claim for indemnification has
been made by Buyer pursuant to the Purchase Agreement, (ii)
any amounts deposited into the Escrow Fund pursuant to the
OddzOn Letter Agreement which remain in the Escrow Fund as of
such anniversary, which amounts shall be released only in
accordance with the provisions of the OddzOn Letter Agreement
and the Escrow Agreement and (iii) any amounts as to which
notice of Losses has been provided or deemed to have been
provided to Sellers and Russ pursuant to that certain
Agreement of even date herewith relating to the Bubble Gum
Tape Dispenser.
6. Any term capitalized in this Agreement and not otherwise
defined herein shall have the meaning ascribed thereto in the
Purchase Agreement.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
4
123
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
ODDZON/CAP TOYS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
HASBRO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
CAP TOYS, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
ODDZON PRODUCTS, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: President
5
124
EXHIBIT G
AGREEMENT
This AGREEMENT, dated as of May 2, 1997, by and among CAP TOYS,
INC., an Ohio corporation ("CAP"), ODDZON PRODUCTS, INC., a California
corporation ("OddzOn") (CAP and OddzOn shall be collectively referred to herein
as "Sellers"), ▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC., a New Jersey corporation ("▇▇▇▇"),
ODDZON/CAP TOYS, INC., a Delaware corporation formerly known as HIAC VIII CORP.
("Buyer") and HASBRO, INC., a Rhode Island corporation ("Hasbro").
WHEREAS, OddzOn, formerly known as RBCACQ, Inc., old Oddzon
Products, Inc. ("Old OddzOn"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ Button entered into an
Asset Purchase Agreement dated September 30, 1994 (the "Old Purchase
Agreement");
WHEREAS, pursuant to Section 3(e) of the Old Purchase Agreement,
OddzOn is required to make certain earnout payments to Old Oddzon in accordance
with the terms of such Section (the "Earnout");
WHEREAS, the parties hereto are entering into an Asset Purchase
Agreement of even date herewith (the "Purchase Agreement") pursuant to which the
Sellers are selling to Buyer substantially all of their respective assets and
Buyer is assuming certain Assumed Liabilities, which Assumed Liabilities do not
include any liabilities under the Old Purchase Agreement;
WHEREAS, OddzOn has certain continuing obligations under the Old
Purchase Agreement and Buyer is unwilling to complete the Purchase Agreement
without the execution and delivery of this Agreement by Sellers and ▇▇▇▇;
WHEREAS, terms which are capitalized and not otherwise defined
herein shall have the meaning ascribed thereto in the Purchase Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. At the Closing, One Million Three Hundred Thousand Dollars
($1,300,000) of the Purchase Price will be deposited by Buyer
or Hasbro into an escrow account to be held and distributed in
125
accordance with this Agreement and that certain Escrow
Agreement of even date herewith by and among ▇▇▇▇▇▇▇, ▇▇▇▇,
Buyer, Hasbro and Citibank, N.A., as escrow agent, such
amount, in addition to the remainder of the Escrow Fund, shall
secure Sellers and ▇▇▇▇' indemnification obligations to Buyer
and Hasbro pursuant to the terms of this Agreement.
2. In addition to any indemnification obligations of Sellers and
▇▇▇▇ to Buyer and Hasbro pursuant to Article 15 of the
Purchase Agreement, each Seller and ▇▇▇▇ hereby, jointly and
severally, and without any restrictions as to minimum or
maximum indemnification obligations, agrees to indemnify,
defend and hold harmless the Buyer Group from and against any
and all Losses based upon, arising out of or otherwise in
respect of the Old Purchase Agreement, including without
limitation the Earnout, including, but not limited to, (i) any
time expended by a member of the Buyer Group in connection
with any indemnifiable event hereunder (an "Event") at a rate
of One Hundred and Seventy Five Dollars ($175.00) per hour,
and (ii) in accordance with the provisions of Paragraph 3
below, any costs, fees and expenses (including reasonable
attorneys' fees) incurred by a member of the Buyer Group in
connection with the defense, settlement or other resolution by
OddzOn of any such Event, whether disclosed or undisclosed
(collectively, the "Earnout Losses").
3. Sellers and/or ▇▇▇▇ shall assume the defense of any Event
which may lead to an indemnifiable obligation hereunder. Once
the Sellers and/or ▇▇▇▇ assume the defense of such Event they
shall have no obligation for attorneys' fees subsequently
incurred by the Buyer or Hasbro unless (i) the named parties
include (x) Buyer and/or Hasbro and (y) Sellers and/or ▇▇▇▇,
and Buyer and/or Hasbro shall have been advised by counsel
that there may be one or more legal defenses available to it
which are different from or additional to those available to
the Sellers
2
126
and/or ▇▇▇▇ such that representation by the same counsel would
represent a conflict of interest under the appropriate
professional standards (such defenses to be referred to herein
as "Additional Defenses"), or (ii) the defense of such Event
is later abandoned by Sellers and ▇▇▇▇. In any event, Buyer
and/or Hasbro shall have the right at its own expense to
participate in the defense of such Event after the defense is
assumed by Sellers and/or Russ. Under no circumstances shall
the Buyer and/or Hasbro settle any Event for which it is
seeking indemnification hereunder without the written consent
of the Sellers and/or ▇▇▇▇ which consent shall not be
unreasonably withheld. If the Sellers and/or ▇▇▇▇ assume the
defense of an Event, no compromise or settlement of such
claims may be effected by Sellers and/or Russ without the
Buyer's and/or Hasbro's consent unless (i) there is no finding
or admission of any violation of any law, agreement or other
duty, (ii) the sole relief provided is monetary damages that
are paid in full by the Sellers and/or ▇▇▇▇, and (iii) there
are no obligations whatsoever on the part of Hasbro or Buyer
or any other affiliate of Hasbro to do or provide anything. In
the event (i) neither Seller nor Russ assumes the defense of
an Event, (ii) the defense of an Event is later abandoned by
Sellers and ▇▇▇▇, or (iii) there are Additional Defenses,
Sellers and ▇▇▇▇ shall make an additional deposit into the
Escrow Fund in an amount sufficient to indemnify the Buyer
Group for any Earnout Losses any member of the Buyer Group may
incur in connection with defending against liability for such
Event.
4. Each of Buyer and Hasbro agrees that it will cooperate with
▇▇▇▇, as ▇▇▇▇ may reasonably request, in dealing with any
Event that may arise with respect to the Old Purchase
Agreement, including, without limitation, the Earnout. ▇▇▇▇
shall bear all costs and expenses incurred by Buyer and Hasbro
in connection with the performance of their obligations under
this Section in accordance with Section 2.
3
127
5. Upon any member of the Buyer Group incurring any Earnout
Losses and providing notice thereof to Sellers and ▇▇▇▇ in
accordance with Section 19.2 of the Purchase Agreement, each
of the parties hereto agrees that it shall, unless such
Earnout Losses are disputed by Sellers or Russ in good faith,
execute a joint letter of instruction for submission to the
Escrow Agent instructing the Escrow Agent to distribute money
from the Escrow Fund in accordance with the provisions of such
joint letter of instruction.
6. Promptly upon receipt by Buyer and Hasbro of evidence
reasonably satisfactory to Buyer and Hasbro that all of
OddzOn's and ▇▇▇▇' obligations under the Old Purchase
Agreement have been fully satisfied or discharged and that
there are no obligations whatsoever on the part of Hasbro,
Buyer or any other affiliate of Hasbro, to do or provide
anything, each of the parties hereto agrees to execute a joint
letter of instruction for submission to the Escrow Agent
instructing the Escrow Agent to distribute to Sellers any
portion of the Escrow Fund deposited pursuant to this
Agreement which then remains in the Escrow Fund.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
4
128
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
ODDZON/CAP TOYS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
HASBRO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice Chairman
CAP TOYS, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
ODDZON PRODUCTS, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President
▇▇▇▇ ▇▇▇▇▇▇ AND COMPANY, INC.
By: /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇
Title: President
5
129
EXHIBIT N
SERVICE AGREEMENT
This SERVICE AGREEMENT, dated as of May 2, 1997, between ODDZON/CAP
TOYS, INC., a Delaware corporation formerly known as HIAC VIII Corp. ("Buyer"),
HASBRO, INC., a Rhode Island corporation ("Hasbro"), TRI ▇▇▇▇ INTERNATIONAL
(HONG KONG) LIMITED, a Hong Kong corporation ("Tri ▇▇▇▇"), and ▇▇▇▇ ▇▇▇▇▇▇ AND
COMPANY, INC., a New Jersey corporation ("▇▇▇▇").
WHEREAS, Tri ▇▇▇▇ currently provides certain services to OddzOn
Products, Inc., a California corporation ("OddzOn"), and Cap Toys, Inc., an Ohio
corporation ("CAP"), as their agent for all matters concerning the purchase of
goods and merchandise in Hong Kong and other Far East countries;
WHEREAS, Tri ▇▇▇▇, OddzOn and CAP are wholly-owned subsidiaries of
▇▇▇▇;
WHEREAS, Buyer, CAP, OddzOn, ▇▇▇▇ and Hasbro, are entering into an
Asset Purchase Agreement of even date herewith pursuant to which CAP and OddzOn
will sell all or substantially all of their operating assets to Buyer (the
"Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, Tri ▇▇▇▇ shall provide
certain services to Buyer as set forth in this Service Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
agreements hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Nature of Services.
a. During the term of this Agreement Tri ▇▇▇▇ shall
provide, and ▇▇▇▇ shall cause Tri ▇▇▇▇ to provide, to
Buyer the services set forth on Exhibit A attached
hereto unless otherwise mutually agreed to by the
parties hereto (the "Services").
130
b. The parties hereto understand and agree that the
Services, other than production and engineering
services, are provided by departments of Tri ▇▇▇▇ that
also provide services to Tri ▇▇▇▇, ▇▇▇▇ and/or other
affiliates of ▇▇▇▇ (such services, other than production
and engineering services, shall be referred to as the
"Non-Dedicated Services") and the parties further agree
that the percentage of each department of Tri ▇▇▇▇
allocated to providing such Non-Dedicated Services to
Buyer is as set forth on Exhibit A (the "Allocation"),
which Allocation is determined in accordance with the
methodology set forth on Exhibit B (the "Methodology").
The parties agree that the Methodology shall remain
substantially unchanged throughout the term of this
Agreement unless otherwise mutually agreed to by the
parties hereto.
2. Term. This Agreement shall commence on the date hereof and
shall continue through September 30, 1997 unless earlier
terminated in accordance with this Agreement.
3. Reimbursement of Expenses. In exchange for the Services, Buyer
shall reimburse Tri ▇▇▇▇ on a monthly basis and within 15
business days after presentation of an invoice therefor in
accordance with Section 4 for the following costs and
expenses:
a. Tri ▇▇▇▇' actual payments of rent and other expenses
under the lease (the "Lease") between Tri ▇▇▇▇ and Union
Bank of Hong Kong Limited, dated January 1, 1995, for
▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ Nos. ▇-▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ (the "Premises");
b. Tri ▇▇▇▇' expenses incurred in connection with the
employment of certain individuals who are employees of
Tri ▇▇▇▇, ▇▇▇▇ or an affiliate of ▇▇▇▇ and are employed
2
131
in Hong Kong or China and identified on Exhibit C hereto
which Schedule shall be identical to Schedule 9.1 of the
Purchase Agreement (the "Employees") and any replacement
employees and additional new employees, in each case
approved by Buyer, at their current salaries and with
their current benefits, such reimbursement to include
Taxes, if any, paid by Tri ▇▇▇▇, ▇▇▇▇ or such affiliate
of ▇▇▇▇ in connection with such expenses;
c. Tri ▇▇▇▇' other actual costs of providing to Buyer the
Services, which costs shall be allocated to Buyer based
on the Methodology; and
d. Payments made by Tri ▇▇▇▇ on behalf of Buyer for
component parts, molds and tooling and inventory and
paid pursuant to specific purchase requests made by
Buyer.
4. Invoices. All invoices relating to the CAP division of Buyer
shall be sent by Russ or Tri ▇▇▇▇ to the CAP Toys division of
Buyer at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ or
to such other address as Buyer or Hasbro may indicate in
writing and all invoices relating to the OddzOn division of
Buyer shall be sent by ▇▇▇▇ or Tri ▇▇▇▇ to the OddzOn division
of Buyer at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ or to such other address as Buyer or Hasbro may indicate
in writing. Copies of all invoices shall be sent to Mr.
▇▇▇▇▇▇▇ ▇▇▇▇ at Hasbro, Inc., ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. All invoices shall set
forth amounts due in U.S. Dollars.
5. Offer of Employment. Unless otherwise mutually agreed to by
the parties hereto, on or before the expiration or termination
of this Agreement Buyer or an affiliate of Buyer shall offer
to hire all of the Employees still employed as described in
Section 3(b) at such time (except
3
132
as provided in Section 13(c) hereof), at no less than their
then existing salaries and with benefits that are similar to
those then received by such Employees. Buyer shall reimburse
Tri ▇▇▇▇ for all expenses, if any, related to the termination
of any Employee who is terminated by Tri ▇▇▇▇ at Buyer's or
Hasbro's request.
6. Letters of Credit. Tri ▇▇▇▇ hereby agrees that, at no
additional cost to Buyer or Hasbro, it shall collect on
Buyer's behalf on any letters of credit in favor of Tri ▇▇▇▇
as of the date of this Agreement which relate to products to
be shipped by or on behalf of Buyer subsequent to the date
hereof, and shall remit all amounts so collected to Buyer
within five business days of receipt thereof. Attached hereto
as Exhibit D is a list of such letters of credit as of May 1,
1997.
7. Representations and Warranties of Tri ▇▇▇▇ and Russ. Each of
Tri ▇▇▇▇ and ▇▇▇▇ hereby represent and warrant to Buyer as
follows:
a. Tri ▇▇▇▇ is not in default nor does any breach by Tri
▇▇▇▇ exist under the Lease, nor has any event occurred
which, with the giving of notice or the lapse of time or
both, would constitute a default by Tri ▇▇▇▇ under the
Lease, nor has Tri ▇▇▇▇ received any notices concerning
any of the foregoing, other than those defaults which
would not, individually or in the aggregate, have a
material adverse effect on Tri Russ's ability to provide
the Services contemplated herein. To Tri ▇▇▇▇' and ▇▇▇▇'
knowledge, the landlord has not committed any event of
default under the Lease, and no event has occurred which
with the passage of time or the giving of notice or both
would result in the occurrence of such an event of
default. Tri ▇▇▇▇ has complied in all material respects
with the provisions of the Lease and no waiver or
indulgence has been granted by either Tri ▇▇▇▇ or the
landlord thereunder.
4
133
b. There is neither pending, nor is Tri ▇▇▇▇ or Russ aware
of, any threatened condemnation, eminent domain or
similar or comparable proceeding with respect to the
Premises which would have a material adverse effect on
the ability of Tri ▇▇▇▇ to provide the Services
contemplated herein.
c. The activities which have been conducted by Tri ▇▇▇▇ on
the Premises and to the best of ▇▇▇▇' and Tri ▇▇▇▇'
knowledge, the Premises, comply in all material respect
with all applicable Laws.
8. Covenants. Between the date hereof and the termination of this
Agreement, Tri ▇▇▇▇ and Russ agree not to do any of the
following without the prior written consent of Buyer:
a. Other than consistent with reasonably efficient and
economical management or in the exercise of reasonable
business judgment, consistent with past practices,
terminate the services of any present employee or
supplier, manufacturer, or other agent or representative
of Tri ▇▇▇▇ or Russ that assists in or enables Tri ▇▇▇▇
to provide the Services contemplated herein, or damage
in any way the business relationship with any such
person.
b. With respect to any Employee who is fully devoted to
providing the Services, make any change in the rate of
compensation, commission, bonus or other direct or
indirect remuneration payable or to become payable to
any employee of Tri ▇▇▇▇ or Russ that assists in or
enables Tri ▇▇▇▇ to provide the Services contemplated
herein for which Buyer is required to reimburse Tri ▇▇▇▇
pursuant to Section 3 hereof, or agree or orally promise
to pay, conditionally or otherwise, any bonus, extra
compensation, extra vacation pay
5
134
or other employee benefit, to any such
employee; or
c. Amend in any material respect, extend or terminate the
Lease.
9. Right of Inspection. Buyer shall have access, during regular
business hours and upon reasonable prior notice to Tri ▇▇▇▇,
to the books and records of Tri ▇▇▇▇, ▇▇▇▇ and/or any other
affiliate of ▇▇▇▇ as such books and records relate to the
Allocation, the Methodology and the costs of providing the
Services; provided, however, that access to such books and
records shall not unreasonably interfere with the normal
operation of Tri ▇▇▇▇, ▇▇▇▇ or such other affiliate of ▇▇▇▇,
as the case may be, and the information obtained by Buyer
relating to the business or affairs of ▇▇▇▇, Tri ▇▇▇▇ or any
affiliate shall be kept confidential by Buyer except as
related to receiving the Services.
10. Title to Goods. In connection with the purchase or manufacture
of products through Tri ▇▇▇▇ pursuant to this Agreement, title
to such merchandise shall pass to Buyer from the manufacturer,
under terms of purchase from the manufacturer. Tri ▇▇▇▇ shall
never take title to such merchandise. In the event that the
merchandise is damaged or lost after title passes, the risk of
loss shall be on Buyer. All purchase orders for products shall
be executed by Buyer.
11. Insurance. Tri ▇▇▇▇ shall be responsible for obtaining
adequate insurance covering the Premises and the Employees and
Buyer shall reimburse Tri ▇▇▇▇ for the reasonable costs
relating thereto in accordance with Section 3 above.
6
135
12. Termination. a. Buyer shall be entitled to terminate this
Agreement upon the occurrence of any of the following events:
(1) Tri ▇▇▇▇ commits a fraudulent act or acts in the
nature of fraud on Buyer and/or Hasbro;
(2) Tri ▇▇▇▇ makes any knowing material
misrepresentation in its dealings with Buyer
and/or Hasbro;
(3) The commencement of the liquidation of Tri ▇▇▇▇;
(4) The breach by Tri ▇▇▇▇ of any of the material
terms of this Agreement and Tri ▇▇▇▇ has failed to
correct such breach within 30 days of receipt of
notice from Buyer or Hasbro of such breach; or
(5) Termination of the Lease.
b. Tri ▇▇▇▇ and/or ▇▇▇▇ shall be entitled to terminate this
Agreement upon the occurrence of any of the following
events:
(1) Buyer or Hasbro commits a fraudulent act or acts
in the nature of fraud on Tri ▇▇▇▇ and/or Russ;
(2) The breach by Buyer of any of the material terms
of this Agreement and Buyer has failed to correct
such breach within 30 days of receipt of notice
from Tri ▇▇▇▇ and/or ▇▇▇▇ of such breach; or
(3) The failure by Buyer and Hasbro to pay any
amount(s) due hereunder within 10 business days
after receipt of notice by Buyer and Hasbro of
such failure.
7
136
13. Effect of Termination. a. Upon termination of this Agreement
in accordance with the provisions of Article 12 hereof, Tri
▇▇▇▇ shall:
(1) deliver to Buyer all records and documentation or
copies thereof regarding the Services rendered by
Tri ▇▇▇▇ on behalf of Buyer pursuant to the terms
of this Agreement; and
(2) Cooperate in all respects with Buyer in concluding
all matters between the parties under the terms of
this Agreement.
b. Upon termination of this Agreement by Tri ▇▇▇▇ and/or
▇▇▇▇ in accordance with the provisions of Section 12(b)
hereof, Buyer shall:
(1) Pay to Tri ▇▇▇▇ and/or ▇▇▇▇ all payments of rent
and other expenses (as required under the Lease)
through the end of the Lease term; and
(2) Reimburse Tri ▇▇▇▇ for any and all amounts due
under Section 3 of this Agreement which were
incurred by Tri ▇▇▇▇ prior to the date of such
termination.
c. Upon termination of this Agreement in accordance with
Article 12 hereof, Buyer shall comply with the
provisions of Section 5 of this Agreement; provided,
however, that Buyer shall not be required to hire any
employee engaged in any activity described in Section
12(a)(1), (2) or (4) hereof.
14. Independent Contractor. The parties hereto acknowledge that
Tri ▇▇▇▇ is entering into this Agreement as an independent
contractor and that this Agreement does not create and shall
not be
8
137
construed to create a relationship of principal and agent,
joint venturers, co-partners, employer and employee, master
and servant or any similar relationship between Tri ▇▇▇▇ and
Buyer, any of the officers or directors of Tri ▇▇▇▇ and Buyer
and, unless and until Employees are hired by Buyer pursuant to
Section 5 hereof, the Employees of Tri ▇▇▇▇ and Buyer.
15. Notice. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall
be delivered by hand or sent by telecopy, or sent, postage
prepaid, by registered or certified mail, or reputable courier
service and shall be deemed given when so delivered by hand,
or telecopied, or if mailed, fourteen days after mailing (five
business days in the case of courier service) as follows:
If to Buyer:
OddzOn/Cap Toys, Inc.
c/o Hasbro, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice Chairman
9
138
with copies to:
Hasbro, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Senior Vice President-Corporate Legal
Affairs and Secretary
▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Richard Crystal, Esq.
If to Hasbro:
OddzOn/Cap Toys, Inc.
c/o Hasbro, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice Chairman
with copies to:
Hasbro, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Senior Vice President-Corporate Legal
Affairs and Secretary
▇▇▇▇▇▇▇ Breed ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Richard Crystal, Esq.
10
139
If to Tri ▇▇▇▇:
Tri ▇▇▇▇ International (Hong Kong) Limited
5F & ▇▇, ▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ Nos. ▇-▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇
with copies to:
▇▇▇▇ ▇▇▇▇▇▇ and Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇
Attention: President
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Spitzer
90 Woodbridge Center Drive
Suite 900 Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (908) 855-6117
Attention: Myron Rosner, Esq.
If to Russ:
Russ Berrie and Company, Inc.
111 Bauer Drive
Oakland, New Jersey 07436
Facsimile No.: (201)337-0358
Attention: President
with copies to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Facsimile No.: (212) 836-8689
11
140
Attention: Joel Greenberg, Esq.
Wilentz Goldman & Spitzer
90 Woodbridge Center Drive
Suite 900 Box 10
Woodbridge, New Jersey 07095-0958
Facsimile No.: (908) 855-6117
Attention: Myron Rosner, Esq.
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 13 by any party hereto to the other
parties hereto.
16. Assignment. Other than with respect to functions historically
performed for Tri Russ by third parties for all of Tri Russ'
business in Hong Kong, Tri Russ shall not appoint any subagent
to carry out any duty historically performed by the employees
who assist in or enable Tri Russ to provide the Services to
Buyer hereunder without the prior written consent of Buyer.
Buyer may assign any of its rights and obligations hereunder
to any of its affiliates or subsidiaries, but such assignment
shall not relieve Buyer of its obligations hereunder or affect
the guaranty of Hasbro hereunder.
17. Entire Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with respect to the
subject matter hereof and supersedes any and all prior
agreements between the parties hereto and may not be modified
except in writing and executed by duly authorized officers of
the parties.
18. Waiver of Breach. The waiver by either party of any breach of
any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
12
141
19. Defined Terms. Terms which are capitalized and not otherwise
defined herein shall have the meaning ascribed thereto in the
Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
TRI RUSS (HONG KONG) LIMITED
/s/ A. Curts Cooke
By:__________________________
Name: A. Curts Cooke
Title: Vice President
RUSS BERRIE AND COMPANY, INC.
/s/ A. Curts Cooke
By:__________________________
Name: A. Curts Cooke
Title: President
ODDZON/CAP TOYS, INC.
/s/ Harold P. Gordon
By:__________________________
Name: Harold P. Gordon
Title: Executive Vice President
The undersigned hereby guarantees the payment and performance of the obligations
when due of Buyer under this Agreement. This guaranty shall not be impaired by,
and the undersigned hereby consents to, any modification, supplement, extension
or amendment of this Agreement to which the parties hereto may hereafter agree.
HASBRO, INC.
/s/ Harold P. Gordon
By:_________________________
Name: Harold P. Gordon
Title: Vice Chairman
13
142
EXHIBIT A
RUSS BERRIE AND COMPANY, INC.
HONG KONG COSTS
1997 BUDGET
1997 ANNUAL BUDGET
-----------------------------------------------
CAP TOYS ODDZON RUSS BERRIE TOTAL
-------- ------ ----------- -----
DIRECT EXPENSES:
Production .................. $342,000 $117,000 $ 0 $459,000
Engineering ................. 560,000 234,000 0 794,000
ALLOCATED EXPENSES:
Accounting .................. 132,000 45,000 282,000 459,000
Administration .............. 77,000 26,000 135,000 238,000
MIS ......................... 81,000 31,000 204,000 316,000
Shipping .................... 101,000 34,000 176,000 311,000
Production - China .......... 67,000 44,000 122,000 233,000
Sales ....................... 286,000 0 690,000 976,000
Q.A.C. ...................... 159,000 243,000 0 402,000
Product Development ......... 251,000 161,000 1,535,000 1,947,000
---------- -------- ---------- ----------
TOTAL ...................... $2,056,000 $935,000 $3,144,000 $6,135,000
% of Total ................. 33.5% 15.2% 51.2% 100.0%
========== ======== ========== ==========
Less: Subsequent charge to
Russ Berrie
Q.A.C. (34,000) (41,000) 75,000 0
---------- -------- ---------- ----------
$2,022,000 $894,000 $3,219,000 $6,135,000
33.0% 14.6% 52.5% 100.0%
========== ======== ========== ==========
14
143
EXHIBIT B
RUSS BERRIE AND COMPANY, INC.
BASIS FOR ALLOCATIONS OF HONG KONG COSTS
TO CAP TOYS AND ODDZON PRODUCTS
DIRECT EXPENSES:
----------------
Production Based on actual expenses incurred.
Engineering Based on actual expenses incurred.
ALLOCATED EXPENSES:
-------------------
Accounting \ Based on a blended prorated amount of the appropriate
Administration \ departmental transaction volume and the F.O.B. shipment
MIS / dollar value.
Shipping /
Production - China Based on peoplecount, whereby an analysis of each
person's time is used to determine the proportion of
work performed with respect to Cap and/or OddzOn, and
then a percentage of their time is used for allocation.
For 1997, 6 and 2 equivalent people have been allocated
to Cap and OddzOn, respectively, out of a total of 19.
Sales Based on peoplecount, as per above. For 1997, 6
equivalent people have been allocated to Cap out of a
total of 18.
Q.A.C. This department is a Cap/OddzOn dedicated department.
Based on actual expenses incurred, then allocated
between Cap and OddzOn based on proportion of staff's
time used performing work for the respective companies.
For 1997, 4 and 4 equivalent people have been allocated
to Cap and OddzOn, respectively. Additionally, an
allocation of approximately 20% is made to Russ Berrie.
Product Development Based on peoplecount, as per above. For 1997, 4 and 2
equivalent people have been allocated to Cap and OddzOn,
respectively. (Includes 70% of Henry Chan and his
expenses).
15
144
EXHIBIT C
FAR EAST EMPLOYEES
Annualized
Department/Name Position Salary (HK$) MIP (HK$)
-------------------------- ------------------------------------ ------------ ----------
CAP ENGINEERING
Yen Wing Choi Senior Manager - PD 593,600 59,120
Fung Kin On (Cliff) Project Manager 413,000 16,388
Cheung Wai Kei (Ricky) Project Manager 435,400 17,280
Ma Heung Wing (Daniel) Assistant Project Manager 383,600
Kwan Chi Kwong (Andy) Assistant Project Manager 296,800
Chan Oi Chu (Iris) Secretary 170,800
ODDZON ENGINEERING
Cheng Kam Hung (Eddie) Senior Product Manager 494,200 19,680
Lee Wai Man (Raymond) Assistant Project Manager 355,600
Tsang Wing Mui (Michelle) Secretary 204,400
CAP PRODUCTION
Choi King Yee (Stephen) Senior Production Manager 589,400 58,710
Suen Kwok Cheung (Simon) Senior Manager 568,400 22,616
Ha Pik Kwan (Clara) Senior Production Planner 250,600
Chan Ka Kei (Maggie) Production Planner 183,400
Leung Wang Ling (Winnie) Production Planner 208,600
Lam Mei Sza (Cassie) Secretary 148,400
ODDZON PRODUCTION
Tse Wai Ling (Winnie) Assistant Manager 315,000
Cheng Chi Yui (Arthur) Assistant Production Manager 317,800
CAP/ODDZON - Q.A.C. (QUALITY ASSURANCE & CONTROL)
Lau Shu Tak Supervisor 239,400
Chan Hau Yi (Judy) Junior Secretary 168,000
Wong Chi Kit (Vincent) QA Manager 424,200 16,892
Chan Chi Keung (Jacky) Asst. Mgr. - QA&C 298,200
Shiu Wai Kwong (Raymond) Q.C. Supervisor 235,200
Tse Ho Yin QAC Technician 126,000
Lau Wah QAC Technician 95,200
16
145
EXHIBIT D
LIST OF LETTERS OF CREDIT
AT 5/1/97 CAP TOYS - TRI-RUSS
TRI-RUSS XLS
ACCOUNT DETAIL ATTACHED ACCOUNT TRI-RUSS SERVICE AGREEMENT
OPEN ORIENT L/CS AS AGENT TO EXERCISE THESE L/CS.
$ 63,450.00 TARGET GAMES AB SWEDEN
$ 36,075.84 JKH TOYS AUSTRALIA
$ 95,100.00 JKH TOYS AUSTRALIA
$ 73,051.68 JKH TOYS AUSTRALIA
$ 165,778.80 TREGER TOYS SOUTH AFRICA
$ 29,160.00 TREGER TOYS SOUTH AFRICA
$ 34,819.20 BABLAND S.A. GREECE
$ 207,809.00 CRONER-TYCO TOYS AUSTRALIA
$ 81,897.10 TYCO TOYZ NEW ZEALAND
$ 64,800.00 FAMOSA SPAIN
$ 39,390.24 TARGET STORES USA
$ 24,870.00 JACK ECKERD DRUG USA
$ 211,900.00 TOY OPTION LTD UK
$ 68,468.40 HAPPINET/HEARTY ROBIN CORP JAPAN
$ 49,530.00 LINEA GIG SPA ITALY
$ 23,719.20 SPENCER GIFT USA
$ 11,644.00 PROCOHFA SA PERU
$ 43,374.48 HASBRO CHILE LTD CHLE
$ 11,436.00 SOC DE REPRESENTACOES PORTUGAL
$ 20,470.00 YLF MARKETING SINGAPORE
$ 10,800.00 REGAL CONFECTION UK
$ 40,807.20 CONTINENTAL SWEETS UK USA
$ 17,760.00 SHOPKO, USA
$ 28,488.50 SHOPKO, USA
-------------
$1,462.599.74
TRI-RUSS/CAP TOY OPEN ORDERS AT 5/1/97 PURCHASED ASSET
$ 24,870.00 JACK ECKERD DRUG 2 2 1 (d)
$ 10,350.00 B & S COMPANY
$ 40,807.20 CONTINENTAL SWEETS
$ 28,750.00 CRONER-TYCO PTY LTD
$ 64,800.00 FAHGSA
$ 39,600.00 FUN PROMOTIONS C/O BART SMIT
$1,343,437.50 GIOCHI PREZIOSA SPA
$ 19,200.00 HASBRO CHILE LTD
$ 22,267.50 HASBRO CHILE LTD
$ 66,468.40 HAPPINET/HEARTY ROBIN CORP
$ 12,970.20 CHARLES BOHBOT LTD
$ 7,560.00 CHARLES BOHBOT LTD
$ 126,223.88 JKN TOYS
$ 42,000.00 JKH TOYS
$ 92,931.60 ▇▇▇.▇▇ REP CONCENTRA LDA
$ 9,672.00 ▇▇▇.▇▇ REP CONCENTRA LDA
$ 64,677.60 PRIMO/BABYLAND SA
$ 11,664.00 PROCOMFA SA
$ 98,232.00 PLAYTHINGS PRIVATE LTD
$ 10,000.00 REGAL CONFECTIONS INC
$ 45,248.60 SHOPKO STORES
$ 340,800.00 MAIN EVENT TOYS INC.
$ 418,229.00 THE MARKETING GROUP EUROPE A/S
$ 16,763.40 THE MARKETING GROUP EUROPE A/S
$ 492,422.48 TOY OPTIONS LTD.
$ 194,938.80 TREGER TOYS
$ 81,897.10 TYCO TOYS NEW ZEALAND LTD.
$ 1,963.80 WARNER BROS. MOVIE WORLD GMBH
$ 17,890.00 YLF MARKETING PIS LTD
-------------
$3,749,665.16
17