SALE AND PURCHASE AGREEMENT
between
MATTEL, INC.
and
ALEC E. GORES, TRUSTEE OF THE REVOCABLE LIVING
TRUST AGREEMENT OF ALEC E. GORES,
and
GTG/WIZARD, LLC
___________________
Dated as of September 28, 2000
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II PURCHASE AND SALE; THE CLOSING 8
2.1. Purchase and Sale 8
2.2. Closing 8
2.3 Retention of Books and Records 8
2.4 Fair-Market Value 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MATTEL 9
3.1 Organization and Qualification 9
3.2 Authorization; Validity and Effect of
Agreement 9
3.3. Capitalization 9
3.4 Subsidiaries 10
3.5 Other Interests 10
3.6 No Conflict; Required Filings and
Consents 10
3.7 Compliance 11
3.8 Product Liability 11
3.9 Insurance 11
3.10 Litigation 11
3.11 Taxes 12
3.12 Employee Benefit Plans 12
3.13 Assets 13
3.14 Material Contracts 14
3.15 Labor Relations 15
3.16 Intellectual Property 15
3.17 Environmental Matters 16
3.18 Financial Statements 17
3.19 Brokers 17
3.20 Changes Since August 31, 2000 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND AEG 18
4.1 Corporate Organization 18
4.2 Authorization; Validity and Effect of
Agreement 18
4.3 No Conflict; Required Filings and
Consents 18
4.4. Broker's Fees 19
4.5. Acquisition of TLC Shares and LLC
Interests for Investment; Ability to
Evaluate and Bear Risk 19
4.6 Investigation; No Additional
Representations and Warranties 19
4.7 Litigation 20
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4.8 Available Funds 20
4.9 Knowledge Regarding Representations;
Satisfaction of Conditions 20
ARTICLE V CERTAIN COVENANTS 20
5.1 Further Assurances 20
5.2 Employees 21
5.3 D&O Indemnification 22
5.4 Intercompany Relationships; Accounts 23
5.5. No Restrictions on Future Operation 23
5.6 [Intentionally Omitted.] 23
5.7 Certain Consents 23
5.8 Excluded Assets 24
5.9 Certain Obligations 24
5.10 Mattel Name 25
5.11 AEG Capital Commitment 25
5.12 Best Efforts 26
5.13 Public Announcements; Confidentiality 26
5.14 Organization Documents 26
5.15 Access to Information 26
5.16 Conduct of the Business 26
5.17 Cooperation Concerning Insurance 27
ARTICLE VI TAX MATTERS 27
6.1 Tax Treatment 27
6.2 Cooperation and Exchange of Information 28
6.3 Tax Sharing Agreements 29
6.4 Timing Differences 29
6.5 Post-Closing Dispositions 29
6.6. Allocation Method 30
6.7 Definitions 30
6.8 Refunds; Allocation of Taxes; Payment of
Certain Taxes 30
ARTICLE VII PAYMENT PROVISIONS 31
7.1 Liquidity Events 31
7.2 EBITDA Target Payments 34
7.3 Long-Term Value Payouts 36
7.4 Minimum Payment 37
7.5 Sale of Company 37
ARTICLE VIIIFUTURE ACTIONS 38
8.1 Certain Transactions 38
8.2 Fair Dealing 39
8.3 AEG Control 39
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ARTICLE IX CONDITIONS TO OBLIGATIONS TO CLOSE 40
9.1 Conditions to Obligation of Each Party to
Close 40
9.2 Closing Deliveries 40
9.3 Conditions to Obligations of Mattel 40
ARTICLE X TERMINATION 41
10.1 Termination 41
10.2 Procedure and Effect of Termination 41
10.3 Certain Termination 41
ARTICLE XI INDEMNIFICATION 42
11.1 Indemnification 42
11.2 Limitations 42
11.3 Notice to the Indemnitor 42
11.4 Third Party Indemnification 42
ARTICLE XII MISCELLANEOUS 43
12.1 No Survival 43
12.2 Counterparts 43
12.3 Governing Law; Jurisdiction and Forum;
Waiver of Jury Trial 43
12.4 Entire Agreement 44
12.5 Expenses 44
12.6 Notices 44
12.7 Successors and Assigns 46
12.8 Third Party Beneficiaries 46
12.9 Headings; Definitions 46
12.10 Amendments and Waivers 46
12.11 Interpretation 47
12.12 No Right of Setoff 47
12.13 Specific Performance 47
12.14 Severability 47
12.15 Miscellaneous 47
Schedules
Schedule A - TLC Business Products
Schedule B - Mattel Media Excluded Products
Schedule C - Fair Market Value Consideration
Exhibits
Exhibit A - Form of Assumption Agreement
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SALE AND PURCHASE AGREEMENT
SALE AND PURCHASE AGREEMENT (the "Agreement"), dated as
of September 28, 2000, by and among Alec E. Gores, trustee of the
Revocable Living Trust Agreement of Alec E. Gores, a trust
organized under the laws of Michigan ("AEG"), GTG/Wizard, LLC, a
Delaware limited liability company (the "Company") and Mattel,
Inc., a Delaware corporation ("Mattel").
Recitals
WHEREAS, Mattel, through its direct and indirect
subsidiaries, is engaged in the TLC Business (as defined herein);
WHEREAS, AEG is the majority member of Wizard Holding
Company, a Delaware limited liability company ("Holdings");
WHEREAS, immediately prior hereto, Holdings has formed
the Company and is the sole member thereof;
WHEREAS, Mattel desires to sell and the Company desires
to purchase the Mattel subsidiaries conducting the TLC Business
for the consideration set forth below;
WHEREAS, AEG has agreed to cause Holdings to capitalize
the Company as set forth herein;
WHEREAS, simultaneously with the closing of the
transaction contemplated hereby, Mattel and the Company will
enter into a transition services agreement ("Transition Services
Agreement"), and a license agreement ("License Agreement"), in
each case on terms to be mutually agreed prior to such closing;
and
WHEREAS, Mattel, AEG and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with the Agreement;
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement:
"AEG Committed Capital" shall mean the committed
capital contributions described in Section 5.11, up to the
Capital Contribution Cap, that are actually made by Holdings to
the Company.
"Affiliate" shall mean, with respect to any Person, any
other Person that directly, or through one or more
intermediaries, controls or is controlled by or is under common
control with such Person; it being understood that for purposes
of this definition, any entity controlled by Alec E. Gores shall
be deemed an Affiliate of AEG and the Company.
"Assumed Debt" shall mean, in connection with a
Liquidity Event, the assumption by another Person of debt for
borrowed money of the Company or any of its Subsidiaries to any
Affiliate of any of the Company, AEG or any member of the
Company.
"Benefit Arrangement" shall mean any employment,
consulting, severance, change in control or other similar
contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for
insurance coverage (including, without limitation, any self-
insured arrangements), workers' compensation, disability
benefits, life, health, disability or accident benefits
(including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the
Code providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation other than benefits provided by Welfare Plans,
Pension Plans or Multiemployer Plans, in each case with respect
to which any of the TLC Subsidiaries has or may have any
liability (accrued, contingent or otherwise), for the benefit of,
or on behalf of, any U.S. employee of the TLC Subsidiaries.
"Business Day" shall mean any day other than Saturdays,
Sundays and days when commercial banks are authorized to be
closed in Los Angeles, California.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Consideration" shall mean Mattel's right to receive
and the Company's obligation to make the payments required to be
made to Mattel pursuant to Article VII hereof.
"Contracts" shall mean contracts, undertakings,
commitments or agreements.
"Controlled Group Liability" shall mean any and all
liabilities (i) under Title IV of ERISA, (ii) under Section 302
of ERISA, (iii) under Sections 412 and 4971 of the Code or (iv)
as a result of a failure to comply with the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of
the Code.
"Domestic Subsidiary" shall mean a Subsidiary organized
under the laws of the United States or a political subdivision
thereof.
"Environmental Laws" shall mean any foreign, federal,
state or local law, statute, ordinance, order, decree, rule or
regulation relating to releases, discharges, emissions or
disposals to air, water, land or groundwater of Hazardous
Materials; to the use, handling, transport, release, threatened
release, or disposal of polychlorinated biphenyls, asbestos or
urea formaldehyde or any other Hazardous Material; to the
treatment, storage, disposal or management of Hazardous
Materials; to exposure to toxic, hazardous or other controlled,
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prohibited or regulated substances; to health or safety in the
workplace; and to the protection of the public's health and
safety and the environment, including the CERCLA, TSCA, HMTA and
EPCRA, the Occupational, Safety and Health Act, 29 U.S.C. 651, et
seq., the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal
Water Pollution Control Act, 33 U.S.C. 1251, et seq., the Safe
Drinking Water Act, 42 U.S.C. 300f, et seq., and other comparable
foreign, state and local laws and all rules, regulations and
guidance documents promulgated pursuant thereto or published
thereunder.
"EPCRA" shall mean the Emergency Planning and Community
Right to Know Act, 42 U.S.C. 11001 et seq.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"ERISA Affiliate" shall mean any entity which is a
member of a "controlled group of corporations" with, under
"common control" with, or a member of an "affiliated service
group" with, the TLC Subsidiaries as defined in Section 414(b),
(c), (m) or (o) of the Code.
"Excess Cash Flow" for any period shall mean net
income, adjusted for changes in Working Capital, plus
depreciation and amortization, less capital expenditures,
excluding non-recurring extraordinary items (including gain or
loss realized on Liquidity Events) and less principal payments on
bank debt, in each case computed in accordance with GAAP. Any
increase in Working Capital from the prior period balance sheet
will reduce Excess Cash Flow whereas a decrease in Working
Capital will increase Excess Cash Flow.
"Excess Net Proceeds" shall mean, with respect to any
Liquidity Event, the excess, if any, of the Net Proceeds of such
Liquidity Event over the sum of the payments permitted to be made
pursuant to Section 7.1(b) with respect to such Liquidity Event.
"Excluded Liability" shall mean (i) consolidated return
Taxes for which either Mattel or TLC is the common parent, (ii)
the items set forth on Section 1 of the TLC Disclosure Schedule
and (iii) all liability for Taxes of the TLC Subsidiaries or
arising from the operation of the TLC Business for any taxable
period (or portion thereof) ending on or prior to the Closing
Date and for the pre-Closing Date portion of a taxable period
that includes but does not end on the Closing Date (all such
periods and portions, the "Pre-Closing Period") limited, in each
case, to such liability that results from a Tax Proceeding with
respect to the Pre-Closing Period and limited further, in the
case of Non-income Taxes, to such Non-income Taxes that exceed in
the aggregate $1.5 million but only to the extent of such tax
liability in excess of $1.5 million (the Taxes covered by clause
(i) or this clause (iii), the "Excluded Taxes").
"Funded Capital Commitment" shall mean, as of any date,
the portion of the AEG Committed Capital that has been used to
fund operating cash flow (as defined by GAAP) of the TLC Business
as of such date. In order to ensure that Holdings does not
receive excess proceeds from Liquidity Events as a result of
contribution of excess or unnecessary Funded Capital Commitment,
it is understood that Funded Capital Commitment does not include
any portion of the AEG Committed Capital that at the time of
contribution or payment to the Company was not reasonably
required to fund ongoing operating cash flow. In any event the
initial capital
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contribution of $10 million pursuant to Section
5.11 is deemed to be Funded Capital Commitment.
"GAAP" shall mean generally accepted accounting
principles in the United States, as in effect from time to time.
"GGC" shall mean Golden Gate Private Equity, Inc., a
Delaware corporation.
"Hazardous Materials" shall mean each and every
element, compound, chemical mixture, contaminant, pollutant,
material, waste or other substance which is defined, determined
or identified as or has the potential to be hazardous or toxic
under Environmental Laws or the release of which is regulated
under Environmental Laws. Without limiting the generality of the
foregoing, the term includes: "hazardous substances" as defined
in CERCLA; "extremely hazardous substances" as defined in EPCRA;
"hazardous waste" as defined in the Resource Conservation and
Recovery Act, 42 U.S.C. 6901, et seq.; "hazardous materials" as
defined in HMTA; "chemical substance or mixture" as defined in
TSCA; crude oil, petroleum products or any fraction thereof;
radioactive materials including source, byproduct or special
nuclear materials; asbestos or asbestos-containing materials;
chlorinated fluorocarbons; and radon.
"HMTA" shall mean the Hazardous Materials
Transportation Act, 49 U.S.C. 1802 et seq.
"Liquidity Event" shall mean (i) the direct or indirect
transfer, in a transaction or series of related transactions, of
any of the assets of the Company or any of its Subsidiaries or
any of the membership or other equity interests of any of the
Company's Subsidiaries by asset sale (other than ordinary course
sales of inventory), merger, sale of membership interests, stock
or other equity interests, recapitalization, reorganization,
licenses (other than ordinary course licenses), or other transfer
from the Company or any of its Subsidiaries to any other third
party that is not a wholly owned subsidiary of the Company or
(ii) the liquidation and winding up of the Company.
"Multiemployer Plan" shall mean any "multiemployer
plan," as defined in Section 4001(a)(3) of ERISA, under which the
Company or any ERISA Affiliate has or may have any liability
(accrued, contingent or otherwise).
"Net Proceeds" shall mean, with respect to any
Liquidity Event, the proceeds received by the Company or any
Subsidiary in connection with such Liquidity Event (including
without limitation Assumed Debt), less (x) any payments to third
parties (that are not Affiliates of the Company, AEG or any
member of the Company) in respect of indebtedness of the Company
that is required by its terms to be repaid in connection with
such Liquidity Event and is so repaid, and (y) any reasonable
transaction expenses paid in connection therewith.
"Non-income Taxes" shall mean Taxes other than Income
Taxes.
"Pension Plan" shall mean any "employee pension benefit
plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) and which any of the TLC Subsidiaries
contributes to or is required to contribute to, or under which
any of the TLC Subsidiaries has or
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may have any liability
(accrued, contingent or otherwise), for the benefit of, or on
behalf of, any U.S. employee of any of the TLC Subsidiaries
employed in the United States.
"Person" shall mean a person, corporation, partnership,
limited liability company, joint venture, trust or other entity
or organization.
"Subsidiary" shall mean, with respect to any Person,
any corporation, entity or other organization, whether
incorporated or unincorporated, of which (i) such first Person
directly or indirectly owns or controls at least a majority of
the securities or other interests having by their terms ordinary
voting power to elect a majority of the board of directors or
others performing similar functions or (ii) such first Person is,
in the case of a partnership, a general partner or, in the case
of a limited liability company, a manager or managing member.
"TLC" shall mean The Learning Company Inc., a Delaware
corporation, which was merged with and into Mattel, but shall not
mean Mattel or any other successor to The Learning Company Inc.
"TLC Business" shall mean the business of developing,
publishing and marketing consumer software products (including,
without limitation, those listed on Schedule A attached hereto),
as currently conducted by Mattel through The Learning Company
business unit of the Mattel Interactive division of Mattel; it
being understood that the "TLC Business" does not include the
Mattel Media business unit of the Mattel Interactive division of
Mattel, which owns, develops, publishes or markets certain
consumer software products, including, without limitation, those
listed on Schedule B attached hereto.
"TLC Material Adverse Effect" shall mean a material
adverse change in, or effect on, the business, annual results of
operations or financial condition of the TLC Business taken as a
whole; provided, however, that none of the following shall be
deemed by itself or by themselves, either alone or in
combination, to constitute, and none of the following shall be
taken into account in determining whether there has been, could
be or will be a TLC Material Adverse Effect: (i) any failure by
the Company or the TLC Business to meet internal projections or
forecasts or published revenue or earnings predictions for any
period ending (or for which revenues or earnings are released) on
or after the date of this Agreement; (ii) any earnings (or
losses) consistent with the estimates, forecasts or projections
that on or prior to the date hereof have been disclosed to AEG or
publicly by Mattel; (iii) results of the litigation set forth in
Section 1 of the TLC Disclosure Schedule; (iv) conditions
affecting the educational, entertainment and/or productivity
software industries as a whole; (v) conditions affecting the U.S.
economy as a whole or foreign economies in any locations where
the TLC Business or any of the TLC Subsidiaries have operations
or sales (including, without limitation, prevailing interest rate
levels); (vi) conditions resulting from or relating to compliance
with the terms of, or the taking of any action required by, this
Agreement; or (vii) any effect arising out of or resulting from
actions contemplated by the parties in connection with, or which
is attributable to, the announcement of the disposition by Mattel
of the TLC Business or the announcement, execution or
consummation of this Agreement and the transactions contemplated
hereby.
"TLC Subsidiaries" shall mean Mattel's Subsidiaries
that conduct the TLC Business, which are set forth in Section 3.4
of the TLC Disclosure Schedule.
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"TSCA" shall mean the Toxic Substances Control Act, 15
U.S.C. 2601, et seq.
"Welfare Plan" shall mean any "employee welfare benefit
plan" as defined in Section 3(1) of ERISA under which the Company
or any Subsidiary of the Company has or may have any liability
(accrued, contingent or otherwise), for the benefit of, or on
behalf of, any U.S. employee of the Company or any Subsidiary
employed in the United States.
"Working Capital" shall mean current assets (excluding
cash) less current liabilities (excluding short-term debt),
computed in accordance with GAAP.
ADDITIONAL DEFINITIONS
----------------------
Term Section No.
- ---- -----------
Acceleration Event 7.2(b)
Acquiring Person 7.5(a)
Action 3.10
AEG Preamble
AEG Fees 8.1(a)
Agreement Preamble
Allocations 6.1(b)
Appraiser 7.3
Assumed Employee Liabilities 5.9
Assumed Liabilities 5.2(b)
Assumption Agreement 9.2(b)(ii)
Bonus Units 7.1(g)
Capital Contributions Cap 5.11
Claims Notice 11.3
Closing 2.1
Closing Date 2.2
Company Preamble
Company Indemnified Parties 11.1(b)
Company Plan 5.2(a)
Confidentiality Agreement 12.4
Conversions 9.3
Determination 6.1(a)
EBITDA 7.2(a)
EBITDA Notice 7.2(c)
EBITDA Payment 7.2(a)
EBITDA Period 7.2(a)
EBITDA Resolution Period 7.2(e)
Enterprise Value Payment Amount 7.3(a)
Excess EBITDA 7.2(a)
Excluded Assets 5.8
Excluded Taxes Definition of "Excluded Liability"
Fifth Year Enterprise Value 7.3(b)
Governmental Entity 3.6(b)
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Holdings Recitals
HSR Act 3.6(b)
Income Taxes 6.7(a)
Indemnified Parties 11.1(b)
Indemnitor 11.3
Interim TLC Balance Sheet 3.18(a)
Interim TLC Balance Sheet 3.18(a)
Interim TLC Financial Statements 3.18(a)
IPR 3.16(a)
Lease and Operational Documents 3.13(c)
License Agreement Recitals
Liens 3.3(b)
Liquidity Event Percentage 7.1(h)
Liquidity Resolution Period 7.1(e)
Liquidity Statement 7.1(d)
Losses 5.3(b)
Mattel Preamble
Mattel Consolidated Returns 6.2(e)
Mattel Group 6.7(b)
Mattel Indemnified Parties 11.1(a)
Mattel Interactive Trademarks and Logos 5.10(a)
Mattel Level Employees 5.2(a)
Mattel Secured Note 7.2(b)
Minimum Payment 7.4
Net Revenue 7.2(a)
Net Sale Proceeds 7.5(a)
Neutral Auditors 7.1(e)
Order 9.1(a)
Paid Distributions 8.1(b)
Parent-Level Contracts 5.7
Parent-Level Contracts 5.7
Permitted Liens 3.13(b)
Portfolio Securities 5.8
Post-Closing Period 6.8(a)
Pre-Closing Period Definition of "Excluded Liability"
Preferred Return Payments 7.1(b)(ii)
Previous Interest Payments 7.1(b)(ii)
Price 2.4
Quarter End Date 7.2(a)
Return Amount 7.1(f)
Returns 6.7(g)
Sale of the Company 7.5(a)
Seller Plan 5.2(a)
Tax Benefit 6.7(c)
Tax Item 6.7(d)
Tax Proceeding 6.7(e)
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Tax Returns 3.11
Taxes 6.7(g)
Third Party Claim 11.3
Three Year Enterprise Value 7.3
Threshold Amount 7.2(a)
TLC Contracts 3.14(a)
TLC Disclosure Schedule Article III
TLC Insurance Policies 3.9
TLC Intellectual Property Rights 3.16(a)
TLC Leased Property 3.13(a)
TLC Material Products 3.14(a)(ii)
TLC Owned Property 3.13(a)
TLC Shares and LLC Interests 2.1
Transition Services Agreement Recitals
ARTICLE II
PURCHASE AND SALE; THE CLOSING
2.1 Purchase and Sale. At the closing of the transactions
contemplated hereby (the "Closing"), Mattel shall sell, transfer,
convey, assign and deliver to the Company all of its rights in
the outstanding capital stock or limited liability company
interests of the TLC Subsidiaries (the "TLC Shares and LLC
Interests") in exchange for the Consideration.
2.2 Closing. The Closing shall take place at the offices
of Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los
Angeles, CA 90067, or at such other place as may be mutually
agreed upon by the parties (the date of such Closing, "Closing
Date").
2.3 Retention of Books and Records. The Company shall, and
shall cause the TLC Subsidiaries to, (i) hold all of the books
and records of the TLC Subsidiaries existing on the Closing Date
and not destroy or dispose of any thereof for a period of six
years from the Closing Date or such longer time as may be
required by law, and thereafter, if it desires to destroy or
dispose of such books and records, offer first in writing at
least 60 days prior to such destruction or disposition to
surrender them to Mattel and (ii) from and after the Closing,
afford Mattel, its accountants and counsel, during normal
business hours, upon reasonable request, at any time, reasonable
access to such books, records and other data and to the employees
of the Company and any of its Subsidiaries to the extent that
such access may be requested for any legitimate purpose at no
cost to Mattel (other than for reasonable out-of-pocket
expenses).
2.4 Fair-Market Value. Mattel and the Company agree that
the fair-market value of the Consideration is reasonably
ascertainable and is the amount set forth on Schedule C (the
"Price").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MATTEL
Mattel represents and warrants to the Company that the
statements contained in this Article III are, to the knowledge of
Mattel, true and correct except as set forth in the disclosure
schedule delivered by Mattel to the Company or AEG on or before
the date of this Agreement (the "TLC Disclosure Schedule"). The
TLC Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained
in this Article III and the disclosure in any paragraph shall
qualify other paragraphs in this Article III only to the extent
that it is reasonably apparent from a reading of such disclosure
that it also qualifies or applies to such other paragraphs.
3.1 Organization and Qualification. The TLC Subsidiaries
are duly organized, validly existing and in good standing under
the laws of the jurisdiction of their respective organization,
with the corporate power and authority to own and operate their
respective businesses as presently conducted, except for any
failure to be in good standing or to have such power or authority
that would not have a TLC Material Adverse Effect. The TLC
Subsidiaries are duly qualified as foreign corporations or other
entities to do business and are in good standing in each
jurisdiction where the character of their respective properties
owned or held under lease or the nature of their respective
activities makes such qualification necessary, except for such
failures to be in good standing or so qualified as would not,
individually or in the aggregate, have a TLC Material Adverse
Effect.
3.2 Authorization; Validity and Effect of Agreement.
Mattel has the requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Mattel and the
performance by Mattel of its obligations hereunder and the
consummation of the transactions contemplated hereby have been
duly authorized by its Board of Directors and all other necessary
corporate action on the part of Mattel and no other corporate
proceedings on the part of Mattel are necessary to authorize this
Agreement and the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
Mattel and, assuming that it has been duly authorized, executed
and delivered by the other parties hereto, constitutes a legal,
valid and binding obligation of Mattel, enforceable against it in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
3.3 Capitalization.
(a) The TLC Shares and LLC Interests represent all of the
outstanding capital stock or limited liability company interests
in the TLC Subsidiaries. All of the TLC Shares and LLC Interests
are validly issued, fully paid and nonassessable. Except for the
TLC Shares and LLC Interests, there are not, and at the Closing
there will not be, any capital stock or other equity interests in
the TLC Subsidiaries issued or outstanding or any subscriptions,
options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character
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obligating the TLC
Subsidiaries to issue, transfer or sell any capital stock or
other equity interests in the TLC Subsidiaries, or any
agreements, arrangements, or understandings granting any Person
any rights in the TLC Subsidiaries similar to capital stock or
other equity interests, including, without limitation, stock
appreciation and profit participation rights.
(b) All of the TLC Shares and LLC Interests are owned of
record and beneficially by Mattel free and clear of all liens,
pledges, charges, claims, security interests, purchase
agreements, options, title defects, restrictions on transfer or
other encumbrances and agreements of any nature whatsoever,
whether consensual, statutory or otherwise (collectively,
"Liens").
3.4 Subsidiaries. The TLC Subsidiaries are those set forth
in Section 3.4 of the TLC Disclosure Schedule.
3.5 Other Interests. None of the TLC Subsidiaries owns,
directly or indirectly, any interest or investment (whether
equity or debt) in any Person except for the TLC Subsidiaries,
other than Portfolio Securities (as defined herein).
3.6 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement by
Mattel nor the performance by Mattel of its obligations
hereunder, nor the consummation of the transactions contemplated
hereby, will: (i) conflict with Mattel's certificate of
incorporation or bylaws or the comparable charter or
organizational documents of any of the material TLC Subsidiaries;
(ii) assuming satisfaction of the requirements set forth in
Section 3.6(b) below, violate any statute, law, ordinance, rule
or regulation, applicable to Mattel or the TLC Subsidiaries or
any of the properties or assets of the TLC Subsidiaries; or (iii)
violate, breach, be in conflict with or constitute a default (or
an event which, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of any
provision of, or result in the termination of, the acceleration
of the maturity of, or the acceleration of the performance of any
obligation of Mattel or the TLC Subsidiaries under, or result in
the creation or imposition of any Lien upon any properties,
assets or business of the TLC Subsidiaries under, any TLC
Contract or any order, judgment or decree to which any of the TLC
Subsidiaries is a party or by which any of the TLC Subsidiaries
or any of their respective assets or properties is bound or
encumbered except, in the case of clauses (ii) and (iii), for
such violations, breaches, conflicts, defaults or other
occurrences which, individually or in the aggregate, would not
have a TLC Material Adverse Effect.
(b) Except for the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR
Act"), no consent, approval or authorization of, permit from, or
declaration, filing or registration with, any court,
administrative agency, commission or other governmental
authority, body or instrumentality, federal, state, local,
domestic or foreign governmental or regulatory authority
("Governmental Entity"), or any other Person is required to be
made or obtained by the TLC Subsidiaries in connection with the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, except
where the failure to obtain such consent, approval,
authorization, permit or declaration or
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to make such filing or
registration would not, individually or in the aggregate, have a
TLC Material Adverse Effect.
3.7 Compliance. The TLC Subsidiaries are in compliance
with all foreign, federal, state and local laws and regulations
of a Governmental Entity applicable to their respective
operations or with respect to which compliance is a condition of
engaging in the business thereof, except to the extent that
failure to comply would not, individually or in the aggregate,
have a TLC Material Adverse Effect. Neither Mattel nor the TLC
Subsidiaries have received any notice asserting a failure, or
possible failure, to comply with any such law or regulation, the
subject of which notice has not been resolved as required thereby
or otherwise to the satisfaction of the party sending the notice,
except for such failure as would not, individually or in the
aggregate, have a TLC Material Adverse Effect. The TLC
Subsidiaries hold all permits, licenses and franchises from
Governmental Entities required to conduct their respective
businesses as they are now being conducted, except for such
failures to have such permits, licenses and franchises that would
not, individually or in the aggregate, have a TLC Material
Adverse Effect.
3.8 Product Liability. There are no claims against Mattel
or the TLC Subsidiaries for injury to person or property of
employees or any third parties suffered as a result of the sale
of any product or performance of any service by Mattel or the TLC
Subsidiaries in connection with the TLC Business, including
claims arising out of the defective or unsafe nature of its
products or services, which would, individually or in the
aggregate, have a TLC Material Adverse Effect.
3.9 Insurance. Mattel has made available to the Company
accurate and complete copies of all material fire and casualty,
general liability, business interruption, product liability, and
sprinkler and water damage insurance policies with respect to the
TLC Business maintained by Mattel or the TLC Subsidiaries
(collectively, "TLC Insurance Policies"). All TLC Insurance
Policies are with reputable insurance carriers, provide full and
adequate coverage for all normal risks incident to the business
of the TLC Subsidiaries and their respective properties and
assets, and are in character and amount at least equivalent to
that carried by Persons engaged in similar businesses and
substantially equivalent to that carried by Persons engaged in
similar businesses and subject to the same or similar perils or
hazards.
3.10 Litigation. Except for the matters set forth in
Section 3.10 of the TLC Disclosure Schedule, (i) there is no
action, claim, suit, litigation, proceeding, or governmental
investigation ("Action") instituted, pending or threatened, in
each case against Mattel or the TLC Subsidiaries relating to the
TLC Business, which, individually or in the aggregate, directly
or indirectly, would reasonably be likely to have a TLC Material
Adverse Effect, (ii) nor is there any outstanding judgment,
decree or injunction, in each case against Mattel or the TLC
Subsidiaries relating to the TLC Business which, individually or
in the aggregate, has or would reasonably be likely to have a TLC
Material Adverse Effect.
3.11 Taxes. All Tax Returns (as defined below) required to
be filed on or prior to the Closing Date by, or with respect to
any activities of, the TLC Subsidiaries have been filed on a
timely basis, and all Taxes (as defined below) shown to be due on
such Tax Returns have been paid, except where the failure to file
such Tax Returns or pay such Taxes would not have a
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TLC Material
Adverse Effect. All such Tax Returns were correct and complete,
except for failures that would not have a TLC Material Adverse
Effect.
3.12 Employee Benefit Plans.
(a) Section 3.12 of the TLC Disclosure Schedule contains a
complete list of all material Pension Plans, Welfare Plans and
Benefit Arrangements (other than those Benefit Arrangements
consisting of employment contracts, individual severance
agreements or individual change in control agreements with
employees having annual base compensation of less than $200,000)
as of the date hereof. True and complete copies or descriptions
of the Pension Plans, Welfare Plans and material Benefit
Arrangements (other than those maintained outside the United
States), including, without limitation, trust instruments, if
any, that form a part thereof, and all amendments thereto have
been furnished or made available to the Company and its counsel.
(b) Except as described in Section 3.12 of the TLC
Disclosure Schedule or which, individually or in the aggregate,
would not be reasonably likely to have a TLC Material Adverse
Effect, (i) each of the Pension Plans, Welfare Plans and Benefit
Arrangements (other than any Multiemployer Plan) has been
administered and is in material compliance with the terms of such
Pension Plan, Welfare Plan and Benefit Arrangement and all
applicable laws, rules and regulations and each employee benefit
plan maintained for non-U.S. employees of the TLC Subsidiaries
employed outside of the United States has been administered and
is in material compliance with the terms of such plan and all
applicable laws, rules and regulations, (ii) no "reportable
event" (as such term is used in Section 4043 of ERISA) for which
the notice requirements to the Pension Benefit Guaranty
Corporation have not been waived, "prohibited transaction" (as
such term is used in Section 406 of ERISA or Section 4975 of the
Code) for which no exemption exists or "accumulated funding
deficiency" (as such term is used in Section 412 or 4971 of the
Code) has heretofore occurred with respect to any Pension Plan
(other than any Multiemployer Plan), (iii) there is no material
action, order, writ, injunction, judgment or decree outstanding
or claim, suit, litigation, proceeding, arbitral action,
governmental audit or investigation relating to or seeking
benefits under any Pension Plan, Welfare Plan or Benefit
Arrangement that is pending or threatened against the TLC
Subsidiaries, or any Pension Plan, Welfare Plan, or Benefit
Arrangement, other than routine claims for benefits, (iv) none of
the TLC Subsidiaries or ERISA Affiliates have incurred any
withdrawal liability with respect to any Multiemployer Plan under
Title IV of ERISA which remains unsatisfied, (v) any termination
of, or withdrawal from, any Pension Plan or Multiemployer Plan of
the TLC Subsidiaries or any ERISA Affiliate, on or prior to the
Closing Date, will not subject the TLC Subsidiaries to any
liability under Title IV of ERISA, (vi) neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the acceleration
or creation of any rights of any current or former employee of
any of the TLC Subsidiaries to benefits under any Pension Plan,
Welfare Plan or Benefit Arrangement (including, without
limitation, the acceleration of the vesting or exercisability of
any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of
any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change
in control agreement), (vii) with respect to the Pension Plans,
Welfare Plans and Benefit Arrangements, individually and in the
aggregate, there are no funded benefit material obligations for
which material contributions have not been made or properly
accrued
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and there are no unfunded material benefit obligations
which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with GAAP, on the financial
statements of the TLC Business, and (viii) no ERISA Affiliate has
incurred or is expected to incur any Controlled Group Liability
which is, or is reasonably expected to become, a liability of the
Company.
3.13 Assets.
(a) Section 3.13 of the TLC Disclosure Schedule identifies
all real property owned by the TLC Subsidiaries (the "TLC Owned
Property") and all real property leased or operated by the TLC
Subsidiaries where more than 20 employees are located (the "TLC
Leased Property").
(b) The TLC Subsidiaries have good and marketable title to
the TLC Owned Property, and a valid leasehold interest in the TLC
Leased Property, sufficient to allow each of the TLC Subsidiaries
to conduct, and to continue to conduct, their respective
businesses as and where currently conducted, except for such
matters that, individually or in the aggregate, are not
reasonably likely to have a TLC Material Adverse Effect. Such
title and leasehold interest is free and clear of any and all
Liens, except for (i) liens for Taxes not yet due and payable or
which are being contested in good faith; (ii) carriers,
management, mechanics, institutions, repairman or other like
liens arising in the ordinary course of business and not overdue;
(iii) easements, rights of way, encroachments, restrictions,
conditions and other similar encumbrances incurred in the
ordinary course of business; and (iv) other Liens that would not,
individually or in the aggregate, result in a TLC Material
Adverse Effect ("Permitted Liens").
(c) True and correct copies of all of the principal
documents under which the TLC Owned Property and the TLC Leased
Property is leased or operated (the "Lease and Operational
Documents") have been delivered or made available for review to
the Company. The Lease and Operational Documents are unmodified
and in full force and effect. None of the Company, its
Subsidiaries or any other party is in material default under the
Lease and Operational Documents, and no defaults (whether or not
subsequently cured) by any of the TLC Subsidiaries or any other
party have been alleged thereunder, except for such defaults
that, individually, or in the aggregate, are not reasonably
likely to have a TLC Material Adverse Effect.
(d) The TLC Subsidiaries taken as a whole have sufficiently
good and valid title to, or an adequate leasehold interest in,
their material tangible personal properties and assets in order
to allow them to conduct, and continue to conduct, the TLC
Business as and where currently conducted. Such material
tangible personal assets and properties are sufficiently free of
Liens to allow each of the TLC Subsidiaries to conduct, and
continue to conduct, the TLC Business as currently conducted and
the consummation of the transactions contemplated hereby will not
alter or impair such ability in any respect which, individually
or in the aggregate, would be reasonably likely to have a TLC
Material Adverse Effect. There are no defects in the physical
condition or operability of such material tangible personal
assets and properties which would impair the use of such assets
and properties as such assets and properties are currently used,
except for such defects which, individually or in the aggregate,
would not be reasonably likely to have a TLC Material Adverse
Effect.
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3.14 Material Contracts.
(a) Section 3.14(a) of the TLC Disclosure Schedule contains
a complete and accurate list of all Contracts of the following
categories to which any of the TLC Subsidiaries is a party (or,
in the case of clause (i) below, to which Mattel is a party) or
by which any of them is bound as of the date of this Agreement:
(i) material exclusive distribution agreements not terminable
by the TLC Subsidiaries without penalty upon 90 days' or less notice
and distribution agreements resulting in an annual payment to the
TLC Subsidiaries of $3 million or more;
(ii) license agreements pursuant to which the TLC Business is
authorized to use any third party patents, trademarks,
copyrights, trade secrets, likeness or other proprietary rights,
including software, that is used in the manufacture of,
incorporated in, or forms a part of the top fifty selling
products of the TLC Business during the period between July 1,
1999 and November 1, 2000, as reported by PC Data, Inc. (such
products, the "TLC Material Products").
(iii) promissory notes, loans, agreements, indentures,
evidences of indebtedness or other instruments relating to the
lending of money, whether as borrower, lender or guarantor, in
excess of $3 million;
(iv) Contracts containing covenants materially limiting the
freedom of any of the TLC Subsidiaries to engage in any line of
business or compete with any Person or operate at any location
which are not terminable by the TLC Subsidiaries without penalty
upon 90 days' or less notice;
(v) any material Contract with any federal, state or local
government other than such Contracts relating to the sales of
goods in the ordinary course of business;
(vi) other than license agreements and distribution agreements,
Contracts involving annual expenditures or liabilities in excess
of $10 million which are not terminable by the TLC Subsidiaries
without penalty upon 90 days' or less notice;
(vii) the principal documents (excluding escrow agreements,
affiliate agreements and other ancillary documents) relating to
any merger, consolidation, business combination, share exchange
or business acquisition, or for the purchase, acquisition, sale
or disposition of any material assets of any of the TLC
Subsidiaries outside the ordinary course of business which (A)(1)
involves consideration to any party in excess of $20 million and
(2) were entered into after January 1, 1998, or (B) under which
the TLC Subsidiaries remain obligated to make "earnout" payments
or other conditional payments of cash or stock based on the
operating results or other financial performance of the TLC
Business or a portion of its business; and
(viii) other than as set forth in Section 3.12 of the TLC
Disclosure Schedule, any other Contract to be performed after the
date of this Agreement which would be a material contract of the
TLC Subsidiaries as a whole (as defined in Item
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601(b)(10) of
Regulation S-K of the SEC, if the TLC Subsidiaries as a whole
were the relevant issuer).
True copies of the written Contracts identified in Section
3.14(a) of the TLC Disclosure Schedule (the "TLC Contracts"), as
in effect on the date hereof, have been delivered or made
available to the Company.
(b) As of the date of this Agreement, (i) each of the TLC
Contracts is valid and binding upon the TLC Subsidiaries in
accordance with its terms and is in full force and effect and
(ii) there is no material breach or violation of or default by
the TLC Subsidiaries or the other party under any of the TLC
Contracts and no event has occurred with respect to the TLC
Subsidiaries which, with notice or lapse of time or both, would
constitute a material breach, violation or default, or give rise
to a right of termination, modification, cancellation,
foreclosure, imposition of a Lien, prepayment or acceleration
under any of the TLC Contracts, in each of clauses (i) and (ii),
other than any such failure to be valid and binding and in full
force and effect, breach, violation, default or event, as
applicable, which, individually or in the aggregate, would not be
reasonably likely to have a TLC Material Adverse Effect.
3.15 Labor Relations. Except as would not be reasonably
likely to have a TLC Material Adverse Effect, as of the date of
this Agreement (i) there are no activities or proceedings of any
labor union to organize any non-unionized employees of the TLC
Subsidiaries; (ii) there are no unfair labor practice charges
and/or complaints pending against the TLC Subsidiaries before the
National Labor Relations Board, or any similar foreign labor
relations governmental bodies, or any current union
representation questions involving employees of the TLC
Subsidiaries; and (iii) there is no strike, slowdown, work
stoppage or lockout, or threat thereof, by or with respect to any
employees of the TLC Subsidiaries. As of the date of this
Agreement, the TLC Subsidiaries are not parties to any collective
bargaining agreements. There are no controversies pending or
threatened between the TLC Subsidiaries and any of their
respective employees, except for such controversies that would
not be reasonably likely to have a TLC Material Adverse Effect.
3.16 Intellectual Property.
(a) Except for the Mattel Interactive Trademarks and Logos,
the TLC Subsidiaries own, or are licensed or otherwise possess,
legally enforceable rights to use, make, distribute, display,
perform, produce and/or sell all patents, trademarks, trade
names, service marks and copyrights, any applications for and
registrations of such patents, trademarks, trade names, service
marks and copyrights, and all processes, formulae, methods,
schematics, technology, know-how, computer software programs or
applications, tangible or intangible proprietary information or
material, waivers or licenses of publicity or privacy rights or
any other third party licenses that are necessary to conduct the
TLC Business as currently conducted (collectively, "IPR"), the
absence of which would be reasonably likely to have either
individually or in the aggregate, a TLC Material Adverse Effect
(the "TLC Intellectual Property Rights").
(b) The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not
result in the breach of, or create on behalf of any third
-15-
party
the right to terminate or modify, any license, sublicense or
other agreement relating to the TLC Intellectual Property Rights,
in each case other than a termination, modification or breach
which, individually or in the aggregate, would not be reasonably
likely to have a TLC Material Adverse Effect.
(c) All patents, registered trademarks, service marks and
copyrights which are held by the TLC Subsidiaries the loss or
invalidity of which would cause a TLC Material Adverse Effect are
valid and subsisting. Section 3.16(c) of the TLC Disclosure
Schedule sets forth a complete and accurate list of all
registered copyrights, registered trademarks, patents and patent
applications for the TLC Material Products. Except as disclosed
in Section 3.16(c) of the TLC Disclosure Schedule or as would not
reasonably be likely to have a TLC Material Adverse Effect, (i)
neither Mattel nor the TLC Subsidiaries have been sued in any
Action or received in writing notice of any claim or notice,
which involves a claim of (x) infringement or violation of any
patents, trademarks, service marks, copyrights, trade secrets,
right of privacy or publicity or any other proprietary right of
any third party or (y) libel or defamation, in each case
described in this clause (i) in connection with the TLC Business;
and (ii) the manufacturing, marketing, licensing and/or sale of
the products of the TLC Business does not infringe or violate any
patent, trademark, service mark, copyright, trade secret, right
of privacy or publicity, or other proprietary right of any third
party. There are no known infringements of any of the patents,
trademarks, servicemarks and/or copyrights held by Mattel which
individually or in the aggregate would be reasonably expected to
have a TLC Material Adverse Effect, except as identified in
Section 3.16(c) or 3.10 of the TLC Disclosure Schedule.
(d) All Persons employed in the TLC Business, as employees,
contractors or otherwise, and who have created and/or developed
any IPR which is primarily related to the TLC Business, except
for the Excluded Assets, and the absence of which, either
individually or in the aggregate, could reasonably be expected to
have a TLC Material Adverse Effect, have executed a written
assignment and/or agreement to assign all right, title and
interest in and to such IPR to Mattel and/or the TLC
Subsidiaries, as a work made for hire, free and clear of any
encumbrance or claim of ownership or interest.
3.17 Environmental Matters. Except for such matters that,
individually or in the aggregate, are not reasonably likely to
have a TLC Material Adverse Effect, Mattel and the TLC
Subsidiaries: (i) have obtained all applicable permits, licenses
and other authorizations which are required to be obtained under
all applicable Environmental Laws by Mattel and the TLC
Subsidiaries in connection with the TLC Business; (ii) are in
compliance with all terms and conditions of such required
permits, licenses and authorizations, and also are in compliance
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables
contained in or arising from applicable Environmental Laws in
connection with the TLC Business; (iii) have not received notice
of any past or present violations of Environmental Laws in
connection with the TLC Business, or of any spill, release,
event, incident, condition or action or failure to act in
connection with the TLC Business which is reasonably likely to
prevent continued compliance with such Environmental Laws, or
which would give rise to any common law environmental liability
or liability under Environmental Laws, or which would otherwise
form the basis of any Action against Mattel or the TLC
Subsidiaries based on or resulting from the manufacture,
processing, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge or release into the
environment, of
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any Hazardous Material by any Person in
connection with the TLC Business; and (iv) have taken all actions
required under applicable Environmental Laws to register any
products or materials required to be registered by Mattel or the
TLC Subsidiaries thereunder in connection with the TLC Business.
3.18 Financial Statements.
(a) Mattel has delivered to the Company the unaudited
consolidated balance sheet with respect to the TLC Business as of
August 31, 2000 (the "Interim TLC Balance Sheet") and the related
unaudited statement of income for the eight-month period ended on
such date (collectively, with the Interim TLC Balance Sheet, the
"Interim TLC Financial Statements"). The Interim TLC Balance
Sheet presents fairly in all material respects the consolidated
financial condition of the TLC Business as of such date and the
statement of income included in the Interim Company Financial
Statements presents fairly in all material respects the
consolidated results of the operations for the eight-month period
then ended (subject in each case to normal audit adjustments and
other adjustments disclosed therein and to other adjustments to
receivables previously described to AEG).
(b) The Interim TLC Financial Statements have been prepared
in all material respects in accordance with GAAP, consistently
applied (except (i) as disclosed therein, (ii) as described in
clause (a) above with respect to receivables and (iii) the
absence of footnotes).
3.19 Brokers. Except for Credit Suisse First Boston
Corporation and U.S. Bancorp Piper Jaffray Inc., each of whose
fees will be paid by Mattel, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the TLC
Subsidiaries or Mattel.
3.20 Changes Since August 31, 2000. Except as set forth on
the TLC Disclosure Schedule or as otherwise contemplated by this
Agreement, since August 31, 2000:
(a) No TLC Subsidiary has sold, transferred, disposed of,
or agreed to sell, transfer or dispose of, any material amount of
assets other than in the ordinary course of business;
(b) No TLC Subsidiary has paid any dividends or distributed
any assets to any equity holder in respect of such equity other
than to another TLC Subsidiary;
(c) No TLC Subsidiary has acquired any material amount of
assets except in the ordinary course of business, nor acquired or
merged with any other business;
(d) No TLC Subsidiary has waived or amended any material
contractual right of such TLC Subsidiary, except in the ordinary
course of business; and
(e) No TLC Subsidiary has entered into any agreement to
take any action described in clauses (a) through (d) above.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND AEG
Each of the Company and AEG represents and warrants to
Mattel that the statements contained in this Article IV are true
and correct as to itself.
4.1 Corporate Organization. Each of the Company and AEG is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, with the corporate
or similar power and authority to own and operate its business as
presently conducted. Each of the Company and AEG has previously
made available to Mattel true and correct copies of
organizational and trust documents, including, in the case of the
Company, its limited liability company agreement. As of
immediately prior to the Closing, the Company has not engaged in
any transaction other than its formation.
4.2 Authorization; Validity and Effect of Agreement. Each
of the Company and AEG has the requisite corporate or trust power
and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement by each of the Company and AEG of its obligations
hereunder and the consummation of the transactions contemplated
hereby have been duly authorized by its Board of Directors or its
trustees, as applicable, and all other necessary corporate or
trust action on the part of each of them and no other corporate
or trust proceedings on the part of each of them are necessary to
authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by each of the Company and AEG and, assuming that it
has been duly authorized, executed and delivered by Mattel,
constitutes a legal, valid and binding obligation of each of
them, enforceable against it in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing.
4.3 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement
nor the performance by each of the Company and AEG of its
obligations hereunder, nor the consummation of the transactions
contemplated hereby, will: (i) conflict with the provisions of
the trust instrument or limited liability company agreement or
other organizational document; (ii) assuming satisfaction of the
requirements set forth in Section 4.3(b) below, violate any
statute, law, ordinance, rule or regulation, applicable to it or
any of its properties or assets; or (iii) violate, breach, be in
conflict with or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, or permit the termination of any provision of, or result
in the termination of, the acceleration of the maturity of, or
the acceleration of the performance of any of any obligation
under, or result in the creation or imposition of any Lien upon
any properties, assets or business of the Company or AEG, as
applicable, under, any note, bond, indenture, mortgage, deed of
trust, lease, franchise, permit, authorization, license,
contract, instrument or other agreement or commitment or any
order, judgment or decree to which it is a party or by
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which it
or any of its assets or properties is bound or encumbered except,
in the case of clauses (ii) and (iii), for such violations,
breaches, conflicts, defaults or other occurrences which,
individually or in the aggregate, would not have a material
adverse effect on its obligation to perform its covenants under
this Agreement.
(b) Except for the pre-merger notification requirements of
the HSR Act, no consent, approval or authorization of, permit
from, or declaration, filing or registration with, any
Governmental Entity or any other Person is required to be made or
obtained by the Company or AEG in connection with the execution,
delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, except where the failure
to obtain such consent, approval, authorization, permit or
declaration or to make such filing or registration would not,
individually or in the aggregate, have a material adverse effect
on its obligation to perform its covenants under this Agreement.
4.4 Broker's Fees. Except as set forth in Section 8.1(a),
no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with
the transactions contemplated hereby based upon arrangements made
by or on behalf of the Company or AEG.
4.5 Acquisition of TLC Shares and LLC Interests for
Investment; Ability to Evaluate and Bear Risk. Each of the
Company and AEG agrees that the TLC Shares and LLC Interests may
not be, directly or indirectly, sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act of 1933, except pursuant to
an exemption from such registration available under such Act, and
without compliance with foreign securities laws, in each case, to
the extent applicable.
4.6 Investigation; No Additional Representations and
Warranties.
(a) Each of the Company and AEG is an informed and
sophisticated participant in the transactions contemplated hereby
and has undertaken such investigation, and has been provided with
and has evaluated such documents and information, as it has
deemed necessary in connection with the execution, delivery and
performance of this Agreement.
(b) Notwithstanding anything to the contrary contained in
this Agreement, it is the explicit intent of each party hereto
that Mattel is making no representation or warranty whatsoever,
express or implied, beyond those expressly given in this
Agreement, including but not limited to any implied warranty or
representation as to condition, merchantability or suitability as
to any of the properties or assets of the business of the TLC
Subsidiaries and it is understood that the Company takes the
business of the TLC Subsidiaries AS IS AND WHERE IS. It is
understood that any cost estimates, projections or other
predictions contained or referred to in the TLC Disclosure
Schedule, in the offering materials that have been provided to
the Company or AEG or that have otherwise been disclosed to the
Company or AEG are not and shall not be deemed to be
representations or warranties of Mattel hereunder and that none
of Mattel, the TLC Subsidiaries or any of their respective
directors, officers, shareholders, employees, Affiliates,
controlling persons, agents, advisors or representatives makes or
has made any representation or warranty, either express or
implied, as to the accuracy or completeness of
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any of the
information provided or made available to the Company or AEG or
their respective directors, officers, employees, affiliates,
controlling persons, agents or representatives.
4.7 Litigation. There is no Action instituted, pending or,
to the knowledge of AEG or the Company, threatened, in each case
against AEG or the Company or any of its Subsidiaries, which,
individually or in the aggregate, directly or indirectly, would
reasonably be likely to have a material adverse effect on its
ability to perform its agreements and obligations under this
Agreement, nor is there any outstanding judgment, decree or
injunction, in each case against AEG or the Company or any of its
Subsidiaries, which has or would reasonably be likely to have,
individually or in the aggregate, a material adverse effect on
its ability to perform its agreements and obligations under this
Agreement.
4.8 Available Funds. AEG currently has sufficient funds to
comply with its obligation to make the $10 million capital
contribution contemplated hereby and will have immediately prior
to the Closing, available to it all funds necessary to meet its
obligations set forth in Section 5.11 and to satisfy any other
obligations hereunder and in connection with the transaction
contemplated hereby on the terms and conditions set forth herein.
4.9 Knowledge Regarding Representations; Satisfaction of
Conditions. As of the date of this Agreement, neither the
Company nor AEG is aware of any inaccuracy or misstatement in, or
breach of, any representation or warranty of Mattel contained
herein.
ARTICLE V
CERTAIN COVENANTS
5.1 Further Assurances.
(a) The parties hereto agree that, from time to time,
whether before, at or after the Closing Date, each of them will
execute and deliver such further instruments of conveyance and
transfer and take such other action as may be necessary to carry
out the purposes and intents of this Agreement. Except for the
Mattel Interactive Trademarks and Logos, or the Excluded Assets
as identified in Section 5.8 of the TLC Disclosure Schedule, in
the event that, after the date of this Agreement, Mattel or the
Company identifies additional IPR or other related rights owned
by Mattel or its affiliates (other than the TLC Subsidiaries)
that are primarily related to the TLC Business, Mattel agrees to
execute additional assignment agreements in forms substantially
similar to the relevant assignment agreement delivered at the
Closing of this Agreement to transfer any and all rights in such
IPR to the Company. In the event that, after the date of this
Agreement, Mattel or the Company identifies IPR or other related
rights that were transferred to the Company pursuant to this
Agreement but that are primarily related to the Excluded Assets
as identified on Section 5.8 of the TLC Disclosure Schedule or
the Mattel Interactive Trademarks and Logos or that are otherwise
not primarily related to the TLC Business, the Company agrees to
execute agreements to retransfer any and all rights in such IPR
to Mattel.
(b) On or before the Closing, Mattel shall deliver to the
Company documents sufficient to fully vest in the Company and its
Subsidiaries all of Mattel's right, title and interest
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in the
U.S. patents, and to perfect and confirm the rights of the
Company and its Subsidiaries to the U.S. trademarks and
copyrights, that are set forth on the Intellectual Property Annex
of the TLC Disclosure Schedule, except for those whose absence,
individually or in the aggregate, could not reasonably be
expected to have a TLC Material Adverse Effect. Mattel shall use
all reasonable efforts to deliver to the Company and its
Subsidiaries before the Closing, and in any case within a
reasonable period after the Closing, documents sufficient to
fully vest in the Company and its subsidiaries all of Mattel's
right, title and interest in the foreign patents, and to perfect
and confirm the rights of the Company and its Subsidiaries to the
foreign trademarks and copyrights, that are set forth on the
Intellectual Property Annex of the TLC Disclosure Schedule,
except for those whose absence, individually or in the aggregate,
could not reasonably be expected to have a TLC Material Adverse
Effect. Such documents shall include documents for filing with
the U.S. Patent and Trademark Office, the U.S. Copyright Office
and foreign registration agencies.
5.2 Employees.
(a) In the event that any individual who was employed by
Mattel prior to the Closing and who accepts an offer to become an
employee of the Company or any TLC Subsidiary on or after the
Closing (the "Mattel Level Employees") receives an "eligible
rollover distribution" (within the meaning of Section 402(c)(4)
of the Code) from any Pension Plan qualified under Section 401 of
the Code (a "Seller Plan"), the Company or its Affiliates shall
cause a defined contribution plan qualified under Section 401(a)
of the Code and maintained or sponsored by the Company or one of
its Affiliates (a "Company Plan") to accept a direct rollover of
such eligible rollover distribution (including, but not limited
to, any portion of such eligible rollover distribution comprised
of the outstanding balance of documented loans from a Seller Plan
to such Mattel Level Employee). If, as of the Closing, a Mattel
Level Employee cannot receive an "eligible rollover distribution"
(within the meaning of Section 402(c)(4) of the Code) from any
Seller Plan which contains a cash or deferred arrangement
qualified under Section 401(k) of the Code because such Mattel
Level Employee has not had a "separation from service" within the
meaning of Section 401(k) of the Code, the Company or its
Affiliates shall cause a Company Plan to accept a transfer from
such Seller Plan of the account balance of such Mattel Level
Employee under Section 414(l) of the Code.
(b) The term "Assumed Employee Liabilities" shall mean the
liabilities set forth in Section 5.2 of the TLC Disclosure
Schedule.
(c) For a period of two years following the Closing Date,
the Company shall use its reasonable efforts to include Mattel
under any release of liability obtained from terminated employees
of the TLC Business (including Mattel Level Employees).
(d) At any time up to and including the Closing Date,
Mattel may amend, or cause any TLC Subsidiary to amend, any stock
option plan sponsored or maintained by a TLC Subsidiary, or any
stock option grant or agreement issued under such a Plan, to (i)
vest all or any portion of the options issued under any such
plan, grant, or agreement as of the Closing, or (ii) permit the
exercise of any or all of such options within a specified period
of time after the Closing.
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5.3 D&O Indemnification.
(a) The Company agrees that the transactions contemplated
hereby shall not affect or diminish, and from and after the
Closing, the Company shall cause each of the TLC Subsidiaries not
to make any changes to their respective organizational documents
that would adversely affect or diminish, any of the TLC
Subsidiaries' duties and obligations of indemnification existing
as of the Closing Date in favor of employees, agents, directors
or officers of the TLC Subsidiaries or, with respect to
liabilities of or related to the TLC Business, of Mattel, arising
by virtue of the TLC Subsidiaries' organizational documents in
the form in effect at the date of this Agreement or arising by
operation of law or arising by virtue of any contract, resolution
or other agreement or document existing at the date of this
Agreement, and such duties and obligations shall continue in full
force and effect and be honored by the Company for so long as
they would (but for the transactions hereby) otherwise survive
and continue in full force and effect.
(b) In addition to the foregoing, from and after the
Closing, the Company shall indemnify, hold harmless and defend
each person who is a current or former officer or director of any
of the TLC Subsidiaries or, with respect to liabilities of or
related to the TLC Business, of Mattel, against all losses,
costs, obligations, liabilities, settlement payments, awards,
judgments, fines, penalties, damages, demands, claims, actions,
causes of action, assessments, deficiencies and other charges
("Losses") or expenses (including attorneys' fees) arising out of
or pertaining to acts or omissions (or alleged acts or omissions)
by them in their capacities as such, which acts or omissions
occurred at or prior to the Closing. To the maximum extent
permitted by applicable law, the indemnification and related
rights hereunder shall be mandatory rather than permissive, and
the Company shall promptly advance expenses in connection with
such indemnification to the fullest extent permitted under
applicable law; provided that, to the extent required by law, the
person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such
person is not entitled to indemnification. At the Closing, the
Company shall assume and become liable for all liabilities and
obligations of the TLC Subsidiaries (and each of their respective
successors and assigns) contemplated by this Section 5.3.
(c) The provisions of this Section 5.3, (i) are intended to
be for the benefit of, and shall be enforceable by, each person
entitled to indemnification hereunder, and each such person's
heirs, representatives, successors or assigns, it being expressly
agreed that such persons shall be third party beneficiaries of
this Section 5.3, and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or
contribution that any such person may have by contract or
otherwise.
(d) This Section 5.3 shall not apply to Excluded
Liabilities.
5.4 Intercompany Relationships; Accounts.
(a) At or prior to the Closing, Mattel and the Company
shall enter into the Transition Services Agreement. Except for
the Transition Services Agreement, all agreements and
arrangements between the TLC Subsidiaries on the one hand, and
Mattel and any of its Subsidiaries (other than the TLC
Subsidiaries) on the other hand (including, without limitation,
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all data processing, accounting, insurance, banking, personnel,
legal, communications), shall terminate at and as of the Closing.
(b) At or prior to the Closing, all intercompany accounts
between the TLC Subsidiaries, on the one hand, and Mattel and its
Subsidiaries (other than the TLC Subsidiaries) on the other hand,
shall be eliminated, without any net payment of funds in
connection therewith; provided, however, that the accounts listed
in Section 5.4(b) of the TLC Disclosure Schedule shall not be
eliminated as a contribution of capital.
5.5 No Restrictions on Future Operation. The parties
hereby acknowledge and agree that neither Mattel nor its
Affiliates shall be restricted or prohibited by this Agreement or
the transactions contemplated hereby from taking any action,
including owning, leasing, licensing, managing or otherwise
operating any business or assets, that may compete, directly or
indirectly, with the TLC Business.
5.6 [Intentionally Omitted.]
5.7 Certain Consents. The Company and Mattel shall use
reasonable efforts (which shall not include the payment of money
by Mattel) to obtain all consents and approvals required for the
assignment, effective as of the Closing, to the TLC Subsidiaries
of the Contracts relating to the TLC Business to which Mattel is
a party that are set forth in Section 5.7 of the TLC Disclosure
Schedule ("Parent-Level Contracts"). From and after the Closing,
for so long as such consent or approval cannot be obtained,
Mattel shall, to the extent reasonably practicable, provide the
Company or the assignee of the Company in a Liquidity Event (or,
as applicable, the TLC Subsidiaries) the economic benefit (taking
into account costs and benefits with respect to Taxes) of the
Parent-Level Contracts to the same extent as if Mattel had not
been precluded from assigning such agreements to the TLC
Subsidiaries, and the Company shall or shall cause a TLC
Subsidiary (or shall cause such assignee) to perform all
obligations and assume all liabilities and obligations under such
Parent-Level Contracts. If the Taxes and other costs imposed
upon Mattel in respect of the performance of such Parent-Level
Contracts exceed the monies received by Mattel in respect
thereof, the Company shall (or shall cause such assignee to)
promptly reimburse Mattel for such excess. Nothing in this
Agreement shall be construed as an attempt to assign any Parent-
Level Contract or any right thereto that by the terms of such
Parent-Level Contract is not assignable without the consent of
the other party to such contract or if an assignment or transfer
or attempt to make such an assignment or transfer without the
consent of a third party or a waiver of a third party's rights
would constitute a breach or violation thereof or adversely
affect the rights of Mattel, the Company, or any of the TLC
Subsidiaries thereunder or thereto. Any transfer of any Parent-
Level Contract described in the preceding sentence shall be made
subject to such consent or waiver being obtained. If and when
such consents and approvals are obtained, the transfer of the
applicable Parent-Level Contract shall be effected in accordance
with the terms of this Agreement. For U.S. federal income tax
purposes, the parties shall treat the Parent-Level Contracts as
owned, from and after the Closing, by the Company or a Subsidiary
of the Company, except to the extent otherwise required pursuant
to a Determination.
5.8 Excluded Assets. At or prior to the Closing, Mattel
will use reasonable efforts to cause the TLC Subsidiaries to
transfer to Mattel the following assets that are currently held
by the TLC Subsidiaries (the "Excluded Assets"): (i) the
securities listed in Section 5.8 of
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the TLC Disclosure Schedule
(the "Portfolio Securities"), (ii) customer lists described in
Section 5.8 of the TLC Disclosure Schedule, (iii) cash and cash
equivalents and (iv) the other assets set forth in Section 5.8 of
the TLC Disclosure Schedule. Mattel and the Company agree that
if, at the time of Closing, any such assets have not been
transferred to Mattel as contemplated hereby, upon receipt of
notice from Mattel, the Company shall promptly use reasonable
efforts to cause such assets (other than cash or cash equivalents
in excess of the amount that was held by the Company immediately
prior to the Closing) to be transferred to Mattel or an Affiliate
designated by Mattel. For U.S. federal income tax purposes, each
such transfer by a TLC Subsidiary that was the subject of a
Conversion, whether occurring before or after the Closing, shall
be treated as a distribution in connection with the complete
liquidation (to which Sections 332 and 337 of the Code apply) of
the TLC Subsidiary that held such Excluded Asset prior to the
Closing, which liquidation is deemed to occur by reason of the
Conversions.
5.9 Certain Obligations. The Company shall or shall cause
one or more of its Subsidiaries to be substituted in all respects
for Mattel, effective as of the Closing, in respect of all
obligations of Mattel under the agreements to which Mattel is a
party that are set forth in Section 5.9(a) of the TLC Disclosure
Schedule (together with the "Assumed Employee Liabilities", the
Mattel-level litigation set forth in Section 5.9(b) of the TLC
Disclosure Schedule and all liabilities under the Parent-Level
Contracts, the "Assumed Liabilities"). The Company shall from
and after the Closing Date cause the TLC Subsidiaries to perform
and fulfill all of their respective obligations and commitments
whether existing as of the Closing Date or arising or incurred
thereafter, including without limitation the obligations listed
in Section 5.9(a) of the TLC Disclosure Schedule.
5.10 Mattel Name.
(a) The parties agree that the Company is not purchasing,
acquiring or otherwise obtaining any right, title or interest in
the name, trade name, trademark, identifying logo or service mark
"Mattel Interactive" or any trade name, trademark, identifying
logo or service mark confusingly similar to the name, trade name,
trademark, identifying logo or service mark "Mattel Interactive"
(collectively, the "Mattel Interactive Trademarks and Logos");
provided, however, that the Company may, on a limited, royalty-
free basis, use the Mattel Interactive Trademarks and Logos and
any trade names, trademarks, servicemarks owned or licensed by
Mattel and its affiliates and used in the business conducted by
the TLC Subsidiaries, (i) currently existing on stationery,
shipping materials, business cards, invoices, and other general
office materials and brochures and on software-related
instruction materials, sales and marketing flyers and brochures
and software packaging, until such time as such inventory
existing on the Closing Date is sold, removed from distribution
for sale or destroyed in the ordinary course of business and (ii)
for three months from and after the Closing Date, in general
advertisements and corporate public relations materials, for the
exclusive purpose of identifying the TLC Subsidiaries as having
been formerly owned by Mattel. The Company agrees that, except
as set forth in this Section 5.10, neither it nor any of its
Affiliates shall make any use of the Mattel Interactive
Trademarks and Logos from and after the Closing Date. The
Company may, on a royalty free basis, use (for the purposes used
at the Closing Date) the Mattel Interactive Trademarks and Logos
as such may be contained (as at the Closing Date) in the software
(including, without limitation, the source code and object code)
sold, licensed or distributed by the TLC Subsidiaries. The
Company further agrees that from and after the
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Closing it will
use its commercially reasonable efforts to terminate as soon as
practicable its use of the Mattel Interactive Trademarks and
Logos as such may be contained in software sold by the TLC
Subsidiaries; provided, however, that in any event any and all
use by the Company of Mattel Interactive Trademarks and Logos as
such may be contained in the software sold by the TLC
Subsidiaries shall terminate eighteen months after the Closing.
The Company agrees that Mattel owns all right, title and interest
in the "Mattel" and "Mattel Interactive" name, trade name,
trademark and service mark and further agrees never to challenge
the validity of any of Mattel's rights therein.
(b) As promptly as possible after the Closing, the Company
shall terminate the use of the name "Mattel" in the names of any
of its Subsidiaries that contain the name "Mattel" as of such
time.
5.11 AEG Capital Commitment. At the Closing, AEG will make
the following commitment to cause to be contributed to the
capital of the Company: (i) as of the Closing, AEG shall cause
Holdings to contribute $10 million in cash to the Company in the
form of an equity contribution; (ii) on every monthly anniversary
of the Closing, AEG shall cause Holdings to make an additional
capital contribution to the Company, in form and on terms
reasonably acceptable to Mattel, in such amount as is reasonably
required to fund the operations of the Company for the following
30 days. Notwithstanding anything above, AEG shall not be
required to make or cause to be made capital contributions in
excess of $80 million (as may be adjusted below, the "Capital
Contributions Cap"). In addition, AEG may arrange for the
Company to obtain third-party financing in lieu of its
obligations in this Section 5.11(ii), on terms reasonably
satisfactory to Mattel; provided, that the principal amount of
such financing (or the committed availability thereof), shall be
regarded as a capital contribution by Holdings for the period
during which such funds are available to the Company, but solely
for the purpose of determining whether AEG have complied with the
covenant set forth in this Section 5.11(ii); it being understood
that such third-party financing shall not be regarded as AEG
Committed Capital for purposes of Funded Capital Commitment as
used in Section 7.1.
5.12 Best Efforts. Each of Mattel and AEG agrees to use its
best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as
practicable the transactions contemplated hereby and to cooperate
with the other in connection with the foregoing, including using
its best efforts, including, within four days after the date
hereof, making complete and true filings under the HSR Act
(provided, however, that in the event of a request for additional
information and documentary materials under the HSR Act, Mattel
and AEG shall use their best efforts to comply with such request
as promptly as possible). The parties hereto further covenant
and agree, with respect to any threatened or pending preliminary
or permanent injunction or other order, decree or ruling or
statute, rule, regulation or executive order that would adversely
affect the ability of the parties hereto to consummate the
transactions contemplated hereby, to use their respective best
efforts to prevent the entry, enactment or promulgation thereof,
as the case may be.
5.13 Public Announcements; Confidentiality. Except as
otherwise required by law or if required in order to comply with
any listing agreement with, or the rules or regulations of, any
securities exchange on which securities of Mattel, AEG, the
Company or any of their
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respective Affiliates are listed or
traded, each of Mattel, AEG and the Company will consult with the
other and obtain the consent of the other (which consent shall
not be unreasonably withheld) before issuing any press releases
or any public statements with respect to this Agreement and the
transactions contemplated hereby. Any information provided to
AEG or its representatives pursuant to this Agreement shall be
held by such person in accordance with, and shall be subject to
the terms of, the Confidentiality Agreement. Each of AEG and the
Company shall comply with the Confidentiality Agreement as if it
were a party thereto.
5.14 Organization Documents. Prior to the Closing, Mattel
shall make available to the Company the certificates of
incorporation, bylaws and similar organizational documents of the
TLC Subsidiaries.
5.15 Access to Information. From the date hereof through
the Closing Date, the Company and its representatives shall have
reasonable access, upon reasonable prior written notice, during
normal business hours to all properties, books and records,
contracts, permits and other documents of or relating to the TLC
Subsidiaries or the TLC Business in order to make such
investigation as they shall reasonably request, provided that no
such access need be granted to privileged information or any
agreements or documents subject to confidentiality agreements.
5.16 Conduct of the Business. Except as contemplated by
this Agreement, from the date hereof through the Closing Date,
Mattel shall cause each TLC Subsidiary to use commercially
reasonable efforts to conduct its business in the ordinary course
in all material respects, and shall use commercially reasonable
endeavors to preserve intact its business relationships, keep
available the service of its employees and maintain satisfactory
relationships with its suppliers and customers. Without limiting
the generality of the foregoing, neither Mattel nor any TLC
Subsidiary shall, without the prior written consent of the
Company, which shall not be unreasonably withheld, take or
undertake or incur any of the acts, transactions, events or
occurrences specified in clauses (a) through (d) of Section 3.20,
except as set forth in Sections 3.4 or 3.20 of the TLC Disclosure
Schedule.
5.17 Cooperation Concerning Insurance. The parties
acknowledge that certain insurance coverage relating to the TLC
Business is currently provided pursuant to policies of insurance
that are maintained by Mattel. Mattel agrees to cooperate
reasonably with the Company (at the Company's expense) to
coordinate the transition, following the Closing, of the coverage
provided by such policies to new insurance policies obtained and
maintained by the Company (or by one or more of its affiliates),
such cooperation and coordination to include, without limitation,
cooperating and assisting the Company in purchasing (at the
Company's expense) "tail" insurance policies, considering in good
faith the provision of continued coverage for claims that were
incurred prior to the Closing that are covered by "occurrence
based" insurance policies or other insurance policies that may
continue to be available following the Closing (but only to the
extent that all costs and expenses related thereto are borne by
the Company), transitioning the management of self-insured
claims, and transferring to the Company any insurance policies
relating exclusively to the TLC Subsidiaries (such as pre-paid,
single premium insurance policies covering any TLC Subsidiary or
its employees) that may be held by Mattel.
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ARTICLE VI
TAX MATTERS
6.1 Tax Treatment.
(a) The parties agree to treat (i) the Conversions as
complete liquidations for purposes of the Code qualifying under
Code Sections 332 and 337, (ii) the sale of the TLC Shares and
LLC Interests in exchange for the Consideration pursuant to
Article II hereof as a closed transaction for purposes of the
Code, (iii) the Price as Mattel's amount realized in such sale,
(iv) the Consideration as a purchase money debt obligation, (v)
the Allocations (as defined below) as the allocation of the Price
among the assets sold for purposes of the Code and (vi) each TLC
Subsidiary that is the subject of a Conversion as a "disregarded"
entity within the meaning of Treasury Regulation Section 301.7701-
3 from and after the time of the Conversion. The parties shall
file all Tax Returns, make or refrain from making all elections
necessary for and (except as otherwise required pursuant to a
"determination" within the meaning of Code Section 1313(a) (a
"Determination")) take no position inconsistent with the
treatments set forth above in this paragraph.
(b) The parties shall agree, reasonably promptly after
Closing, on an allocation of the Price among the assets deemed to
have been sold hereunder (the "Allocations"). The Allocations
shall be reasonable and shall be determined in accordance with
Section 1060 of the Code and the applicable Treasury Regulations
thereunder. The parties shall cooperate in the preparation of
any forms or reports, including IRS Form 8594, required to be
filed pursuant to Code Section 1060.
6.2 Cooperation and Exchange of Information.
(a) Mattel shall prepare and submit to the Company, no
later than three months after the Closing Date, Year 2000 blank
Tax Return workpaper packages. The Company shall, and shall
cause each of its Subsidiaries to, prepare completely and
accurately and submit to Mattel, within three months of receipt,
all information as Mattel shall reasonably request in such Tax
Return workpaper packages.
(b) As soon as practicable, but in any event within 30 days
after Mattel's request, from and after the Closing Date, the
Company shall provide Mattel with such commercially reasonable
cooperation and shall deliver to Mattel such commercially
reasonable information and data concerning the TLC Subsidiaries
and make available on a commercially reasonable basis such
knowledgeable employees of the TLC Subsidiaries as Mattel may
reasonably request, including providing the information and data
required by Mattel's customary Tax and accounting questionnaires,
in order to enable Mattel to complete and file all Tax Returns
which it may be required to file with respect to the TLC
Subsidiaries or to respond to audits by any taxing authorities
with respect to the TLC Subsidiaries, and to otherwise enable
Mattel to satisfy its accounting, Tax and other legitimate
requirements. The Company shall make its and the TLC
Subsidiaries' employees and facilities available on a mutually
convenient and reasonable basis to provide explanation of any
documents or information provided hereunder.
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(c) For a period of 10 years after the Closing Date (or
such longer period as is required by Revenue Procedure 98-25),
the Company shall, and shall cause the TLC Subsidiaries to,
retain all Tax Returns, books and records (including computer
files in a manner that satisfies Revenue Procedure 98-25) of, or
with respect to the activities of, the TLC Subsidiaries for all
taxable periods ending on or prior to the Closing Date.
Thereafter, the Company shall not, and shall cause the TLC
Subsidiaries not to, dispose of any such Tax Returns, books or
records unless it first offers such Tax Returns, books and
records to Mattel and Mattel fails to accept such offer within 60
days of its being made.
(d) Mattel and the Company shall, and shall cause their
respective Subsidiaries to, cooperate in the preparation of all
Tax Returns relating in whole or in part to taxable periods
ending on or before the Closing Date that are required to be
filed after such date and all Tax Returns for taxable periods
beginning before the Closing Date and ending after the Closing
Date; provided, that Mattel shall have the sole authority to make
all determinations with respect to such Tax Returns to the extent
such determinations may affect the amount of Taxes for which
Mattel is liable.
(e) Notwithstanding any other provision: (i) Mattel shall
have the right to control (and neither the Company, AEG nor any
of their respective Subsidiaries or Affiliates shall be entitled
to participate in) any Tax Proceeding with respect to any United
States consolidated federal Income Tax Return which includes
Mattel, any United States consolidated federal Income Tax Return
for a Pre-Closing Period which includes TLC or any of the TLC
Subsidiaries, any other consolidated, combined or unitary Tax
Return which includes any member of the Mattel Group, or any
other consolidated, combined or unitary Tax Return for a Pre-
Closing Period which includes TLC or any of the TLC Subsidiaries
(all such Returns, the "Mattel Consolidated Returns"), nor shall
the Company, AEG or any of their respective Subsidiaries or
Affiliates be entitled to any information regarding any Mattel
Consolidated Return (or any Return of Mattel), except to the
extent relating solely to the Company or its Subsidiaries, (ii)
any Tax Benefit arising on or with respect to any Mattel
Consolidated Return, whether relating to the TLC Business or
otherwise, and any net operating loss arising on or with respect
to any Mattel Consolidated Return for a Pre-Closing Period
relating in whole or in part to the TLC Business or the TLC
Subsidiaries and any Tax loss or deduction arising on or with
respect to any Mattel Consolidated Return resulting from the sale
contemplated by Section 2.1 shall be for the benefit of Mattel
and shall not reduce or set off any obligation of the Company,
AEG, or any of the TLC Subsidiaries hereunder and (iii) Mattel
shall be entitled to prepare and file in such manner as it
determines in its sole discretion any Mattel Consolidated Return.
(f) If the Company, AEG or any of their respective
Subsidiaries, as the case may be, fails to provide any
information requested by Mattel in the time specified herein, or
if no time is specified pursuant to this Article VI, within a
reasonable period, or otherwise fails to do any act required of
it under this Article VI, then the Company shall be obligated,
notwithstanding any other provision of this Agreement, to
indemnify Mattel and the Company shall so indemnify Mattel and
hold Mattel harmless from and against any and all costs, claims
or damages, including, without limitation, all Taxes or
deficiencies thereof, payable as a result of such failure.
6.3 Tax Sharing Agreements. Anything in any other
agreement to the contrary notwithstanding, all liabilities and
obligations between Mattel on the one hand and the TLC
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Subsidiaries on the other hand, under any Tax allocation or Tax
sharing agreement in effect prior to the Closing Date (other than
this Agreement) shall cease and terminate as of the Closing Date.
6.4 Timing Differences. The Company agrees that if as the
result of any audit adjustment (or adjustment in any other Tax
Proceeding) made with respect to any Tax Item, by any taxing
authority with respect to the Pre-Closing Period, the Company,
AEG or any of their respective members or Affiliates, including
the TLC Subsidiaries, receives a Tax Benefit, then the Company
shall pay to Mattel the amount of such Tax Benefit within 15 days
of the filing of the Tax Return in which such Tax Benefit is
utilized. For purposes of determining the amount and timing of
any Tax Benefit, the recipient of the Tax Benefit shall be deemed
to pay Tax at the highest marginal rate in effect in the year
such Tax Benefit is utilized.
6.5 Post-Closing Dispositions. For the absence of doubt,
the covenants of the Company, AEG and the TLC Subsidiaries set
forth in this Article VI shall apply to the Company, AEG and the
TLC Subsidiaries regardless of any post-Closing disposition of
the TLC Subsidiaries by the Company or any of its Subsidiaries.
6.6 Allocation Method. The Company agrees to use the
"remedial allocation method" for purposes of Treasury Regulation
Section 1.704-3 to the extent available.
6.7 Definitions. For purposes of this Agreement, the
following terms shall have the meanings ascribed to them below:
(a) "Income Taxes" shall mean U.S. federal, state or local
net income or capital gain Taxes (but not any gross income Taxes
and not any withholding Taxes), together with any interest or
penalties imposed with respect thereto.
(b) "Mattel Group" shall mean Mattel or any Subsidiary of
Mattel, other than the TLC Subsidiaries.
(c) "Tax Benefit" shall mean the Tax effect of any item of
loss, deduction or credit or any other item which decreases Taxes
paid or payable or increases tax basis, including any interest
with respect thereto or interest that would have been payable but
for such item.
(d) "Tax Item" shall mean any item of income, gain, loss,
deduction, credit, recapture of credit or any other item which
increases or decreases Taxes paid or payable, including an
adjustment under Section 481 of the Code resulting from a change
in accounting method.
(e) "Tax Proceeding" shall mean any Tax audit, contest,
litigation, defense or other proceeding with or against any
Governmental Entity.
(f) "Taxes" shall mean all federal, state, local or foreign
income, gross receipts, windfall profits, value added, severance,
property, production, sales, use, license, excise, franchise,
employment, withholding or other taxes of any kind whatsoever
together with any interest, additions or penalties with respect
thereto and any interest in respect of such additions or
penalties.
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(g) "Tax Returns" or "Returns" shall mean all reports and
returns required to be filed with respect to Taxes.
6.8 Refunds; Allocation of Taxes; Payment of Certain Taxes.
(a) Mattel shall be entitled to any refunds of Taxes of the
TLC Subsidiaries or arising from the operation of the TLC
Business for the Pre-Closing Period. The Company shall be
entitled to any refunds of Taxes of the TLC Subsidiaries or
arising from the operation of the TLC Business for any period (or
portion thereof) beginning after the Closing Date and for the
post-Closing portion of a taxable period that includes but does
not end on the Closing Date (all such periods and portions, the
"Post-Closing Period").
(b) In the case of Taxes based upon or related to income or
receipts, which Taxes are for a taxable period of a TLC
Subsidiary that includes but does not end on the Closing Date,
such Taxes shall be allocated between the Pre-Closing Period and
the Post-Closing Period on the basis of an interim closing of the
books of such TLC Subsidiary as of the end of the Closing Date.
In the case of other Taxes of a TLC Subsidiary for a taxable
period that includes but does not end on the Closing Date, the
portion of such Taxes allocated to the Pre-Closing Period shall
be based on the number of calendar days in such taxable period
ending on and including the Closing Date and the portion
allocated to the Post-Closing Period shall be based on the number
of calendar days in such taxable period beginning with and
including the day after the Closing Date.
(c) The Company shall timely pay, or shall cause to be
timely paid, any Pre-Closing Period Taxes of the TLC Subsidiaries
or arising from the operation of the TLC Business, which Taxes
are shown on a Tax Return (other than a Mattel Consolidated
Return) to be due (other than as a result of a Tax Proceeding)
and are for the Pre-Closing Period but are due after the Closing
Date.
ARTICLE VII
PAYMENT PROVISIONS
7.1 Liquidity Events.
(a) In the event of a Liquidity Event, the Company shall,
when received, pay to Mattel such portions of the total Excess
Net Proceeds of such Liquidity Event as are described below;
provided, that the Company shall not pay, distribute or otherwise
transfer any Net Proceeds from a Liquidity Event to any Person
until any dispute pursuant to this Section 7.1 has been resolved
in accordance with the procedures set forth in this Section 7.1:
(i) If a binding agreement with respect to a Liquidity Event is
executed at any time before the first anniversary of the Closing,
the Company shall pay 50% of the Excess Net Proceeds to Mattel;
provided that if the total Net Proceeds from all such Liquidity
Events before the first anniversary of the Closing is in excess
of $100 million, the Company shall pay 75% of all Excess Net
Proceeds in excess of $100 million to Mattel;
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(ii) If a binding agreement with respect to a Liquidity Event is
executed at any time from the first anniversary of the Closing
until the second anniversary of the Closing, the Company shall
pay 50% of the Excess Net Proceeds to Mattel;
(iii) If a binding agreement with respect to a Liquidity
Event is executed at any time from the second anniversary of the
Closing until the third anniversary of the Closing, the Company
shall pay 40% of the Excess Net Proceeds to Mattel; and
(iv) If a binding agreement with respect to a Liquidity Event is
executed at any time from the third anniversary of the Closing
until the fifth anniversary of the Closing, the Company shall pay
20% of the Excess Net Proceeds to Mattel.
(b) In the event of a Liquidity Event, the Company shall be
permitted to distribute and apply the total Net Proceeds of such
Liquidity Event as follows; provided, however, that the Company
shall not pay, distribute or otherwise transfer such proceeds
until any dispute pursuant to this Section 7.1 has been resolved
in accordance with the procedures set forth in this Section 7.1
(and provided, further, that no payments with respect to the
equity portion of Funded Capital Commitment shall be made
pursuant to this Section 7.1.(b) unless and until all the debt
portion of the Funded Capital Commitment has been fully repaid in
accordance with this Section 7.1(b)):
(i) first, to the return of the principal of the Funded Capital
Commitment; provided that Assumed Debt shall be regarded as a
return hereunder;
(ii) second, to Holdings, as return on the Funded Capital
Commitment, until such payments, when added to any AEG Fees, Paid
Distributions, Previous Interest Payments (as defined below) and
previous payments pursuant to this subclause (ii) are equal, in
the aggregate, to an 8% compounded annual return on the Funded
Capital Commitment for the period it is outstanding (such fees,
distributions, previous payments and Liquidity Event payments,
together with the advance payments referred to below, the
"Preferred Return Payments"); provided, that if, after making the
Preferred Payments due in connection with a Liquidity Event, the
aggregate Preferred Return Payments made as of such date are less
than $15 million, the Company shall be permitted to distribute
additional Net Proceeds, to the extent available from the
Liquidity Event, to Holdings until such additional amounts (which
shall be deemed advance Preferred Return Payments with respect to
future Liquidity Events), when taken with the Preferred Return
Payments paid prior to such date, are equal to $15 million. For
purposes of this Agreement, "Previous Interest Payments" shall
mean any payments previously made in satisfaction of interest
obligations on Funded Capital Commitment that consists of debt or
other instruments with a guaranteed rate of return; and
(iii) Third, to payment of Mattel Secured Notes.
(c) Any payments permitted to be made pursuant to Section
7.1(b) shall rank senior in priority to the payments required to
be paid to Mattel pursuant to Section 7.1(a). In the event of a
Liquidity Event, the Company shall be permitted to distribute to
Holdings (or other equity holders of the Company) the excess of
the Excess Net Proceeds of such Liquidity Event
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over the portion
of such Excess Net Proceeds as is required to be paid to Mattel
pursuant to Section 7.1(a); provided that the Company shall not
distribute such proceeds until any dispute pursuant to this
Section 7.1 has been resolved in accordance with the procedures
set forth in this Section 7.1.
(d) As promptly as practicable, but in any event, within
five business days following the closing of an agreement with
respect to a Liquidity Event, the Company shall deliver to Mattel
a statement ("Liquidity Statement") of the Company showing the
calculations of such payments, accompanied by a certification
thereof by the Company's chief financial officer to the accuracy
of such calculations. During the preparation of such calculation
and the period of any dispute within the contemplation of this
Section 7.1, the Company shall (1) provide Mattel and Mattel's
authorized representatives, upon reasonable notice, full access
during normal business hours to the books, records, facilities
and employees of the Company and its Subsidiaries and their
independent accountants and their respective workpapers, and any
definitive documentation containing the terms of the Liquidity
Event; and (2) cooperate with Mattel and Mattel's authorized
representatives, including the provision on a timely basis of all
information reasonably requested by Mattel or Mattel's authorized
representatives and necessary or useful in reviewing the
preparation of the Liquidity Statement. After receipt of the
Liquidity Statement, Mattel shall have 30 days to review it and
unless Mattel delivers written notice to the Company on or prior
to the 30th day after Mattel's receipt of the Liquidity Statement
a notice specifying in reasonable detail all disputed items and
the basis therefor, Mattel shall be deemed to have accepted and
agreed to the Liquidity Statement (such 30-day period to be
extended for any period of time during which Mattel shall not
have had full access to such books, records, employees,
workpapers and documentation as described in the preceding
sentence).
(e) If Mattel so notifies the Company of its objection to
the Liquidity Notice, Mattel and the Company shall, within 30
days following such notice (the "Liquidity Resolution Period"),
attempt to resolve their differences and any resolution by them
as to any disputed amounts shall be final, binding and
conclusive. If at the conclusion of the Liquidity Resolution
Period amounts shall remain in dispute, then all disputes shall
be submitted to a firm of nationally recognized independent
public accountants (the "Neutral Auditors") selected by Mattel
and the Company within 10 days after the expiration of the
Liquidity Resolution Period. If Mattel and the Company are
unable to agree on the Neutral Auditors, then Mattel and the
Company shall each have the right to request the American
Arbitration Association to appoint the Neutral Auditors who shall
not have had a material business relationship with Mattel, the
Company or any of their respective Affiliates within the past two
years. The parties hereto agree to execute, if requested by the
Neutral Auditors, a reasonable engagement letter. All fees and
expenses relating to the work, if any, to be performed by the
Neutral Auditors shall be borne by the Company. The Neutral
Auditors shall act as an arbitrator to determine only those
issues still in dispute. The Neutral Auditors' determination
shall be made within 30 days of their selection, shall be set
forth in a written statement delivered to Mattel and the Company
and shall be final, binding and conclusive.
(f) Notwithstanding anything to the contrary in this
Agreement, if, following the distribution of Net Proceeds with
respect to a Liquidity Event, the Company is required to make
payments to the party that had paid the Net Proceeds to the
Company in connection with such Liquidity Event as a result of a
purchase price adjustment or indemnification obligations
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assumed
by the Company (or similar adjustment to the proceeds received by
the Company) in connection with such Liquidity Event (the amount
of such payments, the "Return Amount"), then each of Mattel and
Holdings shall promptly pay or, in the case of Holdings, with
respect to other equity holders of the Company, cause to be paid,
to the Company such amounts as is necessary to put the parties in
the same economic position as if the Return Amount had never been
received (including by other equityholders of the Company).
(g) Notwithstanding anything to the contrary set forth in
this Agreement, but subject to the following sentence, the
Company may issue bonus units ("Bonus Units") of the TLC
Business, which bonus units shall entitle the holders thereof to
participate in Liquidity Events in the manner set forth below,
but shall have no other economic rights. Mattel and AEG agree
that the portions of the Excess Net Proceeds that each of Mattel
and Holdings is entitled to receive (or, in the case of Holdings,
is permitted, together with other equity holders, to receive)
pursuant to Section 7.1(a) and 7.1(c) (each, a "Liquidity Event
Percentage"), respectively, shall be proportionally (i.e., in the
same percentage that they share in Excess Net Proceeds) reduced
by the portion of the Excess Net Proceeds to which the holders of
Bonus Units are entitled by their terms; provided, however, that
in no event shall Mattel's Liquidity Event Percentage be reduced
by more than 8% of Mattel's Liquidity Event Percentage with
respect to the Liquidity Event giving rise to such reduction.
7.2 EBITDA Target Payments.
(a) No later than 90 days following the end of each of the
fiscal years 2001 through 2003 of the Company (the "EBITDA
Period"), the Company shall pay to Mattel or an affiliate
designated by Mattel, in the manner set forth below, an amount
equal to 50% of the excess, if any, of the Company's EBITDA for
such fiscal year over the greater of (i) the Threshold Amount or
(ii) 10% of the Company's Net Revenues for such Fiscal Year (such
amount, "Excess EBITDA") (the "EBITDA Payment"). The "Threshold
Amount" shall initially be $30,000,000 and shall, in the event of
a business disposition of Company assets that constitutes a
Liquidity Event (whether by stock transfer, asset sale, merger,
or other transfer), be reduced by an amount obtained by
multiplying the then-current Threshold Amount by a fraction, the
numerator of which is the amount of revenue earned by the
business so disposed of in the four fiscal quarters ending on the
last day of the quarter preceding the date on which the binding
agreement with respect to such disposition transaction was
entered into (the "Quarter End Date") and the denominator of
which is the amount of revenue earned by the Company in the four
fiscal quarters ending on the Quarter End Date (adjusted to
account for any previous business dispositions during such four
fiscal quarters that required an adjustment of the Threshold
Amount). The intention of this adjustment is to fairly reduce
the Threshold Amount and if revenue is not a fair proxy for
EBITDA, the parties will negotiate in good faith an amendment to
this provision. For purposes of this Agreement, the term
"EBITDA" shall mean consolidated earnings before interest income,
interest expense, income Taxes, depreciation and amortization of
the Company and excluding proceeds of any Liquidity Event and its
Subsidiaries for such fiscal year computed in accordance with
GAAP; provided that to the extent consistent with GAAP, all
accounting principles (including all practices and valuation and
estimation methodologies) historically used by the TLC Business,
shall be used in connection with the determination of EBITDA.
For purposes of this Agreement, the term "Net Revenue" shall mean
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gross sales less returns and price adjustments, in accordance
with accounting principles historically used by the TLC Business.
(b) The EBITDA Payment may be made to Mattel or its
designee (i) by wire transfer of immediately available funds or
(ii) by delivery of a secured promissory note with (A) an initial
aggregate principal amount equal to the EBITDA Payment, or, for
purposes of Section 7.3, the Enterprise Value Payment Amount, (B)
an interest rate equal to the lowest Applicable Federal Rate on
the date of the distribution, or, for purposes of Section 7.3, on
the date of payment referred to therein, compounded annually, (C)
mandatory annual principal payments equal to 25% of the Excess
Cash Flow (provided, however, that the aggregate of all mandatory
annual principal payments under all Mattel Secured Notes shall
not exceed 50% of Excess Cash Flow), (D) provisions requiring
immediate payment of the outstanding aggregate principal amount,
and any accrued and unpaid interest or fees, upon the occurrence
of an Acceleration Event, (E) security collateral, to the extent
available after the prior rights and security interests of the
holders of any secured Company indebtedness, reasonably
satisfactory to Mattel, and (F) such other terms as are customary
for secured promissory notes and otherwise in form reasonably
satisfactory to Mattel (a "Mattel Secured Note"). For purposes
of this Agreement, an "Acceleration Event" shall mean any of the
following: (i) payment of the principal in excess of $5 million
of any funded indebtedness is accelerated; (ii) the Company
shall commence any proceeding relating to bankruptcy, insolvency
or reorganization or shall have been declared bankrupt or
insolvent; or (iii) the Company shall close an initial public
offering. In addition, to the extent that the Net Proceeds of a
Liquidity Event exceed the amounts permitted to be paid pursuant
to Sections 7.1(b)(i) and 7.1(b)(ii), the Company shall prepay
the principal and pay any accrued but unpaid interest on the
Mattel Secured Note in the event of such Liquidity Event, as
permitted by Section 7.1(b)(iii).
(c) Within 90 days following the close of each fiscal year
during the EBITDA Period, the Company shall deliver to Mattel an
income statement of the Company for such fiscal year, accompanied
by (A) a certification thereof by the Company's Chief Financial
Officer to the effect that such income statement (i) has been
prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with the application of
such principles in the audit of the financial statements, and
(ii) fairly presents the results of the Company's operations for
such fiscal year, and (B) a notice specifying the Company's
EBITDA and Net Revenue for such fiscal year (the "EBIDTA
Notice"), showing in reasonable detail the computation thereof to
be accompanied by a certification by the Company's Chief
Financial Officer that such computation was performed in a manner
consistent with the preparation of the financial statements and
based on the Company's books and records.
(d) During the preparation of the EBITDA Notice and the
period of any dispute within the contemplation of this Section
7.2, the Company shall (1) provide Mattel and Mattel's authorized
representatives, upon reasonable notice, full access during
normal business hours to the books, records, facilities and
employees of the Company and its Subsidiaries and their
independent accountants and their respective workpapers to review
of preparation of the EBITDA Notice; and (2) cooperate with
Mattel and Mattel's authorized representatives, including the
provision on a timely basis of all information reasonably
requested by Mattel or Mattel's authorized representatives and
necessary or useful in reviewing the preparation of the EBITDA
Notice.
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(e) After receipt of the EBITDA Notice, Mattel shall have
30 days to review the EBITDA Notice, together with the workpapers
used in the preparation thereof. Unless Mattel delivers written
notice to the Company on or prior to the 30th day after Mattel's
receipt of the EBITDA Notice specifying in reasonable detail all
disputed items and the basis therefor, Mattel shall be deemed to
have accepted and agreed to the EBITDA Notice (such 30-day period
to be extended for any period of time during which Mattel shall
not have had full access to such books, records, employees and
workpapers as described in the preceding sentence). If Mattel so
notifies the Company of its objection to the EBITDA Notice,
Mattel and the Company shall, within 30 days following such
notice (the "EBITDA Resolution Period"), attempt to resolve their
differences and any resolution by them as to any disputed amounts
shall be final, binding and conclusive. If at the conclusion of
the EBITDA Resolution Period amounts shall remain in dispute,
then all amounts remaining in dispute and any dispute as to
exclusions of or additions to revenues and any allocations of
expenses contemplated by the definition of "EBITDA" or "Net
Revenue", shall be submitted to a firm of Neutral Auditors
selected by Mattel and the Company within 10 days after the
expiration of the EBITDA Resolution Period. If Mattel and the
Company are unable to agree on the Neutral Auditors, then Mattel
and the Company shall each have the right to request the American
Arbitration Association to appoint the Neutral Auditors who shall
not have had a material business relationship with Mattel, the
Company or any of their respective Affiliates within the past two
years. The parties hereto agree to execute, if requested by the
Neutral Auditors, a reasonable engagement letter. All fees and
expenses relating to the work, if any, to be performed by the
Neutral Auditors shall be borne by the Company. The Neutral
Auditors shall act as an arbitrator to determine only those
issues still in dispute. The Neutral Auditors' determination
shall be made within 30 days of their selection, shall be set
forth in a written statement delivered to Mattel and the Company
and shall be final, binding and conclusive.
7.3 Long-Term Value Payouts.
(a) If, on the third anniversary of the Closing, Mattel
reasonably believes that the Company has a stand-alone enterprise
value in excess of the Base Enterprise Value, Mattel shall have
the right to seek an appraisal of the enterprise value of the
Company (the "Three Year Enterprise Value") by a nationally
recognized investment banking firm or appraiser (the "Appraiser")
selected by mutual agreement of Mattel and the Company or, if
Mattel and the Company cannot so agree within five business days
of Mattel proposing an Appraiser, selected by agreement of one
such investment banking firm or Appraiser retained by Mattel and
one such investment banking firm retained by the Company, which
firms shall be instructed to reach agreement within five business
days of receipt by Mattel or the Company, as the case may be,
that the other party has retained such a firm or appraiser for
such purposes. Failure of any party to take all actions required
hereby and to select an Appraiser in good faith shall result in
the other party being able to select the Appraiser. If the Three
Year Enterprise Value is in excess of the Base Enterprise Value,
the Company shall promptly make a payment to Mattel equal to 5%
of the amount by which Three Year Enterprise Value exceeds the
Base Enterprise Value (the "Enterprise Value Payment Amount").
The "Base Enterprise Value" shall initially be $300,000,000 and
shall, in the event of a business disposition of Company assets
(whether by stock transfer, asset sale, merger, or other
transfer), be reduced by the amount of the Net Proceeds to be
received by the Company in such business disposition. The
payment under this Section 7.3 may be made to Mattel (i) by wire
transfer of immediately available funds or (ii) by
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delivery of a
Mattel Secured Note for an initial aggregate principal amount
equal to the Enterprise Value Payment Amount.
(b) In order to reduce the administrative costs and burdens
of continuing the payments set forth in Section 7.1 beyond the
fifth anniversary of the Closing, the parties hereto agree to the
following in order to preserve the benefits of such payments to
Mattel: On the fifth anniversary of the Closing, Mattel shall
have the right to seek an appraisal of the total enterprise value
of the Company (the "Fifth Year Enterprise Value") by an
Appraiser, in accordance with the procedures set forth in Section
7.3(c) below. No later than 30 days after the delivery of the
appraisal report by the Appraiser, the Company shall pay to
Mattel, by wire transfer of immediately available funds, an
amount equal to 20% of the Fifth Year Enterprise Value.
(c) In determining the enterprise values of the Company
above, the Appraiser shall use accepted valuation practices
customarily used by independent reputable appraisers, including
without imitation, comparable company trading analysis and
discounted cash flow analysis.
(d) In connection with the appraisals set forth in this
Section 7.3, the Company shall (1) provide the Appraiser, upon
reasonable notice, full access during normal business hours to
the books, records, facilities and employees of the Company and
its Subsidiaries and their independent accountants and their
respective workpapers; and (2) cooperate with the Appraiser,
including the provision on a timely basis of all information
reasonably requested by the Appraiser and necessary or useful in
reviewing the preparation of the appraisals.
7.4 Minimum Payment. On the tenth anniversary of the
Closing, the Company shall pay to Mattel the Minimum Payment,
which shall be an unconditional obligation of the Company. For
purposes of this Agreement, "Minimum Payment" shall mean $10
million, reduced, but not below zero, by any payments made to
Mattel by the Company pursuant to Sections 7.1, 7.2 or 7.3.
7.5 Sale of Company.
(a) In the event that all of the outstanding equity
interests of the Company are acquired, directly or indirectly, by
any Person that is not an Affiliate of the Company, AEG or any
member of the Company (an "Acquiring Person") (whether by merger,
consolidation, sale of stock, limited liability company interests
or other equity interests) or by other direct or indirect
transfer or event), such transaction or series of transactions
shall be referred to as a "Sale of the Company." In the event of
a Sale of the Company, the aggregate amount paid by the Acquiring
Person in connection with its acquisition of interests in the
Company, as a result of such Sale of the Company shall be
referred to as the "Net Sale Proceeds."
(b) Prior to consummation of any Sale of the Company, AEG
shall ensure that the Acquiring Person pays to Mattel a portion
of the Net Sale Proceeds equal to the amount to which Mattel
would have been entitled under Section 7.1 hereof in the event
that such Acquiring Person had purchased from the Company assets
of the Company for an amount of Net Proceeds equal to the amount
of Net Sale Proceeds. The applicable amount payable to Mattel
shall be
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determined using the procedure set forth in Section
7.1(d) and (e), except that the Liquidity Statement (or if
necessary a preliminary Liquidity Statement) shall be delivered
to Mattel at least 60 days prior to the expected consummation of
such Sale of the Company.
(c) Following consummation of a Sale of the Company and
payment to Mattel referred to above, the obligations of the
Company pursuant to Sections 7.1, 7.2, and 7.3 and this Section
7.5 (other than then-existing obligations) shall terminate. For
purposes of Section 7.4, any payment pursuant to Section 7.5(b)
shall be considered to be a payment pursuant to Section 7.1 or
7.3.
(d) This Section 7.5 shall not eliminate, diminish or
otherwise affect Mattel's right under Section 8.2(a) hereof.
ARTICLE VIII
FUTURE ACTIONS
8.1 Certain Transactions. From and after the Closing,
until the fifth anniversary of the Closing, the parties hereto
agree that, except with the written consent of Mattel:
(a) Other than as set forth in Sections 7.1 and 8.1(b)
below, the Company shall not make any payments or distributions
to AEG, GGC, Holdings, other equity holders of the Company, or
any of their respective Affiliates, other than (i) a payment of
$1 million to AEG or Holdings in connection with the Closing and
(ii) the payment of a management fee of not more than $150,000
per month to Holdings or an Affiliate to the extent Holdings or
such Affiliate renders actual, bona fide management services to
the Company and (iii) the payment of $3 million to GGC in
connection with the Closing (collectively with the payments made
under subclauses (i), (ii) and (iii), the "AEG Fees").
(b) Other than as permitted by Section 7.1(b) , 7.1(c) or
8.1(a), the Company shall not make any distributions to its
members or other equity holders of the Company in excess of
$100,000 per year (any distributions made pursuant to this
Section 8.1(b), "Paid Distributions").
(c) The Company and its Subsidiaries shall not assume any
liabilities that are not primarily related to the TLC Business.
(d) The Company shall obtain financing only on terms
reasonably satisfactory to Mattel.
(e) Except as expressly provided in this Agreement and
except for transactions in the ordinary course of business for
purchases and sales of goods or services on terms no less
favorable to the Company than those obtainable with non-
affiliated parties, the Company shall not become a party to any
transaction or agreement with AEG or any of its Affiliates or be
liquidated or wound up.
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(f) The Company shall not engage in any Liquidity Event for
consideration to the Company other than cash; it being understood
that for purposes of this Section 8.1(f), cash consideration
received in a Liquidity Event in the form of (i) an earnout, (ii)
assumption by another Person of debt of the Company or any of its
Subsidiaries for borrowed money, (iii) escrow, or (iv) note, in
each case that is ultimately payable only in cash shall be deemed
to be consideration received in cash. For purposes of
determining when such consideration is received pursuant to
Section 7.1, the foregoing consideration shall be deemed received
by the Company upon actual payment of cash to the Company.
(g) Following the date of this Agreement, the parties shall
negotiate in good faith with the goal of agreeing on parameters
pursuant to which the Company would be permitted to engage in a
Liquidity Event for consideration to the Company other than cash
without the prior written consent of Mattel.
(h) The Company shall not issue any additional membership
interests or other equity interests in the Company if doing so
would (i) result in more than 10% of the Company's equity or
voting interests being owned by a competitor of Mattel set forth
in Section 8.1(h) of the TLC Disclosure Schedule, (ii) result in
Holdings ceasing to be the managing member or manager of (or AEG
otherwise ceasing to control) the Company or (iii) adversely
impact any of Mattel's rights hereunder (including without
limitation its right to receive payments pursuant to Section
7.1); provided, however, that (A) such additional membership
interests or other equity interests in the Company shall be
permitted to share in the distribution of Excess Net Proceeds
only that would otherwise be distributable to Holdings pursuant
to Section 7.1(c) hereof and shall not be entitled to receive any
distributions, payments or other value from the Company or any
Subsidiary prior to the satisfaction by the Company of its
obligation to Mattel pursuant to the Agreement and (b)
notwithstanding clause (iii) of this Section 8.1(g), the Company
may issue the Bonus Units pursuant to and in accordance with
Section 7.1(g) hereof.
(i) The Company shall not change the form of its
organization (as a limited liability company), whether by
conversion, merger or otherwise.
8.2 Fair Dealing. From and after the Closing, until the
fifth anniversary of the Closing (or, in the case of Section
8.2(b), until the later of the fifth anniversary of the Closing
or such time as the Company performs its obligations to Mattel),
the parties hereto agree that, except with the written consent of
Mattel:
(a) AEG shall not transfer (directly or indirectly) any
portion of the membership interest in the Company held by it
(whether directly or indirectly), other than to a wholly-owned
Subsidiary of AEG, but only if such Subsidiary agrees with Mattel
to be bound by each commitment and obligation of AEG contained in
this Agreement.
(b) Neither the Company nor AEG shall take any action or
engage in any transaction or series of related transactions, or
enter into an agreement to do the same, or permit Holdings to do
the same (i) with the intention of depriving Mattel of any of the
benefits of or impairing any rights of Mattel under Article VII
of this Agreement, including, without limitation, changing the
Company's accounting policies or practices, artificially timing
Liquidity Events and engaging in Liquidity Events at less than
fair market value to the Company or (ii) that is
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inconsistent
with or would interfere with the performance of the obligations
or commitments of the Company hereunder; provided, however, that
this Section 8.2 is not intended to limit the Company's right to
manage and control the TLC Business in good faith or to require
the Company to achieve any specific financial or business
results.
8.3 AEG Control. AEG hereby agrees to cause the Company to
perform and fulfill all of its obligations and commitments set
forth in this Agreement and shall not take any actions, including
directly or indirectly authorizing or permitting the amendment of
the Company's governing documents, or permit the Company or
Holdings to take any actions, that are inconsistent with such
obligation. AEG shall cause the Company to make payments to
Mattel as provided in Article VII of this Agreement and, to the
extent that the Company fails to make any such payment that it is
required to make and that it is lawfully capable of making, AEG
shall (at Mattel's election) either take such action as shall be
necessary to cause the Company to make such payment or shall make
such payment to Mattel on the Company's behalf; provided,
however, that in no event shall the aggregate amount of such
payments that AEG shall be obligated to make to Mattel on the
Company's behalf exceed the aggregate amount of distributions and
other payments received by Holdings (and other equity holders)
from the Company in excess of the amounts permitted to be
distributed to Holdings pursuant to Section 7.1(b)(i) and (ii).
ARTICLE IX
CONDITIONS TO OBLIGATIONS TO CLOSE
9.1 Conditions to Obligation of Each Party to Close. The
respective obligations of each party to effect the transactions
contemplated hereby shall be subject to the satisfaction or
waiver at or prior to the Closing Date of the following
conditions:
(a) no statute, rule, regulation, executive order, decree
or permanent injunction ("Order") shall have become effective
restraining, enjoining or otherwise prohibiting or making illegal
the consummation of the transactions contemplated hereby; and
(b) the applicable waiting period under the HSR Act shall
have expired or been terminated.
9.2 Closing Deliveries. Subject to the terms and
conditions herein, at the Closing:
(a) Mattel will deliver to the Company:
(i) assignments and other instruments of transfer and documents
as shall be appropriate to effectively transfer the TLC
Subsidiaries;
(ii) the Transition Services Agreement and License Agreement,
duly executed by Mattel.
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(b) The Company will deliver to Mattel:
(i) the Transition Services Agreement and License Agreement,
duly executed by the Company; and
(ii) an assignment and assumption agreement, duly executed by the
Company in the form attached as Exhibit A hereto (the "Assumption
Agreement"), to assume the Assumed Liabilities (as defined
herein); provided, however, that obligations referred to in
Section 5.9 that will be assumed by a Subsidiary instead of the
Company may be assumed by such Subsidiary signing such an
Assumption Agreement, so long as all Assumed Liabilities are
assumed by the Company or one or more of its Subsidiaries.
9.3 Conditions to Obligations of Mattel. The obligations
of Mattel to effect the transactions contemplated hereby shall be
subject to the satisfaction or waiver (by Mattel) at or prior to
the Closing of the following condition: (a) prior to the
Closing, Mattel shall have converted or merged its Domestic
Subsidiaries (other than Broderbund Software Inc and its
Subsidiaries and Electromap, Inc.) into limited liability
companies (the "Conversions") and (b) at or prior to the Closing,
Holdings has made the $10 million contribution referred to in
Section 5.11.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated at any
time prior to the Closing by:
(a) The mutual written consent of the parties hereto;
(b) Subject to Section 10.3, any of the Parties hereto if
the Closing has not occurred by the earlier of (x) the close of
business on November 5, 2000 or (y) the third business day after
satisfaction of the conditions set forth in Section 9.1(b)
(assuming that the condition set forth in Section 9.1(a) is
satisfied on such third business day) and Section 9.3; provided,
that in either case such right to terminate shall not be
available to any party whose breach of this Agreement has been a
reason for such failure to close;
(c) Any of the Parties hereto in the event that any Order
becomes effective (and final and nonappealable) permanently
restraining, enjoining or otherwise prohibiting or making illegal
the consummation of the transactions contemplated hereby;
10.2 Procedure and Effect of Termination. In the event of
termination of this Agreement by any party hereto pursuant to
Section 10.1, written notice thereof shall forthwith be given by
the terminating party to the other party hereto, and this
Agreement shall thereupon terminate and become void and have no
effect, and the transactions contemplated hereby shall be
abandoned without further action by the parties hereto, except
that the provisions of Section 12.5 shall survive the termination
of this Agreement; provided, however, that such termination shall
not relieve any party hereto of any liability for any breach of
this Agreement.
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10.3 Certain Termination. Mattel cannot terminate this
Agreement pursuant to Section 10.1(b) as a result of the failure
of the condition set forth in Section 9.3 to be satisfied unless
Mattel has reasonably concluded that it will be unable to convert
(or merge) one or more of the Domestic Subsidiaries into limited
liability companies and will be unable to achieve a material
portion of the expected benefits of this transaction or of such
Conversions; provided, that if Mattel terminates this Agreement
in the manner set forth above in this Section 10.3, it shall,
promptly after such termination, pay to AEG a fee of $1.5 million
to reimburse it for lost opportunity.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification.
(a) From and after the Closing, the Company shall indemnify
Mattel and its officers, directors, employees, assigns,
successors and Affiliates (collectively, the "Mattel Indemnified
Parties") and hold them harmless against and in respect of any
and all Losses, and the costs and expenses, including reasonable
attorneys' fees, of enforcing the Company's obligations
hereunder, to the extent resulting from (i) any Assumed
Liabilities or (ii) the ownership or conduct of the TLC Business,
whether such Loss arises before, on or after the Closing Date,
other than any Excluded Liability and (iii) any Taxes of the TLC
Subsidiaries or arising from the operation of the TLC Business,
other than Excluded Taxes.
(b) From and after the Closing, Mattel shall indemnify the
Company and its officers, directors, employees, assigns,
successors and Affiliates (collectively, the "Company Indemnified
Parties" and together with the Mattel Indemnified Parties, as
applicable, the "Indemnified Parties") and hold them harmless
against and in respect of any and all Losses, and the costs and
expenses, including reasonable attorneys' fees, of enforcing
Mattel's obligations hereunder, to the extent resulting from any
Excluded Liability.
11.2 Limitations. No claim for indemnity under this Article
IX shall be asserted by, and no liability for such indemnity
shall be enforced against, either party to the extent the
Indemnified Party has theretofore received indemnification or
otherwise been compensated. All indemnification rights under
this Agreement are without duplication.
11.3 Notice to the Indemnitor. Promptly after the assertion
of any claim by a third party ("Third Party Claim") or occurrence
of any event which may give rise to a claim for indemnification
from the party indemnifying an Indemnified Party (an
"Indemnitor") under this Article IX, the Indemnified Party shall
notify the Indemnitor in writing of such claim (the "Claims
Notice"). The Claims Notice shall describe the asserted
liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss
that has been or may be suffered by the Indemnified Party.
Failure by the Indemnified Party to give a Claims Notice to the
Indemnitor in accordance with the provisions of this Section 11.3
shall not relieve the Indemnitor of its obligations hereunder
except to the extent that the Indemnitor has been actually
prejudiced by such failure.
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11.4 Third Party Indemnification.
(a) The Indemnitor may at its option undertake the defense
of a Third Party Claim by representatives of its own choosing
reasonably acceptable to the Indemnified Party. If the
Indemnitor assumes such defense, the Indemnified Party shall have
the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from
the counsel employed by the Indemnitor. If, however, the
Indemnified Party reasonably determines in the judgment of its
counsel that representation by the Indemnitor's counsel of both
the Indemnitor and the Indemnified Party would present such
counsel with a material conflict of interest, then such
Indemnified Party may employ separate counsel to represent or
defend it in any such claim, action, suit or proceeding and the
Indemnitor shall pay the reasonable fees and disbursements of
such separate counsel. If the Indemnitor, within 30 days after
notice of any such Third Party Claim, fails to assume the defense
of such Third Party Claim, the Indemnified Party against whom
such claim has been made will (upon further notice to the
Indemnitor) have the right to undertake the defense, compromise
or settlement of such claim on behalf of and for the account and
risk, and at the expense, of the Indemnitor, subject to the right
of the Indemnitor to assume the defense of such Third Party Claim
at any time prior to settlement, compromise or final
determination thereof.
(b) Anything in this Section 11.4 to the contrary
notwithstanding, the Indemnitor shall not enter into any
settlement or compromise of any action, suit or proceeding or
consent to the entry of any judgment (i) which does not include a
written release of the Indemnified Party from all liability in
respect of such action, suit or proceeding or (ii) for other than
monetary damages to be borne by the Indemnitor, without the prior
written consent of the Indemnified Party. The Indemnified Party
will have no liability to any third party with respect to any
settlement or compromise of Third Party Claims effected without
its consent.
(c) The Indemnitor and the Indemnified Party shall
cooperate fully in all aspects of any investigation, defense, pre-
trial activities, trial, compromise, settlement or discharge of
any claim in respect of which indemnity is sought pursuant to
this Article IX, including, but not limited to, by providing the
other party with reasonable access to employees and officers
(including as witnesses) and other information.
ARTICLE XII
MISCELLANEOUS
12.1 No Survival. None of the covenants, agreements,
representations and warranties of the parties contained in this
Agreement shall survive the execution and delivery of this
Agreement; provided that any covenants and agreements that by
their terms are to be performed after the Closing Date shall
survive until fully discharged.
12.2 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the
same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other party.
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12.3 Governing Law; Jurisdiction and Forum; Waiver of Jury
Trial.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without
reference to the choice of law principles thereof.
(b) Each party hereto irrevocably submits to the
jurisdiction of any Delaware state or federal court in any Action
arising out of or relating to this Agreement, and hereby
irrevocably agrees that all claims in respect of such action may
be heard and determined in such Delaware state or federal court.
Each party hereto hereby irrevocably waives, to the fullest
extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding. The
parties further agree, to the extent permitted by law, that final
and unappealable judgment against any of them in any action or
proceeding contemplated above shall be conclusive and may be
enforced in any other jurisdiction within or outside the United
States by suit on the judgment, a certified copy of which shall
be conclusive evidence of the fact and amount of such judgment.
(c) Each party hereto waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by
jury in respect of any action, suit or proceeding arising out of
or relating to this Agreement. Each party hereto certifies that
it has been induced to enter into this Agreement or instrument
by, among other things, the mutual waivers and certifications set
forth above in this Section 12.3.
12.4 Entire Agreement. This Agreement (including the
schedules and exhibits hereto) and the Confidentiality Agreement,
dated May 18, 2000, by and between Mattel and Gores Technology
Group (the "Confidentiality Agreement") contain the entire
agreement between the parties with respect to the subject matter
hereof and there are no agreements, understandings,
representations or warranties between the parties other than
those set forth or referred to herein.
12.5 Expenses. Except as set forth in this Agreement or in
that certain letter agreement, dated September 21, 2000, among
Mattel, Gores Technology Group and GGC, whether the transactions
contemplated hereby are consummated or not, all legal and other
costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses unless expressly otherwise
contemplated herein.
12.6 Notices. All notices and other communications to be
given to any party hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered by hand, courier
or overnight delivery service or three days after being mailed by
certified or registered mail, return receipt requested, with
appropriate postage prepaid, or when received in the form of a
telegram or facsimile and shall be directed to the address set
forth below (or at such other address or facsimile number as such
party shall designate by like notice):
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(a) If to Mattel:
Mattel, Inc.
333 Continental Boulevard
El Segundo, CA 90245-5012
Attention: Kevin M. Farr, Chief Financial Officer
Fax No:
With a copy to:
Mattel, Inc.
333 Continental Boulevard
El Segundo, CA 90245-5012
Attention: Robert Normile, General Counsel
Fax No:
And a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: David M. Silk
Fax No: (212) 403-2000
(b) If to the Company:
GTG/Wizard, LLC
c/o Gores Technology Group
10877 Wilshire Boulevard, Suite 1805
Los Angeles, CA 90024
Attention: General Counsel
Fax No.: (310) 209-3310
With a copy to:
Gores Technology Group
6260 Lookout Road
Boulder, CO 80301
Attention: Chief Financial Officer
Fax No.: (303) 531-3200
And a copy to:
Riordan & McKinzie
600 Anton Boulevard
Costa Mesa, CA 92626
Attention: James W. Loss, Esq.
Fax No.: (714) 549-3244
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(c) If to AEG:
Alec E. Gores, trustee of the
Revocable Living Trust Agreement of Alec E. Gores
c/o Gores Technology Group
10877 Wilshire Boulevard, Suite 1805
Los Angeles, CA 90024
Attention: General Counsel
Fax No.: (310) 209-3310
With a copy to:
Gores Technology Group
6260 Lookout Road
Boulder, CO 80301
Attention: Chief Financial Officer
Fax No.: (303) 531-3200
And a copy to:
Riordan & McKinzie
600 Anton Boulevard
Costa Mesa, CA 92626
Attention: James W. Loss, Esq.
Fax No.: (714) 549-3244
12.7 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. No party hereto will
assign its rights or delegate any or all of its obligations under
this Agreement without the express prior written consent of the
other party hereto.
12.8 Third Party Beneficiaries. Except for Section 5.3 and
Article XI, which are intended to benefit, and to be enforceable
by, the parties specified therein, this Agreement is not intended
to confer upon any Person not a party hereto (and their
successors and assigns) any rights or remedies hereunder.
12.9 Headings; Definitions. The section and article
headings contained in this Agreement are inserted for convenience
of reference only and will not affect the meaning or
interpretation of this Agreement. All references to Sections or
Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated. All capitalized terms defined
herein are equally applicable to both the singular and plural
forms of such terms.
12.10 Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in
writing signed by the party against whom enforcement of any such
modification or amendment is sought. Either party hereto may,
only by an instrument in writing, waive compliance by the other
party hereto with any term or provision of this Agreement on the
part of such other party hereto to be performed or complied with.
The
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waiver by any party hereto of a breach of any term or
provision of this Agreement shall not be construed as a waiver of
any subsequent breach.
12.11 Interpretation. For the purposes of this
Agreement, "to the knowledge of Mattel" shall mean the actual
knowledge of the executive officers identified on Section 12.11
of the TLC Disclosure Schedule. It is understood and agreed that
the specification of any dollar amount in the representations and
warranties contained in this Agreement or the inclusion of any
specific item in the TLC Disclosure Schedule is not intended to
imply that such amounts or higher or lower amounts, or the items
so included or other items, are or are not material, and neither
party shall use the fact of the setting of such amounts or the
fact of the inclusion of any such item in the TLC Disclosure
Schedule in any dispute or controversy between the parties as to
whether any obligation, item or matter not described herein or
included in the TLC Disclosure Schedule is or is not material for
purposes of this Agreement. The parties do not intend to create,
nor shall anything in this Agreement be construed to create, a
partnership or joint venture between or among any of the parties.
12.12 No Right of Setoff. Notwithstanding anything
contained herein to the contrary, the Company's obligation to
make payments in accordance with this Agreement shall be absolute
and unconditional and shall not be affected by any circumstance,
including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company may have
against Mattel or any other Person for any reason whatsoever.
12.13 Specific Performance. The parties hereto agree
that irreparable damage would occur, no adequate remedy at law
would exist and damages would be difficult to determine, in the
event that any party fails to consummate the transactions
contemplated hereby in accordance with the terms of this
Agreement and that the parties shall be entitled to specific
performance in such event, without the necessity of proving the
inadequacy of money damages as a remedy in addition to any other
remedy or law or in equity.
12.14 Severability. If any provision of this Agreement
or the application thereof to any Person or circumstances is held
to be invalid, illegal or unenforceable to any extent, this
Agreement shall be reformed to render the Agreement valid and
enforceable while reflecting to the greatest extent permissible
the intent of the parties.
12.15 Miscellaneous. Notwithstanding anything to the
Contrary set forth in this Agreement, prior to the Closing,
Holdings may sell a portion of its membership interests, or may
cause the Company to issue membership interests (which shall not
be a Liquidity Event), in each case to GGC, so long as: (a)
Holdings continues as managing member or manager of the Company
and (b) prior to or simultaneous with such transfer or issuance,
GGC agrees in writing to be bound by this Agreement to the full
extent as if it were a signatory hereto and every reference
herein to AEG shall be deemed a reference to AEG and GGC.
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IN WITNESS WHEREOF, this Agreement has been signed by
or on behalf of each of the parties as of the day first above
written.
MATTEL, INC.
By: /s/ Robert A. Eckert
---------------------------
Name: Robert A. Eckert
Title: Chairman and CEO
GTG/WIZARD, LLC
By: /s/ Alec E. Gores
---------------------------
Name: Alec E. Gores
Title: Authorized Signatory
ALEC E. GORES, TRUSTEE OF THE
REVOCABLE LIVING TRUST AGREEMENT OF
ALEC E. GORES
By: /s/ Alec E. Gores
---------------------------
Name: Alec E. Gores
Title: Trustee